ANSYS Company Analysis Final - Tippie College of...
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Important disclosures appear on the last page of this report. The Henry Fund Henry B. Tippie School of Management Jon Kerr [[email protected]] ANSYS Inc. (ANSS) April 16, 2015 Information Technology – Application Software Stock Rating Sell Investment Thesis Target Price $75H85 ANSYS is a leader in the computer aided engineering (CAE) and simulation software industry. CAE software is a necessity for companies with complex products or processes that have an ever present need to reduce timeHtoH market. With research and development budgets growing globally, CAE design software revenues are in a good position to grow as well. However, ANSYS revenue growth rates have begun to decrease which could indicate a saturated market. ANSYS is a profitable company with increasing margins, however, the profitability of the company is accounted for in the current stock price. The stock is currently trading at a premium compared to the low growth guidance from management. Therefore, we recommend a sell rating. Drivers of Thesis • The release of ANSYS 16.0 was focused on improving electronic design functionality. ANSYS should see sales growth in the electronics segment due to these improvements and the expected 20.7 % market CAGR of the Internet of Things (IoT). • Automotive certification, ISO 26262, and expected growth of R&D spending in the automotive industry are anticipated to drive growth in revenues of 11% in the automotive segment for ANSYS in 2015. • ANSYS has no debt on the balance sheet and has consistently grown gross profit margin and net profit margin since 2007. Risks to Thesis • The organic sales growth rate is beginning to decline which could indicate ANSYS is reaching critical point of market penetration • OpenHsource software is a lowHcost alternative to license based CAE and simulation software. OpenHsource software is growing in popularity and will drive down revenues for companies like ANSYS. • Increasing lease licenses verses perpetual licenses is increasing software licenses cost of sales and decreasing license revenue margins. Henry Fund DCF $83.10 Henry Fund DDM N/A Relative Multiple $71.64 Price Data Current Price $87.40 52wk Range $71.09 – 89.64 Consensus 1yr Target $87.78 Key Statistics Market Cap (M) $7,867 Shares Outstanding (M) 90.02 Institutional Ownership 92.6% Five Year Beta 0.999 Dividend Yield 0.00% Est. 5yr Growth 8.75% Price/Earnings (TTM) 30.4 Price/Earnings (FY1) 25.1 Price/Sales (TTM) 8.25 Price/Book (mrq) 3.36 Profitability Operating Margin 37.12% Profit Margin 27.21% Return on Assets (TTM) 9.27% Return on Equity (TTM) 11.70% Earnings Estimates Year 2012 2013 2014 2015E 2016E 2017E EPS $2.20 $2.65 $2.77 $2.91 $3.16 $3.44 Growth 12.2% 20.5% 4.4% 5.3% 8.6% 8.8% 12 Month Performance Company Description ANSYS develops, markets, and supports simulation and computerHaided engineering software. The software is used in many different industries including electronics, automotive, aerospace and defense, and bioHmedical. Since being founded in 1970, the company has continually enhanced and broadened the capabilities of their software. Today the ANSYS software has the ability to accelerate time to market, reduce product costs, and optimize product quality and safety. 30.4 11.7 27.2 45.5 12.5 12.9 23.7 16.4 12.8 0 10 20 30 40 50 P/E ROE Profit Margin ANSS Industry Sector H10% H5% 0% 5% 10% 15% 20% A M J J A S O N D J F M ANSS S&P 500 Source: Yahoo Finance Source: Yahoo Finance
Transcript of ANSYS Company Analysis Final - Tippie College of...
Important)disclosures)appear)on)the)last)page)of)this)report.)
The$Henry$Fund$
$
Henry&B.&Tippie&School&of&Management&
Jon&Kerr&[[email protected]]&& & &
ANSYS$Inc.$(ANSS)$ April&16,&2015&
Information$Technology$–$Application$Software$ Stock$Rating$ Sell$
Investment$Thesis$ Target$Price$ $75H85$
&
ANSYS& is& a& leader& in& the& computer& aided& engineering& (CAE)& and& simulation&
software& industry.& &CAE&software& is&a&necessity& for&companies&with&complex&
products& or& processes& that& have& an& ever& present& need& to& reduce& timeHtoH
market.& & With& research& and& development& budgets& growing& globally,& CAE&
design&software&revenues&are& in&a&good&position&to&grow&as&well.& &However,&
ANSYS&revenue&growth&rates&have&begun&to&decrease&which&could&indicate&a&
saturated&market.& & ANSYS& is& a& profitable& company&with& increasing&margins,&
however,& the& profitability& of& the& company& is& accounted& for& in& the& current&
stock&price.&&The&stock&is¤tly&trading&at&a&premium&compared&to&the&low&
growth&guidance&from&management.&&Therefore,&we&recommend&a&sell&rating.$
$
Drivers$of$Thesis$
• The& release& of& ANSYS& 16.0& was& focused& on& improving& electronic& design&
functionality.&ANSYS& should& see& sales& growth& in& the&electronics& segment&
due&to&these&improvements&and&the&expected&20.7&%&market&CAGR&of&the&
Internet&of&Things&(IoT).&&
• Automotive& certification,& ISO& 26262,& and& expected& growth& of& R&D&
spending& in& the& automotive& industry& are& anticipated& to& drive& growth& in&
revenues&of&11%&in&the&automotive&segment&for&ANSYS&in&2015.&
• ANSYS&has&no&debt&on&the&balance&sheet&and&has&consistently&grown&gross&
profit&margin&and&net&profit&margin&since&2007.&
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Risks$to$Thesis$
• The&organic&sales&growth&rate&is&beginning&to&decline&which&could&indicate&
ANSYS&is&reaching&critical&point&of&market&penetration&
• OpenHsource&software& is&a& lowHcost&alternative&to& license&based&CAE&and&
simulation&software.& &OpenHsource&software& is&growing& in&popularity&and&
will&drive&down&revenues&for&companies&like&ANSYS.&
• Increasing& lease& licenses&verses&perpetual& licenses& is& increasing& software&
licenses&cost&of&sales&and&decreasing&license&revenue&margins.$
&
Henry&Fund&DCF& $83.10&
Henry&Fund&DDM& N/A&
Relative&Multiple& $71.64&
Price$Data$ $
Current&Price& $87.40&
52wk&Range& $71.09&–&89.64&
Consensus&1yr&Target& $87.78&
Key$Statistics$ $
Market&Cap&(M)& $7,867&
Shares&Outstanding&(M)& 90.02&
Institutional&Ownership& 92.6%&
Five&Year&Beta& 0.999&
Dividend&Yield& 0.00%&
Est.&5yr&Growth& 8.75%&
Price/Earnings&(TTM)& 30.4&
Price/Earnings&(FY1)& 25.1&
Price/Sales&(TTM)& 8.25&
Price/Book&(mrq)& 3.36&
Profitability$ $
Operating&Margin& 37.12%&
Profit&Margin& 27.21%&
Return&on&Assets&(TTM)& 9.27%&
Return&on&Equity&(TTM)& 11.70%&
&
Earnings$Estimates$
Year$ 2012$ 2013$ 2014$ 2015E$ 2016E$ 2017E$
EPS$ $2.20& $2.65& $2.77& $2.91& $3.16& $3.44&
Growth$ 12.2%$ 20.5%) 4.4%) 5.3%) 8.6%) 8.8%)12$Month$Performance$ Company$Description$
&
ANSYS& develops,& markets,& and& supports&
simulation& and& computerHaided& engineering&
software.&&The&software&is&used&in&many&different&
industries& including& electronics,& automotive,&
aerospace& and& defense,& and& bioHmedical.& & Since&
being& founded& in& 1970,& the& company& has&
continually& enhanced& and& broadened& the&
capabilities& of& their& software.& & Today& the&ANSYS&
software& has& the& ability& to& accelerate& time& to&
market,& reduce& product& costs,& and& optimize&
product&quality&and&safety.&
30.4$
11.7$
27.2$
45.5$
12.5$ 12.9$
23.7$
16.4$12.8$
0&
10&
20&
30&
40&
50&
P/E& ROE& Profit&Margin&
ANSS& Industry& Sector&
H10%&
H5%&
0%&
5%&
10%&
15%&
20%&
A& M& J& J& A& S& O& N& D& J& F& M&
ANSS& S&P&500&
Source:&Yahoo&Finance&
Source:&Yahoo&Finance&
& &&
&!Page!2! !
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EXECUTIVE$SUMMARY$
ANSYS& is& an& industry& leader& in& the& CAE& and& simulation&
software& industry& and& continues& to& enhance& its& position&
within&its&industry&through&targeted&acquisitions.&
Global& research& and& development& (R&D)& spending& is&
expected& to& increase& at& a& 6.38%& CAGR& from& 2014& to&
2018.(1)& Simulation& and& computer& aided& engineering&
software&are&a&major&component&of&R&D.& &ANSYS&should&
continue&to&see&growth&in&multiple&industry&markets&that&
they&operate&in.&
The& Internet& of& Things& is& driving& growth& of& “smart”&
devices& that& are& expected& to& increase& to& over& 25& Billion&
devices& by& 2020.& (2)
& The& release& of& ANSYS& 16.0& was&
focused& on& these& “smart”& devices& and& their& required&
complex& engineering& designs.& & As& well,& ANSYS& is&
positioned& well& in& the& automotive& industry& having&
received&automotive&certification&ISO&26262&in&January&of&
2015.& & The& R&D& spending& in& the& automotive& industry& is&
expected&to&increase&at&a&6.23%&CAGR&from&2014&to&2020&
which&will&help&drive&revenues.&(3)&
However,&organic&revenue&growth&rates&for&the&company&
have&been&slowing&since&2011.&&Analysts&believe&the&total&
accessible&market&is&$4H9&Billion&for&the&next&5&to&7&years,&
which& is& much& less& than& the& $20& Billion& ANSYS& has&
predicted.&(4)(5)
&The&slowing&revenue&growth&could&indicate&
the& analysts& are& correct& and&ANSYS& is& reaching& a& critical&
point& of& penetration& within& the& market.& & Furthermore,&
customers& are& starting& to& opt& towards& lease& licenses&
instead&of&perpetual&licenses.&&As&a&result,&revenues&from&
software& licenses& as& a& percent& of& overall& revenue& have&
been&declining&since&2007&while&maintenance&revenues&as&
a& percent& of& overall& revenue& has& been& increasing.& & This&
could& indicate&that&new&license&growth&rates&are&slowing&
and& ANSYS& is& increasing& maintenance& costs& for& existing&
customers&in&order&to&maintain&growing&revenues.&
Overall,& with& the& slowing& of& organic& revenue& and& the&
potential& for& a& saturated& market,& we& feel& the& stock& is&
currently&trading&at&a&premium.&&We&believe&total&revenue&
will& grow& at& a& 4.8%& CAGR& until& 2019& with& earnings& per&
share&growing&at&an&8.1%&CAGR.&&As&well,&we&believe&net&
profit&margin&will&continue&its&increasing&trend&to&29.4%&in&
2019.& & Even& with& this& expected& growth& and& increasing&
margins,& we& still& calculate& a& stock& price& less& than& what&
ANSYS&is¤tly&trading&at.&&Therefore,&we&recommend&
a&sell&rating.&&
&
COMPANY$DESCRIPTION$
Located& south& of& Pittsburgh,& Pennsylvania,& ANSYS& was&
founded& in& 1970& as& an& engineering& analysis& software&
company.&&The&software&is&built&on&the&ANSYS&Workbench&
platform,&which&runs&the&different&analysis&and&simulation&
tools& ANSYS& offers.& & & Since& being& listed& on& the& NASDAQ&
stock&exchange&in&1996,&the&company&has&shown&a&desire&
to&grow&through&targeted&acquisitions.&&Today,&ANSYS&is&a&
leading& company& in& the& engineering& simulation& software&
industry& and& offers& a& broad& array& of& multiple& physics&
simulation& applications& including& fluids,& structures,&
electronics,&and&systems.&
Geographic$Diversification$
Source:&ANSYS&Q4&2014&Investor&Presentation&(6)&
ANSYS& sales& are& roughly& oneHthird& North& America,& oneH
third& Europe,& and& oneHthird& AsiaHPacific.& & Operating&
globally& gives& the& company& access& to& emerging&
economies& as& well& as& stable& ones.& & It& also& helps& the&
company&weather& the&ups&and&downs& that&may&occur& in&
any& particular& region.& & In& the& 2014& fiscal& yearHend&
earnings& call,& ANSYS& CFO,&Maria& Shields,& stated& that& the&
company&has&natural&hedges&built&into&their&expense&base&
to&combat&foreign¤cy&fluctuations.&
We& expect& foreign& sales& to& account& for& 67%& of& revenue&
for&the&next&five&years.& & In&2015,&even&with&these&natural&
hedges,&we&expect&foreign&exchange&rates&to&create&a&loss&
of&$14&million.&&The&company&had&foreign&exchange&losses&
of&$24&million&in&2014.&&We&believe&the&dollar&will&begin&to&
weaken& from& its& current& position& against& other& foreign&
currencies& in& 2015.& & In& our& total& revenue& growth&
estimation,&we&accounted&for&a&net&effect&of&$14.0&million&
due& to& foreign& currency& fluctuations.& & We& have& not&
modeled& foreign& currency& exchange& rate& changes& in& any&
year&after&2015.&
34%$
12%$11%$
1%$
23%$
19%$
FY$2014$Sales$by$Region$ United&States&
Japan&
Germany&
Canada&
Other&European&
Other&
Internamonal&
& &&
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Industry$Diversification$
ANSYS&has&customers& in&a&variety&of&different& industries.&&
In&fiscal&year&2014,&no& industry&accounted&for&more&than&
19%& sales.& & As& well,& no& single& customer& accounted& for&
more& than& 5%& of& revenue.& & This& broad& exposure& to&
multiple& industries& and& customers& helps& the& company&
hedge&risk&of&any&single&industry&having&a&downturn.&
FY$2014$Sales$by$Industry$
&
Source:&ANSYS&Q4&2014&Investor&Presentation&(6)&
Sales$Channels$
The& company& distributes& and& supports& its& software&
through&two&different&sources.&&The&first&is&through&direct&
sales& offices& that& are& located& globally.& & The& second& is&
through& channel& partners& who& are& a& global& network& of&
independent& resellers& and& distributors.& & The&majority& of&
sales&come&through&the&direct&sales&offices&but&ANSYS&has&
said& they& intend& to&continue& to&use& the&hybrid& sales&and&
distribution&model.& & The& channel&partners¬&only&offer&
distribution& of& the& products,& but& they& are& also& the& first&
line&of&ANSYS&technical&support&for&customers.&
Source:&ANSYS&Q4&2014&Investor&Presentation&(6)$
Operating$Costs$
ANSYS& has& high& gross& margins,& which& have& historically&
been& between& 80%& and& 84%.& & & The& company& has& high&
margins&because&there&aren’t&many&costs&associated&with&
software& production.& & The& largest& component& of& cost& of&
sales& is& maintenance& and& service& costs,& which& generally&
have& been& around& 8%.& & & New& pricing& options& are&
decreasing& software& license& margins.& However,&
maintenance&and&service&margins&are&increasing.&
We& have& modeled& cost& of& software& licenses& to& outpace&
maintenance& and& service& costs& due& to& changing& license&
structures.&&Overall,&costs&of&sales&as&a&percent&of&revenue&
are&forecasted&to&decline&from&14.16%&in&2014&to&11.95%&
in& 2019.& & Total& operating& expenses& are& expected& to&
decline& as& a& percent& of& revenue& as& well,& dropping& from&
46.49%&in&2014&to&44.97%&in&2019.&
Revenue$Types$
In&2014,&as&well&as& in&2013,&maintenance&was&the&largest&
segment&for&revenue.&&Maintenance&revenue&is&a&function&
of& license& sales&because& if& customers&are¬&purchasing&
product& licenses,& there& is& no& need& for& the& maintenance&
contracts.&&
Source:&ANSYS&Q4&2014&Investor&Presentation&(6)$
25%$
75%$
FY$2014$Revenue$Distribu]on$
Indirect&
Direct&
34%$
26%$3%$
37%$
FY$2014$Revenue$Streams$
Lease&Licenses&
Perpetual&
Licenses&
Service&
Maintenance&
& &&
&!Page!4! !
