ANSYS Inc (ANSS) 2004 Q1 法說會逐字稿

Good morning, and welcome to the ANSYS first quarter earnings 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.

OK, thanks a lot. Good morning, everybody, and welcome to the ANSYS Q1 2004 fiscal year call. With me today on the call, as usual, is Maria Shields, our Chief Financial Officer. Here I'll outline the highlights and summary comments an then go into greater depth on the operational results. In addition to the numbers it has been a pretty busy quarter for us. We'll go into a number of both the quantitative and qualitative factors from Q1 that we feel positively influence both the Q1 quarter and also our ongoing prospects for the future. Then after that, Maria will then take you through the balance sheet, expense structure performance and some of the additional financial factors. After that, we'll respond to any questions you might have. To begin with, Maria, the Safe Harbor statement, please?

Thanks, Jim. Good morning, everyone. Thank you again for joining us to review the highlights of the first quarter 2004 results. Before we begin, I'd like to remind everyone that some matters that will be discussed throughout this call as either part of the prepared remarks or in response to questions 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. The potential risks and uncertainties are discussed at length in our public filings including forms 10-Q and 10-K and our most recent 2003 annual report to shareholders. Any forward-looking statements are based upon the company's best judgment as of this date, and ANSYS undertakes no obligation to update any such information.

Additionally, I'd like to take a brief moment to point out that during the course of this call, we'll be making reference to adjusted revenue and adjusted EPS, which are non-GAAP measures within the context of the Regulation G. We believe that these non-GAAP financial metrics are important indicators 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 the earnings release and the related form 8-K that went out this morning. So with that, Jim?

OK. Thanks, Maria. Well, to start, from a high level perspective for the quarter, we reported very strong financial performance with adjusted revenues at 31.5 million, and adjusted diluted per share of 47 cents up from last Q1's comparable of 32 cents. We had continuation of excellent stable operating margins, cash flows and the continuation of the solid business model that helped to adapt us well to the economic ups and downs, but while simultaneously I think demonstrating scalability in our business. We had continued customer momentum that's underscored by the ongoing relationships with some major named companies. We'll talk about those, but significant in addition to that is we have seen the emergence of some of the multidisciplinary sales between the various product lines, and actually an up tick in some of the larger order sizes. And then finally, we had beta and early release of each of the product lines in anticipation of our mid Q2 releases of the unified product suite headlined by ANSYS 8.1, CFX 5.7 and our ICEM CFE product lines.

So with that, if we'd look at the pure operational highlights as previously mentioned, our adjusted revenue for the quarter was 31.5 million, which represented an all-time Q1 high for ANSYS. This is a 26% increase over the comparable 25.1 million of Q1 2003. And as a reminder there was some positive benefit from the inclusion of a total quarter of the acquisition of the CFX acquisition from last February of 2003. Adjusted diluted earnings for the quarter were even stronger, with a 47% increase, up to 47 cents from the 32 cents per share that we mentioned from the comparable EPS of Q1 in 2003. All are told that this exceeded the analyst consensus and actually marks the 26th consecutive core that the EPS has met or sometimes exceeded the consensus. And as Maria just mentioned I'll remind you that due to the purchase accounting ramifications of our CFX acquisition last February, we had used adjusted results to more accurately reflect the state of the business, namely the recognition of the inherent lease revenue that was not counted in the GAAP numbers.

So for this reason, we utilized as we did last year, adjusted results for much better apples to apples comparison, much clearer connection to the business. But just mention the GAAP numbers, under GAAP numbers, the revenue would have been 31.3 million, and actually slightly higher, or a 27% increase and the earnings would have been 43 cents -- or were 43 cents for the 59% increase. As you can see, the impact on the revenue was relatively small and we envisioned a pure GAAP revenue comparison at this time, all other factors remaining the same.

Overall adjusted operating margin excluding amortization were 35%, which was stronger than our usual model and indicative of the increased revenue production we had, which really were a combination of some glimpses of market improvement and actually a couple of significant orders, which actually slid forward from Q2. So that affected the revenue results, which in turn increased the operating margins. Our adjusted gross margins went the to a healthy 86% and this is back to our normal operating ranges and is demonstrative of the successful ongoing integration of the service businesses of last February's CFX acquisition. And we also had very strong cash flows from operations, which increased to 13.2 million. We'll now examine the numbers as we usually do from a few different perspectives, the category of business, geography, customers and by product.

