ANSYS Inc (ANSS) 2012 Q4 法說會逐字稿

Good morning and welcome to the ANSYS Q4 and fiscal year-end 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 Mr. Jim Cashman, President and CEO. Please go ahead.

Thanks, Ashley. Good morning, and again thank you, everyone, for joining us to discuss ANSYS' fourth-quarter and fiscal year 2012 financial results. For you first-time attendees and consistent with the protocol that we have used over the last couple of years, all of the general information and key topics relative to the quarter and the full-year business results, as well is our future outlook, are included in this month's earnings -- this morning's earnings release and in the prepared remarks that we posted on the homepage of our Investor Relations website this morning. Before we get started I would like to introduce Maria Shields, our CFO, for 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 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 ANSYS undertakes no obligation to update any such information unless we do so in a public forum. 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 items 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.

And on a last note, I would like to remind everyone that the ANSYS team will be hosting an investor day here in Pittsburgh on March 14 at the Renaissance Hotel. We're very excited about the event, and if you're interested to learn more about it please see our website at ansys.com for more details about the meeting and webcast. So, Jim, I'll turn the call back over to you.

Thanks, Maria. Before we get into the Q&A. I would like to briefly highlight a few important points about our Q4 and 2012 results and the assumptions we used to build our Q1 in 2013 outlook. I will begin by saying that Q4 and the full-year were milestone periods for ANSYS in many respects. We're really pleased that we were able to finish out the year with a strong close. This is evidenced by our record Q4 financial performance. It exceeded the upper end of guidance for both non-GAAP revenue and earnings.

In constant currency we delivered 12% revenue growth in Q4 and an annual revenue growth of 17%. We also reported double-digit growth within most of our major geographic regions for both the fourth quarter and the full year. And in both major categories of revenue, license and maintenance, for the full-year. Top-line performance in turn yielded strong margins, cash flows, and earnings for the quarter and for the year.

In the fourth quarter ANSYS heightened our dedication to partnering with customers to achieve their vision of delivering ANSYS 14.5. The many new features in this release are built on the Workbench platform to allow the evolution of streamlined work flows among simulation applications.

ANSYS 14.5 delivers multi-physics solutions, enhancements to breathe processing and meshing capabilities, as well as a new Parametric High Performance Computing, or HPC, licensing model to make design exploration more scalable. And if you want any more information on this, there's a lot of detail so check out the details at ansys.com.

We really believe that the combination of the breadth and depth of our simulation capabilities, combined with the power, scalability, flexibility, and openness of the Workbench platform puts us in a unique performance position. Not only to continue to increase our footprint and expand our relationships within our existing extensive install base, but also to solve new classes of problems for emerging adopters.

As we look back at our progress over the course of 2012, we continue to make important strides with a vast and broad array of customers spread across all geographies and industries. We continue to see the increasing importance of product innovation, integrity, and quality as critical business issues requiring the use of advanced simulation. For example, in automotive, we see strong R&D investments continuing globally, led by sustainability, efficiencies, and smart system development. In addition to increasing utilization electronics for safety, performance, and entertainment systems.

Similarly, across most industries, growth is being driven by increasing product complexity, emerging products segments and mobility in smart products, and the increased adoption of electronics and software. All of these are areas that drive the increased interest in, and need for, our unique multi-physics capability. In each of these cases, rapid understanding of extremely complex problems with a high degree of fidelity and accuracy is essential. And these are the key tenets of the ANSYS vision and strategy.

Our vision basically is predicated on the ability to simulate increasingly complex systems comprised of mechanical, electrical, and software components, all in a virtual environment at the speed of thought. And the addition of Esterel enabled us to co-simulate the impact of software within our traditional system simulations.

In short, everything that we accomplished in 2012, I think you would find that it was completely aligned with what we discussed as our key priorities and commitments at Investors Day last March. I would echo Maria sentiments to not miss this upcoming one if you can make it. No doubt, the array of global uncertainties and customer caution, particularly in the back half of 2012, posed challenges and from what we are seeing and hearing from our customers, those challenges will continue to some degree as we head into 2013.

So the result of this is that we have initiated our outlook on revenue and EPS for Q1. We're looking at non-GAAP revenue in the range of $200 million to $206 million and EPS in the $0.67 to $0.70 range. Now we have also updated our fiscal year 2013 outlook to reflect movements in currency. Most notably, the 13% negative swing in the rate of the Japanese yen and a 5% negative for the pound.

