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): February 27, 2019  

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

Delaware	0-20853	04-3219960
(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)

(844) 462-6797
(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. [   ]

 

 

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Item 2.02. Results of Operations and Financial Condition.

1. On February 27, 2019, 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 attached hereto as Exhibit 99.2 and is incorporated herein by reference.
   
   
2. On February 27, 2019, the Registrant posted on its website https://investors.ansys.com/ an investor presentation titled “4Q 2018 Investor Presentation”, that will be complementary to the press release described above, as part of its earnings conference call to be held on February 28, 2019 at 8:30 a.m. Eastern Time. To participate in the conference call, dial 855-239-2942 (US) or 412-542-4124 (Canada & International). 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 (International) and entering the passcode 10128385. The archived webcast can be accessed, along with other financial information, on the Registrant's website at https://investors.ansys.com/news-and-events/events-calendar.

Item 9.01. Financial Statements and Exhibits.

    Exhibit 99.1.       Press release dated February 27, 2019
    Exhibit 99.2.       Prepared remarks dated February 27, 2019

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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: February 27, 2019	By:	/s/ Ajei S. Gopal
		Ajei S. Gopal
		President and Chief Executive Officer

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EXHIBIT INDEX

 

99.1		Press release dated February 27, 2019
99.2		Prepared Remarks dated February 27, 2019

EXHIBIT 99.1

ANSYS Announces Q4 Results: Record Finish Reflects Double-Digit Growth in Revenue, ACV, EPS and Operating Cash Flow

Completes Acquisitions of Granta Design Limited and Helic, Inc.

Company Initiates Q1 and FY 2019 Outlook

Key Highlights

• ACV growth of 28% and 17% in constant currency for Q4 2018 and the year ended December 31, 2018, respectively
• Operating cash flows of $132.9 million and $486.4 million for Q4 2018 and FY 2018, respectively
• Deferred revenue and backlog of $659.2 million at December 31, 2018 under ASC 606 and $957.1 million at December 31, 2018, an increase of 24% over Q4 2017, under ASC 605
• Recurring revenue of 73% for Q4 2018 and 74% for FY 2018 on both a GAAP and non-GAAP basis, under ASC 606
• Recurring revenue of 72% for Q4 2018 and 76% for FY 2018 on both a GAAP and non-GAAP basis, under ASC 605
• Repurchased 0.5 million shares in the fourth quarter at an average price of $154.03 and 1.7 million shares during the year at an average price of $161.12

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 the previous revenue recognition guidance was still in effect.

PITTSBURGH, Feb. 27, 2019 (GLOBE NEWSWIRE) -- ANSYS, Inc. (NASDAQ: ANSS), today reported fourth quarter 2018 GAAP and non-GAAP revenue growth of 11% and 12%, respectively, or 13% and 14%, respectively, in constant currency. For FY 2018, GAAP and non-GAAP revenue growth was 11% and 12%, respectively, or 10% and 11% in constant currency. For the fourth quarter, the Company reported growth in diluted earnings per share of 70% and 30% on a GAAP and non-GAAP basis, respectively. For FY 2018, the Company reported growth in diluted earnings per share of 39% and 32% on a GAAP and non-GAAP basis, respectively.

Ajei Gopal, ANSYS President and CEO, commented, “Q4 was an outstanding quarter capping a stellar 2018. We grew double-digits across all key financial metrics for the quarter and the year.  I am confident we are tracking towards our 2020 objective of sustained, double-digit revenue growth at industry leading margins.”

In addition, Gopal stated, “I am looking forward to 2019. Our vision of making simulation pervasive across the product lifecycle is resonating with customers and partners. With a product portfolio that is stronger than ever, I am proud that we can solve many of the challenging problems faced by our customers as they bring next-generation products to market. With our continued focus on transforming our go-to-market, and with new partnerships with leading companies who are licensing ANSYS technology, we are unlocking future opportunities. I am excited about our growth prospects in 2019 and beyond.”

Maria Shields, ANSYS CFO, stated, “Our outstanding financial performance reflects the strength of our core business and our continued dedication and focus on execution, both during the fourth quarter and for the entire year. We set new company records across all key financial metrics including our Q4 and full year 2018 revenue, ACV, earnings and operating cash flows. To achieve both our near-term and longer-term growth objectives, we will move forward with investments in our core products, high-growth adjacent markets and our business infrastructure to continue building the platform to scale our business.”

Financial Results

ANSYS' fourth quarter and fiscal year 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 measurement-period adjustments 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)	Q4 2018				Q4 2018
Revenue	$	415.4			$	418.0
Net income	$	153.2			$	182.1
Diluted earnings per share	$	1.79			$	2.13
Operating profit margin	43.3		%		51.6		%

	GAAP				Non-GAAP
(in millions, except percentages and per share data)	FY 2018				FY 2018
Revenue	$	1,293.6			$	1,303.1
Net income	$	419.4			$	513.9
Diluted earnings per share	$	4.88			$	5.98
Operating profit margin	36.8		%		47.4		%

GAAP and non-GAAP results under ASC 605:

	GAAP											Non-GAAP
(in millions, except percentages and per share data)	Q4 2018				Q4 2017				% Change			Q4 2018				Q4 2017				% Change
Revenue	$	335.9			$	302.3			11	%		$	340.1			$	303.4			12	%
Net income	$	88.6			$	52.6			68	%		$	118.6			$	92.8			28	%
Diluted earnings per share	$	1.04			$	0.61			70	%		$	1.39			$	1.07			30	%
Operating profit margin	29.9		%		33.3		%					40.5		%		42.6		%

	GAAP											Non-GAAP
(in millions, except percentages and per share data)	FY 2018				FY 2017				% Change			FY 2018				FY 2017				% Change
Revenue	$	1,216.5			$	1,095.3			11	%		$	1,232.1			$	1,098.1			12	%
Net income	$	356.9			$	259.3			38	%		$	455.7			$	347.9			31	%
Diluted earnings per share	$	4.15			$	2.98			39	%		$	5.30			$	4.01			32	%
Operating profit margin	32.8		%		35.7		%					44.4		%		46.4		%

The non-GAAP financial results highlighted above, and the non-GAAP financial outlook for 2019 discussed below, represent non-GAAP financial measures. Reconciliations of these measures to the appropriate GAAP measures, for the three and twelve months ended December 31, 2018 and 2017, and for the 2019 financial outlook, are included in the condensed financial information included in this release.

