ANSYS Inc (ANSS) 2005 Q2 法說會逐字稿

Please standby, we're about to begin. Good day, everyone and welcome to the ANSYS second 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. Please go ahead, sir.

Okay. Thanks a lot. Good morning everybody and welcome to the Q2 fiscal year 2005 call. And with me today, as usual, is Maria Shields, our CFO. Pretty much as usual, we'll outline the highlights of the quarter and add some overall summary comments, and then go into greater depth on the operational results. In addition to the number it's actually been a really busy quarter for us, as usual, on the technology and partnership and customer fronts, and I'll spend a few minutes going through with this. And then finally, we'll go through a number of both quantitative and qualitative factors from Q2 that we feel positively influenced the quarter and also our ongoing prospects for the future.

Maria will then take you through a quick update on our balance sheet, cash flow and line-item expense performance and an update our current outlook on earnings. And after that we'll be happy to respond any questions you may have. So to begin, Maria, our Safe Harbor statement.

Okay. Thanks, Jim. Good morning, everyone. And again thank you for joining us to review the highlights of ANSYS' second quarter 2005 results. Before we get started, I'd like 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.

The company's reported results, should not be considered an indication of future performance, as there are potential risks and uncertainties that could impact our business in the future. These are discussed at length in our public filings including our Form 10-Q, 10-K and our 2004 annual reports to stockholders. Any forward-looking statements are based upon the company's best judgment as of today, and ANSYS undertakes no obligation to update any such information.

Additionally, I'd just like to point out that during the course of the call, we will be making reference to adjusted EPS, which is a non-GAAP measure within the context of the SEC's Reg G. We believe that this non-GAAP financial metric supplements our GAAP disclosures and it's an important indicator, in measuring the underlying business performance and is used by management in our assessment of actual business performance. A discussion and reconciliation of GAAP financial measures to comparable adjusted EPS is included in this morning's earnings release and related Form 8-K. So with that Jim, I'll now turn it back over to you.

Thanks. Well, to summarize the quarter, again and consistent with the last two quarter, Q2 continued a strong string of solid quarters in what continues to be an environment of business optimism with a little bit of uptake but also tempered by an assemblage of mixed signals.

We continued to execute on a number of fronts, despite some of the many turbulences of the economic environment, and we added some new advanced capabilities to our broad engineering stimulation suite via the soon-to-be released ANSYS 10.0.

From a high level perspective, for the quarter, we reported solid financial performance with revenues at $37.7 million up -- an 18% growth and adjusted diluted earnings per share growth of 24% with an adjusted EPS of $0.31 up from last Q2's comparable of $0.25. Our revenue and adjusted EPS performance were both in the upper end of the analysts' range for the quarter.

We had a continuation of strong gross and operating margins cash flow and a stable business model that goes along with what we've been talking about for a few years, here. Acceleration on the customer front that was underscored by really a good balance of both new adopters and expansion of our longstanding relationships. And we also announced a number of new partnerships that continued to broaden our global reach and basically validate our ANSYS Workbench strategy.

So from an operational standpoint, and as I previously mentioned, our revenue for the quarter was $37.7 million, and that represents an 18% increase over the comparable $32 million of Q2 2004 and a core revenue growth of 14%.

Adjusted diluted earnings for the quarter grew 24% to $0.31 up from $0.25 per share of the comparable EPS in Q2 of 2004. And this slightly exceeded the analyst consensus, which marks actually the 31st consecutive quarter that EPS has met or exceeded consensus.

Our overall adjusted operating margins, excluding acquisition-related amortization, were 38%, indicative of the solid top line results we had. And our adjusted gross margins continued in line with our business model at a healthy 86%. There was strong cash flow from operations, which increased to over $17 million, of which we used approximately $3.1 million to buyback shares in the quarter, basically, an indication of our view of the value and our long-term enthusiasm.

