ANSYS(ANSS) - 2023 Q3 - Quarterly Report

Revenue Performance - Revenue declined by 2.9% (GAAP) and 3.1% (Non-GAAP) for the three months ended September 30, 2023, primarily due to reductions in subscription lease and perpetual license revenue[94] - Revenue increased by 6.8% (GAAP) and 6.3% (Non-GAAP) for the nine months ended September 30, 2023, driven by growth in maintenance and subscription lease license revenue[94] - In constant currency, revenue declined by 4.2% (GAAP) and 4.4% (Non-GAAP) for the three months ended September 30, 2023[98] - Total revenue for the nine months ended September 30, 2023, increased by 6.8%, with a 7.6% increase on a constant currency basis[106] - Revenue for the quarter ended September 30, 2023 decreased by 2.9% (or 4.2% in constant currency) compared to the same quarter in 2022, with total revenue at $458.8 million[114] - Total revenue for the nine months ended September 30, 2023 increased by 6.8% to$ 1.46 billion, or 7.6% in constant currency, driven by maintenance revenue growth of 10.5%[134] - Total GAAP revenue for the nine months ended September 30, 2023 was $1.46 billion, with a gross profit of$ 1.26 billion (86.3% gross margin)[155] Operating Income and Expenses - Operating income decreased by 43.4% (GAAP) and 19.5% (Non-GAAP) for the three months ended September 30, 2023, reflecting increased personnel costs[94] - In constant currency, operating income decreased by 45.4% (GAAP) and 21.0% (Non-GAAP) for the three months ended September 30, 2023[98] - Operating income decreased by 43.4% (or 45.4% in constant currency) to $69.8 million, primarily due to increased operating expenses[125] - Operating income for the nine months ended September 30, 2023 decreased by 11.9% to$ 293.1 million, primarily due to increased operating expenses[143] - Total non-GAAP operating income for the nine months ended September 30, 2023 was $539.70 million, with a 36.8% operating margin[155] Earnings and Profitability - Diluted earnings per share declined by 41.8% (GAAP) and 20.3% (Non-GAAP) for the three months ended September 30, 2023[94] - Net income for the three months ended September 30, 2023 decreased to$ 55.5 million from $96.0 million in the same period in 2022, with diluted earnings per share dropping to$ 0.64 from $1.10[131] - Net income for the nine months ended September 30, 2023 was$ 225.65 million, a decrease from $265.76 million in the same period in 2022[149] - Diluted earnings per share for the nine months ended September 30, 2023 was$ 2.58, down from $3.04 in the same period in 2022[149] - Non-GAAP net income for the nine months ended September 30, 2023 was$ 423.99 million, with non-GAAP diluted EPS of $4.85[155] Regional Revenue Performance - Americas region revenue grew by 14.0% for the nine months ended September 30, 2023, while Asia-Pacific revenue declined by 3.1%[106] - EMEA region revenue grew by 6.0% for the nine months ended September 30, 2023, but declined by 5.2% on a constant currency basis for the three months ended September 30, 2023[106] - International revenue accounted for 55.4% of total revenue in Q3 2023, down from 57.4% in Q3 2022[118] - International revenue accounted for 54.8% of total revenue for the nine months ended September 30, 2023, down from 57.3% in 2022[138] Subscription and License Revenue - Subscription lease licenses revenue decreased by 24.1% (or 25.0% in constant currency) to$ 103.6 million, driven by a $35.6 million decrease in multi-year licenses[114] - Perpetual license revenue decreased by 18.7% (or 19.8% in constant currency) to$ 58.8 million, primarily due to a 17.6% decrease in average deal size[114] - Maintenance revenue increased by 12.3% (or 10.7% in constant currency) to $278.1 million, driven by growth in maintenance associated with lease licenses[114] - Subscription lease license revenue increased by 6.5% to$ 386.5 million, while perpetual license revenue decreased by 5.8% to $200.0 million[134] - Maintenance revenue grew by$ 77.8 million, with $68.1 million attributed to lease licenses and$ 9.7 million to perpetual sales[134] Cash Flow and Financial Position - Cash, cash equivalents, and short-term investments increased by $24.9 million (4.1%) to$ 639.5 million as of September 30, 2023, compared to $614.6 million as of December 31, 2022[169] - Working capital increased by$ 38.8 million (4.5%) to $908.1 million as of September 30, 2023, compared to$ 869.3 million as of December 31, 2022[169] - Net cash provided by operating activities increased by $27.4 million (6.0%) to$ 484.4 million for the nine months ended September 30, 2023, compared to $457.0 million for the same period in 2022[173] - Net cash used in investing activities decreased by$ 38.5 million (14.9%) to $220.2 million for the nine months ended September 30, 2023, compared to$ 258.6 million for the same period in 2022[174] - Net cash used in financing activities increased by $34.6 million (17.5%) to$ 232.6 million for the nine months ended September 30, 2023, compared to $198.0 million for the same period in 2022[175] - The company repurchased 650,000 shares at an average price of$ 302.34 per share, totaling $196.5 million, during the nine months ended September 30, 2023[179] - The company has a$ 755.0 million unsecured term loan facility and a $500.0 million unsecured revolving loan facility under the 2022 Credit Agreement[176] - The company plans capital spending of$ 25.0 million to $30.0 million during fiscal year 2023, compared