Nov 7, 2013
Executives
James E. Cashman - Chief Executive Officer, President, Director and Member of Strategy Committee Maria T.
Shields - Chief Financial Officer, Principal Accounting Officer and Vice President of Finance & Administration
Analysts
Steven R. Koenig - Wedbush Securities Inc., Research Division Jay Vleeschhouwer - Griffin Securities, Inc., Research Division Sterling P.
Auty - JP Morgan Chase & Co, Research Division Matthew L. Williams - Evercore Partners Inc., Research Division Richard H.
Davis - Canaccord Genuity, Research Division Mark W. Schappel - The Benchmark Company, LLC, Research Division Gregory W.
Halter - LJR Great Lakes Review
Operator
Good morning, and welcome to the ANSYS Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Jim Cashman. Please go ahead.
James E. Cashman
Okay, thanks. Good morning, and again, thanks, everyone, for joining us to discuss ANSYS' third quarter 2013 financial results.
So, consistent standard protocol bookkeeping, all the information and key topics that are relative to the quarter and the full-year business results, and also our future outlook, are included in this morning's earnings release and in the prepared remarks that we've posted on the homepage of our Investor Relations website this morning. So before we get started, I'll introduce Maria Shields, our CFO, for our Safe Harbor statement.
Take it away, Maria.
Maria T. Shields
Thank you. Good morning, everyone.
I'd just like to remind you that in addition to any risks and uncertainties that we highlight during the course of this call, important factors that may affect our future results are discussed at length in our public filings with the SEC, all of which are also available via our website. Additionally, the company's reported results should not be considered an indication of future performance as there are risks and uncertainties that could impact our business in the future.
These statements are based upon our view of the business as of today, and ANSYS undertakes no obligation to update any such information unless we do so in a public forum. Unless otherwise indicated, during the course of this call and in the prepared remarks, we will be making reference to non-GAAP financial measures.
A discussion of the various items that are excluded and a full reconciliation of GAAP to comparable non-GAAP financial measures are included in this morning's earnings release materials and the related Form 8-K. So, Jim, I turn it back over to you.
James E. Cashman
Okay, thanks. Let's see.
Before we get into Q&A, I'd like to briefly highlight a few key points around our Q3 and year-to-date results, and also share some thoughts regarding our outlook for the remainder of 2013, and an advanced peek at this fiscal year 2014. So let's start by saying that Q3 was another quarter we delivered -- in which we delivered our commitments, and despite the persistence of the macroeconomic issues that continue to challenge not only us but our customers as well.
We finished out the quarter slightly above the midrange of our guidance, with revenue of $213.4 million or 9% constant currency growth, and beyond the high end of our range on earnings. So actually reflecting back on the comparable quarter a year ago, this was a very similar outcome relative to our final results versus our guidance and unfortunately, many of our predictions that I've made at that time around the challenging economic backdrop and the noticeable lengthening of procurement cycle extending into 2013, they have, in fact, remained with us throughout the past 9 months.
And unfortunately, those same predictions are what we're currently seeing ahead of us as we move into finishing out Q4 of fiscal year 2013, and we're really not assuming any major uplifts into 2014. So for the third quarter and year-to-date in constant currency, we delivered 9% and 10% revenue growth, respectively.
In Q3, we reported double-digit revenue growth to both North America and Europe, with albeit slower but still positive constant currency growth in Asia-Pacific. The top line performance in turn yielded strong margins, cash flows and earnings for the quarterly and year-to-date periods.
During the quarter, we saw a disproportionate growth in leases as compared to paid-up licenses. Our maintenance business also continued to be strong with 13% constant currency growth in Q3 and a 15% year-to-date.
So both of these factors contributed to our deferred revenue and backlog balance growing significantly faster than our reported revenue. These results were indicative of both solid renewal rates and a healthy 72% recurring revenue rate for the quarter.
We finished out the quarter with total deferred and backlog balance of just over $360 million. Our Q3 non-GAAP EPS of $0.83 included approximately $4.8 million or $0.05 of incremental tax benefits.
But even excluding these benefits, we still exceeded the high end of our guidance range for earnings. On a year-to-date basis, we reported non-GAAP EPS of $2.31.
