Aspen Technology Inc (AZPN) 2012 Q2 法說會逐字稿

Good afternoon my name is Vanessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (Operator Instructions). I would now like to turn the presentation over to your Chief Financial Officer, Mr. Mark Sullivan, please go ahead, sir.

Thank you. Good afternoon everyone. Thank you for joining us to review our second quarter fiscal 2012 results the period ended December 31st 2011. I am Mark Sullivan, CFO of AspenTech, and with me on the call today is Mark Fusco, President and CEO.

Before we begin I will make the usual Safe Harbor statement. That during the course of this call, we may make projections or other forward-looking statements about the financial performance of the Company, that involve risks and uncertainties. The Company's actual results may differ materially from such projections or statements. Factors that might cause such differences include but are not limited to those discussed in today's call, and in our Form 10-Q for the second quarter of fiscal 2012, which is now on file with the SEC.

Also please note that the following information is related to our current business conditions, and our outlook as of today, January 31st, 2012. Consistent with our prior practice, we expressly disclaim any obligation to update this information. Structure of today's call will be as follows,I will begin with a review of our financial results for the second quarter, and then Mark will discuss some additional business highlights before we open up the call for Q&A.

Let me start request a review of the supplemental metrics that we provide, starting with our term contract value, or TCV metric, which measures the renewable value of our multi-year term contracts. Growing TCV is a key focus for us, and we increase the value of the metric by adding customers, expanding product usage, and increasing prices across our customer base. Our license only TCV was $1.36 billion at the end of the quarter, which was up 12.9% compared to the second quarter of fiscal 2011, and up 4.1% on a sequential basis.

As a reminder, beginning in fiscal 2010, maintenance is generally included as part of our subscription and term contracts. Including the value of bundled maintenance, total term contract value was $1.54 billion at the end of the quarter,which was up 17.9%, compared to the prior year period, and 5.2% sequentially.

The second quarter of fiscal 2012, our annual spend which is proxy for the value of our recurring term license business at the end of each time period, specifically the annualized value of our term license and maintenance revenue, was approximately $284 million, which is an increase of approximately 12% on a year-over-year basis. As we shared last quarter, the growth of our annual spend metric should naturally be slightly lower than the growth of our licensed TCV metric, the reason for this is that licensed TCV is calculated using each contract 's terminal year annual payment, and therefore takes into consideration the total price escalation over the course of a multi-year time period, whereas annual spend only takes into consideration the current year's level of spend.

Moving on to additional metrics future cash collections is the sum of the Company's billings backlog, Accounts Receivable, and the undiscounted value of installments and collateralized receivables. The Company's future cash collections at the end of the second quarter were $858 million, compared to $795 million at the end of last quarter, and $688 million at the end of the year ago period. The largest component of our future cash collections is billings backlog, which was $732 million at the end of the quarter, compared to $662 million at the end of last quarter, and $490 million at the end of the year ago period. As we discussed previously, future cash collections was one of the transitory metrics introduced at the launch of our new aspenONE subscription model to help provide investors with increased visibility into future cash flow potential, and to provide support that our cash flow would scale from the $30 million range to the $90 million range in just a few years. As we met our fiscal 2010 and 2011 cash flow targets, and are on pace to do the same in fiscal 2012, it is more likely than not that there will no longer be a need for this metric beyond the end of this fiscal year.

Now let me turn to our financial results on a GAAP basis. Total revenue was $66.6 million which was up 34%, from $49.8 million in the prior year period. This is well above our guidance of revenue in the range of $52 million to $53.5 million. Of the $13 million in revenue overage, approximately $10 million related to a few sizable transactions that I will detail.

