Aspen Technology Inc

NASDAQ:AZPN

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to Aspen Technology First Quarter Fiscal 2021 Business Update call. At this time, all participants are in listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to your speaker today, Aspen Technology Chief Officer; Mr. Karl Johnsen. Thank you. Please go ahead, sir.

[Karl Johnsen, CFO]

Thank you. Good afternoon, everyone, and thank you for joining us to discuss our selected financial results for the first quarter of fiscal 2021 ending September 30, 2020. I'm Karl Johnsen, CFO of Aspen Tech, and with me on the call 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 contained in our most recently filed Form 10-Q.

Also, please note that the following information relates to our current business conditions and our outlook as of today, November 5, 2020. 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 current business trends, and I will provide an update on completing the filing of our Form 10-K for fiscal year 2020 and our 10-Q for the first quarter of fiscal year 2021 as well as certain balance sheet items.

With that, let me turn the call over to Antonio. Antonio?

[Antonio Pietri, President and CEO]

Thank you, Karl, and thank you all for joining us today. We hope all of you and your families continue to be safe and healthy.

Given the ongoing process to complete our 10-K filing for fiscal 2020, we will also be delayed in completing our quarterly close process for the first quarter. For that reason today, I will only discuss our annual spend performance in the first quarter and provide an overview of current business trends.

And our expectations for the remainder of the fiscal year, annual spend at the end of the first quarter is expected to be within a range of $596 million to $597 million, which would represent 8.8% year-over-year growth and 0.6% growth sequentially. This was solid in the context of the macro-environment in what is normally our seasonally lowest growth quarter. Even in this difficult macro-environment.

Our customers continue to invest in AspenTech solutions to enhance the operations of their assets and enable them to run safer, greener, longer and faster. We know from previous economic downturns that the mission criticality of our products has been made even more evident to customers, and we believe that it's true today as well. Our annual spend performance in the quarter reflected the anticipated attrition amount for the quarter and in line with the higher level of attrition we expect in fiscal 2021.

And gross growth that was largely in line with our performance in the first quarter of fiscal 2019 and 2020. Customer interest in investing in technologies to realize the benefits of digitalization remains high, and we had encouraging wins across all three of our core verticals. Not surprisingly, we did see a number of customers pause over the summer to regroup and recharge after what has been several extraordinarily stressful month in their operations.

Customer engagement and the quality of our conversations around transactions has picked up since Labor Day and especially into October, reminiscent of what we saw in the fourth quarter of fiscal year 2020. Amongst our owner-operator customers, we had a solid quarter in chemicals, where we're seeing a slow and steady improvement. As we mentioned last quarter, the recovery in the chemicals' market is uneven.

With the various changes in demand patterns due to the current economic environment being a positive catalyst for parts of the industry and a challenge to others. These customers continue to demonstrate a commitment to their digitalization initiative and a focus on making high ROI investments with AspenTech. We have generated consistent growth for many years amongst these customers and expect that trend to continue. In the energy vertical, we saw good customer activity and interest.

The pause I referenced earlier was more pronounced among these customers. But we're optimistic for the balance of the fiscal year based on improving conversations around deals, as just mentioned, and a growing pipeline of opportunities. Similar to what we hear in chemicals, energy customers have made clear that the disruption from the pandemic has reinforced and need to operate their assets with greater agility and flexibility in the future. AspenTech has long been a core enabling technology to meet these goals.

And as I will explain in a moment, we are poised to take our value creation to the next level. In the E&C market, as you would expect, these customers are adjusting their operations to the new levels of CapEx spending in their end markets. Positively, we went through a number of renewals in this market during Q1 and they were in line with our expectations. In one case, we had a larger renewal that was signed for a shorter than typical duration, even as these customers annual commitment with AspenTech went up.

It's too early to tell if this will become more common with these customers, but this particular renewal will have an impact on the relationship between annual spend, with bookings and revenue when we report our final first quarter results. We continue to see and capture emerging opportunities for growth with these customers as they look to diversify their book of business towards operations and maintenance activities in Brownfield assets.

