ANSYS Inc (ANSS) 2006 Q1 法說會逐字稿

Good morning, and welcome to the ANSYS first quarter 2006 earnings conference call. All participants will be in a listen-only mode until the question and answer session of the call. Today's 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 for this morning's call, Mr. James Cashman, President and Chief Executive Officer. Mr. Cashman, you may begin, sir.

Okay, thank you. Good morning, everybody, and welcome to the ANSYS Q1 2006 call. I'm joined today as usual by Maria Shields, our CFO. We'll start off the [INAUDIBLE] customary summarization of highlights, and I'll go into greater detail on the operational results. And I would also mention that in addition to the numerical side of things, there have been a number of major activities, probably a couple most noteworthy that I'd like to discuss. So we'll go into the quantitative and qualitative factors from Q1 that we fee are key to our ongoing prospects for the future.

I'll hand -- of course, hand it over to Maria, who will then take you through the balance sheet, expense structure, performance outlook on earnings, and then we'll be happy to respond to any questions you may have. So as always, Maria, if we could start with our safe harbor statement.

Sure, Jim, thanks. Good morning. And again, thank you, everyone, for joining us to review the highlights of our first quarter 2006 results. Before we begin, I'd like to remind everyone that some matters that will be discussed throughout this call as either part of the prepared remarks or in response to questions may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Additionally, the Company's 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 the 2005 Annual Report to Shareholders, and of course, this morning's press release. Any forward-looking statements are based upon the Company's best judgment as of this date, and ANSYS undertakes no obligation to update any such information. Additionally, I'd like to point out that during the course of the call, we'll be making reference to adjusted gross margin, adjusted operating profit and adjusted EPS, which are non-GAAP measures within the context of the SEC's Reg-G.

We believe that these non-GAAP measures supplement our GAAP disclosures, and these metrics are used by management in our assessment of the business and to plan forecast for the future. And as such, we believe that they are important and relevant in measuring and analyzing the underlying business performance. A discussion and reconciliation of the GAAP financial measures to comparable adjusted measures are included in this morning's earnings release and the related Form 8-K. And finally, in adherence with Reg-FG, ANSYS will provide forward-looking guidance in its quarterly financial results, press releases and publicly announced financial results conference calls. We will not provide any further guidance or updates on our performance or outlook during the quarter unless we do so in a public forum. Okay. With all that legalese, I'll turn it back over to Jim.

Oh boy. Well, basically, for Q1 the headline was -- we feel Q1 was a very strong quarter and that was built upon the foundations that we've been talking about for the last several years. We continued to execute on the sales front and the technology front while we were also preparing for our biennial International ANSYS conference call that I'll be talking about later on and also dealing with the necessary approval processes related to our recent announcement of our intent to acquire Fluent, Inc. And I'm pleased to let you know that we announced in the wee hours of this morning that we had in fact received the necessary government clearance and we plan to close the important milestone for us on May 1st. From a high level perspective for the quarter, we reported solid financial performance with revenue at $46 million, and adjusted diluted earnings per share growth of 35% within an adjusted EPS of $0.42, up from last Q1's comparable $0.31. Our revenue and adjusted EPS performance both exceeded the higher end of the analyst range for the quarter. Secondly, we had a continuation of excellent stable gross in operating margins, cash flows and a solid business model that continues to demonstrate its inherent scalability.

We've had continued encouragement on the customer front that's underscored by expansion of long-standing relationships with major name companies where we've been benefiting from expansion of some multi-disciplinary sales and an uptick in some of the order size. In fact, this had a major impact on the quarter, as we'll discuss in a few minutes. But we were slightly above expectation without them. We so have so far had a very strong reception to our upcoming technology conference by customers, partners industry analysts alike. So for the operational highlights, as I mentioned just a minute ago, our revenue for the quarter was 46 million, which was an all time Q1 high for ANSYS. And this represents a 22% increase over the comparable 37.6 million from Q1 2005. Adjusted diluted earnings for the quarter were even stronger, with a 35% increase to $0.42, up from $0.31 per share from the comparable EPS of Q1 2005.

