Karl Johnsen - Senior VP & CFO Antonio Pietri - President, CEO & Director

Monika Garg - KeyBanc Capital Markets Matthew Pfau - William Blair & Company David Hynes - Canaccord Genuity Limited Robert Oliver - Robert W. Baird & Co. Mark Schappel - The Benchmark Company Steven Koenig - Wedbush Securities

Good afternoon. My name is Jacob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Aspen Technology's First Quarter 2018 Earnings Call. [Operator Instructions]. I would now like to turn today's call over to Mr. Karl Johnsen, CEO. Please go ahead.

Thank you, good afternoon, everyone, and thank you for joining us to review our first quarter of fiscal 2018 results with the period ending September 30, 2017. 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 involve risks and uncertainties. The company's actual results may differ materially from such projections or statements. Factors that might cause such differences include, but are not limited to, those discussed in today's call and in our Form 10-K for the fiscal year 2017, which is now on file with the SEC. Also, please note that the following information is related to our current business conditions and our outlook as of today, October 26, 2017. 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 in fiscal year 2018, before we open up the call for Q&A. With that, let me now turn the call over to Antonio. Antonio?

Thanks, Karl, and thanks to everyone for joining us today. I'll then begin with fiscal 2018 with solid financial results that demonstrated good customer demand and execution across the company. Looking at our financial highlights for the quarter, annual spend was $461 million, up 3.3% year-over-year. Revenue was $122.8 million, above the high end of our guidance range of $120 million to $122 million. GAAP operating income was $53.3 million, and non-GAAP operating income was $60.4 million, which represents a non-GAAP operating margin of 49.2%. GAAP EPS was $0.47 and non-GAAP EPS was $0.53, both of which outperformed our guidance. Free cash flow was $12.2 million, and we returned $50 million to shareholders by repurchasing $839,000 shares. Demand from our own accretive customers remained strong through the word for both our MSC and engineering suites. This customers are focused on driving greater efficiencies throughout their operations and they recognized the stronger return they received from growing investments in AspenTech solutions. We had a strongest first quarter in 3 years with operators, which reflects well on our execution and underlying strength and investment capacity of this customers. At the same time, E&C and upstream energy customers have adjusted to the prevailing microenvironment characterized by lower Capex spending and fewer upstream projects. We sold a lower end market demand for the products and services. At our Investor Day in June, we indicated that there was a higher than usual amount of E&C renewals during the first quarter. Each of these transactions closed during the quarter and we're in line with our expectations. On our last call, I referred to this market conditions as the new normal and that customers have incorporated the status quo into their investments methodologies and decision-making processes. I felt that we had adapted our go-to-market efforts to reflect these new reality and I believe our first quarter results are in early indications of this. An area of interest in 2018 for AspenTech is a continued adoption by customers of our of their 16 8 entitlements across our entire product portfolio, ensuring that owner operator customers are achieving the most possible value from their entitlement or that customers who are in challenging end markets are focusing on expanding usage of all of our products to drive their strategic business initiatives will resolve in outcomes for customers and AspenTech that drive longer term value creation for both parties. Executing and adoption will unlock greater value for our customers by optimizing on accelerating the use of their entitlement. For example, we are engaging customers far earlier in the renewal process and ensuring customers are upgraded to the latest versions of aspenONE, which access to new products or in newly functionality in existing products like call of analytics enhancements that drive higher productivity and value creation for our customers. In our consulting group, our professional services consultant are engaging with customers to proactively sustain and enhance the value from existing use of our products in their assets. This conserve opportunity for improvement include an additional training and knowledge transferred to our customers that lead to greater value creation. The latter would be further enhanced in the near future as we realize the full impact of our digital knowledge delivery initiatives, which is focused providing self-service educational and training services through digital channels. Digital knowledge delivery was highlighted as one of our execution pillars during Investor Day this past June. And from a software development standpoint, we believe that our focus on automation of knowledge work would lead to unsustained greater adoption as the use of our products becomes easier and democratized across our user-based especially as a new generation of engineers is entering the workforce. Turning to our APM business. Artificial intelligence, machine learning and analytics represent some of the most significant technology introductions in the process industries in decades. Technology that can improve their reliability and increase the productive life of the physical components of the plant that present the largest peeler opportunity for customers to increase the value of their assets. This context is one reason we are optimistic about the progress we continue to make generating interest with customers on our APM Suite and converting it into our growing sales pipeline. The APM sales cycle is similar to our MSC sale cycle and products aspen shared some of