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In& 2014,& ANSYS& had& recurring& revenue& of& 71%.&(6)& Since&
2007,&the&maintenance&revenue&has&been&increasing&as&a&
percent& of& revenue& while& both& perpetual& licenses& and&
lease& licenses& have& been& declining& as& a& percent& of&
revenue.& & This& could& indicate& that& new& license& growth&
rates& are& slowing& and& ANSYS& is& increasing& maintenance&
costs&for&existing&customers&in&order&to&maintain&growing&
revenues.&
Source:&ANSYS&10HKs&
We&have&modeled&revenue&to&continue&the&trends&seen&in&
the& above& chart& with&Maintenance& and& Service& revenue&
increasing& at& an& 5.35%& CAGR& from& 2014& to& 2019,&
outpacing& Total& Software& Licenses& revenue& which& we&
modeled&to&increase&at&a&4.43%&CAGR&into&2019.&
RECENT$DEVELOPMENTS$
ANSYS& recently& released& their&Q4& and& FY& 2014& earnings.&&
2014& saw& record& revenue& and& earnings& for& ANSYS.& & The&
company& is& continuing& the& trend& of& growing& by&
acquisition.& &They&are&addressing& the&need&of& simplifying&
their&software&by&acquiring&companies&with& intuitive&and&
easyHtoHuse&software.&&It&appears&they&also&see&a&need&to&
grow& organically& with& new& software& releases& and&
certifications.& &Also,& the&company&has&announced&a& large&
stock& repurchase&program.& & They& could&be&preparing& for&
decreasing& growth& by& increasing& the& stock& repurchase&
program&to&return&capital&to&stockholders.&
$
$
Record$Revenue$for$FY$2014$
On& February& 26,& 2015,& ANSYS& announced& their& fourth&
quarter& and& fiscal& year& 2014& earnings.& & In& Q4& 2014,& the&
company& had& earnings& per& share& of& $0.74.& & This& is& a&
decrease&of&7.5%&from&the&same&quarter&a&year&ago&when&
ANSYS& posted& $0.80& earnings& per& share.& & However,&
revenue&was&up&7.9%& in&Q4&2014&compared&to&Q4&2013.&&&
Profit&margins&decreased&from&Q4&2013&to&Q4&2014.& &For&
FY&2014,&ANSYS&achieved&record&revenues&and&operating&
cash& flows& of& $936.0& million& and& $385.3& million.& & The&
recurring&revenue&for&the&year&was&71%&and&the&deferred&
revenue&and&backlog&grew&14%.&(7)&One&important&thing&to&
note& is& the& increase& in& stock& repurchases.& & Recently& the&
board&of&directors&approved&a&5&million&share&repurchase&
program,& an& increase& of& 3.5& million& shares& from& the&
previous& 1.5& million& share& repurchase& program.& The&
company&advised&that&it&expects&to&be&more&aggressive&in&
its& share& repurchase& program.& ANSYS& appears& to& be&
growing& value& for& the& shareholders& through& stock&
repurchases& and& through& targeted& acquisitions.& & In& the&
2014& 10HK,& the& company& stated& that& the& best& use& of& its&
cash& is& to& repurchase& stock.& & We& forecasted& ANSYS& to&
repurchase& 1.5& million& shares& in& 2015& and& 2016& and&
increasing&to&2.0&million&in&2017&and&beyond.&
The& company& expects& revenue& to& increase& in& 2015& from&
1%&to&4%&with&earnings&per&share&of&$2.70&to&$2.85.&This&
is& extremely& low& growth& compared& to& the& last& several&
years.&Analysts&are&predicting&earnings&per&share&of&$2.83.&&
We&have& forecasted& diluted& earnings& per& share& of& $2.84&
(2.91&nonHdiluted)&in&2015.&
Newmerical$Technologies$Acquisition$
On& February& 4,& 2015,& ANSYS& announced& that& it& had&
acquired& Newmerical& Technologies& International& (NTI).&&
Terms& of& the& deal& have& yet& to& be& disclosed.& & NTI& is& a&
developer& of& flight& icing& simulation& software& and&
associated&design,&testing,&and&certification&services.&&This&
acquisition&will&help&boost&sales&in&the&aerospace&industry&
as&ANSYS& can&now&offer& a& simulationHdriven& solution& for&
aircraft&icing.&
ISO$26262$Qualification$
On& January& 8,& 2015,& ANSYS& SCADE& received& ISO& 26262&
qualification.& & The& ISO& 26262& standard& is& the& highest&
safety& requirement& for& automotive& applications& and&
defines& functional& safety& for& automotive& equipment&
throughout&the& lifecycle&of&all&automotive&electronic&and&
electrical& safetyHrelated& systems.& & Engineers& and&
0.00%&
5.00%&
10.00%&
15.00%&
20.00%&
25.00%&
30.00%&
35.00%&
40.00%&
45.00%&
2007& 2008& 2009& 2010& 2011& 2012& 2013& 2014&
Trend$in$Sales$Streams$as$%$of$
overall$Revenue$
Lease&Licenses& Perpetual&Licenses&
Maintenance& Service&
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&!Page!5! !
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designers& can& now& use& ANSYS& SCADE& to& meet& industry&
and& regulatory& standards& when& designing& automobile&
electronics.&
This& certification&will& help& drive& sales& in& the& automotive&
segment& as& engineers& can& be& confident& that& their&
automotive& embedded& software& applications& will& meet&
strict& safety& standards& which& will& reduce& development&
costs.& & We& forecasted& revenue& from& the& automotive&
segment& to& increase& from& $131&million& in& 2014& to& $146&
million& in& 2015,& an& 11%& increase.& & This&will& increase& the&
automotive& segment& revenues& to& account& for& 15%& of&
overall&company&revenue.&
SpaceClaim$Acquisition$
On& April& 30,& 2014,& ANSYS& announced& the& acquisition& of&
SpaceClaim& Corporation.& ANSYS& acquired& the& company&
for& $85.0& million.& & The& acquisition& of& SpaceClaim& is& an&
attempt& to& make& the& ANSYS& software& easier& to& use.&&
SpaceClaim's& 3HD& modeling& software& is& a& powerful& and&
easyHtoHuse& tool& that& can& be& utilized& by& any& engineer& at&
any&point&during&the&product&development&process.&&Ease&
of&use&is&a&barrier&ANSYS&has&in&attracting&new&customers&
and&in&increasing&the&density&of&usage.&
INDUSTRY$TRENDS$
The&software&industry&as&a&whole&is&poised&for&growth&this&
year.& & Global& software& spending& is& expected& to& increase&
6.2%& in& 2015.(8)&
The& computerHaided& engineering& (CAE)&
software& industry& is& expected& to& out& pace& the& entire&
software& industry& with& an& 11.18%& CAGR& from& 2012H
2016.(9)&
New& trends& forming& in& the& software& industry& could&
potentially& increase& revenues& for& CAE& software&
companies.&&Software&providers&are&offering&new&periodic&
payment& pricing& models& along& with& the& traditional&
perpetual& license.& & CloudHbased& software& as& a& service& is&
another&trend&that&is&changing&how&the&actual&software&is&
delivered& to& the& customer.& & SAAS& offers& subscription&
licenses&and&moves&the&expensive&computing&hardware&to&
the& vendor& as& the& customer& accesses& the& software& over&
the& Internet.& SAAS& applications& and& new& pricing&models&
will& allow& CAE& software& companies& to& access& a& new&
customer& base& in& the& small& and& medium& sized& business&
sector& who& previously& could& not& afford& the& large&
perpetual&upHfront&license&fees.&
Growth&of&the&Internet&of&Things&(IoT)&will&drive&revenues&
in&the&industry&as&well.&&The&“smart”&devices&that&connect&
to&each&other&and&to&the&Internet&involve&complex&designs&
and& require& CAE& software& to& help& mitigate& design& risks&
and& speed& time& to& market.& & The& release& of& ANSYS& 16.0&
was&focused&on&addressing&the&IoT&design&challenges.&
CloudHbased$Software$as$a$Service$
Application& software& is& seeing& large& growth& in& cloudH
based& software& as& a& service.& & The& dominant& companies&
within& the& industry& are& making& acquisitions& to& position&
themselves& within& the& cloud& computing& subHindustry.&&
While& SAAS& is& a& much& smaller& market& than& traditional&
packaged&software,&$24&billion&to&$343&billion&in&2012,&the&
projected& growth& rates& for& the& SAAS& segment& are&much&
higher& than& the& growth& for& traditional& software.& & The&
worldwide&commercial,&nonHcustom,&application&software&
is& expected& to& grow& at& a& compound& annual& growth& rate&
(CAGR)&of&5.3%& from&2012& to&2017.& &The&SAAS&market& is&
expected&to&grow&at&a&21%&CAGR&over&the&same&period.(10)
&
Source:&S&P&Capital&IQ&(10)&
SAAS&has&many&benefits&to&traditional&packaged&software.&&&&
SAAS&applications&can&be&run&on&any&computer&or&device,&
any& time& and& anywhere& with& an& Internet& connection.&&
SAAS&applications&are&subscription&based&and&offer&lower&
initial& costs& since& there& are& no& license& fees.& & Also,& the&
SAAS& provider& manages& the& infrastructure& so& there& are&
lower&costs&for&hardware,&software&and&personnel&for&the&
customer.& Many& firms& in& the& application& software&
industry&will& implement& a& pure& cloudHbased& solution& for&
customers.&&While&others&will&implement&a&hybrid&model,&
mixing&cloud&services&with&inHhouse&computing.&
Alternative$Pricing$Models$
Customers& are& starting& to& quantify& how& software&
contributes& value& to& their& organization& by& measuring&
& &&
&!Page!6! !
! !
where,&when,&how&much,&and&how&well&software&is&used.&&
Customers& are& focusing& on& the& value& software& adds& and&
this& is& reducing& their& willingness& to& pay& large,& upHfront&
license& fees& for& software& that& supports& lowHvalue&
processes&or&for&software&that&is&rarely&used.&&As&a&result,&
software& developers& are& creating& alternative& pricing& and&
delivery&models.& & In& additions& to& the& traditional&upHfront&
perpetual& license& fees,& software& vendors& are& offering&
term& licenses,&which&are& valid& for&only& a& certain& amount&
of&time.&&Another&option&is&the&previously&discussed&SAAS&
pricing& model& where& customers& essentially& rent& the&
software&on&a&“payHasHyouHgo”&subscription&plan.&The&new&
models& are& using& periodic& payments.& The& new& pricing&
models& will& affect& software& developer’s& revenue&
recognition,&cash&flow,&and&financing.&(11)&
Internet$of$Things$
Source:&Statista&(12)&
More&and&more&products&are&combining&mechanical&and&
electrical& parts& with& sensors,& microprocessors,& and&
connectivity.& & These& smart,& connected& products& have&
created& the& “Internet&of& things”& (IoT)&where&devices& can&
transmit& information&offering& greater& reliability& and&new&
functionality.& The& IoT& is& growing& significantly& as&
consumers& and& industries& are& beginning& to& see& the&
benefits&of&connecting&inert&devices&to&the&Internet.& &The&
number& of& “smart”& devices& is& expected& to& increase& to&
over& 25& Billion& by& the& year& 2020.&(12)
& The& worldwide&
market&for&IoT&devices&is&expected&grow&at&a&20.7%&CAGR&
from& $1.9& trillion& in& 2013& to& $7.1& trillion& in& 2020.& (13)
& A&
large& component& of& the& CAE& market& is& electronics.&&
Electronics& and& semiconductors& accounted& for& 35%& of&
ANSYS’&2014&revenue.&&The&large&growth&of&the&IoT&could&
lead&to&growth&in&the&CAE&market.&
We& forecasted& the& combined& revenue&of& the& electronics&
segment& and& the& semiconductor& segment& to& increase&
from&$328&million&in&2014&to&$370&million&in&2015,&a&13%&
increase.& & This&will& increase& the&electronics& segment&and&
the&semiconductor&segment&to&account&for&38%&of&overall&
company&revenue.&
Global$R&D$Spending$Growth$
The&global&GDP& is&expected&to& increase&at&a&6.38%&CAGR&
from&$77,609&billion&in&2014&to&$99,409&billion&in&2018.&(1)&&
According& to& a& Battelle& research& study,& global& research&
and& development& spending& as& a& percentage& of& GDP& is&
1.80%.(14)
& & This& equates& to& global& R&D& expenditures&
increasing&from&$1,397&billion&in&2014&to&$1,789&billion&in&
2018.& & The& automotive& industry& alone& accounted& for&
16.2%& of& global& R&D& spending& in& 2014.(15)
& The& R&D&
spending& for& the& automotive& industry& is& expected& to&
increase& at& a& 6.23%& CAGR& from& $66.8& billion& in& 2014& to&
$96&billion&in&2020.&(16)
&
Over& 80%& of& the& global& research& and& development&
spending& is& in& the&United&States,&China,& Japan,&and&all&of&
Europe.&&The&United&State&R&D&spending&was&expected&to&
increase&from&$450&billion&in&2013&to&$465&billion&in&2014.&&
As& a& percent& of& global& R&D& spending,& the& Asia& share&
continues& to& increase,& accounting& for& 37.0%& in& 2012& to&
39.1%& in& 2014.& &Most& of& this& growth& is& driven& by& China.&&
China& and& the& U.S.& are& both& expected& to& reach& $600&
billion& in& research& and& development& spending& by& 2022.&&
By&2018,&China&is&expected&to&surpass&all&of&Europe’s&R&D&
spending.&&By&2022,&China&is&expected&to&surpass&U.S.&R&D&
spending.& & European& gross& expenditures& on& R&D& have&
remained&relatively&flat&from&2012&to&2014&at&$350&billion,&
$349&billion,&and&$351&billion,& respectively.& &This& trend& is&
expected&to&continue&for&the&European&countries.&(10)
&&&
CAE&software&and&simulation&is&an&essential&component&of&
complex& R&D.& & CAE& software& industry& revenues& should&
increase& as& R&D& expenditures& increase& globally.& & We&
forecasted& overall& revenue& growth& to& increase& by& 4%& in&
2015,&from&$936&million&to&$973&million.&
OpenHsource$Software$
OpenHsource& software& is& available& free& on& the& Internet.&&
Vendors& charge& fees& for& maintenance,& support,& and&
customization.&&Because&the&software&is&free,&the&costs&of&
ownership& are& generally& lower& than& traditional& software&
solutions.& Linux& has& been& the& market& leader& for& open&
architecture& software& and& it& is& giving&momentum& to& the&
openHsource& software& movement.& & The& Linux& operating&
& &&
&!Page!7! !
