UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________

Form 8-K
_____________________

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event Reported): May 2, 2018  

ANSYS, Inc.
(Exact Name of Registrant as Specified in Charter)

Delaware0-2085304-3219960
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)

 

2600 ANSYS Drive, Canonsburg, PA 15317
(Address of Principal Executive Offices) (Zip Code)

(724) 746-3304
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 [ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 [ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 [ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 

 

 


Item 2.02. Results of Operations and Financial Condition.

On May 2, 2018, the Registrant issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference, as well as a Prepared Remarks document, a copy of which is also attached hereto as Exhibit 99.2.

Item 9.01. Financial Statements and Exhibits.

    Exhibit 99.1.       Press release dated May 2, 2018
    Exhibit 99.2.       Prepared remarks dated May 2, 2018


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 hereunto duly authorized.

 ANSYS, Inc.
   
  
Date: May 2, 2018By: /s/ Ajei S. Gopal        
  Ajei S. Gopal
   President and Chief Executive Officer
  


EXHIBIT INDEX

 

  
99.1 Press release dated May 2, 2018   
99.2 Prepared Remarks dated May 2, 2018

EdgarFiling

EXHIBIT 99.1

ANSYS Announces Q1 2018 Financial Results: a Strong Start Reflecting Record First Quarter Revenue, EPS and Operating Cash Flows

Company Initiates Q2 2018 Outlook and Increases FY 2018 Outlook for Revenue and EPS Company Completes Acquisition of OPTIS

ASC 606 - First Quarter 2018

ASC 605 - First Quarter 2018 (as if previous revenue recognition guidance was in effect)

Other Highlights

Note: We adopted ASC 606 on January 1, 2018, which impacted our financial results, including the categorization and geographic allocation of revenue. For comparability purposes and unless otherwise specified, the amounts included in the commentary below refer to results under ASC 605 as if previous revenue recognition guidance was in effect.

PITTSBURGH, May 02, 2018 (GLOBE NEWSWIRE) -- ANSYS, Inc. (NASDAQ:ANSS), today reported first quarter 2018 GAAP and non-GAAP revenue growth of 12%, or 7% in constant currency. Recurring revenue, which comprises lease license and annual maintenance revenue, totaled 78% of revenue for the first quarter on both a GAAP and non-GAAP basis. For the first quarter, the Company reported growth in diluted earnings per share of 37% on both a GAAP and non-GAAP basis.

Ajei Gopal, ANSYS President and CEO, commented, “The ANSYS Pervasive Simulation strategy and the strength of our portfolio continue to drive strong demand for our products and solutions. Our focus on execution is also paying off, and we are off to a strong start in 2018, delivering record revenue and earnings per share, both of which were above the high end of our guidance. During Q1, we had 30 customers each with combined orders over $1 million, including the signing of the largest deal in the Company’s history, a $50 million three-year contract.  We continued to see improvement within our European operations, which grew 9% in constant currency, including double-digit revenue growth in Germany, France and the United Kingdom. We also announced the acquisition of OPTIS, a leader in optical simulation. The transaction will add another physics to our multi-physics portfolio, and enhance our product offerings for autonomous vehicles."

Maria Shields, ANSYS CFO, stated, “The investments we are making in the business are yielding measurable results, with our deferred revenue and backlog reaching a record level of $841.7 million, a 29% increase over Q1 2017. Our annual contract value (ACV) grew 10% in constant currency in Q1 2018 as compared to Q1 2017 and we reported record cash flows from operations of $132.4 million for the quarter. Both of these metrics are indicative of the current and longer-term health of the business. We also continued to return capital to stockholders in the form of share repurchases during Q1, purchasing 0.8 million shares.”

Financial Results

ANSYS' first quarter 2018 and 2017 financial results are presented below. The 2018 and 2017 non-GAAP results exclude the income statement effects of acquisition adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets, acquisition-related transaction costs, restructuring charges and the measurement-period adjustment related to the 2017 Tax Cuts and Jobs Act.

GAAP and non-GAAP results under ASC 606:

 GAAP Non-GAAP
(in millions, except percentages and per share data)Q1 2018 Q1 2018
Revenue$282.9  $283.3 
Net income$84.3  $103.1 
Earnings per share$0.98  $1.20 
Operating profit margin33.6% 45.0%

GAAP and non-GAAP results under ASC 605:

 GAAP Non-GAAP
(in millions, except percentages and per share data)Q1 2018 Q1 2017 % Change Q1 2018 Q1 2017 % Change
Revenue$284.6  $253.4  12% $285.2  $253.5  12%
Net income$85.8  $63.3  35% $104.7  $77.5  35%
Earnings per share$1.00  $0.73  37% $1.22  $0.89  37%
Operating profit margin34.0% 33.7%   45.3% 46.4%  

The non-GAAP financial results highlighted above, and the non-GAAP financial outlook for 2018 discussed below, represent non-GAAP financial measures. Reconciliations of these measures to the appropriate GAAP measures, for the three months ended March 31, 2018 and 2017, and for the 2018 financial outlook, are included in the condensed financial information included in this release.

Other Financial Metrics

(in millions, except percentages)Q1 2018 Q1 2017 % Change % Change
in Constant
Currency
Annual contract value (ACV)$293.9  $248.9  18% 10%
Operating cash flows$132.4  $125.9  5%  
             

ACV is comprised of the following:

Management's 2018 Financial Outlook

The Company's second quarter and fiscal year 2018 revenue and earnings per share guidance is provided below. The revenue and earnings per share guidance is provided on both a GAAP and a non-GAAP basis, and in accordance with both ASC 606 and ASC 605. Non-GAAP financial measures exclude the income statement effects of acquisition adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets, acquisition-related transaction costs and measurement-period adjustments related to the Tax Cuts and Jobs Act.

The financial guidance below includes the impact of the Company's acquisition of OPTIS, which closed in May 2018. Refer to the Prepared Remarks document for additional details related to the impact of the OPTIS acquisition on the Company's financial guidance.