Looking at the first six months of 2005, we reported total revenue of $75.3 million or a 19% increase over the first half of last year, including a really good balance of growth in both the license and service business. Our year-to-date adjusted EPS was $0.62, which was a 29% increase over the $0.48 of 2004. And our adjusted operating margins and gross margins were 38% and 86%, respectively, for the first half. Cash flows from operations were over $32 million for the first six months.

So now I'll take you through the numbers, so we'll dice it from a number of different directions a few different perspectives as usual such as category, geography, customer and different product classifications. By category of business, starting with that first, overall software license revenue increased to 21% for the quarter. The lease business grew in the mid teens for both the quarter and the first half and remained strong at 21% of Q2 total revenues. Paid up licenses grew at 28% for the quarter and actually 33% year-to-date.

Service growth was 14% for the quarter and first half and continued to be largely driven by our product enhancement subscriptions and the annual software maintenance. There was a balance between both the high end and the desktop products. And there were noticeable gains from continuing migration of customers to the ANSYS workbench platform. I'll talk about that little bit later in the product section because there are a couple of examples that are kind of - kind of particularly indicative.

The business intake volume grew at 20% over last year's comparable quarter and a similar amount for the first half of the year. All in all, this enabled us to maintain our repeatable business base at 63% of total Q2 revenue and 64% for the first six months. And as we've repeatedly pointed out that one of the strengths of our business model is our ability to maintain this solid base of recurring or repeatable revenue. And basically we believe this is a byproduct of our commitment to reinvest on average 20% of our revenues back into R&D to keep the strong product suite going.

Our deferred revenue as a result of this stands at $49.5 million, about a 19% increase from $41.7 million at the end of last Q2. And then all of this rippled through to create a strong balance sheet of over $163 million in cash and short-term investments, all of this while we were continuing to invest in all aspects of our global business and the aforementioned stock repurchase.

From a geographic perspective, we saw double-digit growth across all major geographies and a continued progression of a more balanced performance across geographies that we have seen in prior quarters. North America grew at 14% for both the quarter and the year-to-date and continues the positive progress over the past few quarters. Particularly strong were the performance of our major account oriented direct offices. Each of our offices have grown in an aggregate. Now the offices have grown in the high 20% for both the quarter and the year-to-date.

Major orders came from longstanding customers such as Delphi, Dresser-Rand, Honeywell, Solar Turbines, Westinghouse, Boeing, Pratt & Whitney, but it also included some expanding relationships with customers such as Whirlpool, Southwest Research Institute, CANMET Energy Technology Center. So a really good mix of both industry and new and expanding customers. Europe continued to perform well also at 22% for the quarter and 24% for the first half. And then to a much lesser degree than in the recent quarters, we talked about the impact of currency. There was a much lesser degree but there was a slight positive impact of currency. But still even in constant currency we saw 20 and 21% growth for the quarter and year-to-date respectively.

All the major sectors basically performed reasonably well -- Germany, Eastern Europe region and France probably leading the pack in there. The largest six-figure deals throughout Europe included names you've heard us talk about in past calls such as Alston, Siemens, Libare (ph), Valeo. But we also had significant order from a newer expanding relationship, such as BMW, JSE, Cabascolade (ph), Airbus, Dyson, CETIM, and -- so, again, the breath of across industry types and geography - sub-geographies works for us well.

And then finally, our General International area grew at 16% for the quarter and 18% year-to-date with virtually no currency impact. Japan performed in a steady manner, but India and China showed particularly strong growth. Key customer engagements here included Toyota Motor Company, Seiko, Epson, Commens, Toshiba, Hitachi, Train, Indian Institute of Science, as well as some of the ones that we've mentioned over the past, like the Shanghai Supercomputer Center and InfoTech.

So another thing we mentioned from this standpoint is that ANSYS has also been chosen as the engineering simulation provider at a couple of recognized industry leaders, RoboBat and Thales Electron Devices. So we're excited about these announcements because they clearly point toward a validation of our ANSYS workbench strategy.

