ANSYS(ANSS) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section details ANSYS, Inc.'s unaudited condensed consolidated financial statements, including Balance Sheets, Income, Comprehensive Income, Cash Flows, and Stockholders' Equity, for specified interim periods Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | September 30, 2024 | December 31, 2023 | |:---------------|:-------------------|:------------------| | ASSETS | | | | Total current assets | $2,348,078 | $2,049,567 | | Total long-term assets | $5,259,995 | $5,273,308 | | Total assets | $7,608,073 | $7,322,875 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $754,490 | $889,294 | | Total long-term liabilities | $1,024,807 | $1,043,217 | | Total stockholders' equity | $5,828,776 | $5,390,364 | | Total liabilities and stockholders' equity | $7,608,073 | $7,322,875 | - Total assets increased by $285.2 million (3.9%) from $7,322,875 thousand at December 31, 2023, to $7,608,073 thousand at September 30, 2024, primarily driven by an increase in cash and cash equivalents[6] - Total stockholders' equity increased by $438.4 million (8.1%) from $5,390,364 thousand at December 31, 2023, to $5,828,776 thousand at September 30, 2024[6] Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Total revenue | $601,892 | $458,795 | $1,662,635 | $1,464,841 | | Gross profit | $532,783 | $393,538 | $1,455,504 | $1,263,592 | | Operating income | $161,538 | $69,816 | $362,293 | $293,135 | | Net income | $128,192 | $55,502 | $293,004 | $225,650 | | Basic EPS | $1.47 | $0.64 | $3.36 | $2.60 | | Diluted EPS | $1.46 | $0.64 | $3.34 | $2.58 | - Total revenue for the three months ended September 30, 2024, increased by 31.2% year-over-year, and for the nine months, it increased by 13.5% year-over-year[8] - Net income for the three months ended September 30, 2024, more than doubled, increasing by 130.9% year-over-year, and for the nine months, it increased by 29.8% year-over-year[8] Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income | $128,192 | $55,502 | $293,004 | $225,650 | | Foreign currency translation adjustments | $48,714 | $(32,834) | $18,357 | $(11,547) | | Unrealized gains on available-for-sale securities, net of tax | $361 | $— | $276 | $— | | Comprehensive income | $177,267 | $22,668 | $311,637 | $214,103 | - Comprehensive income significantly increased for both the three and nine months ended September 30, 2024, largely due to positive foreign currency translation adjustments compared to losses in the prior year[10] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:-------------------------------|:-------------------------------| | Net cash provided by operating activities | $537,767 | $484,400 | | Net cash used in investing activities | $(86,030) | $(220,166) | | Net cash used in financing activities | $(76,470) | $(232,600) | | Net increase in cash and cash equivalents | $385,856 | $24,951 | | Cash and cash equivalents, end of period | $1,246,057 | $639,342 | - Net cash provided by operating activities increased by 11.0% to $537.8 million for the nine months ended September 30, 2024, compared to $484.4 million in the prior year[12] - Net cash used in investing activities decreased significantly by 60.9% to $86.0 million, primarily due to decreased acquisition-related cash outlays[12] - Net cash used in financing activities decreased by 67.1% to $76.5 million, mainly due to the absence of share repurchases in 2024[12] Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands) | (in thousands) | Balance, January 1, 2024 | Balance, September 30, 2024 | |:---------------|:-------------------------|:----------------------------|\n| Common Shares | 95,267 | 95,267 |\n| Stock Amount | $953 | $953 |\n| Additional Paid-In Capital | $1,670,450 | $1,750,243 |\n| Retained Earnings | $5,283,342 | $5,576,346 |\n| Treasury Stock, Amount | $(1,474,110) | $(1,427,128) |\n| Accumulated Other Comprehensive (Loss) Income | $(90,271) | $(71,638) |\n| Total Stockholders' Equity | $5,390,364 | $5,828,776 | - Total stockholders' equity increased by $438.4 million from January 1, 2024, to September 30, 2024, primarily driven by net income and stock-based compensation activity[13] - Treasury stock decreased by $46.9 million, indicating fewer shares