Second Quarter 2018 Guidance

The Company currently expects the following for the quarter ending June 30, 2018:

(in millions, except per share data)GAAP non-GAAP
Revenue under ASC 606$269.5 - $289.5 $272.0 - $292.0
Diluted earnings per share under ASC 606$0.54 - $0.76 $0.94 - $1.09
Revenue under ASC 605$289.5 - $299.5 $294.0 - $304.0
Diluted earnings per share under ASC 605$0.72 - $0.85 $1.13 - $1.19

Fiscal Year 2018 Guidance

The Company currently expects the following for the fiscal year ending December 31, 2018:

(in millions, except per share data)GAAP non-GAAP
Revenue under ASC 606$1,189.3 - $1,254.3 $1,197.0 - $1,262.0
Diluted earnings per share under ASC 606$3.29 - $3.94 $4.60 - $5.08
Revenue under ASC 605$1,214.0 - $1,244.0 $1,228.0 - $1,258.0
Diluted earnings per share under ASC 605$3.49 - $3.85 $4.85 - $5.04


(in millions)Other Financial
Metrics
ACV$1,262.0 - $1,302.0
Operating cash flows$435.0 - $475.0

Conference Call Information

ANSYS will hold a conference call at 8:30 a.m. Eastern Time on May 3, 2018 to discuss first quarter results. The Company will provide its prepared remarks on the Company’s investor relations homepage and as an exhibit in its Form 8-K in advance of the call to provide shareholders and analysts with additional time and detail for analyzing its results in preparation for the conference call. The prepared remarks will not be read on the call and only brief remarks will be made prior to the Q&A session.

To participate in the live conference call, dial 855-239-2942 (US) or 412-542-4124 (Canada & Int’l). The call will be recorded and a replay will be available within two hours after the call. The replay will be available by dialing (877) 344-7529 (US), (855) 669-9658 (Canada) or (412) 317-0088 (Int’l) and entering the passcode 10119158. The archived webcast can be accessed, along with other financial information, on ANSYS' website at http://investors.ansys.com/events-and-presentations/events.aspx.

ANSYS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
 ASC 606 ASC 605 ASC 605
(in thousands)March 31,
2018
 March 31,
2018
 December 31,
2017
ASSETS:     
Cash & short-term investments$889,768  $889,768  $881,787 
Accounts receivable, net256,560  113,585  124,659 
Goodwill1,379,458  1,379,458  1,378,553 
Other intangibles, net146,396  146,396  157,625 
Other assets286,984  398,353  398,999 
    Total assets$2,959,166  $2,927,560  $2,941,623 
LIABILITIES & STOCKHOLDERS' EQUITY:     
Current deferred revenue$311,718  $471,676  $440,491 
Other liabilities240,088  234,235  255,301 
Stockholders' equity2,407,360  2,221,649  2,245,831 
    Total liabilities & stockholders' equity$2,959,166  $2,927,560  $2,941,623 
 


 
ANSYS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
 Three Months Ended
 ASC 606 ASC 605 ASC 605
(in thousands, except per share data)March 31,
2018
 March 31,
2018
 March 31,
2017
Revenue:     
Software licenses$110,046  $154,857  $141,908 
Maintenance and service172,827  129,712  111,497 
   Total revenue282,873  284,569  253,405 
Cost of sales:     
Software licenses3,911  8,146  9,277 
Amortization8,786  8,786  8,936 
Maintenance and service26,341  22,106  18,818 
   Total cost of sales39,038  39,038  37,031 
Gross profit243,835  245,531  216,374 
Operating expenses:     
Selling, general and administrative87,809  87,809  73,417 
Research and development57,530  57,530  54,378 
Amortization3,435  3,435  3,107 
   Total operating expenses148,774  148,774  130,902 
Operating income95,061  96,757  85,472 
Interest income2,285  2,285  1,249 
Other expense, net(308) (308) (1,154)
Income before income tax provision97,038  98,734  85,567 
Income tax provision12,758  12,981  22,261 
Net income$84,280  $85,753  $63,306 
Earnings per share – basic:     
Earnings per share$1.00  $1.02  $0.74 
Weighted average shares83,931  83,931  85,456 
Earnings per share – diluted:     
Earnings per share$0.98  $1.00  $0.73 
Weighted average shares86,152  86,152  87,224 
 


 
ANSYS, INC. AND SUBSIDIARIES
ASC 606 Reconciliation of Non-GAAP Measures
(Unaudited)
 Three Months Ended
 March 31, 2018
(in thousands, except percentages and per share data)GAAP
Results
 Adjustments Non-GAAP
Results
Total revenue$282,873  $401 (1)$283,274 
Operating income95,061  32,351 (2)127,412 
Operating profit margin33.6%   45.0%
Net income$84,280  $18,784 (3)$103,064 
Earnings per share – diluted:     
Earnings per share$0.98    $1.20 
Weighted average shares86,152    86,152 
        

(1) Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(2) Amount represents $15.3 million of stock-based compensation expense, $3.1 million of excess payroll taxes related to stock-based awards, $12.2 million of amortization expense associated with intangible assets acquired in business combinations, $1.4 million of transaction expenses related to business combinations and the $0.4 million adjustment to revenue as reflected in (1) above.

(3) Amount represents the impact of the adjustments to operating income referred to in (2) above, decreased for the related income tax impact of $15.0 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $1.4 million.

 
ANSYS, INC. AND SUBSIDIARIES
ASC 605 Reconciliation of Non-GAAP Measures
(Unaudited)
 Three Months Ended
 March 31, 2018 March 31, 2017
(in thousands, except percentages and per share data)GAAP
Results
 Adjustments Non-GAAP
Results
 GAAP
Results
 Adjustments Non-GAAP
Results
Total revenue$284,569  $604 (1)$285,173  $253,405  $143 (4)$253,548 
Operating income96,757  32,554 (2)129,311  85,472  32,111 (5)117,583 
Operating profit margin34.0%   45.3% 33.7%   46.4%
Net income$85,753  $18,936 (3)$104,689  $63,306  $14,183 (6)$77,489 
Earnings per share – diluted:           
Earnings per share$1.00    $1.22  $0.73    $0.89 
Weighted average shares86,152    86,152  87,224    87,224 
                

(1) Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(2) Amount represents $15.3 million of stock-based compensation expense, $3.1 million of excess payroll taxes related to stock-based awards, $12.2 million of amortization expense associated with intangible assets acquired in business combinations, $1.4 million of transaction expenses related to business combinations and the $0.6 million adjustment to revenue as reflected in (1) above.

(3) Amount represents the impact of the adjustments to operating income referred to in (2) above, decreased for the related income tax impact of $15.1 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $1.4 million.

(4) Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(5) Amount represents $12.0 million of amortization expense associated with intangible assets acquired in business combinations, $10.5 million of stock-based compensation expense, $9.3 million of restructuring charges, $0.1 million of transaction expenses related to business combinations and the $0.1 million adjustment to revenue as reflected in (4) above.

(6) Amount represents the impact of the adjustments to operating income referred to in (5) above, adjusted for the related income tax impact of $17.9 million.

