ANSYS Inc (ANSS) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to ANSYS fourth quarter and FY14 conference call.

With us today are Mr. Jim Cashman, President and Chief Executive Officer and Maria Shields, Chief Financial Officer. At this time I would like to turn the call over to Mr. Jim Cashman for opening remarks.

Thank you, Rocco. Good morning, and thanks, everyone, for joining us to discuss our 2014 fourth quarter and fiscal year financial results. So as usual, before we get started, I would like to introduce Maria Shields our CFO, and ask her to go through our safe Harbor statement. Maria?

Thank you Jim. Good morning, everyone. Our earnings release and the related prepared remarks document have been posted on the homepage of our investor relations website this morning. They contain all of the key financial information and supporting data relative to Q4 and the full year 2014 business results, as well as our current Q1 and FY15 Outlook, and our key underlying assumptions.

I would also like to remind everyone that in addition to any risks and uncertainties that we highlight during the course of this call, important factors that may affect future results are discussed at length in our public filings with the SEC, all of which are also available via our website.

Additionally, the Company's reported results should not be considered an indication of future performance, as there are risks and uncertainties that could impact our business in the future. These statements are based upon our view of the business as of today, and we undertake no obligation to update any such information unless we do so on a public forum.

Finally, during the course of this call and in the prepared remarks, we will be making reference to non-GAAP financial measures. Discussions of various items are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in the morning's earnings release materials, and the related form 8-K.

So, Jim, I will now turn it back to you.

Okay, thank you, Maria.

So let's start with a recap of the results that the ANSYS team achieved in 2014. As you might recall from our Investor Day in March of 2014, we laid out a number of key objectives for the year.

We set goals of achieving non-GAAP revenue growth of 8% to 11% in constant currency, achieving strong margins in cash flows, high rates of recurring revenue, and continued growth in both deferred revenue and backlog. I'm pleased to say that we did, in fact, achieve every one of those goals.

First, we achieved an extraordinary milestone of $1 billion in sales bookings. Our non-GAAP revenue growth for the year in constant currency was 10%. Our non-GAAP operating margin was 48%. We generated over $385 million in cash flow, that's a 16% increase over 2013.

Our recurring revenue for the year was 71%, and our deferred revenue and backlog grew by 14%. We also accelerated the rate of returning capital to our shareholders through share repurchases.

You might recall that in the November 2014 call, our Board of Directors, as we mentioned, had significantly increased our share repurchase program to 5 million shares. At that time we committed to purchasing $200 million in stock over the following five months. We actually achieved that goal and less than three months.

So in total, we repurchased 3 million shares of stock in 2014, and 930,000 shares of January 2015. We remain committed to returning capital to our shareholders, while simultaneously growing our topline business, both organically and through targeted acquisitions. As a result, our Board recently increase the authorized share repurchase pool back to 5 million shares.

During 2014, we acquired Reaction Design for advanced simulation of chemical reactions for combustion and SpaceClaim for evolutionary geometry handling. Just a few weeks ago we acquired Numerical Technologies International, a premier developer of in-flight icing simulation software, and associated design testing and certification services. These acquisitions, along with the groundbreaking technology we introduced last month in ANSYS Version 16, which I will discuss a bit later, further distance us from the competition.

So I would now like to take a moment to highlight some of the successes from the fourth quarter. Most importantly, we achieved double digit growth in revenue in the fourth quarter in constant currency, surpassing the expectations we shared with you in early November.

We ended the year on a particularly strong growth with record revenue and operating cash flows for the fourth quarter, which drove record results for the full year. Importantly, our recurring revenue base continued to be very strong at 66% for the fourth quarter, even off of the strong license performance.

Continuing the trends from Q3, we closed with strong contributions from all of our major regions. North American non-GAAP revenue grew 12%. Europe rose 9%, and Asia-Pac increased 15%, again all in constant currency. Growth came from a broad base of industries and these industries are highlighted in more detail within the quarter's prepared remarks, which you can find on our investor site.

During the fourth quarter, we had 35 customers with orders in excess of $1 million. The average value of those orders represented a 14% increase over last year.

Now two of those customers actually had orders in excess of $15 million. In fact, one of them, Cummins, was featured in a separate announcement we made earlier today.

We signed a landmark agreement with Cummins Inc., which has been a customer of ANSYS for over 25 years. The new multiyear enterprise license agreement provides Cummins with broad access to the ANSYS portfolio, including our high-performance computing solutions.

