Karl Johnsen – Chief Financial Officer Antonio Pietri – President and Chief Executive Officer.

Matthew Pfau – William Blair Monika Garg – Pacific Crest David Hynes – Canaccord Mark Schappel – Benchmark.

Good afternoon. My name is Amanda and I will be your conference operator today. At this time I would like to welcome everyone to the AspenTech First Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Mr.

Karl Johnsen, CFO, you may begin your conference..

Thank you. Good afternoon, everyone and thank you for joining us to review our first quarter fiscal 2017 for the period ending September 30, 2016. 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 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 involves 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 quarter fiscal 2017 which is now on file with the SEC. Also, please note that the following information is related to our current business condition and our outlook as of today, October 27, 2016.

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 quarter and then I'll review our financial results for the first quarter and our guidance for the second quarter and fiscal year 2017 before we open up the call for Q&A. I'll now turn the call over to Antonio.

Antonio?.

Thanks, Karl, and thanks to everyone for joining us this afternoon. We got off to a good start in fiscal 2017 and delivered a solid first quarter performance with results that exceeded our guidance across all metrics. Looking at our financial results for the quarter, annual spend was $446.2 million, up 5.4% year-over-year.

Total revenue of $120.1 million was above the high end of our guidance range. GAAP operating income was $54.7 million and non-GAAP operating income was $60.5 million, which represents a non-GAAP operating margin of 50.4%. GAAP EPS was $0.44 and non-GAAP EPS was $0.49, both of which exceeded the high end of our guidance ranges.

Free cash flow was $26.7 million and we returned $130 million to shareholders by repurchasing 2.9 million shares.

Our first quarter performance saw a continuation of the trend we have seen in recent quarters, namely solid demand from our downstream and chemical customers as these customers continue to focus on driving higher returns from their capital employees. The breadth of activity from these customers is encouraging.

Their sustained strength in this market is validation of the significant opportunity for AspenTech to deliver more value to customer through broader deployments of our technology. With respect to E&C and upstream markets, the market dynamics remain similar to what we have seen over the past 6 months to 12 months.

The overall spending environment remains cautious as customers are spending against 2016 budgets that were either set or readjusted as oil was declining in the fourth and first calendar quarters in the last year. The improvement of oil prices into the upper $40 to $50 range is positive.

However as we have noted before, we believe it will take several quarters of price stability at these levels or higher before spending begins to increase and demand from these customers improves. With regard to calendar 2017 budgets, our current expectation is that customers will remain cautious and any budget increases will be marginal.

Despite a challenging environment in these markets, we did note some positive data points. Years of backlog for the E&C industry have steadied based on the data we track from eight major E&C customers which is positive after a number of quarters of steady decline.

In addition, our E&C SMB group had a solid quarter of growth, the third quarter in a row. It is far to soon to say if these developments are indicative of a sustained trend but the fact that the spending environment is not getting worse is an improvement compared to 6 months or 12 months ago.

During the first quarter, energy, engineering and construction and chemicals once again represented greater than 90% of our business. Energy was the largest vertical contributor followed by chemicals and engineering and construction.

Looking at our 10 largest transactions in the quarter, we had a good mix of engineering and manufacturing supply chain deals. We had good performance across all geographies, most notably in our global accounts. I would like to give you an update on a few of the deals that we closed in the quarter.

First, one of the largest oil companies in the world purchased thousands of additional tokens to further deploy our DMC3 adaptive process control and PIMS-AO, Advanced Planning Optimization products.

This was after the company confirmed during the first phase of the global roll out that they're on track to generate the hundreds of millions of dollars of value originally estimated to be captured during the pilot trial for these products.

Second, a leading oil company in Africa renewed its engineering software agreement for use of our HYSYS family of products to conduct process studies, revamp and debottlenecking studies, crude assays, analysis, and other uses in its refineries.

This customer also decided to extend the use of our engineering suite in order to use our capital cost estimation product. Third, an entity recently has spun-off from a large industrial company was reconstituted as a specialty chemicals producer, necessitating access to engineering software solutions.

