Autodesk Inc (ADSK) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Moldflow Corporation fourth quarter and fiscal year 2005 conference call. At this time all participants have been placed on a listen-only mode and the floor will be opened for questions following the presentation. It is now my pleasure to turn the floor over to your hosts, Mr. Roland Thomas CEO and Mr. Christopher Gorgone CFO. Gentleman you may begin.

Welcome and thank you for joining the Moldflow Corporation conference call for the reporting of results for the fourth quarter and full 2005 fiscal year from our new corporate head quarters in Framingham, Massachusetts. Chris and I will make a series of prepared remarks and we'll then take questions. Before we begin with these remarks I will ask Chris 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 harbour provisions of the U.S. Private Securities Litigation Reform Act of 1995, please note that any statement 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 included those detailed from time to time in our reports filed by Moldflow with the Securities and Exchange Commission including the Company's filings on form 10-K for at year ended June 30, 2005 and our subsequent quarterly and annual filings. The our comments today will summarize the financial results for the fourth fiscal quarter and fiscal ending June 30, 2005. For more complete details of the financial result please refer to the press release made earlier this morning, which also includes a description of specific risks factors. And with that I'll turn it back to Roland.

Thanks Chris. I'm very excited to be here today to report fiscal year 2005 results that reflect significant year-over-year growth in both revenue and earnings per share. Fiscal 2005 marked our first full year of operations with individual business units and by all accounts this operational strategy has been a success. Overall, over the full fiscal 2005 year, we delivered another strong performance that resulted from the successful execution of our strategy and demonstrated continued progress towards the achievement of the long-term financial goals we have defined for our business. We concluded the year with the 64.4 million and $0.68 as GAAP earnings per diluted share.

Year-on-year, these numbers represent a 32% increase in revenue and 142% increase in earnings per share. These result include revenue growth of 25% from our design analysis solutions business unit and 60% revenue growth from our manufacturing solutions business unit. We are pleased with leverage shown in this year's results, with a 32% increase in revenue leading to an even greater increase in earnings. These financial results, coupled with our continued position as the premiere provider of technologically advanced automation and optimization solution for the plastics industry, positions us well as we enter fiscal year 2006.

Turning to the results for the fourth quarter we are reporting revenue of 18.3 million and GAAP EPS of $0.12 per diluted share. This represents a 20% increase in the revenue when compared to the same quarter last year and a 20% increase in earnings per share. The total product revenue was 11.3 million, an increase of 25% year-over-year and 19% sequentially. During the quarter we saw strong sales in both our design analysis and manufacturing solutions business units. We noted that last quarter that we anticipated sales in our manufacturing solutions business unit to get back on track in the fourth quarter and I'm pleased to report that this has been the case. Overall, we saw strong performance in Asia and for the third connective quarter, in the Americas. This performance was evidenced by sales to such notable manufacturers as Cannon, Hitachi, Nikko, Samsung, Bose, Dupont, Phillips Plastics, Lear and SC Johnson and Sons.

On the expense side, as we predicted, we were challenged by the continually rising costs related to compliance with section 404 of the Sarbanes-Oxley Act. Although we have taken a disciplined approach to contain these costs we had to contend with a moving target related to our professional fees over the course of the fourth quarter while these expenses did rise to a level above our expectations. Looking forward we expect a more predictable set of variables associated with this expense. With that I'd like to turn to the results in our business units starting with our design analysis business. For the fourth fiscal quarter of 2005 this business unit produced revenue of $12.7 million with 6.5 million of this revenue coming from product sales. This represent year-over-year growth of 17% and 9% sequentially. The results was largely driven by strong sales of both MPA and MPI products, particularly in the Americas and Asia Pacific regions.

For the full year this business unit had revenue of $47.2 million with a -- with 23.8 million of this coming from product sales. The CA industry has become a large -- a key component of the overall product life cycle management industry and as indicated earlier, this result represents CA industry leading revenue growth of 25% as compared to last year in product revenue growth of 36%. During the quarter we released version 5.1 of our Moldflow Plastics Insight product. This release followed a highly successful beta program run during the third quarter. This latest release of our flagship MPI product contains numerous customer driven features, enhancements as well as a new interface that allows uses of [inaudible] structural analysis software to interface directly with our Moldflow plastic insight products.

