Q4 2022 ANSYS Inc Earnings Call
Welcome to the answers fourth quarter in fiscal year 2022 earnings results Conference call.
Participants will be in life and only about should you need assistance. Please signaller conference specialist by pressing the star T followed by zero.
After today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw from the question could you. Please press Star then too.
Ask that you limit yourself to one question and one follow up. Please note. This event is being recorded I would now like to turn the conference over to Alec Rosa Investor Relations manager. Please go ahead.
Good morning, everyone.
Our earnings release, the related prepared remarks document.
The link to our 2022.
10-K have all been posted on the homepage of Investor Relations website.
They contain the key financial information and supporting data relative to our fourth quarter and full year financial results.
This update.
As well as our queue, one and fiscal year 2023 outlook.
And the key underlying quantitative and qualitative assumptions.
Today's presentation contains forward looking information.
Important factors that may affect our future results are discussed in our public filings.
Looking statements are based upon our view of the business as of today and Anzus undertakes no obligations to update any such information.
During this call, we will be referring to non-GAAP financial measures unless otherwise stated a.
A discussion of the various items that are excluded.
The reconciliations of gap to the comparable non-GAAP financial measures.
Included in our earnings release materials.
I would now like to turn the call over to our President and C E O J.
<unk> for his opening remarks.
J.
Thank you Alex good morning, everyone and thank you for joining us Q.
Two four was another excellent quarter for answers and the largest quarter in our history, we meet a financial guidance for the quarter across all key metrics, including a C V revenue operating margin and earnings per share.
Q for was the culmination of a strong you for answers.
Our industry, leading product portfolio loyal customer base strong execution, then growing markets enabled us to beat and operationally raise our guidance each quarter of 2022.
This of course was despite the continued economic uncertainties brought on by trade sanctions and the war in Ukraine.
We grew a C V at 14% in constant currency for the full year and in the process. We achieved our goal of $2 billion of a C V in 2022.
Thanks for this excellent performance, we realize our longterm financial goals set at our Investor day in 2019.
I want to congratulate the entire one anzus team, including a dedicated channel partners for the significant accomplishment.
In a few minutes Nicole will discuss guidance for Q1 in the entire.
This guidance reflects the power of a world class products, the ongoing demand from customers and the strength of our business.
I'm excited that our results from 2022 as well as our guidance for 2023 keep us on track to achieving the long term goals, we set out in our investor update in August of 2022.
Looking back at 2022, we saw broad based growth across all major industries geographies and go to market routs.
Ah direct and indirect channels grew with double digits.
Similarly, each about go to market customer segments enterprise strategic and volume accounts also grew by double digits in constant currency.
The hijacking semiconductor.
Aerospace and defense and automotive and ground transportation sectors were again, our top contributors.
From a geographical perspective, we saw strong performances with each region growing ACB better than we expected.
And I'm excited to announce that one of our regions. The Americas recorded over $1 billion in a C V for the first time in our history.
I'm also pleased with the performance of our product lines from a more established flagship solutions to our newest offerings.
Or talk to customer agreements for queue for a C V.
The global high Tech in semiconductor vertical and total more than $125 million.
Through these contracts one for three years and one for four years. The customers are expanding their use of answers technology into new business segments, which is driving more users more products and more computations.
These customers would realize a number of benefits by using <unk> solutions.
These include identifying silicon issues during the tape out final phase, which has saved millions of dollars and re spin as well as reducing multilayer PCB pre processing time from a month to just hours.
Q for we also signed a contract with new scale power and energy company that is developing modular lightwater reactors to supply reliable and abundant carbon free nuclear energy.
Instead of relying on <unk> physical prototypes, new scale Leverages technology to stimulate designs for containment thermal hydraulics and the structural integrity of reactors.
<unk> solutions play a key role in an extensive product development process that must navigate a strict nuclear approval process image delays can cost up to $3 billion per day.
As you heard with this new scale example, structural analysis plays a key role in customers sustainability initiatives.
Continuing with the theme of sustainability through a structure solutions I would like to highlight a few examples of how these structures products working in conjunction with the rest of the answers portfolio address this important topic.
And since of course was founded as a structure is company over.
Over the last 50 years, we have continually invest it to enhance our structures offerings.
The applications for structural simulation have evolved as even the simplest products have become more complicated and today's structures is critical for customers to meet their sustainability goals.
Two additional queue for sales agreements totalling nearly $60 million are driving sustainability in the energy sector.
They are both and couldn't structural simulation combined with other physics.
First is with an energy company that is using as the simulation to make its traditional gas and steam industrial turbines more efficient as well as developing blades and they felt for its wind turbines.
The second agreement is to assist with the digital transformation of another energy industry leader. This.
This organization is expanding its use of our solutions to include a variety of applications, including structural design thermal stress an electric motor design for its robotic arms.
By using answers technology. The company has helped to decrease its development costs by 20%.
While materials is a newer answers product offering it works hand in hand with structures.
Particularly when it comes to meeting customers sustainability goals.
