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Ansys (NASDAQ:ANSS)

Q3 2011 Earnings Call

November 03, 2011 10:30 am ET

Executives

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

James E. Cashman - Chief Executive Officer, President and Director

Analysts

Jason Rogers - Great Lakes Review

Daniel T. Cummins - ThinkEquity LLC, Research Division

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

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

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

Barbara Coffey - Brigantine Advisors LLC

Steven R. Koenig - Longbow Research LLC

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Ross MacMillan - Jefferies & Company, Inc., Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by, and welcome to ANSYS Third Quarter 2011 Conference Call. With us today are Mr. Jim Cashman, President and Chief Executive Officer; and Maria Shields, Chief Financial Officer. At this time, I would like to turn the call over to Mr. Jim Cashman.

James E. Cashman

Okay. Good morning, everybody. And again, thank you for joining us to discuss ANSYS' third quarter 2011 financial results. Okay. So consistent with our 2011 protocol, all of the general information and key topics relative to the third quarter and the year-to-date business results, as well as our future outlook are included in the earnings release and in the prepared remarks that we posted on the homepage of our Investor Relations website this morning. But before we get started, I will introduce Maria Shields, our CFO, and I'll ask her to go through our typical Safe Harbor Statement.

So Maria?

Maria T. Shields

Okay. Good morning. Thanks, Jim. I'd like to remind everyone that in addition to any risks and uncertainties that we highlight during the course of this call, important factors that may affect our future results are discussed at length in our public filings with the SEC, all of which are also available via our website. Additionally, the company's reported results should not be considered an indication of future performance, as there are risks and uncertainties that could impact our business in the future. These statements are based upon our view of the world and our business as of today, and 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 this call and in the prepared remarks, we make 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 over to you for some opening commentary before we jump to Q&A.

James E. Cashman

Okay. Thanks, Maria. Okay let's see, well before the Q&A, I'd basically like to briefly underscore a few important points about our Q3 results and our Q4 2011 outlook. And I guess I'll just begin by saying that Q3 was another very strong quarter for ANSYS in virtually every respect. Our revenue growth was 27%. Our organic growth was 20%. Our total license growth was 32%. This put us in the upper end of guidance for revenue and exceeded it for earnings, and all of this while experiencing slightly less favorable currency than we had guided last quarter.

And then finally, we maintained all of the historical strength of ANSYS over a multiyear period with double-digit growth within our 3 major geographic regions, double-digit growth in each of our major product units and in most categories of revenue -- I'm sorry, basically in all of the categories of revenue we have like license and maintenance major categories. So this in turn yielded strong margins, cash flow and earnings as typical.

Let's see, our industry composition was also strong as we maintained our diversity while leveraging our continuing strengths in various sectors including energy, electronics, automotive and industrials. We added new customers to our global base and we continue to see good growth in our major accounts where we're in virtually all of the top 100 industrial companies in the world.

And I think most importantly, this was accomplished while we maintained the core tenets of our long-term vision. It was supported by an environment where our customers basically simply can't afford to compromise on depth, breadth or quality of the simulation tools that they use to solve their increasingly complex design challenges.

The result of this is that we've increased our outlook on revenue and EPS for Q4 in fiscal year 2011 as discussed in our earnings release. I will highlight that our Q4 outlook does factor in some volume of year end spending, but not anything like we've seen in the past very healthy Q4. In the recent climate, there's been a greater variability in the end game of our customers' year-end spending patterns and it appears that the uncertainty in today's world basically fosters a more patient, in a way, if you will wait-and-see attitude. And since we're not seeing it yet, we don't want to predict with certainty that it will come. And if it does come, then we'll all be pleasantly surprised. But again, the net impact is an increase in Q4 and 2011 full year guidance.

Now with respect to our initial outlook for 2012, we have factored in a positive customer sentiment, the release of ANSYS 14, strong pipelines and increased sales capacity again somewhat tempered by economic uncertainty. And this translates to our initial outlook of $818 million to $840 million in non-GAAP revenue and $2.80 to $2.90 in non-GAAP EPS. More details around currency rate and other key assumptions are contained in the prepared remarks that we posted on our Investor Relations home page earlier this morning.

