ANSYS Inc (ANSS) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to ANSYS first-quarter 2015 earnings 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 turn the conference call over to Mr. Jim Cashman for opening remarks.

Good morning and thanks everyone for joining us to discuss our first-quarter financial results. As usual, before we get started, I would like to introduce Maria Shields, our CFO, for our Safe Harbor statement. Maria, take it away.

Thanks Jim. Good morning, everyone. Our earnings release and the related prepared remarks document have all been posted on the homepage of our investor relations website this morning. They contain all the key financial information and supporting data relative to Q1 business results, as well as our current Q2 and FY15 outline and the key underlying assumptions.

I would like to remind everyone that in addition to any risks and uncertainties that we highlight during the course of this call, important factors that may affect our 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 in a public forum. During the course of this call and throughout the prepared remarks, will be making reference to non-GAAP financial measures. A discussion of the various items that are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning's earnings release, materials and the related form 8-K.

Jim, I'll now turn it back over to you.

Thank you, Maria. Let's start with a recap of the results that the Ansys team achieved in Q1. I'll begin by saying that Q1 was a solid quarter on many fronts. It was highlighted by strong cash flows of $114 million, a record deferred revenue and backlog balance of over $477 million and non-GAAP operating margins of 47%.

Our non-GAAP revenue growth for the quarter was 8% driven by 11% growth in North America 9% growth in Asia PAC, and 5% in Europe all in constant currencies. Our recurring revenue for the quarter was very strong at 76%. And growth came from a broad base of industries which are highlighted actually in more detail within the course of prepared marks which our posted on our website.

As an overarching theme, the quarter and the upcoming year are still in the ranges and parameters that we set out on our last call in constant currencies. Our reported revenue was in our guidance range but a bit below the midpoint. This was consistent with the currency rates that were also generally at the lower end of, or slightly below, our guidance range. We nevertheless achieved non-GAAP EPS of $0.77 for the first quarter, in line with the midpoint of our expectations.

We also accelerated the pace of returning capital to our shareholders through share repurchases during the quarter. During Q1, we repurchased approximately 1.5 million shares at an average price of a little over $83 leaving 4.4 million shares in our authorized pool as of March 31, 2015. While our primary use of excess capital is for targeted acquisitions, we remain committed to returning capital to our shareholders while simultaneously growing our top-line.

Operational highlights in the first quarter and shortly thereafter include -- we had 22 customer orders in excess of $1 million as compared to 32 customers with orders in excess of $1 million for Q1 in 2014. Now the comparative change in the number of large deals in Q1 of 2015 is attributable to a combination of fairly obvious factors. The main one involves timing including multi-year deals that closed in Q1 of last year that are simply not scheduled to renew until future years. Deals that closed earlier in Q4 of 2014, we mentioned some of those in the last call. And of course there were always those inevitable deals that pushed out to Q2 of 2015.

Also the currency headwinds manifested themselves, particularly in Europe, and that depressed us on transaction sizes to slightly below the $1 million for the quarter. The one thing I would like to note is that while the number of the seven-figure deals was lower for the quarter, the average size of those deals was up 26% over last year's first quarter, which is consistent with the general trends that we've been seeing.

Other highlights for the quarter-- actually at the top of it would be the release of ANSYS 16 in Q1. This new release delivers major advancements across ANSYS's entire portfolio including structures, fluids, electronics, and systems engineering solutions. And it really just furtherily increases our technological leadership and, again, our main goal of providing engineers that ability to validate their designs with complete virtual prototypes. We also have another release planned in the very near future so stay tuned for additional announcements and come check it out at our investor day.

Secondly, there was continued momentum in our initiative to drive the hiring of our sales teams during the quarter. We added 35 employees on a net basis, the majority in sales, which positions us with 115 more employees than we had a year ago. This accelerated pace of hiring really is an important lever to drive the increased sales execution capacity and growth that we've been talking about for 2015.

Shortly after the end of Q1, ANSYS was also recognized as company of the year at the 2015 engineering symposium simulation awards that were held in Derby, UK. The criteria for winning the award included having a strong market presence and an outstanding reputation for quality and an innovative approach to business. Kudos to the ANSYS team and my colleagues here for that.

In summary, I'm pleased to report that we continue to solidly execute our strategic growth plans and our results, despite the negative impact from currency. Our goals for 2015 remain intact to achieve double-digit constant currency revenue growth and we remain committed to adding the sales capacity and making changes in the organization to capture the near-term and longer-term opportunities that we know exist.