Since -- this is all since as we provided our initial guidance in 2013 back in early November. What this means is our updated outlook is for non-GAAP revenue in the range of $880 million to $905 million and we have maintained our 2013 EPS in the range of $3.00 to $3.12.

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. From a qualitative perspective, our current guidance takes into account the uncertainty that is persisting in the various geographies throughout the world and a continued level of spending discipline that we are still seeing in our customers. And that just adds variability around any predictability and timing of deal closings.

Basically, these are just realities of today's environment, and there are -- they are the things that can and will happen that we have no control over. However, there are a couple of certainties. The first is long-term confidence we have in the vision that we have been pursuing for more than a decade. Secondly, is our commitment to invest from a long-term perspective in the realization of that vision. With this in mind, we will continue to be cognitive of short-term realities and factor those into our business plan and our guidance. With that, I am going to open up the phone now and we would be happy to take any questions that you might have.

We will now begin the question and answer session.

(Operator Instructions)

Steve Ashley of Robert W. Baird.

I would like to ask a question on the North American business, that revenue was up 5%. I know when we checked in last time in the third quarter that business area had been soft, and I think you had expected it to remain challenging. So I'm sure it was fairly consistent with what you thought. I'm wondering if you could comment on deal slippage at the end of the period and what kind of pipeline, domestically you enter the coming year with? And if you have seen any improvement in the tone of business, domestically here, since we have crossed into the new year?

I would say -- I wouldn't say we have seen either improvement or decay, frankly. And in fact, it was pretty much in line with our expectations. Largely around the fact of the Q4 comparable in North America was strong. We had that factored into all of our numbers. In other parts of the world though, is where we saw some of the things where there was either surprising strength or resiliency or in excess of what we had. So really, no surprises, but North America is probably one of those hallmarks of the -- some of the variability and unpredictability of things that we can see. And that's where you will manifest things that go across multiple months, which could then transcend quarters and years.

Okay, great. And Maria lastly, maybe on Esterel, don't know if you want to comment what kind of revenue we might expect in the first quarter and full-year for Esterel. Thanks.

Right now, in our guidance we are thinking for Q1 around $5 million, and roughly about $23 million for the full year and that is non-GAAP.

Perfect, thank you.

Absolutely.

Richard Davis of Canaccord.

Hi guys, this is DJ on the call for Richard. Jim, I guess when you think about the three drivers of growth that you guys have talked about in the past -- those being number of users, density and intensity of use. Can you talk about which lever has been the most effective? How you think about this evolving, as you look at '13? And then maybe the follow-up would be on can you touch on the high performance computing initiatives and how that fits into the growth and strategy?

Was at the full question?

Yes, that's it.

To answer both parts of that question, and the first thing, no doubt the intensity has gone up. You will notice that customers have been having difficult -- difficulty hiring but we have had difficulty hiring. You check the website -- we are really trying to do that. We are not going to compromise on the quality of people that we bring in, but there is no secret there that we have been trying to build that up. And our customers are doing the same thing. Actually probably been doing a lot of leveraging of the high performance computing to maybe compensate for some of the human asset things.

With that in mind, I would say probably right now there's probably -- again the dynamic of those three dimensions changed quite a bit. But it's probably a distant second and third with not much separation between them, between probably, the increase in users going up a little bit. And at this point in time, probably the what we call in terms of the density or so is some of the cross-simulation. It is still progressing, but it still in its early stages. I kind of rank them that way and I wouldn't be totally surprised if intensity was still strong middle of the year. And if some of the other factors varied in their position. Because all three of them are going to play out over the next ten years.

Got it. That's a good segue into the second question, around density of usage. Now that you have read Esterel in the mix for a few months, what are you seeing in terms of appetite from existing customers? Is that in-line with expectations? Better than expectations? And update us on where we are and what needs to be done from an integration perspective.

Okay. Actually, the key thing is, that from an integration standpoint, there are already things that we have been able to do in terms of using that as a reduced order model play. Obviously the first few months it's very early, and from a technical elegance standpoint there are a lot of things we are going to be doing over the next year that actually bring that in, in the manner in which people have come to expect of the breadth of our ANSYS products.

