Autodesk Inc (ADSK) 2003 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter and fiscal year 2003 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (CALLER INSTRUCTIONS ) As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Roland Thomas, President and CEO, and Ms. Suzanne MacCormack. Mr. Thomas, you may begin.

Welcome and thank you for joining the Moldflow Corporation and conference call for the reporting of results for our fourth fiscal quarter and 2003 year-end results. Sue and I will make a series of prepared remarks and we'll then take questions. Before we begin with these remarks I will ask Sue to remind all listeners about risks and uncertainties surrounding forward-looking statements.

Thank you, Roland. During our conference call today we will be making certain forward-looking statements including statements related to our future business prospects and outlook pursuant to the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Please note that any statements contained in this conference call that are not based on historical facts are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include those detailed from time to time in reports filed by Moldflow with the Securities and Exchange Commission, including the company's filing on form 10-K for the year ended June 30, 2002 and subsequent quarterly and annual filings.

Our comments will summarize the financial results of the fourth fiscal quarter and year ended June 30, 2003. For more complete details of the financial results, please refer to the press release made earlier this morning, which also includes a description of specific risk factors. In addition, please note that during the course of this call we will be making reference to certain non-GAAP or pro forma financial results and measures. Reconciliation of these non-GAAP measures to the closest GAAP measure for each relevant period is also available on our website, www.Moldflow.com.

Thanks, Sue. Last year around this time was my first quarterly call as CEO of Moldflow. We had just come off a very challenging quarter and I described the outlook as kaleidoscopic. Predictability was difficult and the world operating environment for Moldflow and many other software companies was significantly changed. Notwithstanding a very difficult economic climate, we remain confident in the underlying strength of our franchise and value proposition, so we set out the following objectives: manage the business conservatively within the reality of the economic climate while remaining positioned to capture the upside potential when corporate spending levels return; secondly, to continue the pace of innovation that we have become known for in order to ensure that we retain customer loyalty, protect our maintenance revenue base, and have strong competitive position; also to seek our opportunities for expansion of our business through potential acquisition; and finally, to continue our long-standing commitment to conservative financial reporting and strong corporate governance standards.

In accordance with this strategy we communicated then our financial plan to manage the business to breakeven PBT for fiscal 2003. We have now released our Q4 and 2003 full year financial results. I'm pleased to report that the continued execution on this strategy has enabled us to return it to a moderate level of revenue growth for the year, more substantial revenue growth for the most recent quarter, and achieve positive pro forma PBT of nearly $2 million on revenues of just under $37 million. In achieving these results, we saw relative strength in two of our three major markets and in both product lines. In the fourth quarter of 2003, the company reported revenue of $9.9 million and earned 3 cents per share on a pro forma basis. For the full year, on revenue of $37 million, the company earned 9 cents a share on the same pro forma basis. $9.9 million represents continued solid quarterly performance following on from the trends of the previous three quarters and a 20 percent growth over the same quarter of last year. $37 million in revenue for the year is up modestly over 2002 fiscal year and pro forma earnings at 9 cents a year are essentially flat with last year.

Over the course of the year we saw both Europe and Asia, and particularly Japan and China, account for an increasing percentage of our revenue. While changes in currency accounted for half of the overall revenue growth in Q4, the remaining growth was from operations. Our salesforce confirms that our customers are finding it easier to free up the funds required for the purchase of our product. (technical difficulty) levels, spending levels appear to have improved over recent history. In Europe, while both product lines showed some strength, it was manufacturing products that led the way. Particularly notable strength was in the automotive industry, including the largest order in the company's history from Seaver (ph) and a significant follow-on order for SCI (ph). We also saw repeat business from a number of other manufacturers who have built MMS products more broadly into their molding optimization plans, including customers in the medical industry such as Gambro, (indiscernible). The results helped us achieve an overall growth in year-to-date terms of the manufacturing product line revenues of 34 percent.