Cummins' commitment to the ANSYS technology is in direct relationship with their vision of analysis-led design, providing them with the flexibility necessary to grow their use of assimilation, in ways that would've been very difficult previously. The agreement is actually indicative of the continuing shift to multiyear enterprise license agreements that several of our larger long-standing customers are considering, we've talked about in recent calls, this allows for widespread adoption of our technology across their enterprises.

So the Cummins announcement is really just the next step in the long journey we've been on for over two decades, and one that we see continuing into the future for many more. This really is an example of simulation-driven product development and the democratization of simulation, visions that we've been advancing for over 15 years now.

So during the fourth quarter, we continue to accelerate sales hiring as an important lever to drive the increased sales execution, capacity and growth as we head into 2015. We've seen the payoff in Q4, and overall 2014 results, from a number of the changes and investments that we've made throughout the year of 2014. Our plan is to continue to drive change and investment in 2015, to continue on a path toward achieving our goal of double digit constant currency revenue growth in 2015.

So in summary, for the quarter, constant currency and bookings growth were both double digits. We added 2014 with record results, and we have great momentum as we enter into 2015.

So now let me share a little bit about the groundbreaking version of our software, ANSYS 16, which we released in January. You may recall at Investor Day last year, we outlined for you the tremendous growth opportunities available to us across three primary dimensions: increasing the number of users, number one; increasing the density of usage through multi- physics; and increasing the intensity of usage through high-performance computing.

ANSYS 16 is transformational in our industry and helps us to drive growth across all three of these dimensions even though we already have the deepest and broadest physics, we're continuing to make significant advances and investments in R&D.

So first, with its dramatically enhanced user interface and improved ease of use, it makes simulation more accessible to a broader range of people and increases the situations in which simulation can be used. Secondly, ANSYS 16 reflects major enhancements to our entire portfolio, including structures, fluids, electronics, systems, engineering solutions of all types. These enhanced features will broaden the use of simulation beyond one type of physics, to true multi-physics used collaboratively by teams to assess entire systems.

Third, ANSYS 16 is geared for high performance computing solutions and provides the extreme scalability, ease of use and flexibility through customization and cloud-enabled applications. We are the only simulation provider that is really certified at 36,000 cores and above. So all of these features will enable our customers to solve difficult problems in minutes instead of hours or days, thereby driving the intensity of usage.

Then actually one final point I should make is -- it's certainly not the last because there's a lot we can talk about. But with the release of ANSYS 16, we further solidified our platform status in the industry.

The ANSYS Workbench platform further enabled simulation-driven product development by identifying which design parameters most influence product performance, and by enabling engineers to easily evaluate multiple design variations. There are numerous additional enhancements in Version 16 around robustness, efficiency, ease of use and actually, most notably, including extensions to the Workbench customization to allow the user to create their own user- defined processes, automation wizards and customization and optimization algorithms.

So in summary for ANSYS 16, A, extended leadership in each of our simulation disciplines; the preeminent multi-physics in support of comprehensive virtual prototypes, and finally, an enterprise capable simulation platform. There's a lot more on the website if you're interested in digging into that, but those are just the summary highlights.

So with that I'm going to turn it back to Maria to discuss our Q1 and our 2015 guidance before we move into Q&A. So, Maria?

Thank you, Jim. So as we outlined in this morning's press release, we've initiated our Outlook for Q1 with non-GAAP revenue in the range of $217 million to $225 million, and non-GAAP EPS in the range of $0.74 to $0.79. With respect to FY15, with the sole exception of updates for movements in currency since we initially provided at 2015 outlook in early November, everything else remains largely the same.

Those currency updates translates to our revised outlook of non-GAAP revenue in the range of $946 million to $976 million, and non-GAAP EPS of $3.40 to $3.61. From a qualitative perspective, our Q1 guidance takes into account the currency updates I've just mentioned, as well as one particularly large customer deals that has historically included a combination of upfront perpetual revenue, and annual lease and maintenance business.

Because of the structure of this year's deal, the entire value of the transaction will be recognized ratably throughout 2015. The structural change of just this one transaction, adversely affects first-quarter revenue by approximately $2 million to $3 million.

For 2015, we are assuming no significant changes either way in the overall macro climate. We also see sales and revenue growth rates ramping up as the year progresses. Particularly as the new sales capacities, that Jim talked about earlier, that has been brought on in Q4 and Q1 begins producing, and as the recently announced channel initiatives begin to take hold.

