Aspen Technology Inc (AZPN) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Aspen Technology third-quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the conference over to Mr. Mark Sullivan, Chief Financial Officer. Sir, you may begin your conference.

Thank you. Good afternoon, everyone, and thank you for joining us to review our third-quarter fiscal 2012 results for the period ended March 31, 2012. I'm Mark Sullivan, CFO of AspenTech and with me on the call is Mark Fusco, President and CEO. Before we begin I'll 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 to those discussed in today's call and our Form 10-Q for the third 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, May 1, 2012. Consistent with our prior practice we expressly disclaim any obligation to update this information. The structure of today's call will be as follows. I'll begin with a review of our financial results for the third quarter and Mark then will discuss some additional business highlights before we open up the call for Q&A.

Let me begin by reviewing the supplemental metrics that we provide, starting with our term contract value, or TCV metric, which measures the renewal 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 new customers, expanding product usage, and increasing prices across our customer base. Our license-only TCV was $1.4 billion at the end of the quarter, which was up 14.5% on a year-over-year basis and 2.9% 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 $1.59 billion at the end of the third quarter, which was up 19% on a year-over-year basis and 3.3% sequentially. Our annual spend metric is a proxy of 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.

As of the end of the third quarter, annual spend was approximately $292 million, which is an increase of approximately 13% on a year-over-year basis and approximately 3% sequentially. As a reminder, the growth of our annual spend metric should logically be slightly lower than the growth in our license TCV metric. The reason for this is that the license 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 onto 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 metric was $841 million at the end of the third quarter, which is up from $695 million at the end of the year-ago period. It was down from $858 million at the end of last quarter, primarily due to the fact that we had a very strong cash collection in the third quarter. The largest component of our future cash collections is billings backlog, which was $739 million at the end of the quarter compared to $732 million at the end of last quarter and $526 million at the end of the year-ago period. As we've discussed previously, future cash collections is a transitory metric, introduced at the launch of our 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 mid-$90 million range in just a few years. As I'll discuss in greater detail in a few minutes, we believe we have clearly demonstrated the cash flow potential of our business model. As such, we will no longer use this metric beyond the end of this fiscal year.

Now let me turn to our financial results on a GAAP basis. Total revenue of $61.3 million was up $16.6 million -- 16.6% from $52.6 million in the prior-year period, and third-quarter revenue is above our revenue guidance of $57 million to $60 million. Looking at revenue by line item, subscription and software revenue was $42.4 million for the third quarter, which is an increase from $30.7 million in the prior-year period. Subscription and software revenue was down from $46.5 million last quarter. Recall that last quarter benefited from $6 million of revenue from a term arrangement that was renewed on a basis consistent with our old licensing model and was therefore recognized upfront. We also had $4 million of cash-basis revenue that was recognized last quarter because the annual invoice amounts were collected. As we look ahead, we expect subscription and software revenue to resume sequential growth in the fourth quarter, and 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 consolidated subscription and software line, we provide additional details on a few of the components within subscription and software that will have quarter-to-quarter variability. During the third quarter we had $400,000 of subscription and software revenue that was related to perpetual licenses, and $1.7 million was related to legacy term license arrangements not recognized on a daily basis. Our growing subscription business positively impacts our deferred revenue balance, which was $175 million at the end of the third quarter, representing a 43% increase compared to the end of the year-ago period. Finally, services and other revenue was $18.9 million compared to $21.9 million in 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 $48.9 million with a gross margin of 79.7%, which compares to $42.2 million and a gross margin of 80.2% in the prior-year period. Recall that in the third quarter of fiscal 2011, our gross margin had a one-time benefit of $4 million, or 800 basis points. Overall, we're pleased with the rising trajectory of our gross margin, continues to benefit from the growth in subscription and software revenue as our licensing model transition proceeds. Operating expenses for the quarter were $51.7 million. Total GAAP costs, including costs of revenue, were $64.2 million, which was essentially consistent with $59.8 million in the year-ago period, after adjusting for the one-time benefit to gross profit that I just discussed. Expenses were up modestly compared to $59.5 million last quarter, due to typical expense seasonality, where we see an increase in employee-related benefit and payroll tax expenses at the beginning of the calendar year. We're pleased with our ability to maintain solid expense discipline and that will remain a focus moving forward.

