Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Aspen Technology Inc (NASDAQ:AZPN)
Q1 2020 Earnings Call
Oct 30, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen and welcome to the Q1 2020 Aspen Technology Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host Karl Johnsen Chief Financial Officer. Please go ahead sir.

Karl E. Johnsen -- Chief Financial Officer

Thank you. Good afternoon everyone and thank you for joining us to review our first quarter fiscal 2020 results for the period ending September 30 2019. I'm Karl Johnsen CFO of AspenTech and with me on the call today is Antonio Pietri President and CEO. Before we begin I will make the 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 first fiscal quarter of 2020 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 October 30 2019. Consistent with our prior practice we expressly disclaim any obligation to update this information. The structure of today's call will be as follows. Antonio will discuss business highlights from the first quarter and I'll review our financial results and provide our guidance for fiscal year 2020. With that let me turn the call over to Antonio. Antonio?

Antonio J. Pietri -- President and Chief Executive Officer

Thanks Karl and thanks to everyone for joining us today. AspenTech is off to a good start to the year. The demand trends seen in Q1 show continued strength across end markets product suite and geographies supporting increasing pipeline volume for our MSC and APM businesses and the continued recovery of the pipeline of business for the engineering suite all in line with the growth trends experienced in late fiscal 2018 and throughout fiscal 2019. We're benefiting from multiple growth drivers that we believe position us well to achieve our full year growth and profitability objectives. I would like to begin my remarks by looking at our financial highlights for the quarter. For the first quarter revenue was $134.1 million. GAAP EPS was $0.67 and non-GAAP EPS was $0.79. Annual spend was $548 million up 1.3% in the quarter and 10% year-over-year. Free cash flow was $14.3 million and we returned $50 million to shareholders by repurchasing approximately 382000 shares.

As I stated before from a macro perspective we continue to see positive demand trends across the business. The need to invest in technology to support digitalization initiatives is one of the most significant long-term trends in capital-intensive industries. Customers increasingly recognize that to achieve their business and financial objectives and remain competitive over the long term they need to deploy technology that provides powerful insights into how their assets operate to enable greater asset uptime and operational efficiency. A good example of this is the chemicals industry. As noted on our last earnings call we are mindful of the indications that the global trade conflict is having an impact on global chemical demand. During the past couple of months I met with executives of many of our chemicals customers who have knowledge that their business has become more challenging.

However their feedback is that they remain focused on investing in their digitalization initiatives which they believe is critical for their businesses and their long-term competitiveness. Our APM business had a good start to the year with significant growth achieved across this suite. In particular Aspen ProMV had its second consecutive record quarter. Trends remain favorable with growing customer interest in the suite and rising levels of sales activity. It is becoming apparent that the value proposition of the APM suite is resonating with customers and they recognize the substantial benefits it can deliver for their business. For example Aspen Mtell has differentiated itself in 2 key ways: superior accuracy and effectiveness and faster time to value. Mtell's Racy is driven by the deep insights it provides from data about the anomalies it detects. While there are other solutions that can detect anomalies their inability to provide a contextual understanding of what the data means limits their value.

Mtell delivers faster time to value as it rapidly scaled from one asset to many assets in a plant size or globally across the enterprise. Mtell deployments are automated and do not require specialized data science skills or significant time to implement and support. The net result is that Mtell has a demonstrated track record of detecting anomalies early and identifying potential issues that other solutions miss. Doing so with more precision accuracy and ease of deployment and use than its competitors.

Looking at other primary markets. The E&C trends seen in fiscal 2019 continue to manifest themselves in the first quarter. These trends are supported by capex growth at a mid- single-digit rate and incremental LNG capex investments that are driving the backlog duration metric for the E&Cs we track above its long-term trend. We believe the recent positive trend with E&C customers will continue. And as we come to the end of the renewal cycle for our contracts with these customers we expect to see further improvement in the growth rate of that business. Our refining customers remain a stalwart in the adoption of asset optimization solutions in support of their continuous focus on operational excellence. As mentioned earlier digitalization remains a top strategic priority for these customers and AspenTech is a key enabling technology partner for these initiatives.

