Log in
Log in
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
Sign up
Or log in with
GoogleGoogle
Twitter Twitter
Facebook Facebook
Apple Apple     
  1. Homepage
  2. Equities
  3. United States
  4. Nasdaq
  5. ANSYS, Inc.
  6. News
  7. Summary
    ANSS   US03662Q1058

ANSYS, INC.

(ANSS)
  Report
Delayed Nasdaq  -  04:00 2022-10-06 pm EDT
232.23 USD   -0.69%
09/22Berenberg Bank Adjusts ANSYS Price Target to $282 From $420, Maintains Buy Rating
MT
09/16Volatility is rife for Quadruple Witching Day
MS
09/16JPMorgan Reinstates ANSYS at Overweight, $275 Price Target
MT
SummaryQuotesChartsNewsRatingsCalendarCompanyFinancialsConsensusRevisionsFunds 
SummaryMost relevantAll NewsAnalyst Reco.Other languagesPress ReleasesOfficial PublicationsSector newsMarketScreener Strategies

ANSYS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/04/2020 | 04:30pm EDT
The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements and notes thereto for the
nine months ended September 30, 2020, and with our audited consolidated
financial statements and notes thereto for the year ended December 31, 2019
included in the 2019 Form 10-K filed with the Securities and Exchange
Commission. The discussion and analysis of our financial condition and results
of operations are based upon our condensed consolidated financial statements,
which have been prepared in accordance with generally accepted accounting
principles (GAAP).
Business:
Ansys, a Delaware 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 of Pittsburgh,
Pennsylvania, we employed approximately 4,500 people as of September 30, 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 a global network of independent resellers and distributors
(collectively, channel partners) and direct sales offices in strategic, global
locations. It is our intention to continue to maintain this hybrid sales and
distribution model.
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.
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 closely monitoring the spread of COVID-19 and continually assessing its
current and potential effects on our business. The COVID-19 pandemic has had,
and is for the foreseeable future expected to continue to have, an adverse
impact on our business, employees, liquidity, financial condition, results of
operations and cash flows.
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.
                                       21
--------------------------------------------------------------------------------
  Table of Contents
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 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 the financial guidance. We continue to adjust our spending to
reflect our expectations for the pace at which economic recovery will occur.
These adjustments include slowing the pace of our hiring and reducing
non-headcount-related discretionary spending, as well as spending less on
certain facilities and infrastructure projects. However, we have maintained and
intend to maintain our commitment to certain digital transformation projects, in
particular our customer relationship management (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. We
recently onboarded our partner community in CRM, and we completed phase one in
the HRIS project by transferring our global employee data into the system. In
addition, we continue to strategically invest in research and development,
enabling us to stay on track with our product release targets.
Please see "Note About Forward-Looking Statements" and "Risk Factors" in Part I,
Item 1A of our 2019 Form 10-K and Part II, Item 1A of this Quarterly Report on
Form 10-Q for discussion on additional business risks, including those
associated with the COVID-19 pandemic.
Overall GAAP and Non-GAAP Results
The table below presents the percentage change for both our GAAP and non-GAAP
results for the three and nine months ended September 30, 2020 as compared to
the three and nine months ended September 30, 2019.
                                         Three Months Ended September 30, 2020               Nine Months Ended September 30, 2020
                                            GAAP                    Non-GAAP                    GAAP                    Non-GAAP
Revenue                                           6.7  %                    6.8  %                    2.7  %                    3.1  %
Operating income                                (14.2) %                   (1.9) %                  (28.0) %                  (11.3) %
Diluted earnings per share                      (16.3) %                   (4.2) %                  (25.1) %                  (13.9) %



We experienced an increase in revenue during the three and nine months ended
September 30, 2020. The growth in revenue for the three months ended
September 30, 2020 was due to growth in lease license revenue and maintenance
revenue and contributions from our recent acquisitions, partially offset by
reductions in perpetual license revenue and service revenue. The growth in
revenue for the nine months ended September 30, 2020 was due to growth in
maintenance and service revenue and contributions from our recent acquisitions,
partially offset by reductions in software license revenue. The COVID-19
pandemic adversely impacted our revenue during the three and nine months ended
September 30, 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 during the three and nine
months ended September 30, 2020, 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 significantly reduced, the COVID-19
pandemic did not have a material impact on our operating expenses during the
three and nine months ended September 30, 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. For further disclosure regarding non-GAAP
results, see the section titled "Non-GAAP Results."
                                       22
--------------------------------------------------------------------------------
  Table of Contents
Impact of Foreign Currency
Our comparative financial results were impacted by fluctuations in the U.S.
Dollar during the three and nine months ended September 30, 2020 as compared to
the three and nine months ended September 30, 2019. The favorable impacts on our
revenue and operating income due to currency fluctuations are reflected in the
table below.
                                            Three Months Ended September 30,
                                                          2020                       Nine Months Ended September 30, 2020
(in thousands)                                 GAAP                Non-GAAP               GAAP                Non-GAAP
Revenue                                   $      5,478          $     5,478          $      1,346          $     1,267
Operating income                          $      2,720          $     2,922          $      2,936          $     2,871