Operating loss of $2.8 million was better than our guidance for an operating loss of $8 million to $10 million and an improvement from an operating loss of $7.2 million in the year-ago period. Net loss for the quarter was $500,000, or $0.01 per share, an improvement compared to a net loss of $5.7 million, or $0.06 per share in the third quarter of fiscal 2011. Our non-GAAP operating loss for the third quarter was $100,000, and non-GAAP net income was $1.4 million, both of which exclude the impact of stock-based compensation expense and restructuring charges. This represents an improvement from a non-GAAP operating and net loss of $5.2 million and $3.8 million, respectably, in the year-ago period. Our non-GAAP income per share was $0.01 in the third quarter of fiscal 2012 based on 96 million fully-diluted shares outstanding, compared to a non-GAAP loss per share of $0.04, based on 93.9 million basic shares outstanding in the third quarter of fiscal 2011. The increase in shares on a year-over-year basis is due to the fact that we reported a non-GAAP profit this quarter, and as such, used a fully-diluted share count. 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 third quarter with $182.6 million in cash, an increase of $39.3 million from the end of the prior quarter. We used $11.9 million of cash to repurchase common shares during the third quarter, and continued to reduce our secured borrowings balance, as I'll detail in a moment. The third quarter is typically our strongest cash flow quarter of the year and during the third quarter we generated a record $54.7 million in cash flow from operations, and $54.3 million in free cash flow after taking into consideration $300,000 of capital expenditures and capitalized software. Through three quarters of fiscal 2012, the Company generated $83 million in cash flows from operations, and $81.3 million in free cash flow. This is not only record performance, but it is also better than both our original and previously-raised free cash flow guidance for the full fiscal year. The strength of our free cash flow during fiscal 2012 has been driven by several factors, including better-than-expected growth, lower-than-expected expenses, and strong working capital management. As we've spoken about the past, quarterly cash flow hit a level of variability due to the timing of cash collections. In the third quarter, we had an outstanding effort in this regard during what is traditionally our strongest cash flow quarter of the year. In addition, during the third quarter we received a $6 million cash payment from a customer that elected to pay for the full cont -- full-term contract on an upfront basis and they did so with zero discount.

Heading into the fourth quarter, we have a smaller receivables pool as compared to the third quarter, and I would remind you, as we did last year, that we have a good amount of customer payments that are due towards the very end of the fourth quarter, which adds a level of variability. All things considered, we're comfortable with a meaningful raise to our fiscal-year 2012 free cash flow guidance to the mid- $90 million range, which is up from our original guidance of the mid- $75 million range and our raised guidance of $80 million. We're also confident that our fiscal 2013 free cash flow will be about the $100 million guidance we most recently provided. It's reasonable to assume a $15 million raise consistent with our increase for fiscal 2012, bringing us to approximately $115 million in free cash flow for fiscal 2013. We'll provide an update to our free cash flow guidance on our fourth-quarter call.

The Company, once again, did not sell any receivables to raise cash during the third quarter of fiscal 2012 and we ended the quarter with total secured borrowings of approximately $33.6 million, which was down $1.9 million compared to the end of the second quarter. Third-quarter total secured borrowings included approximately $18 million reported in our accrued expense and other liabilities balance. After the end of the quarter we paid this obligation off, rather than replace it with other receivables. The impact of this transaction on accrued expenses and cash will be reflected in our June 30, 2012 results. The decision to pay off the $18 million secured debt prior to the due date will result in reduced interest expense over what would've been the remaining term of the obligation. Similar to our prior guidance, there is no change to our expectation that secured borrowings will be fully retired by the end of fiscal 2013. Now let me turn it over to Mark Fusco. Mark?

Thanks Mark, and thanks to everyone for joining us today. Across all measures the third quarter and the first nine months of fiscal 2012 have been a strong performance for AspenTech. Moreover, when we look at where we expect to land for the full fiscal year we are approximately a full year ahead of where we expected to be at the time we announced our business model transformation. When we announced our new aspenONE licensing model, we shared our view that the Company would be able to deliver $1 per share in free cash flow by fiscal 2013. While this appeared to be a lofty goal of the time, we share today that we expect to not only deliver that level, but to do so during fiscal 2012, one year early. Over the last few years, we have seen customers embrace our subscription model offering, which is the future of AspenTech. The majority of our customers have already converted to the new subscription model, and we are seeing the end result that we initially intended; customers are using more of our products and overall usage is increasing.

