ANSYS Inc (ANSS) 2002 Q1 法說會逐字稿

Good morning and welcome to the first quarter investor relations conference call. All participants will be able to listen only until the question and answer session of the call. This conference is being recorded at the request of Ansys, Inc. If anyone has any objections, you may disconnect at this time. I would like to introduce your speaker for this morning's call, Mr. James E. Cashman, III, President and Chief Executive Officer. Mr. Cashman, you may begin.

Thanks, . Good morning and welcome to the fiscal year 2002 call. As usual, today I'm joined by Maria Shields our CFO. I'm going to provide a few summary comments and we'll use this to outline the highlights and then we'll go into a lot greater depth on some of the operational results. Apart from just pure numbers aspect of it, then we're going to also talk about a series of exciting developments that we truly think are significant for our long term progress. After that, Maria will take you to our balance sheet, expense performance and additional financial factors. And then we'll be happy to respond to your questions. So, to kick things off, Maria, our safe harbor statement.

Thanks, Jim. Good morning everyone and thank you for joining us to review the highlights of our first quarter 2002 results. Before we begin, I'd like to remind everyone that some matters that will be discussed throughout this call may constitute forward-looking statements that involve risks and uncertainties, which could cause actual results to differ materially from those suggested. These risks and uncertainties are discussed at length in our public filings, including our Forms 10-Q, 10-K and our 2001 Annual Report to Shareholders. With that I'll turn it back over to Jim.

OK. Thanks Maria. OK, Q1 summary. Well comparable to what we talked about on the last call, the Q4 call, Q1 was a good quarter in what continued to be, in general, difficult economic times. We posted steady operational numbers delivering our commitments, and this was also accomplished while making considerable progress on the integration of and acquisitions, and also on an organizational level this year that was part and parcel of our overall growth process. As always, we continue to leverage and extend our distribution capabilities and extend our horizons by a significant amount as you will see in a few minutes.

From a level perspective for the quarter, we reported good financial performance with reported revenue at $21.3 million, which was in the analyst's range at . Adjusted earnings per share growth of 24 percent with an adjusted EPS of $0.26 up from last Q1's $0.21 cents, and this represented about 108 percent of the analyst's expectations consensus. We also had excellent stable operating margins and business model that it continues to inflate us from the short term realities of the economies. We have continued that was underscored by the continued progressive relationships with major named companies. And then also, got releases of each of our product lines in anticipation of our mid-April releases of the Ansys workbench products. This going to be particularly noteworthy because of the demonstrated repeatability that we've been able to put into our multi-product releases. But it was also our worldwide users and partners conference, which is actually occurring this week, winding down as we speak. So from an operational standpoint, as previously mentioned, the reported revenue for the quarter was $21.3 million, which represented an all-time Q1 high for Ansys. This is a 17 percent increase over the reported 18.2 million of Q1 2001. Earnings for the quarter were slightly stronger with a 24 percent increase in adjusted EPS to $0.26, up from $0.21 per share for Q1 of 2001. This also was above the consensus. it is marked actually the consecutive quarter for us on this. The overall operating margin, excluding amortization, was 29 percent, which are in line by our model. And the gross margins were on target at 87 percent. Largely contributing to this was our ability to maintain margins in our service business. We also remained active in our sharing purchase program during the quarter with almost 144,000 shares . OK, now we'll examine the numbers from a number of different perspectives, by category , geographic customer and also some of the product aspects of it. By category of business for the quarter, our lease business stayed solid and actually the base grew throughout the quarter. Service growth was 14 percent up the quarter. And business as usual, this was primarily driven by our product enhancement subscriptions in the software maintenance part of our business. Our product license revenue grew at 19 percent and this was fairly uniform across the various different product lines that we have. ANSYS/Professional and DesignSpace continued to perform well. And actually this sector of design-oriented business slightly outpaced the growth in the traditional high-end business, and represented approximately 15 percent of Ansys sales for the quarter. So it continues to nudge up per our earlier guidance. If you follow, we talked about 14 percent on last quarter's call. Business intake was also to expand our base of recurring or the repeatable revenue base that we have, which we feel is another strength of our business model. In fact, for Q1 63 percent of our business fell into this category and it continues to be very encouraging to maintain this for people who business space. The 63 percent that I talk about compares to 56 percent that we reported last quarter and 59 percent for the prior Q1 in 2001. So, all in all, this helped our deferred revenue grow to almost a million, which is an all-time high for us. All this rolled together to contribute to a strong balance sheet that Maria will get into in a few moments, $50 million in cash and equivalence. And we were able to do this all the time while we were continuing to invest in the R&D and our global sales and marketing infrastructure, which we'll get into in our expense structure discussions.