As part of our competitive process, AspenTech was awarded the contract for our engineering suite on the basis of the breadth and depth of our offering, with the expectation of further growth in this suite and into our MSE suite in the future.

Fourth, a joint venture refining company in South Africa opted to upgrade its DMC plus technology to DMC3 after a study performed by AspenTech demonstrated the incremental value from the use of adaptive process control and from the increasing productivity of the loan advance control engineer in the plant.

DMC3 automates the maintenance of a controller through itself tuning capability hence, eliminating the need for an engineer to conduct tests to tune the controller as a process operating conditions change.

And finally, a leading European oil company and long-term AspenTech customer executed an early renewal of their contract for our engineering solutions.

While purchasing additional tokens to support increased staff in its upstream business, over the last couple of years, we had worked with a company on a project to evaluate HYSYS and HYSYS upstream dynamics across the top stream and engineering businesses.

The successful outcome of this project was key in the company's decision to select HYSYS over all other potential competitors. The customer also plans to expand use to other engineering functionalities such as acid gas cleaning, activated economics and activated exchanger design and grading across current and new applications and users.

I now want to give you an update on our acid optimization strategy which we covered in detail during our Investor Day event on June 2. Since June, we have made significant progress in executing against a strategy through an ambitious and exciting product and acquisition road map that we believe can significantly expand our market opportunity.

We believe AspenTech will be well positioned to provide an end-to-end solution that can address the requirements of an asset across its entire lifecycle, design, operations and maintenance.

The week after Investor Day, we announced the acquisition of the Fidelis Group; the first acquisition in the process of building that yet to be named asset maintenance suite which will be our third product suite once it is launched.

We're encouraged by the market reception of the Fidelis Group acquisition and its reliability analysis product capabilities. We're seeing good traction in the market with Fidelis reliability product and a number of growth opportunities have now been added to our pipeline.

The value of the Fidelis reliability product is illustrated by the hundreds of millions of dollars in capital costs saved in the design of a gas gathering system with nine compressor stations for our customer in the Middle East.

Tens of millions of dollars in each of the compressor stations were saved through avoidance of over design and redundant equipment. In July, after a two-year in-house development program, we released our predictive and prescriptive analytics product under a lighthouse program.

The functionality in this release targets a specific operational problem found in fractionation columns in the chemicals industry. The initial lighthouse chemicals customers in the U.S. and Europe have noted encouraging value capture opportunities beyond their originally ambitious test cases for the solution.

This is slated to become the second offering in our future asset maintenance suite. During the quarter, we completed two token acquisitions that expand our product footprint and will enhance the value we can deliver to customers; one of them in the asset maintenance space.

The first deal was the acquisition of the ProMV, an advanced batch control technologies from ProSensus, a leading provider of multi-varied and statistical process control, or MSPC software.

These solutions are used by owner, operator or customers, particularly in the chemical vertical to improve product quality monitoring and increase the potential throughput of an asset.

We can now supplement our inferential technology with – through multi-varied process analytics that distill data down to several key latent variables which provide powerful predictive and prescriptive models suitable for a variety of uses including both and continues and batch monitoring analysis and control.

An example of the use of MSPC software would be in specialty chemicals, where tight end user specifications require the manufacturers’ monitor and controlled batch process unit in real time to ensure that critical product specifications are met.

Using this technology, manufacturers can ensure there are substantially less off spec batches and make corrections for unexpected disturbances during the batch manufacturing process.

Batch production is used extensively in process manufacturing and the annual cost of specifications batches can be in the millions of dollars, with ProMV and advanced batch control technology customers are able to develop products faster, improve product quality and get valuable insights from data they are already collecting.

This acquisition also supports our asset optimization strategy, improving operational performance throughout the asset lifecycle.

We believe that a new ProMV and advanced batch control monitoring and control technology will drive significant additional value for our customers and open up new opportunities for usage of aspenONE software in chemicals, in specialty chemicals and related markets.