held in treasury, while additional paid-in capital increased by $79.8 million[13] Notes to Condensed Consolidated Financial Statements 1. Organization - ANSYS, Inc. develops and globally markets engineering simulation software and services across various industries and academia[15] - The company operates as a single segment due to its integrated approach to multi-discipline problem-solving and multi-year product integration strategy[16][17] - A pending acquisition by Synopsys, Inc. was announced on January 15, 2024, and is anticipated to close in the first half of 2025, subject to regulatory approvals[18] 2. Accounting Policies - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and should be read with the 2023 Form 10-K[19] - New accounting guidance (ASU 2023-07 on Segment Reporting and ASU 2023-09 on Income Tax Disclosures) will require enhanced footnote disclosures in future annual periods[20][21] - Cash and cash equivalents are highly liquid investments, while short-term investments are available-for-sale debt securities carried at fair value[23][24] 3. Revenue from Contracts with Customers Revenue from Contracts with Customers (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Subscription lease licenses | $194,322 | $103,573 | $507,711 | $386,494 | | Perpetual licenses | $82,626 | $58,849 | $212,790 | $199,977 | | Software licenses | $276,948 | $162,422 | $720,501 | $586,471 | | Maintenance | $306,670 | $278,108 | $889,836 | $820,393 | | Service | $18,274 | $18,265 | $52,298 | $57,977 | | Total revenue | $601,892 | $458,795 | $1,662,635 | $1,464,841 | - Subscription lease licenses revenue increased by 87.6% for the three months and 31.4% for the nine months ended September 30, 2024, primarily from existing customers and multi-year licenses[25][112][132] - Total revenue allocated to remaining performance obligations as of September 30, 2024, was $1,463,797 thousand, with $902,792 thousand expected to be recognized in the next 12 months[29] 4. Acquisitions - Acquisition-related expenses of $13.2 million and $39.9 million were incurred for the three and nine months ended September 30, 2024, mainly due to the pending merger with Synopsys[30] - An agreement to make a strategic equity investment in Humanetics for $300.0 million was mutually terminated in July 2024 due to regulatory interactions[31][180] - In 2023, ANSYS acquired DYNAmore for $140.8 million and completed other smaller acquisitions to expand solution offerings, with their effects not material to consolidated results[32][33][34] 5. Other Receivables and Current Assets Other Receivables and Current Assets (in thousands) | (in thousands) | September 30, 2024 | December 31, 2023 | |:---------------|:-------------------|:------------------| | Receivables related to unrecognized revenue | $176,725 | $253,646 | | Income taxes receivable, including overpayments and refunds | $29,034 | $22,104 | | Prepaid expenses and other current assets | $64,376 | $48,901 | | Total other receivables and current assets | $270,135 | $324,651 | - Total other receivables and current assets decreased by $54.5 million from December 31, 2023, to September 30, 2024, primarily due to a decrease in receivables related to unrecognized revenue[35] 6. Earnings Per Share Earnings Per Share (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Net income | $128,192 | $55,502 | $293,004 | $225,650 | | Weighted average shares outstanding – basic | 87,399 | 86,817 | 87,266 | 86,814 | | Dilutive effect of stock plans | 486 | 564 | 548 | 521 | | Weighted average shares outstanding – diluted | 87,885 | 87,381 | 87,814 | 87,335 | | Basic earnings per share | $1.47 | $0.64 | $3.36 | $2.60 | | Diluted earnings per share | $1.46 | $0.64 | $3.34 | $2.58 | - Diluted EPS increased significantly to $1.46 for the three months ended September 30, 2024, from $0.64 in the prior year, and to $3.34 for the nine months, from $2.58[36] 7. Goodwill and Intangible Assets Finite-lived and Other Intangible Assets, Net (in thousands) | (in thousands) | September 30, 2024 | December 31, 2023 | |:---------------|:-------------------|:------------------| | Finite-lived intangible assets: | | | | Developed software and core technologies, net | $532,107 | $588,663 | | Customer