From a geographic perspective, well the bottom line here actually showed a return to more balanced growth between the major regions. The general economy, it continued to be a factor, no news there. And we're going to continue to monitor with caution as we've been guiding you over the last few quarters. If that is all to some extent, but the end goal of all of this is that we did see double-digit growth in each of our three major geographies. Taking North America first, this is by major account sales, most notably, this quarter in the automotive and aerospace sector by the industry with the largest growth not surprisingly occurring in our area and also in our south areas. Some of the major customers that were headlining this particular in North America were General Electric, , , United Technologies, IBM, Proctor and Gamble, , and . With regard to Europe, actually we've been talking about improving trends in Europe and the trends show signs of continuing as we saw, not only the double-digit growth in Europe, but we also saw consistency across Europe. So it was relatively consistent within the sub-region of Europe, the regions of the three major subsections that we have between the north, central and south Europe areas that performed comparability in the double-digit range. Probably the most notable of these are . But very encouraging also, the early positive side to productivity that we've received out are recently instituted French operation. We still feel we have some work to do here, but all the distribution initiative that we've been embarking on our getting good traction. Volvo, , Phillips, DuPont, , were the key to our commitments, actually notable not only for the size of the order, but also demonstrating that we had pretty good regional and industry diversity across Europe as we start to do ramp up in that area. Our general international area, which primarily Asia Pacific, but other areas too, had balanced growth across the region. And even we were able to continue some of our Japanese in light of a very tight economy. The key customer engagements here included Hitachi, Canon, Mitsubishi, NEC, and in particular were consumer electronics and automotive industries seemed to net some pretty good returns for us. Now, the usual caution that we mention, apart from the fact that these are large orders; we're encouraged by the fact that they're stretching it across multiple regions. We tend to be increasing the industry rep and also the amount of customer extension business that we're receiving. By customer extension I mean, what we have an install base but we're starting to see additional proliferation in those . And as we mentioned before, and over the last couple of quarters the pipeline of the new opportunities is quite solid and even though it's stretching into to longer sales cycles that are given to current economic environment, nevertheless, we've got to be very that the new customer payment that, you know, has continued in these times of uncertainty, even while it's causing some customers to examine their expenditures . So in summary, from a geographic standpoint, got double-digit, fairly balanced road throughout the quarter while being able to maintain a very strong strategic focus. We had good industry and major account activity in each. Good initial results in our French and Indian operations, and actually we expect both of them to excel over the long haul in the same way that our other key areas have. Nevertheless, probably in each one of our territories we have one evolution plans for each region. It's just part of our normal growth process. We'll continue our cautions, the same ones we've been talking about before through the middle of 2002, again in line with our earlier guidance. And just continue to monitor and adjust our sales and distribution strategies in response to the customer environment, the economic uncertainties that are still kind of lingering.

From a product revenue standpoint, our multi-core guidance and trends have continued. Again, as mentioned software license revenues grew by 19 percent, comparable quarter to quarter. Our high-end sales remained strong. The DesignSpace and the professional space stayed strong, again we mentioned that they now provided approximately 15 percent of our quarterly sales. All in all, we added about 1,700 new . The high end were about 30 percent, which is highly consistent with all of our Q1 history. The with high end stabled, but there was probably a very slight dip in the for the design , which is partly reflective of volume discount. But in general we continued to admire that and note concerns at this point.

