ANSYS Inc (ANSS) 2007 Q4 法說會逐字稿

Good morning and welcome to the ANSYS fourth quarter 2007 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, Inc. If anyone has any objections you may disconnect at this time. I would like to introduce your speaker for this morning's call, Mr. Jim Cashman, President and Chief Executive Officer. Mr. Cashman, you may begin.

Okay, thank you. Good morning and welcome to the ANSYS call as was mentioned for Q4 of 2007 and for our fiscal year that ended in 2007. And with me this morning, as usual, is Maria Shields, our CFO.

So, we're going to use the fairly consistent structure we've had for awhile, where we'll start with a high level overview of the quarter and the full year, and then followed by and examination. We'll go into greater depth on the operational results from a number of different perspectives. So, the basic theme of the call is strong results off of strong comparables fueled by strength in virtually every facet of the business and driven by organic growth. The qualitative elements are also consistent with the quantitative side as technology progress, customer engagements and the building of our infrastructural capacities all made significant strides. In spite of all this, it more accurately signals the opportunity ahead of us more than probably approaching any end goal.

Now, Maria will then, after that, update you on our line item expense performance, balance sheet, capital structure and cash flows and provide an update on our current outlook on earnings. Included in this outlook will be continued investment in our business.

We made excellent progress on our back office systems integration in 2007. We talked about that on past calls and we're currently expanding our global IT backbone, front office and customer interaction systems as we move into 2008. So after we discuss those topics, we'll be happy to respond to any questions you may have. So Maria, would you please start us off with the Safe Harbor Statement and any other cautions of a risk filled world?

Sure, okay. Good morning and again, thank you, everyone, for joining us to review the highlights of our fourth quarter and full-year final results.

Before we begin, I'd like to remind everyone that during the course of this conference call, some matters that will be discussed as either part of the prepared remarks or response to questions may constitute forward-looking statements that involve risks and uncertainties, which 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 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 forms 10-Q, 10-K, 8-K and our 2006 annual report to stockholders, all of which are available via our website. 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 unless we do so in a public forum.

During the course of this call, we'll be making reference to non-GAAP financial measures in an effort to provide supplemental information to our GAAP disclosures. A discussion and full reconciliation of GAAP financial measures to comparable non-GAAP measures is included in this morning's earnings release and related Form 8-K. Okay. Now with all of that covered, I'll turn the call back over to Jim.

Well, thanks. Our Q4 performance represented business results above our non-GAAP earnings and revenue guidance while we're continuing to build the customer organization and maintain our usual investment patterns. From the numbers I give, I'll be using the non-GAAP numbers in the same fashion as we have been using historically. This maintains consistency with our calls of past years and quarters and we feel and can actually demonstrate that it provides a more accurate representation of the business.

In this particular instances, our reference to non-GAAP will also extract unplanned tax benefits that inflate EPS and do not represent the ongoing operation of the business and I think Maria will go into a little bit more detail on that later in the call. So from a high level perspective, Q4 was a really strong quarter, even by our standards, and off of a very strong comparable quarter in 2006. So for the quarter we reported great financial performance with non-GAAP revenue of $111.2 million, our first $100 million quarter. This represents a 23% increase from our previous Q4 of $90.4 million. This quarter, just as in Q3, represents organic growth and was in excess of our guidance and the analyst consensus.

The non-GAAP diluted earnings per share increased 48% with non-GAAP EPS of $0.40, up from last Q3's comparable -- I'm sorry, last Q4's comparable of $0.27. The actual amount of $0.44 included a one-time tax benefit of $0.04 that should not be used for operational comparison, either retroactively or prospectively. This non-GAAP EPS was also above our guidance and the analyst consensus, but it continues to underscore what happens in our business model when we overperform on the top line. Our non-GAAP revenue and EPS performance for the quarter were both primarily a direct consequence of the strong top line results. Basically, we saw both an acceleration of orders in the pipeline, and larger order sizes stirred by upticks in customer adoptions. There were also some positive currency effects of about $4 million which made the strong results even stronger. All major aspects of the business performed well and with balanced performance by product line and geography. We saw continued strong gross and operating margins, strong cash flows, good DSO and a stable business model. Basically, every metric that we follow was positive.

From the customer side, we saw continued momentum in our customer engagements, obviously quantitatively that was true, but qualitatively all the same. This was true from both new adopters and long-standing relationships alike and it basically continued to transcend any geographic or industry boundaries. By any measuring, even by Q4 standards, the volume and the size of the orders were impressive. We had actually several seven-figure deals and a few dozen of the larger six-figure orders, so, there was actually kind of an uptick in that. The continuing story from customers was they just said this is a result of their increasing market pressures which demand upon them superior non-compromising solutions and confidence in ANSYS's execution as a long-term business and technology partner. So just as in the last call, this quarter represents a pure apples-to-apples comparison of business since the Fluent acquisition in early 2006.

For the purpose of this call, GAAP and non-GAAP revenues are the same and will be compared to the 2006 non-GAAP revenues that we discussed a year ago. For years this has been the most useful look into the business metrics and it remains so today. There will still be a partial difference in the comparison for the full year since 2006 only contained eight months of Fluent operations. So if we dig into the operational highlights now, as previously mentioned, our non-GAAP revenue for the quarter was $111.2 million, this revenue is 23% over the $90.4 million of Q4 in 2006. As I mentioned, there were currency impacts, so adjusted for this it was still a 19% growth organic. Non-GAAP diluted earnings for the quarter grew 48% up to $0.40 up from the $0.27 per share in Q4 of '06. This exceeded the analyst consensus which marks the 41st consecutive quarter that non-GAAP EPS has met or exceeded the analyst consensus.

