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Exa Corporation (NASDAQ:EXA)

F4Q 2014 Earnings Conference Call

March 24, 2014 5:00 PM ET

Executives

Edmond Furlong - COO and CFO

Stephen Remondi - President and CEO

Stephen Sarno - VP of Finance and Chief Accounting Officer

Analysts

David Hynes - Canaccord Genuity

James Ricchiuti - Needham

Steven Ashley - Robert W. Baird

Brad Reback - Stifel Nicolaus

Operator

Good day ladies and gentlemen and welcome to today's program. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time.

And I would like to turn the call over to your host, you may begin.

Edmond Furlong

Good afternoon and welcome to Exa's Earnings Conference Call for the Fourth Quarter and Full Year Fiscal 2014, which ended on January 31. This is Ed Furlong, COO and Chief Financial Officer of Exa; and with me on the call is Steve Remondi, Exa's President and Chief Executive Officer; as well as Steve Sarno, VP of Finance and Chief Accounting Officer.

A more complete disclosure of our results can be found in our press release issued about an hour ago, as well as in our related Form 8-K filed with the SEC earlier today. To access the press release and the financial details, please see the Investor Relations section of our website at investor.exa.com. As a reminder, today's call is being recorded and a replay will be available following the conclusion of the call.

During this call we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today, and should not be reflected upon as representing our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations.

For a further discussion on material risks and other important factors that could affect our actual results, please refer to those contained in our Form 10-K for the year ended January 31st, 2013 and our most recent Form 10-Q, which are on file with the SEC.

Also during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing GAAP versus non-GAAP results currently available in our press release issued after the close of market today.

With that, let me turn the call over to Steve for his prepared remarks, and then I will provide details regarding our fourth quarter and fiscal 2014 results and our outlook for fiscal 2015.

Stephen Remondi

Thanks Ed and thanks to those of you joining our call today.

We were pleased to report fourth quarter revenues that was in the upper end of our guidance range at $15.2 million, a 16% increase from a year ago, or 18% on constant currency basis, with improving underlying business trends reflected in our growth.

From a profitability perspective, we delivered an adjusted EBITDA of $0.8 million and non-GAAP net income of $0.03 per share, which were both in our guided range. For the full year, we reported revenue of $54.5 million, an increase of 12% year-over-year, up 14% on a constant currency basis, representing significant improvement from our gross fiscal 2013.

Adjusted EBITDA for the year was $3.3 million and non-GAAP net income was $0.02 per share. Profitability decreased from a year ago due to our conscious effort to invest more heavily in driving our near and longer term growth and the impact of these investments is reflected in our improving business momentum. We plan to continue this strategy in fiscal 2015, which we believe will be an important factor in helping us achieve our longer term revenue growth target of 15% to 20%.

Looking at the quarter in more detail, license revenue of $12.0 million increased 14% from a year ago, or 15% on a constant currency basis. Project revenue, which is often the leading indicator, was $3.2 million and grew 26% from the year ago or 30% on a constant currency basis. As you know, we have been sharply focused on improving sales productivity over the past several quarters. While there is still headroom, this effort helped drive the results we have been generating, with sales momentum steadily increasing throughout the year.

Looking at the fourth quarter in more detail; the passenger vehicle market, which is our largest segment, demonstrated continued strength with healthy performance we have seen in licensing extending into the fourth quarter. Reflecting the ongoing robustness of this market, automotive OEMs and suppliers engaged in numerous projects to help meet peak engineering requirements, and more importantly, to engage in initial deployments of new applications.

As customers continue to explore new capabilities, we are more deeply penetrating the market, validating the large opportunity ahead of us. This segment is also pushing Exa to accelerate our product development roadmap, as customers work to respond to new and impending regulatory requirements, particularly, stricter CO2 requirements in Europe and other parts of the world.

In the heavy vehicle market, we are seeing positive signs of businesses beginning to improve. The heavy vehicle market is broad and varied, ranging from highway trucks and construction equipment to power generation and pharma equipment. While some part of this market is doing better, others are still facing significant headwinds.

For example, the highway truck market is clearly showing signs of improvement. We recently announced that both Cummins and Peterbilt have worked with Exa on aerodynamic and thermal simulations, to be the first companies to announce their vehicle under the Department of Energy Supertruck Program. Working together, we are able to achieve a 75% improvement in efficiency, far exceeding the 50% target set by the DOE.