So with that, I think we'll just open up the phone lines and take any specific questions that you might have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Steve Ashley with Robert W. Baird.

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

I guess I was just going to ask with respect to the 2012 outlook, a lot of people are concerned about Europe. What kind of expectations or what are you assuming about how Europe looks next year?

James E. Cashman

Well it's basically -- first of all, yes, it has been a relatively tough time. But again we've also grown in -- basically our core growth was strong in Europe whether you count it organically, constant currency combined or anything like that. We've got a strong organization there. We have good major customers that are basically trying to serve global markets themselves and have a lot of that debt market outside of their own domestic GDPs. Nevertheless, all the sovereign issues do tend to cause people a little bit of pause, and it does cause some choppiness that we see every day. But basically strong organization with strong customers, the majors are continuing to do pretty well. We expect that Europe will be a little bit tougher than in was in some of the heyday years and things like that. And there'll be some things that we'll have to honor with regard to currency. But in terms of customer progression and expansion and things like that, it looks continuingly solid. The other thing we hope to do actually is basically over time it will take some time to do this, but to build up Apache which is not quite as strong as a few key really strong customers in Europe, but want to broaden that through the overall channel. And as we've seen with other products, this does take a little bit of time. But it's also undeniable that the opportunity is there and that it does start to happen. So yes, it is one of those touchier environments but every year we've been doing this, there's been some part of the world that's been relatively down and just that we've got the ability to focus in other parts of the world with pretty much 1/3, 1/3, 1/3 spread amongst the major geographic regions.

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

Great. And then quickly, Maria, I don't know if you're willing to comment on how we should think about Apache revenue in 2012.

Maria T. Shields

Yes. 2012 for Apache, I would say initially in the $60 million range would be a nice, safe step.

Operator

Our next question comes from Richard Davis of Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

So when you kind of think about ways to improve the way simulation, the results come out for the customers. There's kind of 2 metrics, right? Or 2 vectors. You can either pump a bunch of CPUs at it, but you can also use kind of alternative or newer algorithms or stuff like that. So there's half a dozen firms out there that have taken kind of using new algorithms or new approaches and things like that. How do you think about that? I mean could you have some algorithms and some et cetera, but is that something that we should think about as a competitive issue? Or how do you think about those vectors of kind of tweaking the models in effect...

James E. Cashman

Well I think first, I'm sorry. That's all?

Richard H. Davis - Canaccord Genuity, Research Division

No, that's it.

James E. Cashman

Okay. Well first of all, we're always looking at -- there's 3 different levels of this thing. First of all the tried and true pure physics algorithms upon which these things are based. Those are the ones that are solid and generic. And for the most part customers, when they get into simulation and base things around it, they want to have absolute certainty that these arcane algorithms are basically bulletproof and consistent. Now with that though, however, the next step of that is everybody's always looking for computing efficiency. And HPC is one part of that but also things that we do from a comp side standpoint is part of the basic knitting every year, adding on new efficiency capabilities to take advantage of these really kind of compute hungry applications is a key part. Now the third part is there are new algorithms and new capabilities that come around. But it's not like a new branch of physics is being created just to plant everything on there. And I'd say that in general these new algorithms, they do provide -- they can provide a way to augment an already strong product. The big issue I've seen there is -- and this is -- you've seen there's history dotting this over the last 20 years or so. A series of these things come out and they might tend to be very good for -- I don't want to call them gimmicks, but they do have certain areas where they're not generically applied, but they can solve certain classes of problems very efficiently. And those are ones that we also try to incorporate in. But those are always going to come in. We keep an eye on them but it's not like it totally changes the entire landscape of stimulation.

Operator

Our next question comes from Jay Vleeschhouwer of Griffin Securities.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Jim, earlier this year -- Jim earlier to your Analyst Meeting this year, you noted that in 2010, your top 10 accounts grew by 18% in revenue and your top 100 were up 25%. And it was last year of course. Could you comment on how you're doing with both those categories of customer this year and perhaps what you've assumed in your 2012 assumptions with respect to the top 10 and top 100 customers? And then a follow-up.

