Jim Cashman - CEO Maria Shields - CFO.

John Smiths - William Blair Jay Vleeschhouwer - Griffin Securities Saket Kalia - Barclays Capital Jason Buncovar - Robert W. Baird Sterling Auty - JPMorgan Steve Koenig - Koenig Jason Rogers - Great Lakes Review Ross MacMillan - RBC Matt Williams - Evercore.

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 to turn the call over to Mr. Jim Cashman for opening remarks..

Okay, good morning and thanks everyone for joining us to discuss our First Quarter Financial Results. So as usual before we get started, I'd like to introduce Maria Shields, our CFO for our Safe Harbor statements.

Maria?.

Okay. Thanks, Jim. Good morning, everyone. Our earnings release and the related prepared remarks document have been posted on the home page of our Investor Relations website this morning.

And they contain all of the key financial information and supporting data relative to Q1 business results as well as our current Q2 and fiscal year 2015 outlook and the key underlying assumptions.

I'd 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.

And 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 last prepared remarks, we 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. So Jim, I'll now turn it back to you..

Thank you Maria. So let’s start with a recap of the results that the ANSYS team achieved in Q1. Obviously I’m saying that Q1 was a solid quarter on many fronts, it was highlighted by strong cash flows of 114 million, record differed revenue and backlog balance of over a 477 million and non-GAAP operating margins are 47%.

Our non-GAAP revenue growth for the quarter was 8% driven by 11% growth in the 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 our growth came from our broad base at industries which are highlighted actually in more detail within the quarter’s prepared remarks which are posted on our website.

But as an [indiscernible] team the quarter end the upcoming year is still in the range and the parameters that we set out on our last call in constant currencies.

Our recorded revenue was in our guidance range but a bit before 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 never the less 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 leading 4.4 million shares in our authorized pool as of March 31, 2015.

While our primary use of access capital is for targeted acquisitions, we remained committed to returning capital for our shareholders while simultaneously growing our top line.

So operational highlights in the first quarter and shortly thereafter include -- well we had 22 customer orders and access of 1 million as compared to the 32 customers with orders in excess of 1 million for Q1 and 2014. Now the comparative change of the number of large deals in Q1 to 2015 is attributable to a combination of fairly obvious factor.

The main one was timing including both year deals that closed in Q1 of last year that are simply not scheduled to renew until future years. Deals that call earlier in Q4 of 2014, we mentioned some of those on the last call. And of course there were all those inevitable deals that pushed out Q2 of 2015.

Also the currency headwinds manifest themselves particularly in Europe and that depressed us on transactions sizes to slightly below the $1 million for the quarter.

But one thing I like to notice that while the numbers of the seven figure deals was lower for the quarter, the average size of those deals was up 26% over a last year first quarter which is consistent with the general trends that we've hence changed.

So other highlights for the quarter, well, actually at the top of it would be the release of ANSYS 16 in Q1.

Now this new release delivers major advancement across ANSYS's entire portfolio including structure, fluids, electronics and Systems Engineering Solutions and it really just further increases our technological leadership than again our main goal of providing ANSYS ability to validate their design with complete virtual prototypes.

So, we also have a another release plan in the very near future so stay tuned for additional announcements and really 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 had 35 employees on a net basis, the majority in sales which positions us with a 115 more employees than we had year ago. This accelerated pace of hiring really as an important lever to drive the increase sales execution capacity in growth that we've been talking about for 2015.

Now towards the equity end of Q1, ANSYS was also recognized that company at the year of 2015 Engineering Symposium Simulations awards that were held in Derby, UK and criteria for winning the award includes having a strong market presence and an outstanding reputation for quality and innovative approach to business so kudos to the ANSYS team and my colleagues here for that.

So 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 the 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. So 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 slow 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.

So with that, 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.

So Maria?.

Okay, thanks Jim. As Jim highlighted in his remarks, our results for the first quarter reflect continued solid execution despite the currency headwind.

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 towards Q2 in the balance of the year our outlook excluding currency remains unchanged. We expect to continue to execute against our strategic initiative just as we have in the past several quarters.

