ANSYS' CEO Discusses Q4 2011 Results - Conference Call Transcript

Feb.23.12 | About: ANSYS, Inc. (ANSS)

ANSYS, Inc. (NASDAQ:ANSS)

Q4 2011 Earnings Call

February 23, 2012 10:30 am ET

Executives

Jim Cashman - President and CEO

Maria Shields - VP of Finance & Administration and CFO

Analysts

Steve Ashley - Robert W Baird

Ross Macmillan - Jefferies

Blair Abernethy - Stifel Nicolaus

Richard Davis - Canaccord

Sterling Auty - JPMorgan

Perry Huang - Goldman Sachs

Dan Cummins - ThinkEquity

Steve Koenig - Longbow Research

Mark Schappel - Benchmark Company

Jay Vleeschhouwer - Griffin Securities

Greg Halter - Great Lakes Review

Operator

Welcome to ANSYS Fourth Quarter and Fiscal Year 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. Cashman.

Jim Cashman

Good morning and again thanks to everybody for joining us to discuss the ANSYS fourth quarter and fiscal year 2011 financial results. So consistent with what we are doing through 2011 we are going to stay with that same protocol. I will just say all of the general information, key topics relative to the quarter and full year business results, as well as our future outlook are included within the earnings release and in the prepared remarks that we posted on the home page of our investor relations website this morning.

So as always before we get started I would like to introduce Maria Shields as pre-mentioned, our CFO for the Safe Harbor statement. Maria?

Maria Shields

Okay, thanks Jim, good morning everybody. I would like to remind everyone on the call 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 ANSYS undertakes 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 will be making reference to non-GAAP financial measures, a discussion of the various items that are included in the full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning’s earnings release and the related Form 8-K and I would also like to remind everyone that the ANSYS team will be hosting an Investor Day in New York, next week on March 1, at the NASDAQ MarketSite in Times Square. Please see the investor relations area ansys.com for details about the meeting and the webcast.

So Jim, I’ll turn it over to you for some opening commentary before we open up for Q&A.

Jim Cashman

Okay, thanks. Okay so before the Q&A I just like to maybe briefly highlight a few points, I think are particularly significant about the Q4 of 2011 results and also our Q1 2012 outlook. So, I think I got to start by saying that Q4 was just another milestone quarter for ANSYS in most respect. If we saw a continued momentum in various parts of the business that we’ve been investing in and building for the past few years for those of you who have been with us over the years would probably find nothing surprising there. It was evidenced of course by our new record financial performance.

Excluding the corporate tax rate chain you see in Japan that resulted in that $0.05 share in non-anticipated tax charges at least from an operational basis, we exceeded the upper end of guidance for both revenue and earnings and that even despite the fact that the average currency rate for the Euro and the British pound fell below the low end of what we’d assumed when we built our Q4 2012 outlook back in early November.

The strong Q4 finish translated to a 17% organic annual revenue growth, supplemented by the contribution from Apache, which drove us up to a 22% combined revenue growth for Q4 and 21% for the full year or that’s actually 17% constant currency. We also reported doubled-digit revenue growth within our three major geographic regions for both the fourth quarter and the full year. and in both the major categories of revenue, license and maintenance.

The top line performance in turn, not surprisingly, yielded strong margins, record cash flow and earnings for the quarter and the year. It’s also worth noting we delivered above the high end of the full year revenue and EPS guidance that we committed to in this very same call a year ago.

In the fourth quarter of 2011 ANSYS heightened their dedication to partnering with our customers to achieve their vision. Basically we are doing, helping this by delivering ANSYS 14. So our latest release provided, really its vast array of new advanced features. I mean, those of you who know me, I could go on for a couple of hours here going on, but they are all posted on the website.

We will be covering some of those of course next week in New York but the net result is, it gave customer the ability and confidence to accelerate and innovate their product programs by delivering again what is the highest fidelity, productivity and performance in simulation available today.

So as we look at back in 2011, we continue to make important strides with our huge or broad array of customers that were spread across all geographies and industries. We continue to see the growing importance of product integrity and product quality as critical business issues that are driving the use of simulation in our customer base.

Just going through a couple of examples that are topical today, we will go with these in more detail in Q&A but telecom, we see, we saw, and continue to see an ever increasing demand for wireless data transfer, in consumer electronics, in transition to 4G network, new applications involving wireless integration, medical equipment, power monitoring satellites, defense, household appliances.

In the automotive sector we saw innovation, new classes of problems that are driving new levels of simulation via hybrid electric vehicles or fuel efficiency as well as a drive that we are seeing throughout there and increasing demands of utilization of electronics for safety, performance, entertainment and general regulatory compliance.