First we mentioned at the time we provided our guidance that there was potential for variability due to the fact that we had a few sizable customer contracts with payments due at the end of the quarter. We recognized revenue from those contracts on a cash basis. These transactions were excluded from our guidance, however we did in fact collect approximately $4 million in cash before the end of the quarter, resulting in revenue recognition of an equal amount. The second transaction involved a contract renewal with one of the world's largest energy companies, that is currently undergoing a significant change to its business structure. This customer has an expiring legacy contract for point products, and they simply wanted to renew what they already had in place, because they are currently focused on managing the change in their business structure. The contract was renewed on its original terms with prescribed escalation, but the original terms did not include bundled maintenance for the life of the contract. And as such the revenue was recognized on a upfront basis.

We have had other customers with similar renewal rights in the past, however this is the first time in the 2.5 years since the introduction of our new subscription model, that will we have had a customer renew a legacy contract. As such, we view this as an unusual circumstance. While we do not typically call out the specific size of customer transactions, we do not plan on making it a standard component of our future disclosure, we thought it was important to provide extra color in this situation, given the magnitude of the revenue and profitability upside. In addition, the fact that we recorded $10 million in revenue during the second quarter that will not recur in our third quarter, clearly influences our upcoming sequential comparison of our P&L.

Looking at additional details of our P&L, subscription and software revenue was $46.5 million in the second quarter, which is an increase from $25.3 million in the prior year period, and $31.9 million last quarter. The completion of our revenue model transition alone should lead to continued steady increases in our subscription revenue for the next several years. In order to provide further transparency into our subscription and software line, we provide additional details on a few of the components within that revenue line that can have quarter-to-quarter variability.

During the second quarter we had $1.1 million of subscription software revenue that was related to perpetual licenses, and $13.7 million that was related to legacy term license agreements not recognized on a daily basis. Which spiked from last quarter due to the large transactions I just referred to. Our growing subscription business positively impacts our deferred revenue balance which was $144.2 million at the end of the second quarter, representing a 41% increase compared to the end of the year ago period. Services and other revenue was $20.1 million down from $24.5 millionin the year ago period. Consistent with our previous commentary, maintenance revenue is increasingly being reported within the subscription revenue line, as more contracts are converted to the new aspenONE licensing model. As a result, we continue to expect the run rate in our services and other revenue line to be variable quarter-to-quarter, but trend downward as our revenue model transition completes.

Turning to profitability. Gross profit was $53.6 million, with a gross margin of 80.6%. Which compares to $36.3 million and a gross margin of 72.8%, in the prior year period. The increase in gross margin was driven primarily by the significant growth of subscription and software as a percentage of our total revenue, due in part to the large transactions recognized during the quarter.

Operating expenses for the quarter were $46.6 million, total GAAP costs including cost of revenue were $59.5 million, which was relatively consistent with $59.1 million in the year ago period, and down from $66.8 million from last quarter. Higher than guidance revenue, combined with continued solid expense management, led to operating income of $7 million, well above our guidance of an operating loss in the quarter, and compares to an operating loss of $9.3 millionin the year ago period.

Net income for the quarter was $3.8 million, or $0.04 per share, an improvement compared to a net loss of $10.3 million, or $0.11 per sharein the second quarter of fiscal 2011. Our non-GAAP operating and net income for the second quarter which exclude the impact of stock-based compensation expense and restructuring, were $10.1 million and $6 millionrespectively. An improvement from a non-GAAP operating and net loss of $6.9 million and $8 millionrespectively in the year ago period. Our non-GAAP income per diluted share was $0.06 in the second quarter of fiscal year 2012, based on 96.3 million shares outstanding, compared to a non-GAAP loss per share of $0.09 based on 93.3 million shares outstanding in a second quarter of fiscal 2011. The increase in the shares outstanding on a year-over-year basis is due to the fact that the second quarter of fiscal 2012 uses a fully diluted share number as a result of the GAAP profit that AspenTech generated for that quarter. The reconciliation of GAAP to non-GAAP results is provided in tables within our press release, which is also available on our website.

