ANSYS Inc (ANSS) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to ANSYS third quarter 2011 conference call. With us today are Mr. Jim Cashman, President and Chief Financial Officer, and Maria Shields, Chief Financial Officer. At this time, I would like to call the over to Mr. Jim Cashman.

Good morning, everybody, and again thank you for joining us to discuss ANSYS's third quarter 2011 financial results. Okay, so consistent with our 2011 protocol, all of the general information and key topics relative to the third quarter and year-to-date business results, as well as our future outlook are included in the earnings release and on in the prepared remarks that we posted on the home page of our investors relation website this morning but before we get started, I will introduce Maria Shields, our CFO, and I'll ask her to go through our typical Safe Harbor statement. Maria?

Good morning. Thanks, Jim. 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 affect our future results are discussed at length in our public filings with the SEC, all of which are also available via our website. Additionally, the Company's reported results should not be consider 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 business as of today, and we undertake no obligation to update any information unless we do so in a public forum. Consistent with our standard practice during the course of this call and in prepared remarks, we make reference to non-GAAP financial measures, discussion of various items that are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in this mornings earnings release materials and the related form 8K. Jim, I'll turn it over to you for some opening commentary before we turn it over to Q&A.

Thanks, Maria. Before the Q&A, I would like to underscore a few important points about our Q3 results and our Q4 and 2011 outlook. I guess I'll begin by saying that Q3 was another strong quarter for ANSYS in virtually every respect. Our revenue growth was 27%, our organic growth was 20%, our total license growth was 32%. This put us in the upper end of guidance for revenue and exceeded for earnings and all of this while experiencing slightly less favorably currency than what we had guided last quarter.

Then finally, we maintained all of the historical strength of ANSYS over a multi year period with double digit growth within our three major geographic regions, double digit growth in each of our major product units, basically in all categories of revenue we have like license and maintenance, major categories, so this yielded strong margins, cash flows and earnings of typical. Our industry composition was also strong as we maintained our diversity while leveraging our continuing strengths in various sectors including energy, electronics, automotive, and industrials. We added new customers and we continued to see good growth in major accounts where we're in the top 100 industrial companies in the world. I think most importantly this was accomplished while we maintain the core tenants of our long-term vision. It was supported been an environment where our customers basically simply can't afford to compromise on depth breadth or quality of the simulation tools they use to solve their increasingly complex design challenges.

The result of this is we have increased our outlook on revenue and EPS for Q4 fiscal 2011 as discussed during our earnings release. I'll highlight that our Q4 outlook does factor in some volume of year-end spending, but not anything like we've seen in the past very healthy Q4s. In the recent climate there has been a greater variability in the end game of the customers spending patterns and it appears that the uncertainty in today's world basically fosters a more patient if you will, wait and see attitude. Since we're not seeing it yet, we don't want to predict with certainty that it will come. If it does come, we'll all be pleasantly surprised.

The net impact is an increase in Q4 and 2011 full year guidance. With respect to our initial outlook in 2012, we have factored in a positive customer sentiment, the release of ANSYS 14, strong pipelines and increased sales capacity. Again, somewhat tempered by economic uncertainty. This translates to our initial outlook from $818 million to $840 million in non-GAAP revenue and $2.80 to $2.90 in non GAAP EPS. More details around currency rates and other key assumptions are contained in the prepared remarks that we posted on the investors relation home page earlier this morning. With that, I think we'll open up the phone lines and take any specific question that you might have.

(Operator Instructions). Our first question comes from Steven Ashley with Robert W. Baird.

Congrats on the very nice quarter. I guess I was just going to ask with respect to the 2012 outlook, a lot of people concerned about Europe, what kind of expectations, what are you assuming about how Europe looks next year? Thanks.

It's basically, first of all, yes, it has been a relatively tough time, but again we've also grown in basically our core growth was strong in Europe whether you counted organically , constant currency, combined or anything like that. We have a strong organization there. We have good major customers that are basically trying to serve global markets themselves and have a lot of that market outside of their own domestic GDPs. Nevertheless, all of the sovereign issues do tend to cause people a lot of pause and it does cause some choppiness we see everyday.

