ANSYS(ANSS) - 2023 Q2 - Quarterly Report

Revenue Performance - Total revenue for the six months ended June 30, 2023, was $1,006,046 thousand, compared to $898,927 thousand for the same period in 2022, representing an increase of 11.9%[20] - Total revenue for the six months ended June 30, 2023 was $1,006.046 million, a 12% increase from $898.927 million in 2022[39] - Revenue growth for the three months ended June 30, 2023 was 4.8% GAAP and 4.4% non-GAAP, while for the six months ended June 30, 2023, it was 11.9% GAAP and 11.2% non-GAAP[103] - Revenue for the quarter ended June 30, 2023 increased by 4.8% (5.5% in constant currency) to $496.6 million compared to the same period in 2022[123] - Revenue for the six months ended June 30, 2023, increased by 11.9% to $1,006,046 thousand compared to the same period in 2022, with subscription lease license revenue growing by 24.9%[145] - Total GAAP revenue for the period was $473.85 million, with a gross profit of $411.36 million, representing a gross margin of 86.8%[167] - Non-GAAP revenue for the period was $475.89 million, with a non-GAAP gross profit of $433.10 million, representing a non-GAAP gross margin of 91.0%[167] - For the six months ended June 30, 2023, total GAAP revenue was $1.01 billion, with a gross profit of $870.05 million, representing a gross margin of 86.5%[169] - Non-GAAP revenue for the six months ended June 30, 2023 was $1.01 billion, with a non-GAAP gross profit of $916.41 million, representing a non-GAAP gross margin of 91.1%[169] Net Income and Earnings - Net income for the six months ended June 30, 2023, was $170,148 thousand, slightly higher than $169,788 thousand for the same period in 2022[20] - Net income for the six months ended June 30, 2023 was $98.8 million, compared to $70.988 million for the same period in 2022[30] - Net income for the six months ended June 30, 2023, was $170.1 million, with basic and diluted earnings per share of $1.96 and $1.95, respectively[57] - Net income for Q2 2023 decreased to $69,526 thousand, compared to $98,800 thousand in Q2 2022, with diluted earnings per share declining from $1.13 to $0.80[143] - Net income for the first six months of 2023 was $170.15 million, with diluted earnings per share of $1.95, compared to $169.79 million and $1.94 per share in the same period in 2022[162] - Total GAAP net income was $98.80 million, with diluted EPS of $1.13, while non-GAAP net income was $154.58 million, with non-GAAP diluted EPS of $1.77[167] - Total GAAP net income for the six months ended June 30, 2023 was $170.15 million, with diluted EPS of $1.95, while non-GAAP net income was $301.09 million, with non-GAAP diluted EPS of $3.45[169] Operating Income and Expenses - Operating income for the three months ended June 30, 2023 decreased by 25.3% GAAP and 6.8% non-GAAP, but increased by 6.8% GAAP and 12.1% non-GAAP for the six months ended June 30, 2023[103] - Operating income for Q2 2023 decreased by 25.3% to $95,624 thousand compared to Q2 2022, primarily due to increased operating expenses[136] - Operating income grew by 6.8% to $223.32 million in the first six months of 2023, with an operating margin of 22.2%, down from 23.3% in the same period in 2022[154] - Total GAAP operating income was $128.01 million, representing an operating margin of 27.0%, while non-GAAP operating income was $193.63 million, representing a non-GAAP operating margin of 40.7%[167] - Total GAAP operating income for the six months ended June 30, 2023 was $223.32 million, representing an operating margin of 22.2%, while non-GAAP operating income was $383.46 million, representing a non-GAAP operating margin of 38.1%[169] Cash Flow and Financial Position - Net cash provided by operating activities for the six months ended June 30, 2023, was $323,632 thousand, slightly lower than $329,880 thousand in the same period in 2022[26] - Net cash provided by operating activities decreased by $6.2 million (1.9%) to $323.6 million for the six months ended June 30, 2023[188] - Net cash used in investing activities decreased by $36.0 million (14.3%) to $215.6 million for the six months ended June 30, 2023[189] - Net cash used in financing activities increased by $36.4 million (17.5%) to $244.0 million for the six months ended June 30, 2023, primarily due to increased stock repurchases[190] - Cash, cash equivalents, and short-term investments decreased by $136.6 million (22.2%) from $614.6 million as of December 31, 2022, to $478.0 million as of June 30, 2023[184] - Domestic cash holdings decreased to 29.9% of total cash, while foreign cash holdings increased to 70.1% as of June 30, 2023[186] Acquisitions and Intangible Assets - The company completed the acquisition of Diakopto for $83.3 million and DYNAmore for $139.2 million in 2023 to expand its simulation portfolio[45] - Acquisition-related expenses for the six months ended June 30, 2023 were $4.3 million[46] - The fair value of consideration for the combined acquisitions in 2023 was $222.448 million, including $217.392 