Turning to the balance sheet and cash flow. The Company ended the second quarter with $143.3 million in cash, a decrease of $2.1 million from the end of the prior quarter. We used $11.1 million of cash to repurchase common shares during the second quarter, and continued to reduce our secured borrowing balances, I will detail in a moment. We also generated $23 million in cash flow from operations, and $22.3 million in free cash flow after taking into consideration $700,000 of capital expenditures and capitalized software.

At the halfway point of the year, the Company has generated $28.3 million in cash flow from operations, and $27 million from free cash flow. We are ahead of where we expected to be at this point in the year, due primarily to very strong collections during our second fiscal quarter. While the fourth quarter always has a significant amount of collections that are due at the very end of the fiscal year, which can add an element of variability, we are moving into our seasonally strongest cash flow quarter, and are comfortable increasing our full year free cash flow target from the mid -$70 million range to approximately $80 million. The Company once again did not sell any installments receivables to raise cash during the second quarter of fiscal 2012, and we ended the quarter with total secured borrowings of approximately $35.5 million, which is down $14.6 million compared to the end of the first quarter.

As a reminder, we have approximately $18 million of secured borrowings that are currently being reported in our accrued expense and other current liabilities balance, this amount is down from the approximately $25 million at the end of last quarter. We continue to evaluate whether we will replace the underlying receivables with other receivables, or to buy them back. Depending on our final decision, we will either move back to our secured borrowings balance, or be redeemed for cash. Similar to our prior guidance, there is no change to our expectation that secured borrowings will be retired by the end of fiscal 2013, and it will go down by relative equal amounts in fiscal 2012 and fiscal 2013.

With that, let me turn it over to Mark Fusco.

Thanks Mark, and thanks to everyone for joining us today. We are very pleased with the Company's performance during the second quarter. By any measure, the Company met or exceeded each of its primary financial objectives for the quarter. I am particularly pleased that AspenTech delivered accelerated year-over-year growth in total license contract value for both the second quarter and first half of fiscal 2012, as compared to growth in prior fiscal year periods. Our second quarter sequential license TCV growth of 4.1% compared to 3.5% growth in the year ago period, contributing to 12.9% year-over-year growth at the halfway point of the year, up from 11% growth at the same point last fiscal year.

The uncertainty regarding the global economy remains high, and is a top area of focus among investors. As we shared last quarter there is no software vendor that is immune to macroeconomic pressures, particularly as they become more intense. However, AspenTech's accelerated license TCV growth for the second quarter and first half of this fiscal year, is evidence that we have not seen any change in our demand environment thus far. Our business does not typically experience a material increase or decrees due solely to changes in economic growth, which we believe is a result of the combination of our strong market position, long term contracts, mission critical nature of our applications, and our blue chip customer base.

While Aspen Technology is the leading global supplier of software to the processed manufacturing industries, most of our customers are still only using a small portion of our end to end product suite. Although many customers have already adopted our engineering suite, they are only using a minority of the modules within the suite, for those that have deployed our engineering suite more aggressively, many have not implemented our manufacturing and supply chain solutions yet. We believe that there is a significant amount of value that our customers can realize, by implementing Best Practices and additional modules that have already been proven in similar companies in the energy chemicals and engineering and construction verticals.

Looking at our second quarter performance, our business remains strong across our Big 3 verticals and across our major product lines. Energy, chemicals, and engineering and construction, continue to represent 90% or more of the Company's total bookings with the energy vertical representing our largest vertical contributor. And it is worth a reminder that approximately 80% of our business is related to owner/operators, where our solutions are used everyday to run and optimize existing plants. That is a major reason why there is demand for our software in robust and in challenging economic environments.

From a geographic perspective we do not get overly focused on quarterly results because our detailed metrics vary quarter-to-quarter, based on the timing of a relatively small number of sizable transactions. That said, I can share that our business momentum remains solid on a global basis. Looking at our ten largest transactions in the quarter, there was again a mix of engineering, manufacturing, supply chain, driven deals, customer response to our subscription based aspenONE licensing model, continues to be favorable, and we believe our strategy of putting all of our software in the hands of our customers to drive increased usage is working.