In the quarter, we signed a new agreement with an important North American engineering firm that committed to our Aspen Fidelis and Aspen Mtell products in the APM suite as part of its efforts to grow business in this area. One thing that has become clear in the last eight months is that important global trends, including the focus of our customers and their sustainability efforts have accelerated.

This means that for the industries we serve, there's this additional impetus to accelerate deployment of digital technologies to achieve their sustainability targets. The move to net-zero carbon emissions and reduction in plastic waste is being driven by treaties such as the Paris Climate Accord and society's demand for a cleaner environment. Traditionally, the return on investment from our digital technologies has been measured in efficiency and operational gains that translate into profitability.

Now we're seeing more customers adopt our solutions to also address sustainability goals and justify the investment on this basis. Digitalization has been in progress for decades in the process and other capital-intensive industries and now next-generation industrial AI capabilities will become critical to addressing climate change and plastic waste in the environment. In fact in a recent survey, we conducted with ARC of global chemical and energy companies.

90% of respondents have sustainability initiatives in place and 75% of respondents rated digital transformation as highly important for achieving sustainability goals. In APM, we continue to be pleased with the level of business activity and our number of active pilots which once again set a record in the first quarter. As we discussed on our last call, we're seeing a number of delayed purchasing decisions with this suite as customers look to hold the line on expenses in the near term.

We're confident this is a near-term dynamic and as a positive activity we see in multiple verticals with pipeline creation and active pilots will translate to faster growth as the economy normalizes. To highlight a couple of APM wins from the quarter, a new North American mining customer committed to deploy Aspen Mtell after our successful offline pilot, with the objective to improve the reliability of equipment in their mining operations.

Similarly, we saw one of the largest Russian oil companies expand the use of Mtell to one of their largest refineries in the country after the successful rollout at their first refinery. This is part of their digitalization strategy to improve reliability across our operations.

Looking forward, we remain confident in our outlook for the rest of the fiscal year, while cognizant of the difficult macro environment that our customers are facing. We had a solid first quarter.

And as mentioned, the quality of conversations with our customers around quarter transactions is positive and our pipeline of business continues to grow. We are reiterating our full year annual spend growth target of 6% to 9%, which we have known will be weighted to the back half of the year. We continue to expect attrition to be in line with our guidance of 5% to 6%, and we're also confirming our full year free cash flow target of $260 million to $270 million.

From a product perspective, we have recently introduced some of the most important product releases in our history as we deliver on our industrial AI product capabilities and our vision of the self-optimizing plan. We released aspenONE v12, which embeds AI across our product portfolio and uses the capabilities in the Aspen AIoT Hub to deliver enterprise-wide analytics and insights. A key advancement in v12 is the introduction of Aspen Hybrid Models, the first hybrid modeling solution ever introduced in the market.

Aspen Hybrid Models captures data from assets across the enterprise and applies artificial intelligence, our historically strong capabilities in engineering first principles modeling and our 40 years of domain expertise to build the first and most comprehensive and accurate hybrid models in the market.

With Aspen Hybrid Models, customers are now able to address problems that cannot be solved with engineering principles models alone, build better models faster than ever before and sustain these more accurate models in production longer than before. Aspen hybrid models is a significant achievement that has been incredibly well received by customers.

In fact, hybrid model set a record with the most customers participating in our innovation club and beta testing phases. Other exciting innovations in aspenONE V12 include Aspen Multi Case, which allows customers to run thousands of concurrent simulations, either on-prem or in the cloud to allow faster and more accurate decisions to optimize operational complexity.

Aspen Master an exciting new capability of DMC3 and Mtell that automates model developed by guiding newer users on how to build a model or agent. Aspen MES Collaborative, which connects data from across all assets, including a small sites where data has historically been stranded and aggregated with our enterprise level historian and Aspen Cloud Connect, which provides flexible and high-performance connectivity and security to transfer data from the edge to the cloud.

We also announced the Aspen AIoT Hub, which has received terrific industry and customer feedback since its release in August. We now have the ability to enable seamless and flexible data mobility and integration from sensors to the edge and the cloud, while providing important new visualization capabilities.

