ANSYS Inc. Q1 2023 Earnings Call
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At this time I would like to turn the conference over to Mister <unk> for opening remarks. Please go ahead.
Good morning, everyone. Our earnings release, the related prepared remarks document.
Link to our first quarter of 2023 Form 10-Q have all been posted on the homepage of our Investor Relations website.
They contain the key financial information and supporting data relative to our first quarter financial results in business update.
As well as our cue to in fiscal year, 2023 outlook and the key underlying quantitative.
Date of assumptions.
Today's presentation.
Jane's forward looking information.
Important factors that may affect our future results are discussed in our public filings.
Forward 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 discussion of the various items that are excluded.
Reconciliations of gap to the comparable non-GAAP financial measures are included in our earnings release materials.
I would now like to turn the call over to our President and C E O Ah Jacob Paul.
Remarks.
O J.
Good morning, everyone and thank you for joining us.
Q1 wasn't outstanding quarter for answers with the company once against depressing expectations across all key metrics.
We grew a C V by 19% in constant currency over Q1 2022.
Which reflects the power of a world class products.
Ongoing demand from our customers.
Strength of our business.
As a result of a strong Q1, we have operationally raised a full year guidance for a C V revenue and E. P. S.
Nicole will have the details in a few minutes.
And it's just realized brought based growth across the business in Q1.
<unk> grew revenue by double digits in every region in the quarter would be America's leading the way.
From a political perspective, the hijacking semiconductor aerospace and defense and automotive and ground transportation sectors.
Our top contributors.
Ah largest agreement in the quarter was the nearly 74 million dollar three year contract with a multinational aerospace and defense technology company based in the U S.
We grew the account by showcasing the value ancestors driven at this longtime customer.
Including a new workflow with a digital mission engineering and electromagnetic solutions that reduce the time required to bring a critical product to market by 50 per cent.
That same workflow is being reused by multiple groups within the company, helping to drive more users more.
More products.
More computations.
On these calls I, often highlighted specific aspect of our business.
Over the past several quarters I have discussed the critical role that answer solutions play and sustainability.
I highlighted how customers are using our solutions in the development of next generation semiconductors.
And I reviewed all leading sweet optical simulation products.
But this call I would like to give you additional insight into the innovation, we're driving across Ah multiphysics portfolio to an easy to understand taxonomy of five technology pillars.
Investments in these pillars are applicable across a portfolio and demonstrate how we are building upon a product and technology leadership to further differentiate our solutions.
Even more exciting is the interplay amongst these pillars, which is benefiting customers by helping them to solve more complex challenges, while driving our growth.
[noise] products more users and more computations.
As you know as as the.
The leader in advanced numerical simulation methods that accurately predict the multiphysics behavior of engineered products.
Our continued investment across the core Multiphysics products is reflected in our first technology Biller, which is new <unk>.
Accurately predicting physical phenomena in the real world is intrinsically complicated.
When you're married pillar encompasses the latest advances in science, and mathematics, and analytics, which help us gain a deeper understanding of the physical work.
It is the essence of what we do with answers with our core products.
Over the last several releases, we have further differentiated products with advanced numeric capabilities.
Let me give you just a few examples.
And Angelus mechanical new functionality enables customers to automatically predict structural crack initiation and growth without the need for expert knowledge.
And as his age of assess are leading electromagnetic solution users can now solve increasingly complicated problems by creating simulations eight times larger than before.
And then C. F D. Ah fluids blade wrote analysis enables customers to automatically mesh complex blade features while retaining the efficient hex measures that tobar machinery engineers demand.
Q1, we sign a new contract with longtime customer <unk>, which uses advanced numerex capabilities from answers to develop engines that run on a broad range of energy sources, including hydrogen and buying me thing.
Oh, he is expanding its usage of answers multiphysics solutions, including structures of fluids to accelerate time to market and to increase efficiency and performance.
Our second technology pillar is high performance computing or H P C, which is enabling customers to solve problems they couldn't solve otherwise.
Do so faster than anyone thought possible.
<unk> has close partnerships with Hyperscale computer partners and has long taken advantage of distributed memory.
