ANSYS Inc (ANSS) 2013 Q3 法說會逐字稿

Good morning, and welcome to the ANSYS third-quarter 2013 earnings conference call. All participants will be in listen-only mode.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to Jim Cashman. Please go ahead.

Okay, thanks. Good morning, and again, thanks everyone for joining us to discuss ANSYS's third-quarter 2013 financial results. So, consistent standard protocol bookkeeping. All the information and key topics that are relative to the quarter, and the full year business results, and also our future outlook are included in this morning's 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'll introduce Maria Shields, our CFO, for our Safe Harbor Statement. Take it away, Maria.

Thank you. Good morning, everyone. I'd just 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 business as of today, and ANSYS undertakes no obligation to update any such information unless we do so in a public forum. Unless otherwise indicated, 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 10-K. So Jim, turn it back over to you.

Okay. Thanks. Let's see. Before we get into Q&A, I'd like to briefly highlight a few key points around our Q3 and year-to-date results, and also share some thoughts regarding our outlook for the remainder of 2013, and an advance peek at fiscal year 2014.

So let's start by saying that Q3 was another quarter. We delivered -- in which we delivered our commitments, despite the persistence of the macroeconomic issues that continue to challenge not only us, but our customers as well. We finished out the quarter slightly above the mid-range of our guidance, with revenue of $213.4 million, or 9% constant currency growth, and beyond the high end of our range on earnings. So, actually reflecting back on the comparable quarter a year ago, this is a very similar outcome relative to our final results versus our guidance. And unfortunately, many of our predictions that I'd made at that time around the challenging economic backdrop and the noticeable lengthening of procurement cycles extending into 2013, they have, in fact, remained with us throughout the past nine months. Unfortunately, those same predictions are what we're currently seeing ahead of us as we move into finishing out Q4 fiscal year 2013, and we're really not assuming any major uplifts into 2014.

For the third quarter and year-to-date in constant currency, we delivered 9% and 10% revenue growth, respectively. In Q3 we recorded double-digit revenue growth to both North America and Europe, with -- albeit slower, but still positive constant currency growth in Asia-Pacific. The top line performance, in turn, yielded strong margins, cash flows, and earnings for the quarterly and year-to-date periods. During the quarter, we saw disproportionate growth in leases as compared to paid-up licenses. Our maintenance business also continued to be strong, with 13% constant currency growth in Q3, and a 15% year to date.

So both of these factors contributed to our deferred revenue and backlog balance growing significantly faster than our reported revenue. These results are indicative of both solid renewal rates and a healthy 72% recurring revenue rate for the quarter. We finished out the quarter with a total deferred and backlog balance of just over $360 million. Our Q3 non-GAAP EPS of $0.83 included approximately $4.8 million, or $0.05, of incremental tax benefits, but even excluding these benefits, we still exceeded the high end of our guidance range for earnings. On a year-to-date basis, we've reported non-GAAP EPS of $2.31.

So as we look back on the progress over the third quarter and the first nine months of 2013, we continued to make important strides with a vast array of customers spread across geographies and industries. We continue to see the importance of product innovation, integrity, and quality as critical business issues requiring the use of advanced simulation. Just one example -- in automotive, we've seen strong R&D investments continuing globally, led by sustainability and smart systems development, in addition to increasing utilization of electronics and embedded software for safety, performance, and entertainment.

But even with that in mind, across most industries, growth is really being driven by four major factors. First and foremost is just the increasing product complexity. Second is the need for localization that we are seeing in different geographic markets. Next, any product segment linked to the trends in mobility are quite strong. And then finally, as I've also mentioned in automotive, the increased proliferation of electronics and software into our customers' products. So those four factors seem to be the canonical reasons for driving of growth.

All of these areas drive the increased interest and need for our unique, multi-physics capabilities, and in each of these cases, the rapid understanding of the extremely complex problems, the necessity of a high degree of fidelity and accuracy, all of these are key tenets of the ANSYS vision and strategy. This vision is probably key, because it's been in place for many years, is predicated on the ability to virtually simulate increasingly complex, complete systems that are comprised of mechanical, electrical, and software components. For those of you who are interested in additional depth, there is a wealth of content regarding our portfolio of solutions and the customer uses across a broad range of industries that we serve, and those are all on our website at ansys.com.