Strong organization with strong customers. The majors are continuing to do pretty well. We expect that Europe will be a little at this time tougher than it was in some of the hay day years and thing like that there. Will be some things that we will have to monitor with regards to currency, but in terms of customer progression and expansion and things like that, it looks continuing solid.

The other thing we hope to do actually is basically overtime it will take some time to do this, but to build up Apache which is not quite as strong, I few key strong customers in Europe that want to broaden that throughout the overall channel and as we have seen with other products it does take a little bit of time, but it's also undeniable that the opportunity is there and it does start to happen. Yes it, is one of those touchier environments, but every year we've been doing this there's been some part of the world relatively down, but we have the ability to focus in other parts of the world with pretty much one/third, one/third, one/third spread amongst the major geographical

Great. And then quickly,Marie, I don't know if you're willing to comment on how we should think about Apache revenue in 2012?

I would say initially in the $60 million range would be a nice safe bet.

Perfect, thanks so much.

Our next question comes from Richard Davis of Canaccord.

Thanks. I never say good quarter, but I would say good football game by the Steelers at least.

Saved me some money. You get your chance in the playoffs.

Exactly. When you think about the ways to approve simulation, the results come out for the customers. There is kind of two metrics -- two vectors. You can pump a bunch of CPUs at it or use alternatives or newer algorithms and stuff like that. There is a half a dozen firms out there that have usingnew algorithms or new approaches things like that. How do you think about that because you have some algorithms et cetera, but is that something we should think about as a competitive issue or how do you think of those vectors of tweaking the models in effect?

First of all, we're always looking at -- there's three different levels of this thing. First of all, the tried and true, pure physics algorithms upon which these are based, those are the ones that are solid and generic and for the most part customers when they get into simulation and base things around it, they want to have absolute certainty that these arcane algorithms are basically bulletproof and consistent.

With that, however, the next step of that is everybody is always looking for computing efficiency. As HPC is one part of that, but also what we do from a comp side standpoint, it's part of the basic knitting every year adding on new efficiency capabilities to take advantage of these compute hungry application is a key part. The third part is there's new algorithms and capabilities that come around, but it's not like a new branch of physics is create to supplant everything on there. I say in general these new algorithms can provide a way to augment and already strong product.

The big issue I've seen there and this is you've seen there's history dotting this over the last 20 years or so, a history comes out and they might tend to be very good, I don't want to call them gimmicks but they do have certain areas where they're not generically applied but can solve a certain classes of problems very efficiently, those are ones we try to incorporate those in but they're always going to come in, we keep an eye on them. It's not like it totally changes the entire landscape of simulation.

Got it, that's helpful. Thanks very much.

Our next question comes from Jay Vleeschhouwer of Griffin Securities.

Thanks, good morning.

Good morning.

Hi. Jim, earlier at your analyst meeting this year you noted in 2010 your top 10 accounts grew about 18% in revenue and your top 100 were up 25%, and that was last year of course. Could you comment on how you're doing with both of those categories of customers this year and perhapse what you've assumed in your 2012 assumptions with respect to the top 10 and top 100 customers, then a follow-up? Thanks.

First of all, we do the final tally of that usually when whole year is in because it's tough to take the individual time slices, so you want to have a full year of data. However, we do take lots of spot checks on that, and in general there's two trends, one of which is we're still seeing that the top 20 majors are spending that tweak above, a little further up the S curve of adoption if you will. We have started to see a couple of other companies start to move in a little bit, then on top of that some of those have actually been a little bit accelerated with early interest with the Apache combination because it is a conversion a electronics and mechanical.

For 2012, it's not like we take, our planning is not like we take the top 20 and assume a different growth rate for that a lot of it pretty much based on pipeline, with the advanced planning we have with the management review boards that we have with our really customers size the demand. Some are part of multi year plans, since this is not an overnight phenomena, it does take time to roll-up, but we do not see, the basic trend of a feedback loop is that we are not seeing a slowdown of those uppers. Now, the other thing, we also see is that one good measurement is that if you look at the top, all the top orders we had, it was pretty close to a -- there was still a very strong reoccurring base, but about 30% of that intake from those top customers were also complete new business coming in and that's one other kind of check that we do midterm.

