<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended January 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 000-27874
ANSOFT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 72-1001909
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
Four Station Square, Suite 200
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (412) 261-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
The number of shares of the registrant's Common Stock outstanding as of the
close of business on March 13, 2000 was 11,743,842.
<PAGE> 2
ANSOFT CORPORATION
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - January 31, 2000 and April 30, 1999 1
Consolidated Statements of Operations - Three and nine months ended
January 31, 2000 and 1999 2
Consolidated Statements of Cash Flows - Three and nine months ended
January 31, 2000 and 1999 3
Notes to the Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
January 31, April 30,
2000 1999
------------- --------------
Assets (unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,935 $ 2,489
Marketable securities 16,989 16,461
Accounts receivable 8,487 8,645
Deferred income taxes 126 126
Prepaid expenses and other assets 866 709
-------- --------
Total current assets 28,403 28,430
Plant and equipment 4,834 4,663
Marketable securities 4,594 5,730
Other assets 471 475
Deferred taxes - non current 3,356 2,993
Intangible assets 9,883 10,339
-------- --------
Total assets $ 51,541 $ 52,630
======== ========
Liabilities and stockholders' equity
Current liabilities
Line of credit $ 9,592 $ 7,446
Accounts payable and accrued expenses 555 1,057
Deferred revenue 3,433 3,228
-------- --------
Total current liabilities 13,580 11,731
Other liabilities 117 143
-------- --------
Total liabilities 13,697 11,874
Minority Interest - (107)
Stockholders' equity
Preferred stock - -
Common stock 117 116
Additional paid-in capital 51,783 51,490
Treasury stock (1,131) (1,556)
Other accumulated comprehensive income (loss) (3,328) (1,013)
Accumulated deficit (9,597) (8,174)
-------- --------
Total stockholders' equity 37,844 40,863
-------- --------
Total liabilities and stockholders' equity $ 51,541 $ 52,630
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 1
<PAGE> 4
ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended January 31, Nine months ended January 31,
2000 1999 2000 1999
------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
Revenues
License $ 6,481 $ 4,769 $ 17,114 $ 11,985
Service and other 1,911 1,321 5,575 4,760
-------- -------- --------- ---------
Total revenue 8,392 6,090 22,689 16,745
Costs and expenses
Sales and marketing 4,830 4,267 13,890 12,591
Research and development 2,591 2,033 7,514 6,205
General and administrative 826 706 2,439 2,036
Amortization 615 434 1,853 1,290
-------- -------- --------- ---------
Total costs and expenses 8,862 7,440 25,696 22,122
-------- -------- --------- ---------
Income (loss) from operations (470) (1,350) (3,007) (5,377)
Other income, net 428 404 1,219 1,199
-------- -------- --------- ---------
Income (loss) before income taxes (42) (946) (1,788) (4,178)
Income tax expense (benefit) (8) (290) (363) (1,240)
-------- -------- --------- ---------
Net income (loss) $ (34) $ (656) $ (1,425) $ (2,938)
======== ======== ========= =========
Net income (loss) per share
Basic $ (0.00) $ (0.06) $ (0.12) $ (0.26)
======== ======== ========= =========
Diluted $ (0.00) $ (0.06) $ (0.12) $ (0.26)
======== ======== ========= =========
Weighted average shares used in calculation
Basic 11,494 11,231 11,404 11,402
======== ======== ========= =========
Diluted 11,494 11,231 11,404 11,402
======== ======== ========= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 2
<PAGE> 5
ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended January 31
2000 1999
----------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (1,425) $ (2,938)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 690 530
Amortization 1,853 1,290
Deferred taxes (363) (1,439)
Changes in assets and liabilities
Accounts receivable 158 403
Prepaid expenses and other assets (157) (554)
Other assets and liabilities (22) (42)
Accounts payable and accrued expenses (502) (600)
Deferred revenue 205 325
-------- --------
Net cash provided by (used in) operating activities 437 (3,025)
-------- --------
Cash flows from investing activities
Purchases of plant and equipment (861) (921)
Investment in acquired businesses (561) (160)
Sale (purchases) of marketable securities (1,383) (17,260)
-------- --------
Net cash used in investing activities (2,805) (18,341)
-------- --------
Cash flows from financing activities
Proceeds from line of credit, net 2,146 5,000