During at past quarter our Japanese sales team sold its' one thousandth seat of our MPI product in the Japan. A milestone that clearly demonstrates that the implementation of analysis into the injection molded plastic products design to manufacture process is a worldwide imperative. The constant stream of technological innovations found in Moldflow's CAE products position us as the preferred technology partner to the global manufacturing community. Also during the quarter we received an important European patent for our [inaudible] technology. This revolutionary technology provides the foundation for our multiple plastic advisors and multi-plastic insight products. This patent further protects this unique technology in one of our largest markets as well as reaffirms our strong leadership position across the globe.

As we look forward into at fiscal 2006 we intend to continue the level of technological innovation, that has made us the undisputed market leader for injection molding design analysis product for many years. We will continue to enhance and improve our MPA and MPI product line. We are planning to introduce many customer driven enhancements developed out of our close relationship with our established customer base. In addition FY06 will be a year of of the technological innovation that our customers have become accustomed to from Moldflow, as we continue to push the solution speed versus accuracy boundary. Our direct and indirect sales activities will continue to focus to on educating the market on the benefits of analysis driven design, as well as pursuing on sale and up sale opportunities to further increase the operating leverage this business unit provides.

Now I'd like to turn to the results for our manufacturing solutions business segment. Revenue for the fourth quarter of fiscal 2005 was $5.5 million which is up 31% sequentially and 26% over the same quarter last year. Of this revenue, 4.7 million come from product sales representing 32% sequentially and 33% year-over-year growth. For the year, this business unit had revenue of 17.2 million, of which 14.4 came from product sales. This represents 60% growth on a year-over-year basis, and 67% growth in product revenues. It's worth noting that this is truly an apples to apples comparison, as we have had full quarter of combined AMSI or American MSI Moldflow business in the fourth quarter of fiscal 2004.

During the quarter our focus on expanding the reach of our sales network or the manufacturing solutions products in the American and European markets continued to progress and bear fruit. As has been the case over th past five quarters, we saw strong sales of our Altaniun Hot Runner process control products to the customers in a variety of end-user industries. We also continued to see increased interest and sales of our are traditional shop floor product offerings, as well as a growing pipeline of deals for all manufacturing solutions product offerings in both, both Europe and the Americas. As we exit FYO5 we are pleased that our MMS business has quickly leveraged our combined global infrastructure with more than 3200 customers in some 25 countries. Over at course of FY05 we saw dramatic improvements in our production capacity at our primary manufacturing facility in Moorpark, California, growing unit production six fold between Q1 and Q4.

During the fourth quarter we announced an extension to our agreement with Yudo, Ltd.., to allow Yudo manufacturing our Altanium products for sale in China. This strategic partnership gives Yudo the ability to provide a world class process control solution for their global, hot runner system customers, and represents another step in Moldflow's strategy to meet the need of the rapidly expanding market in Asia for hot runner control products. On the technical side FY '05 was a important year in driving hardware platform compatibility and integration into our sweeter products. Over the course of the year we standardized all of to products on one hardware policewoman. During the quarter we announced device level link and its support, for the complete line of manufacturing solutions products, to help customers increase the flexibility and mobility of equipment placement on the manufactory floor.

These technical develops will further our efforts over the upcoming years to leverage our position as the premiere supplier of hot runner control products in order to drive sales of our traditional shop floor products. We've seen many of our manufacturing customers searching for ways to centralize their shop floor products onto a common platform, as well as reduce the number of venders they deal with and the complexity of the product on their shop floor. The steps we have taken to integrate our product offers this year have been well received by customers thus far. As we look forwarded to fiscal 2006, we'll continue to expand the reach of our indirect sales networks in Europe, and third to build up the direct and indirect sales network throughout the Asia Pacific region. Further, we'll continue towards our vision of providing our worldwide manufacturing solutions customers with the integrated products they require to make critical business decisions that directly affect their bottom line. We will do this through new product introductions, partnership arrangement that extend our market reach, and at a level of service and attention unparalleled in the industry.

