ANSYS Inc (ANSS) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to ANSYS first quarter 2012 conference call. With us today are Mr. Jim Cashman, President and Chief Executive Officer, Maria Shields, CFO. Today's conference is being recorded. At this time, I would like to turn the conference call over to Mr. Jim Cashman for some opening remarks.

Okay, good morning. Thank you everyone for joining us to discuss ANSYS 2012 first quarter financial results. Consistent with the standard protocol we've been keeping, all of the general information and key topics relative to Q1's business performance and our 2012 outlook, are included within this morning's release and in the prepared remarks documents that we posted on the home page of our investor relations website this morning. With that, I'll introduce my cohort, Maria Shields, our CFO, who will go through our Safe Harbor statement. Maria.

Thanks, Jim. Good morning, everyone. I would like to remind you that in addition to any risks and uncertainties that we highlight in 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 indicated 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 business as of today and ANSYS undertakes no obligation to update any such information unless we do so in a public forum.

During the course of this call and in the prepared remarks, we'll be making reference to non-GAAP financial measures, a discussion of the various items that are excluded in 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 back over to you.

Okay, great, thanks. Before we get started with the Q&A, I'll like to briefly underscore a few important highlights regarding our Q1 results and the continued commitment to delivering our 2012 outlook. Let me begin by saying Q1 was a solid quarter on many fronts. I guess from my perspective the most important aspect of the performance for Q1 was that despite some challenges we continued an important multi-year trend for us as a Company and a management team, and we delivered on those key commitments.

Both revenues and earnings we're within range that we had guided on coming into the quarter. In addition, just hitting some highlights here, we achieved double digit revenue growth in all three major geographies, as well double digit growth in our software license and our maintenance and service businesses. The Apache financial results were slightly ahead of our projections and we made good progress in our integration efforts, but, of course, there's a lot more work ahead of us.

Our recurring revenue went to 72%, our operating margins remain strong at 50%. Our deferred revenue grew to an all time high of $299 million. We generated $83.6 million in operating cash flows, and on the hiring front , as we have mentioned on previous calls, we added a net 40 plus new employees for the quarter and there's more planned in Q2 and the second half of 2012.

So with that, there's many positive aspects in the quarter in addition to that, including strong revenue performance in Germany and North America most notably. There were some isolated sales execution issues that impacted the quarter and have been the top priorities for us in Q2 and the remainder of 2012.

Our industry competition continues to be diverse, while exhibiting particular strengths in a few sectors, like automotive, aerospace, energy, industrial equipment and electronics. We added new customers and also continue to see new sales and strong renewals in our existing account base where we're in virtually all of the top 100 industrial companies in the word.

Most importantly, this was accomplished while we maintained the core long-term vision and it was supported by an environment where our customers can't afford to compromise on the depth, breadth, or quality of the simulation solutions they're using in the process to solve their own complex design challenges. So the result of this is as we look forward to the remainder of 2012, we're slightly raising and tightening our range.

This consist of maintaining the upper end of our range while absorbing some minor additional currency impacts. We're also raising the floor of our previous guidance. Netting all of this out, we'll remain committed to our four year outlook on non-GAAP earnings and revenue for 2012.

With revenues in the range of $810 million to $830 million in revenue, and earnings in the range of $2.78 to $2.87. And for Q2, we're targeting non-GAAP revenues in the range of $192 million to $199 million and EPS in the range of $0.66 to $0.69. So, with all that to highlight and bracket the things, we'll now open the phone lines to any questions you may

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

Surprised by this but I'm wondering if you could give us more color on the sales issues you talked about, where they were, and maybe a little bit more color on what they were?

First of all, for the last 10 years every quarter we've talked about the areas that we're going to continue to focus on and raising all of those levels, but we did mention in the other commentary, for instance in Japan, there was some macro issues, some things related around the electronics sector, and there were some things that we felt we could turn the gain up on in terms of execution. Nothing earth shaking, just the standard process of continuing to grow and re-energize a business on an ongoing basis.