Okay, thanks. Follow-up along same lines. Last year you had about a one-third increase in your active commercial maintenance paying base according to data that you shared earlier this year, and I'm wondering if you have some expectation for the degree of increase in your base this year relative to last year, and how that might reflect itself in growth of maintenance revenue?

Well, Jay, to kind of following on Jim's earlier point, we kind of look at everything on an annual basis, especially since Q4 is a large renewal quarter for many of our large customers, so once we've got the full year data for 2011, we'll be happy to share that with you. I would say if you looked at the prepared remarks, our renewal rates on maintenance are extremely strong. They're in the mid 90's, and with the amount of new license growth that you see happening not only in Q3 but throughout the year, that would mean that you'll probably see mid teen growths in maintenance going into 2012.

Yes, I guess another -- I'd agree with Maria's comments. Another point is whenwe were talking about the denominator numerator aspects at the beginning of the year, we were get still getting some of the effects of when the real dip in the economy in 2009 came in. We had talked about the fact that there was maybe a couple point drop in that thing and there was a little about the of an artificial boost from the recovery of that, but we've gotten back to traditional levels and it just continues to be strong, but again I'd echo Maria's comments on that, too.

Okay, thank you very much.

The next question comes from Blair Abernethy of Stifel Nicolaus.

Thanks very much. Nice quarter, guys.

Thank you.

Thank you.

Two quick questions here. Could you expend a little more, Jim, you commented on interest from ANSYS customers in what Apache has brought to you. I guess what I'm looking for, are you talking more about the traditional Ansoft base or maybe you could expand?

First of all, the interest actually has proven to be mutual direction. Obviously, the strongest impacts have come from the ones where there were overlapping customer name plates albeit in different buying centers, so that's where the primary one comes in. Now, with that in mind, there has been infinity between all ANSYS products and Apache software, but there's a disproportionate one as you might guess one from the people that have already been linked in from the more electronic centric products that typically was served traditionally either by Ansoft or even by our own electric magnetic multi physic products. It's universal, but it's basically a matter of degree and it also, it tends to be more focused first with the places where there's already a strength. Keep in mind most of the Apache customers were already ANSYS customers. The converse, however, was not true and we've already had some pretty interesting meetings even in this first couple of months coming out of that. Does that kind of cover --

Yes, that's helpful, thanks. My second question was just around verticals. You gave a little bit of color on the automotive sector in your prepared remarks.

Right.

I'm going to are expand on that I guess the last piece on the verticals is, to the extent that you can, your defense-related or government funded R&D related business, can you sort of given the environment we are heading into over the next couple of years, just sort of how much exposure do you got there?

Keep in mind, you can treat it either way, but we don't have a ton of exposure basically to any one customer, to any one industry, to any one sector like that. If anything, you'd look at maybe some of the procurement rates are down I'd say that the traditional defense thing, if anything they're maybe going into more R&D mode to figure out how to be more efficient particularly in light if defense spending cuts tends to a lot of times hit existing programs, but there's a whole new realm of the aerospace and defense field that's come which gets into surveillance, electronic measures, unmanned surveillance type of aspects and those have been ones that have been under because those are ones where typically new devices still need reliability, they need to be power efficient, low radar signature-type of devices and that's brought on. If anything it's more of a shifting sand, albeit there's been maybe a slight slowness in that overall sector.

Okay. And then on the automotive side, obviously that's been strong the last couple of years. How is that looking for you over the next quarter?

Well, it just continues to be strong and now not surprisingly you see major automotive, major suppler networks are also getting into the game so we actually seen that in some of our recent press releases in terms of new systems out there, and new relationships we have with some of the named customers, but you look at it, the regulatory environment is continuing to be tough. The mileage requirements are continuing to be more stringent. The pressures on there are not lessening up at this particular time, and on top of it the overall drive for efficiency and basically the changing of the automobile platform, it just continues to create a lot of opportunities because as opposed to maintaining 30-year-old kind of processes if you will, they're moving into a new realm of processes and that's quite frankly in our sweet spot.

