UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
☒ | |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017March 31, 2024
OR
| | | | | |
☐ | |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission File Number: 0-20853
ANSYS, Inc.
(Exact name of registrant as specified in its charter)
|
| | | | | | | | | | | | | | | | |
Delaware | | 04-3219960 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
2600 ANSYS Drive, | Canonsburg, | PA | | | 15317 |
(Address of principal executive offices)Principal Executive Offices) | | (Zip Code) |
844-462-6797
(Registrant’sRegistrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
| | | | | | | | | | | | | | |
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | ANSS | Nasdaq Stock Market LLC |
| | | (Nasdaq Global Select Market) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x☒No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company, (as defined" and "emerging growth company" in Rule 12b-2 of the Exchange Act Rule 12b-2). (Check one):
| | | | | | | | | | | | | | |
| | | | |
Large accelerated filer | x☒ | | Accelerated filer | o☐ |
Non-accelerated filer | o☐ | | Smaller reporting company | o☐ |
| | | Emerging growth company | o | | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o☐ No x☒
The number of shares of the Registrant’sRegistrant's Common Stock, $0.01 par value $.01 per share, outstanding as of October 31, 2017 was 84,860,473April 26, 2024 was 87,299,981 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
PART I – UNAUDITED FINANCIAL INFORMATION
Item 1.Financial Statements:
ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in thousands, except share and per share data) | (Unaudited) | | (Audited) |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 919,571 |
| | $ | 822,479 |
|
Short-term investments | 7,064 |
| | 381 |
|
Accounts receivable, less allowance for doubtful accounts of $6,800 and $5,700, respectively | 91,356 |
| | 107,192 |
|
Other receivables and current assets | 183,683 |
| | 239,349 |
|
Total current assets | 1,201,674 |
| | 1,169,401 |
|
Property and equipment, net | 57,160 |
| | 54,677 |
|
Goodwill | 1,353,444 |
| | 1,337,215 |
|
Other intangible assets, net | 154,996 |
| | 172,619 |
|
Other long-term assets | 33,633 |
| | 24,287 |
|
Deferred income taxes | 45,106 |
| | 42,327 |
|
Total assets | $ | 2,846,013 |
| | $ | 2,800,526 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 4,257 |
| | $ | 7,395 |
|
Accrued bonuses and commissions | 40,375 |
| | 49,487 |
|
Accrued income taxes | 4,436 |
| | 5,263 |
|
Other accrued expenses and liabilities | 65,557 |
| | 73,676 |
|
Deferred revenue | 381,727 |
| | 403,279 |
|
Total current liabilities | 496,352 |
| | 539,100 |
|
Long-term liabilities: | | | |
Deferred income taxes | 1,793 |
| | 2,259 |
|
Other long-term liabilities | 60,614 |
| | 50,762 |
|
Total long-term liabilities | 62,407 |
| | 53,021 |
|
Commitments and contingencies |
|
| |
|
|
Stockholders' equity: | | | |
Preferred stock, $.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding | — |
| | — |
|
Common stock, $.01 par value; 300,000,000 shares authorized; 93,236,023 shares issued | 932 |
| | 932 |
|
Additional paid-in capital | 865,430 |
| | 883,010 |
|
Retained earnings | 2,264,331 |
| | 2,057,665 |
|
Treasury stock, at cost: 8,401,924 and 7,548,188 shares, respectively | (804,012 | ) | | (675,550 | ) |
Accumulated other comprehensive loss | (39,427 | ) | | (57,652 | ) |
Total stockholders' equity | 2,287,254 |
| | 2,208,405 |
|
Total liabilities and stockholders' equity | $ | 2,846,013 |
| | $ | 2,800,526 |
|
ANSYS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| | | | | | | | | | | |
(in thousands, except share and per share data) | March 31, 2024 | | December 31, 2023 |
ASSETS | | | |
Current assets: | | | |
Cash and cash equivalents | $ | 1,050,509 | | | $ | 860,201 | |
Short-term investments | 20,100 | | | 189 | |
Accounts receivable, less allowance for doubtful accounts of $20,700 | 650,044 | | | 864,526 | |
Other receivables and current assets | 260,518 | | | 324,651 | |
Total current assets | 1,981,171 | | | 2,049,567 | |
Long-term assets: | | | |
Property and equipment, net | 80,930 | | | 77,780 | |
Operating lease right-of-use assets | 111,069 | | | 116,980 | |
Goodwill | 3,797,859 | | | 3,805,874 | |
Other intangible assets, net | 806,375 | | | 835,417 | |
Other long-term assets | 210,165 | | | 273,030 | |
Deferred income taxes | 162,845 | | | 164,227 | |
Total long-term assets | 5,169,243 | | | 5,273,308 | |
Total assets | $ | 7,150,414 | | | $ | 7,322,875 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | | |
Current liabilities: | | | |
Accounts payable | $ | 27,899 | | | $ | 22,772 | |
Accrued bonuses and commissions | 41,901 | | | 170,909 | |
Accrued income taxes | 15,885 | | | 22,454 | |
| | | |
Other accrued expenses and liabilities | 187,722 | | | 215,645 | |
Deferred revenue | 433,167 | | | 457,514 | |
Total current liabilities | 706,574 | | | 889,294 | |
Long-term liabilities: | | | |
Deferred income taxes | 73,092 | | | 75,301 | |
Long-term operating lease liabilities | 95,320 | | | 100,505 | |
Long-term debt | 753,970 | | | 753,891 | |
Other long-term liabilities | 111,815 | | | 113,520 | |
Total long-term liabilities | 1,034,197 | | | 1,043,217 | |
Commitments and contingencies | | | |
Stockholders' equity: | | | |
Preferred stock, $0.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding | — | | | — | |
Common stock, $0.01 par value; 300,000,000 shares authorized; 95,267,307 shares issued | 953 | | | 953 | |
Additional paid-in capital | 1,641,813 | | | 1,670,450 | |
Retained earnings | 5,318,120 | | | 5,283,342 | |
Treasury stock, at cost: 7,971,231 and 8,361,447 shares, respectively | (1,438,948) | | | (1,474,110) | |
Accumulated other comprehensive loss | (112,295) | | | (90,271) | |
Total stockholders' equity | 5,409,643 | | | 5,390,364 | |
Total liabilities and stockholders' equity | $ | 7,150,414 | | | $ | 7,322,875 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| Nine Months Ended |
(in thousands, except per share data) | September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 |
Revenue: |
|
|
|
|
|
|
|
Software licenses | $ | 156,580 |
|
| $ | 139,530 |
|
| $ | 448,368 |
|
| $ | 406,668 |
|
Maintenance and service | 119,005 |
|
| 106,332 |
|
| 344,546 |
|
| 311,169 |
|
Total revenue | 275,585 |
|
| 245,862 |
|
| 792,914 |
|
| 717,837 |
|
Cost of sales: |
|
|
|
|
|
|
|
Software licenses | 7,395 |
|
| 6,433 |
|
| 24,197 |
|
| 19,705 |
|
Amortization | 9,004 |
|
| 9,513 |
|
| 26,892 |
|
| 28,544 |
|
Maintenance and service | 19,584 |
|
| 19,640 |
|
| 58,263 |
|
| 59,633 |
|
Total cost of sales | 35,983 |
|
| 35,586 |
|
| 109,352 |
|
| 107,882 |
|
Gross profit | 239,602 |
|
| 210,276 |
|
| 683,562 |
|
| 609,955 |
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative | 80,015 |
|
| 61,537 |
|
| 230,483 |
|
| 183,565 |
|
Research and development | 50,144 |
|
| 45,418 |
|
| 153,524 |
|
| 137,533 |
|
Amortization | 3,260 |
|
| 3,222 |
|
| 9,506 |
|
| 9,581 |
|
Total operating expenses | 133,419 |
|
| 110,177 |
|
| 393,513 |
|
| 330,679 |
|
Operating income | 106,183 |
|
| 100,099 |
|
| 290,049 |
|
| 279,276 |
|
Interest income | 1,910 |
|
| 1,083 |
|
| 4,827 |
|
| 3,110 |
|
Other expense, net | (168 | ) |
| (189 | ) |
| (1,512 | ) |
| (137 | ) |
Income before income tax provision | 107,925 |
|
| 100,993 |
|
| 293,364 |
|
| 282,249 |
|
Income tax provision | 34,295 |
|
| 31,436 |
|
| 86,698 |
|
| 86,596 |
|
Net income | $ | 73,630 |
|
| $ | 69,557 |
|
| $ | 206,666 |
|
| $ | 195,653 |
|
Earnings per share – basic: |
|
|
|
|
|
|
|
Earnings per share | $ | 0.87 |
|
| $ | 0.80 |
|
| $ | 2.43 |
|
| $ | 2.23 |
|
Weighted average shares | 84,774 |
|
| 86,959 |
|
| 85,132 |
|
| 87,570 |
|
Earnings per share – diluted: |
|
|
|
|
|
|
|
Earnings per share | $ | 0.85 |
|
| $ | 0.78 |
|
| $ | 2.38 |
|
| $ | 2.19 |
|
Weighted average shares | 86,588 |
|
| 88,676 |
|
| 86,902 |
|
| 89,355 |
|
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands, except per share data) | | | | | March 31, 2024 | | March 31, 2023 |
Revenue: | | | | | | | |
Software licenses | | | | | $ | 160,321 | | | $ | 219,152 | |
Maintenance and service | | | | | 306,284 | | | 290,295 | |
Total revenue | | | | | 466,605 | | | 509,447 | |
Cost of sales: | | | | | | | |
Software licenses | | | | | 10,044 | | | 11,744 | |
Amortization | | | | | 22,484 | | | 19,618 | |
Maintenance and service | | | | | 36,139 | | | 36,290 | |
Total cost of sales | | | | | 68,667 | | | 67,652 | |
Gross profit | | | | | 397,938 | | | 441,795 | |
Operating expenses: | | | | | | | |
Selling, general and administrative | | | | | 219,643 | | | 188,584 | |
Research and development | | | | | 128,811 | | | 120,335 | |
Amortization | | | | | 6,145 | | | 5,181 | |
Total operating expenses | | | | | 354,599 | | | 314,100 | |
Operating income | | | | | 43,339 | | | 127,695 | |
Interest income | | | | | 10,995 | | | 4,078 | |
Interest expense | | | | | (12,369) | | | (10,758) | |
Other expense, net | | | | | (1,007) | | | (177) | |
Income before income tax provision | | | | | 40,958 | | | 120,838 | |
Income tax provision | | | | | 6,180 | | | 20,216 | |
Net income | | | | | $ | 34,778 | | | $ | 100,622 | |
Earnings per share – basic: | | | | | | | |
Earnings per share | | | | | $ | 0.40 | | | $ | 1.16 | |
Weighted average shares | | | | | 87,067 | | | 86,930 | |
Earnings per share – diluted: | | | | | | | |
Earnings per share | | | | | $ | 0.40 | | | $ | 1.15 | |
Weighted average shares | | | | | 87,780 | | | 87,431 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Net income | $ | 73,630 |
| | $ | 69,557 |
| | $ | 206,666 |
| | $ | 195,653 |
|
Other comprehensive income: | | | | | | | |
Foreign currency translation adjustments | 4,149 |
| | 2,044 |
| | 18,225 |
| | 14,267 |
|
Comprehensive income | $ | 77,779 |
| | $ | 71,601 |
| | $ | 224,891 |
| | $ | 209,920 |
|
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands) | | | | | March 31, 2024 | | March 31, 2023 |
Net income | | | | | $ | 34,778 | | | $ | 100,622 | |
Other comprehensive (loss) income: | | | | | | | |
Foreign currency translation adjustments | | | | | (21,947) | | | 13,284 | |
Net unrealized losses on available-for-sale securities, net of tax of $0 | | | | | (77) | | | — | |
Comprehensive income | | | | | $ | 12,754 | | | $ | 113,906 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
| | | | | | | |
| Nine Months Ended |
(in thousands) | September 30, 2017 | | September 30, 2016 |
Cash flows from operating activities: | | | |
Net income | $ | 206,666 |
| | $ | 195,653 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 49,939 |
| | 52,320 |
|
Deferred income tax benefit | (4,217 | ) | | (3,102 | ) |
Provision for bad debts | 1,382 |
| | 1,006 |
|
Stock-based compensation expense | 39,408 |
| | 24,564 |
|
Other | 241 |
| | (211 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 17,899 |
| | 6,601 |
|
Other receivables and current assets | 60,754 |
| | 26,431 |
|
Other long-term assets | 4,495 |
| | (80 | ) |
Accounts payable, accrued expenses and current liabilities | (22,362 | ) | | (23,622 | ) |
Accrued income taxes | (221 | ) | | 4,674 |
|
Deferred revenue | (35,502 | ) | | (12,178 | ) |
Other long-term liabilities | 8,478 |
| | (5,285 | ) |
Net cash provided by operating activities | 326,960 |
| | 266,771 |
|
Cash flows from investing activities: | | | |
Acquisitions, net of cash acquired | (25,998 | ) | | — |
|
Capital expenditures | (14,815 | ) | | (8,219 | ) |
Other investing activities | (20,810 | ) | | (11,355 | ) |
Net cash used in investing activities | (61,623 | ) | | (19,574 | ) |
Cash flows from financing activities: | | | |
Purchase of treasury stock | (223,291 | ) |
| (243,288 | ) |
Restricted stock withholding taxes paid in lieu of issued shares | (10,075 | ) | | (5,044 | ) |
Contingent consideration payments | — |
| | (1,048 | ) |
Proceeds from shares issued for stock-based compensation | 47,992 |
| | 43,347 |
|
Other financing activities | — |
| | (1 | ) |
Net cash used in financing activities | (185,374 | ) | | (206,034 | ) |
Effect of exchange rate fluctuations on cash and cash equivalents | 17,129 |
| | 12,585 |
|
Net increase in cash and cash equivalents | 97,092 |
| | 53,748 |
|
Cash and cash equivalents, beginning of period | 822,479 |
| | 784,168 |
|
Cash and cash equivalents, end of period | $ | 919,571 |
| | $ | 837,916 |
|
Supplemental disclosures of cash flow information: | | | |
Income taxes paid | $ | 84,760 |
| | $ | 95,066 |
|
Interest paid | $ | 163 |
| | $ | 791 |
|
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | |
| Three Months Ended |
(in thousands) | March 31, 2024 | | March 31, 2023 |
Cash flows from operating activities: | | | |
Net income | $ | 34,778 | | | $ | 100,622 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 35,536 | | | 32,124 | |
Operating lease right-of-use assets expense | 5,664 | | | 5,381 | |
Deferred income tax benefit | (2,340) | | | (2,915) | |
Provision for bad debts | 412 | | | (118) | |
Stock-based compensation expense | 58,664 | | | 44,171 | |
| | | |
Other | 402 | | | 307 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 264,474 | | | 185,385 | |
Other receivables and current assets | 60,593 | | | 68,991 | |
Other long-term assets | (671) | | | (5,798) | |
Accounts payable, accrued expenses and current liabilities | (147,636) | | | (135,365) | |
Accrued income taxes | (6,280) | | | 1,481 | |
Deferred revenue | (17,714) | | | (25,879) | |
Other long-term liabilities | (3,065) | | | (7,621) | |
Net cash provided by operating activities | 282,817 | | | 260,766 | |
Cash flows from investing activities: | | | |
Acquisitions, net of cash acquired | — | | | (120,584) | |
Capital expenditures | (10,543) | | | (6,892) | |
Purchases of short-term investments | (19,940) | | | (56) | |
Other investing activities | (3,953) | | | (858) | |
Net cash used in investing activities | (34,436) | | | (128,390) | |
Cash flows from financing activities: | | | |
| | | |
Purchase of treasury stock | — | | | (196,494) | |
Restricted stock withholding taxes paid in lieu of issued shares | (65,089) | | | (52,916) | |
Proceeds from shares issued for stock-based compensation | 10,446 | | | 8,582 | |
| | | |
Net cash used in financing activities | (54,643) | | | (240,828) | |
Effect of exchange rate fluctuations on cash and cash equivalents | (3,430) | | | 1,750 | |
Net increase (decrease) in cash and cash equivalents | 190,308 | | | (106,702) | |
Cash and cash equivalents, beginning of period | 860,201 | | | 614,391 | |
Cash and cash equivalents, end of period | $ | 1,050,509 | | | $ | 507,689 | |
Supplemental disclosure of cash flow information: | | | |
Income taxes paid | $ | 16,721 | | | $ | 7,650 | |
Interest paid | $ | 11,939 | | | $ | 10,606 | |
Non-cash consideration in connection with acquisitions | $ | 1,640 | | | $ | 5,056 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Total Stockholders' Equity |
(in thousands) | Shares | | Amount | | Shares | | Amount | |
Balance, January 1, 2024 | 95,267 | | $ | 953 | | | $ | 1,670,450 | | | $ | 5,283,342 | | | 8,361 | | | $ | (1,474,110) | | | $ | (90,271) | | | $ | 5,390,364 | |
Acquisition activity of previously acquired businesses | | | | | 1,818 | | | | | (8) | | | 719 | | | | | 2,537 | |
| | | | | | | | | | | | | | | |
Stock-based compensation activity | | | | | (30,455) | | | | | (382) | | | 34,443 | | | | | 3,988 | |
Other comprehensive loss | | | | | | | | | | | | | (22,024) | | | (22,024) | |
Net income | | | | | | | 34,778 | | | | | | | | | 34,778 | |
Balance, March 31, 2024 | 95,267 | | $ | 953 | | | $ | 1,641,813 | | | $ | 5,318,120 | | | 7,971 | | $ | (1,438,948) | | | $ | (112,295) | | | $ | 5,409,643 | |
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| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive (Loss) Income | | Total Stockholders' Equity |
(in thousands) | Shares | | Amount | | Shares | | Amount | |
Balance, January 1, 2023 | 95,267 | | $ | 953 | | | $ | 1,540,317 | | | $ | 4,782,930 | | | 8,317 | | | $ | (1,335,627) | | | $ | (122,722) | | | $ | 4,865,851 | |
Treasury shares acquired, including excise tax | | | | | | | | | 650 | | | (197,416) | | | | | (197,416) | |
Stock-based compensation activity | | | | | (34,529) | | | | | (356) | | | 34,350 | | | | | (179) | |
Other comprehensive income | | | | | | | | | | | | | 13,284 | | | 13,284 | |
Net income | | | | | | | 100,622 | | | | | | | | | 100,622 | |
Balance, March 31, 2023 | 95,267 | | $ | 953 | | | $ | 1,505,788 | | | $ | 4,883,552 | | | 8,611 | | $ | (1,498,693) | | | $ | (109,438) | | | $ | 4,782,162 | |
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The accompanying notes are an integral part of the condensed consolidated financial statements.
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017March 31, 2024
(Unaudited)
1.Organization
ANSYS, Inc. (hereafter the "Company" or "ANSYS")(Ansys, we, us, our) develops and globally markets engineering simulation software and technologiesservices widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including high-tech, aerospace and defense, automotive, energy, industrial equipment, electronics, biomedical, energy, materials and chemical processing,chemicals, consumer products, healthcare and semiconductors.construction.
As defined by the accounting guidance for segment reporting, the Company operateswe operate as one segment.
Given the integrated approach to the multi-discipline problem-solving needs of the Company'sour customers, a single sale of software may contain components from multiple product areas and include combined technologies. The CompanyWe also hashave a multi-year product and integration strategy that will result in new, combined products or changes to the historical product offerings. As a result, it is impracticable for the Companyus to provide accurate historical or current reporting among itsour various product lines.
