UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 0-20853

ANSYS, Inc.

(Exact name of registrant as specified in its charter)

Delaware

04-3219960

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2600 ANSYS Drive,

Canonsburg,

15317

(Address of Principal Executive Offices)

(Zip Code)

844-462-6797

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $0.01 par value per share

ANSS

Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and ~~“emerging~~"emerging growth ~~company”~~company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

The number of shares of the Registrant’s Common Stock, $0.01 par value per share, outstanding as of ~~July 31, 2020~~April 30, 2021 was ~~85,789,237~~87,151,573 shares.

ANSYS, INC. AND SUBSIDIARIES

INDEX



PART I	FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – ~~June 30~~March 31 , ~~2020~~202 1 and December 31, ~~2019~~20 20	3

	Condensed Consolidated Statements of Income – Three ~~and Six~~ Months Ended ~~June 30~~,March 31, 2021 and 2020 ~~and 2019~~	4

	Condensed Consolidated Statements of Comprehensive Income – Three ~~and Six~~ Months Ended ~~June 30~~March 3 1 , ~~2020~~202 1 and ~~2019~~20 20	5

	Condensed Consolidated Statements of Cash Flows – ~~Six~~Three Months Ended ~~June~~March 303 1 , ~~2020~~202 1 and ~~2019~~20 20	6

	Condensed Consolidated Statements of Stockholders' Equity – Three ~~and Six~~ Months Ended ~~June 30~~March 31 , ~~2020~~202 1 and ~~2019~~20 20	7

	Notes to Condensed Consolidated Financial Statements	8

	Report of Independent Registered Public Accounting Firm	2018

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2119

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4234

Item 4.	Controls and Procedures	4335

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	4436

Item 1A.	Risk Factors	4436

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4536

Item 3.	Defaults Upon Senior Securities	4536

Item 4.	Mine Safety Disclosures	4536

Item 5.	Other Information	4536

Item 6.	Exhibits	4637

	SIGNATURES	4738

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.Financial Statements:

ANSYS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


(in thousands, except share and per share data)	(in thousands, except share and per share data)	June 30, 2020		December 31, 2019		(in thousands, except share and per share data)	March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	744,546	$	872,094	Cash and cash equivalents	$	987,427	$	912,672
Short-term investments	Short-term investments	433		288		Short-term investments	516		479
Accounts receivable, less allowance for doubtful accounts of $13,400 and $8,700, respectively		343,247		433,479
Accounts receivable, less allowance for doubtful accounts of $14,000						Accounts receivable, less allowance for doubtful accounts of $14,000	394,289		537,564
Other receivables and current assets	Other receivables and current assets	206,038		249,619		Other receivables and current assets	278,720		268,522
Total current assets	Total current assets	1,294,264		1,555,480		Total current assets	1,660,952		1,719,237
Long-term assets:	Long-term assets:					Long-term assets:
Property and equipment, net	Property and equipment, net	88,792		83,636		Property and equipment, net	93,207		96,503
Operating lease right-of-use assets	Operating lease right-of-use assets	117,242		105,671		Operating lease right-of-use assets	125,635		137,730
Goodwill	Goodwill	2,474,299		2,413,280		Goodwill	3,036,783		3,038,306
Other intangible assets, net	Other intangible assets, net	481,694		476,711		Other intangible assets, net	677,357		694,865
Other long-term assets	Other long-term assets	191,326		180,032		Other long-term assets	201,675		225,119
Deferred income taxes	Deferred income taxes	24,249		24,077		Deferred income taxes	22,419		28,830
Total long-term assets	Total long-term assets	3,377,602		3,283,407		Total long-term assets	4,157,076		4,221,353
Total assets	Total assets	$	4,671,866	$	4,838,887	Total assets	$	5,818,028	$	5,940,590
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	10,505	$	14,298	Accounts payable	$	16,970	$	18,691
Accrued bonuses and commissions	Accrued bonuses and commissions	37,642		101,546		Accrued bonuses and commissions	24,911		112,491
Accrued income taxes	Accrued income taxes	28,291		9,996		Accrued income taxes	6,260		26,116
Current portion of long-term debt	Current portion of long-term debt	—		75,000		Current portion of long-term debt	4,688		0
Other accrued expenses and liabilities	Other accrued expenses and liabilities	142,270		142,947		Other accrued expenses and liabilities	204,622		199,466
Deferred revenue	Deferred revenue	325,098		351,353		Deferred revenue	366,596		372,061
Total current liabilities	Total current liabilities	543,806		695,140		Total current liabilities	624,047		728,825
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Deferred income taxes	Deferred income taxes	66,661		78,643		Deferred income taxes	102,221		110,321
Long-term operating lease liabilities	Long-term operating lease liabilities	103,585		91,768		Long-term operating lease liabilities	109,454		120,940
Long-term debt	Long-term debt	423,683		423,531		Long-term debt	793,515		798,118
Other long-term liabilities	Other long-term liabilities	96,083		96,426		Other long-term liabilities	76,822		84,514
Total long-term liabilities	Total long-term liabilities	690,012		690,368		Total long-term liabilities	1,082,012		1,113,893
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding	Preferred stock, $0.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding	—		—		Preferred stock, $0.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding	0		0
Common stock, $0.01 par value; 300,000,000 shares authorized; 94,627,585 shares issued		946		946
Common stock, $0.01 par value; 300,000,000 shares authorized; 95,266,320 shares issued						Common stock, $0.01 par value; 300,000,000 shares authorized; 95,266,320 shares issued	953		953
Additional paid-in capital	Additional paid-in capital	1,144,193		1,188,939		Additional paid-in capital	1,346,601		1,434,203
Retained earnings	Retained earnings	3,513,334		3,370,706		Retained earnings	3,876,991		3,804,593
Treasury stock, at cost: 8,889,945 and 8,893,177 shares, respectively		(1,141,040)		(1,041,831)
Treasury stock, at cost: 8,128,708 and 8,693,809 shares, respectively						Treasury stock, at cost: 8,128,708 and 8,693,809 shares, respectively	(1,075,537)		(1,124,102)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(79,385)		(65,381)		Accumulated other comprehensive loss	(37,039)		(17,775)
Total stockholders' equity	Total stockholders' equity	3,438,048		3,453,379		Total stockholders' equity	4,111,969		4,097,872
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	4,671,866	$	4,838,887	Total liabilities and stockholders' equity	$	5,818,028	$	5,940,590

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

ANSYS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands, except per share data)	(in thousands, except per share data)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands, except per share data)	March 31, 2021		March 31, 2020
Revenue:	Revenue:									Revenue:
Software licenses	Software licenses	$	169,341	$	170,499	$	257,171	$	293,543	Software licenses	$	132,604	$	87,830
Maintenance and service	Maintenance and service	216,320		198,136		433,475		392,222		Maintenance and service	230,622		217,155
Total revenue	Total revenue	385,661		368,635		690,646		685,765		Total revenue	363,226		304,985
Cost of sales:	Cost of sales:									Cost of sales:
Software licenses	Software licenses	8,511		6,204		13,437		10,912		Software licenses	7,606		4,926
Amortization	Amortization	9,764		4,755		19,316		9,302		Amortization	14,949		9,552
Maintenance and service	Maintenance and service	35,585		29,538		71,223		55,098		Maintenance and service	39,548		35,638
Total cost of sales	Total cost of sales	53,860		40,497		103,976		75,312		Total cost of sales	62,103		50,116
Gross profit	Gross profit	331,801		328,138		586,670		610,453		Gross profit	301,123		254,869
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	128,698		120,412		259,220		232,581		Selling, general and administrative	146,215		130,522
Research and development	Research and development	86,133		75,302		172,245		146,040		Research and development	100,479		86,112
Amortization	Amortization	4,163		3,796		8,325		7,555		Amortization	4,407		4,162
Total operating expenses	Total operating expenses	218,994		199,510		439,790		386,176		Total operating expenses	251,101		220,796
Operating income	Operating income	112,807		128,628		146,880		224,277		Operating income	50,022		34,073
Interest income	Interest income	934		2,980		3,709		6,422		Interest income	517		2,775
Interest expense	Interest expense	(3,040)		(231)		(6,691)		(322)		Interest expense	(3,315)		(3,651)
Other income (expense), net		1,884		(1,436)		2,011		(1,770)
Income before income tax provision		112,585		129,941		145,909		228,607
Income tax provision		16,021		20,191		3,281		32,627
Other income, net										Other income, net	399		127
Income before income tax benefit										Income before income tax benefit	47,623		33,324
Income tax benefit										Income tax benefit	(24,775)		(12,740)
Net income	Net income	$	96,564	$	109,750	$	142,628	$	195,980	Net income	$	72,398	$	46,064
Earnings per share – basic:	Earnings per share – basic:									Earnings per share – basic:
Earnings per share	Earnings per share	$	1.13	$	1.31	$	1.66	$	2.34	Earnings per share	$	0.83	$	0.54
Weighted average shares	Weighted average shares	85,651		83,978		85,724		83,871		Weighted average shares	86,808		85,798
Earnings per share – diluted:	Earnings per share – diluted:									Earnings per share – diluted:
Earnings per share	Earnings per share	$	1.11	$	1.28	$	1.64	$	2.29	Earnings per share	$	0.82	$	0.53
Weighted average shares	Weighted average shares	86,934		85,483		87,152		85,488		Weighted average shares	87,986		87,369

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

ANSYS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands)	March 31, 2021		March 31, 2020
Net income	Net income	$	96,564	$	109,750	$	142,628	$	195,980	Net income	$	72,398	$	46,064
Other comprehensive income (loss):
Other comprehensive loss:										Other comprehensive loss:
Foreign currency translation adjustments	Foreign currency translation adjustments	10,288		558		(14,004)		(7,000)		Foreign currency translation adjustments	(19,264)		(24,292)
Comprehensive income	Comprehensive income	$	106,852	$	110,308	$	128,624	$	188,980	Comprehensive income	$	53,134	$	21,772

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

ANSYS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		(in thousands)	March 31, 2021		March 31, 2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income	Net income	$	142,628	$	195,980	Net income	$	72,398	$	46,064
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and intangible assets amortization	Depreciation and intangible assets amortization	41,356		27,518		Depreciation and intangible assets amortization	27,082		20,702
Operating lease right-of-use assets expense	Operating lease right-of-use assets expense	10,216		8,970		Operating lease right-of-use assets expense	5,699		5,075
Deferred income tax benefit	Deferred income tax benefit	(15,684)		(6,238)		Deferred income tax benefit	(3,564)		(5,442)
Provision for bad debts	Provision for bad debts	5,672		2,010		Provision for bad debts	18		3,116
Stock-based compensation expense	Stock-based compensation expense	65,071		52,922		Stock-based compensation expense	35,119		30,941
Other	Other	2,099		1,536		Other	975		1,553
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	79,444		(2,949)		Accounts receivable	159,038		117,830
Other receivables and current assets	Other receivables and current assets	44,377		11,780		Other receivables and current assets	(12,071)		12,013
Other long-term assets	Other long-term assets	(9,280)		(1,474)		Other long-term assets	(1,909)		(3,426)
Accounts payable, accrued expenses and current liabilities	Accounts payable, accrued expenses and current liabilities	(88,099)		(38,216)		Accounts payable, accrued expenses and current liabilities	(80,050)		(99,112)
Accrued income taxes	Accrued income taxes	19,576		(179)		Accrued income taxes	(20,954)		1,006
Deferred revenue	Deferred revenue	(25,678)		(10,341)		Deferred revenue	1,204		4,784
Other long-term liabilities	Other long-term liabilities	7,306		(1,202)		Other long-term liabilities	(11,878)		12,308
Net cash provided by operating activities	Net cash provided by operating activities	279,004		240,117		Net cash provided by operating activities	171,107		147,412
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(100,194)		(285,323)		Acquisitions, net of cash acquired	(10,783)		(2,348)
Capital expenditures	Capital expenditures	(16,967)		(16,946)		Capital expenditures	(5,045)		(6,987)
Other investing activities	Other investing activities	(2,405)		(9,008)		Other investing activities	(35)		(264)
Net cash used in investing activities	Net cash used in investing activities	(119,566)		(311,277)		Net cash used in investing activities	(15,863)		(9,599)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Principal payments on long-term debt	Principal payments on long-term debt	(75,000)		—		Principal payments on long-term debt	0		(75,000)
Purchase of treasury stock	Purchase of treasury stock	(161,029)		(59,116)		Purchase of treasury stock	0		(161,029)
Restricted stock withholding taxes paid in lieu of issued shares	Restricted stock withholding taxes paid in lieu of issued shares	(65,396)		(35,605)		Restricted stock withholding taxes paid in lieu of issued shares	(86,049)		(62,425)
Proceeds from shares issued for stock-based compensation	Proceeds from shares issued for stock-based compensation	15,874		20,780		Proceeds from shares issued for stock-based compensation	11,892		9,716
Other financing activities	Other financing activities	—		(1,617)		Other financing activities	(51)		0
Net cash used in financing activities	Net cash used in financing activities	(285,551)		(75,558)		Net cash used in financing activities	(74,208)		(288,738)
Effect of exchange rate fluctuations on cash and cash equivalents	Effect of exchange rate fluctuations on cash and cash equivalents	(1,435)		1,034		Effect of exchange rate fluctuations on cash and cash equivalents	(6,281)		(3,421)
Net decrease in cash and cash equivalents		(127,548)		(145,684)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	74,755		(154,346)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	872,094		777,139		Cash and cash equivalents, beginning of period	912,672		872,094
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	744,546	$	631,455	Cash and cash equivalents, end of period	$	987,427	$	717,748
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Income taxes paid	Income taxes paid	$	13,483	$	55,700	Income taxes paid	$	20,641	$	6,757
Interest paid	Interest paid	$	8,412	$	144	Interest paid	$	2,956	$	5,628