the characteristics of our most successful products to date, when interviewed to the process industries 25 years ago, such as Advanced Process Control. For example, early engagements with Aspen have been focused on demonstrating the efficacy of the technology and value-creation potential through pilots just like what we saw with ABC in it's early days. Customer reactions to the Mtell pilot has been positive and we believe that Mtell and the APM Suite would be part of the discussion as customers finalize their 2018 budgets. We also believe that APM will be a vehicle for some of our E&C customers to create a new revenue stream by providing implementation and monitoring services to our common customers, which deploy their products in the APM Suite. During the first quarter, the APM business continued to build momentum with customers and we remain optimistic about the opportunity in this business. We signed several small transactions during the quarter, across our refining, chemicals and E&C customer base demonstrating the appeal of the APM Suite across the cross-section of our customers. During the quarter, we also continued to expand our ecosystem of resellers and implementation partners that we're working with to sale into global economy industry or GEI customers. We are currently in the process of enabling this partners to drive engagements in this industries. We're also engaged in negotiations to establish OEM agreements to embed our APM solutions particularly Mtell in the solutions offered by third parties. We are reaffirming our guidance for fiscal year '18 annual spend growth for 5% to 7% with APM contributing 1 to 2 points of growth with second half of the year, which is in line with our original expectations. Looking at our first quarter performance in more detail, energy and engineering and construction and chemicals once again represented greater than 90% of our business, energy was the largest vertical contributor followed by chemicals. Looking at our 10 largest transactions in the quarter. There was again a mix of engineering and manufacturing supply chain transactions. Following this representative example of transactions close in the quarter, first, one of the largest pharmaceutical companies in the world and long-term customer reaffirmed its commitment to manufacturing execution system products by naming AspenTech as a strategic supplier in 2016. This past quarter, these customers took off a global rollout of the product across their manufacturing and supplying network. This customer is deploying this products to improve its Regulatory Compliance, reviews errors and documentation and shorten the order preparation of review cycle. Our engineering Suite is also used extensively and these customers are in the insertion, which is also evaluating the use of our current and Mtell products in the APM Suite. Second, 1 of North America fastest-growing independent marketers of fuel and petroleum products at quality Canadian assets of an oil company, and reaffirmed its commitment to MSC Suite by signing a new aspenONE agreements to roll out new products and its terminals and refinery. Third, a medium-sized South American oil company expanded use of our MSE Suite and planning optimization product being after estimating incremental benefit of over $10 million per year. The MSE Suite is now the standard across the company and selected products from the suite are being evaluated for the EMP area. Forth, our long-term European customer of AspenTech, and one of the largest specialty chemicals producers in the world, evaluated and made an initial purchase of deploying the product. Specialty chemical processes are more difficult to monitor and control due to their highly dynamic behavior. As a result, it can be difficult to consistently achieve high yield and quality. As a reminder, for R&D, which we purchased last year can advance batch control technology that solves this problem by monitoring the batch process in real-time, predicting end of batch outcomes alerting operations staff early if badge is drifting off-course and providing diagnostic information to correct that anomalies. And last, the largest in West Africa and one of the largest of the African continent became a new AspenTech customer by purchasing our MSC Suite, particularly, our product after competitive evaluation of products from 2 other suppliers. This customer which is given up complex that we'll include the largest single trend refinery in the world, the largest plans ever built and polyethylene line and gas processing facilities believe optimization will result in greater value capture across the complex. From a profitability perspective, we generated better-than-expected results with a 49% non-GAAP operating margin in the quarter. While continuing to make investments to support our optimization strategy and the APM Suite. We think that the comprehensive approach to invest and that includes review and current spent to determine areas capital can be redeployed before investing net new resources. We believe this discipline gives us focus and ensure that incremental investments are likely to generate attractive returns. We also continue to utilize our balance sheet and cash flow to generate shareholder value to our share repurchases. In the first quarter, we've repurchased $839,000 shares or $50 million. It is our current intention to continue our buyback at the $50 million per quarter level for the remainder of fiscal 2018. To summarize, AspenTech and up to a solid start fiscal 2018 and we believe we are positioned to achieve our full year financial objectives. Our team continues to execute well against our Asset Optimization strategy, demonstrating the incremental value asset optimization represent customers in the process industries and the GEIs. We're confident in our strategy and execution and how AspenTech is positioned to consolidate and extend our global leadership in capital-intensive industries. With that, let me turn the call over to Karl. Karl?