The AIoT Hub is a core element of our strategy as the industrial AI company. It is our cloud-ready architecture that supports the ability to collect vastly more data than ever before to support our new generation of high-value hybrid applications. It also provides an environment for data scientists to develop AI applications leveraging the machine and algorithms in the data science studio environment of the hub. This is increasingly important as customers data science groups look to contribute to the digitalization efforts of their organizations.

aspenONE v12 and the AIoT Hub are only the first step in building out our complete strategy for AspenTech as the industrial AI company. Our future releases will more deeply embed AI into our solutions that further improves the speed, accuracy and quality of models built for assets that run on AspenTech products.

AspenTech is democratizing the application of AI to where it can deliver the most value. We believe that Self-Optimizing Plant is key to achieving a digital enterprise and with version 12 and the AIoT Hub who are creating the foundation for that reality for our customers.

In short, we're on a journey to reinvent how the process and other capital-intensive industries manage their assets and create significantly greater value. To summarize, we got off to a solid start in fiscal '21. More importantly, we have delivered a tremendous amount of new groundbreaking innovation to the market in recent months.

For 40 years, AspenTech has enabled the process industries to operate in ways not previously thought possible. We are confident the new innovations in the AIoT Hub, aspenONE v12 and our broader innovation on hybrid modeling and hybrid products represent the biggest advancement in the process industries in a generation.

In the near term, our focus is on supporting our customers and executing through the current economic challenges while continuing to deliver on our innovation vision. We are confident we're laying the foundation for sustainable double-digit growth as the economy normalizes.

Now let me turn the call over to Karl. Karl?

[Karl Johnsen, CFO]

Thanks Antonio.

I will provide a quick update on our cash and debt balances and the status of our 10-K and 10-Q filings. We ended the first quarter with $317.5 million of cash and cash equivalents and $427.2 million of debt outstanding under our term loan and revolving credit facility. This is an increase in cash of $29.7 million from the fourth quarter of fiscal 2020 and reflects $2.7 million of cash taxes and $4 million in principal debt payments on our term loan. Cash collections in the quarter were strong overall and benefited from collections that were originally due in the fourth quarter of fiscal 2020.

During the first quarter, we did not repurchase any shares, though we still intend to repurchase $200 million of our stock in fiscal 2021, depending on market conditions. I'd like to end with a quick update on the status of completing the filing of our fiscal 2020 10-K and 10-Q for the first quarter of fiscal 2021.

In short, nothing has fundamentally changed since September 1 in terms of the issues we are working through to complete our process. As we discussed in our filing on Form 12b-25 on September 1, and as updated by our 8-K filing on September 23, we require additional time to complete our procedures to finalize our fiscal 2020 Form 10-K as a result of additional errors identified in the transition adjustment recorded in prior fiscal years related to the adoption of ASC Topic 606.

Based on what is known today, we do not expect these errors to be material. As a reminder, the issues we are working through are the same as those we previously identified last year during our initial work completing the adoption of topic 606 and as part of our fiscal 2019 10-K filings. The delay in filing our fiscal 2020 10-K will impact our ability to file our first quarter fiscal 2021 10-Q on time.

Once we file our 10-K, we will move on to completing our Form 10-Q filing, which we anticipate will be done within several weeks after we finalize our Form 10-K. We are working as quickly as we can to complete this process and get current with our SEC filing obligations. As we finalize our filings, we remain focused on executing on our strategic priorities and delivering value for our customers. We believe we are well positioned to deliver on our financial objectives.

With that, operator, let's begin the Q&A, please.

[Operator]

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

[Rob Oliver, Baird]

Just one and then a quick follow-up for me. I just wanted to touch on the APM activity. You guys are coming off a very strong Q4. And it sounds like you mentioned that record number of pilots this quarter. You also said there was some - maybe some pause in spending around APM.

I was wondering if you could just add a bit of color on that, if there were any particular types of customers that were holding off on that spend. And I know that, that's not necessarily new for you guys. I mean going back to January, there were some deals that were already being kind of delayed. And just wondering if - while you're seeing some deals delayed, you're also seeing some of those that were delayed start to hit.

[Antonio Pietri, President and CEO]

Yes. Well, I mean, look, Rob, you have to take all of that, that you said in the context of Q1, which is sort of our slowest growth quarter in general, areas like Europe or [indiscernible] location even the U.S. these days, it's becoming more and more.

