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, 1997
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)
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 April 22, 1997 was 16,182,794 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--March 31, 1997 1
and December 31, 1996
Consolidated Statements of Income--Three
Months Ended March 31, 1997 and March 31, 1996 2
Consolidated Statements of Cash Flows--Three
Months Ended March 31, 1997 and March 31, 1996 3
Notes to Consolidated Financial Statements 4
Review Report of Independent Accountants 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports Filed on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 12
Trademarks used in this Form 10-Q: ANSYS(R) is a registered trademark and
ANSYS/AutoFEA(TM) and DesignSpace(TM) are trademarks 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 information)
March 31, December 31,
1997 1996
-------------- -------------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $19,933 $17,069
Accounts receivable, less
allowance for doubtful accounts
of $1,145 in 1997 and
$950 in 1996 6,783 7,307
Other current assets 552 350
Deferred income taxes 422 422
-------------- -------------
Total current assets 27,690 25,148
Securities available for sale 643 673
Property and equipment, net 5,115 4,334
Capitalized software costs, net of
accumulated amortization of $15,407 in
1997 and $14,328 in 1996 166 1,174
Goodwill, net of accumulated
amortization of $14,671 in 1997 and
$13,652 in 1996 - 1,019
Other intangibles, net 1,661 1,756
Deferred income taxes 9,337 9,327
-------------- -------------
Total assets $44,612 $43,431
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 146 $ 486
Accrued bonuses 777 2,281
Accrued pension and profit sharing 1,042 11
Other accrued expenses and
liabilities 1,920 1,690
Accrued income taxes payable 5 677
Customer prepayments 1,375 1,447
Deferred revenue 5,539 3,865
-------------- -------------
Total liabilities 10,804 10,457
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value;
50,000,000 shares authorized;
16,256,344 and 16,228,985 shares
issued in 1997 and 1996,
respectively 162 162
Additional paid-in capital 35,921 35,755
Less treasury stock, at cost:
72,650 shares held in 1997 and
71,600 shares held in 1996 (12) (12)
Retained earnings (deficit) (2,413) (3,073)
Unrealized appreciation in securities
available for sale, net 424 444
Notes receivable from stockholders (274) (302)
-------------- -------------
Total stockholders' equity 33,808 32,974
-------------- -------------
Total liabilities and
stockholders' equity $44,612 $43,431
============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
1
ANSYS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three months ended
----------------------------
March 31, March 31,
1997 1996
------------- -------------
Revenue:
Software licenses $ 9,105 $ 8,385
Maintenance and service 2,908 2,348
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Total revenue 12,013 10,733
Cost of sales:
Software licenses 621 666
Maintenance and service 570 529
------------- ------------
Total cost of sales 1,191 1,195
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Gross profit 10,822 9,538
Operating expenses:
Selling and marketing 2,978 2,169
Research and development 2,770 2,330
Amortization 2,253 2,719
General and administrative 1,923 1,850
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Total operating expenses 9,924 9,068
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Operating income 898 470
Interest expense - (888)
Other income 147 91
------------- ------------
Income (loss) before income tax provision (benefit) 1,045 (327)
Income tax provision (benefit) 386 (126)
------------- ------------
Net income (loss) $ 659 $ (201)
============= ============
Net income (loss) applicable to common stock:
Net income (loss) $ 659 $ (201)
Redeemable preferred stock dividends - (102)
------------- ------------
$ 659 $ (303)
============= ============
Net income (loss) per common share:
Net income (loss) $0.04 $(0.02)
============= ============
Shares used in computing per common
share amounts 16,624,000 12,457,000
============= ============
The accompanying notes are an integral part of the consolidated financial
statements.
2
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
-----------------------
March 31, March 31,
1997 1996
-----------------------
Cash flows from operating activities:
Net income (loss) $ 659 $ (201)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 2,577 2,951
Deferred income tax benefit (10) (595)
Provision for bad debts 195 13
Change in operating assets and
liabilities:
Accounts receivable 329 (3,758)
Other current assets (202) (91)
Accounts payable, accrued (1,317) (934)
expenses and liabilities and
customer prepayments
Deferred revenue 1,674 999
----------- ----------
Net cash provided by (used in)
operating activities 3,905 (1,616)
----------- ----------
Cash flows from investing activities:
Capital expenditures (1,165) (111)
Capitalization of internally
developed software costs (70) -
Notes receivable from stockholders - 32
----------- ----------
Net cash used in investing
activities (1,235) (79)
----------- ----------
Cash flows from financing activities:
Payments on long-term debt - (1,250)
Proceeds from issuance of
restricted stock - 326
Proceeds from issuance of common
stock under employee stock
purchase plan 157 -
Proceeds from exercise of stock
options 9 106
Repayment of stockholder notes 28 -
Purchase of treasury stock - (1)
----------- ----------
Net cash provided by (used in)
financing activities 194 (819)
----------- ----------
Net increase (decrease) in cash and
cash equivalents 2,864 (2,514)
Cash and cash equivalents, beginning of
period 17,069 8,091
----------- ----------
Cash and cash equivalents, end of
period $19,933 $ 5,577
=========== ==========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest - $ 458
Income taxes $ 900 -
Supplemental non cash investing and
financing activities:
Decrease in securities available for
sale (30) -
The accompanying notes are an integral part of the consolidated financial
statements.