That's because as customers seek to develop more sustainable products. They often consider non traditional materials, which includes new feels composites and short fiber reinforced plastics straw.
Structural simulation on these new materials can assess performance to ensure safety and your ability, while also reducing weight and waist through topology optimization.
S as customer nature of architects one of over 1700 members of a startup program is using anzus simulation to help its customers further their sustainability programs.
As companies look for more environmentally friendly materials for their products. Many are turning to artificially design metal materials to incorporate functions such as heat conduction defamation and weight reduction.
Using answers the structural analysis and fluids structure interaction.
Nature's architect has implemented a scripting language that automates simulation task and streamlines workflows, which enables the team to visualize and explore new structures.
A recent release of answers 20 twenty-three are one is also helping customers with their sustainability initiatives for.
For example, answers granta selectors enhanced eco data and eco audit functionality helps engineered explore and rapidly at rate amongst design scenarios and material options.
The tool empowers users to make sustainable materials trade off early in the product development process.
Before high fidelity structural analyses performed in Costa locked it.
And for solutions are not only helping customers to develop more sustainable products, but we are enabling them to do so in a more resource friendly manner.
One such capability is one is resource prediction with <unk>, which leverages artificial intelligence machine learning to predict how much time and memory will be required resource prediction will help guide users to achieve their business objectives. For example would you think salt time or decreasing energy consumption.
Another innovation or one is aimed at helping customers increase the safety of electric vehicles.
As you know E V fires caused by battery abuse or impacts can be catastrophic.
This advanced capability anchored in a structure portfolio brings together multiple answers physics to analyze this complex problem.
Specifically, our new safety workflow and S. S. L. S diner simultaneously stimulates the comprehensive structural electrical electrical chemical and thermal responses of batteries that are damaged in an accident or through some other events.
We are not aware of any other commercial solution with this critical functionality to help make electric vehicles safer.
In addition to our organic development, we are furthering our structures product leadership through M&A named me with a recent acquisitions of Dinah Moore and Rocky.
<unk> was a longtime answers partner and leader in developing and selling explicit simulations solutions with an emphasis in the automotive industry.
<unk> developed a dummy and human body models. In addition to providing development expertise for L. S diner.
This critical capability provides customers with complete software solutions for crashed simulation.
Occupants safety and production processes.
Our acquisition of rookie salts sophisticated customer challenge.
Nearly 70% of industrial products experienced bulk granular material flows were different size particles with complex shapes interact Patel.
Potentially impacting her products efficiency or structural integrity.
Solving this difficult problem requires deep knowledge of both structural mechanics and fluid dynamics.
With a solution from longtime partner Rocky fully integrated into the answers portfolio uses can solve these complex design problems as a result, our customers will be able to reduce waste improve product quality and predict the performance and durability of equipment.
Thanks in part to sustainability initiatives Newsweek is named answers to its list of America's most responsible companies for 2023.
<unk> was including the annual ranking of the 500, most responsible companies based on environmental social and corporate governance initiatives.
Inclusion on this list demonstrates our commitment to make customers improve efficiency and reduce waste by minimizing the need for physical prototyping.
Turning to partners I'm excited that order desks fusion 360 signal integrity extension powered by answers was commercially released in November .
By embedding ancestors electromagnetic stimulation capabilities within Autodesk fusion 360 printed circuit board designers can access near realtime insights earlier in the design process for smart consumer products.
I'm also please there are electromagnetic in semiconductor solutions.
Including answers Redhot Cassie.
<unk> H and S. As age of assess have received Globalfoundries certification for its flagship twenty-two F D X platform.
That's certification enables strip designers to lower costs by reducing access safety margins and improving system performance without compromising reliability or risking unexpected and damaging interactions amongst design elements.
In summary.
Q for was an excellent quarter the capped a fantastic year for answers.
We'd be godless across all key metrics and delivered the best you're in company history.
Of course, we exceeded our long term goal of $2 billion in a C V.
I am confident in our ability to achieve the goals we set during our most recent investor update in August .
Despite some economic uncertainties, our end markets remain robust and our business has proven its resilience over the years.
Over the past few weeks I've had the opportunity to speak with members of a direct sales team as well as several of our global channel partners, they're reporting strength in the market from the largest enterprises through S. M B accounts.
Given the importance of research and development and innovation the demand for answers simulation continues to be strong because customers understand are compelling value proposition.
And that is continuing to drive more users more products and more computations throughout our customer base.
Momentum coming out of Q for a strong customer relationships are robust and markets and all leading product portfolio will propel US 220, 23 and beyond.
As a result, we are more confident than ever in our ability to achieve future milestones.
And with that I'll now turn the call over to Nicole Nicole.
Thank you I say good morning, everyone.
Let me begin by saying that 2022 with another outstanding ear for answers.
Optimistic about our 2023 and our longterm outlook given the momentum in our business.
The both the fourth quarter and full year 2022, we beat our financial guidance across all see matrix.
This is particularly noteworthy given that we operationally raised are fully your guidance across ACP revenue E. P S and operating cash flow for all three quarters throughout the course of the year.