For further details around specific currency rates and other key assumptions we factored into Q1 and FY15 outlook, please take a look at the prepared remarks that we posted on the investor relations home page this morning.

So with that, Rocco, we will now open up the lines to take some questions.

Thank you very much, ma'am. We will now begin the question-and-answer session.

Our first question comes from Anil Doradla of William Blair. Please go ahead.

Hey, guys. Congrats on the results. A couple of questions. Can you talk a little bit about the oil and the drilling and markets? I know you have some exposure there. They're heavy users of your product; energy prices have been coming down. So in terms of their discretionary spending, how have they been off lately?

Well, the good news is you are correct, we have exposure there. But keep in mind with the number of customers we have, we have exposure across every industry because we have access and play in every industry. There is no doubt that the oil prices where they are now compared to where they've been in past years, it does have a dampening effect on their spending.

But the only thing I'd say is that's one thing about the diversity of our industry base is there's almost always one industry that is always in kind of a temporary nadir. So that is really not to get around. The interesting adjunct to that is that though is while there is a dampening effect on the expenditure of engineers, the one thing we have found is that when that is the case, a fair amount of times companies will actually say, well, we can't add more engineers, we have got to do more with less.

And more and more, simulation is one of those things that allows them to amplify the number of engineers that they do have. So there is a hedging aspect in terms of that utilization. But there's no doubt the industry does ebb and flow on those prices. And by the way, likewise when oil prices go high, a lot of the other alternate energies become a little bit more in vogue as the comparative trade-off there.

So it is really a pretty complex dynamic equation that is just beyond the one. I guess, briefly, is it's not a major factor to us, but, yes, it is an overall environmental thing that we have to factor into our everyday living.

Great And, Maria, given that ethics is a hard reality going forward. Have you guys considered, or are considering incorporating some level of hedging in the whole P&L? Because going forward with 65% of exposure to foreign currencies, we could see this recurring theme, wouldn't you say?

Absolutely. But because of our presence we've got natural hedges built into the expense base. So the reality is, I will be honest with you, I am not an expert in betting on currency movement. So I think we will continue what we have historically done and just use the natural hedges that we've got in place.

Thanks a lot, guys, and congrats.

Okay, thank you. Anyone else?

Our next question comes from Jay Vleeschhouwer of Griffin Securities. Please go ahead.

Good morning, thank you. Maria, first for you and then a follow-up for Jim. First, could you comment on your 2015 cash flow expectations?

And secondly, when we look at the Q4 by revenue split by license type, that is lease versus perpetual, it looks like your total lease revenues were about flat sequentially. And that on a year-over-year basis, most, if not all, of the year-over-year increase in lease revenues might have been attributable to Apache, which, of course, is an entirely lease-based model. Could you comment on that, as well? And then a follow-up for Jim. Thanks.

Yes. So let's start with cash flows. We are looking at right now, based on everything we know, we're looking at probably somewhere in the $360 million to $380 million of operating cash flows for 2015.

With respect to your -- yes, in constant currency the lease space was up about 8%. No doubt the Apache business -- for Q4 versus Q4, the Apache business plays a role. But we have also got leases throughout the rest of the portfolio, and some of the strength, particularly in the electronics business unit, which is complementary to the Apache business, also played a role in that growth.

Okay. Great, thanks. And for Jim, what we look at your apportionment of revenue by end market, you provided that now for 2014, it looks as though for Q4 and for the year as a whole, but particularly for Q4, you had quite strong growth in automotive.

So that is pretty consistent with what we hear from your peer group vis-a-vis that end market. It looks like it did well in industrial equipment and materials and chemical, just to name a couple of end markets. Could you comment on your expectations on sustainable momentum into 2015 and beyond, particularly for automotive, since, after [semis] and electronics, it's your largest vertical.

Yes. We're still seeing continued progress in there. In fact, even some of these larger kind of engagements we are getting to are starting to bring in nontraditional sources along that line. And by the way, that is across multiple geographies on top of it.

And what it really gets down to is if you look at the complexity of what is going in there, it used to be things were always broken into here's Body in White and here's Powertrain. And now looking at some of the more system impacts of these are tending to take a broader role, in addition to the overall kind of inexorable push toward efficiency in the vehicle.

So I look at that, and we also look at the increasing amount of electronical content via control systems, be it all sorts of safety systems and monitoring and things like that. And those are major things that are driving it. Along with also some of the changes in materials.

Thank you, Jim.

Okay; thank you.

Our next question comes from Matt Williams of Evercore ISI. Please go ahead.