So, overall I'm very pleased with our operating performance and financial results over at 2005 fiscal year. We continue to deliver on our stated strategic goals and are leading the way in technological innovation in the a markets we serve. Our successes over the past several quarters leave us well positioned to succeed in fiscal 2006 and I'm excited by our prospects. Looking forward, our plans for fiscal 2006 is to continue to build upon the foundation we laid over at past fiscal year, specifically in our design analysis solutions business, we continue to support our growth, with a product strategy that will deliver greater flexibility enterprise level customers as well as the product and mold design markets. In our manufacturing solutions business, we'll the globalization of the Hot Runner Process Control products while focusing on the expansion of our Asia Pacific sales networks, as well as our worldwide OEM and resale sales strategy.

We'll continue to seek out strategic partnerships and acquisition targets that strengthen our sales and product leadership position. And we'll seek to achieve another year of double digit revenue growth and increased earnings per share and we'll work towards improved scale and margin development in both business units. Now turning to our financial outlook for 2006. We anticipate that for the first quarter, revenue will grow year-over-year by between 17 to 20% with nonGAAP income per diluted share of between $0.10 and $0.13. For the full fiscal year of 2006, we believe revenue will grow between 15% and 20%, with full year nonGAAP income per diluted share expected to be between $0.79 and $0.89.

So with that, I will now ask Chris to provide more detailed review or the fourth quarter and full year operating results, as well as our outlook for the future.

Thank you Roland. Total revenue for the first -- fourth quarter of fiscal 2005 was $18.3 million, which represented an increase of 20% over the corresponding period of the prior year and an increase 15% sequentially. Revenue for fiscal 2005 was 64.4 million a 32% year-over-year increase. With respect to the currency effects on total quarterly revenue, currency movement provided the benefit of 2% on a year-over-year basis, global revenues and local currencies increased approximately 18%.

On a sequential basis currency movements had a negative impact of 3% as revenue and local currencies grew 18%. Regionally, revenue in North America represent 38% of the total revenue while at Asia Pacific and European regions represented 33 and 29% of the total revenue, respectively. When compared to the fourth quarter of last fiscal year, revenue was a higher in all region with Europe up 8%, the Americas up 28% and Asia Pacific up 24%. Sequentially revenue was also higher in all regions with Europe up 8%, the Americas up 17% and an increase in Asia Pacific of 20%.

Now moving to the composition of revenues by type. Product revenue for Q4 was $11.3 million up 25% over at the comparable quarter of last year and up 19% from last quarter. On constant currency basis product revenue was up 23% year-over-year and 22% sequentially from the previous quarter. Approximately 31% of our product sales this quarter came from sales to approximately 78 new customers that we added during the quarter. Service revenue for the fourth quarter was $7 million, reflecting a growth of 13% over the same period of last year an increase 10% sequentially from last quarter. On a constant currency basis service revenue was up 10% year-over-year and increased 12% sequentially.

Viewing the revenue by business unit our total design analysis solutions revenue represented 12.7 million or 70% of our total Q4 revenue. Design product license revenue accounted for 6.5 million or 58% of our total Q4 product revenue. Designs product revenue, this quarter, was up 19% from the previous year and 11% sequentially. The increases was primarily due to the strong sales of MPA. All 3 regions experienced double digit increases both on a Q4 year-over-year basis, and for the entire year led by Asia Pac with 24% and 27% respectively. During the quarter we shipped a total of 133 new seats of design analysis products bringing us to a total cumulative combined seat count of approximately 8400 seats for these products.

