ANSYS, INC. Business
Ansys , aDelaware corporation formed in 1994, develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, electronics, semiconductors, energy, materials and chemical processing, turbomachinery, consumer products, healthcare, and sports. Headquartered south ofPittsburgh, Pennsylvania , we employed approximately 4,800 people as ofDecember 31, 2020 . We focus on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. We distribute our suite of simulation technologies through direct sales offices in strategic, global locations and a global network of independent resellers and distributors (collectively, channel partners). It is our intention to continue to maintain this hybrid sales and distribution model. Our strategy of Pervasive Engineering Simulation seeks to deepen the use of simulation in our core, to inject simulation throughout the product lifecycle and to embed simulation into our partners' ecosystems. The engineering software simulation market is strong and growing. Its market growth is driven by customers' need for rapid, quality innovation in a cost efficient manner, enabling faster time to market of new products and lower warranty costs. While the transition away from physical prototyping toward simulation is prevalent through all industries, its demand is heightened by investments in high-growth solutions, including 5G, electrification, autonomous and the IIoT. Our strategy of Pervasive Engineering Simulation is aligned with the market growth. We license our technology to businesses, educational institutions and governmental agencies. Growth in our revenue is affected by the strength of global economies, general business conditions, currency exchange rate fluctuations, customer budgetary constraints and the competitive position of our products. We believe that the features, functionality and integrated multiphysics capabilities of our software products are as strong as they have ever been. However, the software business is generally characterized by long sales cycles. These long sales cycles increase the difficulty of predicting sales for any particular quarter. We make many operational and strategic decisions based upon short- and long-term sales forecasts that are impacted not only by these long sales cycles, but also by current global economic conditions, including the impact of the current COVID-19 pandemic. As a result, we believe that our overall performance is best measured by fiscal year results rather than by quarterly results. Please see the sub-section entitled "Company Operational Risks" under Part I. Item 1A. of this Annual Report on Form 10-K for additional discussion of the potential impact of our sales forecasts on our financial condition, cash flows and operating results. Management considers the competition and price pressure that it faces in the short- and long-term by focusing on expanding the breadth, depth, ease of use and quality of the technologies, features, functionality and integrated multiphysics capabilities of our software products as compared to our competitors; investing in research and development to develop new and innovative products and increase the capabilities of our existing products; supplying new products and services; focusing on customer needs, training, consulting and support; and enhancing our distribution channels. We also consider acquisitions to supplement our global engineering talent, product offerings and distribution channels. Overview Impact of COVID-19 We are continuing to closely monitor the spread of COVID-19 and have employed measures to mitigate its potential effects on our business as described in this Annual Report on Form 10-K. The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our business and our employees. The health and safety of our employees and their families, our partners and our broadAnsys community around the world is a high priority. At the onset of the crisis, we took action to enable our employees to work from home. We closed our offices (including our corporate headquarters), transitioned to a remote work environment and implemented certain travel restrictions, each of which have disrupted how we operate our business. We are continuing to monitor the situation, but as of now remote access remains the primary means of work for a majority of our workforce. Remote work arrangements have not adversely affected our ability to maintain effective financial operations, including our financial reporting systems, internal controls over financial reporting and disclosure controls and procedures. We expect to maintain these effective controls as we continue to work remotely during the COVID-19 pandemic. The impact from the rapidly changing market and economic conditions due to the COVID-19 pandemic has disrupted the business of our customers and partners, and has impacted our business and consolidated results of operations. Our current expectations regarding future performance are subject to significant uncertainty and dependent upon how widespread the virus 30 -------------------------------------------------------------------------------- Table of Content s becomes, the duration and severity of the outbreak, the geographic markets affected, the actions taken by governmental authorities to contain the spread of the virus, including the shelter-in-place orders, the nature and scope of government economic recovery measures and other factors. The spread of the virus and economic deterioration caused by the virus have had an adverse impact on our business and, in the future, could have a material adverse impact on our business, as well as on our ability to achieve our financial guidance. We continue to adjust our spending to reflect our expectations for the pace at which economic recovery will occur, while balancing the need to invest for the long-term opportunity. We have also maintained and intend to maintain our commitment to invest in our acquisitions, R&D and certain digital transformation projects, in particular our CRM and human resources information system (HRIS) projects, as those projects are critical to our ability to operate efficiently and scale the business for future growth. During 2020, we onboarded our partner community in CRM and we implemented several HRIS modules, including remote on-boarding. In addition, we continue to strategically invest in research and development, enabling us to stay on track with our product release targets. Please see "Risk Factors" under Part I. Item 1A. of this Annual Report on Form 10-K for discussion on additional business risks, including those associated with the COVID-19 pandemic. Overall GAAP and Non-GAAP Results This section includes a discussion of GAAP and Non-GAAP results. For reconciliations of Non-GAAP results to GAAP results, see the section titled "Non-GAAP Results" herein. Our GAAP and non-GAAP results for the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 reflected the following variances: Year Ended December 31, 2020 GAAP Non-GAAP Revenue 10.9 % 10.9 % Operating income (3.6) % 5.3 %
Diluted earnings per share (5.3) % 1.8 %
We experienced an increase in revenue during the year endedDecember 31, 2020 due to growth in lease licenses, maintenance and service revenue and contributions from our recent acquisitions, partially offset by reductions in perpetual license revenue. The COVID-19 pandemic and trade restrictions withChina adversely impacted our revenue during the year endedDecember 31, 2020 with the most pronounced reductions occurring in perpetual licenses. However, due to our diverse customer base, both from a vertical and geographic perspective, as well as the close relationships with customers, we were able to conduct a large amount of business remotely, which partially mitigated the impacts of the COVID-19 outbreak. We also experienced increased operating expenses primarily due to increased personnel costs, higher stock-based compensation and additional operating expenses related to acquisitions. While our hiring pace was slowed and certain discretionary operational expenses, such as travel, were reduced, the COVID-19 pandemic did not have a material impact on our operating expenses during the year endedDecember 31, 2020 . The non-GAAP results exclude the income statement effects of the acquisition accounting adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets, transaction expenses related to business combinations, and adjustments related to the transition tax associated with the Tax Cuts and Jobs Act. Impact of Foreign Currency Our comparative financial results were impacted by fluctuations in theU.S. Dollar during the year endedDecember 31, 2020 as compared to the year endedDecember 31, 2019 . The net favorable impacts on our GAAP and non-GAAP revenue and operating income as a result of the weakenedU.S. Dollar when measured against our primary foreign currencies are reflected in the table below. Year Ended December 31, 2020 (in thousands) GAAP Non-GAAP Revenue$ 16,841 $ 16,775 Operating income$ 11,986 $ 12,211 31
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In constant currency, our variances were as follows:
Year Ended December 31, 2020
GAAP Non-GAAP
Revenue 9.8 % 9.8 %
Operating income (6.0) % 3.5 %
Constant currency amounts exclude the effects of foreign currency fluctuations
on the reported results. To present this information, the 2020 results for
entities whose functional currency is a currency other than the U.S. Dollar were
converted to U.S. Dollars at rates that were in effect for the 2019 comparable
period, rather than the actual exchange rates in effect for 2020. Constant
currency growth rates are calculated by adjusting the 2020 reported revenue and
operating income amounts by the 2020 currency fluctuation impacts and comparing
to the 2019 comparable period reported revenue and operating income amounts.
Other Key Business Metric
Annual Contract Value (ACV) is one of our key performance metrics and is useful
to investors in assessing the strength and trajectory of our business. Given
that revenue is variable due to the upfront revenue recognition of multi-year
lease license sales, we provide ACV as a supplemental metric to help evaluate
the annual performance of the business. Summed over the long term, ACV and
revenue lead to similar outcomes. However, there will be years where ACV growth
lags revenue growth and other years where ACV growth leads revenue growth. It is
used by management in financial and operational decision-making and in setting
sales targets used for compensation. ACV should be viewed independently of
revenue and deferred revenue as ACV is a performance metric and is not intended
to be combined with any of these items. There is no GAAP measure comparable to
ACV. ACV is composed of the following:
•the annualized value of maintenance and lease contracts with start dates or
anniversary dates during the period, plus
•the value of perpetual license contracts with start dates during the period,
plus
•the annualized value of fixed-term services contracts with start dates or
anniversary dates during the period, plus
•the value of work performed during the period on fixed-deliverable services
contracts.
