Ansys Management Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 1.13 | About: ANSYS, Inc. (ANSS)

Ansys (NASDAQ:ANSS)

Q2 2013 Earnings Call

August 01, 2013 10:30 am ET

Executives

James E. Cashman - Chief Executive Officer, President, Director and Member of Strategy Committee

Maria T. Shields - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance & Administration

Analysts

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Daniel T. Cummins - B. Riley Caris, Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

David E. Hynes - Canaccord Genuity, Research Division

Ross MacMillan - Jefferies LLC, Research Division

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Steven R. Koenig - Wedbush Securities Inc., Research Division

Matthew L. Williams - Evercore Partners Inc., Research Division

Barbara Coffey - S&P Capital IQ Equity Research

Saket Kalia - JP Morgan Chase & Co, Research Division

Operator

Good morning, and welcome to the ANSYS Second Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Jim Cashman, President and CEO. Please go ahead.

James E. Cashman

Well, good morning, everybody, and thanks for joining us. We're going to discuss our 2013 second quarter financial results. So actually, well, bookkeeping consistent with the standard protocol what we've been using for a number of quarters now, all of the key financial information and the supporting data relative to Q2 and the first half of 2013 business results, and also, as well as our current Q3 and fiscal year 2013 outlook, and the underlying assumptions are included in the earnings release and the related prepared remarks document that we posted on the homepage of our Investor Relations website this morning. So that's all there for your perusal.

But before we get started, I'd like to introduce Maria Shields, our CFO, and have her go through our Safe Harbor statements. So, Maria, if you would?

Maria T. Shields

Okay, thanks, Jim. 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 may affect our future business 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.

During the course of this call and in the prepared remarks, we'll be making reference to non-GAAP financial measures. A discussion of the various items that are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning's earnings release materials and the related Form 8-K.

So, Jim, I'll turn it back over to you for some comments.

James E. Cashman

Okay. Well, yes, thanks, Maria. And before we open up the call for Q&A, I'd like to just briefly provide a little commentary about our Q2 results and our Q3 and fiscal year 2013 outlook. So basically, from our perspective, Q2 was a very productive quarter yielding strong results. They were above the high end of our range on both revenue and earnings. In addition, we largely focused on our own internal sales execution initiatives and spending disciplines as a result of Q1 and the things that we said during that call. Of course, not surprising to those of you who've followed the ANSYS historical performance over many years and many quarters, the strength of the revenue overperformance resulted in operating leverage and the margins that were also beyond what we had guided coming into the quarter.

So overall for Q2, we achieved double-digit revenue growth in both recorded and constant currency, constant currency at around 13%. This performance was the outcome of double-digit constant currency growth in each of our 3 major geographies, as well as in the perpetual software license and maintenance and service revenue lines. The recurring revenue aspect of our business remained healthy at 69% for the quarter, even off of a strong paid-up license growth. The combination of new and renewal business and leases and maintenance yielded a new Q2 record high deferred revenue and backlog balance of over $386 million. So all of this, of course, yielded superior margins and cash flows from operations of over $87 million, which is a 16% increase over Q2 of last year.

At our recent Investor Day, we said we'd be looking for attractive uses of capital and opportunities to return value to our stockholders. And during the quarter, we repurchased just over 988,000 shares, leaving about 2 million shares remaining in the authorized pool.

Okay, so the result of all this is that we've increased our outlook for fiscal year 2013. This translates into a Q3 non-GAAP revenue in the range of $210 million to $216 million, and EPS of $0.73 to $0.76. And revenue for the full year in the range of $860 million to $875 million, with an EPS of $3 to $3.07.

Before we wrap up, I'd like to provide some qualitative context around the guidance. First and foremost, the fundamentals of our business, the customer interest and the long-term market opportunity remain intact. Our outlook at this time factors in a continuation of the general macro uncertainty around the predictability, timing, composition of deals. That's a reality that we've been dealing with over the course of the past several years and throughout the first half of 2013. And we've been cognizant of this, and actually, therefore, built it into our guidance for the remainder of the year.

