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 March 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-20853
ANSYS, Inc.
(exact name of registrant as specified in its charter)
DELAWARE 04-3219960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
275 Technology Drive, Canonsburg, PA 15317
(Address of principal executive offices) (Zip Code)
724-746-3304
(Registrant's telephone number, including area code)
Indicate by a 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___
----
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of May 1, 2000 was 16,032,749 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - March 31, 2000 and 3
December 31, 1999
Condensed Consolidated Statements of Income - Three Months 4
Ended March 31, 2000 and March 31, 1999
Condensed Consolidated Statements of Cash Flows - Three 5
Months Ended March 31, 2000 and March 31, 1999
Notes to Condensed Consolidated Financial Statements 6
Review Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of Financial 8-12
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
Trademarks used in this Form 10-Q: ANSYS(R) and DesignSpace(R) are registered
trademarks of SAS IP, Inc., a wholly-owned subsidiary of ANSYS, Inc.
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
March 31, Dec. 31,
2000 1999
----------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $13,059 $10,401
Short-term investments 50,293 46,731
Accounts receivable, less allowance for
doubtful accounts of $1,700 9,531 10,518
Other current assets 2,539 2,929
Deferred income taxes 406 336
-------- --------
Total current assets 75,828 70,915
Securities available for sale - 182
Property and equipment, net 3,666 3,529
Capitalized software costs, net 586 676
Goodwill, net 492 428
Other intangibles, net 1,441 1,518
Deferred income taxes 6,617 6,643
-------- --------
Total assets $88,630 $83,891
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 295 $ 222
Accrued bonuses 1,236 2,882
Other accrued expenses and liabilities 5,474 3,750
Customer prepayments 112 140
Deferred revenue 13,707 11,266
-------- --------
Total current liabilities 20,824 18,260
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000 shares authorized;
16,584,758 shares issued in both 2000 and 1999 166 166
Additional paid-in capital 37,448 37,543
Less treasury stock, at cost: 466,059 shares held in 2000
and 339,358 shares held in 1999 (4,723) (2,375)
Retained earnings 34,915 30,427
Accumulated other comprehensive income - 120
Note receivable from stockholder - (250)
-------- --------
Total stockholders' equity 67,806 65,631
-------- --------
Total liabilities and stockholders' equity $88,630 $83,891
======== ========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three months ended
------------------
March 31, March 31,
2000 1999
--------- ---------
Revenue:
Software licenses $ 10,507 $ 10,037
Maintenance and service 6,873 5,831
-------- --------
Total revenue 17,380 15,868
Cost of sales:
Software licenses 1,094 848
Maintenance and service 909 777
-------- --------
Total cost of sales 2,003 1,625
-------- --------
Gross profit 15,377 14,243
Operating expenses:
Selling and marketing 3,835 3,563
Research and development 3,411 3,445
Amortization 208 220
General and administrative 2,689 2,441
-------- --------
Total operating expenses 10,143 9,669
-------- --------
Operating income 5,234 4,574
Other income 997 550
-------- --------
Income before income tax provision 6,231 5,124
Income tax provision 1,744 1,407
-------- --------
Net income 4,487 3,717
======== ========
Net income per basic common share:
Basic earnings per share $ 0.28 $ 0.23
Weighted average shares - basic 16,253 16,271
Net income per diluted common share:
Diluted earnings per share $ 0.27 $ 0.22
Weighted average shares - diluted 16,845 16,806
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended
------------------
March 31, March 31,
2000 1999
--------- ---------
Cash flows from operating activities:
Net income $ 4,487 $ 3,717
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 750 704
Deferred income tax provision 18 224
Provision for bad debts 21 125
Gain on sale of equity securities (151) -
Change in operating assets and liabilities:
Accounts receivable 966 556
Other current assets 390 (288)
Accounts payable, accrued expenses and
liabilities and customer prepayments 123 (670)
Deferred revenue 2,441 2,077
-------- --------
Net cash provided by operating
activities 9,045 6,445
-------- --------
Cash flows from investing activities:
Capital expenditures (682) (807)
Acquisition payment (100) -
Capitalization of internally developed
software costs - (211)
Purchase of short-term investments (6,000) (4,145)
Maturities of short-term investments 2,437 -
Repayment of stockholder loan 250
Proceeds from sale of equity securities 151 -
-------- --------
Net cash used in investing activities (3,944) (5,163)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 74 76
Proceeds from issuance of treasury stock - 4
Purchase of treasury stock (3,209) (4)
Proceeds from exercise of stock options 692 86
-------- --------
Net cash (used in) provided by
financing activities (2,443) 162
-------- --------
Net increase in cash and cash equivalents 2,658 1,444
Cash and cash equivalents, beginning of period 10,401 6,589
-------- --------
Cash and cash equivalents, end of period $13,059 $ 8,033
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 87 $ 1,231
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements included
herein have been prepared by ANSYS, Inc. (the "Company") in accordance with
generally accepted accounting principles for interim financial information for
commercial and industrial companies and the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. The financial statements as of and for the three
months ended March 31, 2000 should be read in conjunction with the Company's
consolidated financial statements (and notes thereto) included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
Accordingly, the accompanying statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the 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 months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2000.