 
ANSYS, INC. AND SUBSIDIARIES
Reconciliation of Forward-Looking Guidance
Quarter Ending June 30, 2018
 
 ASC 606 ASC 605
 Earnings Per Share Range - Diluted Earnings Per Share Range - Diluted
U.S. GAAP expectation$0.54 - $0.76 $0.72 - $0.85
Adjustment to exclude acquisition adjustments to deferred revenue$0.02 - $0.04 $0.03 - $0.05
Adjustment to exclude acquisition-related amortization$0.13 - $0.16 $0.13 - $0.16
Adjustment to exclude stock-based compensation$0.17 - $0.19 $0.17 - $0.19
Adjustment to exclude acquisition-related transaction expenses$0.01 $0.01
Non-GAAP expectation$0.94 - $1.09 $1.13 - $1.19
 


 
ANSYS, INC. AND SUBSIDIARIES
Reconciliation of Forward-Looking Guidance
Year Ending December 31, 2018
 
 ASC 606 ASC 605
 Earnings Per Share Range - Diluted Earnings Per Share Range - Diluted
U.S. GAAP expectation$3.29 - $3.94 $3.49 - $3.85
Adjustment to exclude acquisition adjustments to deferred revenue$0.05 - $0.09 $0.10 - $0.14
Adjustment to exclude acquisition-related amortization$0.48 - $0.53 $0.48 - $0.53
Adjustment to exclude stock-based compensation$0.58 - $0.64 $0.58 - $0.64
Adjustment to exclude acquisition-related transaction expenses$0.02 - $0.03 $0.02 - $0.03
Exclusion of measurement-period adjustments related to the Tax Cuts and Jobs Act$0.01 - $0.02 $0.01 - $0.02
Non-GAAP expectation$4.60 - $5.08 $4.85 - $5.04
 

Use of Non-GAAP Measures

The Company provides non-GAAP revenue, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share as supplemental measures to GAAP regarding the Company's operational performance. These financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. A detailed explanation of each of the adjustments to such financial measures is described below. This press release also contains a reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure.

Management uses non-GAAP financial measures (a) to evaluate the Company's historical and prospective financial performance as well as its performance relative to its competitors, (b) to set internal sales targets and spending budgets, (c) to allocate resources, (d) to measure operational profitability and the accuracy of forecasting, (e) to assess financial discipline over operational expenditures and (f) as an important factor in determining variable compensation for management and its employees. In addition, many financial analysts that follow the Company focus on and publish both historical results and future projections based on non-GAAP financial measures. The Company believes that it is in the best interest of its investors to provide this information to analysts so that they accurately report the non-GAAP financial information. Moreover, investors have historically requested and the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results. 

While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures. 

The adjustments to these non-GAAP financial measures, and the basis for such adjustments, are outlined below: 

Acquisition accounting for deferred revenue and its related tax impact. Historically, the Company has consummated acquisitions in order to support its strategic and other business objectives. In accordance with the fair value provisions applicable to the accounting for business combinations, acquired deferred revenue is often recorded on the opening balance sheet at an amount that is lower than the historical carrying value. Although this acquisition accounting requirement has no impact on the Company's business or cash flow, it adversely impacts the Company's reported GAAP revenue in the reporting periods following an acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company provides non-GAAP financial measures which exclude the impact of the acquisition accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related annual lease licenses and software maintenance contracts are renewed in future periods. 

Amortization of intangible assets from acquisitions and its related tax impact. The Company incurs amortization of intangible assets, included in its GAAP presentation of amortization expense, related to various acquisitions it has made. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management does not consider these expenses for purposes of evaluating the performance of the Company during the applicable time period after the acquisition, and it excludes such expenses when making decisions to allocate resources. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past reports of financial results of the Company as the Company has historically reported these non-GAAP financial measures.  

Stock-based compensation expense and its related tax impact. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. This non-GAAP adjustment also includes excess payroll tax expense related to stock-based compensation. Stock-based compensation expense (benefit) incurred in connection with the Company's deferred compensation plan held in a rabbi trust includes an offsetting benefit (charge) recorded in other income (expense). Although stock-based compensation is an expense of the Company and viewed as a form of compensation, management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company. Management similarly excludes income (expense) related to assets held in a rabbi trust in connection with the Company's deferred compensation plan. Specifically, the Company excludes stock-based compensation and income (expense) related to assets held in the deferred compensation plan rabbi trust during its annual budgeting process and its quarterly and annual assessments of the Company's and management's performance. The annual budgeting process is the primary mechanism whereby the Company allocates resources to various initiatives and operational requirements. Additionally, the annual review by the board of directors during which it compares the Company's historical business model and profitability to the planned business model and profitability for the forthcoming year excludes the impact of stock-based compensation. In evaluating the performance of senior management and department managers, charges related to stock-based compensation are excluded from expenditure and profitability results. In fact, the Company records stock-based compensation expense into a stand-alone cost center for which no single operational manager is responsible or accountable. In this way, management is able to review, on a period-to-period basis, each manager's performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results. 

Restructuring charges and the related tax impact. The Company occasionally incurs expenses for restructuring its workforce included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. Management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally does not incur these expenses as a part of its operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results. 

Transaction costs related to business combinations. The Company incurs expenses for professional services rendered in connection with business combinations, which are included in its GAAP presentation of research and development expense and selling, general and administrative expense. These expenses are generally not tax-deductible. Management excludes these acquisition-related transaction expenses, derived from announced acquisitions, for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally would not have otherwise incurred these expenses in the periods presented as a part of its operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results. 

Tax Cuts and Jobs Act. The Company recorded charges in its income tax provision related to the enactment of the Tax Cuts and Jobs Act, specifically for the transition tax related to unrepatriated cash. Management excludes these charges for the purpose of calculating non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as (i) the charges are not expected to recur as part of its normal operations and (ii) the charges resulted from the extremely infrequent event of major U.S. tax reform, the last such reform having occurred in 1986. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting. 

Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. 

The Company has provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as listed below: 

GAAP Reporting MeasureNon-GAAP Reporting Measure
RevenueNon-GAAP Revenue
Operating IncomeNon-GAAP Operating Income
Operating Profit MarginNon-GAAP Operating Profit Margin
Net IncomeNon-GAAP Net Income
Diluted Earnings Per ShareNon-GAAP Diluted Earnings Per Share

About ANSYS, Inc.

If you’ve ever seen a rocket launch, flown on an airplane, driven a car, used a computer, touched a mobile device, crossed a bridge, or put on wearable technology, chances are you've used a product where ANSYS software played a critical role in its creation. ANSYS is the global leader in Pervasive Engineering Simulation. We help the world's most innovative companies deliver radically better products to their customers. By offering the best and broadest portfolio of engineering simulation software, we help them solve the most complex design challenges and create products limited only by imagination. Founded in 1970, ANSYS employs thousands of professionals, many of whom are expert M.S. and Ph.D.-level engineers in finite element analysis, computational fluid dynamics, electronics, semiconductors, embedded software and design optimization. Headquartered south of Pittsburgh, Pennsylvania, U.S.A., ANSYS has more than 75 strategic sales locations throughout the world with a network of channel partners in 40+ countries. Visit www.ansys.com for more information.