In constant currency, our growth rates were as follows:

                                               Three Months Ended September 30, 2020               Nine Months Ended September 30, 2020
                                                  GAAP                    Non-GAAP                    GAAP                    Non-GAAP
Revenue                                                 5.1  %                    5.3  %                    2.6  %                    2.9  %
Operating income                                      (16.8) %                   (3.9) %                  (28.9) %                  (11.9) %


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. 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:
                                        Three Months Ended September 30,                                       Change
(in thousands, except percentages)          2020                   2019              Amount                 %                Constant Currency %
ACV                                  $       305,334           $ 290,856          $  14,478                   5.0                      3.4
Recurring ACV as a percentage of ACV            77.6   %            72.6  %


                                        Nine Months Ended September 30,                                        Change
(in thousands, except percentages)          2020                   2019              Amount                 %                Constant Currency %
ACV                                  $       950,790           $ 920,491          $  30,299                   3.3                      3.3
Recurring ACV as a percentage of ACV            81.1   %            76.8  %



Recurring ACV is comprised of both lease licenses and maintenance contracts. The increase in recurring ACV reflected for the three and nine months ended September 30, 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.

                                       23
--------------------------------------------------------------------------------
  Table of Contents
While the resilience of our business is evident in the growth shown above, the
economic conditions due to the recent COVID-19 outbreak have disrupted the
business of our customers and partners, and have adversely impacted our business
and consolidated results. In addition, during 2019, 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. Although our 2019 results were adversely impacted by these
restrictions for a portion of the year, the 2019 operating results include
approximately $20.0 million of ACV related to transactions that occurred prior
to the placement of the restrictions.
Other Financial Information
Our financial position includes $845.2 million in cash and short-term
investments, and working capital of $896.9 million as of September 30, 2020.
We had 87.2 million fully diluted weighted average shares outstanding in Q3. We
repurchased 0.7 million shares during the first quarter of 2020 at an average
price of $233.48 per share. There were no repurchases during the second or third
quarter of 2020. As of September 30, 2020, we had 2.8 million shares remaining
available for repurchase under our authorized share repurchase program.
On October 23, 2020, we entered into a definitive agreement to acquire 100% of
the shares of AGI. The transaction is expected to close with a purchase price of
$700.0 million, of which the AGI shareholders will receive 67% in cash and 33%
in Ansys common stock. We anticipate obtaining new debt financing to fund a
significant portion of the cash component of the purchase price.
Geographic Trends:
The following table presents our geographic constant currency revenue growth
during the three and nine months ended September 30, 2020 as compared to the
three and nine months ended September 30, 2019:
                                                              Three Months Ended           Nine Months Ended
                                                              September 30, 2020          September 30, 2020
Americas                                                                    6.1  %                      9.4  %
EMEA                                                                        2.1  %                     (0.3) %
Asia-Pacific                                                                6.7  %                     (4.7) %
Total                                                                       5.1  %                      2.6  %


