Aspen Technology, Inc.

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 1 again. I would now like to hand the conference over to your speaker today, Brian Denu from ICR.

Thank you Josh. Good afternoon everyone and thank you for joining us to discuss our financial results for the first quarter of fiscal 2025 ending September 30th 2024. With me on the call today are Antonio Petri, Aspen Tech's president and CEO, and Dave Baker, Aspen Tech CFO. Please note we have posted earnings presentation on our IR website. This includes the explanation regarding the impact of ASC topic 606 on our financial results. It also includes definitions of annual contract value or ACV, bookings, and free cash flow among other metrics. We ask that investors refer to this presentation in conjunction with today's call. Starting on slide 2, I would like to take this opportunity to remind you that our remarks today will include forward-looking statements. Actual results by different material from those we have just presented are not the same as those that are contemplated by these forward-looking statements. Factors that cause these results to differ materially are set forth on today's press release and in our annual report on form 10k and other subsequent findings 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 will 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 relationship website. Let me turn the call over to Antonio. Antonio?

Thank you, Brian. Hello and good evening, everyone. Thank you for joining us today to discuss our first quarter results for fiscal 2025. I'd like to start out by addressing our anticipated acquisition of open grid systems announced after market today. 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. Around the world, utilities need a single centralized source of truth for electrical network models to provide accurate and complete real-time visibility of grid 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 stocking acquisition demonstrates Aspen Tech's commitment to our power and utility customers as well as our dedication to addressing critical industry challenges. Having worked closely with the open grid systems team over the years, we're excited to welcome them to Aspen Tech and look forward to continuing our partnership to capture the growth opportunity we see in this important industry. Finally, we expect to close this acquisition before the end of 2024, subject to customary closing conditions and approvals. Now, I would like to turn to slide three for our quarterly results. Annual contract value, or ACV, was $941 million in Q1, increasing .9% quarter over quarter and .4% year over year. This was in line with our expectations and what we communicated last quarter due to the timing of renewal and a disproportionate amount of our expected annual attrition occurring in Q1. 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. Free cash flow was negative $6 million in Q1, modestly below our expectations due to the timing of collections. Vape will address the specific drivers around free cash flow in his remarks. Following are the four key takeaways for the first quarter. First, we achieved these results through a strong execution, collaboration, and a continued focus on enhancing our customers' operational excellence. While Q1 is historically our lightest quarter 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. Second, we're encouraged by the continuous strength we see across most of our end markets, particularly considering the ongoing macro uncertainty. This strength in demand is a testament to the mission and criticality of our products and solutions across the asset life cycle. Third, we continue to help our customers push the boundaries of what is possible by introducing new innovative offerings. In Q1, we integrated more industrial AI and sustainability capabilities into our portfolio and launched our new microgrid solution to tap further into the opportunities we're seeing across our end markets. 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. Now, turning to slide four for a discussion of our suite's performances in the first quarter. 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. We expect the rising demand for electricity, most recently accelerated by data centers and the use of artificial intelligence, combined with an increase in grid complexity from the rapid uptake of levels of investment in this market for the foreseeable future. These tailwinds are driving continued growth in our pipeline in North America and internationally, with the latter also driven by our international sales expansion. In Q1, for example, we continued our momentum with a leading U.S. utility to implement our newest distributed energy resource management, or DERMS, functionality into their system to support their community's clean energy goals, as well as the utility's ambitious net zero agenda. This deal marked a deepening of our partnership with the customer, and we remain excited about the possibility of further expansion of the relationship as this customer evaluates our advanced distribution management, or ADMS, capabilities, among other areas, to further enhance their grid management and operational capabilities going forward. We also expanded our business with a leading utility in Europe to support the company's new offshore wind transmission network in the North Sea. By utilizing our SCADA and energy management system, or EMS, product, this customer will be able to better manage and operate the complexity of this large-scale and intermittent renewable energy source, including the conversion of excess electricity into hydrogen as a storage mechanism and the reconversion of the hydrogen back into electricity once electricity demand increases. As the complexity of the European grid continues to grow, we remain well positioned in the region and excited about the growing traction we're experiencing there and the expansion opportunity. Turning to Subsurface Science and Engineering Suite, or SSE, where upstream demand remains solid, we're seeing growing interest in our SSE capabilities and the flexibility of our token model. An increasing number of customers are reassessing their digital tools and evaluating options available to optimize their spend and digital capabilities with new technologies that improve their subsurface performance and increase the ROI on their investment in this part of their business. In Q1, for example, we displaced a competitor to win a deal with a large South American national oil company that has already successfully deployed heritage adjustment tech offerings in other parts of their business. As one of the region's key energy producers, this customer valued our ability to support them in driving better outcomes across drilling, geology analysis, and other areas. Now, turning to Slide 5, for Heritage Adjustment Tech Suite, in Engineering, we continue to see strong demand from both owner operators and EPCs with both traditional energy and sustainability-related projects supporting our growth. We're seeing this momentum with larger enterprise-level accounts as well as with our high velocity sales or HBS team, which is focused on new logos and startups. Our HBS team, in particular, had a solid 2-1 with wins across a range of different sustainability use cases and new logos. Importantly, as these projects come online, we will have multiple expansion opportunities across our other suites. We also remain focused on driving growth through solution sales as we outlined at our recent Investor Day. 