We also recently announced that Multiquip, makers of MQ Power Generators, chose Exa to evaluate and mitigate noise from the containerized power generators. These fan cooled systems have to balance opposing cooling and noise requirements, by providing unique capabilities that allows simultaneous noise and air flow analysis, we are able to help the equipment makers produce designs optimized to meet all of the constraints and save cost on the process.

We are encouraged that in aggregate, activity at heavy equipment manufacturers showed sequential growth across the globe in the fourth quarter, and that by expanding our reach with a broadened approach, business activity in the heavy vehicle market has stabilized. We remain optimistic about this market, as there is considerable headroom for Exa, due to our clear value proposition that addresses the unique challenges these customers and prospects face. During the past year, we engaged many new customers, and we are optimistic that many of these could represent significant adopters of our solutions, as we look ahead.

In the aerospace market, fourth quarter project activity showed meaningful growth from the year ago, with early customer success and growing activity levels, we continue to believe the aerospace market represents a significant long term opportunity for the company. Early feedback on new capabilities at PowerFLOW 5.0 that serve the aerospace market, further support our confidence.

In the fourth quarter, we also extended our partnership with RTT, a leading provider of visualization and rendering technology. As our digital simulation solutions increasingly eliminate the need for physical prototypes, it is vital for product engineering and design decision makers to be able to visualize both the design and simulation results in a realistic environment. This ability helps executives, engineers and designers quickly understand and evaluate design trade-offs, in order to make rapid and effective design decision.

For the full year, license revenue was $44.6 million, an increase of 8% or 11% on a constant currency basis from fiscal 2013. Project revenue was $9.9 million, a record, and represents a growth of 29% or 33% on a constant currency basis. Importantly, over the course of the past year, we expanded capacity for project activity, as a precursor to licensing. Our broadened project capacity expands our pipeline for future license activity, as we focus on driving increased conversions and customers become more self-sufficient with our technology.

During FY 2014, we added 17 new licensed customers ending the year with over 125. While our expansions, while underpenetrated presence in the automotive market drove most of our revenue growth, most of our new logos were in the heavy vehicle market.

We are pleased to see that initiatives we put in place during the past year, helped us return to double digit growth, ending the year with strong momentum represents solid progress towards our goal of 15% to 20% annual growth. In fiscal 2015, we will apply these same disciplines that generated these improvements, in an effort to continue driving stronger sales productivity and capture the opportunities that are ahead of us. As such, we plan to continue investing in sales and product development for ground transportation, as well as our new markets of aerospace and oil and gas. These accelerated investments will help us broaden our reach and deepen relationships with customers in markets that offer significant long term growth opportunities.

While this means our profitability margins will be lower in fiscal 2015 than in the past, we believe this is the right time to make these investments, in order to drive growth, scale and profitability for the longer term.

Before I turn the call over to Ed, I want to report that our retained search for a CFO is progressing well. We are very fortunate to have Steve Sarno with us, our Chief Accounting Officer, who will assume the roll as Interim Chief Financial Officer on April 1st. I would also like to take this opportunity to again recognize Ed for his contributions to Exa over the past years, and thank him for seeing us through the year end reporting and fiscal 2015 planning process, which in my view, is a reflection of Ed's strong character and his confidence in the company.

I also wanted to recognize Jack Smith who will be retiring from our Board of Directors, effective as of our annual meeting. Jack has served on Exa's board since 2007. Needless to say, as former Chairman and CEO of General Motors, Jack's experience in the transportation industry has been of significant value to us, and we are grateful for his contribution, support and encouragement. We are currently pursuing additional board members, and we look forward to sharing such news at the appropriate time.

Now I will pass the call over to Ed, for more details on our financial performance and outlook.

Edmond Furlong

Thanks Steve. I will discuss our fourth quarter and full year 2014 results, and then provide you with our guidance for the first quarter and fiscal 2015.

Revenue in the fourth quarter was within our guidance range at $15.2 million, up 16% from the same period a year ago. On a constant currency basis, revenue increased 18% from the fourth quarter of fiscal 2013. Within revenue, license revenue was $12.0 million, up 14% from a year ago, or 15% on a constant currency basis. Project revenue of $3.2 million in the fourth quarter increased 26% from a year ago, or 30% on a constant currency basis. We believe the improvements in revenue growth that we delivered are largely the result of our increased investments in sales and sales productivity.

