ANSYS Inc (ANSS) 2005 Q1 法說會逐字稿

Good morning and welcome to the ANSYS First Quarter Earnings Conference Call.

[Operator Instructions]

I'd like to introduce your speaker for this morning's call, Mr. James Cashman, President and Chief Executive Officer. Mr. Cashman, you may begin.

Well, thank you. Good morning and welcome everybody to the ANSYS Q1 call for fiscal year 2005. And with me on this call today as usual is Maria Shields, our CFO. So I'm going to outline some highlights and some summary comments and then we will go into a great depth on the operational results and in addition of the numbers.

It's been a real busy quarter for us. And we'll go into a number of both quantitative and qualitative factors from Q1 that we feel positively influenced the quarter and our ongoing prospects for the future. Then as usual, Maria will 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.

Thanks Jim, and good morning, again, everyone. And thank you for joining us to review the highlights for the ANSYS' first quarter 2005 results. Before we begin, I'd like to remind everyone that some matters that will be discussed throughout this call as a part of the prepared remarks, or in response to questions may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected.

The companies 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 Forms 10-Q, 10-K, and our 2004 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 just like to take a minute to point out that during the course of this call, we will be making reference to adjusted EPS which is a non-GAAP measure within the context of the SEC's Regulation G.

We believe that this non-GAAP financial measure metric is an important indicator in measuring the underlying business performance, and is used by management in our assessment of business performance. A discussion in reconciliation of GAAP financial measures to comparable adjusted EPS is including in this morning's release, and the related Form 8-K.

So with that now, Jim I'll turn it back over to you.

Okay. Well, in short, Q1 was a strong quarter, and it is built upon the foundation of Q4 in the previous quarters of the past few years. We continued to execute on the sales front, despite some of the ups and downs in the macroeconomic environment, and we added a new-advanced capabilities to our broad engineering suite of products.

These are Century Dynamics the acquisition that we closed early in the quarter. From a high level perspective for the quarter, we reported solid financial performance revenue was at 37.6 million. Adjusted diluted earnings per-share growth of 35%, with an adjusted EPS of $0.31, up from last Q1's comparable $0.23.

Our revenue and adjusted EPS performance both exceeded the higher end of the analyst range for the quarter. Secondly, with the continuation of excellence stable gross and operating margins, cash flows, basically all elements of a solid business model that helped us to continue to adapt well to macroeconomic hiccups, while simultaneously highlighting the inherent scalability of our business model.

Apparently, we saw continued encouragement on the customer front that's underscored by the expansion of some longstanding relationships with major name companies, where we have been benefiting from multi disciplinary sales across our multiple business units, and an uptick in some of the order sizes.

And then finally, we had beta releases of our product lines in anticipation of upcoming midyear releases of our unified product lines, headlined by release ANSYS CFX and ICEM CFD. So typically in the operational side previously mentioned our revenue for the quarter was 37.6 million, which was an all-time new Q1 high for ANSYS. This represented a 20% increase over the comparable 30.3 million of Q1 for 2004. And it also includes a core revenue growth of 15% of a strong comparable Q1 of last year.

Adjusted diluted earnings for the quarter were even stronger with a 35% increase to 31 cents, again, up from 23 cents per share from the comparable EPS in Q1 2004. This exceeded analysts' consensus and really marks the 30th consecutive quarter that EPS has met or exceeded the consensus out there. So overall, adjusted operating margins, excluding acquisition related amortization, were 39% and were stronger than our usual Q1, indicative of the increase revenue results. Adjusted gross margins continued at 86%, and the cash flows from operations were quite strong, basically increased to 15.3 million. So with that in mind, we will now slice and dice the numbers from a number of different perspectives, categories, business geography, different customers and products.

So by category of business for the quarter, overall Software license revenue increased 25%. The lease business grew at 14% and remained at a healthy 21% of our total quarterly revenues. Paid up licenses grew at 38%. Service growth was 40% for the quarter, which was largely driven by our product enhancement subscriptions and annual maintenance. There was a balance between both the high end and the desktop products, and there were noticeable gains coming from the continuing migration of customers to the ANSYS Workbench platform. So all in all, coming from a very balanced front.