Purchase of treasury stock (162) (2,710)
Proceeds from the issuance of common stock, net 152 182
-------- --------
Net cash provided by (used in) financing activities 2,136 2,472
Effect of exchange rate (322) (22)
-------- --------
Net increase (decrease) in cash and cash equivalents (554) (18,916)
Cash and cash equivalents at beginning of period 2,489 20,677
-------- --------
Cash and cash equivalents at end of period $ 1,935 $ 1,761
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 301 $ 18
======== ========
Cash paid for income taxes $ 6 $ 30
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
Page 3
<PAGE> 6
ANSOFT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Basis of Presentation
The unaudited consolidated financial statements include the accounts of
Ansoft and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of financial position and results of operations have been
made. Operating results for interim periods are not necessarily indicative of
results which may be expected for a full year. The information included in this
Form 10-Q should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the fiscal year
ended April 30, 1999 consolidated financial statements and notes thereto
included in Ansoft's annual report on Form 10-K filed with the Commission.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses and disclosure of contingent assets and liabilities. The
estimates and assumptions used in the accompanying consolidated financial
statements are based on management's evaluation of the relevant facts and
circumstances as of the date of the consolidated financial statements. Actual
results may differ from those estimates.
(2) Comprehensive income (loss)
"Comprehensive income (loss)" includes foreign currency translation gains
and losses and other unrealized gains and losses. A summary of comprehensive
income (loss) follows:
<TABLE>
<CAPTION>
Nine Months Ended January 31,
2000 1999
---- ----
<S> <C> <C>
Net income (loss) $(1,425) $(2,938)
Unrealized gain (loss) on marketable securities (1,991) (547)
Foreign currency translation adjustments (324) (22)
------- -------
Comprehensive income (loss) $(3,740) $(3,507)
======= =======
</TABLE>
(3) Net income (loss) per share
"Basic earnings (loss) per share" is calculated based upon the weighted
average number of common shares actually outstanding, and "diluted earnings per
share" is calculated based upon the weighted average number of common shares
outstanding and other potential common shares if they are dilutive. The
following is a reconciliation of the numerators and denominators of the basic
and diluted EPS computations for the periods presented:
<TABLE>
<CAPTION>
Income Per share
(loss) Shares amount
------ ------ ---------
<S> <C> <C> <C>
Three months ended January 31, 2000
Basic net income (loss) per share ... $ (34) 11,494 $ (0.00)
Effect of dilutive securities:
Stock options..................... -- -- --
----- ------ -------
Diluted net income (loss) per
share................................ $ (34) 11,494 $ (0.00)
===== ====== =======
Three months ended January 31, 1999
Basic net income (loss) per share.... $(656) 11,231 $ (0.06)
Effect of dilutive securities:
Stock options..................... -- -- --
----- ------ -------
Diluted net income (loss) per
share................................ $(656) 11,231 $ (0.06)
===== ====== =======
</TABLE>
Page 4
<PAGE> 7
<TABLE>
<CAPTION>
Income Per share
(loss) Shares amount
------ ------ ---------
<S> <C> <C> <C>
Nine months ended January 31, 2000
Basic net income (loss) per share.... $(1,425) 11,404 $ (0.12)
Effect of dilutive securities:
Stock options..................... -- -- --
------- ------ --------
Diluted net income (loss) per
share................................ $(1,425) 11,404 $ (0.12)
======= ====== ========
Nine months ended January 31, 1999
Basic net income (loss) per share.... $(2,938) 11,402 $ (0.26)
Effect of dilutive securities:
Stock options..................... -- -- --
------- ------ --------
Diluted net income (loss) per
share................................ $(2,938) 11,402 $ (0.26)
======= ====== ========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains certain forward-looking statements that
involve substantial risks and uncertainties. When used in this Form 10-Q, the
words "anticipate," "plan," "believe," "estimate," "expect" and similar
expressions as they relate to Ansoft or its management are intended to identify
such forward-looking statements. Ansoft's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors" section included in
Ansoft's report on Form 10-K for the fiscal year ended April 30, 1999.
