Ansys Inc. Q2 2008 Earnings Call Transcript

| About: ANSYS, Inc. (ANSS)
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Ansys Inc. (NASDAQ:ANSS) Q2 2008 Earnings Call August 7, 2008 10:30 AM ET


Jim Cashman - President and CEO

Maria Shields - CFO


Andrew Matorin - JPMorgan

Barbara Coffey - Kaufman Brothers

Mark Schappel - The Benchmark Company

David Heinz - Needham & Company

Jack Miller - Robert Baird

Greg Halter - Great Lakes Review

Greg Dunham - Deutsche Bank

Ross MacMillan - Jefferies & Company


Good morning and welcome to the ANSYS second quarter 2008 Earnings Conference Call. (Operator Instructions). Today's conference is being recorded at the request of ANSYS Incorporated. If anyone has any objections you may disconnect at this time.

I would like to introduce your speaker for this morning’s call, Mr. Jim Cashman, President and Chief Executive Officer. Mr. Cashman, you may begin.

Jim Cashman

Okay, thanks Anthony. Well good morning everyone and welcome to the ANSYS call for Q2 2008 and with me as usual today is Maria Shields, our CFO. We have a really full agenda today. As usual we'll outline the highlights of the quarter and the year-to-date and some overall summary comments and then go into greater depth on the operational results. We'll then go into some very encouraging qualitative factors that have been driving our business and in particular some opening comments on the acquisition of Ansoft Corporation, which closed on July 31.

In the short amount of time since then we've been able to already start our integration efforts and we'll be provide initial guidance for the combined entity toward the end of the call. In the course of this, Maria will then update you on our line items expense performance, balance sheet, cash flows, and provide an update on our current outlook on earnings.

And then after discussing all of these topics, we'll be happy to respond to any questions you may have. So, to begin with, Maria, our Safe Harbor Statement.

Maria Shields

Okay. Good morning. Again thank you everyone for joining us. Before we get started, we will just do a little bit of housekeeping and remind everyone that during the course of this call, some matters that will be discussed is, either part of the prepared remarks or in response to questions may constitute forward-looking statements. Those involves risks and uncertainties which could cause actual results to differ materially from those projected.

Additionally the Company's reported results should not be considered an indication of future performance as there are potential risks and uncertainties that could impact our business in the future. These are discussed at length in all of our public filings including our 2007 annual report to stockholders, all of which are available via our website. Any forward-looking statements are based upon our best judgment as of today and ANSYS undertakes no obligation to update any such information unless we do so in a public forum.

And during the course of this call, we'll be making reference to non-GAAP financial measures in an effort to provide supplemental information to our GAAP disclosures. And a discussion and full reconciliation of GAAP to non-GAAP is included in this morning's 8-K and earnings release.

So with that I'll turn it back over the Jim.

Jim Cashman

Well, put, Maria. Thanks. Okay, so Q2 summary. Q2 performance, basically it was strong performance on virtually all aspects of the ANSYS business. It represented results at the upper end of the range of our non-GAAP revenue guidance and above our earnings guidance. As a repeat from the last quarter, the numbers that we're using are non-GAAP in our historically consistent fashion we've been doing that for year-after-year. Actually GAAP and non-GAAP revenues are equivalent for 2008 and they will be compared to the non-GAAP revenues for the comparable Q2 and first half of 2007.

Non-GAAP earnings include the usual amortization and stock-based compensation adjustments for both 2007 and 2008 again as detailed in our earnings announcement. And as always we feel that this really does give the most accurate representation of the business.

So for a high level perspective this was another very solid quarter even by our standards and off of a string of strong comparables. For the comparable quarter, we reported non-GAAP revenue of $111.2 million this represents a 21% increase from last Q2's of $92.3 million. This was at the high end of our guidance which was $109 to $111 million.

Non-GAAP diluted earnings per share increased 40% with non-GAAP EPS of $0.42, up from last Q2's comparable $0.30. This was above our guidance and the analyst consensus and really driven by the solid revenue performance we saw. Just in the past few years our non-GAAP revenue and EPS performance for the quarter, both primarily a direct consequence of strong top line performance which basically has been driven by increasing customer adoption by the time you deal it through everything.

All major aspects of the business performed well, double-digit growth in each geography and major product line. We saw a continued strong growth in operating margins, cash flows, and a real stable business model, basically every metric was positive. There was continued acceleration of customer engagements that included expansion in our major accounts and the addition of many new customers.

Our results included 12 seven-figure orders that actually disproportionately went to deferred revenue. The majority of these were from existing customers and they were forecasted as part of our Q2 guidance. There was a continued expansion of portfolio sales and cross selling, something that we expect to cultivate with Ansoft over the next few years.

At the 50,000-foot level we are hearing the same messages from customers, there’s general economic concerns for sure that heighten the need for competitive advantages that basically we feel can greatly be facilitated by uncompromising simulation offerings.

So, that was the summary comments. Let’s slice down the operational highlights first. As previously mentioned, our non-GAAP revenue for the quarter, $111.2 million which was 21% over the $92.3 million of Q2, 2007. Non-GAAP diluted earnings for the quarter grew 40% to $0.42, up from $0.30 per share in Q2 of 2007. This exceeded the analysts’ consensus and basically marks the 43rd consecutive quarter that we have exceeded or met non-GAAP EPS.

Overall, non-GAAP operating margins for the quarter were 48%. The reason for this is threefold. First of all, the strong revenue performance filtered disproportionately down to the bottom line. Secondly, license revenues composed a higher percentage than usual in the product mix. And then finally the Ansoft acquisition temporarily changed our expense landscape in a couple of ways.

The first of these were discretionary expenses that were deferred or refactored in anticipation of the combined entity going forward. And then secondly, we focused on completing the acquisition obviously and some of these expenses had to be classified as transaction costs and therefore they went to the balance sheet instead of the income statement.

The important thing is on a go-forward basis, we’ll be looking at the more traditional levels of operating margins with the ability to generate upside and while continuing our investments for the long-term opportunity which we stay bullish on.

Additionally from this point forward, our margins will be a blended ANSYS-Ansoft margin, that's a little lower than our standard margins and therefore lower than those of this past quarter. But this has happened in every acquisition that we have done and we’ve demonstrated our ability to build of the strength of the ANSYS business model to grow these margins over time.