Business intake volume grew at 18% over the prior comparable quarter and basically continued to demonstrate one of the historical strengths of our business model by maintaining our solid base of recurring or repeatable revenue. For Q1, recurring revenue was approximately 63%, and as such, higher deferred revenue has grown to an all-time high of $51.3 million. So all of these things combined in contributed to a strong balance sheet of over $149 million in cash and short-term investments and all of this while we're just continuing to invest on our normal track and R&D and our global sales and business infrastructure.

From a geographic perspective, we saw double-digit growth across all major geographies and the continue progression of more balanced performance across, the geographies that we spoke about last quarter. Starting with North America, they grew at 14% quarter-to-quarter. Expanding relationships with the longstanding customer base here continued to lead be our results. Major customers in the quarter, just going down the list here, Pratt & Whitney, Honeywell, IBM Northrop Grumman, Vestal Vedas (ph), Fairchild Semiconductors, Seagate Technology, DAE Systems just to sample provided a range of six major orders for the quarter.

North America also produced a seven figure deal in the quarter, that was comprised of lease and maintenance orders, but its still a nice contributor to improving our go forward longer-term visibility. Our Europe continued to stay on course with 25% growth. As in recent quarters, but to a lesser degree, there was a positive impact of currency, but still more than 20% growth in constant currencies. All major sectors performed well with double-digit growth. Also contributing to this was a continued strong performance in Germany with 19% growth, France was over 20% growth rate and pretty uniform throughout the region.

The largest six-figure deal tier consisted of Bosch, Alsum Siemens, Volvo Volkswagen, MC, DCN, (inaudible) Philips, Schneider Electric, Piaggio, Rolls Royce, TRW and MAN. This has continued a trend in Europe of strength across the broad base of major industries.

And then finally, our General International area, largely driven by the Asia Pacific, grew at 20%. And still in high double-digit in cost and currency with double-digit growth in all the key areas. Key customer engagements here included GE India Technology Center, Denso, Sony, Hitachi, Matsushita, Mitsubishi Electric, Shanghai Port Machinery, Ashok Leyland Konica, Minolta, so again a broad range of industries here. In that mix, we also recently announced that ANSYS has been chosen as the engineering stimulation solution at the Shanghai Supercomputer Center. We are extremely excited about this win from a number of perspectives first, it involved key contributions from basically our team of global employees and partners working together, basically demonstrating the strength of ANSYS' technology expertise, as well as, the support mechanisms and the long term vision we have.

And then secondly, it's an important opportunity for ANSYS to be able to play a role in the growth in Shanghai's -- excuse me, IT industry and expanding the use of our engineering simulation technologies across the growing and diverse industry base that centers in Shanghai. We're continuing to see good industry breadth and increased penetration and the pipeline of new opportunities is solid. But again, we're still seeing the pockets of the somewhat longer sales cycles and we have been talking about that for the last few quarters. But this is still amid the mixed positive signals, we're seeing.

Nevertheless, we're pleased that the new customer attainment is continued and grown to the degree that it has. So in summary for geography, double-digit revenue growth in all the major geographies in those reported and in constant currency terms good industry and major account activity through each. Continuing strong performance in Europe, in particular Germany and France and continued signs of an improving North America and great progress in GIA. JAPAN, was quite strong but notably India and China on the new customer front. We continue to add to our sales channel in Q1 and just as we have over the past several quarters, we'll continue to monitor and adjust our sale of distribution strategies in response to the strength and the sustainability's of the improvements or changes that we see in the economic environment.

That's it for geography from a product revenue standpoint, as is typical of Q1, there are no significant changes in either of the trends or the guidance, as mentioned earlier software license revenues grew by 25% quarter-to-quarter, both ends of that spectrum both the high and low of our product lines grew in double-digits.

ANSYS Workbench growing of last years ANSYS 9.0 release continued to gain attraction. ASPs for the quarter actually increased for both the high-end, low-end products. We make progress on all fronts as we prepare for releases of all our major product lines in the mid-year timeframe. And we're really excited about this thing coming up in a couple of months.