So as we look back on the progress over the third quarter and the first 9 months of 2013, we continue to make important strides with a vast array of customers spread across geographies and industries. We continue to see the importance of product innovation, integrity and quality as critical business issues requiring the use of advanced simulation.
And just one example, in automotive, we've seen strong R&D investments continuing globally, led by sustainability and smart systems development, in addition to increasing utilization of electronics and embedded software for safety, performance and entertainment. But even with that mind, across most industries, growth is really being driven by 4 major factors: First and foremost is just the increasing product complexity; second, is the need for localization that we're seeing in different geographic markets; next, any product segment linked to the trends in mobility are quite strong; and then finally, as I've also mentioned in automotive, the increased proliferation of electronics and software into our customers' products.
So those 4 factors seem to be the canonical reasons for driving of growth. So all of these areas drive the increased interest and need for our unique multiphysics capabilities, and in each of these cases the rapid understanding of the extremely complex problems, the necessity of a high degree of fidelity and accuracy, all of these are key tenets of the ANSYS vision and strategy.
And this vision is probably key because it's been in place for many years. It's predicated on the ability to virtually simulate increasingly complex complete systems that are comprised of mechanical, electrical and software components.
So for those of you who are interested in additional depth, there's a wealth of content regarding our portfolio solutions and customer uses across a broad range of industries that we serve, and those are all on our website, at ansys.com. Okay.
So with the Q3 behind us, we look to close out the final quarter of 2013. No doubt about the global uncertainty and customer cautions and the challenges they pose for us and many companies in our industries.
And from what we're currently seeing and hearing from our customers, those challenges will continue into the foreseeable future. That being said, our outlook for Q4 is non-GAAP revenue in the range of $234 million to $240 million, with EPS of $0.79 to $0.82.
This translates into non-GAAP revenue for the full year of $863.2 million and to a high of $869.2 million and EPS in the range of $3.10 to $3.13. So netting all that out, this is essentially a slight increase to the floor and a narrowing of the range for revenue, and an increase in their earnings outlook to take into account the strength of our Q3 results.
I will say that we have anticipated no significant year-end budget flush that's to factor into our Q4 outlook, but as always, if that does happen to do it, that should be upside for us. We've also initiated a preliminary outlook on revenue and EPS for our fiscal year 2014, and this consists of non-GAAP revenue in the range of $935 million to $965 million and EPS in the $3.25 to $3.37 range.
More details around currency rate and other key assumptions are contained in those prepared remarks that we posted on our Investor Relations homepage early this morning that I mentioned at the beginning of the call. For purposes of today's discussions, since 2013 is not over yet, we'll stay at a very high level on the 2014 assumptions.
We're in the process of prioritizing and finalizing all the details around hiring, capital and overall areas of investment for 2014. We'll provide more details and additional insights on the Q4 earnings call in February.
Now from a qualitative perspective, our current guidance takes into account the uncertainty that has persisted in various geographies throughout the world, and also an assumption of a continued level of spending discipline by our customers and it really continues to add variability around the predictability and timing of deal closings. The biggest realities of today's environments and there are things that can and will happen and we have no control over it.
However, there are a couple of things that we are certain of. The first is the long-term confidence in the vision that's been our passion for more than a decade.
And second is our commitment to invest from a long-term perspective in the realization of that vision. So with that in mind, we'll continue to be cognizant of all the short-term realities that get us from time-to-time and factor those into our business plans and our guidance.
So with that, I'll be opening up the phone to take any questions that you might have.
Operator
[Operator Instructions] Our first question comes from Steve Koenig at Wedbush Securities.
Steven R. Koenig - Wedbush Securities Inc., Research Division
Jim, Maria. I'll start with a question on Q4 guidance.
Operator
I'm sorry, one moment, please. Just one moment.
I'm sorry, just a moment. Sorry, Mr.
Koenig, you may proceed with your question.
Steven R. Koenig - Wedbush Securities Inc., Research Division
Okay. Let's see.
The initial question is on Q4 guidance. The EPS guidance looks a bit low especially when I reverse engineer the operating margin assumption, looks like it's below 47%, which is out of your usual range.
Can you give us any thoughts on that?
James E. Cashman
Yes, well there's no doubt. Keep in mind, again, you talked about that unpredictability about the revenue and even some of the earnings things, so we were over the high range.
