Aspen Technology, Inc. (NASDAQ:AZPN) Q1 2025 Earnings Call Transcript

Aspen Technology, Inc. (NASDAQ:AZPN) Q1 2025 Earnings Call Transcript November 4, 2024

Aspen Technology, Inc. misses on earnings expectations. Reported EPS is $0.85 EPS, expectations were $1.51.

Operator: Good day and thank you for standing by. Welcome to the Q1 2025 Aspen Technology Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Brian Denyeau from ICR.

Brian Denyeau: Thank you, Josh. Good afternoon, everyone, and thank you for joining us to discuss our financial results for the first quarter of fiscal 2025 ending September 30, 2024. With me on the call today are Antonio Pietri, AspenTech’s President and CEO; and Dave Baker, AspenTech’s CFO. Please note, we have posted an earnings presentation on our IR 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 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 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’ll 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?

Antonio Pietri: 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.

This tuck-in acquisition demonstrates AspenTech’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 AspenTech 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 3 for our quarterly results. Annual contract value or ACV was $941 million in Q1, increasing 0.9% quarter-over-quarter and 9.4% year-over-year. This was in line with our expectations and what we communicated last quarter due to the timing of renewals and a disproportionate amount of our expected annual attrition occurring 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. Dave 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 continued strength we see across most of our end markets, particularly considering the ongoing macro uncertainty. This strengthened demand is a testament to the mission 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 ACV growth of approximately 9% and free-cash-flow generation of approximately $340 million.

Now turning to Slide 4 for a discussion of our suites 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 renewable energy sources to support high 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 Resources Management or DERMS functionality into their system to support their communities’ clean-energy goals as well as the utilities’ 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 the Subsurface Science & 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 can improve their subsurface performance and increase the ROI on their investments 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 AspenTech offerings in other parts of their business.

As one of the region’s key energy producers, this customer value our ability to support them in driving better outcomes across drilling, geology analysis, and other areas. Now turning to Slide 5, for our Heritage AspenTech 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 are seeing this momentum with larger enterprise-level accounts as well as with our high-velocity sales or HVS team, which is focused on new logos and start-ups. Our HVS team, in particular, had a solid Q1 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 lifecycle 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 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 larger-scale deployment of GDOT to help further optimize their existing operations, while the second example was of a smaller scope for a leading 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 a 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 their refining and petrochemical operations in the production of sustainable aviation fuels. After a quick turnaround of these enhancements, this customer has leveraged our 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 decarbonization 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 go-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 AspenTech business. These wins were supported by the strength of our Aspen Intel 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 6 for our product and R&D initiatives. In Q1, we released our aspenONE version 14.5 software updates, which includes several important enhancements across our portfolio in industrial AI and sustainability. For example, our OptiPlant 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 DGM suite this time with the announced acquisition of Open Grid Systems. This is a buy versus make decision where we have positively deployed the cash we generate to accelerate innovation.

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 given the increasing complexity of the grid and renewable energy sources coming online.

Finally, I’m excited to highlight customers’ positive reactions to the launch of our Microgrid Management Solution in October. In recent years, the rapid adoption of renewable energy sources has meant that the complexity of asset-related electrical networks or microgrids has been expanded. 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 point of the convergence we’re seeing for our innovation between industries and the resulting cross-sell opportunities. On Slide 7, I would like to take a moment to reiterate some of the key messages we communicated to investors at our Investor Day in September.

First, AspenTech is focused on a $14 billion to $15 billion total addressable market within the industrial software category. This TAM 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 these dynamics position us well to deliver healthy growth and margin expansion in the coming years. Over a multi-year period, we believe our focus on disciplined execution and prudent organic investment can support high single-digit to double-digit ACV growth and ACV margin expansion to our target of 45% to 47%. 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 remain confident in our fiscal year 2025 guidance, which includes expectations for ACV 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 Baker: Thank you, Antonio, and hello, everyone. Starting on Slide 8, to review our Q1 fiscal 2025 results. In Q1 of fiscal 2025, we grew ACV 9.4% year-over-year and 0.9% 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 ACV outcome.