Under the current accounting for revenue, the value and duration of multi-year
leases entered into during the period significantly impact revenue recognition.
As a result, regional revenues may fluctuate significantly on a quarterly basis
and are not necessarily indicative of customer usage changes or our cash flows
for such regions during the periods presented.
To drive additional 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 Part I, "Item 1A. Risk Factors" in our 2019 Form 10-K and in Part II,
"Item 1A. Risk Factors" of subsequent Quarterly Reports on Form 10-Q for 2020.
Industry Commentary:
We experienced industry trends consistent with those of 2019 and the first half
of 2020. The high-tech, semiconductor and automotive industries remained strong
as companies seek to capitalize on the market opportunities presented by the
complexity of technology required to support 5G, autonomy, electrification and
other high growth rate areas. 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. The energy industry continues its transition to a lower carbon
balance while being significantly impacted by the global pandemic and the
continued subdued oil price. Despite this, the industry remains committed to
simulation led digital transformation as a way to reduce costs, improve
productivity and innovate its way to a new energy future.
                                       24
--------------------------------------------------------------------------------
  Table of Contents
Use of Estimates:
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to fair values
of stock awards, bad debts, contract revenue, acquired deferred revenue, the
standalone selling prices of our products and services, the valuation of
goodwill and other intangible assets, deferred compensation, income taxes,
uncertain tax positions, tax valuation reserves, operating lease assets and
liabilities, useful lives for depreciation and amortization, and contingencies
and litigation. We base our estimates on historical experience, market
experience, estimated future cash flows and various other assumptions that
management believes are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates.
Note About Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, but not limited to, the following
statements, as well as statements that contain such words as "anticipates,"
"intends," "believes," "plans" and other similar expressions:
•Our expectations regarding the impacts of the COVID-19 pandemic.
•Our expectations regarding the impacts of new accounting guidance.
•Our expectations regarding the outcome of our service tax audit cases.
•Our assessment of the ultimate liabilities arising from various investigations,
claims and legal proceedings.
•Our expectations regarding future claims related to indemnification
obligations.
•Our intentions regarding our hybrid sales and distribution model.
•Our statement regarding the strength of the features, functionality and
integrated multiphysics capabilities of our software products.
•Our belief that our overall performance is best measured by fiscal-year results
rather than by quarterly results.
•Our expectations regarding increased lease license volatility due to an
increased customer preference for time-based licenses.
•Our estimates regarding the expected impact on reported revenue related to the
acquisition accounting treatment of deferred revenue.
•Our expectation 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.
•Our intentions related to investments in research and development, particularly
as it relates to expanding the ease of use and capabilities of our broad
portfolio of simulation software products.
•Our expectations regarding the accelerated development of new and innovative
products to the marketplace while lowering design and engineering costs for
customers as a result of our acquisitions.
•Our statements regarding the impact of global economic conditions.
•Our intention to repatriate previously taxed earnings in excess of working
capital needs and to reinvest all other earnings of our non-U.S. subsidiaries.
•Our plans related to future capital spending.
•The sufficiency of existing cash and cash equivalent balances to meet future
working capital and capital expenditure requirements.
•Our belief that the best uses of our excess cash are to invest in the business
and to repurchase stock in order to both offset dilution and return capital to
stockholders, in excess of our requirements, with the goal of increasing
stockholder value.
•Our intentions related to investments in complementary companies, products,
services and technologies.
•Our expectation that changes in currency exchange rates will affect our
financial position, results of operations and cash flows.
                                       25
--------------------------------------------------------------------------------
  Table of Contents
•Our expectations regarding acquisitions and integrating such acquired companies
to realize the benefits of cost reductions and other synergies relating thereto.
Forward-looking statements should not be unduly relied upon because they involve
known and unknown risks, uncertainties and other factors, some of which are
beyond our control. Our actual results could differ materially from those set
forth in forward-looking statements. Certain factors, among others, that might
cause such a difference include risks and uncertainties disclosed in our 2019
Form 10-K, Part I, "Item 1A. Risk Factors" and in Part II, "Item 1A. Risk
Factors" of subsequent Quarterly Reports on Form 10-Q for 2020. Information
regarding any new risk factors or material changes to these risk factors has
been included within Part II, "Item 1A. Risk Factors" of this Quarterly Report
on Form 10-Q.
                                       26
--------------------------------------------------------------------------------
  Table of Contents
Results of Operations
Three Months Ended September 30, 2020 Compared to Three Months Ended
September 30, 2019
Revenue:
                                     Three Months Ended September 30,                                     Change
(in thousands, except percentages)       2020                2019              Amount                 %                 Constant Currency %
Revenue:
Lease licenses                       $   78,917          $  70,693          $   8,224                   11.6                      9.9
Perpetual licenses                       62,705             66,451             (3,746)                  (5.6)                    (6.8)
Software licenses                       141,622            137,144              4,478                    3.3                      1.8
Maintenance                             211,942            193,189             18,753                    9.7                      8.0
Service                                  13,401             13,566               (165)                  (1.2)                    (3.0)
Maintenance and service                 225,343            206,755             18,588                    9.0                      7.3
Total revenue                        $  366,965          $ 343,899          $  23,066                    6.7                      5.1



Our revenue in the quarter ended September 30, 2020 increased 6.7% as compared
to the quarter ended September 30, 2019, while revenue grew 5.1% in constant
currency. The growth rate was favorably impacted by our continued investment in
our global sales, support and marketing organizations, as well as our recent
acquisitions and the timing and duration of our multi-year lease contracts. 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
11.6%, or 9.9% in constant currency, as compared to the prior-year quarter.
Annual maintenance contracts that were sold with new perpetual licenses,
maintenance contracts for new perpetual licenses sold in previous quarters and
the maintenance portion of lease license contracts collectively contributed to
maintenance revenue growth of 9.7%, or 8.0% in constant currency. Perpetual
license revenue, which is derived from new sales during the quarter, decreased
5.6%, or 6.8% in constant currency, as compared to the prior-year quarter.
Service revenue decreased 1.2%, or 3.0% in constant currency, as compared to the
prior-year quarter.
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. As software products,
across a large variety of applications and industries, become increasingly
distributed in software-as-a-service, cloud and other subscription environments
in which the licensing approach is time-based rather than perpetual, we are also
experiencing a shifting preference from perpetual licenses to time-based
licenses across a broader spectrum of our customers. This shifting preference
was elevated in the first three quarters of 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 similar business
environment during the fourth quarter to that of the third quarter. 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 for
demand generation, as evidenced by our hosting of our inaugural IDEAS Forum and
Ansys Innovation Conference in September, the absence of certain events have had
and are 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. In addition, we have experienced some
deterioration in renewal rates among our smaller customers, particularly small
and medium-sized businesses. Additional waves of COVID-19, such as the recent
surge in Europe and the United States, could result in renewed shutdowns that
stop or regress economic recovery.