With respect to currency we've outlined revised functions 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 assumption our outlook for 2Q is non-GAAP revenue in the range of 230 to 238 million and non-GAAP diluted EPS in the range of $0.78 to $0.82.

With respect to fiscal year 2015 we're updating our previous outlook for the full year to reflect the strengthening of the US dollar particularly against the Euro. Those updates translate to our revised outlook of non-GAAP revenue in the range of 943 to 968 million and non-GAAP EPS $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 bought on in Q4 and Q1 begin producing and as our recently announced general initiatives begin to take hold.

As we mentioned in this morning's earnings announcement our Q2 and fiscal year 2015 guidance includes charges of $0.01 to $0.02 related to organizational changes that will primarily incur in Europe. So with that operator we'll now open up the line for questions..

Ladies and gentlemen at this time we'll begin the question and answer session. [Operator Instructions] Our first question comes from Anil Doradla from William Blair; please go ahead with your question..

Hey guys, this is John Smiths on for Anil, thanks for taking my questions.

First one, want to start up with ANSYS 16.0, it's been several months now since the release, just hoping you can maybe provide some additional color on maybe 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..

Yes, well, keep in mind this is pretty early in the cycle but the -- I mean the anecdotal proof points we have on that are related to -- you know first and foremost I think from established customers that maybe we're already -- they know it's -- I mean they appreciate some of the increase in usability, but I think the increase in the customization toolkits that allow them to taper and tailor some of that to their specific needs is probably been the thing that we heard the most information on.

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

Great, thanks. And then just a quick follow up, regarding the, you know $0.01 to $0.02 impact from the restructuring.

You know is this something that we could expect to see potentially happening again in the second half of the year, is this kind of going to be one time charge related to the Europe restructuring?.

Keep it in mind, these are things that we do not do [indiscernible] and in fact the only thing I’d say is if you go back -- I mean you can test us against thing that we mentioned on the last few earnings call which is part of public record, it’s just that we weren’t going try to simultaneously effect all changes at once.

So, we worked in a specific methodology was very structured, we called out at Asia -- about a year and half to almost -- about a year and half-two years ago and I think you've seen all pretty significant numerical changed there but it was involving all those aspects, in terms of leadership, workload balancing, sales capacity, support building and even some infrastructural building.

Now, when we've had that pretty well as late we've talked about that, we said, we're going to do some similar things in North America and I think we saw in the recent once. I mean, it's very early but -- some of the numerical impact of that has been seen and now like I said, over the years Europe been a strong performer.

But now we want to put the attention there, we want to have that changed methodology. So this is a very systematic sequenced approach, it just we didn't want to have everything in plus all at once. Because it take that, it takes what focus and takes management then so with that mind, these are fully major systematic steps.

And I don't -- we don't anticipated drip, drip, drip kind of asset to those and that assuming that general economic factors stay somewhat in league, but this is part of a structured plan..

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

Maria first for you, could you update us on your cash flow expectation for the year, if its changed from the 360 to 380 range, that's you've talked about a quarter ago for 2015?.

Yes, I said mostly related to currency, Jay, I'd say probably a range of 340 to 360; it's comfortable for us, right now..

Okay. And for Jim, you eluded in your remarks to a forth coming new release post ANSYS 16, I assume that you're eluding to your forth coming Cloudy and EKM updates and perhaps some other new initiatives as well and is there anything to say but that now or is that continued at the analyst meeting..

Yes, first of all, at that the what you've mentioned as a subset -- all be it a significant subset for the more relief, I am going to leave that as a teaser to investor day but it's most of you know, we've software service offering for almost 15 years continuously.

But the cloud is different thing, it's not just about sticking any kind of software out there and say, now you have the access, there are lot of things we did with regard to partnership, with regard to pricing and demand elasticity and things like that and as you also eluded we’ll let the cat out of the bag, the way that it links in with the engineering knowledge management system to provide a framework to that.

So this is just not dialing and you getting access to single agent capability, so more holistic approach and we want to make sure that as we talked our long chaining software and service, that we brought it up, but again I think, there will, we say that for the June timeframe and -- we're pretty excited about it.

