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Ansys (NASDAQ:ANSS)

Q3 2012 Earnings Call

November 01, 2012 10:30 am ET

Executives

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

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

Analysts

Richard H. Davis - Canaccord Genuity, Research Division

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

Perry Huang - Goldman Sachs Group Inc., Research Division

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

Gregory W. Halter - LJR Great Lakes Review

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

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

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Operator

Good morning, and welcome to the ANSYS Third Quarter 2012 Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jim Cashman. Please go ahead, sir.

James E. Cashman

Okay, thanks, Maureen. Good morning, and again, thanks, everyone, for joining us to discuss the ANSYS Third Quarter 2012 Financial Results. And consistent with what we've been doing all of this year, 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. So before we get started, I'd like to introduce Maria Shields, CFO, and would you give us our Safe Harbor statement, please?

Maria T. Shields

Thanks, Jim. Good morning, everyone. 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 forward-looking statements to reflect events or circumstances after the date that these are made. Consistent with our standard practice, during the course of this call and in the prepared remarks, we'll be making reference to non-GAAP financial measures. A discussion of the various items that are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning's earnings release, materials and the related Form 8-K. So Jim, I'll turn it back to you.

James E. Cashman

Okay, Thanks, Maria. Before the Q&A, I'd like to briefly highlight a few key points about our Q2 results and our updated 2012 outlook, as well as our preliminary 2013 outlook. Actually, before I get into that I just want to send condolences and best wishes out to all of those on the East Coast who are dealing with their own versions of tragic and challenging times, so we wish everybody the best as they start to recover and rebuild from the events of recent days. So anyway, moving onto Q3. In summary, I'll say it like Q3 was a very good quarter for ANSYS in many respects. In fact, it was the highest revenue and earnings quarter of any third quarter in our history. And this morning, we reported revenue growth of 16% in constant currency and 12% EPS growth, or $200 million in non-GAAP revenue and $0.74 in non-GAAP EPS. This was in the midrange of our guidance for revenue and beyond the high end of our range for earnings. This yielded deferred revenue balance of $306 million, which is also a new record high for Q3.

Both software and maintenance revenues grew in double digits. All 3 of our major geographies delivered double-digit constant currency growth and our industry composition remains strong as we maintained our diversity, while leveraging our continuing strength in various sectors, most notably this quarter, including Automotive, Aerospace and Defense and Electronics and Semiconductors. Now we also added a significant number of new logo-ed customers to our global base. Now I mentioned these because they're usually, initially, not high-volume account, but a good number of them grow over the 3 to 5-year time frame. And then we also, of course, continue to see expansion in our major accounts where we're inversely all of the top 100 industrial companies of the world. I think most importantly, this was accomplished while we maintained the core tenets of our long-term vision and focus to deliver on our key commitments. We continue to focus on efforts and investment on building our business and capabilities for the long-term. I'm thinking of some -- if I get to throw out a few examples of this, the recent acquisition of Esterel, a commitment of our new corporate headquarters in 2014, and the release of ANSYS 14.5, which is coming up next week, as just a few examples.

Now I acknowledge that the overall macro-environment and customer sentiment turned out to be increasingly, at least much more cautious as we finished out the quarter and as we focus on closing out the year, and think this is a pretty similar to what a lot of people are seeing and we've been seeing as we ended up the last part of third quarter. And we don't see any clear signs of that changing anytime soon. So with Q3, in the rearview mirror and one quarter left in 2012, it looks to -- it's like more of the same. The result is, that we've adjusted our outlook for the year and it’s based on the following factors: first, and the overwhelmingly -- biggest one is the economic and political realities that our current environment with all the uncertainty and concerns around the continued slow growth, elections, fiscal cliff, what's going to happen to taxes, we just aren't hearing any of our customers talk about year-end budget flush or excess spending. So we've factored in the challenge that we and many of our customers are facing into our guidance.

Second of all, we have also updated for currency because, since the beginning of the year we've had, probably, somewhere around mid-teens in terms of currency headwinds on that, narrowed the range for the fact that there's a single quarter remaining in 2012, so any shift out of the quarter also means movement out of the year. And, of course, we've included the strength of our Q3 earnings performance into that. So this all translates into non-GAAP revenue for the full year in the range of $798 million to $805 million, and we are maintaining our full year earnings outlook in the range of $2.83 to $2.86. Our Q4 outlook of $215 million to $222 million in non-GAAP revenue and EPS of $0.71 to $0.74 does not factor in any of historical year-end spending that we've seen in past healthy Q4, but it still represents a respectable 7% to 10% growth off of a strong comparable last year.

