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, 2001
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 7, 2001 was
14,296,077 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
March 31, 2001 and December 31, 2000
Condensed Consolidated Statements of 4
Income - Three Months Ended March 31, 2001
and March 31, 2000
Condensed Consolidated Statements of Cash 5
Flows - Three Months Ended March 31, 2001
and March 31, 2000
Notes to Condensed Consolidated Financial 6
Statements
Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of 8-11
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 6. Exhibits and Reports Filed on Form 8-K 12
SIGNATURES 13
EXHIBIT INDEX 14
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,
2001 2000
------------- ------------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 17,294 $ 6,313
Short-term investments 24,680 41,227
Accounts receivable, less allowance for
doubtful accounts of $2,330 in 2001 and
$2,350 in 2000 10,896 14,403
Other current assets 1,922 2,269
Deferred income taxes 753 695
---------- --------
Total current assets 55,545 64,907
Long-term investment 500 500
Property and equipment, net 5,233 5,152
Capitalized software costs, net 471 574
Goodwill, net 9,229 9,227
Other intangibles, net 8,271 8,970
Deferred income taxes 4,752 4,895
---------- --------
Total assets $ 84,001 $ 94,225
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 234 $ 459
Accrued bonuses 2,762 4,869
Other accrued expenses and liabilities 4,853 6,429
Deferred revenue 15,084 13,104
---------- --------
Total current liabilities 22,933 24,861
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 2001 and 2000 166 166
Additional paid-in capital 37,243 37,588
Less treasury stock, at cost: 2,345,889
shares held in 2001 and 1,451,692 shares
held in 2000 (25,449) (15,127)
Retained earnings 49,108 46,737
---------- --------
Total stockholders' equity 61,068 69,364
---------- --------
Total liabilities and stockholders'
equity $ 84,001 $ 94,225
=========== =========
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,
2001 2000
---------- --------
Revenue:
Software licenses $ 9,482 $ 10,507
Maintenance and service 8,740 6,873
---------- ---------
Total revenue 18,222 17,380
Cost of sales:
Software licenses 1,110 1,094
Maintenance and service 1,553 909
---------- ---------
Total cost of sales 2,663 2,003
---------- ---------
Gross profit 15,559 15,377
Operating expenses:
Selling and marketing 4,934 3,835
Research and development 3,915 3,411
Amortization 1,325 208
General and administrative 2,571 2,689
---------- ---------
Total operating expenses 12,745 10,143
---------- ---------
Operating income 2,814 5,234
Other income 644 997
---------- ---------
Income before income tax provision 3,458 6,231
Income tax provision 1,087 1,744
---------- ---------
Net income 2,371 4,487
========== =========
Net income per basic common share:
Basic earnings per share $ 0.16 $ 0.28
Weighted average shares - basic 14,914 16,253
Net income per diluted common share:
Diluted earnings per share $ 0.15 $ 0.27
Weighted average shares - diluted 15,493 16,845
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,
2001 2000
---------- ---------
Cash flows from operating activities:
Net income $ 2,371 $ 4,487
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,964 750
Deferred income tax provision 85 18
Provision for bad debts - 21
Gain on sale of equity securities - (151)
Change in operating assets and liabilities:
Accounts receivable 3,507 966
Other current assets 347 390
Accounts payable, accrued expenses and
liabilities and customer prepayments (3,908) 123
Deferred revenue 1,980 2,441
---------- ---------
Net cash provided by operating
activities 6,346 9,045
---------- ---------
Cash flows from investing activities:
Capital expenditures (722) (682)
Acquisition payments (333) (100)
Purchase of short-term investments (5,023) (6,000)
Maturities of short-term investments 21,570 2,437
Repayment of stockholder loan - 250
Proceeds from sale of equity securities - 151
---------- ---------
Net cash provided by (used in)
investing activities 15,492 (3,944)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 86 74
Purchase of treasury stock (11,199) (3,209)
Proceeds from exercise of stock options 451 692
---------- ---------
Net cash used in financing activities (10,662) (2,443)
Effect of exchange rate fluctuations (195) -
Net increase in cash and cash equivalents 10,981 2,658
Cash and cash equivalents, beginning of period 6,313 10,401
---------- ---------
Cash and cash equivalents, end of period $ 17,294 $ 13,059
========== =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 1,590 $ 87
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, 2001
(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, 2001 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, 2000.
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, 2001 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2001.