I think it says long-term trend, I mean the trends for driving simulation in this usage, they are a little bit more complication as we've discussed in a lot of typical cloud applications, but I think we've got very good go forward plan on that.

But that one we have to wait and then apart from that all the others stuff in ’16, it’s kind of the natural thing that you would expect in the point release, which it's going to be a ton of features, which we’ll be able to go into but we're also list on the website as you know, mostly audience here their eyes might glaze over if we go into very deep later..

Understood.

One last if I may, you mentioned the recent segmentation of your channel including a class of what you called a [indiscernible] qualification, I understand this still relative 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 contribution from the channel versus direct?.

Well, that get into crystal ball territory, but the one thing I'd say, okay -- the one thing is numerically, you can see channel performance among those the elite performers actually was pretty strong for Q1 and we would expect that to continue on.

Now what might be hot behind that, I want to stay because the numbers are the numbers, but qualitatively what might be helping those numbers and also what making just the all quite half in at least the direction we're going is I think the new ground rules the coordination of those things, the system is systemizing on a global basis of that, at least from all the channel partners I've talked -- I had 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 and I think the other thing that’s most telling is that you look historically a lot of these companies have come up from a single physics background and that's really kind of a tied 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 extending their portfolio and that can only really serve to provide more opportunity.

How quickly that comes in, we're pretty, I'll say almost bullish on what can happen over the next few years but how quickly that happens, the ramp up -- we'll just have to quietly wait and see..

The next question comes from Saket Kalia from Barclays Capital. Please go ahead with your question..

First on bookings, we can all sort of 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?.

Roughly about 9% higher than what the number that you can probably do back of the envelope, now Saket. About a $20 million negative impact from currency. So if you're work in constant currency and in sales booking 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?.

Well again, understand that the issue of the manufacturing data but at the heart of it -- and this even true in 2009 where we maybe weren't hit quite as severely as some of the other company.

That's because the -- even the manufacturing and some consumer sectors were down a little bit, people were still innovating and trying to drive new products and our sector was being driven more from the R&D spend, if you will than just the pure manufacturing spend and we continue to see those kind of pushes going forward.

Now 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 it was, you know and that some of that also being affected with some of the currency.

But in general we saw a push toward large innovation, a lot we’ve got detailed in our prepared remarks which I had mentioned or posted on Website, but when you get to some of the electronics and the automotive and some of the aerospace type of activities, the common things we've actually been talking about maybe for a couple of years, that's really what's been driving that.

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

But that's also the reason why I mentioned this record deferred and backlog balance which is approaching a $0.5 billion. So, I mean, the numbers all kind of weaved together when you look at them in that holistic sense..

Got it, that's really helpful, thanks guys..

The next question comes from Steve Ashley from Robert W. Baird. Please go ahead with your question..

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?.

Well, keep in mind, that if it's actually both and if you look at it, they're -- I mean when we talk about ease-of-use, which is the main thing toward being in their desired market outlook. I will plug in here is that just dumbing down the product is not going to solve designer problems when they're solving complicated product-release issues.

But given that it to the ease-of-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. So first of all you got to have the overall power. Second of all, you have to have the usability.

Third of all, basically the mechanics of interacting with the software, you have to be intuitive and straightforward, now that latter part I said, we've been incrementally doing that over many releases and this actually post, ANSYS 16 is one of the first one, where on platform basis we kind of been able to release some new usage paradigm in addition of customization as I mentioned.

But you mentioned a 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 the math model was step and then running the model was a step and we've actually been able to make dramatic progress in terms of converting those first two steps of geometry and the math model in terms of just making the model, of something the people can quickly interact with and from the usability standpoint that may be one of the most significant things that came both in the early part to 16 and the upcoming releases as well as the integration of SpaceClaim in general going in the technology basis.

So [indiscernible] and they get continued to progress again as you think that your own PC over the last 20 year and how it evolved into tablets and wearable devices, you can see how that ease of use paradigm never release stalled, it just continued to advance; and you're going to see the same thing with our software, but at the heart of it is always going to be software that accurately reliably gives people the information they need to committed major profit 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?.