A group of these customers is also reconfiguring or implementing new operating strategies in the refineries to benefit from new stringent sulfur content regulation on maritime transportation fuel under the IMO 2020 requirements that dramatically reduce sulphur dioxide content in bunker fuel. The reconfiguration of refineries or adoption of new operating strategies can be achieved through a combination of capex spend and the use of technologies like PIMS-AO GDOT and others which all benefit AspenTech. I would now like to share a few examples of contracts we closed in the quarter. First a chemicals customer in Latin America and a long-term user of our engineering and manufacturing supply chain suite signed an agreement after a detailed evaluation to use and deploy the Aspen Fidelis Mtell and ProMV products in our Asset Performance Management suite at one of their petrochemical sites. The customer is facing issues with the quality and reliability of their feedstock which coupled with equipment reliability issues has created a challenging operating environment.

The customer was seeking solutions to understand process degradation and equipment reliability problems in order to achieve better efficiencies in the operation of the plant. Second a mining customer in Asia and a long-term user of our Manufacturing Execution System selected the Aspen Mtell solution upon completion of a detailed sole source evaluation and successful pilot and after considering offerings from at least 2 other suppliers as part of their digitalization transformation initiative. The customer is looking to improve reliability by reducing unplanned downtime in their operations. A partner of AspenTech executed the pilot with the customer and is now focused on the implementation of that technology in the customers' copper manufacturing facility. Further rollout of the technology is expected to other metals manufacturing facilities and mining operations. This engagement model is a demonstration of the progress we are making to establish an ecosystem for the successful testing and implementation of Mtell. Third an integrated oil company in Canada and long-term user of our engineering and MSC suites selected Aspen Mtell after initially conducting an evaluation of multiple vendors and then narrowing the process to 3 finalists.

The customer set up a group dedicated to evaluating technologies not currently used by the company that could deliver significant incremental value. A business case was jointly developed for a refinery that identified over $10 million in annual benefits through lost profit opportunities and maintenance spend reduction. Also a second upstream site was included in this study showing similar benefit potential. The initial deployment will be to these 2 sites and will be performed by a partner of AspenTech. The successful deployment of Aspen Mtell is expected to lead to the industrialization of the product across all the company's assets. Fourth one of the largest tire manufacturers with plants around the world and user of our supply chain management product decided to evaluate new solutions in the marketplace as their business needs have evolved requiring planned scheduling optimization.

After the customer first conducted a failed pilot with a competitor's product our team worked with the customer to show the enhanced functionality of our plant scheduling products Aspen Plant Scheduling Enhanced Automation or Aspen PSEA and Aspen Plant Scheduling Enhanced Optimization or Aspen PSEO in the aspenONE version 11 software release. After proving out the new capabilities to the customer they decided to move forward with our products signing a new agreement that commits to the rollout of the Aspen PSEO product for their primary site and Aspen PSEA product for their secondary sites.

Fifth and final a long-term European customer of AspenTech has committed to increasing the use of Aspentech's refinery planning and branding solution PMSO and multi-brand optimization and MBO as part of its strategy to meet IMO 2020 specifications in maritime fuel production due to its strategic proximity to shipping lanes. This is in the context of a broader dealer transformation program to capture potential margin optimization opportunities each of which represent millions of dollars in profitability. Moving on to the products area. We recently announced the launch of Aspen Enterprise Insights a visualization and workflow management solution that aggregates and analyzes data from across the enterprise to deliver insights and actionable information and drive better collaboration and decision making within organizations.

This release incorporates the technology from the Sabisu acquisition last quarter and is an important example of the type of collaborative and data-driven applications we're focused on introducing to the market. Based on initial feedback from customers we anticipate a strong interest and the capabilities of this technology to help customers aggregate analyze and visualize information across their enterprises. Early customer feedback on the acquired capabilities of Nuvo and Sabisu and our broader vision for AI and machine learning has been very positive. Customers recognize that deploying these technologies has the potential to lead to better understanding of how to drive higher levels of operational excellence across their assets. We're working on integrating the Nuvo technology stack into the architecture of our future solutions to enable their enterprise deployment through cloud capabilities.