! !
system& is& an& openHsource& software& alternative& to&
Microsoft’s& Windows.& Revenue’s& for& the& openHsource&
system&infrastructure&market&are&expected&to&increase&at&
a& CAGR& of& 23%& through& 2017.& & Microsoft’s& Windows&
infrastructure&is&projected&to&rise&only&at&a&CAGR&of&9.3%&
through&2017.&&(17)
&
Source:&Statista&(17)&
Engys,& CAELinux& and& OpenModelica& are& three& examples&
of& openHsource& CAE& and& simulation& software& products&
that&ANSYS&and&other&companies&have&to&compete&with.&
MARKETS$AND$COMPETITION$
ANSYS& competes& in& the& computer& aided& engineering&
software& industry.& & It& is& a& niche& market& within& the&
application& software& industry& and& is& highly& competitive&
and& characterized& by& rapidly& changing& technologies.&&
ANSYS& competes&mainly& in& the& simulation&market&of& the&
CAE&software& industry,&although&they&have&attempted&to&
broaden& their& market& with& the& recent& acquisition& of&
SpaceClaim.& & Companies& compete& with& one& another& by&
expanding& their& product& capabilities& through& internal&
research&and&development&and&by&acquiring&technologies&
or& companies& that& complement& their& current& product&
portfolios.&
Simulation$Dependent$on$CAD&
Simulation& is& dependent& on& the& 3HD&model& created& in& a&
computer&aided&design& (CAD)& tool.& &The&3HD&model&must&
first& be& realized& before& it& can& be& simulated.& & ANSYS& is& a&
leader& on& the& simulation& side& of& the& CAE& industry.&
Autodesk& and& Dassault& Systemes& are& industry& giants& on&
the& mechanical& CAD& side& of& the& CAE& industry.& & Both&
Autodesk& and& Dassault& Systemes& have& their& own&
simulation& tools& that& compete& with& ANSYS’& software.&
ANSYS& is& dependent& on& engineers& and& designers&
importing&3D&designs&created&by&other&CAD&tools&into&the&
ANSYS& software.& & ANSYS& has& attempted& to& remove& this&
dependency&with& their& recent& acquisition&of& SpaceClaim.&&
Even& with& acquiring& SpaceClaim,& ANSYS& is& still& very&
dependent& on& their& simulation& portfolio& being& more&
advanced& and& offering& more& useful& tools& than&
competitors&that&have&a&product&offering&that&includes&3H
D&CAD&tools&along&with&simulation&tools.&
Peer$Expenses$
The&vast&majority&of&costs&and&expenses&from&companies&
within&the&industry&are&spent&on&research&&&development&
and&sales&&&marketing.&&Of&the&top&competing&companies,&
R&D& expenses& average& 28.48%& of& the& overall& company&
expenses.&(18)
&Not&all&of&these&expenses&go&into&pure&new&
product& development.& & Along& with& developing& new&
functionality& and& features,& a& significant& portion& of& the&
R&D&cost& is& spent& integrating&acquired& technologies& into&
the¤t&software&platform.&&
Source:&Mergent&Online&(18)&
Companies& within& the& industry& must& have& large& R&D&
expenses&due&to&integration&of&acquired&technologies&and&
product& maturity& and& obsolescence.& & When& new&
computer& hardware& or& new& operating& systems& are&
developed,& many& times,& software& applications& must& be&
updated&so&they&function&properly&on&the&new&platforms.&&
ANSYS&&invests&only&17.67%&of&revenue&into&R&D&which&is&
second&lowest&among&their&peer&group&and&is&nearly&half&
of& the& peer& group& leader& of& this& category.& R&D& as& a&
8.9&
13.1&
19.4&
25.6& 32.4& 39.4&
46.1&
52.3&
57.6&
61.3&
63.1&
64.1&
64.7&
0.0&
10.0&
20.0&
30.0&
40.0&
50.0&
60.0&
70.0&
Revenue$(in$Billion$USD)$
Projected$Revenue$of$open$source$
soeware$from$2008H2020$
38.14%&
34.93%&
30.16%&
26.87%&
17.67%& 16.69%&
0%&
5%&
10%&
15%&
20%&
25%&
30%&
35%&
40%&
45%&
Cadence& Synopsys& Mentor&
Graphics&
Autodesk& ANSYS& PTC&
2014$Percent$of$Revenue$Spent$on$
R&D$
& &&
&!Page!8! !
! !
percent&of&revenue&has&risen&in&recent&years&but&we&have&
modeled& ANSYS& R&D& expenses& to& be& a& constant& 17.5%&
through&2019.&&&
On& average,& sales& and& marketing& expenses& account& for&
35.81%& of& expenses& for& the& top& competing& companies&
within&the&industry.&(12)
&Companies&invest&large&amounts&in&
sales& and&marketing& in& order& to& create& strong& customer&
bases.& & Having& a& strong& customer& base&makes& switching&
costs& very& high.& & ANSYS& invested& about& the& peer& group&
average& in& Sales& and&Marketing& as& seen& in& the& following&
graph.& & ANSYS& has& seen& SG&A& decline& as& a& percent& of&
revenue& since& 2007.& & We& have& modeled& this& decline& to&
continue& with& SG&A& expenses& declining& to& 24%& of&
revenue&by&2019.&
*Also&includes&General&Expenses&& &&&&&&&&&&&&Source:&Mergent&Online&(18)&
By& constantly& improving& their& products& and& services&
through&R&D&and&by&establishing&a&strong&customer&base,&
companies&make&it&difficult&for&small&companies&and&startH
ups& to&penetrate&existing&markets.& &A& constant&presence&
of&sales&and&marketing&personnel&also&discourages& larger&
customers&from&switching&to&competitors.&
Peer$Profitability&
The& peer& companies& have& an& average& operating& income&
as& percent& of& revenue& around& 13.5%.& & ANSYS’& operating&
income& is& around& 37%,& more& than& double& all& of& their&
peers.& &We&believe&this&is&because&ANSYS&offers&highHend&
simulation& products& only.& & The& peer& companies& offer&
simulation&software&but&also&offer&much&more&commodity&
type&CAD&software.&&ANSYS&operating&income&as&a&percent&
of&revenue&has&continued&to&increase&since&2007&when&it&
was&at&32.9%.&&We&have&forecasted&this&trend&to&continue&
with&operating&income&as&a&percent&of&revenue&increasing&
above&40%&in&2019.&&
Source:&Mergent&Online&(18)&
The&peer&companies&vary&considerably&in&size.&&Synopsys&is&
the& largest&with&9,436&employees& in&2014.& &ANSYS& is& the&
smallest&with&2,700&employees.&&Ideally,&a&company&wants&
the& highest& revenue& per& employee& as& possible,& as& it&
denotes&higher&productivity.& &Companies&with& consistent&
levels& of& high& revenue& per& employee& usually& indicate& a&
company&with& solid&management.& &When&computing& the&
amount& of& revenue& generated& per& employee,& ANSYS& is&
consistently& the& most& efficient& generating& more& than&
$323,000& per& employee& each& year& from& 2009& to& 2014.&&
PTC,& Synopsis,& and& Mentor& Graphics& were& the& least&
efficient& in& 2014& generating& $211,000,& $218,000,& and&
$222,000&per&employee,&respectfully.&(18)&
Source:&Mergent&Online&(18)&
37.06%&
29.64%&
26.34%& 26.32%&25.28%&
22.02%&
0%&
5%&
10%&
15%&
20%&
25%&
30%&
35%&
40%&
Autodesk& Mentor&
Graphics&
PTC& ANSYS*& Cadence& Synopsys&
2014$Percent$of$Revenue$Spent$on$
Sales$and$Marke]ng$
37.1%&
15.8%&14.5%&
13.1%& 12.5%& 12.1%&
0.0%&
10.0%&
20.0%&
30.0%&
40.0%&
ANSYS& Mentor&
Graphics&
PTC& Cadence& Autodesk& Synopsys&
2014$Opera]ng$Income$as$percent$
of$Revenue$
$347&
$299&
$259&
$222& $218& $211&
$0&
$50&
$100&
$150&
$200&
$250&
$300&
$350&
$400&
ANSYS& Autodesk&Cadence& Mentor&
Graphics&
Synopsys&
Inc&
PTC&
Thousands$of$$$
2014$Revenue$generated$per$
employee$
& &&
&!Page!9! !
! !
Growth$through$Acquisition&
The&software&industry&is&a&fastHpaced&industry&and&getting&
products& to& market& quickly& is& vital& to& a& firm’s& success.&&
Often& times,& obtaining& a& new& software& technology&
through& merger& or& acquisition& is& more& attractive& than&
developing& it& organically& through& internal& research& and&
development.& & Small& companies& that&have&developed&an&
innovative& product& are& prime& acquisition& targets& for&
larger&firms.&&
Source:&Mergent&Online&(18)&
Competing& companies& within& the& CAE& software& industry&
spent& an& average& of& 10.6%& of& revenue& on& acquisitions&
from& 2009& to& 2014.& & This& trend& looks& to& continue& as&
companies& have& large& amounts& of& cash& and& are&
continually& expanding& their& product& offerings.& & In& 2014,&
ANSYS& spent& 11.01%& of& revenue& on& the& acquisitions& of&
SpaceClaim& and& Reaction& Design.& & We& have& not&
forecasted&any&new&acquisitions&in&our&model.&
Other$Peer$Comparisons&
&&
Sales&
(M)&
Net&Profit&
Margin&%&
ROA&
%&
ROE&
%&
P/E&
(ttm)&
Debt/
Equity&
Dassault& 3,032& 12.69& 6.36& 10.75& 29.6& 12.23&
Autodesk& 2,502& 3.27& 1.72& 3.65& 52.6& 33.67&
Synopsys&Inc& 2,057& 12.61& 5.67& 8.87& 17.1& 2.45&
Cadence& 1,581& 10.05& 5.64& 12.76& 18.7& 91.10&
PTC& 1,357& 11.82& 7.95& 18.00& 16.4& 71.66&
Mentor&
Graphics& 1,156& 13.04& 8.26& 13.59& 13.2& 19.73&
ANSYS& 936& 27.21& 9.27& 11.70& 24.8& 0.00&
Source:&FactSet&
Of& the& competing& companies& within& the& industry,&
Dassault&Systems&and&Autodesk&are&the&largest,&each&with&
sales& greater& than& $2.5& billion& in& 2014.& & ANSYS& has& the&
smallest& revenue& of& the& group& at& $936& million& in& 2014.&&
However,&ANSYS&has&the&highest&ROA&of&the&group,&which&
indicates& it& is& the& best& at& converting& investments& into&
profit.& & ANSYS& also& has& the& highest& net& profit&margin& of&
27.21%,& while& the& rest& of& the& group& is& around& 10H13%.&&
This& shows& that& ANSYS& is& much& more& efficient& at&
producing&a&profit&with&a&lot&less&revenue.&&This&efficiency&
shows& up& in& another& metric,& revenue& per& employee,& as&
discussed& earlier.& & This& efficiency& as& a& company& is& an&
advantage&ANSYS&has&over&competitors.&&The&problem&will&
be& keeping& the& same& pace& of& increasing& revenues& that&
ANSYS&has&had&the&last&5&to&7&years.(18)
&&
One& reason& for& the& dramatic& difference& in& net& profit&
margin&between&ANSYS&and&the&other&firms&could&be&that&
ANSYS&does¬&offer&the&low&cost&drafting&software&that&
the&other&companies&do.& &The&sales&of&the& low&cost&tools&
will& drive& down&margins& for& companies.& & ANSYS& supplies&
the&complex&simulation&tools&and&can&therefore&charge&a&
premium& and& keep& their& margins& high.& & Nearly& all& of&
ANSYS& sales& are& from& simulation& tools.& & For& comparison,&
in& 2014,& only& 18%& of& Autodesk’s& revenue& came& from& its&
“Adjacent”&products,&which&includes&Autodesk&Simulation&
and&Autodesk&Simulation&Multiphysics.(18)
&
ECONOMIC$OUTLOOK$
Many& of& the& economic& drivers& for& ANSYS& and& the&
computer& aided& engineering& software& industry& are& the&
economic&factors&that&affect&their&customers.&The&bulk&of&
ANSYS& customers& are& manufacturing& and& engineering&
companies.& & Simulation& and& CAE& software& is& a& crucial&
component& of& any& companies& R&D& budget.& & If& these&
companies& are& profitable& and& growing,& they& will& have&
money& to& spend& on& R&D,&which&will& translate& into& sales&
for& ANSYS& and& the& CAE& industry.& & The& main& economic&
drivers& for& the& industry& are&GDP&growth,&unemployment&
rates,&interest&rates,&and&foreign¤cy&exchange&rates.&&
One& of& the& four& primary& components& of& the& GDP& is&
corporate& spending.& & From& the& following& chart& it& is& clear&
that& corporate& spending& follows& the& GDP& growth& rate.&&
We&expect&a&GDP&growth&rate&of&2.66%&over&the&next&six&
months.& & As& corporations& increase& their& spending,& we&
would&expect& the&CAE& software& industry& to&have&growth&
that&has&a&positive&correlation&with&the&growth&in&GDP.&
23.84%&
19.18%&
11.01%& 10.57%&
7.77%&
1.81%&
0.00%&
5.00%&
10.00%&
15.00%&
20.00%&
25.00%&
30.00%&
PTC& Synopsys&
Inc&
Ansys& Cadence& Autodesk& Mentor&
Graphics&
2014$percent$of$revenue$spent$on$
M&A$(net$of$cash$acquired)$
& &&
&!Page!10! !
! !