In industrial electrical segment, the growth was driven by demand for renewable energy, energy efficiency across all standpoints, as well as smart product design and obviously the need for increasing efficiency and electronic power utilization.

So all of these were areas that drove the increased interest in the need for our systems and multiphysic stimulation capability. So, in each case they have the same basic cause or factors at the root of it and they require rapid understanding of extremely complex problems with a high degree of fidelity and accuracy and they need to have to be able to do that in a very easy manner, very early on at the design process and that’s really about the mission and really I think the strength of the ANSYS division and strategy.

So our ability to solve these increasingly complex problems, it was further enhanced by the addition of Apache to basically our world-class portfolio of solutions.

And I think the other thing is that while we did all of these things in 2011 and we’re meeting all of these customers and demands and pressures, it was done while we maintained the core tenets of our long-term vision.

We were being able to support an environment where our customers couldn’t afford to compromise on depth, breadth or quality of the simulation tools that they used to solve their increasingly complex design challenges.

So the result of all of these, in addition to what I talked about and what you’re going to read about our Q4 and 2011 performance is that we’ve initiated our outlook on revenue and EPS for Q1 and we’ve updated the fiscal year 2012 outlook as discussed in the earnings release.

So essentially, this is a combination of a slight uptick in our business outlook. So a slight uptick in business outlook but it was also offset by the impact of the strengthening of the dollar against the Euro and the British Pound since early November and against the Yen more recently.

So, what we’ve done is a we’ve factored in solid pipelines and our plans for an increased sales capacity albeit tempered by the economic uncertainty that we see in different parts of some of the sub-geographies. So after we did that and after we factored in the various changes of currency rates, which are documented, this translates into our current outlook of non-GAAP revenue of range of $185 million to $192 million in Q1 and $808 million to $830 million for fiscal year 2012 and comparably non-GAAP earnings per share of $0.64 to $0.67 in Q1 and for 2012 a range of $2.77 to $2.87.

Now more specific details around currency rate and other key assumptions are contained in the prepared remarks that we posted in our investor relations home page earlier this morning.

So that really is the quick run through and with that I would be happy I think to the open up the phone lines to take any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Steve Ashley from Robert W Baird.

Steve Ashley - Robert W Baird

Hi guys I was just going to ask about this eight figure deal that you had booked in the period and I am just wondering was that a multi-year deal was that a deal that was booked and built where we manifest the revenue and deferred all of that during the period.

Jim Cashman

Actually what that was it was really our first eight figure customer and what that represents is the accumulation over the calendar year and fiscal year of 2011, the new business volume, business and recurring of that customer. S it was really kind of a hallmark of the, what we talked about seven figure orders and many seven figure customers, it was kind of a significant at least to us as this was the first one to actually crack that barrier in terms of the business this year.

Steve Ashley - Robert W Baird

And then Maria on Apache, you had said last time that you were hoping that they might contribute $60 million to revenue in 2012. You've adjusted the full year number. I am wondering if you can update that or maybe also comment on what you are thinking about Apache contribution in the first quarter.

Maria Shields

Yeah, for the first quarter Steve probably around $15 million for Apache and for full year 2012 around $62 million to $63 million.

Operator

Thank you and the next question comes from Ross Macmillan from Jefferies.

Ross Macmillan - Jefferies

Jim I am wondering if you could just spend a minute talking about geographic performance because I saw that your organic growth in North America was a little lower than Europe, which maybe is somewhat counter to what we would have expected, could you just maybe provide us with some kind of color on what you are seeing on a geographic basis? Thanks.

Jim Cashman

Well, there's a couple of things. First of all you always have to look at the comparable and the main thing is I mean this is the, if you look at the 10 year progression chart for all the geographies they are all really good but its kind of like the difference between climate and weather. I mean you can see climate as the long-term trend but on any given quarter, any given month or day, the trend could be up, which obviously would make them the comparable Q4 this year. I mean last year for instance we had pretty strong Q3 this year, and if you look at comparable.

So if you look at that, in general the trends were, the comparables were kind of skewed a little bit last year but then on top of it things are things we've been talking about is there has been is globalization at some of our major customers and that trend continues and just for clarification for any duties on the call, we actually recognized the revenue at the place being used.

So even something is begin build acquired by let say US-based multi national company if they are going in Eastern Europe for instance or they are going into parts of Asia wherever they might go. The revenue would be scored in that ways. So in some ways I treated it always a good thing to check what’s happening in the various regional area but it also is important to understand where the business really is going because that also is driving our long-term investment.

Ross Macmillan - Jefferies

That’s helpful. Thank you. And then just want to follow up I think last quarter you talked about your plans for sale head count growth in calendar 12 and I think you’ve talk about a 10% growth number. Is that still the plan any changes to that capacity growth?

