Aug 2, 2007
TRANSCRIPT SPONSOR
Executives
James E. Cashman, III - President and CEO Maria T.
Shields - VP and CFO
Analysts
Richard Davis - Needham & Company Tim Fox - Deutsche Bank Securities Inc. Barbara Coffey - Kaufman Brothers Mark W.
Schappel - The Benchmark Company, LLC Jason Rogers - LJR Great Lakes Review Sunil Dapshadar - Sentinel Asset Management
Operator
Good morning and welcome to the ANSYS Second Quarter 2007 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session.
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 now like to introduce your speaker for this morning's call, Mr. Jim Cashman, President and Chief Executive Officer.
Mr. Cashman, you may begin.
James E. Cashman, III - President and Chief Executive Officer
Okay, thanks a lot. Now I'll add my good morning and welcome to the ANSYS call for Q2 2007 and I won't be the only speaker because I am joined, as usual, by our CFO Maria Shields.
So we're going to use what's our fairly traditional agenda wherein I'll outline the highlights for the quarter and the year-to-date and some overall summary comments and then go into greater depth on the operational results. In general, the whole gist of this call will center on two major themes.
The first is the continuation of strong, sustained performance of the ANSYS core business which now is largely integrated, key aspects of last year's acquisition of Fluent. And the second centers around the synergistic impact of our business streams and some advances in our technology that intertwine with expanding market opportunities.
So this has resulted in an overall business results and accretion above our earlier projections and a correlated increase in our outlook for the year. Now we've been talking about this blending over the past few calls and are already starting to see the impact of our immediate efficiencies while we are simultaneously able to build the foundation for our long-term future prospects.
And as we mentioned last quarter, the first anniversary date of the acquisition has come and gone and by the second half of the year, the GAAP effects of purchase accounting at least related to revenue are mostly behind us. In short, the customer base is measurably and increasingly embracing our directions but as always there is still a lot that remains to be done.
So we'll go through that in summary form. And then Maria will update you on line item expense performance, balance sheet, cash flow and provide an update on our current outlook on earnings.
It should also be noticed that the strong operational results were even including substantial efforts with our back office and the communication systems integration and a significant base of tax complaint activities. So after those topics we will be happy to respond any questions you may have.
So, as always, Maria if you could start with our Safe Harbor statement please.
Maria T. Shields - Vice President and Chief Financial Officer
Okay. Good morning and again thank you everyone for joining us to review the highlights of our 2007 second quarter results.
Before we get started, I would like to remind everyone that during the course of this conference call some matters that will be discussed as either part of the prepared remarks and in response to questions may constitute forward-looking statements that involve risks and uncertainties which could cause actual results to differ 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 our public filings including the 10-Q, 10-K, 8-K and our annual report all of which are available at our website. Any forward-looking statements are based upon the company's best judgment as of today and we undertake no obligation to update any such information and once we do it in our public forum.
During the course of this call, we'll also be making reference to non-GAAP financial measures in an effort to provide supplemental information to our GAAP disclosures. A discussion for reconciliation of GAAP financial measures to comparable non-GAAP measures is included in this morning's earnings release and the 8-K.
And one final housekeeping point before we begin all the EPS and share data that will be talked about have been adjusted to give effect to the 2-for-1 stock split that took place in June. So, Jim, I'll turn it back over to you.
James E. Cashman, III - President and Chief Executive Officer
Okay. Thanks a lot Maria.
So Q2 summary basically, the Q2 business performance represents results above our non-GAAP revenue and earnings guidance, and... but we did this while continuing to increase progression on our really broad range of activities and trends [ph] with the highlights and technical innovation and customer engagement.
Again for the numbers I give, I will be using the non-GAAP numbers basically in the same fashion as we've been using historically. This maintains consistency with our calls of past years and quarters, and we feel and I think actually demonstrate that it provides a more accurate representation of the business.
So with that in mind, from a high level perspective, I'll not say this was really strong quarter even by our standards. For the quarter, we have reported solid financial performance with non-GAAP revenues of $92.3 million, and this represents a 35% increase from last year's Q2 of a $68.2 million.
And this quarter is fairly comparable although the full quarter of this year is compared to only the final two-thirds of last Q2. So, accounting for this and our previous discussions of the integration efficiencies, our core growth rate would be high teens.
Non-GAAP diluted earnings per share adjusted for the recent 2-for-1 stock split increased 43% with non-GAAP EPS of $0.30 that was up from last Q2's comparable $0.21. And this was also above guidance and the analyst consensus.
But it's a primarily indicative of what happens in our model when we over-perform on the top line. Our non-GAAP revenue and EPS performance for the quarter were both primarily a direct consequence of strong top-line performance, basically stirred by an uptick in customer adoption.
Basically all major aspects of the business performed well. Each product line had really strong results.
We saw a strong continued growth in operating margins, strong cash flows and stable business model. So, basically every major metric was positive.
There was a continuation of the acceleration of the customer engagements for both new adopters and longstanding relationships. So we saw a continuation of the deepening customer relationships that we've been mentioning on the previous calls and an accelerating pace in the last few.
These transcended both geography and industry. We've noticed in particular an expanded light which customers are interacting with us particularly in the global and major account arena.
And anecdotally customers said this was basically a result of their increasing market pressures and ANSYS' execution of the long-term business and technology partner. Now, before I start into the operational results in more detail, we're aware from some past calls, topic is that the some people had a strong focus on core versus consolidated growth.
And we actually agree and that's why we've been reporting on it for the last few calls. But during these calls we've also been talking about the blurring of that demarcation line, and it's really a function of the rapid integration we've undertaken, and it's the one that we do again all things being the same.