So we didn't necessarily see significant deals that pushed out of the quarter. We just saw a lower level of activity in the quarter. Certainly, in the energy sector, both upstream and refining customers had dealt with a significant amount of disruption in the previous months.

And we did see a slowdown in business activity in that sector. Chemicals continue to do well for us, and we saw even some traction with EPC. So I wouldn't necessarily characterize it as you referred to as a Q3 FY '20 issue or before. It just more of a general pause in activity that we saw in the quarter.

[Rob Oliver, Baird]

And then I just wanted to just refer back to the comment you made about the E&C customer with the shorter deal duration. I mean I just wanted to ask on that. Was that a customer that previously had been a kind of 5-, 6-year customer, which would be the norm for you guys in terms of contract? And maybe just a little bit of a thought process around the negotiation on that renewal color there would be helpful.

[Antonio Pietri, President and CEO]

Yes. Well, let me look at it, no. And I won't talk specifically about what was the original length of that contract and where we ended up with. But in that negotiation, the interesting thing is that this is a customer that ends up going into the negotiation wanting a reduction in spend, and we end up with a transaction that - where the customer is spending more money with AspenTech at the end of the day, albeit a shorter duration contract.

So certainly, not what we expected in this current environment. But what I would also say is that we have picked up conversations with that customer since that contract signed, and we'll see what happens in the future.

[Operator]

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

[Matt Pfau, William Blair]

So assuming we get a change here in the White House any - I guess, how are you guys thinking about any potential regulation on the energy industry as being either a negative or positive for you?

[Antonio Pietri, President and CEO]

No, I mean look, regardless of who is on the White House, if anything, regulations because they enforce a stricter standards on efficiency, especially the quality of gasoline, meaning less sulfur or less emissions or other type of stringent operating constraints, that drives actually a better spend for us because our technologies are about driving more efficiencies, and managing processes to tighter specifications and quality and so on. So in an odd way tighter regulations are more of a positive driver for us.

[Matt Pfau, William Blair]

And then on the GEI segment, I think last quarter, you talked about increasing your sales capacity there. Is that still the plan and have you made any - done any hiring there yet?

[Antonio Pietri, President and CEO]

Yes, yes no, we are - and today, the pharmaceutical industry, life sciences is in that group. So we were standing up our pharmaceutical sales organization at the moment. We'll also be looking at one or two other industries as well to do that. And - but so yes, we're in the process. We see the opportunities and it will be our organic way to move into other industries, but as we've said in the past.

When we look at other industries, we also consider M&A in that regard so that. And Matt, the other thing that I would add to your first question in my prepared remarks, I referred to now the greater focus of our customers on sustainability. And in a way, sustainability targets, net-zero carbon emissions, you could think of them as stricter regulations, less plastic waste in the environment.

That means customers have to find a way to produce different types of plastics that can be more easily recyclable or find ways to recover that plastic. While those may not fall on the regulations, it certainly drives customers to consider better operating standards, which is part of this theme of, therefore the need for more of our technology.

[Operator]

Your next question comes from Gal Munda from Berenberg. Your line is now open.

[Gal Munda, Berenberg]

The first one is just on the APM. And I was just wondering if you could give - a little bit more clarity in terms of the expectations for the year based on how the first quarter was going to planned out? Are you still expecting about a few percentage distribution to grow similar - kind of in line with what we experienced in FY 2020?

[Antonio Pietri, President and CEO]

Yes, yes within that range of annual spend growth that we reiterated 6% to 9% growth. In that, we assume two points of growth contribution from APM, and we - still believe we can do that.

[Gal Munda, Berenberg]

And then I have a question - it's a follow-up question just on the GEI. In the past, you guys have said that verticals such as pharma don't really care that much about the efficiencies and it's kind of a limited opportunity in order to get to them direct. What has changed and can you just talk us a little bit what is different this time or - this time around that kind of makes you that market more attractive?

[Antonio Pietri, President and CEO]

Are you talking about pharma specifically?

[Gal Munda, Berenberg]

Pharma specifically.

