ANSYS Inc (ANSS) 2013 Q4 法說會逐字稿

Thank you for standing by, and welcome to ANSYS' fourth-quarter and FY13 conference call. With us today are Jim Cashman, President and CEO, and Maria Shields, Chief Financial Officer.

(Operator Instructions)

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

Good morning, and again, thank you everyone for joining us to discuss ANSYS's fourth quarter and FY13 financial results. Again, consistent with our standard protocol, all of the general information and key topics relative to the quarter and the full-year business results, as well as our future outlook, are included within this morning's earnings release, and in the prepared remarks that we posted on the homepage of our investor relations website this morning.

So before we get started, I'll introduce Maria Shields, our CFO, for our Safe Harbor statement. Maria?

Okay, good morning, everyone. I'd like to remind you that in addition to any risks and uncertainties that we highlight during the course of this call, important factors that 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 any such information, unless we do so in a public forum.

Consistent with our standard practice, during the course of the call, and in 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 in the related Form 8-K.

And one last housekeeping item: I'd also like to remind everyone that the ANSYS team will be hosting our annual investor day, here in Pittsburgh, on March 12, at the Fairmont Hotel. If you're interested to learn more about it, please see our website at ANSYS.com for further details at about the event.

So, now, Jim, I'll turn the call back over to you.

Okay, thank you, Maria. Before we get into the Q&A, I'd like to briefly highlight a few important points about our Q4 and 2013 results, and also some key assumptions underlying our Q1 and FY14 outlook.

So, I'll begin by saying that 2013 was an important year for ANSYS in many respects. We finished out the year with a steady Q4 close that was directly in line with what we said on the last call: Revenue was at the midpoint of our guidance at $236.7 million, and as we predicted, there was no appreciable year-end budget flush.

Operating margins and earnings were both above the upper end of the guidance. Now, I will note that our Q4 earnings included $11 million of incremental tax benefits, or about $0.12 per diluted share. But even without these benefits, earnings were above the high end of our range.

In constant currency, that worked out to 7% revenue growth in Q4, and annual revenue growth of 9% for FY13. We also reported constant currency revenue growth in all three of our major geographic regions for both the fourth quarter and the full year, and in both major categories of revenue, the software license, and the maintenance and service for the full year. The top line growth, in turn, yielded strong margins, cash flows, and earnings, for the quarter and the year.

We finished out the year with a total deferred revenue and backlog balance of $409.5 million, which is a new record year-end high for us. In the fourth quarter, we continued to return excess cash to our stockholders, through the repurchase of a little over 500,000, well, 506,000 shares, which puts us at 1.5 million shares repurchased for 2013.

As might have seen earlier in the week, we announced that our Board of Directors authorized an increase to our existing program, to a total of 3 million shares. So we're committed to continuing to repurchase shares in 2014, as one element for effectively deploying capital. I will note though, strategic acquisitions remain our top priority for this, however.

So in December, we heightened our dedication to partnering with our customers to achieve their visions by delivering ANSYS 15.0. This release provided a number of new and advanced multi-physics capability, that were seamlessly brought together within the ANSYS Workbench environment.

It's really a key milestone in delivering a simulation-driven product development that we have been talking about for a number of quarters and years. It's a build on that platform that streamlines the workflow, among different simulation applications, so it's really allowing us to keep on our path of redefining comprehensive simulation.

I think this puts us in a unique position to continue to increase the footprint within our extensive installed base. Without a doubt, the depth and breath of our simulation capabilities, coupled with the power and scalability of the workbench platform, allows us to expand relationships, as well as solve new classes of problems at enterprise, at SMB, and start-up levels.

As we look back on our progress over the course of 2013, we continue to make some important strides with a vast and pretty broad array of customers, spread across all geographies and industries. We're continuing to see the growing importance of product innovation, integrity, and quality as being the really critical business issues, requiring the issues of advanced simulation and driving our prospects.

I think, if we take one little piece of the data here, it's evident by the 33 customers in Q4 with orders in excess of $1 million, and then actually, for 2013, we had four customers with orders above the $10 million range. These are customer relationships that have been built over many years, and in some cases many decades, and we will continue to work to grow those relationships over time.

The key customer engagements are at the heart of what drives us in both our internal R&D road map, as well as those acquisitions that we will be pursuing. Most recent example, of course, being the addition of EVEN and Reaction Design, which were small technology add-ins to the ANSYS family.

