ANSYS Inc (ANSS) 2012 Q3 法說會逐字稿

Good morning and welcome to the ANSYS Third-Quarter 2012 Results 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, Maureen, good morning and again, thanks everyone for joining us to discuss ANSYS 's 2012 third-quarter financial results. And, consistent with what we have been doing all of this year, all of the general information and key topics relative to the third quarter and the year-to-date business results.

As well as our future outlook, are included in the earnings release and in the prepared remarks that we posted on the home page of our investor relations website this morning. So, before we get started, I would like to introduce Maria Shields, our CFO, and would you give us our safe harbor statement, please?

Thanks, Jim. Good morning, everyone. 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 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 forward-looking statements to reflect events or circumstances after the date that these are made.

Consistent with our standard practice, during the course of this call and in the prepared remarks, we will be making reference to non-GAAP financial measures. A discussion of the various it. ems that are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning's earnings release materials and the related form 8-K. So, Jim, I'll turn it back to you.

Okay, thanks, Maria. Before the Q&A, I'd like to briefly highlight a few key points about our Q3 results and our updated 2012 outlook, as well as our preliminary 2013 outlook. Actually, before I get into that, I want to send condolences and best wishes out to all those on the East Coast who are dealing with their own versions of tragic and challenging times. So we wish everybody the best as they start to recover and rebuild from the events of recent days.

Moving on to Q3, in summary, I will say Q3 was a very good quarter for ANSYS in many respects. In fact, it was the highest revenue and earnings quarter of any third quarter in our history, and this morning we reported revenue growth of 16% in constant currently and 12% EPS growth, or $200 million in non-GAAP revenue and $0.74 in non-GAAP EPS. This was at the mid-range of our guidance for revenue and beyond the high end of our range for earnings. This yielded deferred revenue balance of $306 million, which is also a new record high for Q3.

Both software and maintenance revenue grew in double digits, all three of our major geographies delivered double-digit constant-currency growth, and our industry composition remained strong as we maintained our diversity while leveraging our continuing strength in various sectors, most notably this quarter, including automotive, aerospace and defense, and electronics and semiconductors.

Now, we also added a significant number of new logo'd customers to our global base. Now, I mentioned these because they are usually initially not high-volume accounts, but a good number of them grow over the three- to five-year time frame. And then we also, of course, continue to see expansion in our major accounts, where we are in virtually all of the top 100 industrial companies of the world.

I think most importantly, this was accomplished while we maintained the core tenets of our long-term vision and focus to deliver on key commitments. We continue to focus on efforts in investment on building our business and capabilities for the long term. If I could throw out a few examples of this -- the recent acquisition of Esterel, commitment of our new corporate headquarters in 2014 and the release of ANSYS 14.5, which is coming up next week, as just a few examples.

Now, I'll acknowledge that the overall macro environment and customer sentiment turned out to be increasingly -- at least much more cautious as we finished out the quarter and as we focus on closing of the year. And I think this is pretty similar to what a lot of people are seeing, and we've been seeing it as we ended up the last part of third quarter, and we don't see any clear signs of that changing any time soon.

So with Q3 in the rear-view mirror, and one quarter left in 2012, it looks like more of the same. The result is that we have adjusted our outlook for the year, and it's based on the following factors. First, and the overwhelmingly biggest one, is the economic and political realities of the current environment, with all the uncertainty and concerns around continued slow growth, elections, fiscal cliff, what's going to happen to taxes.

We just aren't hearing any of our customers talk about year-end budget flush or excess spending. So, we've factored in the challenge that we and many of our customers are facing into our guidance.

Second of all, we have also updated for currency, because since the beginning of the year, we've had probably somewhere around mid-teens in terms of currency headwinds on that. Narrowed the range for the fact that there is a single quarter remaining in 2012, so any shift out of the quarter also means movement out of the year, and of course we've included the strength of our Q3 earnings performance into that.