3
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 months ended
March 31, 1997 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, 1996. 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, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
4
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------
To the Shareholders and Board of Directors of
ANSYS, Inc. and Subsidiaries:
We have reviewed the unaudited condensed consolidated balance sheet of ANSYS,
Inc. and Subsidiaries as of March 31, 1997 , the unaudited condensed
consolidated statements of operations and cash flows for the three-month periods
ended March 31, 1997 and 1996, which are included in ANSYS' Form 10-Q for the
period ended March 31, 1997. 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 an expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express 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, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (not presented
herein). In our report dated February 7, 1997, 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, 1996, 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
April 21, 1997
5
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 March 31, 1997 and March 31,
1996 and with the Company's audited consolidated financial statements and notes
thereto for the year ended December 31, 1996.
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, among other things, lower than expected demand for or the ability to
complete large contracts, as well as other risks and uncertainties that are
detailed in the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section in the 1996 Annual Report to Shareholders , 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 March 31, 1997 Compared to Three Months Ended March 31, 1996
Revenue. The Company's revenue increased 11.9% for the 1997 quarter to $12.0
million from $10.7 million for the 1996 quarter. This increase resulted from an
increase in revenue from renewals of leases as noncancellable annual leases, for
which a portion of the annual license fee is recognized as paid-up revenue upon
renewal or inception of the lease, while the remaining portion is recognized as
maintenance revenue ratably over the remaining lease period. The increase in
revenue in the 1997 quarter was also attributable to increased domestic and
international sales of paid-up licenses, increased maintenance and services
revenue and increased sales of new noncancellable annual leases. These increases
were due, in part, to the active sales and licensing of noncancellable annual
leases to existing and new lease customers, the Company's continued marketing
emphasis, and broader customer usage of maintenance and support services in
response to the Company's increased emphasis on marketing its maintenance
services.
Software license revenue increased 8.6% for the 1997 quarter to $9.1 million
from $8.4 million for the 1996 quarter, resulting from a shift in existing
monthly lease customers renewing as noncancellable annual leases, as well as
increased sales of paid-up licenses in domestic and international markets and
sales of new noncancellable annual leases. Revenue from the sales of paid-up
licenses, and the portion of noncancellable annual leases classified as paid-up
revenue, increased 49.1% for the 1997 quarter to $5.4 million from $3.6 million
for the 1996 quarter. The Company also experienced a 22.1% decrease in
6
lease license revenue to $3.7 million for the 1997 quarter from $4.8 million for
the 1996 quarter. This decrease was attributable to both an increase in the
renewal of existing monthly leases as noncancellable annual leases, as well as
the conversion of certain existing lease licenses to paid-up licenses in the
third and fourth quarters of 1996. Maintenance and service revenue increased
23.9% for the 1997 quarter to $2.9 million from $2.3 million for the 1996
quarter, as a result of an increase in the sale of paid-up licenses, an increase
in the renewal of noncancellable annual leases, broader customer usage of
maintenance and support services and reduction in the warranty period.
Of the Company's total revenue for the 1997 quarter, approximately 51.4% and
48.6% were attributable to domestic and international sales, as compared to
48.4% and 51.6% for the 1996 quarter.
Cost of Sales and Gross Profit. The Company's total cost of sales remained
relatively stable at $1.2 million for the 1997 and 1996 quarters, representing
9.9% and 11.1% of total revenue, respectively. The Company's cost of sales for
software license revenue decreased 6.8% for the 1997 quarter to $621,000, or
6.8% of software license revenue, from $666,000, or 7.9% of software license
revenue, for the 1996 quarter. This decrease was attributable to a reduction of
expenses through lower headcount and a reduction in product media and packaging
costs, and was partially offset by increased royalty fees. The Company's cost
of sales for maintenance and service revenue was $570,000 and $529,000, or 19.6%
and 22.5% of maintenance and service revenue, for the 1997 and 1996 quarters,
respectively, reflecting increases in headcount, royalties and consulting fees.
As a result of the foregoing, the Company's gross profit increased 13.5% to
$10.8 million for the 1997 quarter from $9.5 million for the 1996 quarter.
