Feb 27, 2014
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
Sterling P. Auty - JP Morgan Chase & Co, Research Division Steven M.
Ashley - Robert W. Baird & Co.
Incorporated, Research Division Ross MacMillan - Jefferies LLC, Research Division Jay Vleeschhouwer - Griffin Securities, Inc., Research Division Steven R. Koenig - Wedbush Securities Inc., Research Division Richard H.
Davis - Canaccord Genuity, Research Division Mark W. Schappel - The Benchmark Company, LLC, Research Division Matthew L.
Williams - Evercore Partners Inc., Research Division
Operator
Thank you for standing by, and welcome to ANSYS Fourth Quarter and Fiscal Year 2013 Conference Call. With us today are Jim Cashman, President and CEO; and Maria Shields, Chief Financial Officer.
[Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Mr.
Cashman. Please go ahead.
James E. Cashman
Okay. Good morning.
And again, thank you, everyone, for joining us to discuss ANSYS' fourth quarter and fiscal year 2013 financial results. So again, consistent with the -- our standard protocol, all of the general information and key topics relative to the quarter and the full year business results, as well as our future outlook, are included within this morning's earnings release and in the prepared remarks that we posted on the homepage of our Investor Relations website this morning.
So before we get started, I'll introduce Maria Shields, our CFO, for our Safe Harbor statement. Maria?
Maria T. Shields
Okay. Good morning, everyone.
I'd 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 world and our business as of today, and we undertake no obligation to update any such information unless we do so in a public forum. Consistent with our standard practice, during the course of the 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. And one last housekeeping item, I'd also like to remind everyone that the ANSYS team will be hosting our Annual Investor Day here in Pittsburgh on March 12 at the Fairmont Hotel.
If you're interested to learn more about it, please see our website at ansys.com for further details about the event. So now, Jim, I'll turn the call back over to you.
James E. Cashman
Okay. Thanks, Maria.
Well, before we get to the Q&A, I'd like to briefly highlight a few important points about our Q4 2013 results and also some key assumptions underlying our Q1 and fiscal year 2014 outlook. So I'll begin by saying that 2013 was an important year for ANSYS in many respects.
We finished out the year with a steady Q4 close that was directly in line with what we said on the last call. Revenue was at the midpoint of our guidance at $236.7 million.
And as we predicted, there was no appreciable year-end budget flush. Operating margins and earnings were both above the upper end of the guidance.
Now will note that our Q4 earnings included $11 million of incremental tax benefits or about $0.12 per diluted share. But even without these benefits, earnings were above the high end of our range.
In constant currency, that worked out to 7% revenue growth in Q4 and annual revenue growth of 9% for fiscal year 2013. We also reported constant currency revenue growth in all 3 of our major geographic regions for both the fourth quarter and the full year and in both major categories of revenue, the software license and the maintenance and service for the full year.
The top line growth in turn yielded strong margins, cash flows and earnings for the quarter and the year. We finished out the year with a total deferred revenue and backlog balance of $409.5 million, which is a new record year-end high for us.
In the fourth quarter, we continued to return excess cash to our stockholders through the repurchase of a little over 500 -- well, 506,000 shares, which puts us at 1.5 million shares repurchased for 2013. And as you might have seen earlier in the week, we announced that our Board of Directors authorized an increase to our existing program to a total of 3 million shares.
So we're committed to continuing to repurchase shares in 2014 as one element for effectively deploying capital. I will note though, strategic acquisitions remain our top priority for this, however.
So in December, we heightened our dedication to partnering with our customers to achieve their visions by delivering ANSYS 15. This release provided a number of new and advanced multiphysics capability that were seamlessly brought together within the ANSYS Workbench environment.
It's really a key milestone in delivering a simulation-driven product development that we've been talking about for a number of quarters and years. It's built on that platform that streamlines the workflow among different simulation applications, so it's really allowing us to keep on our path of redefining comprehensive simulation.
And I think this puts us in a unique position to continue to increase footprint with our -- in our extensive installed base. Without a doubt, the depth and breadth of our simulation capabilities, coupled with the power and scalability of the Workbench platform, allows us to expand relationships, as well as solve new classes of problems at enterprise, at SMB and start-up levels.
So as we look back on our progress over the course of 2013, we continue to make some important strides with a vast and pretty broad array of customers spread across all geographies and industries. We're continuing to see the growing importance of product innovation, integrity and quality as being the really critical business issues requiring the use of advanced simulation and driving our prospects.
I think if we take one little -- some other pieces of data here, it's evidenced by 33 customers in Q4 with orders in excess of $1 million. And actually, for 2013, we had 4 customers with orders above the $10 million range.
So these are customer relationships that have been built over many years and, in some cases, many decades. And we'll continue to work to grow those relationships over time.
The key customer engagements are at the heart of what drives us in both our internal R&D roadmap, as well as those acquisitions that we'll be pursuing. Most recent example, of course, being the addition of EVEN and Reaction Design, which were small technology add-ins to the ANSYS family.