lists, net | $183,318 | $200,074 | | Trade names, net | $40,930 | $46,323 | | Total finite-lived intangible assets, net | $756,355 | $835,060 | | Indefinite-lived intangible asset: Trade name | $357 | $357 | | Other intangible assets, net | $756,712 | $835,417 | Goodwill (in thousands) | (in thousands) | 2024 | 2023 | |:---------------|:------------|:------------| | Beginning balance – January 1 | $3,805,874 | $3,658,267 | | Acquisitions and adjustments | $841 | $113,502 | | Currency translation | $11,845 | $(2,448) | | Ending balance – September 30 | $3,818,560 | $3,769,321 | - Goodwill increased to $3,818,560 thousand as of September 30, 2024, from $3,805,874 thousand at January 1, 2024, primarily due to currency translation[39] - No impairment was identified for goodwill or indefinite-lived intangible assets during the annual test in Q1 2024 or through September 30, 2024[40][182] 8. Cash Equivalents and Short-Term Investments Cash Equivalents and Short-Term Investments (in thousands) | (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |:---------------|:---------------|:-----------------------|:------------------------|:---------------------| | Money market funds | $246,657 | $— | $— | $246,657 | | Corporate debt securities | $26,855 | $244 | $— | $27,099 | | Municipal bonds | $16,746 | $117 | $(8) | $16,855 | | U.S. agency bonds | $5,062 | $17 | $(4) | $5,075 | | Other short-term investments | $183 | $— | $— | $183 | | Total cash equivalents and short-term investments | $295,503 | $378 | $(12) | $295,869 | - The company holds $295.9 million in cash equivalents and short-term investments, with a small amount of unrealized losses primarily due to changes in interest rates[42][43] Contractual Maturities of Debt Securities (in thousands) | (in thousands) | Amortized Cost | Fair Value | |:---------------|:---------------|:-----------| | Less than 1 year | $15,551 | $15,599 | | 1-3 years | $33,112 | $33,430 | | Total | $48,663 | $49,029 | 9. Fair Value Measurement - Assets and liabilities reported at fair value are classified into Level 1 (quoted prices in active markets), Level 2 (observable inputs), or Level 3 (unobservable inputs)[46] - Money market funds, deferred compensation plan investments, and equity securities are classified as Level 1, while corporate debt securities, municipal bonds, U.S. agency bonds, and forward contracts are Level 2[48][51][52] - The carrying amount of the company's debt approximates its estimated fair value and is classified within Level 2[47] 10. Leases - Operating lease right-of-use assets and lease liabilities primarily relate to office space, including the executive offices in Canonsburg, Pennsylvania, with a lease term expiring December 31, 2029[53] Lease Costs (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Lease liability cost | $7,016 | $7,097 | $21,472 | $21,207 | | Variable lease cost | $1,454 | $1,523 | $4,096 | $4,134 | | Total lease cost | $8,470 | $8,620 | $25,568 | $25,341 | Future Lease Payments (in thousands) | (in thousands) | Remainder of 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | |:---------------|:------------------|:---------|:---------|:---------|:---------|:-----------| | Total future lease payments | $7,295 | $27,488 | $23,101 | $18,930 | $17,493 | $30,222 | | Less: Present value adjustment | $(10,882) | | | | | | | Present value of future lease payments | $113,647 | | | | | | 11. Debt - The company has a 2022 Credit Agreement providing a $755.0 million unsecured term loan facility and a $500.0 million unsecured revolving loan facility, both maturing on June 30, 2027[58][173] - Interest rates are variable, based on Term SOFR or base rate plus an applicable margin, with a Sustainability Rate Adjustment introduced in September 2023[59][60][174][175] - As of September 30, 2024, $755.0 million was outstanding under the term loan (carrying value $754.1 million), with no borrowings under the revolving loan facility, and the company was in compliance with all covenants[64][65][174] 12. Income Taxes Income Tax Provision and Effective Tax Rate (in thousands, except percentages) | (in thousands, except percentages) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:-----------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Income