So as we spoke about during the last couple of calls, we're continuing to see industry breadth an increased penetration within our strong customer base. And the pipeline of new opportunities is strong. But not to sound like a broken record -- I guess I'm showing my age there -- broken CD -- if you remember what records are. We're seeing scattered pockets of longer sales cycles amidst customer enthusiasm about our overall long-term strategic direction. So I just have to - encapsulate as being -- overall positive trends with a few mixed signals here and there.

In spite of the everyday worries like energy costs, higher labor, healthcare expenditures, currency fluctuations, all or any of which can influence the timing of our customers' buying decisions. We encourage our customers both existing and due has continued to grow nicely to the first half.

So in summary for this sector, double-digit revenue growth in all major geographies in both reported and constant currency terms, good industry, major account activity, continuing strong performance in Europe, particularly in Germany and France, continuation of the resurgence in North America, and solid progress in GIA, particularly and in -- and most notably in the growth areas such as China and India.

We continued to examine our sales strategies in each of the key geographies and just as we've been talking about over the past several quarters, we plan to continue to align our sales and distribution investments in response to the strength and the sustainability of improvements or changes in the economic environment.

From a product revenue standpoint, we really saw no significant changes in either the trends or the guidance that we talked about in the past. As mentioned earlier, the software license revenues grew by 21% quarter-to-quarter, and 23% year-to-date. Both ends, high and low, of our product spectrum grew in double-digits. Our ANSYS Workbench as we saw through some of the earlier customer announcements that I mentioned continued to ramp up its traction.

ASP's for the quarter actually increased for both the high-end and low-end products. So, that's a repeat from the previous quarter. And each of our major product families has seen double-digit software license revenue increases for the year-to-date, reflective I think not only above their individual strengths but also the increased cross coupling of the whole portfolio.

We made progress on all fronts as we prepare for releases of all major product lines in the next week or so, with released channel being made available to customers at our download center probably next week. As I mentioned in our last call this release includes an expansion of our technical breadth in all products. And we'll be releasing all of our product - workbench-based products at the same time. Some of the highlights include a range of things. New composites capability for structural simulations, new thermal transient modeling within the workbench, turbulence boundary layer transition for CFD simulations and our raft of new advanced modeling and meshing technologies that are applicable to all simulation users.

And since I discussed these in greater detail previously, I'll not go into a lot of the detail. But there is the one area that I do wish to highlight is the fact that we've been seeing this traction of now of the Workbench is starting to ramp up, and we created this environment with four primary uses in mind. First of all we wanted to provide easy-to-use tools to access the advanced solution capabilities provided by all ANSYS Inc. solvers and basically make this accessible to a much broader range of users - and those broader range of users are starting to get access to this.

Secondly, we wanted to provide an easy to create platform for building custom solutions for vertical applications to meet customer and industry special needs. Thirdly, we wanted to provide an easy to integrate platform to bring together all the tools that are required to make a design decision and bring those into a single environment, whether they're ANSYS solutions or whether they're in-house customer solutions or whether they are third-party partners, or even competitive solutions. And finally, we want to provide an easy to develop within platform for third parties to create new applications, taking advantage of the advance modeling capabilities within the Workbench environment.

So, basically with this we've been able to see Workbench continuing to expand its footprint on the CAE and simulation user desktop. With Release 10, we've already announced the integration of Mathsoft and RoboBot tools into the Workbench. Actually, our first web ex session in introducing the new Mathcad product in Workbench had several hundred attendees giving an indication of that, basically, tightly integrating these various tools into a single environment that crosses multiple CAD platforms as highly desirable for our users. And basically also the environment was easy to work within for third-party developers.

But also customer developer vertical applications continue to grow. Just as an example, at a recent Technology Day, John Deere presented how they are deploying vertical applications to their design engineer to streamline product development processes, and reported that the impact of that deployment with the 75% reduction of the number of physical prototypes required for design approval. So the impact on the bottom line it's real, it's measurable, and it's almost immediate, it's very quick. And so customers are expanding the development and the deployment with basically a minimal need of support from us directly.

