ANSYS Inc (ANSS) 2010 Q1 法說會逐字稿

Good morning and welcome to the ANSYS first quarter 2010 earnings conference call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

I would now like to turn the conference over to Jim Cashman. Please go ahead, sir.

Okay thanks, Nilot. Well good morning everybody and welcome to the ANSYS call for Q1 2010. And with me today as usual is, our CFO, Maria Shields. So, in effort to try and make more time available for Q&A, we're going to build off of what we did last quarter which a lot of you seemed to appreciate.

So, first we've provided supplemental data regarding revenue highlights for the quarter by geography and category of business it's on a spread sheet link that's provided on our IR home page. And then second we plan to touch on the key operational results and the major business drivers of Q, and the Maria will provide a brief update on margins, taxes, balance sheet, cash flow highlights, and we'll close on some commentary around Q2. And then we'll deal in to the Q2 full year 2010 updated outlook, and after that we will be happy to respond to any questions. But first we'll have to start with our Safe Harbor Statement. So Maria, if you would please.

Okay thanks, Jim and thank you, everyone for joining us this morning. I'd like to remind everyone that in addition to any risks and uncertainties that we'll highlight during the course of the call, important factors that may effect our future results are discussed at length in our public fillings with the SEC, all of which are also 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 our business in the future. These statements are based upon our view of the world and our business as of today and we undertake no obligation to update any such information unless we do so in a public form.

During the course of the call we'll be making reference to nonGAAP financial measures consistent with our standard practice. And a discussion of these various items that are excluded and a full reconciliation of GAAP to comparable nonGAAP financial measures are included in this mornings earnings release and the related Form 8-K.

And just on a final note, as Jim mentioned, there is supplemental Q1 financial information available on the webpage, so feel free to access it, it can be either viewed or downloaded. Jim, I'll turn the call over to you.

Okay, wow. Okay, let's have it-- I guess I should just start by saying Q1 was a strong quarter on a number of fronts, and it was also a prior denominator that was actually relatively more resilient than most companies during that time period. Our results topped guidance on both revenue and EPS, and as always I'll make a point of saying the numbers that we're using are nonGAAP in our historically consistent fashion. Also starting with this quarter, we'll no longer be reporting Ansoft results separately, and this is also consistent with our practice on all past acquisitions. We've made tremendous progress on the integration front, we've reorganized product categorizations, and that business now largely functions as part of the ongoing organic business. So reporting it separately is really not aligned with either how we go to market or with our long-term product strategy.

Our Q1 results they suggest improvement in customer sentiment and spending patterns with continued penetration into existing customer accounts. And with all of our major geographies, well actually as well as all of the subregions also, showing double-digit growth. During Q1 we had a dozen seven figure customers with about 21% of these deals contributing to new business for the quarter. And the remainder actually building the deferred revenue balance, which I'll point out has now reached an all time high of over $197 million. Both our direct and indirect businesses also continued to performed well, we maintained the 75/25 split for the quarter, 75 in favor of direct. As we discussed on the last call, with the investments we made, and we'll continue to make, in various aspects of our business, the overall nonGAAP operating margin for the quarter was strong and totally in line with our guided targets at 48.7%.

Most aspects of the business performed well with, as I mentioned, all of our key geographies showing improvement during the quarter. We had balance input from each of our primary product categories, we saw good resiliency in our business expansion in many of our major accounts, and this was also balanced by the addition of new customers. Equally important our recurring revenue base continued to be strong. There was a continued expansion of the portfolio sales and cross selling activities building the pipeline, and this is something that we expect to cultivate even further with the Ansoft over the next few years. No this is also nothing fundamentally different than what we've been able to do with all of our previous acquisitions in the portfolio. But we acknowledge, and we've said this for years, it does take time to train and ramp up the direct and indirect channels to feel comfortable with and capable of selling the complete portfolio with requisite ANSYS quality.

