Q1 2021 ANSYS Inc Earnings Call

It could have officer, Nikolaj, Nastiness, Chief Financial Officer, and senior Vice President of Finance and accounting to Orion, Vice President of Investor and government relations on.

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At this time I would like to turn the conference over to Mr. Brian for opening remarks. Please go ahead.

Yeah.

Good morning, everyone. Our earnings release, the related prepared remarks document and the link to our first quarter form 10-Q have all been posted on the homepage other investor Relations website. They contain the key financial information and supporting data relative to our first.

Quarter financial results and business update as well as our Q2 and updated fiscal year 2021 outlook and the key underlying quantitative and qualitative assumptions.

Hi, Jay.

Thank you Chelsea and welcome to the answers.

And thanks for everyone for joining us this morning.

I'm excited to report that Q1 with an excellent quarter for answers, where we did our financial guidance for revenue operating margin and EPS.

I'm also pleased that we are ahead of our internal plan for a C D.

This is significant because as I explained on our previous call eight C. V is heavily loaded towards the back end of the year. Following the pattern of the past several years.

And we are seeing the continued strengthening of the pipeline of answers customer activities across all major geography.

The strong Q1 and are growing sales pipeline.

Coupled with our excellent queue for last year gives.

It gives us increased confidence in the momentum of our business and in our ability to execute against our goals.

As a result, we are increasing our annual guidance for a C D revenue EPS and operating cash flow.

We expect to see annual a C V growth for example to increased by over one percentage point in constant currency at the midpoint of on your guidance range.

Nicole will provide more detailed and just a few minutes.

Eight Q1, we were pleased to see that small and medium sized customers, who had slowed their purchasing decisions during the pandemic.

Showed stronger than expected sales growth across geographies and industries.

Large customer behavior, what is anticipated.

From an industry perspective on.

Traditionally strong sectors of high tech in semiconductor.

Aerospace and defense.

An automotive on ground transportation continued to be our largest contributors.

Our largest zealand the quarter was a five year multibillion dollar agreement with a large north American automotive OEM.

This longtime customer is realizing savings by using entered simulation for its strategic warranty cost control initiative.

The manufacturer at all for using answered simulation to identify the sources of electromagnetic noise to prevent interference in wireless communications.

This new contract deepens and expand the customers you for the answer solutions for wireless communications.

Tommy explicit dynamics materials intelligence and electrification.

We are reducing the need for physical prototypes.

<unk> achieved its goal of creating a battery that will run for 400 miles on a single charge, while providing enough power to propel the car from zero to 60 miles per hour in two five seconds.

And the process the company address key customer needs solve difficult engineering problems and brought a world class vehicles in market in a fraction of the time required by conventional approaches.

Electrification of course is not limited to ground vehicles stimulation lead breakthrough in battery technologies are powering all electric aircraft.

During simulation World. We also heard from air rates E, which is sponsoring a series of international racing competitions for electric aircraft.

Eric E teams are using <unk> simulation to develop batteries for deliver more power with less weight.

And designing electric powertrains that overcome difficult thermal and high voltage challenges.

The lessons learned from these races could advance the development and adoption of electrification for commercial aircraft.

Nokia discuss its use of ensigns, hff's debt and our electromagnetic solutions to investigate and optimize material properties and the performance of phased antenna arrays.

Driving a few change in product development.

We also heard how answers a synopsis of bringing their integrated capabilities to cover a variety of multi physics domain like power timing reliability and thermal simulation to maximize the speed and density achievable in advance multi die system, while ensuring robust reliability.

Turning to E S G.

Answers recently published on annual corporate responsibility report, which highlights progress across our environmental social and governance initiatives.

On the answers Dot Com you can view the report and learn more about how those pillars are driving long term growth for a stakeholder through responsible and sustainable business activities.

I'm also proud of fast company is named answers to its list of the world's most innovative companies.

And for his joined the prestigious list of organizations, including Microsoft space ex Sony on Honeywell.

Fast company is also recognized a digital twin of the human heart as one if it's 2021 world changing ideas.

To summarize.

Q1, with another great quarter for answers.

Bolting and I was beating our guidance for revenue operating margin and EPS the.

The energy and enthusiasm theme during simulation world and the strength of our customer pipeline gives me even more confidence in the important for simulation and the effectiveness of all pervasive simulation strategy.

