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AspenTech (NASDAQ:AZPN)

F2Q08 Preliminary Results Call

January 17, 2008, 8:15 am ET

Executives

Brad Miller – Senior Vice President, Chief Financial Officer

Mark Fusco – President, CEO

Analysts

Richard Davis – Needham & Co.

Phil Rueppel -Wachovia Securities

Robert Schwartz - Jefferies &Company

Andrew Matorin – Bear Stearns

Richard Williams – Kraft Research

Operator

Good morning, my name is Tamara and I will be your conference operator today. At this time I’d like to welcome everyone to fiscal Q2 2008 preliminary results conference call. All lines have been place on mute to prevent any background noise. After the speakers remarks there will be a question and answer session [operator instructions]. Thank you. Mr. Miller, you may begin your conference.

Brad Miller

Thank you, operator. Good morning, everyone. I’m Brad Miller CFO of AspenTech, and with me today is Mark Fusco, President and CEO. We’d like to thank you for joining us as we discuss preliminary selected results for the second fiscal quarter 2008 in addition to other news included in a press release and 8-K filed after the market closed yesterday.

Before we begin, I’ll make the usual Safe Harbor statements 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 the projections described in such statements. Factors that might cause such differences include but are not limited to those discussed in yesterdays press release and in our most recent form 10-K and form 10-Q on file with the SEC. Also please note that the following information is related to current business conditions and our outlook as of today, January 17, 2008. Consistent with our prior practice we expressly disclaim any intention to update this information prior to the release of our second quarter fiscal 2008 financial results.

The structure of this call will be as follows: I will begin with prepared remarks, then I will pass it over to Mark to discuss the quarter and our growth initiatives in more detail. Then I will conclude with a [TAPE ERROR] compared to a very strong comparison quarter in the previous year.

Before we get into the detail of our performance, I’ll begin with an update with respect to bringing our financial statement filings current. On our last call, we discussed the fact that we requested an extension for filing our annual report in form 10-K for fiscal 2007, and quarterly report on form 10-Q for the first quarter of fiscal 2008. In our November 15th meeting with the NASDAQ listing requirements panel we presented the progress and the current status of our prior period restatement and the first quarter 10-Q and requested an extension to January 18th, 2008 to bring our filings current. We have continued to make significant progress in these efforts and we believe we are in the final stages of completing the work necessary in order to bring our filings current.

Similar to last call, there’s not change to our expectation that the restated amounts for fiscal ’05 and ’06 are likely to include approximately $230 million and $200 million respectively of secured borrowing liabilities. And we expect a balance of approximately 200 million for this account as of June 30, 2007.

Last call, we also shared with you that our audit committee and management had engaged in a detailed review of other accounts in our financial statement, including our comprehensive review of historic positions reported on income tax returns and the related reporting in our financial statements. After the market closed last evening, we announced that the company requested an additional extension to February 8, 2008 from January 18th. The primary area that requires additional time is income taxes, which is complex, given the global nature of AspenTech’s operations, prior period acquisition and historic NOL positions. There is no assurance that NASDAQ will grant this additional extension request; however we are confident that we are close to bringing the income tax analysis and related reporting to a close. In doing so, we believe this would enable the company to file its outstanding financial statements within the requested additional timeframe.

Our current independent registered public accounting firm Deloitte Touche, is working with AspenTech in completing the audit of the financial statements and our annual report in form 10-K for fiscal 2007. And they have agreed to review the work related to the financial statements in our quarterly statements on form 10-Q for the first quarter of fiscal 2008. After the market closed last evening, we announced Deloitte Touche decided not to stand for reelection as the company’s independent public accounting firm for fiscal 2008, after its work on our currently delinquent financial statements is completed. Importantly, there have been no disagreements between the company and Deloitte Touche with respect to any accounting principal or practices, financial statement disclosure or auditing scope or procedure.

AspenTech’s audit committee has already begun the process selecting a successor to Deloitte Touche. We will make an announcement when this project concludes. A form 8-K related to this matter was filed yesterday with the Securities and Exchange Commission.

Similar to last quarter’s preview, due to the pending restatement, we do not at this point have other P&L numbers that we can share; however we will provide you with licensed booking and other key metrics to highlight the ongoing momentum of our business. We defined licensed bookings as the total net present value of licensed contracts signed in the period. In the second quarter we generated licensed bookings of approximately $66 million, which was an increase of approximately 10% compared to approximately 60 million in licensed bookings during the year ago period. We are particularly pleased with this growth considering the year ago period was a very strong quarter, as we indicated when we announced those results and as we previewed before entering the just completed second quarter.