So everything we accomplished in 2013 is largely aligned with what we discussed as key priorities and commitments at investor day last March. We will spend some time updating you in the event in the next couple of weeks.

Really, the key point here is there should be no doubt that driving double-digit organic top line growth has been, and will continue to be one of our key areas of focus, as we enter into 2014. The array of global uncertainties and customer caution throughout 2013 pose challenges, but there are also some internal execution issues. We've discussed these on previous calls, and we have been diligently addressing those, particularly in our Asia-Pacific business.

We've made some important leadership changes for the region overall. In addition, over the last few months, we've added new sales leaders, and other assets in Japan and India. We are certain, we believe, that these are critical steps toward building a foundation for improved growth and customer engagement in the future, but they will take some time to bear fruit.

Really, the result of all of this is that we have initiated our outlook on revenue and EPS for Q1, so we have got this non-GAAP revenue in the range of $212 million to $220 million, and EPS in the $0.73 to $0.76 range. We have also reiterated and expanded our FY14 outlook with non-GAAP revenue in the range of $939 million to $969 million, and non-GAAP EPS in the range of $3.25 to $3.37. There is more details around currency rate and other key assumptions that are contained in those prepared remarks that we posted on our investor relations homepage earlier this morning.

From a qualitative perspective, our Q1 guidance takes into account a few seven-figure deals, which can easily slip from one quarter to another, but still fall in that year. As the year progresses, we see a ramp-up of growth rates, based primarily around three key factors. First, we're cognizant of the fact that our relatively new sales leadership team in Asia-Pacific will need some time to ramp up, and for us to see some impact on the top line, as the year progresses.

Second, we've seen expanding global pipeline and forecast numbers. And finally, even some of the earliest-stage ramp-up of our expanding on-demand options, both for private and public clouds. The latter, actually, was featured in the high-performance computing track of IBM's recent event, regarding their platform computing cloud services.

In conclusion, well there are certain compelling certainties that continue to drive us. The first is long-term confidence in the vision that we've been pursuing.

The second is our commitment to invest from a long-term perspective in the realization of that vision. This could be seen in the investments that we made in 2013 and continue into 2014.

With this in mind, as always, we will continue to be cognizant of the short-term realities, and we will factor them into our business plans and guidance as we go forward. With that, we will now open up the phone lines, to take any questions that you might have.

(Operator Instructions)

Sterling Auty, JPMorgan.

I wanted to drill into Japan. So if you set aside for a moment the sales execution issues. We are seeing very choppy results from a number of different companies, if we try and look at design broadly. Just wondering what you are seeing from just the end market demand and interest level, separate of the sales force items?

We are seeing, obviously we are seeing the same choppiness. And some of it is macro, and as we have talked about it, we think that some of it were things that we could do in response to that overall standpoint.

So we talked about that. We talked about even the structural changes that we made at the end of last year that will take some time to ramp up.

With that being said, obviously, the government changes and some of the different policy changes, we will have to see how those map out. There is no doubt that, most notably, I'd say that we have seen the electronics industry being challenged, as that plays out on the global stage. I think those are things that are obvious to everybody, so we don't need to really need to -- we can go into them, but I don't think we need to here.

On the other hand, though, we have been seeing the signs of some pickup in Japan. It's still going to be, it's a long time, it will take time to get out that, but particularly in the industrials and the automotive sectors. You have to pick a couple of those, so yes, we're seeing some of the same things but we're at least seeing some glimmers of hope, as opposed to a continuing stagnation or decline.

Okay. And then my one follow-up would be, in terms of the Reaction acquisition. Can you give us a little bit more color there, and especially a little insight as to how much revenue is being included here for 2014?

First of all, there is very little revenue, it's pretty de minimis, it's along the lines of a plus or minus, in the $4 million range. The real key thing is, as we've mentioned over the last couple of years, we talked a lot about automotive over the last couple years.

There's one element of that relates to hybrid. But there's also things that relates to conventional internal combustion engines. We've also talked about the same thing when it comes to power generation and diesel engines, and all the new clean standards going on.

We've also talked about the importance in the aero industry for increased fuel efficiency. What that's led us to is increasing demands. Remember, I talked about ANSYS 15.0 being driven by our collaboration with partners.

Sometimes, that collaboration with partners is not about the next release, it's about developing capabilities that are not only for this year, but are going to be growing items over the next few years. And obviously, one part of increased efficiency, when you're talking about increasing the CAFE standards of automobiles, when you're talking about reducing fuel costs for airlines and things like that, it gets into the general field of combustion.