And in our ability to meet a newly increase outlook for 2021.

And with that I'll turn on the call over for Nicole Nicole.

Thank you I say good morning, everyone.

Let me take a few minutes to add some additional perspective on our first quarter financial performance and provide color around our outlook and assumptions for Q2 and 2021.

Are strong Q1 results reflect outstanding execution across our business. The T. L day revenue operating margin and E. P. S. All above Archie one guidance.

As I mentioned in Q1 on large customer behavior was as expected and we were encouraged to see more momentum with our small and medium sized customers.

We are increasingly optimistic about SNB customer behavior for the full year based on the new deal activity. We saw on queue, one which was broad based across industries and geography.

Now, let me discuss some of our queue one financial highlights.

Two one a T V with 319.4 million angry six per cent or three per cent in constant currency with strong performance from the channel and 78 per cent of a C V coming from recurring sources.

On finishing two one we are initiating guidance for Q2 and increasing our a C V revenue E. P S and operating cash flow outlook for the full year.

This increase reflects the strong financial performance in the first quarter and our pipeline, while being mindful of regional uncertainties and it continuously evolving global pandemic environment.

Let me also add that these increases the guidance occurred despite increase headwinds from currency exchange rates since initiating our fill your guidance in February.

For the second quarter, we expect non-GAAP revenue in the range of 415 million to for 145 million and non cap EPS in the range of one dollar forty-three to $1.67.

As I mentioned for the full year, we are raising our a C V revenue EPS and operating cash flow outlook.

We are increasing our full your a C V outlook range to 1.760 billion to 1.825 billion.

It's for presents growth of 9% to 13% or seven to 11 per cent in constant currency day.

The increase to pull your a C V reflects our qulin performance with exceeded our expectations and increased confidence and a full your pipeline all set by approximately 14 million a foreign exchange headwind.

As a result operationally we are raising the midpoint of our a C. D guidance by 19 million, which translates to an increase of over one point of constant currency growth compared to our February guidance.

As a reminder.

Binder. It is best to look at full your a C V growth at quarters can be variable mishear quarterly ACB growth rates will vary based on how the pandemic impacted quarterly sales in 2020.

Overall, we expect first half in second half a C V growth rates to be roughly similar to each other.

Consistent with prior years, the dollar value of a C V will be highly skewed towards the second half of the year.

We expect non-GAAP revenue to be in the range of 1.810 billion to 1.875 billion, which is growth of 7% to 11% or five to nine per cent in constant currency.

Similar to our a C V guidance. This increase reflects our strong Q1 revenue performance offset by approximately 14 million a foreign exchange headwinds.

As a result operationally we are raising the midpoint of our revenue guidance by 24 million, which translates to a constant current sequels of 1.5 points higher than the mid point of her February guidance.

As you know a S C. Six O six introduces revenue growth volatility within the quarters. However, on a full year basis revenue as a variable.

We expect for revenue growth to be higher than the first half versus the second half based on the mix of license types in our Python.

Consistent with prior years, we expect the fourth quarter to be our largest revenue quarter in absolute dollars.

We are increasing our full your EPS outlook and now expect EPS to be in the range of $6.69 two $7.10.

This increase incorporate are strong Q1 performance and a favorable 14th sent gain on an investment that we expect to recorded other income in the second quarter.

And is offset by approximately six cents a foreign exchange headwind.

It is worth noting that some of our strong Q1, EPS performance, which driven by the timing of expenses that will occur in the remainder of for a year as we redeploy spending to focused areas of investment.

Now, let me turn to our fill your operating cash flow guidance, we are increasing our 20th 21 outlook to a range of 480 million to 520 million pets.

This increase relates to the payments, we are no longer expecting to make offset by approximately $5 million a foreign exchange husband we.

We were pleased with our strong start to the year in operating cash flow, but as a reminder, we would expect cash flow to be skewed towards the fourth quarter based on the timing of large deals and whether they close near the beginning or the end of the quarter.

For modeling purposes were expecting second quarter operating margin of 30 for five to 38 per cent and for the full year. We continue to expect operating margin of 40% to 41%.

Further details around specific currency rate and other assumptions that had been factored into our outlook for Q2 and fiscal year 21.

Are contained in the prepared remarks documents.

I would like to thank the answers team for their exceptional execution during the quarter, which drove are strong Q1 financial and operational results are incredible technology talent and deep customer relationships drives our optimism in the long term outlook for Anthos.