And over time also via edge computing capabilities. In addition we will continue to sell the Nuvo technology stack as an OEM solution into their historical verticals which all fall under the global economy industries of AspenTech. We also continue to make incremental investments in our product portfolio and our sales capacity for APM to fully capitalize on our growth opportunities.

The combination of our scalable business model and rigorous ROI-based investment methodology allows us to effectively manage the balance between spending for growth and continue to maintain our strong profitability levels. We will continue to utilize our balance sheet and allocate capital to invest in our organic growth initiatives pursue acquisitions and execute on our share repurchase program. To summarize AspenTech head off to a good start in fiscal 2020 and we believe we're well positioned to achieve our full year growth and profitability outlook. We're executing well on our strategic growth initiative and believe we will continue generating an attractive combination of growth and profitability for the foreseeable future as customers continue to invest in digitalization in our core market and GEIs. We're confident this will generate significant value for long-term shareholders.

With that let me turn the call over to Karl. Karl?

Karl E. Johnsen -- Chief Financial Officer

Thanks Antonio. I will now review our financial results for the first quarter of fiscal 2020. As a reminder these results are being reported under Topic 606 which has a material impact on both the timing and method of our revenue recognition for our term license contracts. Our license revenue is heavily impacted by the timing of bookings and more specifically renewal bookings. A decrease or increase in bookings between fiscal periods resulting from a change in the amount of term license contracts up for renewal is not an indicator of the health or growth of our business. The timing of renewals is not linear between quarters or fiscal years and this nonlinearity will have a significant impact on the timing of our revenue.

As a result we believe our income statement will provide an inconsistent view into our financial performance especially when comparing between fiscal periods. In our view annual spend will continue to be the most important metric in assessing the growth of our business and annual free cash flow the most important metric for assessing the overall value our business generates. Annual spend which represents the accumulated value of all the current invoices for our term license agreement at the end of each period with approximately $548 million at the end of the first quarter. This represented an increase of approximately 10% on a year-over-year basis and 1.3% sequentially. Total bookings which we define as the total value of customer term license contracts signed in the current period less the value of term license contracts signed in the current period but where the initial licenses are not yet deemed delivered under Topic 606. Plus term license contracts signed in a previous period for which the initial licenses are deemed delivered in the current period was $135 million a 40.4% increase year-over-year.

The year-over-year increase in bookings reflects a significant increase in the amount of term license contracts up for renewal as compared to the year-ago period. Total revenue was $134.1 million for the first quarter a 17.4% increase from the prior year period. The year-over-year increase in revenue was a result of the increase in total bookings discussed above. Turning to profitability beginning on a GAAP basis. Operating expenses for the quarter were $71.6 million which was up from $64 million in the year-ago period. Total expenses including cost of revenue were $86.8 million which was up from $77.2 million in the year-ago period and $84.5 million last quarter.

The increase in expenses is primarily related to the organic investments we're making in fiscal year 2020 as well as the impact of our recent Nuvo and Sabisu acquisitions. Operating income was $47.3 million and net income for the quarter was $46.3 million or $0.67 per share. Turning to non-GAAP results. Excluding the impact of stock-based compensation expense amortization of intangibles associated with acquisitions and acquisition-related fees we reported non-GAAP operating income of $57.9 million representing a 43.2% non-GAAP operating margin compared to non-GAAP operating income and margin of $46.9 million and 41.1% respectively in the year-ago period. The margin performance reflects the positive impact of the incremental license revenue recognized during the quarter.

Given the fluctuations in our revenue due to the timing of bookings we believe focusing on annual free cash flow as a percentage of annual spend is the most appropriate way to assess the efficiency of our performance in a period. Non-GAAP net income was $54.6 million or $0.79 per share based on 69.3 million shares outstanding. Turning to cash flow. We generated $15.3 million of cash from operations and $14.3 million of free cash flow after taking into consideration the net impact of capital expenditures capital software -- capitalized software litigation and acquisition-related payments. Free cash flow is ahead of our expectations due to a better-than-expected collections within the quarter. A reconciliation of GAAP to non-GAAP results is provided in the tables within our press release which is also available on our website.