From a geographic perspective, 48% of our fourth quarter revenue was from Europe, with 25% from the Americas and 27% from Asia and other regions, with year-over-year increases in Europe out pacing other regions.

We will discuss our profitability measures on both a GAAP and non-GAAP basis, and have provided a reconciliation of GAAP to non-GAAP measures in our earnings press release issued today, with the only differences being stock based compensation expenses and amortization of acquired intangibles.

Looking at the P&L, total GAAP operating expenses were $15.4 million, an increase of 15% from a year ago, due to planned investments throughout organization to support our growth, as well as higher variable costs such as sales commissions. This resulted in GAAP loss from operations of $0.2 million, consistent with the loss in the year ago period.

GAAP net income in the fourth quarter was $0.1 million or $0.01 per share, based on 14.7 million weighted average diluted shares outstanding. This compares to a GAAP net loss of $0.3 million or a loss of $0.03 per share in the fourth quarter of fiscal 2013.

GAAP expenses include $0.4 million in stock based compensation expenses and $0.1 million in amortization of intangible assets. Excluding these non-cash items, non-GAAP operating income was $0.3 million compared to non-GAAP operating income of $0.1 million in the fourth quarter of fiscal 2013. For the fourth quarter, adjusted EBITDA was $0.8 million compared to $0.7 million in the fourth quarter of fiscal 2013.

Non-GAAP net income in the fourth quarter was $0.4 million compared to non-GAAP net loss of $0.1 million in the year ago period, with 14.7 million diluted weighted average shares outstanding, non-GAAP net income was $0.03 per share in the fourth quarter compared to a loss of $0.01 in the year ago period, based on 13.3 million diluted weighted average shares outstanding.

For the full year, revenue was $54.5 million, up 12% year-over-year or 14% on a constant currency basis. Within revenue, license revenue was $44.6 million, up 8% from fiscal 2013 or 11% on a constant currency basis.

Project revenue was $9.9 million, our highest level ever, and was up 29% from fiscal 2013 or 33% on a constant currency basis. From a geographic perspective, 50% of fiscal 2014 revenue was from Europe, with 23% from the Americas and 27% from Asia and other regions, with revenue growth in each region. This compares to 45% of revenue from Europe, 24% from the Americas and 31% from Asia and other regions in fiscal 2013.

GAAP operating loss for the full year was $0.1 million compared to operating income of $2.0 million for fiscal 2013. GAAP net loss was $0.7 million or a loss of $0.05 per diluted share in fiscal 2014 compared to a GAAP net income of $0.8 million or $0.06 per diluted share at fiscal 2013.

Non-GAAP measures for fiscal 2014 results exclude $1.2 million in stock based compensation expense and $0.4 million in amortization of acquired intangible assets. Excluding these non-cash items, non-GAAP operating income in fiscal 2014 was $1.4 million compared to $3.3 million in fiscal 2013. Adjusted EBITDA for the full year was $3.3 million in fiscal 2014, compared to $4.9 million in fiscal 2013. Non-GAAP net income was $0.3 million or $0.02 per share based on $13.3 million weighted average diluted shares in fiscal 2014 compared to $1.6 million or income of $0.13 per share in fiscal 2013.

Turning to some highlights of our balance sheet, we ended the year with $28.8 million in cash and cash equivalents, an increase of $3.4 million from $25.4 million at the end of the third quarter, reflecting normal cash flow seasonality. Turning to our cash flow statement, we generated $8.4 million of operating cash flow during the year, compared to an outflow of $9.4 million in fiscal 2013. We exited the year debt free after using $7.4 million to pay off our debt in Q2.

Current deferred revenue was $30.6 million at the end of the fourth quarter, a meaningful increase from $11.7 million at the end of the third quarter, reflecting seasonally strong renewal activity in the fourth quarter and total deferred revenue was $30.9 million. Deferred revenue consists primarily of deferred license revenue from our customers should pay for licenses in advance, with revenue that is recognized ratably over the license period. Note that we do not believe deferred revenue is a consistent indicator to future revenues, since deferred revenue does not include non-cancelable orders that are contractually committed, but have not yet [indiscernible].