Good morning. Thank you for taking the question. And congrats on the nice finish to the year. I was just wondering, Jim, if you could spend a little bit of time on ANSYS AIM.

It sounds like as a component of ANSYS 16 that that really has a lot of potential to really broaden the access in user base within your customer base. I was just wondering if you could comment a little bit on any feedback or reception that you've gotten around that?

Essentially, keep in mind this is also a first step of a multistep journey. So we have been continuing to do that. The key thing to focus on is we always said that, A, the first thing was bringing together multi-physics

And then the second part then was, okay, we're going to develop a platform that allows these to share data inter-operate. And that was roughly embodied in the Workbench platform. And then you can see, even though we've been at that for a few years, some of the things that have taken hold most recently with the customization and that is the next step.

But we always talked about the third step of that was going to be the environment for using multi-physics in a way where people didn't have to struggle with all the nuances of the legacy applications that were pervasive throughout the industry. And AIM is really one of those first things in terms, that step of providing a user environment that basically draws the user in, allows them to take advantage of a lot of the modern advances as they're going off.

And, of course, when you layer everything else underneath that, the next will be how does that work into both private and public clouds and going to there and there's a lot of exciting movement on that part. Again, just like Workbench was several stages going through, AIM is a very important first step but it is a very real palpable thing for next generation of user interaction.

Great. That's very helpful, thank you. And then maybe just one quick follow-up for me and then I will hop off. But it seems like with the Reaction acquisition, the Numerical acquisition, you are starting to get a little bit more vertically focused in some areas. Are there other opportunities to really get a little bit deeper with some of the vertical opportunities and some of the demand that you're seeing within particular industries?

The only thing I wanted to say primarily is that we are not inherently getting more vertically focused, because we are broad-based. But keep in mind, anytime you acquire any kind of a relatively small company, small companies tend to focus around some area of excellence. The main thing around Reaction Design was that, A, starting to move into the chemistry realm, which you can think of all sorts of realm where chemistry meeting physics opens a whole new line of -- we talked about Powertrain. I realize there's a different set of chemistry. But what impact might that have on battery life and things like that sometime in the future.

But it also, in many cases, plays very well into what was mentioned on an earlier question around the automotive, something we even mentioned, for instance, around the Cummins deal and things like that where, okay, some of the performance aspects of this are very important. And while we don't want to have 1,000 paper cuts of all these vertical different apps, these are unitary products that fit across our family, but they provide immediate value for a group of customers that then we can expand based on our scale, the breadth and depth of our sales, and go-to-market strategy that maybe a smaller company might've been more limited by. So actually we can create that.

And frankly, that's something that we have demonstrated with every acquisition that we have done so far. So I think the thing is that these are ways of fleshing of things, and in particular, getting areas of intellectual competency in areas where we might've been able to study up and build our way to them. But if we can get the masses of very talented people, who are as interested as we are in continuing to build this vision, that's a great immediate move for us. And it's something that plays well with their customers.

So I wouldn't say that that's the only thing that we're doing as we go forward, acquisitions are still a major part. Actually, I shouldn't say that, I should say the major part of what we intend to do with our capital utilization. But, amongst that, that's going to be a mix of some of the additional add-ons we do, but also some of the tech tuck-ins and some of the ancillary type of technologies that we are bringing on. But virtually all of the technologies we bring on ultimately have some kind of a bearing into other industries. So it is not just a niche play.

Great, thanks a lot, Jim.

Okay, thank you.

Our next question comes from Steve Ashley of Robert W. Baird & Company. Please go ahead.

Great. Thank you. I would just like to drill down on the sales force a little bit. Do you know, by any chance, how many reps you maybe ended the year with? What kind of increase you might've seen in the fourth quarter and what you're highlighting (multiple speakers).

Without getting into specific numbers, it was a little bit above 200. You know, the things we've been talking about. And we've probably had the equivalent of about, to date, probably about a 15% to 20% increase in headcount. That's something we did very aggressively in Q4 because we wanted to be prepped up for the year.

As it is, we've had a really very good onboarding of some of those people. We've had a really good attraction kind of strategy. And, of course, then it's going to take some time for them to bring up, to get productive throughout the year. I think we talked about three- to six-month time to ramp up.

And, by the way, we were still hiring into the early part of Q1 because there's a certain amount of bandwidth for bringing these on. But we've already seen some of the impacts of that early hiring, and certainly from a demand generation effort, the system is still -- the external system is still absorbing that ability. So, in other words, we are not oversaturated, by any means.

