ANSYS Inc (ANSS) 2009 Q4 法說會逐字稿

Good morning and welcome to the ANSYS Incorporated fourth quarter and year-to-date 2009 earnings conference call. All participants are currently in a listen-only mode. (Operator Instructions). Please note that today's event is being recorded.

At this time I would like to turn the call over to Mr. Jim Cashman. Mr. Cashman, please go ahead.

Thank you. Welcome to the ANSYS call for Q4 and fiscal year 2009 and with me today as usual, our CFO, Maria Shields. This time around we plan to change things up and rather than going through the usual out line of highlights of the quarter and year-to-date at the detail level, you can see all of the Q4 and year-to-date revenue detail by geography and category on the spread sheet link that is provided on the IR home page. So instead we plan to jump right in and discuss the operational results and the major business drivers and then Maria will update you on the income statement, balance sheet, cash flow highlights and things like that. And then we will provide an update on our current outlook for Q1 and 2010. After all of those topics, we will be happy to respond to your questions, so let's get started. Maria, our Safe Harbor statement if you please.

Good morning everybody, thank you for joining us. Just a few housekeeping items before we get started. I would like to remind everyone that in addition to any risks and uncertainties that we highlight during the course of this call, important factors that may effect the future results are discussed at length with our public filings with the SEC all of which are available via our website. Additionally, the Company's reported results should not be considered an indication of future performance as there are risks and uncertainties that could impact the business in the future. These statements are based upon our view of the world and business as of today and ANSYS undertakes no obligation to update any such information unless we do so in a public forum. During during the course of the call we will make reference to non-GAAP financial measures that is consistent with our standard practice and a discussion of the various items that is are excluded and full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning's earnings release and the related Form 8-K.

One final note, this morning we have also posted supplemental information on the ANSYS Investor Relations home page that can be viewed or downloaded. It will corresponds to some the key year-to-date data we will be highlighting in our prepared remarks this morning. Jim, I will turn the call back over to you.

Okay. We will begin by saying Q4 was a good quarter on a number of fronts. And our results top guidance on both the revenue and DPS basis with revenue well above the guidance. As always, the numbers we are using are non-GAAP. This is historically consistent for us. Maria mentioned that in the Safe Harbor. But just as a reminder, non-GAAP earnings for us including the add back for the purchase accounting treatment of acquired deferred revenue, acquisition related amortization and stock-based compensation adjustment for 2008 and 2009. These are all detailed in our earnings announcement.

I will probably start by saying the best part of 2009 is that it is over. Q4 is an environment that showed some modest improvement and albeit, it is a still a tenuous market, we basically over achieved on revenue and earnings and while we did this we were still able to invest in some key talent and infrastructure initiatives that we will talk about later. From a high level perspective, again, a good quarter even in these tough economic times and off a fairly strong comparable, if you recall in Q4 2008, we actually were talking about the eight seven figure deals there.

In the fourth quarter, our lease revenues were 47.5 million. That is down 3% in constant concurrency and up 2% in US dollars. It is really accumulative hangover from the lease pressures we had seen in the early part of 2009. Paid up licenses in the quarter were 48.2 million which is up 4% in constant currencies and up 8% in US dollars. Our maintenance business continued to grow in Q4 with 50 million in revenue increasing 5% in constant currency and 9% in US dollars. Our peer services business remained fairly insignificant at about 3% of revenue.

In constant currencies North America grew 2%, Europe by 1% and our general International area predominated by Asia Pacific was flat to down 1%. Our total revenues were 150.6 million for the quarter, up 1% in constant currency, and up 5% in US dollars. Actually during Q4 this time we had 14 seven figure deals. Some of which were anticipated. A few of which probably were attributable to unforeseen budget flush in the climate and others that customers accelerated as a result of improvement in their year-end business or due to uncertainty around what the availability of Q1 budgets would be for them in 2010. And of those major deals, overall about 36% of the aggregate values of these deals contributed to new license business for the quarter with the remainder actually building up the deferred revenue balance.

We had 6.1 million in currency benefit to the top line and 3.3 million benefit to the operating line. These were in line with the previous guidance we had given with expected concurrency rates. Both our direct and indirect business performed well. We maintained the 75% to 25% split respectively for the quarter and year-to-date. Overall non-GAAP operating margins for the quarter were 52%. Which represents a blended rate with Ansoft and excluding the restructuring charges we talked about in 2009. There were some positive integration efficiencies but the majority of the increase was based on the top line overall performance. Non-GAAP gross margins, they were at a healthy 89% for the quarter and the year. Pretty much the same-storey as the operating margins.

We also saw a continued good cash flows from operations of 45 million for Q4 and about 174 million for the whole year of 2009. These are down a little bit from 2008. But still solid under the circumstances. Most major aspects of the businesses performed as anticipated with all of our major geographies growing in constant concurrency with 2009. We had significant input from each major product line. And saw a fair amount of resiliency in our customer engagements that really included an expansion of many of our major accounts and so many of names we talked about coming up and the addition of many new customers. Equally important, our recurring base continues to be strong and we saw a continued expansion of portfolio sales and cross selling and this is something that we expect to cultivate further with Ansoft over the next few years so at the high level we will take a look at the business from a variety of different perspectives so category, geography, customer product, number of different ranges and we will start with the category business.

So overall our revenues were evenly spread. We saw about 32%, lease 32%, paid up licenses 33% maintenance and 3% service for Q4 and these percentages changed somewhat for the year-to-date as a result of the relatively lower paid up sales in the earlier part of 2009. But the overall for revenues and 2009 were 35% lease and 25% paid up licenses and 36% maintenance and 4% service. No real surprises here. But we did see some healthy increases and paid up licenses in Q4. Especially from ANSYS's organic perspective which is up 11% on the paid up license. Our maintenance business also continued to grow and this growth was just proportionally driven by the upper end, high end products.

