UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 chapter)
DELAWARE 04-3219960
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
201 Johnson Road, Houston, PA 15342-1300
(Address of principal executive offices) (Zip Code)
412-746-3304
(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 November 8, 1996 was 16,154,957
shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets--September 30, 1
1996 and December 31, 1995
Consolidated Statements of Income--Three and
Nine Months Ended September 30, 1996 and
September 30, 1995 2
Consolidated Statements of Cash Flows--Nine
Months Ended September 30, 1996 and September
30, 1995 3
Notes to Consolidated Financial Statements 4
Review Report of Independent Accountants 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports Filed on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
Trademarks used in this Form 10-Q: ANSYS is a registered trademark and
ANSYS/AUTOFEA and DesignSpace are a trademark of SAS IP, Inc., a wholly-owned
subsidiary of ANSYS, Inc.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30, December 31,
1996 1995
------------- ------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 9,310 $ 8,091
Accounts receivable, less
allowance for doubtful accounts
of $747 in 1996 and $700 in 1995 11,755 7,666
Refundable and prepaid income taxes - 1,497
Other current assets 529 439
Deferred income taxes 324 356
------------- ------------
Total current assets 21,918 18,049
Securities available for sale 915 -
Property and equipment, net 3,720 3,163
Capitalized software costs, net of
accumulated amortization of $13,036 in
1996 and $9,179 in 1995 2,466 6,207
Goodwill, net of accumulated amortization
of $12,429 in 1996 and $8,762 in 1995 2,241 5,909
Other intangibles, net 1,852 2,807
Deferred income taxes 8,888 6,786
------------- ------------
Total assets $42,000 $ 42,921
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable $ 60 $ 639
Accrued bonuses 1,862 1,952
Accrued pension and profit sharing 635 387
Other accrued expenses and 2,423 1,753
liabilities
Accrued interest payable on - 1,155
subordinated debt
Customer prepayments 1,898 972
Deferred revenue 2,817 2,995
Current portion of long-term debt - 5,000
------------- ------------
Total current liabilities 9,695 14,853
Long-term debt, less current portion
including amounts due to related
parties of $17,204 in 1995 - 33,204
------------- ------------
Total liabilities 9,695 48,057
Redeemable preferred stock, $.01 par
value, 800 shares authorized; 412
shares issued and outstanding;
atliquidation value, including accrued
dividends of $772 in 1995 - 4,893
Stockholders' equity (deficit):
Common stock, $.01 par value;
50,000,000 shares authorized;
16,221,700 shares issued in 1996;
10,626,000 shares issued in 1995 162 106
Class A common stock, $.01 par
value; nonvoting, 2,000,000
shares authorized; 993,750
shares issued and outstanding in
1995 - 10
Additional paid-in capital 35,750 1,352
Adjustment for predecessor basis - (7,010)
Less treasury stock, at cost:
71,600 shares held in 1996 and
54,850 in 1995 (12) (10)
Retained earnings (deficit) (3,896) (4,142)
Unrealized appreciation in
securities available for sale, net 604 -
Notes receivable from stockholders (303) (335)
------------- ------------
Total stockholders' equity (deficit) 32,305 (10,029)
------------- ------------
Total liabilities, preferred stock
and common stockholders' equity
(deficit) $42,000 $ 42,921
============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
1
ANSYS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except share and per share data)
(unaudited)
Three months Ended Nine months ended
---------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Revenue:
Software licenses $ 10,206 $ 8,536 $ 27,428 $ 23,523
Maintenance and service 2,455 1,987 7,306 4,564
------------ ------------ ------------ ------------
Total revenue 12,661 10,523 34,734 28,087
Cost of sales:
Software licenses 828 726 2,310 2,697
Maintenance and service 575 342 1,828 949
------------ ------------ ------------ ------------
Total cost of sales 1,403 1,068 4,138 3,646
------------ ------------ ------------ ------------
Gross profit 11,258 9,455 30,596 24,441
Operating expenses:
Selling and marketing 2,733 1,738 7,181 5,100