It's really kind of that and we mentioned, I think we probably mentioned, the UK, but obviously, there's some things going on there with some of the [inaudible] measures in getting the fiscal house in order overall, but that tends to put a dampening effect in the short-term. On the other hand, we talked about a variety of pockets of strength. It's really that same litany where there's always areas that are performing well and you want to turn the gain up on that, and other ones where you say, hey, we think there's opportunity for more. So things we continue to do behind the scenes and just in trying to keep us as transparent as possible spell those out.

Maybe you could comment on linearity in the quarter? I know that DSOs were higher than last year.

There's no change in linearity. On DSOs, maybe a day.

No significant changes or concerns, Steve.

Perfect. Thanks so much, guys.

Yes.

Our next question comes from Jay Vleeschhouwer from Griffin Securities.

Good morning.

Good morning.

Jim, in Q1, appears that your ANSYS only growth only in constant currency X the Apache acquisition was in the high single digits. I'm wondering if you're assuming that for the remainder of the year you can return to double digit constant currency growth for the ANSYS business? Again, excluding the Apache business.

I gotcha on that. The first thing I'd say is that in general we were right in line with the guidance that we set for Q1 with all of the things we saw, the various timings of major account renewals, the whole range of things that are tied in with our business. We tied in pretty well on that.

I think we did note, and we're not calling out any kind of a trend here, we're just noticing a piece wise of data is that even in the organic business, our lease business climbed up, climbed up a bit. We don't see anything anecdotally that says there's a long-term trend here, but one thing that does do is it tends to solidify longer term revenue patterns and it tends to have a slight dampening on the short-term things. If you look at organic deferred revenue, you would see that grew in excess of the rate where bears all of that out.

Everything kind of like as pretty much as we said. As I said going forward into the guidance is looking at 12% to 14% constant currency for the organic standpoint. I think that was the net crystal of what you're talking there.

In our guidance, like I mentioned, we've been absorbing additional currency impacts, so raising that guidance, we've also tightened the range a little bit, raised the floor, so all of that plays into that 12% to 14%. So 12% to 14% constant currently organic for the year.

My follow-up is with respect to your vertical markets. Are you seeing across the verticals, including the ones you mentioned, any appreciative differences in terms of either license growth as measured in seats, or as well, are you seeing any appreciable difference by vertical in terms of lease or maintenance renewal rates?

First question, the easiest one to address is on the lease and renewal rates. Basically, pretty uniform across all industries, again, staying in that mid to high 90's kind of rank that we've historically talked about. Now, when you talk about the individual industry participants, there does tend to be a high correlation between the additional growth, so those areas that are a little bit more vibrant or in stronger renewal cycle, not renewal but renovation cycles, you'll see that kind of rise up.

I say it's fairly linearly apportioned to all the industries to how they're going. I would say trends we talked about on other calls, you will see that the HPC aspects continue to grow, so that can kind of, whether you count that as a seat or as a used or things like that, that gets a little bit different. The one thing that was interesting is, there was one thing that I mentioned, I might have created a paradox here, but I talked about in an earlier question, talked about the macro economic and particularly the macro in the electronics sector in Japan as being a factor in Japan, however we talked about the relative strength in North America with double digit growth and they were actually quite strong in the electronics.

Likewise, some of the other giants you hear, the upcoming names in electronics, Korea was particularly strong and that was heavily influenced by the electronics sector. There's really no odd ball data that would poke you in a different directions. Those industry sectors generally went well. Sometimes they were metered by local macro economic sectors, but in general it was pretty linear. The foundation across all of that was, regardless of the industry, renewal rates were right in the target range that we maintained.

Thanks, Jim.

Okay.

Our next question comes from Richard Davis from Canaccord. Please go ahead with your question.

Thanks. Following up on what Jay asked. Do you have a sense of what the organic growth rate of what the core ANSYS booking are? You mentioned in deferred revenues bumping up. For some companies it's helpful, for some companies, it's not. I don't know how much it services or maintenances renewals, but if you have something along those lines, that would help people understand.