[Antonio Pietri, President and CEO]

Yes, yes.

[Gal Munda, Berenberg]

Because that's why there is revenue, you said you're already hiring for yes, about yes?

[Antonio Pietri, President and CEO]

Yes, yes - maybe I know look - correct in a way, efficiencies is not a driver for the pharmaceutical industry at least not - it hasn't been, I think it will become more and more. A lot of pharmaceutical processes are starting to be shifted from batch processing to continues. And in that, we've had conversations with some pharma customers about the implementation of advanced process control.

Pharma customers have been some of the early adopters of our Aspen Mtell product around reliability in their manufacturing operations. So that's really also about efficiencies. But really, the main driver for the pharma industry with AspenTech has been really manufacture and execution systems and the tracking and recording of the information and the data as these products are manufactured or produced.

But more and more, we're seeing from the pharma industry an interest in analytics and AI capabilities in multivariate analytics. So, we also believe that there's an increasing opportunity in different areas of the pharma sort of supply chain. If you will from R&D on to manufacturing and then distribution to apply sophisticated analytics, including tying that to the tracking and recording of all the information associated with the production of these drugs.

So we're excited about this opportunity. We've been in pharma for 20, 25 years. This is not necessarily an area that is new to us, but we just haven't been putting the investment into that area, and we will now, and we're optimistic about it.

[Operator]

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

[Jackson Ader, JPMorgan]

Can we just start with a couple of procedural questions on the K and Q. What is the current expectation where - when the K will be filed, I guess let's just start with that?

[Karl Johnsen, CFO]

Yes, I mean - as I said, we got to stay kind of within the four corners of our public documents. But we're moving as fast as we can on that. We expect to file it in the near future, but we're still working through it.

[Jackson Ader, JPMorgan]

And as far as the metrics that were provided tonight, the annual customer spend range and then the cash balance. I mean were you limited in terms of - because of some regulatory type of restrictions? Were you limited just to these couple of metrics or is it just simply the amount of work that's going into the 10-K means you literally are having trouble counting up and closing the books from the September quarter?

[Karl Johnsen, CFO]

No, it is a little bit of - we weren't prohibited from sharing any numbers statutorily. But - it's a little bit serial in nature for the team that's finalizing the 10-K. What they're doing is it's really just proving out the balance on the contract asset. And that work is very detailed, and it takes a long time to get through. We're working with the auditors. Nothing has materially changed from the initial work we did months ago.

It's just a matter of getting the auditors through that. Because of that, it's a balance sheet item, it would roll forward. So, we need to make sure that we get that finalized with the auditors then we can finalize our Q1. We are closing the books on a monthly basis, and we continue to close them. But because we're not - we haven't had the auditors come in and review the quarter because they're still working on the K.

It would be difficult to go and let the - put out metrics on the Q and then have them change. So, we are closing the books. We've closed Q1. I do have my point of view of where it is. But before we release, we would have to have the auditors get through that.

[Jackson Ader, JPMorgan]

No fun, but at least I just wanted to get those questions asked. Quickly, Antonio, can you remind us, just given all the discussion about the record number of pilots. Can you just remind us what a typical pilot looks like in terms of the use case, length of time? Are you allowing customers as they go in this kind of spending pause to just keep kind of renewing or rolling pilots forward?

And then what does the spend on a pilot look like relative to what you would consider a full deployment or a full license?

[Antonio Pietri, President and CEO]

Yes. I mean look, we've become also much more efficient at doing pilots from 2, 3 years ago. We set up this team in Latin America that is sort of cloud-enabled and are involved in developing the agents and identifying the failure signatures from all these data.

So we've gained tremendous efficiencies on sort of loading up tons of data into data lakes that then this team can just crank through so our pilots, originally, it would take us 6 to 8 weeks. We've cut them down to maybe a month. It also depends on how quickly customers get organized and can support us, but it's not a lengthy process.

Look, once we got pilots, we're done, we don't sort of linger on with pilots. There's a few instances where customers, as part of their evaluation, do require what we call an online pilot that may go on for months, but that's a very, very small fraction of all the pilots we do, and we have very strict criteria around that type of pilot, especially commitment to a transaction when it is completed because sometimes they go for 6, 9, 12 months. But that's a very small fraction of all pilots.