One final item I might say before turning it over to Maria is, for the last few quarters we've been talking about a systematic approach toward evolving ANSYS for accelerated growth that we've been talking about. We first rolled this through Asia and, more recently, through North America. And the results, both qualitatively and quantitatively, have been encouraging in those regions.

In early 2015, we've begun focusing on Europe, historically a good performer. We've already bolstered management ranks in Germany, our largest market in Europe. As a second step, the global sales capacity ramp-up has been a little slower to take hold in Europe and this is being addressed. And then, finally, we're doing the same examination of workloads and skill sets in Europe as we have recently done in North America and Asia to attain the goals that we've set for ourselves.

With those opening comments, I'll now turn it back to Maria to discuss our Q2 and our 2015 guidance before we move into Q&A. Maria?

Thanks Jim. As Jim highlighted in his remarks, our results for the first quarter reflect continued solid execution despite the currency headwinds. While our first-quarter revenue fell slightly below the midpoint of our guidance range, non-GAAP EPS was at the midpoint, as a result of our continued rigor around management of expenses. Our focus on capital return and ROI also helped us to achieve those results.

As we look out toward Q2 and the balance of the year, our outlook, excluding currency, remains unchanged. We expect to continue to execute against our strategic initiatives just as we have in the past several quarters. With respect to currency, we've outlined our revised assumptions for rates for Q2 and the balance of the year in the prepared remarks document accompanying our press release today.

As a result of the updated assumptions, our outlook for Q2 is non-GAAP revenue in the range of $230 million to $238 million and non-GAAP diluted EPS in the range of $0.78 to $0.82. With respect to FY15, we're updating our previous outlook for the full year to reflect the strength of the US dollar particularly against the euro. Those updates translates to our revised outlook of non-GAAP revenue in the range of $943 million to $968 million and non-GAAP EPS of $3.40 to $3.49.

From a qualitative perspective, our Q2 guidance takes into account the currency updates that I just mentioned. For 2015 we're 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 heads that we've brought on in Q4 and Q1 begin producing and as our recently announced channel initiatives begin to take hold.

As we mentioned in this morning's earnings announcement, our Q2 and FY15 guidance includes charges of $0.01 to $0.$0.02 related to organizational changes that we'll primarily incur in Europe.

What that operator, we'll now open up the line for questions.

(Operator Instructions)

Anil Doradl from William Blair.

Hi guys, this is John Smith on for Anil. Thanks for taking my questions. The first one, I wanted to start off with ANSYS 16.0. It's been several months now since the release. Just hoping you could provide some additional color on any customer feedback, regarding specifically, the ease-of-use initiatives and maybe talk a little bit about the expansion to the number of users you're seeing so far.

Again, keep in mind this is pretty early in the cycle, but the anecdotal proof points we have in that are related to -- first and foremost, I think from established customers that maybe were already using it. They noticed; they appreciate some of the increase in usability, but I think the increase in customization toolkits that allow them to taper and tailor some of that to their specific needs, has probably been the thing that we've heard the most information on.

Keep in mind on some of the new paradigms we have for usage, we've talked about this in the past as being a tiered step approach, kind of along the lines of Windows 1, Windows 2, Windows 3.1. Several steps there, but you have to get that first step in there with a production release that people can continue to move on. But the general results there have been positive also.

Great thanks. And just a quick follow-up. Regarding the $0.01 to $0.02 impact from the restructuring-- is this something that we could expect to see potentially happening again in the second half of the year? Or is this going to be a one-time charge related to the Europe restructuring?

Keep in mind --these are things we do not do cavalierly. In fact, the only thing I would say is, if you could go back and you could test this against things that we've mentioned on the last few earnings calls as far as public record, it is just that we were not going to try to simultaneously affect all changes at once.

We've worked in a specific methodology; it was very structured. We called out Asia about 1.5 to 2 years ago. I think you have seen a pretty significant numerical change there. But it was involving all those aspects in terms of leadership, workflow, balancing, sales capacity, support building, and even some infrastructural building.

Now when we had that pretty well in place, we talked about that. We said we were going to do some similar things in North America. And I think that you saw in the recent ones-- it's very early but some of the numerical impact of that has been seen.