Jim Cashman

I mean within the margin of error that still is the plan. I mean again we’re going to be driven by the quality and we certainly found that the kind of relationships we build with customers of long-term as we clearly watch a scalable long-term people for the sale team. But we’re continuing to grow and that somewhat commensurate with the back that like I said our business is really we would like to say we came up a part from the currency that we swimming against we’re still seeing in terms of the net business that slight uptick.

So if you measure the growth we had, the headcount with somewhat commensurate with what we saw in 2011 and we envisioned doing that in 2012 and the only thing might give you may be highlight it, the something that doesn’t show up in that figure is, we have a significant channel presence and the channel is also growing there. So I think, you have to factor both sides of the equation.

Operator

Thank you. And the next question comes from Blair Abernethy with Stifel Nicolaus.

Blair Abernethy - Stifel Nicolaus

All right, thank you. Just actually back on the geography question, your General International business was very strong obviously and particularly Korea, India and China. I wonder if you had just taken a bit more there in terms of the split, I guess of multinationals driving that growth versus local growth or growth through your partners?

Jim Cashman

In all there, there are some multinationals but those are very strong. I mean there are actually some very strong locally based multinationals in those areas. So particular growth in the Korea and (inaudible). China is probably, it was a combination of multinationals going there but there is also would be, the 12th five-year plan that China is going into right now. They are also looking towards commercialization major parts of their business. You see them getting more involved in wind, energy and in consumer electronics and things like that.

So those are areas where we are seeing, those particular areas going on right now. There is no doubt that places like China, Korea, India actually we saw good progress. Brazil is an increasingly important emerging market to us and the other thing I have said is, you know that we also are concerned about making sure that the channel can grow with our vision and can be a commensurate part of our business. And I would say, you see with that has been a pretty parallel kind of growth things.

So the channel is kind of progressed along with that endpoint, particularly important is GIA because of the, there is a slightly higher composition of channel revenue in the GIA or largely Asia-Pacific part of our business.

Operator

Thank you. And the next question comes from Richard Davis from Canaccord.

Richard Davis - Canaccord

Thanks. Two questions. So on the Apache side, you kind of gave guidance for ’12, acquired by you guys. I wasn’t following it but I thought they were expected to grow kind of like 25% a year on a go-forward basis. Is the number that you gave us, assume that kind of similar rate of growth or if so why or why not and then the second one, go ahead. Do that, just give me a follow up.

Jim Cashman

I am sorry. If you look here Richard, there is a couple of things. First of all, if you look at historically, like a lot of the smaller companies, the growth rates might be a little bit higher one, the company is smaller and the denominators are a little bit lower. But if you look at, they were probably looking in the range of the, lets say, 16% to 20% level. But the one thing is on their growth rate.

Keep in mind, that almost a 100% of their business is a time-based license, much of which stretches out in to the three-year basis. I think you will start to see that in the scoring of a long-term deferred revenue balances if you look like in to the balance sheet and things like that, the difference between the short-term.

So, as you do that, it tends to build and it’s a typical thing of time-based license subscription type of model where it may grow more steadily but it grows more controllably and so right now, we’re basically, if you look at it, they’re still on target with their internal plans. They’re still on target with the things that we had discussed with them in our due diligence, preceding the acquisitions. So basically everything is going well.

If I can answer the unasked question, in some ways, we are even ahead of the integration curve. If you look in terms of technical integration some of the projects that are being done there, you look at our number seven figure deals that we sometimes talk about, we actually had a couple that happened because of a combined Apache and ANSYS presence. So in many cases some of the things are progressing along quite nicely and you have a follow up you were holding on.

Richard Davis - Canaccord

Just quickie. We’ve now seen Autodesk do it in Rendering and MSC do it on the simulation side with an on-demand kind of cloud computing tools. Why or why not do you guys think your customers would have interest in that? What is your point of view on that kind of delivery mechanism you may well call it?

Jim Cashman

We had it for 11 years and we had it ongoing for 11 years. Even our partners delivered their own version of it with their own hosted hardware. So we’ve had it for over a decade. We build the workbench platform, at that time it was called grid computing. Then it became something else and then it became cloud and it went from ASP to SaaS models and things like that. And then you didn’t hear us talk about some of the things we have been doing in high performance computing That was also built in mind with this if you will a form of virtually infinite computing available. So it has been the ANSYS offering for ages.

Now there are a number of issues when you talk about calculating the cloud. Now again when we talk about the cloud we can dissect the private cloud or urban cloud and number of different things like that hosted applications.