6
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of
ANSYS, Inc:
We have reviewed the accompanying condensed consolidated balance sheet of ANSYS,
Inc. and its Subsidiaries as of March 31, 2001, and the related condensed
consolidated statements of income and of cash flows for the three-month periods
ended March 31, 2001 and 2000. 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 accompanying condensed consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet of ANSYS, Inc.
and its Subsidiaries as of December 31, 2000 and the related consolidated
statements of income, of stockholders' equity and of cash flows for the year
then ended (not presented herein), and in our report dated January 30, 2001, 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, 2000, 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 17, 2001
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 independent ANSYS Support Distributors
("ASDs"). The Company distributes and supports its ANSYS(R), DesignSpace(R) and
ICEM CFD product lines through its ASDs, certain direct sales offices, as well
as a network of independent resellers and dealers. The following discussion
should be read in conjunction with the accompanying unaudited condensed
consolidated financial statements and notes thereto for the three-month periods
ended March 31, 2001 and March 31, 2000 and with the Company's audited financial
statements and notes thereto for the fiscal year ended December 31, 2000.
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 regarding 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, 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 2000 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, 2001 Compared to Three Months Ended March 31, 2000
Revenue. The Company's total revenue increased 4.8% for the 2001 first quarter
to $18.2 million from $17.4 million in the 2000 first quarter. Reported revenue
for the first quarter of 2001 was adversely affected by a modification of the
company's revenue recognition policy related to noncancellable annual software
leases.
8
The Company modified its previous revenue recognition policy for annual
software leases to comply with a Technical Practice Aid ("TPA") recently issued
by the American Institute of Certified Public Accountants. Prior to the revenue
recognition modification, the Company recognized a portion of the license fee
from annual leases upon inception or renewal of the lease, while the remaining
portion was recognized ratably over the lease period. The TPA now requires all
revenue from noncancellable annual software lease licenses to be recognized
ratably over the lease term. The Company estimates that revenue would have been
approximately $21.3 million in the first quarter of 2001, or a 22.4% increase
over the prior year quarter, had this modification not been made. Additionally,
sales and renewals of annual software leases have historically been most
significant in the first quarter of the fiscal year. As a result, management
anticipates that the magnitude of the impact of this modification will be most
apparent in the first quarter as compared to the remaining quarters in 2001.
Software license revenue decreased 9.8% in the 2001 quarter to $9.5 million from
$10.5 million in the 2000 quarter. The quarterly revenue decrease was primarily
the result of the annual lease revenue recognition policy modification
discussed above. Excluding the impact of this modification, software license
revenue would have increased approximately 16.8% to $12.3 million. This increase
was primarily the result of approximately $2.0 million in revenue related to the
August 2000 acquisition of ICEM CFD Engineering ("ICEM CFD").
Maintenance and service revenue increased 27.2% for the 2001 quarter to $8.7
million from $6.9 million in the 2000 quarter. Reported maintenance and service
revenue would have been approximately $9.0 million, or 31.0% higher than the
prior year quarter, had the revenue recognition modification not occurred. This
increase was primarily the result of maintenance contracts sold in association
with increased paid-up license sales in recent quarters, as well as
approximately $700,000 in quarterly revenue related to the acquisition of ICEM
CFD.
Of the Company's total revenue for both the 2001 and 2000 quarters,
approximately 56.5% and 43.5% were attributable to international and domestic
sales, respectively.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
33.0% to $2.7 million, or 14.6% of total revenue, in the 2001 first quarter from
$2.0 million, or 11.5% of total revenue, for the 2000 first quarter. The
increase in the 2001 quarter was principally attributable to costs associated
with consulting services provided by ICEM CFD.
As a result of the foregoing, the Company's gross profit increased 1.2% to $15.6
million in the 2001 quarter from $15.4 million in the 2000 quarter.
9
Selling and Marketing. Total selling and marketing expenses increased from $3.8
million, or 22.1% of total revenue in the 2000 quarter, to $4.9 million, or
27.1% of total revenue in the 2001 quarter. The increase primarily resulted from
higher salaries and related headcount costs associated with both the acquisition
of ICEM CFD, as well as the hiring of personnel to bolster the ANSYS direct
sales organization. Higher third party commission costs associated with direct
sales to certain of the Company's major account customers also contributed to
the increase. The Company anticipates that it will continue to make significant
investments throughout the remainder of 2001 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 increased 14.8% in
the 2001 first quarter to $3.9 million, or 21.5% of total revenue, from $3.4
million, or 19.6% of total revenue, in the 2000 quarter. The increase primarily
resulted from higher salaries and related headcount costs associated with both
the acquisition of ICEM CFD, as well as the hiring of development personnel
within the ANSYS product creation organization. The Company has traditionally
invested significant resources in research and development activities and
intends to continue to make significant investments in this area throughout the
remainder of 2001.