                                       27
--------------------------------------------------------------------------------
  Table of Contents
With respect to revenue, on average for the quarter ended September 30, 2020,
the U.S. Dollar was approximately 3.4% weaker, when measured against our primary
foreign currencies, than for the quarter ended September 30, 2019. The table
below presents the impacts of currency fluctuations on revenue for the quarter
ended September 30, 2020. Amounts in brackets indicate an adverse impact from
currency fluctuations.
             (in thousands)      Three Months Ended September 30, 2020
             Euro               $                                3,531
             British Pound                                       1,227
             Japanese Yen                                          446
             Taiwan Dollar                                         399
             South Korean Won                                       88
             Indian Rupee                                         (299)
             Other                                                  86
             Total              $                                5,478



The impacts from currency fluctuations resulted in increased operating income of
$2.7 million for the quarter ended September 30, 2020 as compared to the quarter
ended September 30, 2019.
As a percentage of revenue, our international and domestic revenues, and our
direct and indirect revenues, were as follows:
                                      Three Months Ended September 30,
                                              2020                     2019
              International                               57.3  %     57.3  %
              Domestic                                    42.7  %     42.7  %

              Direct                                      74.9  %     76.8  %
              Indirect                                    25.1  %     23.2  %



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 $2.2 million and $1.6 million for the quarters
ended September 30, 2020 and 2019, respectively. The expected impacts on
reported revenue are $1.2 million and $11.3 million for the quarter ending
December 31, 2020 and the year ending December 31, 2020, respectively. The
expected impacts on reported revenue include only the impacts for acquisitions
that closed before September 30, 2020.
Deferred Revenue and Backlog:
Deferred revenue consists of billings made or payments received in advance of
revenue recognition from customer agreements. The deferred revenue on our
condensed consolidated balance sheets does not represent the total value of
annual or multi-year, noncancellable agreements. Our backlog represents
installment billings for periods beyond the current quarterly billing cycle. Our
deferred revenue and backlog as of September 30, 2020 and December 31, 2019
consisted of the following:
                          Balance at September 30, 2020
(in thousands)         Total          Current       Long-Term
Deferred revenue   $   338,432      $ 326,491      $  11,941
Backlog                541,480        243,745        297,735
Total              $   879,912      $ 570,236      $ 309,676


                                       28

--------------------------------------------------------------------------------

  Table of Contents
                          Balance at December 31, 2019
(in thousands)        Total          Current       Long-Term
Deferred revenue   $  365,274      $ 351,353      $  13,921
Backlog               505,469        218,398        287,071
Total              $  870,743      $ 569,751      $ 300,992



Revenue associated with deferred revenue and backlog that will be recognized in
the subsequent twelve months is classified as current in the tables above.
Cost of Sales and Operating Expenses:
The tables below reflect our operating results as presented on the condensed
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 fourth quarter 2019 acquisition of LST
contributed $11.2 million to the overall increase in cost of sales and operating
expenses, inclusive of intangible asset amortization.
                                                         Three Months Ended September 30,
                                                   2020                                    2019                                   Change
                                                             % of                                    % of
(in thousands, except percentages)     Amount              Revenue              Amount             Revenue             Amount                 %
Cost of sales:
Software licenses                   $    7,251                2.0            $   5,708                1.7            $  1,543                  27.0
Amortization                             9,911                2.7                4,762                1.4               5,149                 108.1
Maintenance and service                 36,223                9.9               30,895                9.0               5,328                  17.2
Total cost of sales                     53,385               14.5               41,365               12.0              12,020                  29.1
Gross profit                        $  313,580               85.5            $ 302,534               88.0            $ 11,046                   3.7



Software Licenses: The net increase in the cost of software licenses was
primarily due to the following:
•Increased third-party royalties of $1.8 million.
Amortization: The increase in amortization expense was due to the amortization
of intangible assets acquired within the last year.
Maintenance and Service: The increase in maintenance and service costs was
primarily due to the following:
•Increased salaries of $2.2 million.
•Increased third-party technical support of $1.7 million.
•Increased stock-based compensation of $1.2 million.
The improvement in gross profit was a result of the increase in revenue,
partially offset by the increase in the cost of sales.
                                                           Three Months Ended September 30,
                                                     2020                                    2019                                   Change
                                                               % of                                    % of
(in thousands, except percentages)       Amount              Revenue              Amount             Revenue             Amount                %
Operating expenses:
Selling, general and administrative   $  132,642               36.1            $ 120,682               35.1            $ 11,960                  9.9
Research and development                  86,616               23.6               73,018               21.2              13,598                 18.6
Amortization                               4,237                1.2                3,787                1.1                 450                 11.9
Total operating expenses              $  223,495               60.9            $ 197,487               57.4            $ 26,008                 13.2