Overall, non-GAAP operating margins for the quarter were 43%, indicative of solid top line results. This compares to 38% in Q4 of 2006, and there are two basic components in the increase of this. First of all, it represents the planned margin expansion within the Fluent integration as we brought and evolved them into our business model, and secondly, it basically contains an expansion that is in keeping with the revenue upside. The adjusted gross margins stayed in line, basically in line with our business model, at a healthy 86%. And the cash flows were particularly strong from operations, over $41 million compared to $29 million from last Q4.

Now, if we look at the full year of 2007, we reported total non-GAAP revenue of $387.2 million, or a 37% increase over the $282 million of last year. I want to take a minute here. Just as a reminder, last year's comparable included only eight months of fluid -- Fluent business, so the percentage increases should be taken accordingly. The software license business was disproportionately strong but the maintenance and service business also grew in double digits. The fiscal year 2007 non-GAAP EPS was $1.30 which was a 41% increase over the $0.92 of 2006. For the full year, non-GAAP operating and gross margins were 43% and 85% respectively, and the cash flows from operations were over $127 million for the year, which is a 42% increase over 2006.

Now, I'd like to, actually now we can jump down, take a look from the typical variety of perspectives that we look at. We'll look at category of business, geography, customer, product and I guess starting by -- let's start with category of business first.

Please stand by, we have lost our speaker's line. Just one moment while we try to reconnect. Once again, please continue to stand by while I reconnect our speakers.

Okay. I don't know, I think -- we're back on now. I'm not sure what happened, folks. I heard the line beep, somehow we got dropped.

So basically, I think I was in the point where we were taking a look, we were going to get ready to prepare taking looks at a variety of different perspectives, I apologize if I kind of go back and maybe repeat something, but I don't want to take a chance on missing it.

So, we were going to start at category business first. And basically the overall consolidated non-GAAP software license revenue grew 29% for the quarter, and for the full year it was 45%, again, remembering that Fluent was included for only eight months in 2006. And I'll try to clarify what that really means in a little bit here. Total paid up licenses grew at 46% for the quarter and 40% for the full year. The lease business grew in the high teens and was 37% of total business, even in spite of the strong paid-up license performance. For the full year it was 39% of total revenue. This basically continues to solidify our repeatable business base and aids in our overall visibility.

Software maintenance grew in excess of 20% for the quarter. The pure service business was down, but in line with our earlier guidance as we continued our shift toward higher margin work to leverage the software and expanded deployments within the customer base and continued to leverage our channel. We saw our continued good balance between both the high end and the desktop products. The upper end products continued to perform well which is emblematic with increasing demand for high fidelity solution steps, while the desktop saw continuing democratization of simulation with an eye toward also having an upgrade path once they get comfortable with that technology. Our direct and indirect businesses both performed well maintaining about that 70/30 split in favor of direct that we've been talking about for awhile. As a repeat from previous calls, this is significant since it shows an ability for the indirect channel and the direct efforts to grow in harmony. And we continue to prepare for future opportunity with ongoing certification efforts to expand the product portfolio into that channel and basically that's something we talked about, it's a lengthy process but we want to maintain the quality.

I'll also highlight that basically -- virtually all of our direct offices throughout the world produced quite strong growth, particularly in -- particularly strong business intake for Q4 allowed total deferred revenue to rise to $125.5 million, our already strong core repeatable business base remained at traditional levels for Q4 at 65%. Even in spite of the paid-up license over achievement. So, even with the robust growth, one of the greatest strengths of our business model continues to be the consistent ability to maintain a solid base of recurring or repeatable revenue. It increases our visibility going into a quarter and it reduces the variability of the typical backend loading of revenue in a quarter. We believe that this is a direct result of our commitment to reinvest at a high percentage of our revenue back into R&D which in turn allows our customers to tackle increasingly complex design issues.

We have a solid balance sheet and strong cash flows, as I mentioned, $41 million for the quarter, that have easily supported the amortization of the debt that we took on with the acquisition and throughout 2006 and 2007 we accelerated the pay-down of the debt. Now, from a geography standpoint, we saw sustained good growth for all regions. We continue to be encouraged by the combination of industry breadth, new customers, and existing customer expansion, so it's pretty solid across the board. From a total business perspective, North America increased 17% for the quarter, direct offices and the channel both performed well. In particular, our direct offices all grew in excess of 20%.

We saw good product line balance, we saw good industry representation. For the full year, the growth was 28% but, again, I'll remind you, that carried the noncomparable of only eight months of Fluent sales in 2006. But balancing all factors in North America, the equivalent growth was still in the high teens by any measure.

We saw a heavy dose of major orders in North America, both from long-standing and from new customers. Boy, the list is almost too long here, but, Pratt & Whitney, Honeywell, Conoco Phillips, John Deere, Raytheon, Trane, Lockheed Martin, Tyco, Rolls Royce, BAE Systems, ArrowJet, Goodrich, Bechtel, Bettis, Schlumberger, Seagate, Boeing, General Dynamics, United Launch Alliance, Ford, Exxon, BP, Los Alamos, Whirlpool, U.S. Nuclear, Atomic Energy of Canada, Hitachi, Northrop-Grumman, basically this is the subset of the major deals. So, as I mentioned in my opening comments, quite a significant increase there and that's kind of emblematic of it. Europe also continued to perform very well, with an overall 27% growth for the quarter. There was strong balance across all the subregions of Europe, major accounts, channels, industries, alike. Now, I will note there was, I mention the currency impact, about $3.3 million of that was related to Europe, but the growth for the quarter in Europe was still over 18% ex-currency. So it's very consistent with both North America performance and with our overall plans.