And combustion now starts to bring in the chemical reaction and thermodynamic simulations, in addition to some of the other ones we have done. It's part of that overall system modeling strategy.

With this, we've gotten what we think is the best technology going forward. More importantly, we've gotten some really great expertise, that will augment what we had inside, and is a very difficult thing to find out.

But we are working with customers specifically right now, and in particular, as you might guess, by some of the industries that I have mentioned. These are key customers, these are global leading customers, and they are the ones that are driving the next band of technology. And that's really what's behind it.

So it's much more of a technology, people and long-term growth play with our customers, than opposed to clearly a revenue thing. Which at this point is relatively minimal.

Got it. Thank you.

Steve Ashley, Robert W. Baird & Company.

You referenced in your comments and that you would look for improving growth next year, and one of the things you did was just improve pipeline, improve forecast. With Sterling's question, you talked about Japan maybe seeing a little bit of encouragement in the pipe there. Can you expand that a little bit and talk about it? Are you seeing it in other markets as well?

By other markets I assume you mean outside of Japan, or you mean --?

Yes.

Okay, thanks. So the bottom line is, one thing is, yes, we have seen the numbers improve, we have seen positive signs. However, when we have been talking about something that is as important as Japan and some of these markets going forward, it will be a long-term proof of the pudding.

And we should see that same ramp up that we're seeing right now, but that should apply to Japan. Japan is a very important market to us, yes, as mentioned on previous calls. It is an economic cycle influx, and everyone is going through different issues. Nevertheless it is a particularly important market.

If we look at other aspects, basically, quite frankly there is a mixed bag across many things. You can sit there, and we can look up parts of the US market, and say well, defense spending is going in this direction, but other things are going in other directions.

If we look at Asia, you will find that, if you look at a lot of things, that you can pierce the veil of the numbers of the Chinese macro situation. You can see that there are a lot of things at play there; there's a lot of potential, but there's a lot of question marks. Likewise India, but we are seeing positive signs in each of those.

There's always a lot of discussion about Europe, but our mainstays at Europe have been doing very well. Europe has been growing well with us, and apart from anything that might be happening within an intro Euro GDP, we are still driven by global leading companies that are competing on the world market, not just within a Euro bubble. With that being said though, we also see that some of the emerging markets in there, that there is a positive.

But again, with any emerging market there can be spurts and lags and things like that. And those are all factored into our forecast.

I think we're very much in the standpoint of some of our new capabilities, some of our investments are starting to show positive signs. But there are fits and starts across all parts of the global economy. But based on the things we have, that's why we still see this continued ramp-up, which of course ha s been factored into the guidance that we have going forward.

Great. You also referenced your on-demand options that you've been offering gaining more traction. You've talked about them in the past, can you refresh us as to what they are, and how that's playing out?

Absolutely. And I will tell you just like the Internet boom of the late 1990s, and just like anything that is really spinning up there, there are these cycles of hype, followed by disillusionment, followed by reality, followed by growth. It's a pretty interesting dynamic, if you look at anything that's entered the market.

But as we've mentioned, a lot of this is how you provide increased availability to customers. Now embedded in that is, people have to be comfortable, and certain applications fit the model currently better than others.

Simulations, due to its high compute intensity, high-bandwidth, sensitivity over the data that's in there. And also the fact that the non-predictability of cost of a certain simulation, that changes the commercialization model. Nevertheless, they are things that we've been involved.

Of course, as you know, we've had software-as-a-service offering since way past, over ten years and running. But this is a different evolution of that. When I talk about the on demand, comes in a couple different flavors. Notice I said private and public.

The private gets around the issues of the unpredictability of -- well, it mutes the unpredictability of cost, and it handles the security issues. But what that is where customers may say, I'm going to embed a number of licenses. But I have periods of peaks and valleys, and things like that. I would like to host the ability to pay for my steady state.

But then if I want access to it, I want to have ready access to it, and I will pay, I hate to use this term, but like an electric meter basis. But it's on-demand as I need it. So we have actually engaged with some customers on that to come up with those plans.

On the public side, think of it as version 3.0 of the old SaaS offering, where actually we launched many years ago. We have several partners throughout the globe that also provide their own hosted on demand applications through a public type of cloud.