Research and development 2,561 1,982 7,240 6,046
Amortization 2,670 2,663 8,103 7,983
General and administrative 1,999 1,660 5,655 4,655
------------ ------------ ------------ ------------
Total operating expenses 9,963 8,043 28,179 23,784
------------ ------------ ------------ ------------
Operating income 1,295 1,412 2,417 657
Interest expense - (978) (1,669) (2,994)
Other income 406 82 561 167
------------ ------------ ------------ ------------
Income (loss) before income tax (provision)
benefit and extraordinary item 1,701 516 1,309 (2,170)
Income tax (provision) benefit (635) (173) (485) 724
------------ ------------ ------------ ------------
Net income (loss) before extraordinary item 1,066 343 824 (1,446)
Extraordinary item, net - - (343) -
------------ ------------ ------------ ------------
Net income (loss) $ 1,066 $ 343 $ 481 $ (1,446)
============ ============ ============ ============
Net income (loss) applicable to common stock:
Net income (loss) $ 1,066 $ 343 $ 481 $ (1,446)
Redeemable preferred stock dividends - (104) (236) (325)
------------ ------------ ------------ ------------
$ 1,066 $ 239 $ 245 $ (1,771)
============ ============ ============ ============
Net income (loss) per common share:
Net income (loss) before extraordinary item $ 0.06 $ 0.02 $ 0.04 $ (0.14)
Extraordinary item $ - $ - $ (0.02) $ -
------------ ------------ ------------ ------------
Net income (loss) $ 0.06 $ 0.02 $ 0.02 $ (0.14)
============ ============ ============ ============
Shares used in computing per common
share amounts 16,700,000 12,946,000 14,573,000 12,268,000
============ ============ ============ ============
2
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
-----------------------------
September 30, September 30,
1996 1995
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 481 $(1,446)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 8,913 8,481
Extraordinary item 553 -
Deferred income tax benefit (2,381) (1,777)
Provision for bad debts 47 (3)
Change in operating assets and
liabilities:
Accounts receivable (4,136) (1,673)
Refundable and prepaid income
taxes 1,497 261
Other current assets (90) 124
Accounts payable, accrued
expenses and liabilities and
customer prepayments 20 1281
Deferred revenue (178) 859
------------- -------------
Net cash provided by
operating activities 4,726 6,107
------------- -------------
Cash flows from investing activities:
Capital expenditures (1,542) (1,193)
Capitalization of internally
developed software costs (117) (9)
Payments for software products
acquired - (175)
Notes receivable from stockholders 32 (29)
------------- -------------
Net cash used in investing
activities (1,627) (1,406)
------------- -------------
Cash flows from financing activities:
Payments on long-term debt (21,000) (4,000)
Proceeds from issuance of
restricted stock 326 -
Proceeds from exercise of stock
options 113 -
Repayment of subordinated notes (17,204) -
Redemption of preferred stock and
accumulated dividends (5,128) -
Purchase of treasury stock (2) (4)
Proceeds from initial public
offering, net of issuance costs
of $1,300 41,015 -
------------- -------------
Net cash used in financing
activities (1,880) (4,004)
------------- -------------
Net increase in cash and cash
equivalents 1,219 697
Cash and cash equivalents, beginning of
period 8,091 4,300
------------- -------------
Cash and cash equivalents, end of
period 9,310 4,997
============= =============
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest 2,848 3,182
Income taxes 1,136 1,826
Supplemental non cash investing and
financing activities:
Deferred interest notes issued for
interest in arrears on subordinated
notes - 508
Increase in securities available for
sale 915 -
The accompanying notes are an integral part of the consolidated financial
statements.
3
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SETPEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited 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 and nine
months ended September 30, 1996 should be read in conjunction with the Company's
consolidated financial statements (and notes thereto) included in the Company's
Form S-1 dated June 20, 1996 which includes the year ended December 31, 1995.