For the full year, Europe grew at 44%; ex-currency, that number would be over 35%, but remember that those extra four months in the comparison. I'd say probably mid 20s, ex-currency apples-to-apples would be a pretty good comparable, but it's not totally scientific. Just as in North America, there was a larger usual array of large orders. Again, including both expanding and new customers. Some of the most significant deals in Europe included Siemens, Skoda Auto, LMZ Tower Machines, Alstom, Airbus, Ariba, MAN, Snecma, Petra, Scania, Volvo, BAE Systems, Saab, Acciona Energia, Solar, [Thiesen], Prospect Flow, Honda F1 Race, Formula 1 Racing, Voit, Dupont, British Petroleum, EADS Space Transportation and Williams Grand Prix. So across the board for industries and size, fairly impressive.

Our general international area, again, that's largely Asia-Pacific with some other countries, South America, most notably in that area, exhibited good growth and increased balance throughout the region. It grew at 26% for the quarter, most of the high potential regions grew in excess of 30%, while Japan grew at 19%. Now, on prior calls we mentioned that had we felt there was an opportunity for improvement in Japan, and we've seen steady but albeit modest improvement with more opportunity and a lot more effort ahead of us, but still, a very positive sign there. Currency impact was around $600,000 for the quarter which still yielded over 20% growth. And for the year, growth was 41% with a minimal total currency impact.

Key customer engagements in the region included Cummins, Infotech, Toho Gas, Mahindra and Mahindra, Nippon Steel, Nippon Oil, General Motors, Tenix Defense, Canon Japan, Atomic Energy, Toyota, Petrobras, Ingersoll Rand, Konica Minolta, Nissan, Sumitomo, Honeywell, Mitsubishi, Vestas Wind and Toshiba, and it was a pretty good mix in the normal blend we have over there, both the multinational and the emerging local businesses there. Now, you might have noted from the names, how do I want to put this, there were a couple of interesting themes from the -- from prior couple of calls that are proliferating. First, the increasing demands for clean, safe affordable energy was something mentioned on a broad front before and we saw that again in Q4 from fossil to nuclear, to wind, solar, hydro and bio type of sources. You might have also noticed from just a subset of the significant customers, such as Conoco, BP, Exxon, Vestas, [Ariavachiona], Petrobras, Nippon Oil and several international and government nuclear agencies that this just doesn't appear to be a dying trend.

To top this customer success off, we were also recognized for our efforts by being selected to the clean tech index for the impact that our technology can have. Secondly, we also tipped our hats off in the last call to Ferrari and Alinghi for basically the successes they had had in global competitions. This basically was followed by recent collaboration with other leading sports teams such as BMW's Sauber and Honda, Formula 1, and our support of last week's unveiling of Speedo's revolutionary elite speed suit, the LZR Racer. It's probably worthy to note that since that was just released, that the previous suit released last year, the FS Pro, basically launched in March of last year, I think, has already been a part of over 20 new world records in less than a year. So, we feel that there's a strong analogy to victory in the world of sporting and that over which our industrial companies and customers are also seeing or striving to attain.

So in summary, basically we saw strong balanced regional growth, we saw progress in some of the focus areas that we mentioned on previous calls, and, as always, we'll be continuing to evolve adjustments in the distribution model and continuing to upgrade it just as we have for the past 10 or more years. There was extreme industry breadth and major account activity in every major geography, even reaching down to the subregions, but I'll still underline that we have opportunity for improvement in a lot of places.

Now in response to this customer interest, we've been expanding over the past several quarters and especially over the past six months to build a pretty solid foundation but we'll be judiciously building this over the next few months. And I say judiciously because there are always lurking issues. Our customer base continues to grow and increase their adoption but the usual concerns that dominate the headlines are also felt by them. Energy costs, labor, housing, credit, currency fluctuations, geopolitical events, all or any of which can influence the timing of our customers' buying decisions and sometimes to the cautionary, but also sometimes to the positive as they try to gain advantage in tough times. Nevertheless, we've strengthened the business model that's helped us through the dot com bubble burst, regional recessions and prosperous times all alike, so trying to build that foundation going forward.

Let's see, so now if we take a look at the -- at product trends, with the geographic performance we just discussed, it probably is no surprise that we saw positive performance from a product standpoint in line with our trends and guidance. Total non-GAAP software license revenues were up 29% for the quarter and 45% for the year, again keeping in mind the skewing of the annual comparable in that latter number. As previously mentioned, consolidated paid up software licenses grew by 46% over the comparable quarter, lease businesses kept pace at a seasonally solid 37% of total with growth in the high teens. All parts of our product spectrum did well with good overall balance. This is true from the desktop to the main line products and, for people looking at that, there was balanced growth in the structures and fluids, different cuts that we take from that business, too. So it was balanced throughout.

ASP for the quarter, basically stable at both the high and low end. This has been a multi-quarter trend as customer confidence has led to more licensing of comprehensive product sets. From a qualitative standpoint, I guess the monotonous summary is that the broadest, deepest set of integrated simulation tools in our space has continued to get broader and deeper. I guess I'd invite any of you to visit us at ansys.com for various details of product capabilities, releases, as well as some upcoming news. This quarter we're actually kind of in between releases, but you should stay tuned for the latter half of this year, it could prove to be fairly exciting.

We feel that our R&D expenditures coupled with our customer collaborations can still yield significant technology progress for years to come. Nevertheless, we did announce some solid enhancements to our partner relationships with the expansion of existing relationships, coupled with announcements of some new collaborations. For instance, with the E-CAD electronics CAD space. And also, further cementing our leadership in the field of high performance computing. Actually, late in 2007, Microsoft selected us to their high performance computing partner Echo System.