Before turning to our guidance for the first quarter and fiscal 2015, I wanted to note two additional items. First, we are pleased to report that during the fourth quarter, we remediated both of our previously reported material weaknesses in our internal control of financial reporting, which were specifically in the areas of taxes and complex equity arrangements. Second, as you may have seen in our SEC filings, during the fourth quarter, we filed an equity shelf registration statement with the SEC, that will provide the company with the ability to sell up to $75 million in primary shares, as well as facilitate the sale of up to 4.8 million shares held by long term venture capital investors in [indiscernible]. The shelf registration is intended to provide us with the flexibility to take advantage of financing opportunities to optimize our capital structure in the future, as appropriate.

Now, turning to our outlook for the first quarter and full year fiscal 2015, we are pleased to have delivered improving revenue growth in the fourth quarter and full year fiscal 2014. Customers continue to see strong value from simulation based design, as we continue to make investments in our growth, including increasing sales productivity and enhancing our technology offerings. The combination of these factors validates our strategy to continue making investments in sales and products to support our long term growth. Our recent successes also make us confident that at the midpoint of our guidance, we can deliver revenue growth in fiscal 2015 that is above our fiscal 2014 growth.

As a result of additional investments in fiscal 2015, we expect adjusted EBITDA and non-GAAP net income for the year to be below fiscal 2014 levels. While this will also negatively impact our margins in fiscal 2015, we believe it is the right thing to do, in order to maximize our long term position and scale, and ultimately drive long term shareholder value.

With that backdrop for the full year fiscal 2015, which ends on January 31st, 2015, we anticipate revenue in the range of $60.5 million to $63.0 million. We anticipate adjusted EBITDA in the range of $2.4 million to $3.2 million. We anticipate GAAP net loss in the range of $1.6 million to $1.2 million, and we anticipate non-GAAP net loss/income to range from a loss of $0.2 million to $0.3 million. We estimate basic share count of 13.7 million shares and fully diluted share count of approximately 14.8 million shares.

Looking at the first quarter, we expect a typical seasonal pattern of a sequential decline in revenue from the fourth quarter to the first quarter, including a slight decline in license revenue. It is important to recognize, that customers renewing with additional capacity, also typically add simulation capacity in the second half of the prior year, resulting in license revenue that can be sequentially flat or down from the fourth quarter to the first quarter.

Therefore, we are stating our first quarter guidance as follows; we anticipate revenue in the range of $13.8 million to $14.2 million, representing growth of 10% to 14%. We anticipate adjusted EBITDA in the range of a loss of $0.6 million to $0.3 million. We anticipate a GAAP net loss in the range of a negative $1.0 million to $0.9 million, and we anticipate non-GAAP net loss in the range of between $0.7 million and $0.5 million. We estimate basic share count of 13.7 million shares and fully diluted share count of 14.8 million shares. Our guidance assumes an exchange rate of $1.35 per Euro and 100.0 Japanese Yen to the U.S. dollar through the remainder of fiscal 2015.

Additionally, over the coming weeks and months, you may notice a number of executives selling Exa's shares through pre-arranged 10b5-1 plans. While these are personal financial matters, these plans are primarily being put in place to cover tax obligations, resulting from the exercise of options that are reaching their 10-year expirations.

In summary, we are pleased with our progress in fiscal 2014 and believe we are creating a strong foundation from which we can achieve our targeted long term revenue growth objectives. Before opening the call to questions, as you know, I leaving Exa at the end of the month, and I wanted to thank all our investors, analysts, employees and customers for the opportunity to work together over the years.

Operator, we are now ready to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Richard Davis with Canaccord. Your line is open.

David Hynes - Canaccord Genuity

Hey guys, it's actually DJ. Steve, I wanted to ask you about renewals. I mean, Q4 is obviously a big renewal period for you guys and I know you talked a little bit about seeing some early renewal activity in Q3. Last Q4, you guys shared some great metrics around kind of renewals, inclusive of capacity expansion, gross dollar value renewals. I mean, is there anything you can tell us, top 10 accounts I think you gave us last time around, is there any color you can give along those lines to give us comfort around the renewal business?