Thank you, Antonio. I will now review our financial results for the first quarter of fiscal 2018 beginning with annual spend. Annual spend, which is approximately the annualized value by recurring term license and maintenance business at the end of each period with approximately $461 million at the end of the first quarter. This represented, an increase of approximately 3.3% on a year-over-year basis and 0.3%, sequentially. Now let me turn to additional financial results. Total revenue was $122.8 million for the first quarter, above the high end of our guidance range, an increase of 2.3% compared to prior-year period. Looking at revenue by line item, subscription revenue was $115.8 million for the first quarter, an increase from $113.4 million in the prior-year period and $115.4 million last quarter. Services and other revenue were $7 million compared to $6.6 million in the year-ago period, an $8.82 million last quarter. Turning to profitability, beginning on a GAAP basis. Gross profit was $110 million in the quarter with a gross margin of 89.6%, which compares to $108.5 million and a gross margin of 90.4% in the prior-year period. Operating expense for the quarter were $56.7 million, down my compared to $53.8 million a year-ago period Total expenses, including cost of revenue were $69.5 million, which was up from $65.3 million in the year-ago period and down from $74.7 million last quarter. The year-over-year increase in operating expenses primarily reflects the investments we are making in the APM Suite. Operating income was $53.3 million for the first quarter of fiscal 2018 compared to $54.7 million in the year-ago period. Net income for the quarter was $34.8 million or $0.47 per share compared to net income of $35 million or $0.44 per share in the first quarter of fiscal 2017. Turning to non-GAAP results. Excluding the impact of South based compensation expense, restructuring charges, and amortization and intangible associated with acquisition, acquisition [indiscernible] capitalized technology, we reported non-GAAP operating income for the first quarter of $60.4 million, representing a 49.2% non-GAAP operating margin compared to non-GAAP operating income and margin of $60.5 million or 50.4%, respectively from the year-ago period. Non-GAAP net income of $39.3 million or $0.53 per share in the first quarter of fiscal 2018 based on 73.6 million shares outstanding and was above the high end of our guidance range of $0.48. This compares to non-GAAP net income of $38.7 million or $0.49 per share in the first quarter of fiscal 2017 based on 79.4 million shares outstanding. Turning to the balance sheet and cash flow. The company ended the quarter with $59 million in cash and marketable securities compared to $102 million at the end of last quarter. During the first quarter, we repurchased approximately $839,000 shares of our stocks or $50 million. We remain on track to repurchase $200 million of stock in fiscal 2018. Looking at our deferred revenue balance. It was $260.2 million at the end of the first quarter, representing a 2.4% increase compared to the end of the year-ago period. On a sequential basis, deferred revenue decreased $40.1 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 typically lowest invoicing quarter. From a cash flow perspective, we generated $12.4 million of cash and operations during the first quarter and $12.2 million of free cash flow, after taking into consideration the net impact of capital expenditures, capitalized software and noncapitalized acquired technology. A reconciliation of our GAAP to non-GAAP results is provided tables within our press release, which is also available on our website. I would now like to propose the second quarter guidance and updated outlook for the full year fiscal 2018. For the second quarter, we expect revenue in the range of $120 million to $122 million. Non-GAAP operating income of $57 million to $59 million and non-GAAP EPS of $48 million to $0.50 per share. On a GAAP basis, we expect operating income of $51 million to $53 million. Income per share of $0.43 to $0.45 per share. Turning to the full year, we are reiterating our revenue guidance in the range of $487 million to $494 million and continue to expect subscription software to comprise greater than 90% of revenue with services and other revenue representing the remainder. From an expense perspective, we continue to expect Total GAAP expenses of $282 million to $287 million. Taken together, we continue to target GAAP operating income in a range of $202 million to $209 million of the fiscal 2018 with GAAP net income of approximately $127 million to $131 million. We now expect GAAP net income per share to be in a range of $1.71 to $1.76 compared to our previous guidance of $1.67 to $1.72. From a non-GAAP perspective, we are reiterating non-GAAP operating income guidance of $226 million to $233 million and now expect non-GAAP income per share to be the range of $1.92 to $1.97, which compares to our previous guidance of $1.88 to $1.93. In respect to annual spend growth in fiscal 2018, we are maintaining our guidance of 5% to 7% annual spend growth. From a free cash flow perspective, we are reiterating our fiscal year guidance of $180 million to $185 million initially provided at our Investor Day. Our fiscal 2018 free cash flow guidance assumes cash tax payments of approximately $65 million to $70 million. From a timing perspective, we would expect to pay 57% cash taxes in the second quarter with remaining the 30% paid equally in the third and fourth quarters. In summary, we are pleased with our first quarter results from both a financial and operational perspective. We believe our performance in the quarter shows that our strategy and execution and having positive results and deliver long-term growth in shareholder value. With that, we are now happy to take your questions. Operator, let's begin the Q&A.