As I have spent time on the road meeting with customers over the last few months, I am convinced that we are delivering the right set of products with the right packaging to meet our customers' needs. We also have the right business model to quickly put new technology into the hands of our customers for both their benefit as well as ours. With the growing scale of our cash flow and dramatic improvement of our balance sheet over the last three years, we are also now in a position to use our strong free cash flow to enhance shareholder value. As it relates to our third quarter, in particular, I am very pleased that we were able to generate total license contract value growth of approximately 15% on a year-over-year basis. This speaks well to the health of market demand, as well as demand for AspenTech's solutions, in particular. During the third quarter we saw a strong global demand for our end-to-end product suite and in each of our core verticals, as well. Energy, chemicals and engineering and construction continued to represent 90% or more of our business during the quarter, with the energy vertical representing our largest vertical contributor. 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.

From a product perspective, there was again, a mix of engineering and manufacturing and supply chain-driven deals within our top ten deals in the quarter. We are pleased with the usage trends we are seeing on our aspenONE platform and believe there is considerable opportunity to drive increased awareness among customers related to the end-to-end capabilities of our engineering, manufacturing and supply chain software suite. We continue to have a market share position that is several times that of our nearest competitor in the engineering market, in addition to being the markets share leader across the overall target market we are addressing. We believe our subscription-based model, which provides customers with access to all of our software modules within our three major product suites, is lowering the barriers to adoption and positions AspenTech well for continued market share gains on an organic basis. At the same time, we believe there is an attractive opportunity to make tuck-in acquisitions of companies that have strong technology but lack global scale and a large customer base. Our licensing model means that we are able to offer acquired capabilities to every subscription-based customer quickly and efficiently, and then grow as customers try our new capabilities and ramp usage levels over time.

During the third quarter, we made our first technology acquisition since I joined the Company as CEO over seven years ago. This was a technology-focused acquisition of privately-held SolidSim Engineering, a provider of solids process modeling software. The addition of SolidSim builds on existing solids processing modeling capabilities in our aspenONE engineering software and will eventually enable our customers to model solids, liquids and gas processes for their facilities. The ability to work within a single modeling environment will have the potential to drive improved efficiency among engineers, as well as increased value from enhanced process optimization. This capability is something that many of our core -- of our current customers in our core verticals of chemicals and energy need, and soon we will be able to provide it to them.

In addition to being pleased with AspenTech's execution against our growth strategy, it is very encouraging to see our business model scaling. While our revenue model transition currently masks this aspect of our financial performance from the P&L perspective, it is increasingly obvious with the growth of our cash flow. As we look ahead, we have both the momentum and business model that we believe will generate best-in-class profitability margins and provide strong and growing cash flow for many years ahead. We look forward to updating investors on our long-term product and growth strategy, usage trends, and our financial model at our oncoming analyst day on June 7 in Boston. With that, I'll turn it back to Mark for some final comments.

Okay, thanks, Mark. I'd like to close with some additional thoughts regarding our financial outlook for fiscal 2012. We began the year with the full-year total license contract value growth target of upper single-digit to double-digit growth. Last quarter we narrowed our guidance range to the upper end at 10%. Based on our strong third-quarter performance and solid pipeline of opportunities for the fourth quarter, we are further increasing our TLCV growth expectations to the 11% to 12% range for the full-year fiscal 2012. As we've discussed many times, we believe our non-GAAP growth metrics, license TCV, annual spend and free cash flow are the most meaningful measures of AspenTech's business during our revenue model transition. As I shared previously, we again raised our free cash guidance to the mid-$90 million range for fiscal 2012. With respect to our P&L, we are raising our fiscal 2012 revenue guidance to approximately $240 million to $242 million, which is above our prior guidance of $235 million to $240 million.

From an expense perspective we will believe come around the low end of our most-recent guidance for total GAAP costs and expenses of $260 million to $270 million. Taken together, GAAP operating loss is approximately $18.5 million to $20.5 million, which is an improvement from our prior guidance of an operating loss of $23 million to $33 million, as well as from an operating loss of $54.6 million for fiscal 2011. Our updated forecast is for a GAAP net loss of approximately $14.5 million to $16.5 million, or a loss of $0.16 to $0.18 per share, which is an improvement from our prior guidance of a loss of $0.21 to $0.32. From a non-GAAP perspective, we are now targeting a non-GAAP operating loss of approximately $6 million to $8 million, which is an improvement compared to our prior guidance of a non-GAAP operating loss of $13 million to $23 million. We now expect a non-GAAP loss per share of $0.06 to $0.08. Based on our updated full-year guidance, our implied fourth-quarter guidance calls for fourth-quarter revenue of approximately $61 million to $63 million. We expect to report a GAAP operating loss in a range of $7 million to $9 million for the fourth quarter, and on a non-GAAP basis that would translate to a non-GAAP operating loss of approximately $4 million to $6 million. With that, we're now happy to take your questions. Operator, let's begin the Q&A.