Our outlook also assumes an increased ramp in our second half spend in connection with the hiring resources and a variety of activities that are setting the stage for 2014 and beyond. To net it all out, our enthusiasm continues, and we believe it's important to invest in our business to prepare for the long-term opportunity that we see over the next 3 to 5 years.

Actually, one last highlight I'd like to mention is that today is kind of a key milestone date for ANSYS. It's the first, second and fifth year anniversaries, respectively, of Esterel, Apache and the Ansoft acquisitions. And I just wanted to express my own personal note of thanks, in addition to the teams here, to all the employees that have contributed to help us bring these great technologies and companies together into the ANSYS family, and to create the world's leader in engineering simulation technology. So with that, we'd now be prepared, operator, to begin with the Q&A portion of the session and head off with that.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Steve Ashley of Robert W. Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

I guess, I'd just like to start by asking a question on the deferred revenue and backlog. It declined sequentially. Not a lot, just a little. Just wondering if there was anything related to the timing of maintenance renewals or if there was just any commentary around that.

James E. Cashman

Well, yes. First of all, the main point I want to make is I think maybe what may appear to be missing here is the fact that the deferred revenue on the balance sheet in Q2 2013 is treated differently than it was in Q2 of 2012. So a significant component of what was formally booked as deferred revenue is now reflected in the backlog. So really, the issue is we may be comparing apples to oranges there because we really weren't that. So we still wind up with about 13% growth. It's -- you can look at there's a 13% increase in that, but actually, you might be looking at a number of 300 -- comparing 386 million versus 343 million in the deferred. So that may be part of it. Now that -- so in general, I don't think the issue is quite as you said. Now the one thing I would mention that you commented on that always plays a role is that the timing of different renewal orders and maintenance and things like that, that obviously can affect it. But as you can see, if you net out the numbers and use a constant comparison, it jives up much more consistently.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

So yes, that was not my question. So my question is on a sequential basis, from March to June...

James E. Cashman

Oh, sequential?

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Backlog and deferred revenue balance declined slightly. Historically, that has increased during that period. And so that was -- I was wondering if there was anything just related to maintenance renewals or anything along that line.

James E. Cashman

No, no, I'm sorry. Actually, I was triggered off of something that I read in one of your pre-notes, and so I missed the sequential part of that. I apologize for that. Yes, if you look at that, maybe the biggest issue, first of all, there's nothing out of the ordinary there. Probably the one thing that can affect that as much as anything is some of the -- that is where some of the renewals, timing if they came in a little bit earlier before, if they lagged a month, that can cause a little bit. And the other thing is that the nature of the Apache orders are they tend to be a much smaller number of customer bases, but they tend to be larger multi-year deals, and that puts a certain lumpiness in there. So any one of those would swing 1 month or 2. It might cost medically [ph] affected, but there's nothing endemic behind the numbers that is kind of contrary to the overall message.

Operator

And our next question comes from Dan Cummins of B. Riley.

Daniel T. Cummins - B. Riley Caris, Research Division

I'm going to issue congratulations in advance for ANSYS once again getting out of debt soon. You do that so well. You get in and out of debt for all the right reasons. I think that, Jim, when you mentioned the anniversaries or mentioning the deals, they're great deals. And I apologize in advance for what is a what-have-you-done-for-me-lately question. But the total revenue guidance for 3Q, it's flat even at the high end. And that, I think, implies a down Q-over-Q for license. And that would be unusual for ANSYS, even based on your performance in the last few, what I would call, squirrely years. So I'm curious if your 7- or 8-figure deals, if you had any, in 2Q, is that creating a tough seasonal comp or are you giving us a little bit new extra dose of caution here with the guide?