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

ANSYS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


		Common Stock					Additional Paid-In Capital		Retained Earnings		Treasury Stock								Accumulated Other Comprehensive (Loss)/Income				Total Stockholders' Equity		Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock							Accumulated Other Comprehensive Loss			Total Stockholders' Equity
(in thousands)	(in thousands)	Shares	Amount								Shares		Amount											(in thousands)	Shares		Retained Earnings								Shares		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance, January 1, 2020		94,628	$	946	$	1,188,939			$	3,370,706	8,893		$	(1,041,831)	$	(65,381)				$	3,453,379
Treasury shares acquired									690		(161,029)				(161,029)
Balance, January 1, 2021																	Balance, January 1, 2021	95,266				$	953		$	1,434,203				$	3,804,593			8,694						$	(1,124,102)		$	(17,775)		$	4,097,872

Stock-based compensation activity	Stock-based compensation activity				(70,769)				(541)		48,997				(21,772)		Stock-based compensation activity								(87,602)				(565)			48,565						(39,037)
Other comprehensive loss	Other comprehensive loss												(24,292)		(24,292)		Other comprehensive loss																		(19,264)			(19,264)
Net income	Net income						46,064								46,064		Net income										72,398											72,398
Balance, March 31, 2020		94,628	$	946	$	1,118,170	$	3,416,770	9,042		$	(1,153,863)	$	(89,673)	$	3,292,350
Acquisition of Livermore Software Technology, LLC					1,030				(6)		501				1,531
Stock-based compensation activity					24,993				(146)		12,322				37,315
Other comprehensive income													10,288		10,288
Net income							96,564								96,564
Balance, June 30, 2020		94,628	$	946	$	1,144,193	$	3,513,334	8,890		$	(1,141,040)	$	(79,385)	$	3,438,048
Balance, March 31, 2021																	Balance, March 31, 2021	95,266				$	953		$	1,346,601	$	3,876,991	8,129			$	(1,075,537)		$	(37,039)		$	4,111,969


		Common Stock					Additional Paid-In Capital		Retained Earnings		Treasury Stock								Accumulated Other Comprehensive (Loss)/ Income				Total Stockholders' Equity		Common Stock				Additional Paid-In Capital			Retained Earnings			Treasury Stock							Accumulated Other Comprehensive Loss			Total Stockholders' Equity
(in thousands)	(in thousands)	Shares	Amount								Shares		Amount											(in thousands)	Shares		Retained Earnings								Shares		Accumulated Other Comprehensive Loss			Total Stockholders' Equity
Balance, January 1, 2019		93,236	$	932	$	867,462			$	2,919,411	9,602		$	(1,075,879)	$	(62,379)				$	2,649,547
Balance, January 1, 2020																	Balance, January 1, 2020	94,628				$	946		$	1,188,939				$	3,370,706			8,893						$	(1,041,831)		$	(65,381)		$	3,453,379
Treasury shares acquired	Treasury shares acquired								250		(44,856)				(44,856)		Treasury shares acquired												690			(161,029)						(161,029)
Stock-based compensation activity	Stock-based compensation activity				(42,465)				(494)		43,483				1,018		Stock-based compensation activity								(70,769)				(541)			48,997						(21,772)
Other comprehensive loss	Other comprehensive loss												(7,558)		(7,558)		Other comprehensive loss																		(24,292)			(24,292)
Net income	Net income						86,230								86,230		Net income										46,064											46,064
Balance, March 31, 2019		93,236	$	932	$	824,997	$	3,005,641	9,358		$	(1,077,252)	$	(69,937)	$	2,684,381
Treasury shares acquired									80		(14,260)				(14,260)
Stock-based compensation activity					14,699				(241)		22,158				36,857
Other comprehensive income													558		558
Net income							109,750								109,750
Balance, June 30, 2019		93,236	$	932	$	839,696	$	3,115,391	9,197		$	(1,069,354)	$	(69,379)	$	2,817,286
Balance, March 31, 2020																	Balance, March 31, 2020	94,628				$	946		$	1,118,170	$	3,416,770	9,042			$	(1,153,863)		$	(89,673)		$	3,292,350

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

ANSYS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2020~~March 31, 2021

(Unaudited)

1.Organization

ANSYS, Inc. (Ansys, we, us, our) 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.~~healthcare.

As defined by the accounting guidance for segment reporting, we operate as 1 segment.

Given the integrated approach to the multi-discipline problem-solving needs of our customers, a single sale of software may contain components from multiple product areas and include combined technologies. We also have a multi-year product and integration strategy that will result in new, combined products or changes to the historical product offerings. As a result, it is impracticable for us to provide accurate historical or current reporting among our various product lines.

We are closely monitoring the spread of COVID-19 and continually ~~assessing~~mitigating its potential effects on our business. The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our business ~~employees, liquidity, financial condition, results of operations~~ and ~~cash flows.~~employees.

2.Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information for commercial and industrial companies, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements (and notes thereto) included in our Annual Report on Form 10-K for the year ended December 31, ~~2019 (2019~~2020 (2020 Form 10-K). The condensed consolidated December 31, ~~2019~~2020 balance sheet presented is derived from the audited December 31, ~~2019~~2020 balance sheet included in the ~~2019~~2020 Form 10-K. In our opinion, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. Certain items in the condensed consolidated financial statements of prior years have been reclassified to conform to the current year's presentation. These reclassifications had no effect on reported net income, comprehensive income, cash flows, total assets or total liabilities and stockholders' equity. Operating results for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for any future period.

~~Changes in~~Recently Adopted Accounting ~~Policies~~

~~Our accounting policies are described in Note 2, “Accounting Policies,” in the 2019 Form 10-K. Summarized below is the accounting guidance adopted subsequent to December 31, 2019.~~Guidance

~~Credit losses:~~Income taxes: In ~~June 2016,~~December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) ~~No. 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments~~ (ASU 2016-13), which modifies the measurement of expected credit losses of certain financial instruments. We adopted ASU 2016-13 on January 1, 2020 with no material impact to our condensed consolidated financial statements. Previous guidance required the allowance for doubtful accounts to be estimated based on an incurred loss model, which considered past and current conditions. ASU 2016-13 requires us to use an expected loss model that also considers reasonable and supportable forecasts of future conditions, referred to as the current expected credit loss (CECL) methodology.

Under ASU 2016-13, we make judgments as to our ability to collect outstanding receivables and provide allowances for a portion of receivables over the lifetime of the receivables. Provisions are made based upon a specific review of all significant outstanding invoices from both value and delinquency perspectives. For those invoices not specifically reviewed, provisions are estimated at differing rates based upon the age of the receivable. In determining these percentages, we consider our historical loss experience, current economic trends and future conditions.

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~~The changes in the allowance for doubtful accounts during the six months ended June 30, 2020 were as follows:~~


~~(in thousands)~~	~~Six Months Ended June 30, 2020~~
~~Beginning balance – January 1~~	$	~~8,700~~
~~Additions: Charges to costs and expenses~~	~~5,672~~
~~Deductions: Returns and write-offs~~	~~(972)~~
~~Ending balance – June 30~~	$	~~13,400~~

~~The increase in the allowance for doubtful accounts was driven by expected losses related to COVID-19.~~

~~Accounting Guidance Issued and Not Yet Adopted~~

~~Income taxes:~~ ~~In December 2019, the FASB issued ASU~~ No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), as part of its initiative to reduce complexity in the accounting standards. The amendments in ASU 2019-12 ~~eliminate~~eliminated certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also ~~clarifies~~clarified and ~~simplifies~~simplified other aspects of the accounting for income taxes. We adopted ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. We do not expect the adoption of this guidance to have aon January 1, 2021 with no material impact onto our condensed consolidated financial ~~position or results~~statements.

Table of ~~operations.~~Contents

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of highly liquid investments such as deposits held at major banks and money market funds. Cash equivalents are carried at cost, which approximates fair value. Our cash and cash equivalents balances comprise the following:


		June 30, 2020					December 31, 2019					March 31, 2021			December 31, 2020
(in thousands, except percentages)	(in thousands, except percentages)	Amount		% of Total	Amount		% of Total	(in thousands, except percentages)	Amount		% of Total	Amount		% of Total
Cash accounts	Cash accounts	$	518,734	69.7	$	549,639	63.0	Cash accounts	$	548,833	55.6	$	571,587	62.6
Money market funds	Money market funds	225,812		30.3	322,455		37.0	Money market funds	438,594		44.4	341,085		37.4
Total	Total	$	744,546		$	872,094		Total	$	987,427		$	912,672

Our money market fund balances are held in various funds of two issuers. The decrease in money market funds during the six months ended June 30, 2020 was a result of redemptions for share repurchases and the Lumerical Inc. (Lumerical) acquisition. See Note 4, "Acquisitions", for additional disclosures regarding the Lumerical acquisition.

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3.Revenue from Contracts with Customers

Disaggregation of Revenue

The following table summarizes revenue:


		Three Months Ended									Six Months Ended										Three Months Ended
(in thousands, except percentages)	(in thousands, except percentages)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			(in thousands, except percentages)	March 31, 2021			March 31, 2020
Revenue:	Revenue:													Revenue:
Lease licenses	Lease licenses	$	113,209		$	100,004		$	158,083		$	169,260		Lease licenses	$	65,077		$	44,874
Perpetual licenses	Perpetual licenses	56,132			70,495			99,088			124,283			Perpetual licenses	67,527			42,956
Software licenses	Software licenses	169,341			170,499			257,171			293,543			Software licenses	132,604			87,830
Maintenance	Maintenance	203,179			185,118			403,667			366,579			Maintenance	213,674			200,488
Service	Service	13,141			13,018			29,808			25,643			Service	16,948			16,667
Maintenance and service	Maintenance and service	216,320			198,136			433,475			392,222			Maintenance and service	230,622			217,155
Total revenue	Total revenue	$	385,661		$	368,635		$	690,646		$	685,765		Total revenue	$	363,226		$	304,985

Direct revenue, as a percentage of total revenue	Direct revenue, as a percentage of total revenue	78.1		%	79.7		%	76.2		%	75.4		%	Direct revenue, as a percentage of total revenue	71.8		%	73.6		%
Indirect revenue, as a percentage of total revenue	Indirect revenue, as a percentage of total revenue	21.9		%	20.3		%	23.8		%	24.6		%	Indirect revenue, as a percentage of total revenue	28.2		%	26.4		%

Our software licenses revenue is recognized up front, while maintenance and service revenue is generally recognized over the term of the contract.

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Deferred Revenue

Deferred revenue consists of billings made or payments received in advance of revenue recognition from customer agreements. The timing of revenue recognition may differ from the timing of billings to customers. Payment terms vary by the type and location of customer and the products or services offered. The time between invoicing and when payment is due is not significant.

The changes in deferred revenue, inclusive of both current and long-term deferred revenue, during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Beginning balance – January 1	Beginning balance – January 1	$	365,274	$	343,174	Beginning balance – January 1	$	388,810	$	365,274
Acquired deferred revenue		1,405		3,266

Deferral of revenue	Deferral of revenue	661,790		675,209		Deferral of revenue	362,043		308,817
Recognition of revenue	Recognition of revenue	(690,646)		(685,765)		Recognition of revenue	(363,226)		(304,985)
Currency translation	Currency translation	(1,635)		(500)		Currency translation	(6,898)		(3,355)
Ending balance – June 30		$	336,188	$	335,384
Ending balance – March 31						Ending balance – March 31	$	380,729	$	365,751

Total revenue allocated to remaining performance obligations as of March 31, 2021 will be recognized as revenue as follows:


(in thousands)
Next 12 months	$	607,500
Months 13-24	178,935
Months 25-36	75,807
Thereafter	74,259
Total revenue allocated to remaining performance obligations	$	936,501

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes both deferred revenue and backlog. Our backlog represents installment billings for periods beyond the current quarterly billing cycle. Revenue recognized during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ included amounts in deferred revenue and backlog at the beginning of the period of ~~$343.9~~$209.3 million and ~~$305.3~~$191.3 million, respectively.

~~Total revenue allocated to remaining performance obligations as of June 30, 2020 will be recognized as revenue as follows:~~


~~(in thousands)~~
~~Next 12 months~~	$	~~552,093~~
~~Months 13-24~~	~~179,925~~
~~Months 25-36~~	~~69,539~~
~~Thereafter~~	~~44,913~~
~~Total revenue allocated to remaining performance obligations~~	$	~~846,470~~

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4.Acquisitions

During the quarter ended March 31, 2021, we completed an acquisition with a purchase price of $10.8 million to enhance our customers' experience. The effects of the business combination were not material to our consolidated results of operations. The preliminary purchase allocations are $5.6 million of identifiable intangible assets, $6.2 million of goodwill and $1.0 million of net liabilities. The preliminary fair values of the assets acquired and liabilities assumed may change as additional information becomes available during the measurement period (up to one year from the acquisition date).

On December 1, 2020, we acquired 100% of the shares of Analytical Graphics, Inc. (AGI), a premier provider of mission-simulation, modeling, testing and analysis software for aerospace, defense and intelligence applications. The acquisition 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. The transaction closed with a purchase price of $722.5 million.

On April 1, 2020, we acquired 100% of the shares of Lumerical Inc. (Lumerical), a leading developer of photonic design and simulation tools, for a purchase price of approximately $107.5 million, paid in cash. The acquisition 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.