Our focus on execution and investing in the business combined with the strength of a recurring business and growing sales pipeline provide a strong foundation to deliver on our 2021 goals as well as their longer term financial target.

Operator, who will now open the phone line to take questions.

Yes. Thank you.

Oh man at this time, we'd all ready to be on the question on answer session.

[noise] for question you ready for a stars on while I'm on your telephone keypad.

Speaker phone cause like I was gonna have that before frustrating she's.

For trying a question please.

I don't have too much cash for the opportunity to ask questions. We have to use them yourselves on one question on one follow up at this time, we will pass momentarily Osama on the roster.

[laughter].

And the first question cost for gum on door with that number.

Good morning, and thank you for taking my questions. The first one it was just like to double click below both maybe on the net or if you have for a T V growth that you're expecting for the year. Obviously that you have for your for your confidence in the rest of the your country 092 million midpoint, what can ya.

Just talk a little bit about holiday sales might come through on it you know it for you. If you have significant large bills from a pipeline that <unk> that could've talked about and that's what I was it gives you the most of the comforter.

Sure Uhm. So thanks for the question Gal, Yeah, we were really really pleased with our queue on performance.

And and especially the green shoots that we started to see for me F&B segment, which was part of why we.

<unk> led to a raise as you noted the $19 million Raisin guidance.

So I would say I would characterize our outlook to be consistent with what we saw on queue on which was that large deal performance came in and enterprises came in as we expected them to behave.

And we have some some more growing optimism around the kind of improvement in the patterns of the smaller customer said, which as you recall what was the customer said that we were a little bit more cautious about coming into the air and so I do the shape of the things that.

Came out in Q1 are are similar things that affect our outlook for the full year.

It's really helpful. Thank you and then maybe the second question a little bit more strategic thinking you know you guys have been fairly a fairly successful and allocating carpets over the last couple of years really consolidated from the book some of the market.

You're referring to really strong cash position to go on balance with a strong how are you thinking about it for two days I send this page from the balance on your storm physician.

Multiple gonna stick with all of it drove up adult as to potentially the little bit works with us organic growth with from opportunistic I'm gonna.

Yeah, I mean, so what I would say is that R capital allocation strategy hasn't changed and as you point out our our greatest return typically comes from investing in the business and acquiring best in class simulation technology in support of our clients and the digital transformation cut there that there undertaking so M&A is preferred but.

We are selective and so as a result share repurchases endeavor payments or other areas that we've deployed cash and will continue to do so.

What's really helpful. Thank you I appreciate it and have a good day.

Thank you on the next question comes from J for the shower with Griffin Securities.

Alright. Thank you for the morning, two questions Uhm first the company has previously said that your customer concentration that is on on your top 100 or so customers.

I was evolved from their account for your for roughly a third of your business to closer to though.

A half of your business kind of a question. There is how has that affected or like how am I to continue to work book Yoga internal investments resource requirements pipeline force for your ability any of those sorts of metrics pursuant to the all your customer concentration and then secondly.

There are a number of external and internal technology Cuddled is coming up some of which were mentioned of simulation world. A couple of weeks ago. For instance, you have a new upcoming cancerous rockwell's integration coming up you have additional solvers for answers cloud coming up over this.

I'm working with you are true really show clips from additional hardcore Kelly configurations, Microsoft is gonna be previewing manufacturing cloud and then lastly materials moving soon it's going to be expanded I think I'm more into the clued care of yourself, what's going on in the technology Python, maybe you could talk about a whole new all of those for factored into your thinking.

Yeah, So J, maybe I'll take the first question I'm going to have RJ take the second question. So have you point out our strategy of pervasive simulation is playing out in the market and more and more customers are making larger and larger investment in in there and I think that that that speaks to the strength of the.

Strategy and the strength of the portfolio that customers are kind of going in going in all in on the answers to help them accelerate product development, what I would say about the overall level of investment I would say, it's consistent with the strategy that we've had to be able to allow customers to Ah.

Oh wait.

To to leverage our technology, using multi multi physics solutions and so that benefits are large customers of course, but it benefits all customers and I think that the momentum that we saw an S. M. B as an example is.

Is just one one kind of proof point that would indicate that it's a <unk>.

His brother, so so it's not as though we have you know.

