Nov 7, 2008
Executives
James E. Cashman III - President, CEO and Director Maria T.
Shields - CFO, VP - Finance and Administration
Analysts
Richard Davis - Needham & Company Andrew Matorin - JP Morgan Barbara Coffey - Kaufman Bros. Mark Schappel - Benchmark Woo Jin Ho - Merrill Lynch Jack Miller - Robert W.
Baird Greg Dunham - Deutsche Bank Steve Koenig - KeyBanc Capital Market Ross Macmillan - Jefferies & Co. David Schneider - Axiom International
Operator
Good morning and welcome to the ANSYS Third Quarter 2008 Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session of the call.
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.
James E. Cashman III - President, Chief Executive Officer and Director
Okay, thanks Trisha. Good morning and welcome everybody to the ANSYS call for Q3 2008.
We plan to announce another solid quarter and with me today to help me do that is our CFO, Maria Shields. I'm sure this is going to be an interest agenda and discussion today, but we plan on going through our usual outline of the highlights of the quarter and year-to-date in summary fashion and of course we'll go into greater depth on all the operational results and are also go into some discussion of some quality factors which accentuate our long-term optimism, as well as some firewalls that we put in place during this time of current upheaval or confusion in the market.
In general, the value proposition of our offerings remain quite strong, as essentially how tangible a value that we bring to our customers through these results is real in both good and bad times. And this value has been reinforced by our completion of the Ansoft acquisition on July 31st.
In the short amount of time, since then we've already been able to start our integration efforts. Now in the course of this, Maria will then update you on our line item expense performance, balance sheet, cash flows and provide an update on our current outlook on earnings.
We'll then go into projections for the remainder of this year, and our outlook for 2009. And after discussing those topics, we'll be happy to respond to any questions you may have.
So let's get started. Maria, our Safe Harbor Statement, if you please?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Okay, thanks Jim. Good morning and again thank you everyone for joining us to review the highlights of ANSYS's third quarter results.
Before we begin, I'd like to remind everyone that our third quarter results include two months of Ansoft operations, following the successful close of the acquisition on July 31st. Also during the course of this conference call, some matters that will be discussed that's either part of the prepared remarks or in response to questions, may constitute forward-looking statements that 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 our corporate filings with the SEC, all of which are also available via our website.
Any forward-looking statements are based upon the company's best judgment as of today, and ANSYS undertakes no obligation to update any such information unless we do so in a public forum. Also during the course of this call, we will be making reference to non-GAAP financial measures in an effort to provide supplemental information to our GAAP disclosures.
A discussion and full reconciliation of GAAP financial measures to comparable non-GAAP measures is included in this morning's earnings release and the related Form 8-K. Now with that all covered, I'll turn it back over to Jim.
He's going to go through an overview of third quarter and year-to-date performance on a number of fronts including profit as it relates to the Ansoft acquisition, as well as our current outlook for the remainder of 2008 and fiscal 2009. Jim?
James E. Cashman III - President, Chief Executive Officer and Director
Okay. Let's start with the overall summary.
So basically, Q3 business results saw continued strong performance at virtually all aspects of the ANSYS business. It represented a result above the upper ends of the range of our non-GAAP revenue guidance and above our earnings guidance as well.
Now as always, the numbers that we're are using are non-GAAP. This is a historically consistent passion that we've taken.
Non-GAAP earnings include the add back for purchase accounting treatment of acquired differed revenue, our acquisition related amortization and stock based compensation adjustments for 2007 and 2008 as detailed in our earnings announcement. So to those of you who are new to our history, since we have moved into some new indexes after acquisition from a GAAP perspective, we actually in parenthesis, of course kind of lose some of the deferred revenue from leases and maintenance.
But the business is still there, the cash is there and the revenue typically reduced at a very high rate. So that's the reason we make those distinctions.
So in our non-GAAP numbers, we treat the business out as if it was in fact there, so as to not to deflate the current year's business or to artificially inflate subsequent year's growth. This has been our methodology for years, and we feel it gives the most accurate and historically comparable representation of the underlying business performance.
So with that said, from a high level perspective, this will begin a very solid quarter even in these tougher economic times and off of a strong comparable. For the quarter, we reported solid financial performance with non-GAAP revenues of $128.8 million.
This represents a 37% increase from the last Q3's 94 million. This is a little over our guidance of the $123 to $127 billion rates and as Maria mentioned earlier, keep in mind; this does include two months of Ansoft revenue.
So if we exclude all that, the organic growth was 19% or 17% in constant currencies. Non-GAAP diluted earnings per share increased 39% with non-GAAP EPS of $0.43, up from last Q3's comparable $0.31.
And this was also above our guidance in the analyst consensus. Now just as in the past few years, our non-GAAP revenue and EPS performance for the quarter and they're both primarily a direct consequence of strong top line performance, which is then driven by increasing customer adoption, but we're also aided by positive vectors in the Ansoft integration and our own longstanding disciplined approach to spending.
All major aspects of the business performed well. There is double digit growth in each geography and product line.
We saw continued strong growth in operating margins, cash flows, the business model was essentially stable. Basically, every metric was positive.
We saw continued acceleration of customer engagements that included expansions in our major accounts, and the addition of many new customers. We even saw a few of the seven figure orders, which contributed a little bit to new license business for the quarter, but disproportionately contributed to building the differed revenue balance.
There was a continued expansion of portfolio sales and cross selling, something that we expect to cultivate with Ansoft over the next few years. On an anecdotal basis, customers are still been saying that even in tougher economic times, there's a heightened need for product innovation and...
but they're not ramping down. Furthermore, they generally feel that they cannot achieve this mission with lower end or less capable solutions, and this is one element of our longstanding story that I guess sometimes escapes the listing community, but it's also one that's seen us through a wide of economic conditions while still filling critical customer needs.
So if we just focus on the operations for a few minutes, as previously mentioned, the non-GAAP revenue for the quarter was $128.8 million, again 37% over the $94 million in Q3 in 2007. The third quarter revenue results may include a $1.6 million in positive currency benefit, as well as $17.1 million from Ansoft.
Our non-GAAP diluted earnings for the quarter grew 39% to $0.43 up from $0.31 per share in Q3 of 2007. Actually this marks the 44th consecutive quarter that non-GAAP EPS have never exceeded consensus, actually exceeding in this case.
Overall non-GAAP operating margins for the quarter were 45.6%. This is a little down from past quarters but also a little above the expected blended operating margins with the Ansoft.
The extra performance was partially due to the increased top line performance, and a bit also due to some positive integration performance. Non-GAAP gross margins continued inline with our business model at a healthy 87% with pretty much the same story as the net margins.
We also saw strong continued cash flows from operations of over $42.7 million, which was a 63% increase over the $26.3 million of last Q3. For the nine months of 2008, we reported total non-GAAP revenue of $349.6 billion, and this is a 27% increase over the first nine months of last year.