Our ACV was as follows:
Year Ended December 31, Change
(in thousands, except percentages) 2020 2019 Amount % Constant Currency %
ACV $ 1,616,301 $ 1,461,759 $ 154,542 10.6 9.3
Recurring ACV as a percentage of ACV 82.0 % 77.4 %
Recurring ACV is composed of both lease licenses and maintenance contracts. The
increase in recurring ACV reflected for the year ended December 31, 2020 has
been driven by a meaningful reduction in perpetual licenses and an increased
preference for lease licenses, due in part to the impacts of COVID-19.
While the resilience of our business is evident in the growth shown above, the
economic conditions due to the COVID-19 outbreak have disrupted the business of
our customers and partners, and have adversely impacted our business and
consolidated results. In addition, trade discussions between the U.S. and China
led to certain entities being placed on a restricted entity list. These
restrictions limited our ability to deliver products and services to these
customers. The 2019 operating results include approximately $20.0 million of ACV
related to transactions that occurred prior to the placement of the
restrictions. These restrictions remained in place throughout 2020.
Other Financial Information
Our financial position includes $913.2 million in cash and short-term
investments, and working capital of $990.4 million as of December 31, 2020 .
During the year ended December 31, 2020 , we repurchased 0.7 million shares for
$161.0 million at an average price of $233.48 per share under our stock
repurchase program, all of which occurred during the first quarter. As of
December 31, 2020 , we had 2.8 million shares remaining available for repurchase
under our authorized share repurchase program.
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Geographic Trends
The following table presents our geographic constant currency revenue growth
during the year ended December 31, 2020 as compared to the year ended
December 31, 2019 :
Year Ended December 31, 2020
Americas 21.2 %Europe ,Middle East andAfrica (EMEA)
3.8 %
Asia-Pacific (2.1) %
Total 9.8 %
To drive growth, we continue to focus on a number of sales improvement
activities across the geographic regions, including sales hiring, pipeline
building, productivity initiatives and customer engagement activities.
Continued trade tensions between the U.S. and China , together with the
uncertainty around the COVID-19 outbreak, may further restrict our ability to
sell and distribute our products to certain customers and our ability to collect
against existing trade receivables and could have an adverse effect on our
business, results of operations or financial condition. Refer to additional
details in "Risk Factors" under Part I. Item 1A. of this Annual Report on Form
10-K
Industry Commentary:
Our three largest industries - high-tech, automotive and aerospace and defense
(A&D) - remained strong throughout 2020 as companies accelerate their digital
transformation initiatives. The high-tech industry was positively impacted by
companies' continued investments in the development of the next generation of
increasingly complex chips and technology to support the applications of 5G,
autonomy and other high growth areas. The automotive industry maintained its
growth through the development of electrification and autonomous technologies.
While the commercial aviation sector continues to be significantly impacted by
the dramatic reduction in demand for global air travel, the continued needs of
national security ensure that the defense segment has remained strong and buoyed
our overall performance in the aerospace and defense industry.
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Acquisitions
We make targeted acquisitions in order to support our long-term strategic
direction, accelerate innovation, provide increased capabilities to our existing
products, supply new products and services, expand our customer base and enhance
our distribution channels. Our recent acquisitions are as follows:
Date of Closing Company Purchase Price Details
2020 Acquisitions
December 1, 2020 AGI$722.5 million AGI, a premier provider of mission-simulation, modeling, testing and analysis software for aerospace, defense and intelligence applications, expands the scope of our offerings, empowering users to solve challenges by simulating from the chip level all the way to a customer's entire mission. April 1, 2020 Lumerical$107.5 million Lumerical, a leading developer of photonic design and simulation tools, adds best-in-class photonic products to our multiphysics portfolio, providing customers with a full set of solutions to solve
their next-generation product challenges. 2019 Acquisitions
November 1, 2019 LST$781.5 million LST, the premier provider of explicit dynamics and other advanced finite element analysis technology, empowers our customers to solve a new class of engineering challenges, including developing safer automobiles, aircraft and trains while reducing or even eliminating the need for costly physical testing. November 1, 2019 Dynardo (1) Dynardo, a leading provider of multidisciplinary analysis and optimization technology, gives our customers access to a full suite of process integration and robust design tools - empowering users to identify optimal product designs faster and more economically. May 1, 2019 DfR Solutions (1) DfR Solutions' electronics reliability technology, combined with our existing comprehensive multiphysics portfolio, gives our customers a complete designer-level solution to analyze for electronics failure earlier in the design cycle. February 4, 2019 Helic (1) Helic, the industry-leading provider of electromagnetic crosstalk solutions for systems on chips, combined with our flagship electromagnetic and semiconductor solvers, provides a comprehensive solution for on-chip, 3D integrated circuit and chip-package-system electromagnetics and noise analysis. February 1, 2019 Granta Design$208.7 million Granta Design, the premier provider of materials information technology, expands our portfolio into this important area, giving customers access to materials intelligence, including data that is critical to successful simulations. 2018 Acquisition May 2, 2018 OPTIS$291.0 million OPTIS, a premier provider of software for scientific simulation of light, human vision and physics-based visualization, extends our portfolio into the area of optical simulation to provide comprehensive sensor solutions, covering visible and infrared light, electromagnetics and acoustics for camera, radar and lidar.
(1) The combined purchase price of these acquisitions was
For further information on our business combinations during the years ended
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Results of Operations
For purposes of the following discussion and analysis, the table below sets
forth certain consolidated financial data for the years 2020, 2019 and 2018. The
operating results of our acquisitions have been included in the results of
operations since their respective acquisition dates.
Year Ended December 31,
(in thousands) 2020 2019 2018
Revenue:
Software licenses $ 780,850 $ 699,630 $ 576,717
Maintenance and service 900,447 816,262 716,919
Total revenue 1,681,297 1,515,892 1,293,636
Cost of sales:
Software licenses 30,618 23,944 18,619
Amortization 40,642 21,710 27,034
Maintenance and service 154,004 120,619 110,232
Total cost of sales 225,264 166,273 155,885
Gross profit 1,456,033 1,349,619 1,137,751
Operating expenses:
Selling, general and administrative 587,707 521,200 413,580
Research and development 355,371 298,210 233,802
Amortization 16,599 15,169 13,795
Total operating expenses 959,677 834,579 661,177
Operating income 496,356 515,040 476,574
Interest income 5,073 12,796 11,419
Interest expense (10,988) (3,461) (59)
Other income (expense), net 3,484 (1,792) (849)
Income before income tax provision 493,925 522,583 487,085
Income tax provision 60,038 71,288 67,710
Net income $ 433,887 $ 451,295 $ 419,375
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Year Ended
Year Ended December 31, Change
(in thousands, except percentages) 2020 2019 Amount % Constant Currency %
ACV $ 1,616,301 $ 1,461,759 $ 154,542 10.6 9.3
Recurring ACV as a percentage of ACV 82.0 % 77.4 %
Revenue:
Year Ended December 31, Change
(in thousands, except percentages) 2020 2019 Amount % Constant Currency %
Revenue:
Lease licenses $ 500,105 $ 406,043 $ 94,062 23.2 21.3
Perpetual licenses 280,745 293,587 (12,842) (4.4) (5.4)
Software licenses 780,850 699,630 81,220 11.6 10.1
Maintenance 840,597 760,574 80,023 10.5 9.8
Service 59,850 55,688 4,162 7.5 6.8
Maintenance and service 900,447 816,262 84,185 10.3 9.6
Total revenue $ 1,681,297 $ 1,515,892 $ 165,405 10.9 9.8
Our revenue in the year ended December 31, 2020 increased 10.9% as compared to
the year ended December 31, 2019 , while revenue grew 9.8% in constant currency.
The growth rate was favorably impacted by our continued investments in our
global sales, support and marketing organizations, the timing and duration of
our multi-year lease contracts, and our 2020 and 2019 acquisitions product sales
contributed incremental revenue of $84.9 million . The growth rate was negatively
impacted by the trade restrictions between the United States and China , and the
impact of COVID-19. Lease license revenue increased 23.2%, or 21.3% in constant
currency, as compared to the year ended December 31, 2019 . Annual maintenance
contracts that were sold with new perpetual licenses, maintenance contracts for
new perpetual licenses sold in previous years and the maintenance portion of
lease license contracts collectively contributed to maintenance revenue growth
of 10.5%, or 9.8% in constant currency. Service revenue, driven primarily by a
focus on service offerings that provide mentorship on simulation best practices,
training and expanding simulation adoption, increased 7.5%, or 6.8% in constant
currency, as compared to the year ended December 31, 2019 . Perpetual license
revenue, which is derived primarily from new sales during the year ended
December 31, 2020 , decreased 4.4%, or 5.4% in constant currency, as compared to
the year ended December 31, 2019 .