So for the purpose of this call now that we've passed the first anniversary of the Fluent acquisition, we'll be focusing on our consolidated revenues since we've been running the company that way as a combined business. And there are just too many factors that make a pure concept to core misleading.
So, first, the loss of OEM revenues from the core business that was basically a direct outcome of the acquisition itself but not the main decline in the core business. Second, we've done significant re-bundling of the technology.
So what used to be core revenue might be sold and included in the Fluent numbers now because we've worked on the front end with legacy emission technologies. And we really don't have a good way to capture or quantify nor is there really a good return for even trying to record that but still we know those effects are there.
And then just to the third factor, with the combination of Fluent, CFX we've basically seen with our customers are now focused on choosing technology, offering the best solution for the type of problem they are solving. So for instance, CFX was very strong in turbomachinery; Fluent, chemical process of the range of other things.
But in the past, customers may have selected either technology purely based on the vendor relationship and that's now no longer the case. So now we may see sales pick up in either of the core or the Fluent side of the business and it really causes comparisons to be a little bit misleading on that.
So the bottom line is that we'll focus on the business metrics just as we have with our non-GAAP numbers to focus on the real trends and directions of the business. And when you sort through all the numbers the core revenue business remains very healthy.
It's growing in the high teens. This will be evidenced throughout the consolidated numbers that we're about to discuss.
So fortunately Q2 had two months overlapped. Second half is pure apples-to-apples and any of the transition confusion you should dissipate with time.
So with that in mind, I mentioned earlier that our non-GAAP revenue for the quarter was $92.3 million and this revenue is 35% over the $68.2 million of Q2 of 2006. The non-GAAP diluted earnings, again repeating for the quarter, grew 43% to $0.30, up from $0.21 in 2006.
So this exceeded the analyst consensus and marks the 39th consecutive quarter that non-GAAP EPS has met or exceeded the consensus. The overall non-GAAP operating margins for the quarter were 43% indicative of the solid top-line results.
This compares to 38% in Q2 of 2006. And it's noteworthy I think particularly not only from its sales standing strength but in demonstrating the significant progress in one of the key areas that we focused on during the integration process and that's bringing the acquired business into the ANSYS business model.
And I think we've demonstrated that. Adjusted gross margins continued in line with our business model at a healthy 85%, and these margins occurred even while we were continuing to absorb some of the incremental costs to integrate our global operations, basically migrating the customer common business platforms and bring Fluent in full compliance with Sarbanes Oxley.
And we also had continued strong cash flows from operations of over $37 million which is a 46% increase over the $25 million of last Q2. For the six months of 2007 we've reported total non-GAAP revenue of a $181.9 million or 59% increase over the first half of the year.
Now, similar to the results for the quarter, this also represents equivalent core growth net upper teens range we discussed a couple of minutes ago. Software license business was disproportionately strong but the maintenance and service business also grew well.
The year-to-date non-GAAP EPS was $0.59 that was a 37% increase over the $0.43 of 2006. Again, the EPS numbers I am talking about are split adjusted.
Non-GAAP operating and gross margins 43% and 85% respectively for the first half, and the cash flows from operations were over $59 million for the first six months which is a 56% increase over the first half of 2006. So, with that high level, we're now slicing and dicing numbers from a number of different perspectives, category business, geography, customer product etcetera.
So let's dig into category of business first. First of all, the overall consolidated non-GAAP software license revenue grew 46% for the quarter and for the first half of the year was 76%.
Total paid-up licenses grew at 34% for the quarter and 33% for year-to-date. The lease business grew 55% for the quarter and now represents 40% of our revenues.
For the year-to-date it's more than double to again 40% of total revenues. So this continues to strengthen our repeatable business base and earthen [ph] our overall visibility.
Our total maintenance and service growth, both grew at about 20% for the quarter. We saw our continued good balance between the high-end and the desktop products.
The upper-end products continue to growing well with multiphysics growing at 20% or above for both the quarter and the year. And there were impressive gains from the continuing migration of customers to the ANSYS Workbench platform which is unifying all of our technologies both internal and acquired.
And we'll be talking more about this on upcoming calls as our product strategy and integration plans continue to evolve into the products and services that basically are gaining momentum with our already large but expanding customer base. Different kind of business, our direct and indirect businesses both performed well maintaining the 70-30 split, that's a 70 in paper direct.
As a repeat from previous goals we think this significant for two reasons. It shows combined strength in our indirect channel but it's also a future opportunity to selectively expand the product portfolio in that channel to take advantage of market opportunities.
Our business intake we're particularly strong and grew well in excess of the revenue growth which has allowed our deferred revenue to rise to $226.8 million which is a company record. Our already strong core repeatable business base has grown to 70% compared to 68% at this time last year.
Even with the robust growth we've been experiencing one of the greater strengths of our business model is the consistent ability to maintain a solid base of recurring and repeatable revenue. It affords us visibility going into the quarter and has helped reduce the variability of traditional back-end loading of revenue in the quarter.
So, we believe this is a byproduct of our commitment to reinvest the high percentage of our revenue back into R&D which in turn allows our customers to solve increasingly complex design issue. And that's what it's all about.
We have a solid balance sheet and as I mentioned the strong cash flows with $37 million for the quarter. That cash flow can easily support the amortization of the debt that we took on with last year's acquisition and throughout 2006 and 2007 to date we've accelerated the pay-down of bad debt.
From a geographic perspective, we saw a strong growth for all regions. We continue to be encouraged by the combination of industry breadth, new customers and existing customer expansion.
Now we still have a couple of areas that provide opportunities for improvement but as we mentioned in the past few quarters these luckily fall in the regions where integration activities are already starting to play a strong role in broadening our footprint and the relationships with key customers. And for the last ten years, we've always been talking about some area in the world that we want to improve.
So we'll probably be talking about that every quarter as we go forward. From a total business perspective, North America increased to 24% for the quarter.
