ANSS
#The bottom line ---+ the first and foremost is the macro.
But second of all, I think the assumption of the buying preferences that we talked about, again, good long term and over the short term.
So, bottom line is, the good relationship ---+ or the good thing is we've got a really strong relationship with our customers.
And if you recall, we actually were pretty good at, in the anticipation ---+ in the downturn a few years ago, in the 2009, 2010 time frame.
And that came because of some relationship with the customer.
But even on the ride in today, picking up some of the latest forecasts from CitiGroup.
And that was echoing ---+ that was just putting frosting on the cake of some of the things that we're already seeing.
But then you see that, and then how does that ripple through.
First of all, customers are ---+ they're going through purchases a lot more carefully and judiciously.
Second of all, when they buy things, they might be tending to buy maybe even the same amount of licenses, but now it's being spread over.
So, we get the multiple impact of what we saw, for instance, with the ---+ just that one illustrative order I talked about, with the $6 million one, which has core to be ---+ you can do the math on that one.
And what does $6 million in a quarter mean, versus spreading it over 22, 24 different pay periods.
So, it's really taking into account all of those factors, and trying to give a real accurate picture of everything we're seeing.
In terms of the long-term prospects, no, there's nothing changing there.
There are the things that we have to navigate, but everybody's going to have to navigate those type of things.
I'll tell you, first of all, it's playing out very well.
And second of all, I'll tell you we're learning.
Because ---+ and just trying to be totally open with you on this is that, first of all, I think we mentioned the very first one, at the tail end of Q4 of 2014, which, by the way, was part of the reason for that really tough comparable we were talking about.
We projected a handful, mid-single digits, of those going on in 2015, and that absolutely occurred.
Now we're seeing a significant increase, going into double digits, numbers of those going on.
But as I mentioned, we're learning on these things, too.
So, as you get to that broader base of customers, that's where we're finding out the things about, for deals of these size, in this changing environment, what does that mean in terms of duration of contracts, multi-year contracts, augmentation with our cloud type of capabilities, broadening of the product line, all of those things.
And keep in mind, this is happening at the same time as ---+ all the economic reports are coming out and saying ---+ hey, there's some increased volatility here.
So, customers are making bigger, new relationship decisions with us.
At the same time, the environmental factors are causing a little bit more caution.
So, that's what I meant by the learning process.
And what that means in terms of how we structure these.
Because each time you open up to a broader range of customers with these type of deals that really were unheard of before, over the past time, it gets into much broader range of contracting, delivery, additional things added on, and additional ways that we deliver that.
So, we're continuing to moderate that, as we go forward.
And as we also mentioned, we wanted to come out the gates expecting this.
So, now we're getting to the point where we're now being able to take this into a slightly broader range of our sales and go-to-market market.
Like I said, we weren't just opening this up to everybody, all at once, and having chaos while we were learning.
But we have some of those best practices already coming in place.
So, this is something that we see as going to be a continuing trend.
And it's super good for the long term, and building solid relationships with customers.
But it's one of those things that, most things that are really good, they don't happen with a snap of a finger.
They build over time, and we want to make sure that they build in the right manner.
Yes, so, we had provided guidance, and a portion of that deal we had in our forecast.
It ended up coming in much bigger than we had forecasted, but that was in the upside.
I would say, as we went into Q4, our expectations were ---+ for Asia, were much stronger than where we finished.
And unfortunately for us, Asia still ---+ as <UNK> highlighted on the call, Asia still has, particularly in the larger economies, preference for paid-ups.
So, when things don't cross the finish line in December, it disproportionately impacts that top line.
Yes, and, <UNK>, as I mentioned before, we could have gone in and tried to take all that extra business that came in, which was significant, and say ---+ oh, my gosh, we have ---+ and it really wouldn't have meant anything long term to the customer, other than some frustration.
And we'd still have the same good base of business going forward.
So, again, keeping with <UNK>'s earlier comment, we just want to make sure that right now we create as few obstacles to the customers' financial procurement of the capabilities as possible.
And knowing that, at the end of the day, the real name for us is getting more people using more software.