Again, the number includes a modest two month contribution from Ansoft, but excluding that, the organic growth was 21% or 17% in constant currencies. Software license business was disproportionately strong, but maintenance of service revenue grew well, particularly in the software enhancement subscriptions.
The year-to-date non-GAAP EPS for this period was $1.25; it's a 39% increase over the $0.90 of 2007. Non-GAAP operating and gross margins were 47% and 86% respectively for the first nine months, which both represent an improvement over 2007.
And the cash flows from operations were over $135 million for the first nine months, and this is a 58% increase over the comparable 2007. So, now I guess, we just take a quick look at the total picture from a number of different perspective, so look at category of business, geography, customer, product; lets look at category of business first.
Overall, consolidated non-GAAP software license revenue grew 33% for the quarter and 27% for the first nine months. On an organic basis these were 18% for the quarter and 22% for the year-to-date.
Total paid up licenses grew at 61% for the quarter or 25% organically, taking up the Ansoft contribution, and for the year-to-date paid up growth was 41% or 29% organic. Lease business, grew 17% for the quarter to equal about 35% of total business.
This reflects a slight shift due to the historical Ansoft business being non-leased. For the organic business it grew at about the same rate as well.
So we kept that trend in place and for year-to-date it grew 19% and represents about 38% of total revenues. This repeatable business base continues to aid in our overall visibility, the lease business maybe something that we could see trending up given the current challenges to some of our customers base relative to capital access to capital budgets, but it's just one of other element of our flexible business model that allows us to meet the business needs of our customers.
Total maintenance and service grew about 45% for the quarter and 26% year-to-date or again in organic terms 20% for the quarter and 17% for the year-to-date. The pure software remain enhancement subscription portion grew at 57% for the quarter and 35% for the year-to-date again, if we just break that into the traditional Ansoft business in organic growth pure software making its enhancement, subscription portion grew 25% third quarter 24% year-to-date that's the organic comparison.
The pure services element was around 5% of total revenue for both the quarter in the year. Now, while we saw growth across all of our product lines there is no doubt that we are seeing a disproportionate shift toward our multi physics and higher level software.
These lines grew in excess of 25% which only goes down to score that trend toward uncompromising solution power that our customers are requiring. But, how can that be accelerated, but also the fact that we can accelerate that by bringing with that power the desktop type of use ability that we have been pioneering years and that's exact the purpose of our workbench based offerings.
Our direct and indirect businesses, both performed proportionally well... excuse me, while maintaining a 70-30 split in flavor...
in favor of direct. This reflects a very consistent organic performance with a very slight balance in favor of direct, exclusively related to the direct nature of the Ansoft business.
Ultimately portions of this business will be adopted by the channel, but merely in the short term as technical competencies and business plans will have to be developed and assessed and worked into our long-term framework. Business intake was also strong and it grow at 47% for the quarter and 29% year-to-date.
Now, both of these are in our excess of revenue growth which is a good leading indicator for us and it's also allowed our deferred revenue to rise 33% as compared to last years Q3 to $153.1 billion. Our strong repeatable business base remained at the healthy 68% on a larger base, even including a less visible Ansoft component.
So even with our robust growth the consistent ability to maintain a solid base of recurring and repeatable revenue, is one of the Hallmarks of our business model. It gives us visibility going into a quarter, it basically has helped to reduce the variability of traditional backend bloating of revenue in the quarter.
We basically believe that it's a direct of our commitment to reinvest a high percentage of our revenue back into R&D which in turn allows our customers to solve their increasingly complex design issues. We have strong balance sheet and strong cash flows, Maria will get into more of that in detail, but it was $42.7 million for the quarter and $135 billion for the year-to-date.
These strong cash flows afford us a flexibility in dealing with accelerated debt buy down and the share repurchase, our economic insulation as need may dictate. So, let me..
turning our attention, let's turn it to geographic view right now. We saw a double-digit growth for all regions, although they were a range of economic realities in each.
The geographic diversity has allowed us for years to respond to ever changing geo-economic landscapes which is particularly important now and into the future. Our business this quarter was once again accentuated by a combination of industry breadth, new customers and wide expansion within our existing customers.
North America increased to 25% for the quarter and 18% year-to-date. U.S.
multinationals in particular year-to-date spending a lot of their efforts basically expanding global usages of the after pays in light to their business opportunities and as such the organic business was in the mid single digits but in total our... all of our direct offices and major account activities were double digit range.
Major orders in North America came from a typical mix of both long standing and new customers just to name of few of the notables going down the list here, General Motors, Pratt & Whitney, Northern Grumman, Parker Hanathan, US Army, Diamler Chrysler, the U.S. Department of Energy, Sandia International labs, Shell Oil, NOVA chemicals, Locky Martin, NASA, Bae Hayers [ph], Honeywell, Rolls Royce and Vector Dikinson's were all involved in major areas [ph] in North America.
Europe continues it's impressive performance also in with an overall 31% growth for the quarter. While there was a good balance across the regions Germany led with a 40% plus growth.
There was a mild currency impact that was positive of about 800K, but the growth of the quarter was still 29% ex-currency. For the year Europe is growing at 28% or over 22% in constant dollar terms.
I would note that since Ansoft has a relatively small foot print in Europe, the total growth numbers were actually organic. In fact if we just took the organic portion, European growth was 26% or 20% ex-currency for the year-to-date.
The largest deals in Europe included repeat customers and new ones, such as Ferrari, Siemens, Areva, Airbus, Porsche, Schneider Electric, LukOil, Olsdem [ph], Rolls Royce, Glaxo Smith Kline, EDS, Continental Automotive, Volvo and [indiscernible]. Our general international area also continue to grow well and when actually quite balanced performance but with a number of sub themes.
The overall growth for the region was 65% for the quarter, this was boosted by a strong Ansoft presence for two months. But the organic growth, it was also strong in 31%.
Japan grew at 55% for the quarter, 23% organic; the rest of GIA grew in excess of those numbers. The year-to-date growth in this region, 38% and with a minor positive currency impact or 33% year-to-date growth in the region ex-currency.
Key customer engagements in the region included Petrobras, Honda, Ishikawajima, Heavy Industries, Ibara, Cummins, Exa, Ibishi [ph] Commercial Aircraft, Andritz, Toshiba, BHEL, Mitsubishi, Vestas Wind, Honeywell Pioneer, China Locomotive, Sumitomo, Nippon Steel and just from the short list, it's obvious that we saw continuing variety of orders from local based businesses and multinational expansion, along with a broad based industry. And that's one thing you'd tells all as on a worldwide basis we're seeing continued industry breadth, from the list of our large orders.
But evidently in some of the smaller ones also. There is continued trend toward all forms of energy optimization, whether it's conventional, petroleum, nuclear or alternative.
We also continue to see ripple effects from the rising energy costs, and this is true even if the oil prices dropped a little bit. But the number of auto, aircraft and engine companies that are adjusting their businesses to the new economic realities of energy cost, continues to grow.