Overview
Ansoft Corporation ("Ansoft" or the "Company") develops, markets and
supports electronic design automation ("EDA") software based on fundamental
electromagnetic principles. Ansoft's software is used by engineers in the design
of high performance electronic devices and systems, such as cellular phones,
communications systems, computer circuit boards and motors. As the marketplace
demands higher levels of system performance and miniaturization, the need to
model accurately the electromagnetic interaction in communications, computer
devices and electromechanical components and systems is becoming increasingly
important, yet traditional EDA tools do not provide accurate modeling of
electromagnetic interaction. By using Ansoft's software, companies can more
easily predict electromagnetic interaction in such systems and components, thus
reducing time to market and simultaneously lowering design and manufacturing
costs. Ansoft's products are used by design engineers in a wide range of
industries, particularly the rapidly evolving wireless communications and RF
(radio frequency) markets as well as the semiconductor, computer, automotive and
consumer electronics industries.
License revenue consists principally of revenue from the licensing of
Ansoft's software and is generally recognized when the software has been shipped
and there are no significant remaining obligations. Service revenue consists of
maintenance fees for providing system updates, user documentation and technical
support for software products, and is recognized ratably over the term of the
maintenance agreement. Other revenue consists primarily of revenue earned on
development contracts with government-sponsored entities. Revenue under these
arrangements is recognized as the service is performed.
Effective December 23, 1999, Ansoft completed the acquisition of Pacific
Numerix ("PNC"). Effective July 24, 1996, April 9, 1997 and August 8, 1997,
Ansoft acquired EBU, Compact, and Boulder, respectively. The cost of these
acquisitions has been allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed. The acquisitions have been
accounted for as purchases, and their respective financial results have been
included in the accompanying consolidated financial statements since the date of
their respective acquisitions.
Page 5
<PAGE> 8
Results of Operations
The following table sets forth the percentage of total revenue of each item
in Ansoft's consolidated statements of operations:
<TABLE>
<CAPTION>
Three months ended January 31, Nine months ended January 31,
2000 1999 2000 1999
--------- ---------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
License 77% 78% 75% 72%
Service and other 23 22 25 28
--- --- --- ---
Total revenue 100 100 100 100
Costs and expenses:
Sales and marketing 57 70 61 75
Research and development 31 33 33 37
General and administrative 10 12 11 12
Amortization 7 7 8 8
--- --- --- ---
Total costs and expenses 105 122 113 132
--- --- --- ---
Income (loss) from operations (5) (22) (13) (32)
Other income 5 7 5 7
--- --- --- ---
Income (loss) before income taxes (0) (15) (8) (25)
Income taxes 0 4 2 7
--- --- --- ---
Net income (loss) (0)% (11)% (6)% (18)%
=== === === ===
</TABLE>
Page 6
<PAGE> 9
Comparison of The Three and Nine Months Ended January 31, 2000 and 1999
Revenue. Total revenue in the three-month period ended January 31, 2000
increased 38% to $8.4 million from $6.1 million in the comparable period of the
preceding fiscal year. Total revenue in the nine-month period ended January 31,
2000 increased 35% to $22.7 million from $16.7 million in the comparable period
of the preceding fiscal year. License revenue during the three-month period
ended January 31, 2000 increased 36% to $6.5 million from $4.8 million during
the comparable period in the prior fiscal year. The increase is primarily
attributable to strong demand from North American customers. Service and other
revenue in the three-month period ended January 31, 2000 increased by 45% due to
the continued growth of the installed base of customers under annual maintenance
agreements.