Basically, I don't have that number on the top of my head. Other than the fact that we did do that check on there to make sure that we were looking at basically we were also, if you look at the deferred revenue for organic only, it went double digits, collected in the double digit thing. So above that the rate we had for the revenue originally, which also was the guidance revenue we had, so I don't have that specific number so I don't want to take a wild stab at it.

The fact is you could see that increase, that influx to lease, which I say is a slight shift right now, you see some other things, but it really didn't relate. One thing you mentioned in terms of service, it didn't relate to bookings for pre-service or anything out of ordinary there because all of the renewal rates were basically inline. Really we just see this as more of a net positive overall for the long-term of the business.

Got it. Then I guess the follow-up would be, competitively it sounded as if most of you're adjusting for natural enthusiasms of private companies, but it sounds like most of the private companies competed in a good quarter. Do you have a sense of any changing customers or competitive dynamics out there?

Basically, absolutely none in terms of any changing dynamic. There's always going to be a collection of people. None that compete across the broad spectrum that we have. The law, the denominator can work for or against you, the relative size of things. If you look at the scale we had, everything was kind of in line, again, in line with our guidance, in line with the normal booking, renewal and addition cycles of most of the customers. There wasn't any new competitor that popped up as being either numerically or anecdotally more on the radar screen. Frankly, we added a ton of new license business ourselves on top of it, which plays into the overall long-term strength. So really no significant changes, and really if you look at the guidance, the projections and what we've been talking about,no surprises. It's just more validation.

Okay, thanks.

Our next question comes from Blair Abernethy from Stifel Nicolaus. Please go ahead with your question.

Thanks very much. Two quick things. I'm wondering if you can comment more on the head count? The 40 you added this quarter, where did you fill holes there and what do you looking like going forward?

Yes, the 40 are probably, maybe slightly less than half of that in the sales force. The remainder of that of scattering of R&D and some G&A.

It was across all sectors. We did hire on the platform of what we were planning on for sales. Of course, when you do that you have a little bit of a support thing that comes along and we did things that we've talked about in previous calls in terms of continuing to ramp up the R&D engine, so we added ones there's but we only go for the cream of that particular standpoint.

Underneath that, it was basically across all sectors. Really don't have to go much further than go to ANSYS.com and look at the position list there and publicly reported there and you'll see the ones we're continuing to look for as we go forward.

Okay, great. And the other question I had is for you, Jim. Can you give us a sense of what the magnitude of the shift was this quarter from what you would have expected to be paid up that shifted to lease? Are you still seeing a larger trend here of major longtime customers continuing to come off lease back towards to paid up?

No, not really on the second one. On the first one, probably talking about a couple million. Of course, we were still in the mid of the original revenue range, but it was the minor, minor surprise, that was part of it. Again, that works out well for us long-term, but that was about the level the shift we were looking at. But the fact is, it was still business in hand.

Okay, great, thank you.

okay.

Our next question comes from Sterling Auty, please go head with your question.

Thanks. I want to start with the SG&A expenses. When you look at the spending level in the quarter, how did that come in relative to what you had thought originally coming into the quarter? Relative to the seasonal trends, it seems like it's a little bit lighter than we would have seen.

Yep, it's lighter, largely due to heads.

So just for headcount? The follow-up question would be around that, how much of that was variable expenses coming in lower than seasonal?

Yes, the other thing that this was probably the lowest quarter in a very long time for ANSYS where we basically had no bad debt expense.

Okay. My backhanded way of asking you, when you look at the commission revenue around it,I know you have the lease versus the purchase, but how was the variable expense around commissions in the quarter?

Commissions were maybe a little bit lower just because if you don't have the sales people here, you can't pay them commissions.

Okay. So your point being light on heads, you hired into sales. Where was the turnover?

Some of the sales positions, particularly in Japan, while they're hired, the problem is they have long notice periods so they're hired, but some of them didn't start until the end of the quarter or won't start until Q2.

Okay.