So everything that we accomplished in 2013 is largely aligned with what we discussed as key priorities and commitments at Investor Day last March, and we'll spend some time updating you at our event in the next couple of weeks. So really, the key point here is there should be no doubt that driving double-digit organic top line growth has been and will continue to be one of our key areas of focus we as we enter into 2014.
The array of global uncertainties and customer caution throughout 2013 posed challenges, but there were also some internal execution issues. We've discussed these on previous calls, and we've been diligently addressing those, particularly in our Asia-Pacific business.
So we've made some important leadership changes for the region overall. In addition, over the last few months, we've added new sales leaders and other assets in Japan and India.
And we're certain we believe that these are critical steps toward building a foundation for improved growth and customer engagement in the future, but they'll take some time to bear fruit. So really, the result of all this is that we've initiated our outlook on revenue and EPS for Q1.
So we've got this at non-GAAP revenue in the range of $212 million to $220 million and EPS in the $0.73 to $0.76 range. We've also reiterated and expanded our fiscal year 2014 outlook with non-GAAP revenue in the range of $939 million to $969 million and non-GAAP EPS in the range of $3.25 to $3.37.
So there's more details around currency rate and other key assumptions that are contained in those prepared remarks that we posted on our Investor Relations homepage earlier this morning. From a qualitative perspective, our Q1 guidance takes into account a few 7-figure deals, which can easily slip from one quarter to another, but still fall in that year.
As the year progresses, we see a ramp-up of growth rates based primarily around 3 key factors. First, we're cognizant of the fact that our relatively new sales leadership team in Asia-Pacific will need some time to ramp up and for us to see some impact on the top line as the year progresses.
Second, we've seen expanding global pipeline and forecast numbers. And finally, even some of the early stage ramp-up of our expanding on-demand options, both for private and public clouds, the latter actually was featured in the high-performance computing track of IBM's recent event regarding their platform computing cloud services.
So in conclusion, while there are certain compelling certainties that continue to drive us, the first is long-term confidence in the vision that we've been pursuing. The second is our commitment to invest from a long-term perspective in the realization of that vision.
This can be seen in the investments that we made in 2013 and continue into 2014. So with this in mind, as always, we'll continue to be cognizant of the short-term realities, and we'll factor them into our business plans and guidance as we go forward.
So with that, we'll now open up the phone lines to take any questions that you might have.
Operator
[Operator Instructions] And our first question is from Sterling Auty of JPMorgan.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
I wanted to drill into Japan. So if you set aside for a moment the kind of sales execution issues, we're seeing very kind of choppy results from a number of different companies if we kind of look at design broadly.
Just wondering what you're seeing from just the end market demand and interest level separate of the sales force items.
James E. Cashman
Well we're seeing -- well, obviously, we're seeing the same kind of choppiness, and some of it is macro. And as we've talked about it, we think that some of it were things that we could do in response to that overall standpoint.
So we talked about that. We talked about even the structural changes that we made the end of last year that will take some time to ramp up.
With that being said, obviously, the government changes and some of the different policy changes, we'll have to see how those map out. There's no doubt that most notably I'd say that we've seen the electronics industry being challenged as that plays out on the global stage, and I think those are the things that are obvious to everybody so we don't need to really -- we can go into them, but I don't think we need to here.
On the other hand though, we have been seeing some -- we have been seeing the signs of some pickup in Japan. And it's still going to be -- it's a long tie.
You'll feel it'll take time to get out of that, but particularly in the industrials and the automotive sectors, just to pick a couple of those. So yes, we're seeing some of the same things, but we're at least seeing some glimmers of hope as opposed to a continuing stagnation or decline.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Okay. And then my one follow-up would be, in terms of the Reaction acquisition, can you give us a little bit more color there and, especially, a little insight as to how much revenue is being included here for 2014?
James E. Cashman
Well there's -- first of all, there's very little revenue. It's pretty de minimis.
It's along the lines of a plus or minus kind of in the $4 million kind of range. The real key thing is that, as we've mentioned over the last couple of years, there's been a lot of -- we talked a lot about automotive over the last couple years.
Obviously, there's one element that relates to hybrid, but there's also things that relate to conventional internal combustion engines. We've also talked about the same thing when it comes to power generation and diesel engines and all the new clean standards going on.
And we've also talked about the importance in the aero industry for increased fuel efficiency. What that's led us to is increasing demands.
Remember I talked about ANSYS 15 being driven by our collaboration with partners. Well sometimes, that collaboration with partners is not about the next release.
It's about developing capabilities that are not only for this year, but need -- are going to be growing items over the next few years. And obviously, one part of increased efficiency when you're talking about increasing the CAFE standards of automobiles, when you're talking about reducing fuel costs for airlines and things like that, it gets into the general field of combustion.