As a reminder, we pointed out last quarter that there could be tiny differences between when a license is booked and when it is recognized as revenue. These tiny differences can relate to factors such as future obligations or milestones in the period that they are achieved. During the second quarter of this year, we booked seven license transactions that exceeded $1 million. This compares to eight in the same quarter of fiscal 2007. In addition we booked 29 transactions between $250,000 and $1 million during the quarter, compared to 20 in the prior year quarter. Our average booking value this quarter, based on transactions above $100,000 was approximately $700,000 as compared to the $680,000 level in the same quarter of fiscal 2007.

Business was strong across the board and similar to the December quarter in the prior year we did benefit from the closure of some large transactions in the quarter. It is important to remember that on a historical basis approximately 2/3 of our business continues to be driven by five to six year term-based license agreements, where our renewal rates have historically been in the mid to high 90% range. A high degree of customer satisfaction and loyalty combined with a large base of renewable contracts is a significant long-term asset for AspenTech.

With respect to our ongoing operating costs from a high level perspective we continue to have solid control over our costs and expenses. This is consistent with our commentary that we will increase our level of investment in a targeted, focused manner in the future while we continue to focus on making incremental improvements in our operational execution and efficiency.

From a head count perspective we entered the quarter with approximately 1,300 employees which is unchanged from the end of last quarter. The company ended December 31, 2007 with $131 million in cash and cash equivalents, which was an increase from the end of the prior quarter primarily due to strong licensed bookings and we continue to focus on managing costs and expenses offset by a previously disclosed $4 million payment, the company elected to make in December to satisfy the remaining balances of a loan agreement.

The company continues to have full access to it’s installment receivable financing facilities; however the company elected to reduce the level of cash proceeds from sales of installments receivable by approximately 30% or $20 million compared to the first 6 months of fiscal 2007 during a period that licensed bookings increased by over 20%.

With that let me turn it over to Mark so he can provide a more qualitative perspective on our December quarter performance.

Mark Fusco

Thanks, Brad, while we are still somewhat limited in what we can disclose, I’m glad to again share with you that the company’s business continues to operate at a high level. The company is highly focused on getting out financial statements current as soon as possible and as Brad mentioned, we believe we are in the final stages of completing our work in this regard. I would like to thank our shareholders and customers again for their continued support as we finish this process.

As our licensed bookings results indicate, all of our customer-facing operations remain highly focused on executing against our growth strategies as we bring this process to a close. The underlying drivers for our strong licensed bookings were well balanced across expanded usage, new customer wins and renewal activity with existing customers during the second quarter. Moreover the sign of our sales pipeline continues it be robust. Market demand remains strong and our high ROI solutions are well-suited to help customers in our targeted verticals perform during periods where their end-demand is quite strong, as is currently the case. They can also add significant value to our customers during challenging market environments as well.

During the second quarter we enjoyed strong performance across each of our key verticals with the energy sector delivering a particularly strong performance, followed by engineering and construction and chemicals delivering strong quarters as well. From a product perspective we continue to enjoy solid demand across each of our key solutions. Our industry-leading engineering solutions continue to drive a majority of our licensed bookings and they were a key contributor to seven of our 10 top licensed bookings in the quarter.

It was also very good to see a strong performance from our plant operations and supply chain solutions during the quarter as well, as evidenced by the fact that they were the primary application of three of our top 10 transactions for the quarter. In fact, our supply chain of plant operations solutions were the key solutions purchased in our two largest deals during the quarter. We believe AspenTech is unique in our ability to generate significant returns for our customers based on our expertise in actual and suite of integrated solutions.

During the first quarter aspenONE related solutions accounted for approximately 60% of our licensed bookings with demand for each of our key vertical markets. We are still early in the process of bringing end-to-end aspenONE suite to our base of over 1,500 customers which includes the largest process manufacturers in the world in each of our key targeted markets.

In summary we are pleased with the company’s operational performance in the second quarter which completes a strong first half to our fiscal year. Our licensed bookings have increased over 20% in the first six months of the fiscal year. Our end markets are strong. Our aspenONE suite remains best in class. And we are executing at a high level.

