Q4 2020 ANSYS Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to Kansas.
Fourth quarter of 'twenty, and 'twenty earnings conference call with US today are.
<unk> Gopal Chief Executive Officer, Maria Shields, SVP, and Chief Financial Officer.
The call and as soon as senior Vice President and that Arena Senior director of Global Investor Relations.
At this time I'd like to turn the conference call over to Miss the rebid for some opening remarks, ma'am you may begin.
Good morning, everyone. Our earnings release, the related prepared remarks document and the linked for fiscal year 'twenty and 'twenty form 10-K have all been posted on the homepage of our Investor Relations website.
They contain the key financial information and supporting data relative to our fourth quarter and full year, 'twenty and 'twenty financial results and business update as well as our initial Q1 and fiscal year 'twenty 'twenty, one outlook and the key underlying qualitative and quantitative assumptions.
I would like to remind everyone that in addition to any risks and uncertainties that we highlight during the course of this call important factors that affect our future results are discussed at length and our public filings with the SEC all of which are also available via our website.
We note that the impacts of the COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. Additionally, the company's reported results should not be considered an indication.
The future performance and there are risks and uncertainties that could impact our business and the future.
These statements are based upon our view of the business as of today and answers undertakes no obligations to update any such information.
During this call and in the prepared remarks, we'll be referring to non-GAAP financial measures unless otherwise stated.
A discussion of the various items that are excluded and the full reconciliation of GAAP to the comparable non-GAAP financial measures is included in this morning's earnings release materials and related form 8-K.
Before I turn the call over to RJ I would like to let everybody know that we are continuing to make progress towards our environmental social and governance roadmap.
Earlier this year, we published our first product can print use case focused on electric vehicles.
Illustrating how answered solutions play a critical role in solving many of the industry's challenges. Additionally, we published our non financial Materiality assessment, which will guide our ESG strategy as well as the human capital info graphic highlighting key aspects of our answers culture and talent management.
All of this information is available and the sustainability section of our Investor Relations website.
I would now like to turn the call over to our CEO Jay Gopal for his opening remarks, Hi, Jay.
Good morning, everyone and thank you for joining us.
Q4 was another excellent quarter for <unk> capping off the most successful year and a 50 year history.
We beat our financial guidance for the quarter across all key metrics, including revenue.
Phoebe.
<unk> per share and cash flow.
Q4 was stronger than expected sales activity, which we believe was the was driven by a combination of the first customer spending from earlier quarters.
Later than expected and of your customer budgets and the Americas and EMEA.
Coupled with the increase.
The cautious optimism and the economy. Thanks to the emergence of COVID-19 vaccine and expected government stimulus activities.
During Q4, we closed nearly 100 deals over $1 million.
Total debt includes eight deals and the eight figures.
One of those agreements was the second largest deal and the history of the company.
A five year $79 million contract with an enterprise customer.
While the economic conditions forces global company to reduce expenses across the business if.
Renewed and expanded its use of answers of course, all of our technology worldwide.
And added newly acquired as of the technologies, including electronics reliability and dynamic analysis.
This contract reflects the customers' long term decision to standardize on Ses technology over other vendors and reduces the reliance on physical testing and.
And as a testament to emphasis and market leadership.
As we have consistently said our yours have become increasingly backend loaded due primarily to the timing of large deals.
The steady progression of the lot of sales and operations team to support and increasingly higher magnitude of the business in the fourth quarter of each year.
Our strong Q4, 2020 execution drove record quarterly APB, which was over $100 million higher and the previous largest quarter and Q4 of 2019 the.
Strength and volume of business that we closed in Q4 resulted in annual ACB growth of almost 10% and constant currency.
The euro and developed largely as we had predicted and our May 2020 call with regards to our performance by industry geography, and the company size.
During the year, we exceeded our expectations with enterprise customers, including closing the three largest deals and our history.
And that speaks to the importance of emphasis of integrated multi physics simulation capabilities. The connect all the major of physics as well as to the trusted partnerships that we have built with our enterprise customers.
Moving to products, we advanced our strategy of pervasive simulation with our recent delivery of <unk> 'twenty 'twenty, one the least want to our customers with.
With our one engineers get harnessed, the advances and simulation technology together with ever increasing computing power to drive new levels of product innovation.
This comprehensive released feature of the advances across our entire integrated multi physics portfolio and our stimulation platform, including and S. As club where customers can now scale beyond 1000 and force for a single job.
And as the discovery, which now includes automated the thermal analysis to predict fluid and solid thermal behaviors for electronic cooling and heat management devices.
And as the share loss, where customers can now incorporate and mechanical random vibration analysis into the design for reliability and workflow, thereby improving product reliability and lifetime.
Another key element of our one and as S. H FSS mesh fusion.
This breakthrough solution simplifies the development of more of an electronic products, which are incredibly complex systems, consisting of multiple interact and components.
Today engineers can analyze the systems using one of two sub optimal techniques.
Either individual components of emulation with manual combination, which can be <unk> or a one size fits all approach, which could result in long simulation times.
Using answers the Asia Pacific mesh fusions and game changing technology, and engineering and solve each component at a level of fidelity and most relevant for that component.
And then age of assess automatically fuses the results.
Actually eradicate the cost and the risks of traditional methods, enabling engineers to efficiently design and optimize complex products.