(Operator Instructions)

Your first question comes from Richard Davis of Canaccord.

Thanks. When I step back and I think about where you are in your upgrade cycle, and where the process industry is economically and those kind of things, and you have your guidance, is there any reason to prevent Aspen from growing your new license revenues at a mid-teen pace for the next few years as --? I know you're talking shorter-term, but at least logically at a mid-teen's pace -- is that a rational pace, or what would have to happen for that not to happen?

Well, over the past few years we've been growing the license portion of our business in the low double digits. This is the first quarter on a year-over-year basis where we did a little bit better than that. Last year we finished around a 12% license growth. This year in the third quarter it was just under 15%, so, we've certainly been improving over a period of time. We have no guidance going forward for fiscal 2013 and 2014 yet; we'll be working at giving you some of that as we go forward.

But certainly, given how the macro world looks, and how things are going, we think our end markets are strong. We've seen good global demand across all the verticals that we serve. But we do watch the news like everybody else, and despite the fact that when the economy got soft a few years ago -- we grew quite well during that downturn -- you never know how things will go.

So, we're not committing, certainly, to a mid-teens growth. It's nice that we got there in this quarter; it's certainly something that we're working on, but I'm sure there'll be a few bumps in the road along the way. But overall, we feel good about the execution of the team, and we certainly haven't seen any weakness in any parts of the world. So, so far, so good, and we certainly will work real hard to achieve mid-teens growth, but we have no long-term guidance out for it.

Got it, and then just a quick follow up. On the M&A front, thankfully you're not trying to buy social media companies, but does it feel like the valuation expectations are rational? I'm sure there's the exception to the rule, but as a general statement, does it feel okay to -- expectations in terms of the sellers' pricing thoughts?

It's on a deal-by-deal basis, obviously. We have an active M&A group here. We're looking at all sorts of different acquisitions. I think you can see, from the one that we just did, it was small, and it was certainly focused around the core business that we compete in. I think you should assume that will continue, that we'll be looking for small tuck-ins of technology that we can integrate into our suite, and get out into the hands of our customers. And we'll be mindful and certainly watching along the way to make sure that valuations are where they should be. So, I think it's on a deal-by-deal basis. Certainly, as the equity markets go up, many of the companies that we're looking at look at a comp that looks like AspenTech, so, we understand what that is, and we'll be watching for it.

Perfect, thank you very much.

Our pleasure.

Your next question comes from Sterling Auty at JPMorgan.

Yes, thanks. Hi, guys. You gave us a lot of really good transparency in the acceleration of the numbers, and you talked about solid global demand, but can you drill in a little bit deeper, maybe start with engineering and construction. Now, is there any trends that you were seeing, whether it be by geography or the type of company or even deal size? And then maybe do the same thing on the operations front and supply chain?

In each one of the verticals, as we said in our prepared remarks, and we always say it every quarter -- it does bounce around a little bit quarter-to-quarter, so we try not to get too fixated on it, one way or the other. It generally tends to sort itself out at the end of a fiscal year, and we certainly give you the information at the end of the year.

On the E&C space, there's been consistent demand. It's been a good year for us in the E&C space. Our customers, from what they're telling us, are quite busy. There's lots of opportunity for them, and we're seeing demand. Even in the places that one would assume would be maybe slower from a macro GDP growth prospective, we're seeing solid demand. It's clear there's lots of demand in the energy business. There's lots of things going on in shale oil, shale gas, and lots of build out in those spaces.

Chemicals has been solid, as well. They're a little more cyclical by nature, but there's been good demand as well, and that's also been a global issue. So, we've had good, solid demand across the world. We haven't seen any softness year-to-date in the business as reported, nor are we seeing softness in the pipeline for the fourth quarter. So, we still have good coverage ratios, and we're seeing good demand from our core customer sets, and people are interested in energy and believe that this is a growing business over time. So, we expect it to continue to do reasonably well.