But if you look at it, there's really, there's probably 3 primary factors. First and foremost, we didn't hire as quickly as we really would like to in an ideal standpoint.
Maria T. Shields
He's asking about Q4.
James E. Cashman
Q4? Oh, I'm sorry.
I'm sorry. Okay, so really the Q4 margins -- okay, so the key thing was that if you look at the natural flows of business and these are some of the newer ones.
So like Apache and Esterel business, the margins for Q4 are typically a lot or significantly lower. They're driven by sales and commission accelerators that occur in the fourth quarter.
So in general, they tend to be double-digit lower than they are in Q4, so you'll see something similar to that for those particular ones, but also you'll -- you're getting back to the timing of the predictability of spending, there are some additional expenditures that we're planning in Q4. Some are related around the IT bid out of our new data center that is supporting all of our global infrastructure and moving into some of our -- expanding our cloud offerings, and the timing of those came in at -- are coming in more planned for Q4.
And then -- I mean, these are number of ones. Maria, you got...
Maria T. Shields
Yes. Steve, there's a couple of other factors.
Q4 typically, our royalties in third-party commissions are higher in Q4. And we're also, as we typically do, we'll be doing some pre-hiring on the sales and support front to load for 2014.
Steven R. Koenig - Wedbush Securities Inc., Research Division
Got it. Okay.
Great detail. And if I may squeeze in a follow-up.
I'm curious the shift to leases that we saw this quarter, and it bounces around quarter-to-quarter. But I'm wondering, just your thoughts on the possibility that, that continues because of the secular shift we've been seeing throughout the industry and to more of a pay-as-you-go type of approach by customers.
Do you think that could drive a more sustained shift to leases beyond kind of the choppiness you sometimes see quarter-to-quarter?
James E. Cashman
Well, it could be. This one stood out a little bit more, Steve.
I mean, there's a number of things. Obviously, the Apache portion of business, which has been growing nicely, there's a little tweak there.
There's no one predominating factor. We also don't know if the secular shift that you're talking about will pan out to be a trend versus a spike.
I mean, we just pointed out because this one stood out now. It was something that was very noticeable.
And also in general, times of macro uncertainty also tend to drive, but those tend to be short-term dislocations that tend to correct themselves over a 6- to 9-month period once things get on even footing. So there's a number of things.
But in general, when you see the math add up and its impact on the recurring rates in the revenue backlog, it's good for us long term. Again, we've said for ages that whether or not it was our Software as a Service cloud offering or our perpetual license or our lease that really, in these early phases of adoption of this technology, that we are really interested in getting users of any style regardless and really not even caring a whole ton about how they acquire it.
We want to create numerous avenues for them to do it. And we've just seen this particular timeframe that it did shift in this matter.
So those 3 factors are the main ones. A couple of those are longer-term sustainable, one of them might be a spike, don't know about how all those will add up, but we doubt it was particularly noteworthy.
Operator
[Operator Instructions] Our next question comes from Jay Vleeschhouwer at Griffin Securities.
Jay Vleeschhouwer - Griffin Securities, Inc., Research Division
Jim, Maria, my first question concerns your preliminary 2014 outlook. The $30 million range is somewhat larger than the preliminary outlook at this time 1 year ago and 2 years ago, which were about $10 million to $20 million.
I know that the company, of course, is larger and more complex on a larger base, but what are some of the components of that wider range that you had in mind for next year? And the follow-up question is, if you could talk a bit more about your electronics and semiconductor end market, which has clearly become now your largest business by revenue and clear driver for much of the past year.
And does Apache continues to be a double-digit growth component of the company for you?
James E. Cashman
Well, okay. So first of all, yes, talking about the reasons for this extended range, basically you hit the primary one right on the head, it was the increasing complexity of the business.
Your other thing is, that some of the macro uncertainties, particularly in -- a lot of people have been talking about different parts of the world and how there's been a lot of dislocation there. So there's just a greater uncertainty there.
The third thing that I'd add in that I think leads into your following question is, we've got a range of some very new, exciting and unique technologies and capabilities in the portfolio that we've added over the last 1 to 2 years. But as I think we've all witnessed in all of this technology thing over decades is that it takes a little bit of time for them to incubate and therefore the starting error of what might take off and what might not in certain time frames tends to be -- have a pretty broad standard deviation to it.