It appears really to us that the uncertainty in today's world has been fostering, in fact, demanding a more patient wait-and-see attitude from some of our customers. And since we're really not seeing it, none of our customers, nobody seems to be talking about year-end spending surges, we're just not -- we're not even going to assume that it comes. But if it does, and we could be at the high end or even beyond the range. And if it doesn't, just like our Q3 results demonstrates, we are a very sound business model, supported by strong fundamentals, solid customer relationships and a committed team that will work to navigate the business through the current economic challenges and continue to build for the long-term.

Now with respect to a preliminary outlook for 2013, we considered basically more of the same from the general macro perspective as we've seen in 2012, at least from anything we can see at this time. We've also factored in a full year of Esterel, continued strength in our renewals and ongoing investments in the business. And basically what this translates to is our initial outlook of $885 million to $910 million in non-GAAP revenue or a 10% to 14% top line growth, and then $3.00 to $3.12 in non-GAAP EPS. Now more details around currency rates and other key assumptions are contained in the prepared remarks that we posted on our Investor Relations homepage earlier this morning.

We're going to stay at a very high level on the 2013 assumptions, for purposes of today's discussion, because as I said earlier, we're in the process of prioritizing and finalizing the details around hiring, capital and overall investments for 2013 and we'll provide more insight at the time of our Q4 earnings call.

We also see no signals that the environment heading into 2013 will be dramatically different from 2012, so this is our very preliminary outlook on 2013. We're still in the midst of finalizing all the details around our annual plan, and so for now, we're being cautious in our approach and assuming that, basically, 2013 will not be a whole lot different from what we've been seeing as we close out this year. And a point that I would like to make, actually for both Q4 and 2013, is that there's really no loss in our short-term ability to harvest revenue upside should those opportunities occur or should there be surges out there. The customer -- the software is there, the customer relationships are all in place and they continue to be solid. So basically with those brief comments, I'd be happy to open up the phone lines to any questions that you may have. So Maureen, you can release them.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will be Richard Davis, Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

So quick question. With regard to this quarter, I think you kind of touched on it, but including -- or if you exclude Esterel, the organic growth rate looks to me to be about 7% in the quarter. And then kind of layering on that on the services side, it looked like there was a bit of a deceleration there. Is that a leading or lagging indicator, or a non-indicator to kind of future growth, which kind of just bakes into the thought process as to how de-risk the -- your view of the estimates are?

James E. Cashman

Right. Well, the first thing is, yes, for the organic, again, keeping in mind that Esterel was very small, but it's a -- it would be -- it was around the 7% to 8% range. And remember last time, we did say that it would basically, probably be somewhat equivalent to -- at least nibbling away a lot of the currency headwinds that we were seeing, and that pretty much was the case. Second, could you just rephrase the second part of the question?

Richard H. Davis - Canaccord Genuity, Research Division

Yes, yes. Services kind of -- the services kind of were a bit less than what we thought. Is that the leading or lagging indicator as to your future growth? Because I'm just trying to triangulate around how firm the outlook is, that kind of thing.

James E. Cashman

Understood. Actually, I would not really treat service as a leading indicator, because over last -- I think last few quarters, we've talked about evolving the services business. Basically, we've got a really powerful channel that does a lot of the traditional bodies for hire, project type of work and things like that. And -- but we've been trying to evolve toward the, what I'd say, not services as a leading indicator but services as a future enabler of capabilities, which really gets to how do companies more effectively utilize the new levels of simulation that are available out there. And that's turned out that, that's actually required a lot of methodology workflow, just not utilization of the tools, but embedding the utilization of the tools into the workflows of companies and helping them kind of evolve their own engineering processes while, of course, maintaining their own product qualities internally. And so that's going to be -- that's actually going to be a multiyear, a couple of year kind of evolutionary step, but that's kind of the buildup. So you'd actually see kind of a -- more of a cross-over in there. So I'd say, if you look at the numbers right now, don't treat it as a leading indicator. But it is something that's -- independently, you would probably see that we would want to be building up as a result of some of the new capabilities we've put out are really pretty unique out there and it takes companies a while to actually fully embed them in their design processes.