Major accounts were particularly important in their contribution to new license revenue as well as to the deferred revenue balance. Business intake grew roughly comparable to revenues. This contributed to a slight uptick in deferred revenue for Q4 to 176.6 million as compared to 173.9 million in Q4, 2008. Our strong repeatable business base remained a healthy 66% on a larger base of course, equivalent to the 66% at this time last year as well. I can't say enough that the consistent ability to maintain this solid base of recurring or repeatable revenue as well the hallmark of our business model and it is a foundation for navigating through less predictable economies. We have been able to maintain this we believe through a result of a long-term committment to R&D, it has driven our product leadership which in turn has allowed our customers to solve increasingly complex design issues in increasingly tough times. But the difficult times of present also brought the benefits of the technology to the forefront. And really get no argument that 2009 in our customer base the market for new products was as competitive as ever. And perhaps even more urgent, with organizations facing global competition. Skyrocketing customer and performance expectations and increasing regulations and increased quality standards and some of them to survive the downturn needed to cut costs and increase the efficiency and productivity and of course, that what we are all about. Engineering simulation has proven to be powerful asset in developing great product that stand out from the [also] [ram] products so using ANSYS products (inaudible) and take advantage when as the recovery kicks in, they are able to take advantage of that.

ANSYS heightened its dedication to partnering with customers to achieve their vision and in turn our strategy allowed to say navigate the broad range of possible global outcomes while still maintaining our long-term vision. We think this is really a function of the breadth and depth of our simulation capabilities and we have been able to do that with the work bench platform which is basically has the flexibility and openness that allows us to expand our relationships within the already extensive customer base. And looking at that from a geography side. We will step into that one next and looking at non-GAAP revenue from a geographic perspective. The ANSYS organic business increased 6% in North America in Q4 and it is down about 2% for the year and picked up the latter part of the year. The Ansoft business as we have stated previously has been more negatively effected by the disruption in the domestic and global economies and especially true in North America with the Ansoft revenues being down about 10% for the quarter. As the spending environment slowly gets better and we continue seeing the convergence of products that have both electronically and mechanical aspects actually some of those very much in the news these days. We believe that the opportunities for our electromechanical solutions will continue to expand. So even though 2009 was a tough year we are still firm believers in the value of this technology and it is essentially to the long-term vision and strategy that we have for being able to do complete prototypes really early on in the design cycle.

Now, in North America, major orders came from, again, as I mentioned a typical mix of long-standing and new customers. Honeywell, United Technologies, General Electric, Boeing, Tyco, John Deere, Lockheed-Martin, Raytheon, Westing House, IBM, ArrowJet, [Bellman], obviously with the number of major deals we had, there was a lot of significant activity standing into -- Caterpillar, Rolls Royce, [Northrop Grumman], Seagate, General Motors, Exxon, Conoco Phillips, Broadcom, Apple. This is just naming a few and you can see great industry breadth at the same time. In North America about 60% of this aggregate value wound up in our deferred balance and we also saw strong maintenance renewals and good lease component. Europe also continued its impressive performance helped by the obvious currency tail wind in line with the earlier guidance. There was an overall 10% growth or 1% in constant currency. For the year we saw 6% growth in constant currencies. For the year, for the quarter, there was a lot of good performance out there, but the United Kingdom led the way. I would say all regions saw adverse currency effects for the first three quarters of the year but British pound was hard hit. Ansoft has a nominal presence in Europe albeit growing so the core versus total in terms of currency was relatively low.

The largest deals in Europe included repeat customers and some new ones such as Siemens, EADS, Continental, Airbus, Bosch, [Ariba], [Voight], Vallejo, NAM, RedBull, ABB, (inaudible), Volkswagen. Our general international, again, predominated by Asia Pacific showed relative improvement in Q4, growing 2% or actual flat in constant currency. Ansoft grew 3% overall in this region but it continued to feel the effects the recession in slowest in Japan where it was down double-digits. Key customer engagements here included HoneyWell, Cummins, (inaudible) IHI Corporation, Panasonic, LGE Mobile Communications, InfoTech, NiponSteel, Cannon, PetroBraus, Mitsubishi, GoodWrench, Hitachi, and basically a whole host of companies that might not be household names to this audience.

As we look for possible trend data, I know that has been interest in previous calls we still se a wide range of industry diversity and as usual the industry leaders in each of those industries seem to be the most forward-looking. Additional it appears I mean not too surprisingly that the customers with the longest positive design cycles are also the ones starting to show earlier signs of activity. Just trying to be prepared for as the markets loosen up. Even if that is two or three years off.

From the world wide list of large orders evidence of small orders also there is continued trend towards all forms of energy optimization be it conventional, petro, nuclear alternative and additional the area is related to heavy equipment infrastructure and materials also had an increase that possible might be building off of some of the various demands for increased infrastructure spending. Also even in troubled industries, such as automotive we have seen increased interest in our multi physics capabilities for alternate drives systems for safer efficiencies various control systems. Obviously the inclusion of Ansoft into our portfolio serves these designs initiatives extremely well. In all the cases though rapid understanding of some very complex problems with extreme accuracy is essential and of course that the pure strength of ANSYS for the multi physics capability.

So during 2009 we achieved the gains in the core areas including aerospace, defense, turbo machinery, automotive and electronics but we also saw growth in emerging markets and geographies in China and India as well as in industries as biomed and the general industry sector as we mentioned. We are also seeing increased penetration within what is already a strong and broad customer base. The pipeline of new opportunities actually is continuing to improve even amidst the challenging economic environment so even amidst we see a growing interest. I will say the paper flow process, slowly improving but it is still largely protracted and there is still some guess work in the early part of this year. (inaudible) long-term opportunity as that is evident by the continuing multiyear momentum (inaudible) and the range of inclusion of new customers but in the short-term I will continue to add the caveat that even with the increase we are still keeping a steady vigilance as the recovery is coming slowly and this (inaudible) can influence the timing and the pattern of our customers buying decisions. So we tried to factor that into our guidance for several quarters and years and we will endeavor to do so going forward.

