ANSYS Inc (ANSS) 2003 Q3 法說會逐字稿

Good morning and welcome to the ANSYS third-quarter investor relations conference call. (OPERATOR INSTRUCTIONS) I would like to introduce your speaker for this morning's call, Mr. James Cashman, President and Chief Executive Officer. Mr. Cashman, you may begin.

Thank you. Good morning, and welcome to ANSYS Q3 fiscal year 2003 call. And, as usual, with me today is Maria Shields, our CFO. We will give a general summary to overview the highlights of the quarter and then we will go into a greater depth of the operational results. And then, we will do the statistical look at the numbers from a variety of different perspectives, and also talk about some of the qualitative aspects of our technology and business progress. This is also the standard part of our development cycle, wherein we prepare for our Q4 new product releases. So we will also spend a little bit more detail on this. Maria will then take you through the balance sheet and expense structure performance and some additional financial factors. And then we will be ready to respond your questions. So to begin with, Maria, our Safe Harbor Statement.

Thanks Jim. Good morning, everyone, and thank you again for joining us to review the highlights of our third-quarter results. Before we get started this morning, I would like to remind everyone that some of the matters we will be discussing throughout this call may constitute forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those projected. Reported results should not be considered an indication of future performance. Potential risks and uncertainties are discussed at length in our public filings, including our Forms 10-Q, 10-K, and our 2000 annual report to shareholders.

Additionally, at this point, I would like to also mention that during the course of this call, we will be making reference to adjusted revenue and adjusted EPS, which are non-GAAP results within the context of the SEC's Reg G. We believe that these non-GAAP financial metrics are important indicators in measuring the underlying business performance and are used by management in our assessment of business performance. A detailed discussion and reconciliation of GAAP financial measures to comparable adjusted revenue and EPS is included in this morning's earnings release and the related Form 8-K. With that, I will now turn it over back to Jim.

Thanks. The summary for the quarter, simply put, was -- we continue to deliver on our commitments and earlier guidance, and we posted strong operational results at both the top and the bottom lines. We exceeded our projections during what is historically our most difficult quarter, during the continuing challenging times. And all of this occurred while also preparing for a major release of the Infa (ph) Software Suite, as well as our releasing different versions of our ICEM CFD and CFX products.

From a high-level perspective for the quarter, we reported strong performance. Adjusted revenues, at 28.9 million, which was ahead of our projections and reflects a 33 percent growth over Q3 of 2002. And it was solidly within the analyst range.

Adjusted earnings per share growth was 46 percent, with an adjusted EPS of 41 cents -- up from last Q3's comparable 28 cents, and exceeded the analyst consensus and the range. And just for clarity, the adjusted earnings excludes acquisition related to amortization and the adverse impact of lease revenue, due to the purchase accounting rules.

Secondly, we had excellent stable margins and a solid business model that continued to insulate us from the current economic environments without compromising our sales or technical investments. We had continued customer commitment and expansion within existing customers, and finally, product progress both through our successful beta program and advance of the Q4 release of the ANSYS product line, and in particular, integration of all of our technologies within the workbench framework.

From an operational standpoint, as I mentioned in the summary, adjusted revenue for the quarter was 28.9 million, little ahead of our expectations, but still within our operating range. This compares to 21.7 million Q3 of 2002. Again, representing a 33 percent increase over last year's record Q3. Given the prolonged nature of the current customer environment, the growth was respectable, especially considering the typical Q3 seasonality that we encounter. Actual reported GAAP revenue was slightly lower at 28 million, which is still well within analyst range.

Maria will go into more detail shortly, but the difference in numbers is really purely a function of the impact of reported software license revenue, and in particular, leases due to purchase accounting adjustments. So, basically, the customers are there; substantial cash flow is there; and so, the adjusted revenue is really the most representative of the business conditions, and it also provides a more accurate baseline for our comparisons in subsequent years.

Earnings grew to an adjusted EPS of 41 cents, and this was above the analyst consensus and above the analyst range, which is basically the 24th consecutive quarter that we have met or exceeded the analyst earning expectations, throughout a multitude of economic situations.

