Mark Sullivan – Executive Vice President and Chief Financial Officer Antonio Pietri – President and Chief Executive Officer.

Sterling Auty – JPMorgan Brendan Barnicle – Pacific Crest Securities Mark Schappel – The Benchmark Company.

Ladies and gentlemen, thank you for standing by and welcome to the Aspen Technology’s Fourth Quarter 2014 Earnings Call. (Operator Instructions) Thank you. I would now like to turn the call over to Mark Sullivan, CFO. You may begin..

Antonio will discuss business highlights from the quarter, and then I'll review our financial results for the fourth quarter and fiscal year and our guidance for the first quarter and fiscal year 2015. Then we'll open up the call for Q&A. With that, I like to turn it over to Antonio.

Antonio?.

All right. Thanks you Mark, and thanks to everyone for joining us today. We are pleased to report a solid performance in the fourth quarter which caps off a strong year for AspenTech. For the quarter and for the year, we exceeded our guidance across each of our key metrics, revenues, profitability, total license contract value, and free cash flow.

In particular total license contract value growth exceeded 12% which was above our 11% guidance and we generated $200 million of free cash flow or annual growth of 39%.

We are pleased with our sales performance and our ability to continue delivering consistent growth with fiscal 2014 representing the fifth consecutive year of double-digit TLCV growth.

In terms of the macro environment, we did not see any material change to the sell-in environment that existed throughout our fiscal 2014 year during the fourth quarter. Though, we recognized that the macroeconomic and political backdrop thus remain challenging in some countries where we have operations and customers.

During the fourth quarter, we saw good demand across each of our three core verticals and across our major product lines, energy, engineering and construction and chemicals represented approximately 85% of our business. Chemicals was the largest vertical contributor followed by engineering and construction and energy.

In the quarter, we had a larger than typical transaction outside of our three core verticals. We anticipate our three core verticals returning to greater than 90% of our business going forward.

Looking at our ten largest transactions in the quarter, there was again a mix of engineering and manufacturing supply chain deals and both suites saw a positive performance. We continue to make progress in broadening the usage of aspenONE across our installed base and we see a substantial runway of additional opportunities going forward.

Throughout the fiscal year, we saw positive demand trends in our core verticals. Energy continues to benefit from rising demand and the positive dynamics from shale gas and oil production in the United States. We experienced consistent demand across the world from this vertical in 2014.

Chemicals continues its recovery from the last recession and it’s also benefiting from the positive dynamics of shale gas production in the United States. We experienced strong chemical demand in North America and the Middle East in 2014.

Engineering and construction firms continued to benefit from the facilities investments; energy and chemical companies are making to support their growth.

Latin America and the inside sales organization which is now remains the small and medium businesses organization SMB were strong contributors to our engineering and construction business in FY 2014.

In fiscal 2014, energy contributed 32% of our total license contract value growth, engineering and constructions represented 32% and chemicals contributed 28%. At the end of fiscal 2014, energy represents 37% of total license contract value, engineering and construction represents 31% and chemicals represents 26% of our total license contract value.

From a geographic perspective, we generated solid business momentum around the world. In fiscal 2014, the United States contributed 30% of our total license contract value growth, Europe contributed 29% and other international regions contributed 41%.

At the end of fiscal year 2014, the United States represents 38% of total license contract value, Europe represents 31%, and other international regions represent the remaining 31%. We have a truly diversified global business with customers across the world.

In terms of total license contract value closed during fiscal 2014, the mix between our suites was 64% engineering and 36% manufacturing and supply chain. At the end of 2014, the TLCV mix for the suites is 70% engineering and 30% manufacturing and supply chain.

We focus on annual results by geography and product lines as the timing of closing a relatively small number of large transactions can cost quarter-to-quarter fluctuations.

The mission-critical nature of our software combined with our diverse blue chip customer base and contracts that are typically five to six years in length provides some level of protection against short-term changes in the macro environment.

We continue to monitor the macro environment and recognize that we would not be immune if there was a material worsening in the global macro outlook.