The assets and liabilities of Lumerical have been recorded based upon management's estimates of their fair market values as of the acquisition date. The following tables summarize the fair value of consideration transferred and the fair values of identified assets acquired and liabilities assumed at the acquisition date:

~~Fair Value of Consideration Transferred:~~


~~(in thousands)~~
~~Cash~~	$	~~107,545~~

~~Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:~~


~~(in thousands)~~
~~Cash~~	$	~~11,844~~
~~Accounts receivable and other tangible assets~~	~~3,385~~
~~Developed software and core technologies~~	~~31,614~~
~~Customer lists~~	~~1,616~~
~~Trade names~~	~~1,756~~
~~Accounts payable and other liabilities~~	~~(1,108)~~
~~Deferred revenue~~	~~(1,405)~~
~~Net deferred tax liabilities~~	~~(6,305)~~
~~Total identifiable net assets~~	$	~~41,397~~
~~Goodwill~~	$	~~66,148~~

The goodwill, which is not tax-deductible, is attributed to intangible assets that do not qualify for separate recognition, including the assembled workforce of the acquired business and the synergies expected to arise as a result of the acquisition of Lumerical.

The fair values of the assets acquired and liabilities assumed are based on preliminary calculations. The estimates and assumptions for these items are subject to change as additional information about what was known and knowable at the acquisition date is obtained during the measurement period (up to one year from the acquisition date).

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 valuation method and assumptions used to determine the fair value of the intangible assets acquired with the Lumerical acquisition are as follows:~~

~~Intangible Asset~~

~~Useful Life~~

~~Valuation Method~~

~~Assumptions~~

~~Developed software and core technologies~~

~~10 years~~

~~Multi-period excess earnings~~

~~Discount rate: 16.5%~~

~~Trade names~~

~~6 years~~

~~Relief-from-royalty~~

Royalty rate: 2.0%
Discount rate: 16.5%

~~Customer lists~~

~~10 years~~

~~Multi-period excess earnings~~

Attrition rate: 10.0%
Discount rate: 12.5%

The operating results of Lumerical have been included in our condensed consolidated financial statements since the date of acquisition. The effects of the business combination were not material to our consolidated results of operations.

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On November 1, 2019, we completed the acquisition of 100% of the shares of Livermore Software Technology (LST), the premier provider of explicit dynamics and other advanced finite element analysis technology, for a purchase price of $781.5 million, inclusive of final net working capital adjustments. The acquisition 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. The purchase price was paid with $472.8 million in cash and 1.4 million shares of our common stock valued at $308.7 million. We issued $307.2 million of common stock in an unregistered offering to the prior owners of LST and the remaining $1.5 million was issued from shares held in treasury.

On February 1, 2019, we completed the acquisition of 100% of the shares of Granta Design Limited (Granta Design) for a purchase price of $208.7 million, paid in cash and inclusive of final net working capital adjustments. The acquisition of 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.

Additionally, during the year ended December 31, 2019, we acquired DYNARDO GmbH, Helic, Inc. (Helic) and DfR Solutions to combine the acquired technologies with our existing comprehensive multiphysics portfolio. These acquisitions were not individually significant. The combined purchase price of these other acquisitions wa~~s $138.6 million, paid in cash and inclusive of final net working capital adjustments.~~

~~The~~ operating results of each ~~2019~~ acquisition have been included in our condensed consolidated financial statements since each respective date of acquisition.

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5.Other Receivables and Current Assets and Other Accrued Expenses and ~~Liabilities, and Other Long-Term~~ Liabilities

Our other receivables and current assets and other accrued expenses and ~~liabilities, and other long-term~~ liabilities comprise the following balances:


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
Receivables related to unrecognized revenue	Receivables related to unrecognized revenue	$	112,187	$	177,679	Receivables related to unrecognized revenue	$	135,828	$	192,154
Income taxes receivable, including overpayments and refunds	Income taxes receivable, including overpayments and refunds	47,859		26,672		Income taxes receivable, including overpayments and refunds	59,876		31,628
Prepaid expenses and other current assets	Prepaid expenses and other current assets	45,992		45,268		Prepaid expenses and other current assets	83,016		44,740
Total other receivables and current assets	Total other receivables and current assets	$	206,038	$	249,619	Total other receivables and current assets	$	278,720	$	268,522

Payroll-related accruals						Payroll-related accruals	41,431		20,117
Accrued vacation	Accrued vacation	34,478		24,336		Accrued vacation	39,156		34,132
Consumption, VAT and sales tax liabilities	Consumption, VAT and sales tax liabilities	18,377		36,398		Consumption, VAT and sales tax liabilities	28,370		45,156
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	89,415		82,213		Accrued expenses and other current liabilities	95,665		100,061
Total other accrued expenses and liabilities	Total other accrued expenses and liabilities	$	142,270	$	142,947	Total other accrued expenses and liabilities	$	204,622	$	199,466

Uncertain tax positions		$	67,341	$	64,375
Other long-term liabilities		28,742		32,051
Total other long-term liabilities		$	96,083	$	96,426

Receivables related to unrecognized revenue represent the current portion of billings made for customer contracts that have not yet been recognized as revenue.

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6.Earnings Per Share

Basic earnings per share (EPS) amounts are computed by dividing earnings by the weighted average number of common shares outstanding during the period. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. To the extent stock awards are anti-dilutive, they are excluded from the calculation of diluted EPS.

The details of basic and diluted EPS are as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands, except per share data)	(in thousands, except per share data)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands, except per share data)	March 31, 2021		March 31, 2020
Net income	Net income	$	96,564	$	109,750	$	142,628	$	195,980	Net income	$	72,398	$	46,064
Weighted average shares outstanding – basic	Weighted average shares outstanding – basic	85,651		83,978		85,724		83,871		Weighted average shares outstanding – basic	86,808		85,798
Dilutive effect of stock plans	Dilutive effect of stock plans	1,283		1,505		1,428		1,617		Dilutive effect of stock plans	1,178		1,571
Weighted average shares outstanding – diluted	Weighted average shares outstanding – diluted	86,934		85,483		87,152		85,488		Weighted average shares outstanding – diluted	87,986		87,369
Basic earnings per share	Basic earnings per share	$	1.13	$	1.31	$	1.66	$	2.34	Basic earnings per share	$	0.83	$	0.54
Diluted earnings per share	Diluted earnings per share	$	1.11	$	1.28	$	1.64	$	2.29	Diluted earnings per share	$	0.82	$	0.53
Anti-dilutive shares	Anti-dilutive shares	26		—		27		—		Anti-dilutive shares	27		28

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7.Goodwill and Intangible Assets

Intangible assets are classified as follows:


		June 30, 2020						December 31, 2019							March 31, 2021				December 31, 2020
(in thousands)	(in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization		(in thousands)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Finite-lived intangible assets:	Finite-lived intangible assets:									Finite-lived intangible assets:
Developed software and core technologies	Developed software and core technologies	$	665,779	$	(349,705)	$	635,063	$	(332,622)	Developed software and core technologies	$	862,677	$	(382,824)	$	859,620	$	(370,338)
Customer lists and contract backlog	Customer lists and contract backlog	258,239		(129,149)		269,629		(132,596)		Customer lists and contract backlog	283,592		(137,680)		288,085		(136,093)
Trade names	Trade names	155,716		(119,543)		154,259		(117,379)		Trade names	175,090		(123,855)		175,626		(122,392)
Total	Total	$	1,079,734	$	(598,397)	$	1,058,951	$	(582,597)	Total	$	1,321,359	$	(644,359)	$	1,323,331	$	(628,823)
Indefinite-lived intangible asset:	Indefinite-lived intangible asset:									Indefinite-lived intangible asset:
Trade name	Trade name	$	357			$	357			Trade name	$	357			$	357

Finite-lived intangible assets are amortized over their estimated useful lives of two years to seventeen years. Amortization expense for the intangible assets reflected above was ~~$13.9~~$19.4 million and ~~$8.6~~$13.7 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. Amortization expense for the intangible assets reflected above was $27.6 million and $16.9 million for the six months ended June 30, 2020 and 2019,~~ respectively.

As of ~~June 30, 2020,~~March 31, 2021, estimated future amortization expense for the intangible assets reflected above was as follows:


(in thousands)	(in thousands)			(in thousands)
Remainder of 2020		$	27,679
2021		55,045
Remainder of 2021				Remainder of 2021	$	55,244
2022	2022	56,038		2022	77,005
2023	2023	55,690		2023	78,298
2024	2024	54,226		2024	77,451
2025	2025	50,507		2025	74,950
2026				2026	72,559
Thereafter	Thereafter	182,152		Thereafter	241,493
Total intangible assets subject to amortization	Total intangible assets subject to amortization	481,337		Total intangible assets subject to amortization	677,000
Indefinite-lived trade name	Indefinite-lived trade name	357		Indefinite-lived trade name	357
Other intangible assets, net	Other intangible assets, net	$	481,694	Other intangible assets, net	$	677,357

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The changes in goodwill during the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Beginning balance – January 1	Beginning balance – January 1	$	2,413,280	$	1,572,455	Beginning balance – January 1	$	3,038,306	$	2,413,280
Acquisitions and adjustments⁽¹⁾	Acquisitions and adjustments⁽¹⁾	69,330		209,093		Acquisitions and adjustments(1)	8,215		(336)

Currency translation	Currency translation	(8,311)		(5,814)		Currency translation	(9,738)		(14,260)
Ending balance – June 30		$	2,474,299	$	1,775,734
Ending balance – March 31						Ending balance – March 31	$	3,036,783	$	2,398,684

⁽¹⁾ In accordance with the accounting for business combinations, we recorded adjustments to goodwill for the effect of changes in the provisional fair values of the assets acquired and liabilities assumed during the measurement period (up to one year from the acquisition date) as we obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. ~~Such adjustments are not material to our consolidated financial statements.~~

During the first quarter of ~~2020,~~2021, 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 of March 31, 2020.2021. No other events or circumstances changed during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 that would indicate that the fair values of our reporting unit and indefinite-lived intangible asset are below their carrying amounts.

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8.Fair Value Measurement

The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs for such valuations into three broad levels:

•Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

•Level 2: quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; or

•Level 3: unobservable inputs based on our own assumptions used to measure assets and liabilities at fair value.

A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

Our current and long-term debt is classified within Level 2 of the fair value hierarchy because these borrowings are not actively traded and have a variable interest rate structure based upon market rates. The carrying amount of our current and long-term debt approximates the estimated fair value. See Note 10, "Debt", for additional information on our borrowings.

The following tables provide the assets carried at fair value and measured on a recurring basis:


				Fair Value Measurements at Reporting Date Using:													Fair Value Measurements at Reporting Date Using:
(in thousands)	(in thousands)	June 30, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	March 31, 2021		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets	Assets									Assets
Cash equivalents	Cash equivalents	$	225,812	$	225,812	$	—	$	—	Cash equivalents	$	438,594	$	438,594	$	0	$	0
Short-term investments	Short-term investments	$	433	$	—	$	433	$	—	Short-term investments	$	516	$	0	$	516	$	0
Deferred compensation plan investments	Deferred compensation plan investments	$	1,114	$	1,114	$	—	$	—	Deferred compensation plan investments	$	1,601	$	1,601	$	0	$	0


				Fair Value Measurements at Reporting Date Using:													Fair Value Measurements at Reporting Date Using:
(in thousands)	(in thousands)	December 31, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(in thousands)	December 31, 2020		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets	Assets									Assets
Cash equivalents	Cash equivalents	$	322,455	$	322,455	$	—	$	—	Cash equivalents	$	341,085	$	341,085	$	0	$	0
Short-term investments	Short-term investments	$	288	$	—	$	288	$	—	Short-term investments	$	479	$	0	$	479	$	0
Deferred compensation plan investments	Deferred compensation plan investments	$	1,110	$	1,110	$	—	$	—	Deferred compensation plan investments	$	1,602	$	1,602	$	0	$	0

The cash equivalents in the preceding tables represent money market funds, valued at net asset value, with carrying values which approximate their fair values because of their short-term nature.

The short-term investments in the preceding tables represent deposits held by certain foreign subsidiaries. The deposits have fixed interest rates with original maturities ranging from three months to one year.

The deferred compensation plan investments in the preceding tables represent trading securities held in a rabbi trust for the benefit of non-employee ~~directors who elected to diversify their vested deferred stock awards.~~directors. These securities consist of mutual funds traded in an active market with quoted prices. As a result, the plan assets are classified as Level 1 in the fair value hierarchy. The plan assets are recorded within other long-term assets on our condensed consolidated balance sheets.

9.Leases

~~We primarily have operating leases for office space and leased cars included in our~~Our right-of-use (ROU) assets and lease ~~liabilities.~~liabilities primarily include operating leases for office space. Our executive offices and those related to certain domestic product development, marketing, production and administration are located in a 186,000 square foot office facility in Canonsburg, Pennsylvania. The term of the lease is 183 months, which began on October 1, 2014 and expires on December 31, 2029. The lease agreement includes options to renew the contract through August 2044, an option to lease additional space in January 2025 and an option to terminate the lease in December 2025. No options are included in the

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lease liability as renewal is not reasonably certain. In addition, we are reasonably certain we will not terminate the lease agreement. Absent the exercise of options in the lease, our remaining base rent (inclusive of property taxes and certain operating costs) is $4.5 million per annum through 2024 and $4.7 million per annum for 2025 - 2029.