And in new auto industry this... well this new calculus of energy cost has given rise to a wave of innovation which is right up our alley, and everything as things as electric price, fuels of hybrids and hybrids in engines, as well as aerodynamic performance.
There was even a noticeable surge in the areas of turbo chargers for engine efficiency in turbo machinery. Now this has been buying with the proliferation of electronic content cars for control of safety systems, entertainment systems, power train innovations and the Ansoft inclusion in this portfolio served these side initiatives extremely well.
In all these cases rapid understanding their really complex problems, and with uncompromising accuracies essential and that's sort of basically a pure strength of ANSYS multi-physics. I will also say we have seen some similar parallels in the heavy equipment and infrastructure renewal areas, and in the airframe, as I mentioned before, the aero-engine area where energy efficiencies are paramount, but there is still no margin for failure.
So then end of all this is continued industry breadth, increased penetration with our strong and broad customer base, pipeline of new opportunities continued to be solid even if as the, the challenging economic environment, we are seeing growing interest. We are encouraged by the continuing multi-year momentum, both in the existing and new customers.
There is no doubt of the long term opportunity, but now as even with this increasing interest there is also cost for increasing vigilance due to the turmoil that's effected most aspects of the global financial environment. So, this can positively or adversely affect the timing and patterns of our customers buying decisions, and we try to factor this into our guidance, and we will continue to endeavor to do so going forward.
So in summary, there was double digit growth all around the globe and as you can tell from the list of customer names, good industry major account activity on top of that. There was continuing strong performance in every major geography and virtually all sub-regions with few minor exceptions.
Major accounts were particularly viable [ph] and helped to contribute to both new license revenue as well as the deferred revenue balances. And in short, there was solid performance everywhere, but for we have various improvement almost everywhere also.
So, in light of this progress we are consciously ramping up this selected elements our customer basing organization and responsibility growing opportunity, but we are being ever mindful of the constantly shifting economic stance out there. From a product revenue standpoint we saw no significant changes in either the trend or the guidance we have given over quarters in a long time.
Consolidated paid up license software revenues grew by 61% in total and 25% organically, quarter-to-quarter, the lease business stayed strong at 35% of the blended total. All parts of our product spectrum gets well with the overall good balance plus we mentioned the higher end products did particularly well.
Software maintenance and enhancement subscription business grew at 57% from the quarter and 35% for the year-to-date and again breaking to the organic terms that we don't get caught up with the Ansoft acquisition and just the core organic terms, it was 25% for the quarter and 24% from the year-to-date. Our high end sales grew disproportionably but the bottom line is with the pressure is our customer have based in the simply can't compromise on scope or accuracy of solution.
Our ASPs for the quarter, those were seasonally steady, this is been a multi-quarter trend at the low end ASPs are actually slightly up. And from a qualitative standpoint I just say the broadest deepest set of integration tools for simulation that they have been driving those customer adoption it just continue to get broader and deeper and even more so, since we closed Ansoft at the end of July.
It was actually fun to table the start putting the two great companies together after couple of months of waiting. We do we had really team of people its world class technology joining us.
So we're obviously eager to start to leverage that, business is obviously added to our success but we're also able to start leveraging the strengths of the Ansys business model and just a small portrait this was demonstrated in the operating results. We are well on the way toward making our projection of making this modestly accretive within the first 12 months our combined operation.
And even I have been personally excited, as I have seen some of technology more intimately than I could before and but also to see how these technology teams have been briefed the combination as evidenced by fairly robust technical integration plan for over the next few quarters and next couple of years. So we continue to be excited about the prospects of being able to complete products simulations across all over industries.
That way products that are increasingly below mechanical end and electrical components in a fix and it's specially here to be able do those and say the galleria [ph] plug and play manner in a can do environment that interest in most of our clients and the supply chains and to be able to that with our many partners. Now there have been a lot of other things going on but most notably is...
even in these tough times the number of people that have attended our user of Ansoft across the globe numbering well into the several thousands and also seeing their reactions to the upcoming R12 release and the major point of enthusiasm for us. The general consensus has been for continued commitment, increasing the simulation usage.
So in summary, we had another very strong quarter by all metrics, both the quantitative and the qualitative factors showed progress, and the numbers demonstrated our continued financial and market performance. We did this amidst the turmoil out there in the market, and even against our own strong comparables and expectations.
So we also started working on a variety of aspects related to the Ansoft integration, including combined 2009 planning. Our earnings and cash flows remain solid, which should serve to continue our investment patterns and technical innovation sales and business infrastructure, as well as the support of the debt associated with the Ansoft acquisition.
We're going to iterate our long term commitment, taking our markets to a new level and to continue our pursuit in meeting those customer expectations and corporate commitments to our stakeholders. I think over the long term we demonstrated our ability to grow to top-line in accordance with our guidance underscored by this past quarter, but we've also been able to maintain solid margins and solid earnings growth.
So we'll continue to drive for a long-term vision. Our long-term optimism clearly intact, but we'll continue to temper this with an eye toward a range of short term factors out there, so I guess I'm probably dusting off the short-term caution that we've exercised to positive advantage during past times of past years.
So with that, I'll turn it over to Maria, our CFO Maria Shields, the CFO, to provide you with a more detailed look at our financials, including expense structure, balance sheet highlight, as well as other key factors of this quarter's business and our outlook on future earnings. So Maria?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Okay. Thanks Jim.
Within a few minutes, I'll go through summary of some of the financial highlights as they relate to the Ansys business for Q3 and year-to-date, take a quick look at the balance sheet, operating cash flows and provide some commentary regarding outlook for Q4 and full year 2009. As it relates to non-GAAP EPS for the...
for the combined company, and I'll also give some insight into some of the underlining key assumptions. Beginning with cost of sales, excluding acquisition related amortization and the impact of stock based compensation which combined total $8.2 million, cost of sales for the third quarter totaled $16.4 million versus $14 million in the third quarter of '07.
This resulted in an overall non-GAAP gross profit margin of 87% for the third quarter. And on a year-to-date basis, cost of sales which excludes $18.4 million of acquisition related amortization and stock based cost totaled $47.7 million versus $41.1 million for the first nine months of '07, resulting in 86% non-GAAP gross profit margin year-to-date for '08.
Looking ahead, we're currently targeting a non-GAAP gross profit margin in the 86% to 87% range. On the SG&A front for the third quarter, total expenses excluding $1.9 million of stock based compensation expense was $34.2 million compared with $25.1 million in last year's Q3, and for the year-to-date SG&A expenses excluding $6 million of stock based costs were $86.9 million, compared with $76.1 million in 2008.
Looking ahead we plan to continue to make property investments in building our global sales and business infrastructure as we continue to integrate the Ansoft acquisition to support scalability and future growth. Moving on to R&D, total expenses for the quarter, net of approximately $700,000 related to stock based comps were $19.6 million, compared to $13.7 million in Q3 of last year.