But in light of this progress we very selectively ramping up the elements of our customers facing organization and in fact in 2009 we made progress in strengthening all levels in our sales and marketing leadership with some key strategic hires. Most notable in the Asia Pacific region where we feel there is the greatest opportunity for future growth. And that's consistent with what we talked about on recent calls even while we were looking at the cost very carefully for 2009. That's the geographic side and next one we will look at is product revenue.

And basically no surprises from either the trend or guidance that we talked about. And as we mentioned before, the high-end sales grew disproportion . (inaudible) And with the pressures our customers are facing and value of being right is continuing to be very great and the cost of being wrong is, can get you on the headline pages these days and they cannot simply compromise on scope or accuracy of the solution. One other key factor is an increased adoption of high performance computing and with some of the newer offerings a single user can actually harness multiple computers to perform para metric studies or to even solve increasingly complex problems in dramatically reduced time frames using multiple computers within their existing the IT infrastructures. ASP, let see ASP for the quarter we stable at both the high end and low end this is generally true across all the major product lines and of course even true, given the fact with the number of mega deals that I mentioned earlier, there will be normal downward pressures due to the usual volume discount schedules that we have again ASPs are stable across the board. We had seen of course, mentioning on earlier calls some short-term dampening of the Ansoft sales and this has happened to the product line, basically giving the high overlap we had with the electronics industry and the concentration of the business of Japan and predominantly paid up model. Even in the early stages we are starting to see the positive aspects of wrapping their capabilities into the ANSYS portfolio and business model.

We can highlight some of those major deals we talked about that we were winning were as a direct result the electro mechanical capabilities. So the bottom line is we are still excited about the prospect of being able to do complete product simulation across all industries, again, with products that are increasing a blur of mechanical and electrical design issues. Essentially if you will combining the form and function and able to do this in a true open systems sessions, plug and play manner in the multi can environment that exist in most of our clients and their supply chains.

So, again, eye level now being able to reference the links on our website and with that, so we can provide a little more time for Q&A I will actually turn this over to Maria Shields our CFO, again, to provide you more detail look at our financials.

Okay. Just briefly I going to touch upon a couple things that Jim didn't talk about relative to Q4 and year-to-date. As I mentioned earlier I will be speaking in terms of non-GAAP excluding restructuring charges and the tax impact of the repatriation activities, all these details for both Q4 and full year are in the press release. As Jim highlighted, we continue to execute well on both the revenue and expense side of the equation and performance on the top line drove strong gross margins and 89% for the quarter and full year as well as strong operating margins, 52.1 for the quarter and 49.6 for the year. The fourth quarter results were positively impacted by 6.1 million in the currency and 3.3 million at the operating income line and full year results were negatively impacted. About 10.3 at the revenue line and 3.6 million at the operating income line. So, as we look ahead to Q1 and full year of 2010 and consistent with the earlier 2010 guidance. We are targeting non-GAAP gross profit margins to 88% to 89% range, operating margins in the 47% to 48% range for Q1 and 48% to 49% for the full year. Coming off the strong Q4 and as we head into 2010, while the macro economy, it is still somewhat mixed, we believe that it is vital to our long-term strategy and continue to make investments in the areas of the business that we deem critical for the future. Those will, you will see us talking about investments, first and foremost in strengthening our global direct sales and marketing team, continuing to invest in R&D so we can maintain our long history of technology leadership and continue to evolve our business structure so we can support, improve productivity, automation and future global growth.

We look at 2010 for those of you building models this means we will target investments in the R&D and mid to teens range of relative, throughout 2009 despite the lower revenue levels our discipline spending combined with the impact of the right sizing initiatives that were completed in Q4, this has enabled us to sustain strong margins and positive earnings model to what has proven to be the most volatile year that many of us have experienced but, given our current sales outlook which continues to factor in both uncertainties around a timing of a return to growth to certain geographies as well as a predictability of timing and closing sales particularly those larger deals. We believe that discipline spending will continue to play not only in an important role in our business but probable in many of our customer businesses as well.

As we jump to the tax rate, Q4's non-effective tax rate non-GAAP effective tax rate if you exclude the restructuring and charges related to repatriation was 33%. We are anticipating that we will repatriated on additional $25 to $30 million in 2010 but those activities will have insignificant additional tax charges or related benefits. For 2010 we are currently targeting an effective non-GAAP tax rate in the 34% to 35% range for the full year. And that does assume that the R&D credit will be retroactively reinstated to January 1, sometime in calendar 2010.

Taking a look at the balance sheet, we close the year in a very strong position that continues to afford us the combination of flexibility and solid foundation to support the business in the upcoming year. Cash, we finished up with $344 million of cash and short-term investment of which half of that is held in the US. DSOs remain very healthy. There are some isolated pocket that is will work through, about 44 days. The rate for Q1 on the remaining 225 million of debt is about 2.02%, 2009 we finished with capital expenditures of about 8.3 million. We are currently planning for 2010 CapEx in the $15 to $20 million range and I will caution as you saw throughout 2009 our ultimate level of spending will be managed for a combination of pursuing those projects that are critical to the business both currently and for the long-term and balancing the remainder against the overall health of our business ant the macro economic environment.

So, to close, I just like to briefly comment around our currency outlook as we have seen throughout 2009. Given the significant level of our International business we will be impacted by currency fluctuations, largely by movements in the euro, the British pound and Japanese yen. So in our current outlook we assuming average rates in the range of 1.37 to 1.39 for the euro 1.57 to 1.59 for the British pound and 90 to 92 for the Japanese yen. As the rates continue to fluctuate in the future, we will modulate our outlook accordingly.

So with that I will turn it back over to you Jim for a quick recap.