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The components of our global lease cost reflected in the condensed consolidated statements of income are as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands)	March 31, 2021		March 31, 2020
Lease liability cost	Lease liability cost	$	6,280	$	5,610	$	12,498	$	10,895	Lease liability cost	$	7,001	$	6,218
Variable lease cost not included in the lease liability⁽¹⁾	Variable lease cost not included in the lease liability⁽¹⁾	1,224		924		2,321		1,721		Variable lease cost not included in the lease liability(1)	1,282		1,097
Total lease cost	Total lease cost	7,504		6,534		14,819		12,616		Total lease cost	$	8,283	$	7,315

⁽¹⁾ Variable lease cost includes common area maintenance, property taxes, utilities and fluctuations in rent due to a change in an index or rate.

Other information related to operating leases is as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands)	March 31, 2021		March 31, 2020
Cash paid for amounts included in the measurement of the lease liability:	Cash paid for amounts included in the measurement of the lease liability:									Cash paid for amounts included in the measurement of the lease liability:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	(5,668)	$	(4,977)	$	(11,401)	$	(9,309)	Operating cash flows from operating leases	$	(6,827)	$	(5,733)
Right-of-use assets obtained in exchange for new operating lease liabilities	Right-of-use assets obtained in exchange for new operating lease liabilities	642		9,272		20,243		23,107		Right-of-use assets obtained in exchange for new operating lease liabilities	587		19,601


		As of June 30,							As of March 31,
		2020		2019			2021		2020
Weighted-average remaining lease term of operating leases	Weighted-average remaining lease term of operating leases	7.7 years		7.8 years		Weighted-average remaining lease term of operating leases	7.1 years		8.0 years
Weighted-average discount rate of operating leases	Weighted-average discount rate of operating leases	3.3	%	3.3	%	Weighted-average discount rate of operating leases	3.1	%	3.4	%

The maturity schedule of the operating lease liabilities as of ~~June 30, 2020~~March 31, 2021 is as follows:


(in thousands)	(in thousands)			(in thousands)
Remainder of 2020		$	11,395
2021		22,531
Remainder of 2021				Remainder of 2021	$	20,283
2022	2022	19,549		2022	24,304
2023	2023	14,962		2023	19,027
2024	2024	14,245		2024	17,956
2025				2025	16,877
Thereafter	Thereafter	57,847		Thereafter	49,834
Total future lease payments	Total future lease payments	140,529		Total future lease payments	148,281
Less: Present value adjustment	Less: Present value adjustment	(17,810)		Less: Present value adjustment	(15,787)
Present value of future lease payments⁽¹⁾	Present value of future lease payments⁽¹⁾	$	122,719	Present value of future lease payments(1)	$	132,494

⁽¹⁾Includes the current portion of operating lease liabilities of ~~$19.1~~$23.0 million, which is reflected in other accrued expenses and liabilities in the condensed consolidated balance sheets.

There were no material leases that have been signed but not yet commenced as of ~~June 30, 2020.~~

March 31, 2021.

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10.Debt

In February 2019, we entered into a credit agreement for a $500.0 million unsecured revolving credit facility, which includes a $50.0 million sublimit for the issuance of letters of credit (Revolving Credit Facility), with Bank of America, N.A. as the Administrative Agent. The Revolving Credit Facility becomes payable in full on February 22, 2024 and is available for general corporate purposes, including, among others, to finance acquisitions and capital expenditures. The Revolving Credit Facility had not been utilized as of March 31, 2021.

~~In connection with the acquisition of LST, we~~We amended our credit agreement (Amended Credit Agreement) on October 16, 2019. The amendment provided for a new $500.0 million unsecured term loan facility to finance our acquisition of Livermore Software Technology (LST) in the ~~acquisition.~~fourth quarter of 2019. The term loan was funded on November 1, 2019 and matures on November 1, 2024. Principal on the term loan will be payable on the last business day of each fiscal quarter commencing with the ninth full fiscal quarter after the funding date at a rate of 1.25% per quarter, increasing to 2.50% per quarter after the next four fiscal quarters. We repaid $75.0 million of the unsecured term loan balance in January 2020 prior to the scheduled maturity dates in 2022 ($25.0 million) and 2023 ($50.0 million).

In connection with the acquisition of AGI, we entered into a credit agreement (AGI Credit Agreement) on November 9, 2020, with Bank of America, N.A. as the Administrative Agent. The AGI Credit Agreement provided for a new $375.0 million unsecured term loan facility to finance a portion of the cash consideration for the acquisition. The term loan was funded on December 1, 2020 and matures on November 1, 2024. Principal on the term loan will be payable on the last business day of each fiscal quarter commencing with the fifth full fiscal quarter after the funding date at a rate of 1.25% per quarter, increasing to 2.50% per quarter after the next four fiscal quarters.

Borrowings under the Amended Credit Agreement and the AGI Credit Agreement (collectively, the Credit Agreements) accrue interest at the Eurodollar rate plus an applicable margin or at the base rate, at our election. For the quarter ended ~~June 30, 2020,~~March 31, 2021, we elected to apply the Eurodollar rate. The base rate is the applicable margin plus the highest of (i) the federal funds rate plus 0.500%, (ii) the Bank 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). This results in a margin ranging from 1.125% to 1.750% and 0.125% to 0.750% for the Eurodollar rate and base rate, ~~respectively.~~ respectively.

The weighted-average interest rates in effect ~~during~~for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 were ~~2.575%~~1.45% and ~~2.793%~~3.03%, respectively. As of ~~June 30, 2020,~~March 31, 2021, the rate in effect for the Credit Agreements was ~~1.433%~~1.45%.

The ~~Amended~~ Credit ~~Agreement contains~~Agreements contain language in the event the Eurodollar rate is not available due to LIBOR changes. If this occurs, the base rate will be used for borrowings. However, we may work with the Administrative Agent to amend the ~~agreement~~Credit Agreements to replace the Eurodollar rate with (i) one or more rates based on the Secured Overnight Financing Rate (SOFR); or (ii) another alternative benchmark rate, subject to the lenders' approval.

The ~~Amended~~ Credit ~~Agreement contains~~Agreements contain customary representations and warranties, affirmative and negative covenants and events of default. The ~~Amended~~ Credit ~~Agreement~~Agreements also ~~contains~~each contain a financial covenant requiring us to maintain a consolidated leverage ratio of indebtedness to earnings before interest, taxes, depreciation and amortization not exceeding 3.50 to 1.00 as of the end of any fiscal quarter (for the four-quarter period ending on such date) with an opportunity for a temporary increase in such consolidated leverage ratio to 4.00 to 1.00 upon the consummation of certain qualified acquisitions for which the aggregate consideration is at least $250.0 million.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019, there were no outstanding borrowings under the unsecured Revolving Credit Facility, and~~2020, the carrying ~~value~~values of the term ~~loan was $423.7~~loans were $798.2 million, which is net of ~~$1.3~~$1.8 million of unamortized debt issuance costs, and ~~$498.5~~$798.1 million, which is net of ~~$1.5~~$1.9 million of unamortized debt issuance costs, respectively. ~~The next principal payment on the term loan is not required until 2024.~~ We were in compliance with all covenants as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

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11.Income Taxes

Our income before income tax ~~provision,~~benefit, income tax ~~provision~~benefit and effective tax rates were as follows:


		Three Months Ended									Six Months Ended										Three Months Ended
(in thousands, except percentages)	(in thousands, except percentages)	June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019			(in thousands, except percentages)	March 31, 2021			March 31, 2020
Income before income tax provision		$	112,585		$	129,941		$	145,909		$	228,607
Income tax provision		16,021			20,191			3,281			32,627
Income before income tax benefit														Income before income tax benefit	$	47,623		$	33,324
Income tax benefit														Income tax benefit	(24,775)			(12,740)
Effective tax rate	Effective tax rate	14.2		%	15.5		%	2.2		%	14.3		%	Effective tax rate	(52.0)		%	(38.2)		%

Tax ~~expense~~benefit for the ~~first half of~~three months ended March 31, 2021 and 2020 ~~benefited~~was due to increased tax deductions related to stock compensation, ~~benefits,~~ many of which were recognized ~~discretely~~discretely. These tax benefits were in excess of tax expense at the ~~first quarter.~~annualized effective tax rate for the three months ended March 31, 2021 and 2020, resulting in a net tax benefit. Our expected annualized effective tax rate remains positive for 2021.

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12.Stock Repurchase Program

Under our stock repurchase program, we repurchased shares as follows:


		Six Months Ended							Three Months Ended
(in thousands, except per share data)	(in thousands, except per share data)	June 30, 2020		June 30, 2019		(in thousands, except per share data)	March 31, 2021		March 31, 2020
Number of shares repurchased	Number of shares repurchased	690		330		Number of shares repurchased	0		690
Average price paid per share	Average price paid per share	$	233.48	$	179.41	Average price paid per share	$	0	$	233.48
Total cost	Total cost	$	161,029	$	59,116	Total cost	$	0	$	161,029

~~All of the shares of common stock repurchased during the first six months of 2020 were repurchased in the first quarter of 2020.~~

As of ~~June 30, 2020,~~March 31, 2021, 2.8 million shares remained available for repurchase under the program.

13.Stock-Based Compensation

Total stock-based compensation expense and its net impact on basic and diluted earnings per share are as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands, except per share data)	(in thousands, except per share data)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands, except per share data)	March 31, 2021		March 31, 2020
Cost of sales:	Cost of sales:									Cost of sales:
Maintenance and service	Maintenance and service	$	3,464	$	2,374	$	6,330	$	3,602	Maintenance and service	$	3,562	$	2,866
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	16,319		14,503		31,463		27,634		Selling, general and administrative	17,223		15,144
Research and development	Research and development	14,347		12,245		27,278		21,686		Research and development	14,334		12,931
Stock-based compensation expense before taxes	Stock-based compensation expense before taxes	34,130		29,122		65,071		52,922		Stock-based compensation expense before taxes	35,119		30,941
Related income tax benefits	Related income tax benefits	(10,883)		(9,152)		(36,789)		(20,228)		Related income tax benefits	(42,625)		(25,906)
Stock-based compensation expense, net of taxes	Stock-based compensation expense, net of taxes	$	23,247	$	19,970	$	28,282	$	32,694	Stock-based compensation expense, net of taxes	$	(7,506)	$	5,035
Net impact on earnings per share:	Net impact on earnings per share:									Net impact on earnings per share:
Basic earnings per share	Basic earnings per share	$	(0.27)	$	(0.24)	$	(0.33)	$	(0.39)	Basic earnings per share	$	0.09	$	(0.06)
Diluted earnings per share	Diluted earnings per share	$	(0.27)	$	(0.23)	$	(0.32)	$	(0.38)	Diluted earnings per share	$	0.09	$	(0.06)

Stock-based compensation is a net benefit for the three months ended March 31, 2021. The tax benefits on stock-based compensation exceed the gross stock-based compensation expense due to increased excess tax benefits recognized related to awards issued in prior periods that were either exercised or released in the current period.

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14.Geographic Information

Revenue to external customers is attributed to individual countries based upon the location of the customer. Revenue by geographic area is as follows:


		Three Months Ended						Six Months Ended							Three Months Ended
(in thousands)	(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019		(in thousands)	March 31, 2021		March 31, 2020
United States	United States	$	184,143	$	137,789	$	309,256	$	278,451	United States	$	152,701	$	125,113
Japan	Japan	55,849		47,042		93,208		80,615		Japan	42,015		37,359
Germany	Germany	27,274		25,879		57,371		56,306		Germany	31,346		30,097
South Korea	South Korea	17,461		40,853		33,022		55,931		South Korea	22,398		15,561

France										France	15,386		15,469

Other Europe, Middle East and Africa (EMEA)	Other Europe, Middle East and Africa (EMEA)	60,083		67,212		119,393		127,076		Other Europe, Middle East and Africa (EMEA)	56,543		43,841
Other international	Other international	40,851		49,860		78,396		87,386		Other international	42,837		37,545
Total revenue	Total revenue	$	385,661	$	368,635	$	690,646	$	685,765	Total revenue	$	363,226	$	304,985

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Property and equipment by geographic area is as follows:


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
United States	United States	$	62,113	$	59,473	United States	$	62,890	$	65,633
France		5,593		3,657
India	India	5,479		5,660		India	7,077		7,408
Germany	Germany	4,879		4,237		Germany	5,541		5,277
United Kingdom		3,600		4,194
France						France	5,239		5,749

Other EMEA	Other EMEA	1,947		1,875		Other EMEA	5,688		5,847
Other international	Other international	5,181		4,540		Other international	6,772		6,589
Total property and equipment, net	Total property and equipment, net	$	88,792	$	83,636	Total property and equipment, net	$	93,207	$	96,503

15.Contingencies and Commitments

Our Indian subsidiary has several service tax audits pending that have resulted in formal inquiries being received on transactions through mid-2012. We could incur tax charges and related liabilities of approximately ~~$7.0~~$7.4 million. As such charges are not probable at this time, a reserve has not been recorded on the condensed consolidated balance sheet as of ~~June 30, 2020.~~March 31, 2021. The service tax issues raised in our notices and inquiries are very similar to the case, M/s Microsoft Corporation (I) (P) Ltd. Vs. Commissioner of Service Tax, New Delhi, wherein the Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) issued a favorable ruling to Microsoft. The Microsoft ruling was subsequently challenged in the Supreme Court by the Indian tax authority and a decision is still pending. We can provide no assurances on the impact that the present Microsoft case’s decision will have on our ~~cases.~~cases, however, an unfavorable ruling in the Microsoft case may impact our assessment of probability and result in the recording of a $7.4 million reserve. We are uncertain as to when these service tax matters will be concluded.