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 and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
2. INITIAL PUBLIC OFFERING
Effective June 20, 1996, the Company completed its initial public offering of
3,500,000 shares of Common Stock at $13.00 per share. The net proceeds (after
deducting underwriting discounts and commissions and offering expenses) totaled
$41.0 million and were used as follows: i) the repayment of approximately $18.5
million of senior secured indebtedness (the "1994 Loan"), including accrued and
unpaid interest; ii) the repayment of $17.5 million of 10% Subordinated Notes
(the "Subordinated Notes") including accrued and unpaid interest; and iii) the
redemption of $5.1 million of Redeemable Preferred Stock, including accumulated
dividends.
3. EXTRAORDINARY ITEM
The Company incurred an extraordinary item for the nine months ended September
30, 1996 of $343,000, net of income tax benefit. In connection with the
acquisition of its business in 1994 (the "1994 Acquisition"), the Company
capitalized $925,000 of debt issuance costs and $179,000 associated with an
interest rate cap agreement, the unamortized portion of which totaled $552,866
at June 20, 1996. As a result of the early repayment of the 1994 Loan with a
portion of the net proceeds from its initial public offering in June 1996, the
Company has written-off the unamortized balance as an extraordinary non-cash
charge in the nine months ended September 30, 1996.
4
4. SECURITIES AVAILABLE FOR SALE
The Company has investments in marketable equity securities that have been
classified under the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", as available-for-sale. Accordingly,
these investments are carried at fair value, with the unrealized gains and
losses, net of tax, reported in a separate component of stockholders' equity.
5. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during each period. Common
equivalent shares are not included in the per share calculations where their
inclusion would be antidilutive, except that, in accordance with certain
Securities and Exchange Commission (SEC) Staff Accounting Bulletins, common and
common equivalent shares issued within 12 months of the initial public offering
date have been included in the calculation as if they were outstanding for all
periods prior to June 20,1996, using the treasury stock method and the initial
public offering price. Such shares totaled 690,680. Common equivalent shares
also consist of the common shares issuable upon the exercise of stock options
(using the treasury stock method). Primary and fully diluted net income (loss)
per share are the same for all periods presented.
5
[LOGO OF COOPERS & LYBRAND]
Coopers & Lybrand, L.L.P.
600 Grant Street telephone (412) 355-8000
35th Floor
Pittsburgh, Pennsylvania facsimile (412) 355-8089
15219-2777
a professional services firm
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors
ANSYS, Inc. and Subsidiaries
We have reviewed the unaudited condensed consolidated balance sheet of ANSYS,
Inc. and subsidiaries as of September 30, 1996, the unaudited condensed
consolidated statements of income for the three-month and nine-month periods
ended September 30, 1996 and 1995, and condensed consolidated statements of cash
flows for the nine-month periods ended September 30, 1996 and 1995, which are
included in ANSYS's Form 10-Q for the period ended September 30, 1996. These
financial statements are the responsibility of ANSYS'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 generally accepted auditing
standards, the consolidated balance sheet of ANSYS, Inc. and subsidiaries as of
December 31, 1995, and the related consolidated statements of income,
stockholders' equity (deficit) and cash flows for the year then ended (not
presented herein). In our report dated April 19, 1996, 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, 1995, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ Coopers & Lybrand L.L.P.
Pittsburgh, Pennsylvania
October 21, 1996
6
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 CAD integrated products. A global network
of ANSYS Support Distributors ("ASDs") provides sales, support and training for
customers. Additionally, the Company distributes its ANSYS/AutoFEA(TM)
product through its global network of ASDs as well as a network of independent
distributors and dealers (Value-added resellers or "VARs") who support sales of
ANSYS/AutoFEA(TM) to end users throughout the world. The following discussion
should be read in conjunction with the attached unaudited consolidated financial
statements and notes thereto for the periods ended September 30, 1996 and
September 30, 1995 and with the Company's audited financial statements and notes
thereto for the fiscal year ended December 31, 1995.