James E. Cashman

Well, I guess -- well, first of all, all of us are a little bit puzzled at the premise. So we're -- are you -- I mean, are you talking sequentially Q3 to Q2? Because that's normal, I think. But I -- where our numbers aren't -- we're just having trouble understanding the premise because as stated, I don't think we agree with it.

Daniel T. Cummins - B. Riley Caris, Research Division

Oh, okay. Well, I mean, flat at the high end on the guide. I think your service revenue typically ticks up and up and up. So that would imply the license would go down.

Maria T. Shields

What are you comparing to? Maybe that will help us understand where you're coming from.

Daniel T. Cummins - B. Riley Caris, Research Division

The last couple of years, the 3Q over 2Q compare.

Maria T. Shields

Oh.

Daniel T. Cummins - B. Riley Caris, Research Division

In which license does not go down, or has not, traditionally. That's all I'm wondering. And so I'm just thinking, did you have some very large, large deals in 2Q, particularly on perpetual license? That's what I'm getting at.

Maria T. Shields

Well, Q2 was very strong. I'd say what we've kind of built in, Dan, is Q3 historically has been the, I'll call it, riskiest quarter. Just that it's a shortened sales cycle with the extended European vacations and even the extended U.S. vacations. So we have built in some conservatism in the fact that large deals can easily slip out of Q3 into Q4 if all the people that need to sign off aren't around.

Daniel T. Cummins - B. Riley Caris, Research Division

Okay, right. I was looking at your guide for last year. I think the guide was actually up a little bit last year, 3Q over 2Q. But that's fine. I appreciate that.

James E. Cashman

All I can say is behind the scenes, there's -- I mean, that's why we're puzzled by it, because we don't -- it's important to see which dots you're trying to connect because, really, behind the scenes, we're not seeing anything that indicates a flag in that standpoint. There are a lot of different ways that [indiscernible].

Maria T. Shields

Timing and volatility, as the deals get bigger, they can easily move out of one quarter and into another. And we're just trying to say we're in what everybody knows as kind of elongated sales cycles, and Q3 has always historically been the iffiest quarter depending on how much can close after the vacation season.

Daniel T. Cummins - B. Riley Caris, Research Division

Okay. And so my follow-up is just, I thought there were some extra words of caution in the notes around China and India. Just curious if Jim has any extra color to add there.

James E. Cashman

Well, no, yes. I think if you look at commentary by a lot of the software and enterprise software manufacturers, there is a little bit -- there are issues in there. There are business climate issues in India that are going on. There are spending patterns and growth things in China. You look at the uncharacteristic change in the India currency as of recent. I mean, there's a lot of things there that it's just one of those things. We're treating them as warning signals, so we just put additional attention onto those. And historically, we've always called out if there's an area where we think there may be something, or if even in those areas where periodically we, in the past, when we've had execution issues, we tended to try to call those out and just try to give the overall story. But there's really, again, there's really nothing hidden beyond that.

Operator

And the next question will come from Jay Vleeschhouwer of Griffin Securities.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Jim, you did have an usually large sequential increase in your perpetual license revenues from March to June, about $15 million, which is larger than the first to second quarter sequential increases on average in prior years. So the question, somewhat following up on the earlier question, is could you correlate that increasing perpetual to either geographic performance or any of your functional areas such as mechanical or fluids, or anything of that kind or large deal performance? If you could -- and then as well, how are you thinking about perpetual for the rest of the year? And then a follow-up.

James E. Cashman

Well, all the business -- first, all of the businesses progressed. Mechanical has been pretty strong. I'd say the other thing is a small portion of that actually was catch-up from Q1. Some of it was pull forward from outlying quarters later in the year. So I mean, there were elements to that. I mean something comes in the pipeline and we normally have 6 to 9 months visibility, and we normally have those types of things and then -- but they don't always come in exactly on schedule, so -- and sometimes, they come forward. We had a little bit of that. We actually had a fair number of the larger deals that came in, some that came in a little bit larger than usual. But like I said, all the -- and then on your geography aspect, we tried to cover it as well as you can cover it in a brief commentary posted on the website. But every -- I mean, every one of the geographies grew double digits in constant currency, but they didn't grow within each region uniformly. So there were some that -- there were pockets of relative strength and weakness throughout each of the regions. So it really wasn't like there was one overall high tide that got raised in any one area.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. As follow-up, over the last 3 quarters, your maintenance revenue has grown more quickly than your license revenues. It had double-digit growth for each of the last 3 quarters in maintenance on a GAAP basis. And that's better than your license revenues. Is that -- can you comment on that? And is that, in some way, correlated perhaps to the earlier line of questioning about your deferred?

