ANSYS Inc (ANSS) 2004 Q3 法說會逐字稿

Good morning and welcome to ANSYS Third Quarter Earnings Conference Call. All participants will be able to listen until the question-and-answer session of the call. The conference is being recorded at the request of ANSYS Incorporated, if anyone has any objections, you may disconnect at this time.

I would like to introduce your speaker this morning, Mr. James Cashman, President and Chief Executive Officer. Sir, please go ahead.

Thanks, Monica. Good morning, and welcome. We're here today, as just mentioned, for the ANSYS Q3 fiscal year 2004 call. And I am joined, as usual, by Maria Shields, our CFO. So we'll go into general summary to outline the highlights and then we're going to delve deeper into the operational results. We'll look at the numbers from the usual different perspectives we do, and also talk about some of the more qualitative aspects of some progress we've been making on a pretty broad variety of topics.

In addition to the current results, we'll be discussing -- we've also continued to prepare our future opportunities with progress on a number of the strategic initiatives that we've been discussing for several quarters. Maria will then take you through our balance sheet, expense structure performance, and outlook on earnings and after that we'll be happy to respond to your questions. So to begin with, Maria, our Safe Harbor Statement, please.

Thanks, Jim. Good morning, everyone, and again, thank you for joining us to review the highlights of our third quarter 2004 results. Before we get started, as usual 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 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 our Form 10-Q, 10-K and our 2000 annual report to shareholders.

I'd also like 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 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 the 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. Jim?

OK. Thanks. Well, in summary, Q3 continued to track on both our pattern of performance and the trends of our earlier guidance. We delivered on all of our major commitments and exceeded earlier guidance, and we posted strong operational numbers. From the very high level perspective for the quarter, we reported strong performance with adjusted revenue at 32.4 million, which exceeded the upper end of the analyst range, and adjusted earnings per share growth at 25% with an adjusted EPS of $0.25, up from last Q3's $0.20. This also exceeded both the consensus and the analyst range. And I should say that, both of those numbers reflect our recent 2-for-1 stock split.

We had continued strong stable margins, and the solid business model that just continues to help insulate us from number of, what I call, a still twitchy economy. Excellent progress in integrating all of our product lines and some continued technology breakthroughs. And then finally, continued encouragement from both an industry acceptance and from a customer standpoint.

So, if we go into more detail on the operational highlights, again, as previously mentioned, our adjusted revenue for the quarter was 32.4 million, and this compares to 28.9 million in Q3 of 2003. Actual reported GAAP was only slightly lower at 32.3 million, as Maria had gone into detail just beforehand in terms of talking about the impact of adjusted results. And we just feel it's more indicative of actual business conditions following the very tail of the acquisition of CFX early last year. But regardless, core growth rate ranged from 12% on an adjusted basis to 15% on a GAAP basis.

Earnings, again, adjusted for the 2-for-1 stock split also grew with adjusted EPS, as we mentioned, of $0.25, up from $0.20 per share of Q3 of 2003. And this too was above the consensus and the upper end of the analyst range, and it marks the 28th consecutive quarter that we've met or exceeded the analyst expectations. So I think, obviously, over that length of timeframe, we've been able to continue to execute off a -- across a spectrum of economic conditions.

Our overall adjusted operating margins, excluding acquisition related amortization, were 35%. This actually is an increase comparing to 34% of Q3 in 2003, and it's also a natural offshoot of the increasing revenues. Adjusted gross margins also remained strong at 85%, and this represents an ongoing culmination of what really can be termed as effective modulation of the various service businesses into the overall ANSYS service and business model.

For the nine months ending September 2004, we reported total adjusted revenue of 95.9 million or a 16% increase over the comparable 82.7 million in the first nine months of last year. And this included a good balance in the increase of both license and service business.

Year-to-date adjusted earnings per share were $0.74 or 35% increase over the $0.55 of 2003. And overall adjusted operating margins, again, excluding acquisition related amortization, were 36% for the first nine months, compared to last year's 30% and the adjusted gross margins at 86%. And the cash flows from operations were over 13 million for the quarter, and over 39 million for the first nine months of this year.

We'll take a moment and examine the numbers, again, from an even broader range of vantage points, looking at category of business, geographic distribution, some customer information and product breakdowns. So starting first with category business, again, we saw a very good balance. For the quarter, on an adjusted basis, the lease business actually gained strength growing to over 23% of our total revenues. Software license revenue grew at 11% for the quarter and 15% for the first nine months.