Now, as I said over the years, Europe has been a strong performer, but now we want to put the attention there and we want to have that same methodology. So this is a very systematic sequenced approach. It's just that we did not want to have everything in flux all at once, because it takes a lot of focus and it takes management.

With that in mind, these are three major systematic steps and we don't anticipate a drip-drip-drip kind of aspect to this. That assuming that the general economic factors stay somewhat in league. But this is part of a structured plan.

Great, thanks guys. Congrats on a strong start to the year.

Jay Vleeschhouwer from Griffin Securities.

Thank you, good morning. Maria, first for you-- could you update us on your cash flow expectations for the year? If it has changed from the $360 to $380 range that you talked about a quarter ago for 2015?

Yes, I said largely related to currency, Jay. I would say probably a range of $340 to $360 is what we're comfortable with right now.

Okay. And for Jim-- you alluded in your remarks to a forthcoming new release post-ANSYS 16. I assume that you are alluding to your forthcoming cloudy and EKM update and perhaps some other new initiatives as well? Is anything you could say about that now, or is that going to be at the analyst meeting?

First of all what you mentioned is a subset, albeit a significant subset. Yes, for the formal release I am going to leave that as a teaser to Investor Day. But, as most of you know, we've had a software service offering for almost 15 years, continuously.

The cloud is a different thing. It's not just about sticking any kind of software out there and saying-- okay, now you have access. There are a lot of things we did with regard to partnership, with regard to pricing, and demand elasticity and things like that.

As you also alluded, we will let that little cat out of the bag, the way it links in with the engineering knowledge management system to provide a framework for that. So this is just not dialing and getting access to simulation capabilities. It's a more holistic approach, and we want to make sure that if we took our long-standing software to service, that we brought it up.

Again, I think we will save that for the June timeframe. But we're pretty excited about it. I think it is a long-term trend. The trends for driving simulation in this usage-- they're a little bit more complicated as we've discussed than a lot of typical cloud applications.

I think we've got a very good g- forward plan on that. But that one will have to wait and then, apart from that, all the other stuff in [Ansys]16 is the natural things you would expect in the point release. It's going to be a ton of features, which we'll be able to go into, but we'll also list on the website because most of the audience here, their eyes might glaze over if we go into it very deeply.

Understood. One last thing, if I may. You mentioned the recent segmentation of your channel, including a class which you called elite qualification. I understand it's still relatively early for having put that in place, but how do you think this will play out over the rest of the year and into next year in terms of, perhaps changing the proportion of contribution from the channel versus direct?

Again, that gets into crystal ball territory, the one thing is, numerically you can see, that channel performance among those elite performers actually was pretty strong for Q1. We would expect that to continue on.

Now what might be behind that, I want to just say because the numbers are the numbers. But qualitatively, what might be helping those numbers, and also what is making us feel quite confident in at least the direction we are going is-- I think the new ground rules; the coordination of those things; the systematizing on a global basis of that, at least from all the channel partners I've talked to, and I had a chance to talk to most of them was-- it just gave them confidence to invest on a longer-term basis, which means they are also upping their sales capacity and their support capacity.

I think the other thing that is most telling is if you look historically, a lot of these companies have come up from a single physics background, and that is really kind of like tying one hand behind your back when you look at the power of the portfolio and the platform. And we actually have people now that are expanding their portfolios, and that can only really serve to provide more opportunity.

How quickly that comes in-- we are pretty, I'd say almost bullish, on what could happen over the next few years. But how quickly that happens and the ramp-up, we'll have to wait and see.

Thank you.

Saket Kalia, Barclays Capital

Thanks for taking my questions. First on bookings, we can all see how perpetual license is done, just looking at the revenue. Can you talk about how leaf license and maintenance bookings performed in a constant currency basis?

Yes, roughly about 9% higher than what the numbers that you could probably do back of the envelope math, Saket. About a $20 million negative impact from currency. So if you look in constant currency in sales bookings-- about 6% growth.

Okay, got it. And then, a little bit more qualitatively-- you saw nice growth in North America, which seems a little different than what the manufacturing data would imply. Could you talk about it Jim, in terms of what you think is driving that?

Again, I understand the issue of the manufacturing data, but at the heart of it, and this was even true in 2009, where we maybe weren't hit quite as severely as some of the other companies. And that's because, even as the manufacturing and some of the consumer sectors were down a little bit, people were still innovating and trying to drive new products.

