ANSYS(ANSS) - 2024 Q1 - Quarterly Results

Q1 2024 Financial Highlights Key Q1 2024 Performance Metrics Ansys reported Q1 2024 revenue of $466.6 million (8% decrease) and ACV of $407.4 million (2% growth), meeting expectations Q1 2024 Key Financial Highlights | Metric | Q1 2024 Value | | :-------------------------------- | :------------ | | Revenue | $466.6 million | | GAAP diluted EPS | $0.40 | | Non-GAAP diluted EPS | $1.39 | | GAAP operating profit margin | 9.3% | | Non-GAAP operating profit margin | 32.2% | | Operating cash flows | $282.8 million | | Unlevered operating cash flows | $292.7 million | | Annual Contract Value (ACV) | $407.4 million | | Deferred revenue and backlog (Mar 31, 2024) | $1,369.5 million | - Revenue decreased by 8% in reported and constant currency compared to Q1 2023[2] - ACV grew by 2% in reported currency and 3% in constant currency compared to Q1 2023[2] - Q1 2024 ACV and revenue results met expectations, being the lowest among the 2024 quarters, with double-digit ACV and revenue growth expected in remaining quarters and for the full FY 2024[2] Synopsys Acquisition Update Ansys entered a definitive agreement for acquisition by Synopsys, Inc. on January 15, 2024, with an anticipated closing in H1 2025, suspending guidance - Ansys entered a definitive agreement for acquisition by Synopsys, Inc. on January 15, 2024[3] - The transaction is expected to close in the first half of 2025, subject to Ansys shareholder and regulatory approvals[3] - Ansys has suspended quarterly earnings conference calls and guidance due to the pending acquisition[3] Summary of Financial Results GAAP Financial Summary Ansys' Q1 2024 GAAP results show significant declines in revenue, net income, and diluted EPS, with decreased gross and operating profit margins GAAP Financial Results (Q1 2024 vs Q1 2023, in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :-------------------------- | :------ | :------ | :------- | | Revenue | $466,605 | $509,447 | (8.4)% | | Net income | $34,778 | $100,622 | (65.4)% | | Diluted earnings per share | $0.40 | $1.15 | (65.2)% | | Gross margin | 85.3% | 86.7% | - | | Operating profit margin | 9.3% | 25.1% | - | | Effective tax rate | 15.1% | 16.7% | - | Non-GAAP Financial Summary Q1 2024 Non-GAAP results show declines in net income and diluted EPS, with decreased gross and operating profit margins, while tax rate remained constant Non-GAAP Financial Results (Q1 2024 vs Q1 2023, in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :-------------------------- | :------ | :------ | :------- | | Net income | $121,996 | $161,763 | (24.6)% | | Diluted earnings per share | $1.39 | $1.85 | (24.9)% | | Gross margin | 90.9% | 91.2% | - | | Operating profit margin | 32.2% | 39.8% | - | | Effective tax rate | 17.5% | 17.5% | - | Other Key Metrics Q1 2024 saw ACV increase by 2.0%, with operating and unlevered operating cash flows both growing over 8% year-over-year Other Key Metrics (Q1 2024 vs Q1 2023, in thousands) | Metric | Q1 2024 | Q1 2023 | % Change | | :------------------------- | :------ | :------ | :------- | | ACV | $407,405 | $399,407 | 2.0% | | Operating cash flows | $282,817 | $260,766 | 8.5% | | Unlevered operating cash flows | $292,667 | $269,516 | 8.6% | Supplemental Financial Information Annual Contract Value (ACV) Ansys reported Q1 2024 ACV of $407.4 million, a 2.0% increase (2.8% in constant currency) compared to Q1 2023 Annual Contract Value (ACV) Performance (in thousands) | Metric | Q1 2024 | Q1 2024 (Constant Currency) | Q1 2023 | % Change | % Change (Constant Currency) | | :----- | :------ | :-------------------------- | :------ | :------- | :--------------------------- | | ACV | $407,405 | $410,433 | $399,407 | 2.0% | 2.8% | Revenue Analysis Q1 2024 total revenue decreased 8.4% to $466.6 million, primarily due to a significant drop in subscription lease revenue, partially offset by maintenance growth Total Revenue Performance (in thousands) | Metric | Q1 2024 | Q1 2024 (Constant Currency) | Q1 2023 | % Change | % Change (Constant Currency) | | :----- | :------ | :-------------------------- | :------ | :------- | :--------------------------- | | Revenue | $466,605 | $470,508 | $509,447 | (8.4)% | (7.6)% | Revenue by License Type Subscription Lease revenue decreased 35.9%, while Maintenance revenue grew 7.7% to 62.0% of total, with Perpetual and Service revenues also declining Revenue by License Type (Q1 2024 vs Q1 2023, in