Right now, I would say what we're trying to do is make sure that our -- let's say there's a lot of customer interest. What we are mostly trying to do is make sure that we are thoroughly qualifying and vetting that interest, such that the fairly large ANSYS indirect and direct sales force doesn't overwhelm the capacities of a relatively small Esterel team. What we're doing as we been very selective in terms of picking named targeted accounts that we are ready have been in discussion with and determine the most appropriate thing there. So I think you're going to see that kind of approach in there.

So I guess, summarizing is, the initial data integration and tying together specific workflows, already done. A lot of work remaining to be done in terms of the full embedding, in terms of the ANSYS solution. And very strong customer -- let's say customer intrigue in terms of oh yes, these are the kind of problems we are confronted with. But we are dealing with that advanced vanguard who are really looking at how they will be able to effectively do co-simulation within the next year.

Got. Okay, that's great color. Thank you.

Ross MacMillan of Jefferies.

Hi guys, Shavon on for Ross. Just a couple quick questions here. One, can you give us an update on Japan? It looks like growth rate there was better in the fourth quarter versus the third quarter. So, have you seen any signs of improvement there?

Yes, it's going to be a long-term prospect. Not only from the Japanese economy standpoint, but from the things that we want to do to continue to build that out. So yes, it's encouraging but I wouldn't -- I wouldn't say that the task is anywhere -- is anywhere done, at least to what we want to do.

However, one thing that is in place -- one thing that is actually measurable, is we talked about some of the staffing and headcount things, and we have actually made a lot of progress on that. Now the only thing I will say is, if you look at the fact that we are pretty unique in our market position and in our technology, it does take time for any new employee to absorb and ramp-up. So there's going to be a built-in latency in there. However, it's a much better situation than saying we're looking for people, and then we will have to ramp up. We are in that -- I think we have seen some of the first glimmering signs of progress, I'm a but mission is not accomplished yet.

Okay, thanks. And your cash from operations was down year-over-year. Can you walk me through what changed there?

Yes, a change in tax payments. We had larger tax payments this year than we did a year ago.

Okay. All right.

About $40 million.

Do you want to repeat that?

Did you hear it?

Yes, I got a. $40 million change in tax payment.

Yes.

Great. Thank you.

Sterling Auty of JPMorgan.

Yes, thanks. Hi, guys.

Hello.

Hello.

There's a question earlier, that I wasn't quite there and I apologize.

Sterling, we are having a hard time here you.

Is that any better?

That's better.

I was saying -- on an earlier question, with sequestration staring us in the face and looking at North America, have you seen any impact in the business and how did you factor that into your first quarter guidance?

I wouldn't say sequestration is -- sequestration to me is just another level of uncertainty. There was the fiscal cliff before it. The reality a lot of it, Sterling, is as Jim commented, we're seeing a lot of the customer trends that we saw in the second half of 2012 as we head into 2013. So the interest is high, the pipelines are good, but there is customer caution. And so we will continue to work with our customers. And the one good thing that we are seeing is, those customers who have multiple year projects are investing, because when the tide turns, they want to be prepared to go to market with really cool products.

In general, we have heard very little of specific denotation of sequestration. There are a lot of people that are viewing that whole circus in different terms. But the fact that we haven't heard it ourselves doesn't mean that there may be some people that it is factoring their buying. What we do is take that net thing, as Maria said, combining in with the aggregate insecurity that companies are feeling, and then that actually factors to our forecast. Nothing is spelled out for that nor have we had a major rash of customers identifying that as the long pole in the tent.

Okay. And in the prepared remarks I think you talked about four customers at $10 million or more in spend last year, up from one the year before. Can you remind us, are those all lease revenues so it is recurring?

They are combinations there. They are very heavily recurring oriented. Basically techs or lease. The enhancement subscriptions, the product support maintenance kind of thing, and lease. And historically that has usually been about 70% to 75% of the build up.

So if anything, kind of even above our normal recurring rates, which is good because we have been talking about our major customers growing more. And obviously the rest of that is new business, which means they are also ramping up. And I wouldn't -- the whole thing I would see is just like 15 years ago when we had six-figure customers, eventually they grew into $7 million and they -- just when they get over the threshold, it's a pretty broad band. What it is, it's just a continuing buildup. It's pretty consistent with the long-term market thesis that we have been presenting for many years.