On a year-to-date basis, our total investment in R&D excluding $2.1 million of stock based compensation expense, reached $50.7 million versus $39.1 million for 2008. For the remainder of '08 and going into '09, we're currently targeting a mid-teens range relative to our ongoing investment in R&D.
For the third quarter and the first nine months of 2008, we've delivered solid non-GAAP operating profit margin of 45.6% and 47% respectively. Admittedly, these are above what we had planned coming out of gates in 2008.
In both the first and second quarter earnings call, we'd communicated that we'd consciously adjusted, or held back on various aspects of our original 2008 planned spend in the first half, in anticipation of Ansoft acquisition. Given everything that transpired subsequent to those calls, in retrospect, those decisions helped to set the foundation for our strong performance in Q3, despite the macro economy, as well as better positioned us for the remainder of 2008, and going into 2009.
The consolidated effective non-GAAP tax rate for the third quarter and year-to-date was 32% and 35% respectively. The third quarter tax rate was several percentage points below what had targeted coming into the quarter, primarily as a result of the true up to the filing of the 2007 U.S.
tax returns, as well as some incremental 2008 domestic manufacturing deductions. This resulted approximately $0.02 to $0.03 of incremental unplanned tax benefits in the Q3 '08 results.
At this time, I'll also point out that the recent reinstatement of the R&E credit will have a positive impact on our Q4 effective tax rate. This is...
has been factored into our outlook, and we're anticipating that throughout the remainder of this year, we should be able to maintain an overall non-GAAP consolidated tax rate in the 35% to 37% range. For the third quarter, Ansys reported a 39% increase in non-GAAP EPS to $0.43, that's on 90.1 million diluted shares, compared to $0.31 on 81.2 million shares in the third quarter of '07.
And for the first nine months, non-GAAP EPS increased 39% to a $1.25 on 84.6 million diluted shares, compared to $0.90 on 80.9 million shares in the '07 period. So to summarize, the key factors impacting our Q3 operational performance, we had solid organic revenue growth led by over 20% growth in both the perpetual [ph] license and annual maintenance subscription business.
We had positive impact from currency of about $1.6 million at the revenue line and $800,000 at the operating income level. We had strong gross profit in operating margins.
Our results included two months of revenue and profit contribution from Ansoft, but also included the negative impact of the interest expanse and the additional shares that that we issued in conjunction with the deal, and we experience a more favorable tax rate than we originally projected, which contributed an incremental to the $0.03 for the quarter. So taking a quick look at the September 30 balance sheet, it continues to remain quite sound.
Our total cash and short term investments balance is now at about $212 million. Our consolidated net DSO is at 42 days.
We had record combined operating cash flow at $42.7 million in quarter and a $135 million in the first nine months of '08. This enabled us to pay down $55 million of the original $355 million in debt under a new five year credit facility that we entered into to partially fund the Ansoft deal.
The debt carries an initial effective rate of LIBOR plus 150, which will gradually migrate to lower rate tiers as we utilize the operating cash flows to pay down the debt and reduce our leverage. I also wanted to point out that we did enter into an interest rate swap agreement in third quarter that mitigates some of the interest rate volatility exposure on $300 million of the debt.
Because of the swap, the recent volatility in LIBOR borrowing rates should not have any material impact on our interest expense going forward relative to this debt. The average interest rate as of Q4 is at approximately 4.9%, excluding the amortization of loan fees.
I'd also like to point out and remind everyone that we currently have an approved share buyback plan in place that allows for the repurchase of up to about 3.8 million shares. Also, we saw in Q3 and more importantly projecting for Q4 and into 2009, given our level of international business, our results will be negatively impacted by currency, particularly on the Euro and British Pound front, with some slightly positive benefits from the current rate on the Japanese Yen.
In our outlook, we're assuming that rates stay roughly the same as the recent stock rates or in the $1.30 range for the Euro, $1.60 for the British pond, and 99 for the Japanese Yen. As rates continue to change in the future, we'll modulate our outlook accordingly and trust that you also take this into consideration as you update your models and your projections.
So based on our current business visibility, we're targeting finishing the 2008 calendar year with non-GAAP EPS in the range of $1.68 to a $1.70, and for the upcoming fourth quarter which will include a full quarter of Ansoft operations, we're targeting non-GAAP EPS of $0.43 to $0.45. This outlook assumes a fully diluted share account of 94 to 95 million shares for Q4.
Our current outlook for 2009, target's non-GAAP EPS in the range of $1.84 to $1.90, assuming the currency spot rates that I previously mentioned, which translate to $1.30 to $1.44 on a GAAP basis. So now, Jim, I will turn it back over to you.
James E. Cashman III - President, Chief Executive Officer and Director
Sure, okay. Well thanks Maria.
So let's just recap real quickly. First of all I have to highlight the continued sustained strong diversified financial performance of all major parameters of the business, we are talking about revenue, earnings margin, cash flow, business based recurring visibility.
Secondarily there was some positive initial efforts on the Ansoft integration, even though we are only a few weeks into that. Thirdly, increasing customer interest marked by increased activity on a broad front.
That's the broad front by geography by industry and also even by commitment levels. And let's say, fourth, it's basically this rapidly expanding product portfolio that we continue to be able to augment with partnerships and different relationships as basically dramatically increased with Ansoft.
So and this is before the long term outlook stays bullish. For the reminder of 2008 we are reinforcing our guidance based on Q3 performance as the newest data and then combining it with Ansoft contribution.
We anticipate a good Q4 performance, even with the economic turmoil and currency headwinds that Maria just mentioned. So even with those we expect non-GAAP revenue in the $145 to $149 million range with non-GAAP earnings in the $0.43 to $0.45 range and this is good news since the comparable last year included if you recall all of those mega license deals from last year for and those are not in our base forecast for the year.
And then we also had that $0.04 tax benefit last year. We've actually maintained the guidance while compensating for negative currency effects to come up with a year end guidance of non-GAAP revenues in the $494 to $499 million range and non-GAAP earnings in the $1.68 to $1.70 range both of which represent growth and in the mid to upper twenties.
For fiscal year 2009, our guidance for non-GAAP revenue was in the $610 to $630 million range which is comprised of Ansoft acquisition and double digit organic growth, under constant currency. Non-GAAP EPS increases to the $0.84 and $0.90 range which also averages out to a double digit growth even with the economic environment and the strong comparable that we are in the midst of this year.
This guidance though however is cognizant of a number of unknowns out there, essentially it allows us to build safety into our cost structures without hindering our ability to capture revenue upside. Combined with our repeatable business base our diversified geographic and customer base and deferred revenues, we are utilizing the same business model that's allowed us to weather a wide range of economic situations over the last decade.
And as I mentioned we continue to ramp up parts of our business and in a judicious manner, particularly in the sales and support realm, to take advantage of market opportunities. So, we'll continue to monitor the shorter term market factors on a global basis as we demonstrated year-on-year for the last several years.