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. The Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include possible delays in developing, completing or shipping new or
enhanced products, potential volatility of revenues and profit in any period due
to lower than expected demand for large contracts, as well as other risks and
uncertainties that are detailed from time to time in reports filed by ANSYS,
Inc. with the Securities and Exchange Commission, including ANSYS, Inc.'s
registration statement on Form S-1 and related prospectus dated June 20, 1996,
and the "Risk Factors" described therein, and in the statement of "Certain
Factors Affecting Future Results" included herein as Exhibit 99 to this
Form 10-Q.
Results of Operations
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Revenue. The Company's revenue increased 20.3% for the 1996 quarter to $12.7
million from $10.5 million for the 1995 quarter. This increase was attributable
principally to increased domestic and international sales of paid-up licenses
and increased maintenance and services revenue, both of which resulted primarily
from the Company's increased marketing emphasis, market acceptance of new
product releases and broader customer usage of maintenance and support services
in response to accelerated frequency of product releases and the Company's
increased emphasis on marketing its maintenance services.
Software license revenue increased 19.6% for the 1996 quarter to $10.2 million
from $8.5 million for the 1995 quarter, resulting from increased sales of paid-
up licenses in domestic and international markets. Revenue from sales of paid-
up licenses increased 49.0% for the 1996 quarter to $5.9 million from $4.0
million for the 1995 quarter. The Company's paid-up license revenue reflected
recognition of substantial revenue from several large contracts that were
formalized during the 1996 quarter from customers such as General Electric, 3M,
Pratt & Whitney and Fiat Avio. The Company believes that large contracts of this
type may reflect an increasing demand for enterprise wide software solutions
from certain of the Company's customers, which, if continued, may increase the
volatility of the Company's revenues and profit from period to period. The
Company also experienced a 5.8% decrease in lease license revenue to $4.3
million for the 1996 quarter from $4.6 million for the 1995 quarter. This
decrease was attributable to
7
an increase in noncancellable annual leases, for which a portion of the annual
license fee is recognized as paid-up revenue upon inception of the lease.
Additionally, the decrease is partially attributable to the conversion of
certain lease licenses to paid-up licenses in the 1996 quarter. Maintenance and
service revenue increased 23.5% for the 1996 quarter to $2.5 million from $2.0
million for the 1995 quarter, as a result of the increase in the sale of paid-up
licenses, broader customer usage of maintenance and support services and
reduction in the warranty period.
Of the Company's total revenue for the 1996 quarter, approximately 54.4% and
45.6%, respectively, were attributable to domestic and international sales, as
compared to 48.0% and 52.0%, respectively, for the 1995 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
31.4% to $1.4 million, or 11.1% of total revenue, for the 1996 quarter from $1.1
million, or 10.2% of total revenue, for the 1995 quarter. The Company's cost of
sales for software license revenue increased 14.0% for the 1996 quarter to
$828,000, or 8.1% of software license revenue, from $726,000, or 8.5% of
software license revenue, for the 1995 quarter. The increase was due primarily
to an increase in royalty fees. The Company's cost of sales for maintenance and
service revenue was $575,000 and $342,000, or 23.4% and 17.2% of maintenance and
service revenue, for the 1996 and 1995 quarters, respectively. This 68.1%
increase in the 1996 quarter as compared to the 1995 quarter reflects an
increase in royalties, consulting fees and headcount.
As a result of the foregoing, the Company's gross profit increased 19.1% to
$11.3 million for the 1996 quarter from $9.5 million for the 1995 quarter.
Selling and Marketing. Selling and marketing expenses increased 57.3% for the
1996 quarter to $2.7 million, or 21.6% of total revenue, from $1.7 million, or
16.5% of total revenue, for the 1995 quarter. This growth was attributable
principally to increased personnel costs, including costs associated with
increased headcount and compensation expenses related to building a sales and
marketing organization, as well as increased commissions associated with
increased revenue and increased advertising costs.
