ANSYS, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the ANSYS Third Quarter 2023 Earnings Conference Call. With us today are Ajay Gopal, President and Chief Executive Officer, Nicole Anacinas, Chief Financial Officer, and Kelsey DeBrien, Vice President, Investor Relations. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note, this event is being recorded. At this time, I would like now to turn the conference over to Ms. DeBrian for opening remarks. Please go ahead.

Good morning, everyone. Our earnings release, the related prepared remarks document, and the link to our third quarter 2023 Form 10-Q have all been posted on the homepage of our Investor Relations website. They contain the key financial information and supporting data relative to our third quarter financial results and business updates, as well as our Q4 and fiscal year 2023 outlook and the key underlying quantitative and qualitative assumptions. Today's presentation contains forward-looking information. Important factors that may affect our future results are discussed in our public filings. Forward-looking statements are based upon our view of the business as of today, and the ANSYS undertakes no obligation to update any such information. During this call, we will be referring to non-GAAP financial measures unless otherwise stated. A discussion of the various items that are excluded and the reconciliations of GAAP to the comparable non-GAAP financial measures are included in our earnings release materials. I would now like to turn the call over to our President and CEO, Ajay Kapal, for his opening remarks. Ajay?

Ajay Kapal Good morning, everyone, and thank you for joining us today. In Q3, ANSYS was on track to deliver against our third quarter guidance commitments when we were notified by the U.S. Department of Commerce of additional restrictions on sales to certain Chinese entities, as well as incremental approval processes and export restrictions on the sale of some ANSYS products and services to entities located in China. These incremental approval processes take the form of additional vetting of prospects located in China. They introduce delays in transacting certain orders for prospects in China resulting in the potential loss or deferral of some business that was scheduled to be closed in Q3. As a result, we came in below our expectations in both ACV and revenue for the quarter. Despite these developments, ANSYS delivered a strong quarter marked by double-digit growth in ACV. These updated export restrictions and incremental processes will mute ANSYS's growth in China in 2023 and 2024, after which we expect our business in China to return to steady-state growth. Nicole will give the specifics in a few minutes. It is important to remember that China represents only a small portion of our overall business. Given the strength of our business worldwide, I am confident in our ability to execute on our short- and long-term objectives. Looking back on Q3, high-tech and semiconductor, aerospace and defense, and automotive and ground transportation were our top contributing industries. We saw strength in Q3 for ACV across all customer types, and our geographical performance was as expected, with the exception of China, as I already mentioned. Our largest contract in the quarter was a three-year, eight-figure agreement with a North American aerospace and defense company that has used our solutions for years. The new agreement with this customer increases the number of users of Ansys Technology. Thanks in part to Ansys Technology, the customer has secured a key contract with the U.S. government. On our calls, I typically highlight a specific aspect of our business. I have discussed the critical role that ANSA solutions play in sustainability initiatives, as well as in the development of next generation semiconductors, and how ANSA simulation is driving fundamental changes in the commercial aerospace industry. A similar simulation power transformation is taking place in the automotive industry, which is where I'd like to focus today's discussion. As you are aware, automotive and ground transportation is our third largest industry. and ANSYS is already working with over 50 of the top transportation OEMs around the world and 93 of the top 100 global automotive suppliers. Yet, with all the innovation taking place within the sector, there is still significant room for ANSYS to grow through more users, more products, and more computations. ANSYS simulation is helping to usher in a new era of mobility through three key areas, electrification, autonomy, and driver assistance, and software-defined vehicles. And of course, we're also driving continued innovation in vehicle development. I'll walk through each with some pertinent examples. The first area of profound change in the industry is around electrification. From battery management systems to fuel cells to integrated electrified powertrain systems, ANSYS solutions are enabling rapid electric vehicle innovation from the components to the system levels. For example, our multi-physics battery simulation solutions provide interdisciplinary expertise at different scales. ANSYS's solutions for powertrain electrification provide a complete development flow from the system level to the software level, including system simulation, model-based development, and functional safety analysis. Using ANSYS, customers have reduced battery project costs by up to 30% and design cycle times by up to 50%. Porsche Motorsports turns to ANSYS simulation to speed up development time for its electric race car. With ANSYS, the engineers from the Jagdheuer Porsche Formula E team optimize their car's inverter and e-motor efficiency and then test it on a virtual racetrack. Simulation has proved to be pivotal for managing the battery's temperature and maximizing the car's performance within these demanding driving conditions. The next area I'd like to discuss is autonomy and