And I guess with that we're basically prepared to respond to any specific questions you may have. Question And Answer
Operator
[Operator Instructions]. We'll to go Richard Davis with Needham & Company.
Richard Davis - Needham & Company
Hi, thanks very much. Just wanted to ask you, now that you've have added in Ansoft we've tried to kind of put paper to pencil and think about the total addressable market.
And I guess one way we've looked at is kind of maybe total addressable seats and conservatively range as probably from $5 to I don't know maybe $15 million potential seats and then you have to make some assumption on proceed pricing. But as the thought process, is that roughly analogous as to how you're thinking about it because we've come up with kind of an addressable market from anywhere from $10 to $30 billion?
James E. Cashman III - President, Chief Executive Officer and Director
Well, that's a portion of it, but its actually maybe longer term or the smaller portion. So yes, the increase in number of potential users is one element, but then to mention I guess the loss in that is the number of potentially use it shows.
And in that particular case since the people are fighting to clock, as I mentioned on some earlier... in earlier quarters, we've got some places where individually users are using 20, 30 and sometime even over 100 seats simultaneously.
So to get one element by the number of users, but what are they actually trying to do in most cases they're trying to look at increasing number of alternatives, look at innovative configurations that maybe they never took the time, to look at before or basically because it hasn't been invented yet and then basically saying, I want to do a lot of things in parallel to raise the clock and get to market more quickly. So, like I said...
maybe that's over gilded [ph] the increase in the number potential users definitely, but increasing... changing the way they use it, also a big element.
Richard Davis - Needham & Company
Got it. And then our conversations with other companies, public and private is that demand is driven more by kind of what you are touching on which is help me do my job better, and therefore functionality in speed of processing is critical, but that's the key thing, but the less important thing is, I mean connectivity is obviously important, but are you finding that feature functionality is still the most important driver for purchase decisions?
James E. Cashman III - President, Chief Executive Officer and Director
Well feature functionality, but keep in mind that usability is also a feature. So, yes if there is an element a; they have to be able to solve the toughest problems.
And a lot of those problems are even being solved today by anybody but we're committed to continuing to knock down those barriers. Secondarily, since they are making those...
during those decisions early in the process they are still making some critical commitments to the tooling and to overall product cost to the lifecycle. So, and what that means is, they can't base that on crude approximation, they need highly accurate kind of solution.
So those are a couple of the other things that are driving it, quiet a bit but, its not so much either... the other thing I want to say is that, not that it gets caught in the old buzz frames of the 80s, its not even a productivity play, its really about and effective as the efficiency and ability to do things that weren't done before, not doing the same things, X percent faster and it's been...
that's really what's been driving us through last few years.
Richard Davis - Needham & Company
Got it. Okay.
Thanks so much.
Operator
And we will take our next question from Andrew Matorin, J.P. Morgan.
Andrew Matorin - JP Morgan
Hi, thanks very much. First question, if you could Maria, perhaps...
I think when you acquired Fluent you had indicated the contribution of Fluent made to your deferred revenue balance. I'm wondering if you could provide the same information with respect to Ansoft acquisition, what it contributed to the deferred revenue balance in the quarter?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Andrew, I don't have Ansoft's deferred revenue broken out. The only thing I've gotten here right now is all on a consolidated basis, but...
James E. Cashman III - President, Chief Executive Officer and Director
I think it's also fair to say there, that the relative portion, is a percentage or so.
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
We'll get that for you.
Andrew Matorin - JP Morgan
Okay. Great.
And then with respect to the margin performance in this quarter, certainly better than I think may be you had anticipated and I think must had anticipated and the implied margin in your guidance which suggest that perhaps your outlook with respect to cost cutting or integration may have been improved from when you initially did the acquisition. If you could comment a little bit about that?
And why it appears as though, may be there is a little bit more confidence in a more robust margin profile going forward?
James E. Cashman III - President, Chief Executive Officer and Director
Well I'll start off and may be Maria can hit there, can clean up some of the details things. But first of all yes, there are two factors, first of all I mentioned a couple of times the some of the Ansoft integration showed, some of those initial activities did show a little bit more improved than we would've prudently expected on the onset.
So I think its just a very small baby step of we can ultimately do. But there was an issue there.
But we'll tell you also that as we started to pick up the lines of some of these concerns as I've mentioned we have always continued to look at our cost structures on a judicious go forward basis and when we see some strong winds coming up we got to batten down a little bit and we've got years of intellectual property already developed and underway, still from a long standing profile of investing in technology. We're continuing to interact with the customers however we look at the situation as being there is lot of things we won't be able to predict over the next few X months, I don't know how many but the fact is we can do things to protect that but also as customer demand goes up that doesn't really affect our ability to capture the revenue upside, and that's I think that's something you could probably demonstrate graphically over about a ten year period.
So, we've actually exercised a little bit of caution not made any major cuts but just exercised a lot of caution because there are I know and Maria cautioned...
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yeah I would just say Andrew during due diligence it was a relatively small theme that was working on identifying synergies and things like that given two public companies and not wanting to have a lot of people find out. And as we've now broadened the teams that are involved it's just even a better insight into some opportunities we are putting these two great companies together allows us to get some cost efficiencies and remove some redundancy.
So we are bullish but as we've always done it we've demonstrated we will definitely not let the spending rates get ahead of the sales momentum. So we are trying to balance those.
Andrew Matorin - JP Morgan
Great thank you and just lastly if you could comment a little about some of your channel partners is there any issue with respect to some of your channel partners given the lack of availability of credit as far as their ability to operate given their much smaller scale compared to you kind of received any comments from some of your partners in the channels?
James E. Cashman III - President, Chief Executive Officer and Director
Actually no but the one thing you see is that the at least of the organic parts of the business the balance stayed relatively strong everything will keep in mind at the strong deferred revenue balances that Ansys seized and the recurring revenue patterns that provides us a strong base of business and that's something you would see mirrored in many elements of our channel and therefore there is a certain degree of insulation there.
Andrew Matorin - JP Morgan
Good, thank you very much.
Operator
We'll go next to Barbara Coffey with Kaufman Bros.
Barbara Coffey - Kaufman Bros.
Yes, good morning, can you speak a bit about your thoughts on why the ASPs are going up, are you seeing clients buy the more fully featured packages or it just feels a little remind less in this environment?
James E. Cashman III - President, Chief Executive Officer and Director
Well that's it, we've started actively tracking these things many years ago with the variety of other premises just the way of managing the business and yes it has and it continual migration towards the higher end some product names that illustrated but will be largely confident. But its basically people are they are the increased capability versus the pricing and it pretty seems to be fairly compelling ROI factor for most of our clients.
So like I said are using the toughest one to compare ASPs we compared them to ASP's throughout the last few Q3s. like is said its was very stable at the high end.