James E. Cashman

Well first of all, we do the final tally of that usually when the whole year has ended. It's tough to take individual time slices, so you want to have -- you basically want to have a full year data. However, we do take a lot of spot checks on that. And in general, there's 2 trends: One of which is we're still seeing that the top 20 majors are spending that tweak above a little bit further up the S-curve of adoption, if you will. We have started to see a couple of other companies start to move in a little bit. And then on top of that, some of those have actually been a little bit accelerated by some early interest with the Apache combination because this is a convergence of electronics and mechanical. For 2012, it's not like we take a -- our planning, it's not like we take that top 20 and then we assume a different growth rate for that. A lot of it is pretty much based on pipeline on the advanced planning we have with the management review board that we have with our customers, really size, the demand. Some of these are part of multiyear plans. So it does take -- this is not an overnight phenomenon. It does take time to roll off. But we do not see -- but the basic trend of a feedback loop is that we are not seeing a slowdown of those uppers. Now the other thing that we also see is that one good measurement is that if you look at the top -- all the top quarters we had, it was pretty close to a -- there was still a very strong recurring base, but about 30% of that intake from those top customers were also complete new business coming in. That's one other kind of workout anality check that we do mid-term.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. Follow-up along the same lines. Last year you had about a 1/3 increase in your active commercial maintenance paying base according to the data that you shared earlier this year. And I'm wondering if you have some expectation for the degree of increase in your base this year relative to last year and how that might reflect itself in growth of maintenance revenue.

Maria T. Shields

Well Jay, kind of following on to Jim's earlier point, we kind of look at everything on an annual basis, especially since Q4 is a large renewal quarter for many of our large customers. So once we've got the full year data for 2011 we'll be happy to share that with you. But I would say if you look at the prepared remarks, our renewal rates on maintenance are extremely strong. They're in the mid-90s. And with the amount of new license growth that you see happening not only in Q3 but throughout the year, that will mean that you'll see probably mid-teens growth in maintenance going into 2012.

James E. Cashman

Yes. And I guess another -- I agree with Maria's comments. Another point was when we're talking about -- keep in mind, when we're talking about the denominator, numerator aspects, even at the beginning of this year, we were still getting some of the effects of when the real dip in the economy in 2009 came in. We had talked about the fact that there are maybe a couple of drop -- a couple of point drop in that thing and there was a little bit of an artificial boost from the recovery of that. But we've gotten back to the traditional levels and it just continues to be strong. But again I'd echo Maria's comments on that, too.

Operator

The next question comes from Blair Abernethy of Stifel, Nicolaus.

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Two quick questions here. Just could you expand a little more? Jim, you commented on interest from ANSYS customers in what Apache has brought to you. But I guess what I'm looking for is, are you talking more about the traditional Ansoft base or maybe just expand upon...

James E. Cashman

Okay, yes. Well first of all, the interest actually has proven to be a mutual direction. Obviously the strongest impacts have come from the ones where there were overlapping customer nameplates albeit in different buying centers. So that's where the primary one comes in. Now with that in mind, I mean there's been affinity between all ANSYS products and Apache software. But there's a disproportionate one as you might guess from the people that have already been linked in through the other more, if you will, more electronic-centric products that typically was served traditionally either by Ansoft or even by our own electromagnetic multi-physics products. So it's universal, but it's a magnet. It's basically a matter of degree. And it also is -- it tends to be more focused first with the places where there's already a strength. Keep in mind, most of the Apache customers were already ANSYS customers. The converse, however, was not true. And we've already had some pretty interesting meetings even in this first couple of months coming out of that. So does that kind of cover the...

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Yes, that's helpful. And my second question is just around verticals. There was -- you gave a little bit of color on the automotive sector in your prepared remarks. I want you to expand on that. And then I guess the other last pieces on the verticals to the extent that you can -- your defense-related or government-funded R&D related business, can you just sort of -- given the environment we are heading into over the next couple of years, just sort of how much exposure you got there?