For our manufacturing solutions business we had total revenue of the fourth quarter of $5.5 million representing 30% of our total Q4 revenues. Of this payment, 4.7 million came from product sales, representing 42% of the Company's overall total product revenue for this quarter. The manufacturing product revenue grew organically by 33% over the same quarter of last year, due in large measure to the impact of the globalization of the Altanium Hot Runner Process Controller. With respect to our sales force we entered the quarter with 41 quota carrying sales reps and completed the quarter with 44, of which 34 were in the design analysis business unit and 10 were in the manufacturing solutions business unit. Sales productivity for the full year for design business approximately $1.6 million per effective head. In manufacturing business, full year sales productivity was approximately $1.7 million per effective head. Historically, because we didn't have business units in place in the past we looked at our productivity over all product lines combined. On that basis the combined productivity of design and manufacturing teams was up 31% from the last fiscal year.

Turning to operations and earnings, we are reporting GAAP net income of $0.12 per diluted share for the fourth quarter of fiscal 2005, a 20% increase from the $0.10 diluted share reported in the same period of the prior year. For the full fiscal year our GAAP net income of $0.58 per diluted share compares to GAAP net income per share of $0.24 reported for the last fiscal year. In the fourth quarter, our overall gross margin on a total companywide revenue was approximately 74%, a 3 point decrease from Q3. The decrease in margin was primarily due to the mix of product revenue, specifically the strength from sales of our Hot Runner control systems. The gross margin on our design analysis solutions revenue was 90% and was in line with traditional levels for this business and our expectations.

The gross margin on the manufacturings solution business for the fourth quarter was 37%, decreasing 3 points from 40% in the third quarter. The decrease in margin was primarily due to increased variable costs resulting -- resulted from the expediting of materials and enhanced effects in producing sales of Hot Runner process controllers. The operating expenses were 12.1 million increasing 12% from last quarter and 19% from the same period of last year. The increase was primarily due to the costs of compliance and professional fees, most specifically those related to the Sarbanes-Oxley section 404 compliance and the related audit; and increased selling and marketing costs incurred as a result of higher revenue. Breaking down a bit further, R & D costs for the quarter of 2.1 million were consistent with the third quarter but increased 30% from the same period of last year.

The year-over-year increase was primarily due to the fact that no software development cost was capitalized during at current period while 415,000 of development costs was capitalized in the same quarter of the previous year. Other factors driving the increased spending from last year included increased compensation costs resulting from increased personnel and our annual salary adjustments that took place in Q2. Sales marketing expenses were 6.3 million in the quarter, up 11% from last quarter and up 3% from the same period of the prior year. The increase from the previous quarter was a result of increased sales commission expenses relative to higher revenue. Increased compensation expense from the additional sales reps and increases in marketing promotional activities associated with trade shows and marketing collateral. G&A costs of $3.6 million for the quarter, were up 24% sequentially and 53% from the same period or the prior year. The increases were primarily a result of increased professional fees, particularly those incurred in conjunction with our Sarbanes-Oxley compliance and section 404 audit.

During Q4 we incurred approximately $1 million of external SOX related expenses and for the full year this amount totaled approximately 1.5 million of external costs. Section 404 testing continues up to the filings of our fiscal 2005 10-K. Sequentially, net currency fluctuations during the quarter had negligible impact on operating results. Finally, our annual effective income tax rate is 19.8% compared to our actual effective rate of 37% in fiscal 2004. The Q4 quarterly tax rate was 31% in fiscal 2005 versus 37% the same quarter of the prior year. Looking at the balance sheet and cash flows, total cash investments of 60.2 million at the end the quarter was up 1.5 million from the a previous quarter as operations yielded 1.3 million of cash in the quarter. For the full year, cash generated from operations was 6.3 million. We had no outstanding long debt -- long-term debt.

DSO result were two days better than last quarter at approximately 66 days, but up 15 days from the same quarter last fiscal year. The year-over-year increase is primarily due to the 20% increase in revenue in combination with the level of revenue booked in the third month of the quarter. Our accounts receivables agings remain strong and slightly improved from the previous quarter, with nearly 95% of our balances less than 90 days. I would now like to turn to our outlook and provide you with a view of our business prospects for the a future. And in doing so, I will note this summary will include forward-looking statements which do involve risks and uncertainties that could cause actual results to differ materially from those projected and again I note that you should refer to our SEC filing and today's press release for a description of those risks and uncertainties.