So this all translates into non-GAAP revenue for the full year in the range of $798 million to $805 million, and we are maintaining our full-year earnings outlook in the range of $2.83 to $2.86. Our Q4 outlook of $215 million to $222 million in non-GAAP revenue, and EPS of $0.71 to $0.74, does not factor in any of the historical year-end spending that we've seen in past healthy Q4, but it still represents a respectable 7% to 10% growth off of a strong comparable last year.

It appears to us that the uncertainty in today's world has been fostering -- in fact, demanding -- a more patient wait-and-see attitude from some of our customers. And since we're really not seeing it -- none of our customers, nobody seems to be talking about year-end spending surges, we're just not -- we're not going to assume that it comes.

But if it does, then we could be at the high end or even beyond the range. And if it doesn't, just like our Q3 results demonstrate, we have very sound business model, supported by strong fundamentals, solid customer relationships, and a committed team that will to work to navigate the business through the current economic challenges and continue to build for the long-term.

Now, with respect to a preliminary outlook for 2013, we considered basically more of the same, from the general macro perspective, as we've seen in 2012, at least from anything we can see at this time. But we've also factored in a full-year of Esterel, continued strength in our renewals, and ongoing investments in the business.

And basically what this translates to is our initial outlook of $885 million to $910 million in non-GAAP revenue, or 10% to 14% top-line growth. And then, $3 to $3.12 in non-GAAP EPS. Now, more details around currency rates and other key assumptions are contained in the prepared remarks that we posted on our investor relations home page earlier this morning.

We're going to stay at a very high level on the 2013 assumptions for purposes of today's discussion, because as I said earlier, we're in the process of prioritizing and finalizing the details around hiring, capital, and overall investments for 2013, and we'll provide more insight at the time of our Q4 earnings call.

We also see no signals that the environment heading into 2013 will be dramatically different from 2012. So this is our very preliminary outlook on 2013. We're still in the midst of finalizing all the details around our annual plan, and so for now, we're being cautious in our approach in assuming that basically 2013 will not be a whole lot different from what we've been seeing as we close out this year.

And a point that I would like to make, actually for both Q4 and 2013, is that there's really no loss in our short-term ability to harvest revenue upside, should those opportunities occur or should there be surges out there. The customer -- the software is there, the customer relationships are all in place, and they continue to be solid. So basically, with those brief comments, I'll be happy to open up the phone line any questions that you might have. So, Maureen, you can release them.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions)

Richard Davis, Canaccord.

A quick question. With regard to this quarter, I think you touched on it, but including, or if you exclude Esterel, the organic growth rate looks to me to be about 7% in the quarter. And then layering on that, on the services side, it looked like there was a bit of deceleration there. Is that a leading or lagging indicator or a non-indicator to future growth, which just bakes into the thought process, as to how de-risk the -- your view of the estimates are?

Well, the first thing is, yes, for the organic -- again, keeping in mind Esterel is very small -- but it would be -- it was around the 7% to 8% range. And remember last time we did say that it would -- basically it would probably be somewhat equivalent to at least nibbling away a lot of the currency headwinds that we are seeing, and that pretty much was the case. Could you just rephrase the second part of the question?

Yes. Services were a bit less than what we thought. Is that a leading or lagging indicator as to your future growth? Because I am just trying to triangulate around how firm the outlook is, that kind of thing.

Understood. Actually, I would not really treat service as a leading indicator, because over the last -- I think the last few quarters, we talked about evolving the services business. Basically, we've got a really powerful channel that does a lot of the traditional bodies-for-hire, project type of work, and things like that.

We've been trying to evolve toward the, what I'd say, not services as a leading indicator but services as a future enabler of capabilities, which really gets you -- how do companies more effectively utilize the new levels of simulation that are available out there? That's turned out that's actually required a lot of methodology workflow. Just not utilization of the tools, but embedding the utilization of the tools into the workflows of companies, and helping them evolve their own engineering processes, while of course maintaining their own product qualities internally.