Set of products and a set of investments that are for only large customers and only small customers. Those investments get you know really diversified across the customer base.

And so it's really about the personalization of selling motion and how we engage with customers, which is <unk>, which has been pretty consistent across the past couple of years. So I don't I don't see anything that's any meaningfully different and that would be any meaningfully different from an investment standpoint.

And and J. Thanks for the question can you just to quickly jumped into for <unk>.

When you think about when you think about smaller versus larger customers. We have over a thousand customers is going to be on to start a program and these these companies tend to be some of the most.

For the companies on the use of simulation and they push the envelope oftentimes because they approach the problem with no preconceived notions of how to build a solution and then on a physician to take advantage of the best technologies on the best solutions in the market and of course, they tend to animals and so we have we are seeing the technologies that we're building in and develop.

Being being use across the board by by large companies as well as small companies on you alluded when you mentioned the several abuse technology.

I think it's fair to say that the strategy that we laid out a few days ago for based on simulation is working and if you recall what he said, they're the time well, we will go to diversify or phone I'll focus from just focusing on the high on analyst towards a broader set of individuals. So on the border engineering population. So that we can address the needs of engineers.

Is across the entire policy about the lifecycle and you you talked about all our relationship with work well. That's a great example, where we're trying to.

With digital twin technologies, we can go after operations engineers and so on so they were very different it's a very different approach them for you may have had five or seven years ago. So much broader approach and as you see b the technical.

These are we have developed the acquisitions that we've made has all been in support of the core of the business.

As well as the diversification towards a pervasive simulation strategy and benefits book large companies as well as small company.

Okay.

Thank you.

The next question comes from Angela over on with Bank of America.

Good morning.

Good morning, good morning.

You you mentioned that you know there was some sort of hiring.

Blocks on the quarter, what do you think about those sort of the broader job market. How do you think about your ability to hire people other potential getting factor in 2021 as the economy continues to recover.

Yeah. So thanks, so much for your question for in February we spoke about more modest expectations for hiring in 2021, particularly in the first half so.

On the second half of last year, we brought on about 300, new hires plus we acquired Adi and our focus employee experience is a very high priority for us on the answers.

And given all of those people that we brought on board are focused in the least in the first half of the year is really primarily to ensure all of them are properly on board it'd feeling engaged N. As all of US now, it's a little bit more challenging to do that during these times of COVID-19, where we can't see each other.

So to day or a bit behind their objective, but that objected with a bit more modest and so overall, we consider ourselves really on track and we would expect to close the gap throughout the year.

More of a matter of our own intentionality around our our customer experience and and you know the.

The competitiveness in the market and your ability to try to attract talent has not changed.

Furniture.

If I could just ask for that I mean, one of those things, where we pride ourselves for is R.

[noise] cultural with an answer if we see our employee engagement scores continue to go up into the right, which I think is really really important we'd want from employer of choice Awards, which I think is important as well so all of that points to a great cultural within the company and give them the technology and given the capability that we provide frankly up for.

For a number of students graduating from engineering school.

What we do and what technologies that we provide represents represents their character your objectives. They want to work on answers. What we do is essentially what they've been training for as they've been getting their bachelor's degrees of the maximum degree for even with the issues and so we have that capability to attract I think Ah top quality talent into the organization.

Both from University of as well as from as well as people were working at other organization. So I'm very pleased about our ability to create that pipeline and and also a on the culture that we've been able to build a that for ya.

Oh. Thank you I'm just a follow up question for me the semiconductor industry is clearly for one of your areas of expertise on Dominoes and you know we have several high profile announcements on semiconductor topics are shifting to the your wife's how much was the ability to do have on your penetration here and how should.

We're thinking about sort of longer term opportunity for answers incremental growth capex start showing up in North America furniture.

Well the way you should think about our technology is really helping our customers primarily with the design of their of their products, whether it's semiconductors or frankly with with any product I think it'd be working with.

And as soon as you start to look at investment for example, and other geographies for example in the U S.

Across the board, whether it's in semiconductors or elsewhere.

And you start to look at the the increase in capacity that translates into the need for more simulation and that translates into the need for more answers and because of the breadth of the portfolio because we have the ability to support multi physics simulations I think we can fix it from a very very very good position. If you look at all capabilities for advanced profit notes for semiconductors.