For profitability, on a non-GAAP basis, we reported operating income of $49 million in Q1, representing a 22.5% non-GAAP operating margin. Non-GAAP net income was $54 million in the quarter or $0.85 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 tuck-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 9, 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 GAAP EPS estimate by $0.01 and our non-GAAP EPS estimate by $0.05 to reflect the impact of our share repurchase activity in the first quarter on shares outstanding. For a complete overview of the 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 cadence of ACV growth to be similar to what we have seen historically. I would also note that there is a potential for some variability in the current quarter due to several large deal opportunities in our pipeline. 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 onetime 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.

Antonio Pietri: Thanks, Dave. We delivered solid results in Q1 through a strong execution and a focus on helping our customers drive operational excellence in Aspen Mtell. The strength of our ACV 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 AspenTech and to further enhance our grid innovation through these new critical technology. With that, we’ll open it up to questions. Josh?

Q&A Session

Operator: [Operator Instructions] Our first question comes from Rob Oliver with Baird. You may proceed.

Antonio Pietri: Hi, Rob.

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

Antonio Pietri: Hi, Dylan.

Dylan Becker: Hi, Antonio. Hi, Dave. Maybe starting off, I don’t 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?

Antonio Pietri: I mean, Dylan, will — 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 that will probably decrease as we get to the end-of-the year here. Interest rates look 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 a better economic condition then will rain in calendar ’25.

But from our standpoint, looking at our plans 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 is still in a downturn, good demand from the refining sector or 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.

Dylan Becker: Okay. That’s really helpful. Thanks, Antonio. Maybe two touching on kind of the innovation around the microgrid opportunity, be interested to kind of get a sense, obviously, now that that’s generally available receptivity given kind of the growing threat environment and how 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, kind of the proliferation across the suite if you will?

Antonio Pietri: Yes. And in a way microgrid — the microgrid solution is a DGM offering, but the fact of the matter is that solution will go mostly into non-utility customers. It’s already used in the mining sector, in 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.

Dylan Becker: Okay, great. Thanks, Antonio.

Antonio Pietri: Yes. Thank you.

Operator: Thank you. Our next question comes from Jason Celino with KeyBanc Capital Markets. You may proceed.

Antonio Pietri: Hi, Jason.

Jason Celino: Great. Thank you. Maybe first one, like-kind of sticking to the DGM theme. Like as we think about push versus pull, where you’re expanding? I understand that the need to upgrade and manage grid infrastructure is enormous. So when we think about like 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?

Antonio Pietri: Yes. No, totally. And look, innovation is all hands on deck game. And you get ideas from everywhere. Customers are a great source of ideas and 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 for new application, the need for new applications, especially the DERMS application, which is a newly developed one around distributor 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 utility — 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 we’re deploying 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 is 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.

Jason Celino: 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 deal opportunities in the pipeline. Was that a specific comment for second quarter? Thanks.

Dave Baker: No, 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, it’s because of ASC Topic 606, 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.

Jason Celino: Okay. Perfect. Thank you.

Dave Baker: Thank you.

Operator: [Operator Instructions] Our next question comes from Mark Schappel with Loop Capital Markets. You may proceed.

Antonio Pietri: Mark?

Mark Schappel: Hi, guys. Thanks for taking my question here. Antonio, it was nice to hear of the meaningful APM wins in the quarter, especially under the new strategy. I was wondering if you just review those deals in a little more detail?

Antonio Pietri: Yes. I mean, look, these are both customers that are very good Emerson customers and are also big users of AspenTech’s HAT Solutions in MSC and Engineering. And Emerson is in there with their own asset performance management solutions and they see a need for the predictive capabilities that our Aspen Intel brings because they understand the customers’ 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, AspenTech 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 AspenTech.

Mark Schappel: Great. Thanks. And then going back to Open Grid, I was just wondering if you could just run-through the new capabilities that the company is bringing that you did not already have?

Antonio Pietri: Well, and we did have some capabilities in that area, but in a way, Open Grid Systems had a much more mature product with more deployments and greater acceptability in the market by customers. So, it made a lot of sense that in order for us to accelerate to market, we would buy in this case. Look, a 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 and 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 these and really looking forward to accelerating this technology to the market with our own sales organization.

Mark Schappel: Great. Thank you. It’s helpful.

Antonio Pietri: Thank you, Mark.

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

Antonio Pietri: Hi, Rob.

Rob Oliver: Great. Hi guys, good evening. Can you hear me?