That really flattens it out over time, because as they start to use it, they usually don't start to un-use it or stop using it.
So, it almost is always a platform that builds on, which, again, you've seen over the years, in the building deferred and recurring base that we have going forward.
So, that's a conscious decision.
And also, we didn't want to get into a situation of having to give up things for ---+ if you will, for just creating some smoke and mirrors.
But keep in mind, through our entire history, there have been ---+ those things always tended to happen at a lower level, and there were some gives and there were some takes.
There were some pluses and minuses.
So, we just focused on this one illustrative one because it is very significant.
There were others that were in there, but I'm sure there were also others that might have gone the other direction.
But the net trend overall was ---+ it's pretty undeniable, when you look at the relative growth in the lease space, and along those lines.
And then, all I can add is, anecdotally, I know of at least two or three other customers, as we go forward, that traditionally were that.
And they're looking more at going into the time base, as they go through whatever financial decisions are on their plate.
Hang on a minute.
I'd say it's close, but not handy.
$2.2 million.
(multiple speakers) A little over $2 million, yes.
$2.2 million, <UNK>.
Yes.
Oh, yes.
So, <UNK>, I would say it's ---+ based on what we know today, two important things.
One is the strength of the pipeline.
Two is ---+ we are still convinced that the investments that we made in 2015, in ramping up the sales capacity, are in a maturation phase, and that they are going to yield increased productivity in 2016.
And the strong bookings growth that we just saw in Q4 ---+ are three things that give us a lot of confidence.
And as <UNK> has been mentioning, these conversations that we're having with some of our long-standing customers about expanding our presence and our footprint across their enterprise give us a lot of conviction about the long-term opportunities that we have with those customers to migrate well beyond the current installed base that we have in those customers.
And the only thing I'd add ---+ again, the ---+ I absolutely agree with those points.
But the general pipelines are increasing.
But also the targeted number of ---+ as we move into that ramping up, which we're trying to manage the growth of, the ELA increase, those tend to be major ones.
And of course, then we have to factor in the timing and the closing of those things.
So, you've got some very strong rifle shot anecdote information from the ELAs.
You've got the general broad based from the amalgamation of the pipelines.
And then you've got the intuitive aspect of that sales team that we were building up, through the course of 2015, that we admittedly said it takes 1 to 2 years to get to a full ---+ not a full, but a really strong maturation of that thing.
And then you counter all of that against the macro backdrop, which also is factored into the pipeline and forecasts, and that's what it nets out.
But if you look at the growth of that, and the general path of bookings outpacing revenue for the quarter and the year, and doing it significantly in the latter part of the year, those are all the factors, basically, that went into our calculations.
Sure.
The first part is, yes, I am ---+ I guess I am conflating terms.
So, I use time-based license because traditionally we use lease to be like a 12 ---+ a typical kind of annual license or a 12-month lease.
To me, a time-based license is a period-based thing, whether it's 12 months or it's part of those 24 to 36 months.
Maybe I should have defined that more clearly in the beginning.
That's some of the internal stuff that we're using.
Now, on the ELA thing, it tends to have some general characteristics that then can get perturbed by individual.
ELAs can consist of perpetual, time-based licenses.
They can also even have some service associated with them, like, if you will, with embedded support and the like, or certain services.
On top of it, with those, no matter whether it is perpetual or lease, you can run into VSOE issues.
So ---+ and these ---+ my finance colleagues here are a lot more okay with these.
It's very interesting, when you get in, you've got something, if you combine ---+ it only takes a small percentage of products added into an ELA, which are inherently broad-based in product, to create a VSOE issue, whereupon everything in that order has to be ratable.
Even if traditionally this one chunk was ---+ had no VSOE, and it was all time based, and it was like a few percent of the order, and then the bulk of it is the same traditional perpetual.
Everything has to be ---+ and correct me if I'm missing some nuances here ---+ but it all gets applied over those things.
So, the bottom line is, those tend to be ---+ so even ---+ I'd say it's a mix.
It's a matter of preference, when customers decide if they want their ELA to consist of perpetual or lease.
And right now, at small levels, they can provide ---+ they can have lots of choices, they can mix things in there.