Okay, very helpful. Thanks, Jim.

Our next question comes from the Sterling Auty of JPMorgan.

Yes, thanks, hi, guys. Kudos for breaking out the Apache contribution. Too many companies after making acquisitions kind of tuck things away, so it's great to be able to track it. I'm curious how you felt, the revenue contribution and the $60 million initial outlook for 2012, how does that matchup with what you originally thought? Maybe any more color on the integration?

Basically it is inline, first of all. Second of all, I think if you look back, we've always broken out that information and we've always talked about organic and tried to separate that out so that people can get a look at that business. But no pretty much inline with the pre-acquisition and immediate standpoint, so we're actually pretty happy with that.

With regard to the integration aspect, basically, obviously we were able to put out combined financials right in order so there weren't too many problems there. Rolling on to complete systems, we've already got plans and many things in place for the infrastructure. You look at the forecasting is being done combined. The one thing we're also doing is, first of all, do no harm in the customer relationship so we can continue to move that, but we've actually involved Apache in this series of user group meetings, some of which I've just gotten back from personally, and the response has been exceptionally positive. Apache, the sub had also called their major customers to do a kind of a temperature check and that came back extremely positive also.

It's one of those things where we're doing it very step-wise and methodical like we have before. We're not going to break either good company, but we've already started to be able to see some of the crossover benefits of that and that's what we want to continue to leverage.

And the follow-up question is; on the expanded sales capacity that you mentioned in your prepared remarks, can you give us a sense how much of that went to direct, how much went to indirect, and there's any metrics that you're willing to share with headcount or other investments?

The key thing, I can let Maria prepare for the investor comment, but the bottom line is when we talk about expanded sales capability, what we talked about specifically was the direct impact. However, our channel business as you can see has been continuing to do well along with us, and they've done expansion there. I just don't know off of the top of my head specific meaningful numbers that I can give for you for that, but since they've been able to progress at a very similar rate, I know that they have been expanding on that line also.

Yes, and relative to metrics we'll say, okay, as we head out of Q3, we're sitting roughly from a direct prospective globally about 240, and on a low end I wouldn't imagine it would be anything less than 10% increase going into next year, and then as we see things progressing continuing to add to that throughout the course of the year.

All right, thank you.

Our next question comes from Steve Koenig of Longbow Research.

Hi, good morning.

Hi, Steve.

I'm wondering if you can give us some commentary on the large deal? You had a good number this quarter. What drove the higher number there year in year, how big were biggest ones? What kinds of deals were they? Any renewals in there? Were they partly a result of your initiative to better penetrate your customer accounts? Is that helping as well?

It's all of of the above. We are always trying to increase our penetration in our key customers accounts. I think there were about 14, mid teen, 14 or so of the seven figure orders and like I said before, if you look at the split it's about 70% was continuing to build on maintenance base and maybe 29%, 30% was on the new revenue standpoint.

From a stand aside, Steve, just to give you on the low end, we said seven figures, so starting at 1 million on the high end, going up to 4 million on the high end.

Absolutely right.

Great, thank you. Then I guess for the follow-up, just maybe a question here on Apache seasonality. I believe there's leases, they're mostly lease so it is --

They're all leased.

Yes, okay. Looks like Japan's recovering which may help them. Is Q1, do you expect that to be -- is that typically seasonally up for them? How does that seasonality work?

No. In fact, there was a pretty good impact of Apache orders that closed in our Q3 when you look at the timing of those cycles. So the bottom line is, when you look at that, when you're dealing with that continued growth on a lease-base business, there will be additions throughout the year, but it's not like it's going to be any one big spike where everything comes in. If you look at the backlog it's quite strong. If you look at the overall deferred revenue and the overall deferred revenue is also growing, which you'd expect with all of this in mind. I think it's more along that time base license model where you see instead of big spikes, you see much smoother continuing wave that builds. Quite frankly, not unlike our own lease business, each though we don't sell that exclusively. You can see that it continues to be a strong part of the aggregate business. You can see that it also grew in double digits for the quarter.

Okay, great. Thank you very much and congratulations.

Thank you.