Okay. So with the Q3 behind us, we look to close out the final quarter of 2013. No doubt about the global uncertainty and customer cautions and the challenges they pose for us and many companies in our industries. From what we are currently seeing and hearing from our customers, those challenges will continue into the foreseeable future. That being said, our outlook for Q4 is non-GAAP revenue in the range of $234 million to $240 million, with EPS of $0.79 to $0.82. This translates into non-GAAP revenue for the full year of $863.2 million to a high of $869.2 million, and EPS in the range of $3.10 to $3.13. Netting all that out, this is essentially a slight increase to the floor and a narrowing of the range for revenue, and an increase in the earnings outlook to take into account the strength of our Q3 results. I will say that we have anticipated no significant year-end budget flush that's to factor into our Q4 outlook, but as always, if that does happen to do it, that should be upside for us.

We have also initiated a preliminary outlook on revenue and EPS for fiscal year 2014. This consists of non-GAAP revenue in the range of $935 million to $965 million, and EPS in the $3.25 to $3.37 range. More details around currency rate and other key assumptions are contained in those prepared remarks that we posted on our Investor Relations home page early this morning that I mentioned at the beginning of the call. For purposes of today's discussion, since 2013 is not over yet, we will stay at a very high level in the 2014 assumptions. We are in the process of prioritizing and finalizing all the details around hiring, capital, and overall areas of investment for 2014. We will provide more details and additional insights on the Q4 earnings call in February.

Now from a qualitative perspective, our current guidance takes into account the uncertainty that has persisted in various geographies throughout the world, and also an assumption of a continued level of spending discipline by our customers, and that really continues to add variability around the predictability and timing of deal closings. They're just realities of today's environments, and they're things that can and will happen, and we have no control over it. However, there are a couple of things we are certain of. The first is the long-term confidence in the vision that's been our passion for more than a decade. And second is our commitment to invest from a long-term perspective in the realization of that vision. So with that in mind, we will continue to be cognizant of all the short-term realities that hit us from time to time, and back to those into our business plans and our guidance. So with that, I will be opening up the phone to take any questions that you might have.

(Operator Instructions)

Steve Koenig, Wedbush Securities.

Hi, Jim. Hi, Maria. Thanks for taking my question.

Hi, Steve.

Good morning.

Good morning. I will start with a question on Q4 guidance.

I'm sorry, one moment please.

Hello?

Just one moment. I'm sorry. Just a moment. Sorry, Mr. Koenig. You may proceed with your question.

Okay, can you guys hear me?

Yes, we hear you now, Steve.

Okay, great. Thanks, Jim. The initial question is on Q4 guidance. The EPS guidance looks a bit low, especially when I reverse engineer the operating margin assumption. Looks like it is below 47,% which is out of your usual range. Can you give us any thoughts on that?

Yes, there's no doubt. Keep in mind, again, you talked about that unpredictability about the revenue, and even some of the earnings things, so we were over the high range. But if you look at it, there is really -- there's probably three primary factors. First and foremost, we didn't hire as quickly as we really would like to in an ideal standpoint.

He's asking about Q4.

Q4? Oh, I'm sorry. Really, the Q4 margins, okay -- the key thing was that if you look at the natural flows of business, and these are some of the newer ones. So like Apache and Esterel business, the margins for Q4 are typically a lot -- are significantly lower. They're driven by sales, commission accelerators that occur in the fourth quarter. In general, they tend to be double-digit lower than they are in Q4.

So you will see something similar to that for those particular ones. But also, getting back to the timing of the predictability spending, there are some additional expenditures that we are planning in Q4. Some are related around the IT fit-out of our new data center that is supporting all of our global infrastructure and moving into some of our expanding R Cloud offerings. And the timing of those came in at -- are coming in more planned for Q4. And then, there's a number of ones. Maria, you got --?

Yes. Steve, there's a couple of other factors. Q4 typically, our royalties and third-party commissions are higher in Q4. And we're also, as we typically do, we will be doing some pre-hiring on the sales and support front to load for 2014.

Got it. Okay. Great. Great detail. Thanks for that.

And if I may squeeze in a follow-up. I am curious, the shift to leases that we saw this quarter, it bounces around quarter to quarter. But I am wondering your thoughts on the possibility that that continues, because of the secular shift we have been seeing throughout the industry into more of a pay-as-you-go type approach by customers. Do you think that could drive a more sustained shift to leases beyond the choppiness you sometimes see quarter to quarter?