Service growth was 12% for the quarter, driven heavily by our product enhancement subscriptions and software maintenance. For the first nine months, service grew at 16%. And most notably, we've continued to see an interest in Workbench based product automation services, and particularly, at our major accounts. So that's something we've expected, but it always encouraging to actually see the things that you expect.

All of our major product sectors performed well, and again, there was a very even balance between the various product classifications, both on a vertical and horizontal basis. Sales of the high-end multiphysics and mechanical products, the mid-range ANSYS Professional line, and the designer products all grew in double digits. CFX license revenue grew at higher rates, and the ICEM CFD technology has not only augmented the other product lines because of the integration, I just spoke about, but the product license have also grown in excess of 20% year-to-date.

Business intake increased also, it actually outpaced revenue growth. This allowed our repeatable business base to grow to 69% of total revenue, and that compares to 66% in Q3 of 2003, and also 66% in the early part of this year. As always, maintaining this repeatable business base provides long-term visibility and short-term support during the less predictable times. So all in all, our deferred revenue stands at over 38.7 million, and that's compared to just under $34 million at this time at the end of last Q3.

So in addition to our pipeline, license growth and expanding partner relations, this base continues to aid in our overall visibility. This contributed to a strong balance sheet of over $124 million in cash and equivalents, and all of this while we were continuing to invest in R&D and expanding our global sales, marketing and business infrastructure.

From a geographic perspective - well, the bottom line from a geographic perspective is, we continue to see growth in all geographies and sub regions with a little trend toward greater balance in the regional performance, even though there were some differences between the regions. That's quite similarly to last quarter we saw a mixed - kind of mixed bag with pockets of optimism, interspersed with lingering spending restraint and uncertainty, and it affected all regions to differing extents.

North America continued positive momentum with a growth around 10% for the quarter and 12% year-to-date. Major customers, I'd have to say, accounted for a disproportionate part of this growth, and in keeping with our customer base a pretty broad representation of industry base. No one industry seemed to predominate or break away, but we saw areas of strength everywhere. And we also saw a seasonally atypical uptick in order size, keeping in mind that this is Q3, which is usually our most interesting quarter through the years, historically. Major orders came from Maxtor, Eaton Engine, Northrop Grumman, Belcan, Seagate, American Standard, John Deere, Boeing, Pratt & Whitney, Bechtel, so a pretty broad range of customers there.

Our GIA or General International Area, which is predominated by the Asia Pacific, grew at a core rate of over 10%, with all major areas performing well, and fairly evenly, paced by Japan with a 14% growth for the quarter. Key customer engagements were also strong in GIA, with Denso, Honeywell, Mitsubishi, InfoTech, Toyota, Matsushita Electric, and Gwaijo (ph) Aviation Nanjing Aptech, so a broad range, both across countries and industries and sub markets.

So we continue to see the three growth mechanisms evidence in GIA that we had mentioned last quarter. Firstly, following our global major accounts into the region. Secondly, providing tools to engineering offshore outsourcing, and also building off the growing local industrial base in the region. So all of this has led to a composite growth of 15% year-to-date for the region. Again, fairly balanced through the major geographies.

And then finally, with respect to Europe, it continued to progress well, with overall growth of 25% for Q3 and 29% for the first nine months, with particularly strong performance from Germany year-to-date. All major sub-regions are doing well for this time period. And all of the major European markets grew with a pretty equal balance for Q3.

Typical of previous quarters, there was some positive impact of currency in Europe for the quarter, but even with that growth was at just below 20% for the quarter and in excess of 20% year-to-date, looking at this in real terms, ex-currency. Major European orders came from Siemens, Rolls-Royce, Bosch, Ramatom (ph), Volvo, AWE, SGN, Infinion, Inex, again representing the same broad range of industry coverage, but also with an interesting mix of new customers being added in there.

So in addition to the continued and increased commitment from our large accounts, we're encouraged by the increase in the number of some of the more significant commitments from customers in large orders, and per our earlier guidance, we did commence the sales expansion initiative in Q3 that we had mentioned and we plan on continuing this judicious expansion in Q4 based on the current business levels and in preparation for more sustained spending patterns when they start to become more regular.