&
Source:&Statista&(20)(21)&
Most& companies& in& the& CAE& industry& have& a& large&
percentage& of& revenue& from& foreign& sales.& & ANSYS& is& no&
different& having& foreign& sales& account& for& over& 65%& of&
revenue& every& year& since& 2007.& & With& large& overseas&
sales,& strengthening& of& the& U.S.& dollar& could& have& a&
negative&impact&on&earnings.&& In&the&next&six&months,&we&
expect& the& dollar& to& continue& to& strengthen& against& the&
Euro&and&Yen.&
Exchange& rates&affect&merger&and&acquisition&activity.& &A&
strong¤cy&makes&it&less&expensive&to&acquire&foreign&
companies.&ANSYS’&CEO,&Jim&Cashman,&announced&during&
the& 2014& fourth& quarter& earnings& call& on& February& 26,&
2015,&that&acquisitions&are&the&major&component&of&what&
they& intend& to& use& excess& cash& for.& & The& US& dollar&
strengthening&against& the&Euro&and&Yen&could&help&drive&
more& acquisitions& of& overseas& companies& by& US&
corporations.&
Interest& rates& have& a& negative& impact& on& mergers& and&
acquisitions.& & Higher& interest& rates& increase& acquisition&
costs,& which& lower& the& number& of& overall& acquisitions.&&
We& expect& the& 10Hyear& Treasury& Bond& Yield& to& remain&
around&2.30%&for&the&next&six&months,& increasing&slightly&
to& around& 3.10%& over& the& next& two& years.& & These& low&
interest& rates& should& help& drive& continued& acquisitions.&&
While&ANSYS&has&a& large&cash&balance&at&the&moment,& in&
the& past& they& have& used& debt& to& finance& large&
acquisitions.&&If&interest&rates&rise&faster&than&expected,&it&
could&impact&large&acquisitions&within&the&industry.&
Sales& in& the& CAE& software& industry& have& a& negative&
correlation&with& the&unemployment& rate.& &As& companies&
higher&more&people,&more& software& seat& licenses&will&be&
required& which& can& help& drive& sales.& We& expect& the&
unemployment& rate& to& continue& to& decline& to& 5.41%& in&
the&next&six&months.&&&
Source:&FRED&database&(22)&
CATALYSTS$FOR$CHANGE$
ANSYS&has& stated& the& three&ways& for& them&to&grow& is& to&
increase& the& number& of& users,& increase& the& density& of&
usage,&and&increase&intensity&of&usage.&
ANSYS& has& indicated& that& they& need& to& simplify& their&
software& to& reach& a& broader& market& of& engineers.&&
Reaching&all& levels&of°reed&engineers&would&provide&a&
large& user& base& to& expand& their& software& usage.& & ANSYS&
boasts& that& 130,000& undergraduate& students& were&
trained& on& the& ANSYS& software& in& 2014.&(6)& U.S.& based&
university&professors&who®ister&with&ANSYS&are&able&to&
offer& their& students& a& version&of& the&ANSYS& software& for&
$25.&(23)
& However,& the& academic& licensing& to& students& is&
not& unique& to& ANSYS.& & Autodesk,& among& others,& offers&
their&software&free&to&students.&&Autodesk&estimates&that&
80&million&student&and&educators&in&188&countries&will&be&
able& to& take& advantage& of& the& free& offer.&(24)
& Dassault&
Systemes&also&offers&their&Solidworks&product&to&students&
and& in& February& 2015& reached& two& million& education&
licenses.&(25)
& ANSYS& will& need& to& penetrate& universities&
even& further& if& they& want& to& increase& the& adoption& of&
their&software&with&young&engineers.&
ANSYS’& main& customers& are& large& corporations.& & The&
ANSYS& software& is& used& by& 96& of& the& top& 100& industrial&
companies& in& on& the& current& FORTUNE& Global& 500& list.&
The& small& and& medium& sized& business& sector& is& an&
untapped& market& for& ANSYS.& & Penetrating& this& market&
could&provide&growth&for&ANSYS.&
&
&
H4%&
H3%&
H2%&
H1%&
0%&
1%&
2%&
3%&
0&
100&
200&
300&
400&
500&
600&
2008& 2009& 2010& 2011& 2012& 2013&
$$Billions$
Net$Opera]ng$Profits$of$U.S.$
manufacturing$corpora]ons$and$GDP$
Growth$Rate$
Profits&
GDP&
5.6&
6.1&
6.6&
7.1&
2013&Q4& 2014&Q1& 2014&Q2& 2014&Q3& 2014&Q4&
Percent&
Unemployment$Rate:$Aged$15H64:$
All$Persons$for$the$United$States$
& &&
&!Page!11! !
! !
INVESTMENT$POSITIVES$
•& The&global&GDP&is&expected&to&increase&at&a&6.38%&
CAGR& from& 2014& to& 2018.&(1)& ANSYS& revenues& should&
increase&as&R&D&expenditures&increase.&
•& The&R&D&spending&for&the&automotive&industry&is&
expected&to& increase&at&a&6.23%&CAGR&from&$66.8&billion&
in&2014&to&$96&billion&in&2020.&(16)&
Receiving&the&ISO&26262&
certification& will& help& drive& sales& in& the& automotive&
segment&
•& The& ANSYS& 16.0& release& was& focused& on&
improving& ease& of& use& for& electronic& designs& and&
specifically&aimed&at&the&growth&of&the&Internet&of&Things.&
The& new& software& release& will& help& drive& sales& in& the&
electronics&and&semiconductor&segments.&
INVESTMENT$NEGATIVES$
•& At& the& 2014& investor& day,& ANSYS& claimed& an&
addressable&market&of&$20&billion&for&simulation&software&
in& the&next&5H7&years.&(5)&Analysts& from&Barclays&estimate&
the&addressable&market&to&be&$4H9B.&(4)&According&to&IDC,&
in& 2013,& ANSYS& had& 38%& of& the& engineering& simulation&
software&market&share.&&With&nearly&$1&billion&in&revenues&
in& 2014,& at& 38%& market& share,& that& makes& the& total&
market& for& simulation& software& $2.63& billion.& & That& is&
more& than& half& the& low& estimate& of& the& Barclays& total&
addressable&market.&&If&ANSYS&estimates&are&wrong,&then&
the& company& could&be&nearing&a& critical& point&of&market&
penetration&and&growth&rates&could&continue&to&decline.&
•& ANSYS& is& an& extremely& efficient& company&
generating&more&than&$323,000&of&revenue&per&employee&
for&the&last&five&years,&which&is&44%&more&than&their&peer&
group& average.(18)
& Also,& they&have& a& net& profit&margin&of&
27.21%& compared& to& an& 11.58%& average& for& their& peer&
group.&(26)
& It&will& be&difficult& for&ANSYS& to& lower& costs& as&
they& are& already& extremely& efficient& when& compared& to&
their& peers.& & Therefore& if,& ANSYS& is& to& increase& profits,&
they& will& need& to& do& it& by& generating& more& revenue.&&
ANSYS& is& nearly& a& $1& billion& company& now.& & As& the&
company&continues&to&grow,&it&will&be&difficult&to&maintain&
consistent&revenue&growth.&
•& OpenHsource& computer& aided& engineering& and&
simulation&software&is&a&lowHcost&alternative&to&traditional&
license& based& engineering& software.& & OpenHsource&
software& is& growing& in& popularity& and& will& drive& down&
revenues&for&engineering&software&developers&like&ANSYS.&
VALUATION$
We&used&a&DCF,&DDM,&and& relative&P/E&analysis& to&value&
ANSYS& Inc.& The& DCF& model& and& relative& P/E& analysis&
calculated& stock& prices& of& $83.10& and& $71.64,&
respectively,&while&the&DDM&valuation&calculated&a&value&
of&$54.97.&&We&believe&that&the&true&value&of&ANSYS&stock&
is&closest&to&the&DCF&model.&
The& dividend& discount& model& price& is& much& lower& than&
the& other& two& approaches.& & The& DDM& price& should& be&
disregarded,& as& ANSYS& does& not& pay& a& dividend.&&
Therefore,&the&entire&calculation&is&based&on&a&theoretical&
dividend&that&ANSYS&could&afford&to&pay&after&2019.&
The& relative& P/E& valuation& produces& a& low& stock& price&
compared&to&what&the&stock& is¤tly&trading&at.& &One&
of& the& markets& many& of& the& chosen& peer& companies&
operate&in&is&the&CAD&market.&&This&could&explain&why&the&
relative&P/E&valuation&produced&a&lower&stock&price.&&CAD&
software&is&a&necessary&step&in&product&development&and&
modeling.& & However,& it& is& not& as& sophisticated& and&
complex& as& the& simulation& software& that& is& ANSYS’&main&
products,& and& the& market& may& put& a& premium& on&
companies& such& as& ANSYS& who& operate& mainly& on& the&
simulation& side& of& the& CAE& software& industry.& & Autodesk&
and& Dassault& Systemes& have& both& CAD& and& simulation&
tools&they&offer.& &Both&of&these&companies&have&high&P/E&
multiples&of&52.6&and&29.6.&
Our&DCF&model&was&built&assuming&no&future&acquisitions&
and& we& forecasted& organic& revenue& growth& of& 4.0%& in&
2015& and& 5.0%& from& 2016& to& 2019.& &We& believe& ANSYS’&
revenue&growth&rates&will&decrease&from&the&2014&rate&of&
8.68%.& &We& believe& the& company’s& overall& revenues&will&
continue&to&grow&but&see&the&growth&rates&level&off&due&to&
the&simulation&software& industry&reaching&a&critical&point&
of&market&penetration.&
The& three& largest& segments& for& the& company& have& been&
forecasted& to& see& the& greatest& increase& in& revenue&
growth.&&Due&to&the&new&ISO&automotive&certification&and&
the& increase& in& automotive& R&D& expenditures,& we&
forecasted&automotive& revenues& to& increase&by&11.4%& in&
2015,& and& slowly& drop& to& a& 5.0%& growth& rate& through&
2019.& &Due&to&the& increase& in&complex&electronic&designs&
from& the& growth& of& IoT,& the& semiconductor& segment& is&
forecasted&to&increase&10.5%&in&2015&and&then&increase&at&
5.0%&through&2019.&&For&the&same&reasons,&we&forecasted&
the&electronics&segment&to&increase&at&a&15%&rate&in&2015&
and& then& slowly& drop& to& a& 5.0%& growth& rate& through&
& &&
&!Page!12! !
! !
2019.& &We&have&assumed&the&energy&segment&will&take&a&
large&hit&in&2015&with&revenue&dropping&40%&from&2014.&
Further& assumptions& include& cost& of& sales& of& software&
licenses& to& be& 3.75%& of& software& license& revenue& from&
2015& to& 2019.& & The& software& license& cost& has& increased&
from&1.92%&of&software&license&revenue&in&2007&to&3.57%&
in&2014.&&We&believe&this&trend&will&continue&as&customers&
are& switching& from& perpetual& licenses& to& lease& licenses.&&
Lease& licenses& require& more& overhead& than& traditional&
perpetual& licenses& to& keep& an& existing& customer& as& a&
permanent&customer.&
Since& 2007,& ANSYS& has& had& a& trend& of& declining& cost& of&
sales&of&maintenance&and&service&as&a&percent&of&revenue.&&
We&forecasted&maintenance&and&service&costs&of&sales&to&
decline& from&20.1%&of&maintenance&and&service& revenue&
in&2014&to&17.0%&by&2019.&
With&the&new&pricing&models,&other&assumptions&built& in&
the& model& are& revenues& from& software& licenses&
decreasing&as&a&percent&of& sales& from&60.31%& to&59.25%&
from& 2014& to& 2019,& while& maintenance& and& service& will&
increase& as& a& percent& of& sales& from& 39.69%& to& 40.75%.&&
We& believe& this& trend& will& continue,& as& it& is& an& industry&
wide& trend& of& customers& switching& to& periodic& pricing&
options.&
Total& cost& of& sales& will& continue& its& declining& trend,&
dropping& from& 14.16%& of& overall& revenue& in& 2014& to&
11.95%&of&revenue&in&2019.&&Even&though&cost&of&software&
licenses&will&increase,&we&expect&overall&costs&of&sales&as&a&
percent&of&revenue&to&decline&due&and&maintenance&and&
service&costs&declining&as&a&percent&of&revenue.&&
ANSYS& has& had& an& increasing& trend& in& net& profit&margin&
since& 2007.& &We& have& forecasted& this& trend& to& continue&
with&the&net&profit&margin&increasing&from&27.21%&in&2014&
to&29.39%&in&2019.&
Source:&ANSYS&10HKs&
ANSYS& announced& a& repurchase& program& of& 5.0& Million&
shares& in&February&2015.& &The&previous&program&was&set&
at& 1.5&Million& shares.&We& believe&ANSYS&will& repurchase&
1.5&Million& shares& for& the&next& two&years.& & In&2017,& they&
will& begin& to& increase& their& repurchases& following& their&
own& guidance& of& being& more& aggressive& with& share&
repurchases.&
Another&assumption&that&significantly&affects&the&model&is&
the& continuing& value& of& NOPLAT.& & After& 2019,& we& have&
assumed& NOPLAT& will& grow& at& the& same& rate& as& global&
GDP.& We& forecasted& this& number& based& on& projected&
global& GDP& growth& rates.& & According& to& the& USDA&
Economic&Research&Service,&the&global&GDP&will&be&3.48%&
from&2020&to&2024.&We&feel&our&assumption&of&3.5%& is&a&
reasonable&estimate.&
Our& target& price& range& of& $75& to& $85& is& lower& than&
consensus& analyst& average& estimates& of& $87.78.&&
However,&our&price&range&is&close&to&the&range&of&analysts’&
estimated&price&targets&of&$78.00&to&$96.00.&&We&feel&with&
the&recent&trend&of&slowing&organic&growth&and&with&the&
simulation& software& industry& reaching& a& critical& point& of&
market&penetration,&that&our&target&price&at&the& low&end&
of&the&analyst&estimates&is&justified.&
KEYS$TO$MONITOR$
ANSYS& continues& to& do& frequent& acquisitions.& & These&
acquisitions&create&artificial&growth&for&the&company.&&The&
organic&revenue&growth&of&ANSYS&should&be&monitored&to&
see& if& it& continues& declining.& & The& estimated& total&
accessible&market& combined&with& the& trend& of& declining&
organic& revenue& growth& is& a& major& reason& for& the& sell&
recommendation.&&
15.00%&
20.00%&
25.00%&
30.00%&
35.00%&
2007&
2008&
2009&
2010&
2011&
2012&
2013&
2014&
2015E&
2016E&
2017E&
2018E&
2019E&
Net$Profit$Margin$
& &&
&!Page!13! !
! !