Samsung electronics of using age of assess mesh fusion to create optimal designs and to shrink design cycle time and cost for its next generation flat screen televisions and the.
Electronic drives use of this innovative technology to develop the best designs that were previously unimaginable.
Moving to M&A and Q4, we closed our acquisition of analytical graphics incorporated or hei.
But the Agi, we will be able to address and broader market called digital mission engineering, which combines mission and stimulation of the analysis from hei with components and system level simulation from Kansas.
Based on the third party market analysis and primary interviews with industry experts, we believe that the agi acquisition increases as the total addressable market by $800 million.
That market is being fueled by the replacement of open source code.
Unsustainable in House code.
And the ongoing growth and the number of missions.
Our combined portfolio will enable customers to stimulate up and down the stack starting at the chip level and going all the way up the customer the entire mission.
Increasing the likelihood of success and saving them time money and other crucial resources.
This week, we announced the relationship with key site, which connects Hei's mission of analysis software with key sites high Fidelity RF systems modeling capability.
This partnership builds on an existing relationship, which empowers engineers to evaluate the mission level of behavior and is a key enabler for aerospace applications amongst others.
PTC another partner continues to see success with the OEM of assets technology and.
And its most recent earnings call PTC reported that trio powered by <unk> products grew bookings by more than 20% and in the quarter.
The company highlighted one such deal and shark Ninja, which added <unk> simulation live to help spark innovation and decrease product development cycle times.
Yeah.
As we look ahead, the 'twenty 'twenty, one I'd like to reflect of the COVID-19, pandemic and put it in context of the anthem business.
Covid had an adverse impact of low twenties 20 results most pronounced in Q2 and Q3 with some customers choosing to be cautious with their spending.
However.
Strong execution and the back half of the year, including the record Q4 performance.
The resulted and the ECB above the high end of our updated mid guidance and within the originally established range for the year.
We are seeing a continuation of Q4 and cautious optimism and our customer base.
With the expectations of the economic pressures of the pandemic will start to ease and the second half of 'twenty and 'twenty one.
But tempered by concerns with the virus mutations and vaccine rollout schedules.
The takeaway is that we're assuming greater uncertainty and the timing of sales activities and we would have had this been of non COVID-19 here.
We are also planning for 'twenty and 'twenty, one to be heavily back end loaded similar to or even slightly more pronounced in 'twenty and 'twenty.
And we expect a wider range of outcomes and our full year projections as was the case of 2020.
You'll hear more about our guidance for 'twenty and 'twenty one shortly.
Let me now move to the long term to when the pandemic is behind us.
While we are not and are positioned to quantify and quantify these considerations and I believe that some customers of cut back during the pandemic will increase spending in R&D and stimulation to compensate for other investments and 2020.
More important however, I believe that we will see a number of tailwind that serve to increase the post pandemic market growth rates as compared with a pre pandemic projections.
First in a recent survey of nearly 900 executives and managers across industries and the firm Mckinsey and found the pandemic may have accelerated digital transformation by as much of the decade.
I believe this is particularly relevant for our customers and that they will hasten their digital transformations post pandemic and the process driving increased and deeper use of simulation.
The pandemic proved the R&D engineers are effective when working from home and that they can use simulation to successfully develop products, even with no access to the physical labs.
As companies move to hybrid work models post pandemic, they must accelerate their digital transformations to replace legacy product development processes with modern tools and techniques.
The physics simulation with its core value proposition of helping to accelerate time to market and to deliver cost savings will be key to these transformations.
Next the pandemic seems to have pushed customers to accelerate roadmaps and to innovate faster in areas, such as telecommunications and consumer electronics.
We are also seeing increased R&D and the creation of eco friendly products, such as electric vehicles and lightweight fuel efficient aircraft engines, as we discussed and our last earnings call.
All of these products, the sophisticated and complex and require integrated multi physics simulation for design and development.
That will continue to drive increased post pandemic demand across our entire portfolio, including our newly acquired Agi emission offerings.
To summarize despite.
Despite the disruptions caused by the pandemic Q4 was an outstanding quarter marked by record financial results.
Looking long term, we believe that the pandemic may actually caused our total addressable market to grow faster than our pre pandemic projections.
This makes me confident that as the market leader and this will be able to continue to drive strong and profitable long term growth.
Our next speaker is Maria Shields.
As you May know Maria has been our CFO since 1998.
And for those of you counting of 90 quarterly earnings calls.
She has been instrumental in guiding assets on a remarkable journey from our initial public offering and 1996 two of status today as the simulation industry leader.
And it's very fitting that we have delivered record results in the last full quarter as CFO.
On March 1st she will transition into a new role of.
Senior Vice President of administration, where she will focus on company culture talent and technology to help us operate even greater efficiencies.
Full of board member and Nicole and of Phoenix will succeed Maria as CFO on March 1st.
With her experience and the tech sector as well of the knowledge of answers and Nicole has hit the ground running since joining answers fulltime in December.
In addition to the traditional CFO responsibilities and Nicole will direct and oversee our M&A function as well the emphasis digital transformation and.
Nicole the CFO and C of O M Square space. She was CFO of Infor and spent 17 years with IBM and various leadership positions and finance mergers and acquisitions and market development, including as CFO of IBM software middleware business and its cloud business.