Some of the people we mentioned, of course, were like partial entrants into the quarter, not across the whole quarter, but they'll show in the whole Q2.

Obviously, it takes a couple of quarters for them to ramp, but you'll start to get a little bit of contribution from them in the quarter.

Yes, you'll start to see that.

Okay. On the lease versus purchase discussion. How much of that shift was just shifting in green field new customers coming in deciding to go lease versus purchase versus existing customers that as they're adding additional licenses for HPC or something else, deciding to lease instead of purchase?

The majority of it was new. Anecdotally there might have been a few little threads of things that people were picking up something to try because they can get it more quickly than they could going through the capital purchase long-term, but the majority of it was new from almost everything I can see. Maria, do you agree?

I would say it's more newer business, newer names than our long traditional accounts.

Okay, and last question. When you talk about electronics in Japan, is it specifically CE? We saw a lot of news with Sony cutting heads, for example. Is it more consumer electronics?

Yes, I'm sorry, I didn't mean to cut you off, but yes, it definitely was more consumer electronics. When I talked about some of the areas of strength, some were driven up by strength in some other geography locals. It somewhat mirrors the headlines you'd see about who's driving in current electronics growth and who's having a little bit more difficulty and things like that. Recent write-up in the Wall Street journal on some things along those lines. Yes, it's heavily driven along those lines. It tends to be more micro in this case than macro, for example, geography or even account specific.

Okay, got it, thank you.

Okay.

Our next question comes from Dan Cummins from ThinkEquity. Please go ahead with your question.

Thanks, very much. Hi, team. Let's see, first question regarding the revenue guidance for Q2. The sequential are pretty strong in the guidance. I think 4% to 7.5%. My model goes back to I think 2004 and I don't have an organic in that range. I'm curious what you're seeing or counting on or maybe you've seen business that ramped over? Then I had a follow-up on your reference to customers switching preference toward term in Q1. Thanks.

I mean, Q2 is really based on that bottom up forecast and we've got a pretty good disability on a lot of that business, so really this represents the grassroots. If you get down to a named account kind of basis, scoured by geography, and that's really what base longs and tracks along with our earlier statements, it dove dovetails nicely into the longer term annual guidance. It's basically just one more piece in that puzzle. Hopefully we've demonstrated that over a long period of years. Then I'm sorry, you had a second question on the period licenses versus paid up?

Yes. Actually, I wanted to clarify that all of Apache is term?

Yes. High 90%. I'm saying there may be a couple odd ones out there, but it's all time-based.

Right. On the prepared remarks slides, page 3, it says certain customers electing to switch their Q1 orders from paid up to lease. I'm curious, what's the case color on those examples? What's coming back from your field sales people? What do you think is the change there on the customer side?

Choppiness where people are perhaps being a little cautious with their capital, especially in the S and B world where [inaudible] is not always as robust and cash is king. Sometimes at the beginning of the quarter they're feeling better and maybe just like we see choppiness in parts of the business due to macro issues, maybe they felt the same thing and they decided they'd go with leases versus paid up.

We've talked over the years, we're relatively agnostic when it comes to which kind of purchase or acquisition mechanism they'll use, so a lot of times we'll have that in the forecast and we know an order is good and it's coming in, but it can shift slightly. Normally we have an idea what form it's coming in, but not all the time. Sometimes it comes down to the wire and the customer will say we want to get a kick on this project, but we'll have to acquire it in a different way and that's what we kind of saw here. Again, relatively small. I want to highlight, this is not the kind of impact we saw back in the 2009 or 2002 time frames where you could see wholesale, and I won't call it migrations, I would call it temporary dislocations at a year or two later saw themselves out.

This is just one quarter of things that did amount to not insignificant amount of information or business transferal but at the it was something we needed to highlight. End of the day, we're still adding those customers, they're still using the software, and again, our deferred base and recurring business continues to keep rising on that and helps us in other aspects of the business.

Okay, thank you very much.

Okay.

Our next question comes from Steve Koenig from Longbow Research. Please go ahead with your question.