Okay. Last question. How should we think about organic growth in 2013? It feels, to me, like you factored in some of that macro uncertainty, but maybe some acceleration as we move through the year. Is that the right way to think about it?

Sterling, for the most part everything is organic now. You've got a little bit of Esterel, but it's such a small piece, but the rest of the business is all what we consider organic.

Okay, thank you.

Steve Koenig of Wedbush.

Thanks for take my questions. I want to ask you Jim, when you think about the worldwide pipeline and you can (inaudible) or however you want to. But not just North America, but worldwide. When you look at the shape of that pipeline, starting out 2013 here, does it look backend loaded? How does it look to you, time wise? Compared to the normal?

Got you. First of all, it is building, but that is easy. That's an easy thing to say. But the one thing is, if you look at what we are seeing -- yes, it is backend loaded and the backend loading, quite frankly is, if anything, a measure of with the uncertainty things flow a little bit slower. So things are -- if new opportunities continue to pile up at the same or greater rate, but they come out of the spigot a little bit slower, yes there is going to be build up when it does come out later in the year. And that in fact, is what we are seeing. We're not expecting a gang buster remainder, I mean, last half of the year but we are -- but we do see modest improvements and disproportionately back-half.

And Jim is any of that predicated on the notion of the economic improvement on the back half or just backend loaded as is? Independent of your economic assumptions?

Frankly, it's difficult to de-couple those. And it's a little of both, frankly.

Yes, okay. And then maybe a related question. What will it take to see more of a low teens level organic constant currency growth for ANSYS? Is that purely a function of the economic environment? Or are there things you can do, etcetera?

There are always things we can do. You have to make sure that they are not like the -- a form of stimulus that might cost more than it takes to put it in. So, we are always trying to balance those particular things and in fact, you'll see that. As they mentioned, our long-term premise is we are investing, you look at the people that we are trying to hire. But I'm talking about quality people that we would be happy to have with us for ten or 15 years, not six months stopgap kind of people. That's the kind we have always gone for. That investment is definitely continuing on.

Okay. And maybe one last question. Jim, you piqued my interest when you talked about the parametric licensing model for HPC. Can you talk about that a little bit more, and how that relates to revenue?

Basically, it's the overall issue of -- there's two fundamental premises to how to utilize leverage computing, and one of which is high performance computing which can solve big problems. You also have parametric packs, and that allows people to look at design -- a broad range of design alternatives, but look at them in parallel, as opposed to plowing through them serially, which some people may say, so what? But if you are trying to race out a new cell phone or you are trying to race out something in times that is very calendar dependent, being able to do that in parallel versus just a stringing it out for months, or if you are trying to solve an environmental disaster of some sort, or remediate some kind of a problem, or market problem. Being able to go through that is particularly key.

And this has really been an evolving body, much as the way as we have had the software as a service model out there long before cloud was even a word. And there is an evolving path in terms of how people are deploying and utilizing this thing. I talk about mobility solutions and some of the things we're doing there. So if you look at it, there's a whole range of additional things to make this software more available on a continual basis. And those models are continuing to evolve, just like you see in almost any other kind of software distribution model.

HPC is one element of that, that takes into account running classes of problems that just really weren't envisioned ten years ago because the commuting wouldn't handle them. And this is just one more step along that way. We're trying to make it easier for customers to take advantage of that kind of capability and get the leverage from it.

And just lastly, how do we think about the impact on revenues from that?

It's actually built into the guidance, and, actually, that is one reason why, even if you see that companies are adding a bunch of new users and things like that we have always talked about how that can continue to grow. So actually there is no doubt that the HPC is growing more [vastly]. And really it's just a form of that intensity of usage metric that we were talking about on one of the earlier questions. And those speak to an increased use of simulation albeit, this in an automated form versus a brute force form.

Got it. Okay, great. Thanks a lot everyone.

Yes.

Perry Wong of Goldman Sachs. Hi, good morning and thank you for taking the question. I was also hoping to ask a question on guidance. Full year revenue guidance, the range was lowered by about $5 million. Was this due solely to FX or was this a net change? For example, maybe a decrease from FX offset by an increase to the core business on a constant currency basis?