But then as I mentioned just recently, we have been working with many leading companies, but there was one event just recently related to IBM's platform computing cloud services. And there are white papers and things like that available on the IBM website. We have a copy. There's one here that basically there's a White paper IBM application ready solutions for ANSYS. So it's really based on an architecture that allows those things to have access.

Again, this will be one of those things where first it becomes available, and then people become getting used to it. And then they figure out what it means, and then they go through all the budget stuff, and all the things that normally happen anytime a company adopts something new. Nevertheless it is one of those things that ramp up.

The reason we point that out is that long-term it is a very good thing, no matter at what level it progresses. But we may have one of those things where someone might have been thinking about buying, in the short term, might have been thinking about buying a perpetual license.

You might see them roll in with this. You might see things where the lease numbers might go up. The bottom line is, we get more users utilizing the software, increase the availability.

To us, it's really just removing one barrier to people being able to get their wheels rolling on adoption. I'm sorry I went a little bit long, but since there are multiple dimensions of that, I just wanted to parse it into different sections.

Very helpful. Thank you.

Ross MacMillan, Jefferies.

Jim, just trying to square what you said about some signs of improvement with one metric or a couple of metrics that we look at, which is looking at underlying billings and underlying bookings of the business. Which don't look as if they've inflected yet, and normally those would potentially be leading indicators, because of your business model. I guess the question is, if we don't see it in the aggregate bookings number, is it visible if you could parse that by regions or geographies?

So for example, if you look to the US, are you seeing that inflection already, and we just don't see it because of the blended effect? Maybe you could help me understand that. Thanks.

There's a couple of things. For instance if I start at micro and then we can expand out.

If I look at Japan, we talked of the structural changes, we put those in place the latter part of the year. Keep in mind Japan cycles tend to run a little bit off skew of a normal calendar year. So Q4 is typically a really huge number -- Q4 is their Q3, and it tends to be one of those little dips in there.

So we would expect to start to see maybe that first sign of things, given a little bit of maturity of the new assets we have in place there, combined with normal cycles, and more in this current quarter and upcoming quarter range. So that's one thing. And it may sound like I'm only focusing in on one market, but given the fact that Japan is only in the teens, in terms of total business for us, it can be pretty important.

The second thing, think in terms -- we talked about what the choppiness might mean in terms of, as you get these bigger and bigger deals. We said, something might slip a couple of weeks, just because it takes that long to get through the internal paper cycles of a customer. That really doesn't affect anything, even though it might appear to.

It's trying to equate the temperature on a given day with climate, type of thing. So you have to balance and integrate over the timeframe. So when that happens, it's also happening on the bookings. Keep in mind, a couple of things are happening.

First of all, numbers are getting larger so the lumpiness can seem to affect things. The other thing is, deals, some of the bookings, as evidenced by some of the changes that we've done in some of our reporting to highlight short-term and long-term backlog, and deferred revenues. Remember, we've had discussions on that the last few quarters, because of this trending, partially driven by Apache, and partially driven by some other customers for longer-term bookings. You may get now this lumpiness on a booking basis they can actually expand over multiple years.

Those would be my initial takes on that. Maria, do you have any takes on that? Does that make sense Ross?

Yes, that's helpful. It definitely helps my thought process.

Maybe one just maybe from Maria. Curious, obviously when we came in to 2013, you had a revenue guide which, you ended up being slightly less, but there was a fairly significant foreign exchange shift against you.

But on earnings, you obviously did better and this comes back to a margin -- predominantly a margin question, which is, how do you think you fared in terms of your hiring plans, or your cost structure in 2013? And as you think about 2014, how are you thinking about hiring, and what's going to change, if you will, to 2013 with regard to cost structure growth?

Ross, I'm going to butt in, and let Maria think about that. The one thing I wanted to say is, if you look at that, if you look at -- first of all, because Maria might not say this.

But on the G&A side we've been very, very effective and efficient. But with that, because of that, even though we kept the margin strong, if you look at the last few years, we've actually continued to increase our R&D spending as a percentage.

We've also talked about the increasing emphasis that we put on both sides of the customer facing aspect, the sales and support aspects. So we still have been able to increase investment in what we think in the long-standing billing aspects. So I just wanted to jump in, Maria, if there's anything.

Ross, I will say that no doubt, hiring, and we have talked about this throughout the course of many quarters now, hiring continues to be a challenge in certain areas, just given the uniqueness of what we are looking for. But we are continuing, and if you go and look at the website, you will see there are many open positions. We are continuing to try to ramp up our hiring, as Jim mentioned, on particularly early in the year, relative to our customer facing assets.