Additionally, in 2022, we reached new company records across key financial metrics, including a C V revenue E P S and operating cash flow.
As as I mentioned are gross with broad based in the corner and fully your 20th 22 with Christine across geographic regions customer types and industry.
As a result of a broad based performance, we achieved $2.032 billion in a C V and 20th 22, which surpasses the 2 billion commitment we made in our 2019 Investor day.
For additional context, when translated at 2019 foreign exchange rate.
While you're 2022, a C V with equal approximately 2.113 billion.
Demonstrating the magnitude and quality of our outperformance, which we delivered a global pandemic and a challenging and volatile macro economic environment.
On all accounts, 20th 22, with an outstanding year, and we are entering 2023 with momentum and a strong backlog.
Now, let me take a few minutes to add some additional perspective on our fourth quarter and full year financial performance.
And then I'll provide our outlook and key assumptions for 2023 and <unk>.
Beginning with ACB, we delivered 818 million in queue for which grew year over year, 8% or 13% a constant currency for.
For the full year, we've recognized 2.032 billion and a C V 30.
9% or 14% in constant currency.
For the quarter and full year performance with broad based across customer types geography as an industry.
Our wide ranging growth is evidence of the essential nature of our market, leading simulation portfolio and exceptional execution.
For additional context are full your a C V cross a 14% in constant currency came in four points higher relative to where we initially set guidance last February .
Throughout the course of the year, we absorb 82 million of non operational headwinds, including unprecedented U S dollar strengthening and the exit from business in Russia and Belarus.
Which was more than offset by 94 million of incremental operation on no matter.
A C V from recurring sources in 2022, 9% or 15% in constant currency here every year and represented 81 per cent of the total.
This momentum and recurring ACB growth is driven by the strong annuity created by our ongoing shift towards subscription leases.
For the full year 2022.
ACP performance continues to be filled by the strong growth in subscription list.
Which crew, 80% or 24% in constant currency.
Subscription list a C V crossed over 1 billion to 1.2 billion or 57% of total ACB for the full year.
We continue to expect the course of our subscription leases to be the underlying driver of the strong annuity that has been building over time and will continue to be a foundation for future for us.
Two four total revenue was $694.7 million and grew 5% or 10% in constant currency, which.
Which exceeded the high end of our guidance and with positively impacted by outperforming on a C D.
Pull your revenue with $2.073 billion, and 7% or 13% in constant currency.
We had strong top line performance in 2022 with a C D and revenue both growing double digit in constant currency at 14 and 13% respectively.
In both Q4 in the full year, we executed against our business model of double digit.
He closed the quarter with a total balance of gap deferred revenue in backlog of over 1.4 billion, which grew 13% euro per year.
During the quarter, we continued to deliver a business model with strong operating leverage this.
This yielded a solid fourth quarter gross margin of 94% and then operating margin of 48 per cent.
Which was better than our guidance.
We had fully your gross margin of 91.8 per cent, an operating margin of 42 per cent.
Operating margin was positively impacted by outperforming unraveling.
The result, with Fourthquarter EPS at $3.09, which was also better than our guidance.
For the full year E P S with $7.99.
Similar to operating margin E. P. S benefited from strong revenue resolved.
Our effective tax rate in the fourth quarter and full year with 18%.
Are operating cash flows in the fourth quarter totaled 174 million, which benefited from outperforming on a C V and strong collections.
Our unlevered operating cash flow with $181.1 million for the full year, we had operating cash flow of $631 million, which grew 15% meaningfully outpacing ACP growth despite significant foreign exchange and non operational headwinds.
For modeling purposes, 20th 22, operating cashflow translates to Unlevered operating cash flow of $648.1 million.
For additional context, we absorbed 39 million of non operational headwinds since initiating 20th 22 operating cash flow guidance last February .
These headwinds, including the exit from business in Russia, and Belarus, and the adverse impact of foreign exchange, where on top of the headwinds from R&D capitalization tax legislation and other law changes already factored into our February 20th 22 guidance.
The 39 million of non operational headwinds with all set by 70 million incremental operational performance throughout the year.
The result, with operating cash flow that was 31 million better than the mid point of our February guidance.
This outperformance was driven by several factors, including outperforming on ACB margin expansion and the timing of collections.
We ended the quarter with 614.6 million of cash and short term investments on the balance sheet.
In line with our capital allocation priorities, we repurchased approximately 225000 shares during the quarter for around 50 million.
For the full year, we repurchased approximately 725000 shares for around 206 million.
Which was 174% of the average capital returns to shareholders in the form of share repurchase over the past three years.
We have 1.7 million shares available for repurchase under the current authorized share repurchase program.
Now, let me turn to the topic of guidance.
The underlying momentum in our business and demand for our best in class portfolio continues to be straw.
We delivered an outstanding Q4, and full year 2022, and we are entering 2023 with momentum and a robust pipeline and backlog, which gives us continued confidence in achieving the longterm outlook that we laid out at her 20 twenty-two investor update of 12% constant currency.