So in summary, all geographies continued good growth trends and we maintained our industry and customer breadth. There were good signs of potential in every geography although to varying degrees and we saw strong traction of our strategic message. Nevertheless, we have ongoing evolution, growth and acceleration plans for each region, and this is just part of the normal growth process, so we'll be probably be talking about that every quarter for the foreseeable future.

Overall, we're encouraged by our major account progress, the strengthening of our overall industry breadth, the performance of our direct presences and of course the broad base of customers that provide that recurring base that I had spoken of early and provide a continuing source of opportunity for expanding our license business.

We'll continue our degree of caution through the end of 2004, for the simple fact that we continue to various glimmers of loosening and also some remaining pockets of pessimism. Our pipeline of new opportunities continues to gain strength, but we're still seeing caution in the customer base, and the larger order size opportunities that we kind of talked about the last quarter, they still seem to be reappearing, but they're in longer time frames than they were pre-bubble, and they'll probably also be more susceptible to slippages as many customers are examining their expenditures closely.

But at least these orders and these customer viewpoints are reappearing. And based on the response to our offerings, we're continuing our controlled ramp up of the customer engagement capabilities in the close of 2004. As I mentioned, we already started this in 2003 per our guidance, and continue seeing this in preparation for 2005.

For our product standpoint, as usual the R&D investments that we've highlighted continue to yield nice dividends in our product suite over the last few years and it's clearly added to our potential of opportunities.

This quarter we've actually been finalizing a major unified release that will be shipped later in Q4. With this in mind, we won't spend a lot of time on some of the technology since the release will be later in the quarter and the specifics will be discussed over the next few weeks. But it does involve major releases of all of our major product lines, ANSYS 9 0, CFX ICEM CFD product lines and very significantly a high degree of integration within the Workbench framework.

This is particularly key because with a greater number of users leveraging the power of simulation, and with companies trying to optimize their computing infrastructure, well, we've also made advancements not only to making the solutions very powerful, which has been our heritage for decades, but also making them accessible to a much broader range of people.

In the last call, we had previously released an extended array of infrastructural enhancements including parallel processing, remote solve, and memory management capabilities that allowed efficient processing on low cost clusters and standalone desktop systems. And the power of this architecture was demonstrated in our Q2 announcement of having broken the 100 million degree of freedom barrier; basically rendering a new class of problems solvable. But we furthered that in Q3 with our announcement of being able to solve a 10 million degree of freedom model on basic 32-bit desktop systems and this means significant simulations can be effectively done on everyday desktop systems.

I think the key is first we made it powerful and then we dramatically broadened its accessibility. So, we'll continue to build on the benefits of the Workbench integration platform. It's been the basis of our advanced infrastructure allowing these optimization and gains. But perhaps the most encouraging aspect of the platform is the rate that's been able -- allowed to us accelerate our product integration development and introduction.

From a product standpoint, with regard to numerical processes, as we mentioned previously in the class categories of business, the adjusted software license growth was 15% year-to-date, and it was pretty much balanced across all tiers of our product lines. Our ASPs for the quarter actually rose reflecting sales for our high-end products indicative of the increased proportion of a multi-physics sales and actually the ASP of our design products also rose.

With all this momentum, the largest issue we continue to have is with our technology - with our technology progression is the effective and efficient evolution of our distribution capabilities both direct and indirect. And to this end, we started making some very good progress, as I mentioned in terms of our capability ramp up but also some continuous training capabilities and also some of the relationships we have in terms of expanding our key customer relationships. So, this is all very positive.

Basically, in terms of additional items, the combination of focus and I'd have to say technical excellence and business stability has continued to expand the opportunities that we've had not only with customers, but with industry leaders alike. And apart from developing technology and just general operations, Q3 saw some interesting additional developments.

As you recall, we had announced earlier that the fact that we'd be bundling simulation products in auto desks in better professional software. But we actually shipped the first release of the simulation products that were bundled with this. We also recently furthered a range of partnerships such as with the National Science Foundation Center, CPIM [ph], LSTC, and Dantech.

We were recognized for the third straight time in Forbes 200 Best Small Companies and the Pittsburgh Tech 50 to go along with numerous mentions in last quarter in Business Week, Fortune and Business 2.0. You know, recognizing that these are all rearview mirror kind of acknowledgements.