Jim talked about some of the changes that we've made in Q4 and coming into Q1, relative to Asia Pacific. So, if you take a look at our guidance for Q1, you will see that the margins are slightly muted in anticipation of some of that hiring, in the fact that we have added Reaction Design, which is not going to be a positive contribution to the margin early on, and a couple of events that we've had that we've already had in Q1 around our international sales conferences. So all of that is factored into the lower margins.

That's comparable to what we had last year in terms of --.

We are going to continue to invest because the reality is we totally understand the long-term opportunity. There are things we have to invest in now to make sure we can capture that opportunity as the market is ready for it.

And Ross the only other thing, I know we've said this before. And since Maria mentioned the fact that, yes, it's a continual difficult hiring environment.

But the other thing is, because we don't view this as being something to help us get through a one-year need. To us this is a 10-year building process, and because of that, we have to look at building from strength, and so when you tend to be a little pickier on the quality of people, it tends to take a little bit longer. That's a continuing reason for that.

Great. Thank you.

Jay Vleeschhouwer, Griffin Securities.

Jim, you mentioned a number of your key vertical markets, such as automotive. And that ties directly to the question I would like to ask.

First, which is, when we do the arithmetic on how much of your business is coming from some of your specific verticals, and you target 11 in all, it looks like you are somewhat dependent on a handful of those markets, at least recently for growth. It looks like electronics and semis together, by far your largest business now.

It did pretty well again in Q4, and for the year as a whole. Automotive looks like it did okay, industrial equipment looks like it came back from an easy comp a year ago and from earlier last year.

But would it be fair to say that you are somewhat tied to a relatively small number of verticals, that need to do well for you. And how are you thinking about that into 2014? And perhaps, color like that, if you could to some of your specific functional areas, in terms of the mechanical and fluids businesses, and then a follow-up.

Keep in mind, first of all, one thing, if we look at different trends, lumping the semi and electronics together, really doesn't work, if you look historically with our buying things. I mean, I guess, if you lump together enough things you can come up with a really big number.

But in reality, electronics gets into a whole range of different things from consumer electronics to diagnostics, to a range of that. And those things will happen even if there might be a down trending in various chip things.

However chips there is a number of big push now for, if you look at communication standards, if you look at dropping into the lower nanometer ranges, if you look at the ongoing requirements for power and stability and things like that. It continues on.

But the one things, since you so broached over two other physics. Keep in mind, when we mention a major electronics company, and I don't want to mention any specific one by name. But it's not just electronic stuff.

They're worried about structural vibration. They're worried about thermal, they're worried about --. So they tend to be big customers from the electromagnetic side, from the electronics side, from the fluids and mechanical side, so they really are --.

In fact in some cases, they actually become the leaders, if you will, in pushing the multi-physics, because of the short design cycles that they have. The rapid product obsolescence and generational turnovers of products and the like. So with that standpoint --.

The other thing I say, even if you see percentages, even if we talk about growth in one industry, we're usually talking about relative growth. It's -- apart from the defense sector, it's hard to think of an industry where we have an industrial decline.

Now if we talk about the energy sector, we have talked about how oil may rise, and the oil and petroleum industries may rise and fall, but those will always tend to be replaced by alternate energy by wind, sometimes nuclear. But depending upon, if you will, political and other kinds -- and environmental concerns those can change.

And that's why you never see the section of the pie really swing by manic amounts. We see growth in an industry, that might creep from 13% up to 14% or 15%, but you don't see these manic swings.

Understood.

My follow-up has to do with Apache, which has clearly been a very significant source of incremental revenue and growth for you since you bought them, including last year. And it looks like they are now, and correct me if I'm wrong, at about an $80 million or so revenue run rate per year.

But historically, within the EDA market, which you are now in with them, it would be very difficult for a specialty company in that market to get much past $100 million of revenue. When they address a very specific niches, as they do, and they already have half of their addressed category, as best we can tell. Is it your expectation that the growth from Apache will necessarily have to slow, as well as they've done, because of some of the natural limitations of the end markets, and if that were to occur, what other brand or functionality you think might be able to compensate?

First of all, natural tendencies like you say, yes those have been observed over the decades in the industry. Second of all, clearly as denominators get larger, the standard for going that changes.

So yes I would think you would look at that. But still being a strong part of our business, if you look at the long-term customer relationships, if you look at the strengthening relationships, actually there's probably more involved in the different ebbs and flows of specific winners and losers in the customer industry base than that.

