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Ansys Inc. (ANSS)

Q2 2008 Earnings Call

August 7, 2008 10:30 am ET


Jim Cashman - President and CEO

Maria Shields - CFO


Andrew Matorin - JPMorgan

Barbara Coffey - Kaufman Brothers

Mark Schappel - The Benchmark Company

David Heinz - Needham & Company

Jack Miller - Robert Baird

Greg Halter - Great Lakes Review

Greg Dunham - Deutsche Bank

Ross MacMillan - Jefferies & Company



Good morning and welcome to the ANSYS second quarter 2008 Earnings Conference Call. (Operator Instructions). Today's conference is being recorded at the request of ANSYS Incorporated. If anyone has any objections you may disconnect at this time.

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

Jim Cashman

Okay, thanks Anthony. Well good morning everyone and welcome to the ANSYS call for Q2 2008 and with me as usual today is Maria Shields, our CFO. We have a really full agenda today. As usual we'll outline the highlights of the quarter and the year-to-date and some overall summary comments and then go into greater depth on the operational results. We'll then go into some very encouraging qualitative factors that have been driving our business and in particular some opening comments on the acquisition of Ansoft Corporation, which closed on July 31.

In the short amount of time since then we've been able to already start our integration efforts and we'll be provide initial guidance for the combined entity toward the end of the call. In the course of this, Maria will then update you on our line items expense performance, balance sheet, cash flows, and provide an update on our current outlook on earnings.

And then after discussing all of these topics, we'll be happy to respond to any questions you may have. So, to begin with, Maria, our Safe Harbor Statement.

Maria Shields

Okay. Good morning. Again thank you everyone for joining us. Before we get started, we will just do a little bit of housekeeping and remind everyone that during the course of this call, some matters that will be discussed is, either part of the prepared remarks or in response to questions may constitute forward-looking statements. Those involves 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 all of our public filings including our 2007 annual report to stockholders, all of which are available via our website. Any forward-looking statements are based upon our best judgment as of today and ANSYS undertakes no obligation to update any such information unless we do so in a public forum.

And 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. And a discussion and full reconciliation of GAAP to non-GAAP is included in this morning's 8-K and earnings release.

So with that I'll turn it back over the Jim.

Jim Cashman

Well, put, Maria. Thanks. Okay, so Q2 summary. Q2 performance, basically it was strong performance on virtually all aspects of the ANSYS business. It represented results at the upper end of the range of our non-GAAP revenue guidance and above our earnings guidance. As a repeat from the last quarter, the numbers that we're using are non-GAAP in our historically consistent fashion we've been doing that for year-after-year. Actually GAAP and non-GAAP revenues are equivalent for 2008 and they will be compared to the non-GAAP revenues for the comparable Q2 and first half of 2007.

Non-GAAP earnings include the usual amortization and stock-based compensation adjustments for both 2007 and 2008 again as detailed in our earnings announcement. And as always we feel that this really does give the most accurate representation of the business.

So for a high level perspective this was another very solid quarter even by our standards and off of a string of strong comparables. For the comparable quarter, we reported non-GAAP revenue of $111.2 million this represents a 21% increase from last Q2's of $92.3 million. This was at the high end of our guidance which was $109 to $111 million.

Non-GAAP diluted earnings per share increased 40% with non-GAAP EPS of $0.42, up from last Q2's comparable $0.30. This was above our guidance and the analyst consensus and really driven by the solid revenue performance we saw. Just in the past few years our non-GAAP revenue and EPS performance for the quarter, both primarily a direct consequence of strong top line performance which basically has been driven by increasing customer adoption by the time you deal it through everything.

All major aspects of the business performed well, double-digit growth in each geography and major product line. We saw a continued strong growth in operating margins, cash flows, and a real stable business model, basically every metric was positive. There was continued acceleration of customer engagements that included expansion in our major accounts and the addition of many new customers.

Our results included 12 seven-figure orders that actually disproportionately went to deferred revenue. The majority of these were from existing customers and they were forecasted as part of our Q2 guidance. There was a continued expansion of portfolio sales and cross selling, something that we expect to cultivate with Ansoft over the next few years.

At the 50,000-foot level we are hearing the same messages from customers, there’s general economic concerns for sure that heighten the need for competitive advantages that basically we feel can greatly be facilitated by uncompromising simulation offerings.

So, that was the summary comments. Let’s slice down the operational highlights first. As previously mentioned, our non-GAAP revenue for the quarter, $111.2 million which was 21% over the $92.3 million of Q2, 2007. Non-GAAP diluted earnings for the quarter grew 40% to $0.42, up from $0.30 per share in Q2 of 2007. This exceeded the analysts’ consensus and basically marks the 43rd consecutive quarter that we have exceeded or met non-GAAP EPS.

Overall, non-GAAP operating margins for the quarter were 48%. The reason for this is threefold. First of all, the strong revenue performance filtered disproportionately down to the bottom line. Secondly, license revenues composed a higher percentage than usual in the product mix. And then finally the Ansoft acquisition temporarily changed our expense landscape in a couple of ways.

The first of these were discretionary expenses that were deferred or refactored in anticipation of the combined entity going forward. And then secondly, we focused on completing the acquisition obviously and some of these expenses had to be classified as transaction costs and therefore they went to the balance sheet instead of the income statement.

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