We can now take a look at business from a few broad perspectives. Again a lot of these related to on the link we mentioned, but we'll highlight these by a number of broad perspectives, category, geography, customer and product. So let's start with category of business first. Overall our revenues continue to be fairly consistently spread. It was 33% lease, 27% paid-up licenses, 36% maintenance and 4% service for Q1. We saw healthy increases in paid-up licenses in Q1, up 32% in constant currencies in fact. Our maintenance business also continued to grow with our renewal rates returning to the mid 90% level. Actually you might recall that last year we mentioned that the economy had adversely impacted a small portion of our maintenance renewals, and this has largely improved over the last few months.

We also saw continued expansion in our major accounts, which of course it also provided an important contribution to revenue and deferred revenue and our new license revenue as I mentioned. And as I mentioned we had a dozen seven figure customers I think that compares to eight last Q1 or Q1 of 2009. So with all this coming into play, our strong repeatable business base grew to 69% on a larger base of business and this compares to 65% for Q4 of 2009 and actually 74% at this time last year, although that was on a-- during a time of much lower paid-up license base new revenue base of business in that time frame.

From looking at the revenue from a geographic perspective, the business increased by 11% in North America in Q1, major orders in North America came from well really a mix of both longstanding and new customers as I look at the list, General Electric, Pratt &Whitney, Intel, Northrop Grumman, Ford, Corning, Caterpillar, Dow Mechanical, Raytheon, AMD, Westinghouse, IBM, Cummins and Rolls Royce, to name just a few. So across these accounts we saw a strong maintenance renewals, good annual lease component and of course adding to that new license component.

Europe continued its track record for performance despite some pockets of economic challenge and currency head winds and some of the things that we've been hearing about in the news as of recreant. The overall growth was 13% or 7% in constant currencies, Germany led the way with double-digit revenue growth in both reported and constant currency. The large steels in Europe included again new and renewal business with Bosch, Volkswagen, Tetra Pak, AREVA, Peugeot, Citroen, Renault, BMW, Sangathan, Volvo, Vestas, Schneider Electric, Snecma, just to name a few. And I'll comment because you're probably going to pick up some industry trends here and I'll comment on that in a few minutes here.

Our general international area, again, predominant by Asia/Pacific, was also stronger in Q1 growing 12% overall or 8% in constant currencies. And key customer engagements in the region included Toshiba, Honda, Japan Atomic Energy, Cummins, Panasonic, Samsung, Mitsubishi, Cannon, Hitachi, Airbus, Eaton and GM. I would say that in the GIA, the region also saw kind of a flurry of orders at the end of the quarter that was fueled by the year end spending in both Japan and India given the fact that for instance in Japan the fiscal year actually ends at the end of our Q1.

From the global list of major orders, but this also in evident in the smaller orders, we saw improving trends in a number of market sectors. Basically some of these including in the high-performance electronics segment with increasing demand for electromagnetic interference kind of solutions, as well as electromechanical solutions, they're basically to help customers solve complex problems in areas such as hybrid electric vehicle design, battery design, thermal management, as well as a lot of things leading over into the alternate energy. So for instance as in wind turban design you'll notice that a few of the customers were in that area.

In automotive customers are making investments in fuel efficiency, simulation process improvements, and actually we saw some degree of software code consolidation, and this was basically part of their efforts to become more efficient and cost affective. And as a result some of this we also saw a little bit more traction in the automotive supply chain, the lower tier suppliers, which you would have picked up I guess from the, some of the major customer names we mentioned.

As we've been talking about for the past several quarters, theres been a continued trend towards all forms of energy optimization, be it conventional, petroleum, nuclear or alternative energies, we saw advances in all of those. This sector does continue to invest in R&D in some cases to improve age old capabilities but in some cases to try to bring new ones on to line and actually help to make them truly cost affective. In this area it was areas such as energy storage, battery design, fuel cells, mini reactors and next generation fusion nuclear reactors, and probably most notably some of the wind farms and some of the implications of putting those offshore, they continue to have momentum. And then additionally, areas related to heavy equipment infrastructure and materials also continue to show improvement, building off increasing demand for investment and infrastructure that we have been seeing in many many parts of the world.