Our ANSYS 10.0 release will be a breakthrough release for multi-physics simulation in particular fluid structure interaction by combining best-in-class technologies couple of with the shared CAE environment. The bottom line on this is that we offer the first native low-level data communication between world class FDA and CFD solvers. We are using groundbreaking inter-process communication technology. And it is implemented in a manner that achieves the highest degree of impulsiveness for the customers.

We have also expanded our capabilities in the area of direct coupled field physics through enhanced structural thermal, electric coupling that now includes thermoelastic damping just to name some of the capabilities. This is an important factor and a stimulation of medal, ceramics, MEMS devices, and it demonstrate our continued commitment to being a leader in the area of multi-physics technology that really enables our customers to address you know, increasingly complex real-world problems that drive innovation into their products.

We've also continued progress on the usability and availability of capabilities by continuing to add to the integrated simulation inside the ANSYS Workbench. Again, all that -- making this available to a much broader range of users.

On the CFX product front, we continue to be excited about the extension is that it brings to the ANSYS simulation family. With the intending release of CFX-10 (ph), we have added a number of capabilities and physics models to solve that ever-increasing array of customer design problems, and expand the range of industrial applications that could be stimulated. So, additionally advanced fluid structure interaction, which I touched on briefly, we have also introduced transient particle tracking, the first commercially available productive laminar-turbulent transition model that requires no special provisions for geometry.

Combustion models for hydrocarbon fuel analysis, generalize porous media models. These additions span a broad range of customer problems including those in automotive, chemical process, and transient simulations, and power generation. And in addition, there are dramatic increases in stimulation algorithm. The CFX product line is also gaining significantly from the inclusion in the ANSYS Workbench framework.

In addition to the previously mentioned capabilities, CFX users also have direct access to the ANSYS design model and capability for geometry creation and toward the import of data from CAD systems. It's supported by the advance modeling, and dashing capabilities from the ICEM CFD Suite from ANSYS and basically tools that allows for advance resolution of boundary layers. So that it is important -- it is really important for accurate flow and heat transfer calculations, such an electronic cooling of assemblies et cetera. So that is probably enough technical depth for this call, but I would encourage any of you that are still inclined to checkout the ANSYS web site for more information as well as upcoming news on all of the ANSYS 10 products and their applications.

This combination of recognized best-in-class simulation capabilities and integration technology basically allows us an increasing number of partnerships. Most recently we announce plans to offer integrated solution with Mathsoft. And they are leader in the area of calculation management. This integration will closely couple Mathsoft engineering calculation and documentation capabilities with ANSYS simulation capabilities. Mathsoft flagship offering Mathcad will launch from the next version of the ANSYS Workbench, and this will open up a myriad of new possibilities for streamlining calculation in simulation.

Additionally, another trend of our Moldflow leading provider of automation and optimization software for the plastics molding industry recently announced the availability of Moldflow Plastics Insight 5.1, which will interface with the ANSYS structural analysis capabilities to ensure that the accuracy of plastic material data is -- ensure the accuracy of plastics material data use in structural analysis. With this new ANSYS interface customers can now export thermo-mechanical properties, fiber orientation and process-induce residual stress or volumetric shrinkage data, from MPI 5.1 to ANSYS for more in-depth structural analysis. This interface was developed in direct response for the needs of our joint customers.

So in summary, it was a strong quarter both financially and quantitatively. And as we've articulated for several years, we feel that our progress on all fronts is a direct result of our continued focus and execution against the long-term strategic direction and our business model, which has allowed us to provide sustainable revenue and earnings growth and also put the respond to a wide range of market and economic conditions and opportunities.

By meeting our commitments for 30 straight quarters, we've been able to continually reinvest in both technology and distribution capacity and that has allowed us to expand our position in each and expand the global reach of engineering stimulation -- our cost or growing base of customers, partners and the range of the industry applications that we work on. We've been able to continue to grow top line inline with our guidance, while maintaining solid margins and continuing to provide solid earnings growth. So with this in mind we will continue to monitor the economic environment out there throughout the globe and adjust the model and investment plans accordingly.

We are seeing an increase in opportunity, but again we are also keeping a short-term degree of caution in light of this still somewhat twitchy economy and some of the financial burdens that certain of our customer sectors are challenged with. And at the risk of being called consistent and boring, our longer-term optimism remains intact with the -- actually ever increasing confidence.