Our sector was being driven more from the R&D spend, if you will, than just the pure manufacturing spend. We continue to see those kind of pushes going forward. We did see some sectors, frankly, in North America like the oil industry where even long-term investment patterns tend to somewhat ebb and flow with the barrel price of crude and things like that. But of course, some of that also being affected with some of the currency.

In general we saw a push toward a lot of innovation and a lot we've got detailed in our prepared remarks, which as I mentioned, are posted on the website. When you get to some of the electronics and the automotive and some of the aerospace type of activities, the common themes we've actually been talking about maybe for a couple of years. That's really what has been driving that.

That's even in light of, when you see some of the growth there, keep in mind some of that growth in North America is actually even slightly depressed from how we normally would have said it. Because we talked about the tendency towards some of the larger customers now moving into time-based, multi-year time-based licenses when they might have done the big lumpy or perpetual.

That is also the reason why I mentioned this record deferred and backlog balance, which is approaching $0.5 billion. The numbers all kind of weave together when you look at them in that holistic sense.

That's very helpful. Thanks guys.

Steve Ashley, Robert W Baird.

This is Jason [Buncovar] on for Steve. Thanks for taking my questions. The first question-- I was wondering if you could comment on success that you're seeing selling to design engineers, and which products are you selling to them? Are you going to those users with our the SpaceClaim or the core ANSYS product?

Keep in mind it's actually both and if you look at it, they're in pieces. But we talk about ease-of-use, which is the main thing toward being in their desired market. I'll put my little plug in here is that-- just dumbing down a product is not going to solve designer problems when they are solving complicated product-release issues.

Given that, it has to be easier to use. Just like we saw with what happened with the home PC and portable electronics, that ease-of-use is necessary, but it comes in many different flavors.

First of all, you have got to have the overall power. Second of all, you have to have to usability. Third of all, basically the mechanics are interacting with the software-- it has to be intuitive and straightforward.

Now that latter part I said, we've been incrementally doing that over many releases. And this actually ANSYS 16 is one of the first ones we're on a platform basis. We have kind of been able to release some new usage paradigms in addition to customizations that I mentioned.

You mentioned the second thing, which is also very key, and there is no doubt that the blending of some of the intuitive direct modeling space claim kind of capability, and also weaving those in-- it used to be geometry was a step; and then making a math model was a step; and then in the running the model was a step. We've actually been able to make dramatic progress in terms of converging those first two steps of geometry and the math model in terms of making a model-- something that people can quickly interact with.

From a usability standpoint that may be one of the most significant things that came both in the early parts of ANSYS16 in the upcoming releases, as well as the integration of space plane in general going into the technology basis. Those are all aspects and they're going to continue to progress.

Again, if you think about your home PC over the last 20 years and how it evolved into tablets and wearable devices. You can see how that ease-of-use paradigm never really stalled. It just continued to advance and you are going to see the same thing with our software.

At the heart of it is always going to be software that accurately and reliably gives people the information they need to commission major product releases.

Great, that's helpful. And just a quick follow-up on that. You mentioned integrating some of the SpaceClaim functionality in ANSYS16. I just wanted to make sure-- are you also selling standalone SpaceClaim product or you getting traction selling that as well?

Yes. In fact, you might have noticed that in previous quarters we were saying-- well that was a little bit slow on the uptake and that has really not been a talking point on this one. There's a couple of different aspects of it. First of all, there is a CAD aspect of SpaceClaim and that is really not our focus. We've said that from day one. We love the inherent technology.

There's been an influx of different smaller channels that have been interested in that capability and that is fine. We're going to focus on the simulation, innovation, virtual prototyping.

However, with that in mind, from day one we have always had geometry creation, geometry integration with other CAD partners and players and things like that. And so geometry has only played some role in that innovation process. This is just the main reason why we were interested in SpaceClaim was it takes that to a new level with us.

We found that actually the benefits that come from somebody being able to, on the fly at the speed of thought, be able to generate innovative designs and concepts very quickly has been something that really unlocks this overall approach in simulation. Again-- early on in the process, but those are the things that we've seen right from the get-go.

Great thanks that's very helpful.

Sterling Auty, JPMorgan.

Thanks, hi guys. I'm wondering to start with can you give us -- what was the SpaceClaim contribution in the quarter?

It was somewhere in the $2 billion to $3 billion range.

Okay. And the 115 headcount increase that you mentioned year-over-year. I want to make sure that I'm clear-- was that 115 all in sales or that was the total net increase? And what portion?