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 had previously only been utilizing single-point products in our engineering suite. 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 the decision to adopt our solution to support their growing carbon capture, utilization, and storage or CCUS business. 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. Our manufacturing and supply chain suite, or MSC, has also continued to perform well, following a strong second half in fiscal 2024. 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 help generate value across a variety of economic conditions. The chemicals industry continues to work through supply and demand imbalances with a focus on driving efficiency to meet margin objectives and improving the sustainability of their operations. Additionally, while oil 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. I would like to note a couple of salient points from customer meetings that I attended as I traveled in the quarter. First, our customers remain focused on optimization and financial performance. As an example, in two recent customer implementations, we have identified more than $28 million and $10 million of savings from the deployment of our multi-unit dynamic optimization GDOT product. The first example was with one of the largest petrochemical facilities in the Middle East, which contracted us for a large-scale deployment of GDOT to help further optimize their existing operations. Well, the second example was of a smaller scope for a refiner in the United States. Both engagements were the outcomes of a strong collaboration and demonstrate our ability to drive significant value for our customers across the range of assets and regions. Second, one of our owner-operator customers with whom we announced a partnership in the last 18 months is now experiencing clear and impressive outcomes. 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. After a quick turnaround of these enhancements, this customer has leveraged 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 contribute to organization strategies through technology innovation. Third, we're experiencing increasing interest from upstream owner-operators to drive operational efficiencies and reduce CO2 emissions by leveraging the capabilities and products in our MSC suite. The migration of traditional downstream digitalization capabilities into upstream has been growing steadily in the last two to three years and with the declaration of net zero carbon objective to decarbonize this sector with a noticeable increase in interest over the last six months. Finally, the Asset Performance Management Suite or APM performed well in the quarter benefiting from the combination of our focused -to-market strategy and our partnership with Emerson. We won two noteworthy APM deals in the upstream sector in Q1, expanding on our existing business with customers in our heritage Aspen Tech business. These wins were supported by the strengths of our Aspen Emtl product for asset predictive maintenance as well as Emerson's strong relationships with the customers and understanding of their equipment reliability pain points. Now turning to slide six for our product and R&D initiatives. In Q1, we released our Aspen One version 14.5 software update, which includes several important enhancements across our portfolio in industrial AI and sustainability. 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. This supports a more efficient and automated planning and design process while also helping customers understand the trade-offs between different placement options. We also continue to strengthen the capabilities in our VGM 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. 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. The solution will improve overall grid performance through better visualization and analysis. 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. The addition of this technology to our utility offerings will allow us to support new regulatory requirements in Europe for this capability, as well as the increasing interest from North American customers, which is focused on ensuring proper management and governance of grid data and modeling, giving the increasing complexity of the grid and renewable energy sources coming online. Finally, I'm excited to highlight customers' positive reaction 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 acid-related electrical networks or microgrids has been expanded. 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. This launch is a strong proof of the convergence we're seeing for our innovation between industries and the resulting cross-sell opportunities. On slide seven, I would like to take a moment to reiterate some of the key messages we communicated to investors at our investor day in September. First, Aspen Tech is focused on a $14 to $15 billion total addressable market within the industrial software category. The stamp represents an important cross-section of asset-intensive industries with a strong demand for software innovation to support their operational excellence goals. 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. Second, we maintain leading market share in the energy, EPC, and chemicals markets with a strong momentum in the global utilities market. We have a time-tested and proven pathway to grow with customers in these markets by leveraging the efficiencies of our token suite licensing model and focus on customer success. Third, we believe the dynamics position as well to deliver healthy growth and margin expansion in the coming years. Over a multi-year period, we believe our focus on discipline execution and prudent organic investment can support high single-digit to double-digit ACB growth and ACB margin expansion to our target of 45 to 47 percent. In conclusion, 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. Looking ahead, we will remain confident in our fiscal year 2025 guidance, which includes expectations for ACB growth of approximately 9 and free cash flow generation of approximately $340 million. With that, I will now turn the call over to Dave for a discussion of the financials. Dave, over to you.