But the bottom line is accelerated progress in extending our technology base, both in the capabilities of our core products, but also our new product lines, our acquisitions and our unified architecture. And basically all of this is with the consistent focus of furthering the impact of simulation throughout all phases of the design and engineering process, and across a much broader user base than has traditionally utilized these products, and we do see these things taking hold especially over the last couple of years.

So in summary, we remain committed to and increasingly encouraged by our long-term strategic direction and mission and, if I could say, with fair cause. We've continued to meet our operational commitments in a sustained manner through a complete spectrum of external situations, and this basically allowed us to further our technical leadership and invest in our future, expand our universe of partners. And again all with the goal of simulation-driven product design in mind.

Our top line has continued to grow in line with our guidance. We've maintained our financial disciplines in our gross and net margins and our DSOs and I think this is evidenced by the fact that we have in fact met or exceeded the original analysts' earnings consensus for 28 straight quarters. And we've successively increased guidance each quarter of this year. Our recurring base continues to grow and our major account and customer proliferation activities continue to make progress. This in turn has allowed to us continue our pattern of technology and sales investments to build upon the strong foundation and continue to progress.

So these investments coupled with our industry and geographic breadth, I think, have provided us the capacity to react and modulate to the recent economic uncertainties, but also to quickly seize on opportunities as they occur. I think the long-term optimism that we've been talking about for the last few years has been demonstrably justified, but so, too, has our reasoning for short-term caution. And as we've mentioned, we've been seeing some positive signs, but some pockets of warning, so we do plan to ramp up, with sanity, our business with an eye toward preparing for the next few years.

So with that, I'll turn it over to Maria Shields, our CFO, to provide with you a more detailed look at our financials, highlighting the expense structure, balance sheet, highlights and other financial concerns. Maria?

OK. Thanks, Jim. Just quickly, I'll go through a recap of the Q3 and 2004 year-to-date expense results. As Jim mentioned some balance sheet and capital highlights and I'll also provide some outlook relative to Q4 adjusted EPS as well as some preliminary adjusted EPS forecasts for full year 2005.

Taking a quick look at cost of sales, total expenses excluding amortization related to acquired software for the third quarter was 4.8 million, and that compares to 4.5 million in last year's third quarter. This resulted in overall adjusted gross profit margin of 85%. And on a year-to-date basis, cost of sales, once again excluding amortization related to acquired software, totaled 13.8 million, as compared to 14.1 million in 2003, resulting in a 86% adjusted gross profit margin for the first nine months of this year.

For the third quarter, our sales and marketing expenses increased to 5.8 million, compared to last year's third quarter of 5.6, and on a year-to-date basis, sales and marketing increased to 17.8 million, compared with 17.3 million, in the first nine months of 2003.

The increase in expenses as compared to the prior year's quarter was largely impacted by increase incentive comp and third party commissions. These same factors contributed to the year-to-date increase, as well as an increase in costs relative to the biannual users conference held in this year's second quarter, and the inclusion of CFX operations for the full nine months in 2004. The quarterly and year-to-date increases were partially offset by some reduced discretionary spending particularly in the areas of advertising and promotion.

For the remainder of this year and looking into 2005, we intend to continue to make investments in strategic sales areas throughout the world, and particularly North America, to further strengthen our sales efforts and broaden our abilities to sell an integrated suite of engineering simulation solutions. We anticipate the total sales and marketing expenses in absolute dollars should continue to increase.

In the area of R&D, our total expenses for the quarter were 6.6 million, or 20% of adjusted revenue, compared to 5.9 million in Q3 of last year, and on a year-to-date basis, our total investment in R&D has grown to 19.4 million compared to 17.6 million for the nine months of 2003.

The quarter-to-date, and year-to-date comparative increases were primarily attributable to an increase in headcount and related costs, as well as the inclusion of the CFX operations for the nine months period in 2004 compared to seven months in 2003.

During the third quarter of 2004, we capitalized 136,000 of labor related to the upcoming release of ANSYS 9.0 and the other product suites, and for the first nine months, we've capitalized about 500,000. This compares with about 196 and 550,000 of capitalized costs for the third quarter and the first nine months of last year.

In the area of G&A, our expenses totaled 3.8 million in the third quarter, or about 12% of adjusted revenue, compared to 3 million in last year's third quarter. And on a year-to-date basis, our G&A costs totaled 10.8 million, compared to 8.8 million in 2003. The quarterly comparative increases are primarily attributed to higher consulting, legal, and auditing expenses in connection with increased compliance efforts in 2004. The year-to-date increase is also impacted by the inclusion of CFX for the full nine months 2004, as well as an increase in headcount related costs.