Now I'll turn the call over to Maria to discuss our Q4, and 2020 financial and that's and Nicole to give details around the 'twenty and 'twenty, one outlook and assumptions for the year Maria.
Thank you Andre I truly appreciate the kind words and your ongoing support and partnership over the past four years and Hello, everyone and we're very pleased to report another strong quarter, resulting in record financial performance for both the quarter and the year.
I'll spend a few minutes walking through and overview of the Q4 financial highlights and then I'll turn the call over to Nicole and.
And quantitative color around our initial outlook and key assumptions for the first quarter and full year of 2021.
Before I get into the details of our financial highlights I would like to take a moment to say, thank you to the entire and 15.
And so on execution collaboration and the ongoing commitment to customer excellence enabled us to finish with both a record quarter and year across both operational and financial fronts.
Despite the many of uncertainty and disruptions that accompanied the COVID-19 pandemic.
We are also very excited about the closing of the Agi acquisition in early December and the POS the progress that the teams have made on integration activity.
We closed the quarter with total revenue of $628 million or constant currency growth of 24 per cent.
And operating margin and EPS results that were well above the high end of our Q4 guidance.
This is quite a testament to the strength and durability of the answers business model.
Take care of Lee when you consider the strong comparable of Q4 2019.
Let me also and it consistent with every quarter of this past year, our revenue results as we close out 'twenty and 'twenty or driven by solid sales execution.
Other key financial metrics for the quarter continued with 20% constant currency growth and H D. D to a total of 666 million of.
Of which 83% was from recurring sources.
This compares to 78% and last year's fourth quarter.
This is a new record for Q4 with respect to both total ACB and the percentage that is attributable to recurring sources.
Coupons revenue result reflects the continued trend and solid lease sales that we've been experiencing throughout 2020 with a record of 54% constant currency increase and lease license revenue.
And 2020 in the fourth quarter, we reported of returned to growth and the Paydown of software license line with 11% growth and constant currency.
This yielded 38% constant currency growth in our software license revenue.
The increase in lease license sales combined with high renewal rates and maintenance contract contributed to building, our deferred revenue and backlog to a Q4 total of $967 million.
And 11% increase over last year's comparable balance.
The strong top line result, combined with our continued focus on fiscal discipline helped to drive a fourth quarter gross margin of 92% and and operating margin of 52%, which finished well above the high end of our Q4 guidance.
With respect to taxes, our effective tax rate in Q4 was $19 five per cent in.
And with our expectations.
The net result, with fourth quarter EPS of $2.96, which also finished well above the high end of our guidance.
We also strengthened our cash and balance sheet position and the fourth quarter with cash flow from operations, the totaled 174 million and <unk>.
25 per cent increase over last year's fourth quarter.
Of course cash flow benefited from very strong receivables collection as well as the deferral of certain tax payments into 'twenty and 'twenty one.
This translated to a new record of $547 million for the full year.
We closed the year with the total of 913 million and cash and short term investments.
And the total debt balance of $798 million.
Let me just close by saying that we are extremely fortunate to have finished 'twenty and 'twenty with the best financial performance in our 50 year history.
These results are a testament to the resiliency of the yes, its business model and.
And to the tenacity and dedication and hard work of our employees customers and partners.
Now, let me turn the call over to Nicole who will continue with the topic of guidance the.
The call. Thank you Maria first I want to Echo Maria's, congratulations and gratitude to the entire Anthos team for such an amazing 'twenty and 'twenty together, we delivered stellar outcomes and the face of unprecedented business uncertainty. The one of the answers culture of teamwork and commitment to customer success that drove those results.
It's one of the many reasons I am so thrilled to join the team.
Looking into 'twenty and 'twenty, one I want to share some of the key dynamics, we have factored into our guidance.
Due to the continued uncertainty about the timing and impact of the norm returned to normal business operations post the pandemic. Our guidance range is continues to be wider than those we have historically provided pre pandemic.
We anticipate that the current environment will continue through the first half of the year and expect a recovery and the business environment. During the second half of the here with increased global economic stimulus and the global availability of vaccines.
We continue to believe the impact will have a disproportionate effect on our small and medium sized customers versus the larger customers throughout 2021.
We estimate trade restrictions between the U S and China have adversely impact our annual sales by approximately $25 million.
While the trade environment has been rapidly changing and May continue to do so under the new U S administration and our outlook factors in the existing trade restriction and dynamics that are in place today.
We are expecting to see a continued mix shift from perpetual licenses to lease licenses as customers continue to find the flexibility of lease licensing and operating on the cloud more appealing.
The reduced capital outlay associated with the leasing model and also more appealing to certain customers during the time of economic uncertainty.
Our blended renewal rate across maintenance and leases has historically been approximately 90% with the renewal rates on maintenance agreements being even higher.
The renewal rates have remained high with only a slight reduction as compared to our historical experience and our assumptions are that they will pick up slightly in 'twenty and 'twenty one towards historical levels.
We continue to adjust our spending to reflect our expectations for the pace at which economic recovery will occur while balancing the need to invest for the long term opportunity that we see ahead.
We have I mean, we have also maintained and intend to continue our commitment to invest and our acquired companies as well as the R&D and certain digital transformation projects as those projects are critical to our ability to operate efficiently and scale of the business for future growth.