With that I will now turn it over to Maria Shields our CFO to provide you more detail, looks at our financials including expense structure, balance sheet highlights, as well as some other key factors of this quarters business and outlook. Maria?

Thanks, Jim. As Jim, quickly mentioned, I will go through a recap of the Q1 expenses and the balance sheet highlights and provide some guidance regarding our outlook at this time for Q2 and the remainder of 2005.

So, starting with cost of sales, excluding acquisition-related amortization, cost of sales for the quarter totaled $5.3 million compared to $4.6 million in the first quarter of 2004. And this resulted in an overall adjusted gross profit margin of 86%. The compared increase over last years first quarter is related to higher salaries and third-party technical support costs, as well as the inclusion of a full quarter of Century Dynamics operations our most recent acquisition that we closed in early January 2005.

On the sales and marketing front for the quarter. Our totaled sales and marketing expenses increased to $6.4 million that compares with last years first quarter of $6.1 million. Increase in expenses as compared to the prior years first quarter was primarily related to a full quarter of CDI activity, as well as increased headcount and related expenses. These increases were partially offset by a net decrease in third-party commission costs.

In the area of research and development, our total expenses for the quarter increased to $7.3 million, that compares with $6.3 million in last years Q1. The increase year-over-year was primarily driven by a full quarter of CI operations. But there was also another factor in and that we had no capitalized R&D being recorded in this year's first quarter, and last year we've recorded about 260,000 of internal labor cost.

From a G&A perspective, total expenses were $4.1 million in the first quarter, compared to $3.5 million in last year's first quarter. The increase was primarily related to the impact of the CDI acquisition, as well as increased headcount, and related costs that had been primarily added as a result of our increased compliance requirements.

So, we continue to make investments in key areas across the company. We also delivered solid operating profit margins, excluding the impact of acquisition related amortization of 39% for the first quarter. Our effective tax rate for the quarter was 31%, and at this time we are anticipating that we should be able to sustain an overall tax rate of between 31% and 33% for the remainder of this year.

However, as I've been communicating for some time now, the American Jobs Creation Act of 2004 significantly reduces export related tax benefits. These benefits will be phased out beginning in 2005, and will be replaced by deductions for qualified manufacturing income. These changes will begin to adversely impact the effective tax rate in 2005, with the greater adverse impact in 2006 and beyond.

Interest reported total adjusted EPS, excluding acquisition related amortization of $0.31 on 33.8 million diluted shares, compared to adjusted EPS of $0.23 on 32.9 million shares in last years Q1. At the current time we anticipated adjusted EPS in the range of $1.18 to about $1.21 for the full year of 2005.

And based on our current visibility we're targeting second quarter-adjusted EPS in the range of $0.28 to $0. 29 cents. When you include -- when you exclude the impact to the onetime tax benefit and a seven-figure license deal that combined accounted for over $0.05 in Q4, 2004 earnings, this equates to annual adjusted EPS growth in the mid to high-teens.

Our 2005 outlook does not factor in anything relative to the expensing of stock options, which we're planning to adopt in accordance with the recently issued guidance from the SEC, beginning in January of 2006.

Moving into balance sheet quickly, as Jim mentioned earlier total cash and short-term investments were 149.7 million. Consolidated DSO was at 47 days and total growth deferred revenue grown to an all-time on high of $51.3 million. And we continue to remain debt free.

So, with that, I'll now turn it over to Jim for a brief recap before we open up for questions. Jim?

Thanks Maria. To recap, strong financial performance of all major parameters of the business, revenue, earning, margins, cash flow, business phase, visibility, continued product progression accelerated with the integration of technologies across our coupled multi business product families and with significant releases of each ready for mid-year introduction. Increasing customer activity accentuated by industry and geographic breadth and increased areas of adoption and in expanding steps of partnerships and relationships in technology, distribution, and customers.

With regard to the outlook for the remainder of 2005, we see some advance sides of improving prospects, which will monitor with caution. The long-term outlook stays solid. As such for the year we are increasing our revenue growth to the 12% to 14% range, so even with the seventh bigger order in 2004.