Non-GAAP gross margins continued in line with our business model at a healthy 86%. And we saw continued strong cash flows from operations. For the quarter, it was over $55 million, which is a 49% increase over the comparable $37 million of last Q2. If we expand out and look at the first six months of 2008, we reported total non-GAAP revenue of $220.8 million, which was a 21% over the first half of last year.

Software license business was disproportionately strong, but the maintenance and service also grew well. The year-to-date non-GAAP EPS was $0.82, a 39% increase over the $0.59 in 2007. Non-GAAP operating and gross margins were 48% and 86% respectively for the first half. And the cash flows from operations were over $92 million for the first six months, which is a 56% increase over the first half of 2007.

Now we can go through the numbers, we’ll go through a number of different perspectives. So let's start with the category of business first. So, overall consolidated non-GAAP software license revenue grew 24% for the quarter and 25% for the first half of the year. Total paid-up licenses grew at 30% for the quarter and 31% for the year-to-date.

The lease business grew at 20% for the quarter to remain around 40% of revenue. And for the year-to-date, it also grew at 20%, basically representing 39% of our total revenues and of course this always continues to aid in our overall visibility and strengthens our repeatable business base.

Total maintenance and service grew about 15% for both the quarter and the year-to-date. Now the pure software and enhancement subscription portion grew in the mid-20s for both the quarter and the year. The pure services element actually declined, this is partially in line with our guidance to focus on higher margin services, but also we were obviously drawn into supporting the expanding software license growth, so see that still being pretty much in line with where we are heading corporate.

We saw our continued good balance between both the high end and the desktop products. The upper-end products continued to perform well with all portions of the multi-physics and higher level software growing in excess of 20%. The lower end products grew a little less than that, but this is really a direct consequence of our recent ability over the last few years to provide the upper-end solutions. Remember I mentioned the need for non-compromising solutions, but we combined those with the things we have been doing for almost a decade with the lower end ease of use.

So, still basically this is completely in line with the competitive pressures and customer desires for those high-fidelity solutions. Our direct and indirect businesses, both performed proportionately well, maintaining a 69% to 31% split. That's in favor of direct, and as a repeat from previous calls, we feel this is significant for a couple of reasons.

First of all, it shows continued strength in our indirect channel, but it also demonstrates a future opportunity to selectively expand our product portfolio in to that channel to take advantage of market opportunities. Business intake was also strong, it grew right in line with our revenue growth and it basically is what allowed the deferred revenue to rise 25% from last Q2’s to $158.7 million which is another company record.

Our strong repeatable business base, it remains at a healthy 69%. So, even with our robust growth, the consistent ability to maintain a solid base of recurring or repeatable revenue has been one of the hallmarks of our business model, it basically afford us visibility going into the quarter and it’s helped to reduce the variability of the traditional back-end loading of revenue in the quarter.

Basically, we think that this is direct result of the commitment that we've had over the years to invest a high percentage of our revenue back into R&D, which basically then allows our customers to solve their increasingly complex design issues. So, you pile all of those factors together and we have a solid balance sheet and strong cash flows as I mentioned before, $55 million for the quarter and $92 million for the year-to-date, which we have used to totally retire the debt associated with the 2006 acquisition of Fluent, obviously several years ahead of schedule. And of course we will be taking on a new round of debt associated with the acquisition of Ansoft and we will have more on that later.

Turning our attention to the geographic view, as I mentioned at the opening comments, we saw a strong double-digit growth for all these regions. It was accentuated by a combination of industry breadth, new customers and large scale expansion within the existing customers.

North America increased at 14% for the quarter, 13% year-to-date. And while certain pockets of North America have seen more economic slowdown, North America is also the place where we've seen some of the most robust large account activity. In fact, I mentioned that number, a seven figure deal, it’s actually nine of those seven figure deals and many, many more at the $0.5 million and above level came from North American customers.

It's also important to note that a fair amount of business activity that, in the past would normally be in North America was actually implemented and therefore accounted for in other regions of the world. US multinationals in particular appear to be expanding their global usages at a faster pace in light of their business opportunities and realities.

Nevertheless, we saw strong growth typically in excess of 20% in each of the ANSYS direct major account offices, basically and we also saw increasing activity out of the indirect channel too. So, major orders in North America came from a typical mix of longstanding and new customers, pretty long list here. Let's see. They become common place, Delphi, General Atomics, Honeywell, Goodrich, Intel, Caterpillar, Lockheed Martin, Hatch which is actually a large consulting company of the mining and metallurgy sectors, more on that later.

This beyond, Shell Oil, Corning, the United Launch Alliance, Train, Hewlett Packard, Westinghouse, Pratt & Whitney, Boeing, Cummins, Dresser-Rand, GT Solar, NASA, Walter Reed Army Medical Center, Solar Turbines, Halliburton, ExxonMobil and Whirlpool, I mean the list is fairly impressive and goes on for a while. But again, indicates that general need for the high-end comprehensive simulation solutions.

Europe continued its impressive performance with an overall 28% growth for the quarter. While there was good balance across the region, Germany and the Central Europe portion led with a 35% growth. There was a positive currency impact. It was $3.3 million for the quarter, but the growth for the quarter was about 20% ex-currency. For the year, Europe has grown at about 27% and over 18% in constant dollar terms.

The largest deals in Europe included again repeat customers and new ones, ALSTOM, Rolls-Royce, Ariva, Red Bull Racing, Volvo, Scania, Airbus, Siemens, Hitachi Power, Expro North Sea Limited, Atlas Airpower, [Rodia, Daleo,] Fusion for Energy, Shell, BAE, ABB, Philips, BP and Bayer, we probably see some trends in there, but I'll be talking more on those in a few minutes.

And our general international area continued to grow well and with quite balanced performance. But there are a number of sub-themes here. The overall growth for the region was 17% for the quarter and Japan grew at 20%. The rest of GIA grew in the lower double-digits. While most of the higher potential areas grew well, China had a number of orders that were deferred as the company turned its efforts to the internal response of the massive earthquake that hit them in Q2.

And all indications are we expect to book these orders over the next few quarter, but it does service one additional example of how our geographic diversity provides some protection just for the multitude of things that can happen around the globe.