And this [INAUDIBLE] the analyst consensus which marks the 34th consecutive quarter that EPS has never exceeded consensus. Our overall operating margins, excluding both acquisition and related amortization and stock based compensation, were 43%, and were stronger than our usual Q1 model. This is indicative of the increased revenue results, primarily caused by two significant deals with existing key customers of the seven figure variety that basically closed in an earlier time frame that we had planned and that deals of this size and complexity have traditionally taken. Adjusted gross margins continued at a healthy 87%, with customary strong cash flow from operations. So with that at hand, we'll examine the numbers from a few different perspectives -- category, geography, customer products. So by category of business for the quarter, overall software license revenue increased 31%.

The lease business grew. It remained healthy at 19% of our total quarterly revenues, even with the large software license sales. The paid up licenses grew in excess of 40%, spurred on by over $3 million in major account engagements that I discussed earlier. Even without either of these early orders, the paid up license growth would have been around 20%. And the service growth was 12% for the quarter, which was largely driven by our product enhancement subscriptions and annual [INAUDIBLE] recurring revenue, which grew in the mid-teens. I'd say in general there was a balance between both the high end and desktop products, and there were noticeable gains from the continuing migration of customers to the ANSYS workbench platform.

[INAUDIBLE] volume grew at 20% over the prior comparable quarter, and it just continued to demonstrate one of the historical strengths of our business model by maintaining our solid base of recurring or repeatable revenue. For Q1, this recurring revenue was about 57%, even in light of the large license influx that came as a result of the major orders. And as such, our deferred revenue growth has grown to an all time high of 57.7 million, which is about a 16% increase since the beginning of the year. This all contributed to a strong balance sheet of over 203 million in cash and short-term investments, all of this while we were continuing to continue our investments in R&D, our global sales marketing and business infrastructures. From a geographic perspective, we saw growth across all major geographies. It's actually a little difficult to allegate some of the geographic revenues with the major global orders that we received in the quarter, but we'll try to give you a picture of that.

North America grew in excess of 40% quarter to quarter; basically, expanding relationships with our long-standing customer base continued to lead results. Major customers were General Electric, Train, Pratt Whitney, Honeywell, IBM, Westinghouse, [INAUDIBLE], Cummins, [INAUDIBLE], HP Sun, Northrop, [INAUDIBLE], basically they provided a range for six figure per quarters with a higher than average typical deal size. And actually, one of these was a seven figure deal that was largely comprised of paid up licenses but it also had a very strong go forward text component. Europe continued to stay on course, with low double digit growth. In local currency, the growth was even higher, as there was a negative FX for the quarter. Germany was particularly strong, with 14% growth when you count it in dollars; even a little higher than local currency.

And I probably bumped these numbers up somewhat to compensate for a portion of large multinational orders that will actually go [INAUDIBLE] to Europe, but it's really kind of impossible to say precisely how [INAUDIBLE]. Still in the double digit growth, but probably the usage is a little bit higher than that. The largest deals are mainly of the six figure variety, consisting of Robert Basch, [INAUDIBLE], Siemens, Volvo, [INAUDIBLE], BMW, Volkswagen, [INAUDIBLE], Rolls Royce, Lexus, Rolex, [INAUDIBLE] and [INAUDIBLE], a wide range of companies. And this has continued a trend in Europe of strength across a broad range of industries.

In our general international area, it was a little two part story. Japan was essentially flat, while the rest of GI grew in excess of 20%, led by India and China. Key customer engagements here included Conoco, Minolta, Honeywell, [INAUDIBLE], Bejing Institute of Mechanisms and Electronics, Whirlpool, Mitsubishi, [INAUDIBLE], VHEL and [INAUDIBLE] Fuel Systems. So we're getting the industry breadth there. And in fact, we're continuing to see good industry breadth and increased penetration across. Actually, some of the more interesting [INAUDIBLE] this quarter is in the Biomedical field where ANSYS is being used to simulate cerebral aneurysms and subarachnoid hemorrhages to help suggest treatments in placement of medical devices. And also, the safety fields, where it's being used for marine and offshore safety applications basically to help keep energy flow going. So I'd have to say overall the pipeline of new opportunities is solid.

We'll still seeing the pockets of somewhat longer sales cycles amid [INAUDIBLE] such as the large major account orders that occurred sooner than orders of that typical size and complexity. And so while we had planned for these in the year, some of the more experienced customers like [INAUDIBLE] are recognized leaders of invasion in their own fields are showing desires to extract the simulation value in a much sooner time frame. But as such, we actually do that as a form of endorsement. Additionally, we're pleased that the new customer attainment has continued and grown to the degree it has. So in summary, from a geography standpoint, steady growth in the major territories in dollars and local currency ,with disproportionate growth from our U.S. based major accounts -- there was good industry and major account activity through each.