[noise] processing and multiple cores to accelerate our customers products to market.
And in the process drive more computations.
Again, I could cite numerous examples of new H B <unk> technologies in our solutions, but in the interest of time sure just a few.
And as this mechanical technologies, such as hybrid parallel, which blends distributed shared memory parallel programming techniques enables simulations to scale to tens of thousands of computer course.
A new multi G P U solver and powers users to run answers fluent natively on multiple Gpus.
The C F D solution, which we believe is the first general purpose CFT solved before Gpus is seven times less expensive hardware putschist cost.
<unk> four times less power than an equivalent cpu's solution.
Two one we signed a contract with the International Technology Group Androids, which offers a broad portfolio of innovative powerplants equipment systems services and digital solutions for a wide range of industries and markets.
As part of this agreement Andrew is leveraging H P. C. Two more rapidly solve complex structural and fluids simulations to increase the efficiency of its turbines as.
As a result, Andrew is reducing the amount of physical testing needed to deliver its products to market.
The next area of technology emphasis is artificial intelligence machine learning.
<unk> is not restricted to a specific answers product line.
It is architected across the portfolio to improve ease of use to accelerate time to solve and to further democratize simulation.
Let me start with a use of AI to accelerate the time required to complete a simulation.
You might recall that a single large complex simulation can run for days across hundreds of course.
We are incorporating AI techniques directly into multiple products to increase the speed and scale of a single simulation.
For example.
Real time radar functionality and S. H a process is being used to train machine learning algorithms for radar systems, and cluttered environments with moving targets.
Combining synthetic radar responses with machine learning has resulted in a 1000 times speed up compared to previous methods and is open the door to exciting new opportunities for automotive radar and autonomy.
Artificial intelligence can also address the not the multiple iterative simulations needed to get to an optimal design point.
Often customers use answers products to run complex multi variable optimizations, where they're very design parameters and boundary conditions multiple simulation runs to reach the best design.
Such multiple issues of runs can be time consuming due to the number of simulations that needs to be performed.
To address this issue or optimization engine answers off the slang uses AI techniques to reduce the time it takes to it should be run thousands of simulations.
<unk> across the answers portfolio.
For example, one customer designing electric motors initially needed seven hours to run an endless motor cat multi variable optimization with 4800 simulations.
But with the AI techniques and after slang they saw.
The same problem in an astonishing 17 minutes.
Fourth technology pillar is.
And experience.
We have made some recent announcements about <unk> cloud marketplace offerings, and we are continuing to invest in closet of capabilities as well as user experience.
<unk> offers two distinct kinds of cloud offerings.
The first is cloud marketplace.
<unk> native.
And this combination of market place a native takes full advantage of past innovations as well as some of our newly announced cloud capabilities.
The marketplace offerings deliver flexibility to our customers by taking advantage of familiar answers products, while leveraging the benefits of cloud computing and their own preexisting relationships with cloud service providers.
<unk> announced partnerships with key cloud providers AWS and Microsoft is your.
<unk> Q1, a developer of sustainability technologies for buildings and electric vehicles.
[noise] using anzus Maxwell on the cloud thanks to answers gateway powered by AWS.
Using this cloud powered solution the customer as optimizing the electromagnetics, if it's smart motor designed by a cloudburst thing on several independent workstations.
[noise] can spin up a cluster in minutes.
Remote users from satellite locations to improve overall agility and speed proof of concept.
The company's engineers are simultaneously running 125000 simulations and analyzing design seven times faster thanks to the solution.
On the cloud native space, we're targeting new users and you use cases with a cloud based platform for the development and deployment of new workflows and applications.
Ah cloud native stimulation is too early in the maturity cycle, we are continuing to advance as exciting technology.
The final technology pillar and powers customers to optimize product designs to meet physical and behavioral requirements throughout the engineering design lifecycle, thanks to digital engineering.
Digital engineering relates to a set of connected Federated, an interoperable technologies that enable the collaborative execution of engineering tasks.
Today, the vast majority of time and money spent on R&D goes towards failure mode avoidance.