Our next question comes from Ross MacMillan of Jefferies.

Thanks a lot and congratulations from me as well. Maria, I was just curious as to your guidance on gross margins next year. You're guiding for them to fall slightly, doesn't sound like it could do with Apache --

It's full year of Apache, and planned hiring not only for new heads as we end 2012, but as you saw in the prepared remarks, not unlike what many other people are saying. We have a challenge in filling open positions right now, so the combination of those two we've talked a long time about continuing to invest in the business because we believe the opportunity for future growth is real and we don't want to short-change ourselves just to drive margins.

There's also one other -- absolutely right, but one other aspect, Ross, and a smallish one. If you recall over the last few quarters we talked about the fact that we wanted to ramp up a certain part of our service business because helping to bridge people with the process changes and revamping the way they utilize simulation in their accounts, it can be great facilitated let's say by some hand-holding. If you looked at some of the results, you would actually see our overall pure services business, not the software maintenance and enhancement subscription thing, but the pure service business, while it's still a small percent of the business, it tweeked up and it grew quite nicely. Those biases while doing the higher margin services, they're not the same margins as some of the other things, so you'll see a slight thing from there, but the net impact is going to be overall positive.

Okay, that helps. Maybe just my follow. You've obviously talked about this under hiring, it's hard to find the right skill set for certain roles. Is there anyway you could give us a sense for core ANSYS, what that delta has been this year relative to your initial plan on headcount?

One thing you can go to the ANSYS.com website and you can look at the positions that we're looking at there, but it's somewhere in that 70, 80, 90 range of open positions, I'm sorry.

Ross, just to further that. Of that, the majority of them are technical, so they are technically AE's they are technical service people they are high-end computer science and engineering, and it's just been really difficult in this environment to find people to fill those slots.

Well, at least the quality we need.

Yes, absolutely.

And that makes sense. I just want to be clear though. The hiring for AEs, put it this way. You mentioned earlier, Maria, the 10% number for next year is the baseline.

Of sales.

In sales, yes. I'm just curious as to whether you being able to grow at that rate this year or have you grown under that? I'm trying to get a sense for why that's a better growth rate implied next year or inline.

On sales it's been slightly under.

For the support, maybe a tweak over because we had a concerted aspect that, that was also going to help fund some of our customer engagement and services business, so maybe a tweak over on that particular aspect.

Okay, helpful. Thanks so much.

Thank you.

The next question comes from Dan Cummins of ThinkEquity.

Thanks. Jim, I wanted to ask about the recovery and the growth rate in the US business if there's any particular things you could point to on that? I'm always interested to hear your opinions on regarding the retirement growth rate of senior engineers in the US and how your customers are making that adjustment. If you could also talk about what the key integrations that you're achieving and putting out there with ANSYS 14, particularly related to the recent acquisitions of the past couple of years. Thanks.

Okay. Well, with regard to North America, obviously we've been able to do quite well with our majors, but we've had a quite few new logo type of accounts, and I think also you're seeing if you wind the clock back a little bit, a couple of years ago, a year and a half ago we were talking about doing some structural enhancements in North America to help facilitate. We thought we could do better there. I think some of those are starting to take hold. There's nothing that takes hold in 3-6 months, but over a year or so you can have those come in. With regard to basically the enhancements, basically there's first of all the ability to take care of -- I mean basically the ability to deal with some of the customize aspects of Workbench basically started to launch that where it allows customers can build preferences and workflows around that are particularly key. Apart from that, each of the individual physics as I mentioned, each of the major product lines grew in the double digit and mid teen aspects. Each of those, they continue, we're not holding back on any of those capabilities. You just see a series of releases across there. I am trying to think what else?

Retiring engineers. Dan, relative to, that you see it everyday relative to seasoned engineers are retiring and it's hard to replace them, so that actually helps us because it produces opportunity in that it shows our customers the need to capture that knowledge so leveraging sales of EKM if you will. Getting them to understand that capturing that and making it reusable is really important for their future. It also increases the need for them to use simulation because they've got to amplify the engineering talent that they have left. It's kind of a dynamic that helps us in the long run.