115 was the net increase, the majority were in sales but it was not the full 115.

Okay and looking at how you've layered in the hires and noting that it's mainly Asia and North America to start with-- how should we think about when that productivity ramp is really going to hit? It seems like with that level of SpaceClaim contribution, that the organic constant currency growth in March looks to be about the same as what it was in December, so haven't seen the impact yet.

We are really looking at second half. And that has always been built into our guidance. So, Auty, that very early statement I said, where if you look at what we've said three months ago with of the currency impact taken out of there, what we saw in the quarter and what we are seeing for the end of the year, it's pretty much in our projections.

Of course we want to include Europe. We want to, as I mentioned, rule Europe in there. It was a little bit slower on the uptake of adding the sales capacity and, like I said, that was something that we started addressing very early on.

To answer your question, the other thing is there really isn't a whole change in the dynamics of sales ramp up. It's typically in that six 6 to 9 months to be marginally productive. Early on, they're still producing sales and things like that but I'm talking about when they start to ramp up.

Then quite frankly, we turned that over and it really doesn't go asymptotic until about the year three or four, when they start to get up to the full competency, which then dictates the sales productivity on a go-forward standpoint from there.

And last question-- I think you mentioned FX actually shrunk some of the deal sizes. What I'm curious about is, whether you are seeing some of the FX actually -- forget about the translation of the contract value-- but actual demand impacts from FX.

I personally would of thought to get to double-digit constant currency growth this year, I would've thought we would have started a little bit higher than where we did. So I'm wondering if there is that indirect impact on demand from FX in some regions?

Very little that we can see from the indirect. You might have some in some of the smaller markets the Eastern Europe, of course we've talked about the issue of, we have a very subdued of view of Russia, which a couple years prior had been have been a significant one. The effects that we were talking about were really a pure translation type of impact.

Got it. Thank you guys.

Steve Koenig, Koenig

Thank you very much. I think get the picture on quota carriers. They were up quite sharply year on year as of the Q1 call. But mostly, just to confirm, that occurred in Asia-Pac and North America, really not so much in Europe. Is that correct?

Yes. Disproportionately and that was again, a lot was happening --a little bit happened at the end of last year-- and a lot was happening Throughout Q1.

Okay. And then I want to ask really the questions related to that-- the reorg of sale into a named accounts group that was pretty significant in size. Where did this occur and what regions?

First of all it, wasn't a holistic approach. It was a bifurcation of the sales force, because there are still a lot of things related to developmental work in the small and medium enterprise. However, we always did a really good job at those major accounts. You could see the statistics of those, of the top 20 or 30 of those really major ones.

However, the rest were in kind of a more territorial melange and so we've broken in there. So, first of all, I want to paint the picture that it wasn't just all named accounts, but just the additional (Multiple speakers)

There is a push toward the focus of those major accounts. And that focus really is -- actually the one thing I can tell you is that it has allowed for a lot more interaction and specific activities within those named accounts. So, in other words that focus has led to some very targeted type of things, which have actually been pretty encouraging, and in the meantime, kind of fun.

Okay. So maybe for my follow-up I want to clarify that and ask a follow-up. So I'm asking specifically what regions did you create the named accounts group in and was there any disruption from that? And then, when do you expect to see acceleration from that? Is that also a second-half phenomena?

Absolutely. It takes time to get to build those relationships, know the different things and, if you will, just break the status quo of how the customers have been interacted with, sometimes on a very pathical level. Now-- how it plays through. Obviously it's one that's very well matched toward North America.

There are areas where it's also being used in Asia, but there are the things where we have to take into account. So, for instance, you might say somewhere in China and the split or might be along the lines of state-owned enterprises versus multinational companies involved there and other types. But the main thing has been toward getting specific people focused towards a specific short-term and high-return type of activities.

The only thing I'd say, the one thing that is numerically encouraging to us is, we have seen the gross pipelines increase as a result of this overall activity. But gross pipelines, they can be a gained number, so at the end of the day if it doesn't flow through the pipe, it ultimately turns into sales-- then it's largely hype.

We have seen those numbers and we're now expecting to see some of that move through the pipe. Again, over the same two-three-quarter kind of time frame.

So just to clarify Jim. It sounds as if from your commentary you didn't really see any disruption from this reorganization in the areas that you did it. And you are expecting it to become productive in a few quarters. Is that a fair understanding?