For the third quarter and first nine months, the overall business yielded in adjusted operating profit excluding acquisition related amortization of 35% and 36% respectively. And our effective tax rate for both the quarter and year-to-date was 30%. At this time, we anticipate that for the fourth quarter, we should be able to maintain that 30% overall tax rate.

Additionally, I'd like to briefly comment on the current changes in legislation under the American Jobs Creation Act of 2004. This legislation significantly reduces export-related tax benefits. These benefits will be phased out beginning in 2005, and will be replaced by a deduction for qualified manufacturing income. We currently anticipate that these changes will begin to adversely impact the company's effective tax rate in 2005, with a greater adverse impact in 2006 and beyond.

At this time we're looking at 2005, an effective tax rate in the range of between 30 and 32. For the third quarter ANSYS reported adjusted EPS, excluding purchase accounting adjustments and acquisition related amortization, of $0.25 on 33.2 million diluted shares, and that compares to $0.20 on 32.5 million shares in the third quarter of 2003. On a year-to-date basis, adjusted EPS totaled $0.74, on 32.9 million diluted shares, compared to $0.55 cents on 31.6 million shares for the first nine months of 2003.

At the current time, we're projecting adjusted EPS in the range of $0.26 to $0.28, for the fourth quarter, and preliminarily looking at a range of $1.10 to a $1.13 for full year 2005.

Quickly looking at the balance sheet at September 30th, total cash and short-term investments reached 124.3 million. Our consolidated DSOs were at 47 days, deferred revenue totaled 38.7 million, and the company generated 13.4 million in operating cash flow for the third quarter, and 39.7 million in the first nine months of this year. And we continue to remain debt free.

I'll now turn back over to Jim, who can do a brief recap and then we'll open up for questions. Jim?

Thanks, Maria. So to recap, continued steady financial performance meeting commitments to the top and bottom line, with excellent cash flows, margins, and other fundamentals. Balanced growth in most aspects of our business and product lines, again geographic, category of business, et cetera.

Increasing customer acceptance as demonstrated by industry, geography and order size, and continuing stream of new technological breakthroughs that are coming out in increasing quantity.

In general, we're slightly ahead of our expectations, but we think there's more progress to be made and with regard to the outlook for the remainder of 2004, we're going to continue to increase our capacities, but also continue to watch all the external factors closely. Order sizes have ticked up but sales cycles have not ticked down or gotten shorter. And all industries and geographies have shown a mixed bag of positive and negative issues surrounding them.

The long-term outlook stays quite solid. With respect to the fourth quarter, we envision top line in the 34 to 36 million range, and a bottom line of $0.26 to $0.28, both of which are in the analyst ranges and with that in mind, we'll continue our track record of keeping an eye toward ratcheting up performance, if the economy should start to warm up.

For 2005, we're making no provisions for wholesale changes in the economy, which essentially translates to revenues in the 143 to 146 million range, maintaining consistent growth trajectory and comparable earnings growth, as Maria just mentioned, to the $1.10 to $1.13 range. Actually both of which are above the current consensus. So, with that, we'll now respond to any specific questions you might have.

Thank you. At this time we will begin the question-and-answer session. To ask a question, please press "star" "one." To cancel your question, that's "star" "two." Please keep your questions to one question with a follow-up. If you do have additional questions, please go back to the queue. One moment, please.

And our first question comes from Scott Barnum with Credit Suisse First Boston.

Good morning.

Good morning.

Good morning.

A couple of things. It's been over 18 months now since you've done an acquisition. You did a very nice job integrating the last one, you've built a fair amount of cash since then, and I know you've talked about being pretty active out there looking. Just wondering, what the environment is, if you're finding acquisitions, if they're potentially overvalued or if you're not finding them, or where you're at, since we haven't heard anything lately.

Well, actually the point you mentioned is that probably we run across all of those, all of those situations you just mentioned. There are some that, where valuation can be an issue. There are -- but in general, we continue, we have a team that continually actively works those and it's just a matter of keeping a number of those ready, actually some of them, sometimes turn into different kind of partnership discussions, and some of them turn into OEM relationships.