In general, we saw a negative currency impact throughout. We had continued steady performance in Europe and GIA. In particular, I'd have to highlight Germany, China, India. We had continued progress in North America and great progress in major account relationships. And one other highlight is that on a global basis, our direct offices were particularly encouraging -- I think this is because of the tie with major accounts -- but it was particularly encouraging with an in aggregate growth at the mid 30% on a global basis. So we continued to add to our sales channel in Q1. And just as we have over the past several quarters, we're going to continue to monitor and adjust -- accelerate our sales and distribution strategies in response to the strength and sustainability of improvement that we're seeing in the overall environment.

Now, if we look at things from a product revenue standpoint, basically typical of Q1, there were no significant changes in either the trends or the guidance. As I mentioned earlier, the software licenses grew over 30% quarter to quarter. Both ends high and low of our product spectrum grew in double digits, ANSYS Workbench continuing off of last year's ANSYS 10 [INAUDIBLE] continued to gain traction. ASPs for the quarter -- basically, they were essentially stable over multiquarter trends. No mathematical significance need apply to changes there. We basically made progress on all fronts as we prepare for releases of all major product lines in the later year time frame. Now, I normally spend some time talking about this; but I've also been asked to restrain myself, as we are planning to officially unveiling some of the early preview technology at the International ANSYS Conference which occurs next week.

So I'd encourage you to stay tuned to the ANSYS website for more information, as well as upcoming news on all ANSYS 11 products and their applications, or check on or check out even attending the ANSYS conference. The focus of the conference, no surprise here, is on simulation; but particularly it's role in innovation and a driver of competitive advantage for our customers. We've had to expand the management track, we've doubled the number of training classes. We've actually added a Hall of Innovation where major customers from Nascar to several America's Cup racers to medical technology to advanced automobiles, be they Porsche racing cars or several solar powered cars, are [INAUDIBLE] their products. I have to admit my personal favorite, however, has been in the design of basically the drive system for an antimatter powered space ship.

I mean, when you're dealing with antimatter, I think it's clearly something you'd like to simulate before a prototype is built. You don't want to find out with the antimatter that's going wrong. So I don't know. Maria, do you have a personal favorite for yourself?

Oh, definitely. I think the Xerox Workstation ProStation, Jim. That's going to be great.

Spoken like a true finance person. So as always, there's going to be some great technology and preliminary response from customers, partners and all the constituency groups, as this is going to be significantly more expansive than any event we've had. In fact, historically we've held these in major hotels, but we actually had to upgrade to Pittsburgh's Convention Center to accommodate the increased attendance and activity. Now, as I mentioned earlier, I mentioned there was a second major thing that we're preparing for in Q1 that's going to be very prevalent in Q2 and beyond. As I mentioned, we plan to close the acquisition of Fluent on May 1st. And over the next couple of weeks, the ANSYS and Fluent teams will start working on the execution of our integration plans and finalizing our combined projections.

It's our intention to provide that combined outlook shortly thereafter. I'd like to remind you that as we stated on our last call, that we expect the acquisition to be immediately accretive on an adjusted basis. So in conclusion, in summary, a strong quarter, both financially and qualitatively. 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, and it's allowed us to provide sustainable revenue and earnings growth, but also quickly respond to the wide range of market and economic conditions and opportunities [INAUDIBLE] there.

So by meeting our commitments for those 34 straight quarters, we've been able to continually reinvest in both technology and distribution capacity. That's allowed us to cantor our positions in each of those categories and expand the global reach of [INAUDIBLE] engineering simulation across a growing base of customers, partners and industry applications. We've been able to continue to grow the top line in line with our guidance, while maintaining solid margins and continuing to provide solid earnings growth. For the last two quarters, we've also demonstrated that when the revenues exceed plan, there's a disproportioned positive impact in the bottom line. And this enabled us over the long-term to provide earnings growth with an upside potential. But with this in mind, we're going to continue to monitor all the changing economic environments throughout the globe, as we'll adjust our business model and investment plans accordingly.

Overall, our long term confidence continues and continues -- I don't know what else to say there. And we especially look forward to the advances that we can make with the addition of Fluent. 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 both the expense structure and balance sheet highlights, as well as other key factors of this quarter's business and outlook. So Maria?