It's a fair assessment. I would have to say-- I would also expect there to be a little bit of disruption. Sometimes you have to do that just to get things moving. However, it was not noticeable. It was not one of those things where we said-- oh, my gosh thing's have --. I'm sure there was growing pains and disruption out there.

Nothing that on a total basis cost us any pause or concern, so pretty much along the lines we assumed. Does that help?

Yes, it certainly does. Thanks a lot.

Jason Rogers, Great Lakes Review

Hello. Looking at North America, does the weakness in the oil and gas sector that you saw have a material impact on the growth rate for the quarter?

It had an impact. I guess you have to define material. Was it a 5% change? No, but was it 1 point or 2 points? Very possibly.

Keep in mind, the one thing we've got, in this very early going, we've got a very broad-based industry composition and therefore we don't have any one industry that really accounts for more than 20% of all of our business. So even when there are those kind of dislocations in there, it is tough to move the overall number. But it was noticeable and it did have an impact on the growth rate.

Alright. Would you be able to quantify the number of seven-figure deals for the quarter, if you were to exclude FX and include those that have been pushed out to Q2?

We would be able to but I didn't run those numbers. We're still building the base. I would have to sort through it on the fly and I don't have that number. There were enough that we knew that was one of the three things.

The first and foremost one is when you have a four-year deal with somebody and you can that see it's expanding the deferred and backlog balances -- you know that is not going to be in the renewal count and that is really not a disconcerting thing at all. And, as you recall, we even talked about a couple of things, fairly significant ones that pulled into Q4.

The fact is we're going to have a revenue ramp-up from that. It just won't count as the very cardinal number of numbers in there.

So, what we want to do is we want to look at that kind of balance over the long-term. We'll be looking at renewal rates and growth rates in those, which is one reason why I highlighted the growth rate in those average orders that did come up. Because that is something that seems to be something that follows with every one of these major deals involves time-based licenses, long-term kind of progression.

So the fact is, if we can continue to have our largest customers increasing as a total population and growing disproportionately to the company growth rate, we consider that very good while we are also developing that small medium enterprise and designer elements of the business.

All right. And the percentage of these seven-figure deals that have moved to time-based licenses, was that percentage similar to the previous quarter?

It's a little bit higher. We are seeing, like I said-- it's not like there's a student body ride-on here but we are seeing a continued trend. And, like I said, even companies that for decades have been purchasers of periodic lumps of perpetual licenses, they are some of the people that are also doing that. I guess, if anything, maybe partially to provide a controllable ramp and understanding of their own usage and look at that as a manageable asset.

All right and finally, I wonder if you could comment on the current environment for acquisitions, what opportunities you're seeing valuations. Thank you.

Valuations are all over the map, but they are tending more toward the richer ones. We're seeing a good population, but again the ones that we look at -- I think we've started talking more about things that might be in the $50 million to $70 million kind of revenue range.

Another, clump that are very interesting technology that are relatively good growers, but there may be in the $1million to $5 million kind of revenue standpoint. They are important from a technology standpoint but it's not like they're going to actually move the dial. We're seeing a reasonable population of those, but it is couched around valuations, which I'd say our to rich and even above that.

Thanks a lot.

Ross MacMillan, RBC.

Thanks for taking my questions. Maria, I wanted to confirm-- do have the sequential impact on deferred revenue from foreign exchange in the quarter?

Yes. It's about $8.6 million, Ross.

Thank you. And just given what you are seeing in terms of either billings, or current bookings or however you think about order intake into the business-- I was just curious as to, I think you're guiding to that constant currency revenue growth this year.

Do you think the order intake, however you measure that, will be about the same rate? Or do think it could be higher or lower? How do you think about that metric?

Bottom line is, we would expect that it probably will historically be a bit above the revenue growth. However what kind of effect that is-- you've got multi-your deals, you've got the timing of those, how many years are they involved and things like that.

As we mentioned on the last call, we had some where people went in and said -- okay, we want to go multi-year. And they said-- well okay, so here is our framework for four years, but contractually we're only committing to two years. Now, in reality are they going to pull the plug on all software at that point? No but we don't count that in our numbers.

The way that those orders come in and under what terms are really going to do that. But if you looked at everything as being on an apples to apples basis, I would anticipate that the order rate would actually outpace the recognized revenue rates. Maria, I'm sorry, I didn't mean to cut you off. Is there anything?

No, that's fine.