If you look on the <unk> abilities capabilities that we have for three D. I see that's where that's where as I said the multi for six portfolio that we have a really shines and so we are in a position to support our customers as they as they evolve their their plans and their design capability.

Thank you very much.

Thank you and the next question comes on draw rough with credit Suisse.

Good morning, everyone.

Morning.

Maybe on a first question just thinking about it and appreciate the color you provided thinking first half the second half.

Just wanted to understand maybe the margin driver dynamics, a little bit more maybe particularly around either the SG&A line.

And then just a follow up to that great discussion earlier on the small and medium businesses was just curious if that's you know kind of the economy coming back or did you also have some targeted sales initiatives into those customers. Thank you.

Yeah. So thanks for your question.

How I would think about margin overall is is.

Is it is it related to the skew the business. So as we've communicated in the past you know revenue is more highly skewed towards the fourth quarter and second half overall first quarter tends to be kind.

Kind of the the the smallest revenue generation quarter, just based on the pattern of our customers purchases.

N behavior with that said our overall business is the cost structure associated with our business is largely people, which is not variable and so the margin.

Profile if he go throughout the year is going to be much more elevated in the back half of the year and much more muted in the first half of the year and so that's a normal pattern. We thought we see it sudden <unk> we've seen it in Pryor in prior years, and so we would expect that pattern overall Catholicism.

And then and then with respect to the comments above the small and medium business.

If you recall last year, when we when we talked about the impact of the pandemic, we pointed out that small and medium business was likely to be disproportionately affected day typically don't have the financial resources that larger organizations do.

Therefore, I have to be a little bit more conservative with cash.

Obviously now we're in a situation where.

There is there is.

There is vaccine rollout.

And Paul for the World, Obviously, we have tragic situations and parts of the globe like for example, the situation in India.

But at the same time, we have we have a broad day.

Perception that they're going to be recovery around the world and that translates into the into the economy coming back. So we see we certainly see that in general across the space and day F&B is no no exception in many cases, the smaller customers are seeing the need to catch up with activities with any other missed out on and so there's.

Perhaps an even greater emphasis on trying to drive some of this work the other points. The other point here is that.

We have global channel partners, and our channel partners oftentimes manage the relationships with the small and medium businesses and so we have we have.

Many many on on the legs and the street working or would be smaller companies to help them get from stage, where they can get back in and get back into the.

And to the mainland other operations and so so we are able to elaborate on global channel Channel network to also help us about being able to reach the small and medium business customers.

Great. Thank you.

Thank you and the next question on comes from Tyra, Rod Kansas City.

Hey, Thanks, very much first question for maybe for you as a obviously.

And then of course with respect to autonomy that continues to be an area of of ongoing interest and and you see suddenly a lot of customers participating in that space I would argue that would be the the market expectations of when we will have fully autonomous vehicles on the on the market has been pushed back.

Because I think people are coming to terms with the complexity involved in creating a fully autonomous car on public streets, and so that's being pushed back but if you. If you look at the the work that we've been doing we announced isn't partnership with B M. W back in 2019 and over the last.

Couple of years, almost we've had tremendous amount of positive customer feedback supporting our efforts.

Last year, we announced a partnership with for.

That that's focused on hazard detection capabilities for autonomous driving with we've.

Partnered with within video we've talked to talk with you and video conferences, where we've talked about our advanced radar capabilities. We've done some work with Bella die on on their Lidar design. So it's we have a comprehensive set of capabilities in a partnership strategy with autonomy. Most recently you may have seen we announced a partnership of natural instruments, which was another important.

Partner Who's taking a where we can work with our physics censors. So we've got a partnership strategy with autonomy, which allows us to address the breath and the complexity of that market as it develops itself. So I'm very excited about the both of those market. They represent tailwind and frankly, we were early to invest in that space. Because we saw those we saw both electrification that's on them you as being important.

I think our investments have been validated.

Great great. Thanks for the color and and just a quick follow up maybe for Nicole on.

You you talked about for the Snb's segment, improving which which is which is good to see but in in terms of impacted industries are impacted verticals kind of where are we in terms of those improvements you know.

Did you kind of see those perform above expectations in Q1, and just maybe help us understand when do you expect us to normalize.

Yeah, So when I would say about the F&B segment in particular is that it was broad base. It with cross Geography's industry and said that was not industry specific overall industry performance was in line with the expectations, we had coming into the quarter.