Quick one, okay. Thanks, Maria. To recap then. A continued good diversified financial performance across all major parameters of the business, revenues, earnings, margins, cash flow, business space. Even in light of the current environment and the slightly (inaudible) visibility. And secondly, sustained customer interest marked by activity and broad front as evidenced by the industry, geography and commitment levels and the renewal rates that we mentioned throughout this call, albeit with continued customer discretion and nervousness and rapidly expanding portfolio that we augment with partnerships and relationships on the technological front of the distribution of customer base. And over the long-term we have largely demonstrated our ability to grow the top line in accordance with our guidance but we still be able to maintain solid margins and deliver earnings growth. Long term outlook it is stays bullish. To map it out, this means first, the long-term premise and opportunity are still there, have to underscore that and we feel we have the best technology to meet them.

Secondly at the floor of the assumptions we continue to have a solid business with good recurring revenues, marquis customer relationships all of which combine for good net income and cash flows. We will be focusing on maintaining strong operating margins. As Maria mentioned, in the upper 40, while continuing to build our annuity base of recurring business revenues and expanding at the maximum rate allowed by what ever macro market conditions are out there. So, what does this all equate to in terms of numbers. Well, for Q1, 2010 we are looking at a revenue range of 125 to 131 million which translates to non-GAAP EPS in the $0.40 to $0.43 range. And while we are expecting the revenue should continue to modestly build throughout the year we have also factored in the slower license and maintenance intake that we experienced in 2009. This will continue to have lagging impact on the revenue growth through at least the early part of 2010.

We are also cognizant that our business in Japan will temper our overall revenue growth and we will be concentrating on that as an area of opportunity in the up coming year, I mentioned about some of the investments we have been doing to facilitate that. We don't know how quickly that will happen and we are currently checking 2010 revenues in the $550 to $575 million range. Now, consistent with the message of the past several months and in Maria's earlier comments. We believe 2010 is an important year of investment for us and we are targeting non-GAAP operating margins in the upper 40s and translates to our preliminary non-GAAP earnings projections for 2010 in the range of $1.84 to $1.93.

Now, we seen over the years that continued revenue performance creates up side margins and that revenue performance is sustainable only with continued product and business investment. In 2009, we tightly managed cost due to the extremity and uncertainty of the economy. That could be a short-term approach. So as we enter 2010, we don't want to constrain our investment in the critical areas that have driven our success and we are going to advance our sales in marketing organization and technical innovations because they are the growth drivers of the future. The guidance is cognizant of a number of unknowns out there and there are some things we have no control over. The timing of the economic recovery, government tax policies, currency but our guidance is based on a model that allow us to balance our cost structures but without hindering our ability to capture revenue up side or to cost any long-term issues. Combined with our repeatable business base, diversified geographic footprint and worldwide customer base, world class customer base in fact and the deferred revenues were utilized in the same business model that allows to say weather a wide range of situations over the last decade. So we plan on focusing on strong margins, good cash flows and earnings.

With that, we are now prepared to respond to your any specific questions you might have. I might say during this time just because of the issues I am going to invite a couple of our leaders to help participate and provide some additional color and that would be Joe Fairbanks who head up our global sales organization and Lee [Detwieler] who is our global controller. And with that, I will open the floor to any questions you might have.

(Operator Instructions). Our first question comes from Sterling Auty from JPMorgan.

Thanks. Two questions. First time on the investment side, Jim, you mentioned a couple of times last year that once you got over a couple quarters over 50% margins that would be the indicator so no surprise that you are investing. Can you give us a sense of how you of the split of the investment between sales and marketing and R&D and is there any sense as to head count target that is you might be looking at in each of those areas as you move through the year?

I don't have some of the head count at the top of my head. The bottom line is absolutely, the operating margins that popped up. We have the revenue up ticks at the same time we instituted the cost controls and that takes time to ramp up and get it underway and the bottom line. It is probably not too far off of kind of a 50/50 or 60/40 split and they are fairly balanced. What we try to do is the infrastructure improvement we made with CRM, we look for increasing business efficient and take the additional dollars and put them in. Now, A, I can tell you there have been a number of, we will put it this way, double-digit increase in the R&D and head count that we are looking at. And we have also, as I mentioned added several layers of -- I would say expertise and capability and multiple levels of the global sales organization. And it covers a broad range of front. And the marketing activity and get some of the messaging and customer action taken care of.

Joe, do you have any comments you will add.

Sure. First of all from a pure sales perspective. Jim indicated this we are looking at double-digit growth and number of incremental sales. And when we talk about investments in sales and marketing and customers facing functions. It goes beyond more than incremental head count and that is one significant investment and mentioned the leadership investment that is we are making as well. But we really have three key areas of focus. One is staffing and our ability to recruit higher and on board incremental sales rep and investments in ongoing development as well. And we have key metrics around productivity and the time to productivity for sales reps that help drive that, so it is incremental sales reps and we think we have headroom in terms of improving the productivity of the existing sales organization across the board.

All right. Great. One follow up am and made an interesting comment that the deals may be customers worried about the availability of the budget in the beginning of the year. Talk more broadly about in meeting the customers in your discussions, what is your sense around the budgeting for this type of solution? Especially in light of, we asked that jobless claim again today. And how much of it is going to be increased number of licenses and engineer versus when do you need to see the head count to sustained the growth.

The first part is, what we did see, a lot of people didn't know, as they got and started to head into 2010 and by the way, I will say that this is a this is like a bell curving with standard deviations and not like there is a couple of holy grail of truth here. And in some the key ones. Particularly when it gets down to the operating division level. There is a lot of uncertainty as to what the budget flexibility will be and how quickly it will allow it to be triggered. Several -- some customers were waiting. And quite awhile. Through, 2009 and hankering down and somewhat Spartan investment. As you recall, 2009, if you recall some of the discussions that we talked about this, there was a situation where if you will, the number of licenses to user is actually increased a bit and I height lighted that in my bullet points and with regard to high performance computing and infrastructure. And they can harness that and you do para metric studies to look at a wide range of things by engineers in past years and the largest point right now is from the pipeline that we see, we know there is a desire for companies to get more back on the beam and we don't hear stories of major head count increases but we see the general message of productivity increase through technology. That is kind of the situation we saw in 2009. See that trend continuing albeit people have, if you will, contingency plans for break out things coming up. Did that cover all the aspects, Sterling.