Now, while we're always talking about new releases of our product line, it really seems like we are picking up a ton of momentum. First and foremost, is the increased rep that we've gained from our and relationships. I think equally important is the progress that we've had with the on-going evolution of our own historical product relief process, which is dramatic margin. You know, it just seemed like a couple of quarters ago, we were talking about the last major release of our Ansys product line, while we also recently announced and actually demonstrated at our conference, the Ansys 6.1 release, which just further raises the bar in our high end Multiphysics, but it also makes incredible gains that our customers are asking for in terms of non-linear, and particularly non-linear behavior. We also made a quantum leap that uses the ability of the interaction of the programs being able to continue to draw from the accolades and the technology that we introduced with our DesignSpace products. So that was really was an eye-catcher at the show. The product was in pre-release in Q1, and actually made its planned ship date a few days ago, actually even a little bit earlier. So, obviously, the grass that we have on the development release process here is providing us a much greater predictability on our product , and therefore, on the potential for business. AI*Workbench also made progress, AI*Workbench, again repeating in our integration and development platform for the new architecture and generation of products that we have. It's just the logical extension of the collaborative environment that we've been working on and delivering for the last couple of years. And it fits right in with the architectures of leading CAD vendors, but also a special knowledge that's required to have the impact a simulation can have on an overall product innovation. So the key features here that were shown at the show were the, you know, basically industry standards scripting capability, web enablement and a collaboration engine that allows distributive computing. But it also has the ability of working with PDM systems, architectures and, in fact, within a week we had for a very significant customer with a large PDM commitment, we were able to actually get that working within just a few days of . So, feeling very good about that because it's basically allowing us interaction with our customers, other simulation and in house codes, and provides that interaction with the .

Last quarter also we announced the acquisition of and we're really enthusiastic about the immediate new technology that brings to our product suite. While it did not have a material revenue impact, nor did we have one planned for Q1, we're already seeing a real strong market interest from this. The technology that we showed actually won the best new technology award at the recent national design engineering show and it's really part of the momentum behind our recent selection by Autodesk of their simulation partner of choice. We'll be releasing products in the next few months and an Autodesk specific version is slated for October of this year. In addition to that, I think underscoring the fact that we're able to move with such a alacrity in the technical side, is that while there've been a lot of industry announcements throughout the industry about relationships with the partnerships, we actually have one of the very first products that is available on the marketplace working in this particular framework. So we've been able to get it marketed very quickly. So in general our advanced architecture really allows us the ability to integrate, get our product to market, either alone or with the partners that we're working with. And then finally, we're looking forward to the production, at least in the next few months, of the first production version full availability of AI*NASTRAN product that's produced by our partnership with . So bottom line is, is that we made a lot of progress extending our technology base both in our core product and in our development architecture providing capabilities that further allow us to increase the impact of simulation basically throughout all phases of the design and engineering process. So in summary, we remain committed to and encouraged by our strategic long term direction and mission, and in addition, all the points that we've had along that strategic . We've been able to meet operational commitments in difficult times and we've done so while continuing to evolve our distribution capability and substantially generate a groundswell of new capabilities that I think just continue to further underscore our current . We've been able to keep the top line progressing and we've been able to maintain strong margins, obviously evidenced by the fact that we've met or exceeded the original analyst's earnings consensus for each of the last 18 trade quarters, which in turn allows us to further our technology and skills investments. And we feel that these investment coupled with our industry and geographic have provided us the tools by which to react and adjust to some very uncertain factors that have been in play over the past few quarters. So we'll continue to monitor the global situation on an economic basis and continue to adjust our business model accordingly with what I characterize as short term caution, but with long term optimism. So with that, I'll now turn it over to Maria Shields, our CFO, to provide you with a more detailed look at our financials including and structure balance sheet highlights. Maria.