And you know any any volatility in any given industry and a quarter, it's usually due to the timing of large deals or the timing.

Of renewals and so the basket very so overall.

Performance of the business and at the entirety and a quarter was really in line with our expectations around large customers and as we had mentioned what really exceeded our expectations on what was encouraging was just abroad.

Kind of level of improvement that we saw in SNB overall.

Thank you.

Thank you and the next question comes from dry runic for Firebird.

Oh, great I, everyone, just a stick on the D. S. M. B performance on the corner I I think at one point last year.

Had to revise your top line plans by about $80 million and you said about two thirds of that related to S. M. B accounts I'm just wondering how much of that two thirds of 80 million that is may be expected to know actually come back over the course of 2021.

And then second question more on just the midterm performance of SNB customers you know.

I'd say the the thousand customers that have gone through the answers startup program, what's been the experience of graduating on to kind of the the upper tiers of the other go to market period, and and do you have any changes in ambition for us on be within kind of a mid term horizon.

So let me address for a second part of the question for US as we think about B S. M. B a program that we have on the startup program that we have so the answer to start a program is really targeting companies that are very very early in their lifecycle. They may be pre revenue. They may have a very small amounts of revenue and we were.

Work with them as they continue to develop their capabilities and as I said in many cases continue to push the envelope for for simulation of what's possible.

If I mentioned that simulation world.

Where we had a number of companies speak you certainly heard from I mentioned lucid notice that was an example of accompanying a startup program relativity. You you may have heard me speak about them as well.

Their business model is is lula for that as a as a service that they're using added are additive solutions on our our sweet of technologies to be able to create to be able to create satellites and launch vehicles for a lower for that so so very they're a it's a very exciting group of <unk>.

<unk>, obviously small and medium business is not only related to the startup program, we have others as well.

You are just smaller companies who participate in that program our expectation for the startup program is that they continue to participate in a day participate as part of members of the startup program and once they're revenue reaches a certain level. They then graduate if you're well into be into being mainline answers customers and.

And we've seen obviously as I mentioned success I mentioned, a couple of anecdotes I don't have the statistics in front of me, but we certainly can give you more information.

On that later, yeah, so and on your on your question about overall performance for the corner.

We were really encouraged by what we saw and it I would characterize that day at the beginning of a return to normalize patterns. This particular segment was very quick to set things off when the pandemic hit and they're going to be slower to return to normal as a result, they're just not as well capitalized as large companies. There are some more subject to any <unk>.

<unk> that continues to be in.

In the market.

The COVID-19 pandemic kind of get out of the pandemic and so I would say our outlook includes a portion of that coming back.

And it's really centered around we.

We tried to be transparent about what we see right now what we see in front of us as opposed to speculate on how behavior can change and so.

That's kind of how we thought about the recovery in the context of our outlook.

Very helpful. Thank you.

Thank you for the next question comes from Adam broke with Stifel.

Hey, guys and thanks, so much for taking the questions. Maybe just two quick ones first of all day just on the competitive landscape, obviously, you've seen a lot of success, but some of your competitive are talking more about getting deeper into simulation markets I looked at.

Little bit on any kind of competitive.

You're saying there and then maybe just as a quick ball follow up for Nicole more of a housekeeping could you just help remind us what the inorganic contribution was in the quarter for for revenue in a C V and what the expectations are for the 21 got thanks so much.

Yeah, So I think I think.

This is a unique company and.

We are.

Would argue unequalled in the marketplace in terms of our expertise in physics based simulation, we've got deep and lasting customer relationships.

And frankly, that's allowed us to drive.

Innovation across the portfolio and.

And it allows us to create a very efficient and sustainable business model and a very deep competitive mode.

And and that strength of the business model, it's no wonder that competitors Wanna try to enter the space because they see this as being an attractive model, perhaps more attractive than the market's on which they participate on.

And over the years, we've seen competitive tried to enter the space with the point solution that too.

And then in the meantime, we've continued to expand our physics, we've achieved integrated multi physics at scale I mean, some of our most.

Some of our solution scale up to 200000 course for example, and I'll see if these space and that's just an enormous capability for our customers and we continued to deepen and broaden our understanding of customer pinpoints. We've added a new techniques to be able to solve them. We've we and you see these advancements taking place across our entire for for.