We continue to experience increased interest by some of our larger customers in
enterprise agreements that often include longer-term, time-based licenses
involving a larger number of our software products. While these arrangements
typically involve a higher overall transaction price, the upfront recognition of
license revenue related to these larger, multi-year transactions can result in
significantly higher lease license revenue volatility. Software products, across
a large variety of applications and industries, are increasingly distributed in
software-as-a-service, cloud and other subscription environments in which the
licensing approach is time-based rather than perpetual, resulting in shifting
preferences from perpetual licenses to time-based licenses across a broader
spectrum of our customers. This dynamic was elevated in 2020 as a result of the
economic impacts of COVID-19, and we expect it to continue into the foreseeable
future.
In relation to COVID-19 and our revenue, we currently expect a recovery in the
business environment as reliable vaccines become more readily available.
Globally, businesses have not resumed full operations and our teams and those of
our customers will likely continue working remotely into 2021. As a result of
social distancing, our in-person demand generation events and those of our
channel partners have been canceled. While we have adjusted to have a stronger
digital focus, as evidenced by our hosting of our annual sales conference
virtually in January, the absence of certain events has had and is expected to
continue to have an adverse impact on our results, especially for certain
channel partners. In addition, we have experienced delays in the timing of
closing certain transactions, including large enterprise-type deals. These deals
are often multi-year leases which have a significant impact on our operating
results due to up-front revenue recognition of the license. We expect this trend
to continue and anticipate that customers will delay certain purchases, reduce
the size of planned purchases or forgo purchases that otherwise were expected to
occur. Additional waves or mutated variants of COVID-19 could result in renewed
shutdowns that stop or regress economic recovery.
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With respect to revenue, on average for the year ended December 31, 2020 , the
U.S. Dollar was approximately 2.4% weaker, when measured against our primary
foreign currencies, than for the year ended December 31, 2019 . The table below
presents the impacts of currency fluctuations on revenue for the year ended
December 31, 2020 . Amounts in brackets indicate a net adverse impact from
currency fluctuations.
(in thousands) Year Ended December 31, 2020
Euro $ 11,803
Japanese Yen 4,067
Taiwan Dollar 1,376
British Pound 1,078
Indian Rupee (1,294)
Other (189)
Total $ 16,841
The impacts from currency fluctuations resulted in increased operating income of
$12.0 million for the year ended December 31, 2020 as compared to the year ended
December 31, 2019 .
As a percentage of revenue, our international and domestic revenues, and our
direct and indirect revenues, were as follows:
Year Ended December 31,
2020 2019
International 53.8 % 57.9 %
Domestic 46.2 % 42.1 %
Direct 77.8 % 77.1 %
Indirect 22.2 % 22.9 %
In valuing deferred revenue on the balance sheets of our recent acquisitions as
of their respective acquisition dates, we applied the fair value provisions
applicable to the accounting for business combinations, resulting in a reduction
of deferred revenue as compared to the historical carrying amount. As a result,
our post-acquisition revenue will be less than the sum of what would have
otherwise been reported by us and each acquiree absent the acquisitions. The
impacts on reported revenue were $14.2 million and $12.5 million for the years
ended December 31, 2020 and 2019, respectively. The expected impacts on reported
revenue are $9.0 million and $19.5 million for the quarter ending March 31, 2021
and the year ending December 31, 2021 , respectively.
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Cost of Sales and Operating Expenses:
The tables below reflect our operating results as presented on the consolidated
statements of income, which are inclusive of foreign currency translation
impacts. Amounts included in the discussions that follow each table are provided
in constant currency and are inclusive of costs related to our acquisitions. The
impact of foreign exchange translation is discussed separately, where material.
The 2020 and 2019 acquisitions contributed $57.9 million to the overall increase
in cost of sales and operating expenses, inclusive of intangible asset
amortization, with the most significant contribution from LST (acquired November
1, 2019 ) of $37.9 million .
Year Ended December 31,
2020 2019 Change
% of % of
(in thousands, except percentages) Amount Revenue Amount Revenue Amount %
Cost of sales:
Software licenses $ 30,618 1.8 $ 23,944 1.6 $ 6,674 27.9
Amortization 40,642 2.4 21,710 1.4 18,932 87.2
Maintenance and service 154,004 9.2 120,619 8.0 33,385 27.7
Total cost of sales 225,264 13.4 166,273 11.0 58,991 35.5
Gross profit $ 1,456,033 86.6 $ 1,349,619 89.0 $ 106,414 7.9
Software Licenses: The increase in the cost of software licenses was due to
increased third-party royalties of $7.1 million .
Amortization: The increase in amortization expense was due to the amortization
of newly acquired intangible assets.
Maintenance and Service: The net increase in maintenance and service costs was
primarily due to the following:
•Increased salaries and other headcount-related costs of $15.8 million .
•Increased third-party technical support of $7.1 million .
•Increased stock-based compensation of $5.1 million .
•Increased consulting costs of $2.7 million .
•Increased IT maintenance and software hosting costs of $1.5 million .
•Increased costs related to foreign exchange translation of $1.1 million due to
a weaker U.S. Dollar.
•Decreased business travel of $2.2 million due to COVID-19.
The improvement in gross profit was a result of the increase in revenue,
partially offset by the increase in the related cost of
sales.
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Year Ended December 31,
2020 2019 Change
% of % of
(in thousands, except percentages) Amount Revenue Amount Revenue Amount %
Operating expenses:
Selling, general and administrative $ 587,707 35.0 $ 521,200 34.4 $ 66,507 12.8
Research and development 355,371 21.1 298,210 19.7 57,161 19.2
Amortization 16,599 1.0 15,169 1.0 1,430 9.4
Total operating expenses $ 959,677 57.1 $ 834,579 55.1 $ 125,098 15.0
Selling, General and Administrative: The net increase in selling, general and
administrative costs was primarily due to the following:
•Increased salaries, incentive compensation and other headcount-related costs of
$40.3 million .
•Increased stock-based compensation of $12.9 million .
•Increased third-party commissions of $8.4 million .
•Increased IT maintenance and software hosting costs of $5.2 million .
•Increased bad debt expense of $3.5 million due to expected losses related to
COVID-19.
•Increased marketing expenses of $3.0 million .
•Increased costs related to foreign exchange translation of $2.8 million due to
a weaker U.S. Dollar.
•Decreased business travel of $16.0 million due to COVID-19.
We anticipate that we will continue to make targeted investments in our global
sales and marketing organizations and our global business infrastructure to
enhance and support our revenue-generating activities.
Research and Development: The increase in research and development costs was
primarily due to the following:
•Increased salaries and other headcount-related costs of $38.0 million .
•Increased stock-based compensation of $11.4 million .
•Increased IT maintenance and software hosting costs of $4.4 million .
We have traditionally invested significant resources in research and development
activities and intend to continue to make investments in expanding the ease of
use and capabilities of our broad portfolio of simulation software products,
even with the on-going COVID-19 pandemic.
Interest Income: Interest income for the year ended December 31, 2020 was $5.1
million as compared to $12.8 million for the year ended December 31, 2019 .
Interest income decreased as a result of a lower interest rate environment and
the related decrease in the average rate of return on invested cash balances.
Interest Expense: Interest expense for the year ended December 31, 2020 was
$11.0 million as compared to $3.5 million for the year ended December 31, 2019 .
Interest expense increased as a result of the interest incurred on debt
financing obtained in connection with the acquisitions of AGI and LST in the
fourth quarters of 2020 and 2019, respectively.
Other Income (Expense), net: Our other income (expense) consisted of the
following:
Year Ended December 31,
(in thousands) 2020 2019
Investment gains, net $ 3,648 $ 333
Foreign currency losses, net (194) (2,510)
Other 30 385
Total other income (expense), net $ 3,484 $ (1,792)
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Table of Content s Income Tax Provision: Our income before income tax provision, income tax provision and effective tax rate were as follows:
Year Ended December 31,
(in thousands, except percentages) 2020 2019
Income before income tax provision $ 493,925 $ 522,583
Income tax provision $ 60,038 $ 71,288
Effective tax rate 12.2 % 13.6 %
The decrease in the effective tax rate from the prior year was primarily due to
tax benefits of $7.5 million related to entity structuring activities and
increased benefits from research and development credits of $4.1 million . These
benefits were partially offset by decreased benefits of $6.1 million in the
foreign-derived intangible income (FDII) deduction and the decrease in releases
of valuation allowance of $2.6 million .
When compared to the federal and state combined statutory rate for each
respective period, the effective tax rates for the years ended December 31, 2020
and 2019 were also favorably impacted by tax benefits from stock-based
compensation, the FDII deduction, and research and development credits.