With that I’ll turn it back to Brad.

Brad Miller

Thanks, Mark. Well we shared information on today’s call relative to the ongoing strength of our business. We are not in a position to provide specific guidance on the third quarter of fiscal 2008 at this time, nor can we comment on specific amounts in the income statements that are in the process of being completed. I would however, reiterate my comments from last quarter, which are that the June and December quarters tend to be the strongest quarters of the year for licensed bookings while the March and September quarters tend to be the seasonally weakest.

We continue to enjoy robust demand with a healthy pipeline of opportunities. From a high level perspective, we currently expect to generate licensed bookings in the March quarter that will be up on a year-over-year basis. And as is typically the case, we expect them to be down sequentially from the seasonally stronger December quarter that we just reported. In addition, we also remind investors that our business model involves sizeable deals and the timing of when they close and are recognized as revenue can be variable.

Services revenue has a much less pronounced seasonality over the course of the year. But it can fluctuate from quarter to quarter. On an annual basis, we are targeting services revenue growth in the low single-digit range.

I will now turn the call over to the operator to begin the Q&A session. But before doing so, please understand that we are not in a position to elaborate further relative to our second quarter results, timing of filings beyond what we shared, or other forward-looking expectations and we will not be in a position to do so until we are completed with the restatement and fiscal 2007 year-end audit and first quarter 10-Q review processes. We appreciate your understanding on these matters. With that we will begin the Q&A session.

Question-and-Answer Session

Operator

[Operator instructions] your first question comes from the line of Richard Davis of Needham & Company.

Richard Davis – Needham & Co

Thank you very much. With regard to the chemical companies, they use energy and oil and gas as an input. So when they see rising costs, have you seen any kind of pushback from them in terms of wanting to use your software to help make their processes more efficient, or is it actually to some degree, a greater or lesser degree, spurred on demand on that side? That’s one of the questions I sometimes get from investors.

Brad Miller

Richard, I haven’t seen any change in the buying patterns from the chemical companies. There’s been consistent demand. I think we’ve seen over time a sharper increase in demand from some of the oil related companies, both the integrated companies and some of the refining companies. As far as chemicals goes, it’s been consistently strong over the past few years. The buying patterns remain more or less the same. The same can be said for engineering and construction which has been strong over the last couple of years and continues to be so.

Richard Davis – Needham & Co

Got it, okay, good. That was my main question, I appreciate it, and good work. Thanks.

Operator

Your next question comes from the line of Phil  Rueppel with Wachovia Securities.

Phil  Rueppel -Wachovia Securities

You mentioned that you chose to sell fewer of the installment receivables in the past period, could you give us a little more color on why you chose to do that and is that something that is structurally going to be different as we go forward, or is it just a one period kind of adjustment.

Brad Miller

Phil, the way to think about that is we’ve been looking for opportunities to simplify our business along the way. These facilities continue to be open and completely available to us. We can use them on an opportunistic basis as we see cash flow requirements that would suggest that this is something that we should do. In the meantime as you can see relative to both declining amounts of sales we did on that front on a year-over-year basis as well as paying off the facility to Guggenheim back in December, we’re looking to simplify our life to keep things running on the business front as more straightforward as possible. That’s what really was behind the declining balance. We’ll continue to use them as we believe we need to, but not on a 100% basis.

Phil  Rueppel -Wachovia Securities

Thanks and then, Mark, you had mention aspenONE as a percent of sales with 60%, just a clarification, was that in the quarter or in the first half?

Mark Fusco

That was in the quarter.

Phil Rueppel -Wachovia Securities

Okay, great, and any change there in terms of how it’s appealing to particular verticals, any color, chemicals or energy strong in terms of adoption with aspenONE, or are you seeing it across the board?

Brad Miller

We’re seeing it across the board, but I would say as the spending from the oil related companies and those verticals have increased in our licenses over the last couple of years. We’ve seen a lot of interest in demand, especially around petroleum chain, where Aspen is number one in the world and has been for quite some time with point solutions and as the aspenONE suite becomes more integrated we are seeing continued and I think accelerating interest in what we have. It’s an integrated suite, how we bring it to market, the commercial model that we have for it and the things that it will do over a period of time.

