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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by and welcome to ANSYS' First Quarter 2019 Earnings Conference Call.
With us today are Ajei Gopal, Chief Executive Officer, Maria Shields, SVP and Chief Financial Officer and Annette Arribas, Senior Director of Global Investor Relations.
At this time, I would like to turn the call over to Ms. Arribas for some opening remarks.
Good morning, everyone. Our earnings release and the related prepared remarks document have been posted on the homepage of our Investor Relations website this morning. They contain all of the key financial information and supporting data relative to our first quarter financial results and business updates as well as our Q2 2019 outlook and the key underlying 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 available via our website.
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 obligation to update any such information, unless we do so in a public forum.
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 comparable non-GAAP financial measures under ASC 606 is included in this morning's earnings release materials and related Form 8-K.
As we previously communicated, now that we are beyond the first year of adoption of revenue recognition under ASC 606, we will only be providing financial results and outlook under ASC 606. I want to highlight that any comments made relative to revenue growth rates will be comparing 2019 to 2018 results under 606.
In closing, I would like to announce that our 2019 Investor Day will be held on Thursday, September 12th in Pittsburgh, with a reception and technology showcase events evening before. Further details around the location, logistics and the agenda can be found on our IR website.
I would now like to turn the call over to our CEO, Ajei Gopal for his opening remarks. Ajei.
Thank you, Annette and good morning everyone. Q1 has given ANSYS an excellent start to the year with strong results across our key performance metrics. We exceeded the high end of our revenue guidance by delivering constant currency revenue growth of 16%. Our operating cash flow was robust increasing 14% year-over-year, and we reported record first quarter EPS of $1.29.
To reflect the momentum across our business, I'm pleased to announce that we are raising our full year guidance. Maria will provide further details.
Our financial success is propelled by our unique multi-physics portfolio and our drive to make simulation pervasive throughout the product lifecycle; a distinct combination that helps our customers solve their most complex product problems.
In Q1, we enjoyed success across most of our industry verticals with particular strength in the high-tech sector. Given the unique challenges that high-tech companies face and with our growing momentum in that sector. I would like to highlight ANSYS' value proposition to those companies and some of our successes in the vertical. The high-tech industry stands at a crossroads thanks to mega trends like 5G, AI, autonomy, electrification and datacenters.
Those trends coupled with intense competition across the verticals are spurring customer innovation that's driving even higher demand for multi-physics simulation. And that's why hundreds of high-tech leaders including the vast majority of the top companies in semiconductor, smart devices, telecommunications and datacenters are using ANSYS to address many of their product challenges.
For example, customers are increasingly relying on ANSYS' unique solution set to make 5G a reality. 5G networks require an unprecedented number of base stations creating more complex connectivity, energy efficiency and thermal management challenges. Our solutions help users examine the performance of the base station in large scale environments to ensure connectivity is maintained while base station placement is optimized.
Combined with our chip package system workflow, we can help customers tackle the critical power and thermal management issues on a single platform. In Q1, we closed a deal with an Asian telecommunications company to design and analyze the 5G networks they're building. The company is using ANSYS solutions to increase the performance of antennas in their base stations to accommodate the higher frequencies inherent in 5G communication.
After a head-to-head comparison this telecom customer chose ANSYS because of our complete multi-physics simulation platform. Solutions that help our customers grapple with the complexities of mega trends like 5G are based on our market-leading portfolio including gold standards such as ANSYS HFSS and ANSYS RedHawk-SC.
ANSYS HFSS enables users to design and simulate high frequency electronic products such as antennas, microwave components, high-speed Interconnects, IC packages and PCBs. With its unmatched accuracy, the modern architecture of HFSS empowers users to solve complex electromagnetic and electromechanical problems across hundreds of cores and enables customers like Samsung, Nvidia and Ericsson to develop amazing products.
We continue to extend our leadership with HFSS through our recent releases as well as through strategic acquisitions. in Q1, we released our EMI Scanner which is new functionality in HFSS to quickly identify areas of potential electromagnetic interference on PCB designs prior to simulation. This helps customers to eliminate errors, while speeding time to market.