So in truth we're encouraged by the increased penetration that we're seeing within a customer base that really already was strong and pretty broad but to see that continue to strengthen, the pipeline of new opportunities continues to improve, and we see growing interest, although I'll say the paper flow process it's slowly improving but it remains protracted compared to let's say the pre-2009 standards. So there's little doubt of the long-term opportunity in our mind, but in the short term we'll continue to add this caveat even with the increasing interest there's also a lot of things we got to keep our eyes on, our customers are keeping their eyes on, it's because the recovery is coming slowly, and this can positively or adversely influence the timing and patterns of our customers buying decisions. We've seen both sides of this equation and we try to factor it into our guidance and we'll continue to endeavor to do that going forward.

From the product standpoint, from product revenues perspective, we really didn't see any surprises from any of the trends that we've been experiencing or any of the guidance that we've given you on past calls. I would say that as another-- the trend that's maintained is at the high end, sales are growing disproportionately, it seems to continue to support that premise that with the ever increasing pressures that our customers are facing they really can't compromise on the scope or the accuracy of the solution. Their-- the pain of being wrong and the value of being right just continues to be one of the predominating factors. As a result, the ASPs for the quarter were stable to slightly up over last Q1, really at both the high and low ends and actually sequentially over 2009. So with that in mind and with the fact that there's a lot of data for you to absorb on the website, I'm going to actually turn it over to Maria, our CFO, to provide you with some additional color on the quarter and various aspects related to our outlook. So Maria?

Okay, thanks. A combination of execution and improving markets led to solid performance on both the revenue and the expense side of the equation. The over performance on the top line undoubtedly drove strong growth and operating margins. The first quarter results [saw growth] so positively impacted by $4.1 million in favorable currency at the revenue line and $1.9 million at the operating income line.

Looking ahead into Q2 and the full year 2010 and in line with our earlier guidance, we continue to target nonGAAP gross profit margins in the 88% to 89% range, and operating margins in the 48% to 49% range for Q2 and for the full year. Coming off a strong Q4 and Q1, while the macro economy remains somewhat mixed in certain areas of the world and the predictability around timing of closing, particularly on this larger deals still persists, we have been and will continue to make investments in areas that we deemed to be critical for the long-term health of our business. Those include strengthening our global sales and marketing teams, continuing to invest in R&D so that we can maintain our technology leadership, and continuing to evolve the business infrastructure to drive efficiencies and to drive automation and hopefully support future growth.

Our Q1 nonGAAP affective tax rate was approximately 33%, this was slightly below plan and slightly below what we guided, however the Q1 rate was positively impacted by some unplanned tax benefits that resulted in a favorable rate variance. Looking ahead into 2010, we continue to forecast an affective nonGAAP tax rate of approximately be 33% to 35% for the full year. And one note, at this time we are not making a leap of faith that the R&D credit will be retroactively reinstated to January 1st sometime in 2010. To the extent that it does happen, it will have a positive impact of less than 1% on our affective tax rate for the year.

Moving onto the balance sheet, we closed in a very strong position. Our total cash and short-term investments balance is at $390 million, about 54% of this is held domestically. Despite a few isolated pockets of some Q1 payments that slipped into the first couple of weeks of Q2, our to consolidated net DSO remains very respectable at 47 days. In Q1 we did pay down an additional $20 million of the debt and that leaves the total outstanding balance at $205 million, with an affective interest rate of about 1.6% for Q2. I'd also like to point out that the interest rate hedge will be fully amortized at the end of Q2, so the go forward rate beginning in Q3 on the full outstanding remaining balance will carry a rate of three month libor plus 75 basis points. CapEx for the quarter was $1.9 million. We do continue to plan for CapEx in 2010 in the range of $15 million to $20 million.

And to close, I'll just briefly comment on currency, which as all of you know has become even more challenging to predict of late. As we saw inQ1, our results no doubtedly will be impacted particularly by movements in the Euro, British Pound and Japanese Yen. Our current outlook for Q2 and for the full year assumes average rates in the range of 1.3 to 1.35 for the Euro, 1.51 to 1.56 for the Pound and 90 to 95 for the Yen. As rates continue to fluctuate, we'll adjust our outlook accordingly. So I'll turn the call back over to Jim.