When you look at the whole supply chain from E&P, the exploration and production, all the way through refinery -- when you look at the energy complex, where are you seeing the stronger points, both in the oil side and especially, we all watch the natural gas prices going to zero, or what apparently is going to zero, where is it that you're seeing the strengths?

Well, I think it depends by region, and even depends on different parts of, say, the US. On the Eastern Seaboard, refining is under real pressure because of the source of their crudes and the pricing. In the middle part of the country, they have better profit margins. So, I think it depends by region. We are seeing lots of demand for midstream here in the United States. We expect, in some parts of central Europe, that'll be -- and in China and Asia, as well, as people get more interested in shale gas, there'll be more opportunities for us there.

There are refineries being built in various places. But I think it depends on where you are, and what your particular part of the business is. It's no surprise or secret that the refining business has been tough over the past couple of years, but we're seeing it loosen up a little bit, and certainly the upstream part of the business is real busy. We don't go all the way up into reservoir modeling and things like that, but, in our part of the upstream business, it's been busy.

And one last question, and I'll jump back into the queue. Around the refinery, we have the -- there's lots of news of different assets moving around. Today -- or yesterday, was the Delta acquisition of the refinery in Pennsylvania. Can you remind us -- when assets move around like that, is that an opportunity for you to go back in and sell additional licenses, and why or why not?

It's not 100%, but it usually is, yes. So, as some of these assets get acquired, we tend to pick up different customers in different places. There was an announcement -- I don't know if it was today or yesterday -- that Sunoco had been purchased. So, there's lots of things going on in the M&A part of the business in energy, and it's generally an opportunity for us.

All right, great. Thank you.

Your next question comes from Tom Ernst at Deutsche Bank.

Good afternoon, guys; thanks for taking my questions. Third quarter in a row of accelerated TLCV, which is encouraging. I'm curious, Mark -- whichever Mark wants to take it -- what's driving it? Specifically, you mentioned on the call a price increase. Do you think that's been a driver these last three quarters, and what did the price increase look like relative to your typical 2% raises?

No, we haven't had a price increase. I'm sorry for the confusion, if you inferred that we did. We haven't had a price increase. It's really about the customer demand. We certainly, over the past 2.5-plus years been in the process of converting our customers to the aspenONE subscription licensing model, and working with them to scale their usage of both our applications, and certainly working on getting more users of the applications, as well. So, it's really about a usage game now. We do have the normal uplift in the typical contract of roughly 2% growth in pricing on an annual basis during an average 5.3-year contract, but there hasn't been any pricing increase, per se.

Okay, I must have misheard you, no problem. So, it's typical with your 2% increases per year in your -- built in the contracts?

Yes. We said in our prepared remarks that our goal as a Company is to get new technology into the hands of our users, and then get our sales organization and tech sales organization to work with them to adopt a technology. That's the fundamental model; I think it works really well. And customers can scale their usage as they see fit, and as we provide value to them. I think that really is the combination of the right products and the right model with pretty good execution across the world that's giving us the benefit.

Okay, and maybe just a little follow up. You said technology purchases -- I assume that means that SolidSim is pre-revenue or small revenue; is that the case?

It's small revenue, yes.

Did you disclose purchase price?

We didn't, but it is roughly in the Q, it's a few million.

A few million. Okay, very helpful. And as you're looking at M&A, I would assume you've got your eyes set, potentially, on bigger deals than that, or do you think this is the sweet spot for you?

Well, I'm sure they all won't be in the few million range, but certainly as we started this process, we were looking for smaller acquisitions for the core markets we serve that were ones that we could work on. We haven't done a lot of this recently, so, don't expect that we'll be going into big deals, but I'm sure they'll be a little bigger than the one that we just did, but not real big.

Okay, perfect. And last question for me. If you said it on the call, I apologize, as well, but what are you finding is your renewal rate on terms coming up -- or term contracts coming up?

It depends, is unfortunately the answer. We've never really given a specific answer to what renewal rates are, but we generally get good growth rates on the renewals. Doesn't happen always; there may be some extenuating circumstances customer-to-customer. We generally have very high renewal rates on all the different business that we have, in the high 90 range, and they generally renew for more money.

That's been consistent?

It's been consistent, nothing's changed.

Great. Thanks again, guys.

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

Hello, Marks. Lots of moving parts in the quarter, but they're all moving in the right direction, which is great. When you look at the dynamic of end-market demand and the business model change and your decision to comp the sales force on new revenue, what do you think of as the primary -- is there a primary driving factor, and then other good things that are just tailwinds? How do you thank about that?