We sell software licenses and services to our customers under contractual agreements. Such agreements generally include certain provisions indemnifying the customer against claims of intellectual property infringement or non-compliance to contractual terms and conditions by third parties arising from such customer’s usage of our products or services. To date, payments related to these indemnification provisions have been immaterial. For several reasons, including the lack of prior material indemnification claims, we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of ANSYS, Inc.

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of ANSYS, Inc. and subsidiaries (the ~~“Company”~~"Company") as of ~~June 30, 2020,~~March 31, 2021, the related condensed consolidated statements of income, comprehensive income, ~~and~~ stockholders’ equity ~~for the three-month~~ and ~~six-month periods ended June 30, 2020 and 2019, and of~~ cash flows for the ~~six-month~~three-month periods ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019~~ and the related notes (collectively referred to as the ~~“interim~~"interim financial ~~information”~~information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, ~~2019,~~2020, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein); and in our report dated February ~~27, 2020,~~24, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, ~~2019,~~2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania

~~August~~May 5, ~~2020~~2021

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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, and with our audited consolidated financial statements and notes thereto for the year ended December 31, ~~2019~~2020 included in the ~~2019~~2020 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.~~healthcare. Headquartered south of Pittsburgh, Pennsylvania, we employed approximately ~~4,400~~4,800 people as of ~~June 30, 2020.~~March 31, 2021. We focus on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, ~~providing~~which can be delivered both on-premises and in the cloud. We provide 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) ~~and direct sales offices in strategic, global locations.~~. 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 amplify usage of simulation throughout the product lifecycle and to embed simulation into our partners' ecosystems. The engineering software simulation market is strong and growing. The market growth is driven by customers’ needs 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, simulation 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 this 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.

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:

Update on the Impact of COVID-19

~~We are closely monitoring~~As we moved into 2021, we continuously worked to mitigate the ~~spread~~effects of COVID-19 ~~and continually assessing its current and potential effects on our business. The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact~~ on our business ~~employees, liquidity, financial condition, results~~as described in our 2020 Form 10-K. The health and safety of ~~operations and cash flows.~~

~~At the onset of the crisis, we took action to enable~~ our employees and their families, our partners and our broad Ansys community around the world remain a high priority. We are continuing to ~~work from home. We closed our offices (including our corporate headquarters) and transitioned to a~~monitor the situation, but as of now remote work environment in North America, Asia and Europe and implemented certain travel restrictions, both of which have disrupted how we operate our business. While most of our offices have since reopened, many of our locations have limited access or have few employees working on site. Remote access remains the primary means of work for a majority of our workforce. As we prepare for a broader employee base to return to the office later in the year, we are developing new flexible work arrangements. 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 ~~continue to~~ maintain these effective controls as we continue to work remotely during the COVID-19 pandemic.

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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~~remaining duration and severity of the ~~outbreak,~~pandemic, the geographic markets affected, the actions taken by governmental authorities to contain the spread of the virus ~~including the shelter-in-place orders,~~and variants, the nature and scope of government economic recovery measures, and the widespread availability, consumption and reliability of vaccines, among other factors. The spread of the virus and its variants and economic deterioration caused by ~~the virus~~them 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~~our 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~~occur, while balancing the ~~pace of our hiring~~need to invest for long-term opportunities. We have also maintained and ~~reducing non-headcount-related discretionary spending, as well as spending less on certain facilities and infrastructure projects. However, we have not and do not~~ intend to ~~reduce~~maintain our ~~spending on critical~~commitment to invest in our acquisitions, research and development, and certain digital transformation projects, ~~such as~~in particular our ~~customer relationship management~~Customer Relationship Management (CRM) system 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. ~~In addition,~~During the first quarter of 2021, we ~~continue~~implemented enhancements to ~~strategically invest in research~~our CRM platform, and ~~development, enabling us to stay on track with~~we expanded the rollout of our ~~product release targets.~~global payroll platform for HRIS.

Please see "Note About Forward-Looking Statements" and "Risk Factors" in Part I, Item 1A of our ~~2019~~2020 Form 10-K ~~and Part II, Item 1A of this Quarterly Report on Form 10-Q and the first quarter 2020 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~~This section includes a discussion of GAAP and non-GAAP results. For reconciliations of non-GAAP results to GAAP results, see the ~~percentage change for both our~~section titled "Non-GAAP Results" herein.

Our GAAP and non-GAAP results for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 as compared to the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020 reflected the following increases:


		Three Months Ended June 30, 2020						Six Months Ended June 30, 2020							Three Months Ended March 31, 2021
		GAAP		Non-GAAP		GAAP		Non-GAAP			GAAP		Non-GAAP
Revenue	Revenue	4.6	%	5.2	%	0.7	%	1.2	%	Revenue	19.1	%	20.5	%
Operating income	Operating income	(12.3)	%	(1.1)	%	(34.5)	%	(15.9)	%	Operating income	46.8	%	37.5	%
Diluted earnings per share	Diluted earnings per share	(13.3)	%	(3.7)	%	(28.4)	%	(18.6)	%	Diluted earnings per share	54.7	%	34.9	%

We experienced an increase in revenue during the three ~~and six~~ months ended ~~June 30, 2020 from~~March 31, 2021 due to growth in ~~maintenance~~software license and ~~service~~maintenance revenue and by contributions from our recent ~~acquisitions, partially offset by reductions in software license revenue.~~acquisitions. The ~~outbreak of~~ COVID-19 ~~also~~pandemic and trade restrictions with China adversely impacted our revenue during the three ~~and six~~ months ended ~~June 30, 2020 with the most pronounced reductions occurring in perpetual licenses.~~March 31, 2021 and 2020. However, due to our diverse customer base, both from a vertical and geographic perspective, as well as ~~the~~our 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.~~acquisitions, increased costs related to foreign exchange translation due to a weaker U.S. Dollar and higher stock-based compensation. While our hiring pace was slowed and certain discretionary operational expenses, such as travel, were significantly reduced, the COVID-19 ~~outbreak~~pandemic did not have a material impact on our operating expenses during the three ~~and six~~ months ended ~~June 30, 2020.~~March 31, 2021.

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, and 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."~~combinations.

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Impact of Foreign Currency

Our comparative financial results were impacted by fluctuations in the U.S. Dollar during the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 as compared to the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020. The net favorable impacts on our GAAP and non-GAAP revenue and operating income ~~due to currency fluctuations~~as a result of the weakened U.S. Dollar when measured against our primary foreign currencies are reflected in the table below. ~~Amounts in brackets indicate an adverse impact from currency fluctuations.~~


		Three Months Ended June 30, 2020						Six Months Ended June 30, 2020					Three Months Ended March 31, 2021
(in thousands)	(in thousands)	GAAP		Non-GAAP		GAAP		Non-GAAP		(in thousands)	GAAP		Non-GAAP
Revenue	Revenue	$	(1,542)	$	(1,615)	$	(4,132)	$	(4,211)	Revenue	$	9,912	$	9,948
Operating income	Operating income	$	477	$	320	$	216	$	(51)	Operating income	$	2,046	$	2,473

In constant currency, our ~~growth rates~~increases were as follows:


		Three Months Ended June 30, 2020						Six Months Ended June 30, 2020					Three Months Ended March 31, 2021
		GAAP		Non-GAAP		GAAP		Non-GAAP			GAAP		Non-GAAP
Revenue	Revenue	5.0	%	5.6	%	1.3	%	1.8	%	Revenue	15.8	%	17.3	%
Operating income	Operating income	(12.7)	%	(1.3)	%	(34.6)	%	(15.8)	%	Operating income	40.8	%	34.8	%

Constant currency amounts exclude the effects of foreign currency fluctuations on the reported results. To present this information, the ~~2020~~2021 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~~2020 comparable period, rather than the actual exchange rates in effect for ~~2020.~~2021. Constant currency growth rates are calculated by adjusting the ~~2020~~2021 reported revenue and operating income amounts by the ~~2020~~2021 currency fluctuation impacts and comparing to the ~~2019~~2020 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 more volatile 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 the same outcome. However, there will be years in which ACV growth lags revenue growth and other years in which 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:


		Three Months Ended June 30,						Change											Three Months Ended March 31,		Change
(in thousands, except percentages)	(in thousands, except percentages)	2020		2019		Amount		%	Constant Currency %	(in thousands, except percentages)	2021			2020			Amount		%	Constant Currency %
ACV	ACV	$	344,406	$	326,145	$	18,261	5.6	5.9	ACV	$	319,382		$	301,050		$	18,332	6.1	3.0
Recurring ACV as a percentage of ACV										Recurring ACV as a percentage of ACV	77.6		%	82.2		%

Six Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 Amount % Constant Currency %
ACV $ 645,456 $ 629,635 $ 15,821 2.5 3.2

~~Table~~Recurring ACV includes both lease licenses and maintenance contracts. The reduction as a percentage of ~~Contents~~

~~While the resilience of~~total ACV in Q1 2021 as compared to Q1 2020 was driven by an increase in perpetual licensing, primarily within our business is evident in the growth shown above, the economic conditions due to the recent COVID-19 outbreak has disrupted the business of our customers and partners, and has 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. While 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.Asia-Pacific markets.

Other Financial Information

Our financial position includes ~~$745.0~~$987.9 million in cash and short-term investments, and working capital of ~~$750.5~~$1,036.9 million as of ~~June 30, 2020.~~March 31, 2021.

~~During the six months ended June 30, 2020, we repurchased 0.7 million shares for $161.0 million at an average price of $233.48 per share. Those~~There were no share repurchases ~~occurred~~ during the first quarter of ~~2020; there were no repurchases during the second quarter.~~2021. As of March 31, 2021, 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 GAAP revenue growth during the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 as compared to the three ~~and six~~ months ended ~~June 30, 2019:~~March 31, 2020:

Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
Americas 32.7 % 11.1 %
EMEA (4.6) % (1.7) %
Asia-Pacific (18.6) % (9.6) %
Total 5.0 % 1.3 %


	Three Months Ended March 31, 2021
Americas	21.1	%
EMEA	7.6	%
Asia-Pacific	16.3	%
Total	15.8	%

~~Under the current accounting for revenue,~~

The mix of perpetual license sales as well as the value and duration of multi-year ~~leases entered into~~lease contracts executed 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, have had an impact on, and in the future may further restrict, our ability to sell and distribute our products to certain customers and our ability to collect against existing trade ~~receivables~~receivables. As a result, each of these have had, and in the future could continue to have, an adverse effect on our business, results of operations or financial condition. Refer to additional details in Part I, "Item ~~1A of~~1A. Risk Factors" in our ~~2019~~2020 Form ~~10-K as supplemented by Part II, Item 1A of this Quarterly Report on Form 10-Q.~~10-K.

Industry Commentary:

~~We experienced~~The industry trends ~~consistent with those of 2019 and in~~from 2020 carried into the first quarter of ~~2020. The~~2021 as high-tech, automotive, and aerospace and defense continue to be our leading industries. This reflects the sustained research and development investments companies in these industries are making in critical technology initiatives – such as 5G and cloud computing infrastructure, advanced defense systems, electrification and autonomy. In the high-tech and semiconductor industry, ~~was positively impacted by companies' investments~~5G is still driving growth as it has significant implications in relation to the amount of data that is generated and stored and how effectively it can be processed. The transportation and mobility revolution continues to drive investment in the ~~development of the next generation of increasingly complex chips and technology to support applications in 5G, autonomy and other high growth areas. The~~ automotive industry maintained its momentum through continued investments to support the development of electrification and autonomous technologies, as well as in vehicle crash safety applications. Investment from the defense segment supported performance in the aerospace and defense industry.

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.

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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 (the Exchange Act), including, but not limited to, the following statements, as well as statements that contain such words as "anticipates," ~~"intends,~~" ~~"believes,~~intends," ~~"plans"~~"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~~pandemic and variants of the ~~ultimate liabilities arising from various investigations, claims~~virus as well as trade tensions between the U.S. and ~~legal proceedings.~~

•~~Our expectations regarding future claims related to indemnification obligations.~~China.

•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.

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•Our statements regarding the impact of global economic conditions.

•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 statements 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 rather than perpetual licenses.

•Our estimates regarding the expected impact on reported revenue related to the acquisition accounting treatment of deferred revenue.

•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, acquire or make investments in complementary companies, products, services and totechnologies, make payments on outstanding debt balances and repurchase stock in order to both offset dilution and return capital, ~~to stockholders,~~ in excess of our requirements, to stockholders 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.

•Our expectations regarding future claims related to indemnification obligations.

•Our expectations regarding acquisitions, related capital expenditures 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. We describe such risks, uncertainties, and factors in the “Risk Factors,” “Quantitative and Qualitative Disclosures about Market Risk,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of our Forms 10-K and 10-Q. Many of these risks, uncertainties, and factors are currently amplified by, and may continue to be amplified by, the COVID-19 pandemic. Forward-looking statements speak only as of the date they are made and we undertake no obligation to update them. 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 our first quarter 2020 Form 10-Q, Part II, Item 1A "Risk Factors." Information regarding any new risk factors or material changes to these risk factors has been included within Part II, Item 1A of this Quarterly Report on Form 10-Q.