Other Financial Metrics
(in millions, except percentages)	Q4 2018				Q4 2017				% Change			% Change in Constant Currency
Annual contract value (ACV)	$	480.5			$	380.7			26	%		28	%
Operating cash flows	$	132.9			$	103.5			28	%

(in millions, except percentages)	FY 2018				FY 2017				% Change			% Change in Constant Currency
ACV	$	1,325.2			$	1,123.9			18	%		17	%
Operating cash flows	$	486.4			$	430.4			13	%

ACV, or Annual Contract Value, is a financial performance metric that we introduced in 2018. 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. There is no GAAP measure comparable to ACV. ACV is composed 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 annualized value of fixed-term services contracts with start dates or anniversary dates during the period, plus
• the value of work performed during the period on fixed-deliverable services contracts.

Management's 2019 Financial Outlook

The Company's first quarter and fiscal year 2019 revenue and diluted earnings per share guidance is provided below. The revenue and diluted earnings per share guidance are provided on both a GAAP and a non-GAAP basis, in accordance with ASC 606. Non-GAAP financial measures exclude the income statement effects of acquisition adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets and acquisition-related transaction costs.

The financial guidance below includes the impact of the Company's acquisitions of Granta and Helic, which closed during the first quarter of 2019.

First Quarter 2019 Guidance

The Company currently expects the following for the quarter ending March 31, 2019:

(in millions, except per share data)	GAAP		Non-GAAP
Revenue	$286.0 - $308.0		$290.0 - $310.0
Diluted earnings per share	$0.61 - $0.82		$0.98 - $1.11

Fiscal Year 2019 Guidance

The Company currently expects the following for the fiscal year ending December 31, 2019:

(in millions, except per share data)	GAAP		Non-GAAP
Revenue	$1,400.0 - $1,465.0		$1,410.0 - $1,470.0
Diluted earnings per share	$3.98 - $4.61		$5.55 - $6.00

(in millions)	Other Financial Metrics
ACV	$1,410.0 - $1,465.0
Operating cash flows	$470.0 - $510.0

During Q1 2019, we acquired Granta and Helic for a combined purchase price of approximately $261.5 million. The acquisition of Granta, the premier provider of materials information technology, expands the Company's portfolio into this important area, giving customers access to material intelligence, including data that is critical to successful simulations. The acquisition of Helic, the industry-leading provider of electromagnetic crosstalk solutions for systems on chips, combined with our flagship electromagnetic and semiconductor solvers, will provide a comprehensive solution for on-chip, 3D integrated circuit and chip-package-system electromagnetics and noise analysis.

Conference Call Information

ANSYS will hold a conference call at 8:30 a.m. Eastern Time on February 28, 2019 to discuss fourth quarter and fiscal year 2018 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. The Company also posted a complementary investor presentation titled "4Q 2018 Investor Presentation" that can be accessed by clicking News & Events, then Presentations on our website at https://investors.ansys.com.

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 10128385. The archived webcast can be accessed, along with other financial information, on ANSYS' website at https://investors.ansys.com/news-and-events/events-calendar.

ANSYS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
	ASC 606				ASC 605				ASC 605
(in thousands)	December 31, 2018				December 31, 2018				December 31, 2017
ASSETS:
Cash & short-term investments	$	777,364			$	777,364			$	881,787
Accounts receivable, net	317,700				135,190				124,659
Goodwill	1,572,455				1,572,455				1,378,553
Other intangibles, net	211,272				211,272				157,625
Other assets	387,173				522,303				398,999
Total assets	$	3,265,964			$	3,218,584			$	2,941,623
LIABILITIES & STOCKHOLDERS' EQUITY:
Current deferred revenue	$	328,584			$	526,168			$	440,491
Other liabilities	287,833				289,257				255,301
Stockholders' equity	2,649,547				2,403,159				2,245,831
Total liabilities & stockholders' equity	$	3,265,964			$	3,218,584			$	2,941,623