Overall operating margins, excluding amortization, were 34 percent, which are at the high end of our model. And this was reflective of stronger revenues, coupled with the cost management that we have employed during this economy. Our adjusted gross margins were on guidance at 84 percent. This impact includes the effect of CFX service businesses, but also recognizes the synergies that we begin to realize through a very diligent business integration process. Maria will cover this in more detail, but the DSOs remained excellent at 60 days, and in general, this is all indicative of the quality of the integration of the CFX business, not even counting the technical integration, which we are going to discuss in a little bit.

Cash flows from operations continued to be strong at 7.1 million. For the 9 months ended September 30, 2003, we reported total adjusted revenue of 82.7 million, or a 26 percent increase over the first 9 months of last year, including a balanced increase in the license and the service business.

Year-to-date, adjusted earnings per share of $1.10 -- a 28 percent increase over the comparable 86 cents of 2002. And overall stable margins with operating margins, excluding amortization, of 31 percent. And an adjusted gross profit margin at 83 percent. And cash flows from operations were 28.7 million, again, for the first 9 months.

To help converge on the overall situation, we will do our usual examination of the numbers from a few different perspectives -- categories, business, geographic, customer, and product. Starting with the category of business, we continue to see good balance for the quarter. Lease revenue remains solid, and the base grew throughout the quarter. And all told, the lease revenue grew at a higher rate, then paid us up to 23 percent of adjusted revenues for the quarter.

Software license revenue grew at 36 percent on an adjusted basis, or even 28 percent in reported. This was paced by contributions of CFX, as well as double-digit paid-up license growth, and particularly-strong performance in the higher-end ANSYS products.

Service growth was well-balanced with the licensed growth, as we mentioned earlier, and came in at 30 percent for the quarter, which was led, as usual, by product enhancement subscriptions and our software maintenance fees, but also by expanded major account implementations that had been enhanced by our CFX service business.

DesignSpace and ANSYS Professional stayed solid at about 16 percent (indiscernible) sales for the quarter.

Our overall business base grew to 70 percent, compared to 67 percent in Q3 of 2002. So it continues to be a really good sign that we're able to maintain or grow our repeatable business base in a range of economies, and even while the overall business base is increasing. All-in-all, our deferred revenue is at 34 million, which is a 46 percent increase, compared to the end of Q3 in 2002. So in addition to our pipeline, this base really continues to aid in our overall visibility, and is staying quite strong. So all of this added up to a very strong balance sheet of over 72 million in cash and equivalents. But we continued over the long run to maintain strong investments in technology, distribution, and business infrastructure -- key tenets of our business model.

Now, looking at things from geography -- our geographic results show a spread in performance across geographies, but with double-digit increases in each of the major regions. The economy was a factor, pretty much in line with all of our earlier guidance, and no real surprise there. We continue to track it as in the past few quarters, but it did affect all regions to differing extents.

North America continues to be the most affected by the economy, but still saw an overall growth at 11 percent. We had mentioned some structural actions that we had taken last quarter, and with these, we have already started to see an uptick in the direct performance, but we still have some ups and downs in various sectors of our indirect business. And of course, continuing to work on those. Major orders in North America came from Toyota, Honeywell, Sandy and National Labs, the Army Research Labs, United Technologies, Bechtel, Bettis (ph), IPT (ph), Belkan (ph), and a number of others.

Europe continued to excel for us with sustained double-digit growth over and above currency considerations for both the quarter and the first 9 months. This was true in virtually every major sub-region. But, I would like to specifically point out the overall strength and continued presence in our French operations, because a couple of years ago, we were actually low-lighting that as an area for improvement. So things we have done there are starting to take hold -- they are a really strong team there.

Northern Europe continues to perform well, and we saw a good rebound in Germany, which had been seeing slower growth earlier in the year. We are, in fact, encouraged by the European performance, but in all fairness, we've always called Q3 our biggest challenge for Europe and that's been throughout the years. And this past quarter, a few more things went our way.

Key commitments in Europe came from Siemens, Airbus, Rolls-Royce, Bosch, Bramatone (ph), M.A.N.Ag(ph), Holland Rail, the UK Ministry of Defense and the submarine sector, Turbo Mack (ph), and others. In general, we continue to see growth in our major customers, and have continued to expand our industry breadth throughout the last two years, further solidifying the position.