In general, this was balanced across aspects of the business including ANSYS direct offices and channel. And for the first half of the year the growth was 44% but again that carries the non-comparable of the Fluent sales.
Major orders in North America came from the same mixture of both the longstanding and some new customers that we have been come to expect such as Pratt & Whitney, General Electric, General Motors, Train, Goodrich, General Atomics, Seagate, Dresser-Rand, John Deere, Boeing, Knolls Atomic Power Lab of Lockheed Martin, NASA, Cummins Hewlett-Packard, Solid Turbines, U.S. Navy, Lockheed Martin, Westinghouse, General Dynamics, Northrop Grumman I mean that we could go on for a while here.
But in general, strong throughout industries and combination of new and expanding customers and existing customers. Europe continued to perform well with an overall 45% growth for the quarter.
Again the balance throughout the region was actually in a good way but not necessarily uniform across the major regions. Now there was a positive currency impact of about $1.8 million but the growth for the quarter was still in the upper 3% ex-currency.
The largest deals in Europe I can't include, the both names you've heard us talk about in the past as well as a few addition from new customers such as Siemens, Airbus, BMW, Deluxe, Dyson, Olson Power, Atlas, Turbo Macho, the U.K. Atomic Energy Authority, Soldier, PRW, Avio, STMicroelectronics, Fuzo, Citro [ph] and Baron Thrum [ph], MAN, Livehere [ph] as well as a number of firms associated with the inter-nuclear reactor consortium that we mentioned on the last call.
We're starting to see some triple-down from that. And our third region, our general international area, quite early the Asia Pacific South America area continued.
It was probably less balanced than the other one but was improvement over previous quarters. The region grew at 37% for the quarter.
Most regions grew in excess of 40% while Japan grew at 30%. So given our discussion on prior calls and the size of the Japanese operations we're pretty pleased with the recent progress in Japan.
But we'll still continue to focus on areas that continue to improve and one quarter doesn't make a trend. And so we will...
we continue to work on all aspects of that. India was a little slower than usual some of which are seen to center around the repatriation of business but we're still putting additional vigilance into some of the sub-markets there.
Currency impact for GIA was slightly negative for the region [ph] and also 0.25 million both for the quarter and year-to-date, so really not much of an impact there. Our customer engagements in the region included the Honeywell, Hitachi, Matsushita, National Aerospace, TATA, Toshiba, HDL, Petrobras, Infotech, C-Power Pacific, General Electric, DENSO, Panasonic, Brother Industries, Chungdo Aircraft [ph], Texas Instruments.
And so we saw a continuing variety of orders both local based business and multinational expansion even though some of that appeared to come through repatriation of the H2 level. That's a natural expectation coming out of major and global accounts.
As a continuing theme, we're seeing industry breadth and increased penetration within strong and broad customer base and the pipeline of new opportunities is increasing solid. The interest keeps growing but the challenge is also keep growing.
So it's a never ending kind of progression. We were encouraged that our existing and new customer came in, and has continued to grow off the momentum that we've built over the course of the past few years.
Nevertheless even with this increasing interest there is also cost for constant vigilance. We see among the daily headlines everyday relative to engineering, the energy costs that are retreating [ph], tightening labor markets, slowing growth in pockets of the U.S.
economy, currency fluctuations, yield for the broadband, all of these things that have been happened and they can be major or minor but they can positively adversely influence the timing and the patterns of our customers' buying decisions. So in summary, we saw a strong balanced regional growth.
Again there is areas we're attempting to strengthen but again we've been saying that for ten years. Some of the ones that we have mentioned recently are already starting to show signs of improvement while new opportunities to evolve in various parts of the world are also always presenting themselves.
So as you can see from the list of customer names there was a good industry and major account activity, continuing strong performance in every major geography, and virtually all the sub-regions again particularly in our major accounts. But we still have a lot of improvement that we can tap on.
So in light of this progress I am stating we are continuing to ramp up of our customer facing organization both in response and in preparation for this growing opportunity. Now, looking at things from a product revenue standpoint, we saw no significant changes in either the trends or the guidance that we have been talking about from a product standpoint.
Consolidated paid-up license revenues for software grew 34% quarter-to-quarter. Lease business as I mentioned is growing to 40% of total.
All parts of our product spectrum did well again with a good overall balance. Just to hit on another metric of the concept of the core business, we talked about blurring but we do have one area that's basically untouched by the blurring and that's the traditional ANSYS structural software business.
So, if you took that part and just combine the lease license and maintenance, the entire ball of extra software, this part grew at 23% for the quarter and 20% year-to-date. So it clearly supports the premise of the strong core growth.
ANSYS Workbench continued to gain traction and we are already expanding its capacity through the utilization of some new Fluent capabilities. And the good news is that we have been able to specify some dramatic improvement for our owned integration architecture that will become manifested later this year and moving into 2008.
So these are direct outcomes of the commitment, progress of the technology integration in response... the technology integration teams I should say in response to feedback working with our key customers about the globe and we are very appreciative and excited by their efforts.
ASPs for the quarter increased slightly at both the high end and low end. This is not a multi-quarter trend as customer confidence is led to more licensing of increasingly comprehensive product sets.
From a qualitative standpoint the summary is that the broadest deepest set of integration simulation tools have continued to get broader and deeper and we spend quite a lot of time on the product liaison [ph] occurred in early Q1 during our previous calls this year in February and May, so I am not going to belabor those now but I'd invite you, anybody who's interested in the business to visit ansys.com and there is various details of the release this year as well as some upcoming news. Perhaps the most impressive from a long-term standpoint is the way that we had accelerated the evolution of our integration platform and what it means for the future of simulation and for ANSYS.
