15
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, 1998
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 April 24,
1998 was 16,316,276 shares.
ANSYS, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION ---------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of 4
Income and Comprehensive Income - Three
Months Ended March 31, 1998 and March
31, 1997
Condensed Consolidated Statements of 5
Cash Flows - Three Months Ended March
31, 1998 and March 31, 1997
Notes to Condensed Consolidated 6
Financial Statements
Review Report of Independent Accountants 7
Item 2. Management's Discussion and Analysis of 8-12
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
Trademarks used in this Form 10-Q: ANSYSr and DesignSpacer are
registered trademarks of SAS IP, Inc., a wholly-owned subsidiary
of ANSYS, Inc.
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,
1998 1997
ASSETS (unaudited)
Current assets:
Cash and cash equivalents $ 14,024 $ 13,990
Short-term investments 19,242 13,853
Accounts receivable, less allowance for
doubtful accounts of $1,430 in 1998 and
$2,080 in 1997 6,929 8,034
Other current assets 815 926
Deferred income taxes 125 125
--------- ---------
Total current assets 41,135 36,928
Securities available for sale 287 182
Property and equipment, net 4,440 4,771
Capitalized software costs, net of
accumulated amortization of $15,502 in
1998 and $15,471 in 1997 229 260
Other intangibles, net 2,247 2,374
Deferred income taxes 8,843 9,066
----------- ---------
Total assets $ 57,181 $ 53,581
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 272 $ 235
Accrued bonuses 770 2,133
Other accrued expenses and liabilities 2,839 2,562
Accrued income taxes payable 836 46
Customer prepayments 518 746
Deferred revenue 8,596 7,445
----------- ---------
Total liabilities 13,831 13,167
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized - -
Common stock, $.01 par value; 50,000,000
shares authorized; 16,359,134 shares
issued in 1998 and 1997 164 164
Additional paid-in capital 36,186 36,089
Less treasury stock, at cost: 46,171
shares held in 1998 and 68,800 shares
held in 1997 (10) (12)
Retained earnings 7,094 4,327
Accumulated other comprehensive income 190 120
Notes receivable from stockholders (274) (274)
----------- ---------
Total stockholders' equity 43,350 40,414
----------- ---------
Total liabilities and
stockholders' equity $ 57,181 $ 53,581
=========== =========
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(in thousands, except share and per share data)
(Unaudited)
Three months ended
March 31, March 31,
1998 1997
---------- --------
Revenue:
Software licenses $ 9,299 $ 9,105
Maintenance and service 4,928 2,908
---------- --------
Total revenue 14,227 12,013
Cost of sales:
Software licenses 891 621
Maintenance and service 650 570
---------- --------
Total cost of sales 1,541 1,191
---------- --------
Gross profit 12,686 10,822
Operating expenses:
Selling and marketing 3,049 2,978
Research and development 3,093 2,770
Amortization 221 2,253
General and administrative 2,488 1,923
---------- --------
Total operating expenses 8,851 9,924
---------- --------
Operating income 3,835 898
Other income 357 147
---------- --------
Income before income tax provision 4,192 1,045
Income tax provision 1,425 386
---------- --------
Net income 2,767 659
---------- --------
Other comprehensive income, net of
tax expense of $36:
Unrealized gains(losses) on
securities 70 (20)
---------- --------
Other comprehensive income 70 (20)
---------- --------
Comprehensive income $2,837 $639
========== ========
Net income per basic common share:
Basic earnings per share $ 0.17 $ 0.04
Weighted average shares - basic 15,921 15,630
Net income per diluted common share:
Diluted earnings per share $ 0.17 $ 0.04
Weighted average shares - diluted 16,701 16,571
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three months ended
March 31, March 31,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $ 2,767 $ 659
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 660 2,577
Deferred income tax provision (benefit) 188 (10)
Provision for bad debts 225 195
Change in operating assets and liabilities:
Accounts receivable 880 329
Income taxes 790 -
Other current assets 111 (202)
Accounts payable, accrued expenses and
liabilities and customer prepayments (1,277) (1,317)
Deferred revenue 1,151 1,674
-------- --------
Net cash provided by operating
activities 5,495 3,905
-------- --------
Cash flows from investing activities:
Capital expenditures (170) (1,165)
Capitalization of internally developed
software costs - (70)
Purchase of short-term investments (5,389) -
-------- --------
Net cash used in investing activities (5,559) (1,235)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock
under Employee Stock Purchase Plan 94 157
Proceeds from issuance of treasury stock 5 -
Proceeds from exercise of stock options - 9
Repayment of stockholder notes - 28
-------- --------
Net cash provided by financing
activities 99 194
-------- --------
Net increase in cash and cash equivalents 34 2,864
Cash and cash equivalents, beginning of period 13,990 17,069
-------- --------
Cash and cash equivalents, end of period $ 14,024 $ 19,933
========= ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $265 $900
Supplemental non cash investing and financing
activities:
Increase (decrease) in securities available
for sale 105 (30)
The accompanying notes are an integral part of the condensed consolidated
financial statements.
ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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, 1998 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, 1997.
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, 1998 are
not necessarily indicative of the results that may be expected
for the year ending December 31, 1998.
2. NET INCOME PER SHARE
Effective December 31, 1997, the Company adopted Statement of
Financial Accounting standards No. 128, "Earnings Per Share."
This Statement requires the disclosure of basic and diluted
earnings per share and revises the method required to calculate
these amounts under previous standards. Earnings per share data
for the 1997 quarter has been restated to reflect adoption of
this Statement. The adoption of this standard did not materially
impact previously reported earnings per share for the 1997
quarter.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME BALANCES
(in thousands)
Accumulated
Unrealized Other
Gains on Comprehensive
Securities Income
Beginning balance $120 $120
Current-period change 70 70
Ending balance $190 $190
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, 1998, the related
condensed consolidated statements of income and comprehensive
income for the three-month periods ended March 31, 1998 and 1997,
and condensed consolidated cash flows for the three-month periods
ended March 31, 1998 and 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, 1997, and the related
consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein). In
our report dated January 29, 1998, 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, 1997, 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 16, 1998
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. A global network of
ANSYS Support Distributors ("ASDs") provides sales, support and
training for customers. Additionally, the Company distributes
its DesignSpacer products 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 DesignSpacer
products to end users throughout the world. 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, 1998 and
March 31, 1997 and with the Company's audited financial
statements and notes thereto for the fiscal year ended December
31, 1997.
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
which contain such words as "anticipate", "intend", "believe",
"plan" and other similar expressions. 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 uncertainties regarding customer
acceptance of new products, 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 1997 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, 1998 Compared to Three Months Ended
March 31, 1997
Revenue. The Company's total revenue increased 18.4% for the
1998 quarter to $14.2 million from $12.0 million for the 1997
quarter. This increase resulted from an increase in revenue from
renewals and sales 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
first quarter was also attributable to an increase in maintenance
and service revenue, which resulted from broader customer usage
of maintenance and support services and the Company's continued
emphasis on marketing these services. These increases were
partially offset by a decrease in monthly lease, as discussed in
the paragraph below, as well as a decrease in the demand for paid-
up licenses as compared to the 1997 quarter.
Software license revenue increased 2.1% for the 1998 quarter to
$9.3 million from $9.1 million for the 1997 quarter, resulting
from a shift in existing monthly lease customers renewing as
noncancellable annual leases, as well as 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 41.4% for the 1998
quarter to $7.6 million from $5.4 million for the 1997 quarter.
This increase was partially attributable to a refinement of
management's estimate relative to the allocation of
noncancellable annual lease revenue between paid-up and
maintenance revenue, which occurred in the 1998 quarter. The
refinement, which management believes more accurately reflects
the Company's current pricing and business practices, resulted in
a net revenue increase of approximately $980,000 in the 1998
quarter.
The Company also experienced a 54.6% decrease in monthly lease
license revenue to $1.7 million for the 1998 quarter from $3.7
million for the 1997 quarter. This decrease was primarily
attributable to 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 during the
course of the past year.
Maintenance and service revenue increased 69.5% for the 1998
quarter to $4.9 million from $2.9 million for the 1997 quarter,
as a result of both a broader customer usage of maintenance and
support services and the Company's increased emphasis on
marketing these services, as well as an increase in the renewal
and sale of noncancellable annual leases.
Of the Company's total revenue for the 1998 quarter,
approximately 54.1% and 45.9%, respectively, were attributable
to international and domestic sales, as compared to 53.3% and
46.7%, respectively, for the 1997 quarter.
Cost of Sales and Gross Profit. The Company's total cost of
sales increased 29.4% to $1.5 million, or 10.8% of total revenue,
for the 1998 quarter from $1.2 million, or 9.9% of total revenue,
for the 1997 quarter. The Company's cost of sales for software
license revenue increased 43.5% for the 1998 quarter to $891,000,
or 9.6% of software license revenue, from $621,000, or 6.8% of
software license revenue, for the 1997 quarter. The increase was
primarily due to increases in costs related to manuals, packing
supplies and media, and to a lesser extent salaries and benefits.
The Company's cost of sales for maintenance and service revenue
totaled $650,000 and $570,000, or 13.2% and 19.6% of maintenance
and service revenue, for the 1998 and 1997 quarters,
respectively. The increase in the 1998 quarter was principally
attributable to increases in salaries and benefits as additional
staff have been added to support the growth in global service
revenue and related customer and ASD support needs.