[Operator Instructions]. And your first question comes from the line of Monika Garg with KeyBanc.

First question on annual spend, you had already guided the annual spend back hand readers, but that doesn't mean that we need to see a good drop in annual spend in the back half? Maybe kind of talk to your confidence level achieving it?

Monika, we reaffirmed our annual spend guidance for the year 5% or 7%. We also reaffirmed our guidance of the APM Suite contributing 1 to 2 points of growth from that 5% to 7%. So that should answer your question.

Okay. I mean, we had unfortunate kind of flood in the Houston. Could you talk about if you expect to see any impact on your business especially if there any renewals from these customers over the next 2, 3 quarters?

Yes. Of course, what happened to Houston not only Houston, but Florida, Puerto Rico, the Caribbean, the Virgin Islands was unfortunate. And Houston, particularly was impacted, our customers were impacted. Of course, there our headquarters of many companies are in Houston. Their facilities -- many of their facilities were flooded, but at the end of the day, from an impact on the first quarter results, the impact was immaterial. We didn't see a few things that got delayed, but immaterial to the results. And from the mentally, we didn't see any further impact the rest of this fiscal year from what we understand and I understand, more or less, most facilities are back to a normal. There is still plants that will take a little longer to bring back online as I understand it early next year, but we don't see an impact on our results for fiscal '18.

Got it. Just a last one, the gross margin, it's just modestly lower last year, 56 basis point year-over-year, QOQ. Is there anything going on?

No. If something is really going on, you'll see a little bit of amortization going in from some of the acquired technology we have. You'll see a modest increase for that, you should see pretty run rate but there's nothing else really going on in there.

And your next question comes from the line of Matt Pfau with William Blair.

Antonio, last quarter on the earnings call, you talked about how the sales execution had improved. How did at trend this quarter, did you continue to see improvements there?

Yes. Look at we -- we were very satisfied with our sales performance in Q1, as I mentioned in my comments. The first quarter of fiscal '18 is the strongest quarter in 3 years, strongest Q1 quarter in 3 years. And that's an outcome of I think multiple variables and one of them is our sales execution. We also saw a very stronger demand from our owner-operator customers in the quarter, which had helped some of the renewal with VMC that we had in the quarter.