So the newness of some of those things while we know long term, they're going to be very strong trends, how long it takes for customers to get adapted to, what it might mean for them to implement it and how much those launch in. Now with that in mind, leading into your follow-up question is, yes, we see -- I mean, of course, Apache now has grown in scale itself.
But even then, we see it as being a double-digit performer into the foreseeable future. I mean, I won't even put a time frame on it because I've seen no decline in companies pushing for their mobility solutions, for power, for power efficiency, for getting to smaller and smaller chipset sizes and moving down into at some point probably single-digit nanometer range but moving into that 20 into 14 and that.
So with those trends going on, it's going to be a continual rate there and we see that continuing on. So I think with that, was that all the...
Maria T. Shields
I think and, Jay, just one other element I'll add is as to the earlier question, we've got this mixed model of paid-up and leases that we offer. So if some of the dislocations you mentioned continues into 2014, and people use -- elect the lease option as opposed to a paid-up option obviously that has different impact on how much that translates into GAAP revenue in any given quarter or any given period.
So we're trying to factor all of that into a much bigger, broader complex business.
Operator
The next question comes from Sterling Auty at JPMorgan.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Jim, you started to touch upon this in I think the answer to the first question. So when you're looking at the third quarter here, you mentioned maybe slower hiring.
What I'm curious is normally we see this kind of upside of margins when you beat on revenue and you get that disproportionate contribution margin. It sounded like you managed expenses to get to this margin for this quarter.
What I'm curious about, did you start off with a cautious view and kind of held back in expenses right from the beginning? Or was there something in the quarter where you started to slow down maybe the pace of hiring to make sure you've got to this level?
James E. Cashman
Well, first of all, again, there were -- the 3 major factors were we didn't hire -- and that was nothing we were managing. We would have loved to have gotten quality people on-site.
But it is -- Q3 isn't necessarily the maximum transition, the optimal transition period for people that are looking to join or change during that time frame. So we just didn't -- the pace just slowed down a little bit from Q2.
With that being said, we are planning on continuing to keep a pretty decent ramp-up even through Q4 in anticipation of building for 2014, so that's going to happen. Now with regard to the discretionary, I wouldn't say it was anything else outside the ordinary of the things we normally do with the business.
But there were a number of different signals that we were seeing. Sometimes it was spread out globally, there were different global markets where we're seeing it more noticeably and with that in mind, we did at least use discretion in Q3.
Keep in mind, Q3 is also historically the most bizarre quarter of the 4, of things coming in and predictability of revenue and things that happen as people come back from vacation. It's really not a full 3-month quarter.
And then the, I guess, the other thing is that we -- I mentioned the dislocation of some of the costs. We had originally planned that we'd be doing as we bid out our data center, we had planned that we are going to be doing some expenditures in Q3, and they just, for a number of reasons, again, nothing related to management of anything but just the normal logistics of doing a major project like that.
Some of the things that we anticipated being Q3 expenditures actually if they shift a few weeks, it becomes a different quarter. Really doesn't change the overall annual landscape of anything but it just cosmetically make something.
Look, if you integrate it over time, you'll see that it probably mapped up pretty well. But those expenses are slated and actually are occurring now in Q4 as we speak.
So those are really the 3 major factors and really nothing else, but nothing really out of the ordinary.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
And then the one follow-up. I understand the FX impact in Japan, but would you still call out further weakness just in demand out of Japan because I'm really trying to reconcile.
If I look at where the geographic weakness was for yourselves versus parametric versus the cell versus -- and just looking at the broad segment, it doesn't seem like there's a common thread through it. And just wondering if that in and of itself tells us something?
James E. Cashman
Well, we try to look at that, I mean, when you look at those things. And I would say, there probably isn't a common thread.
But if you look at some of the areas, I guess if you connect the dots between -- if you look at some of the areas where -- have been traditional pockets of strength for us in Japan, you'll see that some of those are either in retrenching or different competitive kind of environments. So it's again, I don't think there's any single trend that you're going to see there, things have shown signs of improvement for us in Japan and in general are progressing well along those points.