Our general international area -- largely dominated by the Asia-Pacific, also continued to be strong for us in most of the major sectors for both the quarter and the year-to-date, regardless of currency, and in both the total and the core businesses. Japan and India were both particularly-good performers for us, and key customer engagements included Toyota, Mitsubishi, Matsushita, Ricoh, Denso (ph), and Petrobras. While we also followed the expansion of some of our significant major customers as they expanded globally in Asia Pacific with Honeywell, Texas Instruments, and Cummins (ph) Diesel.

In summary, there were quantitative and qualitative progress in all the geographies with double-digit increases throughout, including continued industry breadth and breakthroughs. As always, they are the area's that we're going to be striving to improve, but the overall model is bearing out.

One additional item that we continue to see is that our significant customers, both domestic and internationally, they have been expanding globally, which has created a good flow of new license business for us, which was actually demonstrated in Q3. This also provides a real nice boost for our growing repeatable business base. The generally-positive directions of our direct presence, in most cases, has provided us with a good bedrock for our selling opportunities. So the beginnings of some positive directions vectors that we have been seeing macro-economically have continued to some degree, but we are still in our mode of optimism for the long-term, tempered by short-term caution.

From a product standpoint, in terms of product revenue, as mentioned earlier, adjusted software license revenues grew by 36 percent quarter-to-quarter. And paid-up licenses in our core business grew at 13 percent. And the leased space grew to 23 percent of adjusted revenue. So for the year-to-date, software license growth was at 26 percent on an adjusted basis, and still a healthy 19 percent on a reported basis, discounting the lease revenue from the purchase accounting adjustment.

A high-end sales showed strong growth, as our workbench framework facilitates the growth of ANSYS capabilities into a much broader market. DesignSpace and ANSYS Professional, at the design and mid-range parts of our market continue to be solid contributors, and all this appears to validate, on a continual basis, the promise of the broad-based appeal of simulation-driven product design.

ASPs actually continued to inch up for our high-end seats (ph), while the design-oriented seats (ph) stayed relatively stable. And, as always, at this time of the year, we were preparing for a significant product release, which was actually announced earlier in this Q4. It's actually one of the most compelling releases in recent years, due to -- I would have to say, three major high-level factors. First of all, it was a dramatic extension of our core functionality. Secondly, the integration across our multiple product lines. And then finally, the advances in the underlying workbench architecture.

At the heart of this core functionality is ANSYS 8.0, and for years we have been enabling multiphysics simulation for the simple fact that the real-world products are subjected to a range of simultaneous factors in everyday use. So we need to be able to predict and benefit from that. In this release, we have not only facilitated greater multiphysics and nonlinear capabilities, but we have also released a true multi-field solver. With this capability, customers can utilize different experts throughout the company, and even engineers in their supplier network chain -- each simulating their own design issues and combining these into overall system simulations -- different programs, different mesh models can also be utilized in this approach. It's a real advance in open systems simulation. A more complete discussion of this and the overall product and the core capabilities is covered in our separate product press release.

The second major advance is in the integration of the products. And this is significant, not only because of the pure capabilities that we've been able to add, but because of the speed at which we have accomplished it. In Q3, we released products which cross-leverage our various component technologies from ANSYS -- ICEM CFS and CFX. And additionally, we have already coupled the simulations between mechanical, thermal, and flow effects between our ANSYS and CFX product lines.

Finally, we have seen major benefits in this release from our workbench integration platform. First, it provided the enabler for all the capabilities that we just discussed. Secondly, it allowed us to provide advanced modeling capabilities and the automation of the desk simulation practices. It actually even allows us to combine best-in-class capabilities with the release of a new product -- the ANSYS ParaMesh. And this is significant because it provides the capability of taking a simulation model and allowing it to be parametrically optimized without the necessity of repeatedly going back to the CAD system. This has turned out to be especially exciting to companies and customers of ours, as they are trying to leverage legacy analysis models for which a CAD model might not even exist or be available. It opens the door for rapid engineering evaluations and design verifications prior to finalizing the design, and it really allows and facilitates for simulation-centric product design, which allows engineers to help the product to meet performance specs, versus making detailed designs of unproven products and then later simulating them.

In summary, we continue to make a lot of progress across our entire technology base -- both in the core capabilities, inter-product integration, and in our infrastructural architecture, providing capabilities to further the impact of simulation throughout all phases of the design and engineering process. Because interest is very high, perhaps one of the largest issues we have is training all of our sales and support assets, both direct and indirect, to be able to effectively deploy this. So, that is something that we are diligently working on.