Normally, pilots get done very quickly. The use cases are normally use cases that are identified by customers because they know the equipment that is failing in their plants. And then we go and define the envelope that we want to look at envelope of data, all the instruments. And then we go about and do what we normally do.

We've also historically asked customers to make a financial commitment to do a pilot because we didn't want pilots to turn into a science exercises, especially 2, 3 years ago when most customers were just trying to learn about AI and this technology. So we have sort of those gates, and we're pretty rigorous in the process.

But we also have to now acknowledge the reality of the market. And these customers are under - some of them under severe financial constraints, and so we continue to work on their pilots. We identify the value, the justification is all there.

And we sort of leave the bun in the oven, cooking a little longer until they're ready to pull the trigger. But look, there's a sales engagement in that process. We just don't forget about them. So hopefully, I answered everything you were looking for.

[Operator]

Your next question comes from Andrew Obin from Bank of America. Your line is open.

[Andrew Obin, Bank of America]

So, just the question, a lot of companies with exposure to oil and gas this season. We're really stressing the fact that there's going to be a budget reset next year. And that's what really going to restart a lot of activity in the energy sector. What are your conversations like with the customers about sort of the budgeting process and how it's been different from normal? And are you seeing this big reset in January?

[Antonio Pietri, President and CEO]

Well, let me look, normally, we work to make sure that our priorities are included in those budgets. And that's part of the ongoing conversations we have with customers, as we look at our pipeline, part of sort of that growing pipeline of business.

When we sort of reconfirm our guidance for the year, then we're taking into account, of course, many information, including what we're hearing for customers - from customers about the availability of budget into next calendar year. So it's sort of a fluid process that, in a way, it's coming to an end already started as early as September, early September for some companies.

Look, my expectation is that the most important thing about a budgeting process is certainty whether that is certainty at $50 a barrel or certainty at $35, it is certainty. What we saw in the March quarter was huge uncertainty, and therefore, the natural tendency to pull back. Q4, I mean, in the June quarter was a much more stable quarter from oil prices and the stabilization of the macro environment.

And therefore, there was more certainty, and we saw that. So I think as long as there's line of sight into and with more certainty into the environment in calendar '21, I think budgets will support, hopefully, a better spending environment. But we're engaged with our customers and our ability to look at our business for the fiscal year also relies on those conversations.

[Andrew Obin, Bank of America]

And my follow-up question, a bit more of an open-end question, but how has this, change in the narrative in the energy industry, has changed your customer focus and a fairly open-ended question, but the two areas more focused perhaps on efficiency, more focused on cost in oil and gas industry. And the second thing, maybe any change in attitude for putting the data in the cloud and maybe accelerating technology shift?

[Antonio Pietri, President and CEO]

Yes. No, look, so what I would say is digitalization front and center. Back in June, we had our call with our Executive Advisory Board, and they all felt and confirmed that, yes, OpEx and CapEx budgets were being cut, but digitalization budgets were staying.

And we saw that in our June quarter. I do think in the last few months, sustainability has become a much bigger theme. If you think July, August, even September, some of the European oil companies came out and announced their commitment to net 0 carbon emissions by, I don't know, you pick the day, 2040, 2050, and that has now made investments on achieving these sustainability targets, also a priority.

We absolutely saw decisions being made in Europe around our technologies purely on the basis of contributing to reductions in emissions as a result of greater efficiencies and the justification being okay, this will help us achieve our net 0 carbon emission targets, let's then allocate the budget to it.

So we foresee a greater theme and justification for what AspenTech delivers to our customers on the basis of sustainability. So in my opinion, our opinion, both, I think, digitalization and sustainability will be strong drivers of investment on what we do in the future.

[Operator]

Your next question comes from Jason Celino from KeyBanc Capital. Your line is open.

[Jason Celino, KeyBanc Capital]

One question for me. The Self-Optimizing Plant opportunity, Antonio, can you walk us through a customer example, maybe in refining what that process looks today and maybe what the Self-Optimizing Change could look like?