That's actually going to be a multi-year, a couple-year kind of evolutionary step. But that's the build-up. So you'd actually see more of a crossover in there. So, I'd say if you look at the numbers right now, don't treat it as a leading indicator, but it is something that, independently, you would probably see that we would want to be building up, as a result of -- you know, some of the new capabilities we've put out are really pretty unique out there, and it takes companies awhile to actually fully embed them in their design processes.

Perfect. Thank you very much.

Steve Ashley, Robert W. Baird.

Great. I was wondering if you might be able to tell us, for Esterel, what kind of revenue contribution you are looking for, for maybe the fourth quarter and for 2013?

Yes. Again, let's keep in mind that Esterel is -- we think is a long-term strategic element, but it's a very small numeric portion of it right now. So, you might see something in the $4 million to $5 million range for the quarter. Of course, non-GAAP, because a lot of things are going to be actually deferred in GAAP because of the way -- because we didn't have the objective evidence to base that. And then -- you were asking also the margin?

No. 2013 contribution.

Oh, okay. Yes, the 2013 contribution should be somewhere in the low $20 millions.

Great. And you are clairvoyant. I was now going to ask about the Esterel margins. So maybe you could comment -- I know that next year you're guiding $47 million to $48 million, and how much impact --

Yes. If you look at that, Steve -- and this is not really a typical -- they ran a very sound private business, they were actually a very prudent one, but the margins, of course, weren't very high. And you look at it, they would probably be in the mid-teens range, arguably in there.

And I'd say that if you look at their expense base, it isn't like -- it isn't as uniform, for instance, throughout the year, as ours might be, because they might have lump -- because of the smaller denominator, they might look lumpier when they have a major expenditure or year-end compensation. But just to give a high-level metric on that. Does that cover you?

I'm good to go, thanks.

Perry Huang, Goldman Sachs.

Just want to ask a question about deferred revenue. It looks like short-term defers were down about 7% sequentially, which is a touch lower than I think a typical 4% decline for September. But at the same time the mix of lease-to-paid-up licenses was a bit higher for September quarter. So I was just wondering if you are seeing customers signing smaller-size deals in general and maybe in particular for lease?

Well, there are some; in these times where people get a little more nervous, there is that kind of a characteristic. However, you also see a couple of other things, where with Apache, some of those tend to be longer-term leases, and therefore that's why you see -- and I realize you broke between the short- and the long-term space, but that contribution plays a lot.

And also, some of those longer-term leases are things that we just started to look at from an overall ANSYS standpoint. So I think those will cause -- but we didn't see anything that really drove outside of expectations for us, following a kind of a usual burn-down during the Q3 quarter. But again, the highest deferred balance we've had at this point in our history.

Got it. Thank you.

At this point of the year, I mean; I'm sorry.

Got it. Thank you; that's helpful. And then just as a follow-up, for Japan, the weakness on the consumer electronics segment looks like it's been ongoing for about three quarters now. As you talk to your Japan customers, how are they thinking about stabilization in their business?

I was over in Japan just recently and I'll just say that those kinds of conversations are ones that they normally don't -- they won't bleed their heart out internally. But they are going to a lot of issues, there are -- there actually are some significant layoffs. The general tenor I've got is that Japan is not sending signals that they're officially leaving the electronics business; however, they are trying to do some stabilization right now.

That's translating into a cautious environment where they're really realigning their assets and then looking how they're going forward. So the general tenor was that they are -- like I said, they're not vacating the space, albeit they have felt some pressures that are pretty well covered in the press. But they have still got some pretty significant talent and assets and company there. So at least their long-term prospects, with us at least, seem reasonably good, and I think they'd have a chance for rebound on that.

Got it; thank you very much.

Ross MacMillan, Jefferies.

I think your Q4 guidance implies some further deceleration in your software license revenue. I was just curious as to when you are thinking about guiding for Q4, what do you think -- I guess the big picture question is, what do you think is -- what's the notion around no flush? I'm curious around that idea. And then secondarily, are there any particular vertical industries that feel like they are being more incrementally more cautious than others? Thanks.

