ANSYS, Inc.

Ladies and gentlemen, thank you for standing by and welcome to ANSYS' fourth quarter 2020 earnings conference call. With us today are Ajay Gopal, Chief Executive Officer, Maria Shields, SVP and Chief Financial Officer, Nicole Anacinas, Senior Vice President, and Annette Arivas, Senior Director, Global Investor Relations. At this time, I'd like to turn the conference call over to Ms. Erebus for some opening remarks. Ma'am, you may begin.

Good morning, everyone. Our earnings release, the related prepared remarks document, and the link to our fiscal year 2020 Form 10-K have all been posted on the homepage of our investor relations website. They contain the key financial information and supporting data relative to our fourth quarter and full year 2020 financial results and business updates, as well as our initial Q1 and fiscal year 2021 outlook and the key underlying qualitative and quantitative 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. We note that the impacts of the COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. 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 ANSYS undertakes no obligations to update any such information. During this call and in the prepared remarks, we'll be referring to non-GAAP financial measures unless otherwise stated. A discussion of the various items that are excluded and a full reconciliation of GAAP to the comparable non-GAAP financial measures is included in this morning's earnings release materials and related form 8K. Before I turn the call over to Ajay, I would like to let everybody know that we are continuing to make progress towards our environmental, social, and governance roadmap. Earlier this year, we published our first product handprint use case focused on electric vehicles. illustrating how ANSYS solutions play a critical role in solving many of the industry's challenges. Additionally, we published our non-financial materiality assessment, which will guide our ESG strategy, as well as a human capital infographic highlighting key aspects of our ANSYS culture and talent management. All of this information is available in the sustainability section of our investor relations website. I would now like to turn the call over to our CEO, Ajay Kapal, for his opening remarks. Ajay?