2. ACCUMULATED OTHER COMPREHENSIVE INCOME
As of December 31, 1999, accumulated other comprehensive income, as reflected on
the condensed consolidated balance sheet, was comprised of unrealized gains on
securities available for sale.
6
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
ANSYS, Inc. and Subsidiaries:
We have reviewed the condensed consolidated balance sheet of ANSYS, Inc. and
Subsidiaries as of March 31, 2000, and the related condensed consolidated
statements of income and cash flows for the three-month periods ended March 31,
2000 and 1999. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, 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 review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of ANSYS, Inc. and
Subsidiaries as of December 31, 1999, and the related consolidated statements of
income, stockholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated January 27, 2000, 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, 1999, is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
Pittsburgh, Pennsylvania
April 19, 2000
7
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ANSYS, Inc. (the "Company") is a leading international supplier of analysis and
engineering software for optimizing the design of new products. The Company is
committed to providing the most open and flexible analysis solutions to suit
customer requirements for engineering software in today's competitive
marketplace. In addition, the Company partners with leading design software
suppliers to develop state-of-the-art computer-aided design ("CAD") integrated
products. Sales, support and training for customers are provided primarily
through the Company's global network of ANSYS Support Distributors ("ASDs"). The
Company distributes and supports its ANSYS(R) and DesignSpace(R) product lines
through its ASDs, certain direct sales offices, as well as a network of
independent distributors and dealers. The following discussion should be read in
conjunction with the attached unaudited condensed consolidated financial
statements and notes thereto for the three-month periods ended March 31, 2000
and March 31, 1999 and with the Company's audited financial statements and notes
thereto for the fiscal year ended December 31, 1999.
This 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, including statements below concerning future trends related to paid-up
and lease license revenue, expectations of sales growth in the Company's
DesignSpace and ANSYS/Professional products, the Company's intentions related to
continued investments in sales and marketing and research and development, plans
related to future capital spending, the sufficiency of existing cash and cash
equivalent balances to meet future working capital and capital expenditure
requirements and comments regarding the effective tax rate in future quarters,
as well as statements which contain such words as "anticipates", "intends",
"believes", "plans" and other similar expressions. The Company's actual results
could differ materially from those set forth in forward-looking statements.
Certain factors that might cause such a difference include risks and
uncertainties detailed in the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section in the 1999 Annual Report to
Shareholders and in "Certain Factors Regarding Future Results" included herein
as Exhibit 99 to this Form 10-Q.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenue. The Company's total revenue increased 9.5% for the 2000 quarter to
$17.4 million from $15.9 million in the 1999 quarter. The increase primarily
resulted from increased paid-up license revenue associated with both new sales
of paid-up licenses and, to a lesser extent, the conversion of existing lease
licenses to paid-up licenses. Higher maintenance and service revenue,
8
primarily from maintenance contracts sold in association with increased paid-up
license sales in the current and recent quarters, also contributed to the
increase.
Software license revenue increased 4.7% in the 2000 quarter to $10.5 million
from $10.0 million in the 1999 quarter, resulting primarily from increased sales
of paid-up licenses. Revenue from the sale of paid-up licenses increased 27.5%
to $6.9 million from $5.4 million in the prior year quarter. The Company
anticipates that revenue from sales of paid-up licenses will increase as sales
of its DesignSpace and ANSYS/Professional products grow. These products are
priced at much lower price points compared to the traditional high-end product
offerings and are sold primarily as paid-up licenses.