Great thanks, Maria. So the long-term outlook stays bullish even as it did through some of the tough times of 2009 and it's just based on the core premise. And to map it out, basically that the long-term premise and opportunity are there and we maintain our commitment to keeping the best technology to meet those needs and opportunities. Secondly, at the floor of the assumptions we continue to have a solid business with good recurring revenues and really marquee customer relationships, all of which combine for good net income and cash flows. And we'll be focusing on maintaining strong operating margins in the upper 40s while continuing to build our annuity base of recurring revenues and basically expanding at the maximum rate of whatever is allowed by the macro market conditions and continuing to be able to invest in that long-term premise.

So actually what does all this equate to in terms of numbers, well for Q2 2010 we're looking at revenue in the range of $135 million to $140 million and this equates to an earnings range of $0.45 to $0.48 per share, it should continue to build modestly throughout the year barring an unforeseen market surge or retreat. Based on current visibility around sales and markets and our own spending plans and also combined with the over performance we experienced in Q1, we are increasing our outlook for 2010 revenues to the $560 million to $580 million range, or topline growth in the 7% to 10% range. And consequently, our earnings projection for 2010 are also increasing to the $1.90 to $2 level.

This guidance of course remains cognizant that the pace and the timing of a global recovery still has some ongoing pockets of uncertainty, however as we've said in the past, there are some things we have no control over such as the timing and momentum of the economic recovery, government tax policies, currency volatility. But our guidance is based on a mall that allows us to balance our cost structures without hindering ability to capture revenue upside or to mortgage the future opportunity that we've been so enthused about.

So combined with our repeatable business space, the diversified geographic footprint, world-class customer base and our deferred revenue base, we're continuing to utilize the same business model that's allowed us to weather a wide range of economic situations over the last decade. We plan to focus on growing the revenues which generate strong margins, good cash flows and earnings. So with that, we'd now be happy to respond to any specific questions that you might have.

(Operator Instructions) The first question is from Steve Ashley, Robert W. Baird. Please go ahead, sir.

Well first my congratulations on the quarter. Lots of good metrics, I think one that stands out to paid-up license growing 36.5% year-over-year. I was just wondering if you could maybe talk about how that might have broken down between major accounts and the rest of the business, whether there was any meaningful difference there?

Well it's-- the major account, it actually was balanced across major versus lesser accounts, but there's no doubt that the major accounts had a slight edge if you did a comparison and the classification becomes a very interesting way of I mean, this is a-- there's some gray area in there. But the major accounts tended to start to ramp up their spending more problematically, a little bit more carefully. But you'll also notice that as we mentioned about 21% of that business was new and the bulk of it went into deferred. But they are tending to ramp it up. And yes we did see-- but we did see new license growth across the standpoint. Keep in mind our license growth, while it was lower than 2008, didn't trough as much as happened a lot in the industry and actually we were build off of a year that had actually positive revenue growth in 2009.

So, but it was slightly skewed towards the major accounts but that was also something that we expect. They tend to be a little bit more metered and they tend to come out of the things a little bit stronger based on their product development cycles and things that they need to get out in the-- they need to be doing research now that's launching products in the next two to three year period.

And then in the last call you talked about maybe hiring some sales reps and maybe front loading that earlier in the year, can you talk a little bit about if there was any hiring of sales reps? and then--

Absolutely. And one thing I'm going to mention is we had actually invited for you to touch in, Joe Fairbanks, our Head of Global Sales, actually has joined us. But yes we're up about eight to ten in terms of actually new ones and we-- but we're still looking, I mean going-- we're not just flooding in any type of bodies, we're only going for high-quality people. This is part of a long stand building standpoint. So we have some that we haven't filled, but that's because we're still looking at the quality aspect of that. But the binary answer is that it was in the eight to ten range already coming on board in Q1. And Joe I mean do you have any -- Joe Fairbanks, may have any other comments, or--?

No, that's exactly right. I mean we're plus ten right now and I think the plan between now and end of Q2 is probably for another six to eight over that period. So we're on track.

And just lastly quick housekeeping question for Maria. Do you know what the long-term deferred revenue was?

Let's see.

Yes, we've got it, we're--

Yes.

About $7.7 million I think.

$7.9 million.

$7.9 million, okay my eyes are bad across the room.

Great, thank you.

The next question is from Sterling Auty, JPMorgan. Please go ahead, sir.