Growth for year-to-date in GIA is 24% or about 18% in constant currencies. And if we just go down a brief list of the key customer engagements in the region, Mitsubishi Heavy Industries, Toyota, Honda, Ishikawajima Heavy Industries, Canon, Hitachi, Matsushita Electric, Honeywell, Mitsubishi Truck, Nippon Steel, Sumitomo Metal Mining, Kobe Steel, Bharat Heavy Electricals, Sumitomo Electric, Fuji Heavy Industries. I think you are probably already seeing a trend that I am going to point to in future, but Toshiba, Bajaj Auto, Embraer, Ashok Leyland, Sony, Tokyo Electron, Japan Atomic Energy Agency.

So, as you can readily tell from this list, just the short list here that we saw a continuing variety of orders from both locally-based businesses as well as expansion with the multinationals. So as you can tell on a world-wide basis, we are seeing continued industry breadth from the list of large orders, but evident the small orders too, the trend toward all forms of energy optimization, whether it is conventional or Petro, oil gas, nuclear, alternative continues to be very important.

But we are also seeing and you tell it from that list, we are seeing ripple effects from the rising energy costs that are benefiting us. The number of auto, aircraft, and engine companies that are modulating their businesses to the new economic realities of energy cost continues to grow. I think you can see that in just the sublists I provided.

In the Auto industry, the new calculus of energy costs, it’s given rise to a wave of innovation in electric drives, fuel cells, hybrids and hydrogen engines as well as in aerodynamic performance. Even general efficiency improvements in existing technology is becoming important.

One of them actually even borders around a complete revisiting of the internal combustion engine that had the efficiency of diesel and they are doing all of this is in a conceptual standpoint even without prototypes. In all of these cases, a rapid understanding of some very complex problems with extreme accuracy is essential. And that basically is the pure core strength on ANSYS multi-physics, a key differentiator.

A similar pattern exists in the airframe and aero-engine arena where energy efficiencies with no margin for failure, no allowance for that, it is paramount, but it is not stopping there because in that list and the reason why it was a little bit longer, than maybe unusual was, you might have noticed that metals and mining figure prominently as do general heavy industries involving construction and infrastructure renewal around the globe and of course all of these are being driven by a combination of huge energy costs and environmental concerns, at least that's the word we get from these range of customers.

Now apart from industry breadth, most of the other trends persist. There's increased penetration within our strong and broad customer base, you heard a lot of familiar names of people who have listened to these calls over the years. The pipeline of new opportunities is increasingly solid. So, even amidst those challenges that I mentioned earlier, we are seeing growing interest.

We are encouraged by the continuing multi-year momentum, both in existing and new customers, but nonetheless, even with this increasing interest, there's also a cause for constant vigilance due to the daily headlines that we see relative to increasing energy costs, tightening labor markets, concerns about slowing growth in certain parts of the US economy, currency fluctuations and the list goes on. So all or any of these can positively or adversely influence timing and patterns of our customers’ buying decisions.

So, we actually included these issues in our last call and we tried to factor it in to our revenue guidance. And I think we did so with reasonable visibility and accuracy. Now we will continue to endeavor to do so going forward while also simultaneously working with the Ansoft team to gain a similar level of confidence in their business visibility.

So in summary, there was double-digit growth around the globe and as you can tell from the list of customer names, there was good industry and major account activity, continuing strong performance in every major geography and virtually all the sub regions with a few totally understandable minor exceptions like what had happened in China. Major accounts were particularly potent.

In short there was solid performance everywhere, but again there are areas we can improve almost everywhere too. So in light of this progress we are continuing our ramp up of the customer facing organization in response to this growing opportunity.

Now, obviously this is all predicated on to the core strength in some of the industry-leading products we have. So how did that reflect on those, so from a product revenue standpoint, basically we saw no significant changes in either the trend or the guidance we have given you over the past few quarters, consolidated paid-up software licenses grew by 30% quarter-to-quarter. The lease business as I mentioned has remained at 40% of total. All parts of our product spectrum did well with good overall balance.

The software maintenance and enhancement subscription business grew at 23% for the quarter and 24% for the year-to-date. As I mentioned earlier, high end sales grew disproportionately, but the bottom line is with the pressures our customers are facing, they simply can't compromise on the scope or the accuracy of the solutions that they're trying to get.

ASPs for the quarter actually increased noticeably at the high end largely driven by a move toward more comprehensive solution purchases. This has been a multi-quarter trend also that we have talked about if you go back and review. And at the low end, adjusted for volume purchases, ASPs were slightly up.

From a qualitative standpoint, I just have to say that the broadest, deepest set of integrated simulation tools basically that has been driving this customer adoption, it’s just continued to get broader and deeper.

And it will be getting even broader and deeper yet since we were able to close the Ansoft acquisition after a number of hurdles. We have already been able after a lot of anticipation and chomping at the bit to finally apply tension to putting two great companies together. One early certainty is that we have a very good team of people and world class technology joining us.

We also feel that there is, there is the ability to leverage the strength of the ANSYS business model and technology base over the long term to provide lasting value for customers, employees and shareholders. The net impact is that we are reiterating our projections of making this modestly accretive within the first 12 months of combined operations and we will be elaborating on that toward the end of this call.

Now being able to do complete product simulations across all industries with our customers’ products that are becoming an increasingly a blur of mechanical and electrical effects is particularly exciting to us. And especially key is to be able to do this in an egalitarian plug and play manner in a Cad-neutral environment that exists in most of our client supply chains and to do that with our myriad of partners.

So a lot of exciting things there, that there has obviously been a lot of other news that I'll just hit the highlights on real quickly and actually some of them may even sound a little an anti-climactic, but there is being a lot going on.

ANSYS was recently upgraded to the Russell 1000, basically emblematic of the corporate strides that we've made. Additionally we were moved from the S&P 600 SmallCap to the S&P 400 MidCap. And then finally, we were one of only 13 US based IT company to be included in the S&P Global Challengers list, basically comprised of 300 strong performers across the globe.

And of course, at the end of August we'll be holding our biannual ANSYS international conference in Pittsburg. So, we've been doing a lot to prepare for that.

This is always a key event to introduce our upcoming software as well as to commune with our customers throughout the globe. I have to admit that the timing of this is particularly good since it allows us a great opportunity to introduce our customer base to the new Ansoft capabilities and a similar opportunity in reverse for Ansoft customer. And it's already shaping up to be the largest yet in the company's 38-year history.

So concluding, in summary we had another very strong quarter by all metrics, both the quantitative and qualitative factors showed progress. And the results are demonstrated in our continued financial and market performance. We are able to do this while navigating the regulatory hurdles involved with the Ansoft acquisition, continuing our R&D innovation and of course preparing for the ANSYS conference and a number of other initiatives that we feel are essential to building the foundation for our future growth.