The one that I can draw a significance to physical base since the lower end products also. That sometime people use that as may be a stepping stone to simulation one on one in the fuller range products.
So now we'd say, its but it has been as I said the either stable or notching up has been a trended just a been many or several years multiple quarters.
Barbara Coffey - Kaufman Bros.
And can you also speak to, you briefly mentioned but the pattern of license of leasing. Has that change that all are you seeing any indications that will change in this environment?
James E. Cashman III - President, Chief Executive Officer and Director
No, I might have said that poorly. I'm not sure precisely what I said, but the bottom line is that there are several different dimensions; I will try to unwind these that in some watchful matter but if you look at the organic part of our business.
That beliefs business stayed relatively same proportion grew like it has quarter-after-quarter it looks a little bit different when you go into Ansoft because they did very little leasing almost all paid up licensees so when you blend those they drop down out of debt. That's why for the quarter about 35% and if you recall 35% is less than the 38% to 40% we've been taking about for several quarters but few year ago that lease base was only about 20% of our business so its still net up it just a function of the blending of the different business models where we do acquisition.
But it stills stays in a very strong rate now that the third blend for our part is, is it was just an anecdotal hypothesis is that if the tough economic time stays. Similar to the way we saw in the post 9/11 era there were companies still knew they needed to get on board for simulation and they knew its going to be comparative or survival, aspects for them.
And as such even they couldn't get capital they might institute something from a lease basis and then rolling into capital dollar, they didn't want to hold off the usage, but that was purely a direct result of whatever the internal finances of acquisition were embedded in individual customer. I am just saying that if this...
if the situation of the ups and downs that we've seen with persist, we might see a slight tweak up.
Barbara Coffey - Kaufman Bros.
Okay.
James E. Cashman III - President, Chief Executive Officer and Director
And ways to this. That makes sense.
Barbara Coffey - Kaufman Bros.
That does make sense. Thank you.
James E. Cashman III - President, Chief Executive Officer and Director
Okay.
Operator
[Operator Instructions] We'll go to Mark Schappel with Benchmark.
Mark Schappel - Benchmark
Hi, good morning and Jim first question for you. With oil and feedstock prices falling pretty conservatively here in the past several moths.
Are you seeing energy generation or process manufactures starting to rethink some other projects at all?
James E. Cashman III - President, Chief Executive Officer and Director
Right, Mark, I guess I try to re-highlight my comments, no. I think were we might state and, this one would be tougher to pickup there are always a number of these new start ups that will start to boot strap in the self new started companies with alternative energies in particular, and...
but if they don't show up we didn't no they were... you never know there are not there and if don't show at all.
So, on the general energy front, whether we're looking at nuclear, as I mentioned, if you're looking to some of the company names that I was mentioning in our major customer acquisition list, very strong I think the bottom line is that even as oil bobbed down to 60 what immediately people started talking about value on able control supply to drive the price back up. I don't think the Daimler expecting oil to drop to back to mid teens any time of next few years.
Now, and it seem like the supply is very much in question and the demand is continuingly increasing and no matter what we do it takes years to develop some of these technologies that take years to get new plans online, and takes year I'm mean. So a lot of things take time even if we get pass the regulatory issues.
So the non-stop innovation and up stop in the new exploration, I don't think that people are thinking that this a long-term trend that's going to continue down. And that's why you see these customers, just want talking [ph] out hydro wind, nuclear and oil all ere prominent acquires of the technology this time around.
Mark Schappel - Benchmark
Okay. Thanks and, as the version 12 release still on schedule for early '09?
James E. Cashman III - President, Chief Executive Officer and Director
Yes, well I actually selected customer shifts, even before, but the main part of the release is still '09. There hasn't been any stated change.
Mark Schappel - Benchmark
Thanks.
Operator
Your next, Woo Jin Ho, with Merrill Lynch
Woo Jin Ho - Merrill Lynch
Thanks. Jim, in constructing the 2009 outlook, what are your expectations for Ansoft relative to the overall EDA spending, they have out performed EDA in the past, do you think that remains the case.
And the follow-up on Mark's question on version 12, are there any expectations on ASP or positive ASP or trends as a result of a version 12 and is that embedded got as well? And then a one follow-up
James E. Cashman III - President, Chief Executive Officer and Director
Okay. Well the ASPs, I don't see necessarily, I don't gradually...
there will be a jump [ph] function on that, but I think it will continue to help propel the higher usages up there. On the...
if you look Ansoft component which switches that historically they always guided to a fairly wide range of 10% to 15%, and that's been a little bit above the normal market, I think we'll tend towards the mid upper end of that ratings we go forward. And then sorry there was one other part that I missed?
Woo Jin Ho - Merrill Lynch
No, you've covered it, I guess the follow-up then, is with regards to general stimulation usage trends. Can you just discuss the stimulation consumption trends within the existing base, has that been upside ways or possibly down?
James E. Cashman III - President, Chief Executive Officer and Director
That is been up. I mean if, I understand the question I mean is evidence by our results it's been a general up in both capabilities users and feat [ph] per users.
Unidentified Analyst
Right so it's sustaining a new licenses as a result of dues?
James E. Cashman III - President, Chief Executive Officer and Director
Yes well and that's why even if you look at our overall results, the new software license growth is even higher than the typical growth rates.
Unidentified Analyst
Great, thank you.
James E. Cashman III - President, Chief Executive Officer and Director
Okay.
Operator
We will go next to Steve Ashley with Robert W. Baird.
Jack Miller - Robert W. Baird
Hi, guys. This is actually Jack Miller filling in for Steve.
Just a couple of quick ones on the 2009 guidance, just wondering if that still assumes the 15% to 17% organic growth rate you called out before and if so is that a constant currency growth rate or does that include a impact from FX?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yeah I think what Jim spoke to earlier relative to revenue is basically more to the low double digit in constant currency, not the traditional 15% to 17% on the organic side of the business given the negative currency impact and just given what's happened in the general market.
James E. Cashman III - President, Chief Executive Officer and Director
And then that's a short term thing, the long term for in this case stays the same, just a strong may be even stronger but the point is that we are... to help provide a continued earnings growth and cash flows, like I said we are controlling some of costing and if we get the revenue up surprises, we are able to get those I think we've got a string of quarters that show that, but we also want to have cost structure.
So, Maria's right it's a basically in, after we eat up all the negative currency we'll be sailing in and stuff like that. We are still seeing a...
we are still expecting an organic in the lower double digits and I guess if we are, we have always talked about how currency has affected us positively over the last few quarters if we backed out how it might negatively affect it, but would still be a pretty strong acquisition curve for customers going into '09.
Jack Miller - Robert W. Baird
Okay. And then on the Ansoft side, could you just remind us how their deal size is compared to your own and given some of the capital and financing concerns, we talked about, do you think that there will be a shift towards offering their products at the least more in line with your traditional model?