Pending Acquisition
On January 15, 2024, we entered into an Agreement and Plan of Merger (the Merger Agreement) with Synopsys, Inc., a Delaware corporation (Synopsys), and ALTA Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Synopsys (Merger Sub), under which Synopsys will acquire Ansys. The transaction is anticipated to close in the first half of 2025, subject to approval by Ansys stockholders, the receipt of required regulatory approvals and other customary closing conditions.
2.Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by ANSYS in accordance with accounting principles generally accepted in the United States for interim financial information for commercial and industrial companies, and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company'sour audited consolidated financial statements (and notes thereto) included in the Company'sour Annual Report on Form 10-K for the year ended December 31, 2016.2023 (2023 Form 10-K). The condensed consolidated December 31, 20162023 balance sheet presented is derived from the audited December 31, 20162023 balance sheet included in the most recent Annual Report on2023 Form 10-K. In theour opinion, of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the three and nine months ended September 30, 2017March 31, 2024 are not necessarily indicative of the results that may be expected for any future period.
Accounting Guidance Issued and Not Yet Adopted
Segment reporting: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 requires enhanced disclosures related to segment information, including for entities with one reportable segment. It does not change the determination of reportable segments. The enhanced disclosures in accordance with the new guidance are required to be reported in the annual period beginning after December 15, 2023. Early adoption is permitted. The standard only impacts footnote disclosures.
Income tax disclosures: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires disclosure of greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The standard only impacts footnote disclosures.
Cash, and Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist primarily of highly liquid investments such as deposits held at major banks and money market funds. Cash equivalents are carried at cost, which approximates fair value. The Company’s cash and cash equivalent balances comprise the following:
|
| | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in thousands, except percentages) | Amount | | % of Total | | Amount | | % of Total |
Cash accounts | $ | 528,134 |
| | 57.4 | | $ | 488,504 |
| | 59.4 |
Money market funds | 391,437 |
| | 42.6 | | 333,975 |
| | 40.6 |
Total | $ | 919,571 |
| | | | $ | 822,479 |
| | |
The Company'sOur money market fund balances are held in various funds of a single issuer.issuer at March 31, 2024.
Short-term investments consist of available-for-sale debt securities with remaining maturities greater than three months at the date of purchase and time deposits. Investments in debt securities with remaining maturities greater than three months at the date of purchase are designated as short-term available-for-sale securities, as we may convert these investments into cash at any time, including to fund general operations. We invest in debt securities that have an effective maturity term of less than three years. The debt securities are carried at fair value, with unrealized gains and losses included in the condensed consolidated balance sheets as a component of accumulated other comprehensive (loss) income. For available-for-sale debt securities in an unrealized loss position, we evaluate whether a current expected credit loss exists based on available information relevant to the credit rating of the security, current economic conditions and reasonable and supportable forecasts. The allowance for any credit loss will be recorded in other expense, net, on the condensed consolidated statements of income, not to exceed the amount of the unrealized loss. Any excess unrealized loss other than the credit loss is generally recognized in accumulated other comprehensive loss. The cost of securities sold is based on the specific identification method and realized gains and losses are included in other expense, net. To date, we have not recorded any credit loss or realized gains or losses.
3.Revenue from Contracts with Customers
Disaggregation of Revenue
The following table summarizes revenue:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands, except percentages) | | | | | March 31, 2024 | | March 31, 2023 |
Revenue: | | | | | | | |
Subscription lease licenses | | | | | $ | 94,800 | | | $ | 147,922 | |
Perpetual licenses | | | | | 65,521 | | | 71,230 | |
Software licenses | | | | | 160,321 | | | 219,152 | |
Maintenance | | | | | 289,340 | | | 268,593 | |
Service | | | | | 16,944 | | | 21,702 | |
Maintenance and service | | | | | 306,284 | | | 290,295 | |
Total revenue | | | | | $ | 466,605 | | | $ | 509,447 | |
| | | | | | | |
Direct revenue, as a percentage of total revenue | | | | | 66.5 | % | | 76.3 | % |
Indirect revenue, as a percentage of total revenue | | | | | 33.5 | % | | 23.7 | % |
Our software license revenue is recognized up front, while maintenance and service revenue is recognized over the term of the contract.
Deferred Revenue
Deferred revenue consists of billings made or payments received in advance of revenue recognition from customer agreements. The timing of revenue recognition may differ from the timing of billings to customers. Payment terms vary by the type and location of customer and the products or services offered. The time between invoicing and when payment is due is not significant.
The changes in deferred revenue, inclusive of both current and long-term deferred revenue, during the three months ended March 31, 2024 and 2023 were as follows:
| | | | | | | | | | | |
(in thousands) | 2024 | | 2023 |
Beginning balance – January 1 | $ | 479,754 | | | $ | 435,758 | |
Acquired deferred revenue | — | | | 6,555 | |
Deferral of revenue | 448,381 | | | 483,502 | |
Recognition of revenue | (466,605) | | | (509,447) | |
Currency translation | (6,929) | | | 701 | |
Ending balance – March 31 | $ | 454,601 | | | $ | 417,069 | |
Total revenue allocated to remaining performance obligations as of March 31, 2024 will be recognized as revenue as follows:
| | | | | |
(in thousands) | |
3.Next 12 months | Acquisitions$ | 866,273 | |
Months 13-24 | 333,293 | |
Months 25-36 | 125,623 | |
Thereafter | 44,264 | |
Total revenue allocated to remaining performance obligations | $ | 1,369,453 | |
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes both deferred revenue and backlog. Our backlog represents deferred revenue associated with installment billings for periods beyond the current quarterly billing cycle and committed contracts with start dates beyond the end of the current period. Revenue recognized during the three months ended March 31, 2024 and 2023 included amounts in deferred revenue and backlog at the beginning of the period of $292.8 million and $317.6 million, respectively.
4.Acquisitions
During the ninethree months ended September 30, 2017,March 31, 2024, we incurred acquisition-related expenses of $14.3 million, primarily consisting of costs related to the CompanyMerger Agreement with Synopsys. Acquisition-related expenses are recognized as selling, general and administrative and research and development expenses on the condensed consolidated statements of income.
On December 5, 2023, we entered into an agreement to make a strategic equity investment. The investment is subject to regulatory approvals and customary closing conditions and is expected to close in 2024 for a purchase price of $300.0 million.
2023 Acquisitions
On January 3, 2023, we completed variousthe acquisition of DYNAmore for a purchase price of $140.8 million, or $128.0 million net of cash acquired. The acquisition expanded our position as a simulation solution provider within the automotive industry. The effects of the acquisition were not material to our condensed consolidated results of operations.
Additionally, during the year ended December 31, 2023, we completed other acquisitions to expand the customer baseour solution offerings and accelerate the development of new and innovative products to the marketplace while lowering design and engineering costs for customers. Theenhance our customers' experience. These acquisitions were not significant, individually significant.or in the aggregate. The combined purchase price of the acquisitions was approximately $28.7 million for the nine months ended September 30, 2017. The Company had nothese acquisitions during the nine monthsyear ended September 30, 2016.December 31, 2023 was approximately $94.4 million, or $88.3 million net of cash acquired.
The operating results of each acquisition have been included in the Company'sour condensed consolidated financial statements since each respective date of acquisition. The effects of the business combinationsacquisitions were not material to the Company'sour condensed consolidated results of operations individually or in the aggregate.operations.
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4. | Other Receivables and Current Assets |
The Company's5.Other Receivables and Current Assets and Other Accrued Expenses and Liabilities
Our other receivables and current assets and other accrued expenses and liabilities comprise the following balances:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
Receivables related to unrecognized revenue | $ | 149,487 | | | $ | 253,646 | |
Income taxes receivable, including overpayments and refunds | 36,778 | | | 22,104 | |
Prepaid expenses and other current assets | 74,253 | | | 48,901 | |
Total other receivables and current assets | $ | 260,518 | | | $ | 324,651 | |
| | | |
Accrued vacation | 42,546 | | | 42,435 | |
Payroll-related accruals | 39,142 | | | 25,012 | |
| | | |
Accrued expenses and other current liabilities | 106,034 | | | 148,198 | |
Total other accrued expenses and liabilities | $ | 187,722 | | | $ | 215,645 | |
| | | |
| | | |
| | | |
| | | |
|
| | | | | | | |
(in thousands) | September 30, 2017 | | December 31, 2016 |
Receivables related to unrecognized revenue | $ | 141,644 |
| | $ | 199,119 |
|
Income taxes receivable, including overpayments and refunds | 18,615 |
| | 15,718 |
|
Prepaid expenses and other current assets | 23,424 |
| | 24,512 |
|
Total other receivables and current assets | $ | 183,683 |
| | $ | 239,349 |
|
Receivables forrelated to unrecognized revenue represent the current portion of billings made for annual lease licenses and software maintenancecustomer contracts that have not yet been recognized as revenue.
6.Earnings Per Share
Basic earnings per share ("EPS")(EPS) amounts are computed by dividing earnings by the weighted average number of common shares outstanding during the period. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. To the extent stock awards are anti-dilutive, they are excluded from the calculation of diluted EPS.
The details of basic and diluted EPS are as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands, except per share data) | | | | | March 31, 2024 | | March 31, 2023 |
Net income | | | | | $ | 34,778 | | | $ | 100,622 | |
Weighted average shares outstanding – basic | | | | | 87,067 | | | 86,930 | |
Dilutive effect of stock plans | | | | | 713 | | | 501 | |
Weighted average shares outstanding – diluted | | | | | 87,780 | | | 87,431 | |
Basic earnings per share | | | | | $ | 0.40 | | | $ | 1.16 | |
Diluted earnings per share | | | | | $ | 0.40 | | | $ | 1.15 | |
Anti-dilutive shares | | | | | 53 | | | 650 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands, except per share data) | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
Net income | $ | 73,630 |
| | $ | 69,557 |
| | $ | 206,666 |
| | $ | 195,653 |
|
Weighted average shares outstanding – basic | 84,774 |
| | 86,959 |
| | 85,132 |
| | 87,570 |
|
Dilutive effect of stock plans | 1,814 |
| | 1,717 |
| | 1,770 |
| | 1,785 |
|
Weighted average shares outstanding – diluted | 86,588 |
| | 88,676 |
| | 86,902 |
| | 89,355 |
|
Basic earnings per share | $ | 0.87 |
| | $ | 0.80 |
| | $ | 2.43 |
| | $ | 2.23 |
|
Diluted earnings per share | $ | 0.85 |
| | $ | 0.78 |
| | $ | 2.38 |
| | $ | 2.19 |
|
Anti-dilutive shares | 27 |
| | 269 |
| | 112 |
| | 242 |
|
7.Goodwill and Intangible Assets
Intangible assets are classified as follows:
| |
6. | Goodwill and Intangible Assets |
The Company's | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Finite-lived intangible assets: | | | | | | | |
Developed software and core technologies | $ | 1,147,238 | | | $ | (576,985) | | | $ | 1,146,022 | | | $ | (557,359) | |
Customer lists | 286,269 | | | (94,724) | | | 289,874 | | | (89,800) | |
Trade names | 189,767 | | | (145,547) | | | 190,203 | | | (143,880) | |
Total | $ | 1,623,274 | | | $ | (817,256) | | | $ | 1,626,099 | | | $ | (791,039) | |
Indefinite-lived intangible asset: | | | | | | | |
Trade name | $ | 357 | | | | | $ | 357 | | | |
Finite-lived intangible assets andare amortized over their estimated useful lives are classified as follows:oftwo years to seventeen years. |
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
(in thousands) | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Finite-lived intangible assets: | | | | | | | |
Developed software and core technologies (3 – 11 years) | $ | 355,112 |
| | $ | (291,960 | ) | | $ | 338,594 |
| | $ | (275,130 | ) |
Customer lists and contract backlog (5 – 15 years) | 164,548 |
| | (100,324 | ) | | 159,549 |
| | (88,414 | ) |
Trade names (2 – 10 years) | 128,346 |
| | (101,083 | ) | | 127,952 |
| | (90,289 | ) |
Total | $ | 648,006 |
| | $ | (493,367 | ) | | $ | 626,095 |
| | $ | (453,833 | ) |
Indefinite-lived intangible asset: | | | | | | | |
Trade name | $ | 357 |
| | | | $ | 357 |
| | |
Amortization expense for the intangible assets reflected above was $12.3 million and $12.7 million for the three months ended September 30, 2017 and 2016, respectively. Amortization expense for the intangible assets reflected above was $36.4 million and $38.1 million for the nine months ended September 30, 2017 and 2016, respectively.
As of September 30, 2017,March 31, 2024, estimated future amortization expense for the intangible assets reflected above iswas as follows: |
| | | |
(in thousands) | |
Remainder of 2017 | $ | 12,405 |
|
2018 | 37,466 |
|
2019 | 24,357 |
|
2020 | 23,396 |
|
2021 | 19,169 |
|
2022 | 14,202 |
|
Thereafter | 23,644 |
|
Total intangible assets subject to amortization | 154,639 |
|
Indefinite-lived trade name | 357 |
|
Other intangible assets, net | $ | 154,996 |
|
| | | | | |
(in thousands) | |
Remainder of 2024 | $ | 83,630 | |
2025 | 115,308 | |
2026 | 116,148 | |
2027 | 119,371 | |
2028 | 112,994 | |
2029 | 99,177 | |
Thereafter | 159,390 | |
Total intangible assets subject to amortization | 806,018 | |
Indefinite-lived trade name | 357 | |
Other intangible assets, net | $ | 806,375 | |
The changes in goodwill during the
ninethree months ended
September 30, 2017March 31, 2024 and
20162023 were as follows:
| | (in thousands) | 2017 | | 2016 | (in thousands) | 2024 | | 2023 |
Beginning balance – January 1 | $ | 1,337,215 |
| | $ | 1,332,348 |
|
Acquisitions | 11,719 |
| | — |
|
Adjustments | — |
| | (1 | ) |
Acquisitions and adjustments(1) | |
| Currency translation | 4,510 |
| | 1,184 |
|
Ending balance – September 30 | $ | 1,353,444 |
| | $ | 1,333,531 |
|
Currency translation | |
Currency translation | |
Ending balance – March 31 | |
(1) In accordance with the accounting for business combinations, we recorded adjustments to goodwill for the effect of changes in the provisional fair values of the assets acquired and liabilities assumed during the measurement period (up to one year from the acquisition date) as we obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have effected the measurement of the amounts recognized as of that date.
During the first quarter of 2017, the Company2024, we completed the annual impairment test for goodwill and the indefinite-lived intangible asset and determined that these assets had not been impaired as of the test date, January 1, 2017.2024. No other events or circumstances changed during the ninethree months ended September 30, 2017March 31, 2024 that would indicate that the fair values of the Company'sour reporting unit and indefinite-lived intangible asset are below their carrying amounts.
8.Cash Equivalents and Short-Term Investments
During the three months ended March 31, 2024, we invested in available-for-sale debt securities, which are included in short-term investments in the condensed consolidated balance sheets. As of March 31, 2024, our cash equivalents and short-term investments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses Less Than 12 Continuous Months | | | | Estimated Fair Value(1) |
Cash equivalents: | | | | | | | | | |
Money market funds | $ | 294,440 | | | $ | — | | | $ | — | | | | | $ | 294,440 | |
Total cash equivalents | 294,440 | | | — | | | — | | | | | 294,440 | |
Short-term investments: | | | | | | | | | |
Corporate debt securities | 15,046 | | | 1 | | | (59) | | | | | 14,988 | |
Municipal bonds | 4,943 | | | — | | | (19) | | | | | 4,924 | |
Other short-term investments | 188 | | | — | | | — | | | | | 188 | |
Total short-term investments | 20,177 | | | 1 | | | (78) | | | | | 20,100 | |
Total cash equivalents and short-term investments | $ | 314,617 | | | $ | 1 | | | $ | (78) | | | | | $ | 314,540 | |
(1) See Note 9, "Fair Value Measurements" for further discussion on fair values.
Of the $15.0 million corporate debt securities, $13.8 million are in a loss position at March 31, 2024. Of the $4.9 million municipal bonds, $4.5 million are in a loss position at March 31, 2024.
The unrealized losses presented above are primarily attributable to changes in interest rates. We believe that we have the ability to realize the full value of all of these investments upon maturity.
The following table outlines maturities of our available-for-sale debt securities as of March 31, 2024:
| | | | | | | | | | | |
(in thousands) | Amortized Cost | | Fair Value |
Less than 1 year | $ | 4,232 | | | $ | 4,226 | |
1-3 years | 15,757 | | | 15,686 | |
Total | $ | 19,989 | | | $ | 19,912 | |
9.Fair Value Measurement
The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs for such valuations into three broad levels:
•Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
•Level 2: quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; or
•Level 3: unobservable inputs based on the Company'sour own assumptions used to measure assets and liabilities at fair value.
A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
Our debt is classified within Level 2 of the fair value hierarchy because these borrowings are not actively traded and have a variable interest rate structure based upon market rates. The carrying amount of our debt approximates the estimated fair value. See Note 11, "Debt", for additional information on our borrowings.
The following tables provide the assets and liabilities carried at fair value and measured on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
(in thousands) | March 31, 2024 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 294,440 | | | $ | 294,440 | | | $ | — | | | $ | — | |
Short-term investments: | | | | | | | |
Corporate debt securities | $ | 14,988 | | | $ | — | | | $ | 14,988 | | | $ | — | |
Municipal bonds | $ | 4,924 | | | $ | — | | | $ | 4,924 | | | $ | — | |
Other short-term investments | $ | 188 | | | $ | — | | | $ | 188 | | | $ | — | |
Deferred compensation plan investments | $ | 2,370 | | | $ | 2,370 | | | $ | — | | | $ | — | |
Equity securities | $ | 591 | | | $ | 591 | | | $ | — | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
(in thousands) | September 30, 2017 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
Cash equivalents | $ | 391,437 |
| | $ | 391,437 |
| | $ | — |
| | $ | — |
|
Short-term investments | $ | 7,064 |
| | $ | — |
| | $ | 7,064 |
| | $ | — |
|
Deferred compensation plan investments | $ | 2,256 |
| | $ | 2,256 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
(in thousands) | December 31, 2023 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets (Liabilities) | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 170,821 | | | $ | 170,821 | | | $ | — | | | $ | — | |
Short-term investments: | | | | | | | |
Other short-term investments | $ | 189 | | | $ | — | | | $ | 189 | | | $ | — | |
Deferred compensation plan investments | $ | 2,337 | | | $ | 2,337 | | | $ | — | | | $ | — | |
Equity securities | $ | 634 | | | $ | 634 | | | $ | — | | | $ | — | |
Forward contracts | $ | (412) | | | $ | — | | | $ | (412) | | | $ | — | |
|
| | | | | | | | | | | | | | | |
| | | Fair Value Measurements at Reporting Date Using: |
(in thousands) | December 31, 2016 | | Quoted Prices in Active Markets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) |
Assets | | | | | | | |
Cash equivalents | $ | 333,975 |
| | $ | 333,975 |
| | $ | — |
| | $ | — |
|
Short-term investments | $ | 381 |
| | $ | — |
| | $ | 381 |
| | $ | — |
|
Deferred compensation plan investments | $ | 459 |
| | $ | 459 |
| | $ | — |
| | $ | — |
|
The cash equivalents in the preceding tables represent money market funds.funds, valued at net asset value, with carrying values which approximate their fair values because of their short-term nature.