In Japan the positive results were driven by (indiscernible ) Design Optimization products, where we believe we are seeing continued shift from the use of our products solely in the centralized R&D departments in our largest customers out to the broader design community which includes other design groups within the OEM and the broader supply chain. We saw significant orders from Onrod (ph), Tigers Polymer (ph), Nagatu, Precision, Ricoh (ph), and Hitachi to name a few. The Chinese market, although still relatively small for us, continues to show robust year-over-year growth. As with Japan, our product sales in this territory have been largely limited to design products. However, it's worth noting that an increasing amount of original design work and projects of greater sophistication are being performed within China and this represents increased opportunity for our product offering.

In the USA, the overall market remains softer as we reported last quarter, especially in the automotive, OEM and logic (ph) Tier 1 suppliers. We did see continuation of the increased activity in the smaller to medium-size suppliers, and we believe this is the result of the Tier 1s and OEMs pushing broader responsibility for their projects down into the next Tiers. On the product side we continued our pace of innovation and delivered enhancements in our core product line, released 4.0 in December and 4.1 in June of our flagship MPI product line, enabled our 3-D simulation modules which are used to optimize some of the more complex shaped parts, to extend into the important field of a warpage analysis or by filled and structural fiberfill material, as well as the complex molded in inserts and in mold assembly. The 3-D modules were also extended to deal with (indiscernible) material for applications which include the manufacture of micro chip.

We also provided all MPI customers with a rich programming environment with customization and integration into their design environment. Further recognition of the importance of being integrated into the customer's design environment or overall product life cycle management processes. Our connection to the most commonly used KED (ph) systems is an importance part of our strategy, alongside our direct connection to SDRC's (ph) ideas and (indiscernible) our MDL, or multi design link application, provides a native connection into PTC's Pro Engineer, Parasol (ph) and space systems such as Unigraphics and solid work as well as standard industry interchange format. During the fourth quarter we added the connection to Desoe's (ph) (indiscernible) five blip (ph). Release one of the multi manufacturing solutions, or MMS products, in April; brought the modulization of the manufacturing productline and the integration of the previously disparate components of MMA (ph).

In addition to the product upgrades released during the year, we also made some operating changes to improve our effectiveness and made process changes in the way we develop, market and sell our products and solutions and in the way we support our customers after the sale. For example, in June we announced our partnership with Kistler Instrument Corporation, that allows Kistler to distribute our MMS products to their customers in the U.S. along with Kistler's best in class cavity pressure sensors. We have already seen some positive effect of this arrangement and look forward to the enhanced visibility we believe our products will achieve through the Kistler sales team. Further, to support the growing success of the MMS products, we created a post sales implementation department to manage the processes and practices around implementing, configuring, and interfacing these products following purchase by the customer. While we are not planning for a large shift in our business towards these types of services, those that we do must be done efficiently and profitably.

So enough of the past, what do we see for the future? As we look forward our view of the market is that more and more companies are focused on the strategic importance of the cost of manufacture as a key driver to long-term profitability. In the world of product design and manufacture, effective cost optimization implies taking action to optimize ahead of manufacturing, that is in the virtual design world, and then executing in the real manufacturing world. And if that's the integration between design to manufacture and manufacturing execution becomes critical. Successful OEMs will leave a set of strategic course to become excellent at manufacturing themselves or will outsource to companies that excel in manufacturing. Superimposed on this trend, we see the injection molding and plastics processing industry already setting the course to morph themselves into more general manufacturers. While injection molding remains a critical area of their business, it is no longer there only concern.

Molders of the future will be transforming into either plants with large numbers of machines but also a broad base of other manufacturing service offerings, or the specialized molding plants for complex work with a high degree of technical sophistication. The trend of consolidation is demonstrated by the U.S. market where consolidation has reduced the number of molders from an estimated 35,000 back in the '70s and '80s to more like 5,000 to 7,000 today, with consolidation continuing. While consolidating, they're also globalizing so to be close to their customers in their local markets. With the investments we've made to date in our global infrastructure, we've positioned Moldflow to capitalize on this complex manufacturing market and to deliver other high intellectual content to address the needs of these manufacturing companies.