This growth will probably manifest itself at a rate slightly above the 12% to 14% range for Q2, and below the range in Q4 since that's when the large order will hit in 2004 in 2004. Still on average, the growth will be in the 12% to 14% range or slightly north of $150 million for the year.

And as we have just said on the EPS front, we are increasing our outlook to an adjusted EPS of $1.18 to $1.21, when excluding last year's one time tax benefit and the balloon effect of the major deal this attracts to a mid to upper teens earnings growth. But as always then that we continually demonstrated this, we'll keep an eye toward ratcheting our performance, hit the positive signs, sustain themselves or increase. So, with that now we are prepared to respond to any specific questions you may have.

Thank you sir.

[Operator Instructions]

And our first question is from Richard Davis with Needham Company. Your line is open; you may ask your question.

Thanks very much. So, Jim, you guys have taken several steps and launched a handful of modules and things like that and the kind of electromechanical side of the our world. It seems that a lot of the mechanical side is getting much more electronic. How do you see that playing out? I mean the EDA guys are way down at the level of the chip. They have a kind of expand their footprints. Or how do you see this playing out? Do you ever run into them, and if not you ever expect to run into them in the future?

Well, I think it would be foolish not to assume that we are not going to run into them sometime in the future. But it's in the short period it hasn't been happening much not in the short term. You are correct that mostly is kept at the chip and the integrated circuit level.

But when you look at what goes into the ultimate final products, if there really is a convergence of electronic and mechanical effects in everything from cars to consumer electronics. And those are in fact driving -- those do drive product qualities. But we get into the packaging standpoint; you get into far less discreet and predictable things.

The physics get there extremely more complicated and those of the type of problems that we've been solving for some time now. So, we had the Emag and field issues, we had advanced thermal convection cooling issues, vibration and shock. Those are all sorts of major issues that drive the perceived quality of those products, and particularly as they're getting more compact and more powerful and just all the new pressure is going on them and their product life cycles are decreasing if they had been regarded to try to figure out how to build those in -- build that into design processes.

The other thing is that organizationally, a lot of those companies -- the groups are kind of different. So, we want to use this technology as something that binds them together. One final thing that we did not get into that has been longstanding aspect of the mechanical world is the concept of fatigue and how do things were out, whether it is through numerous operating cycles, thermal stress cycles, dropping and shocking. My personal cell phone being a personal I mean being a specific example of that. You keep dropping things and there is a cumulative damage type of effect and that does affect the product quality.

Okay. That's interesting. So, and then I guess the follow-up would be, has there been any change in the kind of percentage of deals that you've seen that have been competitive, and are there any firms that you're willing to talk about that seem like the you're either are having the flowing in terms of the competitive environment?

No. I don't mean this to sound monotonous. But it has been, there are a number of different people that compete with us in various aspects and subsets of our business. But I haven't really seen a major groundswell in or actually even a minor groundswell in terms of the overall competitive aspect of it.

Got it. Great. Thank you very much.

Yes.

Tim Fox of Deutsche Bank, your line is open. You may ask your question.

Hi. Thank you. Good morning. Congratulations on another strong quarter. First question on Verticals, wondering, if you could you just remind us approximately what percentage of revenues come from auto and given the relative weakness we've seen out of North America, has that then any impact on your business. Do you foresee any impact going forward there in auto in particular?

Well, again auto is the autos, kind of - it's kind of in the high teens, as a percentage of our business. We tend to be so diversified, from an industry base. Let me - you'll notice that any other there's, we continue to have automotive customers. We - yes, there are definitely, there're definitely some financial issues that some of the automotive makers are going through. But, you could tell from a list of customers, there are still many making major investments.

And the, the one thing we talk about for a while is that there, the economic conditions sometimes, if things are real good, people go to sleep at the wheel. Other times, if they are good they utilize that time to drive their future success. Sometimes when companies are not doing well, they bunker down and don't do much of anything. And sometimes when companies are having difficulties, they realize that they have a call to action, and we've seen time and time again that it really depends on the company, not so much to the industry.

Now the other thing that helps out quite a bit is that as, let's just say that, there is a dislocation in those markets. As the, as maybe some of the major OEM's see difficulties, you read a number of stories of how they are out, how they're outsourcing much of their design and product efforts two tier, one tier to, a supplier. That's an area of historical strength of ours. And that's one that's continued to serve us well.