Also with the Release 10, our customers will be delivering to the marketplace the first OEM products based on Workbench, Satdem (ph) and Aerobe (ph) will be again shipping their new products in Q3. These products are specialty products for nuclear power and pressure vessel markets -- I talked about the industry specificity of that.

They use their own solver technology, but they rely on the advance modeling and infrastructural capabilities available within the Workbench environment. So combining this with the previously announced use by Thales for supporting their in-house high frequency electromagnetic code, you can see the breadth of platform is able to support a wide variety of simulation tasks that a company might demand.

One final item worth mentioning is the delivery of Workbench on the new Windows XP 64 operating system. This new operating system is significantly expanding the capability of the Desktop, and we'll begin shipping this version probably in the late Q3, or early Q4 timeframe. The feedback from our beta test customers has been overwhelmingly positive indicating the demand for Desktop solutions will continue to grow.

So basically this combination of recognized best-in-class simulation technologies and integration capabilities fosters an increasing number of partnerships. So most recently we also announced product integration and a wide range of other activities with the company such Moldflow (ph) J. Ray McDermott to go along with the aforementioned Mathsoft and RoboBat. So for -- but that's probably enough here for those of you who are interested in seeing more technical detail on ANSYS 10, I'd encourage you to check out the ANSYS Web site, ansys.com for more information.

So in summary, a strong quarter both financially and qualitatively and as we've articulated for several years now, we feel that our progress on all fronts is a direct result of our continued focus and execution against our long-term strategic direction and business model, which has allowed us to provide sustainable revenue and earnings growth. And also quickly respond to market and economic opportunities. By meeting earnings commitments for 31 straight quarters we've been able to continually reinvest in both technology and distribution capacity that allowed us to extend our positions in each of those and expand the global reach of engineering simulation across our growing base of customers, partners and industry applications.

We've been able to continue to grow the top line in line with our direct guidance, while maintaining solid margins and continuing to provide solid earnings growth. So with all this in mind, we'll continue to monitor the economic environments throughout the globe, adjust our business model and investment plans accordingly. We are seeing an increase in opportunity but we're also keeping a degree of short-term caution in light of the still somewhat twitchy economies that happen in various regional areas, and also some of the financial burdens that certain customers are challenged with. And at the risk of being consistent and boring, our longer-term optimism definitely remains intact with ever-increasing confidence.

So with that I'll turn it over to Maria Shields, our CFO to provide you with a more detailed look at our financials including the expense structure balance sheet highlights as well as other key factors of this quarter's business and outlook. Maria?

Okay. Thanks Jim. For the next few minutes, I'll go through a recap of Q2 and 2005 year-to-date expense results. I will go through a couple of the balance sheet and cash flow highlights and then provide some overall guidance regarding our outlook at this time for Q3 and the remainder of 2005 as it relates to adjusted EPS. So starting off with cost of sales excluding acquisition related amortization, cost of sales for the second quarter was $5.1 million. That compares to $4.4 million in the second quarter of 2004. And that resulted in an overall adjusted gross profit margin of 86% for the quarter.

And on a first half basis, adjusted cost of sales totaled $10.3 million versus $8.9 million in 2004, also resulting in an 86% adjusted gross profit margin for the first half. The comparative increases over last year's second quarter and year-to-date totals is related to the inclusion of CDI operations, our most recent acquisition that we closed in early January of this year, as well as increased salaries and headcount-related cost.

In the area of sales and marketing, for the second quarter, our total sales and marketing expenses were $6.1 million versus last year's second quarter of $6 million and on a year-to-date basis, sales and marketing totaled $12.6 million compared with $12.1 million in the first half of '04. The increase in expenses as compared to the prior year's year-to-date figures was largely impacted by the inclusion of CDI in the 2005 results as well as higher salaries and related headcount costs. One other item I'd like to note is that the 2004 second quarter and year-to-date results included about $300,000 of incremental costs that were expended in connection with the biannual International Users Conference, which were not repeated in this year's results.

In the area of R&D, total expenses for the quarter were $7.5 million or about 20% of revenue compared to $6.5 million in Q2 of last year. And for the first half our total investment in R&D has reached $14.8 million compared to $12.8 million for the six months of '04.