Microsoft has also been a lead partner in our sales and regional activities in addition to Dell, Sun, Intel, HP, IBM, SGI, AMD, and Penasys in a cooperative effort to expand computing efficiency and availability for all customers. And, in fact, this morning some of you might notice the announcement related to our expansion of our high performance computing or HPC offerings. So in summary, it was a hallmark quarter for us, and another very strong quarter by any metric, quantitative or qualitative. We saw continued financial and market performance, while continuing our integration and foundational building efforts.

I'll just reiterate, we remain committed to our long-term vision of taking simulation to a new level while meeting customer expectations today, and striving to meet our corporate commitments to our stakeholders. Over the long term, we've demonstrated our ability to grow the top line in accordance with our guidance while targeting solid margins and continuing to provide solid earnings growth with continued opportunities for the upside as we saw in this past quarter. We'll continue to drive our simulation vision with long-term optimism, dedication to the technology, and I'll have to say a laser focus on our customer in keeping with our ISO lineage. Even as we increase our outlook, though, we'll maintain our attention to detail and yes, I'll say it, a cautious optimism, probably I'll take some grief for that statement. But I think it's difficult not to have optimism given our technology and the things confronting our customers. But I also think it's -- borders on reckless not to exercise caution given the business climate.

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

Okay. Thank you, Jim. Good morning, everyone.

For the next few minutes I'll just briefly go through a summary of some of the financial highlights as they relate to Q4 and 2007. I'll touch on some balance sheet and operating cash flow issues, and then add some comments relative to our EPS outlook at this time for Q1 and fiscal year 2008. Starting with cost of sales, excluding acquisition-related amortization, and the impact of stock based compensation which combined totaled $5.5 million, cost of sales for the fourth quarter totaled $15.4 million, and that compares to $13.9 million in last year's fourth quarter. This resulted in an overall non-GAAP gross profit margin of 86% for the fourth quarter. And on a year-to-date basis, non-GAAP cost of sales excluding $21.6 million of acquisition-related amortization and stock-based compensation totaled $56.5 million, versus $41.9 million in 2006, resulting in an 85% non-GAAP gross profit margin for the full year.

The comparative increase over last year's fourth quarter and the 2007 full-year cost of sales totals is largely related to the inclusion of Fluent operations for a full 12 months in 2007 compared to eight in last year, as well as increases in salaries and headcount-related expenses and third-party royalty expenses. As we look out to 2008, we're currently planning for non-GAAP gross profit margin in the 85% to 86% range.

Moving on to SG&A, for the fourth quarter, our total expenses, excluding $1.8 million of stock-based compensation expense, was $32.7 million, and that compares with $27.3 million in last year's Q4, and for the full year, SG&A expenses, excluding $6.3 million of stock-based compensation, were $108.8 million, compared with $82.9 million in 2006. The increase in expenses as compared to the prior year's quarter to date and year-to-date figures were largely impacted by, once again, the inclusion of Fluent's operations for 12 months in '07, higher salary and headcount-related costs, an increase in third-party consulting and commission expense, as well as an increase in our global tax compliance and planning costs.

Looking ahead for 2008, we're moving forward with our continued investment in building and strengthening our global sales and services presence to better identify and capture the business opportunity. Along with that, our business -- we will continue to invest in our business infrastructure to support growth in the future and to drive a combination of scalability and operational efficiencies. In the area of R&D, total expenses for the fourth quarter net of about $600,000 related to stock-based compensation expense were $15.1 million and that compares to $14.7 million in Q4 of last year. On an annual basis, our total investment in R&D, excluding $2 million of stock-based compensation expense, reached $54.4 million and that compares to $48 million in '06. The quarter-to-date and year-to-date increases were predominantly related to Fluent's operations for a full year in '07 and an increase in salaries and headcount-related expenses. During 2007, we capitalized about $100,000 of internal development costs compared with $900,000 in the prior year.

Looking at 2008, our plan is to continue our long-term commitment to ongoing investment in R&D and innovation, to both extend the breadth and depth of our solutions as well as to integrate them into the ANSYS work bench. Our current model targets R&D spend as a percentage of total revenue in the mid teens range. For the fourth quarter and full-year of '07, we've continued to deliver strong non-GAAP operating profit margins of about 43%, and that's very much in line with what we're targeting overall for 2008. Given the current state of our business, we believe that this allows us to strike a good balance between our commitment to deliver earnings growth in the shorter term, but equally as important, allows us to continue to invest and build our business for the long term. As you may have seen in this morning's earnings release, the fourth quarter results did include about $3 million or $0.04 per share of unplanned tax benefits that positively impacted the consolidated effective tax rate for the fourth quarter. It came in around 24% and for the full year of '07 at 34%. Or about 3% below our current effective tax rate when you exclude those positive benefits. I will caution that the $0.04 of positive impact should be excluded for purposes of future comparisons as it is not something that is expected to be replicated in the future. At this time, looking at 2008, we're expecting an overall tax rate in the 36% to 38% range.

During the fourth quarter, we incurred about $1.3 million in interest expense related to the outstanding debt and for the full year of '07 interest expense totaled $6.8 million. Excluding the $0.04 per share positive impact of tax benefits for the fourth quarter, ANSYS reported non-GAAP EPS of $0.40 on 81.7 million diluted shares and that compares to $0.27 on 80.8 million shares in last year's fourth quarter. And for the full-year 2007, once again excluding the $0.04 tax benefit in Q4, non-GAAP EPS increased to $1.30 on 81.1 million diluted shares, compared to $0.92 on 76.4 million shares in '06.

Now, a few comments on our earnings outlook for both the first quarter and the year. Based upon our current business plan and visibility, we're increasing our annual outlook for non-GAAP EPS to a range of $1.48 to $1.51 for the full year of 2008, and initial target growth in the mid teens range, assuming 82 to 83 million fully diluted shares and non-GAAP EPS of $0.33 to $0.34 for the first quarter. Given our level of international exposure, our 2008 results may be favorably or unfavorably impacted by currency. In our outlook, we're assuming that rates stay roughly the same as where they currently are.