Okay, thank you very much. Just a quick clarification, housekeeping before the main question if you don't mind. Maria, the deferred revenue in the print says $282 million. I'm just wondering the discrepancy with the $299 million? Is the print the current deferred? What's the difference?

Yes. The $282 million is current, then there's $17.7 million deferred revenue that's classified on the balance sheet in the long-term section.

Okay, great, thanks. And then what I'd like to inquire about is, you know Europe here looks like it grew 10% constant currency organic. You had really strong results in Germany. The PMIs in April really declined in Germany, did not look good in that country and for Europe overall. Can you comment on, number one, linearity at the start of the quarter here in April, and secondly, what are you assuming about Europe in your guidance going forward?

The guidance is still based again on the existing relationships we have and the short-term in forecast. The linearity, no real changes to highlight on that. The key thing is, again, I've witnessed this pattern about three or four times and usually Germany was at the epicenter of it. Where people are talking about here's the German GDP and why are you growing way above that.

It just turns out there's a lot of multinational companies that are supplying infrastructure, energy, a whole range of things to other places on the globe and as such, they're having a huge influx of business and those are the ones we continue to do quite strongly with. While the macro economy of a sub-region can be a factor for us, it's more often transcended by the markets that the companies they're serving because we're not like a consumer entity within those geographies.

That's why even in the Japan situation, I mentioned the fact of you're looking at some micro, some companies that are having broader range issues on a global competitive issue, and those are the ones that are being written up in the paper, so while it certainly is a factor, it really isn't necessarily a barrier to the ongoing growth. Again, because we're serving companies that are serving not just European markets, but serving global markets.

Is it fair to say your Europe assumptions are about the same as a quarter ago?

Yes. You know, broadly speaking, yes. There's always going to be some puts and takes across the board, but yes. In fact, that's why it's reflected again in our guidance, which again we've kind of strengthened and tightened the range on for the year.

Thank you very much.

Okay.

Our next question comes from Mark Schappel from Benchmark.

Jim, you recently highlighted your strategic agreement with FMC in a recent Press Release. I was wondering if you could comment further on that relationship and whether we can expect some other types of partnerships down the road?

Looking at those kind of partnerships are actually things we've been seeing in increasing amounts. With regard to these kind of announcements though, the more strategic they get, actually the more, I don't want to say cloak and dagger, but the more secretive they get. The fact is, the customer you mentioned was a longstanding customer and they've continued to grow with us over time. In fact, it's just another one of those things, we even talked about this at the analyst day, those longstanding customers that are extending and elevating, they're starting to mouth up our S curve, if you will.

The nature of what's involved in there, the more strategic those relationships get, actually the more secretive they become in terms of what they're doing because more often than not they're doing it for some increase in strategic advantage and they normally don't like to talk a lot about the details of what those are. It really is an overall strengthening. The other thing you'd mentioned, these customers that they extend and elevate, they tend to get much broader in the product portfolios that they're using.

We've talked about this where everybody loves the concept of multi physics but it's a long time to get it built into the processes of individual customers. You'll see, if you look at some of the customers, they're actually also increasing the breadth of products and how they're using them. They're all in our wheelhouse.

Thank you.

Our next question comes from Perry Wong from Goldman Sachs. Please go ahead with your question.

Hi, and thank you for taking the question. I just wanted to ask a question around gross margins. It looks like for the full year guidance at 87% compares to the prior outlook of about 87% to 88%. Should we think about the outlook as reflecting a higher contribution from services revenue, which I think had a strong quarter sequentially?

Yes.

Or maybe lower license expectations given the shift in the quarter?

No, no. There's two primary things. You hit on one, again, these are very minor things, but again, when you're talking about 88% going to 87%, that's not a seismic shift. We've talked over the past few quarters about using services as a means of accelerating some of those hurdles to the advanced adoption of it. I would say the other thing is, you will see that's already incorporates into those trends that you've correctly seen. The other thing is there's another element in that gross margin line that relates to royalty content and some of the components that we might be using, so there is going to be a small contribution of that in there, but again, nothing apart from what we've been talking about from the last few quarters.