Our customers have done reasonably well at optimizing parts of their process on a bit of a vertical basis, but they haven’t necessarily tied these things together. And as they do, and as we bring new pieces of software to market, and new pieces of software go live like out inventory management software which goes live this spring in the first release with British Petroleum, I think we’ll see that there’s a lot of additional demand for inventory management and how it ties into the plant and how it ties into the rest of the supply chain.

We’ve seen a lot of demand for this, I think it’s accelerating as adoption of aspenONE has continued over the past couple of years, and I still think we’re early in the process when you look at the number of big oil companies and the ones that I would say have an aspenONE appetite. We haven’t really closed too many of them yet, but there’s lot’s of opportunity there.

Phil Rueppel -Wachovia Securities

Okay, great and then just one final question. If I heard everything correctly Deloitte will complete its prior commitments to getting everything current up through Q1. Is finding a new auditor critical or a gating factor as you look into being able to file a 10-Q for the second quarter? And are you confident that once you’re kind of up to date you’ll be able to stay within the filing time frames?

Brad Miller

Phil, I think you do have it right on the Deloitte front that they are staying through the completion of the filings dated to get us current in parallel with that, we’ll be engaged in the auditor selection process and in finding a successor with the audit committee, and we’ll be moving that as quickly as we can. Of course, at the time that we do have a new audit firm to announce, we’ll be public with that. And at the time we’ll be able to talk about our timing on a go forward basis. Clearly our focus at this point is on getting our filings caught up and becoming current. And that’s job one and what we’re heavily focused on.

Phil Rueppel -Wachovia Securities

Okay, thanks very much.

Operator

Your next question comes from Robert Schwartz with Jefferies &Company.

Robert Schwartz - Jefferies &Company

You mentioned that several of your 10 largest deals were in engineering; three were in the plant and supply chain. I’m wondering if you’re seeing any evidence of customers buying across the three major sets. And maybe you could talk about what you saw this quarter with that respect.

Brad Miller

Our commercial model is not one contract for the three different pieces of the business. We have contracts for our engineering business and then a contract for our plant and supply chain business. We’re trying to narrow as we go through the aspenONE reboot process with our customers and try to upgrade them to a new suite. We want to simplify the contracting structure really down to two which is easier for them and easier for us. Typically the people that are buying engineering and plant and supply chain are not the same customer, so they’re not going to be buying in the same cycle.

With that said, a company like BP has both an engineering contract which is aspenONE based and they also have a plant supply chain contract which is aspenONE based. They are not the same contracts, but we’ve skinnied the universe of probably 80 contracts that we had in the past down to roughly two. Plus there may be some service things here and there. It’s a dramatically simpler model with them and with us. It allows them to buy in a simpler way. And we hope buy more things in a simpler way. We’re seeing that while they don’t buy at the same time, the same things, there is consistent demand on both sides of the business.

Robert Schwartz - Jefferies &Company

I thought part of the aspenONE pitch is that you’ve got an integrated suite of products and that a value proposition was being presented with how they integrate across what we used to think of as traditionally different sets. Contracting aside, let me ask the question differently. Did you see more interest or commitment to multi-product contracts in this quarter, or are you seeing any trend in that direction?

Brad Miller

It’s been consistent that there’s been more demand for all of the different products, access to all of the different products that we have on all parts of the business, the engineering plant or supply chain. What I was referring to was more of the commercial model. As far as the software goes, the engineering suite is integrated into pieces of the plant in the supply chain it gets tighter over a period of time with every release. Certainly the plant and the supply chain are integrated together and will be pulled together in the next year or so to be fully integrated, as the integration of the modules gets tighter the integration between the modules and the parts of the business gets tighter as well. It’s a bit of a journey, but we’re well down the track of it.

Robert Schwartz - Jefferies &Company

With respect to the receivables, just following up on that, going back several years before both of you were with Aspen, the company used to get criticized for the way that it handled its long-term receivables. It would factor in some quarters and not factor in others, so that the DSO, no matter how you calculated was spiking all the time and highly variable. Then the company went to a commitment to essentially factor virtually everything. Now it sounds like you’re backing off, that you’re going again to this periodic, as we need it approach. Are we going to expect DSOs moving around a lot and how are you going to deal with that criticism?