Yeah, in fact and here we you might have noticed that in previous quarter we’re saying that it was a little bit slow on the uptake and we're not really to that -- that’s really not been a talking point. We did put -- there are a couple of different aspects to it, first of all there is a CAD aspect of SpaceClaim and that's really not our focus.

We said that from day 1. We love the inherit technology, so there's been an influx of different smaller channels that have been interested in that capabilities and that's fine, we are going to focus on the simulation, innovation, virtual prototyping.

However, with than mind, I mean from day 1, we always had geometry creation, geometry integration with other CAD partners and players and things like that and some geometries always leads sub rule that innovation process and this is just the main reason why we -- SpaceClaim was [indiscernible] to take that to a new level with us and we found that actually did the benefits succumb from somebody being able on the fly and your speed of thought, be able to generate innovative designs and concepts very quickly, has been something to really unlocks this overall person simulations, so again early on in the process those are the things that we’ve seen right from the get-go.

.

Great thanks that's very helpful..

Our next question comes from Sterling Auty from JPMorgan. Please go ahead with your question.

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 -- I thinks about the 2 million to 3 million 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 wasn’t before 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..

Well, we're really looking at the second quarter -- second half, we are looking at it and that’s always been built into our guidance.

So, Auty, you've added very early statement as I said were -- if you look at what we said three months ago, I mean what with currency impacting out there, what we saw in the quarter and what we are seeing for the end of the year, it’s pretty much in our projection of course we want to include Europe, we want to as I mentioned roll Europe in there, it was little bit slower on the uptake of adding the sales capacity and alike of that was something that we started addressing very early on.

But answer to your question the adjusting isn’t really -- that really is in a whole change in the dynamic of sales ramp up. It's typically in its six to nine months to the marginally productive.

I mean there is early on, they are still producing sales and things like that but I'm talking about when they target ramp up and then quite frankly they -- we charge that over as you really doesn’t go have some topic until about it year three or four year, when they start to get up to the full competency which then price had dictate the sales productivity on a go forward stand point 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 have 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-very little that we can see from the indirect.

You might have some in some of those smaller market, the Eastern Europe of course we've talked about the issue of -- we have a very subdue with you of Russia, which you know couple of years has been a very significant one, but the effects that we are talking are really like a fewer translations type of impact..

Our next question comes from Steve Koenig from Koenig; please go ahead with your question..

I think I 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, that was happening -- a little bit happened at the end of last year and a lot was happening in Q1, throughout Q1..

Okay, and then I want to ask then really the questions related to that. The reorg of sales 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 smaller medium enterprise. However it was -- so we always did a really good job at those major accounts.

You could see the statistics of those; you know the top 20-30 of those really major ones. However the rest were in kind of a more of a territorial [mélange] and so we broke it, so first of all I want to paint the picture that it wasn't just all named accounts but that tells you about the additional, I'm sorry, go ahead.

There is a push toward to the focus of those major, of the 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 I guess that focus has led to some very targeted type of things which are -- actually been pretty encouraging and in the meantime kind of fun..

Okay so, maybe for my follow up, I want to clarify that and that's the 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 do you expect -- when do you expect to see acceleration from that, is that also a second half phenomenon?.

Absolutely, because 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 customer has been interacted with, sometimes on a very tactical level.

Now how it played through, I mean obviously it's one that's very set, very well matched toward North America, there are areas where it's also being used in Asia but there're other things where we have to take into account.

So for instance you might take somewhere in China and the split or might be along the line of state owned enterprises versus multinational companies involved there and other types.

So, the main thing has been toward getting specific people focused toward a specific short term and a higher return type of activity, and one more thing I want to say is, the one thing is, numerically encouraging to us is, we have seen the gross pipelines increase as a result of this overall activity but gross pipelines there can be a gain in numbers so, at the end of the day if it doesn't flow through the pipe and ultimately turn into sales then it's largely hyped so.

But we have seen those numbers and we're now expecting to see some of that move through the pipe again over that same two-three quarter timeframe. .

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're expecting it to become productive in a few quarters, is that a fair understanding?.