Got it, thanks. Sort of a follow-up around HPC. Is there any color you can provide around the momentum of the business in the quarter? For example, last year I think commentary was about 10% of total sales. I'm trying to get a sense of business momentum as we start this year. Thanks.

What we talk about, it seems to be growing about two to three times of the license growth, which means while we're adding new users, the intensity of the previous users is continuing to increase, that means they can solve larger problem sizes and more complexed things. They can get things in a lesser amount of time. If you just extrapolate those multiples, yes, it's creeping up there, but again if you look to the pie chart, they'd probably be largely undifferentiated because you would have it growing at a larger rate. It's not like, oh, now it's 15% to 20%, but continues to edge up there. We are continuing to see it grow disproportionately.

Got it, thank you.

Okay.

Our next question comes from Jason Rogers from Great Lakes Review. Please go ahead with your question.

Good morning. Looking at your growing cash balance, I was interested in your thoughts on both the acquisition environment, as well as share repurchase given your recent increase in the authorization.

The reason we authorize that increased share count was to have more latitude on when the previous plan, which was starting to get a little bit tighter, so that's always on there and according to same metrics that we've always talked about how we do that. With regard to the acquisition environment. Of course, those very large ones in the spaces aren't as much, but there really are a number of tech tuck-ins and things that for every quarter that I can remember for over a decade, we talked about those. Those are always on the radar. They don't always come and it's not like you decide to do them and a week later announce them, but there's always a lot of work in terms of due diligence and things like that, that's going on. That's still the number one thing we are utilizing, that we're looking for the utilization of cash on.

Secondary it would be, yes, we are looking at opportunistic share repurchase and frankly, over the last few quarters, couple of years, any kind of acceleration of debt pay down has really not been high on that pecking order of best uses of cash. It really does get down, but there are some interesting technologies out there. Ones that we are interested that would be great acquisitions, great partners, a whole range of things. What makes it a little bit trickier is sometimes in the turbulence of today and what's going on, there's always bridging the valuation or defining what is a good valuation sometimes is a very interesting challenge for all sides of the equation.

And could you provide an update on your CRM system, where you are in the implementation of that?

Yes, that's fully implemented. In fact, in Q1 we brought Apache on relative to order processing and financial, so they're now fully integrated from a system prospective relative to sales forecasting and ordering, and processing and financial statements.

The one thing we continue to do, this is an organic system it, continues to grow with the business and as such, yes, every year we're doing things to enhance it including in terms of the tie ins with the marketing, the forecasting, a range of different things. Inter-connectivity with other structural systems. We'll continue, but in terms is everybody using it and are we using it on all products. We continue to stay on that point that we're able to quickly do that even on recent acquisitions, so we've gotten to the point where it's a pretty vibrant standpoint, but just like we've got really good software that we provide our customers but they're always asking for additional things, our internal groups here are going to be continuing to ask for additional things and we'll continue to progress that. In terms of the breadth of its coverage and uniformity of it, we're essentially there.

Great, thank you.

Okay.

Our next question comes from Barbara Coffee from Brigantine. Please go ahead with your question.

Actually, I have questions. Can you speak a bit about how you're continuing to penetrate some of your large accounts and a break down of how much revenue came from existing accounts versus new accounts? And then, this is more of a refresher for me because I don't seem to have it any in where in my notes,when you sign people up for the HPC type programs, how are you charging and what kind of adoption are you seeing of HPC solutions relative to revenue growth?

The first part of that is the major accounts, first of all, we're growing in the existing divisions. We typically, that's happening through increasing number of users and increasing the number of projects. So, for instance, if a project was midstream they might not try to inject this, but as that rolls off, this rolls on.

