Aspen Technology(AZPN) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Annual contract value (ACV) was $941 million in Q1, increasing 0.9$6 million in Q1, slightly below expectations due to timing of collections [10][41] - Total bookings and revenue were $151 million and$216 million respectively in Q1, compared to $212 million and$249 million a year ago [38] Business Line Data and Key Metrics Changes - Digital Grid Management (DGM) suite showed robust demand, particularly in North America and internationally, driven by rising electricity demand and grid complexity [13][14] - Subsurface Science & Engineering (SSE) suite saw solid upstream demand, with growing interest in optimizing digital tools [17] - Heritage AspenTech suite continued to experience strong demand from both owner-operators and EPCs, with notable wins in sustainability-related projects [19] - Manufacturing and Supply Chain (MSC) suite performed well, with customers focusing on efficiency and sustainability [22] Market Data and Key Metrics Changes - Demand remained strong across most end markets, particularly in utilities, refining, and upstream sectors [11][12] - The chemicals industry is working through supply-and-demand imbalances, focusing on efficiency to meet margin objectives [23] - Increasing interest from upstream operators to leverage digitalization for operational efficiencies and CO2 reduction [27] Company Strategy and Development Direction - The company announced the acquisition of Open Grid Systems to enhance its DGM suite, addressing the complexity of utility operations globally [6][7][30] - The focus remains on a $14 billion to$15 billion total addressable market within industrial software, driven by digitalization, sustainability, and energy transition [34] - The company aims for annual ACV growth of approximately 9% and free cash flow generation of approximately $340 million for fiscal 2025 [12][44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the year 2025 guidance, citing strong execution and a solid foundation built over the past two years [12][37] - The management noted that macroeconomic uncertainties are expected to decrease, creating a more favorable investment environment [52] - The company is optimistic about growth opportunities across end markets, particularly in digitalization and sustainability [49][86] Other Important Information - The company reported a non-GAAP operating income of$49 million in Q1, representing a 22.5% non-GAAP operating margin [40] - The balance sheet showed approximately $221 million in cash and cash equivalents with no debt [41] - The company purchased approximately 93,000 shares for$20 million under its share repurchase authorization [43] Q&A Session Summary Question: How are customers thinking about their software budget into year-end? - Management noted that uncertainty plays a significant role in budget considerations, but conditions are expected to improve as economic factors stabilize [52] Question: What is the receptivity of the microgrid solution? - The microgrid solution is expected to expand into non-utility customers, with significant opportunities in chemicals and refining sectors [55] Question: How is the deal pipeline for grid management business evolving? - Management indicated that demand in Europe is strong, with long sales cycles expected to yield results in fiscal years 2025 and 2026 [70][72] Question: What are the challenges with collections in certain geographies? - The challenges were attributed to administrative processes in specific regions, but management is confident in improving collection timing through better coordination with sales teams [73][75] Question: How should ACV growth be expected for Q2? - Management expects ACV growth to align with historical trends, despite the complexities of renewal timings and attrition [82][84]