On Q4, well, obviously, if we tweak the guidance down, a lot of that's going to be -- some of that's going to be felt in the license range. But when you ask about the no year-end budget flush -- normally around these times, people are starting to talk about -- well, if I had this, could we accelerate this program forward?

I think the thing is, as opposed to seeing programs accelerate forward into Q4 because people have available funds, they're actually sitting there saying -- well, let's really watch what we spend until we have a lot more -- a little clearer insight as to what's going on in some of the macroeconomic political front.

So basically, if you take out what we normally see in terms of the year-end thing, you're seeing basically, like the whole definition. But the thing is that so far, that's not been indicated as business -- it's just business; it isn't going to pull forward to take advantage of year-end budget money. It's projects that are going to go into 2013, and that's why I've reiterated that we're actually maintaining the growth ranges in the rate that we've been signaling before now.

Now apart from that, I haven't seen any -- I've seen very few places where people are not demonstrably, visibly, and consciously cautious on what they're doing. That's happening in Europe, it's definitely some, as we mentioned on the previous call, in Japan, and we're certainly not seen a cavalier-effort attitude in this country.

It's pretty global, and from that standpoint, it's really pretty much -- I wouldn't say that it focuses on any one industry, but I would say the industries where we still have one -- have probably the most resiliency are where they are actually coming under different forms of pressure, such as regulatory pressures, like for noise or mileage standards or pollution or things like that, where they're actually being driven, and they can't still and coast. So we're seeing those be a little more resilient, but boy, are they still being cautious too. Did I get all the aspects of your question?

No, that's helpful, definitely. I'm just on cost -- Maria, I think this year has been a year where you had been looking to accelerate hiring, you came into this year thinking that margins would be down 100 basis points plus for the year. As we circle back and think about operating expenses and the run rate that we're at now, is this a function of you realizing more efficiency, more cost synergy, or is it still the issue around the pace of hiring? Just curious to get a sense for that?

I'd say it's a combination, Ross. Even as we exit Q3, we still have over 100 open positions. Many of them in R&D, technical support, [AEs], and sales. The ability to find -- and many, especially in R&D and comp science, it's a challenge. And not only that, but no doubt we have in our discretionary spending, whether it's travel or marketing or -- we've tried to be disciplined, in light of what we see our customers are -- what's happening to them, relative to layoffs and just a much more cautious tone in how they approach their business.

Okay. And then, if I could squeeze one last one in. Do have the sequential impact from FX on deferred? Do have that to hand?

Yes.

Yes.

$2 million.

Great. Thanks a lot. That's all for me.

Greg Halter, Great Lakes Review.

Looking through the prepared remarks, on page 3 where the discussion is Apache, growth there obviously looks pretty strong, and triple digits in some areas. Just wondered -- from small bases in some of those areas, of course -- just wondered what's behind that growth? I mean, are you seeing the --

Greg, just before you go -- I'm sorry, I thought you were finished; I didn't mean to cut in. But keep in mind that Apache had two months in the comparable year of last year, and three months this year.

Okay.

I don't know; that may explain a lot. Apart from that, the performance has been pretty much on target and pretty linearly increasing. I think that may identify most of the difference.

Okay. And if you had to strip that out, though -- what kind of growth is Apache seeing on a core organic basis?

It's in the upper teens to 20 range.

Okay. And given the acquisition of Apache and Esterel, I'm wondering what your M&A appetite is, balanced off on the share repurchase with the stock up about 9% this morning so far?

Well, I have to say that based on anything short-term happening right now, I've got to tell you, my finance colleague may wring my neck here, but it really doesn't change the long-term perspective. And share repurchase is always -- is something we are taking into account, because -- a, we think it is a good investment, a good use of cash, and we are also mindful of judicious use of stock in terms of our employee retention and building what we've done over the last decade.

From the M&A standpoint, there's really nothing that's changed there -- the only thing that's changed really is, as time builds up, our capacity actually increases if you look at the combination of the cash flows and cash in multiple parts of the world.