Good morning, everyone, and thank you for joining us. Q4 was another excellent quarter for Ansys, capping off the most successful year in our 50-year history. We beat our financial guidance for the quarter across all key metrics, including revenue, ACV, earnings per share, and cash flow. Q4 saw stronger-than-expected sales activity, which we believe was driven by a combination of deferred customer spending from earlier quarters greater than expected end-of-year customer budgets in the Americas and in EMEA, coupled with increased, albeit cautious, optimism in the economy thanks to the emergence of COVID-19 vaccines and expected government stimulus activities. During Q4, we closed nearly 100 deals over a million dollars, a total that includes eight deals in the eight figures. One of those agreements was the second largest deal in the history of the company, a five-year, $79 million contract with an enterprise customer. While economic conditions force this global company to reduce expenses across its business, it renewed and expanded its use of Ansys core solver technology worldwide and added newly acquired Ansys technologies, including electronics reliability and dynamic analysis. This contract reflects the customer's long-term decision to standardize on Ansys technology over other vendors and to reduce its reliance on physical testing and is a testament to Ansys' market leadership. As we have consistently said, our years have become increasingly back-end loaded due primarily to the timing of large deals. This steady progression has allowed our sales and operations teams to support an increasingly higher magnitude of business in the fourth quarter of each year. Our strong Q4 2020 execution drove record quarterly ACV, which is over $100 million higher than the previous largest quarter in Q4 of 2019. The strength and volume of business that we closed in Q4 resulted in annual ACV growth of almost 10% in constant currency. The year developed largely as we had predicted in our May 2020 call with regards to our performance by industry, geography, and company size. During the year, we exceeded our expectations with enterprise customers, including closing the three largest deals in our history. That speaks to the importance of Ansys' integrated multi-physics simulation capabilities that connect all the major physics, as well as to the trusted partnerships that we have built with our enterprise customers. Moving to products, we advanced our strategy of pervasive simulation with our recent delivery of Ansys 2021 Release 1 to our customers. With R1, engineers can harness the advances in simulation technology together with ever-increasing computing power to drive new levels of product innovation. This comprehensive release features advances across our entire integrated multi-physics portfolio and our simulation platform, including in Ansys Cloud, where customers can now scale beyond 1,000 cores for a single job. In ANSYS Discovery, which now includes automated thermal analysis to predict fluid and solid thermal behaviors for electronic cooling and heat management devices. In ANSYS Sherlock, where customers can now incorporate ANSYS Mechanical's random vibration analysis into their design for reliability workflow, thereby improving product reliability and lifetime. Another key element of R1 is ANSYS HFSS Mesh Fusion. This breakthrough solution simplifies the development of modern electronic products, which are incredibly complex systems consisting of multiple interacting components. Today, engineers can analyze these systems using one of two suboptimal techniques, either individual component simulation with manual combination, which can be error-prone, or a one-size-fits-all approach, which can result in long simulation times. Using Ansys HFSS Mesh Fusion's game-changing technology, an engineer can solve each component at a level of fidelity most relevant for that component, and then HFSS automatically fuses the results. This virtually eradicates the costs and the risks of traditional methods, enabling engineers to efficiently design and optimize complex products. Samsung Electronics is using HSS mesh fusion to create optimal designs and to shrink design cycle time and cost for its next generation flat screen televisions. The electronics giant uses this innovative technology to develop advanced designs that were previously unimaginable. Moving to M&A, in Q4, we closed our acquisition of Analytical Graphics Incorporated, or AGI. With AGI, we will be able to address a broader market called digital mission engineering, which combines mission simulation and analysis from AGI with component and system-level simulation from ANSYS. Based on a third-party market analysis and primary interviews with industry experts, we believe that the AGI acquisition increases ANSYS' total addressable market by $800 million. That market is being fueled by the replacement of open-source code, unsustainable in-house code, and the ongoing growth in the number of missions. Our combined portfolio will enable customers to simulate up and down the stack, starting at the chip level and going all the way up to customers' entire mission, increasing the likelihood of success and saving them time, money, and other crucial resources. This week, we announced a relationship with Keysight, which connects AGI's mission analysis software with Keysight's high-fidelity RF systems modeling capability. This partnership builds on an existing relationship which empowers engineers to evaluate mission-level behavior and is a key enabler for aerospace applications amongst others. PTC, another partner, continues to see success with its OEM of ANSYS technology. In its most recent earnings call, PTC reported that Creo powered by ANSYS products grew bookings by more than 20% in the quarter. The company highlighted one such deal at Shark Ninja, which added Creo Simulation Live to help spark innovation and decrease product development cycle times. As we look ahead to 2021, I'd like to reflect on the COVID-19 pandemic and put it in context of the Ansys business. COVID had an adverse impact on our 2020 results, most pronounced in Q2 and Q3, with some customers choosing to be cautious with their spending. However, our strong execution in the back half of the year, including the record Q4 performance, resulted in ACV above the high end of our updated May guidance and within the originally established range for the year. We are seeing a continuation of Q4's cautious optimism in our customer base with the expectation that the economic pressures of the pandemic will start to ease in the second half of 2021. but tempered by concerns with virus mutations and vaccine rollout schedules. The takeaway is that we're assuming greater uncertainty in the timing of sales activities than we would have had this been a non-COVID year. We are also planning for 2021 to be heavily back and loaded, similar to or even slightly more pronounced in 2020. And we expect a wider range of outcomes in our full year projections as was the case in 2020. You will hear more about our guidance for 2021 shortly. Let me now move to the long term, to when the pandemic is behind us. While we are not in a position to quantify these considerations, I believe that some customers who cut back during the pandemic will increase spending in R&D and simulation to compensate for other investments in 2020. More important, however, I believe that we will see a number of tailwinds that serve to increase the post-pandemic market growth rates as compared with our pre-pandemic projections. First, in a recent survey of nearly 900 executives and managers across industries, the firm McKinsey found the pandemic may have accelerated digital transformation by as much as a decade. I believe this is particularly relevant for our customers, and that they will hasten their digital transformations post-pandemic, in the process driving increased and deeper use of simulation. The pandemic proved that R&D engineers are effective when working from home, and that they can use simulation to successfully develop products even with no access to their physical labs. As companies move to hybrid work models post-pandemic, they must accelerate their digital transformations to replace legacy product development processes with modern tools and techniques. Multiphysics simulation, with its core value proposition of helping to accelerate time to market and to deliver cost savings, will be key to these transformations. Next, the pandemic seems to have pushed customers to accelerate roadmaps and to innovate faster in areas such as telecommunications and consumer electronics. We are also seeing increased R&D in the creation of eco-friendly products, such as electric vehicles and lightweight, fuel-efficient aircraft engines, as we discussed in our last earnings call. All of these products are sophisticated and complex and require integrated multi-physics simulation for design and development. That will continue to drive increased post-pandemic demand across our entire portfolio, including our newly acquired AGI mission offerings. To summarize, Despite the disruptions caused by the pandemic, Q4 was an outstanding quarter, marked by record financial results. Looking long-term, we believe that the pandemic may actually cause our total addressable market to go faster than our pre-pandemic projections. This makes me confident that as the market leader, Ansys will be able to continue to drive strong and profitable long-term growth. Our next speaker is Maria Shields. As you may know, Maria has been on CFO since 1998. And for those of you counting, that's 90 quarterly earnings calls. She's been instrumental in guiding ANSYS on a remarkable journey from our initial public offering in 1996 to our status today as a simulation industry leader. And it's very fitting that we have delivered record results in her last full quarter as CFO. On March 1st, she will transition into a new role of Senior Vice President of Administration, where she will focus on company culture, talent, and technology to help us operate at even greater efficiencies. OLA board member Nicole Anacinas will succeed Maria as CFO on March 1st. With her experience in the tech sector, as well as the knowledge of Ansys, Nicole has hit the ground running since joining Ansys full-time in December. In addition to the traditional CFO responsibilities, Nicole will direct and oversee our M&A function as well as Ansys' digital transformation. Nicole was CFO and COO at Squarespace. She was CFO at Infor and spent 17 years with IBM in various leadership positions in finance, mergers and acquisitions, and market development, including as CFO of IBM's software middleware business and its cloud business. I'll now turn the call over to Maria to discuss our Q4 and 2020 financials, and then to Nicole to give details around the 2021 outlook and assumptions for the year. Maria?