International revenue accounted for 42% and 56% of the Company's total
product revenue in the three-month period ended January 31, 2000 and 1999,
respectively. International revenue accounted for 49% and 53% of the Company's
total product revenue in the nine-month period ended January 31, 2000 and 1999,
respectively
Sales and marketing expenses. Sales and marketing expenses consist of
salaries, commissions paid to internal sales and marketing personnel and
international distributors, promotional costs and related operating expenses.
Sales and marketing expenses increased by 13% to $4.8 million in the three-month
period ended January 31, 2000, as compared to $4.3 million in the same period in
the previous fiscal year. Sales and marketing expenses increased by 10% to $13.9
million in the nine-month period ended January 31, 2000, as compared to $12.6
million in the same period in the previous fiscal year. The increase is
attributable to an increase in the Company's sales force as a result of the
acquisitions as well as increased marketing efforts, including advertising in
trade publications and increased participation in industry trade shows. Sales
and marketing expenses represented 57% and 70% of total revenue in the
three-month period ended January 31, 2000 and 1999, respectively. Sales and
marketing expenses represented 61% and 75% of total revenue in the nine-month
period ended January 31, 2000 and 1999, respectively. Ansoft expects that sales
and marketing expenses will decrease as a percentage of revenue although
increase in absolute dollars in future periods.
Research and development expenses. Research and development expenses
include all costs associated with the development of new products and
enhancements to existing products. Research and development expenses for the
three-month period ended January 31, 2000 increased 27% to $2.6 million, as
compared to $2.0 million for the same period in the previous fiscal year.
Research and development expenses for the nine-month period ended January 31,
2000 increased 21% to $7.5 million, as compared to $6.2 million for the same
period in the previous fiscal year. The increase is due to increased research
and development personnel primarily as a result of the acquisitions. Research
and development expenses represented 31% and 33% of total revenue in the
three-month period ended January 31, 2000 and 1999, respectively. Research and
development expenses represented 33% and 37% of total revenue in the nine-month
period ended January 31, 2000 and 1999, respectively. Ansoft anticipates that
research and development expenses will decrease as a percentage of revenue
although increase in absolute dollars in future periods.
General and administrative expenses. General and administrative expenses
for the three-month period ended January 31, 2000 increased 17% to $826,000, as
compared to $706,000 for the same period in the previous fiscal year. General
and administrative expenses for the nine-month period ended January 31, 2000
increased 20% to $2.4 million, as compared to $2.0 million for the same period
in the previous fiscal year. The increase is due to additional costs required to
support the increase in operations, including the hiring of additional
administrative personnel. General and administrative expenses represented 10%
and 12% of total revenue in the three-month period ended January 31, 2000 and
1999, respectively. General and administrative expenses represented 11% and 12%
of total revenue in the nine-month period ended January 31, 2000 and 1999,
respectively. The Company anticipates that general and administrative expenses
will increase in absolute dollars in future periods.
Amortization expense. Amortization expense for the three-month period ended
January 31, 2000 increased to $615,000, as compared to $434,000 for the same
period in the previous fiscal year. Amortization expense for the nine-month
period ended January 31, 2000 increased to $1.9 million, as compared to $1.3
million for the same period in the previous fiscal year. The increase is due to
the amortization of the additional intangible assets acquired.
Page 7
<PAGE> 10
Other income. Other income for the three-month period ended January 31,
2000 was $428,000, comparable to $404,000 for the same period in the previous
fiscal year. Other income was $1.2 million for the nine-month period ended
January 31, 2000, comparable to $1.2 million for the same period in the previous
fiscal year.