In summary, AspenTech continues to deliver against its commitments. We have achieved each of our primary business and financial objectives during the first half of the fiscal year, and we believe we are on track to do the same for the full year. From a long term perspective, we believe that AspenTech will have a very attractive business model characterized by solid growth, strong profitability margins, and consistent growing free cash flow. In addition, we plan to be responsible with our growing cash flow, deploying it in ways that we believe will maximize shareholder value.

With that I will turn it back to Mark.

Okay, thanks. I would like to close with some additional thoughts regarding our financial outlook for fiscal 2012. Based on a solid first half performance and continued customer demand, we are adjusting our expectation for growth to the high end of our original guidance. At the start of the year we shared that we were targeting upper single digit to double digit growth, and licensed total contract value for the full fiscal year 2012. Whether it continues to be a high level of economic uncertainty, we are comfortable narrowing our full year growth target to the upper end, or 10% level given our strong first half performance, and solid pipeline of opportunities for the second half of the fiscal year.

We have discussed many times we believe our non-GAAP growth metrics license TCV and annual spend and free cash flow are the most meaningful measures of AspenTech's business during our revenue model transition. As a reminder, we now expect free cash flow of approximately $80 million for fiscal 2012, which is an increase from our prior guidance of the mid-$70 million range. We are also increasing our P&L guidance due in large part to the previously discussed large renewal, where we were required to recognize the revenue on an upfront basis as compared to a subscription basis. We are now expecting fiscal 2012 revenue of $235 million to $240 million, which is up from our original guidance of $225 million to $235 million.

From an expense perspective we currently expect total GAAP costs and experiences of approximately $260 million to $270 million for the full year, which is better than our original guidance of $260 million to $275 million. Taken together GAAP operating loss is expected to be in the range of $23 million to $33 million, which is an improvement from our prior guidance of $30 million to $40 million, as well as from an operating loss of $54.6 million for fiscal 2011. We continue to assume a GAAP net loss of $20 million to $30 million, or a loss of $0.21 to $0.32 per share. We are now assuming a lower level of nonoperating income, due primarily to fluctuations in exchange rates. In addition, the level of US tax benefit for fiscal 2012, will vary with the level of our pretax loss, and other discreet tax items.

From a non-GAAP perspective, we now expect a non-GAAP operating loss in the range of $13 million to $23 million, an improvement from our prior guidance of non-GAAP operating loss of $20 million to $30 million. We continue to expect a non-GAAP loss per share of $0.09 to $0.19, which is consistent with our prior guidance. Similar to my commentary regarding GAAP loss per share, there is a range of variability on a few items below the operating loss line. Our current focus remains on providing full year P&L guidance and direction from a quarterly perspective. We will provide an added level of detail for the third quarter due to nonstandard drivers to the significant revenue upside in the second quarter.

We currently expect third quarter revenue of approximately $57 million to $60 million for the third quarter, we expect to report a GAAP operating loss in the range of $8 million to $10 million for the third quarter and on a non-GAAP basis that would translate to a non-GAAP operating loss of approximately $5.5 millionto $7.5 million. It is worth pointing out that we expect our shares outstanding for the third quarter to be approximately $93 million, which is backed down from the second quarter, due to the fact that we expect to move back into a loss position. As such we will not incur the diluted impact of options in our share count. With that we are now happy to take your questions. Operator let's begin the Q&A.

(Operator Instructions). Your first question comes from the line Richard Davis with Canaccord.

So Mark, when you sell someone the aspenONE, you have gone out and tried to give people Best Practices and things like that, and the organic growth rate has been accelerated, so that is all awesome, but what is the gating issue to get people to move up, in terms of because you mentioned in your prepared remarks move up and buy more Aspen stuff? Is it just conservatism, is it cultural, are you pushing aside an SAP, orwhat can you do to translate that into a bigger share? Is there anything that modulates that? Is there any delta or elbow in the curve?