                                       29
--------------------------------------------------------------------------------
  Table of Contents
Selling, General and Administrative: The net increase in selling, general and
administrative costs was primarily due to the following:
•Increased salaries and other headcount-related costs of $9.5 million.
•Increased marketing expense of $2.7 million.
•Increased third-party commissions of $2.4 million.
•Increased stock-based compensation of $2.2 million.
•Increased costs related to foreign exchange translation of $1.4 million due to
a weaker U.S. Dollar.
•Increased IT maintenance and software hosting costs of $1.4 million.
•Decreased business travel of $5.1 million due to COVID-19.
•Decreased incentive compensation of $2.5 million.
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 $9.6 million.
•Increased stock-based compensation of $2.9 million.
•Increased IT maintenance and software hosting costs of $1.3 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 through the COVID-19 pandemic.
Interest Income: Interest income for the quarter ended September 30, 2020 was
$0.8 million as compared to $3.2 million for the quarter ended September 30,
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 quarter ended September 30, 2020 was
$1.9 million as compared to $0.2 million for the quarter ended September 30,
2019. Interest expense increased as a result of the interest incurred on debt
financing obtained in connection with the acquisition of LST in the fourth
quarter of 2019.
Other Income, net: Our other income consisted of the following:
                                        Three Months Ended September 30,
(in thousands)                                  2020                        

2019


Foreign currency gains, net   $             1,147                          $ 826
Other                                          11                           

7

Total other income, net       $             1,158                          

$ 833

Income Tax Provision: Our income before income tax provision, income tax provision and effective tax rates were as follows:

                                              Three Months Ended September 

30,

(in thousands, except percentages)            2020                          

2019

Income before income tax provision     $       90,144                     $ 108,829
Income tax provision                   $       14,517                     $  19,366
Effective tax rate                               16.1   %                      17.8  %


The decrease in the effective tax rate from the prior year was primarily due to the release of a valuation allowance in a foreign jurisdiction.

                                       30
--------------------------------------------------------------------------------
  Table of Contents
When compared to the federal and state combined statutory rate for each
respective period, the effective tax rates for the quarters ended September 30,
2020 and 2019 were favorably impacted by tax benefits from stock-based
compensation, the foreign-derived intangible income (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:
                                                                  Three Months Ended September 30,
(in thousands, except per share data)                                 2020                2019
Net income                                                        $   75,627          $  89,463
Diluted earnings per share                                        $     0.87          $    1.04
Weighted average shares outstanding - diluted                         87,224             85,733


                                       31
--------------------------------------------------------------------------------
  Table of Contents
Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30,
2019
Revenue:
                                          Nine Months Ended September 30,                                          Change
(in thousands, except percentages)           2020                    2019               Amount                  %                 Constant Currency %
Revenue:
Lease licenses                       $         237,000          $   239,953          $  (2,953)                   (1.2)                    (1.8)
Perpetual licenses                             161,793              190,734            (28,941)                  (15.2)                   (15.2)
Software licenses                              398,793              430,687            (31,894)                   (7.4)                    (7.7)
Maintenance                                    615,609              559,768             55,841                    10.0                     10.0
Service                                         43,209               39,209              4,000                    10.2                     10.2
Maintenance and service                        658,818              598,977             59,841                    10.0                     10.0
Total revenue                        $       1,057,611          $ 1,029,664          $  27,947                     2.7                      2.6



Our revenue in the nine months ended September 30, 2020 increased 2.7% as
compared to the nine months ended September 30, 2019, while revenue grew 2.6% in
constant currency. The growth rate was favorably impacted by our recent
acquisitions. The growth rate was negatively impacted by the timing and duration
of multi-year lease contracts, the trade restrictions between the United States
and China, and the impact of COVID-19. Annual maintenance contracts that were
sold with new perpetual licenses, maintenance contracts for new perpetual
licenses sold in previous quarters and the maintenance portion of lease license
contracts collectively contributed to maintenance revenue growth of 10.0% in
both reported and 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 10.2% in both reported and
constant currency, as compared to the nine months ended September 30, 2019.
Lease license revenue decreased 1.2%, or 1.8% in constant currency, as compared
to the nine months ended September 30, 2019, driven primarily by a decrease in
multi-year lease contracts. Perpetual license revenue, which is derived from new
sales during the nine months ended September 30, 2020, decreased 15.2% in both
reported and constant currency, as compared to the nine months ended
September 30, 2019.
With respect to revenue, on average for the nine months ended September 30,
2020, the U.S. Dollar was approximately 0.3% weaker, when measured against our
primary foreign currencies, than for the nine months ended September 30, 2019.
The table below presents the impacts of currency fluctuations on revenue for the
nine months ended September 30, 2020. Amounts in brackets indicate an adverse
impact from currency fluctuations.
             (in thousands)      Nine Months Ended September 30, 2020
             Japanese Yen       $                               2,098
             Taiwan Dollar                                        820
             British Pound                                        723
             Euro                                                 281
             South Korean Won                                  (1,527)
             Indian Rupee                                      (1,016)
             Other                                                (33)
             Total              $                               1,346