Operator

Our next question is Steve Ashley, Robert W. Baird.

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

I was wondering if you might be able to tell us for Esterel, what kind of revenue contribution you're looking for, for maybe the fourth quarter and for 2013?

James E. Cashman

Again, let's keep in mind that Esterel is a -- we think is a long-term strategic element but it's a very small numeric portion of it right now. So you might see something in the $4 million to $5 million range for the quarter. Now of course, non-GAAP because a lot of the things are going to be actually deferred in GAAP because of the way -- because we didn't have the objective evidence to base that and then the -- you were asking also the margin?

Maria T. Shields

2013 contribution.

James E. Cashman

Okay. The 2013 contribution should be somewhere in the low 20s.

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

Great. And you are clairvoyant. I was now going to ask about that Esterel margins so maybe you could comment, I know that next year you're kind of guiding 47 to 48 and how much...

James E. Cashman

If you look at that, Steve, and this is not really atypical. They ran a very sound private business. They were actually we are prudent one, but the margins, of course, weren't very high. And if you look at it, they'll probably be in the mid-teens kind of range, arguably in there. And I'd say that, if you look at their expense base, it isn't like it's a -- it isn't as uniform, for instance, throughout the year as [indiscernible] might be because they might have -- because of the smaller denominator, they might look lumpier when they have a major expenditure or year-end kind of computation, but just to give a high-level kind of metric on that. Does that cover you?

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

I’m Good to go.

Operator

Our next question is Perry Huang, Goldman Sachs.

Perry Huang - Goldman Sachs Group Inc., Research Division

Just want to ask a question about deferred revenue. It looks like short-term deferreds were down about 7% sequentially, which is a touch lower than I think a typical 4% decline for September. But at the same time, the mix of lease to paid up licenses was little bit higher for September quarter. So I was just wondering if you're seeing customers signing smaller-sized deals in general and maybe in particular, for lease?

James E. Cashman

Well, there are some and in these times when people get a little bit more nervous, there is that kind of a characteristic. However, you also see a couple of other things where -- with Apache, some of those tend to be longer term leases and therefore, that's why you've seen -- I realize you broke between the short and the long-term base, but that contribution plays a lot. And also some of those longer term leases are things that we just started to look at from an overall ANSYS standpoint. So I think those will cause -- but we didn't see anything that really drove outside of expectation for us, following kind of a usual burn down during the Q3 quarter, but again, the highest deferred balance we've had at this point in our history, at this point of the year, I mean, I'm sorry.

Perry Huang - Goldman Sachs Group Inc., Research Division

That's helpful. And just as a follow-up. For Japan, the weakness on the consumer-electronics segment, it looks like been ongoing for about 3 quarters now. As you kind of talked to your Japan customers, just, I guess, how were they kind of thinking sort of the stabilization in their business?

James E. Cashman

Well, obviously, some of those -- in fact, I was over in Japan just recently and I'll just say that those kind of conversations are ones that they normally don't -- they won't bleed their heart out internally. But they're going through a lot of issues, there actually are some significant layoffs. The general tenor I've got is that Japan is not sending signals that they're officially leaving the electronics business. However, they're trying to do some stabilization right now and that's translating into a cautious environment where they're really kind of realigning their assets and then looking how they're going forward. So the general tenor was that they're -- like I've said, they're not vacating the space, albeit, they have felt some pressures that are pretty well covered in the press, but they still got some pretty significant talent and assets and company there. So at least there are long-term prospects with us at least seem reasonably good. I think they'd have a chance for rebound on that

Operator

Our next question is Ross MacMillan from Jefferies.

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

Jim, I think your Q4 guidance implies some further deceleration in your software license revenue and I'm just curious as to when you're thinking about guiding for Q4, what do you think -- I guess the big picture question is, what do you think is -- what's the notion around no flush? I guess, I'm curious around that idea. And then secondarily, are there any particular vertical industries that, feel like, they're being incrementally more cautious than others?