It's a fair assessment, I have to say I would also expect there would be a little bit disruption, but sometimes you have to do that just to get things moving.

However it was not, it was not noticeable and it was not one of those things where we said, oh my gosh, you know things have -- so I'm sure there was growing pains and disruption out there but nothing that on a total basis which caused us any pause or concern. So it's pretty much along the lines we assumed.

Does that help?.

Yes, certainly does, thanks a lot. .

Our next question comes from Jason Rogers from Great Lakes Review; please go ahead with your question. .

Hello.

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

Well, I don't know if it had an impact I guess you have to define material, was it a 5% change? No. Was it a point or two? Very possibly.

Keep in mind the one thing we've got is, 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 our business, so even when there are those kinds of dislocations in there, it's tough to move the overall number.

It was noticeable and it did have an impact on the growth rates..

All right, and if you're able, 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 2Q?.

We would be able to but I didn't run those numbers -- we're still building the base so, we'd have to kind of like of sort through it on the fly.

I don’t have that number but I mean, there was not that we knew that, that was one of the three things but that's first and foremost one is, when you have a four year deal with somebody and you can see this it's expanding the differed backlog balances, you know you're not going to be -- you know that that is not going to be in the renewal account and that's really not disconcerting think it all and as I recall we even talked about the couple of things -- fairly significant that pulled into Q4.

So, the fact is we're going to have a revenue ramp up from that; it just won’t count as that to be very cardinal number of numbers in there.

So, what would 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 highlighted the growth rate in those average orders that did come up because that’s something that seems to be something that follows with every one of these major deals that involved time-based licenses long-term kind of progression.

And so the fact is if we can continue to have our largest customers increasing at a total population and growing disproportionately to that the company growth rate, we consider that very good, while we're 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're seeing like we said.

It's not like there is a student body write-on here but we're seeing a continued trend and like I said even company that for decade have been purchases of periodic lumps of perpetual licenses, they are some of people, they're also doing that, I guess if anything, make it partially that provide a control over ramp and understanding of their own usage and look at 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 and evaluations. Thank you..

Well, valuations are kind of all over the map but they're tending more toward the richer once.

We're seeing a good population -- again the once that we've looked, we started talking more about things might be in the 50 million to 70 million kind of revenue range and another [indiscernible] very distinct technology that are relatively good growers, but there are may be in the 1 million to 5 million revenue standpoint, they're important from the technology standpoint but it's not as if it actually moves the dial.

So, we're seeing a reasonable population of those but it is calculated around the evaluations which I've say are too rich and even above that..

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

Maria I just want to confirm, do you 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 sort of [9%] constant currency revenue growth this year.

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

Actually, we would expect that it probably will historically be a bit above, the revenue growth however what can affect that is, you got multiyear deals, you got the timing of those, how many years as they involved and things like that and as we mentioned on the last call, we had some where people went and said okay we want to go multiyear and they said well okay so here’s 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 that point, no, we don't count that in our numbers? So, the way that those we're coming and under what terms are ready to do that.

But if you look at everything is being on apples-to-apples basis, I'd anticipate that the order rates would actually outpace the recognize revenue rates, Maria, is there anything?.

No, that's fine..

That's 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 parts, in front of me. That’s something I think we can take a look at..

The only thing I will comment Ross is and we eluded to this on the last call is that the largest deal in the quarter came to us and we've been working on this obviously for the past couple of months but 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 recognitions, so helping to contribute to the buildup in that deferred revenue and backlog number..

Understood, that's 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, I said you know as 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 instrumentalism to bring down the margin.

So we're 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 align with where we're going in the future.

So now it’s -- we're taking a look at Europe and we’re going 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?.

Yes, that's correct, I mean keep in mind we've always talked about that we have to have extreme deep knowledge. So that's an important part, however on the part that’s expanding also is that you need to have the understanding how the portfolio and multi-physics work together and how systems can actually be optimized, not just, sub-pieces of that.

Now 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..

The next question comes from Matt Williams from Evercore. I advise please go ahead with your question..

Good morning guys. Thanks for taking the question.

On the multi-year engagement in 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 we have [indiscernible] and we like to do it with you guys..