Well, certainly when we started this transition 2.5 years ago, the thesis was that we would give people our software and they would use it. We shared some information at our Investor Day last May, about what the uptake in software had been, although it has only been six or seven quarters at that time. And certainly we have seen since that time, increased number of users and increased number of modules or applications being used by the companies who are on the new module. The new commercial model.

So clearly, the transition is working. There is a limit to how process manufacturing companies are going to adopt software, how often they are going to change things, how quickly they can do things in their operating environments. We have clearly seen the benefit of the model change 2.5 years ago, in the growth rate of the Company which we can see here today, which has been consistently up and to the right over time. I think in the spring or some time this calendar year, we will probably have another Investor Day, and at that time, we will talk a little bit more about what is going on specifically with user accounts, and amount of modules that are being used.

Quick follow-up, the services side of the maintenance line, have you ever broken out the mix of services from maintenance, because you mentioned the maintenance will go down, and/or could you tell us what you plan to run services margins at, so that we can figure out the longer term line item there?

Rich, it is Mark Fusco. So on the services line if you remember, back in the day we always said we would run a blended service model sort of in the 50% margin range, you can see that the maintenance has been moving up into the subscription and software line over a period of time. That said, in the second quarter, I think that the professional services business ran somewhere in the high-40's, 47%, 48%, something in that range from a margin perspective, and we run normally in our maintenance business above 80% margin. Nothing in particular has changed with how we run the businessover a period of time, it has just moved around a little bit.

Got it, thank you.

There is more detail in the queue that breaks those line items out separately.

Okay, perfect.

And your next question comes from the line of Sterling Auty with JPMorgan.

Hi, guys. I am curious on the large deal that you mentioned, if we look into the energy industry, especially in oil and gas, kind of the break up idea of taking out refinery from the other parts of the business, seems to be a theme that might recur, so how should we think about these license opportunities and some of these structural changes that may occur in some of your core customers?

Well, clearly, depending on which part of the world you are in, there has been in some cases some companies are moving and splitting themselves into more upstream assets and more downstream assets. There has been several here in the US that have done that, and there are a few others that are planning to. I wouldn't read too much into this specific transaction. This one, they did have a renewal right which they took advantage of. We would expect to convert that customer over time to our aspenONE model. I suspect it will take a little bit as they work their way through their own operating transitions.

But clearly the refining business has been in transition, and is historically a tough business, and it continues to be so. That said, we see opportunities all over to get customers converted to the aspenONE suite, and expand their usage of the modules that we have.

You mentioned the heavy usage in the engineering suite on a couple of modules, but not fully across, can you review for us which of the modules are the most popular in terms of being used? Which ones do you think you could see further uptake that will drive token and additional utilization?And as you look at penetrating on the operations side, what do you think is the natural first step or the modules on the operation side that look the most likely to upsell to gain fraction on the cross idea?

So in the engineering suite, the portfolio, the software portfolio has evolved over a period of time, not surprisingly the Company gets the most usage from its two core simulation products, one for chemicals and one for refining. We now view those products really as the hub for how our users will use all of the different applications that we have. And the latest release of software that came out this last year,you start doing your flow sheet with our simulation product, and then that is the environment from which you launch all of the different other applications that we have.

Whether it is our economics and costing package, or heat exchanging package, or flair analysis package, so there are a lot of different applications on the ribbon now that people can use in an integrated fashion and so it would be those more ancillary products that we would think that there would be lots of additional usage, but we are also seeing additional usage in the core simulation applications as well. We are not sold out by a long shot too. We have lots of growth opportunities, and you can see it in the market share data that came out over the summer with the gains that we are having in market share, we are getting it in the core apps, and on some of the other applications as well.