The quarter-to-date and year-to-date increases are -- as I mentioned earlier related to the inclusion of CDI, as well as an increase in headcount-related expenses. During the second quarter and for the first half we capitalized a total of $250,000 of development costs. This compare to it $127,000 in Q2 of last year and $388,000 of CAP costs for the first half of '04.

In the area of G&A, our expenses totaled $4.5 million in the second quarter compared to $3.5 million in last year's second quarter. And for the first half, G&A costs totaled $8.6 million compared to $7 million in '04. The quarterly and year-to-date increases were the result of the CDI acquisition as well as higher comp, higher legal expenses, higher compliance and higher general public company costs. For the second quarter and first half of '05 we've delivered a solid operating profit margin excluding the impact of acquisition-related amortization of 38%. Our effective tax rate for the quarter was about 32%. And at this time we're anticipating that throughout the remainder of this year, we should be able to maintain an overall effective tax rate of between 31% and 33%.

However, as I have been communicating for quite a while, I'll also reiterate again that the American Job Creation Act of '04 significantly reduces export related tax benefits. These benefits are being saved out are starting this year and will be replaced by deduction for qualified manufacturing income. These changes have already begun to adversely impact our effective tax rate in '05, with a greater adverse impact anticipated in 2006 and beyond.

For the second quarter, ANSYS reported adjusted EPS excluding acquisition-related amortization of $0.31 on 33.8 million diluted shares. And that compares to $0.25 on 33 million shares in the second quarter of '04. And on a year-to-date basis, adjusted EPS totaled $0.62 on 33.7 million diluted shares, compared to $0.48 on 32.9 million shares for the first half of '04.

Based upon our current visibility, we anticipate adjusted EPS in the range of $1.23 to $1.25 for the full-year, and are targeting adjusted EPS of $0.28 to $0.29 for the third quarter. And I'd also like to take a minute for those of you who may be new to ANSYS to point out that when you exclude the impact of a one-time tax benefit and a seven-figure license deal that combined accounted for over $0.05 in last year's Q4 earnings, our current outlook equates to annual adjusted EPS growth in the mid to high teens. Also our 2005 outlook does not factor in the impact of option expensing, which currently we're planning to adopt beginning January of 2006.

Just taking a quick look at the June 30th balance sheet, total cash and short-term investments have grown to $163.4 million. Our consolidated net DSO was at an all-time quarter-end low of 42 days. Our total growth deferred revenue totaled $49.5 million. We generated over $32 million in operating cash flow for the first half of '05 of which we used about $3.1 million in the second quarter to repurchase about 92,000 shares. And we also continue to remain debt free. So, Jim, I'll now turn it back over to you.

Thanks Maria. Excuse me. To recap, strong financial performance in all major parameters of the business -- revenue, earnings, margins, cash flow, business space visibility, continued product progression accelerated with the integration of technologies across our coupled multi-physics products families and significant releases of each ready for imminent release. Increasing customer activity accentuated by industry and geographic breadth and consistency and also some increased areas of adoption. And then also expanding partnerships and relationships in technology, distribution with key customers.

With regard to the outlook for the remainder of 2005, we continue to see some advanced signs of improving prospects, and we'll continue to monitor these with caution. Long-term outlook stays solid, and as such, for the year, we're raising our revenue growth to the 13 to 15% range even with the seven-figure order in Q4 2004. And per our earlier guidance where we forecasted, and delivered, slightly higher than average for Q2, we're still maintaining slightly below the base 13 to 15% rate for Q3. Q4 will be solid even in the absence of 2004 meg(ph) order, which will then net out our guidance increase to 13 to 15% for the year or in the range raising up to the $152 to $155 million mark.

On the EPS front, we're increasing our outlook to adjusted EPS of $1.23 to $1.25. As Maria mentioned earlier, when excluding last year's one-time tax benefits and the balloon effect of the Q4 deal, this tracks to a mid to upper teens earnings growth. But as always -- and we'll continually demonstrate this, we'll keep an eye toward ratcheting up performance if the positive signs sustain themselves or increase. With that, we're prepared to respond to any specific questions you might have.