James E. Cashman

Well keep in mind that's why I mean you could treat it either way, but we don't have a ton of exposure basically to any one customer, to any one industry, to one sector like that. If anything, and you look at maybe some of the procurement rates are down. I'd say the traditional defense thing, if anything they maybe are going into more R&D mode to figure out how to be more efficient, particularly in light of if defense spending cuts have gone, it tends to a lot of times hit existing programs. But there's a whole new realm of the aerospace and defense field that comes which gets into surveillance, electronic measures, unmanned surveillance type of aspects. And those have been ones that have been under because those are -- particularly ones where new devices still need reliability, they need to be power efficient, low radar signature type of devices. And that's brought on. So if anything, it's more of a shifting sand, albeit there's been maybe a slight slowness in that overall sector.

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And then on the automotive side, obviously that's been strong the last couple of years. How's that looking for you over the next?

James E. Cashman

Well it just continues to be strong. And now not surprisingly, you see major automotive -- major supplier networks are also getting into the game. So we actually -- you've seen that in some of our recent press releases in terms of new systems out there and new relationships we have with some of the named customers. But you look at it as the regulatory environment is continuing to be tough, the mileage requirements are continuing to be more stringent, so the pressures on there are not lessening up at this particular time. And on top of it, the overall drive for efficiency and basically the changing of the automobile platform is just continuing to create a lot of opportunities. Because as opposed to maintaining 30-year-old kind of processes, if you will, they're moving into a new realm of processes and that's quite frankly right in our sweet spot.

Operator

Our next question comes from Sterling Auty of JPMorgan.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Kudos for breaking out the Apache contribution. Too many companies actually making acquisitions kind of tuck things away. So it's great to be able to track it. I'm just kind of curious how you felt the revenue contribution and the $60 million initial outlook for 2012. How does that match up with what you originally thought? And maybe any more color on the integration?

James E. Cashman

Well basically it is in line, first of all. Second of all, I think if you look back, we've always broken out that information and we've always talked about organic and tried to separate that out just so people can get a look at that business. But no, it's pretty much in line with the pre-acquisition and the immediate standpoint. So we're actually pretty happy with that. With regard to the integration aspect, basically obviously we were able to put out combined financials right in order. So there weren't too many problems there rolling onto complete systems. We've already had -- we've already got plans and many things in place for the infrastructure. You look at the forecasting is being done combined -- the one thing we're also doing is first of all, do no harm in the customer relationships, so we can continue to move that. But we've actually involved Apache in this series of user group meetings, some of which I've just gotten back from personally. And the response has been exceptionally positive. Apache, the sub it also called their major customers to do kind of a temperature check and that came back extremely positive also. So it's one of those things where we're doing it very stepwise and methodical like we have before. We're not going to break either good company, but we've already started to be able to see some of the crossover benefits of that, and that's what we just want to continue to lever.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

And the follow-up question is on the expanded sales capacity that you mentioned in your prepared remarks, can you give us a sense how much of that went to direct, how much went to indirect? And is there any metrics that you're willing to share on headcount or other investment?

James E. Cashman

Well the key thing -- I can let Maria prepare for the investment comment. But the bottom line is when we talked about the expanded sales capability, what we were talking about specifically was the direct impact. However our channel business, as you can see, has been continuing to do well along with us. And they've done expansion there. I just don't know off the top of my head specific meaningful numbers that I can give you for that. But since they've been able to progress at a very similar rate, I know that they have been expanding on that line also.

Maria T. Shields

Yes. And relative to metrics, I'll say okay, as we head out of Q3, we're sitting roughly from a direct perspective globally about 240. And on the low end, I wouldn't imagine it'd be anything less than 10% increase going into next year. And then as we see things progressing, continuing to add to that throughout the course of the year.

Operator

Our next question comes from Steve Koenig of Longbow Research.