However, your premise is not faulty, in terms of generalities. But if you talk about now, bridging beyond just the primarily a heavy chip focus, and starting to blend that into how it interacts and trades off with other things. We're actually, in the first couple of years, we really helped, we tried to help progress the business, but also not impede the natural flow of it.

Over the last year, and we talked about this last year. We are now starting to branch into the combination of getting away from a heavy chip orientation, to a chip package system orientation. When you get to package system, all of a sudden you get to now component suppliers, you get into systems, you get OEMs, and you get into a broader range of things.

Now those will take some time to gestate, but the good news is we're already on the road of doing that. And working with a couple of -- adding new customers to the base.

So there was an element of maintaining their own internal trajectory. Second of all, linking between places were both they and we were strong.

And the third phase of this is now introducing these capabilities into an overall system multi-physics approach. That's really a generational phase that we are in now. But again, if we just went status quo and did nothing, and nothing to leverage it, yes your basic premises were what's happened many times in the industry.

Thank you, Jim.

Steve Koenig, Wedbush Securities.

I'll ask two here. My first question, I don't want to beat a dead horse, but I do want to clarify something here on electronics.

Jim, in your remarks you alluded to the idea that electronics is difficult right now, and then in Jay's question, it sounded as if you were saying that it's actually doing as good or maybe better than other sectors. Can you just clarify, how is that doing globally?

The second part of what you said when I was talking to Jay, I was answering globally. The earlier comment you're talking to might have been when I was saying, I was focusing on Japan.

Okay. So it is doing pretty well globally compared to the other sectors?

Yes, but like I said, in Japan. The Japan thing I was saying, that wasn't an ANSYS Japan specific thing, I'm getting echo back here. I don't know, operator, if you can do anything. I'm getting echo and it's distracting.

But on the Japan thing, we were noting that while automotive and industrial and some other sectors were starting to show some begrudging improvement, the electronics is one on that on a global stage, we've seen the traditional Japanese dominance being somewhat supplanted by other regions of the world. And we in turn have felt some of those effects ourselves in Japan. So that's maybe the differential, if I'm hearing you right.

Okay. Yes sorry about the echo. I'll ask one follow-up and then I will mute here, I don't know what to do about the echo.

Talk a little bit about the logic of the share repurchases. It looks as if it's becoming more regular.

So is that what we should expect going forward? How does that relate to your priorities for the use of cash?

Like I tried to say in some of the talking bullets and I might not of done as well as I like. But strategic acquisitions continues to be our number one.

But again, when strategic, then there's a lot of factors to actually bringing those in. It's not just piling anything on that we can.

But with that in mind, we also, if you look at, as we've increased our own scale, the cash flows are pretty healthy. And there are a number of ways that we would like to return that element there. So what we were really signaling was that this continues to be a strong, albeit secondary element of our shareholder return strategy.

We're not going to let too much pile up. We're always cognizant of what we might be doing over the next upcoming quarters and years on acquisitions, so we have to be mindful of that. But the other thing is, we've always said that we are going to do it very studiously and pragmatically.

And when the markets are volatile, it tends to provide a multitude of opportunities. We try to fit in with those amidst the volume trading restrictions, and blackout periods and things like that. It just becomes -- really I guess it's just more of the same.

But in this particular environment, there were more opportunities, and if we look at the long-term prospects, it was a good supplemental use of our cash. Maria, if you want to add anything that you think I--.

To reiterate to Jim's point, we are going to continue to pursue acquisitions. Some of them will be larger in nature.

But those tend to take a little bit longer to gestate and bring together, because I think if you look historically, we believe that's what's provided the greatest stockholder value. But we are also cognizant that there are times in the market where the price is extremely attractive, and given our cash position, that we feel it's really good opportunity to offset some of the dilutions from our own equity grants, and to return some cash to our stockholders.

Of course, the other thing is, we will also say that some of the valuations are tending to be, even looking at recent news, can tend to be pretty all over the map. So that always tends to complicate the process.

Great. Thanks a lot.

Evan Clark, Canaccord Genuity.

This is actually Richard Davis. I don't know why I was signed in as Evan, but whatever.

We would have recognized your voice anyway, so nice try.

Exactly. How do you think about the mix of, when you're thinking about -- you're talking about growing the business faster, and things like that. Part of it is seat count growth, part of it is selling to existing people more stuff. Is it 50/50 or how do you think about that? Because, typically the number of engineers grows 3% a year something like that.