And in general, what we're first and foremost interested in is doing anything we can to broaden the he expense of our technology and also the ability to reach customers and in the midst of that trying to find the good partners. But they don't always work on an exact time clock. So, we're quite active in that and we would very much envision continuing the track record that we've done.

OK. Great. I wanted to touch briefly on the benefits that are running out this year for companies in terms of accelerated depreciation schedules, and can you explain, if your customers, when they purchase your software, do they generally expense that or do they consider that a capital expenditure? And if it is a CapEx expenditure, do you see any impact from the accelerated depreciation schedules?

I'll take that question. From -- it can be either, typically, if they are in a lease situation, they treat that as operating expense, because it's basically 12 months with no long-term commitment. If they go the paid up route, then typically that's capitalized. But what I'd say is I don't see that depreciation change or acceleration having a large impact on software. Mostly because software involves deployment and change in processes, and so people don't just want to buy it to turn it into shelf ware. I'd say that has more of an impact if you're talking about computers and more heavy equipment.

And the other thing is we really don't, you know, how they depreciate it, of course, we don't see, but as we did mention, our lease business has been -- it was always strong but it's been strengthening, and you may be able to infer different things from that, but it would clearly be an inference.

OK, so you're not expecting the fourth quarter to be impacted to any great extent by kind of these last minute capital purchases?

No, but if you look, Q4's traditionally our strongest quarter, and we do just like probably other companies, experience the what we'll call use or lose it budget of some of our customers.

Right.

It's not a huge impact. It didn't happen to the degree people were anticipating it was going to happen at the end of 2002 or 2003, but, it does happen to some degree, but we've actually got kind of a handle on that as you might guess already, as we approach the end of Q4 here.

Right. OK. And then lastly, could you give me the -- give us the impact from currency overall at the top line?

Yes, actually Maria, you have those handy.

Yes, let's see. For the quarter it's about $900,000, and that's top line, and about 400,000 impact on operating profit.

OK. Thank you.

Thank you.

Thank you. Our next question comes from Mark Schappel with Key Bank Capital Markets.

Hi, everybody, good job on the quarter, number one. And Maria, could you address the sales and marketing expenses, it seemed to be a lot of moving parts over the course of the last couple of quarters. I know you had the user conference last quarter. There was some discussion or talk about building up your sales force but it looks like the sales and marketing drop is on an absolute basis and also dropped down to, at least in my mind, one of the lowest percentages of sales in a long time here, if not ever. Could you give us some feedback as how you would model that going forward?

Well, as I said earlier in my discussion, modeling it going forward on an absolute basis, the dollars will increase. Percentage-wise, we're probably looking at anywhere between 18 to 20% on a revenue basis going forward. Total dollars did increase and we do have in the sales and marketing line, anytime we have any of those large events that can cause some major fluctuations. Right now, one of those significant expenses is the users conference that happens every two years.

And we did, particularly North America, start hiring, but most of the effects of that ramp up you won't see until Q4. And then the other thing that impact sales and market something dependent on the number of deals that come direct to ANSYS that involve our ASDs or our channel partners throughout world where we have the direct relationship. However, they share in commissions because they're going to provide support going forward.

Yes, that's one thing, that even though we've got this hybrid model and there are certain times, though, when global customers will say we want to come to a single source of purchase for the software on a global standpoint, but we still then do actually transfer some of that to the channel partners and support distributors and those parts of the region.

So depending upon when those kind of deals that don't happen all the time, when they do pop that can cause kind of short-term glitches but I think maybe -- probably the key net net of all this is that we have added not an insignificant number of sales headcount out in the field per the guidance we had. And so you saw some of that, and ome of that would account for some increase in Q3, because it was done throughout the quarter, and you'll start to see that in the following quarters.

OK, thanks, that helps. Just one other question, here, Jim. With respect to any particular industry in the quarter, did you find any particular industry segments helping out more so than expected, or less so than expected?

No, actually first of all, I can answer that in two different -- on two different axes. First of all, like I mentioned earlier, almost every industry had certain ones that were in hunker down mode and certain ones that were kind of in the cautious progression mode, so that tended to happen. So when you heard us mention a lot of automotive companies, some process and construction companies, aerospace, electronics, and that was pretty much on a global basis.