In conclusion, to wrap up, we remain focused on our long-term strategic direction and mission, and we remain encouraged by the results. We've been able to continuously meet our operational commitments in all economic situations, but we have been able to do this while consistently investing in our core capabilities, our product suites, and our support capacities. So, obviously this has allowed a continual stream of product releases over the long-term, over the last few years, that continue to extend our technical and business leadership.

It's also noteworthy to get a recognition over the last few weeks with our second straight Forbes 200 Best Small Companies, our second straight Business 2.0 Top 100 Technology Companies -- not to mention Business Week (indiscernible) go 100 for the fourth time in 5 years, etc. Obviously, we recognize this is all rearview mirror recognition, but it does exemplify the long-term attention to execution and meeting commitments that we feel continue to provide value to our customers and our stakeholders.

Our top line has continued to grow in difficult times, and we have been able to maintain our gross and net margins. And this is, obviously, evidenced by the fact that we have been able to meet or exceed analyst earning consensus for 24 straight quarters. Our recurring base continues to be solid, and even grow. And our customer relationships and industry penetration has continued to expand, which in turn, allows us to go to the next cycle of furthering our technology in sales investments. These investments, we feel, coupled with our industry, commercial, and geographic breath, give us the ability to tune our production and output to a wide range of circumstances.

So, as I alluded earlier, we maintain short-range caution, but longer-term optimism is definitely still in play. And with the technology and infrastructure investments that we have made, we have the capacity to quickly react when situations allow. With that, I will now turn it over to Maria Shields, our CFO, to provide you a more-detailed look at our financials, including both expense structure and balance sheet highlights. Maria?

Thanks Jim. For the next few minutes, I will go through a recap of the quarter and year-to-date expense results, touch upon a couple of balance sheet and cash flow highlights, and then provide some overall guidance regarding our outlook for Q4 at this time as it relates to adjusted EPS.

Before I get into expenses, though, for those of you who may be new followers to the ANSYS story, I wanted to briefly comment that the figures I will discussed are based upon expenses, as a percent of revenue, adjusted for the impact of the purchase accounting adjustments related to deferred software license revenue, which totaled 885,000 in the quarter and approximately 2.5 million for the first 9 months.

So let's move on to taking a quick look at expenses, starting with cost of sales. Our total expenses, excluding amortization related to acquired software, for the third quarter, were 4.5 million, and that compares to 3.1 million in the third quarter of 2002. This resulted in overall adjusted gross profit margin of 84 percent for the quarter. And on a year-to-date basis, excluding amortization related to acquired software, cost of sales totaled 14.1 million. That compares to 9.1 million in 2002, resulting in an 83 percent adjusted gross profit margin for the first 9 months of 2003. The increase over last year's third quarter and the year-to-date comparative totals is primarily related to additional headcount and increased costs associated with the acquisition of CFX. These were partially offset by reductions in other cost of sales related items.

For the third quarter, our total sales and marketing expenses increased to 5.6 million, and that compares to last year's third quarter of 4.7 million. And on a year-to-date basis, our sales and marketing expenses were 17.3 million, compared with 15.1 million in the first 9 months of last year. The increase in expenses, as compared to the prior year's quarter, absent the year-to-date figures, was largely impacted by, as I mentioned earlier, increased headcount and facility costs associated with CFX, as well as an increase in third-party commissions. These increases were partially offset by reduced headcount in other areas of core business, as well as reduced discretionary spending, particularly in the areas of advertising and promotion. And also the absence of costs related to our biennial users conference, which last occurred in 2002.

For the remainder of this year, and looking into 2004, we intend to continue to make investments in strategic areas throughout the world. And as Jim mentioned earlier, in particular, North America, to further strengthen our sales efforts and integrate the CFX team. And as such, we expect the total sales and marketing expenses should continue to increase.

In the area of R&D, our total expenses for the quarter were 5.9 million, or 20 percent of adjusted revenue, compared to 5.2 million in Q3 of last year. On a year-to-date basis, our total investment in R&D reached 17.6 million, compared to 14.9 million for the 9 months of 2002. The quarter-to-date and year-to-date comparative increases were primarily attributable to the CFX acquisition. And I also want to point out that during the third quarter of 2003, we capitalized about 196,000 of labor, related to the release of ANSYS 8.0. And for the first 9 months of the year, we have capitalized about 550,000, which compares to 240,000 of cap cost for the first 9 months of 2002.