The second token we made during the quarter was of Cardinal Creek which is a technology acquisition that we will use to enhance the capabilities of our Aspen Operations Reconciliation and Accounting, or AORA product. AORA solves fundamental problem for refiners and chemicals customers.

Namely, how to account for fixed stock entered into a plan versus a plan and schedule set forth in a model. With the addition of Cardinal Creek's technology, we will expand the data being collected by AORA and increase the reporting and analytics capabilities while significantly improving the user experience.

Finally, we announced today the acquisition of Mtelligence Corporation, known as Mtell. A leading provider of predictive and prescriptive maintenance solutions based on machine learning capabilities used in oil and gas, chemicals, transportation, mining, pharmaceuticals and waste water markets.

Mtell has developed over the last 15 years a unique all inclusive approach to maintenance with an autonomous agent that prescribes precise maintenance intervention that protects not only machines but the entire machine ecosystem, leveraging the connectivity from sensors in rotating stationary equipment.

Mtell's motto is, to create a world that doesn't break down. Mtell creates value by providing much earlier detection of potential equipment failure, thereby avoiding breakdown that otherwise would translate into millions or tens of millions of dollars in losses.

Successful implementations have been completed in pumps and compressors in refining and chemical assets, locomotives and other types of industrial assets. The Mtell acquisition is in the category of a small acquisition for AspenTech, in this case, for $37 million. Please reference our 10-Q for more details on the transaction costs.

AspenTech will incorporate the Mtell suite of products into the future asset maintenance suites providing machine learning capabilities.

The asset maintenance suite will include capabilities in reliability and availability, operational predictive and prescriptive analytics based on first principals, empirical and statistical models and machine learning capabilities with more to come. All available in the products are acquired or developed that I just highlighted.

We're committed to executing on the asset optimization strategy, including by investing in R&D to create greater value for our customers and materially expand the total addressable market of the company to support our long-term growth ambitions.

While we make the investments needed to execute against our overall product road map, we also continue to deliver a strong profitability and cash flow. In the first quarter, non-GAAP operating margin of 50% was ahead of our expectations and benefited from our strong top line performance even as we increased R&D spend sequentially.

The fact that we're able to make incremental investments in our asset optimization strategy while delivering best-in-class margins that speaks to the inherent leverage and strength of our business model.

We're also fortunate to have a strong balance sheet and cash flow that supports our internal investments and M&A and can also be used to deploy capital at a significant scale to drive value for our shareholders.

During the first quarter, we returned $130 million to investors via buy-backs, including $80 million that was executed as part of our $100 million accelerated share repurchase program. To summarize, AspenTech started fiscal 2017 with a solid Q1 performance.

We executed well in a challenged spending environment and believe we continue to be well positioned to achieve our fiscal 2017 annual spend guidance of 3% to 6%.

We believe the investments we're making in our product portfolio will further extend our market leadership and will position us well to benefit as the overall spending environment improves over time. With that, let me turn the call over to Karl.

Karl?.

Thanks, Antonio. I will now review our financial results for the first quarter of fiscal 2017, beginning with annual spend.

Annual spend which is a proxy for the annualized value of our recurring term license and maintenance business at the end of each period was approximately $446.2 million at the end of the first quarter which is an increase of 5.4% on a year-over-year basis, and 1.1% sequentially.

Now, let me turn to additional financial results beginning on a GAAP basis. Total revenue was $120.1 million which was $3 million above the high end of our guidance range. Including our Q1 fiscal 2017 revenue, approximately $1.5 million of cash bases revenue that was accelerated due to the timing of collections is non-recurring in nature.

Looking at revenue by line item, subscription software revenue was $113.4 million for the first quarter, which is an increase of 1.4% from $111.9 million, the prior year period, an increase of 6.3% from $106.7 million in the last quarter.

Remember, in Q1 fiscal 2016, we had approximately $4 million of non-recurring revenue in our subscription software revenue. Services and other revenue were $6.6 million compared to $8.4 million in the year ago period and $7 million last quarter. Turning to profitability.