Research and Development. Research and development expenses increased 29.2% for
the 1996 quarter to $2.6 million, or 20.2% of total revenue, from $2.0 million,
or 18.8% of total revenue, for the 1995 quarter. This increase resulted
primarily from employment of additional staff and independent contractors to
develop and enhance the Company's products, including a dedicated team working
on the development of the Company's DesignSpace(TM) product, costs associated
with quality assurance and additional depreciation expense related to equipment
purchases made to implement and enhance a multi-platform development
environment.
Amortization. Amortization expense was $2.7 million in the third quarter in
both 1996 and 1995. This amortization expense resulted from the 1994 Acquisition
and relates primarily to intangible assets, including goodwill, which are being
amortized from the date of the 1994 Acquisition, March 14, 1994. The unamortized
portion of the goodwill and capitalized software acquired in connection with the
1994 Acquisition will be fully amortized in the first quarter of 1997.
General and Administrative. General and administrative expenses increased 20.4%
to $2.0 million, or 15.8% of total revenue, for the 1996 quarter from $1.7
million, or 15.8% of total revenue, for the 1995 quarter. The Company has
maintained a relatively stable headcount while adding administrative support
services, such as computerized order fulfillment and corporate-wide information
technology systems, to support its future operations. The Company also incurred
additional expenses as a result of becoming a publicly owned company.
8
Interest. Interest expense decreased 100.0% for the 1996 quarter to $0 from
$978,000 for the 1995 quarter. This decrease was attributable to the early
repayment of the 1994 Loan and the Subordinated Notes with the net proceeds from
the initial public offering in June 1996.
Other Income. Other income increased for the 1996 quarter to $406,000 as
compared to $82,000 for the 1995 quarter. Approximately $331,000 of this
increase was related to the repayment of a note receivable and related past-due
interest which had previously been determined by the Company to be
uncollectible.
Income Tax Benefit. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company's effective rate of taxation was 37.3% for the 1996 quarter,
as compared to 33.5% for the 1995 quarter. These percentages are less than the
federal and state combined statutory rate of approximately 39.0% due primarily
to the utilization of research and experimentation credits.
Net Income. The Company's net income increased in the third quarter of 1996 to
$1,066,000 from net income of $343,000 in the 1995 quarter. Net income per share
increased to $.06 in the 1996 quarter from $.02 in the 1995 quarter. The
increase in net income per share is attributable to the increase in net income,
as well as the elimination of the preferred stock dividends due to the
redemption of the Redeemable Preferred Stock, which occurred at the time of the
Company's initial public offering in June 1996. The weighted average common and
common equivalent shares used in computing per common shares amounts have
increased to 16,700,000 in the 1996 quarter from 12,946,000 in the 1995 quarter,
primarily as a result of the initial public offering.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Revenue. The Company's revenue increased 23.7% for the comparative nine months
to $34.7 million from $28.1 million. This increase was attributable principally
to increased domestic and international sales of paid-up licenses and increased
maintenance and services revenue, both of which resulted primarily from the
Company's increased marketing emphasis, market acceptance of new product
releases and broader customer usage of maintenance and support services in
response to accelerated frequency of product releases and the Company's
increased emphasis on marketing its maintenance services.
Software license revenue increased 16.6% for the 1996 nine months to $27.4
million from $23.5 million for the 1995 nine months, resulting principally from
increased sales of paid-up licenses in domestic and international markets.
Revenue from sales of paid-up licenses increased 38.3% for the 1996 nine months
to $13.9 million from $10.0 million for the 1995 nine months. The Company's
paid-up license revenue reflected recognition of substantial revenue from
several large contracts that were formalized during the 1996 quarter from
customers such as General Electric, 3M, Pratt & Whitney and Fiat Avio. The
Company believes that large contracts of this type may reflect an increasing
demand for enterprise wide software solutions from certain of the Company's
customers, which, if continued, may increase the volatility of the Company's
revenues and profit from period to period. The Company's lease license revenue
remained stable at $13.5 million for the 1996 and 1995 nine month periods.