Thanks, Jim. For the next couple minutes I'll briefly go through a recap Q1 expenses, some balance sheet highlights, and I'll also provide some guidance regarding our outlook at this time for the remainder of 2002, particularly as it relates to our model. (Inaudible) quarter totaled 2.9 million, and that compares with 2.7 million in the first quarter of 2001. This resulted in an overall gross profit margin of 87 percent. Looking forward to the remainder of the year, we believe that we can continue to our quarterly growth profit margin in the range of 86 to 87 percent, which is very much in line with our actual performance during the past several quarters. Taking a look at sales and marketing, total expense has increased about five percent over 2001 comparable quarter, to 5.2 million, or 24 percent of revenue in the quarter. Increase in expenses compared to last year was primarily related to the addition of personnel within our direct sales and sales support organization, including headcount additions to our newest strategic sales offices in India and France that Jim spoke of earlier. Looking at our current plan for the remained of '02, we expect that sales and marketing expenses should represent somewhere in the range of 24 to 26 percent of quarterly revenue. In the area of research and development, total expenses for the quarter are increased 23 percent to 4.8 million, or 23 percent of revenue, and that compares with 3.9 million in last Q1. The increase year over year was primarily driven by additional headcounts and related costs across all the business units in support of the broad spectrum of enhanced new technologies that we're bringing to market. Looking forward to the remainder of the year, we estimate the total R&D investment should continue to represent in the range of 20 to 23 percent of projected quarterly revenue. From a G&A perspective, expenses totaled 2.3 million or 11 percent revenue, a nine percent decrease from last year's Q1 total of 2.6 million. The decrease was primarily related to a reduction in outside legal fees. For the remainder of '02 our current plan calls for G&A to fall between 11 to 13 percent of projected quarterly revenue.

While we continue to make substantial investments in key areas across the company, we also continue to deliver a solid operating profit margin in excluding amortization of 29 percent for the first quarter. Our effective tax rate was 31.5 percent, and at this time we're anticipating that we should be able to sustain a no growth tax rate of 16 29 and 31 percent the remainder of '02. However, I would like to caution that any change in the legislation that would reduce any of the tax credit for the tax-laden vehicles that we have in place could have an impact on our tax rates going forward. For quarter we reported excluding acquisition relating to the amortization of $0.26 on 15.8 million unlimited shares, and that compares to $0.21 in last year's Q1. Consistent with the guidance that we gave in our last call, we continue to feel comfortable with our ability to deliver adjusted in line with the current expectations of $1.24 to $1.25 for the full year. However, also consistent with the previous guidance, I'd like to remind everyone that for Q2, we're currently targeting low single-digit compared to growth as the quarter will be impacted by a combination of direct sales investments, the costs associated with our bi-annual user conference that Jim spoke about earlier, and all of the marketing rollout costs associated with the product launches that are currently underway. But we are confident that the remainder will be made up in the second half of the year.

Taking a quick look at the balance sheet, it continues to remain quite strong with our total cash and short term investment at 50 million, at 62 days and our total worth deferred revenue grew 26.5 million.

In closing, I'd just like to comment that while the current world economic environment provides us many challenged, consistent with our past performance, we will continue to aggressively manage our costs and investments in line with our revenue projections in an effort to continue to deliver on our earnings commitment. With that, I'll turn it back over to Jim, who will provide a brief recap and then we'll go into Q&A. Jim.

Thanks, Maria. OK, so to recap. One, continued strong financial performance, all of this in difficult economic times. Measurably stronger performance and customer endorsements from the collaborative and engineering products that we discussed for the last few quarters. New technology within Ansys products, our technologies and AI*NASTRAN coming out which we think provide a range of products that we can sell into our over 8,000 customers. And then finally, increased penetration into a broader range of industries. With regard to the outlook for the remainder of 2002, we continue to be cautious about certain sectors of the economy and we're being particularly vigilant on the issue of sales cycles during these times. The long-term outlook stays solid, we are still anticipating growth for the year in the mid-teens range with, as Maria outlined, a respectable bottom line. OK, we'll keep an eye though toward our the performance. We have the plans in place for this, per our track record when the economy starts to warm up. And again, all this being totally consistent with our guides for 2002 . So with that in mind, we're now prepared to respond to any specific questions you might have.