before income tax provision | $161,255 | $62,545 | $358,745 | $267,366 | | Income tax provision | $33,063 | $7,043 | $65,741 | $41,716 | | Effective tax rate | 20.5% | 11.3% | 18.3% | 15.6% | - The effective tax rate increased for both the three and nine months ended September 30, 2024, primarily due to higher U.S. federal tax expense on foreign earnings and increased non-deductible expenses from business combinations[66][129][145] 13. Stock Repurchase Program - No share repurchases occurred in 2024. In the nine months ended September 30, 2023, 650 thousand shares were repurchased for $196.5 million[67][177] - As of September 30, 2024, 1.1 million shares remained available for repurchase under the program[67][177] 14. Stock-Based Compensation Stock-Based Compensation Expense (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:--------------------------------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | Stock-based compensation expense before taxes | $72,330 | $58,061 | $197,884 | $158,533 | | Related income tax benefits | $(13,051) | $(12,993) | $(50,340) | $(41,848) | | Stock-based compensation expense, net of taxes | $59,279 | $45,068 | $147,544 | $116,685 | | Net impact on diluted EPS | $(0.67) | $(0.52) | $(1.68) | $(1.34) | - Stock-based compensation expense before taxes increased by 24.6% for the three months and 24.8% for the nine months ended September 30, 2024[68] 15. Geographic Information Total Revenue by Geographic Region (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | |:---------------|:--------------------------------|:--------------------------------|:-------------------------------|:-------------------------------| | United States | $292,364 | $204,824 | $806,867 | $661,953 | | Japan | $46,737 | $40,956 | $132,253 | $141,770 | | Germany | $38,717 | $37,901 | $111,187 | $117,240 | | China and Hong Kong | $34,516 | $19,548 | $107,288 | $91,128 | | South Korea | $29,193 | $27,928 | $80,210 | $75,868 | | Other EMEA | $98,303 | $83,719 | $275,250 | $251,696 | | Other international | $62,062 | $43,919 | $149,580 | $125,186 | | Total revenue | $601,892 | $458,795 | $1,662,635 | $1,464,841 | - U.S. revenue significantly increased by 42.7% for the three months and 21.9% for the nine months ended September 30, 2024[69] - China and Hong Kong revenue saw substantial growth of 76.6% for the three months and 17.7% for the nine months ended September 30, 2024[69] 16. Contingencies and Commitments - The company is subject to various claims, investigations, and legal proceedings in the ordinary course of business, but their resolution is not expected to have a material adverse effect on financial position, results of operations, or cash flows[71] - An Indian subsidiary has pending service tax audits that could result in $7.3 million in tax charges and liabilities, though these are not considered probable at this time[72] - Contractual agreements generally include indemnification provisions for intellectual property infringement, but payments related to these have been immaterial to date[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes ANSYS, Inc.'s financial condition and operations, covering GAAP and non-GAAP performance, foreign currency impact, ACV, geographic trends, and critical accounting estimates, highlighting revenue growth and acquisition-related expenses Business - ANSYS develops and markets engineering simulation software and services globally, serving industries like high-tech, aerospace, automotive, and healthcare[75] - The company's 'Pervasive Insights' strategy aims to deepen simulation use, extend accessibility to more users, and drive more computations, supported by investments in AI capabilities and cloud solutions[76][77][79] - The engineering simulation software market is growing due to demand for rapid innovation, cost efficiency, and increasing product complexity, driven by trends like electrification, autonomy, and sustainability[78] - The proposed merger with Synopsys, Inc. was approved by the Board and stockholders and is expected to close in the first half of 2025, subject to regulatory approvals[82] Overview Key Financial Performance Metrics (Year-over-Year Change) | Metric | Three Months Ended Sep 30, 2024 (YoY Change) | Nine