(OPERATOR INSTRUCTIONS). We will go to Richard Davis of Needham & Company.

Thank you very much. So we talked to the user of Workbench and he confirmed a lot of the good things what you said about the product in your prepared remarks, mainly because it allowed him to work with multiple CAD systems and tools, which --

Right.

T-- here aren't very many companies that are just pure one way or another because of legacies or engineers or stuff like that. But as an outsider, when you're looking at the business, is it correct for us to kind of think about Workbench as really an important driver of the organic growth that you guys have been getting? I mean, I know you have lots of different growth drivers and things like that, but frankly, you've growing your organic growth, probably, twice as fast as what most people see in the industry growing. So, is that a fair assessment?

Well, absolutely. But it's a combination. I mean, its one of those things where a table needs multiple legs to be able to stay upright. But the Workbench has been an important aspect of that because it's very key -- it's one thing to be able to get answers, and we think we're in a very strong position in terms of being able to solve very difficult problems, but it also gets to a process issue. And therefore it has to work within a wide range of supplier networks, CAD environments and the like. And without that you can't get over some of the process hurdles that allow the greater number of people to use it. So you have to be able to solve the problem, but you also have to be able to deliver the solution.

Got it. Okay. And then this is a little bit of a -- just a detail question -- maybe Maria -- but you bought -- I think about Century Dynamics is like $5.5 million back in January. And it sounds like that - it's going well. But unless the business has grown like crazy is it fair to assume the incremental revenue impact for this quarter was probably less than $1 million?

Yes, in that range.

Okay. That's what I thought. I just wanted to make sure.

Probably a little tweak over $1 million.

Okay. But in that ballpark -- that makes sense. Okay. Those are my questions. I'll turn it over to someone else. Thank you.

Thank you.

We'll go next to Barbara Coffey of Brean Murray.

Good morning. Again, speaking of gross drivers, when you take a look at the 64-bit machines coming out, do you see that your clients are thinking about this as a mass adoption? Or is this just going to be in the specialty area for a while until people test it out?

Well, I think - and that's a darn good question, and it probably gets down to specifically the specifics of each customer environment and their IT philosophies. I'd say in the short term, it's like anything else, it's not going to be a wholesale kind of astute body right in that direction. But, I think it definitely will initially attract those early adopters who definitely need the greater amount of power. But it's definitely going to migrate in that direction as we've seen computing technology migrate all along. For us what it really means is the ability to solve bigger problems faster and do it with much greater ease of use shells over it to make it more attractive to a broader range of users. So I'd still view it as being an up ramp, but it definitely moves the ball in a very definable good manner for both us and our customer base.

Thank you.

We'll go next to Mark Schappel of KeyBanc Capital Markets.

Hi. Good morning and good job on the quarter.

Thank you.

Good morning.

Good morning. I guess we'll just start off with Jim, if you could just give us an idea of how the partnership Autodesk progressed in the quarter? And whether you booked any material revenue from the relationship.

Well, first of all, it is immaterial or we would have highlighted it out. I think you can see -- well, first of all, it's kind of on the track we did, where we saw this as being a partnership that grows over time. Actually we're adding capabilities into -- even now into newer generations of that product. We've always viewed that as a way of getting exposure to markets that normally didn't have that. And we're actually starting to engage with some of those further planned for our ability to sell the broad range of solutions. But it didn't cause a material bump, nor did we really expect it to at this point in time. But it definitely has increased the visibility and the exposure for us, which is right about where we wanted to be.

Okay. Good. And next question here, did you see any change in the competitive front especially with Autodesk being picked by Denso?

Really, no. If anything, it sometimes tends to underscore the desire for -- as one of the earlier questioners mentioned, many environments are multi-source in terms of CAD vendor networks -- I am sorry, supplier networks are also that way. And basically a simulation lingua franca can be an interesting thing to standpoint. So it's - if anything, I can't say that -- how it has affected the overall market. But it certainly has kind of increased some of the numbers of inquiry of interest that we've been getting. But I think on total, it's not changed a whole lot of anything.