I'm glad you mentioned EKM. Is that something that you guys are pressing ahead with as an area to monetize?

Yes. There's lots of aspects in that, a lot embedded in the software itself. This is not a product data management or PLM type of offering. This takes into account, automatically captures the kind of simulation knowledge that is unique, rapidly changing aspect that makes it available. I think one of the interesting ones that I don't think was in our first plan of how to get benefit from this is the standpoint that we're seeing an awful lot of situations where simulation data is now being used out in the customers field organizations, but it's places where they normally wouldn't have people doing simulations, so it's the ability to extract the right amount of information and allowing them the ability to interrogate.

The results of that being sometimes for maintenance, sometimes for operating parameter adjustment and things like that, anything from aircraft maintenance to offshore oil platforms and things like that where people aren't available and it's really difficult to get them there in time. It's one of those things that's growing up and I think that another point of this is that with more people doing bigger simulations, you're just cranking out a ton more data. If you didn't have a way of keeping track of it and keeping track of it on the fly without having to go through a bunch of predefinitions of what you think is going to be useful and what isn't, those type of things are pretty valuable because once you get swamped under this Tsunami of data, it's pretty tough to pick through it all and find the relevant points or have it delivered to you in time to make meaningful results and reactions to problems.

Okay, great, thank you.

The next question comes from Jason Rodgers of Great Lakes Review.

Hello. Looking at the whole area of Cloud computing, given your recent partnership with IBM, I was wondering if you can provide an update of the opportunities there, whether you're seeing an acceleration of opportunities or just the gradual type of ramp up?

Well, again, keep in mind, we talk about the technology aspect. If you were here right now, I could get you on some kind of portable device and link for the Cloud right now and run that. We'd show that right now. We've had software as a service and hosted offerings for I think 11 or 12 years running now. The big issue of course is you have to take care of massive amounts of band width, a lot of latency linking between the multiple computers that are harnessed together, because you are doing the solution total and there are IP concerns. What that translates to is we've done the restructuring of the algorithms that allow us to run efficiently on hundreds of thousands of processors.

Essentially what happens is that we find that most people are using that paradigm, most of them are the major customers that are using it to basically in what we would call a private cloud where we don't worry about can the IP, where they can control the latency where they can manage the bandwidth and they're getting a lot of power out of it. Now, those same capabilities can exist in the public cloud, but it's really from a economic standpoint and from a certainty standpoint.

It's really the mature customers that are going into the higher end aspect, so we're seeing it in the private thing. Basically, the software is there. We've been providing this for ages, in some cases before it was even called the cloud. Just basically if you were here we could basically show it on a mobile device right now. Again, there's a lot of maturation, both in the technology of what the cloud is becoming, the enabling technology, and the customer maturity, but basically we have the pieces in place now and some people are using it, but don't see this as being a huge ramp up over the next year or two.

Okay, that's helpful. As a follow-up, I was wondering about the flooding in Thailand, if you're seeing any disruptions from our electronic base?

Actually, no. Southeast Asia is a major market for us, but some of the major area, China, Taiwan, Japan, Korea, those areas those are ones where it really hasn't -- I guess I haven't seen an issue.

That's good, thank you.

The next question comes from Barbara Coffey of Brigantine.

Yes, good morning. As you're taking a look at companies and their buying patterns, it was great to see an uptick in licenses which usually decline during recessionary period. Can you give some color as to buying cycles, how things have changed, what your sales people are seeing.

Bottom line , Barbara is, we mentioned after 2009 when things came out of perma frost and we went into the end of 2009 and 2010 we talked about a very noted protraction extra signatory levels longer time more judicious things like that. And then I think we commented through the early part of this year we hadn't seen those ebbing back toward the traditional patterns. So what we are left with is we are still seeing the normal type of patterns maybe judiciousness over the last few quarter. I think maybe one thing though is now it has hit a steady state standpoint what it means is there is less hits and starts in the middle of things but everything continues to be a sober, if you

Does that seems to apply to just large deals or is it deals throughout the food change?