Our earnings and cash flow remain solid which should serve to continue our investment patterns in technical innovation and in sales as well as to support the debt that is associated with the Ansoft acquisition. So we'll reiterate our long-term commitment to taking our markets to a new level and to continue our pursuit of meeting customer expectations and our corporate commitment to our shareholders.

So I think over the long term, we've demonstrated the ability to grow the top line in accordance with our guidance underscored by this past quarter, but we've also being able to maintain solid margins and solid earnings growth.

So with this, again we're going to maintain the drive to our long-term vision, long-term optimism definitely there increasing confidence of recent, they are both intact, but we're going to continue to attempt for this with our eye toward all those range of short-term factors out there.

So actually now I think, I'll just turn it over to Maria Shields, our CFO again to provide you with a more detailed look at our financials, expense structure, balance sheet, highlights as well as other key factors of the quarter's business and maybe some comments on Ansoft and our outlook on the future. So, Maria.

Maria Shields

Okay. Thanks, Jim. We'll move right into cost of sales. Excluding acquisition-related amortization and the impact of stock-based compensation which combined totaled $4.9 million. Cost of sales for the second quarter totaled $15.7 million and that compares to $13.6 million in the second quarter of '07.

This resulted in overall non-GAAP gross profit margin of 86% for the second quarter and on a year-to-date basis, 2008 non-GAAP cost of sales which exclude $10.1 million of acquisition related amortization and stock-based compensation totaled $31.3 million compared to $27.1 million, also resulting in an 86% non-GAAP gross profit margin for the first half.

On the SG&A front, for the second quarter our total expenses which exclude $2.3 million of stock-based comp were $25.9 million compared to $25.6 million in last year's Q2 and for the first half, SG&A expenses excluding $4.1 million of stock-based comp were $52.7 million compared to $51 million in the first half of last year.

Looking ahead for the second half, we will continue to make investments in building our global sales and business infrastructure, as we integrate the Ansoft acquisition to support scalability and growth for the combined businesses going forward. In the area of R&D total expense for the quarter net of approximately $700,000 related to stock-based comp were $15.8 million compared to $13.1 million in Q2 of last year. And for the first half, our total investment in R&D excluding $1.4 million of stock-based comp has reached $31.1 million compared to $25.6 million for the first six months of last year.

Based upon our current outlook for the remainder of 2008, we're targeting a blended rate in the mid-teens range relative to our continued investment in R&D for the new combined company.

For the second quarter and the first half of 2008, we delivered a solid non-GAAP operating profit margin of approximately 48%, admittedly these are above what we have planned coming in, out of the gates in 2008, but as Jim articulated earlier we've adjusted various aspects of our original '08 planned spend in the first half in the anticipation of the Ansoft acquisition.

Our consolidated effective tax rate for the second quarter and first half were at 35% and 37% respectively. The second quarter tax rate was below what we had originally targeted, and that's primarily as a result of increased domestic manufacturing benefits and a shift in pre-tax income to certain foreign jurisdictions that have lower effective tax rates than the US. And at this time, we are anticipating that throughout the remainder of this year, we should be able to maintain a consolidated tax rate somewhere in that 37% to 39% range.

For the second quarter, ANSYS reported a 40% increase in non-GAAP EPS to $0.42 on 82.1 million diluted shares, compared to $0.30 on 80.9 million shares in the second quarter of last year. And on a year-to-date basis, our non-GAAP EPS has increased 39% to $0.82 on 81.9 million diluted shares, compared to $0.59 on 80.8 million shares for the first half of last year.

So, just to quickly summarize, the highlights of the drivers of our Q2 earnings, we had solid organic revenue growth led by greater than 20% growth in both the software license and annual maintenance subscription business. We expanded our operating margin, albeit, this was influenced by the delay of the timing of Ansoft and more sustainable tax rate than we had originally projected coming into the quarter.

So if we take a quick look at the balance sheet at June 30th, our total cash and short term investments were at $202 million, our consolidated net DSO was at 45 days and the record cash flows of $55. 1 million in the second quarter and $92.3 million in the first half enabled us to pay off the remaining debts from the Fluent acquisition well in advance of the original 2011 contractual pay off date.

And with the recent closing of the Ansoft acquisition, the company did borrow $355 million under a new five-year credit facility. The debt carries an initial effective rate of approximately 4.7% which will gradually migrate down to lower rate tiers as we utilize the operating cash flows to pay down the debt and reduce our leverage just like what you saw us do with the Fluent acquisition.

Also, we saw in Q2 and for the first half, given our level of international business, our 2008 results may continue to be favorably impacted by currency. In our current projections, we are assuming that rates stay roughly the same as the current rate environment and if things change in the future, we will modulate our outlook and let you know accordingly.

So, currently based upon the current business visibility in the pipeline, we are increasing our annual outlook for non-GAAP EPS to a range of $1.61 to $1.64 for the full year of 2008. For the upcoming third quarter which will include two months of Ansoft operations, we are targeting non-GAAP EPS of $0.36 to $0.37.

This assumes fully diluted share count of about 91 million shares to Q3 and we look forward to updating all of you relative to our progress with the Ansoft acquisition and our business in general after we get through this upcoming important first quarter of combined operations. Jim?

Jim Cashman

Okay. Okay. Thanks, Maria. So to recap, okay first I'd say the continued strong and sustained, diversified financial performance of all major parameters of the business, slice it by revenue, earnings, margin, cash flow, business base, and even going forward, visibility. Secondly,. the closure of the Ansoft acquisition. Third of which is probably just the increasing customer interest marked by the increased activity, it is across a broad front. It is evidenced by industry, geography, commitment levels, everything at least that's kind of how it is being represented by how the customers are interacting with us.

And then probably, finally a rapidly expanding product portfolio augmented by partnerships, relationships and technology distribution and customers. They just got a lot bigger as a result of the July 31st Ansoft closure.

So, the long-term outlook stays bullish for the remainder of 2008. As Maria mentioned we are raising our estimates from the last call, it is based on Q2’s performance and the newest data available to us and then combining them with the Ansoft contributions.

We anticipate a good Q3 performance, but just to remind everyone that with Europe contributing around 40% of our revenues, this is always a challenging quarter with summer seasonality. Of course we will also be having the non-comparable expense at the ANSYS conference. And there are a couple of other non-standard factors to keep in mind with the combined guidance. First, we will be including a couple of months of Ansoft contribution in this quarter.