Okay. And just moving on to some more mundane sales metrics, any large deals in the quarter, over $1 million?

Not over $1 million. Those are -- they occur but they're relatively rare. I probably liken that to the standpoint - if you want to pardon the baseball analogy -- but do you want a lineup with lots of home runs, but lots of strike outs, or do you like just a lot of good power to the alleys and stringing singles and doubles. And to that those healthy mid six-figure orders that we tend to get on a repetitive basis from existing customers that continue to expand, we view those as being really a good thing to base the business off.

Now, of course, we will get the larger ones when they come. Actually in some cases it just causes a lumpiness that sometimes obscures the long-term performance we are getting -- if you get that one big lump in there. But we'd rather have this continual progressions of value because one thing we have always found is that, if you are continuing to do that, they're almost getting the value as they are paying for it. And they just continue to do that several times during the year and that also tends to be a better relationship for us with our customers. So, no, no big seven figure -- many, many of the six-figure kind of significant orders.

Okay. And then the indirect, direct channel mix. What was that in the quarter?

I still think we are about 55, 45, direct versus indirect.

Okay. Very good. I'll get off and let somebody else talk. Thanks a lot. Good job.

Thank you.

We will go next to Kevin Kane of Deutsche Bank.

Hi. Thank you. Just a couple of questions. You had mentioned that ASPs had increased. And we has done some channel checks where resellers mentioned that the pricing had been relatively stable, which is a good thing, of course. But can you maybe detail where some of these ASPs are increasing specifically? Or would it be coming from across the board?

Well, like I said, it was coming across the board. Now I can't say of the many products we have, but the main ones we track are what happens at the desktop and the low-end and what happens at the industrial strength multi-physics -- multi-physics and ANSYS mechanical, the flagship type of products. Both of those classifications of products which each contain several products in that classification, they both increased by, not light-years but by statistically significant amounts.

And essentially, what that tends to be is, probably, it's like people are buying more upgraded versions. When they buy a license, they might buy more options attached to that particular license. And then, also sometimes it can be a function of volume discounts associated with big orders. So, in general, it's mostly indicative, I think, of once people see the value in something there -- they recognize the value in it. And so it's largely been the basic package that people are buying. They just tend - they tend to buy a bigger option -- probably, like if you were buying a car, the difference of buying an LX versus a standard model kind of issue. That's really the main significance we're seeing.

Okay. That makes sense. And the second question is about the sales capacity increase. You'd mentioned that direct is still about 55% of your business. So aside from CDI, did you add more headcount? I think you said you did in sales and marketing, and what's the plan going forward for that?

Well, actually, I mean, we have open Rex now, and we're continuing to expand basically on the same guidance that we've had before. So, it's -- over any 12 to 18-month period, you'll probably see about a 10 -- easily a 10% double-digit kind of increase in capacity on that, not counting what's going on in the channel.

Okay. Great. I think that's it. Nice quarter. Thank you.

Okay. Thank you very much.

And at this time, there are no further questions in the queue. Mr. Cashman, I'll turn the conference back to you for any additional remarks.

Okay. Well, thank you very much, and thanks everybody. In closing, still long term and -- I'll say increasing enthusiasm, clear signs of improvement, but also our usual short term caution. We've continued to be girded by a strong combination of our solid business models and very loyal customers who tend to be repeat and repeat and repeat customers, dedicated channel partners, most of whom who've been with us many, many years. And, of course, just the base of talented employees with ANSS. These ingredients have repeatedly demonstrated a value and consistent performance for revenue and earnings with an expanding customer base, expanding base of technology, which we think, basically, build a nice foundation to support our long-term initiatives. So, with that I thank you, and look forward to seeing you next quarter. Take care.

And that does conclude today's conference call. We thank you for your participation. You may disconnect at this time.