In the manufacturing and supply chain space, we really look through some of the perpetual licenses and installed base that we have from around the world. As you know, AspenTech has the largest installed base of advanced process control software in this industry. Not, very few of them have been converted to the new aspenONE model, so we will be looking at those things. The same thing can be said for manufacturing software, planning and scheduling, and other supply chain software, and chemical supply chain as well. So we really take a look at what the installed base looks like, and then we will see whether we can convert them over a period of time onto our aspenONE model. And then get them using more software.

It also presupposes which you had seen at the User Conference last spring, that the software is more integrated. So every day it gets more integrated and there is more value that can be created across different applications in the sharing of data, and ability to make decisions with different pieces of information. This is a multi-year transition that we have been undergoing since 2005, when we announced aspenONE, and we are in alignment now with software that is integrated and getting moreso every day, which gives our users lots of opportunity, and we have a commercial model that is integrated along with it. And of course we sell them usage, and give them the software, and help them use it.

And last question, on the manufacturing supply chain, the aspenONE penetration, is it just that you just need those, especially the perpetual licenses to get to a point where they need a certain amount of usage, and you think that upsell looks more economically attractive to go aspenONE? What do you think will be the trigger to gain traction with aspenONE in that base?

I think it is awarenessfrom the customer base about the things that we are doing. We invest quite a bit of money in our products every year. Just north of $50 million, as we have talked about in the past, we will be acquiring technology from other companies that we will be putting into our aspenONE suite. And all those things can create value for our customers.

We do see increased usage and increased opportunity over time, this quarter we had a stronger manufacturing and supply chain quarter than we have had in recent quarters. It doesn't presuppose, please don't read into my comments that we had a weak engineering quarter, because we didn't. But we had strength in the MSE space, which is good, because we clearly see lots of white space in the area that we want to take advantage of.

Alright, great, thank you.

Your next question comes from the line of Tom Ernst with Deutsche Bank.

Hey guys, good afternoon. It is Stan Zlotsky silting in for Tom.

Hey, Stan.

Thank you for taking my question. So in the very beginning of the call you mentioned price increases. Is that just typical stuff? Or is that something more to it than usual? 2% or so?

Yes, I think what we were referring to was in the one deal, sort of old style deal that went upfront from a rev/rev perspective, the contract renewal called for escalation in the deal, which is the normal 2% or 3%. But not price increases per se.

Yes, and on the earlier part of the talk, we just talked about the general things that drive TCV as well, which price increase is one. It wasn't meant to be called out as anything specific for the second quarter.

Okay, got it. Just sort of following up on what Sterling was talking about earlier, how much of your total portfolio has already been switched over to the new suite? I think last quarter it was around 60%? 66% or something?

It is about 70%.

Okay. And last one, on life sciences last quarter, it didn't do so great. How did it do this quarter if you have any updates?

I had more questions than I cared to answer last quarter, because I talked about how our business did. It is a small part of our business, they actually had a pretty good quarter the second quarter. That is why we don't get into it particularly on a quarter-to-quarter basis. Because it does bound around a little bit, and it is nothing to be concerned about one way or another.

Hey guys, this is Tom Ernst, just one follow up to Stan's first question on the pricing side, so recognized that there wasn't anything systemic today, do you feel like you have got a good sense for your pricing power over your market today? Have you had a chance to test that in any markets? And whether or not there are plans to enact that, where do you feel you are in the relationship with customers?

Well, I think we understand where the market is, and we certainly try to price our products to capture some value. Given the large amounts of value that they create for the customers. We have been doing this a long time, prices have risen a little bit over time. As we certainly during my tenure here at Aspen, so we look at different modules and how we price them, and what the legacy contracts look like, and the like. It is not that we try to get everybody to save, but we certainly look at discount levels based on volume, and other things. I think we understand where the market is, and we try to monetize our opportunity the best we can.

Thanks again.

Sure.