One of the positive drivers for our business is the continued innovation that we are bringing to market each quarter, which provides additional value to our customers and more opportunities for token usage inside aspenONE.

During the fourth quarter, we released aspenONE 8.6 with exciting new functionalities around activated dynamic analysis over pressure protection and capital cost estimation.

As we outlined during our Investor Day in May, a key product development focus for AspenTech is the concept of activation, where products are available through a single click inside our core solutions like HYSYS and Aspen Plus. This more integrated product approach simplifies the user experience and drives greater product usage.

In aspenONE 8.6, we released our newest activation solution in activated dynamics analysis which provides dynamic modeling of compressors.

Compressors are commonly used in many energy facilities, particularly mid-stream and upstream natural gas processors and with activated dynamics analysis, these facilities will be able to generate better flow assurance and lower their capital cost more quickly helping to generate meaningful cost savings.

We also expanded our pressured relief safety valve design to include far analysis in aerial calculations and enhance the regulator compliance for chemical and energy operators. This is a product enhancement of the PSP Flows Technology we acquired two years ago and demonstrates the effectiveness of our tuck-in acquisition strategy.

Lastly, we introduced new capital cost estimation functionality that will extend usage into the detail estimating phase of a project.

Customers can now easily adjust labor and material unit rate, as well as materials of construction and achieve approximately 10% greater forecast accuracy driving lower risk and better decision-making in their capital allocation decisions.

The combination of data models and information that reside in the install base of our products and solutions present us with a unique and unparalleled opportunity to create vertical-specific analytics applications for their operational assets.

We are seeing good interest from our customers in initial prototypes that we are researching and developing to extract and deliver incremental profit for our customers from these solutions.

We are also proud of our recent inclusion in Forbes Magazine’s 2014 list of the World’s Most Innovative Growth Companies with a market cap up to $10 billion where we ranked number 11 out of 100.

This recognition reflects our continued focus on pushing the pace of innovation in the process optimization market and providing customers with world-class technology that generates significant value across our operations.

2014 was also another strong year of expense management as we held total expense growth to the low single-digits while increasing our investment in R&D.

Within our sales and marketing organization, we continue to prioritize adding headcount in our high growth markets in the SMB organization and to support our digital marketing strategies, which are cost-effective ways to drive additional growth from our customers.

We will continue to make incremental sales and marketing investments in these areas in FY’15. Good expense management and a focus on allocating resources to areas that will drive the highest return and generate additional growth are our core competencies for this management team and will remain a key focus going forward.

Our strong financial performance and highly leverageable financial model drove significant growth in our cash flow generation. For fiscal year 2014, we generated $200 million of free cash flow and ended the year with nearly $300 million of cash on the balance sheet and no debt.

The strength of our balance sheet and cash generation provide significant opportunities to drive additional shareholder value through acquisitions and stock repurchases. In the fourth quarter, we will repurchase $33 million of stock and $122 million for the full year.

To summarize, AspenTech delivered solid fourth quarter results that capped another strong year of growth and profitability that reflects the strength of our market leadership position.

We continue to see positive usage trends across our entire aspenONE install base and we are confident that we have the right technology and strategy in place to drive growth and profitability in the future. With that, let me turn the call over to Mark. Mark? Thanks, Antonio.

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 multiyear term contracts.

Growing TCV is a key focus for us, and we increase of the value of the metric by adding new customers, expanding product usage and increasing prices across our customer base. Our license-only TCV was $1.85 billion at the end of the quarter, which was up 12.2% compared to the end of fiscal 2013 and up 3.4% on a sequential basis.

Including the value of bundled maintenance, total term contract value was $2.02 billion at the end of the quarter, which was up 13.7% compared to the end of fiscal 2013 and up 3.9% sequentially.

Our annual spend, which is a proxy for the value of our recurring term license business at the end of each period, specifically the annualized value of our term license and maintenance revenue, was approximately $380 million at the end of the quarter. This represented an increase of approximately 12.3% on a year-over-year basis and 3.1% sequentially.

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.