And as we discussed on our last call, we further expanded our leadership in the electronics industry in Q1 with the acquisition of Helic, the industry-leading provider of electromagnetic crosstalk solutions, for systems on a chip.
The acquisition of Helic, combined with ANSYS' flagship electromagnetic and semiconductor solvers provides a comprehensive solution for on-chip 3D integrated circuit and chip package system electromagnetics and noise analysis. Reaction has been overwhelmingly positive with industry leaders praising us for combining the best technology for off-chip electromagnetics in HFSS with the most innovative on-chip electromagnetic technology in Helic.
DfR Solutions, our latest acquisition, which closed this week, is helping customers address their product challenges by ensuring the reliability of their electronics. DfR Solutions is the leading provider of automated design analysis software and comprehensive services for electronic components and material supply chain. DfR bolsters our electronics reliability capabilities with an automated designer level solution to quickly and easily analyze the potential for electronics failures and I'm excited to welcome the DfR team into the ANSYS family.
Moving to our semiconductor solutions, ANSYS RedHawk-SC is the world's first purpose-built Big Data system for the semiconductor industry. And I'm proud to say that 100% of our 7-nanometer base is using RedHawk-SC which is undefeated in all head-to-head technical benchmarks our customers and foundry partners recognize that ANSYS is accelerating its leadership in chip package system multi physics with innovative new products like RedHawk-SC with integrated workflows using our flagship solvers such as HFSS and with our targeted technology acquisitions.
TSMC, the world's largest semiconductor foundry has recognized ANSYS with Partner of the Year Awards in each of the last three years. And in Q1 they certified our semiconductor solutions for SoIC advanced 3D chip stacking technology. Our work on developing solutions for the high-tech industry is paying off. In Q1, Seagate Technology a world leader in precision-engineered data storage and management solutions, entered into a multiyear enterprise agreement expanding the use of ANSYS simulation software worldwide.
Demands on Seagate development teams are increasing. Reaching capacity performance and environmental goals on schedule increasingly requires more simulation across all engineering disciplines. ANSYS solutions deliver technical and business value helping Seagate maximize data potential. Similarly, LG Electronics also into new enterprise agreement with ANSYS to help support the company's continued commitment to delivering highly innovative mobile devices, home entertainment and appliance applications to customers worldwide.
LG expects this expanded access to our multi-physics suite to drive innovation, shortened product development cycles, and accelerated product design. Moving away from high technology, we have seen considerable traction with another recent acquisition, Granta Design, the premier provider of materials information technology. In early Q2 ANSYS closed the largest deal in Granta history at a leading aerospace company to enable materials intelligence and material data management across the organization.
This deal was made possible by the combination of Granta's mission-critical technology, the long-standing relationship the customers had with ANSYS and their confidence in ANSYS' ability to successfully integrate Granta. We're also enjoying success with our key partnerships for example, our award-winning Discovery Live solution, which brings real time simulation capabilities to design engineers is reaching new audiences, thanks to our partnership with PTC.
During Q1 PTC released Creo Simulation Live embedded with ANSYS Discovery Live technology. During its earnings call last week, PTC reported that it already booked deals with 70 customers. As previously discussed, we expect the near-term financial impact to be immaterial, but we see upside in the longer term. Similarly SAP showcased its Predictive Engineering Insights enabled by ANSYS solution at the Hannover Messe Industrial Fair in Germany.
Their Design to Operate demo featured an automated fluid handling system designed by packaging and bottling machine manufacturer Krones which showcased digital twin capabilities enabled by ANSYS. And just recently SAP enhances highlighted joint success with a leading air compressor company using the SAP ANSYS solution. The company is able to streamline its customer delivery time from months to hours by eliminating the need for engineering teams to perform detailed technical customization and analysis work.
Predictive engineering insights empowers field-based sales teams to save critical time and engineering resources. With our strong Q1 financial results, our continued momentum in high-growth industry verticals such as high-tech, our investment in leading technology and our focus on expanding the value from our partnerships and our acquisitions, we remain confident that we will achieve our goals and objectives. Like our customers we're focused on innovation, on solving the toughest problems and on delivering results. We believe this is a winning combination and our performance speaks for itself.