million in cash[47] - Developed software and core technologies acquired in 2023 have a weighted-average useful life of 5 years and were valued using the relief-from-royalty or multiperiod excess earnings method[51] - Trade names acquired in 2023 have a weighted-average useful life of 5 years and were valued using the relief-from-royalty method with a royalty rate of 1.0% to 2.0%[51] - The company completed acquisitions totaling $401.7 million in 2022, with a net purchase price of $390.8 million after deducting cash acquired[52] - Intangible assets subject to amortization totaled $883.7 million as of June 30, 2023, with estimated future amortization expenses of $53.3 million for the remainder of 2023 and $112.0 million for 2024[60] - Goodwill increased from $3.66 billion at the beginning of 2023 to $3.79 billion by June 30, 2023, due to acquisitions and currency translation adjustments[63] Foreign Currency Impact - Foreign currency translation adjustments for the six months ended June 30, 2023, were $21,287 thousand, compared to a loss of $70,735 thousand in the same period in 2022[22] - The company's revenue and operating income were negatively impacted by a stronger U.S. Dollar, with adverse impacts of $3.452 million on revenue and $1.740 million on operating income for the three months ended June 30, 2023[105] - The U.S. Dollar was 1.5% stronger against foreign currencies in Q2 2023 compared to Q2 2022, resulting in a $3.5 million adverse currency impact[123][124] - The impact of currency fluctuations resulted in a $17,343 thousand adverse effect on revenue for the six months ended June 30, 2023, with the Japanese Yen contributing the largest negative impact[147] - The U.S. Dollar was 4.0% stronger against foreign currencies for the six months ended June 30, 2023, resulting in a $17.3 million adverse impact on revenue[200][201] - A hypothetical 10% strengthening in the U.S. Dollar would decrease revenue by $43.8 million and operating income by $15.2 million for the six months ended June 30, 2023[202] Stock-Based Compensation and Share Repurchases - Stock-based compensation expense for the six months ended June 30, 2023, was $100,472 thousand, up 33.7% from $75,149 thousand in the same period in 2022[26] - The company repurchased 650,000 shares during the six months ended June 30, 2023 at an average price of $302.34 per share, for a total cost of $196.5 million[84] - The company repurchased 650,000 shares at an average price of $302.34 per share, totaling $196.5 million, during the six months ended June 30, 2023[194] - Stock-based compensation expense for the six months ended June 30, 2023 was $100.47 million, representing 10.0% of revenue[169] Legal and Regulatory Matters - The company is subject to various legal proceedings, including commercial disputes, labor matters, and intellectual property claims, which could have adverse financial or reputational impacts[210] - 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[210] Market and Strategic Outlook - The company's strategy of Pervasive Insights focuses on deepening the use of simulation in its core market, extending accessibility to a broader set of users, and driving growth through more products, users, and computations[96] - The engineering simulation software market is growing, driven by trends such as electrification, autonomy, connectivity, the industrial internet of things, and sustainability[98] - The company plans to continue its strategic and disciplined acquisition strategy to grow its business and extend simulation into other ecosystems and customer R&D workflows[99] Regional Revenue Performance - Revenue from the United States for the six months ended June 30, 2023 was $457.1 million, up from $384.8 million in the same period in 2022[88] - Americas region revenue grew by 12.5% (12.5% in constant currency) for the three months ended June 30, 2023[114] - Asia-Pacific region revenue decreased by 3.2% but grew by 0.3% in constant currency for the three months ended June 30, 2023[114] - International revenue accounted for 57.6% of total revenue in Q2 2023, down from 60.5% in Q2 2022[127] - International revenue accounted for 54.6% of total revenue in the first six months of 2023, down from 57.2% in the same period in 2022, while domestic revenue increased to 45.4% from 42.8%[150] Cost of Sales and Gross Profit - Total cost of sales for Q2 2023 was $68,340 thousand, representing 13.8% of revenue, an increase of 9.4% compared to Q2 2022[132] - Gross profit for Q2 2023 was $428,259 thousand, an increase of 4.1% compared to Q2 2022, driven by higher revenue partially offset by increased cost of sales[132] - Total cost of sales increased by 6.9% to $135.99 million in the first six months of 2023, driven by higher software license costs ($3.6 million increase in third-party royalties) and amortization expenses ($5.03 million increase due to newly acquired intangible assets)[152] - Gross profit increased by 12.7% to $870.05 million in the first six months of 2023, with a gross