Okay. Got it. And then, on APM, I think last quarter that you commented it was about 90% of the pipeline. So maybe if you don't want to give us an exact percentage, at least sort of comment on the direction of that as a percentage of the overall pipeline and where it's been trending?

Yes. Look, the pipelines continue to grow. Our overall pipeline is pace of growth of our APM pipeline. Our APM pipeline is now in the range of 21%, 22% of the total pipeline. So we continue to see a trend in our plant and we're getting good feedback from customers. So we're hopeful.

Got it. And then just last one for me, wanted to dig into the commentary around the OEM relationships that you're working on building. How should we think about these in terms of I guess, how do you envision in working? Is it more of a -- from the respect that once it gets embedded in that equipment and sort of expand the functionality of your solutions? Or is there a revenue opportunity there as well for me through the OEM or the customer purchasing the hardware?

I think it's both. We have some companies interested in OEM in our products and with the revenue stream. We have also have some companies especially some of the EMCs that want to take the APM solution and especially the Mtell product. And setting it up as a services opportunity or for monitoring services where they're thinking of setting up a global monitoring centers, as customers deploy APN. And I would assume that they would like to be the 1 to include implementation, which is fine with us, but we see multiple revenue streams for -- especially Mtell directing customers through OEMs or companies like EMCs sitting out there on the services businesses implementing Mtell or setting up remote monitoring centers to monitor this applications, including equipment fabricators of retail would be interested in monitoring the performance of their equipment and doing that moving that from a global center.

Your next question comes from the line of David Hynes with Canaccord.

I know it's still early days from APM Suite, but I wonder if you could give us a little color kind of on how you would expect customers to adopt to technology? Is it -- this is scenario go by for option or certain geography is a pilot? Or is it decision kind of making to standardized the initial purchase. And I guess, how does that impact how you're thinking about contracting customers? Are you still shooting for 5-year deals? Is it shorter much of touch point for upsell? Just help us to try to think about kind of the range of spend versus large upfront model?

Yes, sure. I mean, first of all, one, we want to make sure that the multiyear agreements and a daily lead, 5 to 6 years. So that's our goal. Number one. Number two, look what we're certainly seeing is customers are interested in understanding what it would cost them to deploy and told on a side. Be it refinery or chemical plant, as suppose to a single piece of equipment and what interesting in that model as well. And at least, as engagement of that we have going on right now is certainly is a phased approach. They're talking about initially handful of signs and then, a more aggressive roll out of the technology and so that's one way that the customers are approaching this, and of course, part of the engagement of the moment is a around pricing. There's really no market pricing established for this products and therefore, we see competitive situations and the customers are testing different suppliers for pricing. And so it's all part of adoption of new technology that has to be proven and have to demonstrate value. We're doing -- and we have completed a lot of pilots for this customer speakers, they want to see the technology working but they're going true effect that it's able to predict when equipment is going to break down, and we've now demonstrated that in every one of this pilot. We're getting very good feedback about Mtell and its ability to discern through noise and the data to identify if it reoccurs to break downs and now generate false-positives, which is an issue with other competitors. So overall, we believe that, we are negotiating some agreements. We would also had customers asked us for budgetary rate proposals it or hopefully haven't included as part of their budgets for 2018. So in general, the signal that we get from the market are positive and so we are cautiously optimistic and we believe that 1% to 2% or 1 to 2 points of growth from APM is realistic in fiscal '18.

They're might be color questions. And 1 quantify how much of a headwind the E&C renewals were on annual spend in the quarters. I think just help us kind of frame what Q2 in the balance of the year it looks like?

Let me look at it, this Antonio. But the headwind it's obviously, we said that we had a larger than usual number of renewals in Q1. And it was the case, we renewed all of them of course, we experienced reduction such as we expect it. That's all part of the overall attrition that we would expect in the year, we guided 5% to 6% attrition for the year-end and we're still tracking to that. And so Q1 from an attrition standpoint was in line with what we expected, it's in line with the 5% to 6% attrition that we reported. The 1 difference of the Q1 is that we had a strong owner-operator demand for our products and that allowed us to deliver the performance that we did.