We completed the acquisition of Adi on December 1st and that factor and the expected impact into guidance, which translates to approximately one negative points of margin.
We expect this dilutive impact to be the most pronounced in the first year post acquisition consistent with our past experiences and approach to integration.
And we look ahead to 10 and 21, we expect to see a very similar seasonal pattern as we've seen and prior year with a disproportionately large Q4, driven by customer planning and the yearend adding pattern.
In Q4, 'twenty and 'twenty, we saw an outsized shift and customer behavior and December relative to what has historically occurred there was a significant and unexpected acceleration and customer decisions to both purchase and pay.
And we exceeded the high end of our Q4, 'twenty and 'twenty guidance on E. C V by $26 million with 20% constant currency growth and full year, 'twenty and 'twenty cash flow guidance by $72 million and grew 9%.
Our strong finish leaves us optimistic and reinforces our belief that customers of you send the simulation is essential and will continue to invest and their own digital transformation.
Our full year 'twenty 'twenty, one guidance reflects an improvement in momentum in both the ACB and cash flow.
However, some of the impact of that momentum started in December of 'twenty, and 'twenty, which was seen any over achievement of both the high end of our guidance.
While this momentum is positive the dynamic also negatively affect 2021 growth comparison for key financial metrics. For example, the $26 million of over achievement and a C. D. Crazy two per cent headwind to 2021 of the ECB growth.
Although the environment remains fluid and we are still in the midst of the pandemic. We believes that if post COVID-19 economic recovery and the current trade environment and remains in line with our expectation our long term guidance of 2 billion, the ECB and 'twenty and 'twenty two is attainable.
Now, let me get into specifics.
Specifics of our guidance.
And full year 'twenty 'twenty, one we expect non-GAAP revenue in the range of $1 billion and $790 million to 1 billion and $875 million, which is growth of 6% to 11% or 3% to 8% and constant currency and E. P. S of $6 and 44 to $6 90 Tucson.
For Q1, 'twenty 'twenty, one we are projecting non-GAAP revenue in the range of $335 million to $360 million, which is 8% to 17% growth or 5% to 12% and constant currency and E. P. S of 73 to 90 cents.
Our outlook for full year 'twenty 'twenty, one is to maintain industry, leading operating margin, which we expect to be and the range of 40% to 41% and.
And Q1, 'twenty 'twenty, one operating margin in the range of 24 per cent and 27.5%.
The lower Q1, 'twenty 'twenty, one operating margin reflects the seasonal nature of our business with a relatively lower revenue contribution and the quarter similar to what we experienced in Q1 of last year with an operating margin below 30%.
Yeah.
For full year 'twenty 'twenty, one we expect E V and the range of 1 billion and 750 million to 1 billion and $825 million, which translates to 8% to 13% growth or 6% to 11% and constant currency.
As we mentioned earlier, we expect the ECB to be highly skewed towards the fourth quarter.
We are expecting to deliver full year operating cash flow in the range of 475 to 515 million and this is reflective of our current the view on full year, ACB and profitability and.
It considers the continued trend of request for extended payment terms negotiated and new contracts as well as the timing of certain early collections and deferred tax payments in 'twenty and 'twenty that collectively raise full year, 'twenty and 'twenty cash flow and lowered the full year 2021 outlook.
Additional details related to the cash flow guidance and specific impact the full year, 'twenty and 'twenty and 'twenty 'twenty, one or more fully provided and are prepared remarks document.
Further details around specific currency rates.
And other key quantitative and qualitative assumptions that have been factored into our outlook for Q1 and full year 'twenty 'twenty. One are also contained in the prepared remarks document.
And I'm, so proud of and thrilled to be part of the team who has delivered such outstanding result, despite so many macro headwinds and business disruptions during the time of personal hardship for many.
I am confident that with this team we will be able to continue to deliver on our strategy of pervasive simulation and help our customers achieve their innovation and sustainability goals of.
Operator, we are now ready to open the call for questions.
Yeah.
And ladies and gentlemen at this time, we are ready to begin the question and answer session. The app.
And I ask a question you May press Star and then one on your Touchtone telephone.
If you are using a speaker phone and we do ask you. Please pickup your handset before pressing the keys.
To withdraw your question you May press Star and two.
In order to give as many people as possible of the opportunity to ask questions. We do ask you. Please limit yourselves to one question and one follow up.
At this time, we will pause momentarily to assemble the roster.
Yeah.
And our first question today comes from Jackson Ader from Jpmorgan. Please go ahead with your question.
Great.
Thanks, Good morning, guys, and then and I guess, we should start off with Maria.
And felt congratulations on your 90th call and it.
And where we're sad to see you go from the CFO role, but glad that you're sticking around with the answers and and welcome to Nicole.
The first question, though is for Akshay and and your comments about the Tam growth pre and post pandemic.
And so can we just get a little bit more color is this.
Expectations for all of the different components of the Tam given the core of stimulation and then the growth opportunities and the Iot and electrification and others or where you.
And I'm talking specifically about just maybe one or two components of that total Tam mix.
Hey, Jack and thanks for the question so.
My comments very specifically in the script on Tam of one was around the increase and Tam as a result of the Agi acquisition.
Which we which we said of that which we said added about $800 million to our total addressable market.
The other comments about tailwind that I spoke of will more more harder to quantify.
I said of the script.