Steven R. Koenig - Longbow Research LLC

I'm wondering if you can give us some commentary on the large deals. You had a good number this quarter. What drove the higher number there year-on-year? How big were the biggest ones? What kinds of deals were they? Any renewals in there? And where they partly the result of your initiative to better penetrate your customer accounts? Is that helping as well?

James E. Cashman

Well we're always -- it's all of the above, and we're always trying to increase our penetration in our key customer accounts. But I think there are about 14 mid-teens, 14 or so of the 7-figure orders. And like I said before, if you look at the split, it's about 70% was just continuing to build on maintenance space and maybe 29%, 30% was on the new revenue standpoint.

Maria T. Shields

Yes from a span of 5, Steve, just to give you on the low end as we said 7 figures, so starting at $1 million on the high end, going up to $4 million.

James E. Cashman

Yes, that's right. She's absolutely right.

Steven R. Koenig - Longbow Research LLC

Great. And then I guess for the follow-up, just maybe a question here on Apache seasonality. I believe there are leases, there are mostly leases that are ratable. Is...

James E. Cashman

They are all lease.

Maria T. Shields

Yes.

Steven R. Koenig - Longbow Research LLC

Yes. Okay. And is Q1 -- looks like Japan is recovering which may help them. Is Q1, do you expect that to be -- is that typically seasonally kind of up for them? How's that seasonality?

James E. Cashman

No. In fact, there was a pretty good impact of Apache orders that closed in our Q3 when you look at the timing of those cycles. So the bottom line is that when you look at that, there is -- when you're dealing with that continued growth on the lease space business, there'll be additions throughout the year but it's not like there's going to be any one big spike where everything comes in. So if you look at the backlog, it's quite strong. If you look at the overall deferred revenue and then -- the overall deferred revenue was also growing, what you'd expect with all of this in mind. So I think it's more along that time based license model where you see instead of big spikes, you just see a much smoother, continuing wave that deals. And then quite frankly not unlike our own lease business, even though there's -- we don't sell that exclusively, you can see that it continues to be a strong part of the aggregate business. You see that it also grew in double digits for the quarter.

Operator

Our next question comes from Ross MacMillan of Jefferies.

:p id="38763240" name="Ross MacMillan" />

Maria, just curious as to your guidance on gross margins next year. You're guiding for them to fall slightly. Doesn't sound like it had to do with the Apache because the gross margin for...

Maria T. Shields

It's the full year of Apache and planned hiring, not only for new heads that we entered in 2012 but as you saw in the prepared remarks, not unlike what many other people are saying, we've got a challenge in filling open positions right now. So the combination of those 2 -- we've talked a long time about continuing to invest in the business because we believe the opportunity for future growth is real and we don't want to shortchange ourselves just to drive margins.

James E. Cashman

Well there's also one other, absolutely right, but there's one other aspect, Ross, in it. I mean it's just kind of a smallish one, but if you recall over the last few quarters, we talked about the fact of we wanted to ramp up a certain part of our service business because helping to bridge people with the process changes and revamping the way they utilize simulation in their accounts, it takes -- it can takes -- it can be greatly facilitated, let's say, by some handholding. So if you look at some of the results, you'd actually see that our overall pure services business, not the software maintenance and enhancements subscription thing, but the pure service business, while it's still a small percent of the business, it tweaked up and it grew quite nicely. And those businesses, while we're doing more of the higher margin services, they're not the same margins as some of the other things. So you'll see a slight thing from there. But the net impact is going to be overall positive.

Ross MacMillan - Jefferies & Company, Inc., Research Division

Okay. That helps. And maybe just one follow-up. You've obviously talked about this under-hiring. It's hard to find the right skill set for certain roles. Is there any way you could give us a sense for core ANSYS kind of what that delta has been this year relative to your initial plan on headcount?

James E. Cashman

Well one thing you can go to the ANSYS.com website and you can look at the positions that we're looking at there. But it's somewhere in that 70, 80, 90 range.

Maria T. Shields

Of open positions.

James E. Cashman

Of open positions, I'm sorry. Yes.