I would now like to close with guidance. Please note that we are reiterating our guidance for all metrics except for GAAP and non-GAAP EPS which are increasing to reflect the impact of shares we repurchased in the first quarter. Recall that we only provide guidance on an annual basis and provide directional commentary on the timing of annual spend and bookings during the year. Full guidance for our income statement metrics can be found in our earnings press release. With respect to annual spend growth as Antonio mentioned we continue to forecast 10% to 12% annual spend growth for fiscal 2020. Of that 7% to 9% is expected to come from our engineering and MSC suites and approximately 3% from APM. Similar to fiscal 2019 we anticipate growth in annual spend will be weighted to the second half of the fiscal year. We continue to expect bookings to be in the range of $600 million to $650 million which includes $317 million of contracts that are up for renewal in fiscal 2020.

From a linearity perspective as mentioned at our Investor Day we still anticipate 40% to 45% of fiscal year 2020 bookings to come in the first half of the year with the remainder in the second half. As a reminder on the Topic 606 our license revenue recognition is tied to when we recognize bookings as such our license revenue linearity will generally track to the bookings linearity. From an expense perspective we continue to expect total GAAP expenses of $369 million to $374 million and non-GAAP expenses of $303 million to $308 million. From a free cash flow perspective we're expecting to generate $250 million to $260 million. Our fiscal 2020 free cash flow guidance assumes cash tax payments of approximately $55 million to $60 million.

Our 2020 free cash flow outlook reflects the impact of incremental investments we are making in the business. From a timing perspective we anticipate free cash flow to follow a seasonal pattern similar to fiscal 2019. In summary we began fiscal 2020 benefiting from the same trends we have seen in recent quarters. We believe we are well positioned to continue delivering an attractive combination of growth and profitability that can generate sustained value for the shareholders over time.

With that we'd like -- we would now like to begin the Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Rob Oliver from Baird. Your line is now open

Robert Cooney Oliver -- Robert W. Baird & Co. -- Analyst

I just wanted to kick off on APM. So I know coming out of the Analyst Day in August it sounded as if the shift from kind of one-off equipment licenses to site licenses was helping to drive higher retention rates and I was wondering if we can get -- if we could get any color around that if that continues. And then I just had one follow-up on some of the wins that you referred to as well.

Antonio J. Pietri -- President and Chief Executive Officer

Well I mean look we -- the specifics that we normally give around APM are at the half year mark of the fiscal year to account for whatever variability happens between quarters. But our pipeline continues to reflect an increasing number of multi-side or enterprise style deals. In Q1 we signed more new customers to the use of both Mtell ProMV and Fidelis and we were very happy with the acceleration of that business versus Q1 FY '19. That's what I will say about that.

Robert Cooney Oliver -- Robert W. Baird & Co. -- Analyst

And Antonio on those customers thanks there was a lot of data you guys always give us on the customer front. Outside of maybe the tire company you mentioned or maybe they are a customer. It seems like all of them are already current Aspen customers on MSC or engineering suites so that sort of illustrates the power of incumbency. You mentioned that a lot of these initial lands were only in one area and could be rolled out across for example in the mining area across multiple different metals and areas. When you look at these opportunities without putting a dollar figure on it what sort of multiplier do you think you have on that initial land within the contract?

Antonio J. Pietri -- President and Chief Executive Officer

Yes. Well look I think it's multiple times. It depends on the number of assets the customers have to further roll out the technology. In the case of the customers multiple sites in the case of the customer in Canada it's not only refineries but upstream operations. In mining we talked about a customer that was rolling the technology out already to 7 different mines. You have customers in chemicals that have multiple chemical plants. So the multiple is -- the potential for annual spend growth is multiple times what we get out of the initial land in deal. And that is now starting to get reflected on the APM pipeline which is continuing to grow and is as large as it's ever been since we started this business almost 2.5 years ago now. Yes Rob I don't know if it's something wrong with your line but we're getting a noise or typing or maybe it's -- yes