I'm going to take you through a quick rundown of the December 31 balance sheet and cash flow highlights. We closed the year with cash and short-term investments that totaled almost $172 million. Our consolidated net DSO was around 43 days. We reduced the outstanding balance on our debt to $59.5 million and the interest on the debt is variable and is set at a rate of about 5.5% for the upcoming first quarter, and the business generated the strongest cash flows from operations in our history with about $41 million in the fourth quarter and over $127 million in fiscal 2007. This has enabled us the ability to aggressively pay down the debt throughout the past year as well as fund the repurchase of approximately 250,000 shares of ANSYS common stock throughout 2007, including 150,000 shares that we repurchased in the fourth quarter. This leaves about 3.8 million shares still available for repurchase under the currently authorized program.

So with that, I'll turn the call back over to Jim for some closing comments and then we'll move onto questions. Jim?

Okay, thanks, Maria.

To recap, first, sustained strong financial performance basically of all the major parameters of the business -- revenue, earnings, margins, cash flow, product mix, business base and visibility, I think we commented on all of those. Significant progress across the board in development of our infrastructure. Sustained customer interest at higher levels that has generated increased activity marked by both industry and geographic diversity and broad-based adoption and accelerating interest in our Multiphysics offerings. And then, basically a rapidly expanding partner ecosystem with imminent technology and product releases kind of always on the horizon.

The long-term outlook stays bullish. For 2008, we're raising our estimates from the last call based on the newest data. We anticipate a good Q1 performance even when compared to a very strong Q1 in 2007. We're expecting non-GAAP revenue in the $103 million to $106 million range with non-GAAP earnings in the $0.33 to $0.34 range. For fiscal year 2008, we're increasing our guidance for non-GAAP revenue to the $442 million to $447 million range with non-GAAP EPS increasing to the $1.48 to $1.51 range.

Now, to give some color to this, it is a significant increase in guidance but it recognizes a couple of factors. First of all, we had several seven-figure deals in the same -- in the exact same time frame, a couple of which were pull-forwards, and while mathematically it's in the mid teens range, it's much more in keeping with an upper teens kind of trend at both the top and bottom lines. We anticipate growing off this base but not repeating the entire spike. We're anticipating reasonably stable currencies, as Maria mentioned, and still cautious economic environment. With our diversified customer base and the strength of our business model, this should not impede our ability to capture any upside, but it should allow us to mitigate some effects of minor turndowns, economic turndowns here and there.

So, both of these phenomenon have been demonstrated over the year in terms of our business model being able to address those. And as we discussed earlier, we've accelerated the buildup of our customer facing teams at our business infrastructure, but we'll continue to monitor the market factors as we demonstrated over the past few years also. So I guess with that, we're prepared to respond to any specific questions that you might have.

Thank you. (OPERATOR INSTRUCTIONS) We'll go first to Richard Davis at Needham and Company.

Hey, thanks. On the seven-figure deals in terms of -- could you just talk a little bit about, were they take aways from packaged software vendors or are they replacements of legacy tools in general, or were they actual Greenfield opportunities where heaven forbid, the people weren't using any kind of a virtual product prototyping?

First and foremost, it was expansions of existing, either footholds or solid relationships that we already had. Now, some of them -- some of them probably did involve take aways but that wasn't the targeted kind of approach and that really wasn't the major -- it's basically, I think a natural renovation that customers do, as they start to expand and evolve themselves. But the lions share of those were just normal course of evolution. And basically, probably emblematic of the -- basically the differentiation of some of our products and capabilities.

Got it. And then, with regard to Fluent and things like that, are you seeing kind of cross-selling, how far along on cross-selling in that process are you, on that side of the equation? I know you've made some adjustments in the process there, and things like that. So, could you talk about that?

Well, it's really tough to say how far along we are because the end point's one of those things that continues to shift and expand. I mean, opportunities tend to beget more opportunities. So that's a really tough one to fit. But qualitatively, I mean, the fact is, you could see that both product lines were growing pretty much in harmony, the amount of crossover sales between those were -- they were also quite strong. And I say also, the buying patterns, once a customer gets on our trajectory, it's not necessary that they will put them both on the same purchase order, but start deploying them along the same trajectory inside their companies and, therefore, they might, in any given period, they might come in within different cycles. But they are definitely indelibly -- indelibly linked together.

So the bottom line is, we're doing pretty well on the cross-selling activity. The sales organization has been working in that mode almost since day one. Of course there was a training and -- a training and a buildup process that was required, but lot of that was accomplished in 2006. And I think we started to see the benefits of that over 2007. But wherever we are at this point in time, we want to be better next year. So it's -- I guess we're happy but we're not satisfied.

Got it. Okay. Thanks.

Next we'll move to Barbara Coffey with Kaufman.

Yes, a couple of questions here. You see the growth in adoption of 3D software among different kinds of companies, and even in your installed base. Do you see the adoption of simulation just sort of following in suit or is there still a real active selling process?

Yes, I'm not sure -- I want to make sure I totally understand the question. But I'd say in general, that's been a sub theme. In general, there are a Tier of people that are moving up. And I think those are the next future adopters of that. But he think most of our adoption patterns have come from basically the thousands of major companies that probably have been on 3D for a while, and are are just starting now to expand the manner in which they use that. However, the emerging types of people that maybe are getting their feet wet in a broader 3D standpoint, those are ones where we're -- we are in the seed planting range right now.