James E. Cashman

Okay. On the first item on Q4, the -- well, obviously, if we tweak the guidance down, a lot of that is going to be -- some of that is going to be felt in the license range. But when you ask about the no year-end budget flush, normally around these times, we are -- people are starting to talk about, well, if I have this, could we accelerate this program forward. I think the thing is, as opposed to seeing programs accelerate forward into Q4 because people have available funds, they're actually sitting there saying, let's really watch what we spend until we have a lot more -- a little clearer insight as to what's going on in some of the macroeconomic, political front. So that's -- I mean, basically, if you take out what we normally see in terms of the year-end thing, you're seeing basically the -- kind like the whole definition. But the thing is that, so far, that's not been indicated as business. It's just business, it isn't going to pull forward to take advantage of year-end budget money. It's projects, are they going to go into 2013? That's why I'd reiterate that we are actually maintaining the growth ranges in the rate that we've been signaling before. Now apart from that, I haven't seen any -- I've seen very few places where people are not demonstrably, visibly and consciously cautious on what they're doing. That's happening in Europe. It's definitely at some -- as we've mentioned on the previous call, in Japan. And we're certainly not seeing a cavalier effort -- attitude in this country. So I mean it's really -- it's pretty global. And from that standpoint, it's really pretty much, I wouldn't say that it focuses on any one industry, but I'd say that the industries where we still have one, have probably the most resiliency are where they are actually coming under different forms of pressure, such as regulatory pressures, like for noise, or mileage standards, or pollution or things like that, where they're actually being driven and they just can't just kind of sit still and coast. So we are seeing those -- a little more resilient, but boy, are they still being cautious to. Did I get all aspects to your question?

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

That's helpful. Definitely. And just on cost, Maria, I think this year has been a year where you had been looking to accelerate hiring. You came into this year thinking that margins would be down 100 basis points plus, for the year. Just as we circle back and think about operating expenses and the run rate that we are at now, is this a function of you realizing more efficiency, more cost synergy or is it still the issue around the pace of hiring? Just curious to get a sense for that.

Maria T. Shields

I'd say it's a combination, Ross. We still have, even as we exit Q3, we still have over 100 open positions. Many of them in R&D, technical support, AEs and sales, and yes. So the ability to find -- and many, especially in the R&D and comp science, is a challenge. And not only that, but no doubt, we have in our discretionary spending, whether it's travel or marketing or -- we've tried to be disciplined in light of what we see our customers -- or what's happening to them relative to layoffs and just a much more cautious tone in how they approach their business.

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

Okay. And then, if I could just squeeze one last one, and it's on housekeeping. Do you have the sequential impact from FX on deferred? Do you have that to hand?

Maria T. Shields

Yes. $2 million.

Operator

Our next question is Greg Halter, Great Lakes Review.

Gregory W. Halter - LJR Great Lakes Review

Looking through the prepared remarks, I guess, on Page 3 ,where the discussion is Apache. Growth there, obviously, looks pretty strong in triple digits in some areas. Just wondered from small bases and some of those areas, of course, just wondering what's behind that growth? I mean are you seeing the...

James E. Cashman

Well, Greg, just before you go, I'm sorry, I thought you were finished. I didn't mean to cut in. But keep in mind that Apache had 2 months in the comparable year of last year and 3 months this year. I don't know, that may explain a lot. Because apart, the performance has been pretty much on target and pretty linearly increasing. I think that may identify most the difference.

Gregory W. Halter - LJR Great Lakes Review

Okay. And if you had to strip that out though, what kind of growth is Apache seeing on a core organic basis?

James E. Cashman

It's in the upper teens to 20 range.

Gregory W. Halter - LJR Great Lakes Review

Okay. And given the acquisition of Apache and Esterel, I wonder what your M&A appetite is balanced off, on the share repurchase with this stock up about 9% this morning, so far?