But once those things are put together, then you can still have something apply that still makes ---+ forces them to be ratable.
<UNK>, you want to add anything.
I think that's enough, and then we can see if <UNK> has anything he wants to ask specifically for clarification.
Bottom line is, we're at the very early stages of this transition.
So, yes, I could say with pretty good certainty, it's going up.
Now, how much.
Those are things that we're really trying to ---+ as we proliferate this through the broader customer base.
So, in other words, we don't have ---+ right now, we've got maybe 5, 10, 15 of these.
And they're big, and they can perturb the model by a couple percentage points.
Necessarily saying that this automatically ripples to a user base of tens of thousands of customers, and to what degree and how quickly ---+ we're not at that predictive point, in terms of being able to go.
However, we are ---+ as we'd mentioned before, we are starting to construct some of these models, as the ELA concept becomes a little bit more mature with that ---+ as the cloud offering itself gets a little bit more mature, and as some of these buying preferences change.
But there are a lot of moving pieces, and we've tried to consolidate all of those into what I think shows a pretty good, stable, long-term picture.
But it does provide a little bit more variability over that cross-over period.
So, <UNK>, if I can add to that, if this will help you in building your model.
Our 2016 model, for ourselves, trying to factor in all of these pieces, some of which we don't have certainty or precision around, because these deals are ---+ each one is customer dependent.
We're looking at 58% in the software license line, and 42% of revenue in the maintenance and service line.
And I will also add one thing.
I tried to make this in my comments, but our cloud initiation is still in its very early stages.
So, there is not material revenue, in either 2015 or 2016, that is specific to cloud.
Good morning.
So, if you look at it, no, that's a sheer thing of numbers.
And I think you can see that when you roll that out, and project that over an entire year, and see that North America was still in that 10%, 11% range.
So, what you had is ---+ there were a number of factors, but if you look at three major ones.
First of all, in the comparable, the huge North American-centric deal with Cummins that was mentioned in part of the comparable.
Now, Q3, you've got ---+ we talked about another one.
That was actually something that shifted forward, and so originally was thought of in the Q4 thing, and that wound up in Q3.
And then in Q4, we had the one deal where a large chunk of perpetual revenue drifted out.
All of those things were factors in that 5% for North America.
But again, projecting it over an entire year is probably the best way to look at it, as an overall trend rate.
And by the way, we saw the same picture, albeit in the other major markets, which were like, if you will, that first wave of our go-to-market with Japan and Germany.
It's just that we didn't have those big perturbations, based on the huge orders.
I'm sorry.
Can you repeat it, <UNK>.
No, I think most of it is, <UNK>, related to variable compensation.
The bottom line is, yes, we've been doing it.
As we typically do, we do these things in waves.
So, the very first one was actually, first of all, simplifying each product set, if you will.
So, the mechanical, the fluids, the electronics ---+ bringing those into overall simplistic.
Because we had ---+ over the years, we had had multiple tiers of that.
Secondarily is, we then looked to rationalize some of the add-on technologies, if you will, the tech tuck-in acquisitions that we've been doing, as opposed to having a number of those.
So, those tend to get incorporated into each of their parent orbitals, if you will.
Then the second part of that is ---+ okay, now, combining those into ---+ we've always had a multi-physics package.
But combining those into packages, but we've even gone one step further for markets, when they prove to have a certain amount of centroid of effort.
So, I will talk of one in specific, where you take the overall drive in everything from electronics, semiconductor, to Internet of Things, and the whole concept of chip package system type of simulation.
Where traditionally there were individual tools applied, like different groups, those kind of things, but bringing those together.
And then also combining not only the pure electronic side of those, but all of the, if you will, the structural, the thermal, the cooling and flow, all of those type of capabilities.
Because one thing that's really a hot thing right now is that, as people start to instrument things for the Internet of Things, it's not just one thing to have electronics that work, and send the signals, and do the readings and everything.
It's important that the electronics survive the same kind of harsh and hostile environments that the products that they're mounted on are able to do.
So, those are probably about four very significant things.
But just suffice it to say, the simple answer is, yes, that is a general trending.