We feel that our R&D expenditures coupled with customer collaboration can yield some very exciting technology progress. So basically in summary, again another very strong quarter quantitatively and qualitatively.
There was continued financial and market performance and in spite of the wave of compliance and accounting requirements, our earnings and cash flow remained solid. So what we reiterate our long term commitment to taking our markets to a new level to what I call methodical investment pattern and technology that in fact takes years to build, and we have been added for years, sales and infrastructure that's interwoven with strong financial disciplines of the underpinnings of our unique business model compliant with the customer satisfaction and iso-steps [ph].
Basically this has allowed us over many years to continue or pursuit of with deal meeting customer expectations and corporate commitments to our stakeholders. Over the long term we have demonstrated our ability to grow top line in accordance with our guidance while maintaining solid margins and continuing to provide a solid earnings growth while not sacrificing future prospects in the process.
We will continue to drive for the long term vision. Our long term optimism and the increasing confidence of recent are both intact.
So even as we increase our outlook this will also be tempered of course by our short term engineers' paranoia which I have to say has also served us well. So with that, I'll turn it over to Maria Shields our CFO to provide you a more detailed look at our financials looking at the expense structure, balance sheet highlights as well as some other key factors of this quarter's business and our outlook down the future.
Maria?
Maria T. Shields - Vice President and Chief Financial Officer
Okay, thanks Jim. I am just going to touch upon some highlights and then turn it back over to Jim.
So I'll take it off with cost of sales excluding acquisition-related amortization and the impact of stock-based compensation which combined, totaled $5.4 million. Cost of sales for the second quarter totaled $13.6 million and that compares to $9.8 million in the second quarter of last year.
This resulted in an overall non-GAAP gross profit margin of 85% for the second quarter and for the first half our non-GAAP cost of sales that excludes $10.7 million of acquisition-related amortization and stock-based compensation totaled $27.1 million and that compares with $15.8 million in the 2006 period also resulting in an 85% non-GAAP gross profit margin for the first half of the year. The comparative increase over last year's second quarter and year-to-date period is largely related to the inclusion of the Fluent operations for a full quarter in 2007 compared to two months in '06 as well as increased third party royalties.
And as we take a look out through the second half of '07 we are targeting non-GAAP gross profit margin in the 85% range through the end of the year. On the SG&A front for the second quarter, SG&A expenses excluding $1.5 million in stock-based compensation were $25.6 million and that compares with 21.1 in last year's Q2 and for the first half SG&A excluding about $3 million of stock-based comp was $51 million and that compares with $32.1 million in the first half of '06.
The increase in the both the quarter and year-to-date figures was largely impacted the inclusion of Fluent's operational results in the 2007 period. Higher headcount costs and increase in third party consulting fees relative to the various IT integration projects that we have going on as well as an increase in some tax compliance costs, all these increases were partially offset by a reduction of about $550,000 relative to the bi-annual international conference that we had in last year's second quarter.
So looking ahead for the second half as Jim previously mentioned, we are continuing to make investments in building our global sales and business infrastructure to support scalability and growth out into the future. On the R&D front, in the area of R&D our total expenses for the quarter net of about $500,000 of stock-based comp were $13.1 million and that compares to $11.3 million in Q2 of last year.
And on a year-to-date basis our total investment in R&D excluding about a $1 million of stock-based compensation expense reached $25.6 million compared to $20.4 million in last year's comparable period. Both the quarter to date and year-to-date increases were once again primarily driven by the full inclusion of Fluent's operations in the 2007 results as well as an increase in salaries and headcount expenses.
And also during the first half of '07 we have capitalized about a $100,000 of internal development costs and that compares to 375,000 in last year's first half. For the second quarter and the first half we delivered solid non-GAAP operating profit margins of 43%.
The consolidated effective tax rate for the second quarter and first half was about 37%. And at this time we are anticipating that throughout the remainder of '07 we should be able to maintain an overall tax rate of somewhere in that 36% to 38% range.
For the second quarter, ANSYS reported an increase in non-GAAP EPS to $0.30 on 80.9 million diluted shares compared to $0.21 on 76.8 million shares in the second quarter of last year. For the first half non-GAAP EPS have increased 37% to $0.59 on 80.8 million diluted shares compared to $0.43 on 72.5 million shares in first half of '06.
Based upon our current business visibility we are increasing our annual outlook for non-GAAP EPS to a range of a $1.14 to a $1.16 for the full year of '07 that equates to about a 23% to 25% increase over 2006. And for Q3 we are currently targeting non-GAAP EPS of $0.26 to $0.27 and this outlook assumes a share count diluted share count of about 81 to 81.5 million shares.
If we take a quick look through the balance sheet at June 30th that remains very strong. Our cash and short-term investments are about a 138 million.
Our consolidated net DSO was at 44 days. The outstanding balance on the debt is at 98.5 million and the interest rate on that is about 5.8% for the upcoming quarter.
And the business generated record cash flows from operations of over 37 million for the quarter and 59 million for the first half. So with that Jim, I will turn it back over to you.
James E. Cashman, III - President and Chief Executive Officer
Okay. Thanks, Maria.
To recap, sustaining strong, diversified financial performance of all major parameters of the business, be it revenue earnings margin, cash flow, business base, visibility for both the core and the combined business. Secondly continued synergy with Fluent which positively impacted the quarter's non-GAAP revenue margins and EPS.
Increasing customer interest at higher levels resulted in increased activity marked by industry and geographic diversity, broad-based adoption and accelerating interest in our combined offerings. And finally, a rapidly expanding portfolio of products augmented by partnerships and relationships again a number of those mentioned on the ansys.com website.
Examples of are inclusion and featuring in the HP and Microsoft release on high performance computing basically technology distribution customer relationships across the board. Our long-term outlook stays bullish.