And with that, I'd like to turn the call over to Maria. Maria?
Thank you, Ajei. Good morning, everyone. Let me take a few minutes to add some additional perspective on our first quarter financial performance and provide color around our outlook and assumptions for Q2 and 2019. Consistent with our standard practice, my comments will be in terms of non-GAAP, unless I state otherwise. The strong Q1 results reflect solid execution across our business combined with a steady customer demand environment which yielded revenue, operating margin and EPS, all well above the high end of our Q1 guidance.
Our excellent start to the year is quite encouraging when considering the Q1 2018 comparable in which we reported double-digit ACV growth and strong earnings. Key financial metric begin with Q1 ACV of $303.5 million and total revenue of $319.9 million or constant currency revenue growth of 16%. I will add that the key currency exchange rates were within the ranges that we provided with our first quarter guidance.
The increase in software lease license sales combined with strong maintenance renewals contributed to building our deferred revenue and backlog to a Q1 total of $673 million, representing a 13% increase over last year's first quarter balance. During the quarter, we continued to manage our business with fiscal discipline which yielded a very strong first quarter gross margin of 91% and an operating margin of 43%. Margins were positively impacted by revenue results finishing well above the high end of our revenue guidance, as well as a slower pace of hiring than we had planned coming into the quarter.
The pace of hiring was most notably impacted by the integration activities of both the Granta Design and Helic acquisitions during the quarter, as we added approximately 200 talented employees to our team. We also saw the continuation of the tighter labor market, particularly for highly skilled positions. We reported record first quarter EPS of $1.29. With respect to taxes, our effective tax rate in Q1 was 21% in line with the range that we had guided coming into the quarter.
Going forward, we expect our effective tax rate to be in the range of 21% to 22% for Q2 and the full year. Our cash flow from operations totaled $152 million, a 14% increase over last year's Q1 and we ended the quarter with a total of $608 million in cash and short-term investments.
The operating cash flows in the first quarter positively benefited from the very strong Q4 ACV finish in 2018. In line with our capital allocation priorities, we repurchased 250,000 shares during the quarter at a total cost of $45 million. We have 3.6 million shares available for repurchase under the current authorized program.
Now let me turn to the topic of guidance, coming off our strong finish in Q1, we are initiating guidance for Q2 and increasing both our revenue and EPS outlook for the full year. This increase reflects the solid financial performance in the first quarter combined with our confidence and continued positive business momentum for the remainder of the year. Our updated outlook reflects the minor contribution of the DfR acquisition that we closed yesterday.
Let me also add that currency exchange rate changes did not contribute to our increased guidance. For the second quarter, we expect non-GAAP revenue in the range of $325 million to $345 million and non-GAAP EPS in the range of $1.18 to $1.30. For the full year, we are increasing both the revenue and EPS outlook the non-GAAP revenue in the range of $1,430 million to 1,480 million our constant currency growth of 11% to 15% and EPS in the range of $5.75 to $6.10.
We are also increasing our full-year ACV outlook to $1,425 million to $1,470 million. This represents constant currency ACV growth of 9% to 12%. With respect to annual operating cash flows, we are maintaining our outlook for 2019 in the range of $470 million to $510 million.
I would like to remind everyone that our outlook for operating cash flow in 2019 includes higher tax payments that relate to the acceleration of lease license revenue and the related profitability under ASC 606, including additional tax payments in 2019 relating to our strong 2018 finish, as well as the first year impact of the acquisitions. For modeling purposes, we're expecting second quarter operating margin of 39% to 41% and for the full year, we continue to expect operating margins of 43% to 44%.
Further details around specific currency rates and other assumptions that have been factored into our outlook for Q2 and 2019 are contained in the prepared remarks document. In closing, we are very pleased to start the year with excellent first quarter financial and operational results.
Another quarter of delivering on our financial commitments combined with the exciting opportunities to continue to leverage our incredible technology, talent and customer relationships gives us confidence that our focus on execution and investing in the business combined with the strength of our recurring business and growing sales pipeline, provide a strong foundation to deliver on our 2019 goals as well as our longer-term 2020 financial targets.
Operator, we will now open the phone lines to take questions.