driver assistance systems. While the road to truly autonomous vehicles may be a long one, the simulation-driven advances required to bring this technology to market are leading to safer driving experiences today. Using ANSYS's Customers are improving advanced driver assistance systems, also known as ADAS. For example, sensors play a critical role in providing human drivers, as well as autonomous systems, the data they need to make intelligent and safe decisions. And the solutions for LIDAR, radar, and cameras enable engineers to improve sensor performance to determine optimal vehicle integration configurations and to examine their behavior across a range of operational scenarios. ANSYS Customer Continental is using ANSYS simulation for optical integration analysis and corner case studies that are integral to the development and validation of new sensors and computer vision algorithms. ANSYS simulation is helping Continental slash development time and physical testing while reducing costs and freeing up engineering resources. The next area I would like to discuss is the development of software-defined vehicles. These automobiles have features that are primarily enabled through software and can be remotely upgraded over the car's lifetime. The market for software-defined vehicles is expected to grow from about $35 billion today to over $200 billion early in the next decade thanks to software-driven features for safety, infotainment, and efficiency. ANSYS solutions enable these feature-rich functions through model-based certified embedded software and code generation, electronics reliability, and connectivity systems. These advances enable engineers to meet industry safety requirements faster than manual approaches and at lower costs. Longtime ANSYS customer ZF Group is using our solutions to reduce the complexity of analysis for embedded systems. These embedded systems must be capable of operating reliably and safely under challenging environmental conditions. In the past, ZF used different tools for failure modes and effects analysis and for fault tree analysis. By standardizing on ANSYS, the company reports saving hundreds of hours on each of the many analyses projects they run. The final area I would like to mention is in vehicle development. This is a space in which ANSYS has a long history, as we play a key role in such critical areas as aerodynamics, lighting, crash safety analysis, and material management for sustainability initiatives. For example, ANSYS Ellis Dyna simulates crash scenarios, and accurately predicts the impact on the vehicle, as well as the driver and passengers, thanks to human body models. On materials, intelligent solutions enable vehicle lightweighting efforts while assessing the environmental impact of materials throughout their lifecycle. With the growth of lighting technologies and headlamps and tail lamps, ANSYS lighting solutions have reduced the need for prototypes. One of our key contracts in the quarter was with a global automotive OEM based in Europe that is standardized on ANSYS for virtual crash testing and impact analysis, replacing a competitive product. The company is leveraging ANSYS simulations to help meet its goal of reducing engineering lead time by 30% and cutting the cost of physical testing by 50%. In Q3, We also signed a contract with the leading provider of automotive seating products. This longtime customer has expanded its use of Ansys multi-physics solutions from explicit dynamics, electromagnetics, and functional safety to include mechanical, fluids, and high-performance computing. This expanded Ansys footprint benefits a number of projects, for example, enabling the company to simulate the fan noise from its ventilated seats. With Ansys technology, this automotive leader has dramatically cut development costs, reduced simulation time from days to hours, and enabled the company to respond faster and more accurately to customer requests for quotes. I'd also like to mention a different kind of customer win. I'm excited to congratulate Ansys customer Oracle Red Bull Racing on an amazing season. which culminated in capturing the 2023 Formula One World Constructors and World Drivers Championships. Using ANSYS solutions, the team simulated airflow interactions with differing shapes of the car surface while also analyzing engine cooling intakes. As a result, the team drove away with the championship. Moving beyond the automotive industry, I'm excited to announce that we have enrolled our 2000th company as a member of the Ansys Startup Program. As I have said in the past, while members of our startup program represent a small piece of our overall business, they're amongst the most innovative users of our products. And with the program's strong graduation rates, more and more expand their use of Ansys technology and become larger Ansys customers. I'm also proud that ANSYS has received a number of awards this quarter related to employee engagement and satisfaction from organizations such as Newsweek, Best Workplaces in Europe, and US News and World Report. These recognitions are a testament to our supportive, diverse, and inclusive culture, as well as the quality of our team around the world. In summary, Q3 was marked by an external challenge that impacted our ability to process certain transactions. Our global business remains strong, and the demand for Ansys technology is robust. That's because companies across industries rely on Ansys to solve the most challenging problems that they're facing. These global organizations understand that Ansys' expertise and deep and broad portfolio of multi-physics solutions can help them solve their key product and business challenges. That's Combined with our best-in-class product portfolio, our deep customer relationships, and the ongoing strength of our pipeline give me confidence in our ability to meet our commitments. And with that, I will turn the call over to Nicole. Nicole?