Your next question comes from the line of Peter Goldmacher with Cowen and Company.

Hey guys, earlier this year one of the big changes you made to comp plans was paying reps on new business and not for renewals. Can you talk a little bit about how that behavior has impacted your results, and also talk a little bit about how you make sure that once they sell a deal, they are working in that installed base to make sure that they continue to adopt incremental products?

Yes, so we did change in July the comp plan. It had been incrementally changing over a period of time, but this was the year where we really got away from bookings as a metric that we give externally, and we got away from it from a compensation perspective, not only in the sales force, but all of the way through the Company including how the executive team is paid. Two quarters is not a trend. I guess it is better than one quarter, but clearly, we are seeing increased growth in the business. We are also seeing lots more attention to the losses. We always lose a little bit of business, maybe not to a competitor, but people don't need the software, whatever it may be. And we track those now upon a weekly basis on the Company's forecast call.

Everybody has their portfolio, and they need to monetize those opportunities and make sure that they increase their overall installed base in order to get their commissions. So I think it is definitely driving behavior in the Companyaround usage of our software, number of users, and how we grow the installed base, which the end of the day is going to drive the revenue growth of the Company. So there is no doubt that it has changedthe Company materially, for the better in my view, and we will see how we do over the next few quarters. To see whether the dots connect into a trend that we like.

I will say that when we look at the overall percentage of new business, and the percentage of total bookings, it is substantially up from what it would have been two or three years ago. So I think it is absolutely driving the right behavior, and in some markets we are seeing acquisition of new customers in a much more material way, than maybe they would have done in the past. Because growth is growth, and it all increases their own bottom line. So I think it is driving the right behavior. It is still a little early yet to know exactly how this all turns out, but it was the right thing to do, and it really does get the sales force and the executive team and everybody here at Aspen aligned with creating value for the customers, and getting them to use more of our software.

Okay, thank you.

Your next question comes from the line of Phillip Rueppel with Wells Fargo Securities.

Thanks very much. This quarter you had mentioned that there was potentially some big deals that weren't included in guidance. You mentioned that did account for $4 million of the upside. Is that pretty much done for the rest of the fiscal year, or do we still have some cash basis legacy deals that could go into one of the next couple quarters?

There is nothing material of a similar nature. These are two legacy deals that got booked several years ago in the calendar fourth quarter. Just the timing of the cash. We have other cash basis deals but they are not going to move the needle.

Okay that is fine. And then maybe Mark, you could give a little color. As we start to hear about potential new refineries in different locals or new chemical plants, are we likely to see that, is there any shift in terms of the purchase pattern for Aspen between the engineering and construction companies and then, or the major and user customers, or is it pretty much business as usual, and are you starting to see any increased activity for kind of new plants and facilities? Thanks.

Well, it is a bit of a mixed answer,depending on which vertical I guess we are looking at. In the E&C space we would account for a deal sold to Bechtel in the United States, they may use it anywhere in the world. But we would count that as a North American deal.

From an owner/operator perspective either in the engineering space, or in the MSC those deals would get counted in the local market where the owner/operator happened to be. And I think that is driving some of the growth that we are seeing in Asia, in Latin America, in Russia, and for the first quarter in theDecember quarter in the Middle East. So I do think that the execution of the team locally will drive revenue. Not only for the engineering space, but more specifically for the MSC space. But in the E&Cspecifically, we really count that wherever we sell it as opposed to wherever they use it.

Great. That is helpful, thanks.

Your next question comes from the line of Brenden Barnicle with Pacific Crest Securities.

Mark, when you were answering Richard Davis' question about increase in modules you referred back to the Analyst Day last year, and I think at that you had mentioned that I think a 20% uplift that you were seeing in deal sizes from folks who went to aspenONE, and you referenced I think at that event, several customers that were over 100%. As you have gone through the first half of the year, are you seeing that trend accelerate towards greater than 20%? Are you just staying in line? Any more color you can give us around that trajectory?