Stephen Remondi

Yeah so, I will make a few general comments, and then may be Steve and Ed will comment on more specifics. But certainly, we feel quite good about the renewal basis, customers, a very strong renewal cycle at the end of those on calendar year basis. That continued to be strong for the year. Some customers bought additional capacity in that third and fourth quarter. To top up capacity, then renewed at those levels, at those new levels, so that for the year, you might get a bunching of license revenue on the fourth quarter, but then get spread over the whole next year. But generally, very strong renewal environment for us, across the board, across the geographies.

You do see, as being a capacity base business, we do see normal fluctuations of customers hitting peak demands, based on some peak project launches or product launches that might modulate down to a slightly lower level in the subsequent year, but nothing else that's substantial on that basis. Ed, do you have any?

Edmond Furlong

Yeah. A couple of comments. One, I think you might have been referring to revenue retention metrics that we had previously published, which I think those were -- by definition, these were defined back in our S1, DJ, and our sense was proving to be somewhat confusing, because they were backward looking. So we did not publish them at this time. As a reminder, the only reason you're used to more seeing bookings based renewal metrics, as a reminder, as we have explained before the only reason we don't do that, is we got to concentrate our customer base with very sophisticated purchasing organizations, and we add direct experience during our registration process, for the IPO, with certain customers trying to get additional discounts, which of course we resisted and then the license keys expired.

So there is a very specific reason we don't release bookings and focus on a booking renewal rate, because we believe that it will harm the business. So just keep that in mind as sort of a backdrop.

As Steve said, the renewal period, not all customers are Q4 renewals, but a significant portion of them are, which is why you have a 131, the peak deferred revenue for the year, and then you see that sort of balance sheet shrinking throughout the year and then reexpanding at the end of the year. As Steve said, I think, starting with really the customer momentum, I think in general really across the board, the strong momentum at our customers, in terms of consumption -- capacity consumption, also trends in terms of where the discussions with customer is going, in terms of deeper deployment, longer term roadmap discussions.

As you know, we have long term planning discussions with most of our customers, all of those were sort of in line and very positive. All the renewals really were in line with expectations, which also gives us confidence that we have a good read with what's going on with our customers. And finally, I would also point why we -- point out the weaknesses of just focusing on deferred revenue, because not everything is in that number, and rather an indicator with the increase in deferred revenue year-over-year of good renewal activity in the quarter.

So all those things combined, I think as Steve said, we feel very good about the progress in the quarter, not just in sort of the reported revenue numbers relative to year-over-year, getting back into our target range, and relative to guidance, but also, in terms of the renewal activity and the momentum with customers, and therefore what that positions us for, going into fiscal 2015.

David Hynes - Canaccord Genuity

Yeah. Okay. That's helpful. Thanks. Then Steve, you brought up RTT in the call and I was going to ask, any prospective changes in that relationship, now that Dassault is acquiring them, and I guess what that means, longer term if there is a need for you guys to bring visualization capabilities in house or just how you think about that?

Stephen Remondi

So you know, Dassault has acquired RTT, is our partner. We have gotten commitments through RTT of their continued commitment to their product strategy and licensing strategy. So we feel very comfortable with that. Other parts of our products are based on other Dassault entities, namely Spatial Technologies, which Dassault owns, which also licenses various components that we use, buy from them. So there is a number of component libraries available through Dassault that we already use. So we expect that to continue, but obviously, something we have to monitor and keep an eye on, as we go forward, if there is any change of business strategy. But nothing of note in the near term.

Edmond Furlong

Yeah. I would just reiterate what Steve already said, which is Dassault is part of their publicly stated business strategy and our historical experience is in the business of licensing certain of their technology to partner -- set part of their ecosystem strategy. So we don't see -- whether that's their geometric kernel that they license and try to get more and more of the environment to integrate and operate within a Dassault framework. So we don't have any concerns, but of course, we look at that and monitor it over time.

David Hynes - Canaccord Genuity

Okay. And then, maybe one last one for you Ed, as we kind of think about the guidance for fiscal 2015 in the revenue mix, I mean, is it fair to think that licensed revenues will be a double digit grower in fiscal 2015?

Edmond Furlong

We don't break it out by line item, but you can look at our guidance numbers and our expectations and our comments about the quarter that we just had on bookings, that would certainly be our expectation.