Yes, thank. Want to follow on both of those areas a little bit. First on the paid-up side, would you consider the experience that you had in the quarter of more of a return to what you saw pre the downturn, meaning a normal seasonality based on your longer history, or do you think this was exceptionally strong for one reason or the other?

It's Joe (inaudible).

Sterling, it's Joe Fairbanks. What I would say is that if you consider pre 2009 to be normal, I wouldn't-- I think it would be too much of an assumption to say that we're back to normal by that definition. I think in Q1 we certainly are very encouraged, very optimistic about the performance. The business environment has improved dramatically. But I think the way customers invest and purchase has fundamentally changed. And I'm not sure how quickly we'll get back to that normal.

We also had a situation where you look at regional like Japan that performed exceptionally well in Q1, it was also the end of their fiscal year., so they might have had the same phenomena that we saw in Q4 of 2009. So we're bullish, a lot to be optimistic about, but a return to "normal", not sure yet.

There might have been too much exuberance in that early 2008 kind of timeframe. I think what you're seeing is you're seeing some consistent requirements and interest in investing but you're also seeing a lot more sanity into the process, people are being a little more cautious than just throwing the throttle wide open.

Got you. And if you take a look at those 12 deals over $1 million, could you give us a sense or could you actually just break those down by geography? If Japan was strong, did you see an inordinate amount of the large deals come out of Japan?

Well first-- no, no, not at that particular size, there were some. I'd say probably real roughly a half of them were in North America, half of them actually were in Asia/Pacific, and predominantly Japan, and we had one or two in Europe.

Okay. And then last question on the increase investment, let's do R&D side. I really appreciate the incremental headcount in sales, can you give us the same kind of discussion in terms of your investment that you made in R&D headcount possibly in the quarter, and what your thoughts are for the second quarter and the full year?

Well I know that-- well first of all, I don't have the numbers handy. I know-- but I do know I-- in other words I know the recs we had open I know what we were looking for, I can't say specifically what we placed. I mean we were kind of prepared on the sales front because that's been a question many many times. But it is-- the numbers of open recs are well into the double-digits.

Okay. Fair enough, thank you very much.

The next question is from Blair Abernethy, Thomas Weisel Partners. Please go ahead, sir.

Thank you, nice quarter, guys.

Thank you.

I wanted to ask you, Jim just in terms of the Ansoft part of the business, which I know is integrated at this point on the sales side, can you give a sense of whether customers there have started to shift or taking more interest in the paid-up versus the leasing approach?

Well I'm not sure, Ansoft was a business was always traditionally more paid-up. There's been a little bit of a lease but there haven't been-- I haven't seen wide scale preferences in the buying patterns of that. And if you'll also recall in past in some cases, that people leased when they were uncertain about the technology or maybe even the-- what would be the future of the company they were doing from, and most of the customers we have they tend to go with a longer term perspective. We don't push it either way, but they tend to make an economic decision in favor of that. So in general I'd say it was very stable, I didn't see any big mass migration or student body rights toward that particular situation.

One thing though that we did, that we really did see was the combination of if not orders with the same, with both the traditional ANSYS products and Ansoft products together, we certainly are seeing buying patterns starting to aggregate the use of those technologies. Some of which because there's an inherent need there part-- some of which is because we've been to able to already do some work in terms of facilitating integration, particularly aided integration of the workbench. And then some just because it is a very very compelling story particularly when you see many things that have these combined aspects, whether its problems pin the automotive world or whether its the convergence of mechanics and electronic and control systems and things such as the wind turbans that we are talking about.

Okay, great. And just turning to your verticals, what verticals are you seeing that are sort of still lagging or still weaker than normal? And also can you comment on sort of the government or institutional sector?

Well in terms of--Joe, I know maybe you want to --

Yes, I think if you ask me, Blair which-- to pick a segment that's particularly weak, I mean the one that I would point out that kind of on my mind right now would be sort of the state-owned Quasi government enterprises in China, seem to be sluggish right now and we're seeing that. Outside of that I think Jim already mentioned in his comments I mean some of the ones that are really robust right now from energy to heavy industry, we're seeing a nice recovery in electronics, auto, and there's so many different aspects of automotive right now, I mean it's really-- we're bullish on that. I can't think of particular industry segment that is--

Actually I wouldn't call it weak but if there's-- I think some of the consumer industries are little bit slower, but even then you can see the major deals we mentioned we're with some well known ones, I'm just talking about in aggregate. Automotive, I'd say the status quo the 20, 30-year-old old models of what where done kind of really steady state, but the-- any of the things driving transformation of the industry which in turn benefits from simulation has gone up.