Absolutely. Thank you. I appreciate it.

Next question comes from Steve Ashley from Robert Baird.

I will start on the question with deferred revenue for about $7 million sequentially which is less than it had grown sequentially than in the past years in the fourth quarter. I was wondering a couple Number one, are you seeing renewals, maintenance renewals stretch out just getting done over a longer period of time is that part of that or number two, is the mix of lease business in terms of new business coming in, is that a lower percentage of revenue than you have seen in the past.

First question, the percentage of lease business compared, even though we were maintaining a good lease base, the people who are investing have been doing it more with the paid up license base and that is clearly it. And I think the other. The other tenant that you through threw out. Is the -- threw out. The lingering effects might have an impact and they did have a slight dampening impact. The other thing, we started tracking this. We have always tracked it with a micrometer at the beginning of '09 and the maintenance renewal rates have actually stayed quite strong probably better than they thought and well in the 90 plus percent range and nevertheless, they did -- they would tend to stretch out, people in the procurement of things, things came in a little bit slower sometime a little bit later sometimes would catch up and built in, into that. We saw the thing of course and with lease. Particularly in 2009 some of the people might have gotten hit most severely with were range of the consulting and consulting firms that would do work for major customers to help with the overload kind of capacities and might be the first ones to be kind of hiatus during tough times and in that case, they may not keep their lease business going but then when they ramp up they pick it you mean back up am and there is one the things so I even alluded to it when you looked at the category of business numbers. Some of the things that were done in the early part of '09 had a residual effect that carries through and eventually flushes through the system. You had like three parts. Did I get all three of those?

Yes. I think that is pretty good. Ansoft was down 10% in North America was that consistent with your expectations going into the periods.

We would like a lot more. But it was consistent with the post 9/11, the other big or semi big standpoint. We did start to see fairly major significant orders come there because of that. No doubt that particular segment in addition to the heavy reliance on the paid up revenues tended to influence that and the pick up and the pipeline were showing signs of improvement in 2010 and everything we looked at has to be fairly tempered or what they mentioned recently. It comes out in the newspaper and people are expecting the factor in one way and there is always surprise that is pop up in the other direction am and we see some of that.

Great. Thank you.

Our next question comes from Blair Abernathy with Thomas Weisel Partners.

Hello.

Hello.

Hi, guys. Thanks very much. Can you expand a little more on the situation in both Japan and Germany from a sales perspective or go to market perspective. They are obviously so weak. What are you looking for. Do you have any sort of expectation of what those are going to look like in 2010?

Well, in general, those are major markets and still have customers that we can do and make good progress with. Japan has been kind of in the situation kind of lingering or languishing if you will for a few quarters and think there is additional opportunity -- it clearly is a tough environment for us. And there are things we can do. And if you think of the last few years of some of our calls. We have been able to mitigate the trends that happen in the mega. In the mega regions and Germany is a significant market for us and has to be an engineering dominating behind kind of industrial place and it as a lot of times led the way for us in Europe. It was a very credible performer and didn't turn out to be our most robust market. We had fairly balanced performance in many parts of, in many parts of Europe. But, never the less we have a strong organization there and we have a really good customer base there. And some the things they are trying to do are largely innovation and engineering driven. Joe, do you have, you may have even current or specific information. Is there anything you would add.

Not much. Still bullish object Germany for the reasons you said. Japan is a challenge and we are not seeing significant signs of rapid recovery in Japan in the market for sure. And to be Frank, we talked about the investments we made in new leadership and the sales and support organization with the primary aspect of that being in the Asia Pacific region and it is going to be heavily on Japan with 50% of of the region. And we can do better there. And I think it is just a fundamental business environment as you are dealing with right now.

To that point, we actually had some the increases that we made in personal there and been on the ground for a few months and able to see the disproportionate impact they can have is that a fair statement. Does that cover you.

That's helpful, thanks. Another question. I missed at the beginning of the call on the large deals. Can you just recap the number of large deals and whether you can give the sense of the mix between and pure Ansoft components which is combined ANSYS and Ansoft soft deals.

First of all there are 24 -- 14. There was a brain blip. There are 14, seven figure deals. Now of that, you know, ruly split between North America and international kind of basis. They did include, there were combinations and they were maybe one or two that were predominantly Ansoft and almost all of them were portfolio sales though. And that is one thing that we are starting to see. A very significant aspect of clearly our flagship ANSYS and high end projects did well and each of the major flagship products in the major business -- the basic product segments also performed well. There is balance pretty much and in a couple of cases there might have been a leaning toward one specific kind of model. And largely portfolio on the major deals.

Thank you, I will slide one last quick one in. How are you looking at the M&A environment in 2010?

We are continuing, first of all, I had said this from the very first day that we teamed up with (inaudible) and continued on with Ansoft. Our first focus is getting-- there is nothing we can do that will have a greater return than making sure that we progress on the integration aspects and some of the convergence of electronics and mechanical. We have also talked about the long-term building the foundation for that. As such we have clearly be able to do a good aspect of debt management and the cash flows have been strong. And as we get through some of the integration issues so we don't get distracted from the major task. And the financial picture is open. We always are looking at a wide range of partnerships. They aren't always mergers or acquisitions. Sometime less they turn into that. And there are a number of things we have done to increase our overall technological ecosystem in terms of providing components to partners and accepting them that turn into product from our partners. So in general what we do is increase the overall product suit and as the finances and the situations allow. The fact that we keeping those discussions going on a multi year basis and continuing to grow with the potential partners of all types. It clearly isn't out the question and again, we want to focus on the assets that we currently have in place while continuing to build the overall portfolio.