So in general we are seeing this already being used in private clouds by our key customers actually pretty heavily that’s one of the things that help fuel the HPC growth but without getting overly burdensome on this call. There are a number of reasons why it sounds really good, but this is different than the type of ERP applications or mail applications or utility type of applications and it really gets down to bandwidth security and latency. And those problems are going to be taken care of overtime with some technological breakthroughs, but those tend to be the major either technical or emotional reasons why customers are a little bit slower to move onto that particular standpoint and then quite frankly there will be pricing things that will have to be dealt because.

And it’s somewhat analogous to what you saw with the cell phone plans where you used to have unlimited data plans and all of a sudden oh, oops when the data explosion happens, the model kind of goes a little bit strange, you know a lot of things people like about some of the cloud pricing models that are out there is the predictability versus the, if you will the electric utility meter model and those are the things they will have to work out. But with cell phones they have got to the point now they've put data limitations on them or at certain level, they will actually throttle the data and things like that.

So I mean they are, at the end of the day there is no free lunch but I would say right now, again we had it for many years continuously and again bandwidth, security and latency are probably the three major classifications of technical hurdles that take these, that drive the ability for people to really effectively utilize these.

I mean these are massive computation engines that need to, some time when you send out a run and you've got hundreds and thousands of simultaneous cores running, they all need to be in communication with one another and that can’t always be guaranteed on just kind of like the overall cloud in the timeframes that are needed to keep things in sync.

So bottom line is architecturally with the software we are ready, business model, billing mechanism, everything else, we've been running it for 11-12 years, it’s never been a huge growing thing. It’s a nice supplemental, sometimes people use it for, sometimes people use it for overflow type of situation, sometimes people use it to get their foot in the water without being totally committed and things like that.

But for broad-based propagation and proliferation we’ve got to, there will be some things that still have to move on, but the bottom line we’re in place and we’ve done all the heavy lifting years ago that we needed to do to be ready for.

Operator

Thank you. And the next question comes from Sterling Auty with JPMorgan.

Sterling Auty - JPMorgan

You commented I think in the prepared remarks about the impact on the Africa margins from Apache. What I am kind of curious about is how should we think about the operating margin trends and trajectory from here and maybe tie into that the rest of your integration and cost synergy plans for Apache?

Jim Cashman

Well, first of all, it’s a relatively small thing, so the blending doesn’t have the same impact of some of our previous ones. But the second thing is, first of all our holistic margins we still look at in that 48% to 49% range. And part of that is the blending of Apache, but part of is the for the last six or seven maybe eight quarters, we’ve been talking about coming out, since the economy was kind of breaking out of it permanent (inaudible) we are actually gearing back up to, you investing back for the next 10 years growth.

So you see an element in that. Now comments on the Apache side though as part of the goals we have and really the thing that we’re seeing with every other acquisition that we’ve done and I mean you can actually go back and infer this from the all the financial charges, there will be steady improvement in the Apache margins and some this happens by effective utilization of the ANSYS channel.

Sometimes it happens by blending of the infrastructural aspects, non-duplication of public company cost which might have been in their margin assumptions at the time that they were looking at that option and in general things like that. Now the other thing is that, well basically that’s the kind of the overall margin thing. I don’t want to, I’ll make sure that answers your question first and foremost.

Sterling Auty - JPMorgan

Okay. And then the follow up would on the channel, you talked about the sales investment, but can you give us some metrics and some additional color around the channel initiatives, may be what are the total number of resellers that are doing business with you now, how that compare against maybe a year ago and where you are getting the biggest bang for your buck? Is this the top 20 or top 100 resellers?

Jim Cashman

It is basically the same. First of all it is the same number. Second of all I want to caution, may be I am being overly concerned about this, but it is not really what we call a reseller by the traditional model. You know again our channel is pretty unique and it tends to be people that have been build up with us over 20 or 30 years. So it is not surprising that they are still with us, but they tend to get 80 plus % of their business with ANSYS and the rest of it is just kind of like supporting kind of thing. That’s a typical model.

I mean there may be one or two outliers on that. But the majority of their business is really driven by ANSYS kind of sources or else they have divisions that are devoted to it, if they were a larger company. And so the thing is, these kind of relationships and the technical expertise that it takes to support customers at the level we require and understand the breadth of our technology. These people don’t really grow on trees. So it’s not, it tends to be a very specific one. As such the number is very kind of commensurate with what we are doing and therefore when we talked about the channel growing at the same general rates as we have at ANSYS, it’s because they’ve also continued to invest the build scale within themselves.

Operator

And the next question comes from Perry Huang from Goldman Sachs.

Perry Huang - Goldman Sachs

I was hoping to ask a question about the performance in Japan. Could you provide a little more color on the nature of the impact from the Thailand flooding and possibly how you see the supply chain sort of returning to normal levels over the course of fiscal 2012. And also, how is this kind of being factored into fiscal 2012 guidance? Are you sort of expecting Japan revenues to be soft, just say may be in the first half of the year and then sort of bounce back once the supply chain issues the result?