We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Ken Wong with Guggenheim. Please go ahead.
Hey, thanks a lot. Maybe first question on my end. Last quarter you guys touched on a heavier seasonality in the back half of the year, specifically Q4. Just wondering based on what you've seen in Q1 and the expected pipeline, how is that looking, is the magnitude even greater? And then perhaps and then a follow-up on Discovery Live, just wanted to understand how the PTC partnership differs from what you guys are seeing in terms of customer engagements?
So Ken, I'll take the first part of the question relative to the seasonality for 2019, as I had said on the last call, we see 2019, very similar to 2018. Back-end loaded and a lot of the large multiyear transactions are in the Q4 queue right now. So everything is going as we had mapped it out and it's just a lot of those larger deals aligned with customer yearend budgeting and spend. And so they're just aligned with a larger second half.
And then with respect to the PTC partnership, we are very excited about the PTC partnership. I think it's going well. We announced the partnership, as you know, in June of 2018. And they released Creo Simulation Live, which is Creo embedded with ANSYS technology in Q1. And they've created essentially a solution that adds simulations into the CAD environment. And so engineers can see the real-time results of simulation in the CAD environment that allows them to make the kind of trade-off and design changes, they need to early in the design process.
Based on what they said during their investor call they've closed 70 CSL deals in Q1, essentially across all geographies, industry verticals, both direct and indirect and they've built a promising pipeline for future quarters. And we're excited about the option pattern, and that's consistent with what we've seen which is customers will use the technology and then start to broaden.
They've also announced that they're going to be back porting CSL to Creo 4, which is essentially where a larger portion of their installed base, primarily their enterprise customers are, and that will allow them to benefit from upfront simulation. So I think it's going well. We're excited about that and the relationship is strong.
The next question is from Jay Vleeschhouwer of Griffin Securities. Please go ahead.
Thank you. Good morning. Maria, let me start with you, on the call a quarter ago you anticipated that you would add about 300 employees for the year. And I think that did not include Helic and Granta. You've grown 300 thus far for the year, 200 of which was from the acquisitions. So you are about a-third of the way it seems towards your hiring goal for the year.
Does your guidance anticipate that you will hit your hiring objective and you - in fact a record number, which seems of technical consulting and support openings right now, could that be some factor as well in terms of you have being able to sustain the numbers for 2019.
Then a technology question for Ajei, maybe to prognosticate, a little bit about the evolution of the industry, there is considerable attention, as you know, being paid to generative design which is neither CAD nor simulation. It's some of each, and it's more than just a tool to process. As that becomes more and more adopted - as I expect it will, how do you think that affects your business, the role of simulation or multi-physics simulation? And maybe tie that also into your larger SPDM strategy, if you could? Sorry for the long question.
Okay. So Jay, I'll start on the hiring. Yes. As you heard in the prepared remarks, we had planned and we are still planning for roughly 300 net new, not including the impact of Granta and Helic.
That being said, as you heard in my earlier comments, the two acquisitions in the first quarter, as you can imagine, slowed some of the original plan down. But we did add net about 130 additional employees onto the ANSYS roster in addition to the 200 plus from Granta and Helic and it is our anticipation that over the remainder of the year that we will see organic hiring increase over the pace of the year and that's what's built into our guidance for the remaining quarters.
And Jay, just to briefly touch on generative design. We are very excited about the direction that the industry is taking in generated design. We think that's an opportunity for us to increase the penetration of simulation into the marketplace, because as you think about generative design, the improvement of a design continues to require rapid iterations and simulation. And so where historically simulation might have been someone, an individual creating a design and then subsequently validating it in the world of generative design.
And frankly in the world that we're talking about, where more people are creating technology and creating products, the opportunity for simulation to provide that rapid feedback to both human beings as well as provide guidance as you start to think about a generative kind of solution, it makes sense. It drives the use of simulation.
So we're very excited about our position in the marketplace, we think that generative will be another driver of the use of simulation and then you think that's completely consistent with the product strategy that we are driving. What we doing and things like SPDM allow us to continue to manage the huge amounts of simulations data that's being generated. Obviously, with generative design there will be more simulation data. So this is completely consistent with the direction that we're going and frankly we're very excited about it.