Robert Cooney Oliver -- Robert W. Baird & Co. -- Analyst

Yes that's probably me just taking notes. Thanks, guys. Appreciate it. Okay, thank you

Operator

Your next question comes from the line of David Hynes from Canaccord. Your line is now open

David Hynes -- Canaccord. -- Analyst

Antonio I wanted to ask you about the chemicals' customers and what you're seeing in the end market. I think you offered an anecdotal comment that they're going to continue to invest in digitization efforts. But I'm curious what you're seeing in the field today? I mean are you seeing any signs of those folks pushing off decisions making smaller commitments? I guess kind of what has been the manifestation of a more challenging environment in your sales execution?

Antonio J. Pietri -- President and Chief Executive Officer

Well and that's the point DJ that we really haven't seen any change in their -- in the cadence of business from these chemical customers. They're all certainly talking about the difficult macro environment and deterioration of some of their end -- some of their businesses but across the board there's a commitment to adoption of digital capabilities and driving operational excellence. So we're encouraged by what we're hearing despite the macro environment that these chemical customers are seeing or experiencing.

David Hynes -- Canaccord. -- Analyst

Got it. And then maybe one follow-up on APM. The product's been in the market for a little while now and I think you had said in the past that early days customers would get some early adopters' discounting. Have you seen any -- or have you pushed any evolution and kind of the pricing model there as you kind of think about more value-based pricing? And have you been able to kind of drive better economics on the deals that you're signing now versus maybe where you were a year ago?

Antonio J. Pietri -- President and Chief Executive Officer

Well I mean look at -- I think we said from the very beginning that we're trying to be ambitious with our pricing from the get-go. And certainly there was -- we were testing the -- our pricing in the market. And as such we've made adjustments more. Specifically depending on the end market as you move away from the process industries you tend to see less value creation because of profitability lower profitability in other industries. And then the other adjustment that's happened is certainly there's competitors out in the market that perhaps don't necessarily follow value-based pricing but nonetheless we continue to experience good pricing.

I believe at Investor Day we talked about how every API transaction is increasing the total wallet spend or amount of spend by those customers with respect to our engineering and MSC business. So look we were satisfied with the value we're getting. We've done an enterprise deal and we're very happy with that value. And I think going forward the thing that we need to demonstrate more often is our ability to price enterprise deals at a multiple of what we're doing these initial deals which I think will be the case. But no I -- from day one we always felt we were going to go to market with value-based pricing. And the other thing is that we're proving that the value is significant because some of these customers are telling us that through the 1 or 2 saves that they achieved after they implement Mtell they are recovering the cost of the investment. And that alone says OK there is an opportunity perhaps to do a little bit more. But at the same time we think we're getting good value for what we're selling.

David Hynes -- Canaccord. -- Analyst

Thanks, guys.

Operator

Our next question comes from the line of Steve Koenig from Wedbush. Your line is now open

Steven Richard Koenig -- Wedbush -- Analyst

Maybe a numbers question for Karl and then one for Antonio. So just on the numbers we're going to get a better feel for RPO cadence over time I guess it's probably typical for it to be down sequentially in a Q1. And then just on the bookings metric should we -- I guess by your kind of the seasonality help that you gave us. It kind of looks like given the renewal schedule we should see bookings kind of down year-on-year for the next 3 quarters if I'm doing my math right. So that's that. And then I got one kind of a higher-level question for and Antonio if you don't mind.

Karl E. Johnsen -- Chief Financial Officer

Sure. So you broke up on the first part of that question. Could you do -- ask that again Steve?

Steven Richard Koenig -- Wedbush -- Analyst

Okay yes. RPO being down sequentially in the Q1 that's probably a typical cadence is that fair?

Karl E. Johnsen -- Chief Financial Officer

Steven. Just for my clarification what do you mean by RPO?

Steven Richard Koenig -- Wedbush -- Analyst

The remaining performance obligation. Looked like it was down sequentially. And is that normal for a Q1?

Karl E. Johnsen -- Chief Financial Officer

Are you talking about the contract asset the unbilled?