We have the same question, Brenden, at the end of the September quarter. We haven't given any metrics on that. I think we will give that out again in May. I think it is safe to say that the deals that we are doing, whether they are natural renewals or early renewals have nice growth along the way with them. That is consistent with what we would have said in the past. We are getting good growth. We are starting to get some growth of customers coming back for additional usage who signed an aspenONE deal maybe a year or two ago, early in the conversion cycle. So we are starting to see a little bit of difference, but I would say it is all positive at the moment. And I think we will give out some more information about usage and how contracts change in the spring.

Great, and then just following up on the Middle East, you have now had that as a direct selling effort for almost a year, wondering if you had any color on how that is going? Is that lawsuit with the resellers of that, is that still in existence or is that wrapped up?

That arbitration still exists. You will see it in the queue, there has been no determination by the tribunal yet. The Company doesn't have any change to its opinion about it. And we think we are fully disclosed in the queue. We are just waiting to find out what happened. We thought it was going to be several months ago. It hasn't been. We are waiting just like you are.

But as far as Middle East specifically, our team is in place now. We have got offices in multiple countries there. We had a good quarter in December. Which was the first one, and in fact, we closed a nice deal in the home country of our former partner, which was nice. So I think we are active there, and we are doing the right things. And we will see how we do, but getting that territory back for the Company as a direct sales model like we sell everywhere else in the world was important, and it is nice that the team is starting to put things together.

Great, thank you.

Your next question comes from the line of Richard Williams with Cross Research.

Hi guys, thanks for taking my question. First of all, did I miss it, or did you not give the ASP and large deal metrics?

Yes, we didn't give it out, Rich. Since we don't do the bookings any more, we didn't give out the ASP or anything. We did have a bunch of big deals in the quarter. So I am sure if we had given out the number, the ASP would have been quite high, but we didn't give it out.

Okay. Also could you give some geographic color on the supply chain business?

From a geographic perspective, overall we were really solid across all of the different geographies. They all did pretty well. We had some that were obviously bigger than others, but they all did well, including the topic which we always get asked about which is Europe, which had a very good quarter as well as in the second quarter. So overall, it was really well balancedgeographically, and as I mentioned earlier, we don't break it out geo by geo from an engineering or MSE perspective, but we did have a good manufacturing and supply chain quarter. In the second quarter and we are spending a lot of time at it, because it is a highly differentiated part of Aspen's offering, and it is something that we think there is lots of opportunity to grow. So we don't break it out in the quarters, but we did well, and all of the geographies are strong.

Also, could you break it out by customer type, any color there?

No, we really don't. We stopped about five years ago giving out specific customer contract sort of information for a lot of different reasons. Suffice it to say, energy as we mentioned in the prepared remarks was strong for us, engineering and construction as well, chemical is a little less so, but again that bounces around quarter-to-quarter, and I wouldn't necessarily read much into it.

Yes, because I was looking more for just general type of customer on the supply chains.

Your last question comes from Mark Schappel with The Benchmark Company.

Just one question here, Mark, there have been several announcements in recent months of oil refinery closures, particularly here on the US East Coast. I was wondering if you have had a chance to sit back and decipher how you think that is going to impact your business going forward?

It could, and it there has also been some divestitures, or other things. Usually when there are divestitures or M&A activity it tends to be a positive for our business, as new acquirers come in and buy assets and do things. It hasn't impacted the business so far. You are right, there are some refineries that have been closed. There are obviously others that are being built and other things that are going on in other parts of the world. So it hasn't effected us yet, it may. But we don't see it so far.

Thank you.

There are no further questions at this time.

Okay, thank you very much to everyone for joining us on the call. Thanks to the Aspen team around the world for another good quarter of performance. And I look forward to seeing you at various events this quarter and next. And again thanks for your interest in AspenTech, and participating here today. Thanks.

This concludes today's conference, you may now disconnect.