By category of business for the quarter, overall adjusted product license revenue increased 28%. Service growth was 23% for the quarter and was primarily driven by the product enhancement subscriptions, our software maintenance and full quarter CFX quarter and maintenance business. Paid up licenses grew at 15% with growth in all of our product lines, and the lease business actually grew higher than that proportionately, and was higher in each of all of the product lines. So the lease business now stands at a solid 22% of total revenues. We saw a real good balance between high-end desktop products and also noticeable gains starting from migration to the ANSYS Workbench platform.

The business intake volume exceeded the revenue and also grew at a 26% over the prior comparable quarter. And I think this continues to demonstrate one of the historical strengths of our business model by being able to expand our base of recurring or repeatable revenue. For Q1 of 2004, the recurring revenue rose to 66% of our business, and that compares to 63% of the Q1 of 2003. So this repeats a common pattern of increased visibility even as the revenue is growing. As such, our deferred revenue has grown to an all-time high of 43.8 million. These factors contributed to a strong balance sheet of over 96 million in cash and short term investments and all this while we were continuing to invest in R&D and our global sales and marketing infrastructure. So looking at things from a geographic perspective, from a geographic perspective, we saw a good growth in all of our geographies. North America grew at 21% quarter to quarter expanding relationships with our long-standing customer base continued to lead the progress and results here.

Major customers included General Electric, Train, Pratt & Whitney, Delphi, ABB, Solar Turbines, General Motors, Honeywell, 3M, Motorola, TRW, Cummins. Those provided the most significant of the six figure orders for the quarter. Europe continued to stay on course with a 37% growth. Now, I will point out that there was a positive impact of currency, but there was still a 29% growth in common currency. All the sectors performed well with double-digit growth throughout led by very strong performance in Germany. We continued to see very good progress in France, and continued strength in England and in the Northern European region. The largest six-figure deals here consisted of Volvo, ALSTOM, Phillips, Siemens, Schneider Electric, TRW, ABB, DuPont, Piaggio, so as you can see this continues the trend we have been talking about the last few quarters, strength across the broadband of major industries in Europe. Our general international area, largely the Asia Pacific grew at 22%. And in common currency terms still in excess of 20%. Again with double-digit growth this all-key areas. Key customer engagements included Mitsubishi, DENSO, DOSON, General Electric, Honeywell, Hannon, Toyota and Nissan.

So in addition to the normally strong industries in Asia, we have seen increasing strength within the automotive industries over there. So we're continuing to get good industry breadth, increased penetration and the pipeline of new opportunities is quite solid. We're still seeing somewhat longer sales cycles amidst some mixed positive signals so nevertheless, we are pleased that the new customer came and has continued and grown to the degree it has, in some of the part of science we have seen. So from a geographic standpoint in summary, 20-plus percent growth in all major geography, both in actual and in common currency terms. There was a good industry and major account activity throughout each. We had particularly encouraging results in Germany, which happens, we mentioned Q1 at this time last year that the Germany had been a lot slower; we had continued growth throughout and even early signs of an improving North America. And on a -- what is somewhat a quite qualitative factor, as we prepare for a biennial ANSYS conference schedule later in Q2, we had a registration rate that is roughly somewhere in the 80 to 100% range over where we were at this time at the conference two years ago.

This is in spite of the fact that the expenditure such as travel are still being closely watch by a large number of the customers, but there seems to be increasing and peaking interest here. So as such, we will be increasing our guidance for 2004, but we're continuing a degree of prudence through at least the middle of the year. This is in line with our earlier guidance of last quarter, and we'll continue to monitor and adjust our sales and distribution strategies in response to both the strength and the sustainability of an improvement in the environment and as demonstrated in Q1, we had the ability to respond quickly to revenue potentials, or react to the tougher times of past quarters and we'll continue to leverage the strength of the business model. From a product revenue standpoint, there are really no significant changes in either the trends for guidance that we have given in the past. As mentioned earlier, the software license revenues grew by 28% quarter to quarter. High-end sales remain steady with double-digit growth as it did with ANSYS professional at the mid range. ANSYS Workbench growing off of ANSYS last year's 8.0 releases continued to gain adoption.