Months Ended Sep 30, 2024 (YoY Change) | |:-------|:---------------------------------------------|:--------------------------------------------| | Revenue | 31.2% | 13.5% | | GAAP Operating income | 131.4% | 23.6% | | Non-GAAP Operating income | 76.3% | 28.3% | | GAAP Diluted earnings per share | 128.1% | 29.5% | | Non-GAAP Diluted earnings per share | 83.0% | 33.4% | - Revenue growth for both periods was driven by increases in subscription lease, maintenance, and perpetual license revenue, while operating expenses rose due to personnel and acquisition costs related to the Synopsys merger[87] Impact of Foreign Currency on Financial Metrics (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | |:---------------|:--------------------------------|:-------------------------------| | Revenue (Impact of FX) | $133 | $(13,576) | | GAAP Operating income (Impact of FX) | $(418) | $(10,531) | | Non-GAAP Operating income (Impact of FX) | $(320) | $(10,259) | Constant Currency Year-over-Year Change | Metric | Three Months Ended Sep 30, 2024 (Constant Currency YoY Change) | Nine Months Ended Sep 30, 2024 (Constant Currency YoY Change) | |:-------|:---------------------------------------------------------------|:--------------------------------------------------------------| | Revenue | 31.2% | 14.4% | | GAAP Operating income | 132.0% | 27.2% | | Non-GAAP Operating income | 76.5% | 30.2% | Annual Contract Value (ACV) (in thousands, except percentages) | Metric | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | |:-------|:--------------------------------|:-------------------------------| | ACV (Actual) | $540,527 (18.1% YoY) | $1,468,477 (9.2% YoY) | | ACV (Constant Currency) | $538,963 (17.8% YoY) | $1,483,108 (10.2% YoY) | | Trailing Twelve-Month Recurring ACV (at 2023 monthly average exchange rates) | $2,046,306 (13.6% YoY) | | - ACV growth in Q3 2024 was supported by core industries: aerospace and defense (A&D), high-tech, and automotive, driven by digital engineering, semiconductor solutions, and electrified power systems[98] Revenue Growth by Geographic Region (Year-over-Year Change) | Geographic Region | Three Months Ended Sep 30, 2024 (Actual YoY Change) | Three Months Ended Sep 30, 2024 (Constant Currency YoY Change) | Nine Months Ended Sep 30, 2024 (Actual YoY Change) | Nine Months Ended Sep 30, 2024 (Constant Currency YoY Change) | |:------------------|:----------------------------------------------------|:---------------------------------------------------------------|:---------------------------------------------------|:--------------------------------------------------------------| | Americas | 40.4% | 40.4% | 20.7% | 20.7% | | EMEA | 12.7% | 10.7% | 4.7% | 3.9% | | Asia-Pacific | 33.2% | 35.1% | 9.1% | 13.2% | | Total | 31.2% | 31.2% | 13.5% | 14.4% | Results of Operations Revenue by Category (Three Months Ended September 30, 2024 vs. 2023, GAAP) | Revenue Category | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | % Change | |:-----------------|:--------------------|:--------------------|:----------------------|:---------| | Subscription lease licenses | $194,322 | $103,573 | $90,749 | 87.6% | | Perpetual licenses | $82,626 | $58,849 | $23,777 | 40.4% | | Maintenance | $306,670 | $278,108 | $28,562 | 10.3% | | Service | $18,274 | $18,265 | $9 | —% | | Total Revenue | $601,892 | $458,795 | $143,097 | 31.2%| - Subscription lease license revenue increased by 87.6% (87.4% in constant currency) for the three months, driven by a $76.8 million increase from multi-year licenses and a $13.9 million increase from annual licenses[112] - Perpetual license revenue increased by 40.4% (39.9% in constant currency) for the three months, due to a 49.5% increase in average deal size, despite a 9.1% decrease in deal volume[112] Revenue by Category (Nine Months Ended September 30, 2024 vs. 2023, GAAP) | Revenue Category | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | % Change | |:-----------------|:--------------------|:--------------------|:----------------------|:---------| | Subscription lease licenses | $507,711 | $386,494 | $121,217 | 31.4% | | Perpetual licenses | $212,790 | $199,977 | $12,813 | 6.4% | | Maintenance | $889,836 | $820,393 | $69,443 | 8.5% | | Service | $52,298 | $57,977 | $(5,679) | (9.8)% | | Total Revenue | $1,662,635 | $1,464,841 | $197,794 | 13.5%| - For the nine months, subscription lease license revenue increased by 31.4% (32.3% in constant currency), and perpetual license revenue increased by 6.4% (6.9% in constant currency) due to a 24.0% increase in average deal size[132] Cost of Sales (Three Months Ended September 30) | Category | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | % Change | |:---------|:--------------------|:--------------------|:----------------------|:---------| | Software licenses | $11,067 | $8,692 | $2,375 | 27.3% | | Amortization | $21,890 | $20,707 | $1,183 | 5.7% | | Maintenance and service | $36,152 | $35,858 | $294 | 0.8% | | Total cost of sales | $69,109 | $65,257 | $3,852 | 5.9% | - Gross profit for the three months increased by 35.4% to $532.8 million, and for the nine months, it increased by 15.2% to $1,455.5 million, driven by revenue growth[120][137] Operating Expenses (Three Months Ended September 30) | Category | 2024 (in thousands) | 2023 (in thousands) | Change (in thousands) | % Change | |:---------|:--------------------|:--------------------|:----------------------|:---------| | Selling, general and administrative | $233,065 | $194,552 | $38,513 | 19.8% | | Research and development | $132,320 | $123,223 | $9,097 | 7.4% | | Amortization | $5,860 | $5,947 | $(87) | (1.5)% | | Total operating expenses | $371,245 | $323,722 | $47,523 | 14.7%| - Selling, general and administrative costs increased by 19.8% for the three months and 16.4% for the nine months, primarily due to increased salaries, incentive compensation, and acquisition costs related to the Synopsys merger[122][123][139][140] - Research and development costs increased by 7.4% for the three months and 6.8% for the nine months, mainly due to higher personnel and stock-based compensation expenses[124][140] - Interest income significantly increased to $13.3 million (three months) and $36.5 million (nine months) due to higher invested cash balances and a favorable interest rate environment[126][142] Non-GAAP Results Reconciliation of GAAP to Non-GAAP Measures (Three Months Ended September 30, 2024) | Metric | GAAP (in thousands) | Non-GAAP (in thousands) | Non-GAAP % of Revenue | |:-------|:--------------------|:------------------------|:----------------------| | Gross Profit | $532,783 | $558,367 | 92.8% | | Operating Income | $161,538 | $275,447 | 45.8% | | Net Income | $128,192 | $227,010 | | | Diluted EPS | $1.46 | $2.58 | | Reconciliation of GAAP to Non-GAAP Measures (Nine Months Ended September 30, 2024) | Metric | GAAP (in thousands) | Non-GAAP (in thousands) | Non-GAAP % of Revenue | |:-------|:--------------------|:------------------------|:----------------------| | Gross Profit | $1,455,504 | $1,533,408 | 92.2% | | Operating Income | $362,293 | $692,285 | 41.6% | | Net Income | $293,004 | $568,208 | | | Diluted EPS | $3.34 | $6.47 | | - Non-GAAP adjustments primarily exclude stock-based compensation, excess payroll taxes related to stock-based compensation, amortization of acquired intangible assets, and expenses related to business combinations[157][158][160] - Non-GAAP measures are used by management for evaluating performance, setting targets, allocating resources, and assessing financial discipline, and are provided to investors for consistent and comparable information[155] - Constant currency results are used to evaluate period-to-period comparisons by excluding the effects of foreign currency fluctuations[163] Liquidity and Capital Resources Cash, Cash Equivalents, Short-Term Investments, and Working Capital (in thousands) | (in thousands) | September 30, 2024 | December 31, 2023 | Change Amount | % Change | |:---------------|:-------------------|:------------------|:--------------|:---------| | Cash, cash equivalents and short-term investments | $1,295,269 | $860,390 | $434,879 | 50.5% | | Working capital | $1,593,588 | $1,160,273 | $433,315 | 37.3% | - Cash, cash equivalents, and short-term investments increased by 50.5% to $1,295.3 million, with 64.4% held domestically[166][168] - Net cash provided by operating activities increased by 11.0% to $537.8 million for the nine months, driven by higher customer receipts