The growth of our annual spend metric is typically slightly lower than the growth in our license TCV metric, though there can be some quarter-to-quarter variability. For fiscal 2014, annual spend growth exceeded TLCV growth due to the impact of booking several transactions in the third quarter with contract durations of three years or less.

These shorter duration deals had a proportionately larger impact on annual spend versus TLCV. In the fourth quarter TLCV and annual spend growth returned to the more typical relationship with annual spend growth being slightly lower than TLCV growth.

And as a result the gap between the TLCV and annual spend growth rates narrowed for the full fiscal year. Now let me turn to our financial results on a GAAP basis. Total revenue of $101.5 million was up 21.9% from $83.3 million in the prior year period and exceeded the high end of our guidance range.

Looking at revenue by line item, subscription and software revenue was $91.6 million for the fourth quarter, which is an increase from $73.8 million in the prior year period and $91.3 million last quarter.

Our growing subscription business positively impacts our deferred revenue balance, which was $274.9 million at the end of the fourth quarter, representing an 18.8% increase compared to the end of the year ago period. On a sequential basis, deferred revenue increased $25.2 million.

Finally, services and other revenue was $10 million, an increase from $9.5 million in the year ago period and down from $12.3 million last quarter. Turning to profitability. Gross profit was $88.7 million in the quarter with a gross margin of 87%, which compares to $70.3 million and a gross margin of 84% in the prior year period.

Operating expenses for the quarter were $51.3 million, compared to $54.9 million in the year ago period. Total GAAP expenses, including cost of revenue, were $64.2 million, which was down from $67.9 million in the year ago period and down from $72.2 million last quarter.

For the full year, total expenses were $261.7 million, which was below the low end of our guidance range of $264 million to $267 million. We are committed to maintaining our history of solid expense management and it's something that we remain focused on moving forward.

Operating income was $37.4 million for the fourth quarter of fiscal 2014, an improvement from $15.4 million in the year ago period. Net income for the quarter was $26.7 million or $0.29 per share compared to a net income of $20.4 million or $0.21 per share in the fourth quarter of fiscal 2013. Turning to non-GAAP results.

Excluding the impact of stock-based compensation expense, restructuring charges, amortization of intangibles associated with acquisitions, and non-capitalized acquired technologies, we reported a non-GAAP operating income for the fourth quarter of $40.5 million and non-GAAP net income of $28.7 million.

This represents an improvement from non-GAAP operating and net income of $18.9 million and $22.7 million, respectively in the year ago period.

Our non-GAAP income per share was $0.31 in the fourth quarter of fiscal 2014, based on 92.7 million diluted shares outstanding compared to non-GAAP earnings per share of $0.24 based on 95.3 million shares outstanding in the fourth quarter of fiscal 2013. For the full fiscal year, our revenue was $391.5 million and was up 26% year-over-year.

GAAP operating income of $129.7 million was a significant improvement from $55.6 million in fiscal 2013 while non-GAAP operating income of $149.5 million improved from $70.9 million in fiscal 2013. Turning to the balance sheet and cash flow.

The company ended the year with $298.4 million in cash and marketable securities, an increase of $23.5 million from the end of last quarter. From a cash flow perspective, the company generated $58.2 million of cash from operations during the fourth quarter and $200.1 million for the full year.

On a non-GAAP basis, operating cash flow was $58.8 million and free cash flow was $57.4 million during the fourth quarter. For the full year of fiscal 2014, non-GAAP cash flow from operations was $204.7 million and free cash flow was $200 million.

This year’s free cash flow was up from the $143.6 million generated in fiscal 2013 and was well above our most recent guidance of $170 million to $175 million. Our strong cash flow generation benefited from unexpectedly strong cash collections in the fourth quarter that included more than $10 million that we anticipated collecting during fiscal 2015.

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’d like to close with some additional thoughts regarding our financial outlook for fiscal 2015, which we initially provided at our Analyst Day this past May.

We continued to target full fiscal year revenue of $430 million to $440 million. From a mix perspective, we continue to expect subscription and software to comprise greater than 90% of revenue with our services and other revenue representing the remainder.