Okay, thanks Jim. For the next couple of minutes I'm briefly going to go through a recap of Q1 expenses, excluding the impact of acquisition related amortization and stock option expense. I'll review the impact of the adoption of FAS 123-R on our Q1 2006 GAAP results. I'll quickly go through the balance sheet and provide some guidance regarding our outlook for Q2 and the full year 2006. And I'll articulate that that is excluding the impact of the upcoming Fluent acquisition. And as we mentioned -- as Jim mentioned earlier, and as we've mentioned in this morning's announcement, it's our intention to provide adjusted revenue and earnings outlook for the full 2006, including the impact of the acquisition, shortly after we finalize the closing and get through some of the early integration efforts, and we see that happening in the next couple of weeks.

So starting with cost of sales, if you exclude acquisition related amortization and the impact of stock option expense, cost of sales for the quarter totaled 6 million compared to 5.3 million in the first quarter of 2005, which resulted in an overall adjusted gross profit margin of 87%. The comparative increase over last year's first quarter is related higher compensation, third party royalties and third party technical support costs. On the sales and marketing front for the quarter, total sales and marketing expenses excluding the impact of stock option expense increased to 6.7 million. And that compares to 6.4 million in last year's first quarter. The increase in expenses as compared to the prior year was primarily related to increased head count and compensation related expenses.

And at this time, I'd also like to remind everyone that the upcoming conference that Jim talked about will impact the Q2 2006 results, because they will include the expense impact. So if you're putting it into your models, they'll be about anywhere between 600 to 650,000 of incremental expenses in Q2 sales and marketing lines relative to that event. Looking at R&D, total expenses for the quarter increased to 9.1 million or 20% of revenue. And that compares to 7.3 million last year. The increased year-over-year was primarily related to higher salaries, head count and incentive compensation. G&A totaled 4.2 million in the first quarter, and that's roughly comparable to the 4.1 million in last year's first quarter, a slight uptake in compensation expense. And while we continued to make investments in key areas across the Company, we also delivered a solid operating profit margin, excluding the impact of acquisition related amortization and stock option expense of 43% for the first quarter.

Our effective rate, excluding the impact of stock option expense, was 33%. And at this time, when we take a look at factoring in the impact of American Jobs Creation Act and the fact that the Federal R&E tax credit has not been reinstated for the 2006 tax year, we're anticipating we should sustain an overall tax rate of between 32 to 34% for 2006, and that is excluding the impact of stock option expense. ANSYS reported total adjusted EPS of $0.42 on 34.2 million diluted shares, and that compares to adjusted EPS of $0.31 on 33.8 million shares in last year's first quarter. And at the current time, we anticipate adjusted EPS in the range of $1.54 to $1.56 for the full year; and for the second quarter, based on our current visibility, we're targeting $0.35 to $0.36 adjusted EPS. Our current GAAP earnings outlook, which includes both acquisition related amortization and the impact of stock option expense, is $0.30 to $0.31 for the second quarter and $1.32 to $1.36 for the full year.

And as we discussed in this morning's press release, in the 2006 first quarter, the Company did adopt FAS 123-R on a prospective basis, and this resulted in $982,000 net of taxes or a $0.03 charge for stock based compensation expense in the quarter. If we take a quick look at the March 31st balance sheet, our short term investments have grown to over 200 million, our consolidated net DSO was at 48 days, [INAUDIBLE] deferred revenue has grown to an all time high of 57.7 million. And with that, I'll now turn it over to Jim for a brief recap before we open it up to questions. Jim?

Thanks, Maria; and to recap, first of all strong financial performance on all major parameters of the business -- revenue, earnings, margin, cash flow, business base, visibility, continued product progression accelerated with the integration of our technology across our couple of multi-physics product families, with significant releases of [INAUDIBLE] ready for later this year; increasing customer activity, accentuated by industry and geographic breadth, increased areas of adoptions and even some of the order sizes. And finally, expanding sense of partnerships and relationships in technologies distribution customers.

