Q4 2019 Earnings Call

Please note. This event is being recorded. I would now like to turn the conference over to a net Heroes, please go ahead.

Good morning. Everyone are earnings release in the prepared remarks have been posted on the homepage of our investor relations website this morning. They contain all of the key financial information and supporting data relative to our fourth quarter and our full-year 2019 Financial results and business updates as well as our initial keyone and fiscal year 2020 Outlook and the key underlying assumptions. I would like to remind everyone that today's presentation contains forward-looking information in addition to any risks and uncertainties that we highlight during the course of this call important factors that may affect our future results are discussed at length in our public filings with the SEC. All of which are also available via our website. Additionally the company's reported results should not be considered an indication of future performance as there are risks and uncertainties that could impact our business in the future of these statements are based upon our view of the business as of today and answers undertakes. No obligation to update any such information.

during this call and in the prepared remarks will be referring to

Financial measures unless otherwise stated a discussion of the various items that are excluded in a full reconciliation of gaps to comparable non-gaap Financial measures is included in this morning's earnings release Mateo and related form a k I would now like to turn the call over to our CEO Jake Paul for his opening remarks J. Thank you and Nathan good morning. Everyone. Exceptional quarter Francis capping a seller year in the fourth quarter. We delivered record Revenue earnings per share and operating cash flow. Let me focus on annual contract value or a CV which we believe to be the best indicator of the underlying health of our business.

Q for a CV at well over half a billion dollars in the quarter for the first time in our history represented growth of 13% in constant currency, which was particularly gratifying considering a strong base line set in Q4 2018.

For the full year 2019 ACV grew a robust 12% in constant currency as we looked at twenty twenty. We're guiding to over 12% growth in a CD in constant currency at the midpoint arrange. This gives us further confidence that we will achieve our goal of two billion dollars in a CV by 2022 while maintaining our industry-leading margins in the 42 to 44% range. Maria will provide more details in just a few minutes.

No.

Provide insight into some of the growth drivers and the fourth quarter and for all of 2019 during Q4 10, long-standing customers made commitments off and nearly all of the deals over a million dollars included offerings from at least three of our product lines.

From a geographic perspective. We saw strength and all our major territories last year.

Well North America led with 26% Revenue growth for the year. I'm delighted that Revenue in Europe grew 29% in Q4 and 14% in 2019 both in constant currency.

For the full-year asia-pac revenue grew 15% in constant currency, despite a modest 2% Revenue growth in Q4, which was attributable to variations in Deal timings off in Japan. We grew Revenue 20% in Q4.

From an industry standpoint high-tech continues to be our largest sector fueled by electronics and our semiconductor Solutions and supported by a multiphysics portfolio. And as you shortly We are continuing to add new capabilities to our product offerings. So our customers can keep driving innovation in the ski industry.

Moving to Automotive other vendors have signaled weakness in the sector perhaps because of their focus on Legacy programs or their inability to Pivot to emerging customer requirements.

For answers. However, Automotive is an area of strength in part because we have successfully broadened. Our offerings to address key growth drivers namely solutions for a month and electric vehicles.

We have seen repeated evidence of that success in the electric vehicles first with Volkswagen, which we have previously discussed and now with Porsche.

In Q4, we announced the Porsche Motorsport is using answers to create an advanced electric powertrain for its electric race car after proving itself on the track Porsche wage. Do you use the cars electric power train to usher in a new era of commercial Mobility vehicles?

Moving to other Industries, although energy is going through a transition. We are seeing increased demand in that sector including an extended collaboration with leading energy Technology Company Baker Hughes. This long-time customer signed a new agreement in Q4 to use and the simulation to drive down design and development costs including additive manufacturing wage parking innovation.

we continue to see

That's an aerospace and defense driven by increased customer investment in North America. In fact, the Aerospace and defense industry is responsible for four of our top deals in Q4. The Catholics plug challenges facing Aerospace and defense organizations require a true multiphysics approach including solutions for electromagnetics fluids and Next Generation materials.

For example, a leading North American gas turbine manufacturer sign an eight-figure deal in Q4 to shorten its design cycle using faster more reliable and accurate combustion simulation by deploying on Mosaic meshing and enhanced workflows this industry leader reduced preparation time from hours 2 minutes while getting more consistent and robust results off twice as fast by using and solutions. We expect this Global leader to save millions of dollars a year in reduced labor and related costs.

another large Aerospace company

Is also benefiting from our comprehensive multiphysics portfolio this company faced a complex set of operating conditions that made identifying potential failure mechanisms a challenge it is using our best-in-class electrical thermal and mechanical products as well as our Electronics reliability simulation solution from last year's acquisition of dfr to improve design and to mitigate possible failures this resulted in an eight-figure deal in Q4 and it demonstrates our ability to efficiently integrate new technologies into our selling motion.