Okay. And then last one, share repurchases, certainly in the back half of the year, you're going to be able to fund those out of the free cash flow you're generating maybe not in Q2. Just wondering, are you kind of comfortable at the current balance sheet, cash levels or how are you thinking about funding that $150 million over the balance of the year?

Hi, David. It's Karl. I think for the full year, grab the free cash flow if there's any kind of in the quarter we got the line. We tracked down and put it back, but the intention is to buy back shares of free cash flow and then fund acquisitions, delivering up the balance sheet. But very comfortable to cash. We have talked about anywhere from $50 million to $80 million cash balance sheet is optimal for us, very comfortable in that play to 50 range as well as through the 80 to 90.

Your next question comes from the line of Rob Oliver with Baird.

Just a follow-up to DJs question, on some of the headwinds through renewals, and the token overhang, you guys you mentioned in some of the e-learning one and outreach, it's get people optimize existing token usage. And that being on the third, you guys focused on at the Analyst Day. Where are we with that right now? Can you just give us an update on kind of when we can expect that to be in effect and what sort of impact you think that will have on our renewals this year?

No problem. It's certainly, we expect that by the end of this quarter, we already have a material that our customers would be able to access differently, whether that's training material that's been digitized or training materials that has been turning to videos. And a deal set of customer having to see to through half a day, or 3 days of training for our product. They're going to be able to consume information or watch videos that are 5 minutes to 10 minutes in length that allowed them to activate a specific functionality they might be interested about our products. So the rollout of that will start happening this quarter and by the end Q2, we'll hand over some of our investment material. An important data point that we have is that we are seeing an uptick in first time users of our engineering software especially. And that means that these users are looking for ways to learn about the product and the functionality to accelerate their learning. We have seen on the inside that these are new engineers joining this company that want to be able to access knowledge and training in the way millennials consume information today, which is through video, digitally, mobile apps. So we think this initiative is down the needle for this new surveys and we are confident that it would help drive for more usage of our products.

[Operator Instructions]. And our next question comes from the line of Mark Schappel with Benchmark.

Antonio, at the beginning of the year, there was a change in leadership in the sales group. I was wondering if you could discuss some of the changes that Michelle has implemented and put in place since you took over the sales force?

Let me look at in reality, her focus has really social really been on execution. And it's -- I said that one of the qualifiers for her to take that job was her experience, her knowledge of the company, our products, our customers. But also the main ability to focus on document packing on the details, grinding outcomes and that's really been the case since Q1, she partnered with me in Q4 '17 but she drove that out in Q1. The other piece, she's very customer-focused as well so strong believer on our adoption initiative as well and she's building out an organization that will work with our professional services team, our customer's team, our business consultants, to focus on customers of sales. And so it's additive and so her focus on execution in the sales channel and then enhancing that with a focus on adoption from our consulting organizations. And look, from part of the sales team, any -- we are always looking to fine-tune and have the best possible the best leadership possible in any sales organization and there hasn't really been any thing of material consequence is sustained about grinding that outcomes and that's what we need as we get through this transition.

Okay. And then, just a follow-up question, some of your APM tend to the GEI industries. It's really new territory for us, I was wondering if you could just discuss a little detail maybe some of your initiatives, more success that you had in the quarter with respect to your GEIs?

Let me look at -- we do expect that most of the growth that will generate from APM will be from the processes because we had ready-to-go activity session selling into our customer base. At the same time, I am excited about the interest that was seen from both parties, the resellers, ISP, some of these OEMs and now E&Cs that are interested in signing up with AspenTech to take our IBM suite to take until marketing the GEIs specifically. So the growth there is to build out a channel, which is happening and we have a team focused on that. We enhance the capacity of our partners' organization and driving the identification and sign up for partners. At the same time, we're going to put our senior VP in tight level person to run our global sales for the G.I, someone that has experience in this industry that knows the in this industry. But also knows about the analytics and machine learning to combine those 2 areas of knowledge and to take our APM Suite to market.