I think it has moved over time, Peter. Almost three years ago, when we changed the model, we knew we would be moving in this direction, and the first part of the conversion process was to get people converted and get them to do it. So, once that started to happen, you're right, we changed the comp plan for the sales force last summer, but I think we also have a very robust product offering now. We do release software now every 90 days. It doesn't mean that every application has something material to it every 90 days, but we've released a lot of new IP in the past year or so. We just had a release in February, which had a lot of new stuff in it. There'll be more releases this year.

So, I think we have a combination of an ability to invest from a product perspective. We've now bought a little company, SolidSim. We have good execution in the field. This is a team that's been together for quite some time, and I think they know how to take these things to market. I think we're marketing more effectively, in addition to all of the other things that we do.

So, I think it's a combination of business model, focus, compensation, product and IP that we bring to market, ability and interest to invest in overall pretty good execution, both from a sales perspective and in the finance part of the world in maintaining our cost structure. So, I think there's lots of folks here at Aspen that have a piece of this pie in the success of the business, but all things come together with the right model and the right operating structure.

So, Mark, would you say that with the positive transformation in Aspen over the last six or seven years, that you've seen your install base also change in their opinion of the Company and getting a little more willing to do business with you guys -- is that something you guys talk about or observe?

Yes, I think -- certainly when I got here seven years ago, we had numerous sets of issues with customers -- software quality issues, usability issues, they had some questions about our balance sheet and our income statement. I think many or all of those things have faded into the past, and we're now in a spot where we're bringing out lots of new IP, and we're finally getting reactions from customers saying -- well, we didn't know you were working on that; you're ahead of us. So, I think our products team has done a really good job in transforming the product line with new user interfaces, lots of initiatives around usability, new IP and products, and you'll be seeing new products that'll be coming out shortly here. So, there's lots of roadmap that the guys have been working on, and they've been doing a real nice job. So, I think it's a combination of things that gets customers comfortable with any vendor or supplier, and we've been working hard on all those fronts.

Okay, thanks, guys.

Your next question comes from Brendan Barnicle of Pacific Crest Securities.

Thanks, guys, for taking my question. I know I've asked this the last couple quarters -- ASP lift. Obviously with this acceleration in TLCV and LC -- and TCV, looks like some of that going through. I know prices haven't increased; you alluded to it at the analyst day last year. Any more details you can give us on that trend, and how that's looked?

Yes, we don't give out ASP any more; it's really not a metric that we track. We don't really track bookings anymore, either. We're looking at the growth in each one of the customers that we have, and on each one of the deals. What is true is that the percentage of new business on a quarterly basis that we're booking in the core customer set as a percentage of the overall bookings has gone up dramatically during my career here at Aspen, and it's quite strong now. But really, the whole Company is oriented around growing its relationships with its customers, and we just don't really think about the ASP too much anymore. It's really about annual spend with each customer, and is that annual spend what we think it ought to be. But that's certainly not a metric that we give out externally.

And then just -- last quarter you had the $4 million deal that came in earlier this quarter, $6 million deal comes in earlier, how much of that ends up impacting TCV or TLCV?

Yes, I just want to be clear, the $6 million and the $4 million both came in last quarter, from a revenue standpoint. We did reference that there was $6 million impacting cash flow, in terms of someone paying up front. So, those numbers are just in the mix. If you think about the growth, we started the year at about $1.28 million -- billion in TCV, and that's a lot of dollars of growth, if you think about 9% or so cumulatively through the year. So, those numbers are in there, but they're not making the difference in terms of explaining the growth. There's a lot of growth from a lot of different plays.

I think, Brendan, as you look at the income statement, last quarter we had $10 million come in, which was, I would say, in a lump, shall we say. We didn't have that this quarter. On the cash flow statement this quarter we had a $6 million lump that came in, as Mark referenced, of somebody who paid their term arrangement up front. And as he said in his prepared remarks, there was no discount on that. So, we got the full amount of the contract value today, so, we took it. But that's a minor amount compared to the $54 million of operating cash flow. So, it is a little bit lumpy from time to time, but it's getting a lot less so.

Perfect, thanks for clarifying that. And then just lastly, Mark, you'd referenced returning cash to shareholders due to the tuck-in acquisition. It looks like you bought back a little stock this quarter, about the same pace you've been buying back. Any chance of accelerating that, or looking at a dividend, or any of those sorts of things given your strong cash position now?