Okay. That's great.

Again, if you would like to ask a question. Press star and one we do ask that you please limit yourself to one question and single follow up. Our next question comes from Steve Koenig from Longbow Research.

Thanks for getting me on the call here. Wanted to find out your thoughts on the low end. The low end products haven't been growing quite fast last couple of quarters. So, the question is, is there something you need to do about them strategically and to what extent are you concerned about and the others are targeting the simulation space and how do you respond to that.

Well, the low end. The thing we have always said is, we wanted to make sure first and foremost we can solve the toughest problems and take that power and much the way computers have gotten more powerful and harnessed in a way virtually anybody in the planet could use them in any coffee shop of their choice. We always say the things we have learned from the low end. We wanted to take those ease of use concepts and apply them to the upper end and that is why -- actually we have been talking about this for several years where the low end is kind of a seating area and people are just starting to get in and have very casual usage patterns. It is a nice entry point for them to do certain things but when you want to do some serious things where the accuracy has to be there, the fidelity of simulation, which means being able to really model what is going on in the problem those become paramount and over the last, we have been talking about this, seven or eight years and taking those ease of use concepts that we did with our very first entry level products 10 to 12 years ago with the AutoDesk -- sorry with the design space and later what we did with the low end products for AutoDesk. We wanted to take the ease of use and bring it to the forefront of computing. It turns out to be a stable seating capability for us. But the upper end, the very serious no, basically no compromise kind of solution becomes the most most important standpoint. You got to highlight. If you think, if you just think in terms of the headlines and look at how thin the margin for error is and designs that they thought were good. Even in the automotive kind of thing that is are very much in the headlines a day. There are a lot. (inaudible) They could be a lot of very, very specific kind of things and low end versus high end software costs appeal in comparison with terms of having a wrong decision. And that's just on a monetary standpoint. I am not getting know the Company brand and reputation kind of aspect. So, that's the one reason why we have actually seen in tougher times and if people get more mature in their usage their hunger for, if you will, greater truth from the results of the simulation increase. So there has really not been any strategic surprise in the stand point. As always, we have a wide range of customers that come in enter the -- get on board the train at various levels of speed and we want something very easy to get on board and able to match what the current need is as well as their ability to as simulate the technology.

Great, thanks . That was very comprehensive. How has the new quarter started

Well, we can comment on that one currently. I mean.

Steve, we gave you our outlook of what we think about Q1.

Implied in the guidance. That kind of standpoint. But, it is still early in the game.

Early in the quarter.

Our next question comes from the Mark Schappel from the Benchmark Company.

Real quick. Could you provide process in the industry business and what you are seeing in the sector with respect to the capital budgeting process.

From the process industry, there are a couple of major areas we approach that, again, everyone classifies these and we have a (inaudible) in terms and does include some of the major oil platforms and rigs, chemical processing. And things like that. In general, in general, it is largely driven. And it is probable by bifurcated there. And where the process industry now is looking for any efficiencies they can achieve at cost and volumes of these things simulating the aspects, reducing the amount of packaging that might be required, increasing the product yield or flow has become increasing important especially as people have taken the major buffing of the economy. Now, the oil side or the oil platform and some of the energy side, it turns out to be a little bit different of an issue in terms of actually needing to look for breakthrough technology. It is not in many cases it is not so much an incremental because it really doesn't cover some of the fluctuations you see in the oil price and demand curves. As a result, they are looking at getting through being able to increase the yields while simultaneously in various geographic jurisdictions being exposed to a much greater scrutiny of regulatory and environmental concerns and the like and whenever you have something that causes -- as opposed to an incremental nice slope that causes as dislocation in the innovation curve then they need something to accelerate that so of course we talked for years, simulation is one particular aspect. Joe, again, you might see a lot of different as picks of this then I do.

I wouldn't have said it any differently, especially in the oil and gas area it is anything from incremental investments and exploration and technology investments there to things like you said. Environmental government concerns (inaudible) and those kind of things. It is nothing really to add.

Okay. Thanks. And Jim, given that we have a new fiscal year for you and the Ansoft acquisition is well over a year now. Should we expect or make any significant changes in the sales organization and with respect to combining the core ANSYS sales with the Ansoft sales force.

Mark, actually we have had largely combined sales force for, since the beginning of 2009. So, we have been operating in that fashion as we do with every acquisition relative to one face to the customer and then having specialists who can support the sales force dependent on the problem of the customer and supported by specialists from electronics to every other industry we sell on to.

It becomes more so. And there the very beginning, if you overlapped logos and the buying center and the logos might have been different. We had a lot of overlapping customers and because the rules have been so distinct, they can do, to buy separately and now they are starting to come together where they see a design problem a combination of flow. Electronic control, electromagnetic interference and structural reliability. And again, those are things we see in the headlines quite a bit and the convergence comes on. From the very beginning we want a consistent way to deal with the customer. And there is always problems with integration of any kind of combination we wanted to put any of those confusions behind our fire wall so the customer didn't have to dole with them. There has been market progress on that at least from my standpoint. Joe may have day to day frustrations but over the last six to nine months, I have seen market improvements in terms of how these things collaborate. And the fact the way they are even uncovering new opportunities and in advance of the customer knocking on our door.

Next question comes from Greg Dunham from Deutsche Bank.

Couple of follow ups. What was the FX impact on the quarter over quarter deferred balance?

I don't have that, Greg.

Okay. I guess one other, in terms of pipeline. You mentioned that it has grown. And you also mentioned that there was budget flush and higher conversion in Q4 and my question being when you look at the pipeline, is the composition heading into this Q1 significantly different from a year ago when you headed [Florida] the market.

Short answers, yes. No, I want to make sure our perception is not that it is blowing. It is just going nuclear volcanic eruption kind of thing. But it has continued to ramp up. It is stronger. And clearly better than it was this time a year ago.