Dave Thank you, Antonio, and hello everyone. Starting on slide 8 to review our Q1 fiscal 2025 results. In Q1 of fiscal 2025, we grew ACB .4% year over year and .9% quarter over quarter. 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. Total bookings and revenue were $151 million and $216 million, respectively, in Q1, compared to $212 million and $249 million a year ago. As a reminder, our revenue is recognized under ASC topic 606 and bookings and revenue are heavily impacted by contract renewal timing. Bookings and revenue results in Q1 were consistent with our expectations for the quarter in line with the same factors that drove our Q1 ACB outcome. For profitability, on a non-GAAP basis, we reported operating income of $49 million in Q1, representing a .5% non-GAAP operating margin. Non-GAAP net income was $54 million in the quarter or 85 cents per share compared to $75 million or $1.16 per share a year ago. The year over year difference in profitability were primarily driven by lower revenue in the quarter. Turning to our balance sheet, 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. On cash flows, cash flow from operations and free cash flow were negative $4 million and negative $6 million respectively in Q1 compared to $17 million and $16 million a year ago. 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. 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. More broadly, the difference between cash flows relative to prior year was driven by payments related to our Q1 workforce reduction in Russia exit. On capital allocation, we purchased approximately 93,000 shares in Q1 for $20 million under our $100 million share repurchase authorization announced last quarter. 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 and will 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 Aspentech over time. Turning to slide nine, I would like to close with guidance. For the full year of fiscal 2025, we are reiterating our outlook across all metrics. We continue to expect ACV growth of approximately 9% and free cash flow generation of approximately $340 million in fiscal 2025. With underlying free cash flow growth of 15% as detailed in our earnings presentation appendix. Relative to our prior guide, we have increased our gap EPS estimate by one cent and our non-gap EPS estimate by five cents to reflect the impact of our share repurchase activity in the first quarter on shares outstanding. For a complete overview of fiscal year 2025 guidance, please refer to our earnings press release and presentation available on our IR website. On slide 10, we have included some commentary for investors as they think about linearity for the remainder of the year. First, for ACV, we continue to expect the gains of ACV growth to be similar to what we have seen historically. I would also note that there is potential for some variability in the current quarter due to several large deal opportunities in our pipeline. Second, for free cash flow, we now expect to generate nearly all of our free cash flow in the second half of fiscal 2025. As a reminder, we typically generate the substantial majority of our cash in the second half of our fiscal year. We expect this to skew larger this year due to the one-time payments for our Russia exit and restructuring activities, 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. Third, for revenue, we expect Q2 revenue to be between $290 million and $300 million and Q4 to be our highest revenue quarter. We also have bookings of $681 million up for renewal in fiscal 2025, with $119 million up for renewal in Q2. In conclusion, we delivered a solid start to fiscal year 2025 and are on track to meet our full year objectives. 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 end markets with attractive growth. Thank you and I will hand it back to Antonio for closing remarks. Thanks Dave. We

deliver solid results in Q1 through a strong execution and a focus on helping our customers drive operational excellence across our assets. The strength of our ACB growth in today's uncertain macro environment 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. 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. With that, we'll open it up to questions. 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. Our first question comes from Rob Oliver with Baird.

You may proceed.

Hi Rob.

Rob, your line is now open. If you're on mute, please unmute. One moment for questions. Our next question comes from Dylan Vekker with William Blair. You may proceed. Dylan?

Hey Anthony. 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 how customers are thinking about their software budget into year end and maybe how sentiment is trending given kind of the evolution of some of those macro factors we continue to see play out.

I mean, Dylan, my commentary will be based on observations and thinking about customers. I always think that uncertainty plays a big role in how CEOs think about the future and that includes budgets, especially calendar 25 that is around the corner. But I do think, so in that context, I think uncertainty looks at will probably decrease as we get to the end of the year here. Interest rates looks like they will continue to come down and that certainly creates a more favorable environment for investments. Certainly we have a big election tomorrow that hopefully we'll know the outcome soon and that will be another uncertainty item that will disappear. And a sense that better economic conditions then will reign in calendar 25. But from our standpoint, looking at our plans and that we did and put in place for this fiscal year last June and then we announced in August to investors, 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. Chemicals are still in a downturn, a good demand from the refining sector, upstream, continuous strong demand from utilities and overall business conditions that support the guidance that we've given you and that's why we're reiterating that guidance.