David Hynes - Canaccord Genuity

Okay, perfect. Thanks guys.

Operator

Our next question comes from Jim Ricchiuti with Needham and Company. Your line is open.

James Ricchiuti - Needham

Good afternoon. Just wanted to focus a little bit more on the investments you are making. You are starting to see the top line growth accelerate, and I wonder if you could talk a little bit about how we should think about the expenses, where some of the investments are going in fiscal 2015 and maybe also, some color on engineering, R&D expense?

Stephen Remondi

Jim, thanks for the question. That's certainly one that we want to expand on a little bit more here. So our investments are sort of two fold; in sales, you are not going to see a lot of, at least in the near term, we are not going to see a lot of expansion of sales executive headcount. There will be a few, may be throughout the year, that are added for [indiscernible], because we still believe we have a lot of capacity on the sales executive side. But we are going to be expanding in sales in the application engineering side, necessary to carry out the project activity in pre and post sales support, to continue to support that growth, and hopefully we will see the project line continue, you saw the project line grow over 30% for the year. This year, we want us to continue to see strong growth in that area and be able to support all the project activity, as our customers work to adopt those solutions.

On the R&D side, I think it was really sort of twofold. We have the ongoing roadmap and investment that we want to continue to expand in ground transportation. We are also expanding and supporting our products in aerospace and oil and gas that we expect to be longer term drivers for revenue. But what has changed, as I mentioned in acceleration of our roadmap and ground transportation, and particularly, the automotive and highway side of the business; the automotive and highway truck side, really come back and are really pushing us to accelerate our sort of planned roadmap to bring capabilities forward in time that we can and base the regulatory changes of forcing them to get more accurate, more realistic simulation capabilities.

The only [indiscernible], the regulators, both in -- I'd say in the rest of the world, this is a worldwide organization run through UN and also in the U.S. here, which runs its own regulatory environment. They are trying to recognize, that may be regulating the wrong thing. They are regulating sort of base configurations of the industry rather than what is actually delivered in how it is actually driven.

So, they are trying to get a more realistic predictor, because they think they are making progress from a regulatory point of view, but then customers are buying slightly different configurations or driving in slightly different ways or in environments that are not as idealized as the tests are currently in place. This really played strong for us, because our customers can now simulate more configurations, as customers buy them and certify them, and also, we are adding a lot of capabilities, because we got to expand our R&D. We got to add a lot of capabilities to predict, to have an environment that's more real world. So we are moving, and our customers are moving from, hey, compared to our wind tunnel, to hey, let's compare to what the customer actually experiences on the road, with wind and gust and all these other capabilities, and having the car in a more realistic build environment, rather than may be in the past, they are a little bit more idealized environment.

So that's pushing some necessary things that we always had on our roadmap, pushing them forward, where we have made the decision now in FY 2015, to start ramping up that R&D effort to get to those long planned tasks, to add to the products, our customers could leverage that now, rather than -- I think we had anticipated that the need wouldn't come as quickly as it has. The good news is, as we deliver these capabilities, the demand for simulations will continue to grow and grow substantially from this regulatory stuff that's coming out in the next few years.

James Ricchiuti - Needham

That's helpful. Thanks. A question just with respect to Europe, which I think you alluded to was your strongest performing region in the quarter. It looks like it was your strongest performer for the year as a whole. What's happening there, is it just improving in the underlying economies there and the passenger for our customers coming back? Is it increased productivity from some of the investments you've made there?

Stephen Remondi

Yes, both of those. But I think its, to a large degree, there is a lot of strong automotive OEMs. We saw strong business in the passenger car segment. There is a lot of strong automotive OEMs in Europe, that not only are for the European market, but are developing worldwide vehicles and so, we continue to see strong demand in that customer base for increasing relation and drive penetration. Possibly, we have done a better job at broadening the sales team and broadening the customer base as well.

James Ricchiuti - Needham

Reductions going forward in the sales team, is that going to be focused -- just geographically, how should we think about that?

Stephen Remondi

It would be fairly spread. We keep a little of that headcount a reserve, as we go through the year, to figure out where -- as the revenue emerges, to see exactly where to deploy it. Those resources can be moved around a bit, they are probably the most movable, because work could be done -- even the backend part of the work can be done in various geographies, to support customers in other geographies. So that's probably the most flexible asset we have in the business.