Even on the near-term side?

Last year at this time, I mean, everybody was basically frozen. There were no decisions being made. And everyone is reacting to what is the world going to look like. Even ourselves. And we are starting quote unquote marked improvement. And whether the conversations and those deals that you are become worked is Q1 or Q2, there is still volatility around that particularly on the larger deals with more complexity and people involved in the decision making process, and more bureaucracy, relative to moving the paper around.

That's helpful, thanks.

Next question comes from Ross MacMillan from Jefferies.

Thanks a lot. First question is on guidance, you had a strong Q4. Nice up side and raised both revenue and EPS for calendar 2010, but if I look at it from a growth rate perspective you have given -- (inaudible) got revenue growth last quarter and EPS range and if I look at the growth rates now they are actually a bit lower than you indicated off you third quarter call call albeit they were off a lower base. Is that just FX and when you are thinking about it if there was anything else in there?

Keep in mine, we did talk about the notable pull forwards in the pipeline and a lot of it is FX and it is part of it also.

That's clear. Thank you. Going back on deferred. Two things, one was lagged renewals on maintenance and second less lease business in the mix especially against here in Q4. Curious, is there anything else, I mean lease customers, for example, are they a bit like maintenance customers in the sense they can also drag on papers or renewals, just wondering if there is anything else in there.

No, in the case of lease, no, again, if there is some, and some long-standing customer with dire circumstance, of course we are going to try. We are going to keep the spirit of partnership going with them but in general. Lease when you run out there the license key shuts off. On the paid up license, you can stay there but you start to lose the compatibility with operating systems (inaudible) and all the knew features going on as well as the support capabilities. So, there tends to be a different issue there. As to the lag effect, in general, there was a little bit of softening. Not as much as we had feared but it was like, we mentioned there was a little bit of softening in lease revenue. That more often than not -- it is not a catch up. You reinstitute the lease and if it dropped even slightly in Q1 and Q2, during the really bad times by the time you got to Q4 you sit there and say, oh, the Q4, now recognized revenue for the time frame is slightly lower but the fact that it was essentially flat indicates while we are adding some new lease there wasn't much that fell off the plate. As I mentioned there was a little bit tighter on the maintenance thing but we still stayed in that healthy 90 plus percent and that persisted. It is just to take the minor effects of the maintenance, the slightly greater effects of the lease and the fact that it had a cumulative build up affect, in the Q4 and entering 2010 and we just noted that in all of our projections.

Then maybe if I could sneak in one last one. You mentioned portfolio sales which are more standardization deals where the customer is taking multiple products in the portfolio. Two questions on that. Would you expect those just regardless of the environment and on a go forward basis to tend to be more paid up deals and if that's the case are there any potential changes in the way those may be bought. In other words, may you offer for example [ELA] type deals where a customer will commit to purchasing a set number of paid ups over multiple years. Thanks a lot.

The volatility you suggested, and just in some quasi manifestation is similar to the way we work with major customers. In essence, if you tried to take something that is growing on a huge rate and off a huge base and then try to reduce that to atomic transactions, that doesn't -- that really doesn't do a great justice to anybody on that -- other parts of of the question help me out here.

That was basically it, portfolio sales.

The portfolio sales are going to be by nature that when they tend to get that large, just for what ever reason usually it is not even engineering or departmental decision it is a corporate finance decision and normally paid up if you look at something being a five, 10, 15 year. It is the cost of ownership -- the TCO turns out to be in favor of that. You have a question. I wanted to distinguish on one thing. Is, A, there is one aspect of people that are just doing did the purchase consolidation and therefore many different products and they kind of standardize and will clearly see that going forward; however, I think the real key in this that can't be overlooked and we have been preparing for this for 10, 15 years, is the fact that they can get it from the same place, under the same terms. It is the fact that the technologies are actively interacting with one another to solve really complex dicey kind of problems. So, if you have got a situation where you have got fluid flow within a structural mechanical assemble but you got electrical magnetic interference going on the inter play of all those is very important. Same thing for handheld electrical devices. We can go through a whole litany of situations where there interaction of all these things they can have cumulative effects. And if you don't take into account the interaction between all of them you can really miss nailing down the issue. So it is not just the fact of oh, it is part of a bundle, it is the fact the products work together to solve some really complicated problems.

Our next question comes from David Hines from Needham & Company.

Thanks. Two quick questions. On the conference call AutoDesk dismissed the idea of (inaudible) in which companies have fired engineering staff and would not need new designed software in your case simulation until the seats are filled again. Has this had any impact on your business? Do you agree with their view and how do you think about it about looking forward?

I am not too familiar with the term it is [avocative], no, we have not seen that kind of impact. If anything, we tend to see almost the reverse kind of standpoint where it is, whether the times are good and bad. And it is kind of like, there always seems to be a little more (inaudible) demand for people to use this thing and licenses get tied up and in this particular stand point. I don't think they sit. It they sit on the shelf waiting for some user and that is really not what is happening in the standpoint. And the secondary thing, of course as I mentioned, there has been a rise, a notable rise in the high performance computing which by definition says many computers and licenses, per individual users and even if you diminished the pool of users, the ability to absorb that in the usage pattern more than compensates for that. We do not see -- the one case where I mentioned it was -- in the extreme economic duress time, the consulting firms that naturally aggregate around major companies providing different expertise -- ones the consultant is one place and cut out a lot of things. If they didn't have any cash flow coming in, usually it is the typical size of the companies. They would in fact let them lapse and it still wouldn't be shelf wear and be taken off the shelf. Really, not, I don't know what their comments were and it sounds like we might be fairly similar with the view points.

Okay. Good. Then, a follow up. Where do you see end demand today? I guess as you look forward for simulation data management systems. (inaudible) They made a run out of it and Siemens is repurpose center. (inaudible) Has the simulation involved to the point where data management would be more of a focus for you guys going forward.