The ASPs remained relatively stable and actually increased to the high end products. And we made progress on all fronts as we prepare for multiple releases of all major product lines in the Q2 time frame. Just looking at some of these, our ANSYS 8.1 release includes advances in all forms of linear and nonlinear analysis, plus a couple field, couple physics multi field solver. The bottom line on all of these is advanced capabilities for solving a broader range of problems. We have greatly expanded our capabilities in electromagnetics with advances in electrostatics with transients and harmonics and these take into account the conductive and capacitive effects, and they have a broad implication in things such as insulators, may crow wave, passive components, semiconductors, MEMS, even biological tissue applications which are required in our electronics and biomeds sectors.

So this is a major element of our multi physics strategy and very much in line in the growth we are seeing in industries. Secondly, we have made really great progress on the usability and availability of these capabilities. Probabilistic design simulation is now available in the ANSYS Workbench. It is a strong addition for some of our significant customers. You noted the common emergence of the major accounts and many are practicing design for Six Sigma and they are very concerned about how manufacturing process variations or product operating environments can effect product design and its quality, and so this is a major aspect of that. Our nonlinear capabilities are now available on the Workbench, which means we can now solve these very complex problems with an ease of use that really hasn't been seen to this date. And our integrated products continue to blend as we have been talking about for the last few quarters. As our traditional ANSYS flow products and some the ICEM meshing migrate into the CFX flow and those capabilities.

From an infrastructure and ease of use standpoint, we have made quantum strides in the ability to solve much greater problem sizes and do this on banks of low-cost computing clusters, which really is allowing a lot greater freedom of access to our simulation suite. One benefit of this from a capability standpoint with the effective dovetailing of this from the advanced synthesis capabilities that we augmented in our ANSYS 8.1 release. We also have solver remote capabilities that allow for independent but simultaneous optimization of both the user interaction or the client processes and the solver service processes that really allow effective utilization of our customers competing environment, be it Linux, Windows, Unix, 64-, 32-bit client server clusters, really whatever the customer has. A little more after a year than our CFX acquisition occurred, we are increasingly excited about the extension that it brings to the ANSYS simulation family. With the impending release of CFX 5.7, we have added a number of capabilities and physics models and to solve an ever-increasing array of customer design problems. This new version provides a streamline fluid structure coupling with traditional ANSYS, which even allows for a large-scale deformation and motion, which provide a much greater real world fidelity.

We have introduced new laminar transition capabilities that bring new solution Horizons to everything from aerospace applications to increasingly complex heat transfer and thermal cooling problems, such as are seen commonly in the electronics world. In addition to the dramatic increases in just the simulation algorithms of CFX that the product line is also gained significantly from its inclusion into the framework. So in addition to the previously mentioned fluid structure coupling, CFX users now have direct access to the ANSYS design model or capability for geometry creation and the imported data from a wide range of CAD Systems and its supported by the advanced modeling and meshing capability from the ANSYS ICEM and CFD tools that allow for advanced resolution of boundary layer which as I mentioned previous he are so important for accurate flow and heat transfer calculations. So this is probably enough technical depth actually some of are you probably saying too much for this call. But I'd encourage those of you who are interested to check out the ANSYS Web site for more information as well as upcoming news on the ANSYS product and their applications. This combination simulation and integration technology seems to be allowing us an increasing number of partnerships.

I seem to be mentioning these on quarterly basis. This past quarter were a typical one was the relationship with as team and also the Da Vinci project, which is one of the entrance in the X prize competition to accelerate the commercialization of space including space tourism. To win this X prize, the spacecraft must have a number of characteristic, but some of them must be privately financed they constructed with the ability to fly three people into space it must be reusable flying twice within a two-week period things like that. So this is really one of those Hallmarks of bringing innovation into the overall design process. So in conclusion, in summary, it was a very strong quarter, both financially and qualitatively. We feel this is a direct result of our strategic direction and business model and it's allowed us to provide for sustainable revenue growth, and respond to economic opportunities and economic conditions, whether up or down. This is a discipline that will continue to maintain and leverage by meeting our commitments for 26 straight quarters, we have been able to continually invest in both technology and distribution capacity and that's allowed us to extend our strong positions in each.