The next question is from Ken Talanian of Evercore ISI. Please go ahead.
Hi, thanks for taking the question. I guess from Maria. What was your constant currency, organic ACV growth in the quarter? And then could you give us a sense for how you're thinking about the inorganic contribution to revenue for the remainder of both '19 and as you think about hitting your 10% plus target in 2020?
So Ken relative to ACV, basically it is organic. There was only about $3 to $4 million from the acquisitions to ACV. So the majority of the ACV growth is from the organic business. And with respect to 2020, we have not changed our outlook on 2020 from what we said in Investor Day relative to, we are still targeting double-digit growth and industry-leading margins in the 43% to 45% range.
The next question is from Matt Pfau of William Blair. Please go ahead.
Hey guys, thanks for taking my question. Just wanted to follow up on the PTC partnership and I realize it's still pretty early there, but if you can just talk about with what you've seen so far, do you think similar partnerships like the PTC one would make sense to pursue and are there other ones out there that you could pursue? Thanks.
So we certainly are excited about the PTC partnership. They have been good partners and we continue to support them. The opportunity that we see obviously is for designers to be able to take advantage of simulation, not just experienced analysts or designers to take advantage of simulation and frankly we believe in an open ecosystem.
So no matter which CAD solution someone's using, we're perfectly content and delighted for those customers to take advantage of the CAD capability from any vendor and to take advantage of ANSYS simulation. But obviously with PTC, we have a tighter relationship with PTC's OEM-ing our technology and integrating it directly into Creo.
The next question is from Rob Oliver of Robert W. Baird. Please go ahead.
Hi, guys, good morning. Thank you for taking my question. Ajei, this is one for you. Just as a follow-up to the last question, so you when you got here you embarked upon a pretty bold strategy on the partnership side, you mentioned 5G comms obviously you guys have always been strong in semiconductors. Maybe you can talk a little bit about some of the potential other areas within partnership potential? And then I had a quick follow-up on Discovery Live unrelated to PTC? Thanks.
Just on the partnership question, just to clarify what specifically are you asking me to comment on. Please?
Yes, just getting a sense for, you guys have expanded your go-to market through partnerships pretty markedly and wanted to get a sense if there were other specific areas where you saw opportunity. I realize it's a bit of a follow-up to last question. Thanks.
Sure. So the strategy that we've articulated is one where simulation becomes pervasive throughout the product lifecycle. And what we mean by that is that anyplace where a product is being touched, whether it's in the inception phase, whether people are thinking about a product in the ideation phase, whether it's the deep design, whether it's manufacturing and things like additive manufacturing, whether its operations, whether it's in the product itself.
We believe that simulation can play a role. Because frankly an understanding of the physics of the product and understanding of how the product could operate or will operate or is operating is very important for customer value and customer benefits.
So we see simulation as playing this much deeper role across the product life cycle. Now historically, we've been in a particular part of that product lifecycle, which has been in the tail end of the design process for validation or for sign off and increasingly as you see from the strategy that we've been pursuing, it's to make simulation available in multiple places.
Now the way we doing that is obviously we have our own go-to-market, but we're also looking at those areas where others have a very strong presence and we're integrating our technology into others who have a strong presence on a particular workflow and that's one of the reasons why when you think about the EDA space for example, we are partnering with Synopsys, where Synopsys is taking our technology and integrating it into their products as part of the workflow.
We're partnering with PTC it because they have a presence in the CAD space, we're partnering with SAP as you start to think about operations. And so the way you should think about our partnering strategy, it's driven by the ability to work with industry leaders who are in their space, who are key providers of a workflow or a capability at some point in the product life cycle.
And since we have an open strategy, our intention is to be able to integrate with their workflows and let our simulation capabilities to be present in their product offering, in their solution offering and obviously they're taking it to market through their channels, through their re-sellers and so forth. So we see this as a win for ANSYS and that's a strategy that we've been pursuing and that's the strategy we will continue to pursue.
The next question is from Steve Koenig of Wedbush. Please go ahead.