James E. Cashman

Well, I have to say that, based on anything that's short-term happening right now, I mean I got to tell you, my finance colleague may wring my neck here, but it really doesn't change the long-term perspective. And share repurchase is always -- is something that we're taking to account because, a, we think it's a good investment, it's a good use of cash, I mean, and we're also mindful of judicious use of the stock, in terms of our employee retention and building what we've done over the last decade. From the M&A standpoint, there's really nothing that changed there. The one thing that changed really is, as time builds up, our capacity actually increases. If you look at the combination of the cash flows and cash in multiple parts of the world. And to us, it continues to be a -- basically, an inexorable push to get the technology continue to a level where our vision wants to drive it, and a lot of that we do with our internal investment. But if we can find the right acquisition, that fits in at the right time, it gives us a big leg up on the technology, with already proven customer base and, by the way, and Maria and I were mentioning about the 100 people because you know we're maybe a little picky on the team we build and gain those people. Well, with the acquisition you also tend to pick up a lot of already proven, well-oiled people. So both of those things really -- regardless of what might happen in the short term, I mean, it might tackedly [ph] impact our interaction in many one month or so, but over the long haul, that really doesn't change, really, anything that we've been saying for many, many years.

Operator

Our next question is Blair Abernethy from Stifel.

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

Jim, I just wonder if you can comment a little bit on the pricing environment, as demand is slowing a bit here and, obviously, customers are more cautious. Is that impacting your pricing, in particular around lease and maintenance renewals?

James E. Cashman

No, really I have to say there is -- right now, there's no change. I kind of maybe try to harken back to what happened in 2009, where even at this point in time we saw no change. And if conditions dictate it, they might push toward a short-term lease kind of standpoint. At that point in time, there were lots of requests for discount. But our pricing has been very stable. The customer reaction to the pricing has been stable and so, really, there's not just -- there's really not a lot of change on any of that aspect. Of all the things we're dealing with, that probably is not even in the upper half of the issues. It is really the overriding message, I don't want to beat this to death, but I guess I will anyway, is that there's just a lot of things where people are exerting a lot of caution right now and it's like nothing's disappearing, but everything is dragging out. And like we said, we perceptibly saw that even toward the latter part of Q3 and all intents we see going into Q4. If it turns out that something magically happens, I mean, we're seriously -- we have no problem harvesting that. But again, we built kind of history here of talking about what we see and what we're really seeing. We try to do that in our 2012 Q4, as well as our -- the statement of the 10% to 14% growth in 2013.

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

Okay, great. And just a second question, if I can, Jim. I'm wondering if you can give us a bit of an update on progress in the channel particularly around your Electrical Products business?

James E. Cashman

Well, keeping -- actually, great question and I'm going to give you an extended answer. So as we've always talked, it usually takes about a year before the lead channels get certified, both from a business model and a technical excellence standpoint. So if you look at it now, about 3, 4 years into the End Soft [ph] acquisition, we've got channels that are making positive contributions into that. Now by contrast, with Apache, for instance, which has only been on board for a year, actually we've been going a little bit slower on that because it is a much more concentrated user base and we're able to actually address that more from an account standpoint than from a regional channel standpoint. We'll be able to enlarge that over time, but I think we've already seen that we've been able to maintain and actually grow the prospects there. And frankly, it will be similar thing with Esterel. A very small company, a very good company, but a new emerging technology base for us. And then as such, we're not going to unleash all of that on a team that would be -- might have difficulty supporting all the requests that came in with their relatively small staff. So again, it's been made very evident, as soon as we announced that we had some customers who actually calling in, asking for greater clarity, I mean, there were people that it immediately resonated with and so we're thinking much more of a rifle shot along that path. But we utilize the same methodology. But people will have to learn a new branch of simulation technology, they'll have to actually pass technical certification and then they'll have to present a business case that doesn't show -- that basically shows how they get the same commensurate, disproportionate growth that we're expecting from it. So it's going to be the same thing, but again, these are multiyear kind of standpoints. But to close on your specific is, yes, we're already seeing the impact of that earlier heavy lifting in the early parts of our Electronics Simulation business, with the End Soft thing and on a rifle shot basis, we're starting to see some traction and co-selling between Apache and ANSYS customers. In fact, one of our top 5 accounts right now is a very significant, mutual legacy customer of each that where we continue to grow.

Operator

Our next question is from Steve Koenig, Wedbush Securities.

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

I'd like to bill down a little bit on Ross' question earlier, in terms of the -- you talked about the lack of budget pull forward that you're not expecting basically on Q4. In terms of translating that to guidance, what are you assuming for close -- how does that translate to closed rates or pipeline coverage assumptions for Q4? Compared either to Q3 or to a year ago Q4? And then I have kind of second part of that question, too, if you don't mind.