Steven Richard Koenig -- Wedbush -- Analyst

No. No I talk about the...

Karl E. Johnsen -- Chief Financial Officer

What are you trying to as the remaining -- I'm not following what you mean by the remaining performance obligation.

Steven Richard Koenig -- Wedbush -- Analyst

Okay. Maybe that is the contract. Maybe you guys are using different terminology. Not the unbilled receivable. We can take it offline in the follow-up. That's fine. Maybe just on bookings though. Looks like given the renewal schedule your bookings should be kind of down year-on-year in the next 3 quarters. Is that -- it might be on my math right on that?

Karl E. Johnsen -- Chief Financial Officer

Yes. So yes it's kind of -- as we said the bookings we've got like 40% 45% in the first half the rest will come in a second. So you can figure out the math on what that will look like by the quarters. And as a little -- as I said before there's some timing in that which might move stuff between the quarters. But in general I'd use that split between the 2.

Steven Richard Koenig -- Wedbush -- Analyst

Okay. Great. And then if I may I wanted to ask Antonio about the Enterprise Insight announcement. Maybe can you -- so that -- we saw that about a month ago it looks interesting. Could you tell us how does this differ from Aspen's existing analytics capabilities? Is it -- does it provide kind of an ad hoc capability that's new? Or what is new with it? And maybe a little color on what kind of use cases you expect to see out of it? And any signs of initial traction on it?

Antonio J. Pietri -- President and Chief Executive Officer

Yes. Okay. Good. So Aspen Enterprise Insights formerly Sabisu. Look so Aspen Enterprise Insights is a enterprise visualization and workflow management capability. So it has some analytics capabilities but very rudimentary. It's really about what Aspen Enterprise Insights allows is it's a -- very tactically pull information from any system in your enterprise aggregate it do analytics on it or message that information to then visualize it and do that as part of a workflow collaboration process that then supports decision making and actions. When we talk about our own analytics solutions. These are heavy analytics solutions that are very localized in a plant on assets. What then Aspen Enterprise Insights does it allows you to elevate all that information and then make it available to anyone on the enterprise. So for example customers could want to do benchmarking between different plants they maybe want to do benchmarking between similar type of assets across different plants. Also maybe we have Mtell on a compressor on a plant and in multiple plants. So the customer can elevate that information aggregate it and then put it on a dashboard so that you can compare the performance of that compressor across multiple plants and the alerts that Mtell might be generating. So it's about data aggregation analysis and visualization within a collaborative workflow environment to allow for decision making and taking actions.

Steven Richard Koenig -- Wedbush -- Analyst

Great, thanks, guys. I'll leave it there.

Operator

Your next question comes from the line of Jackson Ader from JPMorgan. Your line is now open

Jackson Edmund Ader -- JP Morgan -- Analyst

First Antonio kind of a high-level question on E&C. I know you said that growth rates are pretty consistent that you mentioned at the Analyst Day a couple of months ago in kind of all 3 of your major segments but I'm just curious if we rewind 12 months ago we're in the middle of a pretty precipitous drop in the price of oil. So I'm just curious what are you seeing now in terms of budget at your E&C customers and whether things are hardening softening can you just compare and contrast what it looks like today versus last year?

Antonio J. Pietri -- President and Chief Executive Officer

Well I mean Jackson. So I'm going to try to recollect from memory the price of oil 12 months ago but I believe we were more or less in the same range sort of range bound between call it $50 and $80 maybe it was a little higher a year ago somewhere in that $70 range. I don't think dramatically different from where we are today. And really at this time last year with those E&C customers were completing their budgets for calendar 2019 we are now at the end of calendar 2019 and their spend was given by that budget that was set now a year ago. Those customers are now working on their budgets for calendar 2020 and that will be the real determinant of then growth in the next calendar year or the second half of our FY '20. So far so good as far as the same trend that we saw through our fiscal '19. Now new budgets are going to come into place for these customers in January of next year. And I will start dictating then our -- their spend on the second half of our fiscal year. Hopefully I answered your question.