thousands) | License Type | Q1 2024 Revenue | % of Total (Q1 2024) | Q1 2023 Revenue | % of Total (Q1 2023) | % Change | % Change (Constant Currency) | | :----------------- | :-------------- | :------------------- | :-------------- | :------------------- | :------- | :--------------------------- | | Subscription Lease | $94,800 | 20.3% | $147,922 | 29.0% | (35.9)% | (35.5)% | | Perpetual | $65,521 | 14.0% | $71,230 | 14.0% | (8.0)% | (7.7)% | | Maintenance | $289,340 | 62.0% | $268,593 | 52.7% | 7.7% | 8.8% | | Service | $16,944 | 3.6% | $21,702 | 4.3% | (21.9)% | (21.3)% | | Total | $466,605 | | $509,447 | | (8.4)% | (7.6)% | Revenue by Geography Americas revenue declined 18.8%, EMEA decreased 2.0%, while Asia-Pacific grew 6.0% (10.2% in constant currency), driven by 'Other Asia-Pacific' Revenue by Geography (Q1 2024 vs Q1 2023, in thousands) | Geography | Q1 2024 Revenue | % of Total (Q1 2024) | Q1 2023 Revenue | % of Total (Q1 2023) | % Change | % Change (Constant Currency) | | :---------------- | :-------------- | :------------------- | :-------------- | :------------------- | :------- | :--------------------------- | | Americas | $208,697 | 44.7% | $256,915 | 50.4% | (18.8)% | (18.8)% | | Germany | $36,198 | 7.8% | $38,674 | 7.6% | (6.4)% | (7.6)% | | Other EMEA | $82,417 | 17.7% | $82,404 | 16.2% | — % | (1.5)% | | EMEA Total | $118,615 | 25.4% | $121,078 | 23.8% | (2.0)% | (3.4)% | | Japan | $36,532 | 7.8% | $38,086 | 7.5% | (4.1)% | 7.1% | | Other Asia-Pacific | $102,761 | 22.0% | $93,368 | 18.3% | 10.1% | 11.5% | | Asia-Pacific Total | $139,293 | 29.9% | $131,454 | 25.8% | 6.0% | 10.2% | | Total | $466,605 | | $509,447 | | (8.4)% | (7.6)% | Revenue by Channel Direct revenue decreased from 76.3% to 66.5% of total, while indirect revenue increased from 23.7% to 33.5% in Q1 2024 Revenue by Channel (Q1 2024 vs Q1 2023) | Channel | Q1 2024 | Q1 2023 | | :---------------------------------- | :------ | :------ | | Direct revenue (% of total revenue) | 66.5% | 76.3% | | Indirect revenue (% of total revenue) | 33.5% | 23.7% | Deferred Revenue and Backlog Total deferred revenue and backlog increased slightly to $1,369.5 million as of March 31, 2024, compared to Q1 2023, but decreased from Q4 2023 Deferred Revenue and Backlog (in thousands) | Category | March 31, 2024 | December 31, 2023 | March 31, 2023 | | :----------------------------------- | :------------- | :---------------- | :------------- | | Current Deferred Revenue | $433,167 | $457,514 | $396,331 | | Current Backlog | $433,106 | $439,879 | $428,913 | | Total Current Deferred Revenue and Backlog | $866,273 | $897,393 | $825,244 | | Long-Term Deferred Revenue | $21,434 | $22,240 | $20,738 | | Long-Term Backlog | $481,746 | $552,951 | $511,502 | | Total Long-Term Deferred Revenue and Backlog | $503,180 | $575,191 | $532,240 | | Total Deferred Revenue and Backlog | $1,369,453 | $1,472,584 | $1,357,484 | Currency Impact Foreign currency fluctuations, especially against the Euro and Japanese Yen, adversely impacted Q1 2024 revenue, operating income, ACV, and deferred revenue and backlog - Currency fluctuations adversely impacted Q1 2024 revenue, operating income, ACV, and deferred revenue and backlog compared to Q1 2023[17] Adverse Currency Impact (Q1 2024 in thousands) | Metric | Q1 2024 Currency Impact | | :------------------------- | :---------------------- | | Revenue | $(3,903) | | GAAP operating income | $(3,398) | | Non-GAAP operating income | $(3,178) | | ACV | $(3,028) | | Deferred revenue and backlog | $(19,615) | - The most significant currency impacts are typically from U.S. Dollar exchange rate changes against the Euro and Japanese Yen[18] GAAP Financial Statements Condensed Consolidated Balance Sheets As of March 31, 2024, total assets decreased to $7.15 billion from $7.32 billion (Dec 31, 2023), with increased cash and decreased receivables and other assets Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability | March 31, 2024 | December 31, 2023 | | :--------------------------------- | :------------- | :---------------- | | Cash & short-term investments | $1,070,609 | $860,390 | | Accounts receivable, net | $650,044 | $864,526 | | Goodwill | $3,797,859 | $3,805,874 | | Other intangibles, net | $806,375 | $835,417 | | Other assets | $825,527 | $956,668 | | Total assets | $7,150,414 | $7,322,875 | | Current deferred revenue | $433,167 | $457,514 | | Long-term debt | $753,970 | $753,891 | | Other liabilities | $553,634 | $721,106 | | Stockholders' equity | $5,409,643 | $5,390,364 | | Total liabilities & stockholders' equity | $7,150,414 | $7,322,875 | Condensed Consolidated Statements of Income Q1 2024 total revenue decreased to $466.6 million from $509.4 million, with net income dropping to $34.8 million from $100.6 million, due to lower revenue and higher operating expenses Condensed Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------- | :-------------------------------- | :-------------------------------- | | Software licenses revenue | $160,321 | $219,152 | | Maintenance and service revenue | $306,284 | $290,295 | | Total revenue | $466,605 | $509,447 | | Total cost of sales | $68,667 | $67,652 | | Gross profit | $397,938 | $441,795 | | Selling, general and administrative | $219,643 | $188,584 | | Research and development | $128,811 | $120,335 | | Amortization (operating expenses) | $6,145 | $5,181 | | Total operating expenses | $354,599 | $314,100 | | Operating income | $43,339 | $127,695 | | Interest income | $10,995 | $4,078 | | Interest expense | $(12,369) | $(10,758) | | Other expense, net | $(1,007) | $(177) | | Income before income tax provision | $40,958 | $120,838 | | Income tax provision | $6,180 | $20,216 | | Net income | $34,778 | $100,622 | | Earnings per share – diluted | $0.40 | $1.15 | | Weighted average shares – diluted | 87,780 | 87,431 | Glossary of Terms Key Financial Metrics Definitions This section defines key financial metrics including Annual Contract Value (ACV), Backlog, and Deferred Revenue, explaining their components and recognition - Annual Contract Value (ACV) is a key performance metric used to assess business strength and trajectory, comprising annualized value of maintenance and subscription lease contracts, perpetual license contracts, and fixed-term services contracts, as well as work performed on fixed-deliverable services contracts[24] - Backlog refers to deferred revenue from installment billings beyond the current quarterly cycle and committed contracts with start dates past the current period[26] - Deferred Revenue represents billings made or payments received in advance of revenue recognition[26] License Type Definitions This section defines Ansys' software license types: Subscription Lease, Perpetual, and Maintenance contracts, detailing their duration and revenue recognition - Subscription Lease or Time-Based License grants software use for a specified period (months or years), including maintenance, with revenue recognized ratably for maintenance and upfront for the license portion[27] - Perpetual / Paid-Up License grants software use in perpetuity, with revenue recognized upfront[27] - Maintenance contracts, typically one year, provide access to unspecified version upgrades and technical support for perpetual license owners, with revenue recognized ratably over the contract period[28] Reconciliations of GAAP to Non-GAAP Measures Q1 2024 GAAP to Non-GAAP Reconciliation Q1 2024 reconciliation shows adjustments for stock-based compensation, acquired intangibles, and business combination expenses, resulting in higher non-GAAP gross profit, operating income, net income, and diluted EPS Q1 2024 GAAP to Non-GAAP Reconciliation (in thousands, except percentages and per share data) | Adjustment Item | Gross Profit | % of Revenue | Operating Income | % of Revenue | Net Income | EPS - Diluted | | :----------------------------------------- | :----------- | :----------- | :--------------- | :----------- | :--------- | :------------ | | Total GAAP | $397,938 | 85.3% | $43,339 | 9.3% | $34,778 | $0.40 | | Stock-based compensation expense | $3,343 | 0.7% | $58,664 | 12.7% | $58,664 | $0.66 | | Excess payroll taxes related to stock-based awards | $378 | 0.1% | $5,362 | 1.1% | $5,362 | $0.06 | | Amortization of intangible assets from acquisitions | $22,484 | 4.8% | $28,629 | 6.1% | $28,629 | $0.33 | | Expenses related to business combinations | — | — % | $14,261 | 3.0% | $14,261 | $0.16 | | Adjustment for income tax effect | — | — % | — | — % | $(19,698) | $(0.22) | | Total Non-GAAP | $424,143 | 90.9% | $150,255 | 32.2% | $121,996 | $1.39 | Q1 2023 GAAP to Non-GAAP Reconciliation Q1 2023 reconciliation details adjustments for stock-based compensation, acquired intangibles, and business combination expenses, resulting in higher non-GAAP financial metrics compared to GAAP Q1 2023 GAAP to Non-GAAP Reconciliation (in thousands, except percentages and per