James E. Cashman III - President, Chief Executive Officer and Director
Well that's going to be an option because again part of the... we rolled up knocking down barriers to adoption and most of time we talk about technology barriers, but acquisition barriers and financial barriers are part of that.
So, we've always had standpoint of saying hey, we'll offer a number of alternatives and the customer can take what's right for them. So adding that as part of the portfolio, clearly would be something that would be, something we'd do.
As due to the aggregate order side it still little bit more of a developing technology base of usage and as such as tended to the aggregate order cycles on balance more over than the traditional answers.
Jack Miller - Robert W. Baird
Okay great, thanks.
Operator
We'll go next to Greg Dunham with Deutsche Bank.
Greg Dunham - Deutsche Bank
Yes, thanks. One clarification.
If I heard you right, you said 47% business intake growth in the quarter. Did I hear you correctly first, and how do you guys define that?
James E. Cashman III - President, Chief Executive Officer and Director
I'm sorry what... yes that includes Ansoft, too, but yes, that's correct.
Greg Dunham - Deutsche Bank
Okay. But I mean is that I mean if I look at the revenues plus change in differed balance of 49% year-over-year, but that was obviously a benefit from Ansoft.
Is that how you're measuring it?
James E. Cashman III - President, Chief Executive Officer and Director
Oh yes. That's why, maybe I over killed it, got the parallel charts of numbers here, and that's' why I've been breaking out, which part was organic, which part was currency, because again we'll be an open book on that.
But no it was there, but in generally, no matter how you slice that the business intake was outpacing the comparable, and it was compared about when compared to revenue which is a good thing, that's means that the differed base is going to be growing and the leading indicators are that the new business is coming in faster than it's being recognized.
Greg Dunham - Deutsche Bank
No, and I guess I want to hit on that, because clearly September wasn't a great month for a lot of companies in the software space, yet you seem to be doing well and looking at your guidance for double digit growth your forecasting that to continue.
James E. Cashman III - President, Chief Executive Officer and Director
Yes.
Greg Dunham - Deutsche Bank
I guess could you.. want to talk about linearity in the quarter, what you saw in September and what you've see in so far in October, and then two, kind of remind us how customers buy your product, in terms of what budgets they fall under, is it and that sort of behavior, just give us a little bit more comfort in the double digit growth next year?
James E. Cashman III - President, Chief Executive Officer and Director
Well first of all, our linearity's from some quarter-to-quarter, obviously is much flatter than a traditional software company or hockey stick if you will, inter quarter. Is also relatively small.
So we don't... we have less of an impact of all those last month surprises.
Now, a lot of that is when you've got.. when you're dealing with 68% recurring revenue base, a lot of it is already banked there.
Now, that being said, that it is our traditional model. We're also blending in Ansoft which has more of a intra quarter and intra year inflection in the curve, and those are the things we have to work on overtime, but I think the probably the most challenging was even as we started to embed some of the Ansoft results, which is less visible.
Even on that much larger combined base, we're still at 68%, which is still gives us a certain amount of comfort, nothing gives you a perfect inoculation.
Greg Dunham - Deutsche Bank
So you're pleased with the bookings at the very end of month and the beginning of October. Is that...
disregarding the recognition of revenue as lead business from a new quadrant [ph] perspective?
James E. Cashman III - President, Chief Executive Officer and Director
Yes, in a word, yes.
Greg Dunham - Deutsche Bank
And just a follow up on the reasons why the buyers aren't facing the same kind of budget issues as there may be some other software companies? When did you....?
James E. Cashman III - President, Chief Executive Officer and Director
I can't speak to what others... companies are seeing, but we did have the advantage of having over the last few weeks, a number of different customer conference spend, that's like where I mentioned we have several thousand people, and the...
the tenure was quiet strong. Yes, there are some that have some question marks, but...
and costs will always be a concern in those areas, but all the direction they were getting was toward continuing to drive the engineering innovation, and R&D was not really being the first target for people to gut.
Greg Dunham - Deutsche Bank
Right, and that is an important point.
James E. Cashman III - President, Chief Executive Officer and Director
I think its hard... you would draw distinction [ph], I mean when we talk about the software companies, I'm not sure who you're referring to, but R&D is a much broader classification or another overlapping thing with general IT expenditures.
Greg Dunham - Deutsche Bank
That was the point I was trying to make.
James E. Cashman III - President, Chief Executive Officer and Director
Okay.
Greg Dunham - Deutsche Bank
Thank you.
James E. Cashman III - President, Chief Executive Officer and Director
Thank you.
Operator
We'll go to Steve Koenig with KeyBanc Capital Market.
Steve Koenig - KeyBanc Capital Market
Hi, thanks for taking my question. Listen, I'm wondering, in your comments, Jim you suggested that the differential in growth rates in Europe relative to the U.S.
if we think about a constant currency was primarily due to multinational off shoring and or doing more purchasing over the field [ph], I am wondering, do you see a possibility of that, the macro situation which has recently started to deteriorate in Europe relative to the U.S., that that could impact those growth rates going forward, and we might see some of that European growth come down to a rate more similar to the U.S.?
James E. Cashman III - President, Chief Executive Officer and Director
Well, there's actually two elements here. Two answers to your question here.
First of all, yes, we didn't expect the... well first of all we expect the European growth to still be good.
It's just that the annual cost and currencies, it looks a little bit different. But it will still be strong.
But the second part is that we had to kind of bifurcate. When I was talking about US multinationals, more often than not, those kind of things are going into Asia, Eastern Europe and some of the other developing countries, and those are...
those seem to be continuing to do pretty well. And Ansoft provides good opportunity for us there because it's a very small part of business in Europe, but it also gives a footprint to leverage in Asia.
So I think all those are valid concerns, those are the things we look at, but I think that the over all acquisition patterns are going to be strong, even eating up some of the currency issue, and I think some of the investment patterns, they could change all over the map, but the good news is we're all over the map too, and so far wherever they've put that usage, we just happen to go to that locale. So it's...
we're fairly neutral.
Steve Koenig - KeyBanc Capital Market
Okay, great. And then for my follow up, I'd just like to ask in terms of Ansoft, last quarter you indicated you had some caution and in terms of wanting to understand how solid that pipeline was this being a stuffed quarter, probably not a lot of Ansoft licenses yet.
What are you seeing relative to how solid that pipeline will be in terms of your ability to close business gone forward and maintain Ansoft's historical close rate?
James E. Cashman III - President, Chief Executive Officer and Director
Well, I mean its one of the things, we look at everything with... where can it go wrong, and work it, but in general, it's good.
Customer responses are good, the customer responses to the combined road shows have been good, and most of the general metrics, they obviously are good enough to support what we've built into our guidance going forward. And basically we have all the key salespeople still cranking along with us.
Steve Koenig - KeyBanc Capital Market
Great, thank you very much.
James E. Cashman III - President, Chief Executive Officer and Director
Okay, thank you.
Operator
We'll go next to Greg Halter [ph] with Great Lakes Review.