Well, it could be. This one stood out a little bit more, Steve. There's a number of things, obviously, the Apache portion of the business, which has been growing nicely. There is a little tweak there. There is no one predominating factor.

We also don't know if the secular shifts that you're talking about will pan out to be a trend versus a spike. We just point it out because this one stood out now as something that was very noticeable. Also, in general times of macro-uncertainty also tend to drive, but those tend to be short-term dislocations that tend to correct themselves over a six- to nine-month period once things get on even footing. There is a number of things, but in general, when you see the math add up and its impact on the recurring rates and the revenue backlog, it is good for us long term.

Again, we have said for ages that whether or not it was our software or service cloud offerings, our perpetual license, or our lease that really in these early phases of adoption of this technology that we were really interested in getting users of any style, regardless -- and really not even caring a whole ton about how they acquire it. We want to create numerous avenues for them to do it. And we've just seen this particular time frame, that it did shift in this matter.

Those three factors are the main ones. A couple of those are longer-term sustainable. One of them might be a spike. Don't know about how all those will add up, but we felt it was particularly noteworthy.

Got it. Thanks, everyone.

(Operator Instructions)

Jay Vleeschhouwer, Griffin Securities.

Okay. Thank you. Good morning, Jim. Good morning, Maria.

Hello, Jay.

My first question concerns your preliminary 2014 outlook. The $30 million range is somewhat larger than the preliminary outlook at this time a year ago and two years ago, which were about $10 million to $20 million. I know that the Company, of course, is larger and more complex on a larger base. But what are some of the components of that wider range that you had in mind for next year?

And the follow-up question is, if you could talk a bit more about your electronics and semiconductor end market, which has clearly become now your largest business by revenue and a clear driver for much of the past year. And does Apache continue to be a double-digit growth component of the Company for your?

Well, okay. So first of all, you talk about the reasons for the extended range. Basically, you hit the primary one right on the head. It was the increasing complexity of the business. The other thing is that the -- some of the macro-uncertainties, particularly in -- a lot of people have been talking about different parts of the world and how there's been a lot of dislocation there, so there is just a greater uncertainty there. The third thing that I'd add in that I think leads into your following question is, we've got a range of some very new, exciting, and unique technologies and capabilities in the portfolio that we have added over the last one to two years.

But as I think we have all witnessed in all of this technology thing over decades is, it takes a little bit of time for them to incubate, and therefore, the starting error of what might take off and what might not in certain time frames tends to have a pretty broad standard deviation to it. The newness of some of those things, while we know it long-term, they're going to be very strong trends -- how long it takes for customers to get adapted to what it might mean for them to implement it and how much those launch in.

Now with that in mind, leaning into your follow-up question is yes, we see -- of course, Apache now has grown in scale itself. But even then, we see it as being a double-digit performer into the foreseeable future. I won't even put a time frame on it, because I have seen no decline in companies pushing for their mobility solutions, for power efficiency, for getting to smaller and smaller chip set sizes and moving down into, at some point, probably single-digit nanometer range, but moving into that 20 into 14 and that. So with those trends going on, it's going to be a continual race there, and we see that continuing on. So I think -- was that all --?

And Jay, just one other element I will add is, as to the earlier question, we've got this mixed model of paid-up and leases that we offer. So if some of the dislocation Jim mentioned continues into 2014 and people use -- elect a lease option as opposed to a paid-up option, obviously, that has a different impact on how that translates into GAAP revenue in any given quarter or any given period. We are trying to factor all of that into a much bigger, broader, complex business.

Very good. Thanks very much.

Sterling Auty, JPMorgan.

Yes, thanks. Hi, guys. Jim, you started to touch upon this in I think the answer to the first question.

When you are looking at the third quarter here, you mentioned maybe slower hiring. What I'm curious is, normally when we see this kind of upside and margins when you beat on revenue and you get that disproportionate contribution margin. Sounded like you managed expenses to get to this margin for this quarter. What I am curious about, did you start off with a cautious view and kind of held back on expenses right from the beginning? Or was there something in the quarter where you started to slow down rate of the pace of hiring to make sure you got to this level?

Well, first of all, again, there were -- the three major factors were, we didn't -- and that was nothing we were managing. We would have loved to have gotten quality people on site. But, Q3 isn't necessarily the maximum transition -- the optimal transition period for people that are looking to join or change during that time frame. The pace just slowed down a little bit from Q2. With that being said, we are planning on continuing to keep a pretty decent ramp-up, even through Q4, in anticipation of building for 2014. So that's going to happen.