Digital engineering enables a more rigorous R&D process based on model based engineering system level simulation and an agile iterative methodology that results in improved product quality and faster throughput would reduce costs.
The latest release of Ansys, Minerva improves engineering productivity with efficient stimulation process and data management, while connecting powerful stimulation and optimization solutions to an existing ecosystem of tools and processes.
And as escape users can employ model based systems engineering methods to design and generate reliable embedded software.
As you might expect this pillar is driving more users and more products.
Q1, we sign an agreement with a global automotive OEM that is expanding it's us some answers products to include additional electronics and model based system Engineering technologies.
By taking advantage of these solutions the automaker can import architectural from existing models, allowing for reuse and traceability of parts.
The automaker has reported that the use of answers simulations has decreased product development time by months.
Which is helping the company to keep pace with increasing customer demands.
Our investments across these five technology pillars.
<unk> H B C.
M L cloud and experience and digital engineering critical for our ongoing successes.
Even more important is the interplay amongst which is fuelling emphasis growth and widening our product leadership across the board our customers across industries are benefiting from many of these advances today, which is helping them to deliver their own innovations to market.
Moving to a partner ecosystem, we recently announced a collaboration with synopsis Keysight technologies in which we develop developed a radio frequency design reference flow for T. S. M. C 16 nanometer Finfet compact technology.
T. S. M sees technology is critical for advanced autonomous systems, including automotive radar five G connectivity security applications and environmental monitors.
We also recently announced that answers is expanding our university partnerships to train. The next generation of engineers through a funded curriculum program.
We are financially supporting educators to help them develop undergraduate engineering curricula at universities around the world.
This is already being taught at more than 3000 universities across nearly 90 countries and there had been more than 2.75 million downloads of a free student product.
Q1, we publish the updated version of a corporate responsibility report.
In it we discuss the progress we have made against R. E. S G goals.
Additionally, answers has developed a focused strategy to support our customers sustainability objectives with a particular emphasis on clean environment.
Materials, and soak Hilarity energy solutions.
Fracturing and operational efficiency.
Finally, I'm excited to announce that answers again been certified as most loved workplace.
This certification recognizes great workplaces based on employee surveys, but gauged levels of respect collaboration support and a sense of belonging.
In summary Q.
Q1 wasn't outstanding quarter.
Set the stage for the rest of 2023.
We have demonstrated by again, beating guidance across all key metrics or end markets remained robust and our business has proven its resilience. Despite some economic uncertainties.
Customers understand a compelling value proposition, which is driving their top line growth and delivering bottom line savings.
Ah continued momentum.
Strong customer relationships, we have consistently demonstrated in.
In our ongoing investments in technology will propel us through 2023 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.
Let me take a few minutes to add some perspective on our first quarter financial performance and provide context for outlook, an assumption for Q2 and 2023.
The first quarter demonstrated the strength of our business as we delivered robust growth during Q1.
And feed our financial guidance across all key metrics.
ACB exceeded expectations and beat the high end of our queue on guidance in constant currency.
Revenue operating margin and EPS also exceeded the high end of our guidance.
Given the strength of demand for simulation and the momentum we see in our pipeline. We are operationally raising our full year ACB revenue N D. P. S.
Operational improvements in our full your a C V outlook is above and beyond our queue one outperformance.
I'll provide additional details on her guidance in a few minutes.
Now, let me discuss some of our queue one financial highlight.
Beginning with a C D. We delivered $399.4 million in coupon, which grew 16% year over year or 19% in constant currency.
As long as you mentioned are growth with broad based in the corner with growth seen across geographic regions customer types and industries.
Our wide-ranging growth is evidence of the essential nature of our market leading simulation portfolio.
A C V from recurring sources crew, 12% or 18% in constant currency year over year on a trailing 12 month basis and.
And represented 82 per cent of the total.
This momentum and recurring ACB growth is driven by the strong annuity created by our ongoing shift too subscription leases.
Q1, total revenue with 509.4 million anchor, 19% or 22% in constant currency.
Which as I mentioned exceeded the high end of our guidance driven by the favorable mix of license types in the corner.
All geographic regions for a double digits and contributed to revenue growth with the America's leading the way.