I can't say -- there were no couple of industries where we actually sat there and said oh, wow, I mean we can't believe that all of these together have popped. I think the more interesting scenario that we are seeing is the number of leading companies in each industry that are getting more attuned to the concept of simulation product design, driven design. And that's probably the key thing where you're seeing some of the major movers and leaders across a broader range of industries. And you know, quite frankly, that has been enough to keep us pretty busy over the past few quarters and into the foreseeable quarters.

OK, and just one final question there. Maria, you may have mentioned this in the call with could you give the percentage of revenue coming from each of the three major geographies?

Yes, sure. North America was roughly about 40%, Europe was about 40% and the rest falls out into GIA.

Thanks, that's all for me.

OK, thank you.

Thank you. As a reminder, that's one question and a follow-up question. Our next question comes from Tim Fox from Deutsche Bank.

Hi, good morning. One question on the comment you made, Jim, about atypical orders in 3 Q...

Yes.

...being a little bit -- the large orders coming in more heavily than in the past. Anything you can contribute to that around product mix or pent-up large order demand?

I wouldn't really attribute it necessarily to pent-up large order demand, because we've been seeing a general kind of uptick towards this. But quite frankly, you know, I know what a lot of enterprise software companies might say and things like that, but in general we've seen that our best customers, in fact if you've monitored these, monitored us for a number of years, you'll notice that we get a pretty steady diet of these upper end kind of six-figure orders that happen on a repeated basis even with the same customers.

And what we're seeing as opposed to like a year or two of latency and then like the hail Mary eight-figure deals and the like coming and then it goes fallow for a while, we're actually seeing the ones that as we build a plan with them, as they start to evolve their processes, we start see a more steady supply and more granular parsing of the order standpoint. The only reason I made the comment is that usually Q3 is a little bit more quiet, more steady state, more status quo, because, certain parts of the world and certain industries tend to go down.

And in general this time we did see it. You know, right now I call it a Q3, like I said seasonally atypical like a Q3 spike. One thing that was particularly interesting was that you'll notice the -- you might have noticed from the percentages that Maria just gave, a relatively stronger performance from Europe, and Europe is one of the places that normally is a little more up in the air when it comes to the pace of business during the Q3 time frame. And it did produce quite strongly and obviously some of the orders we came with.

The final thing I'll say on that one is that what we are seeing is more of these combined sales, because we are -- when we see the multiphysics and the confluence -- I mean, when I say true coupled multiphysics, we see those things coming together, we are seeing those purchases where those things are combining, and that obviously any time that happens, the order size will tend to tick up also.

OK. And then a follow-up on your comment you just made around multiphysics. Is there a way to think about the penetration that you have either across the current customer base or looking out across your pipeline as to how many customers are actually in the mode of using multiphysics? I mean are we still fairly early in the penetration of a multiphysics type of application?

We're clearly not in the neophyte stage, but there's a lot of -- actually, it's a pretty significant part of our business right now, and we more than scratched the surface, but it's -- we have gotten to the point where there still is a lot of grounds to be gained not only in the number of companies using it, but the proliferation of how it's used within a company.

The key thing is A, first of all, with some of the computing advancements we've made there are a lot of people that are now starting to throw out some confusion about multiphysics and what it is, but really you have to have that truly coupled kind of effect and that can have some impact on the computing resource required. But as you've also heard, we've made some pretty dramatic strides in terms of executing resource. So, now that that becomes available, the next part becomes OK, now how do we get it streamlined and automated to the point where again, designers and the usual product engineers and not just the advanced analysts can actually leverage that.

And that's where we're starting to see even more expansion kind of capability. Because these designers are going to make these decisions on tooling and on materials and on product packaging, early on, and they've made these commitments so they've got -- they don't have -- they are not solving simpler problems just because they're solving them earlier in the timeframe. So, what we need to do is continue as we did in the very early days with the DesignSpace, takes these complex technologies and make them bulletproof for the wide range of users. And that's where some of the real momentum can come from.

Great. That's helpful. Excellent execution.

Thanks very much.

Thank you. Our next question comes from Eric Wanger with Barrington Research Associates.

Hello everybody. How are you?

Good. How are you?

How are you, Eric.

Good to see you all. Thanks. Excellent quarter, terrific revenue growth, I appreciate it. Couple of questions. One is, did you publish an organic growth figure that -- for modeling purposes?

Yes. Actually, yes, we did mention.

Could you just repeat it that? I might have missed it.

For next year, Eric, is that what you're looking for?

For this year and next year, the organic growth part of the mix.