Then secondly, we see bridges over to sister divisions and what it also tends to do is either sister design groups inside the same entity or if these are multi-disciplinary major account groups into multiple industries, they'll spread that across different ones where upon will formalize the arrangements by which we actually meet and interact with them. FMC, which was alluded to earlier by one of the questioners on this call, is really a nice example of how that happens. It continues to grow along those lines. In general the major account activities continue to grow but none of our stat's along the number one customer or the top customer. None of those things have really changed. On the HPC gets implemented at higher levels rate of additional incremental individual seats that are coming in, so that paints the overall canvas.

Okay, thank you.

(Operator Instructions). Our next question comes from Ross MacMillan from Jeffries. Please go ahead with your question.

Thanks. Maria, I noticed that the long-term deferred revenue stepped up quite significantly this quarter. Can you talk to why?

Yes, it's largely Apache related, Ross.

I guess the question would be then, Apache's been in for a couple of quarters now. Was there any change in duration of billing or any sort of contractual changes there that would have driven that?

Yes. Also, Ross, one thing that will factor into that is the write-down from the purchase accounting becomes smaller and smaller, so that will impact that number.

Yep. Okay. So just to be clear then, most of that change sequentially in long-term deferred relates to the Apache business, not ANSYS core?

Yes. The majority is it Apache.

Okay, that's helpful, thank you. And then I just had one other question on the Apache business. You comment that you're executing on the milestones to work towards the comprehensive chip package system offering. Could you update us on the time frame and the ways we should think about having that comprehensive release in market? Is this something where actually we'll get to a point where we'll have net new product in market or is it just more kind of evolutionary and there won't be necessarily a net new product release, if you will in that demand?

If you're mentioning net new product as a new module to attack this, no, our physics is going to attack all of that. Internally we've outlined that in about three 1-year time frames. I think I mentioned earlier ones looking at being able to take some of the signal integrity and work that with power integrity and working with our SI products in addition to some of the Sentinel and red hot products on theirs, and those are ones that they actually do create an updraft by the virtue of by solving a wider ranger of problems.

The integration is largely problems of solving connectivity, so in essence we can get a form of multi physics, multi disciplinary simulations to cause a new class of problems that's been particularly vexing. You'll see that. As we come out with 14.5 and version 15 over the next few months, you'll actually see that level of capability being built in, but it's largely on the integration and blending of the capabilities and allowing them to inter-operate through the work bench platform.

That's helpful. Maybe one other one for you, Jim. In the world of handsets, we have two particularly strong players, one here in the US and one in South Korea. Does that bifurcation between two very, very strong players have any implications either through the supply chain or anywhere else for your Apache offering?

Well, obviously, there's some links in the supply chain because you look at the major impact of the various chip providers there and what's being pushed along those lines, but it's nothing that's changing the normal course of business because in general we tend to have a lot of those situations where all of the major players, be they 2 or be they 5 are utilizing this.

This is kind of the classic example where 3%, 4%, 5% increased efficiency can have a major impact on their business, so it's one of those things we're getting close enough and using engineering intuition. Which is some of the older generation of this technology does. Really doesn't get them past some of the major design hurdles. So being able to really get in there and look at those refined effects that allow them to get a better quality product or a better user experience is really what's driving those.

Great, thank you.

And at this time, I'm showing no additional questions, I'd like to turn the conference call back over to Mr. Cashman for any closing remarks.

I was never aware that it left me. Okay, so just in closing, the emphasis for Q2 and the remainder of 2012, it's just a continued growth, customer development. We mentioned about the improved sales execution, but like I say, we're right in the lines of our guidance and Q1 is tracking along it. Strengthening and tightening the guidance for the full year, and again, if you look at that overall, we're encouraged, we're motivated by the positive customer receptivity to our long-term vision, and again, we continue to be propelled by the combination of that vision.

A business model that has continued to work and again, I'll do my close with a shout-out to the thanks to all of the loyal customers, the partners we've had over the years, the people creating the great technology, and this growing base of super employees that we have here, and that's really what's allowed to us do what we've been doing and will propel us into the future. Thanks, everybody, and we'll see you next quarter on the next call.

Ladies and gentlemen, thank you for attending today's conference call. It has now concluded. You may now disconnect your telephone lines.