Forward-Looking Information

Certain statements contained in this press release regarding matters that are not historical facts, including, but not limited to, statements regarding our projections for the second quarter of 2018 and fiscal year 2018 (both GAAP and non-GAAP to exclude acquisition accounting adjustments to deferred revenue, acquisition-related amortization, stock-based compensation expense and acquisition-related transaction costs with related tax impacts); statements regarding management's use of non-GAAP financial measures; statements regarding investing in the business; statements regarding the strength of customer demand for our products; statements related to our intent to move forward with investments in our core products, high-growth adjacent markets and our business infrastructure; and statements regarding the Tax Cuts and Jobs Act are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995). Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. All forward-looking statements in this press release are subject to risks and uncertainties, including, but not limited to, the risk that adverse conditions in the global and domestic markets will significantly affect ANSYS’ customers’ ability to purchase products from the Company at the same level as prior periods or to pay for the Company’s products and services; the risk that declines in ANSYS’ customers’ business may lengthen customer sales cycles; the risk of declines in the economy of one or more of ANSYS’ primary geographic regions; the risk that ANSYS’ revenues and operating results will be adversely affected by changes in currency exchange rates or economic declines in any of the countries in which ANSYS conducts transactions; the risk that the assumptions underlying ANSYS' anticipated revenues and expenditures will change or prove inaccurate; the risk that ANSYS has overestimated its ability to maintain growth and profitability, and control costs; uncertainties regarding the demand for ANSYS' products and services in future periods; uncertainties regarding customer acceptance of new products; the risk of ANSYS’ products' future compliance with industry quality standards and its potential impact on the Company’s financial results; the risk that the Company may need to change its pricing models due to competition and its potential impact on the Company’s financial results; the risk that ANSYS' operating results will be adversely affected by possible delays in developing, completing or shipping new or enhanced products; the risk that enhancements to the Company's products or products acquired in acquisitions may not produce anticipated sales; the risk that the Company may not be able to recruit and retain key executives and technical personnel; the risk that third parties may misappropriate the Company’s proprietary technology or develop similar technology independently; the risk of unauthorized access to and distribution of the Company’s source code; the risk of the Company’s implementation of its new IT systems; the risk of difficulties in the relationship with ANSYS’ independent regional channel partners; the risk of ANSYS’ reliance on perpetual licenses and the result that any change in customer licensing behavior may have on the Company’s financial results; the risk that ANSYS may not achieve the anticipated benefits of its acquisitions or that the integration of the acquired technologies or products with the Company’s existing product lines may not be successful; the risk of periodic reorganizations and changes within ANSYS’ sales organization; the risk of industry consolidation and the impact it may have on customer purchasing decisions; and other factors that are detailed from time to time in reports filed by ANSYS, Inc. with the Securities and Exchange Commission, including ANSYS, Inc.'s 2017 Annual Report on Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether changes occur as a result of new information or future events, after the date they were made.

ANSYS and any and all ANSYS, Inc. brand, product, service and feature names, logos and slogans are registered trademarks or trademarks of ANSYS, Inc. or its subsidiaries in the United States or other countries. All other brand, product, service and feature names or trademarks are the property of their respective owners.

Visit www.ansys.com for more information. The ANSYS IR App is now available for download on iTunes and Google Play. ANSYS also has a strong presence on the major social channels. To join the simulation conversation, please visit www.ansys.com/Social@ANSYS.

Beginning end-of-day June 15, 2018, ANSYS will observe a Quiet Period during which the business outlook as provided in this press release and the most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q no longer constitutes the Company's current expectations. During the Quiet Period, the business outlook in these documents should be considered historical, speaking as of prior to the Quiet Period only and not subject to any update by the Company. During the Quiet Period, ANSYS' representatives will not comment on ANSYS' business outlook, financial results or expectations. The Quiet Period will extend until the day when ANSYS' second quarter 2018 earnings release is published, which is currently scheduled for August 6, 2018.

    
Contact:   
    
Investors:  Annette Arribas, CTP
   724.820.3700
   annette.arribas@ansys.com
Media:  Amy Pietzak
   724.820.4367
   amy.pietzak@ansys.com

EdgarFiling

EXHIBIT 99.2

 

 

 

 

 

ANSYS, INC. FIRST QUARTER 2018

EARNINGS ANNOUNCEMENT

PREPARED REMARKS

May 2, 2018

 

ANSYS is providing a copy of its prepared remarks in connection with its earnings announcement. These remarks are offered to provide stockholders and research analysts with additional time and detail for analyzing our Q1 2018 results in advance of our quarterly conference call. These prepared remarks will not be read on the call.

 

Conference call details:

May 3, 2018

8:30 a.m. Eastern Time

 

To access the live broadcast, please visit the Investor Relations section of ANSYS’ website at http://investors.ansys.com and click on Events & Presentations, then Webcasts & Events.
The call can also be heard by dialing (855) 239-2942 (US) or (412) 542-4124 (CAN & INT’L) at least five minutes prior to the call and referencing conference code 10119158.
A replay will be available within two hours of the call's completion at http://investors.ansys.com or by dialing (877) 344-7529 (US), (855) 669-9658 (CAN) or (412) 317-0088 (INT’L) and referencing the access code 10119158.

 

SUPPLEMENTAL INFORMATION

 

In addition to our GAAP information, ANSYS has historically provided non-GAAP supplemental information. Our reasons for providing this information are described later in this document, as well as in our Q1 earnings press release, which can be found on our website in the Press Releases section. Reconciliations of GAAP to non-GAAP information are also provided. In line with our historical practice, the financial information below is presented on a supplemental, non-GAAP basis unless otherwise indicated.

 

We transitioned to ASC 606 on January 1, 2018, which impacted the timing and amounts of revenue recognized. The most significant impact relates to the accounting for lease licenses. Under ASC 605, the revenue associated with these licenses was recognized ratably, over the lease term, and was accounted for entirely as lease license revenue. Under ASC 606, 50% of the value of the lease license is recognized up front as lease license revenue, while the remainder is recognized as maintenance revenue ratably over the contract duration. The upfront recognition of the amount attributed to license revenue results in greater volatility in our revenue and earnings results. To assist analysts and investors with their understanding of our operating results, we are introducing a new performance metric, Annual Contract Value (ACV). We believe this new measure is an improved metric as compared to the historically provided bookings metric because it adjusts the sales bookings metric to reflect only the annual value of a contract and also adjusts to reflect the sales booking at the date of the contract inception or renewal.