<unk> a C V compounded annual growth inclusive of one to two points of tucking M&A.
And 3 billion of cumulative Unlevered operating cashflow from 2022 to 2025.
Let me start with our full year 2023 guidance.
We expect our full your ACB outlook to be in the range of 2.265 billion to $2.335 billion, which represents growth at 11.5% to 14.9% or 9.9% to 13.4% in constant currency.
We have a balanced and diversified business, which is driving the broad based performance and double digit a C V growth that we expect to see in 2023.
Notably the midpoint of our guidance is on our model of 12 per cent constant currency compounded annual growth that we set at or Investor update in August .
We expect revenues to be in the range of 2.242 billion to $2.322 billion, which is growth of 8.2% to 12% or $6, 9% to 10.8% in constant currency.
Let me touch on some of the assumptions embedded in her full your guidance.
We continue to expect Broadbase growth and continued momentum from our large enterprise customers and SMP customers.
We also continue to assume that our subscription leases correct faster than perpetual licenses and as a result.
ACB is expected to grow faster than revenue.
The business model shift towards subscription list continues.
Her full year guidance is based on how we see our book of business and pipeline today.
This brings me to our operating margin guidance, we expect a full year operating margin to be in the range of 41 to 42 per cent.
As a result, we expect our full your E. P S to be in the range of $8.34 to $8.86.
We expect our full year effective tax rate to be 17.5%, which is a half point lower than the 18 per cent right. We have it in 2022.
Now, let me turn to our full year Unlevered operating Cashflow guide.
We are providing guidance for Unlevered operating cashflow is it a lines to the longterm 3 billion dollar cumulative cashflow outlook, we provided at our 20 twenty-two investor update in August .
Our 20th twenty-three Unlevered operating cashflow guidance is a range of $710 million to $760 million.
We expect to see another year of significant growth in cash flow levels here over here.
The implied Unlevered operating cashflow growth of 10% to 17% for 2023.
Top of the 16% Unlevered operating cashflow growth, we saw it in 2022.
Exhibit the continued strong operating leverage in our business model.
Further details on the reconciliation of GAAP operating cash flow and the comparable non-GAAP Unlevered operating cashflow are contained in our prepared remarks document.
Now, let me turn to the guidance for Q1.
For the first quarter, we expect a C V. In the range of 382 $400 million in revenue in the range of $482.5 million to $507.5 million.
We expect to Q1 operating margin in the range of 35.3 to 37.3 per cent and a P. S. In the range of $1.53 to $1.71.
Further details around specific currency rates and other assumptions that had been factored into our outlook for 2023 Q1 are contained in the prepared remarks documents.
I would like to thank the anzus team for a fantastic quarter rounding out another exceptionally strong here.
Performance is evidence of the critical nature of our market, leading simulation portfolio as well as the team's operational discipline and focus on customer excellence.
Are consistent performance and execution enabled us to deliver above and beyond our 2019 Investor day, and 2022 annual commitment. Despite a continued challenging and volatile macro environment.
Our core simulation market is strong and growing and we are excited about the immense opportunity that lies ahead as we continue to help our customers solve their most complex product development challenges.
We are entering 20th twenty-three with considerable momentum are resilient and diversified business model with three vectors of growth and a healthy backlog in pipeline all of which feels the optimism embedded in our full year and longterm outlook.
Operator, we will now open the phone lines to take questions.
We will now begin the question and answer session to ask a question you may <unk> than one on your telephone keypad, if you're using a speaker phone. Please pick up your handset before pressing the keys to withdraw from the question can you. Please press sorry, then too as a reminder, we ask that you limit yourself to one question and a <unk>.
Follow up the.
The first question is from 10, one of Oppenheimer. Please go ahead.
Cause fantastic and and fantastic quarter from you guys.
<unk> I wanted to just maybe touch on some of the the the strike in a C. V. I noticed one segment that really stood out to me was the aerospace and defense from a <unk> perspective, it jumped up you talked up seven eight figure deal.
Can you maybe highlight some of the underlying drivers there and as we look out to 23 and beyond is there still decent runway for for those particular grow tailwind in that particular vertical.
Sure Good morning <unk>.
So let me.
Brief you talk about aerospace.
Our aerospace customers are facing relatively complex challenges.
And it's pretty broad based and so when you think about some of our business.
We have our customers who are focusing on aircraft engines and obviously there are a number of trends in that space, whether it comes to Lightweighting in energy efficiency. Some cases electric engines different fuel sources. So there's a number of different levels of innovation taking place.
At various points in the in the aerospace industry, obviously in the space to Dot who world. There are they continues to be a lot of innovation and both the larger companies as well as smaller companies and then of course, you've seen some of the work that we've done with significant <unk> projects like the web telescope in the dark Michigan.
Over a project, where our technologies, where we used in the development of those projects. So there's a lot of different activity across the space in this entire aerospace and defense of world for Us and I believe that the demand for our offerings continues to be robust and we see a pipeline in that space as well.