Because, if anything, we probably have a potentially broader issue, given the fact that we've got by far the broadest product offering, and trying to simplify that overall is really a key aspect for us.
Yes, and, <UNK>, what I'll also say is, as a result of some of these things, we're not planning to do a significant shift between the relationship between the perpetual and lease pricing.
But we're trying to harmonize it across the broad portfolio, so there's more consistency across that portfolio, and across some of these new offerings.
Yes, we're absolutely getting that.
We're seeing that even heading into 2016.
There are ---+ and not surprisingly, it's happening in some of the major geographies, most notably Japan and North America.
But we are seeing those things.
Now, one thing I would say is that ---+ I'd say, in general, in aggregate, the trends are toward longer term.
But parsing down what part of that is by individual customer versus what's being influenced by the increasing number of ELAs that are inherently multi-year, I don't have a precise answer on that.
And for the companies that are basically going from perpetual to lease, no matter what time frame they elect for on that, it's not like we're comparing somebody that used to do a 12-month lease, now going to a 24- or 36- month lease.
Or someone who used to do perpetual, going to any kind of lease, which in and of itself is a fairly significant kind of question.
But I'd say, in general, if you look at it right now, the sweet spot is typically about 2 to 3 years.
I'd say ---+ and in general, sometimes people will even try to look at multi-year things, even though the financial commitment won't stretch out into years four and five, albeit ---+ and when that happens, we don't count that, because that's really not a contractual order, at that point in time.
Did I cover every ---+ did we cover each point of your ---+ .
Yes, I was actually ---+ I've been to the UK twice the last three months, as a matter of fact, and actually France only once.
But those ---+ obviously, mathematically, you can see that those are a little bit tougher areas.
You look at ---+ I'd say that in particular, part of our UK business is seeing some of the stuff, even though our North American business was strong, because it's a broad base of things.
We mentioned before the Texas area, and the impact of oil and energy had an impact there.
Not an inconsequential part of our UK business, of course, is North Sea, and that type of thing.
So, there's an element of that.
So, that was felt along those lines.
France had some difficulty.
Oddly enough, they're smaller parts of the Business, but yet some of our ---+ a couple of our Mediterranean areas actually did pretty nice performance.
So, it's a little bit of a mixed bag, but holistically it's been a little bit more sedate.
It's just that when you get ---+ basically, what it gets down to more is not necessarily country by country, but where you've got the major multi-national companies that are competing on the global stage ---+ they're competing globally.
They're not competing just in Europe.
And there just tends to be a higher clump of those in the markets like Germany.
That's really more of what we're seeing, as opposed to, what's the GNP of any individual country.
Okay.
I think the main thing ---+ I think the key thing is ---+ and first of all, I'll just say that every release that we've had, for the last 10 years, has been sequentially significantly better than the previous one.
And I'd be really disappointed if, when 2018 comes out, that we're not saying exactly the same thing.
But really to highlight ---+ we've talked about a couple of things.
Really, it looks, in terms of, how can you actually compress the cycles, that people can meaningfully go through a range of these different evaluations.
Because we really want people, early on, being able ---+ the earlier simulation is applied, the earlier you can avoid downstream problems, the more robust you can make things, the more alternatives you can look at, to really drive innovation.
That's really the key of it.
But what was the problem.
Two main things ---+ first of all, the performance and throughput; and second of all, ease of use.
Now, it's not like you attack ease of use, and you throw the switch one day, and automatically it's there.
Just look at what happened with the home PC, from 1985 all the way to even the current time, with tablets.
There was ease-of-use progression through each stage of that, but ---+ and each one created additional business.
But it took a number of applications of that to make that go.
So, we've actually done that.
If you look at, really, the ---+ some of the main messages are, if you will, reducing by significant amounts the amount of time it takes to actually get a model.
Really, at the end of the day, we would love to have somebody just not even worrying ---+ they're just really trying to simulate their product, and seeing what's there, and not get caught up in all the nuances of all the modeling aspect, or have to spend a lot of time doing that.
And that's one area where we've done quite a bit.
Secondarily is, we look in terms of, how long does it take.
It used to take sometimes ---+ sometimes these things would crank for days, in terms of getting results.