Income taxes. In the three and nine-month period ended January 31, 2000,
the Company recorded a tax benefit of $8,000 and $363,000, respectively,
resulting from the partial recognition of deferred tax assets in accordance with
the Financial Accounting Standards Board's SFAS No. 109, "Accounting for Income
Taxes." Ansoft's net deferred tax asset of $3.5 million as of January 31, 2000,
consists primarily of net operating loss carryforwards for federal income tax
purposes, which are available to offset future taxable income, and expire in
increments beginning in April 2004, through April 2019. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
Liquidity and Capital Resources
As of January 31, 2000, Ansoft had $1.9 million in cash and cash
equivalents and working capital of $14.8 million. Net cash provided by (used in)
operating activities was $437,000 and $(3.0) million in the nine months ended
January 31, 2000 and 1999, respectively. Net cash used in investing activities
was $2.8 million and $18.3 million in the nine months ended January 31, 2000 and
1999, respectively. Capital expenditures, consisting primarily of purchases of
computer equipment, were $861,000 and $921,000 in the nine months ended January
31, 2000 and 1999, respectively. Net cash provided by financing activities in
the nine months ended January 31, 2000 consisted primarily of $2.1 million in
proceeds drawn on the line of credit.
Ansoft has available a $10.0 million secured line of credit from a domestic
financial institution at an interest rate equal to LIBOR plus an applicable
margin rate. The line of credit is secured by the marketable securities held
with the institution. As of January 31, 2000, $9.6 million was the outstanding
balance on the line of credit. Ansoft believes that the available funds will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the foreseeable future. Thereafter, if cash generated
from operations is insufficient to satisfy the Company's liquidity requirements,
Ansoft may seek additional funds through equity or debt financing. There can be
no assurance that additional financing will be available or that, if available,
such financing will be on terms favorable to Ansoft.
Year 2000 Issues
Ansoft's supported products are Year 2000 compliant. Our products do not
rely on knowledge of the date (date-sensitive data) for performance or
functionality. Our products only use date-sensitive data with respect to the
licensing of our products.
During 1999, an evaluation was done to our internal support systems to
determine if they are Year 2000 ready to support our operations beyond the year
2000. We currently use third party software systems and applications.
Costs. We have not incurred and do not expect to incur material costs
directly related to Year 2000 in excess of normal upgrade and maintenance costs.
Risks. While we believe the risk is low, it is early in the year 2000 and
there is a possibility that a software program or system Year 2000 compliance
failure related to products, its internal systems and software or those of its
major suppliers and customers could still occur. Lost revenues or the inability
of the Company to operate for any significant period of time that would result
from a software program or system Year 2000 compliance failure, could have a
material adverse effect on the Company's business, results of operations and
financial condition.
As of the date of this filing, we have not experienced disruptions from its
vendors.
Page 8
<PAGE> 11
Quantitative and Qualitative Disclosure about Market Risk
Interest Rate Risk. Ansoft's exposure to market risk for changes in
interest rates relate primarily to its investment portfolio. Ansoft mitigates
its risk by diversifying its investments among credit quality securities and
limits the amount of credit exposure to any one issuer. Ansoft does not hedge
any interest rate exposures.
Foreign Currency Risk. Ansoft transacts business in various foreign
currencies. Accordingly, Ansoft is subject to exposure from adverse movements in
foreign currency exchange rates. As of January 31, 2000, Ansoft had no hedging
contracts outstanding. Ansoft assesses the need to utilize financial instruments
to hedge currency exposures on an ongoing basis.
Additional Risk Factors that may affect Future Results
We may be unable to successfully compete in the highly competitive
electronic design automation ("EDA") software market. The electronic design
automation software market in which Ansoft competes is intensely competitive and
subject to rapid change. In general, competition comes from major EDA vendors,
many of which have a longer operating history, significantly greater financial,
technical and marketing resources, greater name recognition and a larger
installed customer base than Ansoft. These companies also have established
relationships with current and potential customers of Ansoft. Ansoft's software
products currently compete with certain software offerings from Hewlett-Packard
Corporation ("HP"). Ansoft also competes directly with certain major EDA vendors
and privately-held companies which also provide competing products. Ansoft also
competes, on a limited basis, with the internal development groups of its
existing and potential customers, many of which design and develop customized
design tools for their particular needs. In addition, the EDA industry has
become increasingly concentrated in recent years as a result of acquisitions,
and further concentration within the EDA industry could result in increased
competition for Ansoft. Increased competition could result in price reductions,
reduced margins or loss of market share, any of which could seriously harm
Ansoft's business, operating results or financial condition. Ansoft may be
unable to compete successfully against current and future competitors, and
competitive pressures faced by Ansoft could seriously harm Ansoft's business,
operating results and financial condition.