Great and then and then a follow up for you Nicole just just wanted to touch on the the the on rubber operating Cashflow Guide I mean look it's a fantastic number of building off of a really strong 22.
As we think about the long term targets like there was sort of an underlying assumption the third the expansion I guess my calculations suggested.
Closer to I think it was like 32% off of a 32 per cent number or is it just you guys see a little more room for for growth this year and and we should still assume longterm that that that number does continue to expand this.
Puts it takes there would be fantastic.
Yeah, well, thanks, Ken and yes, we were really really please with the exceptional close.
A password performance at the end of the year, you point out Uhm igloo quite substantially elaborate operating password or 16 per cent in 2022.
And <unk> and our outlook range of 10 to 17 per cent.
<unk> indicates continued momentum in the business overall.
<unk> no I mean, we we we gave longterm guidance in August we're not prepared to update the longterm guidance, but when you look at the the combined the two year groceries of 2022 and 2023 from the city's perspective in the comparative Unlevered operating cashflow groceries over that period, you can see the substantial operating leverage.
March and expansion associated with that you know.
It's a little early for us to update longterm guidance, which escape it six months ago, but what I can say is and there's a lot of <unk>.
Factors that impact that Unlevered operating cell phone number is you know you know foreign exchange at a pretty meaningful impact to that last year. As an example, we're still not quite out of the voice as it relates to that so I'm not really prepared to give any anything longer term the 20th twenty-three today, but we feel really good about the underlying strength of the operation on the medicine.
We have a very disciplined investment model around.
Putting investment in that dress incremental growth and those those are things that will that we expect to be able to continue to build on.
<unk>.
The next question is from joke or link Uhm Byrd. Please go ahead.
Great Good morning, everyone.
A C V an inorganic basis seems to be growing I think.
Several hundred basis points above the framework that was provided last year. I guess my question is within 2022 to 25 timeline, where the year is 2022, and 20 twenty-three Owens and <unk> I don't know if pricing or renewals or the shift Lisa.
And if that's not the case, maybe you can just walk through some of the outside drivers. These last year and then in terms of your outlook for this year.
Yeah sure. So uhm, maybe just kind of left set on what the what the make up of you know 2022 wasn't 2023, we could talk about the long term. So as we previously mentioned you know the inorganic contribution from the the Max last year, <unk> said with about $20 million and that is the point that.
You know contributed around to point across to the overall overall performance last year.
As we look into 20th 23, Uhm, we completed two acquisitions at the end of the at the end of the quarter. After our earnings announcement, Rocky and Dinah more with the most notable with two that completed at that time, just some contexts of those rocky is a product we were the primary race.
<unk> Oh already and it's also a pretty small uhm small product line. So it doesn't have a very material run right to the business and although we already had a relationship with <unk>. We expect the energetic contribution from that transaction to be around 30 to 35 million Aerospace C V and revenue so.
With just under half of that in Q1, so there's a pretty different skew to that business relative to us. So.
So that would put us around the 10% constant currency <unk> at <unk> for your outlook.
Which is on our business model of double digit growth, including ACB as it relates to the the longterm view of a C. B N and how we see it I mean, we you know.
There isn't a perspective.
It particular around you know what happened to 2022 and and how that would change.
Like in the future, we still remain confident in the 12% compounded annual growth rate through the course of that time and certainly is transferring the business change in the underlying and anything that foundationally would shift that birth at growth objected, we would certainly update our got.
At that time, but right now we're really pleased with what it delivered in 2022, we're building or we have a really strong outlook for 2023 chocolates really struck before Mason 20th 22, and we're really we're really pleased to continue to be on.
Well that'd be set up in August .
Okay, Great Uhm.
But I figured I was thinking for that that's all helpful. And then there was an interesting comment on just performance across your different customer silence I guess.
Are there any I guess noticeable changes in spending patterns <unk> inside your top 100, and outside and I I guess at the heart of this question.
<unk> K C V outlook for one <unk> typically I think about that I would cite the big.
<unk> enterprise activity. Then so is this indicating maybe strength that is more broad across the customer base at the start of the year.
Yeah Yeah.
Yeah, I mean, I <unk> as we said in her prepared remarks, and I think we set the throat last year the underlying drivers of growth in 2022, it's very broad based across customer search geography, and industries and and the outlook considers very similar broad base. There's no individual customer concentration there is one element to Q1.
Guidance and I think I briefly mentioned this in the first part of my answer to you emanate hardly any impact.
<unk> does have a slightly different speeds with your business. There's just under half of the business that actually happens in Q1, and so a little bit more than half a little bit less than.
Less than half of the business and <unk>. So there is a little bit of a dynamic around <unk> earlier on in the year relative to the to the future periods in here that we'd have a slightly different pattern and maybe some of the more kind of a smaller impact on a quarterly basis that you see if some of the other <unk> that we've done in the past.
The next question is from J. Please shower of Griffin security. Please go ahead.
Alright. Thank you good morning, let.
Let me ask you a question that we've been posing to your C. O appears at the other companies in the group.