James E. Cashman

Well, again, the deferred, I think we tried to -- we covered the fact that yes, we are comparing some apples to oranges and things like that. Now the other thing is we've had a number of years of pretty good buildup if you look at -- of growth. And as a result of that, as the maintenance base continues to accumulate, even if we had a relatively softer Q1, we still have accumulation that is being pulled out of deferred. So it's not unusual for that to grow. That's one reason why seeing the license growth come back much more strongly in Q2 was a positive sign for us.

Operator

And our next question is from Richard Davis of Canaccord.

David E. Hynes - Canaccord Genuity, Research Division

It's DJ on the line. So, Maria, maybe first, I can just check my math on currency adjusted organic growth. Is it 10% in the quarter, is that right?

Maria T. Shields

Yes.

David E. Hynes - Canaccord Genuity, Research Division

And then how fast did Apache grow? Can you ballpark comment on that?

James E. Cashman

In the mid- to upper-teens range.

David E. Hynes - Canaccord Genuity, Research Division

Okay. And then maybe on the lease business, it's been flat sequentially the last couple of quarters, and I guess, the 3 variables that could impact that are obviously currency and then new business and retention. So I don't think we've heard you talk about retention on that side of the business in the past. Can you comment on why we're not seeing growth in the lease business? I figured that would be a pretty linear grower. Maybe any color there.

Maria T. Shields

Yes, DJ, what I'll say is for the core leases, i.e, the Apache side of the business that tend to be longer-term leases, we aren't seeing any issues. On the historical ANSYS side of the equation though, the lease base, it's kind of got different components. You have some that are just because of the nature of their business, they tend to lease. But you also have some that are kind of short-term rentals in nature that...

David E. Hynes - Canaccord Genuity, Research Division

Yes, like first capacity type things?

Maria T. Shields

Yes. Or that are specific to projects that they're doing for the government for XYZ period of time, or smaller consulting shops that only need it for -- so they tend to have a little bit of churn, if you will, in that part of the lease space, but...

James E. Cashman

Again, I'll -- I'd like to jump in. I'm sorry, David.

Maria T. Shields

Okay.

James E. Cashman

But jump in on the core premises. If you look at it, now depending upon leases are more popular in certain parts of the world, and therefore, can be more subject, plus or minus, on currency, if you look at constant currency, it's in -- leases grew in the 8% to 9% range, which is given the fact that the other parts of the business that tended to grow a little bit quicker as people go into enterprise licenses, they tend to start to evolve into, if you will, owned versus rent type of scenarios. And as such, I think that if you look at the overall lease space, it's actually -- we saw a no real -- again, we didn't see anything leading up to trigger a concern along that line. And in fact, it's somewhat tied in with the historical patterns.

Operator

And next, we have a question from Ross MacMillan of Jefferies.

Ross MacMillan - Jefferies LLC, Research Division

I just wanted to ask one on geography. One of the things that struck me in this report was the strength of the other European, non-German, non-U.K. business, which suggests that you actually saw strength maybe in parts of Europe that had been more challenging of late. Could you just comment on what you're seeing in that other European segment and where the strength came from?