Hi, ANSYS. Thanks for taking my question. I wanted to ask about large deals in the quarter and the context here being the year ago quarter maybe remind us that the $50 million deal a year ago. How much of that was impactful to ACV? And what did you have this quarter in terms of very large deals that might have moved the needle if you can provide any qualitative color there?
And if I may, I do have one housekeeping type question for Maria and that is, if we were to calculate bookings under 606 is that comparable to the 605 calculation, we performed a year ago. I know you don't know my calc but I'm just talking about the change in the total backlog plus revenue, are those things comparable?
Yeah. So let's start with respect to the year ago quarter. If you recall, that was a quarter in which we did announce at that point in time, the largest deal in the company's history and ACV would have been a-third last year, a-third in Q1 this year. And then, and then a-third next year at the 3-year anniversary of that deal, so a-third of the deal went into this quarter's ACV result.
As you know, we moved away, Steve, from bookings just because it's a much more volatile metric then ACV. But there should be no difference between bookings under 606 or 605.
The next question is from Rich Valera of Needham & Company. Please go ahead.
Thank you. Question for you, Ajei on the sales force on yourself and Rick Mahoney took over about the same time since then you've made a lot of structural and capacity additions to the sales force. Just wondered if you can give kind of an update on where you are in that sales force transformation and what's on the to-do list for 2019 as far as continuing to add capacity and make any perhaps structural changes there? Thanks.
Yes. So when I came on board and certainly Rick came on board shortly after I did, our focus was on looking at the go-to market to try to figure out how we could optimize the go-to-market. And the model that we were dealing with earlier was I would see a more - it was a model that was relevant for an earlier time in the ANSYS lifecycle and was more of a one-size-fits-all in terms of how we address the market opportunity.
Today what we have is a more differentiated go-to-market, where we take advantage of a direct sales force to go after the large deals and the larger territory deals. And we've done some channel, to be able to have the channel focus on more of the volume business. And then of course we also have some inside sales activities.
And so there has been a pretty significant, as you point out, change in our go-to-market, which has allowed us to continue to grow our business across a number of different dimensions. We've also continued to make investments in our ACE organization or our technical sales organization and that's of course helped overall. And our channel partners, have also continued to blossom. We've brought more channel partners on board and they've continued to bring on more ACE capacity or technical capacity as well, to be able to support customers.
So that's the journey that we've been on, that's a journey that obviously is an ongoing journey. We continue to make refinements to that model and we will continue to continue to do that this year through next year and beyond. But the basic bones that we've talked about, have been put in place and now we're starting to think about how we would optimize within that structure, in some cases, does it make sense to have some particular vertical focus in certain areas and those are the kinds of questions that we're exploring.
But again, we have a very enviable business model with within ANSYS and that's on the back of the kinds of products and capabilities that we have and the customer relationships that we've been able to maintain and that's something that we hold very dear to us and so our go-to market model and the changes that we make will support that and we're not planning on doing anything to disrupt our go-to-market capabilities.
The next question is from Jason Celino of KeyBanc Capital. Please go ahead.
Hey guys, thanks for taking my question this morning. One question back on ACV guidance you are raising your current constant currency outlook by 1 percentage point. Can you maybe go into more details, what gives you confidence to increase modestly here?
Yeah, I would say, as I said in my earlier commentary Jason; one, the performance in Q1 and the strength of the pipeline and the deals that we're seeing that the teams are working on. So we see a lot of interest from our customers, particularly in some of the key areas that Ajei mentioned in his commentary. And we don't see that slowing down. So we are excited about the opportunity we see ahead for 2019 and we're going to spend all of our time focusing on executing and delivering.
And if I can just add to what Maria said, she is absolutely correct. I mean if you start to spend time with our field organization. I spent a fair amount of time out in the field with customers as well and with the organization, you get a sense of the strength of the pipeline and obviously we are very excited about the capabilities that we can provide.
I've talked about some of them in my script. I mean we have conversations with companies where we talk about things like say autonomy electrification for example in the auto industry. Those are conversations, which are much deeper and broader than conversations that we may have had with similar companies in the past.