That is in the context of what you have to find as a dozen elements of your longterm technology strategy you figure about 2023 spending priorities and beyond word or in terms of your R&D, the most incremental or newest party.
<unk> <unk> about your your face investments will solve or is it <unk> work would you say are some of your most important or newer executable as far as our dear concerned.
And a second question almost waiting six months ago spoke of a variety of growth doctors, among which you described traditional use cases and new use cases, when you think about twenty-three guidance.
Is there any way you could relate.
Where have you heard about the <unk> guidance in terms of the traditional use cases are new or would you also referred to connected and integrated workflows. Thank you.
So J good morning, supposedly when you think about our our technical priorities will be areas that were making investments in a business I would say that probably five broad areas. We're we're making.
Technological investments.
The first I would broadly categorize as numeric and that includes physics models and methods for both the physics Multiphysics. That's just the core physics <unk>, Okay. We do.
The second the second area is in AI machine learning, we're we're making significant investments across the portfolio. Our customers today are seeing the benefits of products that have been asked to AI. We've of course file patterns to cover some of our work in the space and we continue to make significant investments in AI.
Getting our customers to be able to take advantage of this great technology in the context of our offerings.
The third area as high performance computing that obviously includes that obviously includes both H B C.
As well as as well as Cpus G. P. U's. So for example, if you look at our one we just announced some really exciting work on <unk>. For example are obstacles solver, where we can show that a single GPU is something like eight times faster than that 32 core C. P U machine.
And then of course, we're very excited about a fluent multi GPU silver, which allows fluent simulations to run natively on multiple Gpus and that is a game changer in terms of performance and we can we can show tremendous orders of magnitude scale up.
And in terms of both performance as well as it was cost savings when it comes to things like energy usage and others. So we're very excited about the work to be done in the GPU space and we continue to make investments over there.
Cloud and experienced as a fourth area that includes the work that we're doing and plowed you may have seen some recent announcements where where are we moving on some of our our cloud technology in the context of a cloud marketplace offerings, and we continue to invest in cognitive capabilities.
As well as user experience and the last area is in digital engineering and that includes things like digital Twins, Michigan system simulation and there we continue to make advances and you're so obviously some of the capabilities of our product line for the space No pun intended when you when you when you talked about James Webb.
As well as the dark mission, but certainly we have we have ongoing investments in that space as well and that includes things like M. B S. C. So broadly the five areas.
A I M L saxophones computing cloud and experienced the digital engineering and these are the areas that are driving our next generation activities.
Yeah J to answer your question on Ah kind of connection to customer demand I think the way that you could think about if you look at it.
If you kind of prefer to the <unk> referred to as well as the underlying performance in our industry.
I mean, much of what's driving that amount or the complex.
<unk> and the transfer of dragging investment in those areas right. So hot spot.
Double digit Kirsten foil double digit growth in automotive in queue for as an example, and and the things that are driving those transfer really around.
The next generation of vehicles on technology that are connected to things like electrification sustainability those types of things as you know those are not you know single component level <unk>.
Which are fall into that traditional use case. They are complex multi physics from sudden involved both component level all the way to the system assistance with our systems of system level.
Particularly in case, a place based on two things.
And so what we are seeing is uhm.
More and more of that strategic selling motion, becoming the main focus of the main motion of.
Of how we engage our customers and be solving those higher order complex problems, which makes it is a very important partner.
Regardless of what kind of economic times, you know people might be having you know we help solve those those very difficult problems known can help sir.
Great. Thank you both.
The next question is from Steve Tusa of J P. Morgan. Please go ahead.
Hey, guys good morning.
Tomorrow morning.
Just a question on they they kind of indicate into the guide I think you mentioned the acquisition influence on the one Q. It seems like the one Q is is pretty strong from a margin and revenue growth perspective, and then that you know if you're just kind of back out. The next three quarters. It's you know slower.
And margins I think are down year over year, maybe I'm doing the count wrong can you just talk about a bit of what's going on there.
Sure. So first I I one of the one of the aspects too the business since the accounting change for the six O six accounting change several years back is that the dynamics around revenue recognition create a lot of volatility.
In the piano and particularly on a quarterly basis and that's because.
The difference in the underlying mix of licenses on a year over year basis can significantly influence dynamics around Britney recognition and so so <unk>.
The margin that kind of patterns throughout the year is a little less meaningful into kind of extrapolating kind of where where directional momentum it's going particularly in the piano. We do also have similar variability in quarters as customers have moved to Malta Your <unk>.
This is you know it is not as much of a of a of a selling motion where it's only about you know an event at a point in time that kind of comes up once a year, there's an ongoing selling process that happens kind of throughout the year, where where a T V can be remixed relative first.
Customer relative to you know what the Friday it looks like so there there's considerable volatility that happened throughout the quarters.
And that's why we're really focused on being really clear about our full year guidance, where are full your outlook is for a T V in operating cash flow and particularly in particular in the piano overall and the way the way that we failed were indicating kind of the change in the trajectory. The business is with our updates to that for you.
So that's how I would think about.