The increase in sales of paid-up licenses was partially offset by a $642,000
reduction in noncancellable annual lease license revenue and a $365,000
reduction in monthly lease license revenue. The decrease in noncancellable
annual lease license revenue was principally attributable to the conversion of
existing noncancellable annual leases to paid-up licenses in both the current
and recent quarters. The Company believes that a 1999 increase in its annual
lease price was a primary economic factor in influencing certain of the
noncancellable annual lease conversions. The decrease in monthly lease license
revenue is consistent with recent quarterly trends and resulted from existing
monthly leases being renewed as noncancellable annual leases or converted to
paid-up licenses. The Company believes that the reduction in lease license
revenue on a quarterly comparison basis will continue throughout the remainder
of 2000.
Maintenance and service revenue increased 17.9% for the 2000 quarter to $6.9
million from $5.8 million in the 1999 quarter. The increase was a result of
maintenance contracts sold in association with the paid-up license sales
discussed above, as well as a broader customer usage of support services and the
Company's increased emphasis on marketing these services.
Of the Company's total revenue for the 2000 quarter, approximately 56.5% and
43.5%, respectively, were attributable to international and domestic sales, as
compared to 54.3% and 45.7%, respectively, for the 1999 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
23.3% to $2.0 million, or 11.5% of total revenue, for the 2000 first quarter
from $1.6 million, or 10.2% of total revenue, for the 1999 first quarter. The
increase in the 2000 quarter was principally attributable to higher salaries and
related expenses associated with increased headcount to support the growth in
license and service sales, as well as increased royalty costs.
As a result of the foregoing, the Company's gross profit increased 8.0% to $15.4
million in the 2000 quarter from $14.2 million for the 1999 quarter.
Selling and Marketing. Total selling and marketing expenses increased from $3.6
million, or 22.5% of total revenue in the 1999 quarter, to $3.8 million, or
22.1% of total revenue in the 2000 quarter. The increase primarily resulted from
higher
9
salaries and related headcount costs associated with the hiring of key personnel
to bolster the Company's sales and marketing capabilities. Higher third party
commission costs associated with direct sales to the Company's major account
customers also contributed to the increase. The Company anticipates that it will
continue to make significant investments in its global sales and marketing
organization to strengthen its competitive position, to enhance major account
sales activities and to support its worldwide sales channels and marketing
strategies.
Research and Development. Research and development expenses remained consistent
at $3.4 million in both the 2000 and 1999 quarters, or 19.6% and 21.7% of total
revenue in each respective quarter. The Company has traditionally invested
significant resources in research and development activities and intends to
continue to make significant investments throughout the remainder of 2000.
Amortization. Amortization expense remained flat at $208,000 and $220,000 for
the first quarters of 2000 and 1999, respectively.
General and Administrative. General and administrative expenses increased from
$2.4 million, or 15.4% of revenue, in the 1999 first quarter, to $2.7 million,
or 15.5% of total revenue, in the first quarter of 2000. The increase was
primarily the result of a $500,000 one-time charge related to payment of the
defendant's legal costs in litigation related to the expiration of an ASD
distribution agreement. The increased expense related to this litigation was
partially offset by a reduction in bad debt expense.
Other Income. Other income increased to $997,000 in the 2000 first quarter from
$550,000 in the prior year comparable quarter. The increase was primarily
attributable to higher interest-bearing cash and short-term investment balances,
as well as a $151,000 one-time gain related to the sale of investment securities
in the 2000 quarter.
Income Tax Provision. The Company's effective rate of taxation was 28.0% for the
2000 quarter which is comparable to the 27.5% rate for the 1999 quarter. These
rates are lower than the federal and state combined statutory rates as a result
of the utilization of a foreign sales corporation, as well as the generation of
research and experimentation credits.
Net Income. The Company's net income in the 2000 quarter was $4.5 million as
compared to $3.7 million in the 1999 quarter. Diluted earnings per share
increased to $.27 in the 2000 quarter as compared to $.22 in the 1999 quarter as
a result of the increase in net income. The weighted average shares used in
computing net income per diluted common share were 16.8 million in both the 2000
and 1999 quarters.
Liquidity and Capital Resources
As of March 31, 2000, the Company had cash, cash equivalents and short-term
investments totaling $63.4 million and working capital of $55.0 million, as
compared to cash, cash equivalents and short-term investments of $57.1 million
and working capital of $52.7 million at December 31, 1999. The short-term
investments
10
are generally investment grade and liquid-type, which allows the Company to
minimize interest rate risk and to facilitate liquidity in the event an
immediate cash need arises.