We have been able to continue to grow the top line. Maintain solid margins and continue to provide strong earnings growth by this. I'm also pleased that we have been able to build an organization, superior products and business processes that are able to keep the business progressing through a range of economic situations, and into this mixed bag of recovery potential. With this in mind, we're going to continue to monitor the market situation and adjust our business model accordingly. We are seeing an increase in opportunity, but we're still keeping a degree of the short term caution we have been talking about and our longer term optimism remains not only intact but with increased confidence. So with that, I'll now turn it over to Maria Shields to provide you a more detailed look at the financial including expense structure, balance sheet highlight as well as other key factors of business and outlook. Maria.

Thanks, Jim. For the next couple minutes I'm going to go through a brief recap of the Q1 expense a few balance sheet highlights and provide some guidance regarding the outlook at this time for Q2 and full-year 2004. Before I begin I'd like to remind everyone once again that the figures that I will be discussing, will be based on expenses as a percent of revenue adjusted for the impact of the purchase accounting adjustment, relative to deferred software license revenue. Starting with cost of sales, excluding acquisition related amortization; cost of sales for the quarter totaled 4.6 million, compared to 4.2 million in last year's first quarter. Which resulted in an overall adjusted gross profit margin of 86%.

The comparative increase over last years first quarter is primarily related to a full quarter of activity compared to last year, only included one month. Also contributing were some increased royalty costs, which were partially offset by reductions in head count related costs. For the quarter, our total sales and marketing expenses increased to 6 million versus last year's first quarter 5.5. These increases were compared to last year were primarily related to as I mentioned earlier a full quarter CFX, but also increased third party commissions that were partially offset by reductions in head count and related expenses.

In the area of R&D, our total expenses increased to 6.3 million for the first quarter compared to 5.7 million last year. The increase was really related to the inclusion of a full quarter of CFX. And also I would like to point out that during the first quarter, we capitalized about 260,000 of internal waiver costs associated with the various product releases that Jim discussed. This compares with 100,000 that were capitalized in last years first quarter.

Our G&A expenses totaled 3.5 million in first quarter compared to 2.6 million last year. The increase was really related to CFX, and some increase in our legal fees than partially offset by a reduction in bad debt expense. While we continue to make investments in key areas across the company, we also delivered a solid operating profit margin, excluding the impact of purchase accounting adjustments and acquisition related amortization, the operating profit margin was 35% for the quarter.

Our effective tax rate was 30% an at this time we anticipate that we should be able to sustain an overall tax rate of between 30% and 31% for the remainder of the year, however, as I have been causing for the past year or so, and will continue to do so, while the alternatives remain undecided I'd like to note that any future changes in legislation that would reduce the tax credits or eliminate some of the tax-saving vehicles which are currently available to ANSYS could have a significant adverse impact on our tax rate going forward. ANSYS reported total adjusted EPS excluding purchasing and acquisition related amortization of 47 cents on 16.5 million shares, and this compares to EPS of 32 cents on 15.6 million shares in last years first quarter.

At the current time, including the impact to the first quarter adjusted earnings performance, we anticipated adjusted EPS in the range of $1.76 to $1.80 for the full year of 2004. And based on our current visibility, we're targeting second quarter or adjusted revenue growth in the range of 6% to 8% and adjusted EPS in the range of 39-49 cents. I also like to comment at this time going forward we estimate that the remaining impact of the purchasing accounting adjustment relative to the deferred revenue will be about $200,000 for the remainder of Q4 -- 2004. And just taking a quick look at the market 31 balance sheet, total cash for short-term investments grew to 96.3 million. Our consolidated net DSO was at 60 days and gross deferred revenue grew to 42.8 million and we continue to remain debt free. So with that, I'll turn it back over to Jim. Do a brief recap and open it up for questions. Jim?