Now with regard to the discretionary. I wouldn't say it was anything outside the ordinary of the things we normally do with the business. But there were a number of different signals that we were seeing. Sometimes it was spread out globally -- there were different global markets where we were seeing it more noticeably. And with that in mind, we did at least use discretion in Q3. Keep in mind, Q3 is also historically the most bizarre quarter of the four of things coming in, and predictability of revenue, and things that happen as people come back from vacation. It is really not a full three-month quarter.

And then the -- I guess the other thing is that we -- I mentioned the dislocation of some of the costs. We had originally planned that we would be doing, as we fit out our data center, we had planned that we were going to be doing some expenditures in Q3. And they just, for a number of reasons, again, nothing related to management of anything, but just the normal logistics of doing a major project like that.

Some of the things that we anticipated being Q3 expenditures, actually if they shipped a few weeks, it becomes a different quarter. It really doesn't change the overall annual landscape of anything, but it cosmetically makes something. Look, if you integrate it over time, you'll see that it probably maps out pretty well. But those expenses are slated, and actually are occurring now in Q4 as we speak. So those are really the three major factors and really nothing else. But nothing really out of the ordinary.

And then the one follow-up, I understand the effects impact in Japan. But would you still call out further weakness in demand out of Japan? Because I'm really trying to reconcile, if I look at where the geographic weaknesses was for yourself versus Parametric, versus [Desoe], versus -- just looking at the broad segment, it doesn't seem like there is a common thread through it. And I am just wondering if that in and of itself tells us something?

We have tried to look at that all, when you look at other things. I would say there probably isn't a common thread. But if you look at some of the areas, if you connect the dots between if you look at some of the areas where our -- have been traditional pockets of strength for us in Japan. You will see that some of those are either in retrenching or different competitive kind of environments. So again, I don't think there is any single trend that you are going to see there.

Things have shown signs of improvement for us in Japan, and in general, progressing well along those points. But it is just a continual point. By converse, you mentioned some of those groups and other people in our space. They have had slowdowns in areas where we were in double-digit growth. There are just all of these local -- it is like you don't see a complete tidal wave covering all the contingencies. It really is very spotty. But every sector of the globe is being hit by retrenchment of competitive positions and overall macroeconomic kind of situations going on. So it is really, I don't think -- we haven't found that one touch stone that seems to solve -- to answer all the questions.

Okay. Thank you.

Steve Ashley with Robert W Baird.

Hi, this is [Tetanya Armada] for Steve Ashley. Just piggy-backing off of Sterling's question, just wanted to ask on Japan. It seems like the macro-environment continues to be challenging, even on a constant currency basis. Just wondering if you can give us some color on what you're assuming for trends there and your guidance?

Well I'd say the bottom line is for the environment, we are seeing things very similar. Now, the situation is that if the environment's going to be a certain way, we obviously have to meter our business model. And we do things to basically optimize our performance, however a muddy field that we might be playing. Those type of things that we have also been involved with.

You look at -- one of the most telling things, as you look at the relative comparance of, let's say, the electronics industry and the strength that it seemed to have an almost a preeminence in Japan 5 to 10 years ago. And now you see what is happening with Korea and even some North American accounts in terms of what they're doing. And then you see what the reaction of some of those Japanese companies are, moving into other spaces, shifting, doing things. There is a constant turmoil that is going on there. But those trends, we still see continuing to go on.

I guess the good news is, that even as it goes -- if industrial demand shift in one way or another, if they are going to continue to grow, we'll proceed well, because it is going to be done by some company somewhere in the world. And luckily, with our geographic spread, we are pretty much evenly distributed across the globe, so we are able to do that. Now the other thing is that we are seeing some good activity in the auto industry in Japan. Again, it is not even a one-size-fits-all in Japan. It is different pockets of strength, and ebbs and flows, if you will, on all of those.

That's helpful. Thank you. Just stepping back a little bit, if you can just talk to us about your high-level priorities going into next year? Where will you focus your product, go to market, and M&A investments, et cetera? That would be great.

Taking the M&A thing, because we can't really comment on any individual one. You're going to see really the same trends that we have been doing over the years. But right now we have pretty much a good footprint in all the key areas that we want to be in. But we want to -- we actually want to make sure that we get a chance to fully flex those out. So you could see a number of augmentations to our traditional lines that will actually allow us to solve these emerging new generations of problems that customers are coming us to. It seems like every time you solve one layer of issues, then there is another cadre of them sitting in the background waiting to -- that they now want to solve.