With the -- with regard to the outlook for the remainder of 2006 -- and again, this does not include the impact of Fluent, for which we will provide a consolidated outlook in the next few weeks -- we're maintaining our revenue growth in the 13-14% range, or 178-180 million. The large orders that came in in Q1 are in the pipeline and anticipated within the year, so we'll expect slightly lower revenues of 41 to 42 million for Q2, but still double digit growth, which will have us ahead of the game for the first half. We then expect and plan normal progression for the second half of the year. On the EPS, front we are increasing our outlook to adjusted EPS of $1.54 to $1.56 for the year, up from the previous guidance of $1.51 to $1.53.. And as always -- and we've continually demonstrated this, I think -- we'll keep an eye toward ratcheting up performance if the positive signs sustain themselves or even increase. So with that, I'm -- we're now prepared to respond to any specific questions you might have.

Thank you, Mr. Cashman, the question and answer session will be conducted electronically today. [OPERATOR INSTRUCTIONS]. We'll take our first question from Richard Davis from Needham & Company.

Thanks very much. Hey, Jim, in the past -- or at least in the last few quarters -- you'e mentioned or talked about increasing your sales force. Have you done that or are you planning to kind of hold that back until you combine with Fluent to kind figure out how the right way is to lay out the allocation of people?

Well, as I mentioned, we have increased -- you know, we have increased the sales force. That's something that's been a multi-quarter guidance and a multi-quarter execution that we've done. In general when -- you know, not knowing how all the other things would turn out, we were -- we continued to look at expanding the sales capability; in that standpoint when you find a good one, you take advantage of that. Now however, the next few weeks are going to have us look at the combined assets, and they've had good performance over the years also. You know, we're going to look at the best way to deploy those.

And in fact, that is a major element of the integration plan. It's not just product integration, it's not just financial integration. It's going to be how we actually utilize the combined strengths of the Company to hopefully continually provide superior value to the customers.

So last week I sat down with the guys from [Deso], and they had mentioned that Fluent and [Deso] had work jointly with each other for a long time. Do you view -- so my question to you would be, do you view [Deso/Avacus] as a competitor? If so or if not what implications does that have for the Fluent/ANSYS related [INAUDIBLE] with [Deso]?

The bottom line is, we -- there's probably nobody that we compete across the board with. There's lots of people that we may compete in individual facets with. But guess what? That's part of the existence with the computer world. It's kind of -- you know, it's kind of silly to have kind of a monolithic perspective on this. So I mean, at the conference next week, you'll see how there's just -- there's tons of competition. There are a number of the major other CAD players are actually participating in the conference with us. From that standpoint, we continue to provide technology to [Deso], as we've done for years. I see for -- or at least our intents and purposes -- I see no reason to not work with any other technology provider out there.

At the end of the day, we're serving the customer, and the customer has very expansive needs. So I would -- you know, for our part, I would consider that we continue to work with the broadest range of people, because that's what our customers require.

And we're going to take our next question from Tim Fox from Deutsche Bank.

Hi, good morning. Just focusing on your conference next week, taking the theme from there around innovation. I'm wondering if you could talk a little bit about this whole use of simulation in upfront analysis. And if you could quantify would be great, if not maybe just talk around the subject. But how much of your business do you think at this point is going into the hands of people that are actually using your tools for upfront work versus post analysis, and where do you see that trend going forward?

Well, the trend is -- the trend is clearly -- is clearly going in that direction. I mean, just the way that computing has moved on to the desktops of most business people, where it used to be more of a back-end loaded back office type application. So those trends are going to occur. And the reason they're going to occur is that those are the people that are getting the -- they're the people that are making the fundamental decisions that are locking in quality, functionality and cost, and you want to provide them the maximum amount of insight before they lock in those particular items.

You know, what's held it back in the past was it was too clunky, it was to difficult to communicate with other systems, everybody was putting up artificial walls, interoperability, it was -- I mean, there was just a number of -- sometimes it wasn't powerful enough. Sometimes you needed too big a computer for an everyday use to happen. A lot of those things are all -- there's a confluence of mediations to all of those kind of blocking factors, and that has basically opened up the door quite a bit. So that has been a steadily increasing part of our business. But I don't even think we're past the halfway point of that. It's that difficult to really nail down a precise percentage. But the majority of the growth curve is still ahead of us.

What probably is the largest issue that still happens is most companies don't turn on a dime, nor do they capriciously change to what might be perceived as the latest fad. We might say this has been around for a long time, but it still takes companies to adjust their business processes to be able to leverage that and still maintain their own life blood in businesses. And so it sometimes takes several years for that to cross over before companies can make that kind of change. That's the kind of process that we're in the middle of now.

And moving on to Mark Schappel from KeyBanc Capital Markets.