 

For comparability purposes, the amounts presented in the overview, highlights, regional commentary, stock-based compensation expense and currency impacts sections refer to results under ASC 605, as if previous revenue recognition guidance was in effect, unless otherwise specified.

 

 

 

FIRST QUARTER 2018 OVERVIEW

 

We had a strong start to the year with revenue and earnings that exceeded the high end of our guidance. We reported first quarter consolidated non-GAAP revenue of $285.2 million, an increase of 12% in reported currency and 7% in constant currency. We also achieved non-GAAP EPS of $1.22 in the first quarter of 2018, which represented 37% growth over Q1 2017. Our financial results for Q1 2018 included cash flows from operations of $132.4 million.

 

The following are other notable comments related to Q1 2018:

 

Lease license revenue grew 5% and maintenance revenue grew 9% in Q1 2018, both in constant currency.

 

Both lease licenses and maintenance contributed to the recurring revenue base continuing to remain strong at 78% of revenue for the first quarter.

 

Our direct and indirect businesses contributed 77% and 23%, respectively, of Q1 revenue.

 

Our focus on sales execution and business investments have resulted in a deferred revenue and backlog balance of $841.7 million, an increase of 29% over Q1 2017. We had 30 customers with orders over $1 million, including the largest deal in our history, a $50 million, three-year contract.

 

Consistent with our commitment to return value to our stockholders, we repurchased 0.8 million shares at an average price of $157.11 per share during the first quarter. In February 2018, our Board of Directors increased the authorized share repurchase program to a total of 5.0 million shares. As of March 31, 2018, we had 4.8 million shares remaining in the authorized share repurchase program.

 

Total headcount on March 31, 2018 was approximately 3,000 employees.

 

Other Recent Highlights

 

We announced an agreement to acquire OPTIS, a premier provider of software for scientific simulation of light, human vision and physics-based visualization. The acquisition adds capabilities to the ANSYS portfolio to provide a comprehensive sensor solution, including visible and infrared light, electromagnetics and acoustics for camera, radar and lidar. These sensors are critical to the development of safe autonomous vehicles. OPTIS also has a photo-realistic virtual reality and closed-loop simulation platform, which helps decrease the development time for autonomous vehicles. The combination of OPTIS and ANSYS will allow automotive manufacturers to simulate the environment autonomous vehicles are navigating, including road and weather conditions. The transaction closed in Q2 2018 at a purchase price of approximately $300 million.

 

 

 

DEFERRED REVENUE AND BACKLOG

 

   ASC 606  ASC 605
(in thousands)  March 31,
2018
  March 31,
2018
  December 31,
2017
  March 31,
2017
  December 31,
2016
Current Deferred Revenue  $311,718   $471,676   $440,491   $414,708   $403,279 
Current Backlog   126,932    122,328    97,283    78,417    64,361 
Total Current Deferred Revenue and Backlog   438,650    594,004    537,774    493,125    467,640 
                          
Long-Term Deferred Revenue   17,676    30,871    28,069    17,800    12,567 
Long-Term Backlog   138,683    216,785    203,867    141,671    157,633 
Total Long-Term Deferred Revenue and Backlog   156,359    247,656    231,936    159,471    170,200 
                          
Total Deferred Revenue and Backlog  $595,009   $841,660   $769,710   $652,596   $637,840 

 

 

ACV AND SEVEN-FIGURE CUSTOMER ORDERS

 

(in thousands)  Q1 QTD 2018  Q1 QTD 2017  % Change  % Change in
Constant
Currency
ACV  $293,857   $248,874    18.1%   9.9%

 

The Company had customers with seven-figure cumulative orders as follows:

 

   Q1 QTD 2018  Q1 QTD 2017
≥ $1.0  -  < $5.0 million   27    26 
≥ $5.0  -  < $10.0 million   1    5 
≥ $10.0 million   2     

 

 

NON-GAAP REVENUE

 

   ASC 606  ASC 605
(in thousands, except percentages)  Q1 QTD
2018
  % of
Total
  Q1 QTD
2018
  % of
Total
  Q1 QTD
2017
  % of
Total
  %
Change
  % Change in
Constant
Currency
Lease  $48,772    17.2%  $102,196    35.8%  $93,777    37.0%   9.0%   5.0%
Perpetual   61,274    21.6%   53,068    18.6%   48,274    19.0%   9.9%   3.2%
Maintenance   164,297    58.0%   120,959    42.4%   104,406    41.2%   15.9%   9.2%
Service   8,931    3.2%   8,950    3.1%   7,091    2.8%   26.2%   21.1%
Total  $283,274        $285,173        $253,548         12.5%   6.8%

 

As a result of the fair value provisions applicable to the accounting for business combinations, the Company typically records acquired deferred revenue at an amount that is lower than the historical carrying value. The impact on GAAP revenue under ASC 606 was $0.4 million for the first quarter of 2018. The impacts on GAAP revenue under ASC 605 were $0.6 million and $0.1 million for the first quarters of 2018 and 2017, respectively.

 

 

 

NON-GAAP GEOGRAPHIC REVENUE HIGHLIGHTS

 

   ASC 606  ASC 605
(in thousands, except percentages)  Q1 QTD
2018
  % of
Total
  Q1 QTD
2018
  % of
Total
  Q1 QTD
2017
  % of
Total
  %
Change
  % Change in
Constant
Currency
Americas  $104,201    36.8%  $114,565    40.2%  $106,847    42.1%   7.2%   7.1%
                                         
Germany   45,538    16.1%   33,389    11.7%   25,116    9.9%   32.9%   15.4%
United Kingdom   8,386    3.0%   9,402    3.3%   7,311    2.9%   28.6%   15.0%
Other EMEA   51,200    18.1%   48,896    17.1%   41,418    16.3%   18.1%   4.3%
EMEA   105,124    37.1%   91,687    32.2%   73,845    29.1%   24.2%   9.1%
                                         
Japan   30,669    10.8%   34,504    12.1%   31,472    12.4%   9.6%   4.4%
Other Asia-Pacific   43,280    15.3%   44,417    15.6%   41,384    16.3%   7.3%   3.9%
Asia-Pacific   73,949    26.1%   78,921    27.7%   72,856    28.7%   8.3%   4.1%
                                         
Total  $283,274        $285,173        $253,548         12.5%   6.8%

 

 

Regional Commentary

 

Americas

 

The Americas delivered 7% constant currency revenue growth, including 11% constant currency growth in maintenance revenue. We also signed the largest deal in our history, a $50 million, three-year contract. The automotive and high-tech industries continue to converge, driven by the demand for autonomous vehicles, electrification and connectivity. These industries remain dependent upon our solutions, including our solutions for radar, safety and embedded software. The high-tech industry is also driven by the technology demands of 5G, IoT and data. The energy industry continues to recover, but companies are still slow to make significant new investments. The industrial equipment industry continues to focus on delivering durable, reliable and efficient products. Across the industries, companies are focusing on autonomy, electrification and connectivity for their products, for which simulation can reduce complexity, cost and time to market.