We also see a lot of progression into ultimate materials, which we have talked about, and what that means in terms of stimulation. The concept of system simulation, complete product system simulation is one that's been starting to take more and more hold over time. So if you look at -- take that off the table and say -- hey, that is a part of the normal knitting that we will be doing for a number of years. Because it is a great way to get good qualities of staff, and it is also a way to speed up the pace of development quicker than we ever could internally.

But if you look beyond that for 2014, there are probably two basic themes. One of which is the release of our ANSYS 15 portfolio of products. We won't get into a lot of detail on that right now. But it is really one that we think tends to give us an incremental increase in capability. It's everything from look and feel to usability, but blending together all of the applications that we've had that may have come from different parts of the engineering discipline over time.

The second part, then, is just the continuation of the sales momentum, given the fact that these are difficult times. The headwinds seem to be against everybody. Is it a difficult more environment. But being able to continue to build on that productivity, but also be able to cross -- continue to get increased efficiencies of our cross sell capabilities. So when we have strength in one area that can actually be leveraged naturally in, even though buying centers and buying maturities may be different, even within the same company across those different disciplines. Because ultimately, they all do play into being able to simulate complete systems.

That's great. Thank you very much.

Matt Williams, Evercore.

Hi, Jim. Hi, Maria. Thanks for taking the questions. Maybe just to piggyback a little bit on Jim, what you were just talking about. I know you mentioned earlier that throughout 3Q you didn't really hire at the pace that maybe you were expecting. But having said that, you have ramped sales capacity throughout the course of the year. Just wondering if you could provide a little bit of color on how those reps are onboarding, what their productivity levels are like, and maybe what plans you might have in place to increase productivity going forward?

First of all, I will just say flat out, we are a few down from where we wanted to be. Yes, we added some, and our hit rate has been better on the hiring. But we are net down from where we would originally or planned or liked to have been. That number aspect is one part of it. If you look into 2014, again, we weren't getting into all of the different planning and detail things, but I think you'd see a continual ramp-up, not dramatically different than what you saw in 2013. That is just kind of what I'd expect. But can't hold us to anything. We're not even finished with 2013, and we don't have an approved 2014 plan in detail yet.

Sheer numbers is one. Now you hit on a second topic -- productivity. Productivity, I guess you asked, how were they ramping up? I'd say, in general we have actually been able to, if you will, build the science of ramping up, because we really don't have a single across-the-board competitor. So there really aren't pockets of people where you go and say -- oh yes, here are some other people out there doing exactly what they do, so people are going to be already ready.

So we had to actually build, if you will, the science of trying to expedite people coming on board. I think in general it's been okay. But if you recall, earlier calls we had mentioned also that if customers are more cautious in their buying pattern, and they're more cautious of budgets, the general pace of getting meetings and those, if you will, building that muscle memory of a sales process by getting in there. That just all goes a little bit slower. If anything, that creates a little bit of a lagging effect.

But probably the most important part is, if you've got the right people and you know that they get marginally productive within a few months, and by the second half of the year, they are producing pretty fully, and then they still continue to grow for a couple of years. The good news is that we've got a bank of those people that have really gone through, if you will, the shallow end of the learning S curve of coming up. So there is statistically a good chance of those going up. But with that in mind, then we've also had to meter some of the training and mentoring programs that we have, as people get into anything from the major accounts to, in some cases, [fee] selling and inside and indirect selling models, and the like. We've got those things going altogether.

But first and foremost, down a little bit on the -- a little bit behind where we wanted to be in terms of the total headcount, but plans to ramp that up and continue into 2014. Second of all, ramping the productivity up, and that's primarily through a lot more of targeted tools and training that we have, specific to what we have observed through the first three months -- first three quarters, I'm sorry, of this year.

Great. That's helpful. And maybe just one quick follow-up. I know we've talked in past of the fact that you guys feel like you have plenty of white space within your installed base to expand users. Just wondering if we could get a quick update on, number one, how the expansion is going and the success you are having within some of those larger accounts trying to expand usage? And then alongside that, any sort of color in terms of hiring that you are seeing at your largest customers? Are they adding people still, or is it still a very measured environment there? Thanks.