Yeah. So I'm very excited about a portfolio I think we're laser focused on customer success. We have a strategy that we're executing this is the right strategy for us by being able to broaden and deepen on capabilities in physics, we continue to support our customers from small to large across a number of different industries.

And and I think that puts us in a very very good position competitively and frankly.

You know if for any.

A smaller company gets acquired by another company is fundamentally doesn't make any difference in our competitive dynamic as we see the market.

Yeah, and Adam just to answer your question quickly on an organic contribution or guidance hasn't changed from what we gave in February which was then 75 to 85 million contribution of Hei is consistent with with our outlook overall, the acquisitions going while on were checking on against that.

Great. Thanks, so much.

Thank you and the next question on comes from Jackson, NATO with J P. Morgan.

Greg morning on.

Question on a free on the on come on near term in the automotive space you know I appreciate that the blood just stay on the quarter came from an auto William.

We just think about maybe.

Any potential for.

Delays are spending patterns changing from the automotive sector, just would be sure range that right here in front of us for the next few few quarters.

Oh, Yeah I can let you have you know our technology is tied to R&D initiatives, we're not tied to manufacturing or to a number of units that are being produced and so what we are seeing is an ongoing.

Continued interest in our customers to produce.

Newer and better technology as I've mentioned I'm gonna talked about at some length about electrification I talked about autonomy.

The beef have implications on only for the Oems book through the entire supply chain. The challenges is just getting electric cars to market as I said a quite significant.

And and again, that's why I asked this comes in so in the in the in the design activity in the R&D initiatives, that's where the continues to be significant levels of investment.

And as I said, we're not tied to the number of units being produced and so any any shortage or challenge in being able to produce cars.

Affect us from an economic perspective.

And then switching over to another industry I'm just curious to hear.

You know what you are seeing in the commercial aerospace customer base on whether <unk>.

Just moments and budgets are growing and accompanying.

The growing vaccine right.

Well as as we as we talked about last year and I think I gave him a couple of other previous earnings calls I talked a little bit about some of the activity that we have in the in the commercial aerospace segment in in particular I talked about engine manufacturers and how we are working close.

Who lived on some of the challenges that they have a great day.

Billing with is quite significant when you think about on aircraft engine. It is a really sophisticated component. It is a sophisticated machine.

And the tolerances are remarkably small and so it requires the use of multi physics simulation, it's a combination of fluids of structures.

A formal all of those things come together to be able to solve these problems and of course, our customers are now struggling with not just the traditional use cases, but the next generation use cases for example, with eco friendly and Green initiatives. There is a significant amount of pressure on the commercial aerospace world to be able to come up with more efficient.

More efficient aircraft design I talked on the script about electric aircraft, but that's still some some time away and so suddenly suddenly that's a threat trend in the industry, but but if a book getting to be a lighter weights fuel efficient eco friendly engines continues to be an issue.

What's important to realize is that aircraft programs engine programs. For example, the aircraft programs in general on multiyear initiatives. These are not things that change on a quarter by quarter basis. So these on multiyear initiatives with significant amounts of R&D that stretches over a long period of time.

And obviously, we are engaged with our customers and working with them to help them be successful.

Alright, thank you.

Thank you and then ask a question on constantly kind of wrong with cause I'm moving on great.

Great. Thanks for taking my question.

For the first the first one for you.

For it was about two per cent of your birthday is coming from construction.

It's not it's not obvious that you guys might benefit meaningfully from our infrastructure Bill are there other aspects of your business [laughter], yeah that that.

Potentially see some sort of an uplift and then for the current just wondering in terms of a rebound in discretionary spend it might've been suppressed during the pandemic.

With five was in the bag now any change to how you're thinking about the pace or a magnitude of that the the recovery spend.

Well, let let me just take the first question I think it's important to realize that when we're talking about infrastructure investment.

Certainly, we see the opportunity with with heavy industries construction equipment.

Manufacturing, so there's a day or a number of industries for which we have.

We have strong exposure, which we think will benefit from investment in infrastructure.

And and you're you're right of course about construction in an off itself, but but it goes it goes significantly beyond that and then even in the context of construction as you start to look at next generation techniques like digital twins in physics day, physical twins, we have technology and capability that would be relevant. So we are very excited about the infrastructure investments on infrastructure.

We think that will benefit us and.

And certainly the customers, whom we serve.