Jim Cashman

Yes, you are absolutely correct. That has all been factored in. I mean, basically in a word yes. So, that has been factored in. It will be softer in the first half of the year. We will see it start to recover in the second half of the year. There are some things that are sometimes we have to scratch our head about what's going on with the yen and things like that. But that tends to affect things also. But you pretty much nailed it with your hypothesis.

Maria Shields

Absolutely, and Perry, you’ve seen, because of the strength of the yen, that’s played on some of our customer profit. So, I think as currency kind of settles out and as they really get some of the things that impacted them in early 2011 and in late 2011 behind them that the second half of the year will probably be more robust for Japan than the first half.

Perry Huang - Goldman Sachs

And also maybe if I could, a quick follow up. The tax rate change in Japan, it looks like it may have impacted fiscal tax guidance by about one percentage point. I think the upper end of the tax guidance range was raised from 32% to 33%. Just wanted to get a sense of the incremental impact to earnings guidance which looks like it might be about $0.01 to $ 0.02?

Maria Shields

Yes actually Perry, the tax rate change does not take effect until 2013. So Japan itself didn’t have a huge impact on 2012 guidance. I think part of what you are seeing in the rate creep compared to traditional is Apache which had a much higher effective tax rate than ANSYS said and we also recently there’s been some tax changes in the US that have reduced some of the benefits that we used to get out of our UK structure. So moving parts in and of course the R&D credit has never been reinstated. So there is lot of moving parts in different parts of the world that are going to unfortunately in the current environment negatively impact that tax rates.

Operator

Thank you and the next question comes from Dan Cummins from ThinkEquity.

Dan Cummins - ThinkEquity

Thanks I want to reference the prepared remarks, your paragraph about the automotive markets, very interesting. You got some strong language in there about shift and trends. It seems modest to say that it’s growing double digits. I wondered if you could give a little more color on the strength in that vertical and also you do discuss the Chinese market and the shift there just in relative terms and how does that effect ANSYS business model pricing, your dedication to building channel resources?

Jim Cashman

Well, I guess the first one is on the automotive one. I mean, again, the one thing I would like to highlight is we try to just kind of like cycle through some if you will slightly human interest stories on some interesting things going on in the industries. But the three that we talked and all the industries grew well, but the three we talked about were kind of like greater among equals and had some interesting byline stories with them.

So you can kind of almost infer from that what the automotive and some of those other sectors were slightly above, we had pretty strong overall growth rates, maybe slightly above that in terms of automotive, energy and electronics and well actually aerospace I think was more this year.

So now on the China one actually I may have lost the question, but the fact is what we’ve got there is we've got a renewed strengthened relationship with the channel partner there, but we've also continued to build our own direct presence and that's really being done collaboratively with the channel because we've got a good partner there, but we also see that as the size of business grows, the nature of the relationships we have require touch points at local areas for advance support for advanced services for different kind of communications there. So you’d see both of those continue to grow over time and they should grow at reasonably healthy levels.

Dan Cummins - ThinkEquity

So we shouldn't expect any explicit pressure on operating margins as you position for more opportunity in China?

Jim Cashman

Nothing that isn’t already factored into our plan and of course we have that factored into our plan which is one of the investment areas that we've talked about. We have strengthened up some of those areas of higher international growth and we've most certainly since I have talked about barriers to adoption and technological hurdles even on some of the Q&A of this call, investing in that technical, that next generation of products.

So it’s kind of like here they didn’t stop when they have the spinning hard drives, now you got solid state drives, you got all sorts of different things. So we need to keep jumping the curve there because the demands that our customers are having are just so great that you can’t sit back with today’s technology.

Operator

Thank you. And the next question comes from Steve Koenig from Longbow Research.

Steve Koenig - Longbow Research

Let me start with question for Maria or Jim on CapEx. Looks like you are expecting it to be up pretty sharply in fiscal 2012, looks like over about 50% or so, what’s behind that?

Maria Shields

Two things, one we’ve got some upgrades in our infrastructure relative to storage and computers and the other things as we’ve got some facilities consolidation plans for existing facilities where we’ve got duplicates in some countries or where we have outgrown the existing space. So 2012 I say has a disproportional amount set aside for some of the facilities upgrades that we need to do given the size of the business in certain countries.

Steve Koenig - Longbow Research

Okay great. And I got a follow up, just a clarification that infrastructure investments, is that are we talking employees workstations or are we talking hosting infrastructure for some of the private class or hosting initiatives you have?

Maria Shields

Yeah, most of it now is related the employees and also integration tying in, relative to how we do storing of source code and sharing bills across the globe. So we have got to tie in Apache to that. We still got some things where we’ve got to tie in some of the offices that haven’t been. It’s basically in every three or four year cycle. So that we can continue to solve the complex problems we are solving, we need to upgrade the hardware and the infrastructure.