Moving on to G&A, expenses totaled 3 million in the third quarter, or about 10 percent of adjusted revenue, compared to 2.5 million in last year's third quarter. And on a year-to-date basis, G&A costs totaled 8.8 million, compared to 7.6 million in 2002. The quarterly and year-to-date comparative increases are directly attributable to the CFX acquisition.

For the third quarter and the first 9 months, the overall business yielded an adjusted operating profit, excluding acquisition related to amortization, of 34 percent and 30 percent, respectively. Other income for the third quarter was unfavorably impacted by a $600,000 impairment charge related to the write-down of an equity investment.

Our effective tax rate for the quarter and year-to-date was 25 percent and 31 percent. The third quarter's tax rate was favorably impacted by an adjustment of about $500,000 to reconcile the estimated tax provision to the actual rate upon finalizing our 2002 tax returns. The adjustment was primarily related to higher-than-estimated export benefits and research credits. At this time, we are anticipating that for remainder of 2004, we should be able to maintain an overall tax rate of between 30 to 32 percent. I will point out, as I have in prior calls, I would like to remind everyone that any changes in tax legislation that would reduce our existing credits or eliminating tax savings vehicles that we currently have available, could have an adverse impact on our effective tax rate going forward.

For the third quarter, we have reported adjusted EPS, excluding purchase accounting adjustments and acquisition related to amortization, of 41 cents on 16.2 million diluted shares. And that compares to 28 cents on 15.5 million shares in last year's third quarter. And on a year-to-date basis, our adjusted EPS was $1.10 on 15.8 million diluted shares, compared to 86 cents on 15.7 million shares in the first 9 months of last year. At the current time, we feel comfortable with the consensus of adjusted EPS of 44 cents that is out there for the fourth quarter. And I just want to quickly take a look at some balance sheet highlights -- our cash and short-term investments have grown to 72.3 million; our consolidated DSO is at 60 days; deferred revenue is at 34 million; and, as Jim mentioned earlier, we did generate 7.1 million in operating tax flow for the quarter and 28.7 million in the first 9 months of the year; and we continue to remain debt-free.

Before I wrap up, I would like to add at this time -- going forward, we estimate that the total impact for the purchase accounting adjustment, relative to the write-down of deferred revenue for CFX software leases --, for the fourth quarter will be about $500,000 and about $300,000 in calendar 2004.

I will turn it back over to Jim, and then we will go through a brief recap and open it up for questions.

Thanks Maria. So, to recap, continued steady financial performance; strong earnings; a long history of meeting commitments with good cash flows and revenue growth, and all of this in difficult economic times; measurably strong performance in customer endorsements from our integrated suite of products targeted at simulation-driven product design; continued progress in product introduction, with a wide range of industry-leading products and new (technical difficulty) that can provide accelerating value to our 9,000 customers; and then finally, increased penetration to a broader range of industries.

With regard to the outlook for the remainder of 2003, we maintain our earlier guidance of adjusted revenues in the 114 to $115 million range, and exceeding our earnings commitments from the beginning of the year. The long-term outlook stays solid. We see some positive signs, but are still cautious as to how quickly any recovery will manifest itself. So we are still seeing slightly-longer sales cycles during these times, especially in our larger accounts. As such, looking forward to 2004, we envision topline growth in the 9 to 11 percent range, assuming status quo on the economy, with earnings in the range of $1.66 to $1.67. We take our commitments really seriously, as demonstrated by our track record, and base them on the realities, not necessarily the hope. So, we will continue to strive to meet and exceed our commitments and outperform the market. With that, we're now happy to respond to any specific questions you might have.

(OPERATOR INSTRUCTIONS) Brian Foote, Ryan Beck and Company.

Congratulations on 22 in a row -- 24 in a row. My question is -- first, what was the growth over in the European region, year-over-year -- both currency adjusted and unadjusted?

Brian, for the quarter, the impact of currency was about 300,000. Total Europe grew -- quarter versus quarter -- 50 percent. And, on a year-to-date basis, 44 percent.

In terms of capital expenditures for the quarter, and then your CapEx plans for this current quarter and next year, how do those look, Maria?