And to us, it continues to be a -- basically, an inexorable push to get the technology continued to the level where our vision wants to drive it. And a lot of that we do with our internal investment. But if we can find the right acquisition that fits in at the right time, it gives us a big leg up on the technology with already-proven customer base.

And by the way -- and Maria and I were mentioning the 100 people, because we're maybe a little bit picky on the team we build and getting those people -- well, with the acquisition, you also tend to pick up a lot of already-proven, well-oiled people. So, both of those things really -- regardless of what might happen in the short term, it might [tacitly] impact our interaction in any one month or so, but over the long haul, it really doesn't change really anything that we've been saying for many, many years.

Great, thank you.

Blair Abernathy, Stifel.

Jim, just wondering if you can comment a little bit on that pricing environment. As demand is slowing a bit here, and obviously customers more cautious, is that impacting your pricing, in particular around lease and maintenance renewals?

No. I have to say there's not -- right now, there's no change. I try to harken back to what happened in 2009, or even at this point in time we saw no change, and if conditions dictated, they might push toward a short-term lease standpoint at that point in time. There are lots of requests for discount, but our pricing has been very stable, the customer reaction to the pricing has been stable, and so there's really not a lot of change on any of that aspect. Of all the things we're dealing with, that probably is not even in the upper half of the issues.

It is really -- the overriding message -- I don't want to be beat this to death, but I guess I will anyway -- is that there's just a lot of things where people are exerting a lot of caution right now, and it's like nothing is disappearing, but everything is dragging out. And like we said, we perceptibly saw that even toward the latter part of Q3, and all intents we see going into Q4.

If it turns out that something magically happens, we seriously -- we have no problem harvesting that. But again, we built a history here of talking about what we see and what we're really seeing. We try to do that in our 2012 Q4, as well as our -- the statement of the 10% to 14% growth in 2013.

Okay, great. Wonder could give us a bit of an update on progress in the channel, particularly around your electrical products business?

Great question, and I'm going to give you an extended answer. So, like we've always talked, it usually takes about a year before the lead channels get certified, both on a business model and a technical excellence standpoint. So if you look at it now, about three to four years into the Ansoft acquisition, we've got channels that are making positive contributions into that.

Now, by contrast, with Apache for instance, which has only been on board for a year, actually we've been going a little bit slower on that, because it is a much more concentrated user base, and we're able to actually address that more from an account standpoint than from a regional channel standpoint. We'll be able to enlarge that over time, but I think we've already seen that we've been able to maintain and actually grow the prospects there.

It will be a similar thing with Esterel -- very small company, a very good company, but a new emerging technology base for us, and as such, we're not going to unleash all that on a team that might have difficulty supporting all the requests that came in with their relatively small staff.

So it's been made very evident -- as soon as we announced that we had some customers that were actually calling in asking for greater clarity. There were people that it immediately resonated with, and so we're taking much more of a rifle shot along that path. But we utilize the same methodology.

But people have to learn a new branch of simulation technology, they'll have to actually pass technical certification, and then they' have to present a business case that doesn't show -- that basically shows how they get the same commensurate, disproportionate growth that we're expecting from it.

So, it's going to be the same thing, but again, these are multi-year standpoints. But, to close on your specific, is -- yes, we're already seeing the impact of that earlier heavy lifting in the early parts of our electronics simulation business, with the Ansoft thing, and on a rifle-shot basis, we're starting to see some traction and co-selling between Apache and ANSYS customers. In fact, one of our top five accounts right now is a very significant mutual legacy customer of each that -- where we continue to grow.

That's great. Thanks very much, Jim.

Steve Koenig, Wedbush Securities.

I'd like to drill down a little bit on Ross' question earlier. You talked about the lack of budget pull forward that you're not expecting basically in Q4. In terms of translating that to guidance, what are you assuming for close -- how does that translate to close rates or pipeline coverage assumptions for Q4, compared to either Q3 or to the year-ago Q4? And, I have a second part of that question of that question too, if you don't mind.

Can I answer that one, so I don't lose track of the two questions?