Steve Koenig - Longbow Research

Okay, great. And then if I could count this as my second question probably for Jim here. Jim, can you talk a little bit in the near term, a little bit more about sales synergies potentially between Apache and Ansoft that you are starting to see or may realize this year. And then may be a little bit longer term, what’s your vision for where you are going in terms of stimulating electronics?

Jim Cashman

Well first and foremost if you look at the integration with Ansoft, I mean obviously it is in the long run, we want to where really all products will integrate with one another because even when you are talking about laying out chip design and things like that, the heat dissipation, vibration resistance, packaging concerns, all those things. So I mean the mechanical effects are also important, but you have to take these in digestible chunks and so obviously some of the key ones are making sure that as you are optimizing your power utilization, you are not sacrificing signal integrity, you are not sacrificing the functioning of things.

So there have been things that in terms of the first steps or may be getting too minute here, but having SIwave to integrate with Sentinel for instance to actually link some of those things together. But long term, we want all those operating together because in general at the end of the day when you think in terms of doing a virtual prototype early on, sometimes even pre-design in some cases before you even get into a tad environment.

You are looking at different concepts that you might look at. The balancing of electrical and electronic needs with the overall mechanical delivery and packaging and the like, they all have to play in to one another. They all affect manufacturing costs, they all ultimately affect reliability and meeting the functional specification. So, if you are looking at the whole product, you just can’t start to parse out a part of it, just to say we all only worry about the structural part, we all only worry about key management, or we all only worry about the circuit.

We’ve already seen a number of examples where not attention to detail of the holistic impact of all those things working together actually can cause some major product hiccups. And so it really all has to work in a combination standpoint.

Steve Koenig - Longbow Research

So, Jim, just lastly. It sounds like the synergy near term is more towards selling to those device makers or the product makers as opposed to semiconductor designers.

Jim Cashman

Well it actually can flow in both directions. And if you think about some reasons that it hadn’t been done was the connectivity and interoperability really hadn’t been there for people to even wrap their minds round utilizing. That’s one of the things that is pretty interesting in terms of having data integration between these products. You don’t even have to worry about translating data and writing files and slipping things around.

So, yeah, I mean, just like there are concerns. If you look about chip manufacturers is maybe as you start to get to more 3D type of devices and system-on-chip type of things, these mechanical aspects become important.

At some point, the structural reliability of increasingly more delicate and thinner leads and connection points between them become more, but definitely the ability to package those things in a number of varieties across all industries, I mean electronics is becoming increasingly important in all forms of what used to be traditionally mechanical products and that parenthesis simply going to continue on. So it really moves in both directions but I think in many cases the near term it might bit more into the work loads of the larger product integrators.

Operator

And the next question comes from Mark Schappel from Benchmark Company.

Mark Schappel - Benchmark Company

Jim changing gears a little bit here; I was wondering if you can just give us an update on where you believe your customers are with respect to embracing simulation data management and in your case EKM. I mean the customers still kicking tires in this area with respect to these concepts and technologies or they more aggressive here?

Jim Cashman

Well, they are getting more aggressive but they are still kicking the tires. It’s one of those types of things, because the situation is, one of the things where a lot of time you don’t realize you have a problem until the usage picks up in large amounts and then all the clutter and the chaos can start to ensue so like when you first get your new laptop you are not worried about storage space and things like that, but the data kind of builds up and you kind of loose track of how you name things and you try to find stuff that becomes more of an issue.

The other thing is that even when that happens when people become aware that they have problems, they are not always aware of what the solution is and it tends to be a combination of enabling technology like we’re providing. But it also provides if that thing – now how will they utilize that internally to solve their problems and that’s where links in with their organization and process and that becomes a long hole in the tent.

So and I would say the other thing is that the more people have tried over earlier generation solutions, the more actually legacy could be, it could be a stumbling block in terms of being able to look at new things and when you see that throughout history in terms of industry. If you've got a Greenfield to build on, you could be a lot more flexible whereas if you try to bridge from something that you already had in place, sometimes that could be more constraining. So in general, it’s still relatively early when it does take hold, it takes hold very quickly, so accelerating, but still kicking the tires, it’s still a pretty good summary.

Operator

Thank you. And the next question comes from Jay Vleeschhouwer from Griffin Securities.

Jay Vleeschhouwer - Griffin Securities

Jim, I was wondering if you could give us your annual update on the revenue contribution and growth from both your top 10 customers and your top 100 customers?