Think about it overall is really around that and I think you can see that in kind of how we how we went through guidance last year and if you could look at the beginning of the year. There was a four point difference in N. A C. P. As an example, as we progressed throughout the year and that's because our philosophy is that where we <unk>, we give guidance based on.
What we see ahead of us today and what the pipeline in the book business looks like today and as things change Upper time, we will we will be clear about about what changes we don't try to create wide ranges, which predict macro environment macro trends are things that we can't control. We try that try to look at it in terms of where a book of businesses today.
<unk> is that answer your question.
Yeah. They they that's helpful. I I I guess you you you were pretty clear I mentioning that you're seeing strength across large enterprises as well as you know small and medium size businesses, which is you know clearly different than what some other you know obviously not simulation companies, but more more of the.
<unk> and Kat guys are saying so I just wanted to make sure. There was nothing in that guidance. It was contrary to to that comment where you know it seems like the strength is broad base and really not slowing. So the guidance is really not meant to reflect that kind of macro outlook.
Yeah, absolutely I mean it is.
The the variability within the timing of things in the quarters can create some ups and downs throughout the year, but the overall outlook, which we think is is quite strong out of the gate Israeli reflection of a broad based ma'am. If you point out great. Just one more <unk> any any color on cash flow for one Q.
Uhm I cancel it so we do not we do not give quarterly capsule guidance because the dynamics around cashflow within a quarter could could change because of timing of payments. That's all over over datelines or timing of collections that could celebrate datelines quite easily and make really meaningful differences.
But for modeling purposes, I think you can assume that a meaningful portion of the cashflow occurs in Q1, particularly off of a strong Q for and and Q1 and Q4 tend to be the largest castle quarters. The middle two quarters tend to be a little bit more muted with Q T V probably the the lower watermark.
The next question Nancy from Scott.
I'm sorry go ahead.
Go ahead go ahead.
Okay. The next question is from <unk> Ah Barclays. Please go ahead.
Okay, Hey, good morning, guys. Thanks for taking my questions on and well done on a strong first to the 22.
Nicole maybe maybe for you very helpful on on the a C V contribution from from inorganic I was wondering if you could just talk about that from from just a margin and and free cash flow perspective, and and just to preface it a little bit I mean <unk> is is of course, so profitable. It's it's rare that.
<unk> tucked in acquisition is accretive to margins, but can you just maybe just give us some broad brushes on.
Operating margins that is can you just give us some broad brushes on on how <unk> and rocky.
The other kind of acquisitions for mid 22 or impact are impacting that margin hearing twenty-three and what are those those those acquisitions or maybe additive or dilutive to to operating cashflow.
Yeah. Thank circuit, so as you point out in almost every acquisition. We do is deluded to actual emergency. So there is no accretion some margin that occurs with with the <unk>.
Some or any individual acquisition, we have uhm now as it relates to cash flow.
Cash flow is also relatively more muted in the first year I mean, sometimes you can have some slight positive impacts cash flow.
There, there's meaningful pier, one expenses associated with integration and and those types of things, which are normal operating cash outflows and so you know as it relates to the most significant kind of individual contributor to the overall portfolio would be the <unk>.
Example, that you know that did have some contribution to the underlying trustful guide uhm, but it's really modest relative to what it what it might be on an ongoing basis.
Got it got it that's very helpful. Maybe for my follow up for you you you touched on this in the question just around around R&D priorities with with some of the public cloud announced with which I thought were very notable this quarter with both AWS and <unk>, maybe just a higher level of <unk>.
Question, how do you sort of think about the mix of simulation being done on on high on public cloud Hyperscalers versus you know more traditional on premise or a private cloud.
Simulation being done within your customer base and how do you sort of see that mix shifting how would you know.
Does that make sense.
Yeah I'd also like to thank you for the question.
Look the way you should think about it is from the answers perspective.
Really agnostic as to where someone might be able to run our solutions. I mean, we want I mean, one of the primary uses of cloud today is for high performance computing applications and so we know that we have customers who are taking advantage of the licenses that we make available to them and they're using them in the public cloud and and really from our perspective.
We want we want people to have the flexibility to be able to use to be able to use.
Whatever environment, where they have computer available obviously as time goes on there is a clear trend even in the largest of organizations, which have invested in data centers, there's a clear trend towards taking advantage of public cloud and obviously as the public cloud vendors are continuing to invest in scientific computing capabilities.
The nodes that are available have the requisite.
Needs for scientific computing. That's also driving that's also driving incremental usage. So it is clearly an ongoing it is clearly an ongoing direction and something that we expect to see happen from Vermont strategy. I mean look we're very excited about about the public cloud being used from Australia G perspective, we have.
As you know two distinct coins cloud offerings will be called cloud marketplace and will be called native and you know this combination of market place in NATO takes full advantage of of everything there'll be people talked about as well as well as some of the new he'd developed and announced a cloud capabilities.
The marketplace offerings are.
Oh really about delivering flexible easy to our existing customer base. So it's really giving customers as I said earlier of giving them the option to maintain the same patterns will be employed today, taking advantage of familiar answers products, while leveraging the benefit of cloud computing in their own pre existing relationships with cloud service providers and so you mentioned B S gave me with Arab.