The Company's operating activities provided cash of $9.0 million for the three
months ended March 31, 2000 and $6.4 million for the three months ended March
31, 1999. The increase in the Company's cash flow from operations for the 2000
quarter as compared to the 1999 quarter was a result of increased earnings,
improved accounts receivable collections and lower cash payments for income
taxes. Net cash generated by operating activities provided sufficient resources
to fund increased headcount and capital needs, as well as to sustain share
repurchase activity under the Company's announced Share Repurchase Program.
Cash used in investing activities totaled $3.9 million for the three months
ended March 31, 2000 and $5.2 million for the three months ended March 31, 1999.
The use of cash in both the 2000 quarter and the 1999 quarter was primarily
attributable to the purchase of short-term investments and, to a lesser extent,
the purchase of equipment and computer hardware and software. The Company
currently plans additional capital spending of approximately $2.0 million
throughout the remainder of 2000; however, the level of spending will be
dependent upon various factors, including growth of the business and general
economic conditions.
Financing activities used net cash of $2.4 million for the three months ended
March 31, 2000 and provided cash of approximately $162,000 for the comparable
1999 period. In the 2000 quarter, cash outlays related to the Company's share
repurchase program were partially offset by proceeds from the issuance of common
stock under employee stock purchase and option plans. In the 1999 quarter, cash
provided from financing activities related to proceeds from the issuance of
common stock under employee stock purchase and option plans.
The Company believes that existing cash and cash equivalent balances together
with cash generated from operations will be sufficient to meet the Company's
working capital and capital expenditure requirements through the remainder of
fiscal 2000. The Company's cash requirements in the future may also be financed
through additional equity or debt financings. There can be no assurance that
such financings can be obtained on favorable terms, if at all.
Conversion to the Euro
On January 1, 1999, eleven of the member countries of the European Union
established fixed conversion rates between their existing currencies and one
common currency, the euro. The legacy currencies will remain legal currency in
the participating countries during a transition period through January 1, 2002.
Beginning on this date, new euro-denominated currency will be issued and the
legacy currencies will be withdrawn from circulation.
The Company is currently in the process of identifying and addressing issues
that may result from the euro conversion such as changes to information systems
to accommodate euro-denominated
11
transactions, long-term competitive implications and the exposure to market risk
with respect to financial instruments. Although the Company's assessment of the
impact of the euro conversion is not yet complete, it currently does not believe
that the conversion will have a material adverse impact on its financial
position or results of operations.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value and provides for hedge accounting when
certain conditions are met. The Standard was effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. In June 1999, the FASB delayed
the effective date of this Statement for one year through the issuance of
Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of SFAS No. 133 and an Amendment of SFAS No.
133." The Company implemented Statement No. 133 during the quarter ended March
31, 2000. The adoption of this Statement did not have a material effect on the
Company's consolidated financial statements.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is subject to various legal proceedings from time to time
that arise in the ordinary course of business activities. Each of
these matters is subject to various uncertainties, and it is possible
that these matters may be resolved unfavorably to the Company.
Item 2. Changes in Securities
(c) The following information is furnished in connection with
securities sold by the Registrant during the period covered by this
Form 10-Q which were not registered under the Securities Act. The
transactions constitute sales of the Registrant's Common Stock, par
value $.01 per share, upon the exercise of vested options issued
pursuant to the Company's 1994 Stock Option and Grant Plan, issued in
reliance upon the exemption from registration under Rule 701
promulgated under the Securities Act and issued prior to the
Registrant becoming subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act of 1934, as amended.
Number of Number of Aggregate
Month/Year Shares Employees Exercise Price
---------- ------ --------- --------------
January 2000 8,000 4 $ 3,637.50
February 2000 29,250 6 $167,293.75
March 2000 12,950 5 $ 34,375.00
Item 3. Defaults upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other information
Not Applicable.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits.
15 Independent Accountants' Letter Regarding Unaudited
Financial Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
13
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 5, 2000 By: /s/ James E. Cashman, III
------------------------------
James E. Cashman, III
President and Chief
Executive Officer
Date: May 5, 2000 By: /s/ Maria T. Shields
------------------------
Maria T. Shields
Chief Financial Officer
14
Item 6.
EXHIBIT INDEX
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Exhibit
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No.
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15 Independent Accountants' Letter Regarding Unaudited
Financial Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future Results
15