Jim Cashman

Well, the first thing is that the percentages have stayed relatively good, we don't have, again, our top 10 are roughly about 10%, I still think we are under 30% you know we’ve typically been in that high 20% for the top 100 but that's probably about 30% now. And then that’s somewhat consistent with something we stated at Investor Day last year, might see a persistent trend going here that the more penetrated users academically, the more penetrated ones are also very underpenetrated. But they tend to outgrow the average a little bit, because they are starting to, they've got to the point where they can start to accelerate that.

So you might see that's why there maybe a slight tweak-up in both of those. But nevertheless, we still don't have any single customer above the let’s say safely above the 5% I mean it’s actually lower than that. So those trends are still pretty much what we’ve been talking about actually the last couple of years.

Jay Vleeschhouwer - Griffin Securities

The second question is combined active commercial base and recurring revenue question. And the question is, with or without HPC effects, would it be fair to say that the average number of commercial licenses particularly the structural mechanical in CFD, but electrical could decide for the moment is generally increasing among the commercial customers and would it be also fair to say that the revenues per license or per user are increasing as well on the commercial side?

Jim Cashman

The answer to both those questions are, yes; so the net base is growing but actually if you, some of you I know you have Jay, but if we can talk about in terms of the number of usage is one growth avenue for us, but the density of usage and intensity of usage area also ones. So HPC, you know one plays into what percent people time, they actually utilizing, so it’s a very sporadic usage. The other one is how intensely are they using and that’s where HPC builds out. So, yet the user count has been and the base number of licenses are bit growing but on a much smaller denominator HPC continues to be a big grower for us also.

Jay Vleeschhouwer - Griffin Securities

If I that could perhaps just and so one more; could talk about competition you are seeing in the CFD market specifically?

Jim Cashman

Actually, there are a number of spot competitors; I would say maybe the most significant probably still tends to be legacy in-house programs, if anything its maybe slightly tapered off, but you know it’s still, like we still see individual competition in each of the individual segments of the business. So I mean it’s a pretty broad parameter. But if anything, there is always both legacy and some spot new competition kind of across the board and it’s really kind of spread out across all of it. It may be less than a little bit in certain areas, but nothing major of a sea change there. Maria, do you see anything different from here?

Maria Shields

No, the only thing I would say Jay and it’s something that we have been talking about is while in each of the individual physics pillars, no doubt there are people who are focusing on that and we compete, but when you are talking about enterprise deployment where they are looking for integrated solutions to solve complex systems problems, the realty is we’ve got the most physics available in a integrated, open and flexible platform and that’s what people are looking for.

Operator

Thank you. And the next question comes from Greg Halter with Great Lakes Review.

Greg Halter - Great Lakes Review

I don’t know if you have commented yet, but just wondered if you could talk about the average selling price trends that you may have seen in most recent quarter and for the year?

Jim Cashman

It’s been pretty steady. I am actually going to do a quick stand here, but it’s been, there is basically been, there is definitely not a downward trend, but I don’t think that was strong upward model. I would probably call pretty darn stable. The thing is, I just looking at some charge that I have and the one thing that, the thing is sometimes these things have to be seasonally adjusted because of some of the volume purchase kind of things that are contractual. But there wasn’t anything that standout, as you know we’ve been formally tracking them for almost a decade now.

Greg Halter - Great Lakes Review

Right, right, which is a good sign that they’re steady. And you guys have done such a good job in selling the product and the R&D side and integrating the acquisitions you’ve made. The one concern that we would have is something I am sure you’ve shared and seen and it’s relative to the job environment. Just wondered if you could comment on the number of openings you may have and the difficulty you have in finding people and pay that you have to pay and so forth and so on?

Jim Cashman

It’s paying; I think that’s a technical term. You know, first of all, there is two things on the job side. First of all, as I mentioned, increasing number of users out in the job market and people hiring there; that definitely creates an improvement for us but even when people have it, it’s interesting to see how people have been utilizing this software to amplify the engineering talent that they do have. So we’ll see that trend.

Now, if we take it internally, because I think part of your question was also on that. Yeah, we have been hiring and I mean anybody that goes to our website can see that we have high double-digits of places we’re still looking. But the key thing is that some of these people were looking for are very unique kind of individuals. Those high-end engineering algorithm but also understand advanced comp side kind of issues, again blend those things together, which by the way, is why it’s really difficult for anybody else to build an ongoing quality theme of this nature. But nevertheless, we do that.

The second thing is that, since we’re going for the best people out there, a lot of the best people are the ones that are most secured in their jobs and in particular, in this market, they tend to be some of the more resilient protected people. You had that fact that as we bemoaned for several years, the US in particular and Europe not a whole lot better, haven’t been graduating tons of new engineers and technical talent. That’s why we’ve been investing so heavily over the years in the academic program, and our co-op and intern programs and things like that to get access to it.