Fiscal 2015 represents the final year of our revenue model transition which will conclude during the course of the year. As we’ve consistently discussed, the growth rates of both GAAP revenue and deferred revenue have been higher than the real economic growth rate of our business since the model transition began in fiscal 2010.

In fiscal 2015, GAAP revenue will continue to be lower than our fully transitioned revenue value but the difference will be smaller than in prior years. As GAAP revenue and deferred revenue normalize their annual growth rates should more closely approximate the growth rate of our annual spend metric.

Changes in deferred revenue will continue to vary by quarter due to the timing of when we invoice our customers. From an expense perspective, we now expect total GAAP cost and expenses of approximately $275 million to $280 million for the full year, which is lower than our prior guidance of $280 million to $285 million.

Taken together, we expect GAAP operating income in the range of $152 million to $162 million for fiscal 2015, which is up from our prior guidance of $147 million to $157 million with GAAP net income of approximately $98 million to $105 million or $1.06 to $1.13 per share.

This compares to our GAAP net income guidance of approximately $93 million to $100 million or $1.01 to $1.08 per share. From a non-GAAP perspective, we currently expect non-GAAP operating income in the range of $169 million to $179 million and non-GAAP earnings per share in the range of $1.18 to $1.24 for fiscal 2014.

This is up from our prior non-GAAP operating income guidance of $164 million to $174 million and non-GAAP earnings per share of $1.12 to $1.19. Now that we are approaching the end of our revenue model transition, the P&L will become a more relevant indicator and be more reflective of the real profitability of our business.

As a reminder, we updated our long-term non-GAAP operating margin guidance during our recent Analyst Day to 42% to 45%. The revised target range demonstrates the inherent leverage of our operating model. Based on the mid-point of our guidance, we are forecasting a non-GAAP operating margin of approximately 40% for fiscal year 2015.

With respect to total license contract value growth in fiscal 2015, we continue to target double-digit growth rate over fiscal 2014 and remain optimistic about our outlook based on continued high customer interest levels as we enter the new fiscal year.

From a free cash flow perspective, we are increasing our fiscal year guidance to approximately $215 million from the $190 million to $195 million that was initially provided at our Analyst Day.

This revised guidance reflects the impact of the more than $10 million cash we collected in the fourth quarter of fiscal 2014 that we expected collect in fiscal 2015. In addition, recall that fiscal 2015 includes approximately $8 million of incremental one-time CapEx spend related to the build-out of our new headquarters building.

Taken together these items represent a headwind of more than $18 million in fiscal 2015, but despite the significant headwind, the underlying cash generation capability of the company remains quite strong and we still expect to generate mid to high single-digit free cash flow growth in fiscal 2015.

Also as we discussed at our Analyst Day, we are reporting non-GAAP cash flow metrics in fiscal 2015 show cash flow on a historically comparable basis.

Recall that our remaining net operating losses are considered APIC NOLs for GAAP cash flow reporting purposes and the benefit derived from APIC NOLs is treated as a financing source of cash flow and referred to as excess tax benefits from stock-based compensation.

In prior years, the impact of our tax benefits flowed through the operating section of the cash flow statement.

Accordingly, in addition to reporting free cash flow, we are now reporting a non-GAAP cash flow from operations metric that treats all tax expense and benefits irrespective of source as going through the operating cash flow line which is consistent with prior periods.

The free cash flow guidance for fiscal 2015 is provided on a historically consistent basis. Also consistent with prior years, based on our current guidance, we do not anticipate becoming a US corporate cash tax payer in fiscal 2015.

Please refer to our Analyst Day presentation materials which are available on our website for further information regarding the treatment of APIC NOLs. Similar to prior years, we expect our free cash flow to be weighted to the back half of the fiscal year with the third quarter being the largest contributor to free cash flow.

This pattern of cash flow is related to the timing of when we invoice customers and their payments become due. The variable quarter-to-quarter timing of customer invoices will also impact deferred revenue trends during the year. As it relates to the first quarter, we expect revenue in the range of $102 million to $105 million.