James Ricchiuti - Needham

Okay. Thanks a lot.

Operator

Our next question comes from Steve Ashley with Robert Baird. Your line is open.

Steven Ashley - Robert W. Baird

Thanks very much. I'd just like to drill down a little bit into some color on the projects that you are able to successfully complete in the fourth quarter, and maybe give some color around the project pipeline that you're looking at. I think what I was interested in, is if you are able to broaden that out, outside of core aerodynamics and outside of may be core passenger, and just wondering if you could provide us a little color on that?

Stephen Remondi

So, yeah it's a complicated picture, as you can imagine, because that project line is made up of a lot of small pieces. But I would say first that, there was still a very strong sort of project contingent around aerodynamics, around the core capability, both passenger car and truck, particularly leveraging in emerging capabilities that we are bringing to market around optimization, right? So this is an automated search mechanism to help automatically search the design space more efficiently and more robustly, to find more improvements in the design. And that has not yet been [indiscernible] in a point where we can deliver to customers, but we can deliver it via our on-demand and on a project basis at this point.

So we saw a lot of activity on that front. That bodes well for ultimately customers wanting to adopt it themselves, bring that in-house, as we bring that to market. So that continues to be a strong piece. It's interesting. I think I have said in one of the conferences this year that, despite our efforts to continue to widen our market and penetrate our broader segments, the ground transportation segment. We do see aerodynamics continuing to be a very strong driver for future growth. Purely based on the fuel economy, regulatory requirements and consumer preferences.

That being said, there is a lot of other activity, all of the other activity that we have expanded the sales force, is going after sort of the off-highway, packaged machinery, that Multiquip example that was in the press release this quarter. So just an example of the kind of project activity that's going on at customers, with regards to noise and thermal and meeting packaging requirements and all those kinds of activities.

The activity -- the chain there continues to still be -- the response mechanism continues to be, may be a little slower than we'd like to see, and that's still due to a lot of economic headwinds at the customer base, and then just getting started. But we see a lot of opportunity in thermal and noise in that highway segment.

Steven Ashley - Robert W. Baird

Great. That's helpful. Wondered if I just circled back to heavy vehicle. I think in your prepared remarks, you really painted a picture of it being a little bit mixed, but generally stabilizing. How is your -- as you provide guidance here and look forward, what is your thinking about, how that business might look here going forward?

Stephen Remondi

So we have to assume, basically, that the environment going forward is going to be as we sort of see it today. So we can look at sort of the SARS [ph] numbers on highway truck as an example of sort of the improving trend, and we can see that slight projection. But in the other segments of packaged machinery, mining equipment, construction equipment, we have to sort of assume, and we still assume in our assumptions that it's going to continue to be in the current economic climate for those customers. So we see opportunity, and we still see sort of choppiness and then we --

Steven Ashley - Robert W. Baird

And just lastly, you talked about -- in terms of signing 17 new logos this year for licensed customers, any idea how that might have compared to last year?

Edmond Furlong

I don't have that number. We'd have to get back to you on that.

Steven Ashley - Robert W. Baird

That's fine. Thank you.

Operator

Our next question comes from Brad Reback with Stifel. Your line is open.

Brad Reback - Stifel Nicolaus

Great. Thanks a lot. How are you guys doing?

Stephen Remondi

Good.

Edmond Furlong

Good Brad.

Brad Reback - Stifel Nicolaus

I am not sure if I missed this earlier, if you did address it, I apologize. Can you tell us on a percentage basis, how much you expect quota-carrying reps to be up by the end of this year, versus the start of the year?

Edmond Furlong

Say that again, can you repeat that?

Stephen Remondi

You're talking about number of people or --?

Brad Reback - Stifel Nicolaus

Yeah, that's right. Quota-carrying reps.

Stephen Remondi

Number of sales executives.

Edmond Furlong

For this year versus last year?

Brad Reback - Stifel Nicolaus

No, the end of this year. So where are you expecting in this fiscal year, fiscal 2015?

Stephen Remondi

It will only be up two on 26.

Edmond Furlong

That's right.

Stephen Remondi

Two on top of 26 I think at this point.

Brad Reback - Stifel Nicolaus

Okay, great.