Keep in mind, in our mind, it's not so much the number of engineers growing, but there's a latent pool of engineers that would be able to get that. Actually, I think we will talk a little bit about that at investor day coming up, just as a cheap teaser.

If you look at it, yes the cross-selling is one aspect. That tends to take longer because it has more organizational barriers versus traditional silos of usage.

We have talked about high performance computing, the intensity aspect. That one has been growing quite a bit, as people were a little reticent or hesitant to hire new people. But the new users, as I mentioned, we start to see that now over the past couple of years, when things were little bit slower, we talked about the fact that the enterprise customers were growing little bit more.

We're starting to see more surge, not surge, that's a strong word. We're seeing more of a pickup in the SMB, and even some of the introductory levels. And that's where some of the -- in addition to our traditional ways, where it's starting to crack the [sim] a little bit with the on-demand for private and even moving into public, provides a little bit more.

I think what you will see continually is that the multi-physics will probably pick up a little bit more over the next two, three years than it did. I think the number of users, also, we'll see, will start to pick up also. The biggest issues right now, and we have talked about this for a couple of years.

It is really now the technology has proven itself, and the leaders have demonstrated the value of it. But now, you get to the point of organization's abilities to actually bring it in, and that gets to process changes, and sometimes organizational adjustments.

And those are some of the things that tend to be ones that we have to work through. But that's the way that I prioritize them right now.

Got it. That makes sense. Appreciate it. Thanks.

Mark Schappel, Benchmark.

Jim, back to Reaction Design, they appear to have a particular focus in combustion reactions, internal combustion engines. I was just wondering if their technology would be transferable to other chemistry based areas like batch or continuous reactors?

Yes. I don't know about that particular one, but I've even talked to them over the last few weeks about, you look at another hot topic is like battery. There are some different physics and different phase-related things. But there's a lot of chemical reaction going on in there.

It's just that the expertise that has been built up in the customer, I mean any small company has to focus their assets to what makes the most sense. That also tends to highly align with where our short-term growth aspects are, going on.

But the one thing that I think is undeniable is, just like a few years ago, people thought we were a little bit loopy for trying to combine the mechanical and electronics world, and I think we have demonstrated the early phases of that. And then people said, why are you doing embedded software? I think we have started to show some of that.

I think now you look at some of these other aspects, I'm not sure exactly what order we will be attacking some of these things, but I know teams are already looking at this overall aspect of, let's look at the chemical reaction world, and combine that with the physics world, because that does play a major factor in the performance and the environmental issues related to complete systems. And after all, we are about complete virtual prototyping.

So it all plays in, but right now we've got a short-term need that we can harvest over the next two or three years, and we've got a base of people that can actually start to crack the next set of nuts, based on what our customer base will tend to want to partner with us on. Because some of these things will be advanced research, and we will want to take our pure calculational aspects, and combine that with things that they have experienced in the field, and problems that they are trying to solve.

But yes, we will see that move on right now, but that is something we can develop over the next few years. But again, think of this as one more branch of science that goes into improving product quality, and it just happens to be driven by couple of very topical, important issues that companies are struggling with right now. And they happen to be our top customers.

Okay, thank you.

Matt Williams, Evercore.

Just adding one for me. You mentioned some of the success you've had in getting those four customers over to $1 million in annual spend. And I know increasing usage and increasing your footprint in some of the larger accounts has been a focus for a while.

So I'm just wondering how transferable or repeatable are some of the steps that you are doing, to really step up usage within some of the larger accounts? How does that opportunity look over time, and I guess how repeatable -- what are the sales motions around that?

Bottom line is, I can say, and people who know me know I don't say this very often. But unlike 100% certain it's transferable. Let's say it's 99.97% or how many sigma you want to throw in there.

The big question is time. And that relates, sometimes, that relates to governmental and regulatory pressures being put on. Sometimes it's related to competitive velocity in there. Sometimes it's related to the individual company and the mindset.

Some companies will go after this very defensively, and quick follower, and others will see it as a competitive advantage. So the applicability, let's just say it's incredibly broad-based.

Now the other thing I'd say is, building up to that level, it tends to go over time, and most of the time, we're talking about seven-figure customers, we're talking about people that have just built up and they tend to be -- continue to repeat and gradually people get over. Over time, that has given rise to the advent, which is totally new to us, for getting into eight-figure customers.