And combustion now starts to bring in the chemical reaction of thermodynamics simulations in addition to some of the other ones that we've done, and it's part of that overall system modeling strategy. So with this, we've gotten what we think is the best technology going forward.
We -- more importantly, we've gotten some really great expertise that will augment what we had inside and is a very difficult thing to find out. But we're -- I mean, we're working with customers specifically right now.
And in particular, as you might guess by some of the industries that I've mentioned, these are key customers. These are global leading customers and they're the ones that are driving the next band of technology.
And that's really what's behind it. So it's much more of a technology, people and long-term growth play with our customers than opposed to, clearly, a revenue thing, which at this point is relatively minimal.
Operator
Our next question is from Steve Ashley of Robert W. Baird & Co.
Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division
You referenced in your comments that you would look for improving growth next year, and one of the things you did was just improve pipeline, improve forecast. With Sterling's question, you talked about Japan may be seeing a little bit of encouragement in the pipe there.
Are you seeing -- maybe you could expand that a little bit and talk about are you seeing it in other markets as well.
James E. Cashman
What you -- by other markets, I assume you mean outside of Japan or you mean outside of...
Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division
Yes.
James E. Cashman
Okay, okay, thanks. So no, the bottom line is one thing is, yes, we have seen the numbers improve.
We've seen positive signs. However, when we've been talking about something that is as important as Japan and some of these markets going forward, we're -- it'll be a long-term proof of the pudding.
And we should see -- we should -- but we should see that kind of ramp-up that we've been -- that we're seeing right now, but that should apply to Japan. Japan is a very important market to us.
Yes, as mentioned on previous calls, it's an economic cycle kind of in flux and everybody's going through different issues. Nevertheless, it is a particularly important market.
If we look at other aspects, basically -- quite frankly, there's a mixed bag across many things. You can sit there and we can look at parts of the U.S.
market and say "Well, defense spending is going in this direction, but other things are going in other directions." If we look at Asia, you'll find if you look at a lot of things, if you can pierce the veil of the numbers of the Chinese macro situation, you can see that there a lot of things at play there.
There's a lot of potential, but there's a lot of question marks. Likewise India, but we're seeing positive signs in each of those.
There's always a lot of discussion about Europe, but we've -- our mainstays at Europe have been doing very well. Europe's been growing well with us.
And apart from anything that might be happening within an intra-euro GDP, we're still driven by global-leading companies that are competing on the world market, not just within a euro bubble. With that being said though, we also see that some of the emerging markets in there that there's positive.
But again, with any emerging market, there can be spurts and lags and things like that. And those are all factored into our forecast.
So I think we're very much in the standpoint of some of our new capabilities, some of our investments are starting to show positive signs, but there are fits and starts across all parts of the global economy. And but based on the things we have, that's why we still see this discontinued ramp-up, which, of course, is then factored in to the guidance that we have going forward.
Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division
Great. Now that you referenced your on-demand options that you've been offering gaining more traction.
And you've talked about them in the past, can you refresh us as to what they are and how that's playing out?
James E. Cashman
Yes, absolutely. And I will tell you, just like the Internet boom of the late 90s, and just like anything that's really spinning up there, there is -- there are these cycles of hype, followed by disillusionment, followed by reality, followed by growth.
I mean, it's a pretty interesting dynamic if you look at anything that's entered the market. But as we've mentioned, there -- a lot of this is how you provide increased availability to customers.
Now embedded in that is people have to be comfortable that -- and certain applications fit the model currently better than others. Simulation due to its high compute intensity, high bandwidth, sensitivity over the data that's in there and also the fact that the non-predictability of cost of a certain simulation.
That changes kind of the commercialization model. Nevertheless, the things that we've been involved -- of course, as you know, we've had a Software-as-a-Service offering since way past -- over 10 years and running.
But this is a different evolution of that. When I talk about the on-demand, it comes in a couple of different flavors.
Note that I said private and public. Now the private gets around the issues of the unpredictability of the -- well, it mutes the unpredictability of cost and it handles the security issues.
But what that is, is where customers may say, I'm going to embed a number of licenses, but I've got periods of peaks and valleys and things like that. I'd like to host the ability to kind of like pay for my steady state.
But then if I want access to it, I want to have ready access to it and I'll pay almost -- I don't -- I hate to use this term, but like an electric-meter basis, but it's on-demand as I need it. And so we've actually engaged with some customers on that to come up with those plans.
On the public side, think of it as version 3.0 of the old SaaS offering, where, actually, we launched it many years ago. We have several partners throughout the globe that also provide their own hosted on-demand applications through a public type of cloud.
But then, as I mentioned just recently, we've been working with many leading companies, but there was one event just recently related to IBM's platform computing cloud services. And there were white papers and things like that available on the IBM website.
Actually, we have copies, yes. So I mean, there's actually one here that basically is a white paper IBM application-ready solutions for ANSYS.