Page 9
<PAGE> 12
We have a history of losses and our future operating results are
uncertain. Ansoft has incurred net losses in each fiscal year since its founding
with the exception of fiscal 1998 and 1996. There can be no assurance that
Ansoft's revenue and net income will grow or be sustained in future periods or
that Ansoft will remain profitable in any future period. Future operating
results will depend on many factors, including the degree and the rate of growth
of the markets in which Ansoft competes and the accompanying demand for Ansoft's
products, the level of product and price competition, the ability of Ansoft to
develop and market new products and to control costs, the ability of Ansoft to
expand its direct sales force and the ability of Ansoft to attract and retain
key personnel.
Our quarterly operating results are difficult to predict. We are unable to
accurately forecast our future revenues primarily because of the emerging nature
of the market in which we compete. Our revenues and operating results generally
depend on the size, timing and structure of significant licenses. These factors
have historically been, and are likely to continue to be, difficult to forecast.
In addition, our current and future expense levels are based largely on our
operating plans and estimates of future revenues and are, to a extent, fixed. We
may be unable to adjust spending sufficiently quickly to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall in revenues
in relation to our planned expenditures would seriously harm our business,
financial condition and results of operations. Such shortfalls in our revenue or
operating results from levels expected by public market analysts and investors
could seriously harm the trading price of our common stock. Additionally, we may
not learn of such revenue shortfalls, earnings shortfalls or other failure to
meet market expectations until late in a fiscal quarter, which could result in
an even more immediate and serious harm to the trading price of our common
stock. Our quarterly operating results have varied, and it is anticipated that
our quarterly operating results will vary, substantially from period to period
depending on various factors, many of which are outside our control. Due to the
foregoing factors, we cannot predict with any significant degree of certainty
our quarterly revenue and operating results. Further, we believe that
period-to-period comparisons of our operating results are not necessarily a
meaningful indication of future performance.
Our stock price is extremely volatile. The trading price of our common
stock has fluctuated significantly in the past, and the trading price of our
common stock is likely to be highly volatile and could be subject to wide
fluctuations in price in response to such factors as:
- Actual or anticipated fluctuations in our operating results;
- Announcements of technological innovations and new products by us or
our competitors;
- New contractual relationships with strategic partners by us or our
competitors;
- Proposed acquisitions by us or our competitors; and
- Financial results that fail to meet public market analyst expectations
of performance.
In addition, the stock market in general, and The Nasdaq National Market
and the market for technology companies in particular has experienced extreme
price and volume fluctuations that have often been unrelated or disproportionate
to the operating performance of such companies. These broad market and industry
factors may seriously harm the market price of our common stock in future
periods.
Businesses we acquire may not perform as projected. We have acquired or
merged with a number of companies in recent years, including PNC, Compact, the
EBU and Boulder Microwave Technologies, and as part of our efforts to increase
revenue and expand our product and services offerings we may acquire additional
companies. In addition to direct costs, acquisitions pose a number of risks,
including potential dilution of earnings per share, delays and other problems of
integrating the acquired products and employees into our business, the failure
to realize expected synergies or cost savings, the failure of acquired products
to achieve projected sales, the drain on management time for acquisition-related
activities, possible adverse effects on customer buying patterns due to
uncertainties resulting from an acquisition, and assumption of unknown
liabilities. The foregoing factors could seriously harm our business, financial
condition and results of operations.
Page 10
<PAGE> 13
We may lose competitive advantages if our proprietary rights are
inadequately protected. Ansoft's success depends, in part, upon its proprietary
technology. We rely on a combination of patents, trade secrets, copyrights,
trademarks and contractual commitments to protect our proprietary rights in our
software products. We generally enter into confidentiality or license agreements
with our employees, distributors and customers, and limit access to and
distribution of our software, documentation and other proprietary information.