James E. Cashman

Can I answer that one, so I don't lose track of the 2 questions, if you just bookmark it for a second? It's really -- it's not a whole lot of change. The only thing is, the pull forward of the flush that happened Q4. So Q4 -- a Q4 standalones are pretty typical, but what isn't typical this time is, at this point, we are normally hearing about customers that are trying to say, well, what if we could pull this forward, what if we had this amount of money to spend? And there are those kind of discussions going on at this particular time. That's really the whole different, but it doesn't -- it doesn't really affect the pipeline, because the pipeline there was just a matter of, when did the pipeline is empty? Secondarily, it doesn't really affect the close rates, per se, because the closed rates were not a normal close in an expected Q4 timeframe as with our forecasting discipline. It were things where many times a customer was initiating and driving those forward. So that's a little bit different than our traditional view of a closed rate. So that -- hopefully, that covered that part and then you said you had a second part or?

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

I do. But just a follow-up on that. And Jim, your guidance is a little more cautious certainly than I think the Street expected for Q4. What are you do -- what mechanically is causing that then in your guidance, if it's not the closed rates?

James E. Cashman

Well, again, it was a definition -- obviously, if you have more business, you close less business. But what I'm saying is, the closed rate normally is saying, here's what we're forecasting for this customer here, here's what the forecast says and here's what we have to do to make that happen. The things that come in from the earlier quarter -- I'm sorry, from outlying quarters, are things that are normally brought in by the customer and while you got a historical norm that says, this typically happens in this typical kind of economy, and that's what we kind of factor in for the year. You don't have -- you don't necessarily have that, any of those discussions that are going on, in the middle of the year. They start to trickle in at the beginning of Q4, when companies get a chance to see what they're doing, and then outlying their overall prospects. And all I'm saying is that, that part of the things that are being pulled forward, actually more by the customers than by our efforts. Those things -- their caution is translating basically into the absence of that kind of activity. And that's really the difference of the story right now.

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

Got you. Okay. And then, if I just may, this is related. Europe actually looks pretty good in constant currency terms this quarter. In terms of your go forward guidance here, what are you assuming about Europe and are you making any differential assumptions about weakness in Europe versus weakness in North America or Japan or elsewhere?

James E. Cashman

Well, first of all, yes, Europe was doing pretty well and basically it's a testament to 2 things, we got really some good customers there and our team performed admirably in there. Yes, we did. The one thing that maybe doesn't come out in there, I'd say that every part of the globe, it wasn't like one -- every part, any one part was monolithically great, and the other part was monolithically bad. It was really more along the lines that each one had big pockets of strength and that, frankly, some of the parts of Southern Europe, which are relatively smaller ones for us, they felt some of the pain. But Europe, the team there is strong. They did a good job. The customers there are great for us, too.

Now if we move into 2013, the first thing I'll put is a big caveat on there saying, keep in mind Q4 this year isn't over. We're still doing a lot of the final planning. So I mean a lot of this is getting into a level of precision that would be far beyond what we've really honed it down to. However, we are taking a more sober look toward Europe, looking at it being roughly equivalent, a little bit tougher, I mean, and then right now, who knows, on what can happen to the currency and things like that. That we're really trying to build that. If you look at that, the bulk of -- when I talked about the currency headwinds that we ate throughout this year, oh my gosh, the lion's share of them, I mean, a strong majority of those were European, that came in. And nevertheless, they still posted pretty good. But so, those things can blow a lot of different ways, but we're not expecting -- let's put it this way, at best, we're not expecting anything a lot more promising out of Europe.

Operator

Our next question is Jay Vleeschhouwer, Griffin Securities.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Jim, within your current active base of licenses, are you seeing anything on the margin whereby customers are utilizing their existing licenses more intensively, making more use of existing capacity rather than adding new licenses? So maybe you could talk about current customer usage trends, then a couple of follow-ups.