Well, I think as you see, we have been increasing the share buyback every quarter. That's been scaling up a little bit at a time. We used a few million this quarter for acquisition purposes. We still have our little legacy Middle Eastern arbitration, which is hanging out there, which is disclosed, and we don't have any update on that. We're just waiting for the results of the arbitration. So, yes, we're in very good shape from a balance sheet perspective.

Of course, as Mark said, we did pay off that one receivable that we had outstanding for $18 million, so, we used a little bit of cash after the quarter-close to do that, because it was in the shareholders' interest. We are using the cash where we think it's appropriate. As far as dividends go, I don't think that's -- we certainly talk about it from time to time, but I don't think it's something that we're interested in at the moment, and if we are, we'll certainly let everybody know.

Great. Thanks so much.

Your next question comes from Mark Schappel of Benchmark.

Hi, good evening, nice job on the quarter. Most of my questions have been answered, just one or two here. Mark, about two or three quarters ago, you were in the process of building up your supply chain products with some increasing functionality. I was wondering if that -- if those changes have come out yet, and maybe just speak a little bit broader about your supply chain business?

Yes, some of them have. We released, I think in November, the new chemical supply chain product that we have been building. We've also got other pieces of IP that came out in supply chain in February. Can't really disclose too much about the roadmap of what comes out in the quarterly releases here coming up, but I think it's fair to say, given our position in supply chain, and really in petroleum supply chain, this is an area that we're focused on. We've been spending lots of money from an R&D perspective, and we certainly are going to continue to release new IP in this area, but it's tough to get too specific at the moment about the roadmap.

Okay, great. And then, Mark, earlier in your comments you remarked about your shale gas business, and I was wondering if you'd just address some of the ways that your process simulation tools are addressing the needs of the shale gas industry?

Yes, we are not a real upstream company, per se, although in our engineering business we've always had a very strong position in the E&P space for modeling of platforms and gathering networks and the like. It's the same here in the gas business; we're seeing that. I think it's an area that we're going to be -- even though natural gas is quite low, price-wise, at the moment, there's lots of interest in it, and I think it will be a fuel that we're using here and in other places. So, it's something that we're interested in. Our sales team and group here in the United States took the lead on this several years ago as it started to heat up a little bit, and we're seeing lots of demand. I think it'll continue despite the price because there is opportunity, and I don't think natural gas will be at $2 forever. So, we're not -- it's not our core skill set, per se, but it's something that we do, and we're seeing lots of demand in it.

Thank you.

Your next question comes form Richard Williams of Cross Research.

Hi, guys, thanks for taking my call. Can you hear me okay?

Yes.

Okay, great. Most of my questions have been answered, as well, but just curious if you could give a little more color on the supply chain side. Has any seasonality emerged over time, understanding that it's been a lumpy process bringing those licenses in?

No, the manufacturing supply chain business has been a strong growth driver for us over the past few years, and it was again this quarter. We had good demand. The history of Aspen has always been a perception externally of huge strength in the engineering business and not so much focused in the manufacturing supply chain business. I think that's different today. We're certainly focused on it from a product perspective, and we're also -- from a sales perspective. It's the largest market that we serve; it's a lot bigger than our engineering market overall. We have some real expertise and opportunity here from a growth and a white-space perspective. We didn't see anything cyclically or anything out of the ordinary, other than there is demand in the space, and we're fixated on it, and have been successful. So, it's certainly part of what we're paying attention to, and part of the growth driver of the future.

Are you able to give color on any of the verticals or regions where the supply chain has come in?

It's actually -- we had good demand globally for supply chain; we had -- in both the product and the services business. People are interested in really our applications, which are vertical specific, and maybe some other companies aren't as much. So, we're seeing consistent demand, and it's not limited to any geography in particular.

All right, thanks very much.

This concludes the allotted time for today's question-and-answer session. I would now like to turn the floor back over to management for any closing remarks.

Thank you, operator. Thanks to everyone for joining us here today. It was a very good quarter, and it's been a great year so far for Aspen through three quarters. We've got lots to do in the fourth quarter. Mark and I will be out at various conferences in the fourth -- in our fiscal fourth quarter here. I'd also like to thank all the folks here at Aspen for all the hard work so far. So, thanks again, and we'll look forward to seeing you. Goodbye.

Thank you. This concludes today's conference. You may now disconnect.