Thanks, Maria. Sort of recap, strong financial performers, in all major parameters of the business, revenue earnings, margin, cash flow, business base, visibility, continued product progression with the added accelerant of integrated technologies across our multiple multi physics product families with significant releases of each for introduction in Q2. Increasing customer activity accentuated by industry and geographic breadth and strength and advanced signals have increased adoption. Then finally expanding sets of truly strategic relationships in technology, distribution with our customers. With regard to the outlook for the remainder of 2004, we see some advanced signs in improving prospects and will continue to monitor these cautiously.

The long-term outlook stays solid. As such for the year, we're raising the adjusted revenue growth to the range of 9 to the 12% to 129 million, and adjusted EPS to $1.76 to $1.80 range up from the previous $1.69 to $1.70 range. The earnings rates considers a number of factors of shifting orders forward into Q1, the shifting in some ANSYS conference of Sarbanes-Oxley expenses into Q2 and Q3 as well as the positive economic presages that we have discussed today. As all, we will keep an eye toward ratcheting up performance if the positive signs sustain themselves or increase. So with that, we are prepared to respond to any specific questions you might have.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Tim Fox of SG Cowen.

Hello? Tim, are you there?

Can you hear me now?

A little better.

A little better, but it's difficult.

How is that?

Good. Now we got you.

Sorry about that, congratulations on a solid quarter. First question, Jim A little bit about your upside that you reported. Were there any particular -- any particular products, geographies that were contributed to the upside?

Well, the upside -- the upside primarily came from Asia Pacific an North America. And in particular, you know, we've got pretty good visibility in our business and look at our pipeline in that fashion. We had things that we had a couple of significant orders in Asia Pacific and in North America both. And I know it's not characteristic for people to say big orders slid forwards instead of backwards but in this case, they were slated for about the second month of Q2 and they came forward in Q1. So Asia Pacific and North America, Europe was pretty much as forecasted.

OK. Regarding North America -

Tim?

Yes?

I'm sorry I forgot the second part of your question. You asked about industry. It was -- I mean, because these are such discreet occurrence, they were automotive and industrial products.

You anticipated my followup. Great. An unusual for Q1 certainly.

The one thing I'll say about Q1 that actually helps us a little bit, but makes Q2 and Q3 a little more of challenge, remember that CFX actually had a March 31, year end. So in that particular space, that, you know, kind of conducive to our Q4. With regard to customer buying patterns.

Got it. So that's pushed down a bit from Q4 to Q1. OK good that helps. Sales and marketing as a percentage of sales was the lowest that I have in my model here at 19%. And you referenced, Jim, earlier in your prepared remarks about the scalability of the model. Do you anticipate -- is I guess the scalability you're referring to, is that around sales and marketing, do you anticipate?

Go ahead, I'm sorry. I thought you were finished.

I was going to say is that indicative of where you see some of the scalability coming and going forward as deal sizes grow and productivity or sales force picks up?

That's part of it, but the scalability refers to each significant element of our business model. So it -- it involves around --well, the inherent scalability we can get around a product that we can develop once and sell many times. It is based on the diversification of the sales --sales model, combination of direct and indirect. The sales marketing is one aspect. As you probably noticed throughout the past few quarters it plays into the margin structure we have. So when you see something like sales and market -- sorry, sales and marketing appear to go down as a percentage of revenue, keep in mind there were certain expenses that we expected to have paid in Q1 for a conference. We talked about. So when those things moved, you know, moved into Q2 that's one aspect. Also when the revenue increases we still had essentially the structure in place in the sales and marketing. So in essence, the denominator stayed the same and the numerator increased in the particular aspect.

Sure. OK. Regarding the head count mentioned in sales and marketing how broad based was that?

When you say how broad based was that -

How big was it? I mean, was it a contributor to the -

Oh. A couple people, I mean we're still if you remember last year in Q3 we made some changes in North America in the sales force. And actually we're still kind of playing catch up to get back to full head count. But, you know, every quarter I say you see a couple people moving in and out as we continue to try to tweak the model for the director have us is indirect.

OK.