The the point about digital transformation is that we have seen we have seen cut.
Customers embraced the emulation more during the pandemic and certainly with the recognition of their engineers could work from home effectively away from corporate lab. That's also been another tailwind for the use of simulation. So we expect to see that continue certainly with the value proposition of simulation and being able to drive product and market faster and save.
And so that's the that's the tailwind and the second one that we that's why I pointed to was in certain areas. We've seen increased levels of investment now those are I, specifically called out telecommunications and consumer electronics.
And those are areas, which require multi physics simulation of analysis. So it really reflects on the multi physics and nature of our portfolio, which I think was the question did your brands asking.
But also the other interesting thing that we've noticed which I pointed to and the comment is in the area of eco friendly products and I'm not sure if its coincident or these of causality here with the pandemic, but with the <unk> in that area, we've seen and suddenly increased level of investment and weather.
The rigs electric vehicles, which we've identified and points of view before but also and other things like light weighting and eco friendly aircraft engines and others and so this this area continues to be also.
And area of increased growth and it's something that requires multi physics simulation. So that was the context of my comments Jack.
Okay, Okay, Great and then a quick follow up on on the $26 million of H C V upside.
Outside in the quarter was that comment Maria or Nicole was that you know the.
And this was a C V that was coming up for renewal, maybe in 'twenty and 'twenty, one and was pulled into 'twenty and 'twenty.
No. It was specifically just you know increments above what we had forecasted.
And there you know we we in addition to Inc.
Very solid sales execution, we did see yearend budget flush, which we didn't see and Q4 of 2019, but we did see that is here and I think some of it was just pent up demand from perhaps Q2, and Q3, where people were on the sidelines.
Okay usage the demand for and is Gladys continue to increase and we've seen usage increasing by by over 100 per cent between 2019 and 2020.
And and what's interesting and I think I mentioned this and the last call as well we've had customers who view the answers cloud and and reached a much more efficient solution and it will have on premises for example of Rockwell automation I think I mentioned of using answers cloud to accelerate its the product development process and they showed that they were able to reduce.
The simulation non times by about 50 per cent, which allowed obviously the engineer's to solve problems more accurately and the reason for that is because as of cloud and optimize for the answers for blood and we've done some work to make sure. The the the Azure infrastructure and which is run to the appropriate and we can take advantage of of the latest hardware and interconnect that address has available.
So so so absolutely answers clowdus the suddenly something that customers are taking advantage of during this time, we've made the majority of our flagships available on the answers cloud mechanical fluids electromagnetics et cetera.
Just talked about the scale out that we have available there and the on the script as well and things like new workload like optics Speos B R X. So.
So we're seeing we're seeing the usage across all of our physics, and we're obviously seeing great of usage and that couple of with the flexibility that we have which allows customers to bring their own license or bring their own hardware license. The software license. So just moving as fast world that that that hybrid flexibility that we can afford I think gift customer of the.
Low of options.
That being said, while we're excited about the cloud offering and we're very encouraged by the rapid progress I think it's important to note that the majority of our customers today you the answers of products on premises and their own data centers are and their own private clouds, and so answers cloud is obviously growing rapidly, but it's still a very small piece of a business today.
The and for the foreseeable future.
Got it got it thanks for the color of the RJ and then and then maybe also also and other work for Ya RJ just wondering if the if the chip shortly interest had any impact on the on the red hot business or potentially of changed the buying behavior of of any of your automotive or of consumer electronics customers.
No I think you are talking about the semiconductor the availability of manufacturing of semiconductor chips and the shortage of that I think that has that's the sort of of different cycle and the design side, we continue to see demand robust demand for our products.
Because the it continues to be robots demand and growth and be in both of them even.
Electronics, so so no no negative impact the total just the market tailwind for usage of those technologies and the fact is customer they're going to a more and more advanced process knows the investments that we've made and red Hawk and in particular and Red Hook is the is starting to pay off and and that obviously.
Translates into more demand for our technology.
Our next question comes from Rich Valera from Needham and company. Please go ahead with your question.
Thank you and let me and my congratulations to Maria of and a great run and your new role and welcomed and Nicole.
And with that and just wanted to ask about the age of pack business, where you've seen some pretty meaningful underperformance relative to the rest of the news as of now you said, it's any of the of this restriction did and Covid, but can't help but contrast that with the really strong demand that the the pure play EDTA companies are seeing and Asia kind of of <unk>, except.
And will strength, especially out of China, and I'm gonna thought that at least kind of the chip centric side of your business would be seeing that so just wondering if you can kind of push into that area and give us a little sense of what's going on under the covers.
Yes, and which one I would say is.
His performance. It also influence just like the other the average geography's relative to the timing of large deals and so if you take a look at 2019 and there were some larger deals and Asia Pacific The 12.
That drove some of the the.
That we enjoyed and 2019, we have you know like like many U S based off of our company we have sales.
The impact of the sanctions on our business and China, and and specifically China is one of those markets and it still.
Is is a perpetual market for us just because.
Uhm the timing of when they get access to money and then they tend to consume large quantities of licenses that will get the through to the next cycle. So I think the combination of of the the under performance and not only China do the sanctions, but we also.
<unk> underperforming and India. During during 2020 that also influenced what you saw and <unk> results and.
And I just pointed out of the China is less than five per cent of horrible business I think of something like 4%. So it's a relatively small piece of of business.