Amortization. Amortization expense increased to $1.3 million in the 2001 first
quarter from $208,000 in the prior year quarter. The increase resulted from
amortization associated with the acquisition of ICEM CFD.
General and Administrative. General and administrative expenses decreased from
$2.7 million, or 15.5% of total revenue, in the 2000 first quarter, to $2.6
million, or 14.1% of total revenue, in the first quarter of 2001. The decrease
primarily resulted from a $500,000 one-time legal charge in the first quarter of
2000 that did not occur in the 2001 quarter. The reduced legal costs were
partially offset by the general and administrative costs incurred by ICEM CFD.
Other Income. Other income decreased to $644,000 in the 2001 first quarter from
$997,000 in the prior year quarter. The decrease was primarily attributable to
lower interest-bearing cash and short-term investment balances, as well as a
$151,000 one-time gain in the 2000 quarter related to the sale of investment
securities.
Income Tax Provision. The Company's effective rates of taxation were 31.4% for
the 2001 quarter and 28.0% for the 2000 quarter. The effective rate increased
from the prior year quarter as a result of certain non-deductible amortization
expense associated with the acquisition of ICEM CFD. These rates are lower than
the federal and state combined statutory rate as a result of the utilization of
a foreign sales corporation, as well as the generation of research and
experimentation credits.
10
Net Income. The Company's net income in the 2001 quarter was $2.4 million as
compared to $4.5 million in the 2000 quarter. Diluted earnings per share
decreased to $.15 in the 2001 quarter as compared to $.27 in the 2000 quarter as
a result of the decrease in net income. The weighted average shares used in
computing net income per diluted common share were 15.5 million in the 2001
quarter and 16.8 million in the 2000 quarter. Excluding the estimated effects of
the modification of the Company's revenue recognition policy for noncancellable
annual software leases and amortization associated with the acquisition of ICEM
CFD, net income increased 18.9% to $5.3 million, or $0.34 diluted earnings per
share.
Liquidity and Capital Resources
As of March 31, 2001, the Company had cash, cash equivalents and short-term
investments totaling $42.0 million and working capital of $32.6 million, as
compared to cash, cash equivalents and short-term investments of $47.5 million
and working capital of $40.0 million at December 31, 2000. The short-term
investments are generally investment grade and liquid, 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 $6.3 million for the three
months ended March 31, 2001 and $9.0 million for the three months ended March
31, 2000. The decrease in the Company's cash flow from operations for the 2001
quarter as compared to the 2000 quarter was a result of increased payments for
both income taxes and other accrued operating expenditures. 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.
The Company's investing activities provided cash of $15.5 million for the three
months ended March 31, 2001 and used cash of $3.9 million for the three months
ended March 31, 2000. Cash generated in the 2001 first quarter related primarily
to net maturities of short-term investments. In the 2000 first quarter, the use
of cash related principally to net purchases of short-term investments. The
Company currently plans additional capital spending of approximately $1.8
million throughout the remainder of 2001; however, the level of spending will be
dependent upon various factors, including growth of the business and general
economic conditions.
Financing activities used cash of approximately $10.7 million and $2.4 million
for the three months ended March 31, 2001 and 2000, respectively. In both
quarters, 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.
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 2001. 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.
11
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 2001 4,000 1 $1,600.00
February 2001 1,000 1 $1,275.00
March 2001 250 1 $ 318.75
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
99 Certain Factors Regarding Future Results
(b) Reports on Form 8-K.
Not Applicable.
12
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 7, 2001 By: /s/ James E. Cashman, III
------------------------------
James E. Cashman, III
President and Chief
Executive Officer
Date: May 7, 2001 By: /s/ Maria T. Shields
------------------------------
Maria T. Shields
Chief Financial Officer
13
Item 6.
EXHIBIT INDEX
-----------------
Exhibit
-------
No.
---
15 Independent Accountants' Letter
Regarding Unaudited Financial
Information
99 Certain Factors Regarding Future
Results
14