The impacts from currency fluctuations resulted in increased operating income of
$2.9 million for the nine months ended September 30, 2020 as compared to the
nine months ended September 30, 2019.
                                       32
--------------------------------------------------------------------------------
  Table of Contents
As a percentage of revenue, our international and domestic revenues, and our
direct and indirect revenues, were as follows:
                                      Nine Months Ended September 30,
                                              2020                    2019
              International                              55.9  %     58.7  %
              Domestic                                   44.1  %     41.3  %

              Direct                                     75.7  %     75.9  %
              Indirect                                   24.3  %     24.1  %



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 $10.1 million and $6.2 million for the nine
months ended September 30, 2020 and 2019, respectively.
Cost of Sales and Operating Expenses:
The tables below reflect our operating results as presented on the condensed
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 fourth quarter 2019 acquisition of LST
contributed $33.7 million to the overall increase in cost of sales and operating
expenses, inclusive of intangible asset amortization.
                                                         Nine Months Ended September 30,
                                                   2020                                    2019                                    Change
                                                             % of                                    % of
(in thousands, except percentages)     Amount              Revenue              Amount             Revenue              Amount                 %
Cost of sales:
Software licenses                   $   20,688                2.0            $  16,620                1.6            $   4,068                  24.5
Amortization                            29,227                2.8               14,064                1.4               15,163                 107.8
Maintenance and service                107,446               10.2               85,993                8.4               21,453                  24.9
Total cost of sales                    157,361               14.9              116,677               11.3               40,684                  34.9
Gross profit                        $  900,250               85.1            $ 912,987               88.7            $ (12,737)                 (1.4)



Software Licenses: The increase in the cost of software licenses was primarily
due to increased third-party royalties of $4.3 million.
Amortization: The increase in amortization expense was due to the amortization
of intangible assets acquired within the last year.
Maintenance and Service: The increase in maintenance and service costs was
primarily due to the following:
•Increased salaries and other headcount-related costs of $11.1 million.
•Increased third-party technical support of $5.1 million.
•Increased stock-based compensation of $3.9 million.
The reduction in gross profit was a result of an increase in the cost of sales,
partially offset by an increase in revenue.
                                       33

--------------------------------------------------------------------------------

  Table of Contents
                                                           Nine Months Ended September 30,
                                                     2020                                    2019                                   Change
                                                               % of                                    % of
(in thousands, except percentages)       Amount              Revenue              Amount             Revenue             Amount                %
Operating expenses:
Selling, general and administrative   $  391,862               37.1            $ 353,263               34.3            $ 38,599                 10.9
Research and development                 258,861               24.5              219,058               21.3              39,803                 18.2
Amortization                              12,562                1.2               11,342                1.1               1,220                 10.8
Total operating expenses              $  663,285               62.7            $ 583,663               56.7            $ 79,622                 13.6



Selling, General and Administrative: The net increase in selling, general and
administrative costs was primarily due to the following:
•Increased salaries and other headcount-related costs of $29.7 million.
•Increased stock-based compensation of $6.0 million.
•Increased third-party commissions of $4.8 million.
•Increased IT maintenance and software hosting costs of $4.3 million.
•Increased marketing expense of $3.9 million.
•Increased bad debt expense of $3.2 million due to expected losses related to
COVID-19.
•Decreased business travel of $10.9 million due to COVID-19.
•Decreased incentive compensation of $4.2 million.
Research and Development: The increase in research and development costs was
primarily due to the following:
•Increased salaries and other headcount-related costs of $31.4 million.
•Increased stock-based compensation of $8.5 million.
Interest Income: Interest income for the nine months ended September 30, 2020
was $4.5 million as compared to $9.6 million for the nine months ended
September 30, 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 nine months ended September 30, 2020
was $8.5 million as compared to $0.6 million for the nine months ended
September 30, 2019. Interest expense increased as a result of the interest
incurred on debt financing obtained in connection with the acquisition of LST in
the fourth quarter of 2019.
Other Income (Expense), net: Our other income (expense) consisted of the
following:
                                              Nine Months Ended September 30,
(in thousands)                                       2020                       2019
Investment gains, net               $            3,666                        $   237
Foreign currency losses, net                      (511)                     