Terrific. And on ANSYS 16, you gave us a nice little overview of all of the benefits. I know one of them you talked about is the UI enhancement, really wanting to make that easier to use. Can you give us just maybe a little more color on that ease-of-use and what might be involved with what you've provided in ANSYS 16?

There's a whole range of things where if you think about a lot of other applications that you use. I mean, in terms of being able to -- how to [pod] things, videos that will pop up as you hover over things. So in other words, in some cases you don't even have to ask for things, it's anticipating what you want, it's anticipating certain guidelines, allows you to set preferences.

And I think the other thing that cannot be overplayed is in some cases these initial steps where we can be operating all of the physics within one window, that may seem like a pretty trivial kind of end-user enhancement or comp-side achievement. But what you can do in that one window where you are not trying to hop between different things that are connected in talking to one another but they still feel a little bit different. I think that's part of it.

But I think also, as people start branching into multi-physics, you might think historically fluids and structures, even though they are both mechanical engineering disciplines that every mechanical engineer learned in school, the tools and their application historically have been so separate you had to be an expert practitioner in there. And because of that, the different tools kind of posed problems in different ways, spoke in different languages.

And we want to get to that point where a person with good engineering judgment overall isn't wrestling with the nuances of the linguistics of the program, so they can get those working together. So first of all, we solve the interactivity from the data standpoint, meaning we can solve the problems, now we want to bring that in where the bar gets lowered to a good engineer being able to get access to it.

And that's what I meant about the multistep journey that will be on that. Just like we are in a multistep journey on Workbench, even though we've been able to harvest some nice success out of that over the next few years.

Terrific, thanks a lot. And congrats on the solid quarter.

Thank you.

Our next question comes from Saket Kalia of Barclays. Please go ahead.

Good morning, guys, thanks for taking my questions.

Sure.

The first one for Jim. Can you just talk about this Cummins contract a little bit? It seems like it wasn't just the flexible payment structure that the time-based license inherently did, but also sounds like Cummins was maybe getting broader access to the portfolio? And I know you've said in the past you're not doing a token-based licensing model. So can you walk through how maybe these sort of agreements work?

Again, token, that's one way of approaching a flexibility issue and things like that. But, really, what we looked at is -- and that's really where we engage with major customers, we get a concept of what they want to do.

But what we try to do is make access to that software, we elevate it out of the individual transaction level because they've already made a commitment to us, we've already made a commitment to them. And it provides the flexibility to actually bring in the things -- sometimes it's very difficult at the very beginning to say, I'm going to need exactly this capability at this particular time, and you try to overprogramatize it. But with this one, we can look at the number of users and type of jobs they're trying to do, the things that they are trying to solve from a business standpoint.

And it allows you to do the things we couldn't do for our 45,000 customers on a standard pricelist, but when you can actually engage with somebody and get that economy, it allows us to work together. I think, also, and it is interesting, adjunct of these kind of enterprise agreements we have, and you saw reference of that with an announcement we had made a year ago in terms of this is -- the way they sometimes will actually collaborate with those customers to be prepared to jointly tackle the next generation of problems that are going to be addressed by simulation.

So it is actually more than just a transactional purchase thing. It's really more of a holistic technology implementation trajectory that we try to build on there. It is really an invigorating one, because it's really around how you solve new classes of problems as opposed to how do you get over a certain kind of purchase hurdle.

And we are starting to see more and more of these, that's what factors into some of the things we talked about the last couple of calls in terms of time-based licenses that it tends to maybe slightly deflate in the early period but it builds over the long period. I think we've even see that in these early stages.

But we just see increasing interest in those type of a relationship. It really is one of those things, I think it's a very significant point, because it shows -- it basically shows a, if you will, getting to a certain level of maturity and jumping the hurdle in terms of these options simulation on a broader base.

That's helpful. And then just for my follow-up for Maria. Can you just parse out that -- it's roughly a $40 million reduction to 2015 revenue guide for the year. Definitely see that FX is really the vast majority of that. But is that large contract having any sort of impact beyond maybe the first quarter?

No. And that's why, if you look at the headlines, the word solely was inserted in there, so that the only significant modification we've made from when we guided back in November is roughly 3% to 4% related to currency for the full year. However, at the same time, we hadn't guided on Q1, this deal has been in the works, and we have been working with this particular customer similar to we worked with Cummins on a deal that makes sense for them, their usage pattern, trying to proliferate more technology across this organization. And as a result, the treatment under GAAP for this deal is going to be spread.