Maria T. Shields

And then, Ross, just to further that. Of that, the majority of them are technical. So they are technical AES, they are technical service people, they are high-end computer science and engineering and it's just been really difficult in this environment to find people to fill those slots.

James E. Cashman

At least the quality we need.

Maria T. Shields

Yes, absolutely.

Ross MacMillan - Jefferies & Company, Inc., Research Division

And that make sense. So I just want to be clear though, the hiring for AES, has that been a little -- put it this way, you said you mentioned earlier, Maria, the 10% number for next year as a base line.

Maria T. Shields

That's sales.

Ross MacMillan - Jefferies & Company, Inc., Research Division

In sales, yes. So I'm just curious as to whether you've been able to grow like at that rate this year or have you grown under that. I'm trying to get a sense for whether that's a better growth rate implied next year or in line?

Maria T. Shields

With sales, it's been slightly under.

James E. Cashman

For support -- for the AES and support maybe a tweak over because we had a concerted aspect that, that was going to also help to fund some of our customer engagement and services business. So maybe a tweak over on that particular aspect.

Operator

The next question comes from Dan Cummins of ThinkEquity.

Daniel T. Cummins - ThinkEquity LLC, Research Division

Jim, I wanted to ask about the recovery in the growth rate in the U.S. business, if there was any particular things you could point to on that. And I'm always interested to hear your opinions on -- regarding the retirement growth rates of senior engineers in the U.S. and how your customers are making that adjustment. And if you could also just talk about what the key integrations that you're achieving and putting out there with ANSYS 14, particularly related to the recent acquisitions of the past couple of years.

James E. Cashman

Okay. Well with regard to North America, obviously we've been able to do quite well with our majors. But we've added quite a few new logo type of accounts. And I think also you're seeing, again if you're winding the clock back a little bit, a couple of years ago, 1.5 years ago we were talking about doing some structural enhancements in North America to help facilitate. We thought that we could do better there. And I think some of those are starting to take hold. I mean there's nothing to take hold in 3 to 6 months. But over a year or so, you can have those come in. With regard to basically the enhancements, I mean basically there's a -- first of all, the ability to take care of -- I mean basically the ability to deal with some of the customization aspects of Workbench, basically starting to launch that, that allows customers to basically take it and build preferences and some of their own workflows around is a particular key. Apart from that, each of the individual physics, as I mentioned, each of the major product lines also grew in that double-digit mid-teens and above kind of aspect. So each of those, I mean they continue to -- we're not holding pat on any of those kind of capabilities. So I mean you just see a series of releases across there. I'm trying to think what else. Is anything else from...

Maria T. Shields

From -- retiring engineers. Yes. Dan, relative to that I would say you see it every day relative to seasoned engineers are retiring, and it's hard to replace them. So that actually helps us because it produces some opportunities in that it shows our customers the need to capture that knowledge. So leveraging sales of EKM, if you will, and getting them to understand that capturing that and making it reusable is really important for their future. And it also increases the need for them to use simulation because they've got to amplify the engineering talent that they've got left. So those are -- it's kind of a dynamic that actually helps us in the long run.

Daniel T. Cummins - ThinkEquity LLC, Research Division

I'm glad you mentioned EKM. Is that something you guys are pressing ahead with as an area to monetize?

James E. Cashman

Oh yes, there's lot of aspects of it, some of which are embedded in the software itself. The key to that but it's -- and again, and it's not -- again, this is not a product data management or PLM type of offering. This is just something that takes into account automatically captures the kind of simulation knowledge that's very unique, rapidly changing type of aspect that makes it available. I think one of the interesting ones that I don't think that we match -- our first plan of how to get benefit from this is the standpoint we're seeing an awful lot of situations where simulation data is now being used out in the customers' field organizations. But it's places where they wouldn't normally have people doing simulations. So it's the ability to extract the right amount of information and allow them the ability to interrogate the results of that thing, sometimes for maintenance, sometimes for operating parameter adjustment and things like that. Anything from aircraft maintenance to offshore oil platforms and things like that where people are available and it's really difficult to get them there in time. So yes, it's definitely one of those things that's growing up. And I think that another point of this is that with more people doing bigger simulations, you're just cranking out a ton more data. And if you didn't have a way of really keeping track of it and keeping track of it on the fly without having to go through a bunch of predefinitions of what you think is going to be useful and what isn't, those type of things are pretty valuable because once you get swamped under this tsunami of data, it's pretty tough to pick through it all and find the relevant points or have it delivered to you in time to make meaningful results and reactions to problems.