Gross profit was $108.5 million in the quarter with a gross margin of 90% which compares to $107.3 million and gross margin of 89% in the year ago period. Operating expenses for the quarter were $53.8 million, compared to $51.9 million in the prior year period.

Total GAAP expenses including cost of revenue were $65.3 million, up from $64.9 million in the year ago period and $64.7 million last quarter. Expenses in the first quarter were somewhat below plan due to the timing of certain investments and hiring.

Operating income was $54.7 million for the first quarter of fiscal 2017 compared to $55.4 million in the year ago period. Operating margin was 46% for the first quarter of fiscal 2017 consistent with the year ago period.

Net income for the quarter was $35 million or $0.44 per share compared to net income of $36.8 million or $0.44 per share in the first quarter of fiscal 2016.

Strength in non-GAAP results including the impact of stock-based compensation expense, amortization of intangibles associated with acquisition, acquisition-related expenses and non-capitalized acquired technology, we reported non-GAAP operating income for the first quarter of $60.5 million representing a 50% non-GAAP operating margin compared to non-GAAP operating income and margin of $60.2 million and 50% respectively in the year ago period.

Non-GAAP net income was $38.87 million or $0.49 per share in the first quarter of fiscal 2017 based on 79.4 million shares outstanding which is $0.05 above the high end of our guidance range.

This compares to non-GAAP net income of $39.8 million, or $0.47 per share in the first quarter of fiscal 2016 based on 84.3 million shares outstanding, a combination of our higher than expected revenue and strong expense management drove our performance in the bottom line. Turning to the balance sheet and cash flow.

We ended the first quarter with $191.6 million in cash and marketable securities, a decrease of $129.7 million from the end of last quarter. The decrease in our cash balance in the quarter was primarily related to stock repurchases we made in the first quarter.

Our deferred revenue balance was $254.2 million at the end of the first quarter, essentially flat compared to the year ago period. On a sequential basis, deferred revenue decreased $27.9 million. This is in line with our typical seasonality.

As a reminder, our deferred revenue balance is heavily influenced by the timing of invoices, and the first quarter is typically our lowest invoicing quarter.

From a cash flow perspective we generated $26.3 million of cash from operations during the first quarter and $26.7 million of free cash flow after taking into consideration net impact of $500,000 in capital expenditures, capitalized software, non-capitalized acquired technology and excess tax benefits from stock-based compensation.

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 thoughts regarding our financial outlook for fiscal 2017 as well as guidance for the second quarter. As Antonio mentioned earlier, we announced today the acquisition of Mtell.

We don't expect the acquisition to contribute to our revenue until fiscal 2018. In addition, we don't expect the acquisition to impact our full year cash expense guidance.

For the second quarter, we expect revenue in the range of $117 million to $119 million, non-GAAP operating income of $57 million to $59 million, and non-GAAP EPS of $0.44 to $0.46 per share. On a GAAP basis, we expect operating income of $52 million to $54 million and net income per share of $0.41 to $0.42 per share.

For the full year, we continue to expect revenue to be in the range of $470 million to $477 million and continue to expect subscription and software to comprise greater than 90% of revenue with our services and other revenue representing the remainder.

From an expense perspective, we continue to expect total GAAP expenses of $268 million to $273 million. Taken together, we continue to target GAAP operating income in the range of $199 million to $206 million for fiscal 2017, with GAAP net income of approximately $126 million to $131 million. We expect GAAP net income per share of $1.58 to $1.64.

From a non-GAAP perspective, we are reiterating our non-GAAP operating income guidance of $217 million to $224 million and expect non-GAAP income per share in the range of $1.73 to $1.78. The increase in our fiscal 2017 GAAP and non-GAAP income per share guidance reflects the impact of our share repurchases in the first quarter of 2017.

With respect to annual spend in fiscal 2017, we are maintaining our guidance of 3% to 6% annual spend growth in fiscal 2017. From a free cash flow perspective, we are reiterating our fiscal year guidance of $160 million to $165 million that was initially provided at our Investor Day.