ANSYS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
	Three Months Ended												Twelve Months Ended
	ASC 606				ASC 605				ASC 605				ASC 606				ASC 605				ASC 605
(in thousands, except per share data)	December 31,  2018				December 31,  2018				December 31,  2017				December 31,  2018				December 31,  2018				December 31,  2017
Revenue:
Software licenses	$	226,421			$	194,190			$	176,596			$	576,717			$	676,846			$	624,964
Maintenance and service	189,011				141,728				125,740				716,919				539,623				470,286
Total revenue	415,432				335,918				302,336				1,293,636				1,216,469				1,095,250
Cost of sales:
Software licenses	6,318				11,774				10,224				18,619				36,852				34,421
Amortization	3,631				3,631				9,902				27,034				27,034				36,794
Maintenance and service	30,140				24,684				20,686				110,232				91,999				78,949
Total cost of sales	40,089				40,089				40,812				155,885				155,885				150,164
Gross profit	375,343				295,829				261,524				1,137,751				1,060,584				945,086
Operating expenses:
Selling, general and administrative	133,137				133,137				108,157				413,580				413,580				338,640
Research and development	58,896				58,896				49,222				233,802				233,802				202,746
Amortization	3,374				3,374				3,466				13,795				13,795				12,972
Total operating expenses	195,407				195,407				160,845				661,177				661,177				554,358
Operating income	179,936				100,422				100,679				476,574				399,407				390,728
Interest income	3,745				3,745				2,135				11,419				11,419				6,962
Other income (expense), net	1,381				1,381				(484		)		(908		)		(908		)		(1,996		)
Income before income tax provision	185,062				105,548				102,330				487,085				409,918				395,694
Income tax provision	31,899				16,978				49,745				67,710				53,067				136,443
Net income	$	153,163			$	88,570			$	52,585			$	419,375			$	356,851			$	259,251
Earnings per share – basic:
Earnings per share	$	1.83			$	1.06			$	0.62			$	4.99			$	4.25			$	3.05
Weighted average shares	83,699				83,699				84,557				83,973				83,973				84,988
Earnings per share – diluted:
Earnings per share	$	1.79			$	1.04			$	0.61			$	4.88			$	4.15			$	2.98
Weighted average shares	85,472				85,472				86,709				85,913				85,913				86,854

ANSYS, INC. AND SUBSIDIARIES
ASC 606 Reconciliation of Non-GAAP Measures
(Unaudited)
	Three Months Ended
	December 31, 2018
(in thousands, except percentages and per share data)	GAAP Results				Adjustments				Non-GAAP Results
Total revenue	$	415,432			$	2,545		(1)	$	417,977
Operating income	179,936				35,646			(2)	215,582
Operating profit margin	43.3		%						51.6		%
Net income	$	153,163			$	28,919		(3)	$	182,082
Earnings per share – diluted:
Earnings per share	$	1.79							$	2.13
Weighted average shares	85,472								85,472

(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 $24.5 million of stock-based compensation expense, $0.5 million of excess payroll taxes related to stock-based awards, $7.0 million of amortization expense associated with intangible assets acquired in business combinations, $1.2 million of transaction expenses related to business combinations and the $2.5 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 $6.9 million and increased for rabbi trust expense of $0.2 million.

ANSYS, INC. AND SUBSIDIARIES
ASC 606 Reconciliation of Non-GAAP Measures
(Unaudited)
	Twelve Months Ended
	December 31, 2018
(in thousands, except percentages and per share data)	GAAP Results				Adjustments					Non-GAAP Results
Total revenue	$	1,293,636			$	9,442		(1)		$	1,303,078
Operating income	476,574				141,442			(2)		618,016
Operating profit margin	36.8		%							47.4		%
Net income	$	419,375			$	94,510		(3)		$	513,885
Earnings per share – diluted:
Earnings per share	$	4.88								$	5.98
Weighted average shares	85,913									85,913

(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 $83.3 million of stock-based compensation expense, $4.3 million of excess payroll taxes related to stock-based awards, $40.8 million of amortization expense associated with intangible assets acquired in business combinations, $3.5 million of transaction expenses related to business combinations and the $9.4 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 $47.9 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $0.9 million and rabbi trust expense of $0.1 million.

ANSYS, INC. AND SUBSIDIARIES
ASC 605 Reconciliation of Non-GAAP Measures
(Unaudited)
	Three Months Ended
	December 31, 2018													December 31, 2017
(in thousands, except percentages and per share data)	GAAP Results				Adjustments					Non-GAAP Results				GAAP Results				Adjustments					Non- GAAP Results
Total revenue	$	335,918			$	4,147		(1)		$	340,065			$	302,336			$	1,108		(4)		$	303,444
Operating income	100,422				37,248			(2)		137,670				100,679				28,582			(5)		129,261
Operating profit margin	29.9		%							40.5		%		33.3		%							42.6		%
Net income	$	88,570			$	30,005		(3)		$	118,575			$	52,585			$	40,183		(6)		$	92,768
Earnings per share – diluted:
Earnings per share	$	1.04								$	1.39			$	0.61								$	1.07
Weighted average shares	85,472									85,472				86,709									86,709

(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 $24.5 million of stock-based compensation expense, $0.5 million of excess payroll taxes related to stock-based awards, $7.0 million of amortization expense associated with intangible assets acquired in business combinations, $1.2 million of transaction expenses related to business combinations and the $4.1 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 $7.4 million and increased for rabbi trust expense of $0.2 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 $13.7 million of stock-based compensation expense, $13.4 million of amortization expense associated with intangible assets acquired in business combinations, $0.4 million of transaction expenses related to business combinations and the $1.1 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, decreased for the related income tax impact of $11.0 million, excluding the impact of the Tax Cuts and Jobs Act, and rabbi trust income of $0.1 million, and increased for total net impacts of the Tax Cuts and Jobs Act of $22.7 million.