Stephen Remondi

But on an FTE basis, it's bigger than that, right; because we hire throughout by 2014. So on a full time equivalent basis, we will have a substantially higher percentage of capacity coming on.

Brad Reback - Stifel Nicolaus

Right. As people mature?

Stephen Remondi

Well they were just tired, and some of them were just hired in the middle of the year.

Brad Reback - Stifel Nicolaus

And any update on Japan?

Stephen Remondi

Yes. Japan continues to go very strongly for us. The rebound that we saw beginning of Q3, continuing to Q4, very-very strongly, and is a region that looks very strong continuing into FY 2015 here. So we are really pleased with the progress. In Japan, its showing up first, always is project revenue, where it's showing up. But we expect to then feed into the new fiscal year planning, which starts April 1.

In Japan, generally the orders aren't -- generally timed exactly to start at the beginning of the fiscal year, the budget usually gets set and then increased business follows throughout the year. It’s a little different.

Brad Reback - Stifel Nicolaus

Excellent. Thanks very much.

Stephen Remondi

Yeah.

Operator

Our next question comes from Jim Ricchiuti with Needham and Company. Your line is open.

James Ricchiuti - Needham

Just on total headcount, I am not sure if you gave it. What was the headcount at the end of the year?

Edmond Furlong

Sure. That was 257.

James Ricchiuti - Needham

257, okay. And you gave some color as to where you are going to be beefing up, any expectations of where you see headcount going this year?

Edmond Furlong

It will be increased in the application engineers, which as Steve mentioned, with the customer facing folks and that will be the expansion that we tend to add earlier in the year, so that we have the capacity, as we have the heavier projects in the latter half of the year.

Stephen Remondi

And then we will increase to probably 320 or so by the end of the year.

James Ricchiuti - Needham

Okay.

Stephen Remondi

Which are back-end ramped, to really support some of the growth that's going to be built in the pipeline for next year. We are trying to get ahead, so part of our investment strategy is also to stay ahead on those curve of 15% to 20% growth, higher in this year, so that it's in place and executing and delivering in FY 2016.

James Ricchiuti - Needham

Does that hiring spread throughout the year, so by the end of the year, you get to that number?

Edmond Furlong

We will -- that gives us ability to maintain control, just so we are -- it probably is coming on the lower end of our range or something we can actually scale that back a little bit, as we go through the year.

James Ricchiuti - Needham

And one other thing, I don't know if you can help us with this, but it sounds like you're clearly seeing some nice momentum, at least in parts of the off-highway and certainly the heavy duty segment of the market. In total, if we look at that business, what does that represent the revenues per se last year?

Edmond Furlong

Give us a second, then we can be more precise.

Stephen Remondi

Steve Sarno will give that to you in a second.

James Ricchiuti - Needham

Then may be, while we are waiting for Steve to pull that together, you gave some color on Japan. And it sounds like Europe passenger vehicle market is fairly strong. What about the -- how would you characterize the activity you're seeing in the Americas right now?

Stephen Remondi

Americas is mixed. Detroit, very strong, so lot of passenger car again strong in Detroit's and heavy vehicle in North America continues to -- while we continue to broaden and get a lot of good names into the pipeline, we are just getting started and the uptake is slower than expected and sort of the second and third project follow-on activity is taking longer times in that market. So we sort of have two groups in the U.S., the passenger car segment and the heavy vehicle segment and passenger car doing much stronger.

Stephen Sarno

Heavy vehicle is about 22%; worldwide revenues for the year.

James Ricchiuti - Needham

Okay. And would you say that was up stronger than the overall growth you saw --?

Stephen Remondi

No. Passenger car grew stronger than heavy vehicle worldwide this year.

James Ricchiuti - Needham

Got it. Okay. Thank you.

Operator

This ends the Q&A session. I will turn it back to Steve Remondi for closing remarks.

Stephen Remondi

Okay. Thanks for joining our call today. We are pleased with our performance in the fourth quarter. We believe we ended fiscal 2014 in a much stronger position than we started it. We are pleased that sales and product initiatives are gaining traction, and we are optimistic that our top line growth in fiscal 2015 will be at least as strong, as it was in the last year. We look forward to speaking with you again soon. Thank you.

Operator

Ladies and gentlemen, thanks for participating in today's program. This concludes the program. You may all disconnect.

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