So it's a broad market trend favoring manufacturing optimization. General market indicators with a moderately positive time. And customers appearing to begin to reinvest, we think this all translates into a somewhat better business climate for us as we enter our FY '04 year. And so as we look forward to fiscal 2004, we expect to see continued modest growth in total revenue and, more specifically, in Q1 we expect growth in the range of 15 to 20 percent compared to Q1 last year. And then looking to the midterm we see growth averaging on the order of 15 percent for the first half of fiscal '04 over the first half of '03. Our plan is to demonstrate the leverage in our business model and deliver earnings growth in excess of the revenue growth while incorporating some additional cost increases, notably in the G&A area related to the ongoing legislative corporate compliance and reporting effort.

This outlook assumes the continued stability of the economy and the continuation of the strategic trends I've mentioned. Given that there is still a degree of uncertainty in the world economy, and our end-use markets in particular, we will continue to monitor the economic conditions and adjust our business model when appropriate to meet our objective. As we enter FY '04, we'll continue to deliver product and services and technology to our customers to a level which they have become accustomed and have come to expect from us. To that end, we intend to release modules which extend the breadth of our MPI product, in particular Mold Adviser early in calendar 2004 to address the increasing demand from the supply tier below Tier 1 for more sophisticated and powerful product in their targeted price range. We also plan to deliver MPI 5 to our customers towards the end of the '04 fiscal year. We believe that this product will further protect our position vis-a-vis our customer base, ensuring that Moldflow remains the supplier of choice for predictive applications for the Design Optimization of plastic.

As you recall, we acquired the assets of CPI in January, 2003. CPI's product and production monitoring system generated sales in Q4 which allowed the acquisition to be accretive in Q4 as we said it would be. The CPI products are currently only available in French language markets. Over this year they were made available beyond France reaching the important U.S. and other English-speaking markets during our winter. We will continue to streamline our field operations with sales, support, and implementation activity by further optimizing processes and leveraging our global infrastructure. Our selling strategy for the manufacturing product line is to prove the value proposition through initial pilot installations and then to build on that to create demand for broader plantwide implementation. The overall sales and support costs associated with the pilot implementation is proportionately greater than that of the future plantwide implementation.

As I mentioned previously, to ensure that we achieve the desired customer focus and efficiency in our implementations businesses, we have formalized our organization to deliver these services. As such, you should expect to see the costs associated with focused customer implementation activities reflected in our cost structure. The resources for the implementation team have come from the existing technical staff so there will not be a bottom-line impact, however, you will see a shift in the allocation of these costs to above the gross margin line. In addition, with respect to our design products, we'll be strengthening the development and management of our indirect channel with the appointment of a director of strategic alliances here in the United States to manage the existing relationships as well as begin to enhance the distribution channel so that it grows in concert with the rest of our business.

Most of this discussion is naturally centered on the organic operations of the business. As I have stated previously, we're actively pursuing acquisitions with complementary technologies, product or services. We continue to seek opportunities to leverage our distribution capabilities, and to offer even more comprehensive solutions to our customers for design and manufacturing optimization. I'll now ask Sue to provide a more detailed review of the operating results and guidance for the future.

Thank you, Roland. Total license and service revenues for the fourth quarter ended June 30, 2003 were $9.9 million. This was an increase from approximately 20 percent year-on-year and 5 percent sequentially and was above the high-end of the range of expectations that we set out for the quarter in our last quarterly earnings call. The performance level above the guidance range was driven by a combination of higher than forecast revenues in our Manufacturing Solutions products in Europe and in our design products in Japan and, to a smaller degree, by favorable currency impact in Europe. With respect to currency impact, on a sequential basis currency movements contributed approximately 3 percent of the 5 percent growth. On a year-over-year basis, currency movements provided a benefit of approximately 10 percent as revenues in local currencies increased just over 9 percent.