The short-term investments in the preceding tables represent deposits held by certain foreign subsidiaries of the Company. The deposits have fixed interest rates with maturity dates ranging from three months to one year.available-for-sale debt securities and time deposits.
The deferred compensation plan investments in the preceding tables represent trading securities held in a rabbi trust for the benefit of the non-affiliate independentnon-employee directors. These securities consist of mutual funds traded in an active market with quoted prices. As a result, the plan assets are classified as Level 1 in the fair value hierarchy. The plan assets are recorded within other long-term assets on the Company'sour condensed consolidated balance sheets.
The carrying valuesequity securities represent our investment in a publicly traded company. These securities are traded in an active market with quoted prices. As a result, the securities are classified as Level 1 in the fair value hierarchy. The securities are recorded within other long-term assets on our condensed consolidated balance sheets.
The forward contracts represent currency hedges to mitigate exchange rate exposure. These contracts are classified within Level 2 because these contracts are not actively traded and the valuation inputs are based on quoted prices and market observable data of cash, accounts receivable, accounts payable,similar instruments. The liabilities associated with the forward contracts are recorded at fair value in other accrued expenses and liabilities in our condensed consolidated balance sheets.
10.Leases
Our right-of-use assets and lease liabilities primarily include operating leases for office space. Our executive offices and those related to certain domestic product development, marketing, production and administration are located in a 186,000 square foot office facility in Canonsburg, Pennsylvania. The term of the lease is 183 months, which began on October 1, 2014 and expires on December 31, 2029. The lease agreement includes options to renew the contract through August 2044, an option to lease additional space in January 2025 and an option to terminate the lease in December 2025. No options are included in the lease liability. Absent the exercise of options in the lease, our remaining base rent (inclusive of property taxes and certain operating costs) is $4.5 million per annum through 2024 and $4.7 million per annum for 2025 - 2029.
The components of our global lease cost reflected in the condensed consolidated statements of income are as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands) | | | | | March 31, 2024 | | March 31, 2023 |
Lease liability cost | | | | | $ | 7,328 | | | $ | 7,041 | |
Variable lease cost not included in the lease liability(1) | | | | | 1,383 | | | 1,183 | |
Total lease cost | | | | | $ | 8,711 | | | $ | 8,224 | |
(1) Variable lease cost includes common area maintenance, property taxes, utilities and fluctuations in rent due to a change in an index or rate.
Other information related to operating leases is as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands) | | | | | March 31, 2024 | | March 31, 2023 |
Cash paid for amounts included in the measurement of the lease liability: | | | | | | | |
Operating cash flows from operating leases | | | | | $ | (7,213) | | | $ | (6,779) | |
Right-of-use assets obtained in exchange for new operating lease liabilities | | | | | $ | 1,389 | | | $ | 4,414 | |
| | | | | | | | | | | |
| As of March 31, |
| 2024 | | 2023 |
Weighted-average remaining lease term of operating leases | 6.2 years | | 6.7 years |
Weighted-average discount rate of operating leases | 3.4 | % | | 3.2 | % |
The maturity schedule of the operating lease liabilities as of March 31, 2024 is as follows:
| | | | | |
(in thousands) | |
Remainder of 2024 | $ | 20,216 | |
2025 | 23,107 | |
2026 | 20,629 | |
2027 | 18,789 | |
2028 | 17,132 | |
Thereafter | 30,774 | |
Total future lease payments | 130,647 | |
Less: Present value adjustment | (12,791) | |
Present value of future lease payments(1) | $ | 117,856 | |
(1) Includes the current portion of operating lease liabilities of $22.5 million, which is reflected in other accrued expenses and liabilities in the condensed consolidated balance sheets.
There were no material leases that have been signed but not yet commenced as of March 31, 2024.
11.Debt
On June 30, 2022, we entered into a credit agreement (as amended, the 2022 Credit Agreement) with PNC Bank, National Association, as administrative agent, swing line lender, and short-term obligations approximatean L/C issuer, the lenders party thereto, and the other L/C issuers party thereto. The 2022 Credit Agreement refinanced our previous credit agreements in their fair values becauseentirety. Terms used in this description of their short-term nature.the 2022 Credit Agreement with initial capital letters that are not otherwise defined herein are as defined in the 2022 Credit Agreement.
The 2022 Credit Agreement provides for a $755.0 million unsecured term loan facility and a $500.0 million unsecured revolving loan facility, which includes a $50.0 million sublimit for the issuance of letters of credit. The revolving loan facility is available for working capital and general corporate purposes. Each of the term loan facility and the revolving loan facility matures on June 30, 2027.
Borrowings under the term loan and revolving loan facilities accrue interest at a rate that is based on the Term SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available).
On September 29, 2023, the 2022 Credit Agreement was amended to provide for an interest rate adjustment (Sustainability Rate Adjustment) based upon the achievement of certain environmental, social and governance key performance indicators (KPIs). The Sustainability Rate Adjustment range is +/- 0.05% and will be adjusted annually based on the KPIs of the preceding year.
The 2022 Credit Agreement also provides for the option to add certain foreign subsidiaries as borrowers and to borrow in Euros, Sterling, Yen and Swiss Francs under the revolving loan facility, up to a sublimit of $150.0 million. Borrowings under the revolving loan facility denominated in these currencies will accrue interest at a rate that is based on (a) for Euros, €STR, (b) for Sterling, SONIA, (c) for Yen, TONAR and (d) for Swiss Francs, SARON, plus an applicable margin calculated as described above.
Under the 2022 Credit Agreement, the weighted average interest rate in effect for the three months ended March 31, 2024 and March 31, 2023 was 6.32% and 5.56%, respectively. The rate in effect as of March 31, 2024 and for the second quarter of 2024 under the 2022 Credit Agreement is 6.23%.
The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The 2022 Credit Agreement also contains a financial covenant requiring us and our subsidiaries to maintain a consolidated net leverage ratio not in excess of 3.50 to 1.00 as of the end of any fiscal quarter (for the four-quarter period ending on such date) with an opportunity for a temporary increase in such consolidated net leverage ratio to 4.00 to 1.00 upon the consummation of certain qualified acquisitions for which the aggregate consideration is at least $250.0 million.
As of March 31, 2024, we had $755.0 million of borrowings outstanding under the term loan, with a carrying value of $754.0 million, which is net of $1.0 million of unamortized debt discounts and issuance costs. The total amount was included in long-term debt. As of March 31, 2024, no borrowings were outstanding under the revolving loan facility.
As of December 31, 2023, we had $755.0 million of borrowings outstanding under the term loan, with a carrying value of $753.9 million, which is net of $1.1 million of unamortized debt discounts and issuance costs. The total amount was included in long-term debt. As of December 31, 2023, no borrowings were outstanding under the revolving loan facility.
We were in compliance with all covenants under the 2022 Credit Agreement as of March 31, 2024 and December 31, 2023.
12.Income Taxes
Our income before income tax provision, income tax provision and effective tax rates were as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands, except percentages) | | | | | March 31, 2024 | | March 31, 2023 |
Income before income tax provision | | | | | $ | 40,958 | | | $ | 120,838 | |
Income tax provision | | | | | $ | 6,180 | | | $ | 20,216 | |
Effective tax rate | | | | | 15.1 | % | | 16.7 | % |
13.Stock Repurchase Program
There were no share repurchases in the first quarter of 2024. For the three months ended March 31, 2023, 650 thousand shares were repurchased at an average price of $302.34 per share, with a total cost of $196.5 million. As of March 31, 2024, 1.1 million shares remained available for repurchase under the program.
14.Stock-Based Compensation
Total stock-based compensation expense and its net impact on basic and diluted earnings per share are as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands, except per share data) | | | | | March 31, 2024 | | March 31, 2023 |
Cost of sales: | | | | | | | |
Maintenance and service | | | | | $ | 3,343 | | | $ | 2,878 | |
Operating expenses: | | | | | | | |
Selling, general and administrative | | | | | 34,208 | | | 23,905 | |
Research and development | | | | | 21,113 | | | 17,388 | |
Stock-based compensation expense before taxes | | | | | 58,664 | | | 44,171 | |
Related income tax benefits | | | | | (23,243) | | | (18,186) | |
Stock-based compensation expense, net of taxes | | | | | $ | 35,421 | | | $ | 25,985 | |
Net impact on earnings per share: | | | | | | | |
Basic earnings per share | | | | | $ | (0.41) | | | $ | (0.30) | |
Diluted earnings per share | | | | | $ | (0.40) | | | $ | (0.30) | |
15.Geographic Information
Revenue to external customers is attributed to individual countries based upon the location of the customer. Revenue by geographic area is as follows:
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
(in thousands) | | | | | March 31, 2024 | | March 31, 2023 |
United States | | | | | $ | 199,948 | | | $ | 246,707 | |
China and Hong Kong | | | | | 44,934 | | | 39,436 | |
Japan | | | | | 36,532 | | | 38,086 | |
Germany | | | | | 36,198 | | | 38,674 | |
South Korea | | | | | 24,370 | | | 21,864 | |
| | | | | | | |
| | | | | | | |
Other Europe, Middle East and Africa (EMEA) | | | | | 82,417 | | | 82,404 | |
Other international | | | | | 42,206 | | | 42,276 | |
Total revenue | | | | | $ | 466,605 | | | $ | 509,447 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
United States | $ | 107,130 |
| | $ | 91,301 |
| | $ | 309,486 |
| | $ | 265,945 |
|
Japan | 30,778 |
| | 31,496 |
| | 94,572 |
| | 90,601 |
|
Germany | 25,391 |
| | 25,399 |
| | 71,115 |
| | 73,428 |
|
South Korea | 15,309 |
| | 13,381 |
| | 45,677 |
| | 41,629 |
|
China | 16,608 |
| | 11,271 |
| | 42,942 |
| | 29,810 |
|
France | 15,099 |
| | 12,054 |
| | 42,482 |
| | 36,106 |
|
Canada | 3,864 |
| | 3,179 |
| | 10,368 |
| | 9,855 |
|
Other European | 37,455 |
| | 33,991 |
| | 107,019 |
| | 103,765 |
|
Other international | 23,951 |
| | 23,790 |
| | 69,253 |
| | 66,698 |
|
Total revenue | $ | 275,585 |
| | $ | 245,862 |
| | $ | 792,914 |
| | $ | 717,837 |
|
Property and equipment by geographic area is as follows:
| | | | | | | | | | | |
(in thousands) | March 31, 2024 | | December 31, 2023 |
United States | $ | 59,674 | | | $ | 56,421 | |
France | 5,301 | | | 4,771 | |
| | | |
India | 4,897 | | | 5,057 | |
| | | |
Other EMEA | 6,706 | | | 6,924 | |
Other international | 4,352 | | | 4,607 | |
Total property and equipment, net | $ | 80,930 | | | $ | 77,780 | |
16.Contingencies and Commitments
|
| | | | | | | |
(in thousands) | September 30, 2017 | | December 31, 2016 |
United States | $ | 45,521 |
| | $ | 43,810 |
|
Europe | 5,193 |
| | 4,753 |
|
India | 3,685 |
| | 3,033 |
|
Other international | 2,761 |
| | 3,081 |
|
Total property and equipment, net | $ | 57,160 |
| | $ | 54,677 |
|
| |
9. | Stock-Based Compensation |
Total stock-based compensation expense and its net impact on basic and diluted earnings per shareWe are as follows:
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| Nine Months Ended |
(in thousands, except per share data) | September 30, 2017 |
| September 30, 2016 |
| September 30, 2017 |
| September 30, 2016 |
Cost of sales: |
|
|
|
|
|
|
|
Software licenses | $ | 140 |
|
| $ | 187 |
|
| $ | 711 |
|
| $ | 524 |
|
Maintenance and service | 739 |
|
| 417 |
|
| 1,894 |
|
| 1,200 |
|
Operating expenses: |
|
|
|
|
|
|
|
Selling, general and administrative | 8,782 |
|
| 4,292 |
|
| 23,310 |
|
| 11,160 |
|
Research and development | 5,112 |
|
| 4,056 |
|
| 13,493 |
|
| 11,680 |
|
Stock-based compensation expense before taxes | 14,773 |
|
| 8,952 |
|
| 39,408 |
|
| 24,564 |
|
Related income tax benefits | (6,080 | ) |
| (2,993 | ) |
| (23,980 | ) |
| (7,928 | ) |
Stock-based compensation expense, net of taxes | $ | 8,693 |
|
| $ | 5,959 |
|
| $ | 15,428 |
|
| $ | 16,636 |
|
Net impact on earnings per share: |
|
|
|
|
|
|
|
Basic earnings per share | $ | (0.10 | ) |
| $ | (0.07 | ) |
| $ | (0.18 | ) |
| $ | (0.19 | ) |
Diluted earnings per share | $ | (0.10 | ) |
| $ | (0.07 | ) |
| $ | (0.18 | ) |
| $ | (0.19 | ) |
As a result of new accounting guidance further discussed in Note 13, the three and nine months ended September 30, 2017 related income tax benefits above include $1.4 million and $11.5 million, respectively, of excess tax benefits that in prior years would have been recorded to additional paid-in capital. If such tax benefits were excluded, the impact on both basic and diluted earnings per share would have been a decrease of $0.02 and $0.13 for the three and nine months ended September 30, 2017, respectively.
| |
10. | Stock Repurchase Program |
Under the Company's stock repurchase program, the Company repurchased shares as follows:
|
| | | | | | | |
| Nine Months Ended |
(in thousands, except per share data) | September 30, 2017 | | September 30, 2016 |
Number of shares repurchased | 2,000 |
| | 2,700 |
|
Average price paid per share | $ | 111.65 |
| | $ | 90.11 |
|
Total cost | $ | 223,291 |
| | $ | 243,288 |
|
In February 2017, the Company's Board of Directors increased the number of shares authorized for repurchase to a total of 5.0 million shares under the stock repurchase program. As of September 30, 2017, 3.5 million shares remained available for repurchase under the program.
During the fourth quarter of 2016, the Company initiated workforce realignment activities to reallocate resources to align with the Company's future strategic plans. The Company incurred related restructuring charges as follows:
|
| | | | | | | |
(in thousands) | Gross | | Net of Tax |
Q4 2016 | $ | 3,419 |
| | $ | 2,355 |
|
Q1 2017 | 9,273 |
| | 6,176 |
|
Q2 2017 | 2,000 |
| | 1,435 |
|
Q3 2017 | 466 |
| | 331 |
|
Total restructuring charges | $ | 15,158 |
| | $ | 10,297 |
|
The restructuring charges are included in the presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. During the nine months ended September 30, 2017, the Company paid $11.3 million of the gross charges. As of September 30, 2017, $3.4 million of the gross charges incurred to date remains unpaid. The Company has completed the workforce realignment activities as of September 30, 2017.
| |
12. | Contingencies and Commitments |
The Company is subject to various claims, investigations, claims and legal and regulatory proceedings that arise in the ordinary course of business, including, but not limited to, commercial disputes, labor and employment matters, tax audits, alleged infringement of third parties' intellectual property rights and other matters. In theour opinion, of the Company, the resolution of pending matters is not expected to have a material adverse effect on the Company’sour consolidated results of operations, cash flows or financial position. However, each of these matters is subject to various uncertainties and it is possible that an unfavorable resolution of one or more of these proceedings could materially affect the Company’sour consolidated results of operations, cash flows or financial position.
AnOur Indian subsidiary of the Company has several service tax audits pending that have resulted in formal inquiries being received on transactions through mid-2012. The CompanyWe could incur tax charges and related liabilities of approximately $7$7.2 million. As such charges are not probable at this time, a reserve has not been recorded on the condensed consolidated balance sheet as of March 31, 2024. The service tax issues raised in the Company’sour notices and inquiries are very similar to the case, M/s Microsoft Corporation (I) (P) Ltd. VsVs. Commissioner of Service Tax, New Delhi, wherein the Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has passedissued a favorable ruling to Microsoft. The CompanyMicrosoft ruling was subsequently challenged in the Supreme Court of India by the Indian tax authority and a decision is still pending. We can provide no assurances on whether the Microsoft case’s favorable ruling will be challenged in higher courts or on the impact that the present Microsoft case’scase's decision will have on our cases, however, an unfavorable ruling in the Company’s cases. The Company isMicrosoft case may impact our assessment of probability and result in the recording of a $7.2 million reserve. We are uncertain as to when these service tax matters will be concluded.
A French subsidiary of the Company previously received notice that the French taxing authority rejected the Company's 2012 research and development credit. The Company contested the decision and received a favorable outcome during the first half of 2017. There are currently no challenges to other years' research and development credits for this subsidiary; however, other years are subject to future review and audit.
The Company sellsWe sell software licenses and services to itsour customers under proprietary software licensecontractual agreements. Each license agreement contains the relevant terms of the contractual arrangement with the customer, andSuch agreements generally includesinclude certain provisions for indemnifying the customer against losses, expenses and liabilitiesclaims, by third parties, of infringement or misappropriation of their intellectual property rights arising from damages that are incurred bysuch customer's usage of our products or awarded against the customer in the event the Company’s software or services are found to infringe upon a patent, copyright or other proprietary right of a third party.services. To date, the Company has not had to reimburse any of its customers for any lossespayments related to these indemnification provisions and no material claims asserted under these indemnification provisions are outstanding as of September 30, 2017.have been immaterial. For several reasons, including the lack of prior material indemnification claims, the Companywe cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.
| |
13. | New Accounting Guidance |
Revenue from contracts with customers: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 supersedes most current revenue recognition guidance, including industry-specific guidance. Previous guidance requires an entity to recognize revenue when persuasive evidenceTable of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectibility is reasonably assured. Under the new guidance, an entity is required to evaluate revenue recognition by identifying a contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies a performance obligation. The standard also requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.Contents
ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, delayed the effective date of ASU 2014-09 to annual periods beginning after December 15, 2017, including interim periods within that reporting period. This standard is effective for the Company on January 1, 2018. Entities have the option of using a full retrospective, cumulative effect or modified retrospective approach to adopt ASU 2014-09. The Company expects to utilize the modified retrospective implementation approach.
This update will impact the timing and amounts of revenue recognized, which will result in increased volatility in the amount of revenue recognized each period. The Company's preliminary assessment is that the adoption of this standard will have a material impact on the Company’s consolidated financial statements. While the Company expects that the standard will impact various elements of its business, the Company's initial assessment is that the most significant impact will be on the recognition of revenue related to software lease licenses. These licenses include the right to use the software and PCS over the term of the license. These licenses are currently recognized as revenue ratably over the term of the license. Under the new standard and the existing interpretations, the Company expects to recognize a meaningful portion of the revenue related to these licenses up-front at the time the license is delivered. In addition, it is anticipated in the year of adoption there will be an acceleration in the timing of certain income tax payments associated with deferred revenue that will be booked directly to opening retained earnings. The Company has also made a preliminary assessment that the expense related to sales commissions will not be materially different under the new standard. However, the Company's preliminary assessments could change as additional interpretations relating to the new standard are provided and as issues identified by software industry groups are addressed.
Business combinations: In January 2017, the FASB issued Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (ASU 2017-01). This update narrows the definition of a business. If substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquiree is not a business. The update also requires a business to include an input and a substantive process that significantly contributes to the ability to create outputs. This definition is expected to reduce the number of acquisitions accounted for as business combinations, which will impact the accounting treatment of certain items, including the accounting treatment of contingent consideration and transaction expenses. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted and the update will be applied prospectively. The effect of the implementation will depend upon the nature of the Company's future acquisitions, if any. Historically, the Company has entered into acquisitions that would meet the definition of a business under ASU 2017-01. The Company plans to adopt ASU 2017-01 effective January 1, 2018.