And of course when we talk about these sectors, keep in mind when you talk about something like, if you talk about something like healthcare, you got everything from drug production to drug delivery to prosthetics to diagnostics to-- I mean so even when we take these broad swath classifications there are many many stories within a story in any of those aspects. So it's-- sometimes the over categorization can also kind of mask what's going on, too.

Okay fair enough. Thanks very much.

Your next question is from Steve Koenig, Longbow Research. Please go ahead.

Good morning, thank you. Congratulations on the quarter. I'm wondering if you could first just reiterate what's the currency benefit on revenues how much was that again, Maria?

$4.1 million.

I'm sorry, $4.1 million?

$4.1 million.

And how does that relates to our earlier guidance, it was-- ?

The rate, yes it was in line.

Yes, exactly.

Because the rates-- the average rates for Q1 fell right in line with the outlook that we had given coming into the quarter.

Okay, great. And did you give constant currency license growth, do you have that available?

No.

We don't have-- I will have it readily. Do you have the-- we do have some reports though that we--

Yes, I'm looking at geography. I don't have that handy, Steve, we can take a look in to it and get back to you.

Okay, that's fine. And then lastly if you could give us some qualitative commentary, we're interested in knowing why was Europe so strong, how does-- any sense how did licenses do in Europe? A lot of other firms have been seeing weakness in Europe this quarter, what do you think drove your strength there in a markets that's still pretty tough?

I think there's two key factors. First of all is even when the European economy goes down in total, there is certain multi-national companies that are still selling on the broad global front. And as such, if you look at -- you just look at some of names of the major European companies we mentioned and these are fairly solid global giants. The other thing is that we also had quite frankly I mentioned while there was really strong balance across everything, Germany performed very well actually both in real currency and in constant currency and of course that buoyed things up.

This is probably-- I mean geographically this probably has to be one of the most consistent across the globe, I mean like linearly black kind of performance across there. And it was just kind of interesting from that standpoint. So I think the main thing is when you look at that, when you also look at the areas even if certain parts of the geographies might have been going down, you look at an awful lot of things, energy, in particular alternate energy in Europe, you look at the strength of some of the automotive companies there, and they were particularly strong, so we happen to be well aligned with some of the emergent most promising aspects of the economy.

Okay. Thanks a lot.

Steve, I have that information that you asked. Currency benefit about $2.5 million to the license line and about $1.5 million to the maintenance and service line.

Great, thanks Maria.

Sure.

The next question is from Ross MacMillan of Jefferies. Please go ahead.

Thanks a lot and my congratulations as well. Jim, can you just talk about Japan obviously fiscal year end strength helped, but I think I recall the Emag side that's quite an important market, I'm curious as to whether you're starting to see more significant improvement in your Emag business on a year-over-year basis?

Well we definitely are seeing that. I wouldn't say it's really kind of at some of the same pace that we've seen in other areas for different regions. But in general the new sales in GIA and a lot of that is in Japan, was in excess of-- it was well into double-digits, it was in excess of 30%. So we saw a number of different things improving there. Again, a few of the major Japanese companies showing up very strongly there, in fact you-- if you look at some of the electronics companies that I had mentioned in my major list of the ones that are Japanese in origin, you'll find that some of those will link over nicely into the electronic, consumer electronics, industrial electronics sector.

So it is picking up and what I don't know, what we really didn't know is was there an abnormal kind of year end, I hate to use the word but budget flush kind of affect in Japan, or is it a trend or is it in reality a combination of both. And don't really know other than the fact that yes it has been improving and there has been stabilization and it absolutely is an important market for us going forward.

But just a broader question on Emag, that was one of the parts of your businesses that was most acutely impacted last year, is that rebounding to a lesser degree in line or to a stronger degree relative to your SEA and CFA business?