A second aspect is our strength in some of the major areas of geographic distribution of efforts with India, China and some of those areas, which are also pockets of strength. So, on whole, it's not a major factor because a, we're factoring, we're not totally beholden to any one industry. But usually, the way wherever the market shifts to, we normally have a foothold there because of our customer breadth. So it's really - it's really kind of a - not a one-size fits-all answers.

Okay. And, as a follow up, its been a couple of quarters since we've asked the, what's the breakout is between direct and indirect channels just wondering with your added capacity particularly, in the direct channel. Has there been any shifted all and where revenues are coming from and do you foresee that?

No, actually a lot of times when we do an acquisition it tends to shift a little bit more toward directs as most people have liked that. But we were at 55/45 for the quarter. 55 direct. And again we tried to modulate toward a balance. And one thing that's particularly interesting, yes we have been building up the direct yes we've been doing well with the major account activities, but our indirect channel has also been increasing the uptick that they've been doing.

I'm talking not only the addition of new partners and channels, but also the performance of a wide range of our existing partners. So it maybe the equivalent of same-store sales kind of situation and we consider those to be nice trends.

Great. And if I may, Maria, just one bookkeeping. Could you just give us the impact of currency on total revenue as Jim broke out?

Yes. It was about $470,000 bucks; less than $500,000 on revenues, and less than 150 on operating profit.

Great. Thank you.

Greg Halter, LJR Great Lakes Review. Your line is open. You may ask your question.

Good morning. And thank you. Regarding the cash and equivalents seen so far the $150 million, I would like to get your input on where you expect that to be spent or invested, as well as, what it currently is invested in now?

Okay. I'll talk about; I'll talk about the first part of that question. First and foremost, as you see with the -- the history, we have done of acquisitions with the things that we have done with partnerships. The first and foremost use of that is to expand our relationship with partners, so it's a probably first and foremost by wide margin driven by acquisition activities, the number of which -- we got a number of partnership discussions of all types, and its just a matter of timing as to when those actually come to -- fruition. So that is the first and foremost activity.

And the good news is - there isn't that we, because of the long-term product strategic roadmap we've, we've got pretty good targets that we are going for. We know how they fit in, we know how we want to integrate them. So they're more or like smart missiles on that one. Secondarily, if, we still would keep an eye toward share repurchase, but that is a distant second. So it's really expanding the product suite an accelerating based of the successes we have seen. Now as to the composition of those investments actually, Maria, I'll let you to.

Yes, Greg. We've got some investments in a variety of vehicles. Most of them are low risk. We're not in a business of betting on the market, but T-bills, Money Markets and tax refunds, some CD alternatives that we've been looking at. So we tried to do as much as we can to improve the short-term take on that, while we're looking at acquisitions.

And is it fair to say your rate return now is approaching 3%?

Blended, I would say yes, probably close to.

Okay. And Elliott has the follow-up questions.

Hi, Elliott Schlang and congratulations on a terrific quarter. The sales expense, look relatively flat up modestly for the quarter. Does that indicate any postponement of expenses that will be coming in later in the year or any incentives that are paid out later that haven't been accrued for?

Well, yes. And there are some things, where there are some other, some categorization issues. But overall, the sales headcount increased by 10%. Also, we've got some of the spread out effect of various commissions and orders. So it the real take away is to not worry about, so as much about the categorization, but the increase performance per channel partner and the increase in the sales headcount, that we had it. Those are the real takeaways. I think anything else may just get a little cloudy and murky.

And second, are there any, is there any significant portion of your funds abroad that you are considering bringing back?

Elliott, as we look for the needs for cash, yes, they're some opportunities to do some short-term repatriation. But, we also, through some of the purchases, some of the foreign subs actually are owners of acquired subs. So we try to make use of the cash in that fashion as well.

I may have missed it, but did you indicate what the internal growth of sales were if you take out currency and more importantly if you take acquisitions?

No. The quarter rate was 15%.

About 15%?

Yes. So it actually started to pickup even.