But it's just a continual point. By converse you've mentioned some of those groups and other people in our space, they've had slowdowns in areas where we were in double-digit growth.
I mean, there's just that -- there's just all of these local -- it's like you don't see a complete tidal wave covering all of the contingencies. It really is very spotty, but every sector of the globe is being hit by retrenchment of competitive positions and overall macroeconomic kind of situations going on.
So it's really, I don't think -- we haven't found that one touchstone that seem to solve and answer all the questions.
Operator
The next question comes from Steve Ashley at Robert W. Baird.
Unknown Analyst
This is [indiscernible] for Steve Ashley. Just piggybacking off of Sterling's question.
Just wanted to ask on Japan, it seems like the macro environment continues to be challenging even on a constant currency basis. So just wondering what -- if you can give us some color on what you're assuming for trends there and your guidance?
James E. Cashman
Well, I'd say the bottom line is for the environment, we're seeing things very similar. Now the situation is that if the environment is going to be in a certain way, we obviously have to meter our business model and we do things to basically optimize our performance in whatever -- however a muddy field that we might be playing.
So those type of things that we've also been involved with. I mean, you look at the one of the most telling things as you look at the relative comparant of, let's say, the electronics industry and the strength that it seemed to have almost a preeminence in Japan 5 to 10 years ago, and now you see what's happening with the Korean, even some North American accounts in terms of what they are doing.
And then you see what the reaction of some of those Japanese companies are moving into other spaces, shifting, doing things. And I mean, so there's a kind of constant turmoil that's going on there.
But those trends we still see continuing to go on. I guess the good news is that even if it goes -- if demand, if industrial demand shift in one way or another, if they are going to continue to grow, we'll proceed well because it's going to be done by some company somewhere in the world.
And luckily with our geographic spread, we're pretty much evenly distributed across the globe, so we're able to do that. Now the other thing is that we are seeing, we are seeing some good activity in the auto industry in Japan.
So I mean, again, it's not even a one-size-fits-all in Japan, it's different pockets of strengths and ebbs and flows, if you will, in all of those.
Unknown Analyst
That's helpful. And then just stepping back a little bit, and if he can just talk to us about your high-level priorities going into next year?
Where will you focus your products, go-to-market and M&A investments, et cetera, that would be great.
James E. Cashman
Taking the M&A thing, because we can't comment on any individual one. But you're going to see really kind of the same trends that we've been doing over the years.
But right now, we have pretty much a good footprint in all of the key areas that we want to be in, but we want to -- we actually want to make sure that we get a chance to fully flesh those out. So you could see a number of augmentations to our traditional lines that will actually allow us to solve these emerging new generations of problems that customers are coming up to.
It seems like every time you solve one layer of issues then there's another cadre of them sitting in the background waiting to -- that they now want to solve. And we also see a lot of progression into ultimate materials, which we've talked about and what that means in terms of simulation.
The concept of system simulation, your complete product system simulation is one that's been starting to take more and more hold up over time. So if you look at that, if you look at -- take that off the table and just say, hey that's part of the normal knitting[ph] that we'll be doing for a number of years because we -- it's a great way to get good qualities of staff and it's also a way to speed up the pace of development quicker than we ever could internally.
But if you look beyond that for 2014, there are probably 2 basic themes. One of which is the release of our ANSYS 15 portfolio of products.
And we won't get into a lot of detail on that right now but it's really one that we think tends to give us an incremental increase in capabilities that everything from look and feel to usability but blending together all of the applications that we've had that may have come from different parts of engineering discipline over time. The second part is then just the continuation of the sales momentum, given the fact that it's -- these are difficult times.
But the headwinds seem to be against everybody. It's a difficult environment but being able to continue to build on that productivity but also be able to cross -- continue to get increased efficiencies of our cross-sell capability.
So when we have strength in one area, that can actually be leveraged naturally in even though buying centers and buying maturities may be different even within the same company across those different disciplines, because ultimately, they all do play in being able to simulate complete systems.
Operator
The next question comes from Matt Williams of Evercore.
Matthew L. Williams - Evercore Partners Inc., Research Division
Jim, Maria, maybe just to piggyback a little bit on Jim, what you were just talking about. I know you mentioned earlier that throughout 3Q, you didn't really hire at the pace that maybe you were expecting.