But with high-performance computing, and actually some really, really significant things we've done in terms of high-performance computing and performance overall, being able to take things that might have cranked for a day, and now allow somebody to get things in a matter of minutes.
If you do that, it's not like I do a run, I go home at night, let it crank, come back the next morning, and each cycle takes a day.
If you're taking like 10 minutes, or something like that, you can actually go through a number of progressive things.
Likewise, I'd say that, on one of the earlier questions we talked about what we were doing in terms of actually continuing to drive multi-physics.
I mentioned the chip package system.
It used to be that a lot of these things were done sequentially, by different groups, using different mathematics.
It had to be massaged, and go together.
And sometimes the work flow is just making to the point where you don't have the equivalent of 30 adapter cables, when you're hooking up some kind of an electronics system, and being able to go through all of those things.
So, if you look at it, that's really been some of the major portion of that, going forward.
So, again, performance, ease of use, and actually getting these work flows compressed.
But even once you do that, as soon as you say ---+ well, I've got multiple groups working together.
Now you have to also contend with the fact of ---+ hey, there's organizational resistance to change, and there's also some things that companies have to do to get repeatable processes, in and of their own capabilities.
And that's one reason why I say the final thing has been related to ---+ we talked about the ---+ basically, the customization tool kits that we had invoked in there.
And we've been able to proliferate those across a lot broader range of products, which allow individual companies to take pretty strong generic software, and now tailor it to something that they can create as repeatable processes.
Those are probably the major things that I think are particularly significant.
But on top of it, there's ---+ in every one of our individual products, there's been a number of individual things.
We'll get into a little bit at Investor Day coming up, and there's some pretty good information on the website, along with some ---+ actually, some customer testimonials.
Because when they actually come through and see ---+ say, they saw these measurement things, it probably makes a lot more than what our technologists or me or anybody inside ANSYS is talking about.
That's really where the proof points are.
Okay.
Thanks, everybody, for the questions.
And to recap, basically, I'd say first, continued good diversified financial performance of most of the major parameters of the Business, even in light of the current environment and [hazy] visibility.
Secondly, sustained customer interest ---+ that it's marked by activity on a broad front.
And I think that's evidenced ---+ we talked about it on some of the questions here, with industries, geographies.
And I'd also mention the commitment levels and renewal rates, even while customers are going through a lot of additional discretion in terms of what they're doing.
Obviously, the last question, we talked about the rapidly expanding product portfolio that we continue to augment, with a range of partnerships and relationships, not only on the technology side, but also in distribution and customers.
And I'd say, maybe most importantly is, over the long term, we've demonstrated an ability to grow the revenue in line with our range of guidance.
And we still maintain the solid margins and delivered earnings growth in a range of economic situations ---+ so, a testament to the business model.
So, basically, the long-term outlook stays bullish.
And basically, to map this out, it means, first, the long-term premise and opportunity are still there, and we still have the best technology and the team to meet those.
Secondly, even at the floor of our assumptions, we continue to have a solid business, with good returning revenues, marquee customer relationships, and all of these combine for good earnings and cash flow.
So, we'll be focusing on maintaining strong operating margins, in the upper 40%s, while continuing to build our annuity base of recurring revenues, and expanding at the maximum rate allowed by the macro market conditions.
And then lastly, we ---+ as <UNK> mentioned, we have a very strong balance sheet.
It affords us a maximum flexibility, should opportunities present themselves, or should the macro economy even deteriorate further than some people are projecting.
So, we've seen, over the years, that the continued revenue performance creates upside margins, but that the revenue performance, again, is only sustainable with continued product and business investment.
So, we remain committed to that.
So, in close, the emphasis is going to be a continued focus on execution, continued technological leadership, and basically supported by our 45 plus years of history.
The customer acceptance of the existing vision is ---+ and unique value proposition, the expansion of our product portfolio, and through ANSYS 17 it really only bolsters our long-term enthusiasm.
So, I'd like to say thanks to our customers.
I'd like to say thanks to my ANSYS colleagues, and our long-standing partners.
And thanks to all of you for joining us today, and we'll be talking to you again in a few months.