James E. Cashman

Well, again, overall growth was pretty reasonable. I mean, if you saw Germany, for instance, which is a strong package, if you look at -- you're in that 13% range. But if you look at other areas that were contributing, yes, there are some areas that are down, those are in the news all the time, but in particular, the developing territories, most notably Russia. France had a good recovery this year. There's no doubt, some of the Mediterranean regions, a little bit more subdued, to put it mildly. But just to put things in that perspective, that's probably where you'd see the geography, where some of the main bulwarks continue to do pretty well and some of the developing territories did in excess of that.

Ross MacMillan - Jefferies LLC, Research Division

So I guess that's my question. You're not seeing a turn in the countries within Europe necessarily that had been hardest hit yet? You're not seeing a turn...

James E. Cashman

No. But those weren't major components typically for us anyway. I'd probably categorize them as wobbly stable.

Ross MacMillan - Jefferies LLC, Research Division

Okay. That's helpful. [indiscernible]

James E. Cashman

[indiscernible] basis with that, didn't I?

Ross MacMillan - Jefferies LLC, Research Division

And then just going back to whether it's deferred or backlog, just so I'm clear. If I look at -- let's look at the total deferred plus total backlog, and look at that number and think about that as something that we can think about using for bookings, where we look at revenues plus change in that total deferred and -- deferred revenue and backlog piece. Obviously, this was weaker than Q1, but would you have us look at for the blended rate, let's say, for the first half of the year, is that the right way to look at it? Because there can be issues of timing on maintenance renewals or lease renewals or other elements, so we should really be looking at this on a sort of more blended basis. Is that the right way to look at it?

James E. Cashman

Yes, if you intergrate [ph] it over time, it's somewhat analogous to climate versus weather. I mean, you can have a climate of a certain thing, but the temperature can spike up and down on any particular day.

Ross MacMillan - Jefferies LLC, Research Division

So you don't think anything in your business from an order intake that was anything but in line to better than you expected?

James E. Cashman

Yes, I basically call it in line combined with a lot of the other stuff.

Operator

[Operator Instructions] And our next question will come from Mark Schappel of Benchmark.

Mark W. Schappel - The Benchmark Company, LLC, Research Division

Jim, could you just give us some additional color on your Japanese business? A while back, you made some big changes over there, and I was just -- it will be helpful for an update.

James E. Cashman

Well, I mean, that's obviously -- probably it'd take -- particularly at that level, it takes a long time. And we identified the issue months ago. Did some structural changes in there that probably, I won't comment on right now, but they obviously become manifest in a short time. But did some structural changes in there. There's no doubt that some of the economic churn and the currency swings on there have changed things quite a bit from a numbers' standpoint. But if you -- maybe if you look at the -- the most interesting thing is in Japan, if you look at what happens is while it actually showed a negative growth, it was largely currency driven because if you look at the constant currency growth in Japan, it was double digits. It's still in constant currency, which, to us, is a positive sign, a positive sign going forward. In fact, reversing the trend almost, I mean, it almost -- it was like 9.5% year-to-date. So I mean, that actually shows not just a -- it shows a trend line in there that we think is encouraging. But I will tell you, there's a lot of work that continues to go on right now. There's a lot of discussion with the recent election, and Abe and his -- and some of the things that he's talking about doing there and what will happen. There's still some industries there that are reeling a little bit from pretty intense global competitive pressure, and I don't think their responses have been fully mapped out or felt. So I think that, that's some other issues that we'll have to wait and see, but we have to still service those markets like we would everywhere else because everybody is facing global competition.

Operator

And our next question is from Steve Koenig of Wedbush Securities.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Jim, your commentary suggests the outperformance was very balanced. It wasn't any one large deal.

James E. Cashman

That's correct.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Yes. So it makes me wonder, when I compare your performance in Q2 to the CAD vendors, the enterprise CAD vendors, you were much stronger. And Simulation is -- has more growth in it, we believe. But still, the divergence in the performance was kind of striking. I'm having trouble reconciling your performance with theirs. Any thoughts there since your -- you work with those vendors and you play in those markets? Why are you doing...