Our fiscal 2017 free cash flow guidance assumes cash tax payments of approximately $65 million to $70 million. From a timing perspective, we would expect to pay 50% of our cash taxes in the second quarter with a remaining 50% paid equally in the third and fourth quarters.

In summary, we are pleased with our first quarter results and believe our ability to continue generating top line growth, high margins and strong free cash flow and challenging market demonstrates the strength of our business and the value we provide to our customers. With that, we're now happy to take your questions. Operator, let's begin the Q&A..

My pleasure. [Operator Instructions]. And your first question comes from Matthew Pfau with William Blair..

Hey, guys. Thanks for taking my questions..

Hi, Matt..

Hey, I just wanted to first touch on the Mtell acquisition.

Maybe you could give us an idea of the customer overlap there or are a good portion of your customers familiar with their software or using it? And then also on the revenue contribution related to Mtell, so does that mean that the company didn't really have any revenue or are you sort of discontinuing the existing model it had and redoing it and then going to redeploy in 2018? Or how should we think about the contribution there from a revenue perspective?.

Okay. Well, I'll take the first part of your question and then I'll let Karl answer the second part. So Mtell, as I mentioned, they are in multiple industries and in oil and gas and chemicals. Their customers overlap with our customers.

Their technology has been piloted and implemented in some of these customers with significant results leading to further deployment.

Certainly they’re also implemented in other industries where they've also achieved a lot of success and while our acquisition of Mtell is about our industries, certainly that's an opportunity that we'll have to evaluate with regards to what it means in the future. So that's the answer to the first part.

Karl?.

Matt, it's Karl. On the revenue contribution, purchase accounting is forcing us to fair value what they were providing before. So they had a revenue stream and a revenue base but unfortunately once you put it through purchase accounting, it gets de minimis because it gets fair valued.

So there will be an ongoing service, it it's just related revenue that gets de minimis..

Yes. So our expectation there Matt is that all these precessions that we mentioned, while Fidelis is already making a contribution to FY 2017, but ProSensus, Cardinal Creek, Mtell, they'll start having an impact in FY 2018 and beyond..

Okay.

And then in terms of the pricing model as you start the piece together Mtell with Fidelis, is it going to be a similar token model as to what you have with the other two suites?.

Yes, the third suite that we'll introduce will again be based on the token model, subscription revenue, long-term contract and we will be assigning token values to all these products..

Got it. And just I know you gave, Antonio, some comments on the macro and what you were seeing in the market and I know last quarter you had commented that the deal flow had sort of returned to a more normalized cadence.

Did that continue in this quarter or are we to assume that from some of the comments you made on the macro?.

Yes, I think we saw similar deal flow that we saw in Q4 and Q4 had been an improvement certainly over Q3. But of course the E&C and upstream segments of our markets remain challenging. But definitely in refining and chemicals, we did see good deal flow..

Got it. That's it for me. Thanks, guys..

Thank you..

And your next question comes from Monika Garg from Pacific Crest..

Hi, Monika..

Hi, Antonio.

I got question on – first of all, when do you expect to roll up all these three acquisitions in the new suite, maintenance suite which you talked about? And when can we expect the roll out of the maintenance suite, the third suite basically?.

Yes. Well, the roll out of the third suite will be soon and I cannot say more than that. And certainly it will initially include a reliability product or analytics product and then we need to work on integrating the ProSensus and Mtell acquisitions into that suite and package it. But we expect to release the third suite sometime soon..

Okay.

How much was the – what was the revenue which Mtell was running at?.

I'm not sure off hand. It’s a normal run rate for a company of that size, probably in the tens of millions but, less than that probably. But again, like I said, it's not going to make a contribution to us because again they were not on a GAAP basis so kind of what they were, it's almost non-relevant.

But then, when it goes through purchase accounting it's just not going to contribute to us..

Got it. Sorry, go ahead..

No, go ahead, Monika..

I was just asking Karl how to think about buy-backs but we’ll love your comments on Mtell..