Yes.

Could you just bookmark it for a second? It's really -- it's not a whole lot of change. The only thing is, the pull forward of the flush that happened in Q4. Q4 stand-alones are pretty typical. But what isn't typical this time is, at this point we are normally hearing about customers that are trying to say -- well, what if we could pull this forward, what if we had this amount of money to spend?

There aren't those kind of discussions going on at this particular time. That's really the whole difference. But it doesn't really affect the pipeline, because the pipeline is there; it's just a matter of when did the pipeline empty?

Secondarily, it doesn't really affect the close rates per se, because the close rates were not a normal close, in an expected Q4 timeframe, as with our forecasting discipline. It was things -- it was things where many times the customer was initiating and driving those forward. So that's a little bit different than our traditional view of a close rate. Hopefully that covered that part, and you said you had a second part?

I do. But, just a follow-up on that, and Jim, your guidance is a little more cautious certainly then I think the Street expected for Q4. What are you doing -- what mechanically is causing that then in your guidance, if it's not the close rates?

Well, again, with the definition -- obviously, if you have lower business, you close less business. But what I was saying is the close rate normally is saying -- here is what we're forecasting for this customer, here is what the forecast says, and here's what we have to do to make that happen. The things that come in from the earlier quarters -- sorry, from outlying quarters -- are things that are normally brought in by the customer.

And while you've got a historical norm that says this typically happens in this typical kind of economy, and that's what we kind of factor in for the year, you don't necessarily have that, any of those discussions that are going on in the middle of the year. They start to trickle in at the beginning of Q4, when companies get chance to see what they're doing and outlining their overall prospects.

And all I am saying is that part of the things that are being pulled forward, actually more by the customer than by our efforts, those things -- their caution is translating basically into the absence of that kind of activity. And that's really the difference of the story right now.

Got you. Okay. And then, if I just may -- this is related. Europe actually looks pretty good in constant currency terms this quarter. In terms of your go-forward guidance here, what are you assuming about Europe? And are you making any differential assumptions about weakness in Europe versus weakness in North America or Japan or elsewhere?

Well, first of all -- yes, Europe was doing pretty well, and basically it's a testament to two things. We've got some really good customers there and our team performed admirably in there. Yes, we did -- the one thing that maybe doesn't come out in there, I'd say that every part of the globe, it wasn't like one -- any one part was monolithically great, and any other part was monolithically bad.

It was really more along the lines that each one had big pockets of strength, and then frankly, some of the parts of southern Europe, which are relatively smaller ones for us -- they felt some of the pain. So -- but Europe, the team there is strong; they did a good job. The customers there are great for us, too.

Now if we move into 2013, the first thing I will put is a big caveat on there saying -- keep in mind, Q4 of this year isn't over, we're still doing a lot of the final planning, so a lot of this is getting into a level of precision that would be far beyond what we've really honed it down to. However, we are taking a more sober look toward Europe, looking at it being roughly equivalent, a little bit tougher, and then right now, who knows on what can happen with the currency and things like that? So we're really trying to, we're really trying to build that.

If you look at that, the bulk of -- when I talked about the currency headwinds that we ate throughout this year -- oh, my gosh, the lion's share of them, a strong majority of those were European, that came in. And nevertheless, they still posted pretty good. But so, those things can blow a lot of different ways, but we're not expecting -- let's put it this way; at best, we're not expecting anything a lot more promising out of Europe.

Okay. Thank you very much.

Jay Vleeschhouwer, Griffin Securities.

Jim, within your current active based of licenses, are you seeing anything on the margin, whereby customers are utilizing their existing licenses more intensively? Making more use of existing capacity, rather than adding new licenses? Maybe you could talk about current customer usage trends.

Well, the current usage trend is our main customers actually are increasing licenses; however, one trend -- and we've actually I think we've talked about this now, this may be the fourth quarter -- is there is a definite increasing trend toward high-performance computing licenses, which again, some what analogous to, as opposed to buying a bunch of extra computers, buying a bunch of blades to shove into the system to get additional computational umph.

