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Q1 2008 Earnings Call Transcript

May 1, 2008 10:30 am ET


Jim Cashman – President and CEO

Maria Shields – CFO


Andrew Matorin – Bear Stearns

Richard Davis – Needham & Co.

Barbara Coffey – Kaufman Brothers

Mark Schappel – The Benchmark Co.

Steve Ashley – Robert W. Baird

Ross MacMillan – Jefferies & Co.

Scott Blumenthal – Emerald Advisers

Sanil Daptardar – Centennial Asset Management

Jason Rogers – Great Lakes Review



Good morning and welcome to the ANSYS first quarter 2008 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session at the end of the call. Today's conference is being recorded at the request of ANSYS, Inc. If anyone has any objections, you may disconnect at this time.

I would like to introduce your speaker for this morning, Mr. Jim Cashman, President and Chief Executive Officer. Mr. Cashman, you may begin.

Jim Cashman

Okay, thank you. Good morning everybody, and welcome to the ANSYS call for Q1 2008, and there will be another speaker of course. Joining me this morning is Maria Shields, our CFO. There is a lot to cover this morning, so I'll start with some summary comments to outline the highlights of the quarter, and then follow that up with the examination of the results from our usual variety of perspectives.

Okay, there are two major themes for the quarter. First is the continued strong performance of the ANSYS core business. The second centers around our recent announcement of signing a definitive agreement to purchase Ansoft Corporation. Maria will then update you on our line item expense performance, balance sheet, cash flows, and provide an update on our current outlook on earnings, and after that we'll be happy to entertain any questions you may have.

So, to get us officially started, Maria would you present our Safe Harbor statement, please?

Maria Shields

Yes, thanks. Good morning and again everyone, thank you for joining us. Before we begin, I'll remind everyone that during the course of this conference call some matters that will be discussed, as either part of the prepared remarks or in response to questions, may constitute forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from those projected. Additionally, the company's reported results should not be considered an indication of future performance as there are potential risks and uncertainties that could impact our business in the future. These are discussed at length in our public filings, including our Forms 10-Q, 10-K, 8-K, and our 2007 Annual Report to stockholders, all of which are available via our website. Any forward-looking statements are based upon the company's best judgment as of today, and ANSYS undertakes no obligation to update any such information, unless we do so in a public forum.

During the course of this call, we'll be making reference to non-GAAP financial measures in an effort to provide supplemental information to our GAAP disclosures. A discussion and full reconciliation of GAAP financial measures to comparable non-GAAP measures is included in this morning's earnings release and the related Form 8-K.

In connection with the proposed transaction that Jim mentioned earlier, ANSYS has filed a registration statement on Form S4 with the SEC. It includes the prospectus proxy statement of ANSYS and Ansoft, and other relevant materials in connection with the proposed transaction. We urge you to read the registration statement and any other relevant material when they become available because they contain important information about ANSYS and Ansoft and the proposed transaction and related matters. The final joint proxy prospectus statement will be mailed to stockholders of Ansoft. You can obtain free copies of the registration statement and the prospectus proxy statement when they become available, as well as other filings with the SEC containing information about ANSYS and Ansoft, without charge, from the Investor Relations department of either company, or from either company's website, as well as the SEC’s Internet site.

ANSYS, Ansoft, and the respective Directors and Executive Officers, and other members of management and employees, may be deemed to be participants in the solicitation of proxies from the security holders of Ansoft in connection with the merger. Information regarding these participants is available in each company's Annual Report and proxy statement, and will be included in the registration statement and joint prospectus proxy.

I'll now turn the call back over to Jim to go through an overview of our first quarter business results and our progress to date. Jim?

Jim Cashman

Okay. Thanks, Maria. So, as I said before, Q1 saw continued excellent performance of our core ANSYS business. It was above our non-GAAP revenue and earnings guidance, and basically all segments of our business performed well on both a quantitative and a qualitative basis. To set the stage for the numbers, I'll be using non-GAAP numbers in the same fashion as we've been using historically. This will maintain consistency with our calls of past quarters and years. And actually, GAAP and non-GAAP revenues are identical in 2008, and they will be compared to the non-GAAP revenues for the comparable Q1 2007, the ones we talked about a year ago. Non-GAAP earnings include the usual amortization and stock-based compensation adjustments for Q1 2007 and 2008, and they are detailed in our earnings announcement.

So just from a high-level perspective, for the quarter, we reported strong financial performance with non-GAAP revenues of $109.5 million. This represents a 22% increase from last year's Q1 of $89.6 million. Essentially, we have maintained this growth even in light of a strong comparable, and while spending considerable effort in the background on the Ansoft engagement.

Non-GAAP diluted earnings per share increased 38%, with non-GAAP EPS of $0.40, up from last Q1's comparable of $0.29, reflecting last year's two-for-one stock split. This was also above our guidance and the analyst consensus, but it's a direct consequence of what happens in our model when we overperform on the top line.

Secondly, all major aspects, as I mentioned, of the business performed well. We saw continued strong gross and operating margins, cash flows, and a stable business model that proved to be resilient to some of the economic climate that we've been seeing here and there. Then we also saw continued acceleration of customer engagements for both new adopters and longstanding relationships. There were increases in portfolio sales, cross-selling activities, and a continued uncharacteristic increase in large orders, including several in excess of seven-figure orders, which explained a portion of the top line overachievement.

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