As you can see our customers are benefiting from the formidable combination of and solutions across physics. This is a powerful endorsement of the strength of the full portfolio. And it is one that I believe other vendors cannot match.

We continue to extend our product leadership across the entire portfolio with our recently launched answers 2020 R1 R1 accelerates company's digital transformation by enhancing the interfaces functionality workflows and scalability of our products are one includes multiple products and Technology advances, but in the interests of time, I'll focus on areas of particular interest to the high-tech industry.

To make five g o reality the industry must develop new array and beam steering technologies that overcome millimeter-wave impediments such a signal propagation at 28 gigahertz month to overcome those challenges. We continue to make major Investments and and sensation of ss. Our Flagship product for Designing and simulating high-frequency electronic products are one includes breaking new phased-array antenna technology that enables 5G designers to model complete antenna arrays attached that was previously computationally prohibitive.

Developing modern antennas is only one challenge in realizing 5G sisters.

Chip designers must develop new architectures to co-locate the chip and the antenna which introduces topology constraints and electromagnetics crosstalk challenges that did not previously exist. We should be announced new product and wrapped her age to solve these challenges with its unparalleled accuracy. It's unmatched capacity and speed and it Smooths design a slow integration for advanced. Nanometer integrated circuit design We Believe Raptor age is the most feature-rich electromagnetic tool in the market for system-on-chip Claus Raptor H marries, the best-in-class walk-ins from answers raptorex, which we gained in last year's helic acquisition and answers each of ss into a single chip package system design environment.

peluk was acquired in q1 2019 and this product shows the speed at which the answers are in D teams can incorporate new technologies into a

portfolio

a platform strategy is based on an extensible vendor-neutral architecture that works both on-premises and in the cloud.

Answers Minerva is based on this architecture and empowers companies to solve the seemingly intractable problem of dealing with the enormous amount of data created by multiphysics simulations of complex systems such as 5G components and equipment in our one Minerva's scalable traceability configuration management and versioning system ensures reliability and connect in a simulation data to drive collaboration and insights across the product lifecycle and across departmental silos.

That traceability is critical to companies like even corporation that rely on Minerva to streamline their user experience when designing and Manufacturing Parts using additive manufacturing and other offices.

These Innovations are empowering our customers to solve some of the most challenging product problems our ongoing commitment to improving our best-in-class Solutions. If further widening the technology gap between us and our Senators.

It's certainly evident with answers Discovery. Live would be up significantly broadened structural use cases and expanded generative design capabilities while adding a gpu-based steady state competition fluid dynamics silver.

This breakthrough enable the design Engineers to predict air flow and heat removal at rates a hundred times faster than the previous GPU solver within Discovery Live One customer told us that they reduce component design time from three months to less than two weeks.

Q for Mark the first large renewal for the discovery business and we are happy to see our early adopters expanded commitment to Discovery.

And it's most recent earnings call a strategic partner announced that it was also seeing a ramped-up of adoption an average deal size with its Creo simulation live product which incorporates every live.

As I mentioned previously, we expect the near-term financial impact of Discovery Live to be modest, but we see a strong long-term opportunity.

Over the course of Q4. We also expanded our relationships with industry leaders or the desk Microsoft and Rockwell Automation with Autodesk. We built in our previously announced Automotive or between our lighting simulation solution and two Steals and Autodesk be read.

A new connection between mechanical and Autodesk Fusion will drive revolutionary design and Engineering agility for our customers helping them expedite products to Market.

A partnership with Microsoft also expanded growing beyond our initial collaboration where we empowered customers to access high performance Computing on demand via answers Cloud, which runs on Microsoft Azure off in Q4. We grew a collaboration to make it easier for customers to adopt and deploy digital twins through our expanded partnership manufacturers that model and connect assets using a national twins can optimize asset production and operations using ansys twin Builder.

That enables users to slash.

maintenance cost and speed high quality products to Market

Similarly with Rockwell Automation, we're enabling customers to benefit by creating a digital twin of their full manufacturing process to create and test virtual what if scenarios. In doing so industrial companies can adapt to Market demands with more agility and minimize risk.

We're also continuing to expand the markets of simulation by reaching future users over 3,000 universities use our technology for research and teaching including students at Carnegie Mellon University who are building and testing their own simulations in the newly-opened answers fall more than a hundred fifty thousand people have enrolled in Cornell University's massive online course and simulation based on faith, and I'm pleased to announce that we've seen over 1 million downloads of our student product.

I'd like to take a moment now to recognize my colleagues and answers as you know, the coronavirus is a rapidly evolving situation. Our number one priority remains, of course the safety and the well-being of our employees and their families around the world and I am humbled and grateful for the commitment that our colleagues in China and elsewhere is showing as they continue to drive business execution in difficult circumstances.

Switching to our commitment to environmental social and governance initiatives for just a moment. I am proud that Newsweek recently named this to its 2020 list of America's most responsible companies and I'm delighted that 20 20 women on board recognized answers is a winning W company for 2019 with at least 20% women on our board of directors.

Summarize building on double-digit growth in 2018-2019 was a record-breaking year for answers these results combined with a forecast of double-digit ACV growth and our continued investment in our market-leading products gives us further confidence that we will achieve our goal of two billion dollars and eighty by 20 twenty years. So you can understand why I'm excited for 2020 and Beyond as I have told you before the future for answers is brighter than ever.

and with that

I'd like to turn the call over to Maria Maria. Thank you. Okay, good morning. Everyone. Let me start off by saying that financially 2019 was our strongest or ever and we are very encouraged about 20 20 given the momentum in our business.

For the full year of 2019. We delivered either above the midpoint or well above the high end of the range on our initial Financial guidance, and we raised in Europe three times throughout the course of the year.

Even more exciting is that we close the year with a very strong fourth-quarter which included record Q4 results across all of our key financial metrics.

This is quite a testament to both are resilient business model and our team's ability to execute particularly when you consider the very strong comparables for both Q4 month and the full year 2018.

No, I'd like to take a few minutes to provide some additional color on our financial performance. And then I will close with an update on our Outlook and key assumptions for q1 and 2020.

And consistent with our standard practice. My comments will be in terms of non-gaap unless I State otherwise

for the fourth quarter, we delivered constant currency Revenue growth of 18% and ACB growth of 13% coupled with operating margin and EPS results that were well above the high end of our queue for guidance ranges.

Please record results were driven by strong market demand for our industry-leading multiphysics portfolio and buy continued positive customer and business office.

Now let's let's turn to some of the key financial metrics that I'd like to highlight for the quarter and the year.

beginning with

Total revenue we delivered four hundred ninety two point five million in Q4 and for the full year. We recognize a record 1.5 billion in total revenue agent Rowley 19% in constant currency.

You for a CB children 541 million which 78% of a CV in the quarter coming from recurring sources.

Notably. This is our first quarter ever reporting over half a billion dollars in a CV.

For 2019 RAC be total 1.46 billion representing constant currency growth of 12% with recurring sources making up 77% of the total.

We remind investors that we believe that our annual ACV is a key metric for gauging our operating performance over time.

And a quarter an increase in software lease license sales combined with strong maintenance renewals bolster our deferred revenue and backlog total to $871,000 a 32% increase over last year's balance.

Living on to profitability in Q4 we continued to build on our solid performance throughout every quarter of 2019 with strong top-line results it helped to drive a fourth-quarter gross margin of 92% and an operating margin of 48%

For 2019 we finished the year with the gross margin of 91% and an operating margin of 45%

These results are evident that first and foremost. We are committed to managing our business with discipline and secondly that we are successful in integrating tuck-in Acquisitions into our business model while still delivering best-in-class margins.

Strong margins help to drive record fourth-quarter and full-year EPS of $2.24 and $6.58 both well above our guidance changes.

With respect to taxes or effective tax rate in Q4 was 17% as compared to the twenty to twenty 1% range that we had expected.

The coupon rate was favorably impacted by a 6.7 million dollar benefit related to a December tax law change in a foreign jurisdiction.

Please keep in mind that this non-recurring benefit will impact year-over-year comparisons in 2020.

Our cash flow from operations totaled $139 for the fourth quarter and $500 million for 2019 and we close the year with a total of 872 million in cash and short-term Investments.

The Acquisitions of L S T C & Denardo had a relatively insignificant impact on the results for the quarter contributing nine million of Revenue off and 7 million.

No, let me turn to the topic of guidance before I get into the specific numbers. I would like to briefly comment on.