But it is difficult to build that up, particularly if you are somewhat uncompromising in the type of talent that you’re bringing in. So yeah, that has been an issue. Now we definitely have had better prospects over the last year than we have in some of the prior years; but it still is a challenge.

Greg Halter - Great Lakes Review

And I guess, on the reverse side, are you losing people to firms that would like to hire them to do their simulations?

Jim Cashman

Sometimes we do. And sometimes it’s actually done by mutual consent with the customer and our employees and sometimes they actually help us in that process. The general departures are not very high, but when they do, they usually go back and concentrate on the full time degree or actually getting into that customer environment. So yeah, that’s probably the number one issue, albeit on a pretty low base of number.

Greg Halter - Great Lakes Review

And one last one for you; give you the chance to bring out any new customers you may want to highlight and what they may be doing in terms of solving problems with your software?

Jim Cashman

Well, the first thing I would want to say is that this is one of these things that an awful lot of stuff we just have embedded and we have the knowledge of what's going on. What I am not always current on is who has given out permission to talk about. Some customers, particularly the most innovative ones are the ones that are guard that with a strict secrecy.

So we have to respect that and in the absence of certainty I have to err toward being more cautious on that. The only thing that I will give a general answer and when we do get some of those, we do try to put those out on press releases and highlight them on our website, so there is a section that will do that one of the more recent ones and we can’t talk about this.

Maria Shields

Well, maybe that we will cover next week.

Jim Cashman

Well, I know but all I can say is by next week we will be able to talk about specific example, but its one that's really, really cutting edge, its been in the news and it really gets into, it really underscores the concept of being able to use comprehensive multi physics, but it also is combining something of really getting it right before you even have the first prototype to work with, being able to work an awful lot of these particular issues and continue to drive it.

So I would really like to be able to check on that, but we’ll be coming out with that and it would become public next week and it maybe public now, I just don't want to take that chance.

Operator

Thank you. And we have a follow-up question from Blair Abernethy with Stifel Nicolaus.

Blair Abernethy - Stifel Nicolaus

Just wanted to ask you Jim, in your top customers, your top 100 customers, I just want to get some color on the adoption rate there which in the past year or so you've talked about that, you know picking up? And secondly what's happening there in terms of the trend towards shifting to paid-up licenses in order to clean-up some of the lease licenses?

Jim Cashman

Well, as you know can tell, as you can tell from the base the leases, they also grow with us and given the fact at least leases tend to accumulate overtime. The new leases don’t bump up the addition of the newer lease that would bump up the lease base as much with the license you know has an impact. So we continue to see, we continue to see growth in those particular areas.

I think generally if there is a long term stand point there maybe a slight trend towards owning versus renting deal, particularly by the bigger companies once you get to a boarder proliferation. But that’s largely decisions made by their finance team, not by anything we’re doing. But as you see, as you can probably check the charts, the general lease base stays at that 30% amount actually bumps up a little bit when you add Apache into the mix, because they are largely almost exclusively time based licenses. But we see that thing continuing to go on and so that part doesn’t really tend to, it grows but we don’t see wholesale ships, nor we do try to really do it some one way or the other.

Blair Abernethy - Stifel Nicolaus

And in terms of adoption rates?

Jim Cashman

I am not sure, it’s a question for new customers or….

Blair Abernethy - Stifel Nicolaus

No, for your large existing customers that would take it back to a year investing in last year?

Jim Cashman

Apart from the lease issue?

Blair Abernethy - Stifel Nicolaus

Yeah.

Jim Cashman

Okay. So no, like I think we said during Jay’s question that the large scale adoption tends to spread, it grows slightly in aggregate above the average. They are tend to guarantee pack and visually picture after they are kind of on that slightly more accelerating part of it albeit everybody’s in the first half of the curve. That trend has continued.

Operator

Thank you. And there are no more questions, so I would like to kind of turn back over to management for any closing remarks.

Jim Cashman

No more questions, okay. So I guess just closing, if you haven’t kind of picked it up or even in these questionable times, we are excited about the opportunities that lie ahead for 2012. But again, there is going to be challenges but everybody is having though. The emphasis on 2012, it’s going to be the ongoing integration of the Apache business combined with a continued focus on basically differentiating and extending our technology.

And then apart from that execution on the plan we have talked about, roll customer engagements. So again, I will give my usual shed out to the combination of basically the customers that have been with us for years, the partners that have been with us for year, our employee and you combine that with the vision, the business model and our technology base and that gives us a lot of tools to navigate through any kind of time width.

So I thank you for joining us this morning and we look forward to talking to you in the next quarter and hopefully seeing a bunch of you next week in New York City. Thanks a lot.

Operator

Thank you. That does conclude today’s teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.

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