The& stock& repurchase& program& ANSYS& announce& in&
February&2015&should&be&watched.&&The&increase&from&1.5&
million& shares& to& 5.0& million& shares& could& be& due& to&
expectations& of& decreasing& future& revenue& growth.&&
Repurchasing& stock& would& be& an& easy& way& to& keep&
earnings& per& share& high.& & Management& has& already&
indicated&they&feel&the&best&use&of&their&excess&cash&is&to&
repurchase& shares& of& stock.& & ANSYS& stock& repurchases&
should&be&monitored&as& it& could& indicate& if&management&
expects&future&growth.&
REFERENCES$
1. William&Blair:&Equity&Research:&ANSYS&Inc,&4/22/14&
2. Forbes,&8/22/14,&Internet&of&Things&by&the&Numbers:&
Market&Estimates&and&Forecasts&
http://www.forbes.com/sites/gilpress/2014/08/22/interne
tHofHthingsHbyHtheHnumbersHmarketHestimatesHandH
forecasts/&
3. Statista,&Bloomberg,&Booz&&&Company,&2014&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/27
0233/percentageHofHglobalHrunddHspendingHbyHindustry/&
4. Barclays:&Equity&Research:&ANSYS&Inc,&9/4/14&
5. ANSYS&2014&Investor&Day,&March&12,&2014&
http://investors.ansys.com/~/media/Files/A/AnsysH
IR/presentations/q4HinvestorHdayHexecutiveHsummary.pdf&
6. Ansys.com& Events& && Presentations,& Q4& 2014& Investor&
Presentation&&
http://ansysH
ir.production.investis.com/~/media/Files/A/AnsysH
IR/quarterlyHreports/q4H2014HinvestorHpresentation.pdf&
7. NASDAQ&Globenewswire.com:&“ANSYS,&Inc.&Reports&Record&
Revenue& && Operating& Cash& Flows& for& the& Fourth& Quarter&
and&Fiscal&Year&2014”&
http://globenewswire.com/newsH
release/2015/02/26/710171/10122044/en/ANSYSHIncH
ReportsHRecordHRevenueHOperatingHCashHFlowsHforHtheH
FourthHQuarterHandHFiscalHYearH2014.html&
8. Statista:& Gartner,& Global& software& spending& forecast& from&
2008&to&2015&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/20
3289/globalHsoftwareHspendingHforecast/&
9. TechNavio,&April&2013&&
http://www.researchandmarkets.com/reports/2526537/gl
obal_computeraided_engineering_market_20122016&
10. S&P& Capital& IQ:& April& 2014,& Industry& Surveys,& Computers:&
Software&
11. PricewaterhouseCoopers,&Software&Pricing&Trends&http://www.pwc.com/en_us/us/technologyHinnovationH
center/assets/softwarepricing_x.pdf&
12. Statista,&Gartner&2013&http://www.statista.com.proxy.lib.uiowa.edu/statistics/37
0350/internetHofHthingsHinstalledHbaseHbyHcategory/&
13. Forbes,& 8/22/14,& Internet& of& Things& by& the& Numbers:&
Market&Estimates&and&Forecasts&
http://www.forbes.com/sites/gilpress/2014/08/22/interne
tHofHthingsHbyHtheHnumbersHmarketHestimatesHandH
forecasts/&
14. Battelle,&December&2013&
http://www.battelle.org/docs/tpp/2014_global_rd_fundin
g_forecast.pdf&
15. Statista,&Bloomberg,&Booz&&&Company,&2014&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/27
0233/percentageHofHglobalHrunddHspendingHbyHindustry/&
16. Statista:&Projected&global&automotive&research&and&
development&expenses&from&2012H2020&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/37
3853/globalHautomotiveHresearchHandHdevelopmentH
spending/&
17. Statista:&Pierre&Audoin&Consultants,&Projected&Revenue&of&open&source&software&from&2008&to&2020&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/27
0805/projectedHrevenueHofHopenHsourceHsoftwareHsinceH
2008/&
18. Mergent&Online,&Income&Statements&for&[ADSK],&[ANSS],&
[SNPS],&[CDNS],&[PTC],&[MENT]&
19. BerkeryNoyes,&January&5,&2015,&“2014&Full&Year&Trends&Report&Software&Industry”&
http://www.berkerynoyes.com/publication/trends/2014Fu
ll/software.aspx&
20. Statista,&US&Census&Bureau,&“Net&operating&profits&of&manufacturing&corporations&in&the&U.S.&from&2003&to&2013”&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/19
1075/netHoperatingHprofitsHofHusHmanufacturingH
corporationsHsinceH2003/&
21. Statista,&IMF,&“Real&gross&domestic&product&growth&rate&in&
the&United&States&from&2008&to&2018”&
http://www.statista.com.proxy.lib.uiowa.edu/statistics/26
3614/grossHdomesticHproductHgdpHgrowthHrateHinHtheH
unitedHstates/&
22. Federal&Reserve&Bank&of&St.&Louis&Economic&Data:&
Unemployment&Rate:&Aged&15H64,&All&Persons&for&the&
United&States&
http://research.stlouisfed.org/fred2/series/LRUN64TTUSQ
156S#&
23. ANSYS&Academic&Student&License&
http://www.engr.washington.edu/mycoe/computing/soft
ware/install_ansys&
24. PCWorld,& “Autodesk& entices& schools& and& students& with&
free,&renewable&threeHyear&licenses”&
http://www.pcworld.com/article/2853872/autodeskH
enticesHschoolsHandHstudentsHwithHfreeHrenewableHthreeH
yearHlicenses.html&
25. Dassault& Systèmes& Reaches& Two& Million& SOLIDWORKS&
Education&Licenses&Milestone&
http://www.3ds.com/pressHreleases/single/dassaultH
systemesHreachesHtwoHmillionHsolidworksHeducationH
licensesHmilestone/&
26. Yahoo&Finance&http://finance.yahoo.com&
27. ANSYS&2014&10HK&
& &&
&!Page!14! !
! !
IMPORTANT$DISCLAIMER$
Henry&Fund&reports&are&created&by&student&enrolled&in&the&
Applied&Securities&Management&(Henry&Fund)&program&at&
the& University& of& Iowa’s& Tippie& School& of& Management.&
These& reports& are& intended& to& provide& potential&
employers&and&other&interested&parties&an&example&of&the&
analytical& skills,& investment& knowledge,& and&
communication& abilities& of& Henry& Fund& students.& Henry&
Fund& analysts& are& not& registered& investment& advisors,&
brokers& or& officially& licensed& financial& professionals.& The&
investment& opinion& contained& in& this& report& does& not&
represent&an&offer&or&solicitation&to&buy&or&sell&any&of&the&
aforementioned&securities.&Unless&otherwise¬ed,&facts&
and& figures& included& in& this& report& are& from& publicly&
available& sources.& This& report& is& not& a& complete&
compilation& of& data,& and& its& accuracy& is& not& guaranteed.&
From& time& to& time,& the& University& of& Iowa,& its& faculty,&
staff,& students,& or& the& Henry& Fund& may& hold& a& financial&
interest&in&the&companies&mentioned&in&this&report.&
Ansys%Inc.Revenue&Decomposition
Fiscal&Years&Ending&Dec.&31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Lease0Licenses 279,283 297,658 318,041 335,698 349,570 365,519 382,189 399,613Perpetual0Licenses 222,587 231,286 246,461 253,246 263,711 275,743 288,318 301,462Total0Software0Licenses 501,870 528,944 564,502 588,944 613,281 641,262 670,508 701,075
Maintenance 275,498 309,085 346,698 356,832 379,416 400,877 423,536 447,457Service 20,650 23,231 24,821 27,685 29,437 31,103 32,861 34,717Maintenance0and0Service 296,148 332,316 371,519 384,517 408,854 431,980 456,396 482,174
Total%Revenue 798,018 861,260 936,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249
Lease0Licenses0Growth0Rate 28.11% 6.58% 6.85% 5.55% 4.13% 4.56% 4.56% 4.56%Perpetual0Licenses0Growth0Rate 7.08% 3.91% 6.56% 2.75% 4.13% 4.56% 4.56% 4.56%Total0Software0Licenses0Growth0Rate 17.84% 5.39% 6.72% 4.33% 4.13% 4.56% 4.56% 4.56%
Maintenance0Growth0Rate 11.74% 12.19% 12.17% 2.92% 6.33% 5.66% 5.65% 5.65%Service0Growth0Rate 8.56% 12.50% 6.84% 11.54% 6.33% 5.66% 5.65% 5.65%Maintenance0and0Service0Growth0Rate 11.51% 12.21% 11.80% 3.50% 6.33% 5.66% 5.65% 5.65%
Total%Revenue%Growth%Rate 15.41% 7.92% 8.68% 4.00% 5.00% 5.00% 5.00% 5.00%
Total%Revenue%less%acquisition:Total0Software0Licenses 436,570 510,144 561,502 588,944 613,281 641,262 670,508 701,075Maintenance0and0Service 296,148 332,316 371,519 384,517 408,854 431,980 456,396 482,174
Total%Organic%Revenue 732,718 842,460 933,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249Organic%Revenue%Growth%Rate 5.97% 5.57% 8.33% 4.00% 5.00% 5.00% 5.00% 5.00%
Segment%%%of%RevenueAutomotive 13% 14% 15.00% 15.50% 15.75% 16.00% 16.00%Constructions 1% 1% 1.00% 0.95% 0.95% 0.95% 0.95%Academic 6% 7% 7.00% 7.00% 7.00% 7.00% 7.00%Energy 8% 7% 4.00% 3.80% 4.00% 4.00% 4.00%Industrial0Equipment 11% 11% 10.00% 10.00% 10.00% 10.00% 10.00%Semiconductors 14% 16% 17.00% 17.00% 17.00% 17.00% 17.00%Aerospace0&0Defense 13% 12% 13.00% 12.85% 12.35% 12.05% 12.05%Consumer0Products 2% 2% 2.00% 2.00% 2.00% 2.00% 2.00%Electronics 19% 19% 21.00% 21.90% 21.95% 22.00% 22.00%BioRMed 2% 2% 2.00% 2.00% 2.00% 2.00% 2.00%Materials0&0Chemical 11% 9% 8.00% 7.00% 7.00% 7.00% 7.00%Total 100% 100% 100.00% 100.00% 100.00% 100.00% 100.00%
Segment%RevenueAutomotive 111,9640000000 131,0430000000 146,0190000000 158,4310000000 169,0360000000 180,3050000000 189,3200000000Constructions 8,613000000000000 9,360000000000000 9,735000000000000 9,710000000000000 10,1960000000000 10,7060000000000 11,2410000000000Academic 51,6760000000000 65,5210000000000 68,1420000000000 71,5490000000000 75,1270000000000 78,8830000000000 82,8270000000000Energy 68,9010000000000 65,5210000000000 38,9380000000000 38,8410000000000 42,9300000000000 45,0760000000000 47,3300000000000Industrial0Equipment 94,7390000000000 102,9620000000 97,3460000000000 102,2130000000 107,3240000000 112,6900000000 118,3250000000Semiconductors 120,5760000000 149,7630000000 165,4890000000 173,7630000000 182,4510000000 191,5740000000 201,1520000000Aerospace0&0Defense 111,9640000000 112,3230000000 126,5500000000 131,3440000000 132,5450000000 135,7920000000 142,5810000000Consumer0Products 17,2250000000000 18,7200000000000 19,4690000000000 20,4430000000000 21,4650000000000 22,5380000000000 23,6650000000000Electronics 163,6390000000 177,8440000000 204,4270000000 223,8480000000 235,5770000000 247,9190000000 260,3150000000BioRMed 17,2250000000000 18,7200000000000 19,4690000000000 20,4430000000000 21,4650000000000 22,5380000000000 23,6650000000000Materials0&0Chemical 94,7390000000000 84,2420000000000 77,8770000000000 71,5490000000000 75,1270000000000 78,8830000000000 82,8270000000000Total 861,260%%%%%%% 936,021%%%%%%% 973,462%%%%%%% 1,022,135%%%% 1,073,242%%%% 1,126,904%%%% 1,183,249%%%%
International0Revenue0% 66.7% 66.1% 65.8% 67.0% 67.0% 67.0% 67.0% 67.0%Domestic0Revenue0% 33.3% 33.9% 34.2% 33.0% 33.0% 33.0% 33.0% 33.0%
Ansys%Inc.Income'Statement
Fiscal'Years'Ending'Dec.'31 2012 2013 2014 2015E 2016E 2017E 2018E 2019ERevenue:Software licenses 501,870 528,944 564,502 588,944 613,281 641,262 670,508 701,075Maintenence & service 296,148 332,316 371,519 384,517 408,854 431,980 456,396 482,174Total revenue 798,018 861,260 936,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249
Cost of Sales:Cost of sales - software licenses 15,467 18,341 20,166 21,791 22,998 24,047 25,144 26,290Cost of sales - amortization 40,889 38,298 37,653 38,938 37,819 36,490 34,934 33,131Cost of sales - maintenance & service 65,070 70,009 74,685 76,903 78,704 79,916 81,010 81,970Restructuring charges - - - - - - - -Total cost of sales 121,426 126,648 132,503 137,633 139,521 140,454 141,088 141,391
Depreciation 18,090 20,044 20,883 21,505 23,678 25,850 28,077 30,401
Gross profit 658,502 714,568 782,635 814,324 858,936 906,938 957,739 1,011,457
Operating Expenses:Selling, general & administrative expenses 205,178 218,907 246,376 253,100 260,644 268,310 276,091 283,980Research & development expenses 132,628 151,439 165,421 170,356 178,874 187,817 197,208 207,069Amortization expenses 26,443 22,359 23,388 29,073 32,011 34,948 37,958 41,100Restructuring charges - - 4 4 4 4 4 4Total operating expenses 364,249 392,705 435,185 452,529 471,529 491,075 511,258 532,149
Operating income 294,253 321,863 347,450 361,795 387,407 415,863 446,481 479,309
Interest expense -2,661 -1,169 3779 0 0 0 0 0Interest income 3,360 2,841 3,002 2,761 3,693 4,896 6,138 7,533Other income (expense), net -1,405 -1,046 31,534 31,947 31,738 31,825 31,916 32,012Income (loss) before income tax provision (benefit) 293,547 322,489 348,139 362,609 389,362 418,935 450,703 484,831Current income taxes 108,960 101,187 120,545 127,638 137,056 147,465 158,647 170,660Deferred income taxes provision (benefit) -18,896 -24,025 327,096 327,615 328,996 330,446 331,968 333,566Income tax provision (benefit) 90,064 77,162 93,449 100,023 108,060 117,020 126,680 137,094
Net income (loss) 203,483 245,327 254,690 262,586 281,303 301,915 324,023 347,736
EPS:Weighted average shares outstanding - basic 92,622 92,691 92,067 90,143 88,898 87,661 86,431 85,100Year end shares outstanding 92,666 92,318 90,765 89,521 88,276 87,046 85,816 84,384Net earnings (loss) per share - basic 2.20 2.65 2.77 2.91 3.16 3.44 3.75 4.09