James E. Cashman

Well, the first thing I'll comment on is we don't walk in their shoes, so it's -- I'm sure we don't see all the nuances there, they may have a series of different challenges. I mean we focus on the market that we excel at, that we know where we've got things identified. We're working with, well, there's over 40,000 customers, but there's several hundred in earnest that we're working on some pretty exciting things with. But they also tend to be slow, steady and multi-year type of aspects. And so from us, I guess we're kind of seeing, if you look at it, we're seeing kind of things in line with the multi-year and in-year guidances that we've been given, the progression that we've been going on. The only -- and so from our standpoint, which is the only part we can really comment on, we just see what we have been talking about for a long time. And I know some quarters that falls on deaf ears, and some people don't get the story and things like that. So to us, that's the same. As regard to what others are doing, the only thing that we do notice sometimes is if there's a common link, the issues where we see the most headwinds seem to line up with areas where they see the most headwinds. But I don't know if there's -- I don't know the causality of that overall. So I just can't contrast to specifically. It's just we're focused and we're in a different market where we tend to have a very strong position.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Okay, all right. And then I want to ask you for my follow-up. With your share repurchase, it was a pretty large amount. I hadn't seen as large a quarterly repurchase. I went back to '05, I think, and I didn't see any large...

James E. Cashman

Well, it's close to that last year, Steve.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Oh, okay. Yes, yes, in the full year. On -- in the full year. But it does look like you're doing more there. I'm just wondering, are you kind of changing your approach or maybe ramping that up a little bit?

James E. Cashman

No, no, it was opportunistic, and quite frankly, the opportunity presented itself in Q1. We'd like to thank the market because we availed ourselves of the opportunity, and we think it works out well for our stockholders. But no, it was one of those opportunistic things. And we do not do things programmatically. We do have a philosophical direction, and then we try to manage that throughout the year. And that -- there's really nothing different along those lines. But a great opportunity occurred for us, much as it did when the stock was at 18, 19 several years back. And we actually happen to really believe in the story and the potential, so when that opportunity comes, we grab it.

Operator

And our next question is from Matt Williams of Evercore Partners.

Matthew L. Williams - Evercore Partners Inc., Research Division

I just -- the sort of 40 new additions in the quarter, just wondering if you could provide some color on how much of that was in sort of the sales and marketing related area, and just a general update on sort of where your hiring plans on the sales side are relative to sort of what you thought at the beginning of the year?

James E. Cashman

Yes. Yes, well, it largely -- look, we always, in our infrastructure, we always add key components. And there were some of that going on, that happens all the time. But the lion's share of it, because we're largely about creating and promoting software, it was -- there was some in the development area, but the ongoing sales and support are probably the key aspects. They were more of the plurality of those additions. And I think, frankly, if we're talking 6 months from now, you'll probably see a similar thing leading up to our 2014 year. But that's where we continue to plan to evolve. So it's -- probably if I had to put it in order, I'd probably say sales and support first, with key developers as being a second. And then, like I said, throughout the organization, we added some key hires through there just to kind of strengthen and augment different areas of the business.

Matthew L. Williams - Evercore Partners Inc., Research Division

Okay, that's helpful. And then I guess, just as a follow-up, it would seem to indicate that the number of large deals was -- ticked down a little bit sequentially, no big surprise there, I don't guess. But given the results, it would seem to imply that sort of on the run rate side of the business or on the smaller deals side, that things were pretty good there. And just trying to get a sense around sort of how the recent additions on the sales side going back over the last couple of quarters, how they're performing, and if they're sort of impacting, I guess, the sort of lower end of the market as you might have thought.

James E. Cashman

Yes, well, the -- if you recall from the previous commentary, we talked about with the growth we've been experiencing, we had quite a few new salespeople, but we also had existing salespeople who had graduated into sales management position and were starting to get their sea legs under them on that. And yes, I think you'd -- probably what you saw this time was evidenced by a steady ramp-up. It's not like in 3 months, people then are fully -- they continue to grow, in our case, for some times over multiple years. But we saw that ramp-up actually take course. So other part of the question? Okay. There was a second part to that, that I missed, I'm sorry. I want to make sure I...