Hi, good morning; and good job with the quarter, congratulations.

Thank you.

Just a couple of questions. Going back to the large deals, just to make sure I heard this right, there were two million dollar plus deals in the quarter?

Yes.

And were they both in North America, Jim?

Yes, they were. They were headquartered -- yes. As usually happens with those, they tend to be used on a global basis through the IT infrastructure of the major account, but the headquarter locations of those sites were both North America.

Okay, and were these deals kind of the typical large deals, where they were just a little bit over a million dollars, or were they -- were any of these deals megadeals?

Well, one was -- one was -- well, one was right at the -- one was right at that level, but we had one that was about 3 million in paid up. It was -- that's -- you know, we -- for us, that would be a megadeal. That was a -- yes, but like I said there was a -- you look at the entire distribution, much less the list of accounts, and there -- for some reason there was a very palpable kind of increase in both the median and the mean order size. So one --

Any particular industry, Jim?

Say again, what?

Were they in a particular industry?

No. No, in fact, it was from the list of customers that I rattled off, which was a subset -- just a subset of the six figure orders. You could see they spanned everything -- medical, automotive, aerospace, electronics, computers. I mean, it was just a broad range of things. So no, there wasn't any -- the one thing we do notice -- I've talked about this for several quarters -- it does seem, as opposed to being certain industries that are uniformly strong, it seems to be that uniformally, the market leaders and innovators are the ones that are showing the greatest migration to this. So it's a different axes.

[OPERATOR INSTRUCTIONS]. And we'll take our next question from Jason Rogers from Great Lakes Review.

Hello. What percent of the revenues for the quarter were direct versus distributors?

Let me get that real quick. Let's see. It was about -- about 60/40.

60 direct?

Yes, sorry. 60 direct.

Okay.

A lot was driven by the continued good performance of the direct offices and the major -- the global major account orders tend to happen by the customer's choice directly with us, even though the indirect partners actually played a role in supporting that on a global basis.

And what was cash flow from operations for the quarter?

Cash flow from operations was about 12.6 million. But I will caution you that FAS 123-R, with the adoption of that in the first quarter, about 2 million of cash flow that used to be reflected up in operations has moved down to the financing section of cash flow statements.

Okay. And do you have the accounts payable figure for the quarter?

Yes. Hold on just one second. Let me pull up a balance sheet. Accounts payable is about 1.4 million.

Okay. And just looking at the business, you mentioned different market areas like health care and electronics and automotive. Are you seeing any opportunities specifically in one market versus the other? Is there a certain market that is accelerating versus another? Or how does the opportunities look in the different markets?

Like I said on the previous question, really we're just -- we're not seeing any wholesale -- you know, we're not seeing any wholesale markets or industries that are where everybody is going like gangbusters. We're not seeing really any that are also totally dead on all aspects. It really seems to be driven by the leaders in all industries have been accelerating. That's why when you look at the major customer list that we've been talking about, it just -- it looks like a grab bag but really what it is is a complete pallet across the whole range of industries.

Are there any newer industries that have opened up recently?

Well, like I mentioned, the interesting thing is some of the advance research ones like I talked about the innovation -- you know, you never would have though of this stuff In fact, it was even last summer this stuff was even discussed in Scientific American, where they are utilizing it for handling frozen anti-hydrogen pelts that are used for propulsion. So I mean, that will [INAUDIBLE]. But the way it's being used in the medical world, I think two areas where the utilization is particularly new and innovative is the way it's being used to actually -- in the energy producing industries, as well as the biomed producing industries. So they're being used in diagnostics and in implants. Actually, I mentioned the Hall of innovation at our conference -- I know some of the things they are talking about are some endothermic type of things, and we're talking about spinal implant and a number of different things of that nature. So it is starting to move into those biotech things, where clearly the cost of being wrong is particularly burdensome; but also, where there's a lot of innovation and the need for the kind of multi-physics uniqueness that we have.

Very good. Thank you.

And we'll take our next question from Scott [INAUDIBLE] from Emerald Advisers.

Good morning, Jim and Maria. Terrific quarter, thank you.

Good morning.

Good morning.

I just wanted to know on the timetable for ANSYS 11, if you look back at previous major releases like this, do you see -- first of all, is there usually a pricing change that goes along with that?

Not usually. I mean, not categorically

Okay, so -- you know, my question, then, is directed as to whether you see people kind of jumping in ahead of the release in order to take advantage of some pricing?