The only thing I will say is on the eight-figure customers, it's a very small sample size, one can do that with a huge paid-up license in one year, and it may not repeat. They may just be only a high seven-figure one next year. But it would still be a growing base going forward.

I just put that caveat in there for people who think that everything statistically goes up. The net mathing of that is still positive. We actually see more and more customers starting to move into that range.

But it is a long process. All of those big customers I talked about, most of them, we've been building for 10, 15 or maybe even more years if you count the first seed planning going on. And I would say right now, there still is a large part of our market that is still somewhat transactional-based.

There are still a large part of our customer base that is highly focused around a single physics, I'd say an increasing number of them are saying, we like the end game of how these things can all play together, and that's tended to increase our prospects. But if you look at the reality --. And that some of the things that we will try to dig into a little bit more and with the advantage of some graphics at the investor day,

Great. That's helpful, I appreciate the color. Maybe just one quick one on Esterel.

I know you guys have been measured in how you go to the customer with that product, and I know the reception has been very positive. So just maybe a quick update there, and maybe how you thinking about driving that business going forward?

The bottom line is, they've been growing faster than the company average. The bottom line is, we've been investing a little bit higher than the Company average, as you correctly noted, and for conscious reasons what we did was, we didn't want to swamp our entire organization over their limited growing support base, and actually paralyze them.

So we have made them targeted accounts in different regions, where places, where we had pre-qualified opportunities going forward. I will tell you, those things have progressed really well. Not every one of them was a hit, but we had a lot of success, and that's borne out in every metric that we could do.

So what do we do in this next year? We have actually expanded that footprint. But we're tending to build capacity to be able to fill up with that.

But we're still doing it on a targeted basis. It's really a, if you will, it's just now the next plateau of something that we outlined a few quarters ago, when we were first talking about coming in league with Esterel.

Great, thank you so much for the color.

Sterling Auty, JPMorgan.

Maybe more a request than a question. We still get lots of questions over what the active user base looks like. I didn't know if you could comment here, or there might be something that you can dive into at the analyst day, but that would be great.

I think I would like to try to dive in. Because apart from the stuff that we've been telling you, I don't want to just guess numbers here. The other thing is the one, as I've mentioned over previous years, when everybody talked about installed base and user accounts, and things like that, that somewhat tends to be, people tend to use different metrics for it. It tends to be the abused aspects.

I'm not even sure how to really parse that down. But I don't want to just start spinning out numbers here. But I understand the issue, it's not -- we know it's large, we know it's -- I guess I'm really not sure how we actually, how you actually count when we have package seats and things like that, the enterprise pricing model and availability, the on-demand aspects tend to make it very difficult.

So I think it's one of those ones that can't be covered in a quick question on the call. But I've heard the request, and what we will try to do is come up with a more evolved representation of what some of these things mean, and start to pick that up, starting with the investor day, and try to build that up over time. I understand the issue.

That would be great, and even if it's active licenses. Because we know that you've got users out there that are using multiple licenses, to try to run multiple simulations, et cetera. So we just want to see with the that active base looks like.

Understood. It's not an unreasonable request. Just there will be so many conditions of saying, here's how we define things.

Here's how it maps up, here's how we count, and things like that. So if we just give the number right now, maybe 90% of people who hear it would misinterpret it, or apply a different filter to view it.

Understood. Thank you.

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

I don't know what else I can say after that question thing. But again, thanks everybody for bearing through the Q&A session, and thanks actually for the questions.

In closing, what else can I say? 2013, another solid year for ANSYS, closed it out as we predicted. If you haven't guessed already, and the questions may have helped us, we're excited about the opportunities that lie ahead for 2014 and beyond.

Again, acknowledge there are going to be challenges along the way, not unlike 2013. But as always, the one thing that we will say, there will be continued focus on technological expansion, differentiation of technology, as well as our operational execution, earnings growth, customer engagement. Again, the emphasis for 2014 will be that focus on driving toward that top line double digit growth.

So what's been with us for all the years we've been talking about this. We are continue to be propelled by a long strong combination of our long-term vision. I think the business model has proven itself through a number of different conditions.

Obviously we've got these loyal customers who are growing with us. The partners have been with us for decades. Obviously the technology speaks for itself.

And of course the exceptional employees and teams that have actually made all that possible over many decades. So actually, thank you for joining us this morning, I look forward to seeing many of you at our upcoming investor day here in Pittsburgh, or we will catch you the next cycle around, at the next call. Thanks again.

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