Matthew L. Williams - Evercore Partners Inc., Research Division

No, no, that's it. I mean, I understand there's some sort of time to ramp there. I was just curious if those sort of recent adds over the last couple of quarters are sort of ramping according to plan because it just seemed like outside of the large deals, the sort of small and midsized deals were pretty good in the quarters. So I was just curious.

James E. Cashman

Yes, the small and midsized deals were good. I mean, again, sequentially, it's a little bit difficult because of the renewal cycles. So I mean, things tend to follow different patterns. However, the large deals continue to accumulate on a comparable basis. That was the part that I thought that I might have missed. Now obviously, I mean, since we said that at the end of Q1, things had ramped up a little slower than we had hoped for, I wouldn't say that it's all according to plan. But now, if the curve shifted a little bit, we're kind of on the right slope now, albeit a little bit later. There's a little slower initiation of that, but now it's -- but I just want to say that we're -- everything is -- everything didn't happen in the first part of the year.

Operator

And the next question will come from Barbara Coffey of Standard & Poor's.

Barbara Coffey - S&P Capital IQ Equity Research

When you take a look at what's going on in the electronics market, to some degree, you may have a bit of a different competitive landscape. Can you speak to why you think you're seeing such growth there? And sort of is it dislocation of existing competitors or new needs that you're meeting?

James E. Cashman

It's mostly greenfield for things where we think where we've enabled from a process and a breadth standpoint, people -- able utilize that. Now I think the thing is, again, when you say electronics, and I guess, when anybody says electronics, it -- that is getting to be such a pervasive term because some people might say, okay, well chipsets are doing this. Well, sometimes even when chipsets are in between releases, there's a lot of people that are trying to get a lot of electronics functionality. So when we talk about mechatronics, when we talk about fly-by-wire, when we talk about a whole range of things like that, they push toward mobility in personal devices and things. Then people are actually saying, okay, now, how can I get new generation of products either from new custom systems on chip type of things or from using existing building blocks to give additional functionality? The other thing is that with the electronic, something that's going on is it happens in cycles that are so rapid that sometimes they don't have the history, or sometimes the luxury, of doing these massive prototype and testing cycles. So in some cases, they actually tend to rely more on simulation. They tend to be more leaders along that line. That's probably about the only singularities that I see on the electronics side.

Barbara Coffey - S&P Capital IQ Equity Research

And speaking to the competitive landscape on that?

James E. Cashman

Well, the competitive landscape, we really -- it's-- I think that's the one thing where just the depth and breadth of the product lines, it really -- the external competition really doesn't play much of a factor there. What does play a factor is internal company's organizational agility and the evolution of their processes and things like that. It's getting into things where the increased convergence of all the physics and increased complexity of their products actually start to manifest problems that historically weren't there before because they had kind of a beat on the old trajectories of technology. But as you start combining electronics and mechanics, all the battery technology, you can see that appearing in the headlines every day as to product issues that come. And they're largely driven around these increasingly complex new materials, new electronics, things like that going in. And in some cases, it's -- the pace of complexity is outpacing the ability of, if you will, traditional engineering wisdom to map. And it only takes a couple of outliers in your bell curve to create negative headlines.

Operator

And next, we have a question from Sterling Auty of JPMorgan.

Saket Kalia - JP Morgan Chase & Co, Research Division

It's Saket here for Sterling. A few if I may. A quick question for you actually on the annual guidance. I guess the second quarter results came in about $7 million better than the midpoint for second quarter guidance, and full year is going up by about $3 million to $4 million. So is some of that from some of the pull forward effect that Jim spoke about earlier, or is there some other item that's maybe impacting that?