And last, obviously, we know what the breakdowns of your sales were last year by markets. You said, if I remember correctly, that it was similar this year. But are you seeing any opportunities for a significant change in any particular group as we move into the rest of the year, and I am thinking in particular of the vitality of some of the energy markets and the healthcare markets, whether those are opening up any new opportunities for you.

Well, they're definitely opening up opportunities, but they want to tend to have slow gestation periods. I'll say, geographically, we're seeing a pretty standard typing. Overtime, as we start to digest Century Dynamics acquisition, that ended up itself opens up things in the energy sector, particularly everything from offshore loading platforms, things with overall structures and building type of standpoints.

So that definitely gives us a much stronger leg. But it takes some time to gestate that and grow out of it. But it is one thing that's going to grow on that. And the other thing is that, yes, we haven't chosen this to be the -- we didn't want to get lost in the quarter. But there's going to be some announcements over the next couple of months on some of the things that we're doing with Century Dynamics. So, I'd encourage everybody to keep your eyes sealed on that.

Good. Thank you.

Eric Wanger of Barrington Research Associates, your line is open. You may ask a question.

Okay. Hi folks.

Hi.

The call is getting long, so I'll try to be brief. Just some mop up questions, I guess, at this point. Did you take us through some of the other financial metrics; DSO, CapEx and cash flow from operations?

Yes. DSO with 47 days, Eric, and cash flow from operations was $15.3 million.

15.3.

Say again, please?

$15.3 million.

$15.3 million. Okay. And...

Did you have stock CapEx?

No CapEx in the quarter.

No CapEx in the quarter.

Okay. Zero CapEx. Let's see, as far as marginal Sarb-Ox related expenses, what's -- how should we model Sarb-Ox?

Sarb-Ox is not going away.

And it's big.

Yes. Just to share with everybody in the call, we went through the key discussions with the auditors recently. And to, at least, not to my surprise, our fees year-to-year will remain flat, while the number of hours may come down a bit, the rates from the big four are not coming down.

So, I don't see any significant reduction in expenditures in 2005 relative to Sarb-Ox; maybe slightly for some of the aspects of the business where we won't have to repeat documentation. But, we, also with the acquisition, will have to do some work in that arena.

Okay. Because I saw a little bit of a pop in G&A I didn't except...

Yes. If you -- last year's Q1 of this -- I can speak to it. We didn't really get started on our Sarb-Ox efforts last year, at least, not with regards to big spending either internally or externally till probably, late Q2 and heavily in Q3 and Q4.

However, this year we've got this cost, and that we also added a few headcounts, specifically, an internal audit functions that didn't existing Q1 last year that exist now. So, as I said, there are compliance costs that have been added into the models of it. I don't see it going away, at least, not in the short term or unless the SEC wants to significantly change the efforts relative to Sarbanes-Oxley compliance.

Great. A bigger question; the more and more I talk to people, you guys are clearly now the technology leader in the -- especially in the broad suite of Workbench's continues to, I think, impress people. One other thing that's also going on out there is there are some other companies in the marketplace who are not doing so well and are paying some penalties for, shall we say less operating discipline than you guys have exhibited over the three or five years. There must be some tempting sales force and engineering hiring opportunities out there. Can you comment at all on if you have, or intend to take advantage of that?

Well, there's -- there have been two facts to that. Yes, there's been a lot of interest -- and just from a broad range of companies, you know, I'm not sure which you consider the good, but we're getting a broad range of interests.

And I think our performance is part of it, I think the vision in where we're heading is part of it, and that's where we've been able to draw from some of the new sales hires we've had. But we've also drawn from areas outside of our market space, because much of our selling cycle and much of our value message is kind of distant from the historical ways that company in this -- companies in this space used to sell.

So, actually, some of our most pleasant surprises have actually come from -- not from within the space, because sometimes you come with some of the old baggage and some of the old thoughts. So, yes, we're getting a lot of broad based interest. We're taking some of it, and we're also augmenting it from some other areas. That's a short trip to it.

Great.

Hey Eric, can I clarify one point earlier? What I meant to say, there was no capitalized R&D in the quarter. There was CapEx of 1.5 million.

Okay. So it was CapEx of 1.5 million.