share data) | Adjustment Item | Gross Profit | % of Revenue | Operating Income | % of Revenue | Net Income | EPS - Diluted | | :----------------------------------------- | :----------- | :----------- | :--------------- | :----------- | :--------- | :------------ | | Total GAAP | $441,795 | 86.7% | $127,695 | 25.1% | $100,622 | $1.15 | | Stock-based compensation expense | $2,878 | 0.6% | $44,171 | 8.7% | $44,171 | $0.50 | | Excess payroll taxes related to stock-based awards | $284 | 0.1% | $4,076 | 0.8% | $4,076 | $0.05 | | Amortization of intangible assets from acquisitions | $19,618 | 3.8% | $24,799 | 4.8% | $24,799 | $0.28 | | Expenses related to business combinations | — | — % | $2,192 | 0.4% | $2,192 | $0.03 | | Adjustment for income tax effect | — | — % | — | — % | $(14,097) | $(0.16) | | Total Non-GAAP | $464,575 | 91.2% | $202,933 | 39.8% | $161,763 | $1.85 | Unlevered Operating Cash Flows Reconciliation Unlevered operating cash flows, excluding cash paid for interest (net of tax benefit), increased from $269.5 million in Q1 2023 to $292.7 million in Q1 2024 Unlevered Operating Cash Flows Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $282,817 | $260,766 | | Cash paid for interest | $11,939 | $10,606 | | Tax benefit | $(2,089) | $(1,856) | | Unlevered operating cash flows | $292,667 | $269,516 | Use of Non-GAAP Measures Purpose and Rationale Ansys provides non-GAAP measures to supplement GAAP, aiding in performance evaluation, target setting, resource allocation, and profitability assessment, also used by analysts and investors for comparability - Non-GAAP measures are used to evaluate historical and prospective financial performance, set internal targets, allocate resources, measure operational profitability, and assess financial discipline[33] - These measures are provided to analysts for accurate reporting and to investors for consistent and comparable information[33] - Non-GAAP measures are supplemental to GAAP and should not be considered in isolation due to limitations such as varying calculation methods among competitors[34] Adjustments Explained Ansys details the specific adjustments made to GAAP figures to arrive at non-GAAP measures, including amortization of acquired intangible assets, stock-based compensation expense, expenses related to business combinations, and the non-GAAP tax provision Amortization of Intangible Assets Amortization of acquired intangible assets is excluded from non-GAAP measures as these fixed costs do not reflect ongoing operational performance, aiding in consistent evaluation - Amortization of intangible assets from acquisitions is excluded from non-GAAP measures as these costs are fixed and not influenced by ongoing operations[34] - Exclusion helps evaluate operational performance and compare financial results consistently[34] Stock-based Compensation Expense Stock-based compensation expense (including excess payroll taxes) is excluded from non-GAAP measures as it is not considered in budgeting, resource allocation, or management performance assessments - Stock-based compensation expense (including excess payroll taxes) is excluded from non-GAAP measures[36] - This exclusion is based on its non-inclusion in annual budgeting, resource allocation, and management performance evaluations[36] Expenses Related to Business Combinations Business combination expenses, such as professional services and restructuring costs, are excluded from non-GAAP measures as they are non-recurring and not part of continuing operational performance - Expenses for professional services and other costs related to business combinations are excluded from non-GAAP measures[37] - These expenses are generally non-recurring and not considered part of continuing operational performance[37] Non-GAAP Tax Provision A normalized non-GAAP annual effective tax rate (AETR) is used for consistency across interim periods, removing non-recurring items and aligning with geographic earnings mix - A normalized non-GAAP annual effective tax rate (AETR) is used for non-GAAP measures[38] - This methodology provides consistency by eliminating non-recurring items and aligning with the expected geographic earnings mix[38] Unlevered Operating Cash Flows Unlevered operating cash flows, a supplemental non-GAAP measure, exclude cash paid for interest (net of tax benefit) to show cash generated by core operations independent of capital structure - Unlevered operating cash flows exclude