Ansys%Inc.Balance'Sheet
Fiscal'Years'Ending'Dec.'31 2012 2013 2014 2015E 2016E 2017E 2018E 2019EASSETSCash & cash equivalents 576,703 742,486 788,064 922,613 1,087,324 1,226,850 1,368,973 1,518,641Short-term investments 452 500 714 721 728 735 742 749Accounts receivable, gross 101,398 103,545 106,729 116,815 122,656 128,789 135,228 141,990Less: allowance for doubtful accounts -4,800 -5,700 05,500 06,649 06,982 07,331 07,697 08,082Accounts receivable, net 96,598 97,845 101,229 110,166 115,674 121,458 127,531 133,908Other receivables & current assets 216,268 200,734 192,308 213,719 224,405 235,626 247,407 259,777Deferred income taxes 23,338 26,031 28,178 29,750 31,449 33,289 35,280 37,435Total current assets 913,359 1,067,596 1,110,493 1,276,970 1,459,580 1,617,958 1,779,934 1,950,510
Property & equipment, gross 115,535 136,218 151,384 179,421 209,627 242,171 277,234 315,010Less: accumulated depreciation & amortization -63,282 -75,680 086,741 0108,246 0131,923 0157,773 0185,850 0216,250Property & equipment, net 52,253 60,538 64,643 71,175 77,704 84,398 91,384 98,760Construction in progress - leased facility - 18,136 0 0 0 0 0 0Capitalized software costs, net - - 0 0 0 0 0 0Goodwill 1,251,247 1,255,704 1,312,182 1,312,182 1,312,182 1,312,182 1,312,182 1,312,182Other intangible assets, net 351,173 291,390 259,312 223,877 193,284 166,871 144,068 124,381Other long-term assets 24,393 10,586 6,187 2,456 1,166 554 263 125Deferred income taxes 14,992 18,432 21,286 25,353 29,747 34,505 39,655 45,230
Total assets 2,607,417 2,722,382 2,774,103 2,912,013 3,073,663 3,216,467 3,367,486 3,531,187
LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Current portion of long-term debt & capital lease obligations 53,149 0 0 0 0 0 0 0Accounts payable 4,924 7,939 3,421 6,928 7,274 7,638 8,020 8,420Accrued bonuses & commissions 42,601 43,992 47,001 48,991 50,451 51,935 53,441 54,968Accrued income taxes 8,182 9,333 7,127 9,345 10,002 10,806 11,702 12,668Deferred income taxes 1,409 49 24 0 0 0 0 0Other accrued expenses & liablilities 61,329 69,343 74,862 68,828 70,880 72,964 75,080 77,226Deferred revenue 305,793 309,775 332,664 341,493 358,567 376,496 395,320 415,086Total current liabilities 477,387 440,431 465,099 475,584 497,175 519,839 543,564 568,369
Long-term Liabilities:Total long-term debt & capital lease obligations 53,149 18,136 0 0 0 0 0 0Less current portion -53,149 - 0 0 0 0 0 0Long-term debt & capital lease obligations, less current portion - 18,136 0 0 0 0 0 0Deferred income taxes 92,822 66,899 37,390 40,733 44,344 48,255 52,489 57,071Other long-term liabilities 96,917 60,670 54,113 40,447 30,335 20,223 10,112 0Total long-term liabilities 189,739 145,705 91,503 81,180 74,679 68,479 62,601 57,071
Stockholders' EquityCommon stock and Additional paid-in capital 928,300 926,963 905,757 912,019 918,282 944,918 971,555 1,002,163Retained earnings (accumulated deficit) 1,039,491 1,284,818 1,539,508 1,802,094 2,083,396 2,385,311 2,709,335 3,057,071Treasury stock, at cost -36,151 -72,891 0196,010 0327,110 0468,115 0670,325 0887,813 01,121,733Accumulated other comprehensive income (loss) 8,651 -2,644 031,754 031,754 031,754 031,754 031,754 031,754Total stockholders' equity (deficiency) 1,940,291 2,136,246 2,217,501 2,355,249 2,501,809 2,628,150 2,761,322 2,905,748
Total%Liabilites%and%Stockholders'%Equity 2,607,417 2,722,382 2,774,103 2,912,013 3,073,663 3,216,467 3,367,486 3,531,187
Ansys%Inc.Cash%Flow%Statement
Fiscal%Years%Ending%Dec.%31 2008 2009 2010 2011 2012 2013 2014
Cash%flows%from%operating%activities:Net income (loss) 111,671 116,391 153,132 180,675 203,483 245,327 254,690Depreciation & amortization 50,093 64,186 60,826 65,955 85,422 80,701 81,924Deferred income tax provision (benefit) -13,323 -28,146 -26,719 -3,021 -18,896 -24,025 +18,859Provision for bad debts 1,184 1,610 1,757 404 938 1,465 2,104Stock-based compensation expense 11,779 13,212 19,019 23,088 32,415 35,298 36,861Excess tax benefits from stock options -4,070 -13,168 -11,753 -10,046 -13,888 -9,971 +14,531Utilization of acquired net operating loss tax carryforward 1,477 108 78 - - - +Other net income adjustments 126 108 19 180 69 73 868Accounts receivable -4,551 -6,434 -11,149 -8,086 -12,401 -2,983 +5,554Other receivables & current assets -19,578 10,166 -61,467 -16,926 -50,485 -44,162 +877Other long-term assets -380 1,340 -60,365 -1,390 5,027 -462 +1,838Accounts payable, accrued expenses & current liabilities 9,467 12,913 16,542 18,222 9,548 15,737 8,208Accrued income taxes - - 10,608 9,668 14,616 11,876 12,102Deferred revenue 40,449 -606 28,817 49,973 47,748 42,105 35,548Other long-term liabilities 12,364 2,009 47,539 -1,035 -5,181 -17,996 +5,339Net cash flows from operating activities 196,708 173,689 166,884 307,661 298,415 332,983 385,307
Cash flows from investing activities:Acquisition, net of cash acquired -320,130 - - -269,486 -45,075 -4,224 +103,016Capital expenditures -16,639 -8,311 -14,260 -22,063 -23,977 -28,848 +26,023Capitalization of internally developed software costs - - - - - - +Purchases of short-term investments -12,993 -9,899 -1,075 -351 -228 -261 +355Maturities of short-term investments 11,763 7,491 8,687 257 324 156 124Other cash flows from investing activities - -12 0 - - - +Net cash flows from investing activities -337,999 -10,731 -6,648 -291,643 -68,956 -33,177 ?129,270
Cash flows from financing activities:Principal payments on long-term debt -135,499 -53,924 -65,630 -31,889 -74,408 -53,149 +Principal payments on capital leases -506 -306 -283 -87 -14 - +91Purchase of treasury stock -10,008 -39,904 0 -12,704 -95,477 -116,132 +233,793Restricted stock withholding taxes paid in lieu of issued shares - - - - - -4,269 +5,108Contingent consideration payments - - - - -3,241 -3,174 +4,504Proceeds from long-term debt 355,000 - 0 - - - +Loan commitment costs -4,609 - 0 - - - +Proceeds from issuance of common stock under Employee Stock Purchase Plan 1,720 1,515 1,592 2,167 2,446 2,987 3,629Proceeds from exercise of stock options 7,582 15,361 22,929 22,791 31,960 34,007 39,694Excess tax benefits from stock options 4,070 13,168 11,753 10,046 13,888 9,971 14,531Net cash flows from financing activities 217,750 -64,090 -29,639 -9,676 -124,846 -129,759 ?185,642
Cash flows from all activities:Effect of exchange rate fluctuations on cash & cash equivalents -15,507 8,834 6,004 -6,993 262 -4,264 +24,817Net increase (decrease) in cash & cash equivalents 60,952 107,702 136,601 -651 104,875 165,783 45,578
Cash & cash equivalents, beginning of year 167,224 228,176 335,878 472,479 471,828 576,703 742,486Cash & cash equivalents, end of year 228,176 335,878 472,479 471,828 576,703 742,486 788,064
Ansys%Inc.Forecasted*Cash*Flow*Statement
Fiscal'Years'Ending'Dec.'31 2015E 2016E 2017E 2018E 2019E
Cash%flows%from%operating%activities:Net income (loss) 262,586 281,303 301,915 324,023 347,736Add: Depreciation 21,505 23,678 25,850 28,077 30,401Add: Amortization 68,012 69,830 71,438 72,892 74,231Changes in:Accounts Receivable Net >8,937 >5,508 >5,784 >6,073 >6,377Other receivables & current assets >21,411 >10,686 >11,220 >11,781 >12,370Deferred Income tax >2,320 >2,481 >2,687 >2,908 >3,148Accounts payable 3,507 346 364 382 401Accrued bonuses & commissions 1,990 1,460 1,484 1,506 1,527Accrued income taxes 2,218 657 804 896 966Other accrued expenses & liablilities >6,034 2,052 2,085 2,116 2,145Deferred revenue 8,829 17,075 17,928 18,825 19,766
Net cash flows from operating activities 329,942 377,726 402,176 427,954 455,279
Cash flows from investing activities:Short-term investments >7 >7 >7 >7 >7Property & equipment, gross >28,037 >30,207 >32,544 >35,063 >37,776Construction in progress - leased facility 0 0 0 0 0Goodwill 0 0 0 0 0Other intangible assets, net >32,576 >39,237 >45,025 >50,089 >54,544Other long-term assets 3,731 1,290 612 291 138Other long-term liabilities >13,666 >10,112 >10,112 >10,112 >10,112
Net cash flows from investing activities C70,556 C78,272 C87,076 C94,980 C102,301
Cash flows from financing activities:Current portion of long-term debt & capital lease obligations 0 0 0 0 0Long-term debt & capital lease obligations, less current portion 0 0 0 0 0Common stock and Additional paid-in capital 6,262 6,262 26,637 26,637 30,609Purchase of treasury stock >131,100 >141,005 >202,211 >217,488 >233,919Accumulated other comprehensive income (loss) 0 0 0 0 0
Net cash flows from financing activities C124,838 C134,742 C175,574 C190,851 C203,311
Cash flows from all activities: 134,549 164,711 139,527 142,123 149,667
Cash & cash equivalents, beginning of year 788,064 922,613 1,087,324 1,226,850 1,368,973Cash & cash equivalents, end of year 922,613 1,087,324 1,226,850 1,368,973 1,518,641
Ansys%Inc.Common%Size%Income%Statement
Fiscal%Years%Ending%Dec.%31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Revenue:Software licenses 62.89% 61.42% 60.31% 60.50% 60.00% 59.75% 59.50% 59.25%Maintenence & service 37.11% 38.58% 39.69% 39.50% 40.00% 40.25% 40.50% 40.75%Total revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Sales:Cost of sales - software licenses 1.94% 2.13% 2.15% 2.24% 2.25% 2.24% 2.23% 2.22%Cost of sales - amortization 5.12% 4.45% 4.02% 4.00% 3.70% 3.40% 3.10% 2.80%Cost of sales - maintenance & service 8.15% 8.13% 7.98% 7.90% 7.70% 7.45% 7.19% 6.93%Restructuring charges 4 4 4 4 4 4 4 4Total cost of sales 15.22% 14.70% 14.16% 14.14% 13.65% 13.09% 12.52% 11.95%
Depreciation 2.27% 2.33% 2.23% 2.21% 2.32% 2.41% 2.49% 2.57%
Gross profit 82.52% 82.97% 83.61% 83.65% 84.03% 84.50% 84.99% 85.48%
Operating Expenses:Selling, general & administrative expenses 25.71% 25.42% 26.32% 26.00% 25.50% 25.00% 24.50% 24.00%Research & development expenses 16.62% 17.58% 17.67% 17.50% 17.50% 17.50% 17.50% 17.50%Amortization expenses 3.31% 2.60% 2.50% 2.99% 3.13% 3.26% 3.37% 3.47%Restructuring charges 4 4 4 4 4 4 4 4Total operating expenses 45.64% 45.60% 46.49% 46.49% 46.13% 45.76% 45.37% 44.97%
Operating income 36.87% 37.37% 37.12% 37.17% 37.90% 38.75% 39.62% 40.51%
Interest expense 40.33% 40.14% 40.08% 0.00% 0.00% 0.00% 0.00% 0.00%Interest income 0.42% 0.33% 0.32% 0.28% 0.36% 0.46% 0.54% 0.64%Other income (expense), net 40.18% 40.12% 40.16% 40.20% 40.17% 40.17% 40.17% 40.17%Income (loss) before income tax provision (benefit) 36.78% 37.44% 37.19% 37.25% 38.09% 39.03% 39.99% 40.97%Income tax provision (benefit) 11.29% 8.96% 9.98% 10.28% 10.57% 10.90% 11.24% 11.59%
Net income (loss) 25.50% 28.48% 27.21% 26.97% 27.52% 28.13% 28.75% 29.39%
Ansys%Inc.Common%Size%Balance%Sheet
Fiscal%Years%Ending%Dec.%31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
ASSETSCash & cash equivalents 72.27% 86.21% 84.19% 94.78% 106.38% 114.31% 121.48% 128.34%Short-term investments 0.06% 0.06% 0.08% 0.07% 0.07% 0.07% 0.07% 0.06%Accounts receivable, gross 12.71% 12.02% 11.40% 12.00% 12.00% 12.00% 12.00% 12.00%Less: allowance for doubtful accounts 10.60% 10.66% 10.59% 10.68% 10.68% 10.68% 10.68% 10.68%Accounts receivable, net 12.10% 11.36% 10.81% 11.32% 11.32% 11.32% 11.32% 11.32%Other receivables & current assets 27.10% 23.31% 20.55% 21.95% 21.95% 21.95% 21.95% 21.95%Deferred income taxes 2.92% 3.02% 3.01% 3.06% 3.08% 3.10% 3.13% 3.16%Total current assets 114.45% 123.96% 118.64% 131.18% 142.80% 150.75% 157.95% 164.84%
Property & equipment, gross 14.48% 15.82% 16.17% 18.43% 20.51% 22.56% 24.60% 26.62%Less: accumulated depreciation & amortization 17.93% 18.79% 19.27% 111.12% 112.91% 114.70% 116.49% 118.28%Property & equipment, net 6.55% 7.03% 6.91% 7.31% 7.60% 7.86% 8.11% 8.35%Construction in progress - leased facility 1 2.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Capitalized software costs, net 1 1 1 1 1 1 1 1Goodwill 156.79% 145.80% 140.19% 134.80% 128.38% 122.26% 116.44% 110.90%Other intangible assets, net 44.01% 33.83% 27.70% 23.00% 18.91% 15.55% 12.78% 10.51%Other long-term assets 3.06% 1.23% 0.66% 0.25% 0.11% 0.05% 0.02% 0.01%Deferred income taxes 1.88% 2.14% 2.27% 2.60% 2.91% 3.21% 3.52% 3.82%
Total assets 326.74% 316.09% 296.37% 299.14% 300.71% 299.70% 298.83% 298.43%
LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Liabilities:Current portion of long-term debt & capital lease obligations 6.66% 1 1 1 1 1 1 1Accounts payable 0.62% 0.92% 0.37% 0.71% 0.71% 0.71% 0.71% 0.71%Accrued bonuses & commissions 5.34% 5.11% 5.02% 5.03% 4.94% 4.84% 4.74% 4.65%Accrued income taxes 1.03% 1.08% 0.76% 0.96% 0.98% 1.01% 1.04% 1.07%Deferred income taxes 0.18% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Other accrued expenses & liablilities 7.69% 8.05% 8.00% 7.07% 6.93% 6.80% 6.66% 6.53%Deferred revenue 38.32% 35.97% 35.54% 35.08% 35.08% 35.08% 35.08% 35.08%Total current liabilities 59.82% 51.14% 49.69% 48.85% 48.64% 48.44% 48.24% 48.03%
Long-term Liabilities:Total long-term debt & capital lease obligations 6.66% 2.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Less current portion 16.66% 1 1 1 1 1 1 1Long-term debt & capital lease obligations, less current portion 1 2.11% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%Deferred income taxes 11.63% 7.77% 3.99% 4.18% 4.34% 4.50% 4.66% 4.82%Other long-term liabilities 12.14% 7.04% 5.78% 4.15% 2.97% 1.88% 0.90% 0.00%Total long-term liabilities 23.78% 16.92% 9.78% 8.34% 7.31% 6.38% 5.56% 4.82%
Stockholders' EquityCommon stock and Additional paid-in capital 116.33% 107.63% 96.77% 93.69% 89.84% 88.04% 86.21% 84.70%Retained earnings (accumulated deficit) 130.26% 149.18% 164.47% 185.12% 203.83% 222.25% 240.42% 258.36%Treasury stock, at cost 14.53% 18.46% 120.94% 133.60% 145.80% 162.46% 178.78% 194.80%Accumulated other comprehensive income (loss) 1.08% 10.31% 13.39% 13.26% 13.11% 12.96% 12.82% 12.68%Total stockholders' equity (deficiency) 243.14% 248.04% 236.91% 241.95% 244.76% 244.88% 245.04% 245.57%
Total%Liabilites%and%Stockholders'%Equity 326.74% 316.09% 296.37% 299.14% 300.71% 299.70% 298.83% 298.43%
Ansys%Inc.Value&Driver&Estimation
Fiscal&Years&Ending&Dec.&31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Marginal3Tax3RateFederal3statutory3tax3rate 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00% 35.00%State3income3taxes,3net3of3federal3benefit 1.20% 1.10% 1.20% 1.20% 1.20% 1.20% 1.20% 1.20%Foreign3rate3differential G1.90% G0.90% G0.70% G0.70% G0.70% G0.70% G0.70% G0.70%Marginal%Tax%Rate 34.30% 35.20% 35.50% 35.50% 35.50% 35.50% 35.50% 35.50%
EBITA:Operating3Revenues 798,018 861,260 936,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249G3Cost3of3Sales G121,426 G126,648 G132,503 G137,633 G139,521 G140,454 G141,088 G141,391G3Depreciation G18,090 G20,044 G20,883 G21,505 G23,678 G25,850 G28,077 G30,401- Selling, general & administrative expenses G205,178 G218,907 G246,376 G253,100 G260,644 G268,310 G276,091 G283,980- Research & development expenses G132,628 G151,439 G165,421 G170,356 G178,874 G187,817 G197,208 G207,069- Amortization expenses G26,443 G22,359 G23,388 G29,073 G32,011 G34,948 G37,958 G41,100+3Implied3Interest3on3Operating3Leases 1,966 4,804 4,384 3,664 4,034 4,404 4,784 5,180EBITA 296,219 326,667 351,834 365,459 391,441 420,267 451,264 484,488
Less:3Adjusted3Taxes:Income tax provision (benefit) 90,064 77,162 93,449 100,023 108,060 117,020 126,680 137,094+ Tax Shield on Interest expense 913 411 277 0 0 0 0 0- Tax Benefit on Interest income G1,152 G1,000 G1,066 G980 G1,311 G1,738 G2,179 G2,674+ Tax Shield Other income (expense), net 482 368 545 691 617 648 680 714+3Tax3Shield3on3Implied3Lease3Interest 674 1,691 1,556 1,301 1,432 1,563 1,698 1,839Adjusted%Taxes 90,980 78,633 94,761 101,035 108,798 117,493 126,879 136,973
Plus:3Change3in3Deferred3Tax3Liabilities:Deferred income tax provision (benefit) -18,896 -24,025 -18,859 -2,320 -2,481 -2,687 -2,908 -3,148Net%Change%in%DT%Liabilities%(2013L2012) L18,896 L24,025 L18,859 L2,320 L2,481 L2,687 L2,908 L3,148
NOPLATNOPLAT:%EBITA%L%Adjusted%Taxes%+%Change%in%DT 186,342 224,009 238,214 262,103 280,162 300,088 321,477 344,368
Operating3Current3Assets:Lowest3Average3cash3as3%3of3Revenue3of3Industry3Peers 16.08% 16.08% 16.08% 16.08% 16.08% 16.08% 16.08% 16.08%x3Revenue 798,018 861,260 936,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249"Normal"3Cash3(Revenue3x3Avg3%) 128,319 138,488 150,509 156,529 164,356 172,574 181,202 190,262Cash3and3cash3equivalents 576,703 742,486 788,064 922,613 1,087,324 1,226,850 1,368,973 1,518,641
Lower3of3"Normal"3Cash3or3Actual3Cash 128,319 138,488 150,509 156,529 164,356 172,574 181,202 190,262Accounts receivable, net 96,598 97,845 101,229 110,166 115,674 121,458 127,531 133,908Other receivables & current assets 216,268 200,734 192,308 213,719 224,405 235,626 247,407 259,777Operating%Current%Assets 441,185 437,067 444,046 480,415 504,436 529,657 556,140 583,947
Operating3Current3Liabilities:Accounts payable 4,924 7,939 3,421 6,928 7,274 7,638 8,020 8,420Accrued bonuses & commissions 42,601 43,992 47,001 48,991 50,451 51,935 53,441 54,968Accrued income taxes 8,182 9,333 7,127 9,345 10,002 10,806 11,702 12,668Other accrued expenses & liablilities 61,329 69,343 74,862 68,828 70,880 72,964 75,080 77,226Deferred revenue 305,793 309,775 332,664 341,493 358,567 376,496 395,320 415,086Operating%Current%Liabilities 422,829 440,382 465,075 475,584 497,175 519,839 543,564 568,369
Net3PPE:Property & equipment, net 52,253 60,538 64,643 71,175 77,704 84,398 91,384 98,760
PV3of3Operating3Leases:PV%of%Operating%Leases 80,603 73,553 61,474 67,686 73,895 80,261 86,905 93,919
Other3Operating3Assets:Construction in progress - leased facility - 18,136 - - - - - -Capitalized software costs, net - - - - - - - -Other intangible assets, net 351,173 291,390 259,312 223,877 193,284 166,871 144,068 124,381Other long-term assets 24,393 10,586 6,187 2,456 1,166 554 263 125Total%Other%LongLTerm%Operating%Assets 375,566 320,112 265,499 226,333 194,450 167,425 144,331 124,506
Other3Operating3Liabilities:Other long-term liabilities 96,917 60,670 54,113 40,447 30,335 20,223 10,112 0Total%Other%LongLTerm%Operating%Liabilities 96,917 60,670 54,113 40,447 30,335 20,223 10,112 0
Invested3Capital:Invested%Capital 429,861 390,218 316,474 329,578 322,975 321,680 325,085 332,762
Value%Drivers:NOPLAT 186,342 224,009 238,214 262,103 280,162 300,088 321,477 344,368
/33Beginning3IC 403,257 429,861 390,218 316,474 329,578 322,975 321,680 325,085ROIC: 46.21% 52.11% 61.05% 82.82% 85.01% 92.91% 99.94% 105.93%
Beginning3IC 403,257 429,861 390,218 316,474 329,578 322,975 321,680 325,085x3(ROIC3G3WACC) 38.68% 44.59% 53.52% 75.29% 77.48% 85.39% 92.41% 98.40%
EP 155,989 191,654 208,842 238,282 255,355 275,778 297,264 319,899
NOPLAT 186,342 224,009 238,214 262,103 280,162 300,088 321,477 344,368G3CapEx 26,604 G39,642 G73,744 13,104 G6,604 G1,295 3,405 7,678
FCF 159,738 263,652 311,958 248,999 286,766 301,383 318,072 336,690
Ansys%Inc.Key$Management$Ratios
Fiscal$Years$Ending$Dec.$31 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Liquidity(RatiosCurrent2Assets 913,359 1,067,596 1,110,493 1,276,970 1,459,580 1,617,958 1,779,934 1,950,510/2Current2Liabilities 477,387 440,431 465,099 475,584 497,175 519,839 543,564 568,369=%Current%Ratio 1.913 2.424 2.388 2.685 2.936 3.112 3.275 3.432
(Current2Assets 913,359 1,067,596 1,110,493 1,276,970 1,459,580 1,617,958 1,779,934 1,950,510=2Inventory2) 0 0 0 0 0 0 0 0/2Current2Liabilities 477,387 440,431 465,099 475,584 497,175 519,839 543,564 568,369=%Quick%Ratio 1.913 2.424 2.388 2.685 2.936 3.112 3.275 3.432
(Cash 576,703 742,486 788,064 922,613 1,087,324 1,226,850 1,368,973 1,518,641+2Marketable2Securities) 452 500 714 721 728 735 742 749/2Current2Liabilities 477,387 440,431 465,099 475,584 497,175 519,839 543,564 568,369=%Cash%Ratio 1.209 1.687 1.696 1.941 2.188 2.361 2.520 2.673
Activity(or(Asset2Management(RatiosAnnual2Sales 798,018 861,260 936,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249/2Average2Accounts2Receivable 90,600 97,222 99,537 105,698 112,920 118,566 124,495 130,719Receivables%Turnover 8.81 8.86 9.40 9.21 9.05 9.05 9.05 9.05
365 365 365 365 365 365 365 365 365/2Receivables2Turnover 8.81 8.86 9.40 9.21 9.05 9.05 9.05 9.05Average%Collection%Period 41.44 41.20 38.81 39.63 40.32 40.32 40.32 40.32
Cost2of2Goods2Sold 121,426 126,648 132,503 137,633 139,521 140,454 141,088 141,391/2Average2Inventory 0 0 0 0 0 0 0 0Inventory%Turnover N/A N/A N/A N/A N/A N/A N/A N/A
365 365 365 365 365 365 365 365 365/2Inventory2Turnover N/A N/A N/A N/A N/A N/A N/A N/AInventory%Period N/A N/A N/A N/A N/A N/A N/A N/A
Financial(Leverage(RatiosTotal2Debt2(includes2operating2leases) 133,752 91,689 61,474 67,686 73,895 80,261 86,905 93,919/2Total2Assets 2,607,417 2,722,382 2,774,103 2,912,013 3,073,663 3,216,467 3,367,486 3,531,187Debt%Ratio 5.13% 3.37% 2.22% 2.32% 2.40% 2.50% 2.58% 2.66%
Total2Debt 133,752 91,689 61,474 67,686 73,895 80,261 86,905 93,919/2Total2Equity 1,940,291 2,136,246 2,217,501 2,355,249 2,501,809 2,628,150 2,761,322 2,905,748DebtKtoKEquity%Ratio 6.89% 4.29% 2.77% 2.87% 2.95% 3.05% 3.15% 3.23%
EBIT 296,219 326,667 351,834 365,459 391,441 420,267 451,264 484,488/2(Interest2Charges2x2(=1)2) 2,661 1,169 779 0 0 0 0 0Interest%Coverage 111.319 279.441 451.648 N/A N/A N/A N/A N/A
Profitability(Ratios(Sales2=2COGS) 676,592 734,612 803,518 835,829 882,614 932,788 985,815 1,041,858/2Sales 798,018 861,260 936,021 973,462 1,022,135 1,073,242 1,126,904 1,183,249Gross%Profit%Margin 84.78% 85.30% 85.84% 85.86% 86.35% 86.91% 87.48% 88.05%
Net2Income 203483 245327 254690 262586 281303 301915 324023 347736/2Sales 798018 861260 936021 973462 1022135 1073242 1126904 1183249Net%Profit%Margin 25.50% 28.48% 27.21% 26.97% 27.52% 28.13% 28.75% 29.39%
Net2Income 203,483 245,327 254,690 262,586 281,303 301,915 324,023 347,736/2Average2Total2Assets 2,527,944 2,664,900 2,748,243 2,843,058 2,992,838 3,145,065 3,291,977 3,449,337Return%on%Assets 8.05% 9.21% 9.27% 9.24% 9.40% 9.60% 9.84% 10.08%
Net2Income 203,483 245,327 254,690 262,586 281,303 301,915 324,023 347,736/2Average2Shareholder2Equity 1,847,382 2,038,269 2,176,874 2,286,375 2,428,529 2,564,979 2,694,736 2,833,535Return%on%Equity 11.01% 12.04% 11.70% 11.48% 11.58% 11.77% 12.02% 12.27%
Payout(Policy(RatiosDividends2per2Share 0 0 0 0 0 0 0 0/2Earnings2per2Share 2.20 2.65 2.77 2.91 3.16 3.44 3.75 4.09Payout%Ratio 0 0 0 0 0 0 0 0
Ansys%Inc.Weighted(Average(Cost(of(Capital((WACC)(Estimation
WACC$=$Re$*$(E/V)$+$Rd$*$(1$1$t)$*$(D/V)$+$Rpfd$*$(PFD/V)
Cost%of%EquityRe$=$Rf$+$B$*$(E[Rm]$1$Rf)
Rf 2.710%
E[Rm]$1$Rf 4.85%
Beta 0.999
Re 7.56%
Cost%of%debtRd 5.96%
Cost%of%Preferred%StockRpfd 0.00% *Note:$$Ansys$does$not$have$any$preferred$stock$outstanding
Market%Value%of%EquityShares$outstanding 92067
Shares$Price 87.4
E $8,046,656
Market%Value%of%DebtD $61,474 *Note:$Only$debt$is$Operating$Leases
Market%Value%of%PreferredShares$outstanding 0
Shares$Price 87.4
PFD 0
Market%Value%of%FirmV $8,108,130
weight$of$equity 99.24%
weight$of$debt 0.76%
weight$of$preferred $0
Marginal$Tax$Rate 35.50%
WACC 7.53%
Ansys%Inc.Discounted+Cash+Flow+(DCF)+and+Economic+Profit+(EP)+Valuation+Models
Key$Inputs:
$$$$$CV$Growth 3.50%
$$$$$CV$ROIC 105.93%
$$$$$WACC 7.53%
$$$$$Cost$of$Equity 7.56%
Fiscal+Years+Ending+Dec.+31 2015E 2016E 2017E 2018E 2019E
DCF%ModelPeriod 1 2 3 4 5
FCF 248,999 286,766 301,383 318,072 336,690
Continuing$Value 8,268,908
PV 231,569 248,023 242,419 237,933 6,185,543
V(operating) 7,145,487
NonOoperating$Assets:
Excess$Cash 637,555
ShortOterm$Investments 714
V(non@operating) 638,269
NonOoperating$Liabilities:
PV$of$Operating$Leases 61,474
Employee$Stock$Options 231,359
V(other) 292,833
V(e) 7,490,923Shares$Outstanding 92,067
Intrinsic%Value%of%Stock%(FY%End%'14) 81.36
EP%ModelPeriod 1 2 3 4 5
Economic$Profit 238,282 255,355 275,778 297,264 319,899
Continuing$Value 7,943,823
PV 221,602 220,856 221,823 222,368 5,942,364
NPV 6,829,012
Beginning$Invested$Capital$(end$2014) 316,474
V(operating) 7,145,487
NonOoperating$Assets:
Excess$Cash 637,555
ShortOterm$Investments 714
V(non@operating) 638,269
NonOoperating$Liabilities:
PV$of$Operating$Leases 61,474
Employee$Stock$Options 231,359
V(other) 292,833
V(e) 7,490,923Shares$Outstanding 92,067
Intrinsic%Value%of%Stock%(FY%End%'14) 81.36
Intrinsic%Value%of%Stock%(Today) $83.10
Ansys%Inc.Dividend'Discount'Model'(DDM)'or'Fundamental'P/E'Valuation'Model
Fiscal'Years'Ending'Dec.'31 2015E 2016E 2017E 2018E 2019E
EPS 2.91$........ 3.16$........ 3.44$........ 3.75$........ 4.09$........