James E. Cashman

Oh, yes, no. Obviously, some of it did. I mean, yes, we talked about the pipeline, and just cause we -- things were pulled forward, a lot of times it's not that -- sometimes we're able to help affect it, and sometimes the customer just wants it quicker. And predicting how that will come, but -- so the bottom line is a portion of that, I'm sure, was affected by it. But keep in mind, each time we do a refresh on that, we do -- we continue to evolve our bottoms up forecast. We continue to build off of all of that. So it's -- part of it is net improvement and part of it is pulled forward.

Saket Kalia - JP Morgan Chase & Co, Research Division

Got it. That's helpful. And then in Europe, it sounded like your business there is still feeling some effects of a wobbly macro, if you will. And we're just starting to see manufacturing in Europe starting to stabilize. So how long do you think it'll take before your broader base of customers, I guess, starts to invest a little bit more consistently in Simulation?

James E. Cashman

Well, yes. Well, first of all, when the economy is good and things stabilize, that's a high tide that is like good for everybody. But I mean, even the standpoint of Europe, if you look at constant currency for the quarter, it was in that mid to upper teens range, too. So I mean, it was basically a pretty good story. I mean, again, it tends to be more, actually, I guess I'd say trifurcated in terms of the stable, bigger entities, the kind of the wobbly Mediterranean areas, as you mentioned it, and the developing and new territories. I mean, there's actually kind of 3 different stories all playing together and they amalgamate in. But there's no doubt that I think, yes, the environment, the headwinds have been strongest there, but our team has responded pretty well. And we are anchored by a pretty strong cadre of multinational customers that even if internally, Europe may be seeing things from an overall standpoint based about companies that are producing and marketing on a global stage. And from that standpoint, there's still a demand -- an inherent demand that keeps pace with that.

Saket Kalia - JP Morgan Chase & Co, Research Division

Got it, got it. And then last question, if I could squeeze it in, and apologies if I missed it. But how many remaining open RECs for hiring do you have for the rest of 2013?

Maria T. Shields

I don't know. I would say it's probably at least 50 on the low end. I haven't looked recently, but no doubt, one of the things that we are planning for the second half is given the volatilities and the uncertainty around the first half, we are going to continue to hire because we've got a lot planned for 2014 and we want to make sure that we've got as much of the foundation built before we head into 2014 as we possibly can.

James E. Cashman

Yes, we have open RECs, but the other thing is as you get to the last half of the year, you're starting to bleed over into the operational planning for the ongoing year. And at that standpoint, we kind of re-factor everything. And some of those RECs may mutate into something else, some of whom will continue to be steady, and some of them may be obviated. And so it's -- that's why the numerics, as you get into the end of the year, is a little bit. But for ballpark, the number that Maria gave is a good working number.

Operator

I'm showing no further questions. I will turn the conference back over to management for any closing remarks.

James E. Cashman

Okay. Well, so in close, thanks, everybody, for the attendance and the questions. So kind of summarizing here, the emphasis for the remainder of 2013, it's going to be an ongoing focus on sales execution. We've got a major delivery of our software, ANSYS 15, so obviously, focusing on bringing that over the goal line. We're going to continue to navigate through, I don't know, whatever the new normal is, balancing short-term volatility against really, the long-term opportunity, which I think has been manifested over the last few years, the last decade, whatever. Because the one thing we do know for certain is that the customer receptivity and enthusiasm for the long term vision just continues to strengthen. So in fact, actually, a side note here is that many of us just spent the last quarter, as I mentioned, traveling to our annual user group meetings, and we had a chance to engage with somewhere around 15,000 of our customers and partners from around the globe. So the confidence comes directly from these -- those interactions. I mean, this is not just a generic thing. There's a lot of specific bolstering that came from our own user community. So basically, continue to be propelled by a strong combination of steady vision, a strong business model, again, those loyal customers and partners, obviously, leading technology, and of course, that base of technology and employees that have grown over the last number of years with us that have made it all possible. So I guess, I'll just thank you, all, for your time and we'll speak to you again next quarter.

Operator

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

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