and interest income, partially offset by increased operating expenses and tax payments[169] - Net cash used in investing activities decreased by 60.9% to $86.0 million, primarily due to lower acquisition-related cash outlays, despite increased capital expenditures and short-term investments[170] - Net cash used in financing activities decreased by 67.1% to $76.5 million, mainly due to the absence of share repurchases in 2024[172] - The company believes existing cash, operating cash flows, and access to its $500.0 million revolving loan facility are sufficient to meet future liquidity needs[179] Critical Accounting Estimates - No significant changes occurred to critical accounting estimates as previously reported in the 2023 Form 10-K[183] - The annual impairment test for goodwill and indefinite-lived intangible assets was completed in Q1 2024, with no impairment identified as of January 1, 2024, or through September 30, 2024[182] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section quantifies the company's exposure to market risks, including foreign currency exchange and interest rate fluctuations, and their potential impact on financial results - Foreign currency exchange risk impacts revenue, expenses, cash, and accounts receivable, with the U.S. Dollar being 0.1% weaker on average for Q3 2024 revenue and 2.0% stronger for the nine months ended September 30, 2024[185] Foreign Currency Exchange Impact on Revenue (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 (FX Impact) | Nine Months Ended Sep 30, 2024 (FX Impact) | |:---------------|:--------------------------------------------|:-------------------------------------------| | Japanese Yen | $(1,153) | $(12,111) | | South Korean Won | $(635) | $(2,904) | | Taiwan Dollar | $(228) | $(1,069) | | British Pound | $658 | $1,312 | | Euro | $1,719 | $1,823 | | Other | $(228) | $(627) | | Total | $133 | $(13,576) | - A hypothetical 10% strengthening of the U.S. Dollar would decrease revenue by $23.8 million (three months) and $66.9 million (nine months), and operating income by $10.7 million (three months) and $24.9 million (nine months)[187] - Interest rate risk affects interest income from cash and investments and interest expense from variable-rate borrowings. A 100 basis point increase in interest rates would increase interest expense by $7.7 million over the next twelve months[188][189] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no material changes in internal control over financial reporting for the quarter - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of September 30, 2024[191] - No changes in internal control over financial reporting occurred during the three months ended September 30, 2024, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[194] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal and regulatory proceedings, but their resolution is not expected to materially affect financial position or results - The company is subject to various claims and legal proceedings, including commercial disputes, labor matters, tax audits, and intellectual property rights[196] - Resolution of pending matters is not expected to have a material adverse effect on financial position, results of operations, or cash flows[196] Item 1A. Risk Factors No material changes have occurred to the company's risk factors since the 2023 Form 10-K filing - No material changes have occurred to the risk factors previously disclosed in the 2023 Form 10-K[197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report for the period Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended September 30, 2024[199] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - The report includes certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002[201] - Various Inline XBRL documents are filed, including the instance document, schema, calculation linkbase, definition linkbase, label linkbase, and presentation linkbase[201] SIGNATURES The report is duly signed by ANSYS, Inc.'s President and CEO, Ajei S. Gopal, and CFO, Rachel Pyles, on November 6, 2024 - The report was signed by Ajei S. Gopal, President and Chief Executive Officer, and Rachel Pyles, Chief Financial Officer and Senior Vice President of Finance, on November 6, 2024[203]