There are probably three major reasons why people are doing this. A, is they are being a little cautious in the hiring of new potential users; second of all, they are actually solving, trying to solve bigger problems that traditionally they used to let crank on different clusters or uniprocessors, and probably the third case we'd probably see when they're really under pressure to hit a design cycle, a date, or hit a design goal, and the calendar is the big enemy.

But I'd say right now, at this point in time, the intensity factor, the high-performance computing factor, is outgrowing the -- just the pure base fee count, even though that is also growing. But it's skewed toward the more intensive usage.

Okay. Within the ANSYS space -- that is, keeping Apache on the side for the moment -- could you talk about the relative performance of the traditional structural, mechanical side of the business versus [CFD]?

They've all been pretty much on par, and all pretty much with the company, so if you looked at -- I think we mentioned that, for instance, both -- all the aspects grew double digits, and each of the geographies grew double digits, and constant currency, and we normally don't do a lot of constant currency split on some of the business line things, because just the way we track them. But you probably look at the kind of constant -- double digit, really across the board. It wasn't like there were any extreme laggards or people that were way outside the norm.

Okay. In answer to an earlier question about lease and maintenance pricing. You said you hadn't seen a change. But, as best we can tell, competitively, your largest competitor -- against whom you are still considerably larger, however, they do seem to be growing more quickly than you on a constant-currency basis. And so I am wondering if in fact you are seeing any increase from Dassault or any of the smaller competitors?

Definitely not the former. I'd say at any one time, I'd say there's always one or two competitors that cycle in and have relatively high points. Sometimes it's numbers; growth numbers look bigger off a lower denominator. There are a lot of things, but in terms of the competitive environment -- and then actually let's just say published numbers versus anecdotal numbers, really don't see much change.

For 2013, Maria, does your guidance encompass any appreciable change in the proportion of revenues from top 10 or top 100 customers?

No.

Yes, for 2013?

Yes.

Again, you're probably getting to a level of granularity that we really are -- I think we --

More of the same.

-- we continue to see trends where the top 100 probably grow a little slightly disproportionately, because they are on the rapid acquisition part, but by the time you span it over the entire business, it really doesn't move the dial in any big direction.

Thanks very much.

Sanil Daptardar, Sentinel Investments.

Jim, about the guidance for 2013 -- when you look at the revenue growth of 10% to 14% constant currency, your earnings growth is not growing at that rate. Can you give me the puts and takes on that?

We've been talking about still investing for the long term, but the other thing, the main important part is that you've got a blending with the lower margins as a result of some of those businesses we talked about. Over a couple-year period, we'll blend in there.

The second thing is, quite frankly, the share count increases also. The diluted share count cuts up, so with more accounts, the EPS goes in, which is one reason why we talk about -- that is one of the reasons why we have had an active buyback period, which we took advantage of this particular year, and things like that. The other thing is, on the margin, keep in mind we had guided this year to the 48% to 49% level, and then of course, on numerous parts of this call, we talked about -- first of all, it's difficult to hire those top-decile type of employees.

Now, we have been bringing them on, albeit slower, but the thing we probably factor in is -- but if you look at 2013, we will have those employees for a full year, where we might only have had them for a one-quarter to one-third to one-half of the time we expect to have them that year. That tends to bring up the personnel costs also. But it's really a good story. It's actually -- frankly, we wish we'd been able to get some of those people earlier.

Okay. You talked about cautiousness in general. Now, is it any continent or any specific geographies or it's across the board? And what verticals you have seen most cautious? Because you talked -- automotive, aerospace, defense, electronics, and semiconductors being the good areas, but if you look at Japan and then probably look in Asia, semiconductors, electronics has been weak. So can you just expound on that? Where do you see that, or what geographies you are seeing that cautiousness?