(1,556)

Other                                               14                      

382

Total other income (expense), net   $            3,169                      

$ (937)

                                       34

--------------------------------------------------------------------------------

Table of Contents

Income Tax Provision: Our income before income tax provision, income tax provision and effective tax rates were as follows:

                                              Nine Months Ended September 

30,

(in thousands, except percentages)            2020                          

2019

Income before income tax provision     $       236,053                   $ 337,436
Income tax provision                   $        17,798                   $  51,993
Effective tax rate                                 7.5   %                    15.4  %



The decrease in the effective tax rate from the prior year was primarily due to
increased benefits related to stock-based compensation. The effective tax rate
also benefited from entity structuring activities and the release of valuation
allowances in foreign jurisdictions.
When compared to the federal and state combined statutory rate for each
respective period, the effective tax rates for the nine months ended September
30, 2020 and 2019 were 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:
                                                                  Nine Months Ended September 30,
(in thousands, except per share data)                                 2020                2019
Net income                                                        $  218,255          $ 285,443
Diluted earnings per share                                        $     2.50          $    3.34
Weighted average shares outstanding - diluted                         87,176             85,570


                                       35
--------------------------------------------------------------------------------
  Table of Contents
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
                                                          Reconciliations

of GAAP to Non-GAAP Measures

(Unaudited)

Three Months Ended

                                                                                      September 30, 2020
(in thousands, except
percentages and per share                                                                Operating
data)                          Revenue            Gross Profit             %              Income               %            Net Income           EPS - Diluted1
Total GAAP                   $ 366,965          $     313,580            85.5  %       $   90,085            24.5  %       $   75,627          $          0.87
Acquisition accounting for
deferred revenue                 2,164                  2,164               -  %            2,164             0.5  %            2,164                     0.02
Stock-based compensation
expense                              -                  3,626             0.9  %           38,185            10.4  %           38,185                     0.44
Excess payroll taxes related
to stock-based awards                -                     85               -  %              732             0.2  %              732                     0.01
Amortization of intangible
assets from acquisitions             -                  9,911             2.8  %           14,148             3.8  %           14,148                     0.16
Transaction expenses related
to business combinations             -                      -               -  %            1,549             0.4  %            1,549                   

0.02


Adjustment for income tax
effect                               -                      -               -  %                -               -  %          (14,133)                   (0.16)
Total non-GAAP               $ 369,129          $     329,366            89.2  %       $  146,863            39.8  %       $  118,272          $          1.36

1 Diluted weighted average shares were 87,224.

Three Months Ended

                                                                                      September 30, 2019
(in thousands, except
percentages and per share                                                                Operating
data)                          Revenue            Gross Profit             %              Income               %            Net Income           EPS - Diluted1
Total GAAP                   $ 343,899          $     302,534            88.0  %       $  105,047            30.5  %       $   89,463          $          1.04
Acquisition accounting for
deferred revenue                 1,596                  1,596               -  %            1,596             0.4  %            1,596                     0.02
Stock-based compensation
expense                              -                  2,422             0.7  %           31,862             9.2  %           31,862                     0.37
Excess payroll taxes related
to stock-based awards                -                      -               -  %              137             0.1  %              137                        -
Amortization of intangible
assets from acquisitions             -                  4,762             1.4  %            8,549             2.4  %            8,549                     0.10
Transaction expenses related
to business combinations             -                      -               -  %            2,531             0.7  %            2,531                     0.03
Rabbi trust (income) /
expense                              -                      -               -  %                -               -  %              (45)                       -

Adjustment for income tax
effect                               -                      -               -  %                -               -  %          (12,385)                   (0.14)
Total non-GAAP               $ 345,495          $     311,314            90.1  %       $  149,722            43.3  %       $  121,708          $          1.42

1 Diluted weighted average shares were 85,733.

                                       36

--------------------------------------------------------------------------------

Table of Contents

                                                                   ANSYS, 

INC. AND SUBSIDIARIES

                                                           Reconciliations 

of GAAP to Non-GAAP Measures

(Unaudited)

                                                                                       Nine Months Ended
                                                                                       September 30, 2020
(in thousands, except
percentages and per share                                                                  Operating
data)                           Revenue             Gross Profit             %              Income               %            Net Income           EPS - Diluted1
Total GAAP                   $ 1,057,611          $     900,250            85.1  %       $  236,965            22.4  %       $  218,255          $          2.50
Acquisition accounting for
deferred revenue                  10,116                 10,116             0.2  %           10,116             0.7  %           10,116                     0.12
Stock-based compensation
expense                                -                  9,956             0.9  %          103,256             9.7  %          103,256                     1.19
Excess payroll taxes related
to stock-based awards                  -                    774             0.1  %            9,591             0.9  %            9,591                     0.11
Amortization of intangible
assets from acquisitions               -                 29,227             2.7  %           41,789             3.9  %           41,789                     0.48
Transaction expenses related
to business combinations               -                      -               -  %            2,808             0.3  %            2,808                 