Bottom line is, it was largely a currency correction. However, some of the forecast just show that there is a little -- I mean we're talking about projecting an early massive ramp up of demand in revenue. However, obviously we didn't drop the guidance as much as you might imply from the currency rates and things like that. We're not heralding a major new trend here. But there are some positive aspects in there. But we also wanted to update on currency. And really that is how it all nets out. So, it's basically is still solid, or possibly a tweak as we talked about in November.

Got it. Thank you. That is helpful. And if I could, just for a follow-up, a question about capital allocation. With the share repurchases in the quarter and the recent increase in the authorization, should we think about any changes to your capital allocation strategy? Or more a continuation of being more opportunistic when it makes sense?

I would say it's more continuous. More of a continuation but obviously with the number of peaks and valleys that seem to happen on a month-by-month basis it obviously creates more opportunities for us. And we want to be prepared to take advantage of those because, frankly, if you look at over the long-term, it's a pretty decent thing to do.

Okay, thank you very much.

We continue on saying -- we still are looking at number one on our list, our sensible and strategic acquisitions. There is no doubt that that is our first one, but there is a very good case to be made for viewing ourselves as an investment.

Okay, got it. Thank you very much.

Mark Schappel of Benchmark.

Hi, good evening -- or excuse me, good morning. Jim, switching gears a little bit, the shale gas industry has been one of the bright spots in the US manufacturing sector, and given that pretty much taking place in your backyard, I was wondering if you are seeing any meaningful impact on your Business from shale gas drillers or related industries?

Yes. It's been tough for us to find space to grow ourselves because they are --

They're taking all the land.

They are taking all -- I mean for their own operations, not for the drilling. But there is no doubt and actually what happens is whenever there is money there, I wouldn't say that -- this is almost like, if you will, the equivalent of a manufacturing boom using pretty standard techniques that are already in place. However, when you have that it always tends to bring in an additional interest in R&D for efficiency, for safety, for sustainability, for all sorts of things like that. And we start to see, not necessarily from these areas where mostly the drilling may be going on, but in the areas of the parent companies, where the processes and equipment is being done.

So we start to see a ramp up in there. It's very analogous to what we saw, where it a used to be oil. Petroleum was -- there was very standard ways of doing things. But when the cost of oil got very costly, then now we are putting more R&D into how do we drill deeper, how do we look at alternate forms of energy, things like that. It's really on a smaller, it's microcosm of what we've witnessed in the industries. Net net, anytime you're seeing a rapid growth in something relatively new, it usually spells out at least good long-term opportunity for us.

Okay, great. Thanks.

Blair Abernethy of Stifel.

Thanks very much. Jim, wondering if you can follow-up on the sequester question. Can you just give us a little more color on 2012? How much of your business was from the US Federal Government in 2012? Was a material amount? I don't think it was but just to frame that up for us. And then you're pipeline going forward too. How much of your pipe is US Federal?

First of all, it's a very small part. Second of all, we've gone on record -- it is in all our filings, we don't have any single customer or entity that represents, well, safely under more than 5%. It is actually smaller than that when you do the math. But apart from that, then you've got the other thing of -- there customers we have that aren't technically part of the Federal Government. Some of them may or may not be buying under GSA, but they still may be affected, different contractors that may be involved. And it gets really difficult sometimes to cut through that.

So there are obviously issues, but sometimes what we find is those shifts are actually now pushing away from old technologies which were largely in the manufacturing stage, and more into new initiatives that are actually in the R&D stage and that plays a little bit more into our sweet spot. Anytime you see an innovation cycle going on, it's pretty decent for us. This is somewhat again analogous to what we might have seen in the electronics industry, when electronics were going quite well for us even if chip cycles were going down, because the innovation that was happening in R&D in rough times to bridge over into the next period, they wanted to be ready when it came out. And we see that pattern repeated a number of times.

But net that out, there is still an opportunity that we are seeing in the Federal Government. Second of all, it's really not a major part of our business. So we are really -- we are not really seeing huge amounts of impact, again aggregated in with the overall demand function we are seeing and therefore coupled in with the guidance.

Okay, great. Thank you. And second question is just around pricing. Particularly on maintenance pricing. Can you comment on what the environment is like out there right now versus say a year ago? Is it staying the same, getting better, getting worse?