As a result of the foregoing, the Company's gross profit
increased 17.2% to $12.7 million for the 1998 quarter from $10.8
million for the 1997 quarter.
Selling and Marketing. Total selling and marketing expenses
remained relatively constant at $3.0 million for the 1998 and
1997 quarters, and represented 21.4% and 24.8% of total revenue,
respectively. During the 1997 quarter, the Company made
substantial initial investments in establishing strategic offices
in the United Kingdom, Japan and Michigan. These offices
continue as an important part of the Company's global sales and
marketing strategy in fiscal 1998. The Company anticipates that
it will continue to make significant investments throughout
fiscal 1998 in its global sales and marketing organization to
strengthen its competitive position and to support its worldwide
sales channels and marketing strategies.
Research and Development. Research and development expenses
totaled $3.1 million and $2.8 million for the 1998 and 1997
quarters, or 21.7% and 23.1% of total revenue, respectively. The
increase in the 1998 quarter as compared to the 1997 quarter was
primarily related to increases in consulting fees and salaries
and benefits, partially offset by a decrease in equipment lease
expense. The Company has traditionally invested significant
resources in research and development activities and intends to
continue to make significant investments in fiscal 1998.
Amortization. Amortization expense was $221,000 in the 1998
quarter as compared to $2.3 million in the 1997 quarter. This
significant decrease was attributable to the full amortization of
certain of the intangible assets which resulted from the
acquisition of the Company from Swanson Analysis Systems, Inc. in
1994, including goodwill and capitalized software, in the first
quarter of 1997.
General and Administrative. General and administrative expenses
increased 29.4% to $2.5 million, or 17.5% of total revenue, for
the 1998 quarter from $1.9 million, or 16.0% of total revenue,
for the 1997 quarter. The increase was primarily attributable to
an increase in legal fees related to a dispute regarding the
expiration of an ASD distribution agreement. Additionally, the
Company has added internal resources to support the growth of the
Company's operations and information systems.
Income Tax Provision. 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 34.0% for the 1998 quarter as compared to 37.0%
for the 1997 quarter. These percentages are less than the
federal and state combined statutory rate due primarily to the
utilization of research and experimentation credits, as well as
the use of a foreign sales corporation which was established in
the fourth quarter of 1997.
Net Income. The Company's net income in the 1998 quarter was
$2.8 million as compared to $660,00 in the 1997 quarter. Diluted
earnings per share increased to $.17 in the 1998 quarter as
compared to $.04 in the 1997 quarter as a result of the increase
in net income. The weighted average shares used in computing net
income per diluted common share amounts have increased to
16,701,000 in the 1998 quarter from 16,571,000 in the 1997
quarter.
Liquidity and Capital Resources
As of March 31, 1998, the Company had cash, cash equivalents and
short-term investments totaling $33.3 million and working capital
of $27.3 million, as compared to cash, cash equivalents and short-
term investments of $27.8 million and working capital of $23.8
million at December 31, 1997.
The Company's operating activities provided cash of $5.5 million
for the three months ended March 31, 1998 and $3.9 million for
the three months ended March 31, 1997. The increase in the
Company's cash flow from operations for the 1998 quarter as
compared to the 1997 quarter was a result of increased earnings
as well as improved management of working capital. Net cash
generated by operating activities provided sufficient resources
to fund increased headcount and capital needs to support the
Company's expansion of its global sales support network and
continued investment in research and development activities for
the 1998 quarter.
Cash used in investing activities totaled $5.6 million for the
three months ended March 31, 1998 and $1.2 million for the three
months ended March 31, 1997. The use of cash in the 1998 quarter
was primarily attributable to the purchase of short-term
investments, while the use of cash in the 1997 quarter was
primarily related to capital expenditures for the new corporate
office facility. The Company currently plans additional
capital spending of approximately $1.8 million throughout the
remainder of 1998, however, the level of spending will be
dependent upon various factors, including growth of the business
and general economic conditions.
Financing activities provided net cash of $99,000 and $194,000
for the three months ended March 31, 1998 and 1997, respectively.
Cash provided from financing activities for the 1998 and 1997
quarters principally related to proceeds from the issuance of
common stock under the Employee Stock Purchase Plan.
The Company believes that existing cash, cash equivalent and
short-term investment balances, together with cash generated from
operations, will be sufficient to meet the Company's working
capital and capital expenditure requirements through at least the
remainder of fiscal 1998. 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 financing can be
obtained on favorable terms, if at all.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
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 1998 63 1 $80.33
February 1998 6,126 3 $5,185.65
March 1998 0 0 0.00
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.
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 24, 1998 By: /s/ Peter J. Smith
Peter J. Smith
Chairman, President and
Chief Executive Officer
Date: April 24, 1998 By: /s/ John M. Sherbin II
John M. Sherbin II
Chief Financial Officer;
Senior Vice President, Finance
and Administration; Secretary
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