For the remainder of 2007 we are raising our estimates from the last call based on Q2's performance and the newest data that we have in front of us. We anticipate a good Q3 performance but just to remind for everyone that with Europe contributing around 40% of our revenues, this is always a challenging quarter with summer seasonality.
Nevertheless, we expect non-GAAP revenue in the 89 to $90 million range with non-GAAP earnings in the $0.26 to $0.27 range. For fiscal year 2007 our guidance for non-GAAP revenue is an increase to the 369 to $373 million range with non-GAAP EPS increasing to the $1.14 to $1.16 range which Maria I think just mentioned is an annual increase of 23% to 25% over 2006.
As I mentioned we're already ramping up parts of our business to take advantage of market opportunities in a controlled fashion across the geographies and industries but we'll continually monitor the market factors as have... as we've demonstrated over the past few years.
So with that, we are now prepared to respond any specific questions you might have. Question And Answer
Operator
Thank you Mr. Cashman [Operator instructions].
We will take our first question today from Richard Davis of Needham & Company.
Richard Davis - Needham & Company
Hey thanks a lot. Is it fairly conclusive when I kind of think about your business that you have almost kind of a barbell types that of growth.
In other words you having seen larger and maybe initial deal sizes on the high end but at the same time you are growing, you're seeing good growth at the low end on a design basis and notionally, I know you don't drill down [ph] the product mix but is that the logical way to think about how the business is growing?
James E. Cashman, III - President and Chief Executive Officer
Well the only thing is when you say barbell I infer from that like a fewer bi-model distribution and it's not... it's a little bit flatter than what you normally see in a traditional bi-model distribution.
However there are definite holes around some of the desktop markets and the high-end. The problem is now as the buying the buying patterns have gotten to be more periodic where before they used to be event kind of sales where there would be a large sale, we go through it.
And now they tend to be more organically progressing along with the customer. And in fact, sometimes those high end and low end fees are occurring at the same time to the same customer.
So, it's... that's more a realization of some of the things that people are...
that being bought but not necessarily the way people are buying that.
Richard Davis - Needham & Company
Got it. Now and then some companies have tried to put out like a project based almost rental of software where you'd have a hosted product.
Have any of your customers expressed interest in that or does that just seem like extremely niche product offering?
James E. Cashman, III - President and Chief Executive Officer
Again when you got a customer base as large as ours that you are always going to get that. Yes, we do have people that utilize it that way.
I'd say that by far the predominating and even trending information is that particularly from a major account aspect the investment is to kind of bring those in, in other words that's by maybe a something equivalent to, do you rent a tool or own one it, it probably depends upon how much you use it and the economics as they start to increase the utilization of our software trend in that direction. However, we do have our software available for use on that kind of basis.
I'd say that traditionally is the ones that are more spot usage where for instance data centers even at retail firms. Retail firms that don't make it a manufactured product but they will utilize our software over the Internet or over the web to actually optimize the cooling of their data centers.
For instance if they've got huge amount server firms that they need to cover. So it's...
we are having that but it's... it tends to fill certainly in these gaps as opposed to being what I call as usually a secular trend.
I'd say also the other is that in many cases there are a lot of companies that when the usage builds up to a certain level they are sensitive to having what they consider the crown jewels in terms of their new innovative type of products that they are highly sensitive and secured about. They just don't want to have any ability to have that leaked out through unintended means because of that they tend to like to keep within its virtual corporate firewall if you will.
Richard Davis - Needham & Company
Got it. Okay, well thank you very much.
Operator
We'll go next to Mr. Tim Fox with Deutsche Bank.
Tim Fox - Deutsche Bank Securities Inc.
Thank you. Good morning.
James E. Cashman, III - President and Chief Executive Officer
Good morning.
Tim Fox - Deutsche Bank Securities Inc.
First question a bit off track you mentioned a couple of customers STmicro, TI and I was wondering if you could just elaborate a little bit on what kind of products you are selling into STmicros of the world? And is that an area that you might think of expanding your functionality in electronics vertical over time?
James E. Cashman, III - President and Chief Executive Officer
Well first of all we've been talking about doing that in the - we've been talking about electronics for quite some while. When we say that we are talking about the totality of balls in the electronics if you look at the thing of being able to use of explicit technology for drop shock of electronic equipment, there is an awful lot of things in terms of what we're doing with material, material technology to basically allow new technologies, new substrates.
That's the mechanical failures associated with that are key but also the packaging of the technology, so things can stay cool. So they can operate...
there is a minimum of electromagnetic field interference. So any means basically if you look electronics, it's probably one place where a lot of multiphysics comes heavily into play.
And it tends to be organizationally where a lot of that type of work is being done by the same people. They are kind like the renaissance man and women of engineering.
So it tends to be something where we are tending to push the envelope but if you look at it they have increasingly short design cycles, miniaturization new components and technologies, increasing government regulations FCC and above. And it just tends to have increasing competitive and market pressures and as a result that's the reason why those companies have continued to show up.
Tim Fox - Deutsche Bank Securities Inc.
Interesting, thanks. That's useful.
And my follow up would be on your commentary around building out your sales force a bit. If you can just talk a little bit about more, if you see that on the direct side or is that more investment in direct, is there any particular regions or even maybe vertical industries that you feel you need to address more deeply?
James E. Cashman, III - President and Chief Executive Officer
Well first of all I think one of the things if you look at the breadth of the ANSYS base, we look at industry, we have a footprint in every industry. However there are certain industries that are in different adjacent flows and sometimes those industries are different depending upon the geography.
So the way the traditional U.S. automotive market, the pressures that they are fighting they may be in one particular area where some of the Asian auto manufacturers are pushing ahead in other standpoints.