Overall.
Got it and then just as a follow up I know you've talked about the you've had some headwinds from COVID-19, particularly on the smaller customer side have have you had all tried to quantify that uhm, what the headwind was in 2020.
HM.
Now rich, we can't do anything with procedure and around that we just know that and and seeing the performance of the channel vs. The direct.
The enterprise and strategic customers.
<unk> were much more willing to continue to invest through the cycle and and and largely because they didn't have some of the liquidity issues that the the S. M b market that we saw.
Our next question comes from John Walsh from Credit Suisse. Please go ahead with your question.
Hi, good morning.
Good morning.
Alright, Thank you to Maria for all of the help with the ramp and welcome to Nicole as well.
You know maybe two questions here, if I may one on the op.
Hopper eating margin guidance expectations for next year, I think and the prepared script you called out some headwinds from the dilution for the acquisitions and I think that explains a good portion of maybe the delta vs consensus but.
Also wanted to understand maybe what you guys are doing in terms of you know S. G. N. A R. N D. I think he added 300 people to your sales and marketing. This year you know should we think that that kind of picks up as you.
Take advantage of this Tim in front of you.
Yeah sure. Thanks, Sean L. Yeah, and the Adi and we discussed and the remark contributed to of at a point impact and and it really accounts for a meaningful portion of the geared hearings and the cross uhm and the second half of last year, we onboard and about 300 people as hide and acquisitions and we ended up and about.
4800 people and 2021, and we continue to make target and investments and head count of react gonna continue to invest and grow we're confident and the long term.
And the long term outlook of the business and and they're gonna be more targeted and primarily and areas of of R&D and some degrees of sales and operational and rolls and.
And that's the corner digital transformation.
Our next question comes from the day, we can how're from Brooklyn Securities. Please go ahead with your question.
Thank you and good morning, Uhm I'll show you all the direct my two questions to you, but the first for Maria and all of a personal low that's with a fascinating quarter century.
So thank you for that welcome the Coke, So <unk> and the last call we touched on the subject of your availability of and development of what we call domain specific applications of industry solutions.
And perhaps the work you're doing with the B M W and the simulation tools shameful or the motive as an example of that and plus a T. I know of course. The question is how are you into the pay to the the rollout of her adoption of would you suggest it would be more and more industry solution. So how was that factory and into.
Your thinking on and result of the next couple of years and and belatedly over the last two of more years. The company has been depicting it's technology roadmap. Your your eighth long true technology dimensions, each of which is interesting, but perhaps you could talk about the progress you've made.
The on on those are more specifically, which of those eight or perhaps of priorities four of 2021 and beyond in terms of internal investments or how you think the might actually effect Prudential results. Thank you.
So so J. Thanks for the questions. There's a lot of there's a lot of we could go through and and and maybe in the interest of time and I'll just focus on a couple of things.
And when you think about when you think about our journey as of company. We've gone from providing point technologies back when we started like structure over the years, we brought together a comprehensive set of physics through a combination of acquisitions as well as organic development and now we have a full fledged set of physics that are integrate.
The together and it's this integration capability across all of these physics, that's profoundly important and we've continued to add to that with with materials technologies. For example, with with optimization capabilities et cetera, and that has led to the building up a platform and capability, which which is the <unk>.
The family important to be able to address and provide that agility to support different industry applications and because we have all of these multi physics capabilities integrated together and expose and the platform that makes it easier for our customers as well as our own eighth engineers to build industry specific or cuss.
And the specific solutions that that take advantage of the core capabilities that we provide as well as integrate with core components that might be available from outside of our own ecosystem. So that's been and that's been the direction that we're pursuing our technology is available both on the tennis, even and the cloud and I think we have a very robust and a very strong.
Technical underpinnings to be able to support and not only the more traditional use case, where you're dealing with the use of simulation of the tool, but also the use of simulation with it as part of and integrated platform to deliver of value added applications to <unk> to to to customers and you're seeing this and some of the announcements and we may.
And you you referenced one of them with respect and B M. W. We we made some announcements and the health care of space and others. We're <unk>. We're we're working with partners, who are able to provide application specific intelligence and wraps on top of thought simulations solutions because of the way the architect and our platforms and our capability.
Now with respect to the long term roadmap Uhm I would refer you and one of those key elements is the platform and and obviously, we just talked about platform a second ago. Another area that perhaps and might be interesting is a I M. M. L where we've talked about the use of the use of machine learning, we see that we.
Continue to make investments and a I M. L capability, because we really C. I M. L S a or fall of and all but support of technology. The simulation simulation makes a I M L better the insides from and I and I'll bet, her and AI and milk and support inside some simulation and you see this you see these technologies and techniques already being and court incorporated into of products.
And you see this for example, and a semiconductor portfolio and and you continue to see this integrated into the other aspects of our products whether it comes to usability, whether it comes to helping customers or helping engineers navigate the solution space and so forth and we can obviously go into more details, but and the interest of time, let's just leave of that.
The.
[noise] are and that's quite can come from God Monday from Bamber. Please go ahead with your question.
Good morning, and thank you for taking my questions Uhm first day I'd, just like to touch of little bits and this trend that you continue to see and and the larger deals and maybe J can you talk a little bit about the predictability of his bills and what you've learned over the last few years, especially in terms of the sales cycles or the pipeline and.