Brad Miller

Rob, I guess in effect, if I can focus on the present and the future, it’s hard for me to comment on the past, of course. On the present and future, where we are is that when the restated financials are out there you’ll see that on the face of the balance sheet all of what we have factored, all of what we have borrowed will be there for all to see. So when you look at our financials you’ll be able to measure what we have or haven’t sold and I think given the performance of the company and our ability to generate our own cash flows, it just sort of makes sense that we go with the most cost-effective financing vehicles that we need to the extent that we do need to generate the cash for the sales of the receivables we would, but we have, as we’ve clearly demonstrated over the last six months made a decision that that’s not as much of a priority as maybe it had been a year ago. I think what you’ll see is the company doing so on an opportunistic basis, but not as part of the core cash flow requirements, required to run the business.

Mark Fusco

Yes, I think you should also, given a bit of peculiarity our revenue model, we generate installments, the factoring of them is quite expensive way to finance the company. I wasn’t here four or five years ago when they may have been more hit-or-miss about how they did it, but clearly they started to factor all of it because the cash needs of the company were dramatic. We had debt that was staring us in the face that needed to be repaid.

We had other issues the company had been losing money and burning cash quite dramatically on a quarterly basis. So my suspicion is that they decided to do this, but as the company’s finances have improved, as the balance sheet has improved, it’s clear that this is very expensive financing. We would only want to do it if we need it, because it’s for the betterment of the shareholders and certainly accreted over a period of time. I think it’s our responsibility and obligation after we get current to pout something together for everyone to make it clearer what we’re trying to accomplish here and why it’s in the companies best interest to do as little of this as possible given the cost of it. But we need to do that and we will do that after we get current.

Robert Schwartz - Jefferies &Company

Right, and then last question, if I may. Sort of the elephant in the room, you’ve asked for an extension, the primary issue right now sounds like its taxes. Does that mean that the installment receivables audit has pretty much been put to bed and why are you confident that another issue in this ongoing work by audit committee won’t arise that will need another extension?

Brad Miller

Right, Rob. We did put in a request to the NASDAQ for another three weeks beyond the Friday date that they had granted. This process, as you’re well aware has been going on for a period of months now. As is inevitable, these processes include a number of different things that we look at. The income tax item is the one that we feel is kind of the pacing item and the one that we need to complete in order to bring to a close all of the different detailed reviews that we’ve been doing on multiple accounts. We’ve highlighted that because we believe it’s the most significant after the installments receivable. Again, as you can appreciate there’s sort of a binary outcome here that until we’re done, we’re not done, and then when we do get done, we’ll be in a position to talk about the financials as a whole including the effects on all the different areas.

So with all of that said, the process is one that given the time and energy that have been focused on this for an extended period of time, we feel like we are nearing completion on all of the matters needed to bring the financials current. That’s the focus right now.

Robert Schwartz - Jefferies &Company

Just a clarification, this extension, does it require another hearing and if so when is it scheduled?

Brad Miller

We have put in a request to NASDAQ, which we put in earlier this week, the process there is one where we submit that request to them, then it’s kind of in their court to get back to us with whatever they would view as the next step.

Robert Schwartz - Jefferies &Company

Thank you.

Operator

Your next question comes from the line of Andrew Matorin from Bear Stearns.

Andrew Matorin – Bear Stearns

Thanks. Just regarding the DNT decision to stand down, can you give us any more color on why they came to that decision, was it price, were they just burnt out from these restatements, what can you tell us there?

Brad Miller

Andrew, as I’m sure you can appreciate, I think there are multiple things involved here. I think first and foremost bear in mind that Deloitte is as committed to completing the fiscal 2007 audit and the restatements for the priors year first quarter 10-Q and thereby the financials necessary to bring us current. There were no disagreements with them or other limitations that caused them to decide for fiscal ’08 that they’d like to not stand for reelection. This decision is one that they make, and I guess I’d characterize it as a business decision that they make that doesn’t have a lot of other color other than just a decision not to stand for reelection. But again, bear in mind that they’ve agreed to complete the work that’s been going on for a period of time in order to bring our financials current, with the ’07 and first quarter ’08 filings.

Andrew Matorin – Bear Stearns

Were you as a company pleased with the work that they’d done? Are you disappointed with their decision?

Brad Miller

Again, I guess I characterize it, Andrew, that this is business relationship and one that we made commitments to each other, if you will, relative to getting the financial statements current, that’s what our focus is. So as part of that we’re just very much focused with getting caught up with the filings needed to bring ourselves current and that’s really the level that we’ve been engaged, just a business relationship in order to get that accomplished. As I’ve said, they’ve made the determination that they would not be seeking reappointment for fiscal ’08 once the quarter is done.