That makes some sense. The other question I have is I noticed a press release recently where a handful of your resellers have gotten together, could you speak a little bit about sort of how you see this developing or if you see this changing the environment at all?

No, it actually, it really doesn't change the environment much. It does -- it does accelerate the opportunity. And the reason is, you have to consider that many of these partners have been with us for 20 years. I mean, we've built a very strong relationship with these folks. However, as we increase in scale and the breadth of our portfolio increases, it can be increasingly difficult for a smaller company to maintain the quality of service, the quality of support and the ability to represent the broad suite of products. So what this is, I think what you're seeing here is a scalability aspect, and it's really -- this is more a formalization of some channel relationships that -- and abrogation of capability, and in essence, that's financially been in place over a couple of years, but I think they've more -- they've more solidified that.

What it really allows them to do is share resources over a broader geography, and, therefore, it allows them to invest more completely in there, and, therefore, sell the entire portfolio. Because frankly, one of the strengths is not -- I mean, we may have very strong individual capabilities, but one of the over arching strengths is the way -- is the breadth of the capabilities and how they all blend together in really a true, a non pseudo, but a very true Multiphysics kind of aspect. That does put demands on an organization. This is one of those responses where they do get the scalability to do that. It was done in -- it was done in collaboration, or in cooperation with us and we think it's a -- we think it's a good thing.

Next we'll move to Andrew Matorin at Bear Stearns.

Thanks. Just a general question on the economic environment, and whether you're seeing any pockets of weakness or cau -- areas where there's a cause for concern on your part, and also additionally, if you see any impact from the stimulus package as far as potential for spurring demand on your U.S. customers.

Well, the few hundred dollars that they're getting out on the street probably doesn't come immediately back to us. I'm not sure -- really, the stimulus for our -- I'll tell you first and foremost, and basically if you replay probably the last decade of calls, you'll probably hear similar things, there's always something going on somewhere if the world, there's always some part of the geography, some cycle, there's always a place where there's a concern. But as I mentioned, we saw the dot-com bubble rise, we saw the dot-com bubble burst, we saw recession, we saw some high times, low times. I think we've got -- we tried to build a business model that has some degree of resiliency, albeit we're not -- we don't operate outside the economy. The one thing is, that in general for our capabilities, at least what we've been finding, is every one of our customers, they're implementing increased financial prudence with everything they do. However, in many cases the products that we're involved with, with our customers, they tend to be things that drive future generation of products, development of products that they hope will solidify them or help them grow over the next two, three, four years. And as such, even when there are downturns, it is not uncommon for people to invest in the future, because they're not planning on shutting down in the next year or two. They may cut down their factory turns, they may cut down inventory levels, they may do some things along that line but they're usually not trying to starve the next levels of products that are going to build their foundation for the future. So, there are some factors that can work in our favor, but everybody's a bit more cautious and there are certain factors that can hit the overall system and it will -- it could impact us from time to time. But we've got a series of different buffers in there that I think tend to give us some potential advantages.

And then, a question for Maria, on the expense side of things. Software license costs, as a percentage of software sales has kind of been trending downward. Could you give a little visibility into the cause of that, and should we expect that to continue to, I think it came in at around 3.1% this quarter, if that's a new level that we should expect? It's down pretty materially from prior quarters. And also on the R&D side, I think you guys had talked about a 15% investment rate as a percentage of revenue, if that's changed at all.

No, Andrew, I said earlier, we're targeting for 2008 on the R&D front, mid teens. On the -- on the cost of goods sold side, it can fluctuate, depending on where we are in a release cycle. I would say it could go up or down by a point, but the reality is, we focus more on the gross margin level, which we still think will come in around 85% to 86% on a non-GAAP basis for '08.

Yes, another thing I'd like to add, is in general, as Maria said, we're targeting that -- kind of like the healthy mid teens, kind of investment pattern for R&D. And -- but the thing is, that's largely top-quality people, and we have those in place. So when we have over performance on the top line, it may tend to make -- it's going to have an impact on what the retroactive kind of calculation of R&D will appear to be, even though our model is very much in line with what we said. So you have to kind of sort through the planning and the forward-looking versus the -- versus the optical of how a calculation figures out at the end of the -- at the end of the year.

We'll go next to Mark Schappel at Benchmark.

Good morning, nice job. Jim, in your prepared remarks, you mentioned an increase in large deals. How many deals over a million were there in the quarter?

Well, thank you for calling them prepared remarks. But let's see. It was somewhere around the five mark, which is very -- I mean, and that's not -- but it's real close to that, as I go through the list. But that is, that is -- that in itself is very -- pretty much an anomaly.

Typically you do one or two, right?

Yes, typically we only have one. It pops up. Because our model is -- we talked about this for years, we don't sit there and swing from our heels and go for home runs or strike outs. It's kind of like we try to make solid contact with our customers. Sometimes they turn out to be very significant ones, and to us the mid to upper six figure orders are also very significant. And there was a huge number of those. So it was just -- there was some kind of a perfect storm which meant that things were accelerating, things at a lower probability. Some of these take time to gestate, they happened more quickly. There were just a lot of things that happened.

Okay. Good.

They were planned, but they just happened. You can't always pick the exact month or the exact quarter in which these things happen. So we were seeing things that maybe we thought, maybe Q1, Q2 of '08 were going to happen. And they just -- sometimes customers look at it, they either say hey, I've got some money or they're saying hey, there's so much value in this, I don't want to wait six months to start extracting value. Each one of was a kind of a different set of factors.