 

EMEA

 

EMEA continued to recover with constant currency revenue growth of 9%, including strong growth in perpetual revenue and 11% constant currency maintenance revenue growth. We also had 11 customers with cumulative orders in excess of $1 million as compared to seven customers in the first quarter of 2017. Germany, France and the United Kingdom each delivered double-digit constant currency revenue growth. Our results continue to show progress as we build the sales pipeline and execute on the initiatives related to our updated go-to-market strategy in the region. EMEA experienced similar overall industry trends as the Americas, including a recovery in the automotive industry.

 

Asia-Pacific

 

Asia-Pacific results included 4% constant currency revenue growth. The growth was as expected based on deal timing and a very strong prior year comparable. We experienced a similar growth rate in our largest geography in the region, Japan, with slightly higher growth in South Korea and China. The industry trends in the region were similar to those in the Americas. The energy industry was boosted by China's investment in domestic energy generation and infrastructure programs. The industrial equipment industry was supported by strength in South Korea and India, but offset by weakness in China and Japan.

 

 

 

INCOME STATEMENT HIGHLIGHTS

 

Q1 2018 MARGINS: The non-GAAP gross and operating margins were as follows:

 

   ASC 606  ASC 605
   Q1 QTD 2018  Q1 QTD 2018
Gross Margin   89.8%   89.9%
Operating Margin   45.0%   45.3%

 

Q1 2018 TAX RATE: Our ASC 606 Q1 non-GAAP effective tax rate was 20.4%. Our ASC 605 Q1 non-GAAP effective tax rate was 20.3%.

 

 

BALANCE SHEET AND CASH FLOW HIGHLIGHTS

 

Cash and short-term investments totaled $889.8 million as of March 31, 2018, of which 62% was held domestically.
Cash flows from operations were $132.4 million for the first quarter of 2018 as compared to $125.9 million for the first quarter of 2017.
Consolidated net DSO was 84 days under ASC 606, which significantly increased upon the adoption of ASC 606 on January 1, 2018. Consolidated net DSO was 38 days under ASC 605.
Capital expenditures totaled $2.9 million for the first quarter of 2018. We are currently planning total 2018 capital expenditures in the range of $25 - $30 million.

 

SHARE COUNT AND SHARE REPURCHASES

 

We had 86.2 million fully diluted weighted average shares outstanding in Q1. In line with our commitment to return capital to stockholders, we repurchased 0.8 million shares at an average price of $157.11 per share during the first quarter of 2018. In February 2018, the Company's Board of Directors increased the authorized share repurchase program to a total of 5.0 million shares. As of March 31, 2018, the Company had 4.8 million shares remaining in its authorized share repurchase program.

 

 

STOCK-BASED COMPENSATION EXPENSE

 

   Three Months Ended
(in thousands, except per share data)  March 31,
 2018
  March 31,
 2017
Cost of sales:          
Software licenses  $269   $250 
Maintenance and service   741    426 
Operating expenses:          
Selling, general and administrative   8,278    5,956 
Research and development   5,981    3,881 
Stock-based compensation expense before taxes   15,269    10,513 
Related income tax benefits   (11,304)   (10,421)
Stock-based compensation expense, net of taxes  $3,965   $92 
Net impact on earnings per share:          
Diluted earnings per share  $(0.05)  $ 

 

 

 

CURRENCY

 

CURRENCY IMPACTS: The first quarter 2018 revenue and operating income under ASC 605 as compared to the first quarter of 2017 were favorably impacted by currency fluctuations of $14.3 million and $8.0 million, respectively.

 

There was a favorable foreign exchange impact on deferred revenue and backlog of $7.2 million for the first quarter.

 

 

OUTLOOK

 

The outlook below includes the impacts of the Company's acquisition of OPTIS.

 

Q2 2018 OUTLOOK: We are currently forecasting the following for Q2 2018 under ASC 606:

 

(in millions, except percentages and per share data) GAAP   non-GAAP
Revenue $269.5 - $289.5   $272.0 - $292.0
Operating margin 24.0% - 28.0%   39.0% - 41.0%
Effective tax rate 20.0% - 23.0%   22.0% - 23.5%
Diluted earnings per share $0.54 - $0.76   $0.94 - $1.09

 

We are currently forecasting the following for Q2 2018 under ASC 605:

 

(in millions, except percentages and per share data) GAAP   non-GAAP
Revenue $289.5 - $299.5   $294.0 - $304.0
Operating margin 28.0% - 31.0%   43.0% - 44.0%
Effective tax rate 20.0% - 23.0%   22.0% - 23.5%
Diluted earnings per share $0.72 - $0.85   $1.13 - $1.19

 

FY 2018 OUTLOOK: We are updating our FY 2018 forecast under ASC 606 based on our current sales visibility, the assumption of a continuation of a similar business climate to that we experienced in the first quarter and the inclusion of the impacts of the OPTIS acquisition. We are currently forecasting:

 

(in millions, except percentages and per share data) GAAP   non-GAAP
Revenue $1,189.3 - $1,254.3   $1,197.0 - $1,262.0
Operating margin 29.0% - 33.0%   42.0% - 44.0%
Effective tax rate 18.5% - 21.5%   21.5% - 23.0%
Diluted earnings per share $3.29 - $3.94   $4.60 - $5.08

 

We are also updating our forecast for FY 2018 under ASC 605 as follows:

 

(in millions, except percentages and per share data) GAAP   non-GAAP
Revenue $1,214.0 - $1,244.0   $1,228.0 - $1,258.0
Operating margin 30.0% - 33.0%   44.0%
Effective tax rate 18.5% - 21.5%   21.5% - 23.0%
Diluted earnings per share $3.49 - $3.85   $4.85 - $5.04

 

We are updating our forecast for the following for FY 2018:

 

(in millions) Other Financial
Metrics
ACV $1,262.0 - $1,302.0
Operating cash flows* $435.0 - $475.0

 

*The Company's operating cash flow guidance reflects an adverse impact of approximately $12.0 - $15.0 million related to the acceleration of income tax payments associated with deferred revenue and backlog credited to retained earnings and never recognized as revenue in the financial statements.