Andrew Matorin – Bear Stearns

Regarding the February 8th extension date that you guys requested, how would you characterize your confidence level in completing by that date, cautiously optimistic, confident, very confident?

Brad Miller

Well, as you can appreciate, Andrew, we put in a request for a date that we believe we can hit. We have been working through a number of matters that were components of the detailed review that we’ve been describing on some of these calls over the last few months. Given where we are in the process and what we believe is left in order to complete both the detailed review and the filings themselves, February 8th is the date that we believe that we can hit and is the basis for the request.

You remember when we made the request for January 18th, that was back in November and in fact we had submitted the materials a few weeks before that so it was with a much longer time horizon in front of us at that time. We believe we are now in what I characterize as the home stretch to get completed with both the detailed reviews as well as the filings themselves. February 8th is the day we believe we can hit and is the basis for the request.

Andrew Matorin – Bear Stearns

Okay, I appreciate that. Regarding your business, what can you say about the demand environment overall, obviously macroeconomic in terms of the US economy, can you speak to what you’re seeing out there in the US as well as in other geographic areas?

Brad Miller

We’re seeing consistent demand and have over the past several years. It we look at our pipeline of opportunities going out a number of quarters it’s as strong really as I’ve seen it. That doesn’t mean that things won’t com in or go out over a period of time, but the company has been executing well. A lot of the things that we put in place several years ago on how we want to target the market I think are working. We, I'm sure will be affected by the general economy just as everyone else will at some level. But we’re not seeing a change in demand in the process industries. Our customers are doing well in general. They are interested in optimizing what they’re doing. There is geographic growth in new markets. There is new plant construction and there are general upgrades to computer systems whether its legacy aps that need to be upgraded or acquisitions that have been done over time those things need to be consolidated and reworked. We’re seeing continued demand across all parts of the business and all parts of the world in both the emerging markets and the legacy western markets as well. It’s been strong and that doesn’t mean it won’t change, but we see a very strong and stable pipeline of opportunities both for the basic products and for the aspenONE Suite and we’re pleased with where we are.

Andrew Matorin – Bear Stearns

Can you make any comments about the large deals that you spoke of geographically, where those deals were?

Brad Miller

Well we typically don’t do that. Every quarter we have some large deals. A year ago in the second quarter we had a few large deals which gave us a relatively large overage compared with what expectations were. This quarter we had a very difficult compare coming off last year. We had a couple of deals that were supply chain related that we’d been working on for quite some time that were aspenONE deals.

It has been strong. And as you know all of our customers or the big ones that would be interested in big deals are operating in multiple geographies around the world. They may buy in one place, but use the stuff in many places.

Andrew Matorin – Bear Stearns

Then just lastly, you made a comment, Mark, I believe it was Mark, about service revenue growth expectations in the low single-digit range. And I believe that’s a change from the last couple quarters when you said low to mid-single digits, and I was just wondering, is there a change in how you view the opportunity in that area and is that a reflection of any change in the economy or economic outlook.

Brad Miller

I think, Andrew, it was my comment and the way that we’re looking at the services business is consistent with the way that we have been looking at it that, we look at it as a strategic enabler and our customers do as well, to our ability to generate license revenues. So our continued focus on generating the licensed bookings and revenues that are what the company’s core business is, is unchanged. As we look at where our growth drivers are going forward, Mark has characterized the strength and demand that we see across the business and that our continued focus at the strategic level is to do what we have been doing. That is to generate the strong growth in our licensed bookings and you’ve seen that as the way we’ve driven our bookings up by 20% or so on a year-over-year basis.

Andrew Matorin – Bear Stearns

Sorry, just one more, if I may. On the decision to reduce the amount of installments receivables, does any of that have to do with the broad credit problems in the market place and perhaps a higher discount rate used by the financial institutions in valuing those receivables and would that change going forward once this credit issue resolves itself in the broader market?

Brad Miller

Right, I understand the question. The decision on the receivables, a couple of factors to that: one is that the facilities themselves continue to be fully available to us so I guess the direct answer to your question is the facilities are not affected, or have not been affected by some of the other credit discussions that you’ve seen out in the marketplace. In fact we recently increased, you might have seen this in the filing that we made, we recently increased the capacity that we have under one of our larger facilities, nothing different there other than continued availability and if anything increased capacity.