But having said that, you have sort of ramped sales capacity throughout the course of the year. I'm just wondering if you could provide a little bit of color on sort of how those reps are on boarding?
What their productivity levels are like and maybe what you -- what plans you might have in place to sort of increase that productivity going forward?
James E. Cashman
Well, I mean, first of all, I'll just say flat out we're a few down from where we wanted to -- where wanted to be. Yes, we added some and our hit rate has been better on the hiring.
But we are net down from where we would originally are planned to like to have been. So that number aspect is one part of it.
If you look into 2014, again, we weren't getting into all of the different planning and detailed things but I think you'll see a continual ramp-up not dramatically different than what you saw in 2013. That's just kind of what I'd expect but I can't hold there's anything right, not even finished with 2013 and we don't have an approved 2014 plan in detail yet.
So sheer numbers is one. Now you've hit on the second topic, productivity.
Well, productivity, I guess, you asked how are they ramping up? And I'd say in general, we've actually been able to, if you will, build the science of ramping up because we really don't have a single across-the-board competitor so there really isn't -- there really aren't pockets of people that will go and say, yes, here's these other people out there doing exactly what they're doing.
So people are going to be already ready. So we had to actually build, if you will, the science of trying to expedite people coming onboard.
I think in general, it's been okay, but if you recall earlier calls, we had mentioned also that, while -- if customers are more cautious than their buying pattern and they are more cautious of budgets. The general pace of getting meetings and those, if you will, building that muscle memory of a sales process by getting in there, that just all goes a little bit slower.
So if anything, that creates a little bit of a lagging effect. But the -- probably the most important part is that you've got the right people and you know that they kind of get pretty -- they get marginally productive within a few months.
And by the second half of the year, they're producing pretty fully and then they still continue to grow for a couple of years. I mean, the good news is that we've got a bank of those people that have really gone through, if you will, the shallow end of the learning S curve of coming up.
So there's a statistically a good chance of those going up. But with that in mind, and we've also had to meter some of the training and mentoring programs that we have as people get into anything from major accounts to, well, in some cases, e-selling and inside an indirect sale of selling models and the like.
So I mean, we've got those things going altogether. But first and foremost, down a little bit on the -- a little bit behind where we want to be in terms of the total headcount, but plan to ramp it up and continue into 2014.
Second of all, ramping the productivity up and that's primarily through a lot more of targeted tools and training that we have specific to what we've observed through the first 3 months -- first 3 quarters, I'm sorry, of this year.
Matthew L. Williams - Evercore Partners Inc., Research Division
Great, that's helpful. And maybe just one quick follow-up.
I know we've talked in the past of the fact that you guys feel like you have plenty of white space within your installed base to expand users. Just wondering if we could get a quick update on, I guess number one, sort of how the expansion is going and the success you're having within some of those larger accounts trying to expand usage?
And then I guess sort of alongside that, any sort of color in terms of hiring that you're seeing at your largest customers? Are they adding people still or is it still a very measured environment there?
James E. Cashman
Okay, well first of all, they're adding people. Our customers are adding people.
They do it at a pretty judicious rate also. I mean, it's very targeted.
And actually, some of them may be doing it as they spread out globally on a more global basis, which tends to, kind of confounds the situation a little bit. We're still seeing good growth to that point of the white space.
I mean, not that we go after million-dollar orders, but those large orders that we saw continue to climb, even in Q3, which is a little bit more quiescent period. It grew so we had growth in the number of orders in excess of $1 million.
And in fact the numbers of those continue to grow. I'd say also that right now, probably the key thing is that while customers don't want to, if you will, compromise on the accuracy of the solutions they're getting, in general, it's -- they're not going for, well, it's good enough software.
A good enough software isn't good enough for where these customers are going. They're also at a point where, okay, now they validated the technology internally.
And a lot of it gets into, okay now, organizationally and workflow-related, those tend to be now more barriers or the things that can slow down a sale. And quite frankly, a couple of those things are reasons of my aforementioned interest in the drive on the ANSYS 15 because that's where you start to see the -- some significant product surges in those particular areas.
Operator
The next question comes from Richard Davis of Canaccord.