So it's really based on an architecture that allows those things to have access. Now again, this will be one of those things where, first, it becomes available, and then people become getting used to it, and then they figure out what it means, and then they go through all the budget stuff and all the things that normally happen any time a company adopts something new.
Nevertheless, it is one of those things that ramp up. And the reason we -- the reason we point that out is that, long-term, it's a very good thing no matter at what level it progresses.
But we may have one of those things where someone that might have been thinking about buying in the short term, might have been thinking about buying a perpetual license. You might see them rolling with this.
So you might see things where the lease numbers might go up. And the bottom line is if we get more users utilizing the software, increase the availability, to us, it's really just removing one barrier to people being able to get their wheels rolling on adoption.
I'm sorry I went a little bit long, but since there are multiple dimensions to that, I just wanted to parse it into different sections.
Operator
Our next question is from Ross MacMillan of Jefferies.
Ross MacMillan - Jefferies LLC, Research Division
Jim, just trying to square what you said about some signs of improvement with one metric or a couple of metrics that we look at, which is looking at underlying billings and underlying bookings of the business, which don't look as if they've inflected yet. And normally, those would potentially be leading indicators because of your business model.
I guess, the question is, if we don't see it in the aggregate bookings number, is it visible, if you could sort of parse that by regions or geographies? So, for example, if you look to the U.S., are you seeing that inflection already and we just don't see it because of the blended effect?
Or maybe you could help me understand that.
James E. Cashman
Okay. Well there's a couple of things.
So for instance, if I start at micro and then we can expand out, if I look at Japan, we talked about the structural changes. We put those in place the latter part of the year.
Keep in mind, Japan cycles tend to run a little bit off-skew of a normal calendar year. So Q4 is typically a really huge number -- Q4, I'm sorry, is their Q3, and it tends to be one of those little kind of dips in there.
So we would expect to start to see maybe that first sign of things, given a little bit of maturity of the new assets we have in place there, combined with normal cycles in more in that -- this current quarter and upcoming quarter range, okay? So that's one thing.
And it may sound like I'm always focusing on one market, but given the fact that Japan is in the teens in terms of total business for us, it can be pretty important. The second thing is, think in terms -- now we talked about what the choppiness might mean in terms of, as you get these bigger and bigger deals, and we said "Hey, some might lift a couple of weeks just because it takes that long to get through the internal paper cycle of a customer," that really doesn't affect anything even though it might appear to -- it's trying to equate the temperature on a given day with climate type of thing.
So you have to kind of balance and integrate over the time frame. So when that happens, it's also happening on the bookings.
Keep in mind there's a couple of things that are happening. First of all, the numbers are getting larger, so the lumpiness can affect -- can seem to affect things.
The other thing is deals -- some of the bookings, as evidenced by some of the changes that we've done in some of our reporting to highlight short-term and long-term backlog and deferred revenues, remember we've had discussions on that the last few quarters, because of this trending partially driven by Apache and partially driven by some other customers for longer-term bookings. You may get now this lumpiness on a booking basis that can actually expand over multiple years.
I mean, those would be my initial takes on that. I know -- Maria, do you have -- I mean...
Maria T. Shields
I think that covers it.
James E. Cashman
Okay, okay. So does that make sense, Ross?
Ross MacMillan - Jefferies LLC, Research Division
Yes, that's helpful. It definitely helps my thought process.
Maybe one, just maybe for Maria. So just curious, obviously, when we came into '13, you had a revenue guide, which you ended up doing slightly less, but there was a fairly significant foreign exchange shift against you.
But on earnings, you obviously did better. And this goes back to a margin -- I guess, predominantly a margin question, which is, how do you think you fared in terms of your hiring plans or your cost structure in '13?
And as you think about '14, how are you thinking about hiring? And what's going to change, if you will, to '13 with regard to cost structure growth?
James E. Cashman
Hey, Ross, I'm going to butt in and let Maria think about that. The one thing I want to say is if you look at that, if you look at -- first of all, because Maria might not say this, but on the G&A side, we've been very, very effective and efficient, okay?
But with that, because of that, even though we kept the margin strong, if you look at the last few years, we've actually continued to increase our R&D spending as a percentage. We've also talked about the increasing emphasis that we put on both the -- on both sides of the customer-facing aspect, the sales and support aspect.
So we still have been able to continue to increase investment in what we think are the long-standing billing aspects. So, I mean, I just want to jump in.
Maria, go, if you have anything.
Maria T. Shields
Yes, Ross, I will say that no doubt hiring -- and we talked about this throughout the course of many quarters now, hiring continues to be a challenge in certain areas. Just given the uniqueness of what we are looking for on -- but we are continuing and if you go and look at the website, you'll see there are many open positions.
We are continuing to try to ramp up our hiring, as Jim mentioned, on particularly early in the year, relative to our customer-facing assets. Jim talked about some of the changes that we've made in Q4 and coming into Q1 relative to Asia-Pacific.