to$ 24.4 million spent in fiscal year 2022[174] - The company's operating lease commitments total $136.6 million, with$ 26.2 million due in the next twelve months[178] - The company's foreign cash, cash equivalents, and short-term investments increased by $24.8 million (8.6%) to$ 312.6 million as of September 30, 2023, compared to $287.8 million as of December 31, 2022[171] Currency and Interest Rate Impact - The U.S. Dollar was 3.1% weaker against foreign currencies in Q3 2023 compared to Q3 2022, impacting revenue[186] - The U.S. Dollar was 1.8% stronger against foreign currencies in the nine months ended September 30, 2023, compared to the same period in 2022[186] - Currency fluctuations resulted in a net adverse impact of$ 1.757 million on revenue from the Japanese Yen in Q3 2023[187] - Currency fluctuations resulted in a net adverse impact of $10.256 million on revenue from the Japanese Yen in the nine months ended September 30, 2023[187] - A hypothetical 10% strengthening in the U.S. Dollar would decrease revenue by$ 19.8 million in Q3 2023 and $63.6 million in the nine months ended September 30, 2023[188] - Interest income was$ 4.9 million in Q3 2023 and $12.4 million in the nine months ended September 30, 2023[189] - Interest expense was$ 12.3 million in Q3 2023 and $34.6 million in the nine months ended September 30, 2023[189] - Outstanding term loan borrowings as of September 30, 2023, were$ 755.0 million[190] - A hypothetical 100 basis point increase in interest rates would increase interest expense by $7.7 million over the next twelve months[190] - The Sustainability Rate Adjustment range is +/- 0.05% and will go into effect in Q1 2024 based on 2023 KPIs[190] Legal and Regulatory Risks - The company is subject to various claims, investigations, and legal proceedings that could have a significant adverse effect on financial statements and cause reputational damage[196] - The resolution of pending legal matters is not expected to have a material adverse effect on the company's financial position, results of operations, or cash flows[196] Market and Industry Trends - The engineering simulation software market is growing, driven by trends such as electrification, autonomy, connectivity, and sustainability[89] - The company continues to see strong demand for simulation solutions in high-tech, aerospace, and automotive industries, particularly for advanced chips, 5G/6G technology, and electric vehicles[104] Strategic Initiatives - The company's strategy focuses on expanding product offerings, increasing user accessibility, and driving more computations through larger and more complex simulations[87] - The company is investing in global sales and marketing organizations and infrastructure to drive growth, despite challenges in the competitive labor market[111] Non-GAAP Financial Measures - The company uses non-GAAP financial measures to evaluate performance, set targets, allocate resources, and determine variable compensation[158] - Non-GAAP financial measures exclude items like acquisition-related deferred revenue adjustments, stock-based compensation, and amortization of intangible assets[159][160] - Stock-based compensation expense for the nine months ended September 30, 2023 was$ 158.53 million, representing 10.7% of operating income[155] - Amortization of intangible assets from acquisitions for the nine months ended September 30, 2023 was $77.00 million, representing 5.3% of operating income[155] Tax and Compensation - The effective tax rate for the three months ended September 30, 2023 decreased to 11.3% from 18.7% in 2022, primarily due to reduced U.S. federal tax expense on foreign earnings and increased R&D credits[130] - The effective tax rate for the nine months ended September 30, 2023 was 15.6%, down from 16.7% in the same period in 2022, primarily due to increased benefits from R&D credits and foreign tax planning[148] Deferred Revenue and Backlog - Deferred revenue and backlog as of September 30, 2023 totaled$ 1.21 billion, with $370.4 million in deferred revenue and$ 835.2 million in backlog[120] Internal Controls and Compliance - No changes in internal control over financial reporting during the three months ended September 30, 2023 that materially affected the company's internal control[194] U.S. Export Restrictions - The U.S. export restrictions on sales to certain Chinese entities negatively impacted revenue and annual contract value (ACV) by $20.0 million in Q3 2023, with an expected headwind of$ 25.0 million for fiscal year 2023[96] Annual Contract Value (ACV) - ACV for the nine months ended September 30, 2023, was $1,345,305, representing a 10.8% increase compared to the same period in 2022[102] - Recurring ACV for the trailing twelve months ended September 30, 2023, was$ 1,804,517, a 15.7% increase from the previous year[103] Revenue Fluctuations and Risks - Revenue fluctuations are influenced by the timing and duration of multi-year subscription lease contracts, which can cause significant quarterly variations[106] - The company faces risks from macroeconomic conditions, including inflation, recessionary pressures, and foreign exchange volatility, which could impact future results[110] - Cybersecurity threats and data breaches are identified as potential risks that could affect the company's operations and reputation[110] Employee Count - The company employed 6,100 people as of September 30, 2023, up from 5,600 as of December 31, 2022[86]