Well, I'll first say something there. Our purchasing Mtell and these tokens that we have got doesn't change our plans regarding the buy-back. We still expect to execute on the buy-back that we announced for fiscal 2017 and assuming that everything remains as it is. But we continue to execute on that buy-back..

Karl, maybe you can add how to think about buy-backs for the rest of the year? Like which quarter? You are – yes..

Your question is, are we going to kind of not be linear again, I think?.

Yes..

We're still kind of evaluating the opportunities. Historically we've done them kind of ratability through kind of open market purchases through the quarters.

We did our first ASR which is still open now, so as we think about it, we evaluate the ASR, the impact and then we'll reevaluate how we look at the next three quarters and how we do the buy-backs. It could be that we do them kind of straight line or we make take advantage of another kind of ASR if we think the opportunity's correct..

Got it. And just as follow-up to the last question, oil has recovered from recent lows.

Maybe could you talk about if you have seen any change in the tone of your customers and how your discussions with the customers are going?.

No, I mean, look, we're still in calendar 2016 and certainly it's a better environment to have oil at around $50 a barrel. But it's still 2016. Certainly it's budgeting season and we'll see what budgets are like for calendar 2017. But the discussions with E&Cs and upstream customers have continued to be the same.

And time will tell as far as what budgets are set and what is the spending environment for 2017..

Got it. Thank you so much..

Yes..

And your next question comes from David Hynes with Canaccord..

Hey guys.

How you’re doing?.

Good. Thanks..

Good. So maybe we can start and just kind of step back and go high level on the asset optimization, MRO efforts.

I mean this is technology that's I guess been around for a long time, so, can you help us understand maybe what's unique about the demands and the process industry? And then I guess what asset is going to do differently? I assume from how you guys have messages around kind of the prescriptive technologies, but kind of what positions you to take share from the incumbents and are those guys not trying to do what you're doing? Just help us understand, frame the high level view of the space..

Well, if you look – I think the point is that there are not that many incumbents and while the technology has being evolving over the last 10 years, I think there's a set of factors that are coming together; one, certainly since the recession of equipment and the ability to get a data maturity of the technology.

I think there's now a greater focus by customers on maintenance and equipment reliability and availability and avoidance of breakdowns.

While some of these technologies has been around for a number of years and really it's been in gestation for a number of years, I think we believe that a number of factors are coming together that are creating the right environment for broader adoption of these technologies.

The other factor that we believe separates us or differentiates us from the incumbents is the fact that we have a very strong presence with our manufacturing and supply chain and engineering suites in these customer's assets.

So the whole proposition of evolving from the design and operation into the maintenance space with a set of technologies that are ripe for adoption and lead to further optimization of these assets I think is what certainly has convinced me that these are all the right moves to make..

Yes. Okay. And then second question, maybe on the renewal environment. So, last quarter you guys gave us the annual spend attrition metric, which I think you're sharing once a year. It was 6%. When you peel that back and consider you're only touching a fifth or so of your annual spend that's up for renewal in a given year. That's a pretty big number.

So I guess I'm wondering, help us think about that attrition on a partial churn versus a full churn basis.

In other words, are there a lot of customers coming back and saying, hey look, we've cut back on spend, so we're going to dial back on our relationship with you? Or is it a handful of customers that have just completely turned off the software? Help us think about that mix..

I think most customers look – the Company has always had an attrition rate. We used to call it a renewal rate in the GPLCV days or PLCV days and now we've changed the terminology to attrition rate because it's against the total base of annual spend. So we've always had a rate of call it non-renewals and in some case as little bit of reductions.

The difference in the last 12, 15 months is really just an increase, significant increase in reductions. It's not that customers are walking away.

It's just that those whose businesses have been impacted have less need for the software and they're remaining as customers of AspenTech but they're reducing their spend and that's the increase from 3% to 6% that you really saw. So I would say the difference in this downturn has just been customers reducing their spend.