Thank you. At this time we are ready to begin the formal question and answer session. If you would like to ask a question, you may press "*" "1" on your touchtone phone. You will be announced prior to asking your question. To withdrawal your question, you my press "*" "2." Again, if you would like to ask a question, please press "1." One moment please. Our first question comes from Richard Davis of . Sir, you can ask your question.

Thanks a lot. Good quarter in a pretty tough market here. With regard to kind of new customers, do you guys have the count of kind of new customers that you had in the quarter? And maybe what would be useful is to talk about one of them in just terms of what they're buying, where you guys are entering the organization and how you kind of see that process maturing over a period of quarters or years.

Boy, that's going to be a really complicated question. The reason is, that the first question we always have to ask is how do you categorize a new customer?

Right.

Is a new customer a new division at an existing customer? So for instance, at General Electric there may be many many divisions that come in, but we do see new divisions that enter in, we see new geography entering from that standpoint. From that standpoint, it's really really kind of difficult to measure, you know, or categorize what a new customer is. Also, we have certain groups that even within existing named division, you could have a separate engineering group within those go in. So, I mean, the thing is, slicing it with a fine-edged scalpel is kind of difficult, but I'd probably say that right now, you know, we've got a pretty broad base of customers when you've got the over 8,000 named accounts, and over 80,000 seats. But I have to say that we're probably on the order where--in the range of 75 percent to 80 percent go into existing customers and the remainder would be what we consider, you know, pretty much new customers.

Now the second part of your question, I think, was at what point--I guess there were maybe two additional parts. At what point are we entering those organizations? And then third point might be, what are they doing when they enter for the first time?

Right.

Where they're entering the organization actually does depend upon which classification of new customer they are. We're getting down to the standpoint where, actually now it's not uncommon for us to be dealing with CIO and divisional presidents, which means that while we may be doing the implementation within a lower group, we are actually conversing and talking at a higher level. Probably five to six years ago, that almost would have been unheard of. We still, you know, depending upon what part of the channel--I guess the bottom line is that we have the ability to continue to enter in the, let's say, the 10-year-old traditional way of still having the best in tools for the high end users. And in fact, in that case it may be * still elements to engineers engineers, but as evidenced by the average order size, obviously we've been moving up the food chain and that's becoming far more the norm.

Now, the final question, as to when they enter the market, we are still seeing--this has been pretty standard now since we embarked on the collaborative engineering theme, we're still seeing, and actually happy to see, that there are multiple entry points into these customers and that's why we're getting new customers, that's why we're getting expansions of existing customer bases. The three main entry points are people that are now either extending down into or for the first time embarking upon design-based simulation where upon you'll see a heavy predominance of a DesignSpace and a ANSYS/Professional type of that really have a structured knowledge basis and streamlined user interfaces. And that's why we continue to see and continue to expect to see that percent of the business go up. However, we are seeing where as that happens, that it freeing up the time of the traditional and they start tapping into some of the more advanced capabilities that we're having. And then probably, still at the third tier, we think, you know, we'll become more over time, are the people that are actually embarking on the collaborative engineering overall environments where they actually have DesignSpace linked up within the ANSYS community. And that's actually being furthered by the AI*Workbench backbone to that facility user interaction and standpoint.

Great.

Did I get all your questions?

Yeah, I tried to wrap one question into seven.

OK.

So, thank you very much.

That was your one question.

There you go.

Thank you.

Kim of , you may ask your question.

Good quarter there, guys. First of all, how many large deals were done in the quarter?

Well, again, . Again, we're still on the standpoint where it's usually several dozen, so it's--we were in the, it was probably--it was north of 20, depending upon how you classify a big deal. I mean if we're just looking at pure dollar amounts, it gets a lot larger, but when we get into the process of counting renewals, 'cause we have a large referring base, we tend to not count that as being a particular new deal. So, it's been comparable. Normally Q1 is not our big quarter for those types of sales, but we still did have very significant amounts.