 

 

 

The Company's ACV metric during FY 2017 was approximately $1,124.0 million.

 

We are currently expecting approximately 86.5 - 87.0 million fully diluted shares outstanding for Q2 2018 and FY 2018.

 

OPTIS IMPACTS: The impacts of the OPTIS acquisition on key guidance metrics are presented below for Q2 2018. The impacts of the acquisition include the expected operating results of OPTIS, one-time integration costs and the impact of the capital deployment that would have otherwise resulted in interest income and incremental share repurchases.

 

(in millions, except per share data) ANSYS Standalone   OPTIS Acquisition   Financial Guidance
ASC 606          
GAAP revenue $265.8 - $285.8   $3.7   $269.5 - $289.5
Non-GAAP revenue $266.0 - $286.0   $6.0   $272.0 - $292.0
GAAP diluted earnings per share $0.66 - $0.82   ($0.12) - ($0.06)   $0.54 - $0.76
Non-GAAP diluted earnings per share $0.95 - $1.10   ($0.01)   $0.94 - $1.09
           
ASC 605          
GAAP revenue $287.7 - $297.7   $1.8   $289.5 - $299.5
Non-GAAP revenue $288.0 - $298.0   $6.0   $294.0 - $304.0
GAAP diluted earnings per share $0.85 - $0.92   ($0.13) - ($0.07)   $0.72 - $0.85
Non-GAAP diluted earnings per share $1.14 - $1.20   ($0.01)   $1.13 - $1.19

 

The impacts of the OPTIS acquisition on key guidance metrics are as follows for FY 2018:

 

(in millions, except per share data) ANSYS Standalone   OPTIS Acquisition   Financial Guidance
ASC 606          
GAAP revenue $1,171.3 - $1,236.3   $18.0   $1,189.3 - $1,254.3
Non-GAAP revenue $1,172.0 - $1,237.0   $25.0   $1,197.0 - $1,262.0
GAAP diluted earnings per share $3.67 - $4.23   ($0.38) - ($0.29)   $3.29 - $3.94
Non-GAAP diluted earnings per share $4.68 - $5.16   ($0.08)   $4.60 - $5.08
           
ASC 605          
GAAP revenue $1,200.9 - $1,230.9   $13.1   $1,214.0 - $1,244.0
Non-GAAP revenue $1,202.0 - $1,232.0   $26.0   $1,228.0 - $1,258.0
GAAP diluted earnings per share $3.91 - $4.18   ($0.42) - ($0.33)   $3.49 - $3.85
Non-GAAP diluted earnings per share $4.92 - $5.11   ($0.07)   $4.85 - $5.04
           
ACV $1,233.0 - $1,273.0   $29.0   $1,262.0 - $1,302.0

 

 

 

CURRENCY OUTLOOK: The Company’s results have been, and will continue to be, impacted by currency fluctuations, particularly by rate movements in the Euro, British Pound and Japanese Yen. Our currency rate assumptions are as follows:

 

  Euro   British Pound   Japanese Yen
Q2 2018 1.21 - 1.24   1.38 - 1.41   107 - 110
FY 2018 1.22 - 1.25   1.39 - 1.42   106 - 109

 

The outlook presented above factors in actual and planned increases in sales and channel capacity, our current visibility around major account activity, sales pipelines and forecasts. However, as we have said in the past, and will continue to reiterate, there are many things that we have no control over, including the macro-economic environment, customer procurement patterns, government and tax policies, and currency rate volatility. We do, however, have the benefit of a solid, repeatable business base; a diversified geographic and industry footprint; and a world-class customer base that have helped us to succeed and to deliver on our commitments.

 

 

GLOSSARY OF TERMS

 

Annual Contract Value (ACV): ACV is comprised of the following:

 

the annualized value of maintenance and lease contracts with start dates or anniversary dates during the period, plus
the value of perpetual license contracts with start dates during the period, plus
the value of fixed-term services contracts completed during the period with an expected duration of 12 months or less, plus
the value of work performed during the period on fixed-deliverable services contracts.

 

Example 1: A $300,000 lease or maintenance contract with a term of January 1, 2018 - December 31, 2020 would contribute $100,000 to ACV in each of fiscal years 2018, 2019 and 2020.

 

Example 2: A perpetual license valued at $200,000 with a contract start date of March 1, 2018, sold in connection with three years of annual maintenance valued at a total of $120,000 would contribute to ACV as follows:  fiscal year 2018: $240,000 ($200,000 + $40,000); fiscal years 2019 and 2020: $40,000 in each year.

 

Backlog: Installment billings for periods beyond the current quarterly billing cycle and customer orders received but not processed.

 

Deferred Revenue: Billings made or payments received in advance of revenue recognition from software license and maintenance agreements.

 

Lease or Time-Based License: A license of a stated product of the Company’s software that is granted to a customer for use over a specified time period, which can be months or years in length. In addition to the use of the software, the customer is provided with access to maintenance (unspecified version upgrades and technical support) without additional charge. The revenue related to these contracts is recognized ratably over the contract period for the maintenance portion and up front for the license portion under ASC 606. Both portions were recognized ratably under ASC 605.

 

Perpetual / Paid-Up License: A license of a stated product and version of the Company’s software that is granted to a customer for use in perpetuity. The revenue related to this type of license is typically recognized up front.

 

Maintenance: A contract, typically one year in duration, that is purchased by the owner of a perpetual license and that provides access to unspecified version upgrades and technical support during the duration of the contract. The revenue from these contracts is recognized ratably over the contract period.

 

 

 

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

 

Information provided by the Company or its spokespersons, including the above statements and any others in this document that refer to plans and expectations for the second quarter of 2018, FY 2018 and the future are forward-looking statements. The Company cautions investors that its performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. A detailed discussion of these risks and other factors that could affect ANSYS’ results is included in ANSYS’ SEC filings, including the Annual Report on Form 10-K for the year ended December 31, 2017, filed on February 22, 2018.

 

 

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

 

ANSYS, INC. AND SUBSIDIARIES

ASC 606 Reconciliation of Non-GAAP Measures

(Unaudited)

 

   Three Months Ended
   March 31, 2018
(in thousands, except percentages and per share data)  GAAP
Results
  Adjustments   Non-GAAP
Results
Total revenue  $282,873   $401  (1) $283,274 
Operating income   95,061    32,351  (2)  127,412 
Operating profit margin   33.6%         45.0%
Net income  $84,280   $18,784  (3) $103,064 
Earnings per share – diluted:                
Earnings per share  $0.98         $1.20 
Weighted average shares   86,152          86,152 
(1)Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.
(2)Amount represents $15.3 million of stock-based compensation expense, $3.1 million of excess payroll taxes related to stock-based awards, $12.2 million of amortization expense associated with intangible assets acquired in business combinations, $1.4 million of transaction expenses related to business combinations and the $0.4 million adjustment to revenue as reflected in (1) above.
(3)Amount represents the impact of the adjustments to operating income referred to in (2) above, decreased for the related income tax impact of $15.0 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $1.4 million.