Yes, it does.

Really it's a collaborative, it's really had a collaborative approach where customers are looking at what they are sane long term acquisition thing as opposed to a transactional kind of a relationship and we're looking at what is the proper rate at which we can instill that software in there and it actually turns into a collaboration process and I think the only thing that’s happened as opposed to over the last few year, I mean we just gave a handful of customers did, 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 created a forced march for the customers and not the like the customers are pounding on the gate for pitchforks.

It's just more along lines of as we expand and they expand their usage, they had 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's helpful. And maybe just at 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 sort of high level update around IOT and maybe any particular segments where your solutions are particularly resonating with those customers..

Yes, there's actually few aspects for one; One is the Internet of Things as an infrastructure, so if you look at all of things where you 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 got a billion devices connected up you can't be having a billion service calls for failed components, so 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 that I'm particularly excited about is when you have all these connected things, they're going to tell you what's going on, but they're not necessarily will be able to tell you what you do about it or what does that imply in terms of, you're getting all this feedback of operational data and things like that from the real world, it might be well, how close you would get in to schedule maintenance or failures, so 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 was designed for.

Now taking all that information and tying that into a simulation backbone is very key. But that's something it'll take a little bit more time over time but just helping companies get out there with products that can -- that can have the connectivity and survivability to fit into that framework is one where we see a lot of early movement..

And we have follow up from Jay Vleeschhouwer from Griffin Securities. Please go ahead with your follow up..

Very good, thank you. Jim, I would like to ask about two of your larger verticals and your expectations there. First, when we 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.

And you've had some pretty good growth there over the last couple of years, 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 and 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?.

Well, it obviously helps to drive that mean 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 kind of went hand-in-hand with some of the CAD, CAM kind of capabilities but there has been lot of individual account level improvement along those lines and I think that we’ll continue to see that and how they're actually get reconciled during the annually PLF 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 there is a fundamental difference in the cyclical nature of what's happening at say maybe the those top 20 or 30 chip manufacturers, which are heavily Apache oriented versus what are people doing maybe even with set parts of chips, they're already developed in determining and creating overall electronic devices whether it's for consumer whatever.

And then the other thing is that keep in mind, the automotive thing, there are many companies that we're traditional electronics names and they're scored that way but they're shifting major parts of their business toward specifically serving this need you noted or this demand that's emerging in the automotive and avionics kind of world.

So, it's kind of a continue moment that's why we really segment out what's going on in that shifting because what's happening in automotive in general is it's help by its related with what might be happening with moving to the smaller or nanometer chipsets and the 3D chips and things like that.

So, they really kind of even though there both electrical in 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 phenomenal, it's not exactly the same thing.

We basically expect those two sectors to kind of 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 relate to the electronics, whether it's for safety systems or controls or whole range of different activities..

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

Well, I think we just about covered it everybody, but again thanks for the questions and your time. So, I guess honestly, I'd like to thank everybody for the participations in the call and the continuing interest and support of ANSYS.

So, also I'd like to do my normal shout-out to the entire ANSYS team for the execution in Q1 and just that commitment to all the things, we just talked about in this call. So, in short we believe that we're well positioned to drive growth and achieve our goals in the coming year.

Basically I'd say for two very significant reasons, the first is, we've increase stability from some of those larger multiyear enterprise opportunities and second we've been successful in our more aggressive approach to sales hiring that we left reference to in the last two calls.

And we're also expanding as we've mentioned with focus on Europe and we expect that will have a positive implication for driving a sales and revenue growth that particularly as we mentioned in the second half of the year.

So, 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 type of capabilities, we remain pretty bullish on that.

So, we're committed basically to driving operating cash flow and continuing to generate significant returns to our stockholders.

So I'll put one last one again, we look forward to seeing all of you at our upcoming Investor Day, that's at June 2nd just outside of Detroit and it will be held in conjunction with the Automotive Simulation World Congress, so 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, so thanks everybody and we'll talk to again next quarter.

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Ladies and gentlemen that does conclude today's conference call, we do thank you for attending. You may now disconnect your telephone lines..