And you know it seems like.
The ability to be able to closest bills. During the pandemic definitely shows that there's an increase of activity. So maybe just a little bit of color of you know how does tastes like was maybe have a pulse of the last few years.
So account. Thanks. Thanks for the question Uhm. So your question is really Halloween and.
Integrating with some of these large of customer then how are we working with them. So if you recall when we went through the good and market transformation that we spoke off a couple of years ago.
And then we really started to accelerate and the and the last couple of years. It was around putting together a eighth of traditional customer pyramid, where we had enterprise customers at the top of the pyramid and enterprise customers were were deemed to be such not only because they had significant spending powers and.
And and had large and complex of problems to solve and therefore, we're spending a lot of money and R&D, but also because we had we had enterprise customers who were.
Who of being supported by specialize teams and so we would have we were able to.
Allocate to these enterprise customers dedicated accounts management, both of the technical side as well as the sales sites to help navigate through the account that process has been on the way for a few years when you when you and and so that gives us within some of these large customers that gives us a great relationship and a very good understanding of what's going on and we've been able to help edged.
Get the customers about the capabilities that answers can provide the.
That coupled with the the other comment I made about digital transformation. Clearly this is an important area for customers and and the digital transmission of the product lifecycle continues to be important the pandemic as I mentioned earlier accelerated that and and made it clear and manifest customers that they need to enable the engineer.
To be able to work from anywhere and that's obviously possible through the digital thread and simulation and some sense of the month of the purest digital representation of of products and so that was the best of seconds to the broad spread about the recognition that people can be effective engineers can be affected and taking advantage of of the technology from wherever I think the third and perhaps the most important is that.
Look at the end of the day simulation provide the tremendous value to customers. They are the the the we've talked about this for a long time. We said look we can help help you accelerate product of market. That's one area that drive stuff online revenue growth and we've also said we can help you save money. We can help you save money because you can't you don't have the bill for the.
Oh prototypes you can do the.
<unk> more with less and that also resonates with with customer, especially and tucked economic times. So when you put all of the stuff together, it's no wonder that we're seeing some large deals from customer and if this is not accidental. This has been plan and this has been multi yours and planning to make sure that we build these relationships to help them with the digital transformation and to <unk>.
The new to drive investments and the portfolio and to continue to show the value of the simulation goodbye.
Our next question comes from Joe for a link from birth. Please go ahead with your question.
Great Hi, everyone. The Maria Big Congratulations to you and my welcome the two Nicole.
Yeah I wanted to go back to just the comment and the discussion on Tam growing faster and you know.
This trend toward system level of engineering and it it's happening across many of your and market <unk>. It's a notable one.
Yeah, it's discussed how it compliments of the answers platform strategy I would've expected that some of these developments would have been on the long-term planning roadmap. So I guess the question is how or why are these developing differently such that now it seem.
To be actually exceeded and your expectation.
Well, firstly uhm with respect to our analysis of of the time and should go back to our Investor day from a couple of years ago 2019, and we do have a pretty comprehensive analysis of the time and where it is today and where it's going.
And we talked about and we talked about we talked about a number of areas. We talked about the core business, we talked about which was which is the historical use the simulation and the design and validation phase of of the product lifecycle, we talked about high growth solutions of like electric vehicles or electrification.
A ton of me I O T. Five G. And then we talked about simulation being use and non traditional use cases and things like predictive maintenance through digital twins, and so forth and.
And what we did when we presented when we presented that as we pointed out that they were the there was more predictability on the base case use cases of of simulation as it as of historically been but and so these longer term opportunities and particular simulation being used for example, and predictive maintenance and digital twins, we pointed out that there was a significant amount of variable.
<unk> debating of the range of of adoption of digital technologies, and we talked about how that was being affected by assumptions you make and by the pace and rate of of the appointment of off capabilities that may have historically not use simulation.
So that's the that's that's the way we were a couple of years ago. The observations of we've seen and independent and make as I said and my and my script.
<unk> have been very specifically on certain areas. The digital transformation comment is Israel customers of recognizing they need to spend more and they pay more attention to the digital transmission and we've talked a lot about this and the call already and so that we believe represents and aggregate tailwind and.
Asia and of activities that may have taken place already but those S and that's that's and acceleration and when you start to think about some of these other areas like electronics consumer electronic of consumer electronics telecommunications again, and the pandemic caused people to think more about what does it mean for the communications infrastructure, how do I interact with my.
The office, working remotely et cetera, and <unk> and you started to see that level of interest and the and markets, which is obviously translated into increased demand in the and the electronics and high tech vertical fraas, which translates across the the number of all products and.
And as I said in certain areas like like Green and it's not clear of that is directly related to the pandemic, but we continue to see increased focus on this baptist because of a broader range of recognition of the importance of ESG initiatives, maybe it's because of the pandemic the waste continuing to see more activities, there and again to the entire area of of.
Getting too and eco friendly set of products accelerates activities that might otherwise have taken longer come in and a little bit earlier. So I think the the poor recognition and the elements of the market. The main remain what we have talked about the question of timing and as I said also and the call. It's hard for us to quantify what the effects of these tailwind the bank to be.
So I'm going to be very clear of that we see this anecdotally, but it's hard we're not quantifying the effects of the tailwind at this point.