Despite these precautions, a third party may still copy or otherwise obtain and
use our products or technology without authorization, or develop similar
technology independently. In addition, effective patent, copyright and trade
secret protection may be unavailable or limited in certain foreign countries. It
is possible that we may fail to adequately protect our proprietary rights. This
would seriously harm Ansoft's business, operating results and financial
condition.
We may be unable to attract and retain the key management and technical
personnel that we need to succeed. Ansoft's future operating results depend in
large part upon the continued services of its key technical and management
personnel, including Dr. Zoltan Cendes, a founder, Chairman of the Board of
Directors and Chief Technology Officer of Ansoft. Ansoft does not have
employment contracts with Dr. Cendes or any other executive officer. Ansoft
maintains key-man life insurance with respect to Dr. Cendes in the amount of
$5,000,000. Ansoft's future success will also depend in large part on its
ability to continue to attract and retain highly-skilled technical, marketing
and management personnel. The competition for such personnel, as well as for
qualified EDA engineers, is intense. If Ansoft is unable to attract, hire and
retain qualified personnel in the future, the development of new products and
the management of Ansoft's increasingly complex business would be impaired. This
could seriously harm Ansoft's business, operating results and financial
condition.
We had previously depended upon third party international distributors and
have recently shifted our distribution model to the use of direct sales
personnel in international markets. A significant portion of Ansoft's license
and service revenue results from a limited number of international distributors.
During fiscal 1999, 1998 and 1997, revenue from international distributors
accounted for approximately 10%, 19%, and 19%, respectively, of Ansoft's total
revenue. Ansoft's distributors are not obligated to purchase products from
Ansoft and may also represent other products. Ansoft has recently shifted its
distribution model to the use of direct sales personnel in international
markets. It is possible that we may fail to sustain or increase revenue
previously derived from third party international distributors and,
consequently, seriously harm our business, financial condition and results of
operations.
We depend on international sales for a significant percentage of our
revenue. International revenue, principally from Asian customers, accounted for
approximately 49% and 53% of our total revenue in the nine-month period ended
January 31, 2000 and 1999, respectively. We expect that international license
and service revenue will continue to account for a significant portion of our
total revenue for the foreseeable future. Our international business activities
are subject to a variety of potential risks, including:
- The impact of recessionary environments in foreign economies;
- Longer receivables collection periods and greater difficulty in
accounts receivable collection;
- Difficulties in staffing and managing foreign operations;
- Political and economic instability;
- Unexpected changes in regulatory requirements;
- Reduced protection of intellectual property rights in some countries;
and
- Tariffs and other trade barriers.
Currency exchange fluctuations in countries in which we license our
products could also seriously harm our business, financial condition and results
of operations by resulting in pricing that is not competitive with products
priced in local currencies. Furthermore, we may not be able to continue to
generally price our products and services internationally in U.S. dollars
because of changing sovereign restrictions on importation and exportation of
foreign currencies as well as other practical considerations. In addition, the
laws of certain countries do not protect our products and intellectual property
rights to the same extent, as do the laws of the United States. Moreover, it is
possible that we may fail to sustain or increase revenue derived from
international licensing and service or that the foregoing factors will seriously
harm our future international license and service revenue, and, consequently,
seriously harm our business, financial condition and results of operations.
Page 11
<PAGE> 14
We need to successfully manage our expanding operations. Ansoft has
experienced rapid growth in recent years which has placed and could continue to
place a significant strain on the its managerial and other resources. Revenues
have grown from $6.2 million in fiscal 1995 to $24.4 million in fiscal year
1999, and the number of employees has grown from 69 in April 1996 to 233 as of
January 31, 2000. Ansoft's ability to manage growth effectively will require it
to continue to improve its operational and financial systems, hire and train new
employees and add additional space, both domestically and internationally.