Well first of all, they are adding people. Our customers are adding people. They do it at a pretty judicious rate, also. It's very targeted, and actually, some of them may be doing it as they spread out globally on a more global basis, which tends to confound the situation a little bit. We are still seeing good growth to that point of the white space. Not that we go after million-dollar orders, but those large orders that we saw continue to climb, even in Q3, which is a little bit more quiescent period.

It grew, so we had growth in the number of orders in excess of $1 million, and in fact, the numbers of those continue to grow. I'd say also that right now, probably the key thing is that while customers don't want to, if you will, compromise on the accuracy of the solutions they're getting, in general, they are not going for -- well, it's good-enough software. Good-enough software isn't good enough for where these customers are going. They are also at a point where, okay now, they have validated the technology internally. And a lot of it gets into, organizationally- and work flow-related, those tend to be now more barriers, or the things that can slow down a sale. And quite frankly, a couple of those things are reasons of my aforementioned interest in the drive on ANSYS 15, because that's where you start to see some significant product surges in those particular areas.

Great. Thanks so much for the color.

Richard Davis, Canaccord.

You mentioned in the prepared remarks, but I got a question from some investors about your oil and gas effort. It is fair to say that it's probably less than 10% of revenues, but has, obviously, upside potential? Who do you see competitively on that bumping into? That's it. Thanks.

Clearly we see, clearly yes, that is a growth area. It is about that range, where it's in the high-single digits to mid- to the low-, I'm sorry, the high-single digits to the -- around the 10% range. Again, with any of the energy things, they tend to bob and weave sometimes, on if there's a problem with a nuclear plant somewhere, if the price of oil goes a certain way. There tends to ebb that in. The issue is, that there is an awful lot of the oil industry that is still somewhat blacksmith, and kind of, this is the way it's historically been done. However, you get into new kind of problems that probably hadn't been solved before.

We've talked about some of those in the past. Increased drilling, drilling for, if you will, less desirable forms of crude. We are even seeing things that are along the lines of -- you wouldn't link these in normally, but the whole concept of if oil is being drilled a couple miles down in the ocean, instead of pumping up oil, sand, and water, processing it, and doing a lot of the processing of it on the ocean floor, such that the energy you're using to raise up the stuff is only the end product you really want. Well, when you have that, you've got all sorts of electronics, wireless, all sorts of things that are going on there. So really, we are seeing the emergence of new kind of products.

In terms of the competition, really not a lot there. But we will run into some areas where the science of geologics and that actually enter the picture, too. And then it is a series of more niche people that probably most people haven't heard of, and we haven't heard of in the past, and go in. So if you look at that, that is really -- apart from that, there has always been -- there's still latent competition in the single physics kind of environment. A lot of those are just maintenance of status quo-type of environments.

But there seems to be a lot of interest from the research side now. I think it is really aimed at the place of their doing things in different ways and different places than historically they had. I think when the old drilling above ground and things like that, there's really not a whole lot of change in that. But a lot of these other areas are what's percolating the interest.

Got it. And then one quick question for Maria. The Esterel revenue contribution, we're just trying to gauge the rough organic growth rate. Do you have any color on that? We can guess it, but I was just wondering if you wanted to toss in there?

Yes. For the year, it's going to be approximately about $20 -- yes, over $20 million.

The only thing we'll say is without it there, it's been a little bit in advance of our internal projections. In general, we are pretty pleased on that. If you recall though, one thing we did was, we started with a -- as opposed to just opening it up to every account and every salesperson, because we didn't want to swamp the support infrastructure that we had or disrupt the business that was already done. We picked a target list of the prequalified accounts and that actually turned out to be a very good progression for us.

Got it. Thanks.

Mark Schappel, Benchmark.

Hello. Good morning. Thanks for taking my question. Jim, in a prior question, I believe you touched on your cloud offerings. I was wondering if you give us a few more details of how you are seeing cloud impact your markets, and what you have done and what you guys are actually doing in the cloud?

Well, the bottom line is, it is really -- it's one of those things that we want to prep for. It really -- I'd have to say it really doesn't impact our markets a whole lot right now. There's a lot of things that still, technologically, it is really well suited to e-mail and personal productivity and sales force automation kind of activities. But long term, there is no doubt that this is going to be something that is at least an interesting adjunct to the business.