And look, certainly with the E&Cs and in the upstream area, a lot of them are in that situation that their businesses have been impacted. But at the same time we have some E&Cs that have increased their spend over the last 12 months.

One of the vignettesthat I gave you about one of our customers is actually one of the major oil companies in Europe in their off-stream sector. They've hired more people and they need more of our software. So these are all positive signs and we'll see when the business really starts recovering in full.

But at the same time I also think that things are not getting worse out there. I think we've been through the worst and now we just have to wait for things to improve..

Got it, okay. Well, you guys are doing a nice job, controlling the things that you can so. I appreciate the color. I'll pass the line..

Thank you..

Your next question comes from Mark Schappel with Benchmark..

Hi, Mark..

Hi, good evening. Thanks for taking my question. Good job on the quarter here.

Antonio, what if you just give us a brief overview of the product differences per se between Mtell and Fidelis?.

Let me look – Fidelis is really a reliability software. You design an asset or a process unit, a piece of equipment and then you combine with our engineering software. Then you can determine based on historical performance of that equipment and a process whether you are over the signing the asset, how likely is it to break down and when.

And on that basis you determine, well, how many compressors or how many pumps you have to have or how big the equipment needs to be. And that's what they do.

They look at over design, they look at redundancy of equipment and it's on that basis that they're able to review CapEx investments by giving customers a certain probability that equipment will breakdown within a certain period.

Mtell is about installing these autonomous agents, they call them agents in the process as it operates and it reads information from the equipment and based on the behavior that it detects, based on from the data, then it's able to predict when a piece of equipment is going to breakdown, send out the alert and prescribe as well what actions to take.

So reliability, the Fidelis technology is used in the design of the asset or when you're going to do a revamp or debottlenecking of an asset. The Mtell technology is installed on the asset when it's operating. It's about avoiding breakdowns.

They have an example, for example, of locomotives where they install this agent in the actual locomotives, they're running down the tracks and they're able to detect when potential breakdowns are going to happen and therefore avoid accidents.

Similarly in chemicals and refining, they install these agents in the cases where they have around pumps and compressors and are able to detect when those pumps or compressors are going to breakdown and therefore they can be serviced and avoid major shutdowns in operation. That's a lot of money for this company.

So very different applications but all part of an asset performance management set of solutions..

That's helpful, thank you. And then secondly, Antonio, you devoted a good portion of your prepared remarks to what the Company was planning to do in the Specialty Chemicals area.

And I wonder if you would just detail briefly what industry dynamics you're seeing in Spec Chem that's resulting in this increased focus in this market?.

Well, I mean look I think it's what's happening around the world with as countries move up, the maturity curve in their economies. The U.S. before shale gas was becoming a predominantly Specialty Chemical producer because the cost advantage to produce bulk chemicals were in the Middle East, had moved to the Middle East and Asia.

Of course with shale gas, a lot of that has changed, but the U.S. produces a lot of Spec Chems.

But companies like Dow, Dupont, they started to move up the value chain to Spec Chem because the commoditization of bulk chemicals, ethylene, propylene was forcing them to move into more profitable businesses and in a way the whole Dupont, Dow merger is about that.

The same things happened in Europe with companies like BSF, Evonik, Borealis also – sorry, [indiscernible] the in U.S. and Europe. These are all companies that have over time migrated into Spec Chem. Japan has become a full Specialty Chemicals country. China became the bulk chemicals producer of the Middle East as well.

So, we now have to make sure that we follow our customers, our major customers and we're making R&D investments both organically in that area and through some of the acquisitions that we've made.

And we have a shared the roadmap with the Spec Chem customers and they're very excited about what we're doing in that space and I think it will open up new – it will expand the time for us going forward..

Thank you. That's helpful. That's all for me..

Okay, great, thanks..

And there are no further questions. I would now like to turn the call back over to the management..

Looks like there's one more question. No? Okay. Well, I want to thank everyone for joining us today for this call and again we look forward to seeing or meeting some of you on the road over the next few weeks and months. Thank you..

That does conclude today's call. You may now disconnect..