So -- and if you take a look at our guidance for Q1, you'll see that the margins are slightly muted in anticipation of some of that hiring and the fact that we've added Reaction Design, which is not going to be a positive contribution to the margin early on, and a couple of events that we've had that we have already had in Q1 around our international sales conferences. So all of that's kind of factored into the lower margin.
James E. Cashman
But that's comparable to what we had last year.
Maria T. Shields
Yes, but we are...
James E. Cashman
I mean, in terms of...
Maria T. Shields
Yes, we are going to continue to invest because the reality is we totally understand the long-term opportunity, and there are things we have to invest in now to make sure that we can capture that opportunity as the market's ready for it.
James E. Cashman
And, Ross, the only thing, I think -- I know we've said this before, but since Maria mentioned the fact that, yes, it's a continual difficult hiring environment, but the other thing is because we don't view this as being something to help us get through a 1-year need. This is a -- to us, this is a 10-year building process.
And because of that, we have to look at building from strength. And so when you tend to be a little pickier on the quality of people, it tends to take a little bit longer.
That's a continuing reason for that.
Operator
Our next question is from Jay Vleeschhouwer of Griffin Securities.
Jay Vleeschhouwer - Griffin Securities, Inc., Research Division
Jim, you've mentioned a number of your key vertical markets, such as automotive, and that ties directly to the question I'd like to ask first, which is when we do the arithmetic on how much of your business is coming from some of your specific verticals, and you target 11 in all, it looks like you're somewhat dependent on a handful of those markets, at least recently for growth. It looks like electronics and semis together by far your largest business now did pretty well again in Q4 and for the year as a whole.
Automotive looks like it did okay. Industrial equipment looks like it came back from an easy comp a year ago and from earlier last year.
But would it be fair to say that you are somewhat tied to a relatively small number of verticals that need to do well for you? And how are you thinking about that into 2014 and perhaps, to correlate that, if you could, to some of your specific functional areas in terms of the mechanical and fluids businesses?
Then a follow-up.
James E. Cashman
Well, keep in mind, the -- first of all, one thing if you look -- if we look at different trends, one thing the semi and the electronics together really doesn't work if you look historically with our buying things. So if you -- I mean, I guess, if you lump together enough things, you can come up with a really big number.
But in reality, electronics gets into a whole range of different things from consumer electronics to diagnostics to a range of that. And those things will happen even if there might be a down-trending in the -- in various chip things [ph].
However, chip, there's a number of a big push now for, if you look at the communication standards, if you look at the dropping into the lower nanometer ranges, if you look at the ongoing requirements for power and stability and things like that, it continues on. But the one thing, since you broached over into other physics, keep in mind, when we mention a major electronics company, and I don't want to mention any specific one by name.
But it's not just electronics stuff. They're worried about structural vibration.
They're worried about thermal. They're worried about -- so they tend to be big customers from the electromagnetic side, from the electronics side, from the fluids and mechanical side.
So they really are -- and in fact in some cases, they actually become the leaders, if you will, in pushing the multiphysics because of the short design cycles that they have, the rapid product obsolescence and generational turnovers of products and the like. So with that standpoint, the other thing I'd say is even if you see percentages, even when we talk about growth in one industry, we're usually talking about relative growth because it's -- apart from the defense sector, it's hard to think of an industry where we have an industrial decline.
Now if we talk about the energy sector, we've talked about how oil may rise, and the oil and petroleum industries may rise and fall, but those ultimately tend to be replaced by alternate energy, by wind, sometimes nuclear. But depending upon, if you will, political and other kinds -- and environmental kind of concerns, those can change.
So it's kind of like -- and that's why you never see the sector of the pie really swing by manic amounts. I mean, when we see growth in the industry, it might -- that might creep from 13% up to 14% or 15%, but you don't see these manic kind of swings.
Jay Vleeschhouwer - Griffin Securities, Inc., Research Division
Understood. My follow-up has to do with Apache, which has clearly been a very significant source of incremental revenue and growth for you since you bought them, including last year.
And looks like they're now, and correct me if I'm wrong, at about an $80 million or so revenue run rate per year. But historically, within the EDA market, which you're now in with them, it'd be very difficult for a specialty company in that market to get much past $100 million of revenue when they address this very specific niche as they do, and they already have half of their addressed category as best we can tell.
So is it your expectation that the growth from Apache will necessarily have to slow, as well as they've done just because of the somewhat natural limitations of the end markets? And if that were to occur, what other brand or functional areas you think might be able to compensate?
James E. Cashman
Well, first of all, natural tendencies like you say, yes, those have been observed over the decades in the industry. Second of all, clearly as denominators get larger, the standard if we're going that changes.
So yes, I would think you would look at that, but still being a strong part of our business, if you look at the long-term customer relationships, if you look at the strengthening relationships, I mean, actually there's probably more involved in the different ebbs and flows of specific winners and losers in the customer industry space than that. However, your premise is not faulty in terms of generalities, but if you talk about now bridging beyond just the -- primarily a heavy chip focus and starting to blend that into how it interacts and trades off with other things, we're actually -- in the first couple years we really helped -- we tried to help progress the business but also not impede the natural flow of it.