Net Income: Our net income, diluted earnings per share and weighted average
shares used in computing diluted earnings per share were as follows:
Year Ended
(in thousands, except per share data) 2020 2019
Net income $ 433,887
Diluted earnings per share $ 4.97 Weighted average shares outstanding - diluted 87,288
85,925
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Year Ended
Year Ended December 31, Change
(in thousands, except percentages) 2019 2018 Amount % Constant Currency %
ACV $ 1,461,759 $ 1,325,211 $ 136,548 10.3 12.0
Recurring ACV as a percentage of ACV 77.4 % 76.9 %
Revenue:
Year Ended December 31, Change
(in thousands, except percentages) 2019 2018 Amount % Constant Currency %
Revenue:
Lease licenses $ 406,043 $ 275,619 $ 130,424 47.3 49.4
Perpetual licenses 293,587 301,098 (7,511) (2.5) (1.1)
Software licenses 699,630 576,717 122,913 21.3 23.1
Maintenance 760,574 676,883 83,691 12.4 14.3
Service 55,688 40,036 15,652 39.1 41.5
Maintenance and service 816,262 716,919 99,343 13.9 15.8
Total revenue $ 1,515,892 $ 1,293,636 $ 222,256 17.2 19.0
Our revenue in the year ended December 31, 2019 increased 17.2% as compared to
the year ended December 31, 2018 , or 19.0% in constant currency. The growth rate
was favorably impacted by our continued investments in our global sales, support
and marketing organizations, as well as our 2019 and 2018 acquisitions which
contributed incremental revenue of $72.9 million . Lease license revenue
increased 47.3%, or 49.4% in constant currency, as compared to the year ended
December 31, 2018 , driven primarily by an increase in multi-year lease
contracts. Annual maintenance contracts that were sold with new perpetual
licenses, maintenance contracts for new perpetual licenses sold in previous
years and the maintenance portion of lease license contracts each contributed to
maintenance revenue growth of 12.4%, or 14.3% in constant currency. Service
revenue, driven primarily by a focus on service offerings that provide on-site
mentorship on simulation best practices, training and expanding simulation
adoption, increased 39.1%, or 41.5% in constant currency, as compared to the
year ended December 31, 2018 . Perpetual license revenue, which is derived
primarily from new sales during the year ended December 31, 2019 , decreased
2.5%, or 1.1% in constant currency, as compared to the year ended December 31,
2018 .
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With respect to revenue, on average for the year ended December 31, 2019 , the
U.S. Dollar was approximately 3.3% stronger, when measured against our primary
foreign currencies, than for the year ended December 31, 2018 . The table below
presents the impacts of currency fluctuations on revenue for the year ended
December 31, 2019 . Amounts in brackets indicate an adverse impact from currency
fluctuations.
(in thousands) Year Ended December 31, 2019
Euro $ (17,361)
South Korean Won (5,097)
British Pound (1,881)
Japanese Yen 1,791
Other (1,460)
Total $ (24,008)
The impacts from currency fluctuations resulted in decreased operating income of
$10.2 million for the year ended December 31, 2019 as compared to the year ended
December 31, 2018 .
As a percentage of revenue, our international and domestic revenues, and our
direct and indirect revenues, were as follows:
Year Ended December 31,
2019 2018
International 57.9 % 60.9 %
Domestic 42.1 % 39.1 %
Direct 77.1 % 77.6 %
Indirect 22.9 % 22.4 %
In valuing deferred revenue on the balance sheets of our recent acquisitions as
of their respective acquisition dates, we applied the fair value provisions
applicable to the accounting for business combinations, resulting in a reduction
of deferred revenue as compared to the historical carrying amount. As a result,
our post-acquisition revenue will be less than the sum of what would have
otherwise been reported by us and each acquiree absent the acquisitions. The
impacts on reported revenue were $12.5 million and $9.4 million for the years
ended December 31, 2019 and 2018, respectively.
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Cost of Sales and Operating Expenses:
The tables below reflect our operating results as presented on the consolidated
statements of income, which are inclusive of foreign currency translation
impacts. Amounts included in the discussions that follow each table are provided
in constant currency and are inclusive of costs related to our acquisitions. The
impact of foreign exchange translation is discussed separately, where material.
The 2019 and 2018 acquisitions contributed $54.7 million to the overall increase
in cost of sales and operating expenses with the most significant contributions
from the OPTIS (May 2, 2018 ) and Granta Design (February 1, 2019 ) acquisitions
of $17.3 million and $18.9 million , respectively.
Year Ended December 31,
2019 2018 Change
% of % of
(in thousands, except percentages) Amount Revenue Amount Revenue Amount %
Cost of sales:
Software licenses $ 23,944 1.6 $ 18,619 1.4 $ 5,325 28.6
Amortization 21,710 1.4 27,034 2.1 (5,324) (19.7)
Maintenance and service 120,619 8.0 110,232 8.5 10,387 9.4
Total cost of sales 166,273 11.0 155,885 12.1 10,388 6.7
Gross profit $ 1,349,619 89.0 $ 1,137,751 87.9 $ 211,868 18.6
Software Licenses: The increase in the cost of software licenses was primarily
due to increased third-party royalties of $5.6 million .
Amortization: The net decrease in amortization expense was primarily due to a
decrease in the amortization of trade names and acquired technology due to
assets that became fully amortized, which was partially offset by the
amortization of newly acquired intangible assets.
Maintenance and Service: The net increase in maintenance and service costs was
primarily due to the following:
•Increased salaries of $4.0 million .
•Increased stock-based compensation of $3.3 million .
•Increased consulting costs of $1.7 million .
•Increased IT maintenance and software hosting costs of $1.3 million .
•Decreased costs related to foreign exchange translation of $2.0 million due to
a stronger U.S. Dollar.
The improvement in gross profit was a result of the increase in revenue,
partially offset by the increase in the related cost of sales.
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Year Ended December 31,
2019 2018 Change
% of % of
(in thousands, except percentages) Amount Revenue Amount Revenue Amount %
Operating expenses:
Selling, general and administrative $ 521,200 34.4 $ 413,580 32.0 $ 107,620 26.0
Research and development 298,210 19.7 233,802 18.1 64,408 27.5
Amortization 15,169 1.0 13,795 1.1 1,374 10.0
Total operating expenses $ 834,579 55.1 $ 661,177 51.1 $ 173,402 26.2
Selling, General and Administrative: The net increase in selling, general and
administrative costs was primarily due to the following:
•Increased salaries, incentive compensation and other headcount-related costs of
$63.7 million .
•Increased stock-based compensation of $13.5 million .
•Increased business travel of $6.5 million .
•Increased marketing expenses of $5.4 million .
•Increased professional fees of $4.5 million .
•Increased consulting costs of $4.2 million .
•Decreased costs related to foreign exchange translation of $7.1 million due to
a stronger U.S. Dollar.
Research and Development: The increase in research and development costs was
primarily due to the following:
•Increased salaries, incentive compensation and other headcount-related costs of
$41.1 million .
•Increased stock-based compensation of $16.0 million .
Interest Income: Interest income for the year ended December 31, 2019 was $12.8
million as compared to $11.4 million for the year ended December 31, 2018 .
Interest income increased as a result of an increase in the average rate of
return on invested cash balances.
Interest Expense: Interest expense for the year ended December 31, 2019 was $3.5
million as compared to $0.1 million for the year ended December 31, 2018 .
Interest expense increased as a result of the interest incurred on debt
financing obtained in fiscal year 2019.
Other Expense, net: Our other expense consisted of the following:
Year Ended December 31,
(in thousands) 2019 2018
Foreign currency losses, net $ (2,510) $ (3,058)
Investment gains, net 333 2,204
Other 385 5
Total other expense, net $ (1,792) $ (849) Income Tax Provision: Our income before income tax provision, income tax provision and effective tax rate were as follows:
Year Ended December 31,
(in thousands, except percentages) 2019 2018
Income before income tax provision $ 522,583 $ 487,085
Income tax provision $ 71,288 $ 67,710
Effective tax rate 13.6 % 13.9 %
The decrease in the effective tax rate from the prior year was primarily due to
$6.7 million of benefit related to the release of a valuation allowance in a
foreign jurisdiction and $1.8 million of benefit related to transition tax
recorded in 2019. These
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benefits are offset by $6.7 million of benefit recorded in 2018 related to
global legal entity restructuring activities that did not recur in 2019.
When compared to the federal and state combined statutory rate for each
respective period, the effective tax rates for the years ended December 31, 2019
and 2018 were favorably impacted by tax benefits from stock-based compensation,
the foreign-derived intangible income deduction, and research and development
credits.