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Results of Operations

Three Months Ended ~~June 30, 2020~~March 31, 2021 Compared to Three Months Ended ~~June 30, 2019~~March 31, 2020

Revenue:


		Three Months Ended June 30,						Change									Three Months Ended March 31,		Change
(in thousands, except percentages)	(in thousands, except percentages)	2020		2019		Amount		%	Constant Currency %	(in thousands, except percentages)	2021		2020		Amount		%	Constant Currency %
Revenue:	Revenue:									Revenue:
Lease licenses	Lease licenses	$	113,209	$	100,004	$	13,205	13.2	13.0	Lease licenses	$	65,077	$	44,874	$	20,203	45.0	42.6
Perpetual licenses	Perpetual licenses	56,132		70,495		(14,363)		(20.4)	(20.0)	Perpetual licenses	67,527		42,956		24,571		57.2	52.8
Software licenses	Software licenses	169,341		170,499		(1,158)		(0.7)	(0.6)	Software licenses	132,604		87,830		44,774		51.0	47.6
Maintenance	Maintenance	203,179		185,118		18,061		9.8	10.5	Maintenance	213,674		200,488		13,186		6.6	3.3
Service	Service	13,141		13,018		123		0.9	1.9	Service	16,948		16,667		281		1.7	(1.1)
Maintenance and service	Maintenance and service	216,320		198,136		18,184		9.2	9.9	Maintenance and service	230,622		217,155		13,467		6.2	3.0
Total revenue	Total revenue	$	385,661	$	368,635	$	17,026	4.6	5.0	Total revenue	$	363,226	$	304,985	$	58,241	19.1	15.8

Our revenue in the quarter ended ~~June 30, 2020~~March 31, 2021 increased ~~4.6%~~19.1% as compared to the quarter ended ~~June 30, 2019,~~March 31, 2020, while revenue grew ~~5.0%~~15.8% 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~~strong perpetual license sales, the timing and duration of our multi-year lease ~~contracts. The growth rate was negatively impacted by the shifting preference of customers toward time-based licensing, the trade restrictions between the United States~~contracts, momentum sales to our small- and ~~China~~medium-sized businesses, and ~~the impact of COVID-19.~~our recent acquisitions. Lease license revenue increased ~~13.2%~~45.0%, or ~~13.0%~~42.6% in constant currency, as compared to the prior-year quarter. Perpetual license revenue, which is derived ~~primarily~~ from new sales during the quarter, ~~decreased 20.4%~~increased 57.2%, or ~~20.0%~~52.8% 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~~renewals and the maintenance portion of lease license contracts collectively contributed to maintenance revenue growth of ~~9.8%~~6.6%, or ~~10.5%~~3.3% 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 ~~0.9%~~1.7%, or ~~1.9%~~decreased 1.1% 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~~Software products, across a large variety of applications and industries, ~~become~~are 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~~perpetual. This preference resulted in a ~~shifting preference~~shift from perpetual licenses to time-based licenses across a broader spectrum of our ~~customers. This shifting preference was elevated~~customers, with the exception of our Asia-Pacific region which experienced a disproportionate increase in perpetual licensing for the first ~~half~~quarter of ~~2020 as a result of the economic impacts of COVID-19, and we expect it to continue into the foreseeable future.~~2021.

In relation to COVID-19 and our revenue, we currently expect a ~~modest~~ recovery in the business environment ~~during~~as vaccine distribution becomes more widespread and a larger percentage of the ~~third quarter with the hope of an even stronger recovery in the fourth quarter. However,~~population is inoculated. Globally, businesses have not resumed full operations and our teams and those of our customers will likely continue working ~~remotely. In addition,~~remotely into the ~~EMEA region's traditional extended summer holiday season could further impact the speed~~second half of ~~the recovery in the third quarter.~~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~~annual Simulation World digital event in ~~June, we expect~~April 2021, 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 expect there to be a significant delay in the timing of closing certain transactions, and closing the larger enterprise-type deals may be especially difficult. 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 anticipate that customers will delay certain purchases to later in the yearAdditional waves or into 2021. We also anticipate some deterioration in renewal rates among our smaller customers, particularly small- and medium-sized businesses. The third quarter business environment is expected to be modestly stronger than that of the second quarter, but will remain adversely impacted by the continuing effects of COVID-19, with a disproportionate impact on certain customers and industries. We expect a stronger recovery in the fourth quarter, perhaps buoyed by sales transactions that may have been deferred from earlier quarters. However, additional wavesmutated 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 quarter ended ~~June 30, 2020,~~March 31, 2021, the U.S. Dollar was approximately ~~0.9% stronger,~~6.5% weaker, when measured against our primary foreign currencies, than for the quarter ended ~~June 30, 2019.~~March 31, 2020. The table below presents the net favorable impacts of currency fluctuations on revenue for the quarter ended ~~June 30, 2020. Amounts in brackets indicate an adverse impact from currency fluctuations.~~March 31, 2021.


(in thousands)		Three Months Ended ~~June 30, 2020~~March 31, 2021
Euro		$	~~(1,247)~~6,120
South Korean Won		~~(705)~~1,369
~~Indian Rupee~~	~~(489)~~
British Pound		~~(322)~~820
~~Canadian Dollar~~	~~(192)~~
Japanese Yen		~~1,120~~782
~~Taiwan Dollar~~		~~253~~
Other		40821
Total		$	~~(1,542)~~9,912

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The impacts from currency fluctuations resulted in increased operating income of ~~$0.5~~$2.0 million for the quarter ended ~~June 30, 2020~~March 31, 2021 as compared to the quarter ended ~~June 30, 2019.~~March 31, 2020.

As a percentage of revenue, our international and domestic revenues, and our direct and indirect revenues, were as follows:


		Three Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
International	International	52.3	%	62.6	%	International	58.0	%	59.0	%
Domestic	Domestic	47.7	%	37.4	%	Domestic	42.0	%	41.0	%

Direct	Direct	78.1	%	79.7	%	Direct	71.8	%	73.6	%
Indirect	Indirect	21.9	%	20.3	%	Indirect	28.2	%	26.4	%

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 ~~$4.0~~$8.9 million and ~~$1.9~~$3.9 million for the quarters ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The expected impacts on reported revenue are ~~$2.1~~$5.3 million and ~~$11.3~~$19.3 million for the quarter ending ~~September~~June 30, ~~2020~~2021 and the year ending December 31, ~~2020,~~2021, respectively.

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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 consisted of the following:


		Balance at June 30, 2020											Balance at March 31, 2021
(in thousands)	(in thousands)	Total		Current		Long-Term		(in thousands)	Total		Current		Long-Term
Deferred revenue	Deferred revenue	$	336,188	$	325,098	$	11,090	Deferred revenue	$	380,729	$	366,596	$	14,133
Backlog	Backlog	510,282		226,995		283,287		Backlog	555,772		240,904		314,868
Total	Total	$	846,470	$	552,093	$	294,377	Total	$	936,501	$	607,500	$	329,001


	Balance at December 31, 2020
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	388,810	$	372,061	$	16,749
Backlog	578,317		234,719		343,598
Total	$	967,127	$	606,780	$	360,347

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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.

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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 $11.3 million to the overall increase in cost of sales and operating expenses, inclusive of intangible asset amortization.~~

Three Months Ended June 30,
2020 2019 Change
(in thousands, except percentages) Amount % of
Revenue Amount % of
Revenue Amount %
Cost of sales:
Software licenses $ 8,511 2.2 $ 6,204 1.7 $ 2,307 37.2
Amortization 9,764 2.5 4,755 1.3 5,009 105.3
Maintenance and service 35,585 9.2 29,538 8.0 6,047 20.5
Total cost of sales 53,860 14.0 40,497 11.0 13,363 33.0
Gross profit $ 331,801 86.0 $ 328,138 89.0 $ 3,663 1.1

~~Software Licenses:~~ ~~The increase in the cost of software licenses was primarily due to increased third-party royalties of $2.2 million.~~

~~Amortization:~~ ~~The increase in amortization expense was due to the amortization of newly acquired intangible assets.~~

~~Maintenance and Service:~~ ~~The increase in maintenance and service costs was primarily due to the following:~~

•~~Increased salaries and other headcount-related costs of $3.5 million.~~

•~~Increased third-party technical support of $1.3 million.~~

•~~Increased stock-based compensation of $1.1 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 June 30,
2020 2019 Change
(in thousands, except percentages) Amount % of
Revenue Amount % of
Revenue Amount %
Operating expenses:
Selling, general and administrative $ 128,698 33.4 $ 120,412 32.7 $ 8,286 6.9
Research and development 86,133 22.3 75,302 20.4 10,831 14.4
Amortization 4,163 1.1 3,796 1.0 367 9.7
Total operating expenses $ 218,994 56.8 $ 199,510 54.1 $ 19,484 9.8

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~~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 $10.1 million.~~

•~~Increased third-party commissions of $1.9 million.~~

•~~Increased stock-based compensation of $1.8 million.~~

•~~Decreased business travel of $5.7 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 net increase in research and development costs was primarily due to the following:~~

•~~Increased salaries, incentive compensation and other headcount-related costs of $9.0 million.~~

•~~Increased stock-based compensation of $2.1 million.~~

•~~Increased IT maintenance and software hosting costs of $1.1 million.~~

•~~Decreased business travel of $1.2 million due to COVID-19.~~

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. We do not anticipate the impact of COVID-19 to significantly delay our 2020 product releases, as evidenced by our recent release of Ansys^® ~~2020 R2 in July.~~

~~Interest Income:~~ Interest income for the quarter ended June 30, 2020 was $0.9 million as compared to $3.0 million for the quarter ended June 30, 2019. Interest income decreased as a result of a decrease in the average rate of return on invested cash balances.

~~Interest Expense:~~ Interest expense for the quarter ended June 30, 2020 was $3.0 million as compared to $0.2 million for the quarter ended June 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:~~

Three Months Ended June 30,
(in thousands) 2020 2019
Investment gains, net $ 3,689 $ 48
Foreign currency losses, net (1,804) (1,869)
Other (1) 385
Total other income (expense), net $ 1,884 $ (1,436)


	Three Months Ended March 31,
	2021			2020			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Cost of sales:
Software licenses	$	7,606	2.1	$	4,926	1.6	$	2,680	54.4
Amortization	14,949		4.1	9,552		3.1	5,397		56.5
Maintenance and service	39,548		10.9	35,638		11.7	3,910		11.0
Total cost of sales	62,103		17.1	50,116		16.4	11,987		23.9
Gross profit	$	301,123	82.9	$	254,869	83.6	$	46,254	18.1

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

Three Months Ended June 30,
(in thousands, except percentages) 2020 2019
Income before income tax provision $ 112,585 $ 129,941
Income tax provision $ 16,021 $ 20,191
Effective tax rate 14.2 % 15.5 %

~~The decrease in the effective tax rate from the prior year was primarily due to benefits from entity structuring activities.~~

When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the quarters ended June 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.

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~~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 June 30,
(in thousands, except per share data) 2020 2019
Net income $ 96,564 $ 109,750
Diluted earnings per share $ 1.11 $ 1.28
Weighted average shares outstanding - diluted 86,934 85,483

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~~Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019~~

~~Revenue:~~

Six Months Ended June 30, Change
(in thousands, except percentages) 2020 2019 Amount % Constant Currency %
Revenue:
Lease licenses $ 158,083 $ 169,260 $ (11,177) (6.6) (6.6)
Perpetual licenses 99,088 124,283 (25,195) (20.3) (19.8)
Software licenses 257,171 293,543 (36,372) (12.4) (12.2)
Maintenance 403,667 366,579 37,088 10.1 11.0
Service 29,808 25,643 4,165 16.2 17.2
Maintenance and service 433,475 392,222 41,253 10.5 11.4
Total revenue $ 690,646 $ 685,765 $ 4,881 0.7 1.3

Our revenue in the six months ended June 30, 2020 increased 0.7% as compared to the six months ended June 30, 2019, while revenue grew 1.3% in constant currency. The growth rate was favorably impacted by our recent acquisitions. The growth rate was negatively impacted by the shifting preference of customers toward time-based licensing, the timing and duration of multi-year lease contracts, the trade restrictions between the United States and China and the impact of COVID-19. Lease license revenue decreased 6.6% in both reported and constant currency, as compared to the six months ended June 30, 2019, driven primarily by a decrease in multi-year lease contracts. Perpetual license revenue, which is derived primarily from new sales during the six months ended June 30, 2020, decreased 20.3%, or 19.8% in constant currency, as compared to the six months ended June 30, 2019. 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 10.1%, or 11.0% 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 16.2%, or 17.2% in constant currency, as compared to the six months ended June 30, 2019.

With respect to revenue, on average for the six months ended June 30, 2020, the U.S. Dollar was approximately 1.3% stronger, when measured against our primary foreign currencies, than for the six months ended June 30, 2019. The table below presents the impacts of currency fluctuations on revenue for the six months ended June 30, 2020. Amounts in brackets indicate an adverse impact from currency fluctuations.


~~(in thousands)~~	~~Six Months Ended June 30, 2020~~
~~Euro~~	$	~~(3,250)~~
~~South Korean Won~~	~~(1,615)~~
~~Indian Rupee~~	~~(717)~~
~~British Pound~~	~~(504)~~
~~Canadian Dollar~~	~~(213)~~
~~Japanese Yen~~	~~1,652~~
~~Taiwan Dollar~~	~~421~~
~~Other~~	94
~~Total~~	$	~~(4,132)~~

~~The impacts from currency fluctuations resulted in increased operating income of $0.2 million for the six months ended June 30, 2020 as compared to the six months ended June 30, 2019.~~

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~~As a percentage of revenue, our international and domestic revenues, and our direct and indirect revenues, were as follows:~~

Six Months Ended June 30,
2020 2019
International 55.2 % 59.4 %
Domestic 44.8 % 40.6 %
Direct 76.2 % 75.4 %
Indirect 23.8 % 24.6 %

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 $8.0 million and $4.7 million for the six months ended June 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 $22.5 million to the overall increase in cost of sales and operating expenses, inclusive of intangible asset amortization.