Can we have a smaller team of the direct set of people there, helping understand how this customers behave kind of sort of back as intelligence adjust to our go-to-market, but that's how we're going to do it. And we already did that, and building of channel third parties takes time and that's why believe in '18 and '19 most of the growth in APM will come from our process industries, but we are committed to the GIs and going to process of recruiting for that area.

And your next question comes from the line of Steve Koenig with Wedbush Securities.

I got 2 for you. On the first one, it would be great to get some color on the strength you saw in Q1 in the owner-operators. Was that the continuation of the improvement in manufacturing that you saw in Q4? Is it demand environment? Their execution? What's the most important or the most important factors here?

Yes. Look simply, if you look at our Q4 and Q1 from an owner-operators standpoint and the growth sort of new sales, new business. There's 2 very strong quarters from owner-operators. And I think it just to validate that the trend that we talked about for many quarters and perhaps even years. And that the focus on operational excellence, margin improvement profitability continues to be there for these customers. It only gets harder as time goes on for them. And I am suites for value creation and productivity creation. So I think is that I was very pleased very with our outcome in Q1, very broad-based, very strong out of Asia Pacific. And in general, I sensed that there was solid and demand across everyone of our regions. So it was a good [indiscernible].

Good. I mean, great. And then one if I may, and one follow-up as. I'm curious as you're working through the renewal of your 5 of your contracts, and your -- and customers particularly on the engineering side are readjusting their needs, are you finding that they're getting the contract pretty much completely realigned with what their new level of needs are? Or is there any sort of like feel hoarding the budget going on, where maybe they that hadn't got quite as much. And they're hopeful stuff will come back a bit more or are they really getting it cleaned up in 1 sales group as they renew their contracts?

Yes, I would [indiscernible]. I would take that, I haven't use that in fiscal '16 and '17, if that was the case. Which you had customers and no matter what they were seeing, their goal was to cut costs and that was the priority. And now we are seeing bigger projects being awarded E&Cs. And we're also seeing that the impact some of our adoption initiatives with some of the E&Cs are having an impact. So the type of the reductions in Q1 were in line with expectations and also in bear senses that we've got an impact on some of these modifications and some of these reductions. What we're seeing also in some of these E&C for which we have reset their spend in the last 2 years. A few of them are now coming back inquiring about more tokens. So we're starting to see the green shoots or perhaps a change in the environment. Nonetheless, it's still more of a significant downturn. But I would say that there is some green shoots out there and hopefully in '18, things will improve as well.

We have a follow-up question from the line of Monika Garg with KeyBanc.

Karl, just a follow-up of why is the revenue down for Q over Q, the guidance for Q2?

Yes. So in fact, we talked about this in the past. It's a little bit of variability related to cash basis and customers renew, it can push revenue out of the quarter. And when you look at the Q1 results who came in a little bit higher than we thought maybe related to that, so we probably came in by 500,000 to 600,000 high. When we look to Q2, when you look at that guidance, basically keeping it flat where we were. And then, adjusting for our few and the risk is related to how the customers renews during the quarter in Q2. And to a lesser extent, where we see cash basis customers a little bit of services.

And Antonio, I just want to dug deeper on the comment made on last attrition that you are seeing some customers who are coming back to buy more tokens? Is any of you quantifying that very few of the customers, some of the customers initial stages anymore color around that?

No. In the q and, you can imagine it's something not dramatic as far as inquiring about more tokens. But it is good to see that some customers that we have reset in the past two years and their spent and entitlement are now starting to talk about acquiring tokens and tokens related to new projects. So it's positive, but I will not be cautious about this because I think it's early and you'll never know what will happen.

And ladies and gentlemen, that does conclude our question-and-answer question for today. I would now like to turn the call back over to Mr. Antonio Pietri for just any final statements or closing remarks.

Great. Thank you. Well, thank you, everyone, for joining us tonight. Look forward to seeing or meeting you on the road over the next few weeks. Thank you.

Ladies and gentlemen, that does conclude today's conference call. We thank you for your participation and ask that you please disconnect your lines.