It actually is -- has stayed very stable -- good, after returning to its solid level. If anything it tends -- right now it is tending to inch up. I don't think that is statistically significant, because as we saw in 2009, companies need a lot of business and they can temporarily tighten things. But right now the renewal rates are really good, it's just -- I could categorize it as characteristically and historically strong. And no major change. The other thing is keep in mind though, that we also coming out with a pretty significant release with ANSYS 14.5, which I mentioned briefly on the call. That usually tends to solidify renewal rates too, because there is that almost instant gratification that comes back with that.

Yes. Okay, great. Thanks very much.

Greg Halter of Great Lakes Review.

Yes, good morning.

Good morning.

Hello.

You obviously already commented briefly on your building there, but just wondered what the status is? If you're ahead, behind, or running into any problems so far with the new building?

No. There is actually two buildings that are quote-unquote involved in the new headquarters. The brand new facility, we have not even broken ground yet. That is really for -- as we head into later in 2013. The other piece of property that we bought as the first step, we are on plan. We have done the demolition and we will begin constructing it, so that the back half, you will see it in what we've guided relative to capital. And you will also see in the back half of the year some one time costs related to starting to move some of the functions out of this building into that new building.

All right.

We're actually very fortunate we got that building, because as an earlier caller mentioned, we are having a commercial real estate boom right here in our backyard. So we are happy and fortunate that we were able to get that as part of our expansion plan.

That is excellent. And do you expect any sort of quantifiable cost benefits out of the moves, that we will be able to see at some point?

Yes. The per person cost will go down, but probably quantifiable. The good thing is we will be able to now consolidate the workforce here in the Pittsburgh area. So instead of having an office here at Southpointe and an office downtown we can put those teams together. And we have always seen that when we put the teams together, the amount of innovation that that can spark when they are in the same place and exchanging ideas, always is a good thing for us and our customers.

The timeframe is -- Maria mentioned, we haven't even broken ground yet. And really the move is looking toward the last -- the end of 2014. So by the time you see that. The key point is one of the factors we looked at was the cost per headcount. For just the housing, really was going to go down. That's also on a growing body of people. But it was going to be more efficient and it was really one that was really designed around our operations.

And one other quick one for you. It look like the Apache business was quite strong. Just wondered -- I don't know if you touched on it but if you could touch on what's going on there, I think its apples to apples, because the deal was done in August?

That's correct. That's the earlier comment of essentially we are organic to organic in the numbers we say. But Apache has continued to progress right on, or a little bit ahead, of projections. I think one of the key things that you also start to see is that we have been able to actually -- as they built in on the revenues as you look at it, they're probably even slightly ahead on the margin improvement, as we start to build them into the ANSYS model.

Secondarily, I got to say the technology teams of our existing electronics group and the Apache group, in terms of combining -- co-simulating some of the specific capabilities in terms of a pretty comprehensive trip package system capability has also sparked a lot of interest, which I think has tended to help strengthen both of those. We see all of those going on, but it's pretty much as expected with even some slight upside surprises.

All right, thank you.

(Operator Instructions)

Jay Vleeschhouwer of Griffin Securities.

Thank you, good morning.

Good morning Jay.

Jim, I'd like to ask first about your vertical markets. Specifically, when you look at some of your largest verticals -- electronics, auto, industrial and so forth, are there any particular trends that stand out with respect to preferences within any or each, with regard to perpetual versus lease revenues? The reason I ask is, one of your large peers in the group recently spoke about a growing preference, at least among its customers, for product rentals. And I'm wondering if you are beginning to see anything like that for yourselves. And then a couple follow-ups.

Actually, the thing is, we're not seeing a whole lot of change in the customer procurement and demand. But even some of them are going through different views of the historical model of how you implement internal dedicated systems versus private cloud versus public cloud. There could be some changes along those lines. We're really not seeing a major shift, other than the fact that leases remain very strong. The overall mix really isn't changing, nor does the -- nor has the, at least stated, customer preference. But frankly we have been agnostic on that for years.

One thing, Jay, is the Apache part of the business continues to be a time-based license business as it was historically before the acquisition.

Right. Just a clarification from an earlier comment, you mentioned that renewal rates remain up high. Is that true across-the-board by vertical or any (inaudible) any verticals in terms of renewal activity?