James E. Cashman

Well, the current usage trend is, our main customers actually are increasing licenses. However, one trend, that we -- and we've actually I think we've chalked off now, this maybe the fourth quarter is there is a definite increasing trend toward High Performance computing licenses which, again, somewhat analogous to as opposed to buying a bunch of extra computers, buying a bunch blades of to shove into the system to get additional computation along. There are probably 3 major reasons why people are doing this. A, is they're being a little cautious in the hiring of new potential users. Second of all, they're actually solving -- trying to solve bigger problems than traditionally they use to let prank [ph] on different clusters or unit processors. And probably, the third one is, in some of the -- the third case we probably see is when they're – under a lot of pressure either to hit a design cycle, a date, or hit some kind of a design goal and the calendar is a big enemy. But I'd say right now, at this point in time, the intensity factor, the high performance computing factor is outgrowing the just the pure base C cal [ph] even though that is also growing, but it's skewed toward the more intensive usage.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. Within the ANSYS space that is keeping Apache on the side for moment, could you talk about the relative performance of the traditional, structural, mechanical side of business versus CFD?

James E. Cashman

Well, like I said, they've all been pretty much on par, they're all pretty much with the company. So I mean, if you looked at -- I think we mentioned that, for instance, both -- all of the aspects kind of grew double digits and each of the geographies grew double digits in constant currency. And we only don't do a lot of constant currency split on some of the business line things because just the way we track them. But you probably look at that kind of a double-digit, really, kind of across-the-board, it wasn't like there were any extreme laggards or people that were way outside the norm.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. And in answer to an earlier question about lease and maintenance pricing, you said you hadn't seen a change, but as best we can tell competitively your largest competitor, against whom you are still considerably larger, however, they do seem to be growing more quickly than you on a constant currency basis. And so I'm wondering if, in fact, you are seeing any increase from Desou [ph] or any of the smaller competitors?

James E. Cashman

Well, definitely really not former. I'd say, at any one time, I'd say that there's always 1 or 2 competitors that cycle in and have relatively high points. Sometimes it's numbers -- growth numbers look bigger off a lower denominator, there are a lot of things. But in terms of the competitive environment and then actually, let's just say, published numbers versus anecdotal numbers, really, don't see much change.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

And lastly, for Maria. Does your 2013 guidance -- for 2013, Maria, does your guidance encompass any appreciable change in the proportion of revenues from top 10 or top 100 customers?

Maria T. Shields

No.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

For 2013?

James E. Cashman

Again, you're probably getting to a level of granularity that where we really aren't. I think that you would -- we continue to see trends where the top 100 probably grow a little slightly disproportionately because they are on the rapid acquisition part. But by the time you span it over the entire business, it really doesn't move a dial in any big direction.

Operator

Our next question is Sinil Bepterer [ph] from Sentinel Investments.

Unknown Analyst

Jim, about the guidance for 2013 when you look at revenue growth of 10% to 14% at constant currency, your earnings growth is not growing at that rate. Can you give the puts and takes on that?

James E. Cashman

Yes, well, first of all, the second thing is we've been talking about still investing for the long-term because -- but the other thing, the main important part is that you got a blending with some of the -- first of all, you've got a blending with the lower margins as a result of some of those business we talked about, over a couple year period, will blend in there. The second thing is, quite frankly, the share count increases also, the diluted share count it cuts up, so with more accounts, the EPS goes in. Which, is one reason why we talked about -- that's one of the reasons why we have had an active buyback period, which we took advantage of this particular year and things like that. So the other thing is on the margin, keep in mind we had guided this year to the 48% to 49% level and then, of course, on numerous parts of this call, we talked about -- first of all it's difficult to hire those top decile type of employees. Now we have been bringing them on, albeit, slower. But the thing that will probably factor in is that, if you look at 2013, we will have those employees for a full year where we might have only have them for 1/4 to a 1/3 to 1/2 of the time we expected to have them that year. That tends to bring up the personnel costs also. But it's really a good story, it's actually, frankly, we wish we've had been able to get some of those people earlier.

Unknown Analyst

Okay. You talked about cautiousness in general. Now is it any -- concentrated in any specific geographies or it's across the board? And what verticals do you have seen most cautiousness because you thought that Automotive, Aerospace and Defense, Electronics and Semiconductors being the good areas, but if you look at Japan and probably look at Asia, Semiconductors, Electronics has been weak. So can you just expound on that? Where did you see that or what geographies you've seen that cautiousness?