margin of 86.5%, up from 85.8% in the same period in 2022[152] Research and Development Expenses - Research and development expenses for the six months ended June 30, 2023, were $245,358 thousand, up 14.5% from $214,215 thousand in the same period in 2022[20] - Research and development expenses increased by 14.8% to $125,023 thousand in Q2 2023, driven by higher salaries and stock-based compensation[136] Tax and Interest Expenses - The effective tax rate for Q2 2023 decreased to 17.2% from 19.6% in Q2 2022, primarily due to lower U.S. federal tax expense on foreign earnings and increased R&D credits[142] - The effective tax rate increased to 16.9% in the first six months of 2023, up from 15.5% in the same period in 2022, primarily due to decreased benefits related to stock-based compensation[160] - Interest income increased significantly to $7.5 million in the first six months of 2023, compared to $0.8 million in the same period in 2022, driven by higher interest rates[156] - Interest income was $7.5 million, and interest expense was $22.3 million for the six months ended June 30, 2023[203] Lease and Debt Obligations - The company's lease liability cost for the six months ended June 30, 2023, was $14.1 million, with total lease costs reaching $16.7 million[72] - Operating cash flows from operating leases for the three months ended June 30, 2023 were $(6.9 million), compared to $(6.6 million) in the same period in 2022[73] - The weighted-average remaining lease term of operating leases as of June 30, 2023 was 6.6 years, down from 7.3 years as of June 30, 2022[73] - Total future lease payments as of June 30, 2023 were $142.7 million, with a present value of $128.5 million after discounting[74] - The company had $755.0 million in borrowings outstanding under the term loan facility as of June 30, 2023, with a carrying value of $753.7 million[79] - The weighted average interest rate under the 2022 Credit Agreement was 5.88% for the three months ended June 30, 2023, up from 1.90% in the same period in 2022[78] - Outstanding term loan borrowings of $755.0 million as of June 30, 2023, with variable interest rates based on Term SOFR or base rate plus applicable margin[204] - A hypothetical 100 basis points increase in interest rates would result in an additional $7.7 million in interest expense over the next twelve months[204] Employee and Workforce - The company employed 6,000 people as of June 30, 2023, up from 5,600 as of December 31, 2022[95] Financial Controls and Reporting - Disclosure controls and procedures evaluated as effective by the Chief Executive Officer and Chief Financial Officer[206] - Financial statements and other financial information fairly present the company's financial condition, results of operations, and cash flows[207] - No changes in internal control over financial reporting during the three months ended June 30, 2023, that materially affected financial reporting[208] Capital Spending and Market Risk - The company plans capital spending of $28.0 million to $38.0 million during fiscal year 2023, compared to $24.4 million spent in fiscal year 2022[189] - No material changes in market risk since December 31, 2022[204] Deferred Revenue and Backlog - Deferred revenue balance as of June 30, 2023 was $396.506 million, compared to $383.622 million in 2022[41] - Total revenue allocated to remaining performance obligations as of June 30, 2023 was $1,295.798 million, with $810.219 million expected to be recognized in the next 12 months[42] - Deferred revenue and backlog as of June 30, 2023, totaled $1,295,798 thousand, with $810,219 thousand classified as current and $485,579 thousand as long-term[129] Maintenance and Service Revenue - Maintenance and service revenue for the six months ended June 30, 2023, was $581,997 thousand, an increase of 9.3% from $532,501 thousand in the same period in 2022[20] - Maintenance revenue grew by 10.5% (11.1% in constant currency) to $273.7 million, driven by existing customer base[123] - Maintenance revenue for the six months ended June 30, 2023, increased by 9.6% to $542,285 thousand, driven by growth in maintenance associated with lease licenses[145] - Service revenue increased by 4.5% (4.3% in constant currency) to $18.0 million in Q2 2023[123] Software Licenses Revenue - Software licenses revenue for the six months ended June 30, 2023, was $424,049 thousand, up 15.7% from $366,426 thousand in the same period in 2022[20] - Perpetual license revenue decreased by 5.5% (4.9% in constant currency) to $69.9 million due to a 4.5% decrease in deal volume and 1.0% decrease in average deal size[123] - Subscription lease licenses revenue remained stable at $135.0 million, with a 1.1% increase in constant currency[123] Comprehensive Income and Other Financial Metrics - Comprehensive income for the six months ended June 30, 2023, was $191,435 thousand, significantly higher than $99,053 thousand in the same period in 2022[22] - The company's Annual Contract Value (ACV) for the three months ended June 30,