Right, no capitalized R&D. Last year's Q1 had about 260,000 of capped R&D.

Okay. Yes, thanks for that. Let's see; one last question, just sort of the quarterly check in on the success in view of the co-marketing efforts -- co-marketing with Autodesk, co-marketing with Multiflow, co-marketing with anybody else that I'm not mentioning that I can think of, how are those going?

I think they are going according to plan. None of them surprised us by shooting the lights out anymore than we already had baked into plan. We've always talked about that as being an important part. There was going to be a ramp up, a gestation period as this new market of all that got introduced to technology.

But one thing I would say is that we are -- it's crossing a very broad geographic bounce, which probably is a little bit more. We thought it might be more focused in certain areas, but it is picking up a lot of speed on that.

And, as for some of the other ones we've mentioned, it's a little bit early to tell. But even if it didn't have a huge aspect, when you consider our recurring revenues supporting our existing customer base, it's a very important part of what we're about. That's where most of our -- a lot of our new sales comes from. It's where a lot of our recurring revenue and our visibility comes from.

And frankly, we owe it to them but it also creates new opportunities so the move -- flow into phase activities. We share a lot of common users as you might expect and that's something that basically increases the value that they get out of it. And you know, it's exposure to some of the other capabilities we have our key.

That's all just too new to comment on. I don't really know what's in the fact that it does provide an expanding array of tools and capabilities, and I think it has the opportunity to help both companies over the long haul. But in some cases, we are plowing new ground and doing things that haven't been done before, and sometimes those get discovered very quickly and sometimes they take a little bit more time. But there are certainly worth the effort.

Great. I had taken a lot of time for the other question to add one more, but I don't want to haul all the time either. Should ask another question or should I let somebody else take your shot?

Go-ahead.

Go ahead, I'm waiting for Sarah's as somebody to cut in but go ahead.

Okay. On the technical computing front, it's been a little while since we've heard any degree of freedom is mentioned on the call. I just want to work with -- there has been already a lot of interesting messages about technical computing and architectural design work. Can you elaborate a little more when you talk about ground breaking in a process controls. I think you've -- did you mentioned that there is a large purchase from DA systems? Or did I get the name wrong?

No. Are you probably thinking about -- did you say ANSYS?

I think I just missed...

Did you say DAE?

Okay. That was the problem. DAE. Great. Okay. I think so, okay. Could you speak a little more on..

Yes. We keep inching up the, yes, we keep the driving up I think the largest one we have run is almost 300 million degree of freedom. I mean so, it continues to expand, but we've done an awful lot of work. I don't want to turn this into an IT call, but we have done an awful lot of stuff with distributing answers with in tenor there will be a lot of work with clusters basically high-speed interconnect, inner process kind of standpoint. So there is a whole range of capabilities. In fact, a lot of those will be written up on the Web site. So that may be one where we want to go and dig into more detail and if there's more interest, we can talk about that later.

Van Brady (ph) with Presidio, you line is open. You may ask your question.

Thank you, I am due to the story and I wondered if you'd care to tell us what was the revenue from -- what was the acquisition you made here the first year century?

Century Dynamics.

Yes. How much -- what was the revenue in the quarter just reported from the century acquisition?

It's about 1.5 million.

1.5.

Yes. That's what we said the overall growth was 20%, but the core growth rate without the acquisition was 15%.

Yes. Okay. You take that out and you have 15%, is that correct?

Yes.

Yes, sir.

Okay. Thank you very much.

You're welcome.

And I'm showing no further questions. I will turn back over to you Mr. Cashman.

Okay, Thanks a lot. So just to close, still long-term enthusiasm, tempered by short-term caution. But again with clear signs of improvement and we continue to be bolstered by a strong combination of our business model, which I really think is quiet solid, loyal customers, who help our recurring revenue, and our new product sales, the channel partners, which have been with us for a long time, and of course I'm not going through a whole call without mentioning the employees of ANSYS, that's a privileged to work with.

These ingredients afford us consistent performance after revenue expense with an expanding customer base and expanding base of technology, which we'll be talking probably I anticipate on more over next couple of quarters. Basically this is for our long-term initiatives. So with that, I thank you for your time, and look forward to talking to you next quarter. Take care.