Well actually it's pretty much in line. Again when we talk about the electronics business, there's a part that's like low frequency Emag that relates to motors and generators. There is a high frequency that relates to, I don't know anything from radar systems to EMI kinds of issues. There's also some other kind of circuit design issues. But in general pretty much as you might think in terms of when you think of hybrid drives, when you think of wind turbans, when you think of that, pretty darn comfortable to the overall multi-physics aspect. And then there are some aspects that are a little bit above that, a little bit below.

But essentially, as I mentioned, the product-- the line-- the growth across all of our major product sectors of course was positive and it was pretty much in line. And I actually view that, the fact that it's staying even I think is actually pretty good because we're not even fully ramped up on all of the channel training and certification, all of the account familiarization with our existing account phased into these new product lines that sometimes have different buying centers in the same companies. So the fact is the ramp up definitely has been encouraging. I mean if you charted on trendline basis, it looks quite good.

And then just one for Maria and then maybe one follow up. The tax rate now for Q2 and the year is now be 33% to 35%.

Correct.

I just wanted to make sure previously you'd said 35% is that right?

I think 34% to 35% is if I recall when I said last quarter. We had a little bit of some unplanned benefits that rolled through the income statement in Q1. And as I commented that doesn't make any assumption about the R&D credit. So if it does get reinstated, then that will have a small impact to improve it.

Perfect. And then the follow up is really just on customers and headcount, are you seeing-- is there a way for you to see into what you think is happening from a hiring perspective at your customers? And would you say that the growth you're seeing so far is not really related to headcount growth so much as just standardization or consolidation of analysis and simulation on to your tools? I'm trying to get a sense for whether once we actually see headcount growth, you think that's going to provide a further sustainable leg of growth.

Well it's kind of a non-linear equation. General headcount growth almost always creates opportunity for us. Even if there isn't headcount growth we tend to have other activities and opportunities growing. I'd have to say, and by the way anything we say is anecdotally aggregation of what we know from the various customers we work with, we don't-- we have not seen massive headcount decreases, so we've not really even seen moderate headcount increases in some of these places.

And that speaks to okay so where did some of the growth come from? And yes you're absolutely right, the standardization and consolidation, those were two aspects of it. But one thing that we've been talking about for a number of quarters, and it's still continuing to ramp up, is the concept of even a fixed number of people if greater numbers of them are using, greater numbers start to use it, or if the same number of users actually increase the density of their usage those are both areas that continue to increase. So it's just that when numbers-- when the same number of people come within an increasing demand and they hit, if you will, a library of these available licenses on a server if they start getting denial of service they need to upgrade the number of license counts, because frankly waiting around for licenses to free up is not a -- is clearly a low ROI decision for them.

Great, thank you.

Your next question is from Mark Schappel from The Benchmark Company. Please go ahead.

Hi, good morning and nice job. Jim starting with you, when you bought-- when the Company bought Ansoft a couple of years ago, almost all of their business was license business rather than leases, conventional licenses. Is their business still predominantly conventional licenses or have you been able to introduce some of the lease model to some of your customers?

Well we have introduced some of the lease model but it's still predominantly long stand buying preferences, particularly when you do a lot of repeat business, those do not fundamentally change that much. But let's just say that there is a seven figure lease component with the-- with what was previously known as the Ansoft business at that point and we don't see major changes of that dramatically ramping up nor necessarily decaying.

Okay, thank you. And then about a year or so ago you had remarked that you were seeing competitors in about 40% of your sales engagements and I was wondering if that number has changed all that much?

Joe you probably got the most current information on that.

I think that's fair. I mean we don't really count that but anecdotally I would say that yes we're probably in a competitive situations in about that ballpark.

But they tend to be, I mean keep in mind almost all of our competition comes in any number of a number of individual niche kind of applications because there really isn't -- there's really just not a single pernicious type of situation where everybody covers the same amount of breadth or has the range of only physics, so. But slightly up, slightly down, about the same, indeterminate or--?

About the same.

And then finally Maria in the past I believe the Company has had a good proportionate of it's cash held offshore and I was wondering if it's fair to assume that all or most of that cash is not exposed to any of the, let's just say, market turmoil that we're seeing out there?