Maintenance and service revenue increased 60.1% for the 1996 nine months to $7.3
million from $4.6 million for the 1995 nine months, as a result of a substantial
increase in the sale of paid-up licenses, broader customer usage of maintenance
and support services and reduction in the warranty period.
Of the Company's total revenue for the 1996 nine months, approximately 50.7% and
49.3%, respectively, were attributable to international and domestic sales, as
compared to 53.9% and 46.1%, respectively, for the 1995 nine months.
Cost of Sales and Gross Profit. The Company's total cost of sales increased
13.5% to $4.1 million, or 11.9% of total revenue, for the 1996 nine months from
$3.6 million, or 13.0% of total revenue, for the
9
1995 nine months. The Company's cost of sales for software license revenue
decreased 14.4% for the 1996 nine months to $2.3 million, or 8.4% of software
license revenue, from $2.7 million, or 11.5% of software license revenue, for
the 1995 nine months. The decrease was due primarily to a reduction of expenses
through lower headcount and cost controls and implementation of a more efficient
multi-platform development environment for the Company's product releases and
was partially offset by increased royalty fees. The Company's cost of sales for
maintenance and service revenue was $1,827,000 and $949,000, or 25.0% and 20.8%
of maintenance and service revenue, for the 1996 and 1995 nine months,
respectively. This 92.5% increase in the 1996 nine months as compared to the
1995 nine months reflects an increase in headcount, consulting fees and
royalties.
As a result of the foregoing, the Company's gross profit increased 25.2% to
$30.6 million for the 1996 nine months from $24.4 million for the 1995 nine
months.
Selling and Marketing. Selling and marketing expenses increased 40.8% for the
1996 nine months to $7.2 million, or 20.7% of total revenue, from $5.1 million,
or 18.2% of total revenue, for the 1995 nine months. The increase in selling and
marketing expenses resulted primarily from increased personnel costs, including
costs associated with increased headcount and compensation expenses related to
the establishment of a sales force to support the Company's distribution
network, as well as increased commissions associated with increased revenue and
increased advertising costs.
Research and Development. Research and development expenses increased 19.8% for
the 1996 nine months to $7.2 million, or 20.8% of total revenue, from $6.0
million, or 21.5% of total revenue, for the 1995 nine months. This increase
resulted primarily from employment of additional staff and independent
contractors to develop and enhance the Company's products, including a dedicated
team working on the development of the Company's DesignSpace(TM) product, costs
associated with quality assurance and additional depreciation expense related to
equipment purchases made to implement and enhance a multi-platform development
environment.
Amortization. Amortization expense was $8.1 million for the 1996 nine months
and $8.0 million for the 1995 nine months. This amortization expense resulted
from the 1994 Acquisition and relates primarily to intangible assets, including
goodwill, which are being amortized from the date of the 1994 Acquisition, March
14, 1994. The unamortized portion of the goodwill and capitalized software
acquired in connection with the 1994 Acquisition will be fully amortized in the
first quarter of 1997.
General and Administrative. General and administrative expenses increased 21.5%
for the 1996 nine months to $5.7 million, or 16.3% of total revenue, from $4.7
million, or 16.6% of total revenue, for the 1995 nine months. The Company has
maintained a relatively stable headcount while adding administrative support
services, such as a computerized order fulfillment and corporate-wide
information technology systems, to support its future operations. The Company
also incurred additional expenses as a result of becoming a publicly owned
company.
Interest. Interest expense decreased 44.3% for the 1996 nine months to $1.7
million from $3.0 million for the 1995 nine months. This decrease was
attributable to the early repayment of the 1994 Loan and the Subordinated Notes
with the net proceeds from the initial public offering in June 1996.
Other Income. Other income increased for the 1996 nine months to $561,000 from
$167,000 for the 1995 nine months. Approximately $331,000 of this increase was
related to the repayment of a note receivable and related past-due interest
which had previously been determined by the Company to be uncollectible.