ANSYS, INC. AND SUBSIDIARIES
ASC 605 Reconciliation of Non-GAAP Measures
(Unaudited)
	Twelve Months Ended
	December 31, 2018													December 31, 2017
(in thousands, except percentages and per share data)	GAAP Results				Adjustments					Non-GAAP Results				GAAP Results				Adjustments					Non-GAAP Results
Total revenue	$	1,216,469			$	15,583		(1)		$	1,232,052			$	1,095,250			$	2,856		(4)		$	1,098,106
Operating income	399,407				147,583			(2)		546,990				390,728				118,567			(5)		509,295
Operating profit margin	32.8		%							44.4		%		35.7		%							46.4		%
Net income	$	356,851			$	98,832		(3)		$	455,683			$	259,251			$	88,663		(6)		$	347,914
Earnings per share – diluted:
Earnings per share	$	4.15								$	5.30			$	2.98								$	4.01
Weighted average shares	85,913									85,913				86,854									86,854

(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 $83.3 million of stock-based compensation expense, $4.3 million of excess payroll taxes related to stock-based awards, $40.8 million of amortization expense associated with intangible assets acquired in business combinations, $3.5 million of transaction expenses related to business combinations and the $15.6 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 $49.7 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $0.9 million and rabbi trust expense of $0.1 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 $53.2 million of stock-based compensation expense, $49.8 million of amortization expense associated with intangible assets acquired in business combinations, $11.7 million of restructuring charges, $1.1 million of transaction expenses related to business combinations and the $2.9 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, decreased for the related income tax impact of $52.5 million, excluding the impact of the Tax Cuts and Jobs Act, and rabbi trust income of $0.1 million, and increased for total net impacts of the Tax Cuts and Jobs Act of $22.7 million.

ANSYS, INC. AND SUBSIDIARIES
Reconciliation of Forward-Looking Guidance
Quarter Ending March 31, 2019
	Earnings Per Share Range - Diluted
U.S. GAAP expectation	$0.61 - $0.82
Adjustment to exclude acquisition adjustments to deferred revenue	$0.02 - $0.04
Adjustment to exclude acquisition-related amortization	$0.08 - $0.10
Adjustment to exclude stock-based compensation	$0.16 - $0.20
Adjustment to exclude acquisition-related transaction expenses	$0.03
Non-GAAP expectation	$0.98 - $1.11

ANSYS, INC. AND SUBSIDIARIES
Reconciliation of Forward-Looking Guidance
Year Ending December 31, 2019
	Earnings Per Share Range - Diluted
U.S. GAAP expectation	$3.98 - $4.61
Adjustment to exclude acquisition adjustments to deferred revenue	$0.05 - $0.09
Adjustment to exclude acquisition-related amortization	$0.38 - $0.44
Adjustment to exclude stock-based compensation	$0.93 - $1.01
Adjustment to exclude acquisition-related transaction expenses	$0.03
Non-GAAP expectation	$5.55 - $6.00

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 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 can 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 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 and the impacts of the tax rate change on net deferred tax assets. 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

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 engineering simulation. Through our strategy of 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 is headquartered south of Pittsburgh, Pennsylvania, U.S.A. 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:  trends in customer development processes and the success of our strategy of Pervasive Engineering Simulation; our ability to continue to invest in the business; our projections for the first quarter of 2019 and fiscal year 2019 (in both GAAP and non-GAAP measures 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 and statements regarding investing in the business are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995). The words “believe,” “continue,” “expect,” and similar expressions are intended to identify forward-looking statements. 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 2018 Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. 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.investors.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.

ANSS:  F

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

 

 

ANSYS, INC. FOURTH QUARTER 2018

EARNINGS ANNOUNCEMENT

PREPARED REMARKS

February 27, 2019

 

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

 

Conference call details:

February 28, 2019

8:30 a.m. Eastern Time

 

•

To access the live broadcast, please visit the Investor Relations section of ANSYS’ website at https://investors.ansys.com and click on News & Events, then Presentations.

•

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 asking the operator to connect you to the ANSYS conference call.

•

A replay will be available within two hours of the call's completion at https://investors.ansys.com/news-and-events/events-calendar or by dialing (877) 344-7529 (US), (855) 669-9658 (CAN) or (412) 317-0088 (INT’L) and referencing the access code 10128385.

 

 

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 Q4 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, approximately 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 have introduced 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 sections below refer to non-GAAP results under ASC 605, as if the previous revenue recognition guidance was still in effect, unless otherwise specified.

 

 

FOURTH QUARTER AND FY 2018 OVERVIEW

 

We finished the year with outstanding results, including EPS that exceeded the high end of our guidance. We reported fourth quarter consolidated non-GAAP revenue of $340.1 million, an increase of 12% in reported currency and 14% in constant currency. We reported FY 2018 consolidated non-GAAP revenue of $1,232.1 million, an increase of 12% in reported currency and 11% in constant currency. We also achieved non-GAAP EPS of $1.39 and $5.30 in the fourth quarter and FY 2018, respectively, which represented 30% and 32% growth over Q4 and FY 2017, respectively. Our financial results for Q4 and FY 2018 included cash flows from operations of $132.9 million and $486.4 million, respectively.

 

The following are other notable comments related to Q4 2018 and FY 2018:

 

•

Lease license revenue grew 18% and maintenance revenue grew 14% for the quarter, both in constant currency. Lease license revenue grew 12% and maintenance revenue grew 13% for FY 2018, both in constant currency. Perpetual license revenue grew 5% and 3% for the quarter and for FY 2018, respectively, both in constant currency.

 

As we had communicated throughout the year, an important area of increased investment in 2018 was in the form of additional resources across our field engineering teams. These investments were instrumental in supporting key customer initiatives that enabled us to continue to expand our relationships at both major and strategic accounts. This also drove measurable business results in our services business as evidenced by the constant currency services revenue growth of 38% for Q4 and 33% for FY 2018.

 

•

Both lease licenses and maintenance contributed to a steady stream of growing recurring revenue that totaled 72% of revenue for the quarter and 76% of revenue for FY 2018.

 

•

Our direct and indirect businesses contributed 77% and 23%, respectively, of both Q4 and FY 2018 revenue.

 

•

ACV increased 28% and 17%, both in constant currency, for the fourth quarter and FY 2018, respectively.

 

•

We continued to drive sales execution, which resulted in a deferred revenue and backlog balance of $957.1 million, an increase of 24% over Q4 2017.