Let's see CapEx -- CapEx for the quarter -- I've got the 9 months -- was about 1.5 million. Probably another half a million or so for Q4, and then next year, I would say anywhere, probably -- our standard has been about 2.5 to 3 million. I don't see that changing.

Okay, great. Built into those numbers for next year, the revenue guidance, the range of 9 to 11 percent -- what gets you to the high end of that? What gets you to the low and what would help you exceed it?

The main thing we are assuming is that we're going to base it on the standpoint -- if the economy is flat -- the whole point is that we're able to ramp that up very quickly, because we've already got the embedded investments in the support infrastructure and the product standpoint. But, what we are not doing is piling on a lot of additional expenses, particularly in a year coming in where we've got an additional wide range of public governance and Sarbanes-Oxley costs, and the overall conference that we will be holding this year -- and not to mention the insurance and healthcare costs. So, there's a wide range of situations in there. So, we have modulated the model, not praying for how fast the economy will go, but assuming that it is fairly stable. And from that standpoint, we will be able to tick it up basically as fast as it eats up.

Within that guidance, Jim, is the $1.66, $1.67 -- is that assuming 32 percent tax rate for next year?

30 to 32.

30 to 32. Thanks very much. I will get back in the queue if I have some more questions.

Richard Davis, Needham & Company.

This is Eric Warst calling for Richard Davis. I was wondering if you could tell us what revenue would have been for the quarter, excluding the CFX acquisition?

Yes. CFX added -- everything I've got in front of me is (indiscernible) -- about 22.9 million.

23 million, roughly.

It is about 5 percent core growth.

Great. Thank you.

Mark Chappel (ph), McDonald Investments.

First of all, a good quarter. And just a question on the expense items -- it looks like pretty much every expense line item ticked down in the quarter. And I just wanted to talk about how sustainable this was going forward.

Going forward, as Jim mentioned, there are some costs going into next year that are not in the baseline. We have spent the year, given the economic situation, I would say, containing spending and really focusing on what is critical to the business, as opposed to the nice-to-haves. But, going into next year, we do know that there is well-over 7 figures of costs that are not in the 2003 baseline.

Okay, as far as other income goes, should we assume that it returns to a more normal trend line here next quarter?

Yes. As I said, the 44 cents that's out there for the consensus is what we feel comfortable with at this time.

Just one final question on your AI NASTRAN -- how is that going?

Basically, it continues to be a supplement for our overall product suite. There are certain areas where it's very successful, and it's being used as an entry into legacy -- access to legacy . But it basically is just not being used so much as a stand-alone, but as part of the overall product suite.

Okay. Thanks. That's all for me.

Tim Foxx, SG Cowen.

First question I had was concerning the mix of business from direct and indirect.

It is still roughly 55/45, I would say.

55 indirect?

55 direct, because the CFX does add a little bit more of a direct component.

Okay, great. Secondly, as far as end-markets -- not from a geographic perspective, but from the end-user markets -- are there any markets that you are seeing that have been particularly weak that may still continue to be particularly weak in that -- maybe next year when the macro environment improves? You will see a much better performance out of those markets?

I would say that the -- well, telecom has been kind of flat, and I'm not making any projections on that particular one. There has been some softening in some of the consumer electronics standpoint. We see maybe some of those starting to inch up a little bit. But, in general, we have seen -- as evidenced by some of the customer lists -- we have seen some growth in the process industries, the automotive, and the aerospace defense sectors.

Lastly, around the growth, are you projecting growth to come primarily from competitive displacement? Or how much of a mix would come from just replacing internal tools or just further penetration of some of the mid-range products -- (multiple speakers)

Actually, there is a little bit of all of those, but you may have left out one of the largest ones -- and that's the standpoint of users, and not penetrating the existing, but making this capability available to users who are not traditional users in the past. And that is where actually most of it has been coming from. We do have a reasonable share of our competitive displacement. We do have increased penetration within the traditional sectors, but those tend to happen at a lower rate than some of the new markets being brought up -- particularly, a broader range of design engineers are using the products earlier in the design cycle. And now, particularly, even in some cases, before CAD models are being generated from a concept development standpoint. So that's probably even one of the larger ones.

Is there any way you could characterize what percentage of growth is coming from that portion ? Is it over half of your growth?

There is so much cross-coupling between the different factors, it would be really difficult to isolate. Because we have situations where, in many cases, when that growth occurs, it occurs because of a concurrent growth with the high-end market at the (indiscernible) from the capabilities increased. So there really is so much cross-coupling that it is difficult to just isolate out each of the individual ones itself standing.

That's fair. Congratulations on another solid quarter.

Kim Caughey, Parker/Hunter.

Good quarter, guys. Can you tell me how many large deals there were in the quarter?

I could sit there and add them up -- it was very traditional for this time of the year, and it was several dozen, a couple of dozen.

Another numerical question here -- can you break out about how much revenue was attributable to the high-end products than the medium? And then designer?

Yes, but since we don't necessarily -- let's see.

Just rough.

I understand. If you look at the --

We're paid-up in design in the 16 percent of the core business, which is kind of the mid to low range.

And then you got some mid range. Again, I guess, by upper end, you're talking about -- like, traditionally the mechanical and the multiphysics is how we characterize it? Is that kind of what you're looking?

Exactly.

We're looking somewhere around the 35, 40 percent for that mark, which is quite good, because (multiple speakers).

Strong for the quarter.

(ph) disproportion of growth. I think part of that is just really the -- as the workbench makes in the ease-of-use and the integration accessibility of this much easier, and you can automate the advanced capability. It just makes it easier to utilize the higher-power tools through the automation.

Okay. That's all I have right now.

Richard Davis.

Okay, this is the other Richard Davis. I'm actually in the car, so --.

Is this the real Richard Davis?

It's like tag team World Federation Wrestling. (laughter) Question for you, really Jim, kind of an expansive question -- I guess, you guys have been executing awfully well. So when you kind of think about the business -- because I remember when we first started talking , you said margins might be kind of in the high '20s. And then this quarter, as I think you said, it was like 34, which is tremendous. How high is up? Or how do think about the business kind of over the next couple of years or so, as opposed to the next ten minutes or the next quarter? (indiscernible) about 35 percent margins and -- ? (Multiple speakers)

(multiple speakers). I'm sorry. We still see utilizing the same basic operating model, because it's what meters our ability to invest and prepare for the two- and three- and four-year out standpoint. Some of things that have been making us successful over the last two or three years were fundamental decisions that we made five years ago, and it's one of these things you don't make a decision to be excellent in something, and one or two quarters later you come up with it. So we do have this game to (indiscernible) that standpoint, and what we're trying to do is modulate that with the economy to the point where we can get the maximum benefit of the topline growth that is commensurate with the company's ability to adopt some of these exciting new procedures, and inculcate them into their own development processes.

If the economy wasn't flat -- and let's not assume that it grows 7 percent every year, that we're China or something -- but, if it grew, say, 4 percent a year, year-over-year, that 9 to 11, would that be closer to 12 to 15 percent revenue growth?

If it started to inch up in that way, you would start seeing us return back to our mid to high teens guidance. And, in the hotter economies, you have seen us go in the 20-plus percent thing. And if it got hotter than that, I would probably see that as being the capability. However you just never know how quickly that is going to be, going along there.

The other thing is that -- the one that becomes a little bit tricky is when we pick up some of these minor acquisitions. Because I think, as we have already demonstrated, is when we get these ones, we tend to cross-seminate very quickly. So already, some of the business that you might see attributed to CFX is actually displaced from some of our Flowtech (ph) (indiscernible) standpoint. In some of our other businesses, we actually leveraged the CFX service organization, and we are continually getting that to bleed over and getting a benefit from it, so we are not having redundancy of our own development activities, and we are really able to share best-of-class capabilities. So I think you will always be looking for those capabilities that tend to round out and accelerate, on a make-versus-buy decision, the ability for us to close in on our long-term vision.

That is very helpful. Thanks a lot.

This concludes today's question and answer session. I would like to turn the call back over to Mr. Jim Cashman for the closing comments.

Thank you very much, everybody. So in close, short-term caution, some glimmer of near-term economic improvements, leading to our continued and long-term enthusiasm. And all backed by a solid business model and a commitment to ongoing execution. So we feel that these elements, this combination, has really afforded us the ability to perform consistently and with an expanding customer base and an ongoing strong base of new technology that continues to support our enterprise goals and deployment of broad-based simulation. So I thank all of you for your attendance and look forward to talking to you in the next three months or so. Take care.