That is really helpful. And then Jim-- just two for you quickly. I think you did mention you saw slightly higher percentage of time-based or flexible license deals. Do you know what those actually were in the quarter out of the 22 over 1 million. Is there a specific number you can highlight?

I don't have that parsed down right in front of me. That's something we can take a look at.

The only thing I will comment Ross, is, and we alluded to this on the last call, is that the largest deal in the quarter came to us and we have been working on this, obviously, for the past couple of months.

Historically if you look at last year's Q1 or the year before, it manifested itself in a large perpetual. This year it manifested itself in ratable recognition, so helping to contribute to the buildup in that deferred revenue and backlog number.

Understood. That is helpful. And then Jim, last one. On Europe, if we go back-- you'd taken a charge in Q4 for headcount reductions, and I just wanted to make sure I understood what the charge was that you're anticipating for Q2. Is this equivalent to what we saw in Q4, but for Europe this time around as opposed to a different region?

Yes, essentially that is the nuts and bolts of it. Maria?

Yes. Jim in his script talked about how we've been systematically going across the globe making changes, because quite frankly, what got us here is not going to get us to where we want to go. And so there are certain skill sets that, quite frankly, we need to hire in, but it's not going to be at the cost of just incrementally to bring down the margins.

We are trying to balance investing in the business and bringing intelligent skill sets that don't necessarily exist that we need to continue to grow the business, and at the same time being cognizant that there are some that just don't belong -align with where we are going in the future. So now we are taking a look at Europe and our go-to-market strategy and similar things that we did in other geographies.

Understood. So, as the portfolio has become more complex. There's different skill sets and, therefore, you're trying to invest in the right skill sets given the portfolio of product set today?

That is correct. Keep in mind, we've always talked about you have to have extreme, deep knowledge, so that's an important part. However, the part that's expanding, also is that you need to have the understanding of how the portfolio and multi-physics work together, and how systems can actually be optimized not just sub-pieces of that. And those are some of the major things where we need to bolster those and now we are turning our attention to that.

Perfect. Thanks so much and congrats.

Matt Williams, Evercore ISI

Good morning guys. Thanks for taking the question. On the multi-year engagement contracts, gradually shifting in that direction, can you give us a little bit of color in terms of how much of that activity is being driven from your end, in terms of actively engaging and starting to walk people down that path? And how much of it is really customers coming to you and saying

It's really (Multiple speakers) It's really kind of a collaborative approach where customers are looking at what they see in a long-term acquisition thing as opposed to a transactional kind of relationship. And we're looking at what is the proper rate at which we can install the software in there and actually turns into a collaboration process.

I think the only thing that maybe has happened as opposed to over the last few years -- we used to have a handful of customers that did it and now it's becoming a little bit more broad-based and we have to continue to put a systematic rigor around how we do that. But it's not like we've created a forced march for the customer and it's not like the customers are pounding on the gates with pitchforks. It's more along the lines of as we expand, and as they expand their usage, they have to be able to do that in a controlled, managed way, and we also want to be able to help provide that to them.

So, if anything I think that the healthiest aspect is, as opposed to treating each one as a purchase transaction, it's actually been more of a charting, if you will, of a multi-year implementation strategy.

Okay. That is helpful. And maybe just a high-level-- one of the themes that you guys have been talking about has been the Internet of things and what that could potentially mean for the business. So, I'm wondering if you could just give a high level update around IOT and any particular segments where your solutions are particularly resonating with customers.

There's actually two aspects of one. One is Internet of things as an infrastructure, so if you look at all the things where you have got to have a lot of connected devices-- a lot of times they have antennas and they have got electronic content, but they have to have structural and mechanical survivability.

In other words you have to have that connectivity. If you have got a billion devices connected you can't be having a billion service calls for failed components. Helping companies get involved in that kind of information in terms of helping to build out the infrastructure, is one aspect of it.

There's actually another thing I am particularly excited about is-- when you have all of these connected things, they're going to tell you what is going on, but they're not necessarily going to be able to tell you what do you do about it? Or what does that imply in terms of -- if you're getting all this feedback of operational data and things like that from the real world--it might be how close are you getting to scheduled maintenance or failure?

That concept of linking it in with the design intent of the product, and how it was designed and how the real world is comparing to the assumptions of what it was designed for-- now taking all that information and tying that into a simulation backbone is very key.