Over the last year, and we talked about this last year, we're now starting to branch into the combination of getting away from a heavy chip orientation to a chip package system orientation. When you get the package system, all of a sudden you get to now component suppliers, you get into systems, you get into OEMs and you get into broader range of things.
Now those will take some time to gestate, but the good news is we're already on the road of doing that and working with a couple of -- adding new customers to the base. So there was an element of maintaining their own internal trajectory.
Second of all, linking between places where both they and we were strong. And the third phase of this is now introducing these kind of capabilities into an overall system multiphysics kind of approach.
And that's really kind of the generational phase that we're in now. But again, if we just went status quo and did nothing and did nothing to leverage it, yes, your basic premises are what's happened many times in the industry.
Operator
Our next question is from Steve Koenig of Wedbush Securities.
Steven R. Koenig - Wedbush Securities Inc., Research Division
Let's see, I guess, I'll ask 2 here. So my first question, I don't want to beat a dead horse, but I do want to clarify -- verify something here on electronics.
Jim, in your remarks, you alluded to the idea that electronics is difficult right now. And then in Jay's question, it sounds as if you're saying it's actually doing as good or maybe even better than other sectors.
Can you just clarify how is that doing globally [indiscernible]?
James E. Cashman
Well the other second part of what you said, when I was talking to Jay, I was answering globally. The earlier comment you're talking to might have been when I was saying we were -- I was focusing on Japan.
Steven R. Koenig - Wedbush Securities Inc., Research Division
Okay. So it is doing pretty well globally compared to the other sectors?
James E. Cashman
Yes, yes. But like I said in Japan -- but the Japan thing I was saying, that wasn't an ANSYS Japan-specific thing.
That was a… [Technical Difficulty] But on the Japan thing, we were noting that while automotive and industrial and some other sectors were starting to show some begrudging improvement, the electronics is one that on a global stage we've seen the traditional Japanese dominance being somewhat supplanted by other regions of the world. And we in turn have felt some of those effects ourselves in Japan.
So that's maybe the differential if I'm hearing you right.
Steven R. Koenig - Wedbush Securities Inc., Research Division
Okay. Yes, so I'll ask one follow-up and then I'll mute here.
Talk a little bit about the logic of the share repurchases. It looks as if it's becoming more regular.
So is that kind of what we should expect going forward? And how does that relate to your priorities for the use of cash?
James E. Cashman
Well, like I tried to say in some of the talking bullets -- I might have not done it as well as I like, but strategic acquisitions continues to be our #1. But again, when it's strategic, then there's lot of factors actually bringing those in.
It's not just -- I mean, it's not just piling anything on that we can. But with that in mind, we also -- if you look at as we've increased our own scale the cash flows are pretty healthy, and there are a number of ways that we'd like to return that element there.
So what we were really signaling was that this continues to be a strong albeit secondary element of our shareholder return strategy. We're not going to let too much pile up.
We're always cognizant of what we might be doing over the next upcoming quarters and years on acquisitions. But so we have to be mindful of that.
But the other thing is that we've always said that we're going to do it very studiously and pragmatically. And when the markets are volatile, it tends to provide -- it provides a multitude of opportunities, and we try to fit in with those amidst the volume trading restrictions and blackout periods and things like that.
But it just becomes -- really, I guess, it's just more of the same, but in this particular environment, there were more opportunities and we were -- if we look at the long-term prospects, it was a good supplemental use of our cash. Maria, do you have -- if you want to add anything that you think I...
Maria T. Shields
Yes, and I'll just say as to reiterate to Jim's point, we are going to continue to pursue acquisitions. Some of them will be larger in nature, but those tend to take a little bit longer to gestate and bring together because I think if you look historically, we believe that's what's provided the greatest stockholder value.
But we are also cognizant that there are times in the market where the price is extremely attractive and given our cash position, that we feel it's a really good opportunity to offset some of the dilution from our own equity grants and to return some cash to our stockholders.
James E. Cashman
And of course, the other thing is, I mean, we'll also say that some of the valuations are tending to be -- even looking at recent news, can tend to be pretty all over the map. So that always tends to complicate the process.
Operator
Our next question is from Evan Clark [ph] of Canaccord Genuity.
Richard H. Davis - Canaccord Genuity, Research Division
It's actually Richard Davis. Hey, how do you think about the mix of when you're kind of thinking about kind of you're talking about growing the business faster and things like that?
I mean, part of it is seat count growth, part of it is selling to existing people more stuff. Is it 50-50 or how do you think about that because, typically, the number of engineers grows, I don't know, 3% a year or something like that?
James E. Cashman
Right, yes. And keep in mind, there's -- in our mind, it's not so much the number of engineers growing, but there's a latent pool of engineers that would be able to get to that.