Income Tax Benefit. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." The Company's effective rate of taxation was 37.1% for the 1996 nine
months, as compared to 33.4% for the 1995 nine months. These percentages
10
are less than the federal and state combined statutory rate of approximately
39.0% due primarily to the utilization of research and experimentation credits.
Net Income(Loss). The Company's net income before extraordinary item in the
nine months of 1996 was $824,000 compared to a net loss of $1,446,000 in the
1995 nine months. The net income including the extraordinary item in the 1996
nine months was $481,000. Net income per share increased to $.02 in the nine
months of 1996 as compared to a net loss of $.14 in the 1995 nine months. The
increase in net income per share is attributable to the increase in net income,
as well as the elimination of the preferred stock dividends due to the
redemption of the Redeemable Preferred Stock, which occurred at the time of the
Company's initial public offering in June 1996. The weighted average common and
common equivalent shares used in computing per common shares amounts have
increased to 14,573,000 in the nine months of 1996 from 12,268,000 in the 1995
nine months, primarily as a result of the initial public offering.
Liquidity and Capital Resources
As of September 30, 1996, the Company had cash and cash equivalents of $9.3
million and working capital of $12.2 million, as compared to cash and cash
equivalents of $8.1 million and working capital of $3.2 million at December 31,
1995. The improvement in the working capital position was due primarily to the
net proceeds of $41.0 million received from the Company's initial public
offering on June 25, 1996. The proceeds from the offering were used to repay the
1994 Loan and the Subordinated Notes, including accrued and unpaid interest, and
retire all of the Company's outstanding Redeemable Preferred Stock, including
accumulated dividends. Previously, the Company also had available to it a $1.0
million revolving line of credit with a commercial bank under a credit
facilities agreement. During the second quarter of 1996, the Company elected to
terminate the line of credit.
The Company's operating activities provided cash of $4.7 million for the nine
months ended September 30, 1996 and $6.1 million for the nine months ended
September 30, 1995. The Company's cash flow from operations decreased for the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995. This was a result of increased working capital requirements,
primarily relating to an increase in accounts receivable, resulting from an
increase in revenue and slower payments from certain ASDs.
Cash used in investing activities was $1.6 million for the nine months ended
September 30, 1996 and $1.4 million for the nine months ended September 30,
1995. The Company's use of cash in these periods was substantially related to
capital expenditures and internally developed software costs. The Company
expects to spend approximately $2.5 million for capital equipment in 1996
principally for the acquisition of computer hardware, software and equipment.
Financing activities used net cash of $1.9 million for the nine months ended
September 30, 1996 and $4.0 million for the nine months ended September 30,
1995. Cash provided from financing activities for the nine months ended
September 30, 1996 was due primarily to the net proceeds of $41.0 million
received from the Company's initial public offering on June 25, 1996 (see Note
2). Cash used for financing activities for the nine months ended September 30,
1996 was the result of the repayment of the 1994 Loan and Subordinated Notes,
payment of related unpaid interest and the redemption of the Redeemable
Preferred Stock and accumulated dividends. Cash used for the nine months ended
September 30, 1995 was the result of principal repayments made on the 1994 loan.
11
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
The new standard was implemented in the first quarter of 1996 and did not have a
material effect on the consolidated financial statements.
12
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults upon Secured Securities
Not Applicable.
Item 4. Submission of Matters to 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 Schedules
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: November 14, 1996 By: /s/ Peter J. Smith
---------------------------------------
Peter J. Smith
Chairman, President and Chief Executive Officer
Date: November 14, 1996 By: /s/ John M. Sherbin II
---------------------------------------
John M. Sherbin II
Vice President, Finance and Administration,
Secretary, Treasurer and Chief Financial Officer
14
Item 6.
EXHIBIT INDEX
-------------
Exhibit No.
- -------------
15 Independent Accountants' Letter Regarding Unaudited
Financial Information
27.1 Financial Data Schedules
99 Certain Factors Regarding Future Results
15