For the full year, total revenues of $36.6 million were up 4.4 percent over the prior year, while the positive effect contributed by currency movement was approximately 7 percent. On a regional basis for the quarter, we had approximately 44 percent of our revenues in Europe, 32 percent in Asia, and 24 percent in the Americas region. And on a year-to-date basis, for the full year our revenues by region were 39 percent in Europe, 34 percent in Asia Pacific, and 27 percent in the Americas region. And when compared to the fourth quarter of fiscal 2002, revenues were higher in Europe and Asia by 43 percent and 15 percent respectively and lower in the Americas by 4 percent. And on a sequential basis revenues compared as follows. 32 percent growth in Europe; approximately flat in the Americas; and down 17 percent in Asia Pacific. And again, these trends were generally in line with our expectations and historical seasonal trends.

We had 33 quota carrying sales reps on board at the end of the quarter. We saw nice gains in sales productivity during the quarter as productivity was up 22 percent over the level achieved in Q3. For the year, sales productivity was up 33 percent over FY '02, reflecting the impact of the staffing reductions that we made at the end of last year. The rise in productivity can be attributed to a combination of factors, including higher deal sizes as we pursued the Manufacturing Solutions business, improvements in sales execution, and favorable currency impact. Product license revenues were $4.8 million in the quarter. These revenues were up 21 percent over comparable quarter of last year and were up 4 percent sequentially from Q3. On a constant currency basis, product revenues were up 10 percent. We added 92 new customers in the quarter and approximately 41 percent of our license revenues came from these new customers.

Service revenues were $5.2 million reflecting 18 percent growth over the same period of last year and were up 5 percent sequentially. On a constant currency basis, service revenues were up almost 9 percent. Within service revenues, revenues for maintenance and support contracts represented approximately 88 percent of that total and were up by 17 percent year-over-year due to growth in the installed base from new product sales over the last year, continued strong attach rates on new product revenues, and favorable foreign exchange movement. And revenues from other services including training, implementation, consulting and material testing were up approximately 31 percent.

Revenues by product family for the quarter were as follows: design solutions products $3.3 million of revenues or 68 percent of total license revenues; design revenues were approximate flat with Q4 of last year and were down sequentially by 17 percent; and during the quarter we shipped a total of 152 seat (ph) of MPA and MPI bringing us to cumulative combined seat count of over 7300 seats. On the Manufacturing Solutions products, we saw $1.5 million in revenues or 32 percent of total license revenues, and this compares to $689,000 of revenues shipped in the same quarter year ago or growth of 118 percent -- in which these products were -- over the same quarter of last year in which these products represented approximately 18 percent of product license revenues. On a sequential basis, this is up 140 percent over Q3, and that further demonstrates the lumpiness of this product line revenue, as we pointed out last quarter when MMS revenues were lower on a sequential basis than the quarter prior to that.

This quarter we shipped our largest MMS order ever with generated license revenue in the quarter of just over $0.5 million on that one order. So it's easy to see that the effect of one or two very large orders on the growth and the stream of revenues. We shipped a total of 255 new seats of the shop floor products this quarter bringing us to a cumulative seat count of just under 4200 installed seats of these products. With respect to earnings, we reported GAAP net income of 2 cents per diluted share in the fourth quarter. This compares to GAAP net loss per share of 8 cents reported in the same quarter a year ago.

Our pro forma net income results for the quarter was $340,000 or 3 cents (technical difficulty) and this compares to a pro forma loss of 2 cents per share in the same quarter a year ago. The pro forma results for the fourth quarter of each of fiscal years 2003 and 2002 exclude non-cash amortization charges related to acquired intangible assets, and in 2003 exclude a small reduction of previously recorded restructuring costs. Again, I'll refer you to the supplemental information provided in the press release today for a comprehensive reconciliation of these and all other non-GAAP amounts.