 

•

For the fourth quarter, we had 68 customers with cumulative orders over $1 million, including four customers with cumulative orders over $10 million. This compares to 49 customers with orders over $1 million in the fourth quarter of 2017, including three customers with cumulative orders over $10 million. For FY 2018, we had 162 customers with cumulative orders over $1 million, including 17 customers with cumulative orders over $10 million. This compares to 149 customers with cumulative orders in excess of $1 million for FY 2017, including 10 customers with cumulative orders over $10 million.

 

•

The fourth quarter and FY 2018 results include a four-year transaction which totaled $59.0 million and was the largest deal in the Company's history. This transaction, which was not included in our Q4 financial guidance, contributed revenue of approximately $29.8 million and diluted EPS of approximately $0.28 under ASC 606. The revenue and diluted EPS impacts were not material under ASC 605 due to the ratable revenue recognition.

 

•

During the fourth quarter, we repurchased 0.5 million shares at an average price of $154.03. During FY 2018, we repurchased 1.7 million shares at an average price of $161.12. As of December 31, 2018, the Company had 3.8 million shares remaining in its authorized share repurchase program.

 

•

Total headcount on December 31, 2018 was approximately 3,400 employees as compared to approximately 2,900 employees at December 31, 2017.

 

Other Recent Highlights

 

•

During Q1 2019, we acquired Granta Design Limited (Granta Design) and Helic, Inc. (Helic) for a combined purchase price of approximately $261.5 million. The acquisition of Granta Design, the premier provider of materials information technology, expands the Company's portfolio into this important area, giving customers access to material intelligence, including data that is critical to successful simulations. The acquisition of Helic, the industry-leading provider of electromagnetic crosstalk solutions for systems on chips, combined with our flagship electromagnetic and semiconductor solvers, will provide a comprehensive solution for on-chip, 3D integrated circuit and chip-package-system electromagnetics and noise analysis.

 

•

In February 2019, the Company released ANSYS 2019 R1, which enables engineers at every level to develop the most innovative products across a multitude of industries. The release revolutionized the user experience and introduced a new product line, ANSYS Motion, making simulation even more accessible.

 

•

Also, in February 2019, the Company entered into a $500 million unsecured revolving credit facility. The revolving credit facility will be available for general corporate purposes, including, among others, to finance acquisitions, share repurchases and capital expenditures.

 

DEFERRED REVENUE AND BACKLOG

 

	ASC 606								ASC 605
(in thousands)	December 31, 2018				September 30, 2018				December 31, 2018				September 30, 2018				December 31, 2017				September 30, 2017
Current Deferred Revenue	$	328,584			$	272,872			$	526,168			$	434,129			$	440,491			$	381,727
Current Backlog	147,299				139,241				142,284				133,673				97,283				91,885
Total Current	475,883				412,113				668,452				567,802				537,774				473,612
Long-Term Deferred Revenue	14,590				13,581				29,371				24,418				28,069				23,971
Long-Term Backlog	168,699				119,021				259,259				169,340				203,867				171,686
Total Long-Term	183,289				132,602				288,630				193,758				231,936				195,657
Total Deferred Revenue and Backlog	$	659,172			$	544,715			$	957,082			$	761,560			$	769,710			$	669,269

 

The table above represents GAAP deferred revenue and backlog. 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 expected impacts on reported revenue under ASC 606, including an estimate for the Granta and Helic acquisitions, are $2.2 million and $6.5 million for the quarter ending March 31, 2019 and the year ending December 31, 2019, respectively. The Company has not yet performed a valuation of the Granta and Helic acquired deferred revenue. Until such valuation is completed, the expected impacts on revenue will remain preliminary estimates that are likely to change. We will not be reporting on ASC 605 in 2019.

 

 

ACV AND SEVEN-FIGURE CUSTOMER ORDERS

 

(in thousands)	Q4 QTD 2018				Q4 QTD 2017				% Change			% Change in Constant Currency
ACV	$	480,487			$	380,743			26.2	%		27.7	%

 

(in thousands)	FY 2018				FY 2017				% Change			% Change in Constant Currency
ACV	$	1,325,211			$	1,123,930			17.9	%		16.5	%

 

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

 

	Q4 QTD 2018			Q4 QTD 2017			FY 2018			FY 2017
≥ $1.0  -  < $5.0 million	51			43			129			127
≥ $5.0  -  < $10.0 million	13			3			16			12
≥ $10.0 million	4			3			17			10
Total ≥ $1.0 million	68			49			162			149

 

 

REVENUE HIGHLIGHTS

 

	ASC 606							ASC 605
(in thousands, except percentages)	Q4 QTD 2018				% of Total			Q4 QTD 2018				% of Total			Q4 QTD 2017				% of Total			% Change			% Change in Constant Currency
Lease	$	126,824			30.3	%		$	114,203			33.6	%		$	97,732			32.2	%		16.9	%		18.0	%
Perpetual	99,597				23.8	%		82,359				24.2	%		79,565				26.2	%		3.5	%		4.9	%
Maintenance	178,466				42.7	%		130,438				38.4	%		116,497				38.4	%		12.0	%		13.6	%
Service	13,090				3.1	%		13,065				3.8	%		9,650				3.2	%		35.4	%		37.6	%
Total	$	417,977						$	340,065						$	303,444						12.1	%		13.5	%

 