Unidentified Analyst
Yes, good morning guys.
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Morning.
James E. Cashman III - President, Chief Executive Officer and Director
Good morning.
Unidentified Analyst
I'm wondering if you could comment on your portfolio, the $212 million as to what that's invested in, the quality, where held and what of reach earnings?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
I would say it is inline with our traditional conservative model. There is no equity in there, it's all largely money markets, probably about 60% of it is sitting in foreign jurisdiction, because it's not tax efficient to bring that back to the U.S., although we would love the government to think about that, and yes there's not a lot of risk relative to that portfolio.
We've never been in the business of trying to make 20% on the money, so we're probably on average something in the 3% range.
Unidentified Analyst
And that's a pre tax type of return?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yes.
Unidentified Analyst
Alright. And I think the last quarter you had commented about the earthquake over in China having some impact on deal deferrals and so forth, and obviously you had a pretty good growth rate in GIA.
Did that situation have any bearing there?
James E. Cashman III - President, Chief Executive Officer and Director
Oh, we got some of it back. I mean it...
there is more coming over the next few quarters, so it wasn't like a bunch already gift wrapped, dropped in on us in September. But no, it was a good growth rate, not overtly extraordinary, but very solid for the company rate, and with pretty good prospects going forward.
Unidentified Analyst
Okay, great. Thank you.
James E. Cashman III - President, Chief Executive Officer and Director
Thank you.
Operator
We'll go next to Ross Macmillan with Jefferies.
Ross Macmillan - Jefferies & Co.
Thank you. Jim, if we go back to '01 and '02, you saw couple of years of mid single digits up for a licensed growth, and I think total revenue growth in '02 was also in the mid single digit range.
Can you just hit on the points that make what you see in the business today different from back then that gives you the confidence in low to mid-teens tier?
James E. Cashman III - President, Chief Executive Officer and Director
The one thing is that after you wind the clock forward 7 to 8 years, you look at the scale and impact that we have on a wide of range of major customers, and much more... a much broader and partner oriented deeper footprint.
I think the other thing is that we've been able to build up some of the cost structures were we have had we would be able to been able to build the infrastructure that basically helps operate pretty efficiently. In a wide range which is more you can see some of the opportunities we've had for margin expansion and the like.
And I think the other thing is that more of big thing was that not many of us saw 9/11 coming and the rapid aster methadot [ph]. Some of these other things we've been able to do we get a little bit more warning on a little bit more time to prepare on.
Ross Macmillan - Jefferies & Co.
Okay, great. And then just to make sure Maria just on the tax rate what's your assumption for the '09 tax rate?
Thanks.
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
'09 tax rate for now not knowing what the new administration might do on the tax fund I would say 37 to 39 and will update you on.
Ross Macmillan - Jefferies & Co.
Great, thank you.
Operator
We'll go next to David Schneider with Axiom International.
David Schneider - Axiom International
Hi, good morning. One real quick question for you, you mentioned, you made a couple of comments of such being a call on deferred revenues.
How their cash was in there but it may not be actually showing over the balance sheet. Could you just make some comments on that please?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yes. It's a purchase accounting, mumbo jumbo, if you will.
If you take a look at this morning's earnings announcement we tried to explain it in there, but essentially, we had to take a write down about $23.5 million on the Ansoft side out of under the theory that they are not liabilities that have already been performed by the seller. So, in short, we will still get the cash.
We still have the customers and next year when this we don't come up that renewed a 100%. So, we've historically when we had to take purchase accounting write down on revenue, we've added a backend so not to cause as Jim alluded to either inflating next years revenue growth but you wouldn't see in a tax flow necessarily.
David Schneider - Axiom International
Okay. I just want to think about the true differed revenue in for the third quarter if I added back in little bit your non GAAP and GAAP revenue into the for revenue balance stated in the balance sheet that would kind of give me a more realistic?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yes.
David Schneider - Axiom International
Number for differed revenue for the quarter.
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yes because that what you are seeing on the balance sheet is in fact GAAP and goes including impacted a purchase accounting write down.
David Schneider - Axiom International
Okay. Thank you.
Operator
Will go next to Shindail Dourtada [ph] with Cintenal Asset Management.
Unidentified Analyst
Jim. When you look at the license revenue growth now I think which is about 19%, if you had to break it down between the number of users and the migration to high price products.
Did you see any kind of acceleration on the first half into the third quarter that the number of users actually increased and rather than migration to high end products? How it sounds, can you give some color on that?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Yes, this is Maria. I think it wasn't necessarily migration to increased number of users no doubt, we are seeing more broader enterprise portfolio so I suppose to as Ross alluded to earlier if you go back to 2001 timeframe where we were selling mechanical multi physic, today we get into capable one of these merger customers and there are buying sea shells multi physic that also includes CSP technology in pre-impose processing perhaps so then exclusive technology when you start bundling those now we looking at much larger deal side then you would have seven or eight years ago.
Unidentified Analyst
So that means they are buying more number of products then increasing the number of users is that... that's how?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
It's a combination of both but marginally I would say more on the number of products.
Unidentified Analyst
Okay. When you look at the '09 guidance which is of course if you look at this year's and compared to that next year's it's a low double-digit to mid double-digit year-over-year growth and when you look at the revenue growth compared to year-over-year that's a very strong double-digit which is about 25% or so, so what is the and better then guidance that is basically the earnings growth there is below the revenue growth.
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
Well the revenue growth include Ansoft and the Ansoft business is not profitable to see traditional intrinsic [ph] business now we did say that our target is to make that deal not be creative first 12 months but we still have to drive the interest burden and increase shares and just getting the whole foundation towards the traditional assets model one half in two quarters.
Unidentified Analyst
So, you are expecting acquisition from Ansoft in 2010 period in that case, not into 2009?
Maria T. Shields - Chief Financial Officer, Vice President - Finance and Administration
No in later 2009 we believe that it will be modernly creative but not in early '09.
Unidentified Analyst
Okay, good. Thanks.
Operator
We will go Michael Wachove with Ark [ph] Asset management.
Unidentified Analyst
Actually you already answered my question, thanks.
Operator
And Mr. Cashman it appears, we have no further questions from queue.
James E. Cashman III - President, Chief Executive Officer and Director
Okay. So basically we are just enclose emphasize is going to be controlled focus on execution in tough times effective integration of the Ansoft and hopefully get supported by the years of history that we haven't here so that all I say that the customer acceptance of our existing vision and the unique value proposition, and the expansion of our product portfolio do we answer said that basically only bolsters the enthusiasm on long-term, continued to be propelled by that same combination of a solid business model.
The royal customers over the years all the channel partners great technology and of course the ANSYS employees and like the bank all of them as well as a you for participating on this call. So, I guess we will sign off until next quarter call in February.
Thank you.
Operator
Again, everyone thank you for your participation. This does conclude today's conference call.
You may disconnect at any time. .