Key$Assumptions...CV.growth 3.50%...CV.ROE 12.27%...Cost.of.Equity 7.56%
Future$Cash$Flows.....P/E.Multiple.(CV.Year) 17.63.....EPS.(CV.Year) 4.09$.............Future.Stock.Price 72.03$...........Dividends.Per.Share 2.92.....Future.Cash.Flows 72.03
.....Period 1 2 3 4 5
.....Discounted.Cash.Flows 0.00 0.00 0.00 0.00 53.82
Intrinsic%Value%(FY%End%'14) 53.82$%%%%%
Intrinsic%Value%of%Stock%(Today) $54.97
Ansys%Inc.Relative(Valuation(Models
EPS EPSTicker Company Price 2015E 2016E P/E715 P/E716
CDNS Cadence $18.73 $1.007 $1.137 18.77777777777 16.67777777777PTC PTC7Inc. $37.16 $2.277 $2.537 16.47777777777 14.77777777777ADSK Autodesk,7Inc. $61.51 $1.177 $1.187 52.67777777777 52.17777777777SNPS Synopsys7Inc. $47.41 $2.787 $2.967 17.17777777777 16.07777777777MENT Mentor7Graphics $24.33 $1.847 $2.037 13.27777777777 12.07777777777DASTY Dassault7Systemes $67.79 $2.29 $2.54 29.67777777777 26.77777777777
Average 24.6%%%%%%%%%% 23.0%%%%%%%%%%
ANSS Ansys7Inc. $87.40 $2.917 $3.167 30.07777777777 27.67777777777
Implied%Value:%%%Relative%P/E%(EPS15) %$%%%%%71.64%%%%Relative%P/E%(EPS16) 72.82$%%%%%
VALUATION)OF)OPTIONS)GRANTED)IN)ESOP
Ticker'Symbol ANSSCurrent'Stock'Price $87.40Risk'Free'Rate 2.71%Current'Dividend'Yield 0.00%Annualized'St.'Dev.'of'Stock'Returns 16.49%
Average Average BLS ValueRange'of Number Exercise Remaining Option of'OptionsOutstanding'Options of'Shares Price Life'(yrs) Price GrantedRange'1 1,022 24.51 3.52 65.12$'''''''''' 66,553$''''''''''''''''Range'2 1,029 39.60 3.81 51.70$'''''''''' 53,199$''''''''''''''''Range'3 1,703 53.92 6.15 42.37$'''''''''' 72,148$''''''''''''''''Range'4 1,178 70.37 7.81 33.50$'''''''''' 39,459$''''''''''''''''Range'5 L$'''''''''''''''''''''''Total 4,932 48.77$'''''''''' 5.51 45.66$'''''''''' 231,359$))))))))))))))
Effects'of'ESOP'Exercise'and'Share'Repurchases'on'Common'Stock'Balance'Sheet'Account'and'Number'of'Shares'Outstanding
Number'of'Options'Outstanding'(shares):' 4,932Average'Time'to'Maturity'(years): 5.51Expected'Annual'Number'of'Options'Exercised: 895
Current'Average'Strike'Price: 48.77$''''''''''''Cost'of'Equity: 7.56%Current'Stock'Price: $87.40
1 2 3 4 52015E 2016E 2017E 2018E 2019E
Increase'in'Shares'Outstanding: 256 256 770 770 568Average'Strike'Price: 24.51$'''''''''''' 24.51$'''''''''''' 34.59$'''''''''''' 34.59 53.92$''''''''''''Increase'in'Common'Stock'Account: 6,262'''''''''''''' 6,262'''''''''''''' 26,637'''''''''''' 26,637'''''''''''' 30,609''''''''''''
Change'in'Treasury'Stock 131,100 141,005 202,211 217,488 233,919Expected'Price'of'Repurchased'Shares: 87.40$'''''''''''' 94.00$'''''''''''' 101.11$''''''''' 108.74$''''''''' 116.96$'''''''''Number'of'Shares'Repurchased: 1,500'''''''''''''' 1,500'''''''''''''' 2,000'''''''''''''' 2,000'''''''''''''' 2,000''''''''''''''
Shares'Outstanding'(beginning'of'the'year) 90,765 89,521 88,276 87,046 85,816Plus:'Shares'Issued'Through'ESOP 256 256 770 770 568Less:'Shares'Repurchased'in'Treasury 1,500'''''''''''''' 1,500'''''''''''''' 2,000'''''''''''''' 2,000'''''''''''''' 2,000''''''''''''''Shares'Outstanding'(end'of'the'year) 89,521 88,276 87,046 85,816 84,384
Present'Value'of'Operating'Lease'Obligations'(2014) Present'Value'of'Operating'Lease'Obligations'(2013)
Operating OperatingFiscal.Years.Ending.Dec..31 Leases Fiscal.Years.Ending.Dec..31 Leases2015 14675 2014 128302016 10328 2015 10300.52017 10328 2016 10300.52018 6579.5 2017 6902.52019 6579.5 2018 6902.5Thereafter 30763 Thereafter 57043Total.Minimum.Payments 79253 Total.Minimum.Payments 104279Less:.Interest 17779 Less:.Interest 30726PV.of.Minimum.Payments 61474 PV.of.Minimum.Payments 73553
Capitalization'of'Operating'Leases Capitalization'of'Operating'Leases
PreKTax.Cost.of.Debt 5.96% PreKTax.Cost.of.Debt 5.96%Number.Years.Implied.by.Year.6.Payment 4.7 Number.Years.Implied.by.Year.6.Payment 8.3
Lease PV.Lease Lease PV.LeaseYear Commitment Payment Year Commitment Payment1 14675 13849.6 1 12830 12108.32 10328 9198.8 2 10300.5 9174.33 10328 8681.4 3 10300.5 8658.34 6579.5 5219.5 4 6902.5 5475.75 6579.5 4925.9 5 6902.5 5167.76.&.beyond 6579.5 19599.1 6.&.beyond 6902.5 32969.1PV.of.Minimum.Payments 61474.2 PV.of.Minimum.Payments 73553.4
Present'Value'of'Operating'Lease'Obligations'(2012) Present'Value'of'Operating'Lease'Obligations'(2011)
Operating OperatingFiscal.Years.Ending.Dec..31 Leases Fiscal.Years.Ending.Dec..31 Leases2013 13606 2012 129902014 11144 2013 8463.52015 11144 2014 8463.52016 7853 2015 30692017 7853 2016 3069Thereafter 62373 Thereafter 1895Total.Minimum.Payments 113973 Total.Minimum.Payments 37950Less:.Interest 33370 Less:.Interest 4967PV.of.Minimum.Payments 80603 PV.of.Minimum.Payments 32983
Capitalization'of'Operating'Leases Capitalization'of'Operating'Leases
PreKTax.Cost.of.Debt 5.96% PreKTax.Cost.of.Debt 5.96%Number.Years.Implied.by.Year.6.Payment 7.9 Number.Years.Implied.by.Year.6.Payment 1.0
Lease PV.Lease Lease PV.LeaseYear Commitment Payment Year Commitment Payment1 13606 12840.7 1 12990 12259.32 11144 9925.6 2 8463.5 7538.23 11144 9367.3 3 8463.5 7114.24 7853 6229.7 4 3069 2434.65 7853 5879.3 5 3069 2297.76.&.beyond 7853 36360.4 6.&.beyond 1895 1338.9PV.of.Minimum.Payments 80603.0 PV.of.Minimum.Payments 32982.9
Sensitivity)Analysis1st)Year)Revenue)Growth
$83.10 1.00% 2.00% 3.00% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%2.50% $67.80 $68.53 $69.26 $69.98 $70.35 $70.71 $71.08 $71.44 $71.802.75% $70.47 $71.23 $71.99 $72.75 $73.13 $73.51 $73.89 $74.27 $74.653.00% $73.43 $74.22 $75.02 $75.82 $76.21 $76.61 $77.01 $77.41 $77.813.25% $76.74 $77.57 $78.41 $79.24 $79.66 $80.08 $80.50 $80.91 $81.33
CV)Growth 3.50% $80.46 $81.34 $82.22 $83.10 $83.54 $83.98 $84.42 $84.86 $85.30of)NOPLAT 3.75% $84.67 $85.60 $86.53 $87.46 $87.93 $88.39 $88.86 $89.32 $89.79
4.00% $89.48 $90.46 $91.45 $92.44 $92.94 $93.43 $93.92 $94.42 $94.914.25% $95.02 $96.07 $97.13 $98.18 $98.71 $99.24 $99.77 $100.29 $100.824.50% $101.48 $102.61 $103.74 $104.87 $105.44 $106.01 $106.57 $107.14 $107.71
2)J)5)Year)Revenue)Growth$83.10 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%2.50% $60.15 $62.51 $64.93 $67.42 $69.98 $72.62 $75.32 $78.11 $80.962.75% $62.43 $64.90 $67.45 $70.06 $72.75 $75.51 $78.35 $81.27 $84.263.00% $64.97 $67.57 $70.24 $72.99 $75.82 $78.72 $81.71 $84.78 $87.933.25% $67.80 $70.54 $73.36 $76.26 $79.24 $82.31 $85.46 $88.70 $92.02
CV)Growth 3.50% $70.99 $73.89 $76.87 $79.94 $83.10 $86.34 $89.68 $93.11 $96.63of)NOPLAT 3.75% $74.59 $77.67 $80.84 $84.11 $87.46 $90.91 $94.45 $98.10 $101.84
4.00% $78.71 $82.00 $85.38 $88.86 $92.44 $96.12 $99.91 $103.80 $107.794.25% $83.45 $86.98 $90.61 $94.34 $98.18 $102.13 $106.19 $110.36 $114.654.50% $88.98 $92.79 $96.70 $100.73 $104.87 $109.13 $113.51 $118.02 $122.64
Beta$83.10 0.800 0.850 0.900 0.950 0.999 1.050 1.100 1.150 1.2004.00% $136.98 $126.80 $118.07 $110.51 $104.00 $98.03 $92.83 $88.18 $83.994.25% $126.80 $117.57 $109.63 $102.73 $96.79 $91.32 $86.55 $82.28 $78.434.50% $118.07 $109.63 $102.35 $96.01 $90.55 $85.51 $81.11 $77.16 $73.604.75% $110.51 $102.73 $96.01 $90.15 $85.09 $80.42 $76.34 $72.67 $69.35
Risk)Premium 4.85% $107.75 $100.21 $93.70 $88.01 $83.10 $78.56 $74.59 $71.02 $67.805.00% $103.88 $96.68 $90.44 $84.99 $80.28 $75.93 $72.12 $68.70 $65.605.25% $98.03 $91.32 $85.51 $80.42 $76.02 $71.94 $68.37 $65.16 $62.265.50% $92.83 $86.55 $81.11 $76.34 $72.20 $68.37 $65.02 $61.99 $59.265.75% $88.18 $82.28 $77.16 $72.67 $68.77 $65.16 $61.99 $59.14 $56.55
Beta$83.10 0.800 0.850 0.900 0.950 0.999 1.050 1.100 1.150 1.2002.50% $85.57 $81.00 $76.92 $73.24 $69.98 $66.90 $64.15 $61.63 $59.312.75% $90.02 $84.92 $80.38 $76.32 $72.75 $69.38 $66.39 $63.66 $61.153.00% $95.11 $89.35 $84.27 $79.77 $75.82 $72.12 $68.85 $65.88 $63.173.25% $100.95 $94.40 $88.68 $83.63 $79.24 $75.16 $71.57 $68.32 $65.37
CV)Growth 3.50% $107.75 $100.21 $93.70 $88.01 $83.10 $78.56 $74.59 $71.02 $67.80of)NOPLAT 3.75% $115.76 $106.98 $99.48 $93.01 $87.46 $82.38 $77.96 $74.02 $70.48
4.00% $125.32 $114.95 $106.22 $98.76 $92.44 $86.70 $81.76 $77.38 $73.464.25% $136.95 $124.48 $114.15 $105.46 $98.18 $91.64 $86.06 $81.15 $76.794.50% $151.38 $136.07 $123.64 $113.36 $104.87 $97.34 $90.97 $85.42 $80.54
2)J)5)Year)Revenue)Growth$83.10 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%
4.00% $72.04 $74.94 $77.93 $81.00 $84.15 $87.40 $90.73 $94.16 $97.68
5.00% $71.77 $74.67 $77.65 $80.72 $83.88 $87.12 $90.46 $93.89 $97.416.00% $71.49 $74.39 $77.37 $80.44 $83.60 $86.84 $90.18 $93.61 $97.137.00% $71.20 $74.10 $77.09 $80.16 $83.31 $86.56 $89.89 $93.32 $96.84
CapEx 7.76% $70.98 $73.88 $76.86 $79.93 $83.09 $86.34 $89.67 $93.10 $96.62Growth 8.00% $70.91 $73.81 $76.79 $79.86 $83.02 $86.27 $89.60 $93.03 $96.55
9.00% $70.61 $73.51 $76.49 $79.56 $82.72 $85.97 $89.30 $92.73 $96.2510.00% $70.31 $73.21 $76.19 $79.26 $82.42 $85.66 $89.00 $92.42 $95.9511.00% $69.99 $72.89 $75.88 $78.95 $82.10 $85.35 $88.68 $92.11 $95.63