[Antonio Pietri, President and CEO]

Yes. Yes, look, and certainly, when we do our Investor Day, you guys will get the full explanation on this, so I'll try to only use a minute or so here. But look, certainly, the Self-Optimizing Plant vision is an ambitious endeavor. The idea that most processes in our - in these very complex and dangerous to operate assets will become autonomous is, in a way, the holy grail of the process industries.

We believe that through the breadth and depth of technologies that we have and we have accumulated over the last 20 years, the installed base of those technologies in the market and now the leveraging of this new industry 4.0 capabilities artificial intelligence, cloud, high-performance computing, edge connectivity, all these things make the possibility of delivering autonomous processes and the Self-Optimizing Plant a real reality or possibility, if you will.

So we've set ourselves a time line, I'd like to think it's an ambitious time line. And the first step in - the first building block of the Self-Optimizing Plant was released in August when we announced or early September when we announced the release of Aspen Unified, which will be the core capability around an autonomous production optimization component of the Self-Optimizing Plant.

The v12 release in early October, is basically a new set of components with this hybrid modeling capabilities where you now see the introduction of machine learning, deep learning capabilities into our products to really drive a highly - much more higher monitoring of these assets on a real-time basis, where we will be able to put hybrid models online to consume data, real-time coming out of these assets and monitor for every possible parameter on this asset, whether it's process parameters, temperatures, pressures, whether it's performance parameters, around quality, density or color of these products emissions, anything.

So we also believe that we can - with that capability, we're going to create an autonomous performance engineering process where - where now we can begin to automate the full engineering process around these assets and put a lot of those capabilities online. That will feed into an autonomous production optimization component and then they are an autonomous reliability component and eventually, how the supply chain fits into these assets to drive the operations.

So it's an ambitious endeavor, but one that we believe we're uniquely positioned to deliver because of the breadth and depth of our technologies. And really, the growth in our capabilities around industry 4.0 technologies over the last 4 years.

It's a very exciting area for us. And as I said in my prepared remarks, the hybrid modeling innovation club and beta testing phase broke all records by a long shot for those type of clubs in the history of the company.

Great excitement with our customers about these capabilities. This is the first time ever that you have technology in the market that blends first principles, engineering first principles, modeling capabilities with AI modeling capabilities to create a type of product that not only embed artificial intelligence, but they are safe to deploy in this very complex assets. So, sorry for the long answer, but it's a very exciting area, and there's a lot happening there.

The AIoT Hub is basically the delivery vehicle that we put in place to scale the deployment of these hybrid models across an asset and across the enterprise and that's a key component as well. There's a data science studio there with a library of data science algorithms, AI algorithms that this group of data scientists in these companies can now go on to and use to create their own custom applications and use that architecture to deploy their own solutions. So all very exciting stuff, and you'll hear more and more from us in this regard.

Because there will be periodic releases of these capabilities over the next many years as we embed more and more of AI capabilities in our existing products. So, we're not having to create new products, we're just enhancing our products with these capabilities. And in that, we'll be able to monetize the higher value that will be created from the deployment of these capabilities and eventually from the delivery of the Self-Optimizing Plant.

[Operator]

[Operator Instructions] Your next question comes from the line of Blake Gendron from Wolfe Research. Your line is open.

[Blake Gendron, Wolfe Research]

Yes thanks. I wanted to follow-up on hybrid models.

[Antonio Pietri, President and CEO]

Hi Blake.

[Blake Gendron, Wolfe Research]

Hi, thanks for taking my questions. Want to follow-up on hybrid models, really appreciate all the detail that you just gave and understand that we're going to get a lot more detail on the Analyst Day. You did mention that this was one of the bigger developments in some time. So I'm just wondering if there was a way to frame maybe the incremental value-add versus the current offering?

Like if you're current offering adds ex amount of value, is there a multiple of that, that these hybrid models would encompass? And then also, how would you maybe go-to-market with this and price this in the case that this technology might result in fewer people or tokens at your customers' facility. I'm just wondering, technological advancement versus maybe cannibalization of number of users?