Ansoft may not be successful in addressing such risks, and the failure to do so
would seriously harm Ansoft's business, financial condition and results of
operations.
We depend on the growth of the communications, semiconductor and
electronics industries. Ansoft is dependent upon the communications and
semiconductor industry and, more generally, the electronics industry. These
industries are characterized by rapid technological change, short product life
cycles, fluctuations in manufacturing capacity and pricing and gross margin
pressures. Segments of these industries have from time to time experienced
significant economic downturns characterized by decreased product demand,
production over-capacity, price erosion, work slowdowns and layoffs. While these
industries have experienced an extended period of significant economic growth
over the past few years, such economic growth may not continue, and if it does
not, any downturn could be especially severe on Ansoft. During such downturns,
the number of new integrated circuit design projects often decreases. Because
acquisitions of new licenses from Ansoft are largely dependent upon the
commencement of new design projects, any slowdown in these industries could
seriously harm Ansoft's business, financial condition and results of operations.
Errors in our software products could result in loss of market share or
failure to achieve market acceptance. Software products as complex as those
offered by Ansoft may contain defects or failures when introduced or when new
versions are released. Ansoft has in the past discovered software defects in
certain of its products and may experience delays or lost revenue to correct
such defects in the future. Despite testing by Ansoft, errors may still be found
in new products or releases after commencement of commercial shipments,
resulting in loss of market share or failure to achieve market acceptance. Any
such occurrence could seriously harm Ansoft's business, financial condition and
results of operations.
Anti-Takeover Provisions in Ansoft's Certificate of Incorporation, Bylaws,
and under Delaware Law could prevent an acquisition of Ansoft. We have adopted a
number of provisions that could have anti-takeover effects. The Board of
Directors has the authority to issue up to 1,000,000 shares of Preferred Stock
without any further vote or action by the Ansoft's stockholders. This and other
provisions of Ansoft's Certificate of Incorporation, Bylaws and Delaware Law may
have the effect of deterring hostile takeovers or delaying or preventing changes
in control or management, including transactions in which the stockholders of
the Ansoft might otherwise receive a premium for their shares over then current
market prices.
We are controlled by our principal stockholders and management which may
limit your ability to influence stockholder matters. Our executive officers,
directors and principal stockholders own approximately 49% of the outstanding
shares of Ansoft common stock. As a result, they have the ability to effectively
control us and direct our affairs, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
also may have the effect of delaying, deferring or preventing a change in
control of our company and may make some transactions more difficult or
impossible without the support of these stockholders. The interests of these
stockholders may conflict with those of other stockholders.
Page 12
<PAGE> 15
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this Quarterly Report on Form 10-Q are listed
below and are incorporated herein by reference:
Exhibit No.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K during the period from November 1, 1999 to
January 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date March 13, 2000
ANSOFT CORPORATION
By: /s/ Nicholas Csendes
--------------------------------
Nicholas Csendes
President and Chief Executive Officer
By: /s/ Anthony L. Ryan
--------------------------------
Anthony L. Ryan
Chief Financial Officer
Page 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE 9-MOS ENDED JANUARY 31, 2000 AND THE
BALANCE SHEET AT JANUARY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000849433
<NAME> ANSOFT CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 1,935
<SECURITIES> 21,583
<RECEIVABLES> 8,487
<ALLOWANCES> 196
<INVENTORY> 0
<CURRENT-ASSETS> 28,403
<PP&E> 4,834
<DEPRECIATION> 690
<TOTAL-ASSETS> 51,541
<CURRENT-LIABILITIES> 13,580
<BONDS> 0
0
0
<COMMON> 117
<OTHER-SE> 37,727
<TOTAL-LIABILITY-AND-EQUITY> 51,541
<SALES> 17,114
<TOTAL-REVENUES> 22,689
<CGS> 0
<TOTAL-COSTS> 25,696
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,788)
<INCOME-TAX> (363)
<INCOME-CONTINUING> (1,425)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,425)
<EPS-BASIC> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