Okay. And Jim, could you just comment on some of the trends you're seeing in the medical or biomedical industry with respect to engineering tools? I know in the past, the stent manufacturers, some of the early adopters of the technology, it happens to be broadening now. I was wondering if --

It's broadening, and very often, if you were ever subjected to one of my sales presentations, [inaudible] biomedical in and of itself is a very broad classification. So, we have everything from prosthetics to implants to diagnostics, to drug delivery, to things like that. So, that's one aspect. Over the past three or four years, even though we don't bludgeon you with all sorts of technological advances that we do, the things that we had to do in concert with our customers to advance the concept of material sciences, because now you're talking about ligaments, tendons, in the case of our implants, you're talking about not only what's the material of bone, but what is it for somebody that's got a lot of cartilage or somebody that's got a lot of osteoporosis. Every one of those changes the situation and when there's a problem with these, it's not like you have to take your car to the shop, it's an inconvenience, it's a life-threatening thing in many cases, so they have to get it right. And the regulations say they have to. So the pressures on them are very key. But if you look at now the -- it's one of those things, we've always talked about the value of being right and the cost of being wrong. And boy, when you put that in medical terms and you're directly dealing with people's lives and bodies, that's very significant. And as a result, there's been considerable uptick. However, this is an industry that years ago really wasn't even using this kind of technology and they've only been embracing it. But then again, 10 years ago the sporting world wasn't using it all that much either. And success begets success, or people don't want to fall too far behind demonstrated success of their competitors. So biomed. has been proving up. Obviously, the computational things, the thing we've done with high performance computing, with all of our partners and driving that has allowed for more complex calculations, the advancement in material models and the pressures those customers are going under. But it's also on a multi front kind of standpoint.

We'll go next to Ross McMillan at Jeffries & Co.

Hi, this is [Neela Datta] from Ross.

Good morning, Neela.

Hi, how are you?

Very good, thank you.

So first of all, congratulations on a great quarter. I have two questions. The first one relates to the guidance. You're guiding to about 15% growth and, in the last couple quarters we have seen categoric growth rate in the excess of 20%. I want to get a sense of, are you being conservative, or is there something you are seeing, just a little more color on the cautious tone there.

Well, the biggest thing is, as I mentioned, which you got some of those really huge deals that came in out of 2008, it's kind of like that's not -- those things don't grow on trees for us, they've never been part of that. However, we think with the momentum that we're actually going forward for that. So we're actually starting to recover some of that already. I'm just saying that when you look at the -- when you look at a comparable growth rate, you kind of have to look at a long-term trajectory, and this is one of those dislocations and spikes which can distort it. So, I think in some of my comments I talked about the fact that, yes, it actually computes out on a pure mathematical standpoint even with that in mind to be in the mid teens. However, if you kind of flatten out and -- flatten out the curve a little bit, it's actually pretty consistent with the kinds of growth we've seen. But there is -- but we do have some other cautions. Again, we mentioned with the economy, second of all, we're not expecting currency upticks. They may come there.

The only thing I can -- the only thing I can assure you of, because I think we've demonstrated this many, many times, is that with the R&D investment we've got with the customer facing organization we've got, that if that upside doesn't materialize, we're in good shape and things are going in that direction or in a consistent direction. If the upside does materialize, we have no loss in ability in being able to capture that, we can continue to capture that upside without having to bank on it.

And one follow-up on the Workbench version 12. I'm wondering, when is it going to be released? And what do you think is the most important implication for the customers going forward?

Well, the one thing is, that we haven't officially announced, nor are we announcing today, a specific release date. But basically, if you want to try to extrapolate, you could see something in the latter part of '08, and I'd say some of the key things are you're going to see a quantum leap in some of the convergence of capabilities of particularly Fluent and all of the other product lines. I think the manner, the interaction style, and the integratability, basically the flexibility of the architecture, we have customers that are already using it to build basically custom desktop environments to support their overall engineering environments. And the -- basically, the concept of basically supporting and helping process evolution type of capabilities are going to be the key ones. Now that's in addition to the fact that yes, we always have a number of features added to every particular product set. But the whole point is that, I guess there are ways to kind of simulate Multiphysics with smoke and mirrors and kind of cobble together something, but the manner in which these things work together to really provide high quality predictive solutions is going to be one of the key aspects. I think the overall integration of portfolio is right near the top of that.

We'll go next to Greg Halter at Great Lakes Review.

Good morning, guys.

Good morning.

Congratulations on the very fine results again. Question for you relative to your cash position, you're now sitting with $113 million more in cash than debt, which I'm sure you well realize, but just wondering how you look at that in relation to M&A activity and what you see there, currently as well as how you balance that off relative to the buy back?

Why don't you tackle the first, the cash position.

Yes, from a cash position, I mean, we've been trying to balance, Greg, the opportunity to pay down the debt so that it gives us the most amount of flexibility with the balance sheet if and when M&A opportunities present themselves. We've been busy digesting what we bought in 2006, but there is still a lot of opportunity for us to broaden the breadth and depth of the portfolio and get there quicker through acquisition. So we're always looking. But, I think having known us for a while, we're very particular in what we're looking for. On the buy back side, it's just -- it's opportunistic. When the window is open, and we see that we think it's a good value for the shareholders, we'll be opportunistic in buying back some shares and in Q4, that opportunity presented itself and we thought it was a good use of some of the excess cash.

Do you have the average that was paid in the quarter, in the fourth quarter?

Yes, I think it was roughly 36, and then if you look at the average for the whole 250,000 for the year, it's about 32.

Okay, great. And then secondarily, do you have the figures for capital spending for the year as well as your depreciation and amortization for '07 and then if I can get your thoughts for '08 as well?

Yes. CapEx was about $10.8 million in the year. I think if you look to next year, we're right now currently planning somewhere in the $12 million to $13 million spend.

And depreciation and amortization?

Depreciation and amortization were $38.9 million. And it will probably be somewhere in that range going into next year.