That is something that will take a little bit more time, over time. But just helping companies get out there with products that can have the connectivity and survivability to fit into that framework is one where we see a lot of early movement.

Okay great. Thanks for taking the question.

Jay Vleeschhouwer Griffin Securities, Inc.

Very good, thank you. Jim, I would like to ask about two of your larger verticals and your expectations there. First, when you take the percentages of revenue by vertical that you shared with us, the combined electronics and semi' s are typically about one third of your revenue.

You've had some pretty good growth there over the last couple of years. The mid-teens it looks like in 2014. The proportion was a little bit down in Q1, again on a combined basis. And so it does look as though electronics and semi' s may have slowed a little bit for you in the quarter. Could you talk about your expectations for that over perhaps the remainder of the year in terms of the capacity and so forth?

Then the second question, I'll just get that in is-- there's a view in the industry that in the automotive vertical, one of your larger ones as well, that over the next 2 to 4 years, there are going to be some potentially important new selections or re-selections by many of the car companies particularly outside of the United States. And a lot of it having to do with, perhaps, new or re-done PLM and systems engineering decisions. I'm sure you're aware of all that.

My question is, to the extent that this process occurs in automotive, what could be the corollary effects on simulation, in terms of pulling through some perhaps new simulations selections by auto as they go through these other selections as well?

It obviously could help drive that. Again, as you noted, our growth in automotive has been fairly strong. And in some ways, maybe back in the 80s, some of the analysis capabilities went hand-in-hand with some of the CAD, CAM capabilities.

There's been an awful lot of individual and parallel movements along those lines. And I think that we'll continue to see that and how they actually get reconciled during the PLM re-factoring -- that I really don't know and maybe few people ultimately do.

Now, in the electronics side, the reason we separate those is that there is a fundamental difference in the cyclical nature of what is happening those top 20 or 30 chip manufacturers, which are heavily Apache oriented versus what are people doing maybe even with set parts of chips that are already developed in determining -- in creating overall electronic devices whether it's for consumer or whatever. And the other thing is to keep in mind the automotive thing-- there are many companies that are traditional electronics names and they're scored that way, but they are shifting major parts of their business toward specifically serving this need you noted here, this demand that is emerging in the automotive and avionics kind of world.

So it's a continuum there, but that is why we really segment out what is going on in that chip thing, because what is happening in the automotive in general is-- it's helped by, it's related by what's happening with moving to the smaller nanometer chip sets and the 3-D chips and things like that. So they really-- even though they are both electrical and nature-- it's the same thing as automotive and the oil industry both deal with mechanical structures, but they don't-- the industries, even though they deal with similar physical phenomenon, it is not exactly the same thing.

We basically expect those two sectors to still be linked but operate independently. But there definitely is going to be a push in that dynamic. We see the continued growth on the automotive side, and in those nontraditional ways that relate to the electronics, whether it's for safety systems or controls or a whole range of different activities.

Thanks very much.

Ladies and gentlemen, at this time we've reached the end of today's question-and-answer session. I would like to turn the conference call back over to Mr. Cashman for any closing remarks.

I think we just about covered it, everybody, but thanks for the questions and your time. I will just say I'd like to thank everybody for the participation in the call and the continuing interest and support of ANSYS. Also I would like to do my normal shout-out to the entire ANSYS team for the execution in Q1, and that commitment to all of the things that we've just talked about in this call.

In short, we believe that we are well-positioned to drive growth and achieve our goals in the coming year. Basically I would say for two very significant reasons.

The first is we have increased visibility from some of those larger multi-year enterprise opportunities. And, second, we've been successful in our more aggressive approach to sales hiring that we left referenced in the last two calls. We're also expanding, as we mentioned, with a focus on Europe and we expect that will have a positive implication for driving the sales and revenue growth and particularly, as we mentioned, in the second half of the year.

When you back that up with the fact that an unparalleled product offering, and the longevity that we have with our customers, and to some of the basics in terms of high recurring revenue and those types of capabilities, we remain pretty bullish on that. We're committed basically to driving operating cash flow and continuing to generate significant returns to our stockholders.

I will put one last plug in-- we look forward to seeing all of you at our upcoming Investor Day, June 2, just outside of Detroit, and it will be held in conjunction with the Automotive Simulation World Congress. It'll be a unique opportunity for you to learn more about the exciting growth prospects available to us and we hope to see you there. Thanks everybody, and we will talk to you again next quarter.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending.