Aspen Technology Inc (AZPN) 2006 Q1 法說會逐字稿

Good afternoon. My name is Cheryl Lynn and I will be your conference facilitator. At this time I would like to welcome everyone to the Aspen Technology fiscal 2006 first quarter earnings conference call. All lines have been placed on mute to prevent any background noise. [OPERATOR INSTRUCTIONS]. Thank you. Mr. Kane, you may begin your conference.

Thanks, Cheryl Lynn. And good afternoon, everyone. I'm Chuck Kane, AspenTech's Chief Financial Officer. I'd like to welcome you to this conference call to discuss our financial results for the first quarter of our fiscal 2006 which ends on September 30, 2005. Before we begin I will make the usual Safe Harbor statement that during the course of this conference call we will make projections or other forward-looking statements regarding future events or the financial performance of the Company that involve risks and uncertainties. The Company's actual results may differ materially from these projections described in such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in the "Risk Factors" section in our Form 10-K filed on September 13, 2005. Also please note that the following information is related to current business conditions and our outlook as of today November 8, 2005. Consistent with our prior practice we expressly disclaim any current intention to update this information prior to release of our second quarter financial results which is scheduled for some time in late January or early February.

During the course of this call today we will reference non-GAAP information. In compliance with the SEC's Regulation G we filed an 8-K this afternoon, that includes our rationale for why we believe non-GAAP information is important in describing our operating performance, as well as the full reconciliation with the corresponding GAAP numbers. You will also see this reconciliation to GAAP in our press release. So with that let me turn the call over to Mark Fusco our CEO to provide high level commentary on the quarter before I follow-up with details on the financials and guidance going forward. Mark?

Thanks, Chuck. I'd like to welcome everyone on the call today as we discuss our fiscal first quarter results. From a high-level perspective our results were mixed for the September quarter. Revenue came in lighter than we had hoped; however, profitability on a pro forma basis was better than we expected. There are two major points I want to stress on this call. First, we were successful in positioning AspenTech to be profitable, which was my top priority when I took over as CEO. Second, as it relates to topline momentum we have a solid pipeline, our end markets remain strong, and we are now in what has traditionally been a seasonally strong quarter. I'd like to walk through what drove our numbers in the quarter and why we feel good about our ability to generate solid and improving financial results.

Total revenue for the quarter came in at 60.1 million, compared to our target of 62 to 64 million coming into the quarter. If you exclude the revenue associated with our operator training service business in the year-ago period which was sold in December 2004 as part of the FTC settlement our total revenue was approximately flat on a year-over-year basis. Licenses came in at 24.4 million down 4% year-over-year and below our expectations. However, services revenue of 35.7 million increased 2% on a year-over-year basis when excluding the divestiture I just referenced. The summer quarter is typically a seasonally weak quarter and as we've have spoken about in the past predicting when our larger deals will close is always challenging as well.

Looking at the second quarter we have a solid sales pipeline, strong customer interest in aspenONE, our services business is performing well, and our cost structure is adjusted and appropriate to achieve our long-term profitability goals. Chuck will provide more details on our cost infrastructure in a moment, but the highlight is that our total costs and expenses declined 19% sequentially and 15% on a year-over-year basis. As a result we were able to generate pro forma operating profits of 2.6 million during the third -- during the first quarter or a 4% margin in pro forma EPS of $0.02 a share better than our guidance of breakeven. Let me now turn to why we believe this improved profitability is sustainable and why we are optimistic that our topline will improve.

First, the difficult decisions to align our cost structure are complete and we will remain highly focused on expense controls moving forward. Secondary, which has an impact on both our revenue and profitability is our services revenue. I'm happy to report this represented the second consecutive quarter of sequential growth in our services revenue, and with our highest quarterly services margin since the Company went public. One area of the busy I was not pleased with this quarter was license revenue. However, as I just mentioned our sales pipeline is solid and our vertical markets remain strong.

Looking at our verticals from a demand perspective, during the September quarter chemicals continued to make a solid contribution to our revenue. In fact, seven of our top deals during the quarter came from our chemicals and pharma sectors, including deals with Braskem, Borealis, and Sanofi-Aventis. Sanofi-Aventis, the largest European pharmaceutical company will leverage our operations manager technology coupled with our manufacturing execution systems to automate and optimize their plant operations on a global, integrated basis. The transaction further solidifies the growing awareness and acceptance of our aspenONE product strategy. Just last quarter we highlighted our first major aspenONE deal sold into the ethylene market, which we believe will help open up a significant opportunity with other manufacturers in the worldwide ethylene market. While most chemicals and pharma companies have improved their back office operations by implementing ERP systems the majority have not invested in an enterprise-wide system to optimize their day-to-day operations. Our unique domain expertise and integrated end-to-end solution positions AspenTech to become the operations platform for manufacturers with our aspenONE solutions.

Our other major vertical of focus is energy, an area where we have introduced new solutions and where we are seeing growing interest from our customers. During the September quarter our energy vertical was the largest contributor to our license revenue, including two of our three largest license deals. AspenTech has unmatched domain expertise in energy related to production processes, and we are well-positioned to expand on our success in these vertical markets. To that end you will recall last quarter we highlighted the major deal for aspenONE inventory management and operations scheduling with British Petroleum. We are executing on the implementation side of this contract and as a update we recently expanded our scope and moved to the second stage of our services engagement with BP. We believe continuing success in our delivery will provide further material opportunities going forward. Equally as important, the validation we received and experience we are gaining in this implementation are having a positive influence on similar opportunities we are currently pursuing.

During the quarter we also signed an important engineering renewal contract with PDVSA, a major Latin American oil company that owns the Citgo retail chain. This deal was for our engineering solutions, in particular, HYSYS, further indicating that customers prefer to buy solutions from a software-focused vendor with 25 years of domain expertise in the process manufacturing sector. The energy sector has experienced strong business fundamentals for an extended period of time and it is near-record levels at the moment. Our sales pipeline indicates that companies in the energy sector are beginning to increase their level of investment to optimize their plant operations. AspenTech with our aspenONE for energy solution is uniquely positioned to capitalize on this opportunity.

In summary, the overall message moving into the second quarter is positive. We have achieved what was stated as my top priority upon taking the CEO job; namely, creating an operating infrastructure capable of driving profitability and meaningful operating leverage. With much of the cleanup work accomplished we can dedicate our focus to growing the business. Our activity levels remain solid in our core markets and we are now in what has historically been a seasonally strong quarter for AspenTech. With that let me turn it over to Chuck to discuss our financials in more detail and provide a business outlook for the upcoming quarter.

Thanks, Mark. We were pleased the Company was able to generate profitability on a pro forma basis, even though the revenue came in below our guidance. We remained encouraged by the level of business activity in our near-term pipeline, and we believe the Company is positioned to deliver meaningful pro forma profitability as a result of our streamlined operating structure and expected topline improvement. Total revenues for the first quarter were 60.1 million, a decline of 5% year-over-year. Our software licenses came in at 24.4 million while services revenue came in at 35.7 million. License revenues declined 4% year-over-year while our services revenues were down 6% year-over-year. However, keep in mind our reported services decline is driven by the fact that the prior year period includes the services operator training business we sold in December 2004 related to the FTC settlement. Excluding this our services business was up 2% on an year-over-year basis and our total revenue was approximately flat year-over-year. In terms of the details we closed two transactions in excess of 1 million during the quarter, compared to four transactions in the previous quarter and the prior year. In addition we closed 19 transactions between 250,000 and 1 million during the quarter as compared to 23 transactions of this size last quarter and 17 in the prior year. Our average sales price this quarter was 350,000 compared to 425,000 in the prior year.

Before turning to the costs of revenues and operating costs it is important to point out that in this first quarter we adopted FAS 123R, which requires that we record compensation expense associated with stock option and employee stock purchase plans in our GAAP results. I will be providing non-GAAP measures of each Q1 2006 expense category which excludes the stock-based compensation charges, in order to provide comparisons to prior periods which do not include such charges. All comparisons will be using the non-GAAP current period results. Gross margins on licenses were 84% for the first quarter, flat with the prior year period but down from 88% in Q4. Services gross margins continue to improve coming in at 52%, up from approximately 43% in the prior quarter and 42 percent in the prior year. We believe services margins will tick down marginally in the up coming quarter due to seasonality, however we are confident we can deliver services revenue margins in the 50% range for the long-term going forward. Total GAAP costs and expenses came in at 64 million in the fiscal first quarter. The following were expense levels determined in accordance with GAAP. Sales and marketing were 18.6 million, our R&D costs were 10.1 million, and G&A came in at 10.2 million. For the first quarter our GAAP loss from operations and the net loss applicable to common shareholders were 4.4 million and 8.9 million respectively. GAAP loss per share was $0.21 for the quarter ended September 30, 2005.

Let's now turn to our non-GAAP profitability. Our non-GAAP total costs and expenses in the first quarter were 57.4 million. The breakdown of these costs and expenses is set forth in the financial statement tables in our press release. This was well-below our guidance and represents a 19% decrease in costs and expenses from the prior quarter and a 15% decrease from the prior year's quarter. The following is a breakdown of our non-GAAP operational expenses for the quarter. Sales and marketing expenses in the first quarter were 18.9 million or 32% of revenue. This was down from 34% in the prior quarter and 32 -- 35% in the prior year's quarter. It's important to note that we are maintaining our investment in sales professionals and technical sales support at this level of cost. R&D was 10 million in the first quarter or 17% of revenue, which is in-line with the prior quarter and down from 19% in the year-ago quarter. R&D did decline by 2 million compared to the prior quarter, and we continue to focus on better integrating our worldwide R&D operations to drive efficiency and productivity in our integration efforts.

Our G&A expenses came in at 7.6 million. This was a major reduction from the 11.7 million level in the prior quarter, and this is the line item where we saw the majority of the benefits from our restructuring efforts over the last several quarters. As a percentage of sales G&A declined to 13% of sales from 17% in the prior quarter. As we have stated in the past we are still aiming to have G&A at 10% or less of revenues as our revenues start to scale. As a result of our performance on the cost management side we were able to deliver a non-GAAP operating profit of 2.6 million, a significant increase from the prior year's non-GAAP operating loss of 4.3 million. Our non-GAAP net income was 1.5 million, compared to a non-GAAP net loss of 3. 7million last year. Our non-GAAP earnings figures are based on a fully diluted share count of 87.6 million shares, which includes the impact of our Series D preferred stock offering. This results in non-GAAP earnings per share of $0.02, which is better than our expectations of a break-even quarter.

Turning to the balance sheet, we ended Q1 with 48 million in cash down from 68 million at the end of the prior quarter. The source of this decline was primarily two factors, the typical payments expected of accrued and unpaid year-end expenses, as well as cash payments related to restructuring. You will see on the balance sheet also a significant decline in our payables and our accrued line item. Our DSOs for billed receivables for the first quarter were 68 days roughly in-line with the 67-day level at the end of the prior quarter. If you include the unbilled receivables our day sales outstanding was 84 days. A line item worth mentioning is our retained interest in sold receivables which ended the quarter at 16.9 million. This relates to pledged installment receivables in excess of what was needed to ultimately deliver a return for the investor in last quarter's securitization. This balance sheet item should increase slightly on a quarterly basis over the next several years and once the receivables pool delivers the investors required return we will receive back the remaining excess balance. Total deferred and unearned revenue ended the quarter at 56 million, a decrease from 60 million at the end of the prior quarter due to typical seasonality, and an increase from 54 million at the end of the year ago. Finally, our balance sheet remain virtually debt free. Before turning it over to Q&A I would like to provide some second quarter guidance.

The December quarter has historically been a seasonally strong quarter for AspenTech and we currently have a solid sales pipeline of potential deals as Mark had referenced earlier. We anticipate revenue will be in a range of 70 to 72 million for the second quarter. As we have mentioned on prior calls, large multimillion-dollar deals have impacted quarterly results in the past, both positive and negative, and the timing of these large deals can be difficult to estimate. From a cost perspective we expect non-GAAP total expenses to be approximately 60 to 61 million in the December quarter. The increase in our expense run rate, compared to the September quarter rate is due to our expectations for higher commission expenses and other variable sales and marketing-related expenses. This would result in non-GAAP operating income in the range of 10 to 11 million. On a non-GAAP EPS basis this translates to a range of $0.08 to $0.09 a share at an effective tax rate of 25%. In summary, we were pleased with the Company's improved operational efficiency in the past quarter. We are encouraged by the level of activity we see in our sales pipeline and what has been a seasonally strong second quarter and believe that we are, therefore, in a good position to continue expanding our operating profitability. So with that I'll turn it over to the Operator to begin our Q&A session. Operator?

[OPERATOR INSTRUCTIONS]. Your first question comes from Richard Davis with Needham & Company.

Thank you very much. You guys have hired, I guess, in the last quarter a couple people, Mark, from your old shop I guess Richard Packwood and this Michele Triponey, I guess, over at Customer Support and Strategy. Two questions in regarding that is -- do you feel that the management team is fleshed out or do you have other spots that you're planning to hire? And two, just a little bit of thought on those people in terms of -- because you're bringing in some guys with whom you had worked in the past.

Richard, we feel -- or I feel very comfortable with the management team that we have in place today. Obviously, there's been some change in the management -- the senior leadership at AspenTech over the past nine or 10 months or so since I came to the Company. I am very comfortable with our team that we have going forward now. I thought it was prudent as we continue to focus on all parts of our business that we take a look at -- in two specific areas, one is our corporate strategy going forward, and you mentioned Richard Packwood and he was brought in to help with that.

And also Michele Triponey worked for me at Ajilon in the area of customer support and customer service. And we believe, although, that we have run a very good customer support business and we have received many awards for our level of support and customer service that there's always opportunity to improve in all areas of that business, including revenue growth on the maintenance line and in how we operate the business going forward to turn that into a much more of a customer services organization as opposed to just a customer support organization. So in our drive to always improve our customer service, this is a continued area or focus since I've got in here and it will be one that we continue to focus on going forward.

Great. And then it seems to me when I kind of disaggregate your income statement one of the areas where you have a lot of opportunity for improvement is to get your services margins up. Because you can pull out the maintenance revenues and best we can tell you've probably been losing money on the services side by some amount. What level of gross margins should just the services side of Aspen be able to do? I mean, you look at kind of other big best-in-class services guys like Accenture and they do 35% operating margins just -- and all they are is services and BPO. What do you guys think you should be at? Where should that be?

As we told you in the past, we were driving in a combined services margin towards 50% or better gross margin line and we're pleased that in this quarter we achieved that level and we achieved a little bit ahead of schedule. And that's due to a good performance by our team in services. In the consulting space, specifically, our best-in-class would be 35% to maybe the high 30s. And we believe that we should be operating in that area as well. The margin improvement from Q4 to Q1 was really entirely driven by the improvement in the utilization in our professional services business. We think that we are right now in the range of best-in-class as far as margin goes, and we're very comfortable with the model that we have from a delivery perspective and from a cost structure. And as we showed this quarter, we had some -- a couple of quarters in a row sequential revenue growth in this area in the professional services base had revenue growth sequentially as well. And we believe we're in the right space at the right time and that we've got a very nicely running services business for the first time in a long time. And while your right, it was a cost and a profitability drag for us in the fiscal year that ended in '05. It was a profitable business for us from a professional services perspective and from a SMS and customer support perspective in Q1 as well.

I would also add, Richard, that because of the domain expertise that we have in these vertical markets there is a differentiation that carries a premium to it on the consultancy side. So as compared to some of these more ubiquitous-type providers in services across-the-board we have a differentiated offering which carries with it a premium as it relates to the pricing.

Got it, okay. Well, that's very helpful. Thank you.

Your next question comes from Philip Rueppel with Wachovia Securities.

Great. Thank you and good afternoon.

Hi, Phil.

A couple of things. On the license revenue, the disappointment there in the past quarter, could you sort of dig down one level deeper. Was there any particular product line that was weak, either supply chain or engineering or particular vertical that was not as robust as you would expect? And when you say sort of the pipeline looks good as we head into the seasonally strong December quarter, is that throughout your product line or do you still see some sort of areas that need improvement in particular product areas?

Most of our horizontal products we see a good pipeline going forward. In the quarter that just ended in Q1 and really for most of fiscal year '05 as well our supply chain business has been a drag on the Company's performance. We're not alone or unique in that problem. That said, we believe given the core vertical markets that we serve and where the Company is today with strong products and solutions, the customers are very comfortable with us now in the state of where the Company is at. And from a operations perspective I think they're pleased about our balance sheet improvement and that we've moved beyond our past problems. And so I think all of those things together are contributing toward us having a much more solid pipeline then we've had in the past as we started the quarter. And it's clearly a better pipeline as we enter Q2 than has been in place since I've been the CEO.

The end markets continue to be strong. I think there will be additional opportunities in other geographies as some of the plants come online in Asia and the like. So I believe that along with the execution improvement that we expect to get from our sales channel will allow us to start growing our licenses materially going forward. We're not pleased with our license number for the quarter that just passed, but it is what it is. And we believe that we're positioned well. We're just now starting to get some traction with our aspenONE solutions that we've described on this call and on the prior call that we did a month and a half ago or so. So we think we're well-positioned going forward. And we have a good team in place. And it's now up to us to execute in a market where there is demand for our services. And we believe we still have the leading space in this area and it's up to us to execute.

Great. Thanks. A quick follow-up there. You've made fantastic strides on cutting -- or reducing your operational run rate on the expense side. And one of the things you have spoken about in the past, Mark, was you were going to turn your sights onto streamlining the product line, either making it more suite-based or vertical-market focused or solution focused. Can you give us a little update on your progress there? And sort of how -- what do you have to do there to kind of streamline what the sales force carries in their product portfolio?

We made a lot of progress in our evaluation of our product portfolio. We're still working through it in this quarter. I expect that at the end of the quarter or certainly on the call at the end of Q2 we'll have an update for everyone on where we come out with not only the modules that we have from an aspenONE perspective, but how we're going to take everything to market and what we see as core and noncore. But for today we believe -- and if you look at the product portfolio, it is very strong. The products that are leading in their space continue to lead and gain market share in all areas. And we are very strong going forward.

The aspenONE part of the business from a solution and integrated product suite perspective is a important part of our business going forward. A year ago in October it was announced that AspenWorld, really from a standing start, it has become an important part of our business and we think we're going to be on track to meet our goals for the year, which we will outline for you on the call in February as well.

Great. Thanks. And then just one final one and I'll get back in the queue. For you, Chuck, you mentioned a renewal contract for HYSYS in international one that seemed fairly significant. Was that a scheduled renewal? Or could we take that renewal as a sign that customers are now comfortable with this sort of resolution of the FTC issues and starting to come back maybe even in advance of scheduled renewal times?

Well, that's an important deal for us, not only because it's a international customer and a leading energy company in its space. It's important in that it was a HYSYS piece of business -- driven largely by HYSYS which is an important energy product for us and the leader in its space worldwide. We continue to see lots of demand for the products in general. And we're not seeing any drop-off on that front. And the pipeline is robust in all the different areas, whether it's engineering renewals, as this one was, aspenONE-related integrated suite solutions, opportunities for energy cost management, and inventory management, and ethylene scheduling that we've talked about in the past, and as well as planning and scheduling in the plants, which we have a leading market share in that space as well.

So it's pretty broad-based as we move forward this year. And I think it represents more than anything else the AspenTech team's focus on our customers over the last 10 months and their getting comfortable with where we are as a company, our financial position. They've always been supportive of us. They always liked our products. They believed that we lead technically in most of the spaces. We have a very high market share in many of the products and spaces that we serve. And we think that now we're going to start to see additional traction going forward.

Okay. Thanks.

Your next question comes from Philip Alling with Bear Stearns.

Thanks very much. Chuck, could you give us a sense really on what investor expectations should be with respect to installment receivables going forward and any changes there, if you could help?

Yes. In general what you should see going forward is with the increased revenue, we would expect that our ability to sell that paper and that revenue would increase with the revenue ramp. Our expectation is not to increase the installment receivables line item. There are some major customers AAA rated that refuse to allow us to sell their paper. That would be the exception. If you're seeing anything going on in that line item, that would be the case. Otherwise if, again, as we've mentioned throughout our calls, we are not a bank. We are not a financing institution. We will sell the paper to the appropriate sources of funding for us, and we will do so on a very aggressive basis as these deals come in.

Okay, thanks. That helps. Just want to get a bit more color on the litigation and legal expense that was backed out of the pro forma results for the quarter. Could you give us a little sense of what the level of legal expense that is implied in your guidance on the G&A line going forward?

Well, that line item includes a number of different categories as it relates to the legal costs that are ongoing. Some relate to the shareholder suits, some relate to follow-up on our FTC activities and SEC reporting and so on. So going forward we expect that that line item will decrease as it has continued to over these past several quarters. And we're hoping that sooner than later we won't have to deal with as many lawyers in the future as we have in the past.

So could you clarify then sort of what's baked into your guidance as far as ongoing legal expense for the December ending quarter?

We expect that line item will decrease by more than twofold and it will be at least -- it will be somewhere half that number or less.

Just finally, just with the cash flow from operations in the quarter, could you share that with us?

The cash flow from operations was a negative 19 million. Again, Phil, if you look on the balance sheet you'll see that 18 million decrease in payables and accrued expenses was a significant use of cash. And the level of revenue that came in led to an inability to sell as much paper as we would have liked to for cash flow coming in.

Thanks very much.

You're welcome.

Your next question comes from Robert Schwartz with Jefferies & Company.

Thank you very much. How much of the revenue in the quarter was related to aspenONE products?

It was on the license line it was about 5%.

Is that down?

It's about flat sequentially, I believe, from the fourth quarter. So it's roughly in-line from what we did in Q4, I believe and it's down a little bit from Q3. I think we reported at that time it was about 10%.

That's what I recalled.

But it's in-line with where we expected it to be, given the state of the pipeline and the newness of the solution that we have. I will say that there was material revenue in the quarter on the services line as it relates to aspenONE products and projects, which is an improvement for us both on revenue line and on the margin line. So aspenONE is a important product for us going forward. For our customers and also for the Company and we expect it to be material going forward.

We just announced in the last quarter's call and also a little bit here tonight a number of deals in the aspenONE space. We believe that we're going to start to see some traction in the area of planning and scheduling, ethylene scheduling, inventory management and operations scheduling for aspenONE, our MES solutions. So these are things that are starting to get traction and we think our pipeline is strong going forward.

And just to be clear, some of those accounts that Mark just referenced to did not reflect in our revenue number currently, but will in the future -- in the near future.

Yes. Last quarter you mentioned that Europe was better-than-expected but North America and Asia were not. Could you talk about the geographic break this quarter and your confidence in it and how you feel about it?

We don't give guidance or break out our quarterly numbers on a quarterly basis by region. It came in, obviously, a little bit lighter than we had anticipated in a couple of the regions leading to not achieving the guidance that we had set out for you on the revenue line. We were comfortable with, specifically as it relates to the revenue in North America quarter, which has been I think a concern for people over several quarters that maybe things were not good in that region. That was our strongest region in this quarter. Things can be lumpy from quarter-to-quarter, and there are significant vacations and things in Europe and the like. So it is a bit seasonal and it can be lumpy. But overall it wasn't as good as a team performance as we'd like it to be, but we expect things to solidify and be positive in all areas and all parts of the world for us going forward.

You just finished a quarter where licenses did come up a little bit lighter than you expected yet the guidance looks very robust. And I'm wondering two things. One, do you have better visibility as you look at your pipeline this quarter in terms of where things might close in terms of what buckets they're falling in? And two, do you have an expectation about how fast services will grow this year or this next quarter and that maybe they're accelerating?

The guidance that we gave for this quarter we think represents our opinion today as to where we're going to come out. Obviously, I've been here now 10 months or so, so my visibility into the deals and into the customers and being around and seeing them and spending a lot of time out in the fields with our salespeople and the customer leads me to have more confidence in knowing what we're selling, to whom we're selling it and how things are going to come out. That said, things can be lumpy from quarter-to-quarter. And so we need to be prudent in our guidance. On the services line, we don't expect that that will be sequentially growing this quarter due to seasonality. Professional services organizations specifically never have a good calendar Q4 due to utilization rates and the holiday period worldwide. But we think that we have the right cost structure to continue to maintain the target margins that we set out for you which is 50% plus or minus. That's an important metric for us going forward.

So I think in summary, yes, I think I have better visibility into the deals. I think the customers are much more comfortable with us as we exited the spring and cleaned up our balance sheet in June, which has led them to be more aggressive with interest in purchasing some of our more complicated solutions going forward, which will drive our revenue growth on the license line and on the services line as well in the out quarters.

And then finally for Chuck, just a couple of questions. You guys gave guidance in pro forma, and of course you report GAAP. And I just want to make sure we get things right. The adjustments between the two this quarter were about 6.6 million, maybe you could help us understand how to think about what those adjustments might be to get a GAAP number for next quarter?

There's two major categories. The category that relates to our preferred stock dividend and accretion, which is roughly 3.8 million of that differential, there going forward as we mentioned in the call we now have the stock option price costs associated with both stock options and the employee stock purchase plan. That you should estimate to be in the neighborhood of 1.5 million a quarter. And those are the two major items that we look at going forward as our delta to GAAP and non-GAAP earnings.

And then one last just follow-up. This quarter you paid down a bunch of seasonality receivables and that's why the cash -- [multiple speakers]. You mentioned that. I'm wondering if there are any other predictable big cash expenses so that if you hit guidance is there any reason why we shouldn't expect cash to be up big?

There's no reason. You should expect otherwise.

Thank you.

Your next question comes from Richard Williams with Garban.

Thank you. Wonder if you could talk a little bit about competition and potential substitution and include in that a little HyperTech as it relates to the deal version?

Sorry, I couldn't hear your question.

Oh, I'm sorry. I'm curious if you can give me color on any change in the competitive environment and also if you can give me an update on the HyperTech version that you had to spin out? I think it was 3.7 but I can't remember.

Well, okay. As far as the competitive landscape goes, we're not seeing anything materially different quarter-to-quarter from a competitive perspective. In fact, I think our competitive positioning gets stronger as we go forward and as people get more comfortable with our Company and our execution we believe we'll get better. So we're not seeing anything materially different as it relates to any of the customers. There are obviously some very strong competitors in our space, and it varies from geography to geography and from product line to product line. But in totality not much has changed going forward. I didn't really understand the back half of your question. Are you talking about what we spun out to Honeywell or the Operator Training Business or --?

Yes, just basically the residual that the FTC made you spin out.

We exited the Operator Training Business in December when we sold it to Honeywell. And I guess earlier in either Q1 or early in Q2 in our settlement with KBC we also licensed some technology to them. Those transactions aren't impacting the Company at all.

So you don't see any competitive action from those --?

Yes, I mean, we see competitive activity from lots of different customers in many different spaces in both energy and chemicals and in the various regions, both in licenses and in services. But we're really not seeing anything material.

Okay. All right, thank you very much, and good luck.

Thank you.

[OPERATOR INSTRUCTIONS]. At this time there are no further questions.

Okay. I'd like to thank everyone for listening today and their interest in Aspen Technology. And I'd also like to thank our employees and our team worldwide that may be listening on the call for your efforts in our Company. And we look forward to lots of good things going forth. Thanks.

That concludes today's Aspen Technology fiscal 2006 first quarter earnings conference. You may now disconnect.