We had strong top line performance in Q1 with a C V and revenue both growing double digit in constant currency at 19% and 22% respectively.
During the quarter, we deliberate growth in excess of our model of double digit growth, including sucking M&A.
We closed the quarter with a total balance of gap deferred revenue in backlog of 1.4 billion, which for 13% year over here.
During the quarter, we continued to manage our business with financial discipline.
This yielded a solid first quarter gross margin of 91.2% in an operating margin of 39.8%, which was better than our guidance.
Operating margin was positively impacted by outperforming on revenue the favorable mix of license types.
Well, it's the timing of investment.
The result, with first quarter E. P. S. A $1.85, which was also better than our guidance.
Similar to operating margin EPS benefited from strong revenue results and the timing of addressed.
However, effective tax rate in the first quarter was 17.5%, which is the rate that we expect for the remainder of 2023.
Unlevered operating cash flows in the first quarter totaled 269.5 million.
<unk>, 26.5% year over year, which benefited from strong collections.
We ended the quarter with 507.9 million of cash and short term investments on the balance sheet.
In line with our capital allocation priorities, we repurchased approximately 650000 shares during the quarter for around $196.5 million.
We have 1.1 million shares available free purchase under the current authorized share repurchase program.
Now, let me turn to the topic of guidance.
We delivered an outstanding first quarter coming off an exceptional Q4 2022 and are updated 2023 forecasts reflects the continued broad based customer demand for market leading simulation portfolio.
Looking to the remainder of the year. The pipe line of business has improved and continues to show momentum, which bolsters our confidence in achieving our 20 twenty-three and longterm outlook.
However, offsetting are improved full your outlook is further strengthening of the U S dollar against certain currencies, particularly the Japanese and Korean one.
Relative to the exchange rates that were embedded in the outlet provided in February .
Notwithstanding the negative impact of exchange rates are underlying business continues to demonstrate considerable samantha.
Let me start with our full year 2023 guidance.
We expect our full year ACB outlook to be in the range of 2.265 billion to 2 million $335 million.
Which represents growth of 11.5% to 14.9% or 10.8% to 14.2% in constant currency.
We are raising the mid point of our a C V guidance in constant currency growth <unk>.
Proximately one point.
That constant currency increase is driven by robust demand and translates to an operational increase at 16 million relative to our fraud February guidance.
Are approved outlook is in excess of the Q1, Overperformance, we delivered relative to where Q1 guidance.
This operation on momentum with fully offset by 16 million a foreign exchange headwind.
<unk> figure deals I would say the underlying dynamic around or large scale of progression is not unchanged from any other any other you know prior coupons. As you know Q4 is our seasonally highest quarter you tend to have a lot more closing in the corner and so on a relative basis, there may be more mentioned, but the underlying.
And and we certainly are well positioned given the nature of our technology is to be able to take advantage of that.
Great. Thank you.
Okay.
The next question is from Josh Hilton Wolf Research. Please go ahead.
Hey, guys. Thanks for taking my question. My first one is an easy one what was the contribution design a more day to be in the quarter.
Yeah. So we had spoken about <unk> for the full year as being about 30 to 35 million euros with about half about half of it being in Q1 in our February call and you can the underlying assumption you can make is that were pretty in line with what we said what we expected.
In February .
Perfect. Thank you and then I guess my follow up is I totally understand that the first half a second half vanilla mix are kind of playing out as you expected. When you first give guidance in the beginning of the year, but I guess my question is the world has kind of changed since then.
Is there anything you can give us maybe from your conversations with customers is just increasing your confidence that some of these secondhand renewables won't get pushed out the macro continues to deteriorate.
Yeah, I mean, so here's here's.
The pragmatic answer to that is if customers don't renew they lose access to the software and they can't build their products and so that they've renewal base is very very sticky because.
It it affects their R&D cycles, and so and and just to kind of take it a step back and to contextualize kind of where where we sit in the in the corporate decision, making process and what has happened in other kind of economic event simulation tends to be the last thing that gets shut off and the first thing that gets turned back on and that's.