For the year, our pro forma net income was 9 cents and that amount is flat with the prior year. These pro forma results for each of fiscal years 2003 and 2002 exclude non-cash amortization charges related to acquired intangible assets, and in 2003 exclude charges related to the Q3 acquisition of CPI, and in 2002 exclude a non-recurring net gain on the sale of certain long-term assets and investments and charges incurred in our April, 2002 restructuring. On a GAAP basis, loss per share of 1 cent for the year compared to 8 cents of income for the prior year. Reporting on the progress of the integration of the CPI acquisition, you'll recall that we completed that acquisition in the early part of January of this year.

The acquisition integration is largely complete and the operations related to CPI were mildly accretive to earnings during the fourth quarter, consistent with our expectations. We continue to work on the product integration efforts with the goal of bringing the CPI products to market in additional local languages and eventually in an integrated environment with the MMS suite of products. The first of these deliverables, an English language version of the CPI product, is anticipated to be released in the middle of this fiscal year.

Turning to the balance sheet and cash flows, cash and marketable securities at June 30th were $52.1 million with no debt, an increase of $1.8 million over the prior quarter end and an increase of $1.3 million over last year, even after funding the CPI acquisition with cash, which was funded at $900,000. Cash generated by operations was just under $1 million during the fourth quarter. Total capital expenditures, including capitalized software development costs, were $587,000 and the resulting free cash flow was $327,000 during Q4. Net unrealized foreign exchange translation gains on cash invested overseas, primarily in the Australian dollar, increased our U.S. dollar cash balances by approximately $1.5 million. And finally, Accounts Receivable at $6.1 million represented 56 Day Sales Outstanding at the end of Q4, 8 days lower than the prior year and down sequentially by 8 days as well. This level was again lower than our own internal DSO targets and reflected both a high-quality of business and strong execution on collection efforts throughout the quarter.

Turning to our outlook, I'd now like to provide you with a view of our business outlook for the future. And this summary will include forward-looking statements involving risks and uncertainties that could cause our actual results to differ materially from those projected. So you should refer to our SEC filing, press release for a description of those risks and uncertainties. And in addition, please refer to our website for a full reconciliation of non-GAAP measures contained in the outlook to the relevant GAAP measures. As Roland indicated, our FY 2004 operating and financial plans reflect an expectation of modest growth in revenues on the order of 15 percent over the first half of the year. We're planning for growth in earnings and cash flows over the course of the full year as we seek to take another step toward our longer-term profitability target.

On a long-term basis, our target business model reflects operating margins in the range of 16 to 22 percent. For fiscal '04, we are targeting operating margins for the full year to average in the range of 8 to 10 percent. Operating profit in the first half of the year will be lower than that, however, as we anticipate gaining efficiencies in operating leverage over the course of the full year. For the September quarter, Q1 '04, with our current visibility we expect that our total revenue will be flat to down slightly consistent with seasonal trends in the range of approximately $9.4 to $9.9 million. With regard to income and EPS estimates, I note that in fiscal 2004 we will no longer be presenting or providing guidance on pro forma or non-GAAP measures of income as a standard practice each quarter. Of course, if in any reporting period we do incur any significant unusual charges or gains, we'll certainly highlight these for your attention.

Accordingly, our future estimate of operating income and EPS will include the impact of both non-recurring and recurring items such as non-cash amortization expense that were previously excluded from our calculations and projections of pro forma EPS. So we expect that the gross margin on our total revenues during fiscal 2004 will trend downward, reflecting the impact of the organizational changes for manufacturing systems implementation and post sale support activities to which Roland eluded in his comments. Specifically for Q1, that means we expect the gross margin on total revenues to be in the range of 83 to 84 percent, reflecting the redirection of the cost of technical resources from R&D and pre sales to customer support and implementation, which is included in the cost of revenues line. And then giving effect to these organizational changes we expect that the total expenses for R&D and SG&A will be at a level of approximately $7.8 to $7.9 million.