Non-GAAP operating income of $39 million to $42 million and non-GAAP EPS of $0.27 to $0.30. On a GAAP basis, we expect operating income of $35 million to $38 million and the income per share of $0.24 to $0.26.

In summary, we're pleased to have delivered a strong – finished the fiscal 2014 with double-digit TLCV growth, and significant cash flow generation for the full year. We continue to see strong demand for our software and we are confident in our ability to carry this momentum into 2015. With that, we're now happy to take your questions.

Operator, let's begin the Q&A..

Certainly. (Operator Instructions) Your first question comes from the line of Sterling P. Auty with JP Morgan..

Yes, thanks. Hi guys..

Hello..

Can you give us a little bit more color on - you mentioned there was a large deal in the quarter that was outside the three core verticals.

Any additional insight into where it stem from kind of the focus on uses of software and any additional information on the size you can give us?.

Sterling, it’s Antonio. This was a deal with one of our oldest customers in the pharmaceutical industry. This is a customer with a significant installed base of our products and in the Q4 quarter we closed a transaction with them that was in the multi-million dollar range and that has skewed the results for the quarter on by vertical distribution..

Okay, great.

And then, maybe, can you give us a little bit more insight, you lowered the expense guidance by about $5 million, increased the profitability by $5 million, where is the delta in terms of where you think there is more expense efficiencies than where the previous guidance was?.

Yes, I mean, nothing specific, most of our costs – like any company of our nature is in headcount related costs and really I would just say we fine-tuned our outlook for the year between when we did the guidance back in the May timeframe. So how the quarter closed, trend rates of hiring et cetera, but nothing really major to or specific to point at..

Okay. And last question is, I have a feeling that it might be the impact of the duration on some of the shorter deals, but the TLCV growth of the 12.3% while above your guidance, if we look at it relative to the growth you’ve shown, I think that might be the slowest growth rate since September 2011.

Is the contract duration on some of those contracts that impacted or what else might be happening there?.

Well, Sterling, first of all, we are very happy with our TLCV growth achievement in FY 2014. We need to keep in mind that there is going to be variability from quarter-to-quarter. There are certain large transactions, the timing of them cannot be fully controlled.

But overall, we saw strong demand in the fourth quarter and the fiscal year if – looking at our coverage ratios, our pipeline ratios, going forward, they remain consistent at in the past. So - and also vertically, if you look at the compounded rate of growth for TLCV over the last five years, it just happens to be exactly 12.3% as well.

So, we are in that ballpark. I’d recognize that there was a spike in the business over the last couple of years, but at the same time, we are confident about our ability to continue to drive this double-digit growth going forward..

All right, great. Thank you guys..

Thank you..

Your next question comes from the line of Bhavan Suri with William Blair..

Hey guys. Congrats on the quarter. This is (Inaudible) on behalf of Bhavan and saying on the topic of the TLCV.

Can you guys kind of provide an update on how penetrated the existing customer base is and kind of how many modules on average do the engineering customers have versus the manufacturing customers? And how we should think of usage growth within the existing customer base over fiscal year 2015?.

We’ve never really talked about the – how penetrated each of our verticals or product areas or customers are. During Investor Day in May we talked about the total addressable market and the available market of that total which is about $6.5 billion. So we continue to be confident about our ability to continue to grow the business going forward.

We talked about the mix of our product suite in the fiscal year being 64% engineering, 36% MSC. The mix of our installed base is 70% engineering, 30% MSC. So there is – that should give you a sense for what we are, but there is runway based on an estimated $6.5 billion of white space that we have..

Okay, thank you.

And if I can just ask one more, looking at geopolitical risk, just to kind of get an update on how things are going over in Europe with the Ukraine situation and sanctions in general?.

Yes, like Russia continues to be an important business for us. We saw no material impact from the situation in Ukraine, and our Russian business or European business in general. So, we are confident about our ability to continue to drive growth out of that market..

Okay, thanks guys..