 

 

ANSYS, INC. AND SUBSIDIARIES

ASC 605 Reconciliation of Non-GAAP Measures

(Unaudited)

 

   Three Months Ended
   March 31, 2018  March 31, 2017
(in thousands, except percentages and per share data)  GAAP
Results
  Adjustments   Non-GAAP
Results
  GAAP
Results
  Adjustments   Non-GAAP
Results
Total revenue  $284,569   $604  (1) $285,173   $253,405   $143  (4) $253,548 
Operating income   96,757    32,554  (2)  129,311    85,472    32,111  (5)  117,583 
Operating profit margin   34.0%         45.3%   33.7%         46.4%
Net income  $85,753   $18,936  (3) $104,689   $63,306   $14,183  (6) $77,489 
Earnings per share – diluted:                                
Earnings per share  $1.00         $1.22   $0.73         $0.89 
Weighted average shares   86,152          86,152    87,224          87,224 
(1)Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.
(2)Amount represents $15.3 million of stock-based compensation expense, $3.1 million of excess payroll taxes related to stock-based awards, $12.2 million of amortization expense associated with intangible assets acquired in business combinations, $1.4 million of transaction expenses related to business combinations and the $0.6 million adjustment to revenue as reflected in (1) above.

 

 

 

(3)Amount represents the impact of the adjustments to operating income referred to in (2) above, decreased for the related income tax impact of $15.1 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $1.4 million.
(4)Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.
(5)Amount represents $12.0 million of amortization expense associated with intangible assets acquired in business combinations, $10.5 million of stock-based compensation expense, $9.3 million of restructuring charges, $0.1 million of transaction expenses related to business combinations and the $0.1 million adjustment to revenue as reflected in (4) above.
(6)Amount represents the impact of the adjustments to operating income referred to in (5) above, adjusted for the related income tax impact of $17.9 million.

 

 

NON-GAAP MEASURES

 

Management uses non-GAAP financial measures (a) to evaluate the Company's historical and prospective financial performance as well as its performance relative to its competitors, (b) to set internal sales targets and spending budgets, (c) to allocate resources, (d) to measure operational profitability and the accuracy of forecasting, (e) to assess financial discipline over operational expenditures and (f) as an important factor in determining variable compensation for management and its employees. In addition, many financial analysts that follow the Company focus on and publish both historical results and future projections based on non-GAAP financial measures. The Company believes that it is in the best interest of its investors to provide this information to analysts so that they accurately report the non-GAAP financial information. Moreover, investors have historically requested and the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.

 

While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

 

The adjustments to these non-GAAP financial measures, and the basis for such adjustments, are outlined below:

 

Acquisition accounting for deferred revenue and its related tax impact. Historically, the Company has consummated acquisitions in order to support its strategic and other business objectives. In accordance with the fair value provisions applicable to the accounting for business combinations, acquired deferred revenue is often recorded on the opening balance sheet at an amount that is lower than the historical carrying value. Although this acquisition accounting requirement has no impact on the Company's business or cash flow, it adversely impacts the Company's reported GAAP revenue in the reporting periods following an acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company provides non-GAAP financial measures which exclude the impact of the acquisition accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related annual lease licenses and software maintenance contracts are renewed in future periods.

 

 

 

Amortization of intangible assets from acquisitions and its related tax impact. The Company incurs amortization of intangible assets, included in its GAAP presentation of amortization expense, related to various acquisitions it has made. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management does not consider these expenses for purposes of evaluating the performance of the Company during the applicable time period after the acquisition, and it excludes such expenses when making decisions to allocate resources. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past reports of financial results of the Company as the Company has historically reported these non-GAAP financial measures.

 

Stock-based compensation expense and its related tax impact. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. This non-GAAP adjustment also includes excess payroll tax expense related to stock-based compensation. Stock-based compensation expense (benefit) incurred in connection with the Company's deferred compensation plan held in a rabbi trust includes an offsetting benefit (charge) recorded in other income (expense). Although stock-based compensation is an expense of the Company and viewed as a form of compensation, management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company. Management similarly excludes income (expense) related to assets held in a rabbi trust in connection with the Company's deferred compensation plan. Specifically, the Company excludes stock-based compensation and income (expense) related to assets held in the deferred compensation plan rabbi trust during its annual budgeting process and its quarterly and annual assessments of the Company's and management's performance. The annual budgeting process is the primary mechanism whereby the Company allocates resources to various initiatives and operational requirements. Additionally, the annual review by the board of directors during which it compares the Company's historical business model and profitability to the planned business model and profitability for the forthcoming year excludes the impact of stock-based compensation. In evaluating the performance of senior management and department managers, charges related to stock-based compensation are excluded from expenditure and profitability results. In fact, the Company records stock-based compensation expense into a stand-alone cost center for which no single operational manager is responsible or accountable. In this way, management is able to review, on a period-to-period basis, each manager's performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.

 

Restructuring charges and the related tax impact. The Company occasionally incurs expenses for restructuring its workforce included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. Management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally does not incur these expenses as a part of its operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.

 

 

 

Transaction costs related to business combinations. The Company incurs expenses for professional services rendered in connection with business combinations, which are included in its GAAP presentation of research and development expense and selling, general and administrative expense. These expenses are generally not tax-deductible. Management excludes these acquisition-related transaction expenses, derived from announced acquisitions, for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally would not have otherwise incurred these expenses in the periods presented as a part of its operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.

 

Tax Cuts and Jobs Act. The Company recorded charges in its income tax provision related to the enactment of the Tax Cuts and Jobs Act, specifically for the transition tax related to unrepatriated cash. Management excludes these charges for the purpose of calculating non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as (i) the charges are not expected to recur as part of its normal operations and (ii) the charges resulted from the extremely infrequent event of major U.S. tax reform, the last such reform having occurred in 1986. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting.

 

Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

 

The Company has provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as listed below:

 

GAAP Reporting Measure Non-GAAP Reporting Measure
Revenue Non-GAAP Revenue
Operating Income Non-GAAP Operating Income
Operating Profit Margin Non-GAAP Operating Profit Margin
Net Income Non-GAAP Net Income
Diluted Earnings Per Share Non-GAAP Diluted Earnings Per Share

 

IR Contact:

 

Annette N. Arribas, CTP

(724) 820-3700

annette.arribas@ansys.com