I think the CapEx, the thing on that is it's not kind of like just the same old same -- we talked about building some of the -- continuing to build the business infrastructure and some of the things in terms of basically linking and the integration of the product development teams has been very solid and basically now providing the backbone for that from an IT perspective, but also unifying all the customer, we talked about focusing in '07 on the back office integration, but the customer-facing front office type of things is a major investment area for us. So it's, I'd say, the bulk of those numbers are -- have really been driven by building the company into support the new levels and increased opportunity. Fair statement?

Yes.

We'll move next to Greg Dunham at Deutsche Banc.

Hi, yes, quickly. How much of -- looking forward, obviously Q4 was a big quarter. How much of this was in terms of big deals and seasonality, and how should we look at 2008 in terms of seasonality going forward? Is this kind of a prototypical year?

As Jim said, Greg, Q4 was a big quarter for us. We had a few anomalies, we had things happen earlier than we had predicted. I'd say looking at 2008, probably similar seasonality in that Q1 and Q4 tend to be very big quarters for us, largely driven by, I'd say, our customers' year-end dynamics. And then Q2 and Q3 are kind of more of the "softer", if you will. But we're not suggesting that Q2 or Q3 are going to drop below that mid teens growth levels. Q3, probably the hardest to predict, just given the amount of business that we do in Europe, and the extended holiday season in Q3 sometimes when everyone's away it's tough to predict if you're going to close some of the deals or not.

We're not looking at the Q4, I mean, Q4 should be strong as it always is, but not nearly as it was.

We're not predicting adding another five, seven-figure deals.

Okay, that's helpful. And then, you mentioned the SimuTech merger a little bit earlier, based off of a question. Interesting to know that you guys encouraged it. Could you talk about kind of the-- I mean, you mentioned having a bigger, broader depth in terms of delivery, but could you talk about maybe the success of some of the your Fluent cha -- products in the channel, and should we expect maybe some consolidations for other partners in other regions?

Well, I think consolidation, we probably have gotten to one lump of where it goes to. The support of SimuTech and the collaboration there, our long-term history has been based around working with the direct and indirect channel. I would -- we've seen only the very beginning of the -- we've seen only the beginning of the lead channel partners being -- achieving their certification and then ramping up and being -- and building proficiency above that. And basically, we're highly encouraged that our partners have been with us through many phases of our growth, are excited and willing to invest in the new phases of the growth. So like I said, we view this as being a positive step.

Okay. And finally, just if you permit one more question, just to clarify, you mentioned increased financial prudence amongst your customers. Is that something you've seen throughout a longer term period, or is this something that has popped up more recently?

Well no, it's -- Well, first of all, in some degree -- it's all a matter of degree. It's been a long-term thing. Frankly, it's been a long-term thing since basically 9/11, since the 2001 and the dot com bubble burst and all the things that happened there. The other thing is frankly, is also increases somewhat proportional to the size of the deals. And as we talked about the larger deals, again, we're not trying to build something on these big lumpy things that can be a burden as well as a boon, but the larger they are, they go through a different set of financial prisms through which they're viewed. Sometimes it's -- when it gets above a certain interest expense standpoint for the opportunity cost of the capital, and it could be a whole range of different things. The higher visibility tends to bring higher scrutiny.

We'll go to our next question from Steve Ashley at Robert W. Baird.

Great, maybe I could start with a housekeeping question. Maria, if we were to look at stock comp, is there any relative guidance you could give us for the first quarter and full-year '08 to what we might expect there?

Yes, actually, if you take a look at this morning's release, I think what we've said for full year '08, it's $0.12 to $0.14 and for Q1 it is, let's see, about $0.03.

Perfect. And then Jim, just maybe a high level question, and it relates back to a question that was asked earlier about Workbench, just general adoption and usage, are you seeing expanded adoption and usage of Workbench out there within your customer group?

Absolutely. In fact, you couldn't have the kind of numbers that we've been building toward without that kind of adoption. But our standpoint was always to be able to enable a migration as opposed to force -- allow people to evolve at their own rate. Every one of our customers has a different -- they're in different situations and they have different capacities for basically harvesting the benefits that simulation can bring. The point was not to create this huge step function that they'd have to get through, the first big hurdle they'd have to get through before they could start to get value. We wanted to have more of a continuous steady ramp-up of a value proposition. And, therefore, the point was to try to make Workbench not something so great that people would grit their teeth and jump to it, but they would evolve to it at their own pace, and it would be compelling for them to do so. And that's essentially the way the product was architected.

Because we also have -- we talk about our recurring revenue and things like that and the long-standing relationship we have with customers, and we didn't want to be in a situation where we were disruptive to them. We wanted to be more of a positive experience.

And that does conclude today's question-and-answer session. Mr.Cashman, I'll turn the conference back over to you.

Okay, wow. I was expecting more questions. In close, basically, execution is going to be the key word. We've got a lot of pieces on the board, we've got things in positive directions, so, but we still have to continue to execute. We continue to be encouraged by the positive response that we're seeing to our product vision and to our -- and to our offerings in the here and now.

And I'll say, we've worked hard for, and we do not take for granted, a very strong combination of, we've got a solid business model, we got the loyal customers I just talked about, the dedicated channel partners we talked about, great technology and of course at the heart of all of this is a bank of really talented, committed employees. So we're thankful for the combination, it's allowed us to sustain performance through a number of different economic climates. There's still a world of opportunity and there's no substitute for all the past foundational efforts and the hard work that we've done to reach this full potential and maybe carry us beyond. So I'd like to end by basically thanking those ANSYS customers and employees and all the other friends that helped us get to this point. And we'll see you next quarter. So, thanks a lot.

And that does conclude today's conference. Again, thank you for your participation. You may now disconnect.