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

Just a question on the LTCV growth and I appreciate that we’ve been at this 12.3% on a compounded basis over three years and you guys have always guided to double-digits. But we have typically seen more like the low to mid-teens.

Is that’s something that was sort of kind of a bubble that’s behind us now and we shouldn’t really be thinking about that as a metric and just be focused on the double-digits or can we see on a quarterly basis the return back to some of the mid-teen numbers you’ve seen in the past?.

Well, we are always pushing to get the most out of our customer and business. And like I said, our pipeline ratios are in line to our historical ratios.

I am confident that we will to continue to grow the business double-digits and there is going to be variability quarter-to-quarter depending on the transactions closed and the size of some of those transactions. So, but I think all the metrics support our ability to continue to grow the business as we’ve done historically..

And then on this big pharma deal, was that in the original Q4 and 2014 guidance?.

Well, when we guided to 11% or better during Investor Day, we had an outlook for the business and certainly a deal of that size just doesn’t materialize overnight, so..

And then were all the expenses associated with that big deal in the fourth quarter as well?.

That deal was done through our sales organization. So those expenses are the run rate of our sales organization..

Great, and then just lastly, Antonio, you mentioned that you are taking the Latin American group and re-formatting into an SMB Group.

Is that a new sales reorg or a material reorg that you are doing there?.

Let me clarify it. What I meant was both Latin America and our inside sales organization made a significant contribution to our engineering business in FY 2014. What we did is, we renamed the inside sales organization as the small and medium businesses organization SMB Latin America stays as a field organization at that region..

So, just to be clear that’s something you did previously or that just went to effect this past quarter?.

The renaming of the inside sales organization just took effect on July 1..

But the structural change has been – you’ve been operating that way this year?.

Well, I don’t know exactly what a structural change refer to, but, there was no structural change. Latin America continues to be a standalone region with the field sales organization.

The inside sales organization was established two-and-a-half years ago and part of their responsibilities are to sales into the small and medium businesses in Latin America. So we are two channels into Latin America. But there was no structural change..

Thanks for the clarity on that..

It’s safe to say that over the two-and-a-half years since the now named SMB group existed, we have a changing scope what they do, expanding it from engineering initially and relatively small arrangements to increasingly larger arrangements and now they are actually going after owner operated business as well.

So, we’ve been expanding the role of that group within the company. I think the name reflects where they are at today from a responsibility standpoint..

Terrific, that helps clarify that. Thanks a lot guys..

Your final question comes from the line of Mark Schappel with Benchmark.

Hi, good evening. Nice job on the quarter end and nice job on the fiscal year. Most of my questions have been answered. Just one question for you Antonio. The M&A focused over the past few years has essentially been buying R&D through tuck-in acquisitions.

And as you look forward and evaluate your potential M&A opportunities that you have before, I was just wondering if you envision ever buying something little bit more substantial in this space that’s something much larger than what you’ve been doing today? Or Are you very happy with just continuing that low R&D purchases?.

Our portfolio of M&A opportunities that we are constantly evaluating includes the tuck-ins, small, medium and even some larger candidates, preferably in our core verticals. But there is also always opportunities outside of our core verticals.

I would say, like I have mentioned quite often during our investor meetings, that when we think of M&A opportunities that are larger in size, we put a filter on them which is the ability of that target to be accretive to our goal to grow double-digit from a revenue standpoint long-term and also support our goal of being best-in-class profitability.

And when you put that filter on potential candidates of larger sizes, you end up with a very small universe. But we are constantly evaluating all sorts of opportunities and if a right opportunity presents itself, then we will make that decision at that point..

Okay, thank you..

There are currently no further phone questions. I would like to turn the call back over to Mark for any closing remarks..

Yes, I would like to thank everyone for joining the call. Again, it was a strong Q4 quarter capping a strong fiscal year and we are looking certainly forward to our fiscal 2015 and reporting again in October the results for our Q1 2015 quarter. Thank you all..

Again, thank you for your participation. This concludes today’s call. You may now disconnect..