All deals. All deals. In some case the larger deals might naturally go a little bit easier because they're known customers who are continuing to grow with us, but even with the large customers we'll hear where, well, we had to slow up our procurement somewhere because we couldn't get enough engineers in certain geographic locals. There's all sorts of little micro cogs in here that affect us, but it's basically affecting all boats.

Thank you.

You're welcome.

Our next question comes from Mark Schappel of The Benchmark Company.

Good morning and my congratulations as well on the quarter. Hey, Jim, just one question. There's been fear among some investors that customers may be flushing out their year-end budgets earlier this year mainly because they fear they may get cut off later in the year if the economy stalls. Is it fair to say from the earlier remarks and from the guidance that you just don't believe that's the case?

We haven't seen it, yes, and even if people were flushing things earlier, it normally won't be -- Q3 is a heavy concentrated month for September because of vacation schedules and things like that. So it tends to be the clippyness quarter of the bunch. In other words, we wouldn't have seen in Q3 even if that phenomena was existing. What we tried to spill in our comments there is not even certain. There may be some companies that are saying, we are not even certain that we are going to be able to do the typical year end buys, use it or lose it type of things that we traditionally do.

Again what we went back to in our guidance was somewhat conservatively but I would say sanely, was to look at the detail forecast we had and the customer sentiments we had and yes there could be some surprises but I would have to say the possibility of an up side surprise is more greater than one of a down side at this point in time. The bottom line is we just really don't know. And in reality most people don't know there is a base line that you say we kind of know statistically has happened, but 2008 things got held up, 2009 we weren't expecting much as you remember it came in pretty strong. 2010 was quite dynamic for us. Those things could happen again, but again we are guiding on what we actually could see. When you get down to it is only a few weeks way from the end, so you should have some idea.

Thank you.

(Operator Instructions). We do have a follow-up question from Blair Abernethy of Stifel Nicolaus.

Thanks, wanted to follow-up on the EKM side of the business, Jim.

Yes.

Could you maybe characterize that as to sort of what stage adoption you're at? Are you --

Oh, it's missionary and it's very (Inaudible). Believe it or not, there's even some customers that get confused because it deals with data, therefore it must be a data management system, therefore it must compete with a PDM or PLM system. That really isn't the case. However, there's an awful a lot of clutter and chat out there. This is very much an nascent environment.

It's been created or caused by the amounts of data that we're creating, but it's also been facilitated by the Workbench overall framework that basically allows a lot of this stuff happen seamlessly and at the data level through data integrations, so even a hosted application in Workbench can participate in this. It's just how do people wrap their minds around this. This there's pretty good schools of thoughts of how you manage -- the more structured the data is, the more easier it is to wrap your mind around it.

The less structure, there's all sorts of different things that people can do to manage, that but it becomes more and more difficult, and obviously by being in the simulation business so long we have the ideals and knowledge of the range of data, the parameterization of that data, the ability to actually link that through a broad range of simulations and parts of the development process, and so really it's one of those things where it's been a push/pull, where the customers are starting to pull on it, but we've actually gotten -- I'd say it's just really the prenatal stage.

Okay, great, thanks very much.

Yes.

This concludes our question and answer session. I would like to turn the call back over to Jim Cashman.

Didn't feel like I ever left. Okay, so anyway in close really not much has changed to what we committed to on the last earnings call. The emphasis for the remainder of 2011 will be integration of the Apache business combined with the a continued focus on execution growth and customer development as we have seen across the globe from the past several months, I mentioned with our involvement range of user group meetings as the customer (Inaudible). long-term vision remains strong, probably even stronger.

With the addition of Apache and the up coming release of ANSYS 14 it just really continues to strengthen. Basically in closing the things that continue to propel us it is a strong combination of that long-term vision. A very resilient and solid business model, those loyal customers. We talked about how they continue to grow with us. And dispositional a number of good partners out there. We talked about our channel and some of our business partners, great technology. And, of course, the growing base of what I think are very exceptional employees. And I hope we can add to that with sufficient quality and quanity. As we talked about in the hiring patterns. So thank you for joining us this morning and we will catch you some time the end of Q4.

The conference is now concluded. Thank you for attending today's presentation. You may disconnect and have a great rest of the day.