The net plan throughout the year based on what -- based on our increased times will be to increase the sales and marketing structure though. I mean, that's over and above the one-time expense -- you know the non-recurring expenses of the conference, which, you know, they don't have a comparable for Q2 of year.

And lastly, if I may on the competitive environment, are you seeing any changes at all? You said ASP's are fairly stable but anything coming from the market from the competitors that's increasing the competition out there?

Well, nothing that's changed. In, if you noted, if I didn't say I certainly meant to they the ASP's on the high end products actually increased. I mean, so they were going up. So that -- there's been no real change on that standpoint. The real change is -- real changes have been in the pockets of the economy and the expanding relationships with us -- you know, with our customer bases.

Very good.

OK. Thank you.

Thank you. Our next question comes from Richard Davis of Needham & Company.

Thanks a lot. Jim, with regard to version 8.1, when I was looking at some of the White papers and stuff you had put out on it, kind of previewing it so to speak, it looks like the modeling for I guess what you guys called mildly conductive materials has improved from previous versions but the point is it sounds like to do me like that be will get you a leg up into the medical applications and stuff. So, you know, that's an area that historically is industry hasn't taken a lot of simulation. How big ask that for you guys now? You know, roughly in terms of revenues and should that --should we consider that to be a nice growth driver for the company over the next few years?

Definitely. If you recall -- if you recall, you know, we have had that standpoint where we had a broad industry diversification that there's no industry that counts for more than 20%. But the BioMed thing would be a five -- you know, a 5% to 10% high single digit percentage. Yes, we think it plays in well because it's a confluence of the biomedical applications that we have had, in addition to it plays in well if you think about the range of material properties from biological tissues to diagnostic equipment, when you look at electronics versus mechanics and prosthesis. I mean, it is really a confluence of a lot of the relationships. You know, as such, we see that -- we see that as being over the next three to five years a fairly nice incremental market. It also tends to be the one because of all the approvals and litigations and things like that it can be sometimes be a somewhat conservative or very methodical in its approaches to introducing new standpoints. So it's across the board, but all these things do play in well and they actually interweave with one another, if you start drawing from the various elements from product as well as industry standpoints. I think also when you get into the overall -- not only the electromagnetics, but the field effect phenomenons, as well as the electronic cooling, all those things play into it, you know, quite strongly.

OK. That's helpful. Then over the past few years, could you give us a sense of kind of, when you do your user's groups meetings typically, I was trying to remember in past ones, you had a weird economy, but, you know, non assuming a normal economy, don't you get some sort of pickup from demand because you get the user base ind kind of excited --

We do. It normally has about a six-month fertilization period but it's something we can see spiked. It's certainly, they don't come to the show with their credit cards, but they do see what's there and they do go back and then it starts to work its way into the budget. I say most of the things are things they're already aware of, but there's a certain possibility when they come here and actually see things, you know, see things working. It's a lot different to see a product working than to hear me talk about it or to see a power point presentation on it.

Super, that's what I needed. Thanks.

OK, thank you.

Thank you. Our next question comes from Kim Caughey of Parker Hunter.

Hi. I want to add my congratulations on a well-executed quarter. Let's see. I think it's really intriguing that some stuff flipped into the first quarter. Was that driven by let's say sales incentives on your part or was it a function of ramped up product cycles and, you know, back end demand for your products?

There was no, first of all, to clarify one thing, there were no special sales incentives introduced in the quarter. At least, you know, there might have been some little contest for dinners out in the regional basis. But there were no broad-based programs instituted in the quarter. But what we did see, as you might see when you see these things where there's no proof of the fact that there's this huge snowball rolling down the hill, that you can see the snow is really starting to fall and pick up. In some cases, it was the point where they just determined okay, this is going to provide value and if that's the case, why wait too month toss get the value? There were other cases where it was in a couple of cases it was because of some pent-up demand and increased confidence of our customers in their situations. So I can't say that there was any anecdotally there was any one single, you know, single unifying theme of all, but those were the two major anecdotes we saw.

OK. I also notice in the list of larger deals a lot more automakers than you have had in the past. That's probably a function still of the integration of CFX into your product?

I m sorry, you're finished again. Please continue.