No, no, we don't. Actually, I think it really gets down to it's not a cost issue, it's a value issue. And therefore the value is what kind of return they get from that. If I see anybody jumping in, it's kind of like once they determine it's going to have a positive impact on their business, they want to start using the tools much earlier. And that probably is more -- but that's something that only the leading companies are starting to do, but it seems to be kind of an emerging trend. Now typically -- we haven't made any announcements on this -- but typically, we may introduce some new modules. But -- you know, those might be some increments.

But I think in general, we don't have that -- we normally don't have that phenomenon where there's a big spike after a product re,lease because for the most part our customers will get -- you know, adopt it at the earliest time, and with the ongoing enhancement subscriptions they know that they're not going to be facing an upgrade in a few months. So they get that automatically, and that's an ongoing relationship we've got with the customer. It just tends to provide steady flow capability to the customer and repeatable business patterns for us.

Let's take our final question from Jay [INAUDIBLE] from Merrill Lynch.

Thanks. Jim, last week at the [INAUDIBLE] Engineering Software Conference in Scottsdale, there was an interesting presentation in one of the breakouts having to do with simulation generally; and specifically, there was an interesting comment that engineering or analysis practices vary by industry and even by region so that, broadly speaking, there are perhaps an American approach to analysis, approaching in Japan and so forth. And I'm wondering if you see that at all in your business in terms of applications or process that by your technology vary by region, or if you're seeing perhaps a certain greater degree of consistency in terms of how the technology is being applied?

Actually, that's an interesting question, but it strikes right at the heart of what we've been talking about with the whole rationale behind the Workbench, in addition to integration technologies also providing -- to answer the first layer of your question, I -- we see differences across the way -- we see similarities in [INAUDIBLE] distribution. There's probably 70%, kind of 80% similarities; but that 20% sometimes can be very nominal in a difference or it can be very stark in a difference. We so see some differences in the way different cultures utilize the capability. It probably depends upon how they're trying to extract the value and what their overall cost structure and value structures are. We do see differences in the way industries apply them. I mean, there are ways that they manifest themselves. But we also even see within competitive industries of a certain type that different companies will deploy them in different ways, largely because of some internal processes that they view as a competitive advantage for themselves that they've developed.

So as a result, in addition to trying to integrate across a broad range of partners and other technologies, that's the reason why we knew we had to basically allow flexibility between data interoperability, and also flexible workflows, because there isn't a fundamental. There's not a best [INAUDIBLE] way that everybody utilizes this. There are different ways to extract the value of the core technology. And, quite frankly, that varies as a result of the structure and the internal processes and where any individual company is on the learning curve. It just so happens there are some slight correlations as it relates to geography and the industry on top of that.

We will take a final question today from Irene Jacoby from Next Generation.

Yes, thank you. I just wanted to ask if there's a timetable for when you expect to be announcing more detail and more guidance going forward on the Fluent acquisition?

Yes, it's going to be over the next couple of weeks.

Yes. We need to get to our conference next week and spend some time [INAUDIBLE] our customers. We'll [INAUDIBLE], but we're all going to get together and do some early integration and make sure the numbers that we feel comfortable with based on the outlooks of the two companies going forward [INAUDIBLE]. A lot of times, you get through the HSR hurdles in a couple of weeks; we just want to make sure we come out with good guidance.

You know, we have an idea of directions we want to take. However, we were complying with the ground rules of getting through the regulatory clearances. So now kind of -- now we've got a chance to work those in earnest.

That does conclude our question and answer session for today. Mr. Cashman, I'd like to turn things back over to you for any additional or closing remarks.

Okay, thanks. And I'll be brief. So in close, still, the long-term enthusiasm -- you know, we always are wary of what's going on at any time. But long term -- and this has been a multi-year theme -- it's there -- but we're also seeing some clear signs of improvement. And we continue to be bolstered by the combination that we had for a while -- the strong business model, the loyal customers, the channel partners that have been with us, and of course the bank of talented and committed employees which will get significantly larger over the next few days.

And these ingredients, they just continue to provide a recipe for consistent financial performance with an expanding customer base and basically an expanding base of technology to support our long-term initiatives. And with that, I thank you for your attention and your questions, and we look forward to talking with, you both over the next few weeks and next few quarters. Thanks a lot.

That does conclude today's conference call. Thank you very much for your participation and have a wonderful day.