U S, which we released in queue for last year, you talked about the announcement, we made in February of this year, where we extended on Microsoft partnership in the in the actual marketplace offering. So there's a number of so there's a number of activities in that space.
<unk> native space, we're targeting new users and you use cases, and that's really a cloud based platform for the development.
And deployment of new workflows and applications and as if you remember back at our Investor Day, we talked about a new area Verticalize simulation applications, where the power of simulation gets extended beyond its current user base to frankly anyone needs predictive analytics and and so we have we have initiatives and <unk>.
Brandy efforts underway in that space and and it's still very early days, but you should stay tune for for more progress as we continue to move this exciting technology for global.
The next question is from Tyler Radke City. Please go ahead.
Yeah. Good morning for taking my question.
Some really impressive results in in Germany, and Japan, This quarter and I think you talked about some big wins with the automakers could.
Could you just talk about some of the drivers of that uhm outperformance in the quarter and you know in these these large deals with with the automakers like what <unk>, what exactly is driving the the large expansions and maybe go into some detail in terms of you know the the the higher simulation core account that you're seeing.
You know electronic motor design, and and if you could just elaborate on on some of the trends driving that thank you.
Sure I mean like the automotive business is one of our top three industries as you know it's all three vertical says be defined it <unk>.
Actually I can semiconductor aerospace and defense and automotive Ingrown transportation.
And it continues to be a strong area and we've got deep relationships with our automotive customers as they continue to face these complex challenges with that with their products and there's a number of things. There's a number of areas where there continue to innovate. Firstly, obviously, if you pick up a passenger cars for a moment there is clearly a direction towards fuel efficiency.
So in a more traditional cars in deterioration internal combustion engine and that that deals that deals with like waiting etc. Crashed asking those are all of the all the product lines, but as you start to think about the next generation electrification alternative energies. Those are all important themes when our customers are investing in may.
Some investments for the long term battery technology and I certainly mentioned, an example of some of the work that we're doing there with the impact analysis with the in my in my in my script earlier. So there's a lot of work to get multiple error in multiple areas taking place that are supporting the automotive customers I would just point out by the way that.
As we think about the work that takes place for example, with electrification in the automotive industry. The the work that leads to that includes the entire supply chain and they may be suppliers.
Or you know in our high Tech vertical building very high Tech components that are then being used in the automotive space and so if you start to look at the entire supply chain. The impact of automotive is very large okay across the industry.
Looking at all of these different areas you out of breath.
Brett before our technology and the break up a portfolio is so is so I mean, it's so large that we are able to help our customers as they are looking at all of these different issue of sustainability is another example, and and and that's why I think you're seeing strength in these industries be sophisticated industries, which required these which are going through this transformation.
Able to help our customers navigate through these next generation shreds trust that they're facing or transfer dealing with the market.
Great. Thank you and follow.
Follow up for Nicole you know obviously the profitability.
Lafitte ability performance in the quarter, an outlook was was pretty strong I'm wondering if there's any you know cost savings or you know opex specific initiatives that that.
You're undertaking or you know if this is just a result of.
The the top line outperformance, but if you could just obviously a lot of companies out there you know taking a look at the processes and people certainly you're you're not facing the the level of growth challenges as a lot of other software companies, but just curious if there's any incremental initial.
Initiatives on the cost side that you you're pursuing here. Thank you.
Yeah. Thanks, <unk>. So so what I would say is that the operating like we have very strong operating leverage in the business because we have relatively low variable cost and so that's why you can definitely see as we as we continue to accelerate growth.
Bringing leveraged the business now it comes down to what what do you do with that incremental growth and how do you reinvested and I would say that we have a tremendous amount of operational discipline around decision, making around investments that is that is not news to answers. It is is kind of <unk>.
Bedded in how we make decisions and how we prioritize where where we put investment with an eye towards how do we get return with a balance on what is what is helping us for the short term and how are we making sure that we're currently investing for the long term and so that strategy has served as well it has allowed us to.
Continue to invest in the business as as things go if things are are good and make sure. We can accelerate a roadmaps. It also helps us understand how we need some lottery things over time and so there's there's nothing quite you uhm on and on.
And then always on basic we're always reevaluating our processes and looking at I have a <unk>.
Pretty robust uhm enterprise wide transformation process around how do we how do we remove the unnecessary work in the way that we support the business and again, that's not that's not new to influenced the outlook, but it is the reason why we can stay the course on the strategy that we have because we've always been operationally this plan Sir.
Even when there's there's times with uncertainty we're confident that we have the maneuverability to execute.
This concludes our question and answer session I would like to turn the conference back over to management for closing remarks.
Once again I am excited by the excellent progress answers made in 2022 I would like to thank the one anzus team around the world for ongoing success. The teams work abroad based business momentum and a strong customer relationships give us even greater confidence in our ability to execute against long term goals. Thank you again for joining today's call and <unk>.
Have a great day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.