Antonio Pietri: Yes.

Rob Oliver: Okay, great. Thank you. So a couple of questions. I guess, first one is on the grid management business, generally speaking. I know you guys have called out a couple of 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 months 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, whether it’s — how it’s playing out relative to your expectations? I know fiscal year ’26 is more when Europe would kick in. So how those deals are evolving within the pipe and how the Europe progress is happening? And then should we expect an Open Grid, which I know is more of a tech token given it’s domiciled in Europe, will help in Europe at all? And then I had a follow up for Dave.

Antonio Pietri: Yes. 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. So 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 yes, look, we’re also building out our sales team in Asia-Pacific now as well and the Middle-East. The great thing about Open Grid Systems and that 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 uptick of this technology rapidly over the next couple of years.

We’ll spend time integrating and branding the technology over the next 9 months 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 we will — it will only enhance our competitive profile in Europe, but in North-America and globally as well.

Rob Oliver: 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 if you could put a finer point on what those were? And I know you called that — I mean, you guys have always been a second-half loaded company, but free-cash-flow is going to be all check-in half and 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.

Dave Baker: Yes, 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’ve 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 of free-cash-flow in the year, Rob.

Rob Oliver: Great. I appreciate that. Thank you. And thanks for all the color and help at the Analyst Day. Really helpful. Thanks, guys.

Antonio Pietri: Thank you.

Operator: [Operator Instructions] Our next question comes from Clarke Jeffries with Piper Sandler. You may proceed.

Antonio Pietri: Clarke?

Clarke Jeffries: Thank you for taking the question. Just another follow up on Open Grid. It sounds like today the customer overlap is small, but the opportunity in the future is larger, especially given the regulatory tailwinds. I wanted to ask, is this going to sit on top of the Monarch platform as then 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 4.5% 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.

Antonio Pietri: Yes. And so look to your first — to the first part of your question, the answer is yes. The fact is that certainly these — the Open Grid Systems 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 the second 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 sort of a dumbbell shape, high attrition in Q1 just because of the timing of the renewals and that we had in Q1 and then in Q4 and then less attrition in Q2, Q3. We guided you to — or we guided to 4.5 points of attrition for the fiscal year. So you can make some assumptions around that.

But look, overall, we — and it’s a little weird to say this way, but we feel good about how attrition came in Q1. I think we did a very good work about HAT attrition. Unfortunately, there were a couple of deals in SSE, SMS renewal that slipped into Q2 that will be now available in Q2 to be done and it will be new growth. But overall, the attrition came in line with what we expected, some puts and takes. And the way we define attrition can be — is a very rigorous definition, but we feel very good about how we’re managing this at the moment.

Clarke Jeffries: Thank you very much.

Operator: Thank you. Our next question comes from Arsenije Matovic with Wolfe Research. You may proceed.

Antonio Pietri: Hi.

Operator: Your line is now open, Wolfe Research.

Arsenije Matovic: Hello. Hi, sorry about that. It’s Arsenije Matovic on for Josh Tilton. 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 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.

Dave Baker: 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 high, doesn’t mean our renewals are high as well. So I’d expect our ACV to be very similar to what we had in the past and I think we have — we’re very confident in the growth that we are expecting in a similar pattern. Antonio, do you want to add to that?

Antonio Pietri: Yes, 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 renewals 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 is for very little growth or just escalation factor on the agreement. Attrition only happens at renewal time because that’s when customers — the only opportunity that customers have to reduce their spend with AspenTech or let an agreement expired and/or 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 just want to clarify that or at least provide that insight.

Arsenije Matovic: Got it. Really helpful. And I just had a brief high-level follow up. I guess of the segments, DGM, SSE, all the Heritage AspenTech businesses, I guess, is there anything in Q1 that was significantly ahead of your expectations? And just was everything in-line or was there anything that really stood out to you?

Antonio Pietri: No, look, I mean, I — 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 are really is a perfect environment for the company.

Arsenije Matovic: Got it. Thank you very much.

Antonio Pietri: Thank you.

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

Antonio Pietri: All right. Thank you, Josh. And thank you everyone for joining the call today. We’re going to be attending the Wells Fargo TMT Summit and the Nasdaq London Investor Conferences in the first and second weeks of December. 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.

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

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