Net Income: Our net income, diluted earnings per share and weighted average
shares used in computing diluted earnings per share were as follows:
Year Ended
(in thousands, except per share data) 2019 2018
Net income $ 451,295
Diluted earnings per share $ 5.25 Weighted average shares outstanding - diluted 85,925
85,913
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Non-GAAP Results
We provide non-GAAP revenue, non-GAAP gross profit, non-GAAP gross profit
margin, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP
net income and non-GAAP diluted earnings per share as supplemental measures to
GAAP regarding our operational performance. These financial measures exclude the
impact of certain items and, therefore, have not been calculated in accordance
with GAAP. A detailed explanation and a reconciliation of each non-GAAP
financial measure to its most comparable GAAP financial measure are included
below.
ANSYS, INC. AND SUBSIDIARIES
Reconciliationsof GAAP to Non-GAAP Measures
(Unaudited)
Year Ended December 31, 2020
(in thousands, except
percentages and per share Operating
data) Revenue Gross Profit % Income % Net Income EPS - Diluted1
Total GAAP $ 1,681,297 $ 1,456,033 86.6 % $ 496,356 29.5 % $ 433,887 $ 4.97
Acquisition accounting for
deferred revenue 14,201 14,201 0.1 % 14,201 0.6 % 14,201 0.16
Stock-based compensation
expense - 13,626 0.8 % 145,615 8.6 % 145,615 1.66
Excess payroll taxes related
to stock-based awards - 813 0.1 % 10,111 0.6 % 10,111 0.12
Amortization of intangible
assets from acquisitions - 40,642 2.4 % 57,241 3.4 % 57,241 0.66
Transaction expenses related
to business combinations - - - % 5,129 0.3 % 5,129 0.06
Rabbi trust (income) /
expense - - - % - - % (6) -
Adjustment for income tax
effect - - - % - - % (81,574) (0.93)
Total non-GAAP $ 1,695,498 $ 1,525,315 90.0 % $ 728,653 43.0 % $ 584,604 $ 6.70
1 Diluted weighted average shares were 87,288.
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Year Ended December 31, 2019
(in thousands, except
percentages and per share Operating
data) Revenue Gross Profit % Income % Net Income EPS - Diluted1
Total GAAP $ 1,515,892 $ 1,349,619 89.0 % $ 515,040 34.0 % $ 451,295 $ 5.25
Acquisition accounting for
deferred revenue 12,514 12,514 0.1 % 12,514 0.5 % 12,514 0.15
Stock-based compensation
expense - 8,494 0.5 % 116,190 7.7 % 116,190 1.34
Excess payroll taxes related
to stock-based awards - 518 0.1 % 4,920 0.3 % 4,920 0.06
Amortization of intangible
assets from acquisitions - 21,710 1.4 % 36,879 2.4 % 36,879 0.43
Transaction expenses related
to business combinations - - - % 6,590 0.4 % 6,590 0.08
Rabbi trust (income) /
expense - - - % - - % (369) -
Adjustment related to the
Tax Cuts and Jobs Act - - - % - - % (1,834) (0.02)
Adjustment for income tax effect - - - % - - % (61,188) (0.71) Total non-GAAP$ 1,528,406 $ 1,392,855 91.1 %$ 692,133 45.3 %$ 564,997 $ 6.58
1 Diluted weighted average shares were 85,925.
Year Ended December 31, 2018
(in thousands, except
percentages and per share Operating
data) Revenue Gross Profit % Income % Net Income EPS - Diluted1
Total GAAP $ 1,293,636 $ 1,137,751 87.9 % $ 476,574 36.8 % $ 419,375 $ 4.88
Acquisition accounting for
deferred revenue 9,442 9,442 0.1 % 9,442 0.4 % 9,442 0.11
Stock-based compensation
expense - 5,224 0.4 % 83,346 6.4 % 83,346 0.97
Excess payroll taxes related
to stock-based awards - 354 0.1 % 4,299 0.4 % 4,299 0.05
Amortization of intangible
assets from acquisitions - 27,034 2.0 % 40,829 3.1 % 40,829 0.48
Transaction expenses related
to business combinations - - - % 3,526 0.3 % 3,526 0.04
Rabbi trust (income) /
expense - - - % - - % 71 -
Adjustment related to the
Tax Cuts and Jobs Act - - - % - - % 895 0.01
Adjustment for income tax effect - - - % - - % (47,898) (0.56) Total non-GAAP$ 1,303,078 $ 1,179,805 90.5 %$ 618,016 47.4 %$ 513,885 $ 5.98
1 Diluted weighted average shares were 85,913.
We use non-GAAP financial measures (a) to evaluate our historical and
prospective financial performance as well as our performance relative to our
competitors, (b) to set internal sales targets and spending budgets, (c) to
allocate resources, (d) to measure operational profitability and the accuracy of
forecasting, (e) to assess financial discipline over operational expenditures
and (f) as an important factor in determining variable compensation for
management and employees. In addition, many financial analysts that follow us
focus on and publish both historical results and future projections based on
non-GAAP
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financial measures. We believe that it is in the best interest of our investors
to provide this information to analysts so that they accurately report the
non-GAAP financial information. Moreover, investors have historically requested,
and we have historically reported, these non-GAAP financial measures as a means
of providing consistent and comparable information with past reports of
financial results.
While we believe that these non-GAAP financial measures provide useful
supplemental information to investors, there are limitations associated with the
use of these non-GAAP financial measures. These non-GAAP financial measures are
not prepared in accordance with GAAP, are not reported by all our competitors
and may not be directly comparable to similarly titled measures of our
competitors due to potential differences in the exact method of calculation. We
compensate for these limitations by using these non-GAAP financial measures as
supplements to GAAP financial measures and by reviewing the reconciliations of
the non-GAAP financial measures to their most comparable GAAP financial
measures.
The adjustments to these non-GAAP financial measures, and the basis for such
adjustments, are outlined below:
Acquisition accounting for deferred revenue. Historically, we have consummated
acquisitions in order to support our strategic and other business objectives. In
accordance with the fair value provisions applicable to the accounting for
business combinations, acquired deferred revenue is often recorded on the
opening balance sheet at an amount that is lower than the historical carrying
value. Although this acquisition accounting requirement has no impact on our
business or cash flow, it adversely impacts our reported GAAP revenue in the
reporting periods following an acquisition. In order to provide investors with
financial information that facilitates comparison of both historical and future
results, we provide non-GAAP financial measures which exclude the impact of the
acquisition accounting adjustment. We believe that this non-GAAP financial
adjustment is useful to investors because it allows investors to (a) evaluate
the effectiveness of the methodology and information used by us in our financial
and operational decision-making, and (b) compare our past and future reports of
financial results as the revenue reduction related to acquired deferred revenue
will not recur when related lease licenses and software maintenance contracts
are renewed in future periods.
Amortization of intangible assets from acquisitions. We incur amortization of
intangible assets, included in our GAAP presentation of amortization expense,
related to various acquisitions we have made. We exclude these expenses for the
purpose of calculating non-GAAP gross profit, non-GAAP gross profit margin,
non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income
and non-GAAP diluted earnings per share when we evaluate our continuing
operational performance because these costs are fixed at the time of an
acquisition, are then amortized over a period of several years after the
acquisition and generally cannot be changed or influenced by us after the
acquisition. Accordingly, we do not consider these expenses for purposes of
evaluating our performance during the applicable time period after the
acquisition, and we exclude such expenses when making decisions to allocate
resources. We believe that these non-GAAP financial measures are useful to
investors because they allow investors to (a) evaluate the effectiveness of the
methodology and information used by us in our financial and operational
decision-making, and (b) compare our past reports of financial results as we
have historically reported these non-GAAP financial measures.
Stock-based compensation expense. We incur expense related to stock-based
compensation included in our GAAP presentation of cost of maintenance and
service; research and development expense; and selling, general and
administrative expense. This non-GAAP adjustment also includes excess payroll
tax expense related to stock-based compensation. Stock-based compensation
expense (benefit) incurred in connection with our deferred compensation plan
held in a rabbi trust includes an offsetting benefit (charge) recorded in other
income (expense). Although stock-based compensation is an expense and viewed as
a form of compensation, we exclude these expenses for the purpose of calculating
non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating income,
non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted
earnings per share when we evaluate our continuing operational performance. We
similarly exclude income (expense) related to assets held in a rabbi trust in
connection with our deferred compensation plan. Specifically, we exclude
stock-based compensation and income (expense) related to assets held in the
deferred compensation plan rabbi trust during our annual budgeting process and
our quarterly and annual assessments of our performance. The annual budgeting
process is the primary mechanism whereby we allocate resources to various
initiatives and operational requirements. Additionally, the annual review by our
board of directors during which it compares our historical business model and
profitability to the planned business model and profitability for the
forthcoming year excludes the impact of stock-based compensation. In evaluating
the performance of our senior management and department managers, charges
related to stock-based compensation are excluded from expenditure and
profitability results. In fact, we record stock-based compensation expense into
a stand-alone cost center for which no single operational manager is responsible
or accountable. In this way, we can review, on a period-to-period basis, each
manager's performance and assess financial discipline over operational
expenditures without the effect of stock-based compensation. We believe that
these non-GAAP financial measures are useful to investors because they allow
investors to (a) evaluate our operating results and the effectiveness of the
methodology used by us to review our operating results, and (b) review
historical comparability in our financial reporting as well as comparability
with competitors' operating results.