Our decision as it relates to managing our cash balance and the way we capitalize the business has been one that our requirements have been less over time. You would have seen the cash balance increase by over $50 million over the last year. And in that time we’ve also done a number of things to streamline our capital structure, paying off the one facility here recently. You remember that when we converted all the preferred stock a year ago that we paid off that dividend in cash as well. So it’s fair to say that our cash requirements are such that if we need to access that cash, we can. If we don’t need to, as Mark alluded, it’s expensive money to get, so if we don’t need to, there’s no reason to be paying a bank for it. But we have full availability of those facilities.

Andrew Matorin – Bear Stearns

Okay, thanks a lot.

Brad Miller

Operator, I think we have time for one more question.

Operator

Your last question comes from the line of Richard Williams with Craft Research.

Richard Williams – Kraft Research

My questions have been answered. But I just wondered if you could give a little bit of color on the competitive front. Are you seeing anyone different emerging? Are you seeing any of the old players backing away?

Brad Miller

I’d say the competitive environment is more or less the same. We compete with many large companies in the different spaces that we’re in. We think we’re competing quite effectively both from an operational perspective and with the products that we have in the market and are bringing to market. Today we’re not seeing any competitive integrated solution that’s coming to market from anybody else. Aspen has been and continues to be number one in the market worldwide for the process industry. We believe that we are taking market share from other competitors in various parts of the business and in various geographies.

It’s not quite crystal clear when you look at industry and analysts data. But given the growth that we’ve had had over the last few years, I think we are taking market share and I think that’s a credit to the team here and to the products that we have in the market. So we’re not seeing any change in the competitive dynamic. I do think we get stronger over a period of time. As aspenONE suite gets more mature and gets more adoption – when you’re early in the process of any adoption cycle, it takes some time to generate demand. Later on it gets a little bit easier over time as people see it start to work.

I haven’t seen any change in the competitive environment. I would expect us to continue to compete well and aggressively in the market.

Richard Williams – Kraft Research

Obviously well doing well with these license sales. As far as aspenONE is concerned, it’s ramped up from as I recall, like 10% of the deals to 40% and now 60%. Is there any upper limit to that?

Brad Miller

In a perfect world some number of years from now, we’d only be selling aspenONE integrated suites and not be selling point products at all. We’d like everybody to have all of our products. I think there’s a bunch of different demand drivers here. The first is to get customers to want to have aspenONE as the backbone to their operations. The second component to that is, are they using as many products or modules as we’d like them to have? Is there white space in their facilities? Are the competitive products that are there that may be interested in swapping out for one of ours, because the optimization opportunities are compelling when you integrate things together? There’re a lot of different demand drivers around the company’s suite of products. But the first step is to get people interested, to get them to buy it, and then our job is to increase their usage of our modules and increase the number of plants or people using the products.

It can vary. It’s been high in the past little bit, but it will bounce around a little bit. We haven’t given any forward guidance as to what we expect aspenONE sales to be as a percentage of our license, but we’ll do that as we get current here.

Richard Williams – Kraft Research

Okay, and I guess no conference call in the current environment would be complete without the credit crunch question. Understanding that most of your customers tie into petroleum in one form or other, and that that’s obviously been very strong, do you get any indication from customers that the credit crunch is impacting them in any way?

Brad Miller

No.

Richard Williams – Kraft Research

Okay, well thank you very much and good job.

Operator

At this time I’d like to turn the conference back over to the company for further remarks.

Brad Miller

Well, thank you very much for joining us here this morning. We are pleased with how the company has continued to perform in selling our aspenONE suite and on the license line. The market demand for the products and our solutions continues to be strong. We are working very hard to bring our financials current. I think it’s fair to say that we’re all tired of not being current. We appreciate your staying with us and your interest in our company. We will bring this to a close, we’re working hard to do so.

We do look forward to communicating with you in a much more direct way all the different things around our financials and what the company is doing. And I think it’s incumbent upon us in the future as well to spend some time talking to you about what we are doing what our products are doing, what our strategy is and how we’re going to continue to perform over a period of time. We’ve had much too much conversation about financials and these things.

We do appreciate your patience with us. Our patience is thin and I’m sure yours is as well. Please bear with us, we’re almost done.

Thanks again, and we look forward to walking with you soon.

Operator

This concludes today’s fiscal Q2 2008 preliminary conference call, you may now disconnect.

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