Well, the organic growth has still been in that you know, the 10 to 12 to 13%, low teens range. So, 10 to 12, this past quarter it was 12%, and year-to-date so far it's been about 15. Now, we also, we're still in that little period, it's roughly comparable, if you recall, we closed the CFX deal in the midway through the -- through Q1, so there's a month or two of low level business that got involved in there. So, if you figure around that 11, 12% range, you're in pretty good shape.

Great.

And 2005 right now based on that 143 to 146 that Jim mentioned earlier, that's all organic.

Yes. Right. Yes.

And basically the same trajectory we've been chugging along on.

Very nice. One of the things, let's see -- did you also -- are you publishing channel mix percentages, is that something you're talking about for this quarter?

Yes. Actually it's roughly around a 55, 45 split. And 55 was the direct. We have seen -- obviously, we continue to try to build the OEM channels, we continue to try to accentuate and we've made some real nice progress with our indirect traditional channel partners and we've continued our expansions, so it really is a portfolio, we're looking for the multiple avenues.

Great. One last quick question. On the penetration of Workbench...?

Yes.

Are there any statistics we can use to help track that?

Well, really because of the way we've done it we put -- it's a real difficult reason, and the reason we've done it is, as opposed to sometimes companies will come out with a new architecture and say this is the way you most do it at the crossover time and at this point we stop supporting stuff. What we've basically done is we've enabled -- we used it as an enabling technology where the customer can gait the range of migration that they do. So, they don't have to disrupt existing -- processes, but so they can fully exploit some of the new capabilities, and quite frankly some of the ease of use and the automation capabilities they tend to crossover.

This is purely anecdotal, it's not published and I can't even attach an explicit significance to it, but let's say -- just say that right now that more than half of the calls that typically come into our product support line are Workbench based. So, essentially, we want to -- it's more carrot than stick in terms of the migration. And that's very much in keeping, because some of our customers have different constraints in their organizations, their computing architecture, all of the other things and we basically want to accommodate their utilization, not really try to say how that should happen. But we are seeing -- a very rapid adoption of new capabilities. And that's quite heartening to us.

OK. Great. That's all my questions. Thank you.

Thank you. Our final question comes from John Mayada (ph) with Needham & Company.

Hi, thank you. With respect to the new hires, Jim, how do you think about new hires in terms of the amount of time or the length of time, rather, it takes for them to get ramped up to full speed?

Well, with our message, you know, in general, we do see that it's probably about -- well, in general let's say we target in the three to six-month range before they get ramped up which is one reason why we want to start to prepare for that. You know so in the -- by the middle of Q2 they're coming along. But apart from that, I think, I have to mention that some of these people that have been coming to us are -- I'm not saying they may be fully up to speed, but I've seen some of them in action, and they're actually starting to create some stir and some numbers right now.

So, I'm not ready to say, we rolled them off the street and within one month at the ANSYS academy they're producing super human amounts but they're producing ahead of schedule and actually, I'm probably especially heartened by when we went out to look for certain profiles of people that actually are very savvy with this broader type of message that we're delivering, is basically, the number and the quality of candidates and how quickly we closed on them. That is fairly surprising, to us, particularly in midyear. So, bottom line is, I think, we still, we still target nominally around the six-month standpoint, but we've actually probably been -- we've been finding some people that actually kind of break that mold a little bit.

Got it. OK. Thank you very much.

Thank you. Are there any -- I think, Monica, you said that was the last question? If that's the case -- are there any others?

We have no further questions at this time.

OK. Well, if that's the case, in close, basically we're maintaining a close eye on the short-term ups and downs, but we are maintaining the tempered optimism of last quarter. And longer term, we're perhaps even increasing our momentum. At the heart of all this -- technological strength and a solid business model are really at the key of this, but I'd like to take a moment to give special thanks both from an ANSYS standpoint and from a personal standpoint to the wide range of these loyal customers that have just continued to grow with us, the expanding array of industry partners that we've had the pleasure and privilege of working with, and certainly, not least of all, the employees of the ANSYS team that have just continued to excel over such a sustained period.

This combination has afforded us consistent performance, an expanding customer base and an exciting new base of technology to support our enterprise initiatives and our continuing dream of making simulation a reality throughout all parts of the engineering cycle. So with, that I thank you for your attendance and look forward to talking to you in the future.

Thank you for joining today's teleconference. And you may disconnect at this time.