So just a reminder, Ansoft was on April 30th fiscal year and so we only get a couple of months from that. Second of all, their historical revenue patterns within the quarter exhibit a much steeper hockey stick affect than that of ANSYS. So as such the disproportionately large third month of their traditional quarter will not come into play in our calendar Q3.

Secondly, the initial financing charges will be highest during this period. Nevertheless, for Q3 we expect non-GAAP revenue in the $123 million to $127 million range with non-GAAP earnings in the $0.36 to $0.37 range.

For fiscal year 2008, our guidance for non-GAAP revenue is an increase to the $493 million to $499 million range with non-GAAP EPS increasing again as Maria mentioned in the $1.61 to $1.64 range. Even despite the mild initial delusion from the Ansoft acquisition. 2009 is shaping up to be accretive on a non-GAAP basis, totally consistent with our earlier projections of a modest accretion in the first 12 months of combined operations, although we're not giving specific guidance for 2009 at this juncture.

As I mentioned we continue to ramp up parts of our business in a judicious manner, particularly in the sales and support ground to take advantage of market opportunities. We're going to continue to monitor the shorter-term market factors on a global basis, again, as we've demonstrated over the years and of course our acquisition teams will be striving to maximize the opportunity of the Ansoft acquisition in a manner similar to our past history with other acquisitions.

Overall, we are pleased that given the strength of the core ANSYS business and the anomalies that will be behind us going in to 2009, we're still forecasting to deliver solid top and bottom line results for Q3 and the remainder of 2008 that will strengthen the foundations as we enter into next year.

So with that in mind, probably it would be good if we just concluded here for the time being and see if there are any specific questions you might have. Like things going on.

Question-and-Answer Session


Thank you, Mr. Cashman. (Operator Instructions). We will take your our first question from Andrew Matorin with JPMorgan.

Andrew Matorin - JPMorgan

Thank you very much. If you could talk a little bit, Jim about, how you are seeing adoption across verticals and if you are seeing large deal volume in specific verticals or across all of your verticals and, how you see that playing out over time?

Jim Cashman

Okay. Well actually and I apologize because really the list of these, of the accounts I know is probably a little bit longer, but it was actually just to illustrate that specific point. And again, I think that the, first of all you still see this continuing thing across the globe of any things directly related to all forms of energy whether it be conventional, maintenance and expansion of the traditional oil and gas capabilities, but also resurgence and nuclear, but also trying to drive innovation and actually bring the reality of some alternate forms even quicker. So, that is why you will see a bunch of those. And I think, I won’t go through those names again, but those were some of the ones that were in there.

Of course we also talked a little bit about and I think if you read even the business publications, you will see how the new factors of energy are driving things in the automotive and the traditional industry, I mean the whole economic concerns in terms of fuel efficiency for airlines and therefore the impact on airframe, in particular Aeroengine manufacturers is particularly key, but also the amount of innovation going in, I mean, a lot of the legacy concerns that used to drive automotive have shifted over to okay. Now how do we take advantage of these new innovations that are going to be necessary for ongoing survival.

But, I also spoke of some of the things that I think are a ripple effect because, I mentioned a lot of heavy industry companies making the massive machinery and construction equipment and things like that, that we are seeing a lot of infrastructure building around the globe and a lot of attention toward infrastructure renewal even inside US and North America.

And we are seeing that, we are seeing also the general metals, materials and mining sectors, because if you look at the cost of finding, extracting, and refining all of those materials, obviously there is a lot of environmental and energy cost concerns with those.

So, I would say, we are still seeing the same thing, I have always said for years is that the leaders in all industries are heavily flocking to ANSYS solutions and simulation in general. However, particular those industries and I think the only new twist on it compared to the previous last few quarters has been what I call this ripple effect of other industries that are also being driven by those overall concerns.

Andrew Matorin - JPMorgan

All right, yes. Thank you. And then a question for Maria. On the operating margins, post Ansoft, I know you are not giving guidance longer-term on that, but how should we think about that with respect to what we saw with Fluent and obviously the nice margin expansion you are able to get overtime.

Do you anticipate a similar type of performance with the Ansoft acquisition or is there something fundamentally different about their business that might prevent that?

Maria Shields

Well, one of the fundamental differences is coming right out of the gate, their operating profit margins were a little stronger than Fluent's were, when we acquired them. Certainly I would say for the rest of '08, you are probably looking at combined operating profit margins more in the low 40s and I believe overtime we are going to make investments just like we did in Fluent and every other acquisition to build processes and infrastructure to absorb Ansoft into the ANSYS business that will certainly derive synergies, but they won't be coming out of the gate.

Jim Cashman

I would agree with Maria's comments as she stated them. I would say in general you will see a very consistent contour, maybe a slightly expanded timeframe, but, not oceans apart. So the fact is there is a lot of things that as we expand into these new spaces, that we want to make sure that we maximize the total area end of the curve.

So looking at the long-term, building is going to be a key thing aspect too, but I think the similar phenomenon that you have looked at, it is going to play a big roll on this also.

Andrew Matorin - JPMorgan

Great. Thank you very much.


We will take your next question from Barbara Coffey with Kaufman Brothers.

Barbara Coffey - Kaufman Brothers

Yes, good morning. Could you walk through how you expect to cross train your sales people and the timetable that you expect it will take for the ANSYS people to be selling through the Ansoft solutions and vice versa?

Jim Cashman

Well actually, I think it maybe, first of all, I will give you some high level precepts, but it is probably a little bit premature since we are now about four or five business days into being able to even do with that standpoint, but it is going be in a manner very similar to how we have expanded. If you think of how far we have come in the last ten years in terms of expanding all of this, when you are talking about not only expanding breadth, but also doing that with extreme depth, there is a lot to come into play and it usually does not exist in any one person to do that.

So, we have set up a network where we continue to have people who are very deep, subject matter sales and support people. But we still have to work those under an overall framework of dealing with major account customers. So you almost have to think of it as continually moving down a pyramid where you don't take everybody and turn them into geniuses in all aspects of the business.

So that will take a certain amount of time, but the fact is that the people who already know the physics are already in place and will be focusing on that. And then we need to provide the tools and the basic understanding for those higher level people. That actually can occur rather quickly. The final part is now rolling out to the channel and we will see those same things. There are certain channel partners and this has always been the case that we are able to immediately grasp this, they make immediate investments and they come up the curve very quickly.