Operator

The next question comes from Jason Rogers of Great Lakes Review.

Jason Rogers - Great Lakes Review

Looking at the whole area of cloud computing, given your recent partnership with IBM, I'm just wondering if you can provide an update of the opportunities there, whether you're seeing an acceleration of opportunities or just the gradual type of ramp up.

James E. Cashman

Well again keep in mind we've talked about this, the technology aspect. I mean if you were here right now I could get you on some portable device, and I could link to the cloud right now and run that. I mean we'd show that right now. We've had Software-as-a-Service, and hosted offerings for, I think 11 to 12 years running now. The big issue of course is you have to take care of massive amounts of bandwidth, a lot of latency linking between the multiple computers that are harnessed together because you're doing the solution total, and there are IP concerns. And what that translates to is we've already done the restructuring of the algorithms that allow us to run efficiently on hundreds and thousands of processors. But essentially what happens is we find that most people are using that paradigm, most of them are the major customers that are using it to basically, in what we would be called a private cloud, where they don't worry about the IP thing, where they can control the latency, where they can manage the bandwidth kind of issue. And they're getting a lot of power out of it. Now those same capabilities exist -- can exist in the public cloud. But it's really just from an economic standpoint and from a certainty kind of standpoint. It's really the more mature customers that are going into that higher end aspect. So we're just seeing the private thing. But basically the software is there, we've been providing this for ages before, in some cases, before it was even called the cloud. And just basically if you were here, we can basically show it on a mobile device right now. I mean -- but again there's a lot of maturation both in the technology of what the cloud is becoming, the enabling technology and also the customer maturity. But basically we've got the pieces in place now. And some people are using it. But don't see this as being a huge ramp up thing over the next year or 2.

Jason Rogers - Great Lakes Review

Okay. That's helpful. And as a follow-up, I was wondering about the flooding in Thailand, if you're seeing any disruptions as far as orders go from your electronic customer base.

James E. Cashman

Not -- actually, no. But the thing is Southeast Asia is a major market for us. But all the -- some of the majors areas, China, Taiwan, Japan, Korea, those areas -- those are ones where it really hasn't -- I guess I really haven't even seen an issue.

Operator

The next question comes from Barbara Coffey of Brigantine.

Barbara Coffey - Brigantine Advisors LLC

As you're taking a look at companies and their buying patterns, it was great to see an uptick in licenses. It's usually declined during sort of a recessionary period. Can you kind of give some color as to sort of buying cycles, how things have changed, what your salespeople are seeing?

James E. Cashman

Probably they -- we mentioned about back loading. After 2009 when things kind of came out permafrost and we went to the end '09 and 2010, we talked about a very noted protraction, extra signatory levels, longer time, more judicious things like that. And then I think we comment through the early part of this year that we haven't seen those adding back toward the traditional pattern. So what we're left with is we are still seeing the normal kind of patterns that may be judiciousness over the last few quarters. I think may be one thing though is that now it's time to hit a little bit of a steady-state standpoint. So what it means is there's less fits and starts in the middle of things. But everything is a little bit -- continues to be sober, if you will.

Barbara Coffey - Brigantine Advisors LLC

And does that seem to apply to just large deals, or is it deals throughout the food chain?

James E. Cashman

All deals. All deals. In some cases the larger deals might naturally go a little bit easier because they are known customers that are continuing to grow with us. But even with the large customers we'll hear we’re – well, we had to slow up our procurement somewhere because we couldn't get enough engineers in certain geographic locales. So there's all sorts of little microcosms in here that affect the store. But it's basically affecting all boats.