I have to say, in general we see nothing that would indicate that it's mostly varying. It varies widely in any industry, that couldn't happen without seeing some movement in there and it just stays so categorically high. We are not seeing anything on the -- we're not seeing anything on the vertical standpoint. I think the other comment on -- at least some of our customers are at least wrestling with is, it like on something where there is a very intense shared kind of demand for something. They tend to like to keep that more inside. And probably distribute it through a private cloud kind of standpoint.

It is when they are testing the waters or they are only loosely involved with it that they will tend to look at that. Usually as kind of a trial period. But again, we are very early in what appears to be some changing customer sentiments. And again we have been prepared for years with any of these eventualities. So whichever way it comes, we're just interested in getting more people using it.

All right. Two last ones. A broader question about the competitive structure of simulation. You are aware of course, that Siemens PLM bought LMS. And LMS historically has not always competed with you, widely and thoroughly. Nonetheless, with this acquisition they do now seem to have become the second-largest vendor in simulation along with what they had already internally, so if you could perhaps talk about the structure of the market. And lastly, at your analyst meeting last June you spoke about your intention to invest in services because you saw the importance of that to inducing license adoption. Did you, or could you talk about how you invested there last year, and your plans for this year along those lines?

Okay, let's see. I'm going to try. I don't see the competitive landscape changing a whole lot, because the traditional CAD or PLM players have been moving in this direction. Siemens had been involved in one of the early Nastran-related activities. And with LMS, it's good solid capability, a collection of more smaller products that, as you correctly assessed, sometimes we overlap with, but it's not really across-the-board. I don't see an overall change there, other than the fact that companies are doing more with acquisitions as part of their own capital buildup kind of strategy.

Now, on the services aspect, we basically -- basically if you want to hit the website, you'll also notice there is a fair amount of support people. We added quite a few throughout the remainder of the year. But if you recall from investor day, I also commented a little bit that is kind of a slow ramp up. Really what you are trying to do, it's not like people need to put existing nuts on existing bolts and therefore we just need more people to twist them on. There's really a long-term engagement, planning, auditing process that needs to go on. It's one of those things we view as being pretty essential to building up over the next five years, but we don't view that is hanging out a shingle and ramping up things in a three- to four-month kind of timeframe.

The kind of services we're talking about are not the traditional services that have been historically viewed in this market and that is helping people build models, demonstrating that it will give them the right kind of solutions, and building up their confidence along this way. It is really now evolving processes to -- that really take advantage of the capabilities that simulation can do in terms of changing the landscape of their own internal development processes.

And any time you change organizations and processes and things like it, it a it takes a long time, and I don't -- you can't fault companies because you don't want them throwing out good processes for better ones if they don't have a smooth transition and way of doing it. And it's really something we have been talking about for years, simulation driven product development. It's the focal point of getting simulation up front. Being able to answer what-if questions and that's why we think the virtual world is a really good staging ground for product innovation.

Thanks very much, Jim.

Thank you.

This concludes our question and answer session. I would like to turn the conference back to Mr. Jim Cashman for any closing remarks.

Okay, thanks everybody. But in closing, 2012 another strong year for ANSYS, but that one is in the books. But we are also excited about the opportunities that lie ahead in 2013. We acknowledge, like everybody is saying, there going to be challenges along the way. We saw it in 2009, '10, '11, '12. But the emphasis on 2013 is the going to be the ongoing integration of the Apache and Esterel businesses, combined with a continued focus on our own technological expansion and differentiation, execution, growth, customer engagement. All those key things, that may sound boring, but they have served us well over a really long timeframe.

We believe, as it was mentioned on the questions, that if the economic environment does indeed improve into the back half of 2013 or into 2014, we are well-positioned to achieve even more robust financial targets. Again, I will give my normal shout out though, but we continue to be propelled by a strong combination of -- we think, a vision that has got a long life left in it and has served us over a long time. A business model that helps us navigate through a wide range of economic uncertainties. And real shout out to our customers, many of which who have been with us 20, 30, or more years. Partners, great technology, and of course the exceptional employees that we are still trying to ramp up the numbers of.

Thanks for joining us this morning, and we look forward to talking to you at the next call, but more importantly maybe even seeing many of you at our upcoming investor day here in Pittsburgh. Signing out from Pittsburgh, thanks.

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