There is another group that is probably the largest or the largest part of the group that is very interested, but it will take them a little bit more time. That is typically in a one-year to two-year window type of thing and it takes them the time to ramp up. And frankly our indirect channel is very consistent, but it is not totally homogeneous. There is probably a small portion of those that may not ever get to that point or they may choose not to move in that area, but that is the same dynamic we have seen forever.

So basic familiarization, so we can start to combine the technologies, basically have our technology teams determine how to get an immediate impact by linking together capabilities with the development then of a long-term product road map that follows on and also maintaining the deep quality expertise and sales support and technology that exists in those companies today and still allow those to be applied together.

And in fact the one way we have started is we actually have if you will a bipartisan team that actually is defining the best way to assemble those assets and do it in the way that provides value to the customer, but also provides career growth and satisfaction for the employees.

Barbara Coffey - Kaufman Brothers

And just as a follow up, generally speaking are they the same head of engineering types buying the software for Ansoft as ANSYS?

Jim Cashman

Not, not really. There is a lot of company overlap by name, but if you look at it traditionally because of the DNA pools from which these things came, the electronics people sometimes tend to be different buying standards or different clusters than the traditional ones. I think if you ask the same question, if someone that buys an ECAD System versus buying an MCAD system.

Those people making those choices and solving the problems tend to be different people, however at some point, they do converge in an organization. And from that standpoint we do see some overlap in terms of central technology bodies, IT groups and even in some cases the boardrooms. So even if the engineering might be done in different groups, they actually do converge at least in some of those, those are the ones where we already have those interactions, but this will be a progressive evolutionary operation on top of it all.

Barbara Coffey - Kaufman Brothers

Thank you.


We will now take our next question from Mark Schappel with the Benchmark Company.

Mark Schappel - The Benchmark Company

Hi. Good morning.

Maria Shields


Mark Schappel - The Benchmark Company

Just to start with you, with the concerns over the general economy out there, are you seeing any above average movement within your customer base to move toward your leasing your software?

Jim Cashman

No, as you have probably heard, if anything, if I had to say that there was a slight leaning, a very small tick, it actually seems like the companies that are investing if anything they might lean slightly toward the perpetual licenses because they are building this and they are viewing this as being now a long-term commitment and survival issue. It is difference of buying versus renting. However, I mean as evidenced in the numbers and at the end of the day, the numbers pretty much paint the picture, is the lease business has continued to grow along with it.

And as I mentioned it stayed right around that 39%, 40% of total business. So, it is been growing somewhat proportionately. But, if you even slice it down just a little bit, if you need to shade it one way or the other. I would say if anything is more of a slight trend toward that. Now the only other Bellwether we have for that is we did see for a short period of time, post 9/11 and things like that, some people did tend to, if they could not get access to capital dollars or approvals, they did shift that. We are just not seeing that now. We have seen it in the past and that is normally how it manifests itself, not deciding not to buy something but changing the ground rules under which they acquire it, but that is just what we have seen so far and one historical footnote that we can point to.

Mark Schappel - The Benchmark Company

Okay. Thanks. And a follow up, this was the second consecutive quarter that we are seeing a seven-figure deals for the company. I think you did five in the quarter before that. Obviously much higher than the one to two deals we generally associate with the company. I was wondering if we should be changing the way we view the company with respect to large deals going forward?

Jim Cashman

Well I will tell you, we still are not. In fact the one thing I said back when we had not many six-figure orders I said, the string of grow with the customer real-time in a symbiotic fashion. That was what we started targeting ten years ago. And even when we started to get seven-figure deals, we said we are not actually, we are interested in supplying the demand as soon as it pops up, not waiting for it to get pent-up and then shoot behind the duck and go after it. So, actually we did have a disproportionate number last quarter and this quarter we had what12 of them. And I mentioned that the majority of that stuff though however went into deferred revenue.

And so, the bottom line is we are not changing the way we interact with customers. They may buy in certain patterns again based on their reality, but we are going after the continued growth and expansion inside the customers as they evolve to newer generations of simulation usage and realities and I think, these seven-figure deals are really just more of an artifact as opposed to anything we are changing in what we are doing.

So, for instance we are not inferring anything going forward and we are not changing the way we do that standpoint because frankly the relationships we have with our customers have being I think serving both our customers and us well. Maria, do you notice any patterns similar?

Maria Shields

No. I would just say particularly if you listen to some of the names, Mark, those that are experiencing, either doing extremely well and who are no doubt leaders in their space and want to continue to be leaders coming out of some of the slowdowns in certain geographies are no doubt investing more just to drive innovation for when the tides turn.

Mark Schappel - The Benchmark Company

Okay. Thank you.


We will take our next question from [David Heinz] with Needham & Company.

David Heinz - Needham & Company

Hi. Thanks. Jim can you update us, as to where you think we are in terms of market penetration in the core ANSYS business and then give us some perspective as to the size of the market opportunity that Ansoft brings into the fold and how this might if at all change the market penetration as a combined entity?

Jim Cashman

Well let me wind those backwards, because the easy one is that every time we have added a world class significant technology to the ANSYS portfolio, we have almost immediately seen at least increased interest across customer base and usually subsequent adoption that tracks with that.

So, in general, that is obviously some of the things, our technology teams and our customers’ teams need to deal with this thing, okay we now have increased opportunity. What do we choose to do with that opportunity and obviously the right choice is to try to optimize it.

In terms of the, and boy this is the most bedeviling question, the thing in terms of percent penetration and total market size because, the fact is this is not a fixed aggregate pie that is growing in a certain standpoint anymore than, ask anybody what the size of the home computing market was, the home PC market back in the 80s with MS-DOS and then ask them the same question when this other thing came up.

So, in general we still have a long way to go in even the traditional core ANSYS businesses because the core ANSYS business is not a static concern. It is not an incremental concern. We are trying to push through the threshold barriers to people utilizing it, such that if people are trying to now, if the traditional automotive industries, at least some of them are trying to implement new technologies that they don't have 30 years of tried and true practices on, they have got to have tools that allow them to project that without having the benefit of all the prototype and all the experience.

So, you got to have very predictive and accurate solutions. So, that is an essence of something you could not see as being a creeping organic growth when people try to say, here is the size of the current market and it is growing in aggregate at X%. These are things that are causing these dislocations that are driving the opportunity.

But, I think it is very safe to say that under any metric, the core penetration is way low and I do not think that we can think in terms of the long-term market as clearly being an existing pie that grows at some arbitrary percentage per year because that will miss all the new innovations and customer realities that we are try to go forward. However, I would still say any of the numbers that I have thrown out in the past that deal with all of this fuzzy logic is that 20%, 30% thing, but keep in mind the target is continuing to grow.

And all I have got to do is turn you back ten years ago when people were saying the size of the market is this and it is basically saturated and it is going to grow at 5%. I mean that has not been the truth and that methodology would not have led, in fact it probably kept people from even saying why bother investing in this because this is what the reality is.

So, I just definitely have problems answering the question because I have problems with the underlying premise, but it is under-penetrated by any metric you can use and we think the long-term opportunity while not knowing is it going to bubble up in three years, five years or ten years, the fact is the driving trends that are forcing customers to use this, they are increasing and they don't show signs of slacking off.

At the end of the day, I think I have said a number of times we probably won’t sleep until every engineer has these tools at their beck and call, just the way they have word processing these days and ten years ago you would have been laughed at if you said every engineer will have word processing on their desks, they would say that is a waste of engineering talent.

David Heinz - Needham & Company

Got it. That is helpful color. And then one quick follow-up. As combined with Ansoft, what percent of total revs will be recurring and what I am trying to get at, will the acquisition give you more or less visibility heading into a given quarter?

Jim Cashman

Well, starting out slightly less, their model does not have, very few models out there, traditionally had either the profitability or the visibility. They actually have pretty good profitability as Maria alluded to. However, their visibility is not quite up and those are elements if you recall in some of the points that I was trying to hit earlier on. I talked about certain elements of the ANSYS business model that I think will be one of those, one of those hidden synergies that will allow us to build the go forward.

So it is something that we will ramp up overtime, but it starts out just like the blended margins will drop down a little bit. And as the business models tends to proliferate, we plan on building those overtime. Likewise for things such as visibility and the like, but at the heart of it, the good news is again, you have got two solid businesses you are bringing together, you have got two good groups of people and obviously you have a bunch of fairly uncontested technology to work with.

David Heinz - Needham & Company

Got it, thanks for taking my questions.

Jim Cashman



We will now take our next question from Steve Ashley with Robert Baird.

Jack Miller - Robert Baird

Hi. This is actually Jack Miller filling in for Steve. Just a quick question on your 2008 revenue guidance raising that number, just curious if the total amount of the raise is all from Ansoft or to what extent have you increased your outlook for the organic growth of the business.

Jim Cashman

No, first answer, a categorically no. It was not just Ansoft, but we actually raised our revenue, our revenue guidance. I do not know if the…

Maria Shields

Just overall we are still targeting in the probably 15% to 17% for the organic business and an opportunity for upside as we get more visibility going forward.

Jim Cashman

So that mid to upper teens, long term that we have been talking about for ages, like a baseline still in tact, but the net impact is that there was definitely an increase both top and bottom line for the core business.

Jack Miller - Robert Baird

Okay, great. And then just a related question. You have talked about retaining all the Ansoft employees, just curious if that has been the case or if there has been any attrition in the sales force of the developers, have you been able to retain all the key employees that you had hoped to?

Jim Cashman

Well, in general, we never start off with a predication of obviously of doing headcount, we start from a bias of saying wait a minute, good company. Remember I said that from the beginning, good people, great technology. So we are going to keep that. However, again in these situations there is always a little bit of situation that changes. However, relatively and some people do it for good reasons and some people do it for not very good reasons.

So, in general, apart from the fact that the CEO retired, but that was a planned activity, it is basically the teams are pretty much in place.

Jack Miller - Robert Baird

Great. Thanks.


We will now take your next question from Greg Halter with Great Lakes Review.

Greg Halter - Great Lakes Review

Yes. Congratulations on these fine results. On a combined basis, do you anticipate any significant changes in your capital spending either for 2008 or going into 2009?

Maria Shields

No. I think the rates that you have been seeing of what we have been doing because some of what we have invested in the past couple of years has been migrating Fluent on to some of the ANSYS platforms and investing in infrastructure. So with that behind us then, you will see some investment relative to those same activities for Ansoft, but I do not think you will see any huge additional ramp up.

Jim Cashman

That is correct. Keep in mind we have been talking actually over the last three or four quarters, obviously the financial systems is one aspect, we need to do that obviously with Ansoft, but we had also talked about in response to the customer demand and the increasing footprint we have got that over several quarters we had a project under way to converge the front of office or basically customer relation management sales force automation capabilities.

So, that was already underway and of course those are things that, obviously now we will also factor in the right way to bring Ansoft in. However, again no major trajectory changes that I can see.

Greg Halter - Great Lakes Review

Okay. And Maria, I think you had said that your queue or something like that it said about $13 million for '08, is that still approximately the figure you would expect?

Maria Shields

Yes, on the organic business and then I would probably add in for Ansoft, maybe say an incremental $1 million on the topside.

Greg Halter - Great Lakes Review

Okay. Great. Thank you.


We will now take our next question from Greg Dunham with Deutsche Bank.

Greg Dunham - Deutsche Bank

Yes. Thank you. I want to hit on the more favorable mix of revenues going forward and what you have posted here recently. As services declined while deal sizes are going up and you are doing bigger deals with multinationals, could you just talk about that in terms of that migration and how we should expect that going forward?

Jim Cashman

Well, we have been trying to track and determine what is the difference between spikes and trends. Let's talk about. First of all, there are trends that we are driving to and there are trends that we observe and then there are other things we are still trying to determine in aggregate, because when you’ve got a user base and a geography base this diversified making sure that you don’t over categorize things is also a concern.

With regard to the pure body for hire services, we are a software technology company. And for us services are a way to amplify and accelerate software adoption. So, we said from the very beginning there were certain areas that would not grow at the same rate and for instance, if we did not have core competency in certain types of services we would use our channel, we would our partners for a range of those things which would allow us to deploy our people toward driving the technology and opening up new horizons of adoption.

And that is pretty much what we have exhibited over previous quarters. There will always be an element of that high-end service business. We are getting increased demands from some of our customer partners for technology development and platform development, as they standardize on ANSYS solutions.

So, that is an example of a shift of a higher value thing as opposed to just doing traditional service and implementation work. So, that is the first one that is one that is very much in keeping with the trajectories we really have been talking about for several years now.

Now the other one is we are always talking about providing entrance to new users, driving things with ease-of-use, but the one good news is as we have been driving the technologies at the high emend, we have simultaneously been able to take those ease-of-use concepts and put those in to the higher-end products.

So, it is very much like these and even if you are buying home computer, electronics or PCs or things like that. What is going on inside the box is incredibly complicated, but the ease-of-use which a wide range of people can use it, are also dramatically increasing.

And what that has allowed is it is helping to knock down the barrier of adoption, "it is too hard to use". And say okay, well I want all the accuracy in the power to solve really tough problems, but obviously I want it easier to use and I want less confusion to have to go through. And that’s been driving a trend toward the higher end products which in course is manifested itself in every aspect from our ASPs to our margin and et cetera.

So, those are some of the overall trends. And then, when you talk about the other ones, I think we have already hit the issue of some of the bigger order profile that have come in and some of the other adoption rates and those probably, I don’t know if we can aggregate those into bigger trends, they tend to be more specific to the individual realities of individual customer adoption patterns.

Greg Dunham - Deutsche Bank

Yes, that makes sense. Okay. One follow-up quickly, give the $12 million deals, but a lot of that hitting the balance sheet and at the same time it appears you are doing less lease business than perpetual, what is the dynamic there? What really hit the balance sheet? And how is that revenue going to be recognized over the next?

Jim Cashman

Well, the key thing is that, first of all, I said the majority of which, there were still a significant amount of new business that came from those orders. I am just saying it was greater I think if I aggregated all of them, I would say greater than 50% by a safe margin going into deferred. Now in that deferred, there were clearly ongoing enhancement subscriptions and lease.

There was a lot of all of that business going on. So that is why for instance you did not see any decay in the lease business as a percent of total, boom still right at that 39%, 40% range that we have been parked at for quite a while, albeit though the paid-up was potentially strong, but you look at the way our model goes and the subscription enhancement and even perpetual licenses served to help build our long-term visibility. And I think all of those factors again, they just continue to line up in a tapestry that support that. That is why you wouldn’t not see any of these major long-term trends shifting.

Greg Dunham - Deutsche Bank

Okay. Thank you.

Jim Cashman



We will take our final question from Ross MacMillan with Jefferies & Company.

Ross MacMillan - Jefferies & Company

Thanks. As I look at the last two quarters for ANSYS standalone, I think your non-GAAP operating margins is about 48% on average. And if I look at the last two quarters of Ansoft, it is about 42%. I know there is a fourth quarter in there, so I know the third quarter was 41%. Anyway, it suggests the blended rate is more like 46%, but your guidance obviously suggests a lower margin than that for the second half of the year. Can you just maybe comment on that and specifically maybe talk about some of the costs that you didn’t make in Q2, but you plan to spend going forward?

Maria Shields

Yes, Ross. You heard my commentary earlier. No doubt one of the things for Q3 to keep in mind that Jim alluded to is the Ansoft model was no doubt more back-end loaded towards the third month than our model is given the lease base, so...

Jim Cashman

And later quarters also.

Maria Shields

Yes, so our calendar Q3 that will only have the first two months has a different profile of operating margin than when you add in that important third month of their quarter, which will go into Q4. We have also got some investments we got to make relative to that weren’t in their original profitabilities that will involve making investments in platforms and things in the short term that we need to get behind us.

So, we are no doubt taking a conservative outlook and hope that if we can get these things together quickly going that you will see improvement going forward.

Ross MacMillan - Jefferies & Company

Great. And then, just on the comment on China, Jim.

Jim Cashman


Ross MacMillan - Jefferies & Company

Can you just recap on that in terms of, are there orders, really have they already bounced back? In other words you are able to determine what specifically around the earthquake issue or just trying to get some color in that and then the final one was just, if Maria if you can just provide a total FX impact, I heard Jim's comments on Europe, but I am not sure if that was a total FX number. Thanks.

Jim Cashman

Okay. First of all, the color on China was essentially when that earthquake happened, there were some, some government, I know that the legal word is edicts or mandate, but there certainly was a big push for the internal country to rally around that. However it is not unlike a way a lot of people reacted to Katrina here in terms of sending relief aid internally, whether it was official or a private or public sector. And thing definitely happened.

Now I will tell you right now is the other thing is there is another thing of a non-natural disaster thing going on in China that has got a lot of people tied up and that is ready to kick off the Olympics. However, the only word we got is in general, the planned purchases didn’t vaporize, but they took a backseat to helping basically the Sinchuan and some of the other provinces basically get themselves back on their feet and then try to get ready for this, something they view as a major showcase event.

So what I am trying to say is that, yes China did have a blip. We think it is explainable and the projections we have is that over the next few quarters it really irons itself out; however, we try to give as much color to all of the pluses and minuses as we can. And this was one example.

Ross MacMillan - Jefferies & Company


Jim Cashman

For the FX question.

Maria Shields

Yes, FX, to the top line Ross, $4.7 million and $2.3 million at the operating margin level.

Ross MacMillan - Jefferies & Company

Perfect. Thank you.


That does conclude today's question-and-answer session. With that I will like to turn the call back over to Mr. Cashman for any closing or additional remarks.

Jim Cashman

Well I think we have pretty much hit everything. However, all I would say is that for those of you that have followed the ANSYS story for years, this will come as no surprise. We remain bullish on the long term, some short term cautious optimism. I think that is why Maria targets the safe harbor at me because the long term, there are those driving factors and we are excited or I am excited about the opportunities that lie ahead for our customers, our employees, our partners, our shareholders, take the whole ecosystem.

One thing you probably learned is that we don’t take our commitments lightly. So we are going continue to strive to deliver on them. Obviously in the short term, the emphasis is going to be a continued focus on execution, but the customer acceptance we have seen of our existing vision and products combined with closing the Ansoft acquisition and being able to start to build upon that. They only bolster our enthusiasm.

Nothing is ever going to be easy, but boy, we have some things to work with here. So we continue to be propelled by a strong combination, we got the solid business model. We have got loyal customers and partners. We have got great technology and we got and even now larger talented pool of committed employees.

So, lot of opportunity, still a lot of work do to reach our full potential and I will just close by saying I would like to thank everyone on the extended ANSYS team for the first half and in advance for the remainder of this year and the ones to go. So thanks a lot and hopefully we will be talking to go you in the next few months. That is signing off.


That does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines.

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