	ASC 606							ASC 605
(in thousands, except percentages)	FY 2018				% of Total			FY 2018				% of Total			FY 2017				% of Total			% Change			% Change in Constant Currency
Lease	$	275,661			21.2	%		$	427,452			34.7	%		$	378,874			34.5	%		12.8	%		11.7	%
Perpetual	301,098				23.1	%		258,513				21.0	%		248,078				22.6	%		4.2	%		3.2	%
Maintenance	686,283				52.7	%		505,973				41.1	%		441,296				40.2	%		14.7	%		12.9	%
Service	40,036				3.1	%		40,114				3.3	%		29,858				2.7	%		34.3	%		33.4	%
Total	$	1,303,078						$	1,232,052						$	1,098,106						12.2	%		10.8	%

 

As a result of the Company's application of the fair value provisions applicable to the accounting for business combinations, there were impacts on GAAP revenue under ASC 606 of $2.5 million and $9.4 million for the fourth quarter and FY 2018, respectively. The impacts on GAAP revenue under ASC 605 were $4.1 million and $1.1 million for the fourth quarters of 2018 and 2017, respectively. The impacts on GAAP revenue under ASC 605 were $15.6 million and $2.9 million for FY 2018 and 2017, respectively.

 

  

GEOGRAPHIC REVENUE HIGHLIGHTS

 

	ASC 606							ASC 605
(in thousands, except percentages)	Q4 QTD 2018				% of Total			Q4 QTD 2018				% of Total			Q4 QTD 2017				% of Total			% Change			% Change in Constant Currency
Americas	$	184,857			44.2	%		$	141,898			41.7	%		$	118,917			39.2	%		19.3	%		19.4	%
Germany	43,602				10.4	%		33,025				9.7	%		29,140				9.6	%		13.3	%		17.0	%
United Kingdom	9,915				2.4	%		9,490				2.8	%		9,313				3.1	%		1.9	%		5.3	%
Other EMEA	70,287				16.8	%		57,926				17.0	%		56,079				18.5	%		3.3	%		6.4	%
EMEA	123,804				29.6	%		100,441				29.5	%		94,532				31.2	%		6.3	%		9.5	%
Japan	37,523				9.0	%		36,924				10.9	%		31,604				10.4	%		16.8	%		16.7	%
Other Asia-Pacific	71,793				17.2	%		60,802				17.9	%		58,391				19.2	%		4.1	%		6.2	%
Asia-Pacific	109,316				26.2	%		97,726				28.7	%		89,995				29.7	%		8.6	%		9.9	%
Total	$	417,977						$	340,065						$	303,444						12.1	%		13.5	%

 

	ASC 606							ASC 605
(in thousands, except percentages)	FY 2018				% of Total			FY 2018				% of Total			FY 2017				% of Total			% Change			% Change in Constant Currency
Americas	$	531,176			40.8	%		$	507,175			41.2	%		$	444,705			40.5	%		14.0	%		14.0	%
Germany	141,644				10.9	%		126,510				10.3	%		108,373				9.9	%		16.7	%		12.1	%
United Kingdom	38,378				2.9	%		37,105				3.0	%		33,510				3.1	%		10.7	%		7.3	%
Other EMEA	224,744				17.2	%		211,118				17.1	%		186,843				17.0	%		13.0	%		9.5	%
EMEA	404,766				31.1	%		374,733				30.4	%		328,726				29.9	%		14.0	%		10.2	%
Japan	148,358				11.4	%		141,555				11.5	%		126,357				11.5	%		12.0	%		10.4	%
Other Asia-Pacific	218,778				16.8	%		208,589				16.9	%		198,318				18.1	%		5.2	%		5.1	%
Asia-Pacific	367,136				28.2	%		350,144				28.4	%		324,675				29.6	%		7.8	%		7.1	%
Total	$	1,303,078						$	1,232,052						$	1,098,106						12.2	%		10.8	%

 

Regional Commentary

 

Americas

 

The Americas led the regions with 19% and 14% constant currency revenue growth in the fourth quarter and FY 2018, respectively, including double-digit constant currency growth across all classes of revenue. The Americas continued to lead in large deal sales with 36 customers with cumulative orders over $1 million during the quarter compared to 24 customers during the fourth quarter of 2017. The region also led for FY 2018 with a total of 72 customers with cumulative orders over $1 million during the year compared to 68 customers during FY 2017.

 

EMEA

 

EMEA delivered constant currency revenue growth of 10% for both the fourth quarter and FY 2018, including double-digit growth in both maintenance and service revenue. Germany and France, the region's two largest geographies, each delivered double-digit constant currency revenue growth, but this strength was partially offset by lower growth in the United Kingdom. EMEA increased its large deals to 21 customers with cumulative orders over $1 million during the quarter compared to 16 customers during the fourth quarter of 2017. For FY 2018, the region had a total of 50 customers with cumulative orders over $1 million compared to 47 customers during FY 2017. The overall results in the region continue to demonstrate our strong sales execution and an improved go-to-market strategy.

 

Asia-Pacific

 

Asia-Pacific experienced constant currency revenue growth of 10% and 7% for the fourth quarter and FY 2018, respectively, including double-digit growth in lease, maintenance and service revenue. Japan, the region's largest geography, led the region with double-digit constant currency revenue growth, partially offset by South Korea. Asia-Pacific produced a total of 11 customers with cumulative orders over $1 million during the quarter compared to 9 customers during the fourth quarter of 2017. For FY 18, the region had a total of 40 customers with cumulative orders over $1 million compared to 34 customers during FY 2017.

 

Industry Commentary

 

Due to the continued investments in autonomous vehicles and electrification, the automotive industry remained strong throughout 2018. Investments in smart, connected products and 5G by companies around the globe bolstered the high-tech industry during the year. Increased defense spending in both the United States and Europe supported strong performance in aerospace and defense. The industrial equipment sector saw growth due to the continued focus on efficiency and reliability.