Okay, that's really helpful. Thanks, Antonio. Maybe to touching on the innovation around the microgrid opportunity, interested to get a sense now that that's generally available, receptivity given the growing threat environment and how 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, et cetera, the proliferation across the suite, if you will.

Yeah, and in a way, the microgrid solution is a DGM offering but the fact of the matter is that that solution will go mostly into non-utility customers. It's already used in the mining sector and transportation around subways, airports as well but with the formal launch of that solution, then our sales organization will be able to take it wholeheartedly into chemicals and refining where we see big opportunities as I meet with customers and these customers are talking about electrifying 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. So, we're excited about this because it expands the use of our DGM suite into many other industries. Okay, great. Thanks, Antonio. Yeah, thank

you.

Thank you. Our next question comes from Jason Salino with KeyBank Capital Markets. He may proceed. Jason?

Great. Thank you. Maybe first one, like kind of sticking to the DGM theme, like as we think about push first pull of where you're expanding, understand that the need to upgrade and manage grid infrastructure is enormous. So, when we think about the microgrid expansion and then the open grid acquisition, how much of this is coming from suggestions from these power and utility companies, like where they want to see you expand versus where Aspen thinks the puck is moving? Does that make sense?

Yeah, no, totally. And look, innovation is an hands on deck game. And you get ideas from everywhere. Customers are a great source of ideas. I believe we have a team in Medina where our DGM business is located in Medina, Minnesota, that also has been very good at projecting where new applications, the need for new applications, especially the DERMS application, which is a newly developed one around distributed energy resource management. Also, outage management is another application that that team started to develop ahead of its time. But in this case, the need for network model management capabilities was accelerated by regulations introduced in Europe by the European authorities around the electrical grid. And therefore, it made a lot of sense for us to expand our relationship with open grid systems. They are subcontractors to us in one or two projects that were deployed at the moment in Europe. And therefore, it made a lot of sense that in this scenario where now this is an absolute requirement in Europe and where there's an increasing interest in North America for this, that we would acquire it. 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.

Okay, perfect. And then maybe one for Dave. The implied second quarter revenue guidance looks like it's accelerating nicely. Directionally, what might this mean for 2Q ACV? I know you mentioned several large dual opportunities in the pipeline. Was that a specific comment for second quarter? Thanks.

The ACV, 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, it 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. Okay, perfect. Thank you.

Thank you. Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Mark Schappel with Loop Capital Markets. He may proceed. Mark.

Hey, hey guys. Thanks for taking my question here. Antonio, it was nice to hear of the strategy. I was wondering if you just review those deals in a little more detail.

Yeah, I mean, look, these are both customers that are very good Emerson customers and are also big users of Aspen Tech's HAT solutions in MSC and engineering. Emerson is in there with their own asset performance management solutions. And they see a need for the predictive capabilities that RS Aspen Intel brings because they understand the customer's pain points. They bring us to the table, they introduce us and introduce our capabilities. And there's a lot of familiarity between all three parties, Emerson, Aspen Tech and the customer. And therefore it leads to very quick cycle sales deals. So these two happened with certainly a refining customer and an upstream customer. 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.

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. Well,

and we did have some capabilities in that area, but in a way OpenGrid system had a much more mature product with more deployments and greater acceptability in the market by customers. So 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. It 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, consumers, especially residential consumers are putting up solar panels in their houses and those solar panels will become a source of electricity into the grid. 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 and the relationship in the data for their grid. 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. So we're very excited about this and really looking forward to accelerating this technology to the market with our cell tokenization. Great, thank

you. It's

helpful.

Thank you, Mark.

Thank you. Our next question comes from Rob Oliver with Baird. You may proceed.

Hi, Rob.

Great. Hey, guys. Good evening. Can you hear me?

Yep.

Okay, great. Thank you. 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 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 wanted to get an update from you, Antonio, on just as you look at that deal pipeline, how it's playing out relative to your expectations. I know fiscal year 26 is when Europe would kick in. So how those deals are evolving within the pipe and how the Europe progress is happening. And then should we expect that Open Grid, which I know is more of a tech tuck-in, given its domicile in Europe, will help in Europe at all? And then I had a follow-up for Dave.

Yeah. No, look, we continue to see the demand in Europe, of course, is about signing up new customers. And therefore, those are the long sales cycle deals. To your point about 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 up our sales team in Asia Pacific now as well and the Middle East. The great thing about Open Grid systems and the technology is that because it's now a regulatory requirement in Europe, 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. And therefore, we do expect that we will see an impact of this technology rapidly over the next couple of years. We'll spend time integrating and branding the technology over the next nine to 12 months, which is normally what it takes us getting it ready for tokens and the suite. But in the meantime, we'll be working on building pipeline. And there's already 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.