Jackson Edmund Ader -- JP Morgan -- Analyst

Yes yes. No that's helpful. About the same is completely fine. Yes that's helpful. Karl just a quick follow-up. Should we -- if collections maybe came in a little bit better than you had been expecting and that's what caused the free cash flow to come in better as well. Should we read that as also maybe renewals came in maybe the timing of renewals came in better than expected? Or should we kind of leave those two separate?

Karl E. Johnsen -- Chief Financial Officer

Yes leave them separate. I mean the bookings came in about where we thought they would come in for the quarter. It was really just as we gave guidance at the end of last year at the Investor Day we talked about Q1 would probably be about breakeven for free cash flow. So we focus very hard on collections and just some of them came in a little bit earlier. So it's not an indicator of increased collections for the year. It's just some of the Q2 collections came in in Q1.

Jackson Edmund Ader -- JP Morgan -- Analyst

I gotcha. All right. Thank you.

Operator

Your next question comes from the line of Jason Celino from KeyBanc Capital Markets. Your line is now open.

Jason Vincent Celino -- KeyBanc Capital Markets Inc. -- Analyst

I wanted to ask about the sales initiatives and hiring in APM? I know that's kind of a focus this year and just wanted to get your color on kind of how that's going this early on?

Antonio J. Pietri -- President and Chief Executive Officer

Yes. No look we -- normally we start the recruiting efforts for our new fiscal year ahead of the fiscal year so that we can hit the ground running in the new fiscal year. We haven't had any issues. We have the staff in that we were hoping to have at this point as far -- according to our plan. And we continue

Jason Vincent Celino -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And then kind of one question on for Karl on annual spend. The sequential decrease in Q1. Growth-wise still up sequentially on a dollar basis. But is this kind of typical seasonality we should expect?

Karl E. Johnsen -- Chief Financial Officer

Yes. Yes. So again Q1 is usually one of our lower one. In FY '19 we had a little bit of low performance in Q4. So some of that -- those Q1 deals may have been pulled into Q4 just as sort of the end of year processing cadence. But yes Q1 we usually have the same seasonality to our annual spend. So you can look back and use that as a good guide for the last couple of years as to how you should see it coming in.

Jason Vincent Celino -- KeyBanc Capital Markets Inc. -- Analyst

Okay, great, thanks.

Operator

Your next question comes from the line of Matt Pfau from William Blair.

David A. Griffin -- William Blair & Company L.L.C. -- Analyst

This is David on for Matt. Real quick I was wondering if you guys had any update on partnerships with some of your partners such as Aon or Hexagon in terms of any new customer wins or increased spending activity there?

Antonio J. Pietri -- President and Chief Executive Officer

Okay. Well I mean up it's still early days with Hexagon because the fact is that the Hexagon partnership is more of a technology partnership and we're working on creating a seamless data workflow automated data workflow between our solutions to create basically a comprehensive asset design life cycle. So we've already been working with Hexagon and we've held workshops around the world with customers where these customers are helping us define the work processes and the data workflows that they're interested in to see between AspenTech and Hexagon. So we've made a lot of progress in these four months since we announced the partnership. And the first release of that integration will be in the market soon. We continue to make progress on other fronts as well. We were establishing partnerships with consulting companies and other systems integrators that are interested in taking solutions such as the APM solution and more specifically Mtell. And also the GDOT product around multi-dynamic optimization that sits on top of our multiple controllers. So we're encouraged by the interest that the company -- that we are seeing from potential partners as a result of the strategy and the direction of the company that was put in place in the last really three four years. So we're encouraged by all that but early days. The Emerson partnership continue to be a positive one. There are some things that we're working on fine-tuning as part of the partnership. I know now that Emerson has seen success in the market. They are interested in another level of integration of our solutions in their offerings and we are discussing -- in discussions in that regard.

David A. Griffin -- William Blair & Company L.L.C. -- Analyst

Thank you.

Antonio J. Pietri -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Mark Schappel from Benchmark. Your line is now open.

Mark William Schappel -- The Benchmark Company -- Analyst

Most of my questions have been answered. I do have one though for you Antonio. You touched on this in the press release and also at the Analyst Day with respect to AI and putting AI or developing AI in your different solutions. I was wondering if you could just give us a couple of real-world examples of how customers at least in the early days are using AI or how they're incorporating AI into their processes.