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Transaction expenses related to business combinations. We incur expenses for
professional services rendered in connection with business combinations, which
are included in our GAAP presentation of selling, general and administrative
expense. These expenses are generally not tax-deductible. We exclude these
acquisition-related transaction expenses, derived from announced acquisitions,
for the purpose of calculating non-GAAP operating income, non-GAAP operating
profit margin, non-GAAP net income and non-GAAP diluted earnings per share when
we evaluate our continuing operational performance, as we generally would not
have otherwise incurred these expenses in the periods presented as a part of our
operations. We believe that these non-GAAP financial measures are useful to
investors because they allow investors to (a) evaluate our operating results and
the effectiveness of the methodology used by us to review our operating results,
and (b) review historical comparability in our financial reporting as well as
comparability with competitors' operating results.
Tax Cuts and Jobs Act. We recorded impacts to our income tax provision related
to the enactment of the Tax Cuts and Jobs Act of 2017, specifically for the
transition tax related to unrepatriated cash. We exclude these impacts for the
purpose of calculating non-GAAP net income and non-GAAP diluted earnings per
share when we evaluate our continuing operational performance, as (i) the
charges are not expected to recur as part of our normal operations and (ii) the
charges resulted from the extremely infrequent event of major U.S. tax reform,
the last such reform having occurred in 1986. We believe that these non-GAAP
financial measures are useful to investors because they allow investors to
(a) evaluate our operating results and the effectiveness of the methodology used
by us to review our operating results, and (b) review historical comparability
in our financial reporting.
Non-GAAP tax provision. We utilize a normalized non-GAAP annual effective tax
rate (AETR) to calculate non-GAAP measures. This methodology provides better
consistency across interim reporting periods by eliminating the effects of
non-recurring items and aligning the non-GAAP tax rate with our expected
geographic earnings mix. To project this rate, we analyzed our historic and
projected non-GAAP earnings mix by geography along with other factors such as
our current tax structure, recurring tax credits and incentives, and expected
tax positions. On an annual basis we will re-evaluate this rate for significant
items that may materially affect our projections.
Non-GAAP financial measures are not in accordance with, or an alternative for,
GAAP. Our non-GAAP financial measures are not meant to be considered in
isolation or as a substitute for comparable GAAP financial measures and should
be read only in conjunction with our consolidated financial statements prepared
in accordance with GAAP.
We have provided a reconciliation of the non-GAAP financial measures to the most
directly comparable GAAP financial measures as listed below:
GAAP Reporting Measure Non-GAAP Reporting Measure
Revenue Non-GAAP Revenue
Gross Profit Non-GAAP Gross Profit
Gross Profit Margin Non-GAAP Gross Profit Margin
Operating Income Non-GAAP Operating Income
Operating Profit Margin Non-GAAP Operating Profit Margin
Net Income Non-GAAP Net Income
Diluted Earnings Per Share Non-GAAP Diluted Earnings Per Share
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Liquidity and Capital Resources
As of December 31, Change
(in thousands, except percentages) 2020 2019 Amount %
Cash, cash equivalents and short-term
investments $ 913,151 $ 872,382 $ 40,769 4.7
Working capital $ 990,412 $ 860,340 $ 130,072 15.1
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist primarily of highly liquid investments such as
money market funds and deposits held at major banks. Short-term investments
consist primarily of deposits held by certain of our foreign subsidiaries with
original maturities of three months to one year. The following table presents
our foreign and domestic holdings of cash, cash equivalents and short-term
investments:
As of December 31,
(in thousands, except percentages) 2020 % of Total 2019 % of Total Domestic$ 582,882 63.8$ 626,433 71.8 Foreign 330,269 36.2 245,949 28.2 Total$ 913,151 $ 872,382 In general, it is our intention to permanently reinvest all earnings in excess of previously taxed amounts. Substantially all of the pre-2018 earnings of our non-U.S. subsidiaries were taxed through the transition tax and post-2018 current earnings are taxed as part of global intangible low-taxed income tax expense. These taxes increase our previously taxed earnings and allow for the repatriation of the majority of our foreign earnings without any residualU.S. federal tax. While we believe that the financial reporting bases may be greater than the tax bases of investments in foreign subsidiaries for any earnings in excess of previously taxed amounts, such amounts are considered permanently reinvested. The cumulative temporary difference related to such permanently reinvested earnings is approximately$93.0 million and we would anticipate the tax effect on those earnings to be immaterial. The amount of cash, cash equivalents and short-term investments held by foreign subsidiaries is subject to translation adjustments caused by changes in foreign currency exchange rates as of the end of each respective reporting period, the offset to which is recorded in accumulated other comprehensive loss on our consolidated balance sheet. Cash Flows from Operating Activities Year Ended December 31, Change (in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Net cash provided by operating activities$ 547,310 $ 499,936 $ 484,988 $ 47,374 $ 14,948 Fiscal year 2020 as compared to fiscal year 2019 Net cash provided by operating activities increased during the current fiscal year due to increased net income (net of non-cash operating adjustments) of$25.8 million and increased net cash flows from operating assets and liabilities of$21.6 million . The growth in net cash provided by operating activities was impacted by strong customer receipts in the fourth quarter, including both the recovery of payments delayed from earlier in the year due to COVID-19, as well as the receipt of payments that were scheduled to be received in 2021. The growth was further aided by our ability to delay certain income, employment and indirect tax payments to 2021. Despite the strong cash flow, as the COVID-19 crisis lengthens, we continue to experience longer-term payment requests, particularly related to larger contract commitments. Fiscal year 2019 as compared to fiscal year 2018 Net cash provided by operating activities increased during the prior fiscal year due to increased net income (net of non-cash operating adjustments) of$107.4 million , partially offset by decreased net cash flows from operating assets and liabilities of$92.4 million . 50
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Cash Flows from Investing Activities
Year Ended December 31, Change
(in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Net cash used in investing activities
Fiscal year 2020 as compared to fiscal year 2019 Net cash used in investing activities decreased during the current fiscal year due primarily to decreased acquisition-related net cash outlays of$214.9 million and decreased capital expenditures of$9.6 million . We currently plan capital spending of$30.0 million to$40.0 million during fiscal year 2021 as compared to the$35.4 million that was spent in fiscal year 2020. The level of spending will depend on various factors, including the growth of the business, general economic conditions and the on going impact of COVID-19. Fiscal year 2019 as compared to fiscal year 2018 Net cash used in investing activities increased during the prior fiscal year due primarily to increased acquisition-related net cash outlays of$504.2 million and increased capital expenditures of$23.2 million . Cash Flows from Financing Activities Year Ended December 31, Change (in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 Net cash provided by (used in) financing activities$ 96,597 $ 429,409 $ (262,675) $ (332,812) $ 692,084 Fiscal year 2020 as compared to fiscal year 2019 Net cash provided by financing activities decreased during the current fiscal year due primarily to$500.0 million in proceeds from long-term debt incurred in fiscal year 2019 related to the LST acquisition, of which$75.0 million was repaid in 2020 prior to its maturity date, increased stock repurchases of$101.9 million , and increased restricted stock withholding taxes paid in lieu of issuing shares of$28.6 million , partially offset by$375.0 million in proceeds from long-term debt incurred in fiscal year 2020 related to the AGI acquisition. Fiscal year 2019 as compared to fiscal year 2018 Net cash provided by financing activities increased during the prior fiscal year due primarily to$500.0 million in proceeds from long-term debt incurred in fiscal year 2019 related to the LST acquisition and decreased stock repurchases of$210.7 million , partially offset by increased restricted stock withholding taxes paid in lieu of issuing shares of$13.6 million . 51 -------------------------------------------------------------------------------- Table of Content s Other Commitments - Term Loan Facilities and Operating Lease Obligations As ofDecember 31, 2020 , the carrying values of our term loans were$798.1 million , which is net of$1.9 million of unamortized debt issuance costs. Borrowings under the term loans accrue interest at the Eurodollar rate plus an applicable margin or at the base rate, at our election. The base rate is the applicable margin plus the highest of (i) the federal funds rate plus 0.500%, (ii) theBank of America prime rate and (iii) the Eurodollar rate plus 1.000%. The applicable margin for these borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated leverage ratio and (2) a pricing level determined by our debt ratings (if such debt ratings exist). The scheduled maturities of the term loans are as follows: (in thousands) 2021 $ - 2022 18,750 2023 37,500 2024 743,750 2025 - Total$ 800,000 We previously entered into noncancellable operating lease commitments, primarily for our domestic and international offices as well as certain operating equipment. The commitments related to these operating leases are as follows: (in thousands) 2021$ 27,311 2022 24,712 2023 21,522 2024 20,264 2025 17,076 Thereafter 50,438 Total$ 161,323 Other Cash Flow Information We believe that existing cash and cash equivalent balances of$912.7 million , together with cash generated from operations and access to the$500.0 million revolving credit facility, will be sufficient to meet our working capital and capital expenditure requirements through the next twelve months. Our cash requirements in the future may also be financed through additional equity or debt financings. However, future disruptions in the capital markets could make financing more challenging, and there can be no assurance that such financing can be obtained on commercially reasonable terms, or at all. We also believe that our liquidity will allow us to manage the anticipated impact of COVID-19 on our business operations for the foreseeable future. However, our 2020 operating cash flow benefited from cash receipts from customer payments originally scheduled to be paid in FY 2021, as well as customer receipts from December transactions that would have traditionally been paid in the following fiscal year. These activities collectively increased our FY 2020 operating cash flow and will decrease our FY 2021 operating cash flow by approximately$25.0 million . Additionally, FY 2020 operating cash flow benefited from$31.0 million related to the timing of various tax payments,$14.0 million of which will be due in 2021, resulting in a further shifting of operating cash flow between these two periods. Under our stock repurchase program, we repurchased shares as follows: Year Ended