Similarly in the electronics space that I talked about in my remarks earlier and other industries and that's because of the capabilities that we're able to provide is because of where the industries are right now and because of the nature of solutions that we can point to. So the pipeline is looking strong. We're excited about where we are. This is always a back-end loaded year as we had indicated earlier, there's a lot of activity in Q3 and Q4. But we are confident that we have visibility into that. And we understand how to land our business. So we're excited about the year.
Great, thank you.
The Next question is from Ross MacMillan of RBC. Please go ahead.
Thanks so much. Ajei just, on the large deals you mentioned Seagate and in the release you talked about LG, were they both in the quarter and were they both multi-year, and I'm just curious, your indirect revenue spike so was there some impact from a partner on one of those deals that would be great. Thanks.
I think the answer was - I think it was a yes to answer all your questions. So yes, there was, those were in the quarter. Those were multi-year deals. And yes, there was some impact of partner activity in our indirect number.
The next question is from Saket Kalia of Barclays. Please go ahead.
Hi guys, thanks for taking my questions here. Maybe first for you, Maria, just picking up on the last topic a little bit more broadly. Can you just talk about the mix of long-term deals in the quarter? And I guess the reason why I asked this, of course 606 we're going to see some differences in sort of revenue versus arguably the cleaner metric of ACV. Can you just talk about that delta and growth between revenue growth and ACV growth this quarter?
Yeah. So, Saket. I think in our comments you picked up the unique disparity that comes from 606. And the reality is under 606 our results are going to be very impacted by the size, the duration and the timing of those multi-year lease deals. This is the first quarter where you can actually see a comp under ASC 606 for both Q1 of 2018 and 2019 and going forward depending on where those deals land, you'll see some disparity between the growth rate in revenue and the growth rate in ACV.
They won't always be moving in the same direction. There will be periods where ACV will outpace revenue growth. So I wish I could explain with certainty, how it's all going to roll out, but I think the most important thing that we've been communicating is the focus on the annual results will be much more meaningful than the volatility that you'll see in the quarters, Q1 being a perfect example.
The next question is from Adam Borg of Stifel. Please go ahead.
Great, thanks so much for taking the question. Maybe Ajei, just talking big picture on ANSYS Cloud obviously, it's still really early and as you think about bifurcating both the down market and up market, are you expecting more percentage of use cases that come at the lower end of the market or bursting at the upper end and potentially even a replacement overtime as on-prem hardware gets depreciated?
It's a hard question to answer in terms of exact predictions of what's going to happen. There clearly is value proposition for smaller customers who don't have an investment in the data center to take advantage of, sort of, the native HPC capability that we're making available through ANSYS cloud, native to the cloud. So with the ANSYS cloud solution that we've just released, most recently in Q1, we have an offering that essentially has the following capabilities that I think are really important to your question.
The first is that it allows for high performance. It's essentially building on the investments that we've made in HPC and we are providing a compute optimize cloud infrastructure that's configured and optimized for ANSYS solvers and so essentially, any customer can take advantage of ANSYS solutions at scale than in the public cloud, because of the work that we've done.
And then the second piece that makes it important is that the ANSYS Cloud is accessible from within ANSYS products and so someone can be sitting there at a screen working with an ANSYS product and then immediately take advantage of the cloud. So it's completely seamless. And of course since we are running on the back end on Microsoft Azure, in this case, it gives global access and best-in-class security.
So we've made essentially the experience of using cloud drop-dead simple and it's as easy as it needs to be. And of course with the on-demand licensing that we can provide, the pay-per-use licensing that gives them. That's a third way to complement traditional leases and paid up and that give them flexibility of usage, so given the performance, given the access given the flexibility that we have with our ANSYS Cloud offerings.
We would expect the opportunity for customers - for customers to seize the opportunity both large as well as small, small customers who don't necessarily have any infrastructure. Obviously, they'll be excited and interested in that. But equally large customers for project-oriented work when back-end HPC resources aren't available. We've seen interest from large customers as well.
So we expect both of those to continue. I couldn't tell you where demand is going to be higher or lower, but we certainly see demand across both of those segments for the reasons that I've mentioned.
The next question is from Sterling Auty of JPMorgan. Please go ahead.