cash paid for interest (net of tax benefit) from GAAP operating cash flows[39] - This measure evaluates core operating business cash generation independent of capital structure[39] Constant Currency Constant currency results exclude foreign currency fluctuations for period-to-period comparisons, converting 2024 results using 2023 exchange rates to show underlying performance - Constant currency results exclude foreign currency fluctuations to evaluate period-to-period comparisons[40] - 2024 results are converted using 2023 exchange rates to present this information[40] About Ansys Ansys provides simulation software for over 50 years, enabling innovators across industries to predict performance and push boundaries in fields like sustainable transportation and medical devices - Ansys provides simulation software for over 50 years, enabling innovators to predict performance and push boundaries[41] - Their software powers innovation across industries, including sustainable transportation, advanced semiconductors, satellite systems, and medical devices[41] Forward-Looking Information Disclaimer This document contains forward-looking statements regarding future events and the proposed Synopsys acquisition, subject to risks and uncertainties that could cause actual results to differ materially - The document contains forward-looking statements about future events, market opportunities, and the proposed Synopsys acquisition[42] - Readers are cautioned against undue reliance on these statements, as actual results may differ materially due to risks and uncertainties[42] - Ansys undertakes no obligation to update forward-looking statements[42] Risk Factors Key risks include Synopsys transaction completion, acquisition disruptions, macroeconomic conditions, geopolitical conflicts, talent retention, cybersecurity, revenue volatility, customer declines, regulatory compliance, product quality, and acquisition integration - Risks include the ability to complete the Synopsys transaction, potential disruptions to business and commercial relationships from the acquisition, and uncertainty regarding Synopsys' common stock value[44] - Adverse macroeconomic conditions (inflation, recession, market volatility), geopolitical uncertainties, and impacts from tariffs, trade sanctions, and export controls pose significant risks[44] - Other risks include talent recruitment and retention, protection of proprietary technology, cybersecurity threats, revenue volatility from multi-year subscription leases, customer business declines, regulatory compliance, product quality, and successful integration of acquisitions[44][45] Important Information and Where to Find It SEC Filings Information on the proposed Synopsys-Ansys transaction, including Form S-4 and proxy statement/prospectus, is available via SEC filings, which investors are urged to review for important details - Synopsys filed a registration statement on Form S-4 (File No. 333-277912), including a prospectus and Ansys proxy statement, which was declared effective on April 17, 2024[46] - Investors and security holders are urged to read all relevant documents filed with the SEC for important information about the proposed transaction[46] - Free copies of SEC filings are available on www.sec.gov, Synopsys' investor website, or Ansys' investor website[47] Participants in the Solicitation Synopsys, Ansys, and their directors and executive officers may be deemed participants in the proxy solicitation for the proposed transaction, with ownership and interest information available in SEC filings - Synopsys, Ansys, and their directors and executive officers may be deemed participants in the proxy solicitation for the proposed transaction[48] - Information on Ansys' directors and executive officers' stock ownership is in Ansys' 2024 Annual Meeting proxy statement[49] - Additional information on direct and indirect interests of participants is available in the proxy statement/prospectus filed by Synopsys[49] No Offer or Solicitation This document is for informational purposes only, not an offer to buy or sell securities or a solicitation of votes; any offering will be made via a prospectus meeting U.S. Securities Act requirements - This document is for informational purposes only and is not an offer to buy or sell securities or a solicitation of votes[50] - Any offering of securities will be made solely by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933[50]