Because it is connected to People's R&D and R&D tends to be.
The investments and R&D tend to be longer longterm views as opposed to short term tactic. So so that's one the second is even within the R&D process. The the areas that are most susceptible would be areas that are connected to seat count and people and that's not how the economics of.
Our software work so our <unk> our software is <unk>.
<unk> customers use our software is based on the capacity of a complete that they need and the software that they need to run their simulations within their R&D cycle and so if they're underlying changes in the footprint of the R&D uhm part of the business. It doesn't really effect it doesn't really affect our part.
Of the software stack in the R&D cycle and the last part is simulation actually can provide tailwind for them and support the underlying cost efficiencies of of our customers in their R&D cycle using simulation.
Reduces the need for physical prototyping it shortens it shortens the innovation cycle you can have a single analyst run you know multiple simulations at the same time and so the throughput that you get and the efficiency that you get from using simulation to build products has a very high R Y in in times, where you're looking.
To transform you had a simulation it is valuable not just in accelerating time to value to accelerate the top line, but also to support running R&D in a more efficient manner and so those are the underlying qualitative dynamics, but the real answer on the renewal basis that it it's very very sticky.
And it's small you know short term disruption in the <unk> in economic outlook has historically not had an impact on your overall business and just to amplify what Nicole said in to to to add a little bit more color as well.
We're not tied to the number of units produced right. So if if if you cut back on production for whatever reason, you're R&D efforts still continue because you're you're building for for the long term and if you look at all of the industry. There'll be served there are major transformations that are taking place in each of the industries and the long.
[noise] term competitiveness of organisations is at stake. So if you were in the automotive industry. For example, electrification is front and center autonomy is front and center.
And stepping back from any of these activities will result in you know a longterm degradation of their business and and no one wants to go through.
And so what we're saying we're gonna sing and won't be so in the past we saw this when when we had this <unk> you know when when Lehman went out of business back in the day. We saw that R&D was the was the last that was Scott and we saw that it was the first thing that was restored and the lesson that was learned after that and there were reports and you know there was.
There were there was a lot of postmortem done after that but the the the lessons that were learned is that the organizations that continue to invest in R&D. What are the ones that came out of that downturn and were successful afterwards, and so you see <unk> when when when we talk to customers are our value proposition is not.
Just about accelerating R&D as I described but the value proposition is Nicole said is also about being able to help cost and we have well established chapter and verse. We can talk about how we can reduce warranty cost how we can make engineers more efficient we can talk about how we can reduce the amount of raw materials that are being used force for expert.
Notation purposes, they move away from physical prototyping. So that is a very hard R. O Y that we can make and we can make that case now I've spent I've talked to our sales leaders around the world I've talked to customers around the world and I'm only getting you know I'm getting strong support for our for the guidance that we have.
Giving you. We're we're seeing we're seeing we're seeing the markets. The customers are committed we're seeing that the nature of the technology that we provide is critical and we see our negotiations and discussions with customers kind of going as we expect we we call we call it as we see it.
We're not trying to come up with instead of speculation of what the markets might look like we just call. It as we see it we can give you a perspective on where our customers are how they're buying and all of that is reflected within all of that is reflected within an hour within the way that we're guiding so we feel we feel.
We feel great about the guidance, we've given you we feel great about the second half of the year, we feel great about two two and is Nicole has said several times on this call. There is an underlying dynamic of <unk> the renewals of our business and for those of you've been falling accompany for multiple years that underlying dynamic is exactly something that we've seen your after your after a year and we've always had a quarters, whereas.
A stronger in quarters, which are relatively weaker in that context of the overall full year and so we managed to the full year and that's important for us and we feel really good about where we are right now.
Super helpful really appreciate the phone for a response.
This concludes that question and answer session I would like to turn the conference back over to management for closing remark.
I'm excited about our outstanding start to 2023, I would like to thank the one anzus team around the world for ongoing success are superior technology abroad, based business momentum and a strong customer relationship give us even greater confidence in our ability to execute against long term goals.
Thank you for joining us this morning, I Hope you all have a great day.
<unk>. Thank you for attending today's presentation you may now disconnect.