Yes, thanks. Hi guys. You mentioned the strength in multi-year leases, I wasn't clear. I didn't hear. Is there been any noticeable change in duration. And maybe just a reminder, what are you seeing as the average length of these multi-year deals?
Surely. There's been no change in duration and typically two to three years, some of the larger deals tend to be three years and some of the, at the strategic tend to be two years, but there has been no significant change in the go-to-market or duration.
Okay. And then one follow-on question Ajei, Cadence announced an electromagnetic solver, what appears to be coming into one-year core pillars of strength. What are you seeing in terms of the competitive landscape? And do you think this is going to be the beginning of others that tried to go after those or adjacent marketplaces?
So thanks Sterling. I mentioned I talked a little bit about HFSS in my script, but perhaps - since you asked the question, it's worth emphasizing. A couple of points. The first thing to understand is ANSYS HFSS serves as an important and growing market and is the gold standard. It is the industry-leading product. HFSS solves some of the most complex electromagnetic problems spans a vast number of industry then it covers both the RF and ESI space.
So this includes problems in high-growth areas that range from radar in autonomous vehicles to phased array antenna for 5G telecom to IC circuits frankly that are in all manner of electronics products. So it's no surprise to us, and it's no wonder that other vendors, want to compete in this growing space. But the point is competing isn't that easy. We are today, the leader in this space and we've been the leader for almost three decades and customers have trusted HFSS for decades to solve their most complex problems and they continue to place that confidence in ours.
Our technology, with references in tens of thousands of peer-published IEEE publications, we are absolutely justified in saying that we're the industry's gold standard and we've been able to maintain our leadership because we've continued to make significant investments in HFSS over the years and the product today incorporates breakthroughs in both methods which is studying the physics as well as in processing sort of the computer science.
So to give you some details, customers trust the accuracy of HFSS because of our technology leadership and one example is in the area of automatic adaptive mesh refinement, which provides accurate consistent and repeatable answers within an air tolerance that's specified by users, and this is the cornerstone required for predicting accurate answers. And frankly, why so many global customers trust HFSS to solve their electromagnetic challenges.
HFSS today is available, of course, on-prem for customers to use within their own data centers, but it's also available in the public cloud, and this month natively on Azure with the ANSYS Cloud offering that I just talked about.
To give you some perspective of performance, in a recent benchmark HFSS solved in IoT PCB using a 128 cores, which is a pretty typical customer configuration 128 cores, resulting in a 40x speed up versus one core and so to put that in perspective that's approximately an hour versus approximately 40 hours and that's impressive and it's also important to note that as per the previous comments I made about cloud, that the cloud will democratize that scalability and it will make it available for every single customer.
And then we've introduced some technology that reduces RAM consumption by a factor of 3. So in the customer benchmark that I just mentioned, RAM usage went down 176 gigabytes to 64 gigabytes, again significantly. Improving solve efficiency. HFSS is a great product that serves customers around the world in an attractive market. The competitive moat around the product, the competitive moat around HFSS is it's broad, it's deep and it's filled with hungry alligators PowerPoint presentations are easy, products are hard.
Your next question comes from Jason Rodgers of Great Lakes Review. Please go ahead.
Yes. I wondered if you could talk about the decline in EMEA for the quarter. It was due strictly to tough comps or are there any other factors involved, and if you are satisfied with the performance there?
Yes, Jason. It is exactly what you mentioned it was - if you recall last year EMEA grew in double digits, it's just the timing of some large deals that were in Q1 of last year that did not repeat this year. So we are very excited about our EMEA business and our EMEA team.
This concludes our question-and-answer session. I would like to turn the conference back over to Ajei Gopal for closing remarks.
Thank you, operator. Given the strength of our Q1, our robust pipeline of direct channel and partner-driven deals and our partner leadership across physics, we remain confident in our ability to deliver on our goals and objectives. ANSYS is well positioned to broaden our market opportunity and to extend our leadership in both the near-term as well as in the long term. That confidence is made possible due to the tireless work of customers, partners and of course my ANSYS colleagues.
Thank you all for your efforts. And thank you for another exceptional quarter. Thank you everyone for joining the call today. I look forward to the next call. Enjoy the rest of your day.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.