Now actually, I think we'll talk about a little bit at Investor Day coming up, just as a cheap teaser. But if you look at it, yes, the cross-selling is one aspect.
That tends to take longer because that has more organizational barriers versus traditional silos of usage. We've talked about high-performance computing, the intensity aspect.
That one has been growing quite a bit as people were a little reticent to -- or hesitant to hold -- to hire new people. But the new users and, as I mentioned, we start to see that now over the past couple of years when things were a little bit slower.
We talked about the fact that the enterprise customers were growing a little bit more. We're starting to see more surge -- not surge.
That's a strong word. We're seeing more of a pickup in the SMB, and even in some of the introductory levels.
And that's where some of the -- in addition to our traditional ways, where starting to crack the sieve a little bit with the on-demand for private and even moving into public provides a little bit more. I think what you'll see continually is that the multiphysics will probably pick up a little bit more over the next 2, 3 years than it did.
And I think number of users also will see -- start to pick up also. I mean, the biggest issues right now, and we've talked about this for a couple years, is really now that the technology has kind of proven itself and the leaders have demonstrated the value of it, but now you get to the point of organizations' abilities to actually bring it in.
And that gets to process changes and sometimes, organizational adjustments. And those are some of the things that tend to be ones that we have to work through.
But that's the way that I prioritize them right now.
Operator
Our next question is from Mark Schappel of Benchmark.
Mark W. Schappel - The Benchmark Company, LLC, Research Division
Jim, back to Reaction Design. They appear to have a particular focus in combustion reactions, internal combustion engines.
And I was just wondering if their technology would be transferable to other chemistry-based areas like, say, that sort of continuous reactors?
James E. Cashman
No, no, absolute -- well I don't know about that particular one, but we've -- I've even talked to them over the last few weeks about you look at some of the -- you look at another hot topic is like battery. I mean, there's some different physics and different phase-related things.
But we look at -- there's a lot of chemical reaction going on in there. It's just that the expertise has been built up in the customer.
I mean, any small company has to focus their assets to what makes the most sense. That also tends to highly align with where our short-term growth aspects are going on.
But the one thing that I think is undeniable is just like a few years ago, people thought we were a little bit loopy for trying to combine the mechanical and electronics world. And I think we've kind of demonstrated the early phases of that.
And then people said, "Well, why are you doing embedded software?" And I think we've started to show some of that.
I think now you look at some of these other aspects, I'm not sure exactly what order we'll be attacking some of these things, but I know teams are already looking at this overall aspect of saying, "Well now, let's look at the chemical reaction world and kind of combine that with the physics world because that does play a major factor in the performance and the environmental issues related to complete systems." And after all, we're about complete virtual prototyping.
So I mean it all plays in, but right now, we've got a short-term need that we can harvest over the next 2 or 3 years. And we've got a base of people that can actually start to crack the next set of nuts based on what our customer base will tend to want to partner with us on because some of these things will be advanced research, and we'll want to take our pure calculational aspects and combine that with things that they've experienced in the field and problems that they're trying to solve.
But yes, we will see that move on right now, but that's something that we can develop over the next few years. But again, think of this as one more branch of science that goes into improving product quality.
And it just happens to be driven by a couple of very topical, important issues that companies are struggling with right now. And they happen to be our top customers.
Operator
Our next question is from Matt Williams of Evercore.
Matthew L. Williams - Evercore Partners Inc., Research Division
Just, I think, kind of one for me. You mentioned some of the success you've had in getting those 4 customers over to $1 million in annual spend.
And I know increasing users and increasing your footprint in some of the larger accounts has been a focus for a while. So I'm just wondering how transferable or repeatable are some of the steps that you're doing to sort of really step up usage within some of the larger accounts?
How does that opportunity look over time and, I guess, sort of how repeatable is sort of the sales motion around that?
James E. Cashman
Okay. Bottom line is, I mean, I can say, and people who know me know I don't say this very often, but I'm like 100% certain that it's transferable.
I mean, let's say it's 99.97% or how many sigma you want to throw in there. The big question is time.
And that relates sometimes -- sometimes, that relates to governmental and regulatory pressures being put on. Sometimes, it's related to competitive velocity in there.
Sometimes, it's related to the individual company and the mindset. Some companies will go after this very defensively and quick to follow, and others will go at it -- seize it as a competitive advantage.
So the applicability, let's just say, it's incredibly broad-based. Now the other thing I'd say is, building up to that level, it tends to go over time.
And most of the time we're talking about 7-figure customers, we're talking about people that have just built up and they tend to be -- continue to repeat and then gradually people get over on the -- over time, then that has given rise to the advent, which is totally new to us for getting into 8-figure customers. The only thing I would say is on the 8-figure customers, it's a very small sample size.
One can do that with a huge paid-up license in 1 year, and it may not repeat. They may just be only a high 7-figure one next year.