Richard H. Davis - Canaccord Genuity, Research Division
You mentioned it in the prepared remarks, but I got a question from some investors about your oil and gas effort. Is it fair to say that it's kind of probably less than 10% of revenues but has obviously upside potential?
And then through these [indiscernible] how would you stay competitively on that bumping into?
James E. Cashman
Okay, well, we clearly, clearly we see -- I mean, clearly, yes, that is a growth area. It's about that range where it's in the high-single digits to mid to the low -- and, I'm sorry, the high single digits to the -- around the 10% range.
Again, with any of the energy things, they tend to bob and weave sometimes on if there's a problem with a nuclear plant somewhere, if the price of oil goes a certain way, I mean, so there tends to add that in. Now the issue is that there's an awful lot of the oil industry that is still somewhat blacksmith and kind of this has been way it's historically been done.
However, you're getting the new kind of problems that hadn't been -- probably hadn't been solved before and we talked about some of those in the past, increased drilling, grilling for, if you will, less desirable forms of crude. We're even seeing things that are along the lines of -- you wouldn't link these in normally, but the whole concept of if oil's being drilled a couple of miles down in the ocean instead of pumping up oil, sand and water, processing it and doing a lot of the processing of it on the ocean floor such that the energy you're using to raise up the stuff is only the end product you really want.
Well, when you have that, you've got all sorts of electronics, wireless, all sorts of things that are going on there. So really we're seeing the emergence of new kind of product.
In terms of the competition, really not a lot there. But we will run into some areas where the science of geologics and that actually entered the picture too and then it's a series of more niche people that probably most people haven't heard of and we haven't heard of in the past and go in.
So if you look at that, that's really -- apart from that, there's always been -- there's still latent competition in the single physics kind of environment, a lot of those are just maintenance of status quo type of environments. But there seems to be a lot of interest from the research side now.
And I think it's really aimed at the place of their doing things in different ways in different places than historically they had. I think when the old drilling above ground and things like that, there's really not a whole lot of change in that.
But a lot of these other areas are what's percolating the interest.
Richard H. Davis - Canaccord Genuity, Research Division
Got it. And then one quick question for Maria.
The Esterel revenue contribution, we're just trying to kind of gauge that rough -- organic rough rate. Do you have any color on that or we can catch that, but I was just wondering if you wanted to toss in there?
Maria T. Shields
Yes, for the year, it's going to be approximately about $20 million -- yes, over $20 million.
James E. Cashman
Over $20 million. And the only thing we'll say is without it, it's been a little bit in advance of our internal projections.
So in general, we're pretty pleased on that. If you recall, though, one thing we did was we started with a -- as opposed to just opening it up to every account, every salesperson because we didn't want to swamp the support infrastructure that we had or disrupt the business that was already done.
We picked the target list of the prequalified account and that actually turned out to be a very good progression for us.
Operator
Our next question comes from Mark Schappel of Benchmark.
Mark W. Schappel - The Benchmark Company, LLC, Research Division
Jim, in the prior question, I believe you touched on your cloud offerings. I was wondering if you could give us a few more details of how you're seeing cloud impact your markets?
And what you've done and what your guys are actually doing in the cloud?
James E. Cashman
Well, bottom line is it's really, it's one of the things that we want to prep for. Really I'd have to say, it really doesn't impact on our markets a whole lot right now.
There's a lot of things that still technologically it's really well-suited to e-mail and personal productivity and sales force automation kind of activities. But long term, there's no doubt that this is going to be something that is at least an interesting adjunct to the business.
Now I'd say that the good news at least we think from our standpoint is that we architected the software such that it serves our customers today but it immediately transplants into any kind of a large-scale cloud proliferation, and that's how we've been able to operate with these interconnect layers and the high-performance computing. And that actually is really the way that most of our major customers are using it right now is that they really, they've got their own internal cloud, but it's behind the safety of their firewall, they control the bandwidth, they control the prioritization of processing, things like that.
In other words, they can provide a sustainable, predictable way for that to do it. But the fact is we want to make sure the software would actually be able to run in those environments.