(in thousands, except per share data) 2020 2019 2018
Number of shares repurchased 690 330 1,674
Average price paid per share $ 233.48 $ 179.41 $ 161.12
Total cost $ 161,029 $ 59,116 $ 269,801
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All of the shares of common stock repurchased during the year endedDecember 31, 2020 were repurchased in the first quarter. As ofDecember 31, 2020 , 2.8 million shares remained available for repurchase under the program. The authorized repurchase program does not have an expiration date, and the pace of the repurchase activity will depend on factors such as working capital needs, cash requirements for acquisitions, our stock price, and economic and market conditions. Our stock repurchases may be effected from time to time through open market purchases or pursuant to a Rule 10b5-1 plan. We continue to generate positive cash flows from operating activities and believe that the best uses of our excess cash are to invest in the business; acquire or make investments in complementary companies, products, services and technologies; and make payments on our outstanding debt balances. Any future acquisitions may be funded by available cash and investments, cash generated from operations, debt financing, or the issuance of additional securities. Additionally, we have in the past, and expect in the future, to repurchase stock in order to both offset dilution and return capital, in excess of our requirements, to stockholders with the goal of increasing stockholder value.
Off-Balance-Sheet Arrangements We do not have any special-purpose entities or off-balance-sheet arrangements.
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Contractual Obligations
Our significant contractual obligations as of December 31, 2020 are summarized
below:
Payments Due by Period
(in thousands) Total Within 1 year 2 - 3 years 4 - 5 years After 5 years
Long-term debt:
Principal payments $ 800,000 $ - $ 56,250 $ 743,750 $ -
Interest payments(1) 45,153 12,198 23,787 9,168 -
Global headquarters operating lease(2) 40,735 4,464 8,928 9,130 18,213
Other operating leases(3) 120,588 22,847 37,306 28,210 32,225
Unconditional purchase obligations(4) 74,925 44,865 27,509 2,551 -
Obligations related to uncertain tax
positions, including interest and
penalties(5) - - - - -
Other long-term obligations(6) 66,427 34,177 15,132 7,002 10,116
Total contractual obligations $ 1,147,828 $
118,551
(1)Interest on the long-term debt is estimated using the interest rate as ofDecember 31, 2020 , as the interest rate is variable. For additional information, see Note 10 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. (2)We previously entered into a lease agreement for 186,000 square feet of rentable space located in an office facility inCanonsburg, Pennsylvania , which serves as our headquarters. The term of the lease is 183 months, beginning onOctober 1, 2014 and expiring onDecember 31, 2029 . We have a one-time right to terminate the lease onDecember 31, 2025 by providing the landlord with at least 18 months' prior written notice of such termination. (3)Other operating leases primarily include noncancellable lease commitments for our other domestic and international offices as well as certain operating equipment. (4)Unconditional purchase obligations primarily include royalties and software licenses and services, which are unrecorded as ofDecember 31, 2020 . (5)We have$31.2 million of unrecognized tax benefits, including estimated interest and penalties, that have been recorded as liabilities in accordance with income tax accounting guidance for which we are uncertain as to if or when such amounts may be settled. As a result, such amounts are excluded from the table above. (6)Other long-term obligations primarily include third-party commissions and technical support of$42.3 million ; post-employment benefits, including pension obligations, of$13.9 million for certain foreign locations; deferred employment taxes of$6.9 million ; and office space restoration of$3.4 million . These amounts include the related current portions when applicable. 54 -------------------------------------------------------------------------------- Table of Content s Critical Accounting Policies and Estimates We believe that the following critical accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition: Our revenue is derived principally from the licensing of computer software products and from related maintenance contracts. We enter into contracts that include combinations of products, maintenance and services, which are accounted for as separate performance obligations with differing revenue recognition patterns. Revenue from perpetual licenses is classified as software license revenue. Software license revenue is recognized up front upon delivery of the licensed product and/or the utility that enables the customer to access authorization keys, provided that an enforceable contract has been received. Typically, our perpetual licenses are sold with post-contract support (PCS), which includes unspecified technical enhancements and customer support. We allocate value in bundled perpetual and PCS arrangements based on the standalone selling prices of the perpetual license and PCS. Revenue from PCS is classified as maintenance revenue and is recognized ratably over the term of the contract, as we satisfy the PCS performance obligation over time. In addition to perpetual licenses, we sell time-based lease licenses. Lease licenses are sold only as a bundled arrangement that includes the rights to a term software license and PCS. Utilizing observable inputs, we determined that 50% of the estimated standalone selling price of the lease license is attributable to the term license and 50% is attributable to the PCS. This determination considered the value relationship for our products between PCS and time-based lease licenses, the value relationship between PCS and perpetual licenses, the average economic life of our products, software renewal rates and the price of the bundled arrangement in relation to the perpetual licensing approach. Consistent with the perpetual sales, the license component is classified as software license revenue and recognized as revenue up front at the commencement of the lease upon delivery of the licensed product and/or utility that enables the customer to access authorization keys. The PCS is classified as maintenance revenue and is recognized ratably over the term of the contract, as we satisfy the PCS performance obligation over time. Revenue from training, support and other services is recognized as the services are performed. For contracts in which the service consists of a single performance obligation, such as providing a training class to a customer, we recognize revenue upon completion of the performance obligation. For service contracts that are longer in duration and often include multiple performance obligations (for example, both training and consulting), we measure the progress toward completion of the obligations and recognize revenue accordingly. In measuring progress towards the completion of performance obligations, we typically utilize output-based estimates for services with contractual billing arrangements that are not based on time and materials, and estimate output based on the total tasks completed as compared to the total tasks required for each work contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure. Proceeds from customers for the purpose of expediting roadmap items, developing new products or creating specific features and functionality for existing products are classified as revenue. We also execute arrangements through independent channel partners in which the channel partners are authorized to market and distribute our software products to end users of our products and services in specified territories. In sales facilitated by channel partners, the channel partner bears the risk of collection from the end-user customer. We recognize revenue from transactions with channel partners in a manner consistent with the direct sales described above for both perpetual and time-based licenses. Revenue from channel partner transactions is the amount remitted to us by the channel partners. This amount includes a fee for PCS that is compensation for providing technical enhancements and the second level of technical support to the end user, which is recognized over the period that PCS is to be provided. Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheet as accounts receivable and accrued expenses. The collection and payment of these amounts are reported on a net basis in the consolidated statements of income and do not impact reported revenues or expenses. We do not offer right of return. We warrant to our customers that our software will perform substantially as specified in our current user manuals. We have not experienced significant claims related to software warranties beyond the scope of maintenance support, which we are already obligated to provide. The warranty is not sold, and cannot be purchased, separately. The warranty does not provide any type of additional service to the customer or performance obligation for us. Our agreements with our customers generally require us to indemnify the customer against claims that our software infringes third-party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including our right to replace an infringing product. 55 -------------------------------------------------------------------------------- Table of Content s Significant Judgments Our contracts with customers typically include promises to transfer licenses and services to a customer. Judgment is required to determine if the promises are separate performance obligations, and if so, to allocate the transaction price to each performance obligation. We use the estimated standalone selling price method to allocate the transaction price for each performance obligation. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs. The corresponding revenues are recognized as the related performance obligations are satisfied. We apply a practical expedient to expense sales commissions as incurred when the amortization period would have been one year or less. Sales commissions associated with the initial year of multi-year contracts are expensed as incurred due to their immateriality. Sales commissions associated with multi-year contracts beyond the initial year are subject to an employee service requirement and are expensed as incurred as they are not considered incremental costs to obtain a contract. We are required to adjust promised amounts of consideration for the effects of the time value of money if the timing of the payments provides the customer or us with a significant financing benefit. We consider various factors in assessing whether a financing component exists, including the duration of the contract, market interest rates and the timing of payments. Our contracts do not include a significant financing component requiring adjustment to the transaction price.Goodwill and Other Intangible Assets: We test goodwill and indefinite-lived intangible assets for impairment at least annually by performing a quantitative assessment of whether the fair value of each reporting unit or asset exceeds its carrying amount. We have one reporting unit.Goodwill is tested at this reporting unit level and indefinite-lived intangible assets are tested at the individual asset level. This requires us to assess and make judgments regarding a variety of factors which impact the fair value of the reporting unit or asset being tested, including business plans, anticipated future cash flows, economic projections and other market data. Because there are inherent uncertainties involved in these factors, significant differences between these estimates and actual results could result in future impairment charges and could materially impact our future financial results. During the first quarter of 2020, we completed the annual impairment test for goodwill and the indefinite-lived intangible asset and determined that these assets had not been impaired as of the test date,January 1, 2020 . Given the adverse economic and market conditions caused by COVID-19, we considered a variety of qualitative factors to determine if an additional quantitative impairment test was required subsequent to our annual impairment test. Based on a variety of factors, including the excess of the fair values over the carrying amounts in the most recent impairment test, we determined it was not more likely than not that an impairment existed as ofMarch 31, 2020 . No other events or circumstances changed during the year endedDecember 31, 2020 that would indicate that the fair values of our reporting unit and indefinite-lived intangible asset are below their carrying amounts. Intangible assets are recognized apart from goodwill whenever an acquired intangible asset arises from contractual or other legal rights, or whenever it is capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented, or exchanged, either individually or in combination with a related contract, asset or liability. We determined the fair value of our intangible assets using various valuation techniques, including the relief-from-royalty method and the multi-period excess earnings method. These models utilize certain unobservable inputs classified as Level 3 measurements as defined by ASC 820, Fair Value Measurements and Disclosures. The determination of fair value requires considerable judgment and is sensitive to changes in underlying assumptions, estimates and market factors. Estimating fair value requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include, but are not limited to: royalty rate, discount rate and attrition rate. The fair values of the intangible assets will be amortized over their useful lives. Impairment losses are recognized if the carrying amounts of finite-lived intangible assets are both not recoverable and exceed the fair values. Income Taxes: We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period of the enactment date. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we determine that we will be able to realize deferred tax assets for which a valuation allowance was used to reduce their carrying value, the adjustment to the valuation allowance will be recorded as a reduction to the provision for income taxes. 56 -------------------------------------------------------------------------------- Table of Content s Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more-likely-than-not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively settled, which means that the statute of limitations has expired or the appropriate taxing authority has completed its examination even though the statute of limitations remains open. We recognize interest and penalties related to income taxes within the income tax expense line in the consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets. Stock-Based Compensation: We grant restricted stock units and other stock awards to employees and directors under our equity incentive plan. Eligible employees can also purchase shares of our common stock at a discount under our employee stock purchase plan. The benefits provided under these plans are stock-based payments subject to the provisions of stock-based payment accounting guidance. We use the fair value method to apply the provisions of stock-based payment accounting guidance. Stock-based compensation expense for 2020, 2019 and 2018 was$145.6 million ,$116.2 million and$83.3 million , respectively. As ofDecember 31, 2020 , total unrecognized estimated compensation expense related to awards granted prior to that date was$160.7 million , which is expected to be recognized over a weighted average period of 1.4 years. Prior to 2017, we granted stock option awards. The value of each stock option award was estimated on the date of grant, or date of acquisition for options issued in a business combination, using the Black-Scholes option pricing model (Black-Scholes model). The determination of the fair value of stock-based payment awards using an option pricing model was affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables included our stock volatility during the preceding six years, actual and projected employee stock option exercise behaviors, interest rate assumptions using the five-yearU.S. Treasury Note yield on the date of grant or acquisition date, and expected dividends. The stock-based compensation expense for options was recorded ratably over the requisite service period. As ofDecember 31, 2020 , all stock options are fully vested and all expense has been recognized accordingly. We issue various restricted stock unit awards which contain either a market condition, a performance condition, a service condition, or certain combinations of the three. Restricted stock unit awards are valued based on the grant-date fair value of the award. Stock-based compensation expense is recognized over the employee's requisite service period for awards with only a service condition. Awards with performance conditions are granted over three one-year sub-performance periods. Stock-based compensation expense is recognized from the grant date through the end of the three-year performance period contingent upon continued employment and management's estimates concerning the probability of vesting. At times, the Compensation Committee may grant long-term performance awards. Stock based compensation expense for these awards is recognized over the performance period from the grant date through the end of the performance period contingent upon continued employment and management's estimates concerning the probability of vesting. Vesting of restricted stock unit awards with a market condition is based on our performance as measured by total stockholder return relative to the appreciation of a specified stock index over the measurement period, subject to each participant's continued employment through the conclusion of the measurement period. The fair value of the restricted stock unit awards with a market condition is estimated using a Monte Carlo simulation model. The determination of the fair value of the awards is affected by the grant date and several variables, each of which has been identified in the chart below. Stock-based compensation expense based on the fair value of the award is recorded from the grant date through the conclusion of the measurement period. Year Ended December 31, Assumptions used in Monte Carlo lattice pricing model 2020 2019 2018 Risk-free interest rate 0.7% 2.5% 2.4% Expected dividend yield -% -% -% Expected volatility-Ansys stock price 25% 23% 21% Expected volatility-Nasdaq Composite Index 18% 16% 15% Expected term 2.8 years 2.8 years 2.8 years Correlation factor 0.77 0.71 0.65 Weighted average fair value per share$245.08 $238.99 $191.76 We also grant restricted stock units to non-employee Directors, which vest upon the earlier of one year from the date of grant or the date of the next regular annual meeting of stockholders. If a non-employee Director retires prior to the vest date, the non-employee Director receives a pro-rata portion of the restricted stock units. 57 -------------------------------------------------------------------------------- Table of Content s To the extent we change the terms of our stock-based compensation programs, experience market volatility in the pricing of our common stock that increases the implied volatility assumption used in the pricing models, refine different assumptions, or assume stock awards from acquired companies that are different in nature than our stock award arrangements, among other potential impacts, the stock-based compensation expense recorded in future periods and the related tax benefits may differ significantly from what was recorded in previous reporting periods. Forfeitures of awards are accounted for as they occur. Estimates of stock-based compensation expense are significant to our financial statements, but this expense is partially based on the aforementioned option valuation and Monte Carlo simulation models and will never result in the payment of cash by us other than through the payment of withholding taxes in lieu of additional share issuance. For this reason, and because we do not view stock-based compensation as related to our operational performance, the Board of Directors and management exclude stock-based compensation expense when evaluating our underlying business performance. Contingencies: We are involved in various investigations, claims and legal proceedings that arise in the ordinary course of business, including commercial disputes, labor and employment matters, tax audits, alleged infringement of intellectual property rights and other matters. We review the status of these matters, assess our financial exposure and record a related accrual if the potential loss from an investigation, claim or legal proceeding is probable and the amount is reasonably estimable. Significant judgment is involved in the determination of probability and in the determination of whether an exposure is reasonably estimable. As a result of the uncertainties involved in making these estimates, we may have to revise our estimates as facts and circumstances change. The revision of these estimates could have a material impact on our financial position and results of operations. Recent Accounting Guidance For information regarding recent accounting guidance and its impact on our consolidated financial statements, see Note 2 to the consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K. 58
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