Six Months Ended June 30,
2020 2019 Change
(in thousands, except percentages) Amount % of
Revenue Amount % of
Revenue Amount %
Cost of sales:
Software licenses $ 13,437 1.9 $ 10,912 1.6 $ 2,525 23.1
Amortization 19,316 2.8 9,302 1.4 10,014 107.7
Maintenance and service 71,223 10.3 55,098 8.0 16,125 29.3
Total cost of sales 103,976 15.1 75,312 11.0 28,664 38.1
Gross profit $ 586,670 84.9 $ 610,453 89.0 $ (23,783) (3.9)

Software Licenses: The increase in the cost of software licenses was primarily due to increased third-party royalties of $2.5 million.

Amortization: The increase in amortization expense was due to the amortization of ~~newly~~intangible assets acquired ~~intangible assets.~~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~~incentive compensation of ~~$8.4~~$2.2 million.

•Increased ~~third-party technical support of $3.4 million.~~

•~~Increased stock-based compensation of $2.7 million.~~

•~~Increased IT maintenance and software hosting~~ costs related to foreign exchange translation of $1.3 ~~million.~~million due to a weaker U.S. Dollar.

The ~~reduction~~improvement in gross profit was a result of anthe increase in revenue, partially offset by the increase in the cost of ~~sales, partially offset by an increase in revenue.~~sales.


	Three Months Ended March 31,
	2021			2020			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Operating expenses:
Selling, general and administrative	$	146,215	40.3	$	130,522	42.8	$	15,693	12.0
Research and development	100,479		27.7	86,112		28.2	14,367		16.7
Amortization	4,407		1.2	4,162		1.4	245		5.9
Total operating expenses	$	251,101	69.1	$	220,796	72.4	$	30,305	13.7

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Six Months Ended June 30,
2020 2019 Change
(in thousands, except percentages) Amount % of
Revenue Amount % of
Revenue Amount %
Operating expenses:
Selling, general and administrative $ 259,220 37.5 $ 232,581 33.9 $ 26,639 11.5
Research and development 172,245 24.9 146,040 21.3 26,205 17.9
Amortization 8,325 1.2 7,555 1.1 770 10.2
Total operating expenses $ 439,790 63.7 $ 386,176 56.3 $ 53,614 13.9

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 ~~$20.1~~$15.3 million.

•Increased costs related to foreign exchange translation of $3.8 million due to a weaker U.S. Dollar.

•Increased stock-based compensation of ~~$3.8 million.~~

•~~Increased bad debt expense of $3.7 million due to expected losses related to COVID-19.~~

•~~Increased IT maintenance and software hosting costs of $3.0 million.~~

•~~Increased third-party commissions of $2.4~~$2.1 million.

•Decreased business travel of ~~$5.8~~$4.9 million due to ~~COVID-19.~~the COVID-19 pandemic.

•Decreased bad debt expense of $3.1 million.

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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 ~~$21.8~~$9.7 million.

•Increased costs related to foreign exchange translation of $2.4 million due to a weaker U.S. Dollar.

•Increased stock-based compensation of ~~$5.6~~$1.4 million.

Interest Income: Interest income for the ~~six months~~quarter ended ~~June 30, 2020~~March 31, 2021 was ~~$3.7~~$0.5 million as compared to ~~$6.4~~$2.8 million for the ~~six months~~quarter ended ~~June 30, 2019.~~March 31, 2020. 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 ~~six months~~quarter ended ~~June 30, 2020~~March 31, 2021 was ~~$6.7~~$3.3 million as compared to ~~$0.3~~$3.7 million for the ~~six months~~quarter ended ~~June 30, 2019.~~March 31, 2020. Interest expense ~~increased~~decreased as a result of ~~the~~a lower interest rate environment, partially offset by interest incurred on debt financing obtained in connection with the acquisition of ~~LST~~AGI in the fourth quarter of ~~2019.~~2020.

Other Income, ~~(Expense),~~ net: ~~Our other~~Other income ~~(expense)~~for the quarter ended March 31, 2021 was $0.4 million as compared to $0.1 million for the quarter ended March 31, 2020. Other income consisted primarily of ~~the following:~~net foreign currency gains.

Six Months Ended June 30,
(in thousands) 2020 2019
Investment gains, net $ 3,682 $ 230
Foreign currency losses, net (1,658) (2,382)
Other (13) 382
Total other income (expense), net $ 2,011 $ (1,770)

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


		Six Months Ended June 30,										Three Months Ended March 31,
(in thousands, except percentages)	(in thousands, except percentages)	2020			2019			(in thousands, except percentages)	2021			2020
Income before income tax provision		$	145,909		$	228,607
Income tax provision		$	3,281		$	32,627
Income before income tax benefit								Income before income tax benefit	$	47,623		$	33,324
Income tax benefit								Income tax benefit	$	(24,775)		$	(12,740)
Effective tax rate	Effective tax rate	2.2		%	14.3		%	Effective tax rate	(52.0)		%	(38.2)		%

The decrease in the effective tax rate from the ~~prior year~~first quarter of 2020 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 a valuation allowance in a foreign jurisdiction.~~

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When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the ~~six months~~quarters ended ~~June 30,~~March 31, 2021 and 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:


		Six Months Ended June 30,							Three Months Ended March 31,
(in thousands, except per share data)	(in thousands, except per share data)	2020		2019		(in thousands, except per share data)	2021		2020
Net income	Net income	$	142,628	$	195,980	Net income	$	72,398	$	46,064
Diluted earnings per share	Diluted earnings per share	$	1.64	$	2.29	Diluted earnings per share	$	0.82	$	0.53
Weighted average shares outstanding - diluted	Weighted average shares outstanding - diluted	87,152		85,488		Weighted average shares outstanding - diluted	87,986		87,369

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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 ~~described~~included below.


ANSYS, INC. AND SUBSIDIARIES	ANSYS, INC. AND SUBSIDIARIES																													ANSYS, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures
Reconciliations of GAAP to Non-GAAP Measures																Reconciliations of GAAP to Non-GAAP Measures
(Unaudited)	(Unaudited)																													(Unaudited)
		Three Months Ended																											Three Months Ended
		June 30, 2020																											March 31, 2021
(in thousands, except percentages and per share data)	(in thousands, except percentages and per share data)	Revenue		Gross Profit		%		Operating Income		%		Net Income		EPS - Diluted¹		(in thousands, except percentages and per share data)	Revenue		Gross Profit		%		Operating Income		%		Net Income		EPS - Diluted1
Total GAAP	Total GAAP	$	385,661	$	331,801	86.0	%	$	112,807	29.3	%	$	96,564	$	1.11	Total GAAP	$	363,226	$	301,123	82.9	%	$	50,022	13.8	%	$	72,398	$	0.82

Acquisition accounting for deferred revenue	Acquisition accounting for deferred revenue	4,040		4,040		0.2	%	4,040		0.7	%	4,040		0.05		Acquisition accounting for deferred revenue	8,923		8,923		0.4	%	8,923		2.0	%	8,923		0.10

Stock-based compensation expense	Stock-based compensation expense	—		3,464		0.8	%	34,130		8.9	%	34,130		0.40		Stock-based compensation expense	—		3,562		1.0	%	35,119		9.5	%	35,119		0.41

Excess payroll taxes related to stock-based awards	Excess payroll taxes related to stock-based awards	—		166		0.1	%	1,876		0.4	%	1,876		0.02		Excess payroll taxes related to stock-based awards	—		865		0.2	%	9,135		2.5	%	9,135		0.10

Amortization of intangible assets from acquisitions	Amortization of intangible assets from acquisitions	—		9,764		2.5	%	13,927		3.6	%	13,927		0.16		Amortization of intangible assets from acquisitions	—		14,949		4.0	%	19,356		5.2	%	19,356		0.22

Transaction expenses related to business combinations	Transaction expenses related to business combinations	—		—		—	%	309		—	%	309		—		Transaction expenses related to business combinations	—		—		—	%	1,970		0.5	%	1,970		0.02

Rabbi trust (income) / expense		—		—		—	%	—		—	%	(1)		—

Adjustment for income tax effect	Adjustment for income tax effect	—		—		—	%	—		—	%	(16,518)		(0.19)		Adjustment for income tax effect	—		—		—	%	—		—	%	(47,979)		(0.55)

Total non-GAAP	Total non-GAAP	$	389,701	$	349,235	89.6	%	$	167,089	42.9	%	$	134,327	$	1.55	Total non-GAAP	$	372,149	$	329,422	88.5	%	$	124,525	33.5	%	$	98,922	$	1.12

¹Diluted weighted average shares were ~~86,934.~~87,986.

Three Months Ended
June 30, 2019
(in thousands, except percentages and per share data) Revenue Gross Profit % Operating Income % Net Income
EPS - Diluted¹
Total GAAP $ 368,635 $ 328,138 89.0 % $ 128,628 34.9 % $ 109,750 $ 1.28
Acquisition accounting for deferred revenue 1,873 1,873 0.1 % 1,873 0.3 % 1,873 0.02
Stock-based compensation expense — 2,374 0.7 % 29,122 7.9 % 29,122 0.35
Excess payroll taxes related to stock-based awards — 11 — % 389 0.1 % 389 —
Amortization of intangible assets from acquisitions — 4,755 1.2 % 8,551 2.3 % 8,551 0.10
Transaction expenses related to business combinations — — — % 450 0.1 % 450 0.01
Rabbi trust (income) / expense — — — % — — % (58) —
Adjustment related to the Tax Cuts and Jobs Act — — — % — — % (498) (0.01)
Adjustment for income tax effect — — — % — — % (11,673) (0.14)
Total non-GAAP $ 370,508 $ 337,151 91.0 % $ 169,013 45.6 % $ 137,906 $ 1.61

^{Three Months Ended
March 31, 2020
(in thousands, except percentages and per share data) Revenue Gross Profit % Operating Income % Net Income EPS - Diluted1
Total GAAP $ 304,985 $ 254,869 83.6 % $ 34,073 11.2 % $ 46,064 $ 0.53
Acquisition accounting for deferred revenue 3,912 3,912 0.2 % 3,912 1.1 % 3,912 0.04
Stock-based compensation expense — 2,866 0.9 % 30,941 10.0 % 30,941 0.36
Excess payroll taxes related to stock-based awards — 523 0.1 % 6,983 2.3 % 6,983 0.08
Amortization of intangible assets from acquisitions — 9,552 3.2 % 13,714 4.4 % 13,714 0.16
Transaction expenses related to business combinations — — — % 950 0.3 % 950 0.01
Rabbi trust (income) / expense — — — % — — % (4) —
Adjustment for income tax effect — — — % — — % (30,255) (0.35)
Total non-GAAP $ 308,897 $ 271,722 88.0 % $ 90,573 29.3 % $ 72,305 $ 0.83}

1 Diluted weighted average shares were ~~85,483.~~

87,369.

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ANSYS, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures
(Unaudited)
Six Months Ended
June 30, 2020
(in thousands, except percentages and per share data) Revenue Gross Profit % Operating Income % Net Income
EPS - Diluted¹
Total GAAP $ 690,646 $ 586,670 84.9 % $ 146,880 21.3 % $ 142,628 $ 1.64
Acquisition accounting for deferred revenue 7,952 7,952 0.2 % 7,952 0.9 % 7,952 0.09
Stock-based compensation expense — 6,330 1.0 % 65,071 9.4 % 65,071 0.75
Excess payroll taxes related to stock-based awards — 689 0.1 % 8,859 1.2 % 8,859 0.10
Amortization of intangible assets from acquisitions — 19,316 2.7 % 27,641 4.0 % 27,641 0.32
Transaction expenses related to business combinations — — — % 1,259 0.1 % 1,259 0.01
Rabbi trust (income) / expense — — — % — — % (5) —
Adjustment for income tax effect — — — % — — % (46,773) (0.54)
Total non-GAAP $ 698,598 $ 620,957 88.9 % $ 257,662 36.9 % $ 206,632 $ 2.37

¹~~Diluted weighted average shares were 87,152.~~

Six Months Ended
June 30, 2019
(in thousands, except percentages and per share data) Revenue Gross Profit % Operating Income % Net Income
EPS - Diluted¹
Total GAAP $ 685,765 $ 610,453 89.0 % $ 224,277 32.7 % $ 195,980 $ 2.29
Acquisition accounting for deferred revenue 4,653 4,653 0.1 % 4,653 0.5 % 4,653 0.05
Stock-based compensation expense — 3,602 0.5 % 52,922 7.5 % 52,922 0.62
Excess payroll taxes related to stock-based awards — 476 0.1 % 4,379 0.6 % 4,379 0.05
Amortization of intangible assets from acquisitions — 9,302 1.3 % 16,857 2.5 % 16,857 0.20
Transaction expenses related to business combinations — — — % 3,111 0.5 % 3,111 0.04
Rabbi trust (income) / expense — — — % — — % (223) —
Adjustment related to the Tax Cuts and Jobs Act — — — % — — % (1,834) (0.02)
Adjustment for income tax effect — — — % — — % (27,269) (0.32)
Total non-GAAP $ 690,418 $ 628,486 91.0 % $ 306,199 44.3 % $ 248,576 $ 2.91

¹~~Diluted weighted average shares were 85,488.~~

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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 ~~annual~~ 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,

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each manager's performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. We believe that these ~~non-~~

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~~GAAP~~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

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Liquidity and Capital Resources


(in thousands)	(in thousands)	June 30, 2020		December 31, 2019		Change		(in thousands)	March 31, 2021		December 31, 2020		Change
Cash, cash equivalents and short-term investments	Cash, cash equivalents and short-term investments	$	744,979	$	872,382	$	(127,403)	Cash, cash equivalents and short-term investments	$	987,943	$	913,151	$	74,792
Working capital	Working capital	$	750,458	$	860,340	$	(109,882)	Working capital	$	1,036,905	$	990,412	$	46,493

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 ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


(in thousands, except percentages)	(in thousands, except percentages)	June 30, 2020		% of Total	December 31, 2019		% of Total	(in thousands, except percentages)	March 31, 2021		% of Total	December 31, 2020		% of Total
Domestic	Domestic	$	405,278	54.4	$	626,433	71.8	Domestic	$	662,071	67.0	$	582,882	63.8
Foreign	Foreign	339,701		45.6	245,949		28.2	Foreign	325,872		33.0	330,269		36.2
Total	Total	$	744,979		$	872,382		Total	$	987,943		$	913,151

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~~Substantially all of the ~~previous~~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 ~~increased~~increase 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 ~~$8.4~~$87.8 million, and we would anticipate the tax effect on those earnings to be ~~immaterial as a result of U.S. tax reform.~~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 condensed consolidated balance sheet.