This level of spending is less than in the June quarter due to expected lower cost of sales commissions and incentive compensation for Q1, and because the fourth quarter also included the impact of our annual international user group meeting and the triannual national plastics exposition trade show that was held in Chicago in June. In Q1 -- we therefore expect our income from operations to be between a small loss and income of $250,000. We expect other interest and expense net to be approximately $250,000 for the quarter, and we're assuming an annual effective income tax rate of 35 percent. These factors taken together result in our expectation that projected earnings per share in the first quarter will range from 1 cent to 3 cents. And finally, we expect negative free cash flow in the range of $400,000 to $600,000 in the first quarter, which is consistent with our historical seasonal trends. And with that, I'll turn back to Roland to summarize.

Thanks, Sue. So to summarize before I open up to question, we've been experiencing a gradual stabilizing of our major markets. This appears to have brought with it a propensity for our customers to consider investing in the future rather than wait and see what's coming. Should this continue, and we have no reason to believe that it won't, the decision we took last year to preserve capacity to take advantage of improved conditions will have been shown to have been a good one. So for the upcoming year our plan can be summarized as follows: to manage the growth to deliver improved earnings but not so much as to startle that growth; further refine our field operations to improve efficiency and execution; to focus greater attention on the indirect channel; to extend the reach of the CPI products into other geographic markets over the winter, and in particular the U.S.; and continue to seek out strategic and synergistic acquisitions. With that, I'll be happy to take any questions.

(CALLER INSTRUCTIONS) Dennis Wassung of Adams, Harkness & Hill.

A couple of quick questions on the guidance, first off. You talked about first half of fiscal '04 revenue growth of about 15 percent. Is that accurate?

Yes, 15 percent of the half year.

And then for the full year you didn't give a number, correct? Just sort of modest growth, is that the expectation?

Yes, as guidance for the first half of the year is based on that business which we had some reasonable amount of visibility into, our view of the second half is less clear at this point, and will be influenced by the evolving economic conditions. While the conditions appear to have been improving, we remain somewhat cautious about visibility beyond the end of the calendar year, so we're not presently giving a forecast on the second half. But it's fair to say that we don't see any reason to predict a drop-off below the levels we expect in the first half, and we'll update you, as always, on our progress throughout the year as we gain greater visibility in the second half and we'll be adjusting our operating models if the conditions change.

A couple other quick housekeeping questions that I think missed on the original comments. The number of new customers in the quarter?

92 new customers.

92, and I missed the number of manufacturing seats sold in the quarter.

255.

255, and that brings the total to just under 4200 you said?

Correct.

Great. And just a broader question, the manufacturing side of the business did well this quarter. I'm curious as to your expectations for that going forward. It had I guess 32 percent of license revenue this quarter, and when you look at it on a fiscal 2004 basis, obviously it's been fairly lumpy from quarter to quarter. Where do you expect that to fall for the total year, looking into next year as this business continues to grow as a percentage of total license revenue?

Thanks, Dennis. We're looking out over the -- certainly the course of the remaining calendar year and we would expect to see growth rates in the order of 30 to 40 percent for that product line. Given its lumpiness, it is a little difficult to predict quarter by quarter, but we don't see conditions that would lead us outside those numbers particularly.

Okay, that's great. And last question, just more macro and broader question. You talked about some stabilization and just continued momentum that you guys have delivered here and I've seen in the customer base. I was just wondering what you're seeing that's really changed out there from the customer attitudes and the customer environment? Are people just more positive now? Is their business starting to rebound? I'm just trying to find altogether the reasons that we're actually seeing the stabilization and gradual improvement here.

Needless to say that some of it's interpreting what we're -- the way we view the changes in their behavior, but they certainly seem to have taken on a propensity to be trying to build their businesses for the future. And if you're standing here as a company looking outward and you didn't know whether the future was going to be up, down or sideways, the propensity is to just stand still. So I would read into that that they are seeing either flat or moderately improved business forecasts or that they wish to invest because those two occur. I think we're tending to see similar things across the globe, although clearly by the results that we saw, Europe and Asia, particularly Japan and China, were stronger in that -- from that perspective. But we still get that same path of sentiment reported here in the U.S. Other areas have seen similar things. We saw increased activity in parts of Southeast Asia for example as well. So it wasn't even just the major markets. So I'm not sure that they're all seeing exactly -- or seeing the improved conditions today, but I think that they must because there's a fair chance that they're seeing a chance to get to them.

(CALLER INSTRUCTIONS) Rob Mason with Robert W. Baird.

A couple questions. You did have the one large MMS order in the quarter. I was just curious if you're seeing more interest in deals of that scope? Is that factoring into your outlook any?

Well, I think it's fair to say that we are seeing interest in larger deals on the manufacturing product side, whether they're deals of that size, that represents the biggest we've had, I'm not sure I would go as far as to say that, but we certainly have belief that there would be more rather than less of that type of thing in our future. But in general, as we roll out our pilot to plant to corporate strategy, we necessarily will see the increase in deal sizes. The pilots are usually, not always, but usually smaller and we're focusing attention on improving our value proposition and the broader rollout will commonly have larger transaction size.

And just to speak to your pipeline, obviously with the guidance you're giving for the first half of the year you feel may be reasonably more comfortable on closure rates. But just as to the pipeline in general or the size of the pipeline, have you notice a change there?

Well, the pipeline is obviously something that feeds the forecast, and given that we've given our guidance -- if you compare it to our guidance a year ago, then that represents a comparative increase in strength in the pipeline as well as what we're saying for the quarter.

Okay, so size wise, not just necessarily willingness for customers to close deals that may already be in the pipeline, but you're seeing an expansion of the pipeline say over the last two quarters?

It would certainly, if I compare it from year to year, the easiest one for me -- both of those things are affected by propensity to buy and the size.

And then you may have broadly touched on this in a previous question, but just as you talked to the various geographies, particularly in the last month of the quarter and maybe as you exited June and moving into July, if you could just speak to what you're seeing there. I realize seasonality plays a factor there as you speak to the various geographies, but are you noticing -- or just could you characterize the various geographies as you exited the quarter in this first month of the quarter?

Okay. Generically, as I was saying, I captured them all into one sentiment about our customers' propensity to move from considering to purchase, and that was true I think in all the geographies. Although, as the results would indicate, that it was stronger in Europe, and Japan in particular. The U.S. has followed on a little bit from our Q3, which has been a little softer, although the activity levels are still high and we're still pleased with the result. It just wasn't as strong as what the Europeans and the Japanese had done. Coming into the July period, we had seen an increase in closure rates, which is one of the reasons why we have our comfort level in one of the factors that we would consider when guiding to 9.4 to 9.9, which by the way would be our largest Q1 ever.

One last question if I might. On your guidance, what is your assumption for currency -- year-over-year currency? Your first-quarter guidance I guess points to roughly up 13 to 19 percent.

Right. Our assumption on currency at this point is our budgeted currency rates, which reflect our rates have been in place over the course of the month of late June/early July. So on the euro --

So if I was to apply that to year-over-year, what kind of percentage increase are we --

I guess it would be on the order of -- I haven't done the math on the full year, Rob, to tell you the truth. We're looking at a budgeted rate for this year, for example, on the euro of about 1.17 to the dollar -- and the comparable number last year was closer to parity.

Okay, very good. Thanks.

Thank you. I'm showing no further questions of this time. I'd like to turn the conference back to you, Mr. Thomas.

Okay. Well, there being no more questions, I would like to take this opportunity to thank you for your support during the year and I look forward to speaking with you again next quarter. Thank you. Goodbye.

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the conference. You may disconnect at this time and have a nice day.

(CONFERENCE CALL CONCLUDED)