As a result of that we are tending to kind of push ahead in a lot of different industries but it's continuing to build strengths as we are building the customer relations. In terms of where we are expanding the customer presence, it's basically pretty much...
it's a pretty much across the board because as you can see our geographic performance and the proliferation of global major accounts is s evidenced by just the short listed companies that I went through, that's progressing. That's kind of transcending any one particular geography and as always we tend to be disproportionate with the leaders across all industries regardless of what cycle those industries might be in.
And so, it's a pretty significant issue both on support and business relationships of our customers facing organization. And I guess I can't think of an area where we are not expanding.
Do you think I am right? Nothing on the board sit [ph] there.
Tim Fox - Deutsche Bank Securities Inc.
Very good. Congratulations on another good quarter.
James E. Cashman, III - President and Chief Executive Officer
Thank you.
Operator
We'll go now to Barbara Coffey with Kaufman.
Barbara Coffey - Kaufman Brothers
Yes. Good morning.
I know that Workbench 11 came out and I was wondering if there was certain features or functions and is that addressed different parts of the market or ideal for different verticals and if you see any health issues related to having a new product out in the market?
James E. Cashman, III - President and Chief Executive Officer
First of all there is... anytime you have a new product out in the market there's always issues at the introduction, the realization phase and things like that.
Issues, yes, problems, no. The other thing is that with regard to features, the main thing is keep in mind that most of the features in the verticals that are served are primarily served by all the various functional aspects that plugged into Workbench, and as a result Workbench is a way of being able to link into a diverse IT environment.
It allows way for us to bring acquired and internal technologies and the facts that they can share and basically being able to support the overall aspect of true, with the emphasis on the word true, multiphysics kind of capability. Now that being said there are certain industries that may not be as matured or deep into their utilization of simulation and therefore Workbench provide a capability for increased streamlining and tailoring towards the specific of individual customers and industries that might be able to utilize that.
And one example for us, I've got the example of the low end and I've got an example on the high end. On the high end our biggest power users actually utilize the turbo-machineries for developing aircraft engines because you've got a combination of rolling high-speed mechanics and your job is putting in simple terms because some of avenue of our technologies who went to [indiscernible] being described at this way.
But you've also got massive amounts of combustion compressing air moving through there. So that's really high-end stuff and that's example of a tailored product on that.
Now on another end you've also got a situation as I mentioned in the electronics industry being able to whiffed together all of the standpoints so, kind of in one portfolio people can determine will it survive a drop shock, will it survive vibration? Will it overheat?
Will it have electromagnetic problems? And I mean so having all those things together in a single package that has some commonality of data integration but that is also an issue.
So what I am saying is that if it means toward being able to serve specific customers and their needs and specific industries their need but the beauty of it is it allows it allows us to marshal all of our technologies together with a minimum of redundancy and allows us to work in a very diverse multi PLM and complex IT environment.
Barbara Coffey - Kaufman Brothers
Thank you.
Operator
We'll take our next question from Mark Schappel, Benchmark.
Mark W. Schappel - The Benchmark Company, LLC
Hi, good morning and good job on the quarter.
Maria T. Shields - Vice President and Chief Financial Officer
Good morning Mark.
Mark W. Schappel - The Benchmark Company, LLC
Good morning. Jim I believe in your prepared remarks you mentioned that the traditional structural software business grew about 23% in the quarter.
First of all did I catch that number right?
James E. Cashman, III - President and Chief Executive Officer
Yes, the only reason I spilled that out is we have been talking about blurring and I talked about these very substantial ways that that blurring happened. And it happened as a result of the integration we did and we are pleased with it and we think it helped propel the business.
And we will do it again in our heart beat. It was just...
and because of that we were able to look at the business and say that even though anybody could divide any two numbers on a financial statement and come up with any percentage they want, we want to try to give an idea where that business is hence really in that range that we have been talking about over the past few quarters. The only reason I put out that other piece of data is because it stands there as one significant chunk of business.
It really is outside the blurring because it wasn't affected by the OEM crossover. It wasn't affected by the transfers of technology.
And as such if you take that business in its totality which I've said all lease, all license, all maintenance business and put that together that grew at 23%. And so again I don't want to...
you don't need to lock onto that number. All I've said is that hey that's a pretty good growth rate for a major party of business and it is the purest measure we have out there of the core business.
In fact we actually think that 23% goes to four [ph] what we could say was in that high-teens kind of range that we anecdotally would take the core growth business at. We didn't want to get confused over those comparables or have people connects the dots in the wrong way.
Mark W. Schappel - The Benchmark Company, LLC
So, would that more of a proxy for license revenue growth versus total?
James E. Cashman, III - President and Chief Executive Officer
No. No, because as if you look at...
if you look at the percentage of our software business that's why I included the maintenance business. And that's why I included the whole thing not just license business because I wanted try to get something that would be I think very, very indicative.
So, I think that really is indicative of a major chunk of our historical business. So, if anybody says that structural business, that traditional business can't grow, no, their growth prospects there, their growth prospects in the CAD and all the other market spaces we are in and in particular opportunity in unifying al those together in a true multiphysics structure.
Mark W. Schappel - The Benchmark Company, LLC
Okay. And moving on to large deals, did you have you any deals over $1 million in the quarter?
James E. Cashman, III - President and Chief Executive Officer
Yes we did. And again we...
and the interesting thing... we can't specifically attribute a customer name to that.
But the thing that was interesting was it was a longstanding ANSYS customer that also augmented with a significant chunk of Fluent revenue, because we got around that issue of which way do they have to really have to go forward? Now the other thing is there was also a reasonable lease portion with that business too.
And then there were lot of the deals in the up to six figure kind of things and so it was in that kind of range but again probably what you'd see is that we have a number of these customers that are repeat with significant deals throughout the year as opposed to getting one big won't be deal every couple of years or something like that.