0.03

Rabbi trust (income) /
expense                                -                      -               -  %                -               -  %               (5)                

-

Adjustment for income tax
effect                                 -                      -               -  %                -               -  %          (60,906)                   (0.70)
Total non-GAAP               $ 1,067,727          $     950,323            89.0  %       $  404,525            37.9  %       $  324,904          $          3.73

1 Diluted weighted average shares were 87,176.


                                                                                       Nine Months Ended
                                                                                       September 30, 2019
(in thousands, except
percentages and per share                                                                  Operating
data)                           Revenue             Gross Profit             %              Income               %            Net Income           EPS - Diluted1
Total GAAP                   $ 1,029,664          $     912,987            88.7  %       $  329,324            32.0  %       $  285,443          $          3.34
Acquisition accounting for
deferred revenue                   6,249                  6,249               -  %            6,249             0.4  %            6,249                     0.07
Stock-based compensation
expense                                -                  6,024             0.6  %           84,784             8.2  %           84,784                     0.98
Excess payroll taxes related
to stock-based awards                  -                    476               -  %            4,516             0.4  %            4,516                     0.05
Amortization of intangible
assets from acquisitions               -                 14,064             1.4  %           25,406             2.5  %           25,406                     0.30
Transaction expenses related
to business combinations               -                      -               -  %            5,642             0.5  %            5,642                 

0.07

Rabbi trust (income) /
expense                                -                      -               -  %                -               -  %             (268)                

-

Adjustment related to the
Tax Cuts and Jobs Act                  -                      -               -  %                -               -  %           (1,834)                

(0.02)

Adjustment for income tax
effect                                 -                      -               -  %                -               -  %          (39,654)                   (0.46)
Total non-GAAP               $ 1,035,913          $     939,800            90.7  %       $  455,921            44.0  %       $  370,284          $          4.33

1 Diluted weighted average shares were 85,570.

                                       37

--------------------------------------------------------------------------------

  Table of Contents






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 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)
                                       38
--------------------------------------------------------------------------------
  Table of Contents
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.
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 and the impacts of the tax rate
change on net deferred tax assets. 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



                                       39
--------------------------------------------------------------------------------
  Table of Contents
Liquidity and Capital Resources
                                                        September 30,           December 31,
(in thousands)                                              2020                    2019                Change

Cash, cash equivalents and short-term investments $ 845,209

  $     872,382          $ (27,173)
Working capital                                       $      896,874          $     860,340          $  36,534


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 September 30, 2020 and December 31, 2019:
                                                      September 30,                                December 31,
(in thousands, except percentages)                        2020                % of Total               2019               % of Total
Domestic                                            $      498,083              58.9             $     626,433              71.8
Foreign                                                    347,126              41.1                   245,949              28.2
Total                                               $      845,209                               $     872,382


In general, it is our intention to permanently reinvest all earnings in excess
of previously taxed amounts. As part of U.S. tax reform, substantially all of
the previous earnings of our non-U.S. subsidiaries were taxed through the
transition tax and current earnings are taxed as part of global intangible
low-taxed income tax expense. These taxes increased our previously taxed
earnings and allow for the repatriation of the majority of our foreign earnings
without any residual U.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
$58.7 million and we would anticipate the tax effect on those earnings to be
immaterial as a result of U.S. tax reform.
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
condensed consolidated balance sheet.

© Edgar Online, source Glimpses

All news about ANSYS, INC.
09/22Berenberg Bank Adjusts ANSYS Price Target to $282 From $420, Maintains Buy Rating
MT
09/16Volatility is rife for Quadruple Witching Day
MS
09/16JPMorgan Reinstates ANSYS at Overweight, $275 Price Target
MT
09/16Analyst recommendations: Adobe, CrowdStrike, Fortinet, Fedex, N..
MS
08/24Ansys and AMD Collaborate to Speed Simulation of Large Structural Mechanical Models Up ..
PR
08/24Ansys and AMD Collaborate to Speed Simulation of Large Structural Mechanical Models Up ..
CI
08/17The market got ahead of itself on retailers' earnings
MS
08/17The market got ahead of itself on retailers' earnings
MS
08/17Analyst recommendations: Home Depot, Walmart, Vertex Pharmaceuti..
MS
08/17Wolfe Research Starts ANSYS at Outperform With $320 Price Target
MT
More news
Analyst Recommendations on ANSYS, INC.
More recommendations