So for 2015 it will be spread over the full year as opposed to in the past when we booked a deal with this particular customer that tended to be a couple of million dollars of paid-up revenue, won't be there, but we will take the long-term gain for what people might perceive as short-term pain.

Got it; very helpful. Thanks, guys.

Thank you.

Our next question comes from Steve Koenig of Wedbush Securities. Please go ahead.

Thanks for taking my questions. I wanted to ask a bit about what you are doing with your direct channel and any partners as well? And then one follow-up (multiple speakers). Sorry.

Sorry, I thought that was the question. Please continue.

Okay. Let me just elaborate a little bit more, so two parts here. One is, is the Q4 large deal performance, is that normal seasonality excuse in variability? Or is that attributable in part to some of the initiatives you've put in place to drive adoption at large accounts? And can that lead to better large deal performance perhaps going forward as well?

Okay.

The second part of that question is maybe if you could elaborate a little bit on Maria's comments about the channel initiatives that have been put in place should help provide acceleration as the year progresses. What exactly do you mean by that?

The first thing, it really wasn't that there were new initiatives, but the increased bandwidth in our sales allowed us to address those more completely. And in general, if you look at that, I think a couple of things we talked about was, as opposed to having, if you will, more of a geography-based or a geography-skewed sales force, it is now pretty much partitioned between there's that element, but there's also major account focus by the number of reps. And that then increased quite a lot because there's more of a consultative aspect and a focus requirement that's required to drive that forward.

To answer your question, there is typically seasonality patterns in these. However, the number that I talked about is greater in terms of the number of customers of those large orders. And, secondarily, as I mentioned, the average value of those orders was 14%, actually probably even a little bit above 14% increase in average order size, so it is not just the like clockwork, here's the season that comes in and goes forward.

Now with regard to -- I guess the final thing was with regards to, we've already talked quite a bit about the direct sales force expansion. But I will say that, if you recall, we also mentioned in previous calls about the things that we are doing because the channel is still a very strong part of that. And we've actually put constructs in place to do that. In fact, there are even some things we are working on in terms of collaboration with them where we can jointly do things under an ANSYS aegis, but it's really primarily focused at driving the channel business.

The bottom line is those are both obviously going to be key parts of our go-forward strategy. And we want to make sure that our historical channel was actually in the same boat going in the same direction we were.

Okay. And if I could squeeze in one follow-up, if you don't mind. I'm curious to know what you're seeing with SpaceClaim? How is it meeting your specific goals for the unit? And how is it advancing your overall goals and over what timeframe?

We talked the last couple of calls where the results were a little bit depressed. Initially sometimes that happens when there's that changing of the guard. But I will say that once we got through that, once we were able to go through a broader-based sales training and introduction of what this technology means, as well as customers realizing this wasn't kind of like a cute little third-party addition into our suite, but it was a key part of what we have going forward, it became something -- and quite frankly, the interest level in the pipeline is actually pretty strong right now.

So we look toward getting back on the glide path or the takeoff trajectory that we had envisioned for this, albeit maybe a few months slower, but the reception has been really strong. So I think we're headed in a really good direction on this.

Okay. I will leave it at that. I look forward to downloading your new IR app; thank you very much.

Okay. Thank you for that plug.

(Operator Instructions)

Our next question is from Ross MacMillan of RBC. Please go ahead.

Thanks a lot. Jim, can you comment how far you've progressed with TBL agreements? Is it still a very small number of customers?

And, secondly, for Maria. What are the implications we should think about in the model as you do more of these TBL agreements? And then I actually had one follow-up. Thank you.

First of all, it is a small number of actually enacted ones; it is an increasing number of people who are interested in engaging along those standpoints. So definitely the trend. The one thing before I turn it over to Maria, the one thing that I said is, we know that this is a definite trend.

How quickly or how completely it enters the equation is still a question. It will be significant, but is it 100% or 30%? Either of those numbers would be very significant. We don't really know that, but there is no doubt that the trend and all the winds are blowing in that particular direction, which means, of course, we've had to try to make different assumptions on modeling that.

But if you recall, for years we have been saying, Hey, we've been talking about a strong lease base, a strong license base and basically saying that we really don't care. What we're trying to do is providing multiple opportunities and just not create acquisition purchasing hurdles to adopting the technology. So we continue to do that, but the receptivity and the interest seems to be shifting toward more of that. And as this technology gets a little bit more pervasive, however it gets manifested in things like the cloud and large-scale networks long-term, that all could shift and affect it too.