I'd say the good news, at least we think from our standpoint is, that we architected the software such that it serves our customers today, but it immediately transplants into any kind of large-scale cloud proliferation. And that's how we've been able to operate with these interconnected layers and high-performance computing. That is actually is really the way that most of our major customers are using it right now. It's that they will --they've got their own internal clouds, but it is behind the safety of their firewall. They control the bandwidth, they control the prioritization of processing. Things like that. In other words, they can provide a sustainable, predictable way for that to do it.

But the fact is, we wanted to make sure that the software would actually be able to run in those environments, and in fact, we even think in a hybrid environment where people would be utilizing a baseline and capability internally. But then if they had surge capacities that they need, they'd be able to go out and actually utilize external and internal cloud symbiotically. Apart from that, the only other consequence have in there is that for almost, over 10 years, we have had software as a service offering.

For the reasons I mentioned earlier, it is one that's used sporadically, but it's not one that are people using as the mainstay. With that in mind, though, we are still basically upgrading, if you will, the storefront, and looking at different -- There's a number of different commercialization models and really, each one depends on the manner in which the customer wants to utilize the software, whether it's a regular stream, whether it's sporadic, whether it's in spurts, things like that. As well as things that we definitely need to prepare for, but it's also not a broad scale, at least for full-scale, industrial strength kind of applications.

Okay. Thanks. One final question here. In your prepared presentation, I believe you called out problems in China, particularly with the state-owned enterprises. I was wondering if you could just give us a sense of what your overall business is in China as a percentage of revenue?

Not China individually. But I will comment Mark, relative to the China environment, a significant portion of our direct and indirect business in China relates to the state-owned enterprises. And we definitely saw a lot of activity; however, we also saw, I would call, a noted slowdown relative to their willingness to pull the trigger to close deals.

Okay. Thank you.

Greg Halter, Great Lakes Review.

Good morning.

Hello, Greg.

Hello. Wonder if you could provide a little more background about the ANSYS 15.0, whether or not that will be released to everyone at the same time? Is anybody is currently using it and things of that nature?

Well, keep in mind, we've got customers who have been using it in preview mode, much like some people might call it a beta program. It is not exactly that for us. But people have been utilizing that. We will be releasing that actually next month. And then, of course, there are different markets where there may be certain things in terms of localization and product launches and things like that that we have to move out beyond that. But it's this year.

Okay. There's obviously been a lots of interest in this whole 3D printing area, and just wanted to get your thoughts on that and how ANSYS software may or may not be working with that type of a product area. Thanks.

Well, it's actually working together right now. If you think about it, the 3D printing -- of course, when you say that, it means multiple things. Some of which is creating a pseudomodel of something with different materials that doesn't really match in. In some cases, it's also, though, being a rapid construction for low volume manufacturing that allows things to be done with existing materials. The bottom line is to us, it really doesn't matter.

In some ways, a proliferation of 3D printing of real product actually tends to help us, because again, the whole point of the value of the 3D printing for at least as a manufacturing, let's call it additive manufacturing, is it allows people to get something out quickly. Well, you don't want to rush something out quickly if then you just have to send it to a laboratory and spend a certain amount of time testing it. In most cases, the people that are getting the most out of 3D printing are actually verifying the design virtually, such that when it comes out, it's got a much higher probability of meeting the overall requirements. Net, it's really a positive. If anything, it is a positive for us.

Greg? Are you there?

Just one moment. I thought he'd started his question. Mr. Halter, do you have any further questions?

I am all set. Thank you.

Thank you. Mr. Cashman, that does conclude the Q&A session, if you'd like to make any closing remarks.

Okay. Thanks, everybody, for the questions and for the attendance. So, I guess we covered a lot of this, but in closing, our emphasis for the remainder of the year is going to be -- no surprise here, but execution, customer development, and just the internal disciplines as we map out the year. Again, we are excited about the opportunities that lie for the remainder of 2013, and especially beyond. But again, there are going to be challenges along the way.

So again, fortunate that, I say this a lot, but I probably can't even say it enough, is that we've got a strong foundation and it's built on over 40 years of dedication. It's combined with a focus on technological expansion, execution, growth, customer engagements, basically allow us to go after those changes. Again, as I said earlier, we believe that if the economic environment improves in the future, we are well positioned to be able to achieve even more robust financial targets. And continue to be propelled by that really strong combination of a sustainable vision, a business model that's gone through a lot, gotten through a lot of different economic cycles.

But at the heart of it all, we've got the greatest customers on the planet. Good partners, strong technology, and of course, the employees that have been part of this for a number of years. Thanks to all of them, and thanks to you for joining us this morning.

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