No, we have no exposure to the market turmoil. And if you heard on the call, I commented 54% of it's sitting here domestically.

Thank you, that's all for me.

(Operator Instructions) The next question is from Brad Reback, Oppenheimer. Please go ahead.

Hey, guys how are you?

Hello.

How are you, Brad?

Good, good, thanks. Jim last call you talked about 4Q being positively impacted by several deals that you felt had pulled forward from 1Q due to budget cycles at the customers. Clearly you did almost as well on the big deal flow this quarter as you did in 4Q, is the pipeline just that much bigger here at this point but you didn't have a similar type of comment about pulling forward deals?

Yes, well the pipeline as I mentioned has been getting markedly bigger. The other thing is that we tend to as customers tend to grow, I mean it's a possibility over several years of the number starting to breech the $1 million level tend to go up. But in fact we had, yes we did have as I mentioned I think it was a couple that pulled forward into Q4, but we also had some movement as things tend to accelerate they tend to come in, and even in the last couple of weeks they were surprises. But they were surprises at the timing, they weren't surprises as to the fact of the business coming in Q-- have we seen--

That's exactly right. I mean they were not surprises in terms of they didn't even exist in the pipeline. But I think that when you talk about pipeline, there is the absolute quantity of it but you also have to think in terms of yield and rate, right? I mean how-- what are you getting and how fast are you getting it through the pipeline, and that's what as we move back to some state of normalcy that's what's a little bit hard to predict. I mean we've got a robust pipeline, it's hard to predict how quickly something will move, how much of it will move through and how quickly it will move through.

Got it and--sorry.

Just say historically we've not played up a bunch of pipeline is a very easily gained figure, and that's why we-- we don't spend a lot of time on that because the facts are facts and cash flow and performance is the thing that really maps out. But it is-- but I will tell you it is something that we do map and continually to try to use as one metric, but at the end of the day it's only useful at pipeline if it ultimately turns into business.

Great. And for the last couple of quarters you've definitely talked about the high-end products growing disproportionately faster. Is the low end-- is it just an economic issue there, or is it a distribution issue, and kind of--?

It's an evolution issue if you think in terms of, think of how the home PC's used to be, when people got low-end systems well it turned out that now the low-end systems that people call today are they've basically would have been considered high-end systems before. The high-end systems are really increasing for a couple of different reasons. First of all as I mentioned you can't-- if you're making commitments to major product lines couple of years in advance, you can't be dealing with lower percent certainties of what you're simulating. So people have been going for the more robust accurate broader reaching complex solutions. That's one aspect very clearly.

The second aspect is quite frankly over time we've been able to take many of the ease of use concepts from the low-end product and they're now embedded in the high-end product, which means that we're continuing to lower the floor the entry floor where more increasingly casual users can actually utilize the high-end solutions very affectively. But we still have a low end. It's still staying very steady, it tends to be a good seed unit, if you will, or farm system for that for people that are just trying to touch the base and sometimes that's our products and sometimes it's even, sometimes can be other companies products before they graduate to ours. So it can be a number of things there. But first and foremost non-compromising solutions. Second of all, the increasing ease of use which makes continues to open up advance capabilities to a broader range of users. Those are the two main factors.

Great, thanks a lot.

Having no further questions, this concludes our question-and-answer session. I would like the turn the conference back over to Jim Cashman for any closure remarks.

Okay well thanks, Maureen. Well I guess in close, our emphasis is going to be continued focus on execution and also continuing to drive that technology as we just-- that distinct there makes a big difference in our customer base and continues to drive it. I have to say the customer acceptance of our existing vision, there's really a unique value proposition and it's coupled with the investments that we've made, both in sales and on the development side along with the customers, the growth of the run rate business, it allows us to be pretty optimistic about the long-term opportunity.

And the only thing I'll say in closing is that I can't go through one of these without talking about how we continue to be propelled by not only I think the strong business model in technology, but thanks to the customers, thanks to our channel partners, and thanks to all the employees that have continued to make this sustainable for many many years dare I say decades. So thank you for joining us today and we'll catch you in about another quarter, thanks again.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.