Operator

Our next question comes from Mark Schappel of Benchmark Company.

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

Jim, just one question. There's been some fear among some investors that customers may be flushing out their year-end budgets a little early this year, mainly because they fear that they may get cut off later this year if the economy stalls. Is it fair to say from your earlier remarks and from your guidance that you just don't believe that's the case?

James E. Cashman

Well we haven't seen it. Yes. And even if people were flushing things earlier, it normally wouldn't be -- Q3 is a heavily concentrated month for September because of vacation schedules and all sort of things like that. So it tends to be the clippiest quarter of the bunch. So in other words, we wouldn't see in Q3, even if that phenomenon was existing. But I think we try to spill in our comments is that there's not even certainty that -- there may be some companies who are doing it, there are other companies who are saying we're not even certain we're going to be able to do year end -- the typical year-end buys, you use it or lose it type of things that we traditionally do. So again what we went back to in our guidance was -- and maybe somewhat conservatively but I'd say sanely was to look at the detailed forecast that we had and the customer sentiments we had and yes, there could be some surprises. But I guess I'd have to say that the possibility of an upside surprise is greater than one of the downside at this point in time. So the bottom line is we just really don't know. And in reality, most people don't know that there's a certain baseline that you say we kind of know statistically it's happened. But in 2009 or 2008, things got held up. 2009, we weren't expecting much. And as you might remember, it came in pretty strong. 2010 was quite dynamic for us. And those things could happen again. But again we're guiding on what we actually could see and because when you get down to additionally -- it's only a few weeks away from the end, so you should have some idea.

Operator

[Operator Instructions] We do have a follow-up question from Blair Abernethy of Stifel, Nicolaus.

Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division

And just wanted to follow up on the EKM side of the business, Jim. Could you maybe characterize that now as to sort of what stage of adoption you're at? Are you still fairly exterior [ph] or you've...

James E. Cashman

It's missionary and it's very nascent. Believe it or not, there's some -- I mean there are even some customers they get confused because it deals with data, therefore it must be a data management system, therefore it must compete with a PDM or a PLM system. And that really isn't the case. However, there's an awful lot of clutter and chaff out there. This is very much a nascent environment. It's been created or caused by the amounts of data that we're creating, but it's also been facilitated by the Workbench overall framework that basically allows a lot of this stuff to happen seamlessly and at the data model level through -- basically through data integration. So even a hosted application in Workbench can participate in this. So it's just really how the people wrap their minds around this. There's pretty good schools of thought of how you manage -- the more structured the data is, the more easy it is to wrap your mind around it. The less structured it is, there's all sorts of different things that people can do to manage that. But it becomes more and more difficult and obviously by being in the simulation business so long, we have the ideas and knowledge of the range of data, the parameterization of that data, the ability to actually link that to a broad range of simulations and parts of the development process. And so really it's one of those things where it's been kind of a push/pull, where customers are starting to pull on it. But we've actually gotten it's a -- but I'd say it's just at really the prenatal stage.

Operator

This concludes our question-and-answer session. I would like to turn the call back over to Jim Cashman.

James E. Cashman

All right. Don't feel like I ever left. Okay well so anyway, in close, really not much has changed from what we committed to on the last earnings call. The emphasis for the remainder of 2011 will be integration of the Apache business combined with a continued focus on execution, growth and customer development. And as we've seen across the globe from the past several months, I mentioned our involvement with our range of user group meetings as the customer receptivity, the long-term vision remains strong, probably even stronger and with the addition of Apache and the upcoming release of ANSYS 14, it just really continues to strengthen.

So basically in closing, the things that continue to propel us, the strong combination of that long-term vision, I think a very resilient and solid business model. Those loyal customers, we talked about how they continue to grow with us and disproportionately we got obviously a number of good partners out there. We talked about our channel and some of our other business partners, great technology. And of course the growing base of what I think are very exceptional employees. And I hope we can add to that with sufficient quantity and quality as we talked out from the hiring patterns.

So basically thank you for joining us this morning, and we'll catch you sometime at the end of Q4.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a great rest of the day.

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