[Antonio Pietri, President and CEO]

Yes well, I mean look, the goal is never to eliminate people and I'll go back to 30, 35 years ago with multivariable process control. The initial fear by operators was that we're going to eliminate their jobs. And the fact is that the jobs of those operators change. They became supervisors of the technology when we closed the loop on the control of these very dangerous processes. So the goal is never to eliminate people.

In our opinion, as we deploy these capabilities, the jobs of all these engineers will change. And they'll dedicate themselves to higher level tasks and higher productivity tasks. But look, having said that, it's like everything, you can use a bicycle and go from city A to city B, and it may take you 10 hours. But if you build a car and you have that car well, it will take you maybe only 30 minutes to go from city A to city B.

But because now, the car becomes more popular, instead of only one person taking that ride from city A to city B, now you have hundreds or thousands of those people making that trip. So similarly, in this case, as we're able to deploy these capabilities online and automate the capture and processing of this data and the creation of the insights. We believe that more and more of this technology will be deployed 24/7, which will lock-in the consumption of the tokens like APC does or optimization does.

And therefore, there will be much greater consumption of token and technology as a result of all of this. The value that it will create will be greater, and this is something that we'll talk to investors during Analyst Day. But that value is certainly the outcome of greater accuracy in the models, greater ability to predict more accurately the outcomes that are expected. And the value will vary from area-to-area and application-to-application.

But look, we say we've always been about innovation, but really, we've always been about innovation that creates greater and greater value. And we've demonstrated that over the last five, 10 years and almost 40 years of the company. And this is the next phase of that journey.

[Blake Gendron, Wolfe Research]

And one more, if I could on the fiscal 2021 guidance, so I understand the annual spend growth is back-half weighted. And I understand the APM contribution as you guys laid it out. Between engineering and MSC, I would imagine more pressure on MSC being just because of the CapEx pressure versus OpEx in the end markets and specifically in oil and gas?

So as you see it, which aspects of your guide, do you see more risk or the most risk, both the upside and the downside, is it in a specific suite or is it in a specific end market? I'm just wondering what we should be looking at maybe over the next quarter or two to better frame how the back half improvement in annual spend is going to shape up?

[Antonio Pietri, President and CEO]

No, well I mean look, in a way - we were and due some unfortunate set of events over the last eight months in the world, as far as fiscal year 2021. We were fortunate that it started to take place in March, and it was fully baked in by the time we rolled into our fiscal 2021 in July. So, we had a good sense for the dynamics around the different areas of our business with E&Cs, with refiners and chemical producers.

So look - as I've said in the past, the low end of our range assumes being at the higher end of the attrition range that we gave and less gross growth, meaning customers decide not to spend as much money. The high end of the range means that we'll be at the lower end of the attrition. And customers - we see the same sort of a spending pattern that we saw in our Q4 quarter fiscal year 2020.

And then what is that combination? Well it will depend, but we have an internal point of view on that and I keep it - I'll rather keep it to ourselves. But look we said, we need two points of growth contribution from APM and in that, that means that it's anywhere between four to seven points of contribution from MSC and engineering. And then you have to break that down by verticals.

But - and that's the one piece we don't give you guys and because it will vary and it will vary by quarter. So, we'd rather get the full year picture and then see how it came out. But look, I think Aspen Unified, which we released in August, is a driver for business this year. These hybrid modeling capabilities that we released in early October will have an impact on our results this year.

The GDOT product that we released now year and a half ago had an impact in our Q1 quarter and will have a bigger impact in the rest of the year. So, we also believe that we've been putting in place new capabilities and technology that will start sort of water-falling into fiscal 2021 in a difficult macro-environment, but we're very happy with the traction for example, we're seeing around our GDOT product.

And the thing about GDOT is that drives more implementations DMC3 because it's the base technology that it sits on top of. So there are many - let's just say, there's many ways to skin the cat and - we're confident about how we see it coming together.

[Operator]

I am showing no further questions at this time. I would now like to turn the conference back to President and Chief Executive Officer, Antonio Pietri.

[Antonio Pietri, President and CEO]

Okay, thank you operator, and we want to thank everyone for joining the call and it was a short notice, about 72 hours. But just know and trust that we're working diligently to be able to release our 10-K and eventually, our 10-Q and get back to a more normal cycle with our filings. Thank you everyone.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.