The EPS numbers projected will include the impact of - will exclude the impact of the implementation of FAS123R. Due to the on going implementation of FAS123R and the uncertainties related to the magnitude of our equity based compensation expense during fiscal 2006 we are not able to estimate at this time, the magnitude of the Company's equity based expense on our net income per diluted share for fiscal 2006. Our first quarter is the first period in which the effective equity based compensation expense will be reflected in our result from operations. For the upcoming first fiscal quarter of 2006 we are projecting a 17 to 20% year-over-year increase in revenue. We are projecting nonGAAP earnings per diluted share for Q1 to be in the range of $0.10 to $0.13 per diluted share. For fiscal 2006 we are projecting year-over-year growth to be the in range of 15 to 20%.

Our fiscal year 2006 nonGAAP earnings per diluted share is projected to be the range in the $0.79 to $0.89 per diluted share. Please note that effective July 1, Moldflow is required to include stock option expensing -- expenses in our financial statement in accordance with SEC requirements. However our EPS guidance to date both for the first quarter and the full fiscal '06 year exclude the impact of any stock option expense and is therefore given on a nonGAAP basis. And with that, I'll turn it back to the Roland.

Thanks Chris. So, in summary, we believe the strength of our plan and product strategy is evidenced by the continued growth we've demonstrated over course of fiscal 2005. We head into fiscal 2006 confident in our ability to maintain this growth as we intend to continue to augment our world leading technologies in all product lines, with new features, new enhancements and remain focused on providing increased revenues and earnings. And with that, I'm happy to take questions.

[OPERATOR INSTRUCTIONS] Our first question comes from Dennis Wassung with Adams, Harknessl.

Thanks couple quick financial questions. I guess, on gross margin side, came in little bit lower than planned, or at least on my model. I'm curious what your expectations are going forward? It sounded like there was a few points impact from of expedited materials. As that business grows, do you expect to see, sort of a similar gross margin rate here, or do we -- do you think you can get back up to that 40% plus range?

Hi Dennis. No we anticipated moving up.

Okay. So when you guys look you the toward, you know, getting into your target operating model, correct me if I'm wrong it's still in the 16 to 22% operating range...

Correct.

What kind much gross margin do you anticipate that you need to get into a range?

Well the -- the aggregate gross margin is the mid-70s between the two of them. That has you know that's blended between the you know the design business and the manufacturing business. The ultimate gross margins for the two obviously depend somewhat on the mix between the two. So whilst, whilst design represents the larger proportion of the revenue as it does today, you know, obviously we're less sensitive to the -- not immune but less sensitive to the manufacturing, manufacturing growth margins, but, you know, you want those -- you want them to start, you know, from that -- from that sort of 40% level and start to creep up a little bit.

Right, and I think you've talked about some, some, I guess, improvement projects underway to try to move up those gross margins?

Yeah we have hardware consolidation programs which is still going on. We have, you know, regular engineering optimization programs just continue to -- just to continue to drive the cost structure down. Our regional manufacturing strategy which allows us to you know manufacturing -- manufacture more or closer to the markets with, with both the, the Yudo relationship and with the Irish manufacturing that we started sometime ago for the shop floor products that, you know, also expected to be for the Altanium products will also allow us to continue to improve that gross margin.

Okay, and I guess on the quickly on the Sarbanes-Oxley side of things a million in Q4, a million and a half for all of fiscal '05. Any thoughts on where that number will go for fiscal '06, and should we see a, sort of a drop in the G&A level sequentially as a result, in Q1 that is?

Well we certainly, you know, hope that it'll be, it'll be less than this year. And, you know, we've seen ranges of anywhere from you know 50% of this year's to 85% to you know the same. So but we're certainly hoping that we have worked out some efficiencies in the process and we'll hopefully forecast this down.