 

INCOME STATEMENT HIGHLIGHTS

 

Q4 and FY 2018 MARGINS AND TAX RATE: The gross margins, operating margins and effective tax rates were as follows:

 

	ASC 606						ASC 605
	Q4 QTD 2018			FY 2018			Q4 QTD 2018			FY 2018
Gross Margin	91.6	%		90.5	%		89.7	%		90.0	%
Operating Margin	51.6	%		47.4	%		40.5	%		44.4	%
Effective Tax Rate	17.6	%		18.2	%		17.1	%		18.3	%

 

The FY 2018 tax rates presented above include a benefit of $6.7 million, or approximately 1%, related to global entity structuring activities that occurred in the third quarter.

 

BALANCE SHEET AND CASH FLOW HIGHLIGHTS

 

•

Cash and short-term investments totaled $777.4 million as of December 31, 2018, of which 79% was held domestically.

•

Cash flows from operations were $132.9 million for the fourth quarter of 2018 as compared to $103.5 million for the fourth quarter of 2017. Cash flows from operations were $486.4 million for FY 2018 as compared to $430.4 million for FY 2017.

•

Consolidated net DSO was 39 days under ASC 605. Consolidated net DSO was 72 days under ASC 606, which significantly increased upon the adoption of ASC 606 on January 1, 2018.

•

Capital expenditures totaled $8.7 million and $21.8 million for the fourth quarter and FY 2018, respectively. We are currently planning total 2019 capital expenditures in the range of $35 - $40 million.

 

SHARE COUNT AND SHARE REPURCHASES

 

We had 85.5 million fully diluted weighted average shares outstanding in Q4. In line with our commitment to return capital to stockholders, we repurchased 0.5 million shares during Q4 at an average price of $154.03 and repurchased 1.7 million shares in FY 2018 at an average price of $161.12. As of December 31, 2018, the Company had 3.8 million shares remaining in its authorized share repurchase program.

 

 

STOCK-BASED COMPENSATION EXPENSE

 

	Three Months Ended								Twelve Months Ended
(in thousands, except per share data)	December 31,  2018				December 31,  2017				December 31,  2018				December 31,  2017
Cost of sales:
Software licenses	$	319			$	258			$	1,257			$	969
Maintenance and service	1,025				639				3,967				2,533
Operating expenses:
Selling, general and administrative	13,811				7,507				47,099				30,817
Research and development	9,304				5,342				31,023				18,835
Stock-based compensation expense before taxes	24,459				13,746				83,346				53,154
Related income tax benefits	(4,207		)		3,477				(34,518		)		(20,503		)
Stock-based compensation expense, net of taxes	$	20,252			$	17,223			$	48,828			$	32,651
Net impact on earnings per share:
Diluted earnings per share	$	(0.24	)		$	(0.20	)		$	(0.57	)		$	(0.38	)

 

 

CURRENCY

 

CURRENCY IMPACTS: The fourth quarter and FY 2018 revenue and operating income under ASC 605 as compared to the fourth quarter and FY 2017 were impacted by fluctuations in the U.S. Dollar. The impacts on revenue and operating income are reflected in the table below. Amounts in brackets indicate an adverse impact from currency fluctuations.

 

	Three Months Ended				Twelve Months Ended
(in thousands)	December 31, 2018				December 31, 2018
Revenue	$	(4,347	)		$	14,884
Operating income	$	(483	)		$	10,545

 

There were favorable foreign exchange impacts on deferred revenue and backlog of $1.3 million for the fourth quarter 2018. There were adverse foreign exchange impacts on deferred revenue and backlog of $9.7 million for FY 2018.

 

 

OUTLOOK

 

Q1 2019 OUTLOOK: We are currently forecasting the following for Q1 2019:

 

(in millions, except percentages and per share data)	GAAP		non-GAAP
Revenue	$286.0 - $308.0		$290.0 - $310.0
Operating margin	22.0% - 25.0%		36.5% - 38.5%
Effective tax rate	13.0% - 16.0%		21.0% - 22.0%
Diluted earnings per share	$0.61 - $0.82		$0.98 - $1.11

 

FY 2019 OUTLOOK: We are currently forecasting the following for FY 2019:

 

(in millions, except percentages and per share data)	GAAP		non-GAAP
Revenue	$1,400.0 - $1,465.0		$1,410.0 - $1,470.0
Operating margin	30.0% - 33.0%		43.0% - 44.0%
Effective tax rate	18.0% - 20.0%		21.0% - 22.0%
Diluted earnings per share	$3.98 - $4.61		$5.55 - $6.00

 

In addition, we are currently forecasting the following for FY 2019:

 

(in millions)	Other Financial Metrics
ACV	$1,410.0 - $1,465.0
Operating cash flows	$470.0 - $510.0

 

The outlook presented above includes the impacts of the Company's acquisitions of Granta Design and Helic. For FY 2019, the Company's guidance includes approximately $12.0 - $22.0 million in GAAP revenue, $20.0 - $25.0 million in non-GAAP revenue and $20.0 - $25.0 million in ACV. The acquisitions are also expected to be dilutive to GAAP operating margins by approximately 2.0% - 3.0% and dilutive to non-GAAP operating margins by approximately 1.0% - 1.5% in FY 2019.

 

We are currently expecting approximately 86.0 million fully diluted shares outstanding for both Q1 2019 and FY 2019.

 

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
Q1 2019	1.12 - 1.15		1.29 - 1.32		108 - 111
FY 2019	1.12 - 1.15		1.29 - 1.32		109 - 112

 

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 composed 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 annualized value of fixed-term services contracts with start dates or anniversary dates during the period, 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.

 

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 first quarter of 2019, FY 2019 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.