OK, great. And thinking about, I guess, didn't do that great this quarter, I'm just wondering, of your installed base, how many of them use this , you know, parametric and I believe that your technology fits in with any of the M-CAD vendors, is that correct?

Exactly. And I think the balance there is the key point. We're really not a one-trick pony here. In fact, the balance is pretty well balanced between if you take the, you know, four probably most memorable ones, there's enough to integrate anybody by excluding them from the list, but I mean you normally think of the--you mentioned parametric, so you think in terms of EDS and , and also Autodesk. And from that standpoint we've got a pretty good balance. I mean each one of them are fairly--fairly significant. The quarterly mix tends to change, but each of them are a very significant part of it. And obviously we've announced we got significant product relationships with each of those. It's there for many many years. You know, we've been talking about the Ansys product that links in with the product for a number of years. We just announced last quarter the integrated product and one of the first companies to deliver that. We announced the scenario product with EDS in the--this week we just announced the Autodesk one. So, you know, having those kinds of relationships are important, but also the other thing I think that's very good is that the work that we've done in computing infrastructure, which doesn't maybe directly make anybody buy the product, it has allowed us to adapt our capabilities to work within the framework of those particular vendors. Now the final point, and I'm not sure if this is part of your question, but in general we have not seen major impacts, for instance, we still sell bases, so as the various fortunes rise and fall, you know, bases of those particular companies, we happen to be able to continue to sell into the customer environment that we co-serve. So, I mean from that standpoint would you think that the CAD strategy that we annunciated several years ago and we discontinued is one that continues to serve us well. It allows us to tune it up based on the desires of the partner company and it allows us to serve our customer companies as they need new capabilities, maybe even independent of any partner.

OK, great. Thanks.

of SG Cowen, you may ask your question.

(Inaudible) this is actually Tim actually calling for . Congratulations on a solid quarter folks.

Hi, Tim.

Hi.

Just a couple questions. You've obviously seen some positive impacts of your investment in the direct channel and I was wondering if you could comment on what percentage of sales are coming from the direct versus indirect this past quarter and how did make them compare year over year?

Well, again, this is--well first of all, obviously, the direct portion is growing, but this is another thing where we have to be very careful how we classify sales, because first of all, right off the bat, the majority of our sales are still indirect. OK, we'll put that as just a raw baseline in its most liberal interpretation. But, additionally, we have gotten into many more situations where even when we do a direct sale, our indirect channel is a very big part of that. Now the reason that happens is because as we have moved up the food chain in many of our customer environments, they go multi-geographic, they get larger in terms of their commitment, they want to have a direct communication with Ansys as the developers of the intellectual property that they're committing their design processes to. So, as a result, there are many times where we may take the order, but the indirect channel is still supporting those engagements on a localized basis and they are still getting their compensation for being involved in those also.

Secondly, given the fact that our recovery here seems to be taking a little longer than anticipated, are your estimates for the year based on any sort of meaningful recovery in the economy, or do you feel that they're conservative enough?

They're based on what we can see right now. And right now we see that people are getting in general--they're talking more optimistic. But we're not seeing dramatic flourishes of walls flowing open. And so from that standpoint, as mentioned before, we modulate our business plan and we didn't mention it much here, but we think we do have a solid business model and we certainly have a number of internal disciplines here that allow us to track that and turn the gate up. So, we're assuming that it's still going to be a little sluggish and it comes out of this fairly carefully. But on the other hand, with the product stream we've got and with the investment that we've done in the distribution channel, if it tends to speed up even quicker we'll essentially be ready there. In fact, our sales force is basically saying our number one competition is--are the buying patterns of our customers.

, I guess from my last question if I may. On the competitive front, have you seen any, primarily on a PDM or PLM side, have you seen any new logos coming into the space around collaboration and if so how do those products fair to what you're bringing to the market?