Yeah and on your on discretionary question well the vast majority of on place are still working in a remote setting today and we expect that's going on that that the return to work, it's going to be really market dependent and it's we're really focused on providing alternative to on planes, which insurance are engaged in feeling secure about returning to work and so from an on.

[noise] standpoint, we've considered an incremental investments to share insured safe return to work, although we consider that it's probably going to be flow travel is is the one specific on known to everyone and what we would expect isn't it would ramp more on the second half as markets become more open, but whether or not people continue to feel comfortable.

[noise] traveling during that time for them or not.

Needs to be seen because we're not for aren't there enough along the recovery.

Got it thanks for I'd say a text book.

Thank you and then ask a question on comes on.

Dark clothes.

Okay, Great Hey, guys. Thanks for taking my questions here.

Nicole maybe maybe first for you thanks for that tidbit on on the inorganic contribution to a C. V. You know just maybe given the the changing sort of FX backdrop, and what sounds like certainly improved organic growth.

I guess the question is how do you kind of think about organic constant currency growth in a C V for for this year just to sort of level set broad-brush.

Does that make sense.

Yeah, I mean, well, how I I I would think about it and attack and from the perspective of how we how we share D. Adi contributions on the Adi contribution being 75 to 85 million is kind of how we think about DNR panic portion of it.

Oh right, but then also sort of the changing the FX I know I know that there's an incremental 14 million effects headwind versus versus the the guy that he gave last but on a year over year basis, how how does that sort of FX part of it kind of play into it as well.

Yeah, so the year to year impact.

To your impact overall.

Let's let's go back to the to the overall guidance. So overall guidance we've raised.

Constant currency growth by you know a point.

Little bit over a point at the midpoint, a little bit higher on the line for eight and so how I would think about that range is pretty consistent with the organic momentum into business given that our guidance around the inorganic component is for me anything.

Okay got it on it and then maybe the follow up is.

Kind of given given what you're you're you're seeing from the SMB base and and just broader kind of recovery.

Was it.

It was it was nice to feed perpetual actually kind.

Kind of get back to maybe some some more normalize levels that we've seen in the past.

You've called it a pack. So maybe the question is is this perpetual performance maybe isolated for that region in for this quarter or do you sort of see perpetual kind of maybe starting to get back to sort of pre pandemic levels.

Yeah. So I mean that the there was there you know the Asia Pacific region that has a disproportionate percentage of customers who prefer the perpetual model and that was you know stronger per farmer in the quarter.

And so there's a relationship between those two things overall, we feel that the long that over the long term there will be a continued check towards the leasing model customers have very dynamic development R&D needs and and projects change and needs changed over time into the leasing model provides customers with the level of flexibility to be.

Able to use the capabilities that they need to.

As they need them over time and change those things over time, and so overall, the longterm pattern and the momentum seems to be favoring more towards that more flexible model and that's consistent trends that are in the market today around.

Customers wanting subscription licenses and more time based licenses. So I would say, there's nothing that were saying that that is a sea change in preference, but in any given quarter, depending on the mix it customers depending on the geographic region of customers.

I wouldn't be surprised to see it dynamically price on the corner.

Got it very helpful. Thank you.

Okay.

Okay.

Selena was Keybank capital markets. Please go ahead Sir.

Alright, Thanks for putting me and I'll just ask one maybe a follow up the fact that question you know the this isn't on the highest perpetual growth quarter have you seen maybe potentially ever but for the strength in perpetual at all attributed to pull forward, which would explain maybe the growth rate just trying to understand the magnitude of this for.

Thanks here thanks.

Yeah, No I think that the perpetual growth in the quarter is really attributed to customers in quarter disproportionately in the Asia Pacific region, who who.

You chose to purchase they were in the pipeline and they chose to prefer to purchase and perpetual most versus least mode. So.

It it really was about the in quarter mix of pipeline and what resulted.

Okay, great. Thank you.

Mhm.

Thank you.

[noise] concludes our question and answer session I'd, rather teleconference back over to management for any closing comments.

Thank you operator with our excellent starter beer on strengthening comes from the pipeline and the importance of simulations of our customers I'm confident that we will meet on newly raised goals for 2021 I want to thank all my colleagues that answers for their commitment to focus in on many successes and I'd like to recognize the great.

From a global channel partner network for their efforts to put me on a difficult business environment.

And with that thank you for attending today's call and I Hope you enjoy the rest of your day.

Thank you for a conference on science.