<unk>.
Our next question comes from Tyler Raki from City. Please go ahead with your question.
Hey, good morning, everyone and thanks for taking my question and and best wishes to to Maria and Nicole you know I think in the past the answers to his talked about how you know R&D budgets are one of the first budget to be restored out of the downturns and you know answers to the company typically sees kind of the inflection.
Uhm faster than maybe some of your peers and and the industrial space and I guess, you know with the strong queue for you put up you know 20 per cent constant currency organic a C V growth large deals budget flush it would appear that.
Certainly you're you're seeing some some strength here and and some might see might might argue you're seeing some of these budgets come back online, but when I look at your guide and <unk>. It it implies that a C V growth doesn't really get much better on on and organic basis next year. So I guess, what what's driving that are the are there certain.
And markets are G. O is that you're seeing caution or is it just conservatism I know, there's just yet but you know with that you know the CFO transition just try and understand uhm, what would drive such a <unk> relatively cautious outlook given the strong results you put up here and the quarter. Thank you.
Yeah. Thanks. Thanks. Thanks for your question. So let me, let me characterize the kind of some of the assumption and we put that we put in and pick items and I think the first thing I would point out is what Maria spoke about which is the significant over achievement of a C D and therefore revenue and the rest of the P&L and the corner itself and over of.
<unk> on the T V side alone is out of two point headwind to growth here and here and so what we're seeing really let me how and the fourth quarter. Please that's a lot of optimism that things you know.
<unk> that we get through the capitulation of the pandemic that things that there's a strong demand for simulation that customers are accelerating new digital transformation and that we are well positioned based on the investments we've made and the portfolio uhm over the past couple of years, because we've been investing three of the pandemic to come out of it with the position of strength.
And that we're gonna benefit from it and I think what we're expecting to see and with <unk> with baked into the guidance and that generally speaking the first half is going to continue to have its ups and downs really because of COVID-19 uncertainty and by the second half of the year, we expect to see more momentum and economic activity of things darker and up and government continue.
To do the right thing to part of economic development.
And so we we and visibility into the first corner into the full of your pipeline and the Guy that's really reflects the strength of of the pipeline and and like other years, it's we're expecting to see it more back and loaded from and ACB and of revenue perspective service by the timing of large multiyear the deals and customer of planning activities. So from our perspective and.
You know sitting here and February it's just a little difficult to predict such a significant level of of over achievement that we thought the fourth quarter hitting marmor at right now, but you know the situation. So they didn't will continue engaging with you throughout the year to update and athlete M. R.
Alright, and that correct and it comes from Matthew fonts and for a R. B C capital markets. Please go ahead with your question.
Yeah. Thanks <unk>. This is my plants not from the.
<unk> I'll just add on my congratulations Nicole welcome look forward to working with you a question for both of you I mean, just give them the strength of your your during this challenge and pandemic doesn't open up or change your philosophy and all around them and just thinking there might be some value and and some opportunities.
And as for some companies that maybe weren't able took care of as well throughout this here and and maybe from of technology talk and standpoint, maybe some patterns and I'll take care of of of your around the company, but might not be able to make it curious pandemic.
Yeah, so that what I say and look we always have and active pipeline M&A and we've got a team that's dedicated and we're always looking for things that compliment the portfolio and that online with our strategy of probation stimulation and.
Equally as important that align with our culture, we've been extremely successful and integrating these acquisitions over the past 20 plus years, because we look for companies that are like us that are dedicated to customer of excellence that are dedicated to two and dancing the.
<unk> and solving the world's most complicated problems and so we will absolutely continue to actively search for opportunities to add to the portfolio and to continue to maintain our leadership and this exciting space.
And then as you would like to this out and you know quick one for you could you just talk a little bit more about moxie, which was the amount last week and then kind of more broadly just I feel like in this environment of of especially those high R. O Y solutions might be really compelling to your customers could you just talk a little bit about how bad.
White and for the man process right now.
So.
So not moxie again, I don't Wanna get into details you are and must be the new capability of as being offered by by a G. I and essentially the image of engineers. It enables engineers to execute behavioral assist the amount of models and a virtual simulation of environment, such as the Jeep Itchy eyes Urticate toolkit.
And it's really to be able to analyze and validate the models to make sure that they can meet mission requirements. So we're very excited about the technology I think it it adds to its adds to our portfolio and and capabilities.
And we can certainly talk more about the technical details perhaps at a later point.
[noise] and ladies and gentlemen, with that we've reached the end of the a lot of time for today's question and answer session like kind of the conference call back or two I day for any closing remarks.
Thank you, operator, coupons and excellent quarter and of great ending to a strong 2020 and all thanks to of one S. S team around the world, we continue to demonstrate and the strength of the business as well as the deep customer relationships several of those customers and we'll discuss the use of as a simulation during our upcoming simulation world, which is on the <unk>.
20th the 21st of this year. This virtual event the largest of the sky and drew tens of thousands of customers prospects students press and of course investors last year. This year of stimulation more of will feature customer service is Johnson, and Johnson and H B E Ferrari crap and with me and Northrop Grumman you can register by attending simulation World Dot Com.
Thank you for sending today's call and I hope you enjoy the rest of the day.
Ladies and gentlemen, with that will conclude today's conference call. We do thank you for attending you may now disconnect your lines.