But it is -- definitely it's a trend line, but you said you wanted to turn part of that question to Maria, so I'll give her a swing.

So just a couple of comments to add on to Jim's point. What you basically will see is probably over time an uptick in the percentage of recurring revenue. And obviously, in whatever quarter that we booked those deals, you will see an uptick in deferred revenue and backlog. So just like I commented relative to the Q1 outlook, there is the potential for perhaps some slight decreases in short-term revenue growth, but these are really, really good for building our long-term relationships and our long-term growth.

And the other thing I will say is, as Jim pointed out, this is kind of, I would say, an evolution for some of our traditional larger customers. We obviously -- the TBL has been part of the Apache model since that business started, and since we acquired it. But there are still some parts of the world that larger deals, perpetual is the model they preferred in places like China, and India, and Korea. So what we want to do is remain as we always has been, flexible to the needs of our customers to enable them to acquire the software under whatever model makes sense for them. We are not going to force them into time-based licenses if perpetual is the model they prefer.

Okay, that's helpful. Maybe just one quick follow-up. So we pay attention to bookings, both current and total bookings. And there was a deceleration in Q4 relative to the trend we've been seeing over the past few quarters. Is there anything specific --

The one thing is, keep in mind, there's a lot of different factors here. There's currency, but you look at long-term, multiyear kind of issues coming in, so there are definitely currencies, there's issues between, and I don't know if we want to get into this, but the billed versus unbilled. But one of the main things is that if you've got -- we've talked in the past about if you've got a multiyear deal, maybe a four-year deal, and it showed as a $40 million last year.

The fact that it didn't renew this year may show one set of calculations as being down, but it is not at all indicative of a decreased book of business. It basically is really strong stuff. It's just that when you do these multiyear things, those cycles are going to go in and out. Actually with this trend going on, we look at a number of things to try to look at an annualized value of those going forward.

And obviously taking out some of the currency, making sure --there's also things when you do bookings, some might be for periods out in the future as opposed to the current period and trying to line up all of that. It is a very complex kind of equation. But you could get really caught off guard if you just try to assume that it is an apples to apples comparison without any -- maybe, Maria, if you've got a concept on that?

Ross, the one thing, as Jim pointed out, we would really encourage people to focus on full-year results as opposed to any given quarter because as these deals become larger, the quarters can become skewed. The reality, if you take a look at at least how we calculate bookings growth and factor in the impact of FX for the full year on deferred revenue from 2014, we've got roughly 11% bookings growth. So that is what we are really focused on is that double-digit bookings growth that we, at least for 2015, envision will translate at the high-end into double digit non-GAAP revenue growth.

That's really helpful. Thank you so much for the clarification.

Our next question comes from Mark Schappel of Benchmark. Please go ahead.

Hi, good morning. Thanks for taking my question and a nice job on the quarter. Jim, I was wondering if you could provide us with a quick update, a brief update, on your Asian operations? You made several changes in the region (multiple speakers) last year, so I was wondering if you could give us a brief update?

Remember when I was talking about the comparative growth, I think it was 12% North America, 9% Europe and 15% for Asia Pacific, that's not the only aspect of that. But we talked about things both at the country level, at our major markets, as well as the transition of the overall leadership, in addition to propagating some of the best practices that we had in other parts of the world going forward. I think as you go forward, you look at all of that going forward.

And I think the other thing that's very significant is part of that also were changes that we did. We talked about them being leadership, structural and operational changes in Japan. And if you look at that going forward, and that even involves the way that we worked with our partners. And when you look at that continuing on, we talked about that in past years we've been a little bit disappointed with our number two market, which was Japan. And they were in solid double-digits; the rest of Asia was growing in the mid-to upper-teens kind of level. So it is a pretty consistent kind of basis going forward.

And when I talked about some of the investments we made in 2014 that we felt positioned as well, this is not the only one, but is one significant one that we are on record talking about throughout last year. And so our prospects for that are very good. I mean, again there's always going to be local economic and macro and currency, but that's part of everyday life. And no matter what it's at, we feel like the team we've got there is markedly more solid than we were, say, this time 12 months ago.

Okay. Thank you.

Our next question is a follow-up from Jay Vleeschhouwer of Griffin Securities. Please go ahead.