Antonio J. Pietri -- President and Chief Executive Officer

Well I mean look so in a way a lot of customers are our forming groups and hiring data scientists and some of the bigger companies oil and chemical companies are even building teams that are focused on this. We believe that our position in the marketplace and Rob Oliver from Baird referred to it as our incumbency in the marketplace gives us a unique position because our proprietary technology our first principle is modeling. And when you leverage that and layer AI capabilities on top of it creates a new level of insights and accuracy in our ability to model and drive optimization for these plants. We've had research going on in the company for 1.5 years. And I will not get into specifics of what we're doing because we consider this of a competitive nature but we're very encouraged by already the pilots and the beta testing and even lighthouse deployment that we're going to have of these new capabilities. And ultimately I think what we're hoping to do is demonstrate to customers that the combination of our own historical capabilities with AI including cognitive deep learning machine learning and other things integrated into those products will create a new generation of capabilities that we hope will transform the industries once more. So we are -- there's a lot of work going in this area. We consider it of a competitive nature. And at some point in the future you'll start hearing more specifics from us. But the customers by the way that are working with us on this because we have something we call an innovation cloud. We've set a record participation in those innovation clouds at least customers have learned about what we're working on. A lot of these customers are moving from that innovation cloud into beta testing and lighthousing of these solutions. So we see a lot of excitement and we're very encouraged by the feedback that we're getting. And I'm personally very encouraged by the creativity and innovation of the team as we form a team of data scientists which we've blended together with our own chemical engineers and computer scientists to create what we believe will be the next-generation of capabilities for the industry.

Mark William Schappel -- The Benchmark Company -- Analyst

Thank you. That's, that's helpful and look forward to hearing more about this as it progresses. Thanks.

Operator

And your next question comes from the line of Andrew DeGasperi from Berenberg Capital. Your line is now open.

And your next question comes from the line of Andrew DeGasperi from Berenberg Capital. Your line is now open.

Unidentified Participant

This is you actually on for Andrew actually. We just had one question about the sort of new aspenONE or V11 that's been out since March. How have you seen the adoption with that in terms of converting users who generally use older versions of Aspen. Have you seen a higher adoption now with the new capabilities in version 11 or are you seeing more of the same in terms of how penetrated you can get with those legacy users?

Antonio J. Pietri -- President and Chief Executive Officer

Yes. No look certainly the adoption cycles for new versions tend to be longer and simpler in what we do because these technologies are deployed in operating environments for the engineering suite which is also used by ANSYS gets -- tends to get -- people tend to operate to it faster. So we're seeing faster upgrades into Version 11 of the engineering suite. On MSC the drive for adoption on the MSC side is our GDOT product which has unique capability in the marketplace and there's a lot of interest in that regard. And it's a product that we consider will be integral to our results in this fiscal year. So that's driving adoption of V11 for MSC. So now we're -- so we're satisfied with adoption that we're seeing on V11 but normally the engineering suite gets adopted faster than the MSC suite.

Operator

We have no further questions. At this time I will now turn the call over back to CEO Antonio Pietri for his closing remarks.

Antonio J. Pietri -- President and Chief Executive Officer

All right. Well I want to thank everyone for joining the call today and look forward to seeing you during NDRs or investor conferences. Thank you.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Karl E. Johnsen -- Chief Financial Officer

Antonio J. Pietri -- President and Chief Executive Officer

Robert Cooney Oliver -- Robert W. Baird & Co. -- Analyst

David Hynes -- Canaccord. -- Analyst

Steven Richard Koenig -- Wedbush -- Analyst

Jackson Edmund Ader -- JP Morgan -- Analyst

Jason Vincent Celino -- KeyBanc Capital Markets Inc. -- Analyst

David A. Griffin -- William Blair & Company L.L.C. -- Analyst

Mark William Schappel -- The Benchmark Company -- Analyst

Unidentified Participant

More AZPN analysis

All earnings call transcripts

AlphaStreet Logo