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 challenges there. I just wanted to get a sense for, maybe you could put a finer point on what those were. And I know you called that, and you guys have always been a second half loaded company, but free cash flow is going to be all second half. Does that assume proper collection of these collections from these geos? And what, I think you might have also called out some technology or something, and what processes you guys have put in place to alleviate or mitigate this risk? Thank you.

Yeah, sure, Rob. So the first half comparables are really impacted by both the one-time payments that are coming out as well as some of the timing of the collections in Q1. 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. But we are fully confident through identifying those earlier and partnering with the sales team, which is really what I've 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 $340 million, approximately $340 million free cash flow in the year.

Great. I appreciate that. Thank you. And thanks for all the color and help with the analyst. They're really helpful. Thanks, Pat.

Thank you.

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Clark Jeffries with Piper Sandler. You may proceed.

Thank you for taking the question. Just another follow up on OpenGrid. It sounds like today the customer overlap is small, but the opportunity in the future is larger, especially given the regulatory tailwind. 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 utilities indexed to different modules that you have on that platform? And then second, as a follow up, you had talked about .5% attrition for the full year. Is there any way we can think through how much of that 4% has landed in Q1 versus the balance of the year? Thank you.

Yeah. And so I looked to the first part of your question. The answer is yes. The fact is that certainly the open-grid system technology will sit on top of the Monarch solution and integrate into some of the other applications, ADMS and DERMS and so on. So yes. And with respect to, I think part of the question was attrition. With respect to attrition, look, we said in our call in August that attrition was going to be a little bit of a dumbbell shape. High attrition in Q1 just because of the timing of the renewals and that we had in Q1 and then Q4 and then less attrition in Q2, Q3. We got it to 4.5 points of attrition for the fiscal year. So you can make some assumptions around that. But look overall, you know, it's a little weird to say this well, but we feel good about how attrition came in in Q1. I think we did very good work about hat attrition. Unfortunately, there were a couple of deals in SSC, SMS renewal that slipped into Q2 that will be now available in Q2 for to be done and there will be new growth. But overall, the attrition came in line with what we expected, some puts and takes. And you know, the way we define attrition, it can be, it's a very rigorous definition. But we feel very good about how we're managing

this at the moment. Thank you very much. Thank you. Our next question comes from Arshiniz from Ascent, Natovic with Wolf Research. You may proceed. Hi. Your line is now open,

Wolf Research.

Hello. Hey, sorry about that. It's Arseny Madovic, on for Josh Tilpin. I just wanted to ask about the historical cadence of the growth in ACV. 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 ACV 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 renewal bookings are much higher versus last year to see how to kind of parse and understand that. Thanks.

Again, I would expect the ACV to be very similar to our historical. The renewal timings and attrition can be a little bit tricky as well because 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 renewals are high as well. So I would expect our ACV to be very similar to what we had in the past and I think we have a, we're very confident in the growth that we're expecting in a similar pattern. Antonio, you want to add to that?

Yeah, let me just maybe add some color to Dave's comment. We need to be careful on how we think about attrition and growth when it comes to renewal because the fact of the matter is that 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, sometimes there's growth but most times it's for very little growth or just escalation factor on agreement. Attrition only happens at renewal time because that's when customers, that's the only opportunity that customers have to review their spend with Aspen Tech or let an agreement expire and not renew it. 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 want to clarify that or at least provide that insight.

Got it, really helpful. Now I just had a brief high-level follow-up, I guess, of the segment, BGMSSE, all the heritage assets and tech businesses. Is there anything in Q1 that was significantly ahead of your expectations and just was everything in line or was there anything that really spit out to you?

No, look at me. Frankly, yes, we had the attrition that we had and we had sort of guided investors to that number but what I'm excited about is the demand environment. We're seeing customers really leaning in on digitalization both for performance and sustainability. 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. So I think the combination of, again, energy transition, digitalization, electrification, global electrification and sustainability, all of these really is a perfect environment

for the company. Got it, thank you very much. Thank you.

Thank you. I would now like to turn the call back over to Antonio Pietri for any closing remarks.

All right, thank you, Josh, and thank you everyone for joining the call today. We're going to be attending the Wells Fargo T&T Summit and the NASDAQ London Investor Conference in the first and second weeks of December. So please reach out to our Investor Relations team for more information on those events. 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.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.