Thanks; just a couple of odds and ends. First, in the quarter you had an unusually large increase, an amount of services revenue, although it's a fairly small percentage of total. Could you talk about those results in terms of there being concentrated perhaps, a relatively small number of large engagements or what are your longer-term expectations for the services business?

The bottom line is, we said -- when we were talking about the investments in the last couple of calls, the services aspect was one that we specifically spoke on. And we were bringing in people that were familiar and capable of driving service as a business. And that is the key role of a couple of these major people.

Also, services play a major role in the enterprise deals. And in general, what we view as services is not what traditionally has been service in our industry but there are things that are made more along implementation and adoption services going forward.

So it is clearly one of those things that we are going to continue to build going forward, and it's not like it's in one or two major big engagements. It's more of a broad-based one, and it actually covers all of our geography. And it is one that will be a slow gradual buildup. But it is an important part going forward.

Got it. Okay, just a couple of last things then. As I'm sure you know, nearly all of your peers in technical software are speaking about the opportunity in systems engineering. And yet the definition of systems engineering across the vendors seems to differ. So could you talk about how you envision systems engineering versus your competitors? Or more specifically what you think they might be missing relative to your definition of that capability?

And lastly, at a recent simulation industry conference a couple months back, there was some discussion about the potential for what we would call preconfigured validated IT, similar to the trend that we've seen in EDA, for example. Companies like Synopsis and Cadence have built some pretty big businesses in IT. And I'm wondering if there's an opportunity for you in that sort of offering, and whether or not that might somehow tie into your new implementation of EKM that you'll be bringing out in a couple of months?

Wow, trying to figure out -- there's a lot there. First of all, we've been talking about systems for a long time. And in the form of simulation, we were the ones that were kicking it off. And to us it was always around basically being able to build a complete virtual prototype.

And this can be the traditional zero and one dimensional kind of approximations. But we see moving that toward three-dimensional with the help of high-performance computing. We see that -- basically if you look at almost all successful product launches of new innovative products, it was because the systems succeeded, and thereby you have to be able to balance a lot of different component interactions. So it's the ability to conceptualize in the virtual world a complete system.

And then actually when you've something that works, it allows you to even use that to help describe what the requirements for the components are so you can go through the traditional refinement of that. But it is multidimensional; it's multiscale; it's multi- physics and it's really, if you will, creating that complete 3-D virtual prototype in the computer. What we've defined there really pushes the bounds of technology. But technology supporting us will allow us to go forward and enable those things.

But that's, again, one of the reasons why we pushed multi-physics early on; why we built a platform for all of these things to work together. And the last part which we may need to dig into a little bit more, but that's one reason why engineering knowledge management, in terms of being able to link together the multitude of all these simulations, but also the complex configurations that might compose a system, link those into optimization runs that might say I also want to look at multiple variations and permutations of that. But that is basically, in a nutshell, where it all hits.

Thank you. (Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Cashman for any closing remarks. Wow, I don't know what else I can say after closing. But I guess I will just start by thanking everybody for participating in the call and for the questions, and for your continuing support or following of ANSYS.

Basically, we are proud of what we achieved in 2014, and I would like to thank the entire ANSYS team for basically the fulfillment, and the commitment of those results to date. But it's really only a starting point. This is a step on a long journey and a fun journey.

But basically, we believe that we are very well-positioned to continue to drive the growth in the coming year, probably for two very significant reasons. First, we have the increased visibility from some of those larger multiyear enterprise opportunities that are starting to build that we talked about. Secondly, as we also talked about, we have been very successful in the more aggressive approach to sales hiring that we referenced on the last call. So if you look at that, I mean, those are the two specifics.

But we have those ongoing generalities. We have an unparalleled product offering. We have extraordinary longevity with their customers. We have an extremely high recurring revenue base, and an opportunity to augment our growth through new product features and exciting technologies from some of the acquisitions. We talked about all of that.

So we are growing our direct sales force. We have a renewed focus on our indirect channel, and we're committed to driving operating cash flow and continuing to generate significant shareholder returns.

So basically we actually will talk to you on the next call, but we also look forward to seeing all of you at our upcoming Investor Day on June 2. It is going to be outside of Detroit and it's going to be held in conjunction with the Automotive Simulation World Congress. So that might be a unique opportunity for you to learn more about some of the exciting growth prospects that are available to us, as well as to see some of the technology in action. So we hope to see you there. But thank you very much, and we will talk to you again no later than a quarter from now.

Thank you, sir. The conference is now concluded. We thank you all for attending today's presentation. You may now disconnect and have a great day.