Selling and Marketing. Selling and marketing expenses increased 37.3% for the
1997 quarter to $3.0 million, or 24.8% of total revenue, from $2.2 million, or
20.2% of total revenue, for the 1996 quarter. This planned growth was
attributable principally to increased personnel costs, including costs
associated with increased headcount and compensation expenses related to
building a global sales and marketing organization and establishing strategic
offices in the UK, Japan and Michigan, as well as increased commissions
associated with increased revenue.
Research and Development. Research and development expenses increased 18.9% for
the 1997 quarter to $2.8 million, or 23.1% of total revenue, from $2.3 million,
or 21.7% of total revenue, for the 1996 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.
Amortization. Amortization expense was $2.3 million in the 1997 quarter as
compared to $2.7 million in the 1996 quarter. This amortization expense resulted
principally from the acquisition of the Company in 1994 (the "1994 Acquisition")
and relates to intangible assets, including goodwill, which are being amortized
from the date of the acquisition, March 14, 1994. The decrease in amortization
expense was primarily due to the unamortized portion of the goodwill and
capitalized software acquired in connection with the 1994 Acquisition being
fully amortized during the 1997 quarter.
General and Administrative. General and administrative expenses remained
relatively stable at $1.9 million for the 1997 and 1996 quarters, representing
16.0% and 17.2% of total revenue, respectively. The Company has maintained a
relatively stable headcount, while adding internal legal and financial resources
to support the operations of a publicly owned company. In addition, the Company
also incurred expenses related to the increase in the allowance for doubtful
accounts, which was offset by a reduction in consulting fees.
7
Interest. Interest expense, which was zero in the 1997 quarter, totaled
$888,000 for the 1996 quarter. This decrease was attributable to the early
repayment of all outstanding debt related to the 1994 Acquisition with the net
proceeds from the Company's initial public offering in June 1996.
Income Tax Provision (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 37.0% for the
1997 quarter, as compared to 38.5% for the 1996 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 (Loss). The Company's net income in the 1997 quarter was $659,000 as
compared to a net loss of $303,000 in the 1996 quarter. Net income per share
increased to $.04 in the 1997 quarter as compared to a net loss per share of
($.02) in the 1996 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. The weighted average common and common equivalent shares increased to
16,624,000 in the 1997 quarter from 12,457,000 in the 1996 quarter, primarily as
a result of the Company's initial public offering.
Liquidity and Capital Resources
As of March 31, 1997, the Company had cash and cash equivalents of $19.9 million
and working capital of $16.9 million, as compared to cash and cash equivalents
of $17.1 million and working capital of $14.7 million at December 31, 1996.
The Company's operating activities provided cash of $3.9 million for the three
months ended March 31, 1997 and used cash of $1.6 million for the three months
ended March 31, 1996. The increase in the Company's cash flow from operations
in the 1997 quarter as compared to the 1996 quarter is the result of increased
earnings before the effect of depreciation and amortization, as well as improved
management of working capital.
Cash used in investing activities was $1.2 million for the three months ended
March 31, 1997 and $79,000 for the three months ended March 31, 1996. The
Company's use of cash in these periods was substantially related to capital
expenditures. The Company expects to spend approximately $4.5 million for
capital equipment in 1997, principally for the acquisition of furniture and
equipment for the new corporate office facility, which the Company initially
occupied in February 1997, as well as computer hardware and software to support
the continued growth of the Company's development activities and the expansion
of its global sales and support infrastructure. However, the level of spending
will be dependent upon various factors, including the growth of the business and
general economic conditions.
Financing activities provided net cash of $194,000 for the three months ended
March 31, 1997 and used cash of $819,000 for the three months ended March 31,
1996. Cash provided from financing activities for the 1997 and 1996 quarters
principally related to proceeds from issuance of common stock under employee
stock and option plans. Cash used for financing activities for the 1996 quarter
primarily constituted principal repayments made on outstanding indebtedness
related to the 1994 Acquisition, which was fully repaid with net proceeds from
the Company's initial public offering in June 1996.
8
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.128, "Earnings per Share." The new standard,
which is effective for financial statements issued for periods ending after
December 15, 1997, establishes standards for computing and presenting earnings
per share (EPS) and requires restatement of all prior-period EPS data presented.
Management believes that the implementation of the standard will not have a
material effect on its consolidated financial statements.
9
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 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.
10
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: April 22, 1997 By: /s/ Peter J. Smith
------------------------------------------------------
Peter J. Smith
Chairman, President and Chief Executive Officer
Date: April 22, 1997 By: /s/ John M. Sherbin II
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John M. Sherbin II
Chief Financial Officer; Vice President, Finance and
Administration; Secretary
11
Item 6.
EXHIBIT INDEX
-------------
Exhibit No.
-----------
15 Independent Accountants' Letter Regarding
Unaudited Financial Information
27.1 Financial Data Schedule
99 Certain Factors Regarding Future Results
12