Okay, great. I guess one question on sort of the business side here. The manufacturing side of the business snapped back nicely here, some solid improvement, your first net profit -- operating profit in that business in quite some time. What's changing in that business? Is it purely, is it sort of sales efficiency, opportunities that you guys realized, or do you see the market improving here? Are things cross selling I guess? If you could just talk a little bit about what's happening there and if you feel like your transition has sort of, you know, been competed at this point, in terms getting the efficiencies worked out.

Obviously this has been a key focus of ours, Dennis, for, for quite some time as we've managed through the transition. I think, you know, the MMS business, you know, was and is moving forward you know. We have, you know, we've been talking about a maturing, a maturing pipeline, that we've been coming to grips with the sales dynamics of that. We talked about that a little bit, about last quarter. I still think the segment can be lummy going forward, but I think we've worked on the predictability over the, over Q4. I think that we understand that better now. So, I think it's the continued maturity of the, the sales force transition. I think it's the, the maturing of the new channel that we put in place in Europe, which is a brand new channel for us over the course -- over the course of '05 in terms -- of certainly in terms of the Altanium product and the introduction of the manufacturer's representative in that region.

I don't think necessarily that either the European or U.S. markets per se, have changed much, in the last couple of quarters although,as we've noted a couple of times, we have seen some improvement in the U.S. but certainly Europe is -- is sort of just bouncing around a little bit, rather than generally trending up or in any direction. Ad, of course we saw, you know, the contribution now from Asia into the MMS business, so, you know, with the -- always there's going to be a multi-element strategy and -- and you know, the -- based around the, the globalization and the south port transition, I think it's just a bit of -- they have to work, to work themselves out now.

Are you starting get revenue contribution from Yudo in that arrangement at this point?

Well, Yudo was contributor during Q4, yes.

Great thank you.

Thank you, Dennis.

Once again if you have a question please press star 1 on our telephone at this time.

Once again, if you do have a question please press star 1 on our telephone at this time. Once again, ladies and gentlemen, if there are any further questions, please press star 1 on your telephone at this time. Please hold a moment while we poll for questions. Our next question comes from Steve Simon [ph] with Trigran Investments.

Hi, guys one more SOX questions for you. I understand there's sort of a broad range if '06 as to where those costs might go, but as far as specifically in Q1, is it possible to, you know, let us know what you're thinking there, at least gives you a delta from last year and what you're looking at Q1 there year?

I think it's reasonable to say from a Q4 to Q1 basis we expect them to trend down, but that's not giving you very much really. I realize.

No.

But you know it's -- you know, Q1 for us is a quarter of two halves. You've got all the way up to point at which you file the K and then you've got the point immediately after you file the K. There'll be, you know, a reasonable expense level associated with the project up until they file, and it should, it should, you know, at least for a period drop back towards the end of the quarter.

Okay. And Q1 of '05 was virtually 0 as far as SOX costs, is that correct?

It wasn't 0 but it certainly wasn't at the level that it built up to across the course of the, across the course of the year. It was -- it was a fraction of our Q4 costs I could certainly say that but it wasn't 0.

Okay, great, thanks.

Thanks, Steve.

our next question comes from Lawrence Petrone [ph] with Walden [inaudible].

Yes, thanks. Just a follow-on question on the manufacturing segment. Roland, I wonder if you can tell us whether or not the revenue growth in FY '06, in that segment, will largely, in your opinion, be defined by sales of the Hot Runner processor -- or do you expect equal contribution from some of the shop floor products?

No we expect to the come from bet sections, Lawrence. You know, I think the most difficult transition, given the way we built that, that channel over the course of '05, was for the shop floor products. But you, you know, you're dealing with a, a group that's now a year more experienced, they've got a year more maturity in the their pipelines and so I expect both of them grow. I think the, the dynamics are a little different though, and I think a lot, a lot of the Altanium product growth will come from our globalization strategy. You know, we'll get growth from traditional markets as well, but, I think we get additional growth out of the globalization, whereas, I think most of the traditional shop floor growth will come from the more conventional markets for those products, of Europe and the Americas. There'll be some Asia but, I think, we expect our Asia effects to, to be led by at taken your products.