Income taxes: In October 2016, the FASB issued Accounting Standards Update No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16). Previous guidance requires the tax effects from intra-entity asset transfers to be deferred until the asset is sold to a third party or recovered through use. ASU 2016-16 eliminates this deferral for all intra-entity asset transfers other than inventory. The standard is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted and a modified retrospective transition is required upon adoption. The Company plans to adopt ASU 2016-16 effective January 1, 2018 and expects adoption to have an immaterial effect, if any, on its financial results.
Credit losses: In June 2016, the FASB issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). Previous guidance requires the allowance for doubtful accounts to be estimated based on an incurred loss model, which considers past and current conditions. ASU 2016-13 requires companies to use an expected loss model that also considers reasonable and supportable forecasts of future conditions. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that reporting period. The standard requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period in which the guidance is effective. The Company is currently evaluating the effect that this update will have on its financial results upon adoption.
Employee share-based payment accounting: In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). This update includes various areas for simplification related to aspects of the accounting for share-based payment transactions. One simplification is that the tax effects of share-based payment settlements will be recorded in the income statement. Prior guidance required tax windfalls at settlement, and tax shortfalls to the extent of previous windfalls, to be recorded in equity. This provision was required to be adopted prospectively.
The Company adopted the guidance during the quarter ended March 31, 2017. The primary impact of adoption was the recognition of excess tax benefits in the Company's provision for income taxes rather than paid-in capital, which resulted in the recognition of excess tax benefits in the provision for income taxes of $1.4 million and $11.5 million during the three and nine months ended September 30, 2017, respectively. In addition, the Company applied the change in classification of such benefits from financing to operating on the consolidated statements of cash flows on a retrospective basis, resulting in an increase to both net cash provided by operating activities and net cash used in financing activities of $6.2 million for the nine months ended September 30, 2016.
Leases: In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires virtually all leases, other than leases that meet the definition of a short-term lease or leases of intangible assets, to be recorded on the balance sheet with a right-of-use asset and corresponding lease liability. Leases will be classified as either operating or finance leases based on certain criteria. This classification will determine the timing and presentation of expenses on the income statement, as well as the presentation of related cash flows. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted and a modified retrospective transition is required upon adoption. The Company does not expect to early adopt and continues to evaluate the effect that this update will have on its financial results upon adoption. The Company's preliminary assessment is that this update will materially increase the Company's assets and liabilities upon adoption. The Company has completed the initial inventory of its leases and policy elections. The Company is currently developing new processes and controls to meet the accounting and disclosure requirements under the new standard.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
ANSYS, Inc.
Canonsburg, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of ANSYS, Inc. and subsidiaries (the "Company") as of September 30, 2017, and the related condensed consolidated statements of income and comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016, and of cash flows for the nine-month periods ended September 30, 2017 and 2016. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ANSYS, Inc. and subsidiaries as of December 31, 2016, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 23, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
November 2, 2017
Item 2.Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
Overview:
The Company's GAAP resultsfollowing discussion and analysis should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended September 30, 2017 reflect growth in revenue of 12.1%, operating income of 6.1%March 31, 2024, and diluted earnings per share of 9.0% as compared to the three months ended September 30, 2016. The Company's GAAP resultswith our audited consolidated financial statements and notes thereto for the nine monthsyear ended September 30, 2017 reflect growth in revenue of 10.5%, operating income of 3.9% and diluted earnings per share of 8.7% as compared to the nine months ended September 30, 2016. The Company experienced higher revenue in 2017 across all classes of revenue, including license revenue, maintenance and services. The Company also experienced increased operating expenses primarily due to increased personnel costs, costs associated with workforce realignment activities and higher stock-based compensation.
The Company's non-GAAP results for the three months ended September 30, 2017 reflect growth in revenue of 12.6%, operating income of 10.6% and diluted earnings per share of 10.5% as compared to the three months ended September 30, 2016. The Company's non-GAAP results for the nine months ended September 30, 2017 reflect growth in revenue of 10.7%, operating income of 11.0% and diluted earnings per share of 10.9% as compared to the nine months ended September 30, 2016. The non-GAAP results exclude the income statement effects of the acquisition accounting adjustment to deferred revenue, stock-based compensation, amortization of acquired intangible assets, restructuring charges and transaction costs related to business combinations. For further disclosure regarding non-GAAP results, see the section titled "Non-GAAP Results" immediately preceding the section titled "Liquidity and Capital Resources."
The Company's comparative financial results were impacted by fluctuationsDecember 31, 2023 included in the U.S. Dollar during2023 Form 10-K filed with the threeSecurities and nine months ended September 30, 2017 as compared to the threeExchange Commission (SEC). The discussion and nine months ended September 30, 2016. The impacts on the Company's revenueanalysis of our financial condition and operating income due to currency fluctuationsresults of operations are reflectedbased upon our condensed consolidated financial statements, which have been prepared in the table below.accordance with generally accepted accounting principles (GAAP).
The amountsBusiness
Ansys, a corporation formed in the table represent the difference between the actual 2017 results and the same results calculated at the 2016 exchange rates. Amounts in brackets indicate a net adverse impact from currency fluctuations.
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
(in thousands) | GAAP | | Non-GAAP | | GAAP | | Non-GAAP |
Revenue | $ | 1,198 |
| | $ | 1,195 |
| | $ | (2,667 | ) | | $ | (2,670 | ) |
Operating income | $ | 329 |
| | $ | 348 |
| | $ | (415 | ) | | $ | (456 | ) |
In constant currency(1), the Company's growth rates were as follows:
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| | | | | | | | | | | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
| GAAP | | Non-GAAP | | GAAP | | Non-GAAP |
Revenue | 11.6 | % | | 12.1 | % | | 10.8 | % | | 11.1 | % |
Operating income | 5.7 | % | | 10.3 | % | | 4.0 | % | | 11.2 | % |
(1) Constant currency amounts exclude the effect of foreign currency fluctuations on the reported results. To present this information, the 2017 results for entities whose functional currency is a currency other than the U.S. Dollar were converted to U.S. Dollars at rates that were in effect for 2016, rather than the actual exchange rates in effect for 2017.
The Company’s financial position includes $926.6 million in cash and short-term investments, and working capital of $705.3 million as of September 30, 2017.
During the nine months ended September 30, 2017, the Company repurchased 2.0 million shares for $223.3 million at an average price of $111.65 per share.
Business:
ANSYS1994, develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including high-tech, aerospace and defense, automotive, energy, industrial equipment, electronics, biomedical, energy, materials and chemical processing,chemicals, consumer products, healthcare and semiconductors.construction. Headquartered south of Pittsburgh, Pennsylvania, the Companywe employed approximately 2,9006,200 people as of September 30, 2017. ANSYS focusesMarch 31, 2024 and December 31, 2023. We focus on the development of open and flexible solutions that enable users to analyze designs directly onon-premises and/or via the desktop,cloud, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing, validation and validation. The Company distributes itsdeployment. We distribute our suite of simulation technologies through a global network of independent channel partners and direct sales offices in strategic, global locations.locations and a global network of independent resellers and distributors (collectively, channel partners). It is the Company’sour intention to continue to maintain this hybrid sales and distribution model. We operate and report as one segment.
When visionary companies need to know how their world-changing ideas will perform, they close the gap between design and reality using Ansys simulation. For more than 50 years, Ansys software has enabled innovators across industries to push the boundaries of product design by using the predictive power of simulation. From sustainable transportation and advanced satellite systems to life-saving medical devices, Ansys powers innovation that drives human advancement.
Our strategy of Pervasive Insights seeks to deepen the use of simulation in our core market, to inject simulation throughout the product lifecycle and extend the accessibility to a broader set of users and use cases. Our business has three vectors of growth:
•More products. Our broad and deep multiphysics portfolio enables us to grow with customers as they use simulation to solve more complex problems across a broad set of industries.
•More users. Investments in simulation education and user experience simplification has made simulation more accessible to a broader user base.
•More computations. Larger and more complex simulations drive more computation, requiring customers to use more Ansys licenses to complete their simulations.
Through decades of investments in the academic community and enhanced user experiences, our solutions have become accessible and relevant beyond our core "engineering" end user, to reach more users upstream and downstream from our core, which is the product validation process. Our multiphysics solutions enable our customers to address increasingly complex research and development (R&D) challenges from the component through the system and mission level of analysis. Our products seamlessly enable access to high performance compute capacity to run simulations, on-premises or in the cloud, which means our customers' R&D teams are unencumbered by compute capacity limitations that can hinder R&D cycle times. Our investments in artificial intelligence capabilities across our simulation portfolio and technical support services enhance the customer experience, democratize simulation and further next-generation innovation.
The Company licenses itsengineering simulation software market is strong and growing. The market growth is driven by customers' need for rapid, quality innovation in a cost efficient manner, enabling faster time to market for new products and lower warranty costs. Increasing product complexity is driving sustained demand for simulations. Key industry trends fueling customers' increasing needs for simulation include:
•Electrification;
•Autonomy;
•Connectivity;
•The industrial internet of things; and
•Sustainability, including minimizing waste and physical prototyping, and improving circularity and development time.
We have been investing and intend to continue to invest in our portfolio to broaden the range of physics and enable customers to analyze the interactions among physics at the component, system and mission level. Our strategy of Pervasive Insights is aligned with the near-term market growth opportunities and is laying the foundation for a future where simulation can be further democratized to broader classes of end users and end-use cases. In addition, we have and expect to continue to partner with industry leaders to extend simulation into other ecosystems and customer R&D workflows.
We license our technology to businesses in a diverse set of industries, educational institutions and governmental agencies. Growth in the Company’s revenue is affected by the strength of global economies, general business conditions, currency exchange rate fluctuations, customer budgetary constraints and the competitive position of the Company’s products. The Company believesWe believe that the features, functionality and integrated multiphysics capabilities of itsour software products are as strong as they have ever been. However, theThe software business is generally characterized by long sales cycles. These long sales cycles which increase the difficulty of predicting sales for any particular quarter. The Company makesWe make many operational and strategic decisions based upon short- and long-term sales forecasts that are impacted not only by these long sales cycles, but also by current global economic conditions. As a result, the Company believeswe believe that itsour overall performance is best measured by fiscal-yearfiscal year results rather than by quarterly results.
The Company’s management considers
We address the competition and price pressure that it faceswe face in the short- and long-term by focusing on expanding the breadth, depth, ease of use and quality of the technologies, features, functionality and integrated multiphysics capabilities of itsour software products as compared to itsour competitors; investing in research and development to develop new and innovative products and increaseincreasing the capabilities of itsour existing products; supplying new productsmaintaining a diverse industry footprint and services; focusing on customer needs, training, consulting and support; and enhancing itsour distribution channels. From time to time, the CompanyWe also considersevaluate and execute strategic acquisitions to supplement itsour global engineering talent, product offerings and distribution channels.
Synopsys Merger Agreement
On January 15, 2024, we entered into the Merger Agreement with Synopsys and Merger Sub. The Merger Agreement provides for the merger of Merger Sub with and into Ansys, with Ansys surviving the merger as a wholly owned subsidiary of Synopsys (the Merger). Our Board of Directors has unanimously approved the Merger Agreement and, subject to certain exceptions set forth in the Merger Agreement, resolved to recommend that our stockholders adopt the Merger Agreement. If the Merger is consummated, our common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act. The completion of the Merger is subject to customary closing conditions, including, among others, approval of the Merger under certain applicable antitrust and foreign investment regimes and the adoption of the Merger Agreement by our stockholders. We anticipate the transaction to close in the first half of 2025.
The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the Merger Agreement, which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed on January 16, 2024, and is incorporated herein by reference.
Overview
Overall GAAP and Non-GAAP Results
This section includes a discussion of GAAP and non-GAAP results. For reconciliations of non-GAAP results to GAAP results, see the section titled "Non-GAAP Results" herein.
The 2024 and 2023 period non-GAAP results exclude the income statement effects of stock-based compensation, excess payroll taxes related to stock-based compensation, amortization of acquired intangible assets, expenses related to business combinations and adjustments for the income tax effect of the excluded items.
Our GAAP and non-GAAP results for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 reflected the following variances:
| | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | | | |
| | | | | | | |
Revenue | (8.4) | % | | | | | | |
GAAP Operating income | (66.1) | % | | | | | | |
Non-GAAP Operating income | (26.0) | % | | | | | | |
GAAP Diluted earnings per share | (65.2) | % | | | | | | |
Non-GAAP Diluted earnings per share | (24.9) | % | | | | | | |
Our results reflect a decline in revenue during the three months ended March 31, 2024 due to reductions in subscription lease license revenue, partially offset by an increase in maintenance revenue. We also experienced increased operating expenses during the three months ended March 31, 2024, primarily due to increased personnel and acquisition costs. Acquisition costs primarily consist of costs related to the Merger Agreement with Synopsys.
For 2024, quarterly growth rates will be variable across the quarters and are affected by the performance comparisons to 2023. Specifically, the first quarter's operating results reflect a structural timing dynamic affected by the renewal base this quarter in which fewer lease contracts were up for renewal, resulting in comparatively lower up-front lease license revenue recognition, impacting revenue, operating income and EPS. As a comparison, the first quarter of 2023 reflected a 65% constant currency growth rate in subscription lease license revenue driven by a meaningful increase in the value of multi-year deals. Quarterly revenue and ACV in Q1 2024 are not representative of the momentum in our business given the shifting mix of license types and renewal cycles that can be volatile quarter to quarter. While this timing dynamic leads to revenue volatility, it does not represent changes in customers' software usage or cash flows. This further highlights the importance of measuring our results based on our fiscal year rather than individual quarters.
This section also includes a discussion of constant currency results, which we use for financial and operational decision-making and as a means to evaluate period-to-period comparisons by excluding the effects of foreign currency fluctuations on the reported results. All constant currency results presented in this Item 2 exclude the effects of foreign currency fluctuations on the reported results. To present this information, the 2024 period results for entities whose functional currency is a currency other than the U.S. Dollar were converted to U.S. Dollars at rates that were in effect for the 2023 comparable period, rather than the actual exchange rates in effect for the 2024 period. Constant currency growth rates are calculated by adjusting the 2024 period reported amounts by the 2024 period currency fluctuation impacts and comparing to the 2023 comparable period reported amounts.
Impact of Foreign Currency
Our comparative financial results were impacted by fluctuations in the U.S. Dollar during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The impacts on our revenue and operating income as a result of the fluctuations of the U.S. Dollar when measured against our foreign currencies based on 2023 period exchange rates are reflected in the table below. Amounts in parenthesis indicate an adverse impact from currency fluctuations.
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(in thousands) | Three Months Ended March 31, 2024 | | |
| | | | | | | |
Revenue | $ | (3,903) | | | | | | | |
GAAP Operating income | $ | (3,398) | | | | | | | |
Non-GAAP Operating income | $ | (3,178) | | | | | | | |
In constant currency, our variances were as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, 2024 | | |
| | | | | | | |
Revenue | (7.6) | % | | | | | | |
GAAP Operating income | (63.4) | % | | | | | | |
Non-GAAP Operating income | (24.4) | % | | | | | | |
Other Key Business Metric
Annual Contract Value (ACV) is a key performance metric and is useful to investors in assessing the strength and trajectory of our business. ACV is a supplemental metric to help evaluate the annual performance of the business. Over the life of the contract, ACV equals the total value realized from a customer. ACV is not impacted by the timing of license revenue recognition. ACV is used by management in financial and operational decision-making and in setting sales targets used for compensation. ACV is not a replacement for, and should be viewed independently of, GAAP revenue and deferred revenue as ACV is a performance metric and is not intended to be combined with any of these items. There is no GAAP measure comparable to ACV. ACV is composed of the following:
•the annualized value of maintenance and subscription lease contracts with start dates or anniversary dates during the period, plus
•the value of perpetual license contracts with start dates during the period, plus
•the annualized value of fixed-term services contracts with start dates or anniversary dates during the period, plus
•the value of work performed during the period on fixed-deliverable services contracts.
When we refer to the anniversary dates in the definition of ACV above, we are referencing the date of the beginning of the next twelve-month period in a contractually committed multi-year contract. If a contract is three years in duration, with a start date of July 1, 2024, the anniversary dates would be July 1, 2025 and July 1, 2026. We label these anniversary dates as they are contractually committed. While this contract would be up for renewal on July 1, 2027, our ACV performance metric does not assume any contract renewals.
Example 1: For purposes of calculating ACV, a $100,000 subscription lease contract or a $100,000 maintenance contract with a term of July 1, 2024 – June 30, 2025, would each contribute $100,000 to ACV for fiscal year 2024 with no contribution to ACV for fiscal year 2025.
Example 2: For purposes of calculating ACV, a $300,000 subscription lease contract or a $300,000 maintenance contract with a term of July 1, 2024 – June 30, 2027, would each contribute $100,000 to ACV in each of fiscal years 2024, 2025 and 2026. There would be no contribution to ACV for fiscal year 2027 as each period captures the full annual value upon the anniversary date.
Example 3: A perpetual license valued at $200,000 with a contract start date of March 1, 2024 would contribute $200,000 to ACV in fiscal year 2024.
During the three months ended March 31, 2024 and 2023 our ACV was as follows:
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| Three Months Ended March 31, | |
(in thousands, except percentages) | 2024 | | 2023 | | Change |
| Actual | | Constant Currency | | Actual | | Actual | | Constant Currency |
| Amount | | Amount | | % | | Amount | | % |
ACV | $ | 407,405 | | | $ | 410,433 | | | $ | 399,407 | | | $ | 7,998 | | | 2.0 | | | $ | 11,026 | | | 2.8 | |
Our trailing twelve-month recurring ACV, converted from the functional currency to U.S. Dollars at the 2023 period monthly average exchange rates, was as follows:
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| Twelve Months Ended March 31, | | Change |
(in thousands, except percentages) | 2024 | | 2023 | | Amount | | % |
Recurring ACV at 2023 monthly average exchange rates | $ | 1,944,685 | | | $ | 1,709,434 | | | $ | 235,251 | | | 13.8 | |
Recurring ACV includes both subscription lease license and maintenance ACV and excludes perpetual license and service ACV.
Industry Commentary:
During the first quarter of 2024, ACV growth was supported by our core industries of aerospace and defense (A&D) and automotive. Despite a decrease in high-tech ACV during the quarter, we continue to see demand in the industry as more customers require our semiconductor and multiphysics solutions to model advanced packaging technologies. We remain critical to our customers' development of advanced chips, often with bespoke functionality. Our A&D customers continue to rely on simulation in support of complex, connected and autonomous platforms. Within the automotive industry, electrification remains a critical driver of simulation investment in electric vehicles (EVs). Our portfolio is well-positioned to support automotive companies focused on addressing tight margins on EV sales and optimizing efficiency in both operations and vehicle performance. The energy sector also contributed to ACV growth in the first quarter driven by the need to continually deliver, convert and consume various forms of fuel more efficiently, as well as develop scalable, renewable energy sources.