That's OK. The ICEM stuff.

Well, in general, you know, CFX did not a really strong bed in the automotive industry. But what we are seeing is these unified solutions that can solve the increased complexity of all sorts of physical phenomenon working simultaneously has broad range of deal. There's no doubt that Workbench has made a strong play into this by bringing the use ability to a much broader range of users. In fact, people who were not traditionally users of any product in the automotive world. So those are probably the two overriding aspects. And yes, for the last couple of years, you know, all the industry sectors are pretty strong; automotive grew more, slightly disproportionately higher than some of the other industries.

And you're not really seeing displacement of other people's products, say McNeil Schinder's with yours but its more additive to the design process?

We see some displacement from time to time. Not any one product. But more and more, the growth mechanism is providing, you know, getting simulation, things we have been talking about for years now. In terms of getting the tools in the hands of people who did not traditionally use them, but who are making those fundamental decisions early on that are locking in all the costs and all the quality issues of a problem early on. Before, there was a huge issue between availability of computing hardware, both in terms of cost and power, in terms of the ease of use for these nontraditional users and also the ability to get data from a number of dispirit systems. As we started to combine those things and make them a lot more plug and play and people friendly, it's tended to increase the number of people that can utilize them that's where it's largely come from.

OK, and one more slightly nerdy question here. The Intel 64 bit products, do you see increased demand from your user base for, and you know, software that runs on them?

Yes, we're getting a lot of emphasis on that, and it's, you know, it's for all the reasons that you might guess. I mean, it's -

Cheap, fast and good?

Yes. But also it's the good part is also the power of the problems that it can solve. There's one issue related to speed and there's another issue related to the size of the problem that can be tackled with them.

All right OK. Thank you.

Thank you. Our next question comes from Mark Schappel of McDonald Investments.

Good job on the quarter, first up here with guidance. Correct me if I'm wrong here, but looks like the new guidance only accounts for the upside in the quarter and the bottom end may be decreasing a bit here. Why the cautious outlook here, especially with the results you guys have been posting in the last couple of quarters here?

Well, as Jim said we're not convinced yet that one quarter is a trend. You know, based on what we currently have visible to us in the pipeline in the forecast, you know, we believe that what we've put out there for Q2 is doable, but we're not ready to extrapolate what happened in Q1 into future quarters. Also, we as Jim talked about, there were some expenses that had been planned in Q1 that quite frankly didn't get spent because we were busy doing other things that we'll really be loaded into Q2 and Q3. We're little cautious because Q2 and Q3 have always been our toughest quarters. So if what happened in Q1 starts becoming, you know, a trend so to speak, then you'll definitely see us becoming much more optimistic than we are today.

And regarding the orders that slid forward from Q2 into Q1, could you give us more details on these as far as maybe the number of them and maybe the size relative size of the deals just to help us in our modeling going forward?

I'm not counting all the little ones that might have happened, the ones that might have been become evident because which we're attracting them. There were pushing up to, you know, the high six-figure kind of range. Pushing up around, you know, greater than half a million, less than a million in total.

OK. And one more question and then I'll get off.

By the way, the one thing I want to say though, while some of that is pulling forward we still have energy that will be using to start to, you know, accelerate other parts of the business. We don't view that as being a one to one displacement, but it's phenomenon that does affect things. That along with the conference expenditures and things like that. Also, you know, I think some of the currency changes are going to be a little bit less dramatic than they have in the past.

What on the topic of the currency, great could you give us the foreign exchange impact on the top and bottom lines here?

Yes. top line was about, it was around 900,000.

It was around 900,000.

And operating profit was about 2 cents.

About two cents.

Thanks. That's all from me.

OK.

Thank you. At this time, there are no further questions.

OK well, thank you. So in close, we keep a degree of the short term caution, but signs of improvement, long-term enthusiasm and as always backed by the solid business model and our ongoing thanks to the loyal customer base we have, the channel partners we have, as well as the ANSYS employees. So this combination just continues to afford us consistent performance for revenue and expense with an expanding customer base. We think also an exciting new base of technology for our initiatives. I thank you and look forward to talking to you next quarter.