First of all, it is clearly doing that and that's the reason why it is something we have worked on. I want to draw a distinction between what we are doing and other company less might have done. This is not so much a data management issue as it is knowledge management, inference and parameter interaction and be able to essentially take -- it is bad enough when you used to do a single run and get massive amounts of information and how do you sort through it. And make sure you don't miss a cogent part of the simulation and giving you that indication of a lurking problem just around the bend. So in general, what we want -- that problem gets only geometrically worse geometrically in terms of mathematics and the number of simulations increase and the complexity increase and number of people relying on them increase so obviously we would be in the foremost situation to see the impact of those on simulation when you look at the size of our user base. And we really needed that ability to do that. That is a scalable process and seamless within the thing that allows the individual the native productively capabilities but work group interaction and at an enterprise level, the ability to actually bring that all together and even find things that might have a real corporate impact on that and if you try to nibble at any one of those things you will have a tool and not have the capability of leading where it needs to go. And a lot of it is fundamental architecture and different approaches that different people were taking but I don't want to say we are certainly not following in the footsteps of one or two of of the examples you mentioned there.

It comes from Greg Halter from Great Lakes Review.

Yes, good morning. Relative to the industry exposure on the automotive side I think it is around 13% or so of the total and I am just wondering given all these recent issues over the front pages of the paper if that is beginning to drive any increase talks given potential concerns over the EMI issues?

Clearly, it creates, when the first bomb drops. I mean, and this is all a fairly recent phenomenon -- people are trying to do triage and (inaudible) that is an interesting thing am and classic examples of situations where the complexity of the product and decreasing margin for errors can manifest itself and in some fairly unfortunate ways and there are certain things the software currently can do a very good job of helping people address. IT is not a magic wand but it doesn't make a bad engineer good but it can make a good engineer great. And we have those kind of capacities and yes those kind of discussions are starting to come up and very early in the stand point. And very often, these, sometimes these huge and unfortunate situations due tend toward other opportunities coming up. You started off with a discussion of the automotive and there are a lot of time that automotive companies were doing research things and then when hybrid drives became really fashionable , wow, the burner heat got turned up really, really quickly. The urgency, if you will, got driven up and that tends to the the thing that drives aspects and there is no doubt that when the full force of an unsolved problem comes to light that it doesn't lessen opportunity. Now how quickly it takes for it to germinate it as broad

Okay. One other relative to the CRM system, is that totally in place now and if it is I wonder how it is going and wonder what the prospects are for that to be fully deployed?

Well, first of all, in three or four years from now if you ask me the same question I will say no it is not. And we have a whole range of things, everything from moving into closed loop marketing and all sorts of interactive capability that is we are looking at doing in terms of how we bridge in our error reporting and how it works with the customer and research and development arms that we have in terms of tracking and tracking enhancement request. And so, there is a whole range of things and the basics are in place. The basics are global and we have been using them as a reporting mechanism for three, full quarters now. We have rolled it out internationally. Our sales force and in fact, I myself, used it often when it gets into different approval and different governance aspects, so, in general, there but I would never say, it is totally done. But we have been functional and able to report. And we have seen some significant advantages in terms of streamlining the paper work. I was involved and Maria was quite instrumental and Joe is the executive sponsor of the steering committee as we rolled this out. It was a fairly engaged thing. Joe, would you, I mean, your general perceptions at least.

I mean, very positive. It is fully deployed globally as what we viewed as the initial critical functions of sales support and order handling and order processing. All the basics are covered and we are doing opportunity management, account management, territory management trough CRM. Our indirect channel partners are integrated into this and processing orders through the system. We have done some process improvements internally that Jim alluded to relative to various business controls and corporate governance. We are in good shape. Jim is right. There is a lot of opportunity in front of us to leverage the significant investment we made in the system.

Our final question comes from Brad Reback from Oppenheimer.

How are you?

Fine. Next question.

I will take my follow up then. Just real quick. On the sales and marketing and as you think about the (inaudible) additions and the marketing spend, are there specific verticals that will focus upon or fairly broad based?

It is always broad based and we have had a footprint in a range of that but keep in mind each industry tends to have some different profile so I think the mix that gets applied to it will be different. Keep in mind, now being around 40 years and we have got some very -- some customers that have been with us for a long time. However, there is an emerging base from our university programs that are actually a different one and the way that you communicate and share information and market with some of them. I mean, there are some that do it through social networking standpoints and others that deal with it. And so within each industries, there are different levels of maturity in there. All the basic elements are in there. And we are looking for efficient ways to get a stream of information to the people and again, different industries kind of have different constituencies. But I wouldn't say obviously, the energy and the opportunity with [mechatronics] and electromechanics and even to a different degree the biomedical field those have been areas that have been particularly notable and if you look at the major industries we have fairly senior people that are focus diagnose on all aspects of those.

Great. Thanks a lot.

Mr. Cashman, I am showing no further questions.

I hope the extra time we left for questions was useful to you all. In close, the emphasis for us is to be a continued focus on execution and continued technological leadership and that is hallmarked by the fact that we in our 40 year history now so the customer acceptance of the existing vision and I think even our unique value proposition we talked about that with some of the high end product questions that some of you brought up. And then basically the expansion of our product portfolio through ANSYS 12 and Ansoft, it basically only bolsters our enthusiasm in a time when it could be tough. At the heart of all this are the key elements we have had and strong combination. I think the business model has proven itself over many, many years. We have a loyal customer base and we have talked about who they are and the retention rates. We have got channel partners and business partners that have been with us for decades. The technology is unimpeachable and we have got the talented committed employees and that tends to bolster our enthusiasm. It is at the basis of some of the information we have given you as we look into 2010 and with that, thank you for your attention. And look forward to talking to you over the next few quarters. Thanks a lot.

That concludes today's conference call, you may now disconnect your telephone lines. We thank you for attending.