Geographic Trends:
The following table presents the Company'sour geographic revenue variances using actual and constant currency revenue growth, based upon the customer location,rates during the three and nine months ended September 30, 2017March 31, 2024 as compared to the three and nine months ended September 30, 2016:March 31, 2023:
| | | | | | Three Months Ended March 31, 2024 | |
| | | | | Three Months Ended March 31, 2024 | |
| | | | | Three Months Ended March 31, 2024 | |
| | | | | | Actual | |
| Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
North America | 17.3 | % | | 16.0 | % |
Europe | 4.9 | % | | 4.4 | % |
| | | | | Actual | |
| | | | | | Actual | |
Americas | |
Americas | |
Americas | |
EMEA | |
EMEA | |
EMEA | |
Asia-Pacific | |
Asia-Pacific | |
Asia-Pacific | 10.8 | % | | 10.7 | % |
Total | 11.6 | % | | 10.8 | % |
Total | |
Total | |
In North America,The value and duration of multi-year subscription lease contracts executed during the Company's performance was primarily driven byperiod significantly impact the aerospacerecognition of revenue. As a result, revenue may fluctuate, particularly on a quarterly basis, due to the timing of such contracts, relative differences in duration of long-term contracts from quarter to quarter and defense, electronics, semiconductors and automotive industries. The automotive manufacturers maintained their strong investmentschanges in developing advanced technologies for autonomous, electric and smart, connected vehicles. The electronics industry continuedthe mix of license types sold compared to benefit from the placement of software into a wide range of smart, connected products. The performance within aerospace and defense continued to be driven by major and strategic accounts and a growing demand from the commercial space sector. The renewable energy sector remained strong as energy companies continued their investment initiatives.
In Europe,prior year. Large swings in revenue growth continued to lagrates are not necessarily indicative of customers' software usage changes or cash flows during the other regions. France led the region, but was partially offset by weak performance in Germany. New sales leadership in the region remained focused on building the sales pipeline and finalizing initiatives to update the Company's go-to-market strategy. The automotive and electronics industries continued to demonstrate similar trends as North America. Additionally, the indirect channel performance helped to offset some of the weakness in the direct business
The results in Asia-Pacific were driven by sustainedperiods presented. To drive growth, in China and Taiwan. From an industry perspective, the regional performance was driven by the aerospace and defense, electronics, automotive and industrial equipment sectors. The region continued to benefit from investment in domestic development programs, particularly in China and India.
The Company continueswe continue to focus on a number of sales improvement activities across theour geographic regions, including sales hiring, pipeline building, productivity initiatives and customer engagement activities.
Use of Estimates:
Note About Forward-Looking Statements
The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the nine months ended September 30, 2017, and with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2016 filed on the Annual Report on Form 10-K with the Securities and Exchange Commission. The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of theseour financial statements requires the Companyus to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates itswe evaluate our estimates, including those related to the fair values of stock awards, bad debts, contract revenue, acquired deferred revenue, thestandalone selling prices of our products and services, allowance for doubtful accounts receivable, valuation of goodwill and other intangible assets, useful lives for depreciation and amortization, acquired deferred revenue, operating lease assets and liabilities, fair values of stock awards, deferred compensation, income taxes, uncertain tax positions, tax valuation reserves, useful lives for depreciation and amortization, and contingencies and litigation. The Company bases itsWe base our estimates on historical experience, market experience, estimated future cash flows and various other assumptions that management believes are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily availableapparent from other sources. Actual results may differ from these estimates.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). Forward-looking statements are statements that provide current expectations or forecasts of future events based on certain assumptions. Forward-looking statements are subject to risks, uncertainties, and factors relating to our business which could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements.
Forward-looking statements use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “project,” “should,” “target,” or other words of similar meaning. Forward-looking statements include those about market opportunity, including butour total addressable market, the proposed transaction with Synopsys, Inc., including the expected date of closing and the potential benefits thereof, and other aspects of future operation. We caution readers not limitedto place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise.
The risks associated with the following, among others, could cause actual results to differ materially from those described in any forward-looking statements:
•our ability to complete the proposed transaction with Synopsys on anticipated terms and timing, including obtaining stockholder and regulatory approvals, and other conditions related to the following statements,completion of the transaction;
•the realization of the anticipated benefits of the proposed transaction with Synopsys, including potential disruptions to our and Synopsys’ businesses and commercial relationships with others resulting from the announcement or completion of the proposed transaction and uncertainty as well as statementsto the long-term value of Synopsys’ common stock;
•restrictions during the pendency of the proposed transaction with Synopsys that contain such words as "anticipates", "intends", "believes", "plans"could impact our ability to pursue certain business opportunities or strategic transactions, including tuck-in M&A;
•adverse conditions in the macroeconomic environment, including inflation, recessionary conditions and volatility in equity and foreign exchange markets; political, economic and regulatory uncertainties in the countries and regions in which we operate;
•impacts from tariffs, trade sanctions, export controls or other trade barriers, including export control restrictions and licensing requirements for exports to China;
•impacts resulting from the conflict between Israel and Hamas, including impacts from changes to diplomatic relations and trade policy between the United States and other countries resulting from the conflict; impacts from changes to diplomatic relations and trade policy between the United States and Russia or the United States and other countries that may support Russia or take similar expressions:actions due to the conflict between Russia and Ukraine;
The Company's assessment
•constrained credit and liquidity due to disruptions in the global economy and financial markets, which may limit or delay availability of credit under our existing or new credit facilities, or which may limit our ability to obtain credit or financing on acceptable terms or at all;
•our ability to timely recruit and retain key personnel in a highly competitive labor market, including potential financial impacts of wage inflation and potential impacts due to the ultimate liabilities arisingproposed transaction with Synopsys;
•our ability to protect our proprietary technology; cybersecurity threats or other security breaches, including in relation to breaches occurring through our products and an increased level of our activity that is occurring from various investigations, claimsremote global off-site locations; and legal proceedings.disclosure and misuse of employee or customer data whether as a result of a cybersecurity incident or otherwise;
The Company's expectations
•increased volatility in our revenue due to the timing, duration and value of multi-year subscription lease contracts; and our reliance on high renewal rates for annual subscription lease and maintenance contracts;
•declines in our customers’ businesses resulting in adverse changes in procurement patterns; disruptions in accounts receivable and cash flow due to customers’ liquidity challenges and commercial deterioration; uncertainties regarding demand for our products and services in the future and our customers’ acceptance of new products; delays or declines in anticipated sales due to reduced or altered sales and marketing interactions with customers; and potential variations in our sales forecast compared to actual sales;
•our ability and our channel partners’ ability to comply with laws and regulations in relevant jurisdictions; and the outcome of its servicecontingencies, including legal proceedings, government or regulatory investigations and tax audit cases.cases;
The Company's expectations
•uncertainty regarding future claims related to indemnification obligations.income tax estimates in the jurisdictions in which we operate; and the effect of changes in tax laws and regulations in the jurisdictions in which we operate;
The Company's expectations regarding
•the impactsquality of new accounting guidance.
The Company's intentions regarding its hybrid sales and distribution model.
The Company's statement regardingour products, including the strength of the features, functionality and integrated multiphysics capabilitiescapabilities; our ability to develop and market new products to address the industry’s rapidly changing technology; failures or errors in our products and services; and increased pricing pressure as a result of its software products.the competitive environment in which we operate;
The Company's belief that its overall performance is best measured by fiscal-year results rather than by quarterly results.
The Company's expectations regarding the adverse impact on license and maintenance revenue growth in the near term due to an increased customer preference for time-based licenses.
The Company's estimates regarding the expected impact on reported revenue related to the acquisition accounting treatment of deferred revenue.
The Company's expectation that it will continue to make targeted •investments in itscomplementary companies, products, services and technologies; our ability to complete and successfully integrate our acquisitions and realize the financial and business benefits of the transactions; and the impact indebtedness incurred in connection with any acquisition could have on our operations;
•investments in global sales and marketing organizationorganizations and its global business infrastructure; and dependence on our channel partners for the distribution of our products;
•current and potential future impacts of a global health crisis, natural disaster or catastrophe, and the actions taken to address these events by our customers, suppliers, regulatory authorities and our business, on the global economy and consolidated financial statements, and other public health and safety risks; and government actions or mandates;
•operational disruptions generally or specifically in connection with transitions to and from remote work environments; and the failure of our technological infrastructure to enhanceor those of the service providers upon whom we rely including for infrastructure and support its revenue-generating activities.cloud services;
The Company's intentions related to investments in research and development, particularly as it relates to expanding the ease of use and capabilities of its broad portfolio of simulation software products.
The Company's•our intention to repatriate previously taxed earnings and to reinvest all other earnings of itsour non-U.S. subsidiaries.subsidiaries;
•plans for future capital spending; the extent of corporate benefits from such spending including with respect to customer relationship management; and higher than anticipated costs for research and development or a slowdown in our research and development activities;
•our ability to execute on our strategies related to environmental, social, and governance matters, and meet evolving and varied expectations, including as a result of evolving regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs and the availability of requisite financing, and changes in carbon markets; and
•other risks and uncertainties described in our reports filed from time to time with the Securities and Exchange Commission (SEC).
Important Information and Where to Find It
This document refers to a proposed transaction between Synopsys and Ansys. In connection with the proposed transaction, Synopsys filed with the SEC, and the SEC has declared effective on April 17, 2024, a registration statement on Form S-4 (File No. 333-277912), that included a prospectus with respect to the shares of common stock of Synopsys to be issued in the proposed transaction and a proxy statement of Ansys and is referred to as the proxy statement/prospectus. Each party may also file other documents regarding the proposed transaction with the SEC. This document is not a substitute for the proxy statement/prospectus or registration statement or any other document that Synopsys or Ansys may file with the SEC. The definitive proxy statement/prospectus will be mailed to all Ansys stockholders. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders may obtain free copies of the registration statement, proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC by Synopsys or Ansys through the website maintained by the SEC at www.sec.gov.
The Company's plans relateddocuments filed by Synopsys with the SEC also may be obtained free of charge at Synopsys’ website at https://investor.synopsys.com/overview/default.aspx or upon written request to future capital spending.Synopsys at Synopsys, Inc., 675 Almanor Avenue, Sunnyvale, California 94085, Attention: Investor Relations. The documents filed by Ansys with the SEC also may be obtained free of charge at Ansys’ website at https://investors.ansys.com/ or upon written request to kelsey.debriyn@ansys.com.
The sufficiency of existing cash and cash equivalent balances to meet future working capital and capital expenditure requirements.
The Company's belief that the best uses of its excess cash are to investParticipants in the businessSolicitation
Synopsys, Ansys and their respective directors and executive officers may be deemed to repurchase stockbe participants in order to both offset dilution and return capital tothe solicitation of proxies from Ansys’ stockholders in excess of its requirements,connection with the goalproposed transaction.
Information about Ansys’ directors and executive officers and their ownership of increasing stockholder value.
The Company's intentions related to investments in complementary companies, products, services and technologies.
The Company's expectation that changes in currency exchange rates will affect the Company's financial position, results of operations and cash flows.
Forward-looking statements should not be unduly relied upon because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the Company’s control. The Company’s actual results could differ materially from thoseAnsys’ common stock is set forth in forward-looking statements. Certain factors, among others,Ansys’ proxy statement for its 2024 Annual Meeting of Stockholders on Schedule 14A filed with the SEC on April 10, 2024. To the extent that might causeholdings of Ansys’ securities have changed since the amounts printed in Ansys’ proxy statement, such a difference include riskschanges have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Information about Synopsys’ directors and uncertainties disclosedexecutive officers is set forth in Synopsys’ proxy statement for its 2024 Annual Meeting of Stockholders on Schedule 14A filed with the SEC on February 16, 2024 and Synopsys’ subsequent filings with the SEC. Additional information regarding the direct and indirect interests of those persons and other persons who may be deemed participants in the Company’s most recent Annual Reportproposed transaction may be obtained by reading the proxy statement/prospectus filed by Synopsys and declared effective by the SEC on Form 10-K, Part I, Item 1A. Information regarding new risk factorsApril 17, 2024, and any other relevant documents that are filed with the SEC relating to the proposed transaction. You may obtain free copies of these documents as described in the preceding paragraph.
No Offer or material changesSolicitation
This document is for informational purposes only and is not intended to these risk factors have been included within Part II, Item 1Aand shall not constitute an offer to buy or sell or the solicitation of this Quarterly Report on Form 10-Q.an offer to buy or sell any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
Results of Operations
The results of operations discussed below are on a GAAP basis unless otherwise stated.
Three Months Ended September 30, 2017March 31, 2024 Compared to Three Months Ended September 30, 2016March 31, 2023
Revenue:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
(in thousands, except percentages) | 2024 | | 2023 | | Change |
| GAAP | | Constant Currency | | GAAP | | GAAP | | Constant Currency |
| Amount | | Amount | | % | | Amount | | % |
Revenue: | | | | | | | | | | | | | |
Subscription lease licenses | $ | 94,800 | | | $ | 95,392 | | | $ | 147,922 | | | $ | (53,122) | | | (35.9) | | | $ | (52,530) | | | (35.5) | |
Perpetual licenses | 65,521 | | | 65,750 | | | 71,230 | | | (5,709) | | | (8.0) | | | (5,480) | | | (7.7) | |
Software licenses | 160,321 | | | 161,142 | | | 219,152 | | | (58,831) | | | (26.8) | | | (58,010) | | | (26.5) | |
Maintenance | 289,340 | | | 292,289 | | | 268,593 | | | 20,747 | | | 7.7 | | | 23,696 | | | 8.8 | |
Service | 16,944 | | | 17,077 | | | 21,702 | | | (4,758) | | | (21.9) | | | (4,625) | | | (21.3) | |
Maintenance and service | 306,284 | | | 309,366 | | | 290,295 | | | 15,989 | | | 5.5 | | | 19,071 | | | 6.6 | |
Total revenue | $ | 466,605 | | | $ | 470,508 | | | $ | 509,447 | | | $ | (42,842) | | | (8.4) | | | $ | (38,939) | | | (7.6) | |
|
| | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
(in thousands, except percentages) | 2017 | | 2016 | | Amount | | % |
Revenue: | | | | | | | |
Lease licenses | $ | 93,956 |
| | $ | 85,907 |
| | $ | 8,049 |
| | 9.4 |
Perpetual licenses | 62,624 |
| | 53,623 |
| | 9,001 |
| | 16.8 |
Software licenses | 156,580 |
| | 139,530 |
| | 17,050 |
| | 12.2 |
Maintenance | 112,300 |
| | 100,288 |
| | 12,012 |
| | 12.0 |
Service | 6,705 |
| | 6,044 |
| | 661 |
| | 10.9 |
Maintenance and service | 119,005 |
| | 106,332 |
| | 12,673 |
| | 11.9 |
Total revenue | $ | 275,585 |
| | $ | 245,862 |
| | $ | 29,723 |
| | 12.1 |
The Company’s revenue inRevenue for the quarter ended September 30, 2017 increased 12.1% asMarch 31, 2024 decreased 8.4% compared to the quarter ended September 30, 2016, while revenue grew 11.6%March 31, 2023, or 7.6% in constant currency. The growth ratereported $53.1 million decrease in lease license revenue was favorably impactedattributable to a $53.8 million decrease in value from multi-year licenses, partially offset by the Company’s continued investmenta $0.7 million increase in its global sales, support and marketing organizations.value from annual licenses. Perpetual license revenue, which is derived primarily from new sales during the quarter, increased 16.8%three months ended March 31, 2024, decreased 8.0%, or 7.7% in constant currency, as compared to the prior-year quarter. Leasethree months ended March 31, 2023. Driving the decrease in perpetual license revenue increased 9.4% as compared towas a 22.6% decrease in the prior-year quarter. Annual maintenance contracts that were sold with new perpetual licenses, along with maintenance contracts sold with new perpetual licensesvolume of deals, partially offset by a 14.6% increase in previous quarters, contributed to maintenanceaverage deal size. Maintenance revenue growth of 12.0%.7.7%, or 8.8% in constant currency, is correlated with previous license sales and is driven substantially by our existing customer base. The reported $20.7 million growth in maintenance revenue was attributable to a $27.8 million increase in maintenance associated with lease licenses, partially offset by a $7.1 million decrease in maintenance associated with perpetual sales.
We continue to experience strong demand from our customers for contracts that often include longer-term, subscription leases involving a larger number of our software products. These arrangements typically involve a higher overall transaction price. The upfront recognition of license revenue related to these larger transactions can result in significant subscription lease revenue volatility. Specifically, the first quarter's operating results reflect a structural timing dynamic affected by the renewal base this quarter in which fewer lease contracts were up for renewal, resulting in comparatively lower up-front lease license revenue recognition. Software products, across a large variety of applications and industries, are increasingly distributed in software-as-a-service, cloud and other subscription environments in which the licensing approach is time-based rather than perpetual. This preference could result in a shift from perpetual licenses to time-based licenses, such as subscription leases, over the long term.
With respect to revenue, on average for the quarter ended September 30, 2017,March 31, 2024, the U.S. Dollar was approximately 0.9% weaker,2.0% stronger, when measured against the Company’s primaryour foreign currencies, than for the quarter ended September 30, 2016.March 31, 2023. The table below presents the net impacts of currency fluctuations on revenue for the quarter ended September 30, 2017.March 31, 2024. Amounts in bracketsparenthesis indicate a netan adverse impact from currency fluctuations.
| | | | | |
(in thousands) | Three Months Ended March 31, 2024 |
Japanese Yen | $ | (4,289) | |
South Korean Won | (955) | |
Euro | 1,206 | |
Other | 135 | |
Total | $ | (3,903) | |
|
| | | |
(in thousands) | Three Months Ended September 30, 2017 |
Euro | $ | 3,150 |
|
Indian Rupee | 225 |
|
Taiwan Dollar | 210 |
|
Japanese Yen | (2,363 | ) |
South Korean Won | (144 | ) |
British Pound | (11 | ) |
Other | 131 |
|
Total | $ | 1,198 |
|
The net overall weaker U.S. Dollar also resulted in increased operating income of $0.3 million for the quarter ended September 30, 2017 as compared to the quarter ended September 30, 2016.
A substantial portion of the Company’s license and maintenance revenue is derived from annual lease and maintenance contracts. These contracts are generally renewed on an annual basis and typically have a high rate of customer renewal. In addition to the recurring revenue base associated with these contracts, a majority of customers purchasing new perpetual licenses also purchase related annual maintenance contracts. As a resultpercentage of the significant recurring revenue, base, the Company’s license and maintenance revenue growth rate in any period does not necessarily correlate to the growth rate of new license and maintenance contracts sold during that period. To the extent the rate of customer renewal for lease and maintenance contracts is high, incremental lease contracts, and maintenance contracts sold with new perpetual licenses, will result in license and maintenance revenue growth in constant currency. Conversely, if the rate of renewal for these contracts is adversely affected by economic or other factors, the Company’s license and maintenance growth will be adversely affected over the term that the revenue for those contracts would have otherwise been recognized.
The Company has been experiencing an increased interest by some of its larger customers in enterprise agreements that often include longer-term, time-based licenses involving a larger number of the Company's software products. While these arrangements typically involve a higher overall transaction price, the revenue from these contracts is typically deferred and
recognized over the period of the contract, resulting in increased deferred revenue and backlog. To the extent these types of contracts replace sales of perpetual licenses, there could be a near-term adverse impact on software license and maintenance revenue growth. The Company is similarly experiencing a shifting preference from perpetual licenses to time-based licenses across a broader spectrum of its customers, particularly in the more mature geographic markets, such as the U.S. and Japan. To the extent this shift continues or becomes more prevalent, the result could be a similar and incremental near-term adverse impact on software license and maintenance revenue growth.
Internationalour international and domestic revenues, and our direct and indirect revenues, were as a percentage of total revenue, were 61.1% and 38.9%, respectively, during the quarter ended September 30, 2017, and 62.9% and 37.1%, respectively, during the quarter ended September 30, 2016. The Company derived 24.1% and 24.3% of its total revenue through the indirect sales channel for the quarters ended September 30, 2017 and 2016, respectively.follows:
In valuing deferred revenue on the balance sheets of the Company's recent acquisitions as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impact on reported revenue was $1.2 million for the quarter ended September 30, 2017. There was no impact on reported revenue for the quarter ended September 30, 2016. The expected impacts on reported revenue are $1.0 million and $2.7 million for the quarter ending December 31, 2017 and for the year ending December 31, 2017, respectively. | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
International | 57.1 | % | | 51.6 | % |
Domestic | 42.9 | % | | 48.4 | % |
| | | |
Direct | 66.5 | % | | 76.3 | % |
Indirect | 33.5 | % | | 23.7 | % |
Deferred Revenue and Backlog:
Deferred revenue consists of billings made or payments received in advance of revenue recognition from software license and maintenancecustomer agreements. The deferred revenue on the Company'sour condensed consolidated balance sheetssheet does not represent the total value of annual or multi-year, noncancellable software license and maintenance agreements. The Company'sOur backlog represents deferred revenue associated with installment billings for periods beyond the current quarterly billing cycle and customer orders received but not processed. The Company'scommitted contracts with start dates beyond the end of the current period. Our deferred revenue and backlog as of September 30, 2017March 31, 2024 and December 31, 2016 consist2023 consisted of the following:
| | | | | | | | | | | | | | | | | |
| Balance at March 31, 2024 |
(in thousands) | Total | | Current | | Long-Term |
Deferred revenue | $ | 454,601 | | | $ | 433,167 | | | $ | 21,434 | |
Backlog | 914,852 | | | 433,106 | | | 481,746 | |
Total | $ | 1,369,453 | | | $ | 866,273 | | | $ | 503,180 | |
| | | Balance at September 30, 2017 |
| Balance at December 31, 2023 | | | Balance at December 31, 2023 |
(in thousands) | Total | | Current | | Long-Term | (in thousands) | Total | | Current | | Long-Term |
Deferred revenue | $ | 405,698 |
| | $ | 381,727 |
| | $ | 23,971 |
|
Backlog | 263,571 |
| | 91,885 |
| | 171,686 |
|
Total | $ | 669,269 |
| | $ | 473,612 |
| | $ | 195,657 |
|
|
| | | | | | | | | | | |
| Balance at December 31, 2016 |
(in thousands) | Total | | Current | | Long-Term |
Deferred revenue | $ | 415,846 |
| | $ | 403,279 |
| | $ | 12,567 |
|
Backlog | 221,994 |
| | 64,361 |
| | 157,633 |
|
Total | $ | 637,840 |
| | $ | 467,640 |
| | $ | 170,200 |
|
Revenue associated with deferred revenue and backlog that will be recognized in the subsequent twelve months is classified as current in the tabletables above.
Cost of Sales and Gross Profit:Operating Expenses:
The tabletables below reflects the Company'sreflect our operating results as presented on the condensed consolidated statements of income, which are inclusive of foreignboth a GAAP and constant currency translation impacts.basis. Amounts included in the discussiondiscussions that followsfollow each table are provided in constant currency.currency and are inclusive of costs related to our acquisitions. The impact where material, of foreign exchange translation on each expense line is provided separately.discussed separately, where material.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | |
2024 | | 2023 | | Change |
| GAAP | | Constant Currency | | GAAP | | GAAP | | Constant Currency |
(in thousands, except percentages) | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % | | Amount | | % |
Cost of sales: | | | | | | | | | | | | | | | | | | | |
Software licenses | $ | 10,044 | | | 2.2 | | | $ | 10,007 | | | 2.1 | | | $ | 11,744 | | | 2.3 | | | $ | (1,700) | | | (14.5) | | | $ | (1,737) | | | (14.8) | |
Amortization | 22,484 | | | 4.8 | | | 22,386 | | | 4.8 | | | 19,618 | | | 3.9 | | | 2,866 | | | 14.6 | | | 2,768 | | | 14.1 | |
Maintenance and service | 36,139 | | | 7.7 | | | 36,295 | | | 7.7 | | | 36,290 | | | 7.1 | | | (151) | | | (0.4) | | | 5 | | | — | |
Total cost of sales | 68,667 | | | 14.7 | | | 68,688 | | | 14.6 | | | 67,652 | | | 13.3 | | | 1,015 | | | 1.5 | | | 1,036 | | | 1.5 | |
Gross profit | $ | 397,938 | | | 85.3 | | | $ | 401,820 | | | 85.4 | | | $ | 441,795 | | | 86.7 | | | $ | (43,857) | | | (9.9) | | | $ | (39,975) | | | (9.0) | |
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | |
2017 | | 2016 | | Change |
(in thousands, except percentages) | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % |
Cost of sales: | | | | | | | | | | | |
Software licenses | $ | 7,395 |
| | 2.7 | | $ | 6,433 |
| | 2.6 | | $ | 962 |
| | 15.0 |
|
Amortization | 9,004 |
| | 3.3 | | 9,513 |
| | 3.9 | | (509 | ) | | (5.4 | ) |
Maintenance and service | 19,584 |
| | 7.1 | | 19,640 |
| | 8.0 | | (56 | ) | | (0.3 | ) |
Total cost of sales | 35,983 |
| | 13.1 | | 35,586 |
| | 14.5 | | 397 |
| | 1.1 |
|
Gross profit | $ | 239,602 |
| | 86.9 | | $ | 210,276 |
| | 85.5 | | $ | 29,326 |
| | 13.9 |
|
Software Licenses: The increasedecrease in the cost of software licenses was primarily due to the following:
Increaseddecreased third-party royalties of $0.5$1.7 million.
Increased salaries, incentive compensation and other headcount-related costs of $0.5 million.
Amortization: The decreaseincrease in amortization expense was primarily due to a net decrease in the amortization ofrecently acquired technology.
Maintenance and Service: The net decrease in maintenance and service costs was primarily due to the following:
Net decrease in salaries, incentive compensation and other headcount-related costs of $0.9 million, primarily due to a reallocation of technical personnel resources to pre-sales activities.
Increased third-party technical support of $0.4 million.
Increased stock-based compensation of $0.3 million.
Restructuring costs of $0.2 million.intangible assets.
The improvementreduction in gross profit was a result of the increasedecrease in revenue partially offset by theand increase in the related cost of sales.
The table below reflects the Company's operating results as presented on the condensed consolidated statements |
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | | | |
2017 | | 2016 | | Change |
(in thousands, except percentages) | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % |
Operating expenses: | | | | | | | | | | | |
Selling, general and administrative | $ | 80,015 |
| | 29.0 | | $ | 61,537 |
| | 25.0 | | $ | 18,478 |
| | 30.0 |
Research and development | 50,144 |
| | 18.2 | | 45,418 |
| | 18.5 | | 4,726 |
| | 10.4 |
Amortization | 3,260 |
| | 1.2 | | 3,222 |
| | 1.3 | | 38 |
| | 1.2 |
Total operating expenses | $ | 133,419 |
| | 48.4 | | $ | 110,177 |
| | 44.8 | | $ | 23,242 |
| | 21.1 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | |
2024 | | 2023 | | Change |
| GAAP | | Constant Currency | | GAAP | | GAAP | | Constant Currency |
(in thousands, except percentages) | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % | | Amount | | % |
Operating expenses: | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative | $ | 219,643 | | | 47.1 | | | $ | 220,609 | | | 46.9 | | | $ | 188,584 | | | 37.0 | | | $ | 31,059 | | | 16.5 | | | $ | 32,025 | | | 17.0 | |
Research and development | 128,811 | | | 27.6 | | | 128,382 | | | 27.3 | | | 120,335 | | | 23.6 | | | 8,476 | | | 7.0 | | | 8,047 | | | 6.7 | |
Amortization | 6,145 | | | 1.3 | | | 6,092 | | | 1.3 | | | 5,181 | | | 1.0 | | | 964 | | | 18.6 | | | 911 | | | 17.6 | |
Total operating expenses | 354,599 | | | 76.0 | | | 355,083 | | | 75.5 | | | 314,100 | | | 61.7 | | | 40,499 | | | 12.9 | | | 40,983 | | | 13.0 | |
Operating income | $ | 43,339 | | | 9.3 | | | $ | 46,737 | | | 9.9 | | | $ | 127,695 | | | 25.1 | | | $ | (84,356) | | | (66.1) | | | $ | (80,958) | | | (63.4) | |
Selling, General and Administrative: The increase in selling, general and administrative costs was primarily due to the following:
•Increased salaries, incentive compensation and other headcount-relatedacquisition costs of $9.1 million.$12.1 million, primarily due to costs related to the Merger Agreement with Synopsys.
•Increased stock-based compensation of $4.5$10.3 million.
•Increased consulting costssalaries of $2.1$7.1 million.
Increased business travel of $0.8 million.
The Company anticipatesWe anticipate that itwe will continue to make targeted investments in itsour global sales and marketing organizationorganizations and itsour global business infrastructure to enhance and support itsour revenue-generating activities.
Research and Development: The increase in research and development costs was primarily due to the following:
•Increased salaries incentive compensation and other headcount-related costs of $3.3$5.8 million.
•Increased stock-based compensation of $1.1$3.7 million.
Increased consulting costs of $0.6 million.
The Company hasWe have traditionally invested significant resources in research and development activities and intendsexpect to continue to make investments in expanding the ease of use and capabilities of itsour broad portfolio of simulation software products.
Interest Income: InterestThe impacts from currency fluctuations resulted in decreased operating income for the quarter ended September 30, 2017 was $1.9 million as compared to $1.1of $3.4 million for the quarter ended September 30, 2016.March 31, 2024 as compared to the quarter ended March 31, 2023.
Interest Income: Interest income for the three months ended March 31, 2024 was $11.0 million as compared to $4.1 million for the three months ended March 31, 2023. Interest income increased as a result of ana higher invested cash balance, a higher interest rate environment and the related increase in both the Company's average invested cash balances and the average rate of return on thoseinvested cash balances.
Other Expense, net: The Company's otherInterest Expense: Interest expense consists offor the following:
|
| | | | | | | |
| Three Months Ended |
(in thousands) | September 30, 2017 | | September 30, 2016 |
Foreign currency losses, net | $ | (209 | ) | | $ | (162 | ) |
Other | 41 |
| | (27 | ) |
Total other expense, net | $ | (168 | ) | | $ | (189 | ) |
Income Tax Provision: The Company recorded income tax expense of $34.3quarter ended March 31, 2024 was $12.4 million and had income before income taxes of $107.9as compared to $10.8 million for the quarter ended September 30, 2017. DuringMarch 31, 2023 due to a higher interest rate environment.
Other Expense, net: Other expense consisted primarily of net foreign currency losses during the quarterthree months ended September March 31, 2024 and 2023.
30 2016, the Company recorded income tax expense
Income Tax Provision: Our income before income taxes of $101.0 million. Thetax provision, income tax provision and effective tax rates were 31.8% and 31.1% for the third quarters of 2017 and 2016, respectively.as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands, except percentages) | 2024 | | 2023 |
Income before income tax provision | $ | 40,958 | | | $ | 120,838 | |
Income tax provision | $ | 6,180 | | | $ | 20,216 | |
Effective tax rate | 15.1 | % | | 16.7 | % |
The increasedecrease in the effective tax rate fromfor the prior year is primarily due to taxthree months ended March 31, 2024 was a result of increased benefits of $1.8 million related to entity structuringresearch and related repatriation activities recognized in the third quarter of 2016 that did not recur in 2017. The increase in the effective tax rate was partially offset by 2017 tax benefits of $1.4 million related todevelopment credits and stock-based compensation. In the first quarter of 2017, the Company adopted ASU 2016-09, which requires excess tax benefits and deficiencies related to stock-based compensation to be reflected in the income statement as a component of the provision for income taxes. Previously, these tax effects were reflected in stockholders' equity.
When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the quarters ended September 30, 2017March 31, 2024 and 2016March 31, 2023 were favorably impacted by the domestic manufacturingforeign-derived intangible income (FDII) deduction, stock-based compensation deductions and research and development credits. The rates were also favorably impactedcredits, partially offset by the recurring itemimpact of lower statutory tax rates in many of the Company's foreign jurisdictions.non-deductible compensation.
Net Income: The Company’s Our net income, in the third quarter of 2017 was $73.6 million as compared to net income of $69.6 million in the third quarter of 2016. Diluteddiluted earnings per share was $0.85 in the third quarter of 2017 and $0.78 in the third quarter of 2016. The weighted average shares used in computing diluted earnings per share were 86.6 million and 88.7 million in the third quartersas follows:
| | | | | | | | | | | |
| Three Months Ended March 31, |
(in thousands, except per share data) | 2024 | | 2023 |
Net income | $ | 34,778 | | | $ | 100,622 | |
Diluted earnings per share | $ | 0.40 | | | $ | 1.15 | |
Weighted average shares outstanding - diluted | 87,780 | | | 87,431 | |
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Revenue:
|
| | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
(in thousands, except percentages) | 2017 | | 2016 | | Amount | | % |
Revenue: | | | | | | | |
Lease licenses | $ | 279,855 |
| | $ | 250,715 |
| | $ | 29,140 |
| | 11.6 |
Perpetual licenses | 168,513 |
| | 155,953 |
| | 12,560 |
| | 8.1 |
Software licenses | 448,368 |
| | 406,668 |
| | 41,700 |
| | 10.3 |
Maintenance | 324,338 |
| | 292,775 |
| | 31,563 |
| | 10.8 |
Service | 20,208 |
| | 18,394 |
| | 1,814 |
| | 9.9 |
Maintenance and service | 344,546 |
| | 311,169 |
| | 33,377 |
| | 10.7 |
Total revenue | $ | 792,914 |
| | $ | 717,837 |
| | $ | 75,077 |
| | 10.5 |
The Company’s revenue in the nine months ended September 30, 2017 increased 10.5% as compared to the nine months ended September 30, 2016, while revenue grew 10.8% in constant currency. The growth rate was favorably impacted by the Company’s continued investment in its global sales, support and marketing organizations. Lease license revenue increased 11.6% as compared to the nine months ended September 30, 2016. Perpetual license revenue, which is derived primarily from new sales during the period, increased 8.1% as compared to the nine months ended September 30, 2016. Annual maintenance contracts that were sold with new perpetual licenses, along with maintenance contracts sold with new perpetual licenses in previous quarters, contributed to maintenance revenue growth of 10.8%.
With respect to revenue, on average for the nine months ended September 30, 2017, the U.S. Dollar was approximately 0.7% stronger, when measured against the Company’s primary foreign currencies, than for the nine months ended September 30, 2016. The table below presents the impacts of currency fluctuations on revenue for the nine months ended September 30, 2017. Amounts in brackets indicate a net adverse impact from currency fluctuations.
|
| | | |
(in thousands) | Nine Months Ended September 30, 2017 |
Japanese Yen | $ | (2,571 | ) |
British Pound | (1,865 | ) |
Euro | (205 | ) |
South Korean Won | 674 |
|
Taiwan Dollar | 651 |
|
Indian Rupee | 514 |
|
Other | 135 |
|
Total | $ | (2,667 | ) |
The net overall stronger U.S. Dollar also resulted in decreased operating income of $0.4 million for the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
International and domestic revenues, as a percentage of total revenue, were 61.0% and 39.0%, respectively, during the nine months ended September 30, 2017, and 63.0% and 37.0%, respectively, during the nine months ended September 30, 2016. The Company derived 24.3% and 24.1% of its total revenue through the indirect sales channel for the nine months ended September 30, 2017 and 2016, respectively.
In valuing deferred revenue on the balance sheets of the Company's recent acquisitions as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impacts on reported revenue were $1.7 million and $0.1 million for the nine months ended September 30, 2017 and 2016, respectively.
Cost of Sales and Gross Profit:
The table below reflects the Company's operating results as presented on the condensed consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussion that follows are provided in constant currency. The impact, where material, of foreign exchange translation on each expense line is provided separately.
|
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| Nine Months Ended September 30, | | | | |
2017 | | 2016 | | Change |
(in thousands, except percentages) | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % |
Cost of sales: | | | | | | | | | | | |
Software licenses | $ | 24,197 |
| | 3.1 | | $ | 19,705 |
| | 2.7 | | $ | 4,492 |
| | 22.8 |
|
Amortization | 26,892 |
| | 3.4 | | 28,544 |
| | 4.0 | | (1,652 | ) | | (5.8 | ) |
Maintenance and service | 58,263 |
| | 7.3 | | 59,633 |
| | 8.3 | | (1,370 | ) | | (2.3 | ) |
Total cost of sales | 109,352 |
| | 13.8 | | 107,882 |
| | 15.0 | | 1,470 |
| | 1.4 |
|
Gross profit | $ | 683,562 |
| | 86.2 | | $ | 609,955 |
| | 85.0 | | $ | 73,607 |
| | 12.1 |
|
Software Licenses: The increase in the cost of software licenses was primarily due to the following:
Increased third-party royalties of $2.5 million.
Increased salaries and other headcount-related costs of $1.1 million.
Restructuring costs of $0.6 million.
Amortization: The decrease in amortization expense was primarily due to a net decrease in the amortization of acquired technology.
Maintenance and Service: The net decrease in maintenance and service costs was primarily due to the following:
Decrease in salaries and other headcount-related costs of $3.3 million, primarily due to a reallocation of technical personnel resources to pre-sales activities.
Cost decrease related to foreign exchange translation of $0.6 million due to a stronger U.S. dollar.
Decrease in depreciation of $0.5 million.
Restructuring costs of $1.7 million.
Increased third-party technical support of $1.0 million.
Increased stock-based compensation of $0.7 million.
The improvement in gross profit was a result of the increase in revenue, partially offset by the increase in the related cost of sales.
Operating Expenses:
The table below reflects the Company's operating results as presented on the condensed consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussion that follows are provided in constant currency. The impact, where material, of foreign exchange translation on each expense line is provided separately.
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| Nine Months Ended September 30, | | | | |
2017 | | 2016 | | Change |
(in thousands, except percentages) | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % |
Operating expenses: | | | | | | | | | | | |
Selling, general and administrative | $ | 230,483 |
| | 29.1 | | $ | 183,565 |
| | 25.6 | | $ | 46,918 |
| | 25.6 |
|
Research and development | 153,524 |
| | 19.4 | | 137,533 |
| | 19.2 | | 15,991 |
| | 11.6 |
|
Amortization | 9,506 |
| | 1.2 | | 9,581 |
| | 1.3 | | (75 | ) | | (0.8 | ) |
Total operating expenses | $ | 393,513 |
| | 49.6 | | $ | 330,679 |
| | 46.1 | | $ | 62,834 |
| | 19.0 |
|
Selling, General and Administrative: The increase in selling, general and administrative costs was primarily due to the following:
Increased salaries, incentive compensation and other headcount-related costs of $22.2 million.
Increased stock-based compensation of $12.2 million.
Increased consulting costs of $6.1 million.
Restructuring costs of $2.8 million.
Increased business travel of $2.5 million.
Research and Development: The net increase in research and development costs was primarily due to the following:
Increased salaries, incentive compensation and other headcount-related costs of $8.4 million.
Restructuring costs of $6.9 million.
Increased stock-based compensation of $1.8 million.
Cost reduction of $1.2 million, primarily due to the removal of a reserve associated with the French research and development credit matter discussed in Note 12 to the Company's financial statements.
Interest Income: Interest income for the nine months ended September 30, 2017 was $4.8 million as compared to $3.1 million for the nine months ended September 30, 2016. Interest income increased as a result of an increase in both the Company's average invested cash balances and the average rate of return on those balances.
Other Expense, net: The Company's other expense consists of the following:
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| | | | | | | |
| Nine Months Ended |
(in thousands) | September 30, 2017 | | September 30, 2016 |
Foreign currency (losses) gains, net | $ | (1,499 | ) | | $ | 28 |
|
Other | (13 | ) | | (165 | ) |
Total other expense, net | $ | (1,512 | ) | | $ | (137 | ) |
Income Tax Provision: The Company recorded income tax expense of $86.7 million and had income before income taxes of $293.4 million for the nine months ended September 30, 2017. During the nine months ended September 30, 2016, the Company recorded income tax expense of $86.6 million and had income before income taxes of $282.2 million. The effective tax rates were 29.6% and 30.7% for the nine months ended September 30, 2017 and 2016, respectively.
The decrease in the effective tax rate from the prior year is primarily due to tax benefits of $11.5 million related to stock-based compensation, partially offset by entity structuring and related repatriation benefits of $7.2 million recognized in 2016 that did not recur in 2017. In the first quarter of 2017, the Company adopted ASU 2016-09, which requires excess tax benefits and deficiencies related to stock-based compensation to be reflected in the income statement as a component of the provision for income taxes. Previously, these tax effects were reflected in stockholders' equity.
When compared to the federal and state combined statutory rate, the effective tax rates for the nine months ended September 30, 2017 and 2016 were favorably impacted by the domestic manufacturing deduction and research and development credits. The rates were also favorably impacted by the recurring item of lower statutory tax rates in many of the Company's foreign jurisdictions.
Net Income: The Company’s net income for the nine months ended September 30, 2017 was $206.7 million as compared to net income of $195.7 million for the nine months ended September 30, 2016. Diluted earnings per share was $2.38 for the nine months ended September 30, 2017 and $2.19 for the nine months ended September 30, 2016. The weighted average shares used in computing diluted earnings per share were 86.9 million and 89.4 million for the nine months ended September 30, 2017 and 2016, respectively.
Non-GAAP Results
The Company providesWe provide non-GAAP revenue,gross profit, non-GAAP gross profit margin, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share as supplemental measures to GAAP regarding the Company’sour operational performance. These financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure are described below.included below, as applicable.
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ANSYS, INC. AND SUBSIDIARIES |
Reconciliations of GAAP to Non-GAAP Measures |
(Unaudited) |
| | | Three Months Ended |
| | | March 31, 2024 |
(in thousands, except percentages and per share data) | | | Gross Profit | | % of Revenue | | Operating Income | | % of Revenue | | Net Income | | EPS - Diluted1 |
Total GAAP | | | $ | 397,938 | | | 85.3 | % | | $ | 43,339 | | | 9.3 | % | | $ | 34,778 | | | $ | 0.40 | |
| | | | | | | | | | | | | |
Stock-based compensation expense | | | 3,343 | | | 0.7 | % | | 58,664 | | | 12.7 | % | | 58,664 | | | 0.66 | |
Excess payroll taxes related to stock-based awards | | | 378 | | | 0.1 | % | | 5,362 | | | 1.1 | % | | 5,362 | | | 0.06 | |
Amortization of intangible assets from acquisitions | | | 22,484 | | | 4.8 | % | | 28,629 | | | 6.1 | % | | 28,629 | | | 0.33 | |
Expenses related to business combinations | | | — | | | — | % | | 14,261 | | | 3.0 | % | | 14,261 | | | 0.16 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Adjustment for income tax effect | | | — | | | — | % | | — | | | — | % | | (19,698) | | | (0.22) | |
Total non-GAAP | | | $ | 424,143 | | | 90.9 | % | | $ | 150,255 | | | 32.2 | % | | $ | 121,996 | | | $ | 1.39 | |
1 Diluted weighted average shares were 87,780.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
| | | Three Months Ended |
| | | March 31, 2023 |
(in thousands, except percentages and per share data) | | | Gross Profit | | % of Revenue | | Operating Income | | % of Revenue | | Net Income | | EPS - Diluted1 |
Total GAAP | | | $ | 441,795 | | | 86.7 | % | | $ | 127,695 | | | 25.1 | % | | $ | 100,622 | | | $ | 1.15 | |
| | | | | | | | | | | | | |
Stock-based compensation expense | | | 2,878 | | | 0.6 | % | | 44,171 | | | 8.7 | % | | 44,171 | | | 0.50 | |
Excess payroll taxes related to stock-based awards | | | 284 | | | 0.1 | % | | 4,076 | | | 0.8 | % | | 4,076 | | | 0.05 | |
Amortization of intangible assets from acquisitions | | | 19,618 | | | 3.8 | % | | 24,799 | | | 4.8 | % | | 24,799 | | | 0.28 | |
Expenses related to business combinations | | | — | | | — | % | | 2,192 | | | 0.4 | % | | 2,192 | | | 0.03 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Adjustment for income tax effect | | | — | | | — | % | | — | | | — | % | | (14,097) | | | (0.16) | |
Total non-GAAP | | | $ | 464,575 | | | 91.2 | % | | $ | 202,933 | | | 39.8 | % | | $ | 161,763 | | | $ | 1.85 | |
1 Diluted weighted average shares were 87,431.
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| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2017 | | September 30, 2016 |
(in thousands, except percentages and per share data) | As Reported | | Adjustments | | Non-GAAP Results | | As Reported | | Adjustments | | Non-GAAP Results |
Total revenue | $ | 275,585 |
| | $ | 1,181 |
| (1) | $ | 276,766 |
| | $ | 245,862 |
| | $ | — |
| | $ | 245,862 |
|
Operating income | 106,183 |
| | 28,711 |
| (2) | 134,894 |
| | 100,099 |
| | 21,885 |
| (4) | 121,984 |
|
Operating profit margin | 38.5 | % | | | | 48.7 | % | | 40.7 | % | | | | 49.6 | % |
Net income | $ | 73,630 |
| | $ | 17,638 |
| (3) | $ | 91,268 |
| | $ | 69,557 |
| | $ | 14,638 |
| (5) | $ | 84,195 |
|
Earnings per share – diluted: | | | | | | | | | | | |
Earnings per share | $ | 0.85 |
| | | | $ | 1.05 |
| | $ | 0.78 |
| | | | $ | 0.95 |
|
Weighted average shares | 86,588 |
| | | | 86,588 |
| | 88,676 |
| | | | 88,676 |
|
| |
(1) | Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations. |
| |
(2) | Amount represents $14.8 million of stock-based compensation expense, $12.3 million of amortization expense associated with intangible assets acquired in business combinations, $0.5 million of restructuring charges and the $1.2 million adjustment to revenue as reflected in (1) above. |
| |
(3) | Amount represents the impact of the adjustments to operating income referred to in (2) above, adjusted for the related income tax impact of $11.0 million and rabbi trust income of $0.1 million. |
| |
(4) | Amount represents $12.7 million of amortization expense associated with intangible assets acquired in business combinations, $9.0 million of stock-based compensation expense and $0.2 million of transaction expenses related to business combinations. |
| |
(5) | Amount represents the impact of the adjustments to operating income referred to in (4) above, adjusted for the related income tax impact of $7.2 million. |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2017 |
| September 30, 2016 |
(in thousands, except percentages and per share data) | As Reported |
| Adjustments | | Non-GAAP Results |
| As Reported |
| Adjustments | | Non-GAAP Results |
Total revenue | $ | 792,914 |
|
| $ | 1,748 |
| (1) | $ | 794,662 |
|
| $ | 717,837 |
|
| $ | 103 |
| (4) | $ | 717,940 |
|
Operating income | 290,049 |
|
| 89,985 |
| (2) | 380,034 |
|
| 279,276 |
|
| 62,990 |
| (5) | 342,266 |
|
Operating profit margin | 36.6 | % |
|
|
| 47.8 | % |
| 38.9 | % |
|
|
| 47.7 | % |
Net income | $ | 206,666 |
|
| $ | 48,480 |
| (3) | $ | 255,146 |
|
| $ | 195,653 |
|
| $ | 41,145 |
| (6) | $ | 236,798 |
|
Earnings per share – diluted: |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share | $ | 2.38 |
|
|
|
| $ | 2.94 |
|
| $ | 2.19 |
|
|
|
| $ | 2.65 |
|
Weighted average shares | 86,902 |
|
|
|
| 86,902 |
|
| 89,355 |
|
|
|
| 89,355 |
|
| |
(1) | Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations. |
| |
(2) | Amount represents $39.4 million of stock-based compensation expense, $36.4 million of amortization expense associated with intangible assets acquired in business combinations, $11.7 million of restructuring charges, $0.7 million of transaction expenses related to business combinations, and the $1.7 million adjustment to revenue as reflected in (1) above. |
| |
(3) | Amount represents the impact of the adjustments to operating income referred to in (2) above, adjusted for the related income tax impact of $41.4 million and rabbi trust income of $0.1 million. |
| |
(4) | Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations. |
| |
(5) | Amount represents $38.1 million of amortization expense associated with intangible assets acquired in business combinations, $24.6 million of stock-based compensation expense, $0.2 million of transaction expenses related to business combinations and the $0.1 million adjustment to revenue as reflected in (4) above. |
| |
(6) | Amount represents the impact of the adjustments to operating income referred to in (5) above, adjusted for the related income tax impact of $21.8 million. |
Non-GAAP Measures
Management usesWe use non-GAAP financial measures (a) to evaluate the Company'sour historical and prospective financial performance as well as itsour performance relative to itsour competitors, (b) to set internal sales targets and spending budgets, (c) to allocate resources, (d) to measure operational profitability and the accuracy of forecasting, (e) to assess financial discipline over operational expenditures and (f) as an important factor in determining variable compensation for management and its employees. In addition, many financial analysts that follow the Companyus focus on and publish both historical results and future projections based on non-GAAP financial measures. The Company believesWe believe that it is in the best interest of itsour investors to provide this information to analysts so that they accurately report the non-GAAP financial information. Moreover, investors have historically requested, and the Company haswe have historically reported, these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.
While management believeswe believe that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company’sour competitors and may not be directly comparable to similarly titled measures of the Company’sour competitors due to potential differences in the exact method of calculation. The Company compensatesWe compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
The adjustments to these non-GAAP financial measures, and the basis for such adjustments, are outlined below:
Acquisition accounting for deferred revenue and its related tax impact. Historically, the Company has consummated acquisitions in order to support its strategic and other business objectives. In accordance with the fair value provisions applicable to the accounting for business combinations, acquired deferred revenue is often recorded on the opening balance sheet at an amount that is lower than the historical carrying value. Although this acquisition accounting requirement has no impact on the Company's business or cash flow, it adversely impacts the Company's reported GAAP revenue in the reporting periods following an acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company provides non-GAAP financial measures which exclude the impact of the acquisition accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related annual lease licenses and software maintenance contracts are renewed in future periods.
Amortization of intangible assets from acquisitions and its related tax impact. The Company incursacquisitions. We incur amortization of intangible assets, included in itsour GAAP presentation of amortization expense, related to various acquisitions it haswe have made. Management excludesWe exclude these expenses and their related tax impact for the purpose of calculating non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates thewe evaluate our continuing operational performance of the Company because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by managementus after the acquisition. Accordingly, management doeswe do not consider these expenses for purposes of evaluating theour performance of the Company during the applicable time period after the acquisition, and it excludeswe exclude such expenses when making decisions to allocate resources. The Company believesWe believe that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the effectiveness of the methodology and information used by managementus in itsour financial and operational decision-making, and (b) compare our past reports of financial results of the Company as the Company haswe have historically reported these non-GAAP financial measures.
Stock-based compensation expense and its related tax impact. The Company incursWe incur expense related to stock-based compensation included in itsour GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. Stock-based compensationThis non-GAAP adjustment also includes excess payroll tax expense (benefit) incurred in connection with the Company's deferred compensation plan held in a rabbi trust includes an offsetting benefit (charge) recorded in other income (expense).related to stock-based compensation. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, management excludeswe exclude these expenses for the purpose of calculating non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates thewe evaluate our continuing operational performance of the Company. Management similarly excludes income (expense) related to assets held in a rabbi trust in connection with the Company's deferred compensation plan.performance. Specifically, the Company excludeswe exclude stock-based compensation and income related to assets held in the deferred compensation plan rabbi trust during itsour annual budgeting process and itsour quarterly and annual assessments of the Company's and management'sour performance. The annual budgeting process is the primary mechanism whereby the Company allocateswe allocate resources to various initiatives and operational requirements. Additionally, the annual review by the boardour Board of directorsDirectors during which it compares the Company'sour historical business model and profitability to the planned business model and profitability for the forthcoming year excludes the impact of stock-based compensation. In evaluating the performance of our senior management and department managers, charges related to stock-based compensation are excluded from expenditure and profitability results. In fact, the Company recordswe record stock-based compensation expense into a stand-alone cost center for which no single operational manager is responsible or accountable. In this way, management is able towe can review, on a period-to-period basis, each manager'smanager’s performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. The Company believesWe believe that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company'sour operating results and the effectiveness of the methodology used by managementus to review the Company'sour operating results, and (b) review historical comparability in the Company'sour financial reporting as well as comparability with competitors'competitors’ operating results.
Restructuring charges and the
Expenses related tax impact. The Company occasionally incursto business combinations. We incur expenses for restructuring its workforceprofessional services rendered in connection with business combinations, which are included in itsour GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. Management excludesWe also incur other expenses directly related to business combinations, including compensation expenses and concurrent restructuring activities, such as employee severances and other exit costs. These costs are included in our GAAP presentation of selling, general and administrative and research and development expenses. We exclude these acquisition-related expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates thewe evaluate our continuing operational performance, ofas we generally would not have otherwise incurred these expenses in the Company, as it generally does not incur these expensesperiods presented as a part of itsour operations. The Company believesWe believe that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company'sour operating results and the effectiveness of the methodology used by managementus to review the Company'sour operating results, and (b) review historical comparability in the Company'sour financial reporting as well as comparability with competitors'competitors’ operating results.
Transaction costs relatedNon-GAAP tax provision. We utilize a normalized non-GAAP annual effective tax rate (AETR) to business combinations. The Company incurs expensescalculate non-GAAP measures. This methodology provides better consistency across interim reporting periods by eliminating the effects of non-recurring items and aligning the non-GAAP tax rate with our expected geographic earnings mix. To project this rate, we analyzed our historic and projected non-GAAP earnings mix by geography along with other factors such as our current tax structure, recurring tax credits and incentives, and expected tax positions. On an annual basis we re-evaluate and update this rate for professional services rendered in connection with business combinations, which are included in its GAAP presentation of selling, general and administrative expense. These expenses are generally not tax-deductible. Management excludes these acquisition-related transaction expenses, derived from closed acquisitions, for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally would not have otherwise incurred these expenses in the periods presented as a part of its operations. The Company believessignificant items that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.may materially affect our projections.
Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company'sOur non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in conjunction with the Company'sour consolidated financial statements prepared in accordance with GAAP.
The Company hasWe have provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as listed below:
| | | | | |
| |
GAAP Reporting Measure | Non-GAAP Reporting Measure |
RevenueGross Profit | Non-GAAP RevenueGross Profit |
Gross Profit Margin | Non-GAAP Gross Profit Margin |
Operating Income | Non-GAAP Operating Income |
Operating Profit Margin | Non-GAAP Operating Profit Margin |
Net Income | Non-GAAP Net Income |
Diluted Earnings Per Share | Non-GAAP Diluted Earnings Per Share |
Constant currency. In addition to the non-GAAP financial measures detailed above, we use constant currency results for financial and operational decision-making and as a means to evaluate period-to-period comparisons by excluding the effects of foreign currency fluctuations on the reported results. To present this information, the 2024 results for entities whose functional currency is a currency other than the U.S. Dollar were converted to U.S. Dollars at rates that were in effect for the 2023 comparable period, rather than the actual exchange rates in effect for the 2024 period. Constant currency growth rates are calculated by adjusting the 2024 reported amounts by the 2024 currency fluctuation impacts and comparing the adjusted amounts to the 2023 comparable period reported amounts. We believe that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the effectiveness of the methodology and information used by us in our financial and operational decision-making, and (b) compare our reported results to our past reports of financial results without the effects of foreign currency fluctuations.
Liquidity and Capital Resources
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Change |
(in thousands, except percentages) | | March 31, 2024 | | December 31, 2023 | | Amount | | % |
Cash, cash equivalents and short-term investments | | $ | 1,070,609 | | | $ | 860,390 | | | $ | 210,219 | | | 24.4 | |
Working capital | | $ | 1,274,597 | | | $ | 1,160,273 | | | $ | 114,324 | | | 9.9 | |
|
| | | | | | | | | | | |
(in thousands) | September 30, 2017 | | December 31, 2016 | | Change |
Cash, cash equivalents and short-term investments | $ | 926,635 |
| | $ | 822,860 |
| | $ | 103,775 |
|
Working capital | $ | 705,322 |
| | $ | 630,301 |
| | $ | 75,021 |
|
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist primarily of highly liquid investments such as money market funds and deposits held at major banks. Short-term investments consist primarily of deposits held by certain foreign subsidiaries of the Companyavailable-for-sale debt securities with originalremaining maturities ofgreater than three months to one year.at the date of purchase and time deposits. The following table presents the Company'sour foreign and domestic holdings of cash, cash equivalents and short-term investments as of September 30, 2017March 31, 2024 and December 31, 2016:2023:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands, except percentages) | March 31, 2024 | | % of Total | | December 31, 2023 | | % of Total |
Domestic | $ | 670,428 | | | 62.6 | | | $ | 529,092 | | | 61.5 | |
Foreign | 400,181 | | | 37.4 | | | 331,298 | | | 38.5 | |
Total | $ | 1,070,609 | | | | | $ | 860,390 | | | |
|
| | | | | | | | | | | |
(in thousands, except percentages) | September 30, 2017 | | % of Total | | December 31, 2016 | | % of Total |
Domestic | $ | 614,533 |
| | 66.3 | | $ | 593,348 |
| | 72.1 |
Foreign | 312,102 |
| | 33.7 | | 229,512 |
| | 27.9 |
Total | $ | 926,635 |
| | | | $ | 822,860 |
| | |
If the foreign balances were repatriated to the U.S., unless previously taxed in the U.S., they would be subject to domestic tax, resulting in a tax obligation in the period of repatriation. In general, it is the practice andour intention to permanently reinvest all earnings in excess of previously taxed amounts. Substantially all of the Company to repatriatepre-2018 earnings of our non-U.S. subsidiaries were taxed through the transition tax and post-2018 current earnings are taxed as part of global intangible low-taxed income tax expense. These taxes increase our previously taxed earnings and to reinvest all otherallow for the repatriation of the majority of our foreign earnings without any residual U.S. federal tax. Unrecognized provisions for taxes on indefinitely reinvested undistributed earnings of its non-U.S. subsidiaries. foreign subsidiaries would not be significant.
The amount of cash, cash equivalents and short-term investments held by foreign subsidiaries is subject to translation adjustments caused by changes in foreign currency exchange rates as of the end of each respective reporting period, the offset to which is recorded in accumulated other comprehensive loss on the Company’sour condensed consolidated balance sheet.
Cash Flows from Operating Activities
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
(in thousands, except percentages) | 2024 | | 2023 | | Amount | | % |
Net cash provided by operating activities | $ | 282,817 | | | $ | 260,766 | | | $ | 22,051 | | | 8.5 | |
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| | | | | | | | | | | |
| Nine Months Ended September 30, | | |
(in thousands) | 2017 | | 2016 | | Change |
Net cash provided by operating activities | $ | 326,960 |
| | $ | 266,771 |
| | $ | 60,189 |
|
Net cash provided by operating activities increased during the current fiscal year duethree months ended March 31, 2024 compared to increasedthe three months ended March 31, 2023. The increase in net cash flows fromprovided by operating assetsactivities was a result of increased customer receipts driven primarily by ACV growth, partially offset by increased payments related to higher operating expenses and liabilities of $37.0 million and increased net income (net of non-cash operating adjustments) of $23.2 million.tax payments, as compared to the three months ended March 31, 2023.
Cash Flows from Investing Activities
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
(in thousands, except percentages) | 2024 | | 2023 | | Amount | | % |
Net cash used in investing activities | $ | (34,436) | | | $ | (128,390) | | | $ | 93,954 | | | 73.2 | |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, | | |
(in thousands) | 2017 | | 2016 | | Change |
Net cash used in investing activities | $ | (61,623 | ) | | $ | (19,574 | ) | | $ | (42,049 | ) |
Net cash used in investing activities increaseddecreased by $94.0 million during the current fiscal yearthree months ended March 31, 2024 compared to the three months ended March 31, 2023 due to increaseddecreased acquisition-related net cash outlays of $26.0$120.6 million, partially offset by increased purchases of short-term investments of $19.9 million and capital expenditures of $6.6 million and increased net cash outlays from other investing activities of $9.5$3.7 million. The CompanyWe currently plansplan capital spending of $17$40.0 million to $22$50.0 million for the 2017during fiscal year 2024 as compared to the $12.4$25.3 million that was spent in 2016.fiscal year 2023. The level of spending will depend on various factors, including the growth of the business and general economic conditions.
Cash Flows from Financing Activities
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Change |
(in thousands, except percentages) | 2024 | | 2023 | | Amount | | % |
Net cash used in financing activities | $ | (54,643) | | | $ | (240,828) | | | $ | 186,185 | | | 77.3 | |
|
| | | | | | | | | | | |
| Nine Months Ended September 30, | | |
(in thousands) | 2017 | | 2016 | | Change |
Net cash used in financing activities | $ | (185,374 | ) | | $ | (206,034 | ) | | $ | 20,660 |
|
Net cash used in financing activities decreased during the current fiscal yearthree months ended March 31, 2024 compared to the three months ended March 31, 2023 due primarily to decreased stock repurchases of $20.0 million and increased proceeds from shares issued for stock-based compensation of $4.6 million, partially offset by increased restricted stock withholding taxes paid in lieu of issued shares of $5.0$196.5 million.
Other Cash Flow Information
On June 30, 2022, we entered into a credit agreement (as amended, the 2022 Credit Agreement) with PNC Bank, National Association as administrative agent, swing line lender, and an L/C issuer, the lenders party thereto, and the other L/C issuers party thereto. The Company believes2022 Credit Agreement refinanced our previous credit agreements in their entirety. The 2022 Credit Agreement provides for a $755.0 million unsecured term loan facility and a $500.0 million unsecured revolving loan facility, which includes a $50.0 million sublimit for the issuance of letters of credit. Terms used in this description of the 2022 Credit Agreement with initial capital letters that are not otherwise defined herein are as defined in the 2022 Credit Agreement.
As of March 31, 2024, the carrying value of our term loan was $754.0 million, with no principal payments due in the next twelve months. Borrowings under the term loan and revolving loan facilities accrue interest at a rate that is based on the Term SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available).
On September 29, 2023, the 2022 Credit Agreement was amended to provide for an interest rate adjustment (Sustainability Rate Adjustment) based upon the achievement of certain environmental, social and governance key performance indicators (KPIs). The Sustainability Rate Adjustment range is +/- 0.05% and will be adjusted annually based on the KPIs of the preceding year.
The rate in effect for the second quarter of 2024 under the 2022 Credit Agreement is 6.23%.
We previously entered into operating lease commitments, primarily for our domestic and international offices. The commitments related to these operating leases is $130.6 million, of which $26.2 million is due in the next twelve months. There
were no share repurchases in the first quarter of 2024. For the three months ended March 31, 2023, 650 thousand shares were repurchased at an average price of $302.34 per share, with a total cost of $196.5 million. As of March 31, 2024, 1.1 million shares remained available for repurchase under the program.
We continue to generate positive cash flows from operating activities and believe that the best uses of our excess cash are to invest in the business; acquire or make investments in complementary companies, products, services and technologies; and make payments on our outstanding debt balances. Any future acquisitions may be funded by available cash and investments, cash generated from operations, debt financing or the issuance of additional securities.
We believe that existing cash and cash equivalent balances, of $919.6 million, together with cash generated from operations and access to our $500.0 million revolving loan facility, will be sufficient to meet the Company’sour working capital, and capital expenditure requirements and contractual obligations through at least the next twelve months. The Company’smonths and the foreseeable future thereafter. Our cash requirements in the future may also be financed through additional equity or debt financings. ThereHowever, future disruptions in the capital markets could make financing more challenging, and there can be no assurance that such financingsfinancing can be obtained on favorablecommercially reasonable terms, ifor at all.
Under the Company's stock repurchase program, the Company repurchased shares during the nine months ended September 30, 2017Contractual and 2016, as follows:
|
| | | | | | | |
| Nine Months Ended |
(in thousands, except per share data) | September 30, 2017 | | September 30, 2016 |
Number of shares repurchased | 2,000 |
| | 2,700 |
|
Average price paid per share | $ | 111.65 |
| | $ | 90.11 |
|
Total cost | $ | 223,291 |
| | $ | 243,288 |
|
In February 2017, the Company's Board of Directors increased the number of shares authorized for repurchase to a total of 5.0 million shares under the stock repurchase program. As of September 30, 2017, 3.5 million shares remained available for repurchase under the program.
The Company's repurchase authorization does not have an expiration date and the pace of the repurchase activity will depend on factors such as working capital needs, cash requirements for acquisitions, the Company's stock price, and economic and market conditions. The Company's stock repurchases may be effected from time to time through open market purchases or pursuant to a Rule 10b5-1 plan.
The Company continues to generate positive cash flows from operating activities and believes that the best uses of its excess cash are to invest in the business and to repurchase stock in order to both offset dilution and return capital, in excess of its requirements, to stockholders with the goal of increasing stockholder value. Additionally, the Company has in the past, and expects in the future, to acquire or make investments in complementary companies, products, services and technologies. Any future acquisitions may be funded by available cash and investments, cash generated from operations, credit facilities or the issuance of additional securities.
Off-Balance-Sheet Arrangements
The Company does not have any special-purpose entities or off-balance-sheet financing.
ContractualOther Obligations
There were no material changes to the Company’sour significant contractual and other obligations during the ninethree months ended September 30, 2017March 31, 2024 as compared to those previously reported in “Management’swithin "Management's Discussion and Analysis of Financial Condition and Results of Operations” within the Company’s most recent Annual Report onOperations" in our 2023 Form 10-K.
Critical Accounting Policies and Estimates
During the first quarter of 2017, the Company2024, we completed the annual impairment test for goodwill and the indefinite-lived intangible asset and determined that these assets had not been impaired as of the test date, January 1, 2017.2024. No other events or circumstances changed during the ninethree months ended September 30, 2017March 31, 2024 that would indicate that the fair values of the Company'sour reporting unit and indefinite-lived intangible asset are below their carrying amounts.
No significant changes have occurred to the Company’sour critical accounting policies and estimates as previously reported within “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" in the Company’s most recent Annual Report onour 2023 Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk. As we operate in international regions, a portion of our revenue, expenses, cash, accounts receivable and payment obligations are denominated in foreign currencies. As a result, changes in currency exchange rates will affect our financial position, results of operations and cash flows. We seek to reduce our currency exchange transaction risks primarily through our normal operating and treasury activities, including the use of derivative instruments.
With respect to revenue, on average for the quarter ended March 31, 2024, the U.S. Dollar was 2.0% stronger, when measured against our foreign currencies, than for the quarter ended March 31, 2023. The table below presents the net impacts of currency fluctuations on revenue for the three months ended March 31, 2024. Amounts in parenthesis indicate a net adverse impact from currency fluctuations. | | | | | | | | | |
(in thousands) | | Three Months Ended March 31, 2024 | |
Japanese Yen | | $ | (4,289) | | |
South Korean Won | | (955) | | |
Euro | | 1,206 | | |
Other | | 135 | | |
Total | | $ | (3,903) | | |
The impacts from currency fluctuations resulted in decreased operating income of $3.4 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.
A hypothetical 10% strengthening in the U.S. Dollar against other currencies would have decreased our revenue by $20.0 million and decreased our operating income by $4.8 million for the three months ended March 31, 2024.
The most meaningful currency impacts on revenue and operating income are typically attributable to U.S. Dollar exchange rate changes against the Euro and Japanese Yen. Historical exchange rates for these currency pairs are reflected in the charts below:
| | | | | | | | | | | | | | | |
| | | Period-End Exchange Rates |
As of | | | EUR/USD | | USD/JPY | | |
March 31, 2024 | | | 1.08 | | | 151 | | | |
December 31, 2023 | | | 1.10 | | | 141 | | | |
March 31, 2023 | | | 1.08 | | | 133 | | | |
| | | | | | | | | | | | | | | |
| | | Average Exchange Rates |
Three Months Ended | | | EUR/USD | | USD/JPY | | |
March 31, 2024 | | | 1.09 | | | 148 | | | |
March 31, 2023 | | | 1.07 | | | 132 | | | |
Interest Income Rate Risk. Changes in the overall level of interest rates affect the interest income that is generated from the Company’sour cash, cash equivalents and short-term investments.investments and the interest expense that is incurred from our outstanding borrowings. For the three and nine months ended September 30, 2017, totalMarch 31, 2024, interest income was $1.9$11.0 million and $4.8 million, respectively. interest expense was $12.4 million.
Cash and cash equivalents consist primarily of highly liquid investments such as money market funds and deposits held at major banks. Short-term investments consist primarily of deposits heldavailable-for-sale debt securities with remaining maturities greater than three months at the date of purchase and time deposits. A hypothetical 100 basis point change in interest rates on these holdings could have a $10.7 million impact on our financial results.
Our outstanding term loan borrowings of $755.0 million as of March 31, 2024 accrue interest at a rate that is based on the Term SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available).
On September 29, 2023, the 2022 Credit Agreement was amended to provide for an interest rate adjustment (Sustainability Rate Adjustment) based upon the achievement of certain foreign subsidiariesenvironmental, social and governance key performance indicators (KPIs). The Sustainability Rate Adjustment range is +/- 0.05% and will be adjusted annually based on the KPIs of the Company with original maturitiespreceding year.
Because interest rates applicable to one year.
Foreign Currency Transaction Risk. As the Company operates in international regions, a portion of its revenue, expenses, cash, accounts receivable and payment obligationsoutstanding borrowings are denominated in foreign currencies. As a result,variable, we are exposed to interest rate risk from changes in currency exchangethe underlying index rates, will affectwhich affects our interest expense. A hypothetical increase of 100 basis points in interest rates would result in an increase in interest expense and a corresponding decrease in cash flows of $7.7 million over the Company’s financial position, results of operations and cash flows. The Company is most impacted by movements in and among the Japanese Yen, British Pound, South Korean Won, Taiwan Dollar, Indian Rupee, Euro and U.S. Dollar.
With respect to revenue,next twelve months, based on average for the quarter ended September 30, 2017, the U.S. Dollar was approximately 0.9% weaker, when measured against the Company’s primary foreign currencies, than for the quarter ended September 30, 2016. With respect to revenue, on average for the nine months ended September 30, 2017, the U.S. Dollar was approximately 0.7% stronger, when measured against the Company’s primary foreign currencies, than for the nine months ended September 30, 2016. The table below presents the impacts of currency fluctuations on revenue for the three and nine months ended September 30, 2017. Amounts in brackets indicate a net adverse impact from currency fluctuations.
|
| | | | | | | |
(in thousands) | Three Months Ended September 30, 2017 | | Nine Months Ended September 30, 2017 |
Japanese Yen | $ | (2,363 | ) | | $ | (2,571 | ) |
British Pound | (11 | ) | | (1,865 | ) |
Euro | 3,150 |
| | (205 | ) |
South Korean Won | (144 | ) | | 674 |
|
Taiwan Dollar | 210 |
| | 651 |
|
Indian Rupee | 225 |
| | 514 |
|
Other | 131 |
| | 135 |
|
Total | $ | 1,198 |
| | $ | (2,667 | ) |
The most significant currency impacts on revenue and operating income are typically attributable to U.S. Dollar exchange rate changes against the British Pound, Euro, Japanese Yen and South Korean Won as reflected in the charts below:
|
| | | | | | | | | | | |
| Period-End Exchange Rates |
As of | GBP/USD | | EUR/USD | | USD/JPY | | USD/KRW |
September 30, 2016 | 1.298 |
| | 1.124 |
| | 101.358 |
| | 1,102.901 |
|
December 31, 2016 | 1.234 |
| | 1.051 |
| | 116.918 |
| | 1,208.313 |
|
September 30, 2017 | 1.340 |
| | 1.181 |
| | 112.511 |
| | 1,146.263 |
|
|
| | | | | | | | | | | |
| Average Exchange Rates |
Three Months Ended | GBP/USD | | EUR/USD | | USD/JPY | | USD/KRW |
September 30, 2016 | 1.313 |
| | 1.116 |
| | 102.394 |
| | 1,121.537 |
|
September 30, 2017 | 1.309 |
| | 1.175 |
| | 111.006 |
| | 1,133.658 |
|
|
| | | | | | | | | | | |
| Average Exchange Rates |
Nine Months Ended | GBP/USD | | EUR/USD | | USD/JPY | | USD/KRW |
September 30, 2016 | 1.393 |
| | 1.116 |
| | 108.285 |
| | 1,161.185 |
|
September 30, 2017 | 1.276 |
| | 1.113 |
| | 111.887 |
| | 1,139.197 |
|
outstanding borrowings at March 31, 2024.No other material change has occurred in the Company’sour market risk subsequent to December 31, 2016.2023.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures. As required by Rules 13a-15 and 15d-15 of the Securities Exchange Act, of 1934, as amended, or the Exchange Act, the Company haswe have evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the design and operation of itsour disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act.
The Company has a Disclosure Review Committee to assist in the quarterly evaluation of the Company’s internal disclosure controls and procedures and in the review of the Company’s periodic filings under the Exchange Act. The membership of the Disclosure Review Committee consists of the Company’s President and Chief Executive Officer; Chief Financial Officer; Vice President of Finance; General Counsel; Senior Director, Global Investor Relations; Vice President of Worldwide Sales and Customer Excellence; Vice President of Human Resources; Vice President, Corporate Marketing and Business Development; Vice President, Design and Platform Business Unit; and Vice President and General Manager of Electronics, Fluids and Mechanical. This committee is advised by external counsel, particularly on SEC-related matters. Additionally, other members of the Company’s global management team advise the committee with respect to disclosure via a sub-certification process.
The Company believes,We believe, based on itsour knowledge, that the financial statements and other financial information included in this report fairly present, in all material respects, theour financial condition, results of operations and cash flows of the Company as of and for the periods presented in this report. The Company isWe are committed to both a sound internal control environment and to good corporate governance.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
From time to time, the Company reviewswe review the disclosure controls and procedures, and may periodically make changes to enhance their effectiveness and to ensure that the Company’sour systems evolve with itsour business.
Changes in Internal Control. There were no changes in the Company’sour internal control over financial reporting that occurred during the three months ended September 30, 2017March 31, 2024 that materially affected, or werethat are reasonably likely to materially affect, the Company'sour internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
The Company isWe are subject to various claims, investigations claims and legal and regulatory proceedings that arise in the ordinary course of business, including, but not limited to, commercial disputes, labor and employment matters, tax audits, alleged infringement of third parties' intellectual property rights and other matters. In the opinionUse or distribution of the Company, the resolutionour products could generate product liability, regulatory infraction, or claims by our customers, end users, channel partners, government entities or third parties. Sales and marketing activities that impact processing of pending matters is not expectedpersonal data, as well as measures taken to have a material adverse effect on the Company’s consolidated resultspromote license compliance against pirated or unauthorized usage of operations, cash flowsour commercial products, may also result in claims by customers and individual employees of customers or financial position. However, eachby non-customers using pirated versions of our products. Each of these matters is subject to various uncertainties, and it is possible that an unfavorable resolution of one or more of these proceedingsmatters could inhave a significant adverse effect on our condensed consolidated financial statements as well as cause reputational damage. In our opinion, the future, materially affect the Company’sresolution of pending matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows or financial position.flows.
Item 1A.Risk Factors
The Company cautions investors
We face a number of risks that its performance (and, therefore, any forward-looking statement) is subject to riskscould materially and uncertainties. Various importantadversely affect our business, prospects, financial condition, results of operations and cash flows. A discussion of our risk factors may cause the Company’s future results to differ materially from those projectedcan be found in any forward-looking statement. These factors were disclosed in, but are not limited to, the items within the Company’s most recent Annual Report on Form 10-K, Part I, Item 1A.1A "Risk Factors" in our 2023 Form 10-K. No material changes have occurred regarding the Company'sto such risk factors subsequent to December 31, 2016.after the filing of our 2023 Form 10-K.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.Trading Arrangements
None of the directors or "officers" of ANSYS, Inc. (as defined in Rule 16a-1(f) promulgated under the Exchange Act of 1934, as amended) adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, during the fiscal quarter ended March 31, 2024.
Item 6.Exhibits
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Exhibit No. | | Exhibit |
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Exhibit No.2.1 | | Exhibit |
10.1 |
| | FormAgreement and Plan of Performance-Based Restricted Stock Unit Agreement (2017)Merger, dated as of January 15, 2024, by and among Synopsys, Inc., ANSYS, Inc. and ALTA Acquisition Corp. (filed as Exhibit 10.12.1 to the Company's QuarterlyCompany’s Current Report on Form 10-Q,8-K, filed May 4, 2017,January 16, 2024, and incorporated herein by reference). |
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10.2 | |
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10.331.1 | |
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10.4 |
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31.1 |
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32.1 | |
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101.INS | |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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101.SCH | |
| Inline XBRL Taxonomy Extension Schema |
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101.CAL | |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
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101.DEF | |
| Inline XBRL Taxonomy Extension Definition Linkbase |
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101.LAB | |
| Inline XBRL Taxonomy Extension Label Linkbase |
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101.PRE | |
| Inline XBRL Taxonomy Extension Presentation Linkbase |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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*Indicates management contract or compensatory plan, contract or arrangement.
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* | Indicates management contract or compensatory plan, contract or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | | | | | | | |
| | ANSYS, Inc. |
| | | |
Date: | May 1, 2024 | ANSYS, Inc. |
| | | |
Date: | November 2, 2017 | By: | /s/ Ajei S. Gopal |
| | | Ajei S. Gopal |
| | | President and Chief Executive Officer |
| | | (Principal Executive Officer) |
| | | |
Date: | November 2, 2017May 1, 2024 | By: | /s/ Maria T. ShieldsRachel Pyles |
| | | Maria T. ShieldsRachel Pyles |
| | | Chief Financial Officer and Senior Vice President of Finance |
| | | (Principal Financial Officer) |