Well, the caution spans the globe, first and foremost. I might say that's the theme, that's the general theme. Now, theme and variations -- there were variations in each different realm. So, for instance, while China has been good for us, a lot of times they're in this -- I think they're in their twelfth fifth-year plan, and the first year of it normally has a slowdown in some of the activity, but then they build up in the second year once they get through the budget. That's one particular aspect.

If you look in India, some of the things that have been going on with the tax environment, that tends to predominate. If you look in Europe, you've got a number of different factors, everything related to sovereign debt to a whole range of fiscal issues come into play. Here, general tax, political, whole sorts of environments in there. So it's like the caution has been across the board, and it's not like each one has a different factor.

If you look at industries, again, the ones that are under pressure to -- again, automotive, we think it's been a little bit stronger because of the drive toward high-efficiency and hybrid vehicles. You look at mileage standards, you look at the increased safety regulations. If you look at aerospace and defense, I could probably parse that down between aerospace and aero-engine performance, versus maybe more subdued defense spending in certain areas.

You look at the energy industry, and what happened a couple, three years ago -- nuclear was starting to really pick up and then slowed down a little bit after Japan. And then oil went up to $140, and people got really excited in other forms of alternate energy. Now oil is back down. So you see some investment flows that ebb and flow through all those things. But in general, I think it's just an overall -- it's the overall level of the ocean and all the other things are different people are seeing different ways here and there.

There was a question asked about one of your competitors growing faster than you. Do think that you are -- your position is weakening in that area, versus, vis-a-vis the competition, or do you think that your position is still strong, given the difficulty of finding people? Do you think that, going forward, for one or two years if you're not able to find enough people, your competitive position may weaken, or you may have to pay more to buy these people and have a headwind on the margin?

That's really not the issue. The situation is, at any point in time, anybody is going to -- while we don't have a single competitor across the board, we've got about 20 or 30 people that all poke on different aspects of it, and they all tend to be smaller, so the growth rate might be in the short term smaller. Sometimes these are private companies; it's anecdotal reporting and things like that. So it's really difficult to speak. If you look at the overall supposed size of the thing, if you look at the overall market, we're holding or gaining in each of the major sectors.

Now, that's looking at major sectors. What happens any given period of time -- any year, any quarter or something like that -- that can always be spikes that put it up and down. But we tend to look at the overall issue and continue. I think that's probably borne out in some of the longer-term and the sustained growth rates over the long term.

Now, to answer your question about the investment -- yes, if we didn't hire anybody and we didn't continue to innovate and renovate internally, of course that's going to -- that would affect the business. But our situation has been one of probably hiring three, getting -- finding three, four, five months slower than we would like. It's not a question of doing it or not doing it, and it's certainly not doing it over the long term.

If you look at it, we've got close to 900, approaching 1,000 people in R&D today. And the other thing is, if you look at the product that people are using right now, it has literally person-centuries of development already into the code, and we're really trying to take the lead in terms of pushing the new capabilities out there. So it's really not even -- that's not even a maintaining-parity kind of thing; it's actually continuing to progress us to the next level. And those are the things we really don't want to lose scope of.

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

In closing, the emphasis for the remainder of 2012 is going to be on execution, customer development, and of course operational discipline. Again, if you haven't picked up throughout the course of this call, there's little doubt about the long-term opportunity, but in the short term, there's a continued vigilance.

As customers -- their increased spending scrutiny, the diligence in their investment decisions, they've led to longer sales cycles, and actually a staging-out of the decision. So we tried to factor all these realities into our guidance, and like we've tried to do for almost forever, continue to endeavor to do so going forward.

But despite these economic and political uncertainties; they dominate the headlines; everybody is seeing them -- we're still -- at the heart of what we are, we're still propelled by a combination of a long-term vision; a business model that I think it is navigated through a range of economic conditions; loyal customers that are the creme de la creme out there, and they stay loyal to us; the partners who have been with us for decades; great and unique technologies.

And, of course, the base of employees continues to help keep the ship going through all sorts of weather. So, I'd like to thank everybody for joining us this morning, and again, our best wishes for everybody out on the East Coast, and we will talk to you in a few months. Thanks a lot.

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