Well there's always some that may come up as startups and there's obviously a lot of focus on the PDM market, or you know, particularly from the major CAD players. In general, what we view is that the PDM systems play a role throughout the development and processes of our customers, but they tend to have a very high service content and a long incubation time. The other thing is that their generalized tools that allow them to fit throughout broader ranges of process, but what we're focusing on is actually nothing particularly the engineering knowledge and utilization itself, not the management necessarily at that date. So we get into a wide range of parametric information, of performance related, of physics-related information, that are fundamental not just describing a part and how it's manufactured, but understanding how that part behaves and to make it better. And from that standpoint, that's why I think I even mentioned earlier in my presentation, the fact that we are linking in with the PDM systems and happily co-exist with them because we actually are highly complimentary to those and actually we benefit for plugging into them because it allows the dissemination of the engineering knowledge that is in our to be leveraged throughout the overall development process of our customers. So, we're not seeing so much. We're not seeing major new names popping up everywhere. We are seeing continued focus from the variety CAD players, and in general we think there's high synergy with what we offer with what they're providing.

OK, thank you.

Once again, to ask a question, please press "*" "1." Our next question comes from Herb of . Sir, you may ask your question.

Thanks, good morning. Just a few questions. What percentages of your revenues were international? And if you look at Japan specifically, what sort of business activity did you see there? And what are the prospects looking out into the June quarter and second half of the year?

OK, well the--I guess the first one is that it's pretty darn consistent what we've been seeing in terms of the revenue percentage. And actually, I just have to give you a rough , because we consider Canada in our numbers for North America, as part of a domestic situation, again, with money. But we're right around the 45 percent domestic, 55 percent international. And it's been plus or minus a percent or two of that for every quarter that I can think of. That just tends to be a very normal standpoint. Now with regard to Japan, there's no doubt that Japan is kind of a, you know, there's clearly been a lot of issues going there, but one thing that we are seeing and we've been holding this for the last couple of years, is we're seeing more movement from some of the major companies. The consumer product companies, as I mentioned, seem to be coming up, plus they--we're also doing some very, very interesting things with some of the automotive companies over in Japan. And we'll probably have some more word on that over the next few quarters. So, you know, Japan didn't grow as much as some of the other areas, but did very respectable on a comparable basis . So, we think that was one of the areas that was probably more hit by some of the economic situations, but some of the groundwork that we had done there has started to pay off pretty well and the momentum that we've created there is just going to continue to serve us well, at least for this period of time.

Did the company make any headcount additions during the quarter and where does headcount stand now?

Nothing--there weren't significant additions in Q1. We're right around 450 right now, in terms of total. And that's basically it.

OK. And last question, Tim, regarding your short-term caution--

Yes.

Has that changed for better or worse, as of now versus your outlook, your earlier at the beginning of the year?

It's basically exactly the same. If I had to nudge in any direction, it's toward more optimism. I mean, in other words, we see more signs of things to getting better than any things going further down.

OK, thanks a lot. Nice job.

OK, thank you very much.

Laura McKenna of Select Equity Group, you may ask your question.

mckenna Hi Maria and Jim.

Hi.

Hi.

mckenna Maria, could you go through the revenue recognition policy? My understanding was that the policy changed in 2001.

It did.

mckenna In what quarter did it change?

In January 1, in the first quarter.

mckenna OK, and so, for the first quarter in 2002, what does that $19.6 million figure? Is that the figure assuming that that policy was in place?

What the accountants and our counsel guided us was it's important that we reflect the impact--the fact that because of that accounting base, which actually had us spread leases over a 12-month period, we did have some spill-over into Q1 of this year. So, all we tried to do was say, had we not been forced to make the accounting change last year, we would have been under the old policy. But, when we put together the 2002 plan, we obviously knew that we had the accounting change and that was factored into Q1.

mckenna So the--I'm just trying to compare apples to apples. So is the 19.6 under the same accounting treatment? The 19.6 million is comparable to the accounting treatment for all revenue as the 18.2 million of the first quarter.

No, if you're looking at apples and apples, you're 18.2 and your 21.2 were under the same accounting treatment. Taking those that we have heavy renewal rate in Q1, and essentially spreading them over a 12-month period for which customers get to use the software and have the right support and upgrades.

mckenna OK. So that is on the revised accounting statement?

Yes.

Yes.

Yes.

mckenna OK.

Apples to apples.

Those are apples to apples.

mckenna? OK. OK, good. And then the other question was on--in terms of the first quarter was there any revenue contributed from acquisitions made in the previous 12-months ?

made a small contribution, it was less than $200,000. It was really immaterial. So it really--you're looking at apples and apples.

(Inaudible)

mckenna? Ok, great. Thanks very much.

Thank you.

of , you may ask the question.

Hi, . First I'm curious if you're seeing software more or less, if you're win rate has changed and less than that, their position mechanical, dynamical, have any effect on you?

I'm sorry I did not hear the first part of that.

OK. Are you seeing software in competitive situations more or less often? Has your win rate changed at all and their acquisition of mechanical dynamics?

It's basically the same. I mean, there's been little change. Obviously there's places where they're, you know, they're very entrenched and have been historically. But there's not significant change and we'll just have to see. I mean, obviously we still have the capability of working with--at least working on a product to product basis with MDI products as we always have. So, from a customer standpoint, we have the ability to continue to interact well. So, it's OK for the , so it'll probably be a function of time to see if anything particular changes.

OK. And I'm curious, separately if the average deal sizes change at all, or the average number of products you sell in deals change?

Probably the big thing that has changed--well first of all, if you compare, in total, the way things occur today versus how they occurred a few years ago, the average order size is significantly up. But the thing that made it kind of interesting is on a transaction basis, it quite frankly may be all over the map because these days, particularly as we get a certain customer, it is not uncommon for the orders just to kind of come in on an on-demand basis. And standpoint may just be that division of an existing company says we need three more, as opposed to all of the divisions getting together and putting together an order for, well like we talked about last quarter, several hundred new seats. So it tends to happen in a number of different ways.

OK.

Was that clear?

Yeah.

OK.

And are you selling more products. Is selling increasing?

Well yeah, and that obviously we're right in the nascence of that phenomenon. We got the first taste of it as we started to cross all the DesignSpace and Ansys counts roughly about three or four years ago. Having historically been a one-product company. But that is clearly a part of what we have been doing as actually we integrated the selling activities of the item, license of subsidiary. Also from a how we're actually coding the capabilities, etc. So the cross-sell, and actually that's one part of the strategic product trajectory we have that says we won't be able to--they're thinking now of just providing additional layers of value to a very broad customer base that we already have. So, really trying to take that broad--trying maybe a little bit broader, but also to get deeper with a broader range solution into those customers. So, cross selling is definitely a major aspect of what we're involved in.

OK. And last question, the growth that you're expecting, would it be a faster software, license growth and maintenance and services rest of the year?

Go ahead.

In general, you know, if you were to say 15 percent, overall we you only had modeled it, you know, about 55 percent license, 45 percent . I don't see any huge changes in that mix based on visibility right now.

OK. I just though that last year was the slow year for license growth. That might be a factor this year.

No.

Or the services might be affected this year. OK. Thanks a lot.

Thank you.

At this time, there are no further questions. I would like to turn the call back to Mr. Cashman.

OK. Thanks again. (Inaudible) in close, a little bit of short term caution, long term enthusiasm and backed by what we feel is a very solid business mode. We have loyal customers, dedicated channel partners and some pretty good employees. I think this combination basically has awarded us consistent performance expand customer base, and I think with all the new things that we have coming out on a technological front that basically support our enterprise initiatives, that that's really the hallmarks of our long-term enthusiasm. So with that I do thank you for your attendance on the call and for the questions that we went through and I look forward to talking to you same time next quarter. Thanks a lot.