James E. Cashman

Well, the caution spans the globe, first and foremost. So I might say that, that's the theme, that's the general theme. Now, theme and variations, there are variations in each different realm. So for instance, while China has been good for us, I mean, a lot of times they're in this -- we think they're in their 12th 50-year plan, and the first year of it normally has kind of a slowdown and some deactivity, but then they build up in the second year once they get through the budget. That's one particular aspect. If you look in India, some of the things that have been going on with the tax environment, that tends to predominate. If you look in Europe, you've got a number of different factors, everything related to a sovereign debt to a whole range of fiscal issues come into play. Here, general tax, political, whole sorts of environments in there, so it's kind of like the caution has been across-the-board and it's not like each one has different factor. If you look at industries, again, the ones that are under pressure to, again, automotive, we think has been a little bit stronger because of the drive toward high-efficiency and hybrid vehicles. You look at mileage standards, you look at the increased safety regulations. If you look at Aerospace and Defense, I can probably parse that down between aerospace and aero engine performance versus maybe some more subdued defense spending in certain areas. If you look at the energy industry and what happened a couple, 3 years ago. Nuclear was starting to really pick up and then slowed down a little bit after Japan and then oil went up $140 and people got really excited in other forms of alternate energy. Now oil is back down. So you see some investment flows that ebb and flow through all those things. But in general, come think it's just an overall -- it's the overall level of the ocean and all the other things are different people are seeing different waves, here and there.

Unknown Analyst

There was a question on about one of your competitors growing faster than you. Do you think that you are -- you're position is weakening in that area versus -- vis-a-vis the competition. Or you think that your position is still strong? Given the difficulty of finding people, do you think that going forward for 1 year or 2 years that you're not able to find enough people, your competitive position may weaken? Or you may have to pay up more to buy these people and have a headwind on the margin?

James E. Cashman

Well, that's really not the issue. The other thing is just a kind of the -- the situation is, at any point in time, anybody is going to -- I mean, while we don't have a single competitor across-the-board, we've got about 20 or 30 people that all poke on different aspects of it and they all tend to be smaller, so a growth rate might be in the short term smaller. Sometimes these are private companies, sometimes, again, it's anecdotal reporting and things like that. So it's really difficult to speak. If you look at the overall supposed size of the thing, if you look at the overall market, we're holding or gaining in each of the major sectors. Now that's looking at major sectors. What happens any given period of time, any year, any quarter or something like that, there can always be spikes that put it up and down. But I mean, we tended to look at the overall issue and continue. And I think that's probably borne out in some of the longer-term and the sustained growth rates over the long-term. To answer to your question about investment, yes, if we didn't hire anybody and we didn't continue to innovate and renovate internally, of course, that's going to -- that would affect the business. But our situation has been one of probably hiring 3, finding 3, 4, 5 months slower than we would like. It's not a question of doing it or not doing it and it's certainly, not doing it over long-term. So I mean if you look at it we've got close to 900, approaching 1,000 people in R&D today. So I mean and the other thing is if you look at the product that people are using right now, it has literally persons centuries of development already into the code and we're really trying to take the lead in terms of pushing the new kind of capabilities out there. So it's really not even -- that's not even a maintaining parity kind of thing, it's actually continuing to progress this to the next level. And those are the things that we really don't want to lose scope of.

Operator

Having no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Jim Cashman for any closing remarks.

James E. Cashman

Okay. Well, basically, in closing, emphasis to the remainder of 2012, it's going to be execution, customer development and, of course, an operational discipline. Again, if you haven't picked up through the course of this call, there's little doubt about the long-term opportunity, but in the short-term, there's a continued vigilance as customers and their increased spending, scrutiny, the diligence in their investment decisions, they've led the longer sales cycles and actually a staging out of the decision. So we tried to factor all these realities into our guidance and like we try to do for almost forever, continue to endeavor to do so going forward. So but despite these economic and political uncertainties that dominate the headlines, everybody's seeing them, we're still -- at the heart of what we are, we're still propelled by a combination of a long-term vision, a business model that I think is navigated through a range of economic conditions, cost of oil customers that are the crème de la crème out there and they stay loyal to us, the partners who have been with us for decades, great and unique technologies and, of course, the base of employees that continues to help keep this ship going through all sorts of weather. So I'd like to thank everybody for joining us this morning and, again, our best wishes for everybody out in the East Coast and we'll talk to you in a few months. Thanks a lot.

Operator

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

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