 

 

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

 

ANSYS, INC. AND SUBSIDIARIES
ASC 606 Reconciliation of Non-GAAP Measures
(Unaudited)
	Three Months Ended
	December 31, 2018
(in thousands, except percentages and per share data)	GAAP Results				Adjustments				Non-GAAP Results
Total revenue	$	415,432			$	2,545		(1)	$	417,977
Operating income	179,936				35,646			(2)	215,582
Operating profit margin	43.3		%						51.6		%
Net income	$	153,163			$	28,919		(3)	$	182,082
Earnings per share – diluted:
Earnings per share	$	1.79							$	2.13
Weighted average shares	85,472								85,472

 

(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 $24.5 million of stock-based compensation expense, $0.5 million of excess payroll taxes related to stock-based awards, $7.0 million of amortization expense associated with intangible assets acquired in business combinations, $1.2 million of transaction expenses related to business combinations and the $2.5 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 $6.9 million and increased for rabbi trust expense of $0.2 million.

 

ANSYS, INC. AND SUBSIDIARIES
ASC 606 Reconciliation of Non-GAAP Measures
(Unaudited)
	Twelve Months Ended
	December 31, 2018
(in thousands, except percentages and per share data)	GAAP Results				Adjustments				Non-GAAP Results
Total revenue	$	1,293,636			$	9,442		(1)	$	1,303,078
Operating income	476,574				141,442			(2)	618,016
Operating profit margin	36.8		%						47.4		%
Net income	$	419,375			$	94,510		(3)	$	513,885
Earnings per share – diluted:
Earnings per share	$	4.88							$	5.98
Weighted average shares	85,913								85,913

 

(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 $83.3 million of stock-based compensation expense, $4.3 million of excess payroll taxes related to stock-based awards, $40.8 million of amortization expense associated with intangible assets acquired in business combinations, $3.5 million of transaction expenses related to business combinations and the $9.4 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 $47.9 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $0.9 million and rabbi trust expense of $0.1 million.

 

 

ANSYS, INC. AND SUBSIDIARIES
ASC 605 Reconciliation of Non-GAAP Measures
(Unaudited)
	Three Months Ended
	December 31, 2018												December 31, 2017
(in thousands, except percentages and per share data)	GAAP Results				Adjustments				Non-GAAP Results				GAAP Results				Adjustments				Non-GAAP Results
Total revenue	$	335,918			$	4,147		(1)	$	340,065			$	302,336			$	1,108		(4)	$	303,444
Operating income	100,422				37,248			(2)	137,670				100,679				28,582			(5)	129,261
Operating profit margin	29.9		%						40.5		%		33.3		%						42.6		%
Net income	$	88,570			$	30,005		(3)	$	118,575			$	52,585			$	40,183		(6)	$	92,768
Earnings per share – diluted:
Earnings per share	$	1.04							$	1.39			$	0.61							$	1.07
Weighted average shares	85,472								85,472				86,709								86,709

 

(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 $24.5 million of stock-based compensation expense, $0.5 million of excess payroll taxes related to stock-based awards, $7.0 million of amortization expense associated with intangible assets acquired in business combinations, $1.2 million of transaction expenses related to business combinations and the $4.1 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 $7.4 million and increased for rabbi trust expense of $0.2 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 $13.7 million of stock-based compensation expense, $13.4 million of amortization expense associated with intangible assets acquired in business combinations, $0.4 million of transaction expenses related to business combinations and the $1.1 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, decreased for the related income tax impact of $11.0 million, excluding the impact of the Tax Cuts and Jobs Act, and rabbi trust income of $0.1 million, and increased for total net impacts of the Tax Cuts and Jobs Act of $22.7 million.

 

ANSYS, INC. AND SUBSIDIARIES
ASC 605 Reconciliation of Non-GAAP Measures
(Unaudited)
	Twelve Months Ended
	December 31, 2018												December 31, 2017
(in thousands, except percentages and per share data)	GAAP Results				Adjustments				Non-GAAP Results				GAAP Results				Adjustments				Non-GAAP Results
Total revenue	$	1,216,469			$	15,583		(1)	$	1,232,052			$	1,095,250			$	2,856		(4)	$	1,098,106
Operating income	399,407				147,583			(2)	546,990				390,728				118,567			(5)	509,295
Operating profit margin	32.8		%						44.4		%		35.7		%						46.4		%
Net income	$	356,851			$	98,832		(3)	$	455,683			$	259,251			$	88,663		(6)	$	347,914
Earnings per share – diluted:
Earnings per share	$	4.15							$	5.30			$	2.98							$	4.01
Weighted average shares	85,913								85,913				86,854								86,854

 

(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 $83.3 million of stock-based compensation expense, $4.3 million of excess payroll taxes related to stock-based awards, $40.8 million of amortization expense associated with intangible assets acquired in business combinations, $3.5 million of transaction expenses related to business combinations and the $15.6 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 $49.7 million and increased for a measurement-period adjustment related to the Tax Cuts and Jobs Act of $0.9 million and rabbi trust expense of $0.1 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 $53.2 million of stock-based compensation expense, $49.8 million of amortization expense associated with intangible assets acquired in business combinations, $11.7 million of restructuring charges, $1.1 million of transaction expenses related to business combinations and the $2.9 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, decreased for the related income tax impact of $52.5 million, excluding the impact of the Tax Cuts and Jobs Act, and rabbi trust income of $0.1 million, and increased for total net impacts of the Tax Cuts and Jobs Act of $22.7 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 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 can 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 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 and the impacts of the tax rate change on net deferred tax assets. 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, IRC

(724) 820-3700

annette.arribas@ansys.com

 

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