But it would still be a growing base going forward. So I'd just put that caveat in there for people that think that just everything statistically goes up.
The net massing of that is still positive. We actually see more and more customers starting to move into that range, but it is a long process.
All of those big customers I talked about, most of them we've been building for 10, 15 or maybe even more years, if you count the first seed planting going on. And I would say right now, there still is a large, large part of our market that is still somewhat transactional based.
I mean, there are still a large part of our customer base that is highly focused around a single physics. I'd say an increasing number of them are saying, "Well, you know, we like the endgame of how these things can all play together," and that's tended to increase our prospects.
But if you look at the reality -- and that's some of the things we'll try to dig into a little bit more and with the advantage of some graphics at the Investor Day.
Matthew L. Williams - Evercore Partners Inc., Research Division
Great, that's helpful. I appreciate the color.
Maybe just one quick one on Esterel. I know you guys have been fairly measured in how you go to your customers with that product.
How -- and I know the reception has been very positive. So just maybe a quick update there and then maybe how you're thinking about driving that business going forward.
James E. Cashman
So the bottom line is they've been growing faster than the company average. The bottom line is we've been investing a little bit higher than the company average, as you correctly noted.
And for conscious reasons that we did was we didn't want to swamp our entire organization over their limited but growing support base and actually paralyze them. So we had taken targeted accounts in different regions.
We had put where places where we had prequalified opportunities going forward. I'll tell you, those things have progressed really well.
I mean, not every one of them was a hit, but we had a lot of success, and that's borne out in every metric we can do. So what do we do in this next year?
Well, we've actually kind of expanded that footprint. But now we're tending to build capacity to be able to fill up with that.
But we're still doing it on a targeted basis. I mean, it's really kind of, if you will, it's just now the next plateau of something that we've kind of outlined a few quarters ago when we were first talking about coming in league with Esterel.
Operator
Our next question is a follow-up from Sterling Auty of JPMorgan.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Maybe more a request than a question. We still got lots of questions over what the active user base looks like.
Didn't know if you could comment here or if that might be something you can dive into at the Analyst Day, but that would be great.
James E. Cashman
Well, I think I would like to try to dive in because, I mean, apart from the stuff that we've been telling you, I don't want to just kind of, like, guess numbers here. And the other thing is the one, as I've mentioned over previous years, when everybody talks about installed base and user counts and things like that, that somewhat tends to be -- people tend to use different metrics for it and it tends to be the abused kind of aspect.
So I'm not even sure how to really parse that down, but I don't want to just start spinning out numbers here. But I understand the issue, it's not a -- I mean, we know it's large.
We know it's -- I guess, I'm really not sure how we actually count when we have package seats and things like that. The enterprise pricing model and availability, the on-demand aspects tend to make it very difficult.
So I think it's one of those ones that can't be covered in a quick question on the call. But I've heard the request and what we'll try to do is at least come up with a more evolved representation of what some of these things mean and start to pick that up starting with the Investor Day and try to build that up over time.
I mean, I understand the issue.
Sterling P. Auty - JP Morgan Chase & Co, Research Division
Now that would be great. And even if it's the active licenses because we know that you've got users out there that are using multiple licenses to try to run multiple simulations, et cetera.
So we're not trying to -- we just want to see what that active base looks like.
James E. Cashman
Understood. No, it's not an unreasonable request.
It's just there'll be so many conditions of saying here's how we define things, here's how it maps up, here's how we count and things like that. So if we just give a number right now, maybe 90% of the people here will probably misinterpret it or apply a different filter to view it.
Operator
This concludes our question-and-answer session. I'd like to turn the conference back over to Mr.
Cashman for any closing remarks.
James E. Cashman
Well, I don't know what else I can say after that question, I think. But again, thanks, everybody, for bearing through the Q&A session.
But thanks, actually, thanks for the questions. In closing, what else can I say?
2013, another solid year for ANSYS, closed it out as we predicted. If you haven't guessed already and then the questions may have helped us, we're excited about the opportunities that lie ahead for 2014 and beyond.
Again, acknowledge there are going to be challenges along the way, not unlike 2013. But as always, the one thing we will say there is going to be a continued focus on technological expansion, differentiation of technology, as well as our operational execution, earnings growth, customer engagement.
But again, the emphasis for 2014 will be that focus on driving towards that top line double-digit growth. So what's been with us for all the years we've been talking about this.
We're continued to be propelled by a long, strong combination of our long-term vision. I think the business model has proven itself through a number of different conditions.
Obviously, we've got these loyal customers who are growing with us. The partners have been with us for decades.
Obviously, the technology speaks for itself and, of course, the exceptional employees that -- and team that have actually made all that possible over many decades. So actually, thank you for joining us this morning.
Look forward to seeing many of you at our upcoming Investor Day here in Pittsburgh, or we'll catch you the next cycle around at the next call. Thanks again.
Operator
The conference is now concluded. Thank you for attending today's presentation.
You may now disconnect.