Mark W. Schappel - The Benchmark Company, LLC
So, is it fair to assume it's just one large deal then?
James E. Cashman, III - President and Chief Executive Officer
Well I think [multiple speakers].
Maria T. Shields - Vice President and Chief Financial Officer
Seven figure magnitude.
James E. Cashman, III - President and Chief Executive Officer
Seven figure, in the high six figures now the bigger now the number got, 50 on that.
Mark W. Schappel - The Benchmark Company, LLC
Okay. That's fine.
Then one last question here, couple of quarters ago you had, Frank [ph] made some remarks about some favorable trends you are seeing in the energy structure.
Maria T. Shields - Vice President and Chief Financial Officer
Yes.
James E. Cashman, III - President and Chief Executive Officer
Has caused your adoption of engineering simulation technology. So I was wondering if you could just expand on that and maybe give us a little bit an update?
James E. Cashman, III - President and Chief Executive Officer
Yes first of all it's continued. Actually it's gotten kind of interesting.
So for instance I talked about the fact of for instance alternative energy I talked about and in fact you even noticed when I mentioned companies like this quarter, I think I certainly not to mention BAE Hydro and Soldier I mean those are major water turbine manufacturers. We talked about the wind farms.
We talked about a lot of alternatives. We talked about nuclear power.
You mentioned the UK, over Asia Pacific we talked about inter-new generation of environmentally friendly nuclear reactors high efficiency. But in the past we talked about oil and gas but it's even getting...
it's even gotten more interesting on that standpoint where looking at all alternative fuels in terms of biofuels, biomass all of those kind of standpoints. So actually driving we're driving those efficiencies Secondarily there has been a lot of interest in terms of fragments in hybrid technology and how do you drive the driving of fuel cells of batteries of the control system that actually combine those.
Sometimes even the bridge on [ph] beyond that particular aspect so it just continues to do that. And even in North America you probably noticed some activity there from us and the investment in CAE is continuing there even despite some of the stories you sometimes hear coming out of Detroit.
Do you have anything to add?
Maria T. Shields - Vice President and Chief Financial Officer
No, I'd say that's probably some of the investments in technology and some of the Big 3 in Detroit that are going through their own financial struggles right now. The competitive environment is so incredible for them that we are seeing an uptick in our business and in Detroit which hasn't historically been an area of strength for us.
James E. Cashman, III - President and Chief Executive Officer
I have been actually... one where we're actually working and this is where some of the concept of the combination of our simulation plus the ability even to simulate the chemical processes and combustion and things like that go on, of instance.
I mean there are even [ph] things you've heard me talk about like the anti-matter [ph] engine and Pascal [ph] and things like that. I mean there is actually one way they are talking about working on fuel from chicken cow, animal fat.
I mean so it's amazing if you look at the things that things are doing. And the other thing is a lot of the impact of the advanced materials, that the interesting thing is that people are getting into non-traditional development of energy, non-conditional use of materials but all of a sudden you don't have that years of engineering expertise that people rely on.
Therefore if you can stimulate it and kind of run the impacts high speed computer 20 or 30 years in the future you may be able to avoid some significant blind allies or problems. So in some ways that innovation has happening in a lot of different products, it's actually spurring people to get out of the status quo age of the way they used to look at simulation.
Mark W. Schappel - The Benchmark Company, LLC
Thanks and good job again.
Operator
We will go now Jason Rogers, Great Lakes Review.
Jason Rogers - LJR Great Lakes Review
Good morning.
James E. Cashman, III - President and Chief Executive Officer
Good morning.
Jason Rogers - LJR Great Lakes Review
Maintenance and service revenue what was that as a percentage sale?
Maria T. Shields - Vice President and Chief Financial Officer
As a percent of total revenue.
Jason Rogers - LJR Great Lakes Review
Right.
Maria T. Shields - Vice President and Chief Financial Officer
36% for the quarter and 35% for the first half.
James E. Cashman, III - President and Chief Executive Officer
Yes.
Jason Rogers - LJR Great Lakes Review
Okay and what was...
James E. Cashman, III - President and Chief Executive Officer
Basically the predominating portion of that is the maintenance, there is software portion of that, not the services for hire.
Jason Rogers - LJR Great Lakes Review
Okay. And what was that up on a core basis for maintenance and service revenue?
Maria T. Shields - Vice President and Chief Financial Officer
On a quarterly basis it was up 19% and 36% for the first half.
James E. Cashman, III - President and Chief Executive Officer
Yes.
Jason Rogers - LJR Great Lakes Review
I mean on core basis like ex-Fluent?
James E. Cashman, III - President and Chief Executive Officer
Again it would be in that... it would be in that high, it would be in that upper teens range.
Jason Rogers - LJR Great Lakes Review
Okay.
James E. Cashman, III - President and Chief Executive Officer
And that's why we came across that.
Jason Rogers - LJR Great Lakes Review
Yes. Upper teens for both period.
James E. Cashman, III - President and Chief Executive Officer
Yes.
Jason Rogers - LJR Great Lakes Review
Okay. And you mentioned Europe was up 40% of the revenue, what's the North America for the quarter?
James E. Cashman, III - President and Chief Executive Officer
Well for the quarter, North America was about 30, it's in the upper 30s.
Jason Rogers - LJR Great Lakes Review
Okay.
James E. Cashman, III - President and Chief Executive Officer
Upper 30% I mean.
Jason Rogers - LJR Great Lakes Review
And was there any share repurchases in the quarter?
Maria T. Shields - Vice President and Chief Financial Officer
None.
James E. Cashman, III - President and Chief Executive Officer
No.
Jason Rogers - LJR Great Lakes Review
Okay. And I know it's small, but what was the accounts payable in the quarter?
Maria T. Shields - Vice President and Chief Financial Officer
Accounts payable is not on the balance sheet. Accounts payable right now and at June 30, it was about $2.5 million.
Jason Rogers - LJR Great Lakes Review
Okay. And finally what do you estimate for your CapEx and D&A for '07?
Maria T. Shields - Vice President and Chief Financial Officer
CapEx for the remainder of the year, we are at 6.5 through the first half and it's probably be equivalent there about for the second half.
Jason Rogers - LJR Great Lakes Review
All right. Okay, thank you.
Operator
And our final question today comes from Sunil Dapshadar with Sentinel Asset Management.
Sunil Dapshadar - Sentinel Asset Management
Yes, thanks. Do you see any help from Autodesk's customer base being migrated from 2D to 3D and do you see that in your business helping your business?
James E. Cashman, III - President and Chief Executive Officer
Well it is helping... it's not the major driver but it's also...
any time you have a migration thing it tends to move along there. So it's...
there is two aspects of it one of which is what part comes as a result of the price of Autodesk shipped and that's a small wise for growing revenue stream for it. The other part is the upgrade task force which has been a reasonable augmentation of the business but it's not a hugely material aspect of it right now, but it certainly has the opportunity to build over time.
Sunil Dapshadar - Sentinel Asset Management
So if the penetration of the 2D base increases to 3D in fact for 3D, then can we see acceleration in your business as you say that it could be a material impact then later on going forward?
James E. Cashman, III - President and Chief Executive Officer
I think it clearly could be, I mean right now and awful lot of thing, if you look at our footprint this is one other entry avenue, our prime entry avenue is what the major counts that we already have significant standpoints within as such as we are growing in need to their need for simulation of which you know 3D migration can help support those aspects that aren't already at 3D.
Sunil Dapshadar - Sentinel Asset Management
Okay, you talked about the repeat business being very strong. I think the growth was 45% year -over year if I got it correctly 40% of revenues?
James E. Cashman, III - President and Chief Executive Officer
It's... the lease business is up to 40% when you combine that with the actual ongoing maintenance streams that we have that are purely software related, that's would took us up to 70%.
Sunil Dapshadar - Sentinel Asset Management
So do you think that the repeat business may continue at that kind of a strong growth going forward or do you think that --
James E. Cashman, III - President and Chief Executive Officer
Well I think that first of all we have a business model that tries to maintain that balance, 70% is higher than it traditionally has been seasonally adjusted for Q2 but keep in mind we have been talking about this for many years. And it's historically been in the 60 plus range but it has been ticking up over time.
So there is a definite picking up as we continue to build the software maintenance business as our OEM sources of revenue provide opportunities for growth and as the lease base has also grown and stayed strong.
Sunil Dapshadar - Sentinel Asset Management
Okay. And when you look into the second half and 2008 of course the last four quarters have been uneven exceptional growth.
How do you view the growth going forward now? Of course we have that acquisition of Fluent in those but do you believe that the growth is going to come down to more normalized level to mid teens kind of going forward?
James E. Cashman, III - President and Chief Executive Officer
We have always said it's kind of baseline that did up teens rate is kind of like a sustainable one without worrying about would a market spike happen that would drive it up, you get that time where things ramp through the curve. And of course there might be other acquisitions in the future you never know.
So, those type of situations but we feel for a sustainable investment pattern with a good earnings performance and a good sustainable solid growth by balancing our customer facing expenditures, our R&D expenditures and like that we continue on that and continue to try to over achieve on the top line and continue to try to provide superior earnings performance.
Sunil Dapshadar - Sentinel Asset Management
Okay. If I may ask one last question in terms of the verticals, do you think any of the verticals are still under penetrated in terms of simulation and do you think that might...
James E. Cashman, III - President and Chief Executive Officer
I think they all are. I seriously think they al are.
I mean it's all the matter of degree, I don't think there is any that are saturated. They may be saturated from the 1990's early 2000 view of what simulation was but that's not.
That's not really where this is all heading going forward. So there is a lot of things and only with a committed long-term pattern of innovation and R&D that solves some of the problems that been impeding the adoption of simulation.
You need to do that over the long term and we have been doing it or committed to doing it for the future. And those type things that opens up a well with new opportunities I think that's something we've demonstrated over the last few years.
Sunil Dapshadar - Sentinel Asset Management
So which means that we are still in the early stages nine innings game right?
James E. Cashman, III - President and Chief Executive Officer
I think so, yes definitely and that was the pieces several years ago actually during the dot.com craze when everybody said it was a dead market.
Sunil Dapshadar - Sentinel Asset Management
Okay. Thank a lot Jim.
James E. Cashman, III - President and Chief Executive Officer
Thank you.
Operator
And Mr. Cashman with no other questions in queue I'll turn it back to you for closing remarks.
James E. Cashman, III - President and Chief Executive Officer
Okay. Well in close we'll continue to focus on execution but I have to characterize us as having an increased enthusiasm due to...
basically pretty encouraging response that we've been seeing to our product vision as well as the current OpEx. We don't take that for...
take the grant that we're... we do have a strong combination of a solid business model.
We've got longstanding loyal customers. We've got a channel partner that are bias but I think second to none, great technology and of course the talented employees and we're very appreciative for all those constituency groups.
They're I can say, an important fundamental to our D&A. They are fundamental to our sustained performance and they are fundamental to our future.
But so we still have a lot opportunity as we just mentioned on that last question and a lot of work to do to reach our full potential. So I basically just like to thank everybody on the extent of the ANSYS team for the first half and advance for the remainder this year.
And thanks all of you on this call. We'll hopefully be talking to you next quarter.
Thank you.
Operator
Ladies and gentlemen thank you so much for your participation. This does concludes the conference and you may now disconnect your lines.