And in fact, we're even thinking of hybrid environment where people would be utilizing a baseline of capability internally, but then if they had surge capacities that they need, they'd be able to go out and actually utilize external and internal cloud symbiotically. Apart from that, the only other touch point we have in there is that almost over 10 years, we've had Software-as-a-Service offering and for the reasons I mentioned earlier, it's one -- it's used sporadically, but it's not one that our people are using as the mainstay.
With that in mind, though, we're still basically upgrading, if you will, the store front and looking at different -- there's a number of different commercialization models and really, each one depends on the manner in which the customer wants to utilize the software, whether it's a regular stream, whether it's sporadic, whether it's in spurts, things like that. So it's one of those things that we definitely need to prepare for, but it's also not a broad scale at least for full-scale industrial strength kind of applications.
Mark W. Schappel - The Benchmark Company, LLC, Research Division
Okay, and then one final question here. In your prepared presentation, I believe you called out problems in China, particularly with the state-owned enterprises.
I was wondering if you could just give us a sense of what your overall businesses is in China as a percent of your revenue?
Maria T. Shields
Not China, individually, but I will comment, Mark, relative to the China environment. A significant portion of our direct and indirect business in China relates to the state-owned enterprises.
And we definitely saw a lot of activity. However, we also saw, I would call, a noted slowdown relative to their willingness to pull the trigger to close deals.
Operator
Our next question comes from Greg Halter, Great Lakes Review.
Gregory W. Halter - LJR Great Lakes Review
Wondering if you could provide a little more background about the ANSYS 15.0, whether or not that'll be released to everyone at the same time? And if anyone's currently using it and things of that nature?
James E. Cashman
Well, [indiscernible], we've got customers who have been using it in preview mode, I mean, much like some people might call it a beta program, it's not exactly that process. People have been utilizing that, but we'll be announcing -- we'll be releasing that actually next month.
And then, of course, there are different markets where there may be certain things in terms of localization and product launches and things like that, that we have to move out beyond that. So yes, but it'll -- it's this year.
Gregory W. Halter - LJR Great Lakes Review
Okay. And there's obviously been a lot of interest in this whole 3D printing area, and just wanted to get your thoughts on that and how ANSYS software may or may not be working with that type of product area.
James E. Cashman
Yes, it's actually working together right now. I mean, if you think about it the -- well, 3D printing, of course, when you say that, it means multiple things, some of which is creating a pseudomodel of something with different materials that doesn't really match in.
In some cases, it's also -- there'll be rapid construction for low-volume manufacturing that allows things to be done with the existing materials. The bottom line is to us, it really doesn't matter and in some ways a proliferation of 3D printing of real product actually tends to help us because again, the whole point of the value of the 3D printing for at least as a manufacturing -- well, let's call it additive manufacturing is it allows people to get something out quickly.
Well, you don't want to rush something out quickly then you just have to send it to a laboratory and spend a certain amount of time testing it. In most cases, the people that are getting the most out of 3D printing are actually verifying the design virtually such that when it comes out, it's got a much higher probability of meeting the overall requirements.
So I mean, it's net-net, it's really a positive. If anything, it's a positive for us.
Greg?
Operator
Mr. Cashman, that does conclude the Q&A session, if you'd like to make any closing remarks.
James E. Cashman
Well, okay. Well, thanks, everybody, for the questions and for the attendance.
So I guess we've kind of covered a lot of this, but in closing, our emphasis for the remainder of the year is going to be no surprise here, but execution, customer development and just the internal disciplines as we map out the year. Again, we're excited about the opportunity [indiscernible] for the remainder of 2013 and especially beyond.
But again, there are going to be challenges along the way. So again, fortunate -- I say this a lot, but probably can't even say it enough, is that we've got a strong foundation that's built on over 40 years of dedication.
It's combined with the focus on technological expansion, execution, growth, customer engagements, basically allow us to go after those changes. So again, as I said earlier, we believe that if the economic environment improves in the future, we're well-positioned to be able to achieve even more robust financial targets and continue to be propelled by that really strong combination of a sustainable vision, I think a business model that's gone through a lot of -- gotten through a lot of different economic cycles, but at the heart of it all, I mean, we've got the greatest customers on the planet, good partners, strong technology and of course, the employees that have been part of this for a number of years.
So thanks to all of them and thanks to you for joining us this morning.
Operator
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect.