Ansoft (ANST) 10-Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended January 31, 2007

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 000-27874

ANSOFT CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	72-1001909
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification no.)
225 West Station Square, Suite 200
Pittsburgh, Pennsylvania	15219-1119
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (412) 261-3200

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. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filero       Accelerated filerþ       Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares of the registrant’s Common Stock outstanding as of the close of business on January 31, 2007 was 23,667,544.

ANSOFT CORPORATION
FORM 10-Q
INDEX

		Page
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)
	Consolidated Balance Sheets — January 31, 2007 and April 30, 2006		1
	Consolidated Statements of Operations — Three and nine months ended January 31, 2007 and 2006		2
	Consolidated Statements of Cash Flows — Nine months ended January 31, 2007 and 2006		3
	Condensed Notes to the Unaudited Consolidated Financial Statements		4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
Item 3.	Quantitative and Qualitative Disclosure about Market Risk		13
Item 4.	Controls and Procedures		13
Part II	OTHER INFORMATION
Item 1A.	Risk Factors		14
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		14
Item 6.	Exhibits		15
Signatures			16
EX-31.1
EX-31.2
EX-32.1

PART I FINANCIAL INFORMATION

     Item 1. Financial Statements

ANSOFT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(unaudited)

	January 31,			April 30,
	2007			2006
Assets
Current assets
Cash and cash equivalents	$	23,712		$	16,456
Accounts receivable, net of allowance for doubtful accounts of $840 and $545, respectively		13,789			20,264
Deferred income taxes		206			164
Prepaid expenses and other current assets		2,264			1,938
Total current assets		39,971			38,822
Equipment and furniture, net of accumulated depreciation of $6,975 and $6,249, respectively		2,427			2,599
Marketable securities		39,372			33,621
Other assets		151			131
Deferred income taxes		7,729			6,226
Goodwill		1,239			1,239
Other intangible assets, net		1,460			2,442
Total assets	$	92,349		$	85,080
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	174		$	274
Accrued payroll		1,504			3,027
Accrued income taxes		2,426			928
Other accrued expenses		2,984			3,609
Current portion of deferred revenue		20,110			19,893
Total current liabilities		27,198			27,731
Long-term portion of deferred revenue		1,104			1,088
Total liabilities		28,302			28,819
Stockholders’ equity
Preferred stock , par value $0.01 per share; 1,000 shares authorized, no shares outstanding		—			—
Common stock , par value $0.01 per share; 50,000 shares authorized; issued 28,909 and 28,576 shares, respectively and outstanding 23,668 and 23,764, respectively		289			286
Additional paid-in capital		81,469			76,795
Treasury stock, 5,241 and 4,812 shares, respectively		(47,270	)		(37,913	)
Accumulated other comprehensive loss, net		(1,383	)		(1,539	)
Retained earnings		30,942			18,632
Total stockholders’ equity		64,047			56,261
Total liabilities and stockholders’ equity	$	92,349		$	85,080

All share information, except shares authorized, have been adjusted to reflect the two-for-one stock split effected in the form of 100% stock dividend declared on March 7, 2006 and distributed on May 9, 2006.

See accompanying notes to the unaudited consolidated financial statements.

Page 1

ANSOFT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(unaudited)

	Three months ended January				Nine months ended January
	31,				31,
	2007		2006		2007		2006
Revenue
License	$	13,147	$	11,251	$	32,270	$	27,194
Service and other		9,584		8,404		28,290		25,279
Total revenue		22,731		19,655		60,560		52,473
Costs of revenue
License		164		135		425		368
Service and other		403		368		1,096		1,019
Total cost of revenue		567		503		1,521		1,387
Gross profit		22,164		19,152		59,039		51,086
Operating expenses
Sales and marketing		8,030		8,013		23,646		22,477
Research and development		5,016		4,188		14,572		12,377
General and administrative		1,451		1,122		4,075		3,692
Amortization		290		370		982		1,108
Total operating expenses		14,787		13,693		43,275		39,654
Income from operations		7,377		5,459		15,764		11,432
Net realized loss on sale of securities		—		—		—		(2	)
Other income, net		576		269		1,968		749
Income before income taxes		7,953		5,728		17,732		12,179
Income tax expense		1,642		1,468		5,422		2,655
Net income	$	6,311	$	4,260	$	12,310	$	9,524
Net income per share
Basic	$	0.27	$	0.18	$	0.52	$	0.40
Diluted	$	0.24	$	0.16	$	0.47	$	0.37
Weighted average shares used in calculation
Basic		23,599		23,698		23,609		23,704
Diluted		26,138		25,914		26,163		25,922

All share and per share information have been adjusted to reflect the two-for-one stock split effected in the form of 100% stock dividend declared on March 7, 2006 and distributed on May 9, 2006.

See accompanying notes to the unaudited consolidated financial statements.

Page 2

ANSOFT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(unaudited)

	Nine months ended January 31,
	2007			2006
Cash flows from operating activities:
Net income	$	12,310		$	9,524
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		779			995
Amortization		1,321			1,412
Stock-based compensation		1,855			—
Excess tax benefit from stock-based compensation		(1,567	)		—
Deferred income taxes		(1,545	)		—
Loss on sale of marketable securities		—			2
Changes in assets and liabilities
Accounts receivable		6,163			4,016
Prepaid expenses and other current assets		(344	)		(670	)
Other long-term assets		(20	)		(11	)
Accounts payable and accrued expenses		897			2,140
Deferred revenue		418			(1,405	)
Net cash provided by operating activities		20,267			16,003
Cash flows from investing activities:
Purchases of equipment and furniture		(609	)		(905	)
Proceeds from the sale of marketable securities		—			3,177
Purchases of marketable securities		(4,942	)		(6,876	)
Net cash used in investing activities		(5,551	)		(4,604	)
Cash flows from financing activities:
Purchase of treasury stock		(9,357	)		(14,357	)
Proceeds from the issuance of common stock, net		1,255			2,200
Excess tax benefit from stock-based compensation		1,567			—
Net cash used in financing activities		(6,535	)		(12,157	)
Net increase (decrease) in cash and cash equivalents		8,181			(758	)
Effect of exchange rate changes		(925	)		(654	)
Cash and cash equivalents at beginning of period		16,456			11,910
Cash and cash equivalents at end of period	$	23,712		$	10,498
Supplemental disclosures of cash flow information
Cash paid (received) for income taxes	$	3,088		$	(44	)

See accompanying notes to the unaudited consolidated financial statements.

Page 3

ANSOFT CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share amounts)

(unaudited)

(1) Basis of Presentation

The unaudited consolidated financial statements include the accounts of Ansoft Corporation (“Ansoft” or the “Company”) and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations have been made. Operating results for interim periods are not necessarily indicative of results which may be expected for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the April 30, 2006 consolidated financial statements and notes thereto included in Ansoft’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

On March 7, 2006, the Company’s Board of Directors declared a two-for-one stock split of the Company’s common stock, payable in the form of a 100% stock dividend. On May 9, 2006, one additional share of Company common stock was distributed for each share held of record as of the close of business on May 2, 2006. An amount equal to the par value of the shares issued was transferred from the additional paid-in capital account to the common stock account. All references to number of shares and to per share information, except shares authorized, in the unaudited consolidated financial statements and the notes to the unaudited consolidated financial statements have been adjusted to reflect the stock split on a retroactive basis.

On April 20, 2006, the Company’s stockholders approved an amendment to the Company’s Amended Certificate of Incorporation increasing the number of authorized shares of common stock from 25,000 shares to 50,000 shares.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The estimates and assumptions used in the accompanying unaudited consolidated financial statements are based on management’s evaluation of the relevant facts and circumstances as of the date of the unaudited consolidated financial statements. Actual results may differ from those estimates.

(2) Comprehensive income

“Comprehensive income” includes foreign currency translation gains and losses and other unrealized gains and losses, net of tax. A summary of comprehensive income follows:

	Three months ended					Nine months ended
	January 31,					January 31,
	2007			2006		2007			2006
Net income	$	6,311		$	4,260	$	12,310		$	9,524
Unrealized gain (loss) on marketable securities		410			213		1,146			(524	)
Reclassification adjustment for loss on sale of marketable securities included in net income		—			—		—			2
Foreign currency translation adjustments		(582	)		—		(990	)		(407	)
Comprehensive income	$	6,139		$	4,473	$	12,466		$	8,595

(3) Net Income per Share

Basic net income per share is calculated using the weighted-average number of common shares outstanding during the period. The weighted-average basic shares were 23,599 and 23,609 for the three and nine month periods ended January 31, 2007, respectively. Diluted net income per share is computed using the weighted-average number of common shares and potentially dilutive common shares outstanding during the period. The weighted-average dilutive shares were 26,138 and 26,163 for the three and nine month periods ended January 31, 2007, respectively. Potentially dilutive common shares consist of the incremental common shares issuable upon the exercise of employee stock options, and are computed using the treasury stock method. Potentially dilutive common shares are excluded from the calculation if their effect is antidilutive. Unexercised stock options of 15 and 34 shares for the three and nine month periods ended January 31, 2007, respectively, and 5 shares for the nine month period ended January 31, 2006 are not included in the computation of diluted earnings per share because the option exercise price was greater than the average market price, and therefore their inclusion would have been anti-dilutive.

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All unexercised stock options for the three month period ended January 31, 2006 are included in the computation of diluted earnings per share.

(4) Stock-Based Compensation

Prior to May 1, 2006, the Company accounted for stock-based compensation in accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123 “Accounting for Stock-Based Compensation.” This statement permitted a company to choose either a fair value based method of accounting for its stock-based compensation arrangements or to comply with the Accounting Principles Board (“APB”) Opinion No. 25 intrinsic value based method, adding pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied in the financial statements. The Company had adopted SFAS No. 123 by retaining the APB Opinion No. 25 method of accounting for stock-based compensation with pro forma disclosures of net income and earnings per share. Pursuant to APB Opinion No. 25 the Company did not recognize compensation expense in its statements of operations for the three and nine-month periods ended January 31, 2006.

Effective May 1, 2006, the Company adopted the fair value recognition provisions of FASB SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R), using the modified-prospective transition method. Under this method, compensation cost is recognized beginning with the effective date for (a) any stock-based awards granted through, but not yet vested as of April 30, 2006 based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R and (b) any stock-based awards granted subsequent to April 30, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The estimated fair value of the Company’s stock-based awards, less expected forfeitures, is amortized over the awards’ vesting period on a straight-line basis. The results for prior periods have not been retroactively adjusted.

The Company’s income from operations and income before income taxes includes stock-based compensation of $0.6 million and $1.9 million for the three and nine month periods ended January 31, 2007 and net income was reduced by $0.5 million, or $0.02 per diluted share, and $1.5 million, or $0.06 per diluted share for the three and nine month periods ended January 31, 2007, respectively, due to the inclusion of stock-based compensation. The stock-based compensation was recorded in sales and marketing, research and development, and general and administrative expenses. As of January 31, 2007, the total unrecognized stock-based compensation related to non-vested stock option grants was $1,870, net of estimated forfeitures, which will be recognized over a weighted average period of 3.0 years.

The following table illustrates the effect on net income and net income per share if the Company had applied the fair value recognition provisions of SFAS 123R to stock option awards for the three and nine months ended January 31, 2006.

	Three months			Nine months
	ended January			ended January
	31, 2006			31, 2006
Net income as reported	$	4,260		$	9,524
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(473	)		(1,575	)
Pro forma net income	$	3,787		$	7,949
Net income per basic common share, as reported	$	0.18		$	0.40
Pro forma net income per basic common share	$	0.16		$	0.34
Net income per diluted common share, as reported	$	0.16		$	0.37
Pro forma net income per diluted common share	$	0.15		$	0.31

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option-pricing model, which includes the assumptions noted in the following table. The risk-free rate for the periods within the contractual life of the option is based on the U.S Treasury yield in effect at the time of the grant. Expected volatility is based on the historical volatility of the Company’s stock. The expected life of the options represents the period of time the options granted are expected to be outstanding based on historical experience with similar grants. The dividend yield is based on the historical dividend yield of the Company. The weighted average grant date fair value of options granted during the three month periods ended January 31, 2007 and 2006 were $13.71 and $9.70, respectively. The weighted average grant date fair value of options granted during the nine month periods ended January 31, 2007 and 2006 were $12.69 and $7.52, respectively.

Page 5

The weighted average assumptions used in the model for the three and nine months ended January 31, 2007 and 2006 were as follows:

	Three months		Three months		Nine months		Nine months
	ended January		ended January		ended January		ended January
	31, 2007		31, 2006		31, 2007		31, 2006
Risk-free rate (%)		4.72		4.52		4.76		4.13
Volatility (%)		48.24		67.28		50.67		68.16
Expected life (in years)		5.3		6.0		5.3		6.0
Dividend yield (%)		0.00		0.00		0.00		0.00

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3, “Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards” (FSP 123R-3). The Company has elected to adopt the alternative transition method provided in FSP 123R-3 for calculating the tax effects of stock-based compensation under SFAS 123R. The alternative transition method includes a simplified method to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, which is available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123R.

The Company currently has stock options outstanding under the 1995 Stock Option Plan and 2006 Stock Incentive Plan (collectively the “Plans”). Stock options generally vest over five years in 20% increments from the date of grant and expire 10 years from the date of grant. The 2006 Stock Incentive Plan (2006 Plan)authorizes the issuance of 1,340 shares of common stock for the grant of incentive or nonstatutory stock options or restricted stock to employees and directors. As of January 31, 2007, there were 1,236 shares of common stock available for issuance under the 2006 Plan. There were no shares of restricted stock issued under the 2006 Plan as of January 31, 2007. The Company issues new shares of common stock upon exercise of stock options.

A summary of the changes in stock options outstanding and exercisable under the Plans during the nine months ended January 31, 2007 is as follows:

						Weighted-
						Average
						Remaining		Aggregate
				Weighted-Average		Contractual Life		Intrinsic
	Number of Shares			Exercise Price		(Years)		Value
Outstanding, April 30, 2006		4,177		$	4.36
Granted		47		$	25.03
Exercised		(336	)	$	3.51
Cancelled/forfeited		(29	)	$	7.65
Outstanding, January 31, 2007		3,859		$	4.73		4.42	$	89,585
Exercisable, January 31, 2007		3,350		$	4.20		4.02	$	79,536

The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $27.94 as of the last trading day of the period ended January 31, 2007.

The Company recorded cash proceeds from the exercise of stock options of $1.3 million and $2.2 million and related tax benefits of $1.6 million and $2.4 million during the nine-month periods ended January 31, 2007 and 2006, respectively. Nearly all of the tax benefits for the nine-month period ended January 31, 2007 and all of the tax benefits for the nine-month period ended January 31, 2006 were classified as excess tax benefits and accordingly were recorded in additional paid-in capital. The total intrinsic value for stock options exercised during the nine-month periods ended January 31, 2007 and 2006 was $7.0 million and $6.6 million, respectively.

During the nine-month periods ended January 31, 2007 and 2006, the total fair value of options vested was $2.4 million and $2.2 million, respectively. The nonvested stock option activity during the nine-month period ended January 31, 2007 is presented in the following table:

				Weighted-Average
	Number of Shares			Fair Value
Nonvested, April 30, 2006		1,104		$	4.19
Granted		47		$	12.69
Vested		(616	)	$	3.83
Forfeited		(26	)	$	5.90
Nonvested, January 31, 2007		509		$	5.07

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     The following table summarizes additional information about stock options outstanding as of January 31, 2007:

	Options Outstanding						Options Exercisable
			Weighted-
			Average		Weighted-				Weighted-
			Remaining		Average				Average
			Contractual		Exercise				Exercise
Range Of Exercise Prices	Shares		Life (Years)		Price		Shares		Price
$2.37-$3.56		1,514		3.28	$	2.58		1,330	$	2.59
$3.57-$5.34		1,348		4.50	$	4.49		1,323	$	4.50
$5.35-$8.03		794		5.42	$	6.56		666	$	6.52
$8.04-$12.04		93		7.88	$	9.95		24	$	9.56
$12.05-$18.07		50		8.46	$	13.68		7	$	13.96
$18.08-$27.12		45		9.50	$	22.88		—	$	—
$27.13-$27.94		15		9.92	$	27.81		—	$	—

(5) Line of Credit

On October 21, 2006, the Company renewed for an additional year its secured credit facility, with an aggregate commitment of up to $30,000, with a domestic financial institution (the “Bank”). At the Company’s option, borrowings under the credit facility bear interest at the Bank’s prime lending rate or the LIBOR rate plus a margin of .050 basis points. The facility is secured by the Company’s marketable securities.

The ability of the Company to borrow under the credit facility is subject to its ongoing compliance with certain financial and other covenants, including a tangible net worth covenant. As of January 31, 2007, the Company was in compliance with its covenants under the credit facility.

As of January 31, 2007, the Company had no borrowings under the credit facility.

(6) Commitments and Contingencies

The Company sells software licenses and services to its customers under proprietary software license agreements. Each license agreement contains the relevant terms of the contractual arrangement with the customer, and generally includes certain provisions for indemnifying the customer against losses, expense and liabilities from damages that may be incurred by 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.

To date, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions and no material claims asserted under these indemnification provisions are outstanding as of January 31, 2007. For several reasons, including the lack of prior indemnification claims, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

(7) Intangible Assets

The following is a summary of intangible assets as of January 31, 2007:

Purchased Technology	$	2,230
Non-Compete		2,500
Trademark		212
Customer List		18,488
Total	$	23,430

Total accumulated amortization as of January 31, 2007 was $21,970.

These intangible assets are amortized over their estimated useful lives, ranging between three and seven years. There are no expected residual values related to these intangible assets. Estimated fiscal year amortization as of January 31, 2007 is as follows: 2007 — $290 (three months); and 2008 — $1,170.

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(8) Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and requires expanded disclosure with respect to accounting for uncertain tax positions and is effective as of the beginning of the Company’s 2008 fiscal year. The Company is currently evaluating the impact, if any, that FIN 48 will have on its consolidated financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin 108 (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 requires the use of both the “iron curtain” and “rollover” approach in quantifying the materiality of misstatements. SAB 108 provides transitional guidance for the correction of errors in prior periods. SAB 108 is effective no later than the Company’s fiscal year ending April 30, 2007. The Company is currently evaluating the impact, if any, that SAB 108 will have on its consolidated financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for the Company in the beginning of the Company’s 2009 fiscal year. The Company is currently evaluating the impact, if any, that SFAS 157 will have on its consolidated financial statements.

(9) Marketable Securities

Marketable securities, classified as available for sale, are summarized as follows:

	Amortized		Unrealized		Unrealized			Fair
	Cost		Gain		(Loss)			Value
January 31, 2007 Bond Funds
Bond Funds	$	19,359	$	458	$	(459	)	$	19,358
Corporate Bonds		20,442		22		(450	)		20,014
Total marketable securities	$	39,801	$	480	$	(909	)	$	39,372
April 30, 2006
Bond Funds	$	17,061	$	44	$	(868	)	$	16,237
Corporate Bonds		18,135		2		(753	)		17,384
Total marketable securities	$	35,196	$	46	$	(1,621	)	$	33,621

At January 31, 2007, the contractual maturities of the debt securities available for sale are:

	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		16,766		16,384
Due after five years through ten years		3,676		3,630
Due after ten years		—		—
Total	$	20,442	$	20,014

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements that involve substantial risks and uncertainties. When used in this Form 10-Q, the words “anticipate,” “plan,” “believe,” “estimate,” “expect” and similar expressions as they relate to Ansoft or its management are intended to identify such forward-looking statements. Ansoft’s actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include (1) the degree and rate of growth of the markets in which Ansoft competes and the accompanying demand for Ansoft’s products, (2) the level of product and price competition, (3) the ability of Ansoft to develop and market new products and to control costs, (4) the ability to expand its direct sales force, and (5) the ability to attract and retain key personnel.

Overview

Ansoft is a developer of electronic design automation (“EDA”) software used in high technology products and industries. Ansoft’s software is used by electrical engineers in the design of state of the art technology products, such as cellular phones, internet networking, satellite communications systems, computer chips and circuit boards, and electronic sensors and motors. Engineers use our software to maximize product performance, eliminate physical prototypes, and reduce time-to-market.

During the third quarter of fiscal year 2007, our revenues increased by 15.6% from the previous fiscal year’s third quarter. New license revenue increased by 16.9% and maintenance revenue increased 14.0%. The Company experienced growth in both our domestic and international markets for the quarter ended January 31, 2007.

Net income for the quarter was $6.3 million compared to $4.3 million during the third fiscal quarter of 2006.

Results of Operations

	Three months ended							Nine months ended
	January 31,							January 31,
	(In thousands)				Percentage			(In thousands)					Percentage
	2007		2006		change			2007		2006			change
Revenue	$	22,731	$	19,655		15.6	%	$	60,560	$	52,473			15.4	%
Cost of revenue		567		503		12.7	%		1,521		1,387			9.7	%
Gross profit		22,164		19,152		15.7	%		59,039		51,086			15.6	%
Operating Expenses
Sales and marketing		8,030		8,013		0.2	%		23,646		22,477			5.2	%
Research and development		5,016		4,188		19.8	%		14,572		12,377			17.7	%
General and administrative		1,451		1,122		29.3	%		4,075		3,692			10.4	%
Amortization		290		370		(21.6	%)		982		1,108			(11.4	%)
Total operating expenses		14,787		13,693		8.0	%		43,275		39,654			9.1	%
Income from operations		7,377		5,459		35.1	%		15,764		11,432			37.9	%
Net realized loss on sale of securities		—		—		—			—		(2	)		—
Other income, net		576		269		114.1	%		1,968		749			162.8	%
Income before income taxes		7,953		5,728		38.8	%		17,732		12,179			45.6	%
Income tax expense		1,642		1,468		11.9	%		5,422		2,655			104.2	%
Net income	$	6,311	$	4,260		48.1	%	$	12,310	$	9,524			29.3	%

Page 9

Comparison of the Three and Nine Months Ended January 31, 2007 and 2006

Revenue. Total revenue in the three and nine-month periods ended January 31, 2007 increased 15.6% and 15.4% to $22.7 and $60.6 million. License revenue during the three-month period ended January 31, 2007 increased 16.9% to $13.1 million from $11.3 million during the comparable period in the prior fiscal year. License revenue during the nine-month period ended January 31, 2007 increased 18.7% to $32.3 million from $27.2 million during the comparable period in the prior fiscal year. The increases are due in part to an improving economy, particularly an improvement in the technology sectors resulting in an increased demand for our software products worldwide. Growth occurred in both our high performance electronics and electromechanical (EM) product lines for the three and nine-month periods. Service and other revenue in the three and nine-month periods ended January 31, 2007 increased 14.0% and 11.9%, respectively, due to the continued growth of the installed base of customers under annual maintenance agreements.

International revenue accounted for 61% and 63% of the Company’s total revenue in the three-month periods ended January 31, 2007 and 2006, respectively. Revenue in Asia accounted for 41% and 45% and revenue in Europe accounted for 20% and 18% in the three-month periods ended January 31, 2007 and 2006, respectively. International revenue accounted for 60% and 62% of the Company’s total revenue in the nine-month periods ended January 31, 2007 and 2006, respectively. Revenue in Asia accounted for 42% and 44% and revenue in Europe accounted for 18% in the nine-month periods ended January 31, 2007 and 2006. As of January 31, 2007 and April 30, 2006, there were assets of $24.5 and $20.1 in Asia. Generally, the Company believes international sales are subject to additional risks associated with international operations, including currency exchange fluctuations, tariff regulations and requirements for export.

Exchange rates will fluctuate throughout the fiscal year. When comparing the percentage of international revenues to total revenues for the three and nine-month period, using current year exchange rates for the prior year revenues, the international revenue as a percentage of total revenue would remain at 63% and would decrease 1% to 61% of total revenue for the three and nine-month periods ended January 31, 2006, respectively.

Cost of revenue. Cost of revenue consists primarily of software materials, personnel and other expenses related to providing maintenance, post-contract customer support, licenses and upgrades to customers. Cost of revenue for the three and nine-month periods ended January 31, 2007 increased 12.7% and 9.7% from the comparable period in the prior fiscal year.

Sales and marketing expenses. Sales and marketing expenses consist of salaries, commissions paid to internal sales and marketing personnel, promotional costs and related operating expenses. Sales and marketing expenses for the three-month period ended January 31, 2007 were flat and for the nine-month periods ended January 31, 2007 increased 5.2% to $23.6 million from the comparable periods in the prior fiscal year. Stock-based compensation of $0.2 million and $0.4 million was included in sales and marketing expenses for the three and nine-month periods ended January 31, 2007. The three and nine month-periods ended January 31, 2006 did not include stock-based compensation. Sales and marketing expenses represented 39.0% and 42.8% of total revenue in the nine-month periods ended January 31, 2007 and 2006, respectively.

Research and development expenses. Research and development expenses include all costs associated with the development of new products and enhancements to existing products. Total research and development expenses for the three and nine-month periods ended January 31, 2007 increased 19.8% and 17.7% to $5.0 million and $14.6 million from the comparable periods in the prior fiscal year. Total research and development costs increased primarily due to the additional personnel required to meet software development requirements. Further, the increase in research and development costs can be attributed to $0.3 million and $1.1 million in stock-based compensation for the three and nine month periods ended January 31, 2007. The three and nine month periods ended January 31, 2006 did not include stock-based compensation. Research and development expenses represented 24.1% and 23.6% of total revenue in the nine-month periods ended January 31, 2007 and 2006, respectively.

General and administrative expenses. General and administrative expenses for the three and nine-month periods ended January 31, 2007 increased 29.3% and 10.4%, respectively. General and administrative expenses for the three and nine month-periods ended January 31, 2007 increased primarily due to $0.1 million and $0.3 million in stock-based compensation. The three and nine month periods ended January 31, 2006 did not include employee stock-based compensation expense. General and administrative expenses represented 6.7% and 7.0% of total revenue in the nine-month periods ended January 31, 2007 and 2006, respectively.

Page 10

Amortization expense. Amortization expense for the three and nine-month periods ended January 31, 2007 decreased 21.6% and 11.4%. The decrease is due to certain intangible assets being fully amortized in the prior fiscal year.

Net realized gain (loss) on sale of securities. Net realized loss for the three and nine-month periods ended January 31, 2007 and 2006 was $-0- and $ (2,000), respectively.

Other income, net. Other income for the three and nine-month periods ended January 31, 2007 was $0.6 million and $2.0 million, an increase of $0.3 million and $1.2 million from the same period in the previous fiscal year. The increase is primarily due to income from a larger portfolio of marketable securities held during the three and nine month periods ended January 31, 2007 as well as a reduced realized loss on foreign currency exchange during the current fiscal year.

Income tax expense.In the three and nine-month periods ended January 31, 2007, the Company recorded tax expense of $1.6 million and $5.4 million compared to $1.5 million and $2.7 million for the same periods in the previous fiscal year. Net income for the three and nine-month periods ended January 31, 2007 included a tax benefit of $1.1 million for the U.S. Research and Development Tax Credit enacted by Congress retroactive to January 1, 2006 in December 2006. During the second quarter of fiscal 2006, the Company elected to claim a federal tax credit and refund related to foreign taxes previously paid. As a result, net income for the nine-month period ended January 31, 2006 includes a tax benefit of $0.5 million for a refund of prior years federal tax payments and a tax benefit of $0.5 million for excess foreign tax credits claimed and utilized against taxable income for the nine-month period ended January 31, 2006.

Liquidity and Capital Resources

As of January 31, 2007, Ansoft had $23.7 million in cash and cash equivalents and $39.4 million of marketable securities. Net cash provided by operating activities in the nine-month periods ended January 31, 2007 and 2006 was $20.3 million and $16.0 million, respectively.

Net cash used in investing activities in the nine-month periods ended January 31, 2007 and 2006 was $5.6 million and $4.6 million, respectively. Capital expenditures were $0.6 million and $0.9 million in the nine-month periods ended January 31, 2007 and 2006, respectively. Proceeds from the sale of marketable securities were $-0- and $3.2 million in the nine-month periods ended January 31, 2007 and 2006, respectively. Purchases of marketable securities were $4.9 million and $6.9 million in the nine-month periods ended January 31, 2007 and 2006, respectively. Auction rate securities purchases and sales totaling $3.1 million were included in the prior year activity.

Net cash used in financing activities was $6.5 million and $12.2 million in the nine-month periods ended January 31, 2007 and 2006, respectively. Proceeds from the issuance of common stock were $1.3 million and $2.2 million in the nine-month periods ended January 31, 2007 and 2006. Funds used for the repurchase of common stock were $9.4 million and $14.4 million in the nine-month periods ended January 31, 2007 and 2006, respectively. The Company expects to continue to purchase common stock under its share repurchase plan.

A summary of Ansoft’s significant contractual obligations and commitments as of January 31, 2007 is as follows (in thousands and for fiscal year):

	Operating Leases
2007	$	653
2008		2,078
2009		968
2010		302
2011		199

For fiscal year 2007, the balance of $653 represents the remaining payments due as of January 31, 2007. For fiscal year 2011, the balance of $199 represents the payments through January 31, 2011.

Page 11

Critical Accounting Policies

Ansoft’s critical accounting policies are as follows:

• Revenue Recognition

• Valuation of Accounts Receivable

• Impairment of Marketable Securities Available for Sale

• Stock-Based Compensation

• Deferred Tax Asset Valuation Allowance

Revenue Recognition.Revenue consists of fees for licenses of software products and service and other revenue. Ansoft recognizes revenue in accordance with SOP 97-2, “Software Revenue Recognition,” and related interpretations. Accordingly, revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred, the vendor’s fee is fixed or determinable, and collectibility is probable.

License revenue. Ansoft generally licenses its software on a perpetual basis with no right to return or exchange the licensed software. License revenue is recognized based on the residual method.

Post contract customer support (“PCS”) for an initial three month period is bundled with the perpetual license fee. Revenue related to the three-month PCS is deferred and recognized ratably over the three-month term. Ansoft’s vendor-specific objective evidence of fair value, or VSOE, for the three-month PCS is based upon the pricing for comparable transactions when the element is sold separately. Ansoft’s VSOE for the three-month PCS is based upon one fourth of the customer’s annual maintenance contract renewal rates.

Service and other revenue consists primarily of PCS revenue. Following the initial three month PCS period, Ansoft offers customers one-year maintenance contracts generally at 15% of the list price of the respective software products. Ansoft recognizes all maintenance revenue ratably over the respective maintenance period. Customers typically renew maintenance agreements annually.

Revenue from customer training, support and other services is recognized as the service is performed.

Valuation of Accounts Receivable.Management reviews accounts receivable to determine which are doubtful of collection. In making the determination of the appropriate allowance for doubtful accounts, management considers Ansoft’s history of write-offs, relationships with its customers, and the overall credit worthiness of its customers. The allowance for doubtful accounts as of January 31, 2007 and April 30, 2006 was $0.8 million and $0.5 million respectively. We had no significant changes in our collection policies or payment terms during the nine month period ended January 31, 2007.

Impairment of Marketable Securities Available for Sale.An impairment charge is recorded if a decline in the market value of any available for sale security below cost is deemed to be other than temporary. The impairment is charged to earnings and a new cost basis for the security is established.

Stock-Based Compensation.The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of SFAS 123R. The Company uses the Black-Scholes option-pricing model which requires the input of assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them, the estimated volatility of the Company’s common stock price over the expected term and the number of options that will ultimately not complete their vesting requirements. Changes in the assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized on the consolidated statements of operations.

Deferred Tax Asset Valuation Allowance.Deferred tax assets are recognized for deductible temporary differences, net operating loss carryforwards, and credit carryforwards. To the extent that it is more likely than not that some portion or all of the deferred tax asset will not be realized, a valuation allowance is established. The Company considers projected future taxable income and tax planning strategies in making this assessment.

The judgments used in applying the above policies are based on management’s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates.

Page 12

Effect of Recent Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 is an interpretation of FASB Statement No. 109, “Accounting for Income Taxes,” and requires expanded disclosure with respect to accounting for uncertain tax positions and is effective as of the beginning of the Company’s 2008 fiscal year. The Company is currently evaluating the impact, if any, that FIN 48 will have on its consolidated financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin 108 (SAB 108), which provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 requires the use of both the “iron curtain” and “rollover” approach in quantifying the materiality of misstatements. SAB 108 provides transitional guidance for the correction of errors in prior periods. SAB 108 is effective no later than the Company’s fiscal year ending April 30, 2007. The Company is currently evaluating the impact, if any, that SAB 108 will have on its consolidated financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (SFAS 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for the Company in the beginning of the Company’s 2009 fiscal year. The Company is currently evaluating the impact, if any, that SFAS 157 will have on its consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

There have been no material changes in reported market risks faced by the Company since April 30, 2006.

Interest Rate Risk. The Company’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company mitigates its risk by diversifying its investments among securities and limits the amount of credit exposure to any one issuer. The Company does not hedge any interest rate exposures. The portfolio includes only marketable securities with active secondary or resale markets to ensure portfolio liquidity.

Foreign Currency Risk. The majority of our foreign currency transactions are denominated in yen or euro, which are the functional currencies of Japan and Europe, respectively. As a result of transactions being denominated and settled in such functional currencies, the risks associated with currency fluctuations are primarily associated with foreign currency translation adjustments. We do not currently hedge against foreign currency translation risks and do not currently believe that foreign currency exchange risk is significant to our operations due to the short term nature of assets and liabilities denominated in foreign currencies.

The average foreign exchange rates used to translate the statements of operations were as follows:

	Nine months ended		Nine months ended
Foreign Currency	January 31, 2007		January 31, 2006
Yen		116.7		113.2
Euro		1.28		1.22

Item 4. Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective. There were no significant changes in the Company’s internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Page 13

PART II OTHER INFORMATION

Item 1A. Risk Factors

Information regarding risk factors is discussed in Item 1A, “Risk Factors” of the Company’s Form 10-K for the fiscal year ended April 30, 2006. There have been no material change in the Company’s risk factors previously disclosed in the Company’s Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth, the repurchases of common stock for the quarter ended January 31, 2007:

					Total number of		Maximum number of
					shares repurchased		shares that may yet
					as part of publicly		be repurchased
	Total number of		Average price paid		announced plans or		under the plans or
Period	shares repurchased		per share		programs		programs (a)
November 1, 2006— November 30, 2006		79,700	$	24.67		6,107,320		1,892,680
December 1, 2006 — December 31, 2006		12,500	$	27.66		6,119,820		1,880,180
January 1, 2007 — January 31, 2007		11,000	$	27.96		6,130,820		1,869,180
Total		103,200	$	25.38

(a) All repurchases were made pursuant to a share repurchase program publicly announced in 1998 and amended in 2002 and 2004. On March 1, 2006, the Company announced that the Board of Directors voted to amend its existing common stock repurchase program to permit the Company to acquire an additional 2,000,000 shares of its common stock. Unless terminated earlier by resolution of our Board of Directors, the share repurchase program will expire when we have repurchased all shares authorized for repurchase thereunder. Under the plan the Company is authorized to repurchase 8,000,000 shares.

On March 7, 2006, the Company announced a two-for-one stock split effected in the form of a 100% stock dividend that was distributed on May 9, 2006. Accordingly, all share and share price information have been adjusted to reflect the stock split.

Page 14

Item 6. Exhibits

31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes Oxley Act of 2002—Filed herewith.
31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes Oxley Act of 2002—Filed herewith.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002—Filed herewith.

Page 15

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.

Date: February 16, 2007	ANSOFT CORPORATION
	By:	/s/ Nicholas Csendes
		Nicholas Csendes
		President and Chief Executive Officer

By:	/s/ Thomas A.N. Miller
	Thomas A.N. Miller
	Chief Financial Officer

Page 16