It's partially due, I presume, to Yudo as well?

It's partly due to Yudo, it's also partly due to the markets themselves. From a marketing standpoint it's the -- the Hot Runner purchase control product is an earlier entrant product. They -- markets, for example, in in China will migrate to a greater proportion of Hot Runner control molds earlier than they would adopt a broader based optimization automation strategy. so, I think it's a, it's a natural market evolution component plus the Yudo relationship that, that leads us to think that the Hot runners will lead [inaudible] in Asia.

Okay. Just one quick question on sales. I wondered what your plans are this year in terms of the size of sales force? You mentioned numbers, Chris, I think 44 was a number. I'm just wondering if you're expecting to add to that sales force this year?

We do have plans to add to the sales force. I think the primary focus of the sales force is still on augmenting the Asian region. You know we have adds in other parts of the world as well but I think that's the place we'll see the, the biggest changes, especially for MMS, where we started the year with, you know, with a green field site, we put on a couple of appointments lighter in 2005 and we'll continue to expand that region over 2006, so I think that's the area you'll see the largest changes.

Okay thank you.

Thank you.

Our next question comes from Walter Ramsley [ph] with Walrus Partners [ph].

Congratulations great quarter.

Thank you Walter.

Just got a couple of things. The guidance for the whole company was growth of 17 to 20% in sales or revenues anyway. Do you see that as being about the same in both business lines or is one faster than the other?

I think long-term we view that the design business will grow at a slightly lower rate than the manufacturing business and I think we'll probably start to see that reflected in 2006. So I could -- I mean, I think it's more of a matter of where it is in it's cycle than anything else, plus that the -- overall the manufacturing spike is very large so I expect that to build up and get ahead of the design of that. That's not from a diminishing position of the design business it's from a strengthening of the manufacturing business.

So, I mean, something like 15% in design and 25 to 30 with the manufacturing, would that be the right ballpark?

You know those are -- those are consistent with what the industry's doing so.

Okay. And as far as your the last year's sales go do you have an idea or breakdown of how much went to our existing customer base and how much went to new customers?

We didn't see a lost change towards the end so broad based parameters, I think, when you're log at aggregate year, that about half order of magnitude of new product sales go to the existing business. Of course, the whole thing gets skewed by maintenance because the maintenance by a definition is by definition, all for the existing customer base and it represent a pretty big chunk of, a pretty big chunk of our revenue but we continue to see the installed base be a significant piece of new product sales as well as the, as well as the new business. I've seen it move a little bit towards, you know, towards new customers over new -- over the course of the year and I've seen it move away from them a little bit in different quarters. So maybe there's a strengthening in the, in the installed base over the course of the year but it's not something that I would--I would pull out, you know, as change in the dynamics.

Okay. And then, you know, just, in general, are there any new industries or applications that are, you know, beginning to really kick in?

They're -- I'd say it was more subtleties than anything. You know, on a, on a regional basis we saw, you know, a couple of a couple of things which were the same, you know, for example: the electronic and automotive industries continuing to do well in Asia for us and so that was more of the same. And Europe being really you know in two halves for us, you know, you've got Germany which is still seeing some -- some strength in the automotive industry, despite the overall automotive industry's health in Germany, and on the western side of, you know, europe, in sort of France, Italy, Spain area it's a bit broader based, across, you know, [inaudible] electronics, [inaudible] those sorts of areas.

I think the thing that changed a little bit during the quarter is for the first time we actually saw the U.S. automotive industry start to show some signs. Though, I think it's a little early for me to say that's a long-term trend but it, but it was certainly a welcomed short-term trend that we saw.

Sounds pretty good. Thanks, a lot.

Thank you, Walter.

Once again if there are any final questions please press star 1 on our telephone at this time. We have a follow-up question from Dennis Wassung with Adams, Harkness.

Thanks. one question on the manufacturing side, in the press release you talked about an improving pipeline and higher interest levels from customers, and I think, you know, just to kind of go back and think about how you talked about it on the call so far. Is -- I guess when you talk about the increased pipeline is it more based on the Altanium side or is it really as broad based as -- I guess, how would you breakdown the business at this point from the two if you can? And just looking forward in to the next couple of quarters is Altanium really driving the higher revenue number?

Looking back and looking forward the Altanium is the largest source of revenue in the unit and no I don't think that will change for quite a long time just because the coming off a larger base. And so I think the dynamics of the Altanium, you know, therefore have a bigger influence on the manufacturing revenue results pool for sometime. I think from a pipeline perspective we're seeing that remain for the Altanium because its always been strong and the -- but there is a change in the pipeline over at course of the year we saw a change in the shop floor products, that pipeline, built up to the level where it started to, you know, to deliver sales at an increasing rate or deliver orders an increasing rate especially. So, there's a little bit difference in the dynamics but I don't think that the difference is going to change the fact that the Altanium is the largest piece of that unit and will be for some time.

Are you starting to see any of the cross selling opportunities materialize and sort of close at this point?

Actually we're seeing, we're seeing some interesting things along those lines. We're seeing, you know, customers looking for the platform consolidation piece where, you know, multiple products on the same platform. The interest in that seems to, seems to be stirring. So, that was one of the things we hoped when we put the -- A, put the companies together, and B put the products together and it's starting to come through.

Okay another question on design analysis side. I'm wondering how -- in terms of the, the, I guess, the analysis of that business. You look at the Jap-- sorry, the Japan item you talked about here. They're thousand seat for MPI. When you, when you look at the installed base across your design analysis group, say at about 8,400 seats at this point, is that fairly evenly distributed across the world in your, you know, three major geographies or is there one area, namely like a Japan or Asia that's, that's been less penetrated and therefore represents bigger opportunity?

It's reasonably uniform from a [inaudible] response item, pigmented all the time because there's a bit of a country by country phenomenon going on. The -- see, in each of major regions you have very mature segments. You know, here, obviously in Americas, the Americas market is fairly mature and so there's a, there's a significant install base here. On the -- in Europe, France, Germany, UK, has been, you know, very mature for a long time and -- and in Asia you've got Japan and Korea, which are pretty mature markets so you've got a strong history of a significant number of seats in to all three regions. It's not like Asia is a virgin site like it is to manufacturing. It really is something that already has a pretty significant, a pretty significant store base. That said, you know, there's a couple of areas where -- where it is much newer.

Certainly in China and in eastern Europe they're really pretty new as far as the plastics market is concerned and so they are -- you know, they're far less, they're far less mature, but we look at all of the, all of the world still as being unpenetrated just that we have a bigger history in some of those markets than others.

Okay. And lastly the SolidWorks relationship, I'm just curious if you're seeing any increased traction there? You know, it's a slow process it takes time. But, any comments on that project and any impact?

Yeah, I mean, that, that delivers, you know, benefits to us in a number of ways and I think we're, we're starting to see that -- we're starting to see that come through we're certainly starting to--the market awareness is -- appears to be--appears to be important to it. We look at the sales of the MPA product line and the increase in that business over at course of the year since that program's been in place and it continues to be a very strong and important part of the business. And as Chris pointed out during his analysis, it was, you know, one of the key reasons for such good results in the design business unit in Q4. The -- and I think that the SolidWorks relationship was a important part of getting to that position.

Great, thank you.

Thanks, Dennis.

At this time it appears we have no further questions. I'd like to turn it back over to the management team for any closing remarks.

Okay well with there being no further questions I would like to take the opportunity to thank all of you are for support over the past fiscal year. We're excited about our prospects moving forward into fiscal 2006 as we work to bring our vision of innovation for profitable manufacturing to customers around the world. We look forward to speaking with all of you again at first fiscal quarter of 2006 to report on our progress towards that goal. Thanks and good-bye.

Thank you this does concluded this morning's teleconference. Please disconnect your lines at this time and have a great day.