Cash Flows from Operating Activities


		Six Months Ended June 30,									Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		Change		(in thousands)	2021		2020		Change
Net cash provided by operating activities	Net cash provided by operating activities	$	279,004	$	240,117	$	38,887	Net cash provided by operating activities	$	171,107	$	147,412	$	23,695

Net cash provided by operating activities increased during the ~~current fiscal year~~first quarter due to increased net income (net of non-cash operating adjustments) of $35.7 million, partially offset by decreased net cash flows from operating assets and liabilities of ~~$70.2 million, partially offset by decreased net income (net of non-cash operating adjustments) of $31.3~~$12.0 million. The growth in net cash provided by operating activities ~~growth~~ was impacted by a meaningful increase in customer receipts driven primarily by ~~our ability to delay certain income, employment and indirect tax payments into~~strong growth in the ~~second half~~fourth quarter of 2020 as well as increased collections of aged accounts, partially offset by increased outflows related to operational payments and ~~beyond due to payment extensions issued by governments in connection with COVID-19.~~income taxes.

Cash Flows from Investing Activities


		Six Months Ended June 30,									Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		Change		(in thousands)	2021		2020		Change
Net cash used in investing activities	Net cash used in investing activities	$	(119,566)	$	(311,277)	$	191,711	Net cash used in investing activities	$	(15,863)	$	(9,599)	$	(6,264)

Net cash used in investing activities ~~decreased~~increased during the ~~current fiscal year~~first quarter due to ~~decreased~~increased acquisition-related net cash outlays of ~~$185.1~~$8.4 million. We currently plan capital spending of ~~$40.0~~$30.0 million to ~~$50.0~~$40.0 million during fiscal year ~~2020~~2021 as compared to the ~~$44.9~~$35.4 million that was spent in fiscal year ~~2019.~~2020. The level of spending will depend on various factors, including the growth of the business, ~~and~~ general economic conditions ~~as well as~~and the ongoing impact of ~~the COVID-19 pandemic on our operations.~~COVID-19.

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Cash Flows from Financing Activities


		Six Months Ended June 30,									Three Months Ended March 31,
(in thousands)	(in thousands)	2020		2019		Change		(in thousands)	2021		2020		Change
Net cash used in financing activities	Net cash used in financing activities	$	(285,551)	$	(75,558)	$	(209,993)	Net cash used in financing activities	$	(74,208)	$	(288,738)	$	214,530

Net cash used in financing activities ~~increased~~decreased during the ~~current fiscal year~~first quarter due to ~~increased~~decreased stock repurchases of ~~$101.9~~$161.0 million ~~increased~~and decreased principal payments on long-term debt of $75.0 million, partially offset by increased restricted stock withholding taxes paid in lieu of issued shares of ~~$29.8 million, and decreased proceeds from shares issued for stock-based compensation of $4.9~~$23.6 million.

Other Cash Flow Information

As of March 31, 2021, the carrying value of our term loans was $798.2 million, of which $4.7 million is due in the next twelve months.

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 is $148.3 million, of which $26.6 million is due in the next twelve months.

We believe that existing cash and cash equivalent balances of ~~$744.5~~$987.4 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. 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. 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, we have seen delays in customer payments on existing contracts, primarily in China, and longer payment terms requested for new contracts. While such requests were initially in the automotive industry, we have experienced the expansion of such requests in many other industries, particularly related to larger contract commitments, during the second quarter. Management reviews these requests weekly and approves on a case-by-case basis. We expect that an estimated $15 - $25 million of customer payments that would have otherwise been made in 2020 will be delayed to 2021.

Under our stock repurchase program, we repurchased shares as follows:

Six Months Ended
(in thousands, except per share data) June 30,
2020 June 30,
2019
Number of shares repurchased 690 330
Average price paid per share $ 233.48 $ 179.41
Total cost $ 161,029 $ 59,116


	Three Months Ended
(in thousands, except per share data)	March 31, 2021		March 31, 2020
Number of shares repurchased	—		690
Average price paid per share	$	—	$	233.48
Total cost	$	—	$	161,029

~~All of the shares of common stock repurchased during the first six months of 2020 were repurchased in the first quarter of 2020.~~

As of ~~June 30, 2020,~~March 31, 2021, 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 ~~financing.~~arrangements.

Contractual Obligations

There were no material changes to our significant contractual obligations during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 as compared to those previously reported within ~~“Management’s~~"Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our ~~2019~~2020 Form 10-K.

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Critical Accounting Policies and Estimates

No significant changes have occurred to our critical accounting policies and estimates as previously reported within ~~“Management’s~~"Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our ~~2019~~2020 Form 10-K.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. Changes in the overall level of interest rates affect the interest income that is generated from our cash, cash equivalents and short-term investments and the interest expense that is generated from our outstanding borrowings. For the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, interest income was ~~$0.9~~$0.5 million ~~and $3.7 million, respectively,~~ and interest expense was ~~$3.0 million and $6.7 million, respectively.~~$3.3 million. 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 foreign subsidiaries with original maturities of three months to one year.

Foreign Currency Transaction Risk. As we operate in international regions, a portion of our revenue, expenses, cash, accounts receivable and payment obligations are denominated in foreign currencies. As a result, changes in currency exchange rates will affect our financial position, results of operations and cash flows. ~~While all of the economic effects of~~The currency exchange rate volatility due to COVID-19 ~~are not known, it may expose us to additional~~has increased our foreign currency transaction risk. ~~We are most impacted by movements in and among the Euro, Japanese Yen and U.S. Dollar.~~

With respect to revenue, on average for the quarter ended ~~June 30, 2020,~~March 31, 2021, the U.S. Dollar was approximately ~~0.9% stronger,~~6.5% weaker, when measured against our primary foreign currencies, than for the quarter ended June 30, 2019. With respect to revenue, on average for the six months ended June 30, 2020, the U.S. Dollar was approximately 1.3% stronger, when measured against our primary foreign currencies, than for the six months ended June 30, 2019.March 31, 2020. The table below presents the net favorable impacts of currency fluctuations on revenue for the three ~~and six~~ months ended ~~June 30, 2020. Amounts in brackets indicate a net adverse impact from currency fluctuations.~~March 31, 2021.

(in thousands) Three Months Ended June 30, 2020 Six Months Ended June 30, 2020
Euro $ (1,247) $ (3,250)
South Korean Won (705) (1,615)
Indian Rupee (489) (717)
British Pound (322) (504)
Canadian Dollar (192) (213)
Japanese Yen 1,120 1,652
Taiwan Dollar 253 421
Other 40 94
Total $ (1,542) $ (4,132)


(in thousands)	Three Months Ended March 31, 2021
Euro	$	6,120
South Korean Won	1,369
British Pound	820
Japanese Yen	782
Other	821
Total	$	9,912

The impacts from currency fluctuations resulted in increased operating income of ~~$0.5 million and $0.2~~$2.0 million for the three ~~and six~~ months ended ~~June 30, 2020, respectively,~~March 31, 2021 as compared to the three ~~and six~~ months ended ~~June 30, 2019.~~March 31, 2020.

The most significant currency impacts on revenue and operating income are typically attributable to U.S. Dollar exchange rate changes against the ~~British Pound,~~ Euro and Japanese ~~Yen and South Korean Won.~~Yen. Historical exchange rates for these currency pairs are reflected in the charts below:

Period-End Exchange Rates
As of GBP/USD EUR/USD USD/JPY USD/KRW
June 30, 2019 1.269 1.137 107.910 1,157.407
December 31, 2019 1.326 1.121 108.637 1,156.069
June 30, 2020 1.240 1.123 107.945 1,199.616


	Period-End Exchange Rates
As of	EUR/USD	USD/JPY
March 31, 2021	1.17	110.73
December 31, 2020	1.22	103.27
March 31, 2020	1.10	107.56

Average Exchange Rates
Three Months Ended GBP/USD EUR/USD USD/JPY USD/KRW
June 30, 2019 1.285 1.124 109.905 1,166.680
June 30, 2020 1.241 1.101 107.552 1,219.909


	Average Exchange Rates
Three Months Ended	EUR/USD	USD/JPY
March 31, 2021	1.21	105.91
March 31, 2020	1.10	108.99

Average Exchange Rates
Six Months Ended GBP/USD EUR/USD USD/JPY USD/KRW
June 30, 2019 1.294 1.130 110.052 1,146.110
June 30, 2020 1.260 1.102 108.266 1,206.442

No other material change has occurred in our market risk subsequent to December 31, ~~2019.~~

2020.

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Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As required by Rules 13a-15 and 15d-15 of ~~the Securities Exchange Act of 1934, as amended, or~~ the Exchange Act, we have evaluated, with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures are effective, as defined in Rule 13a-15(e) of the Exchange Act.

We believe, based on our knowledge, that the financial statements and other financial information included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows as of and for the periods presented in this report. We are committed to both a sound internal control environment and to good corporate governance.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

From time to time, we review the disclosure controls and procedures, and may periodically make changes to enhance their effectiveness and to ensure that our systems evolve with our business.

Changes in Internal Control. There were no changes in our internal control over financial reporting that occurred during the three months ended ~~June 30, 2020~~March 31, 2021 that materially affected, or ~~were~~that are reasonably likely to materially affect, our internal control over financial reporting. Although the majority of our employee base worked remotely, the remote work arrangements did not adversely affect our ability to maintain financial operations, including our financial reporting systems, internal controls over financial reporting and disclosure controls and procedures.

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PART II – OTHER INFORMATION

Item 1.Legal Proceedings

We are subject to various investigations, claims and legal proceedings that arise in the ordinary course of business, including commercial disputes, labor and employment matters, tax audits and litigations, alleged infringement of intellectual property rights and other matters. InUse or distribution of our ~~opinion, the resolution~~products could generate product liability, regulatory infraction, or similar claims by our customers, end users, channel partners, government entities or other third parties. Sales and marketing activities that impact processing of ~~pending matters is not expected~~personal data, as well as measures taken to ~~have a material adverse effect on our condensed consolidated results~~ensure license compliance, may also result in claims by customers and individual employees of ~~operations, cash flows or financial position. However, each~~customers. Each of these matters is subject to various uncertainties, and it is possible that an unfavorable resolution of one or more of these ~~proceedings~~matters could ~~materially affect~~have a significant adverse effect on our ~~results of operations, cash flows or~~condensed consolidated financial ~~position.~~statements as well as cause reputational damage.

Item 1A. Risk Factors

We face a number of risks that could materially and adversely affect our business, financial position, results of operations and cash flows. A discussion of our risk factors can be found in ~~“Item 1A. Risk Factors,”~~Part I, Item 1A "Risk Factors" in our ~~2019~~2020 Form 10-K. ~~The risk factor set forth below includes additional information relating~~No material changes have occurred to ~~the COVID-19 pandemic, and updates, and should be read together with, the~~such risk factors ~~disclosed in~~after the filing of our ~~2019 Form 10-K and first quarter~~ 2020 Form 10-Q. The impact of COVID-19 may also exacerbate other risks discussed in Item 1A. “Risk Factors” in our 2019 Form 10-K, any of which could have a material effect on us. This situation continues to evolve and additional impacts may arise of which we are currently not aware.

~~The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our business, employees, liquidity, financial condition, results of operations and cash flows.~~

The COVID-19 outbreak and preventative measures taken to contain the COVID-19 outbreak are constantly changing and continue to cause business slowdowns and shutdowns in affected areas. The pandemic has caused, and in the future could cause, significant disruption in the financial and credit markets both globally and in the United States.

While the full impact of this outbreak is not yet known, we are closely monitoring the spread of COVID-19 and continually assessing its potential effects on our business. In response to the pandemic, we closed our offices and transitioned to a remote work environment and implemented certain travel restrictions, both of which have disrupted how we operate our business. While most of our offices have since reopened, many have reopened on a limited basis, so remote access remains the primary means of work for a majority of our workforce. Our continuing efforts to reopen our offices safely may not be successful, could expose our personnel to health risks and will involve additional financial burdens. In addition, we announced the cancellation of many in-person customer and industry events for the second quarter of 2020. We have shifted a majority of our customer events to virtual-only experiences, including hosting Simulation World in June, and we are pursuing a micro-event strategy for critical in-person events, until the end of 2020. Micro-events include smaller groups with a targeted purpose and do not require exhibit booths. These events may not be as successful as in-person events. We also may deem it advisable to similarly alter, postpone or cancel entirely additional customer, employee or industry events in the future.

These impacts could continue for the foreseeable future. In addition, an extended period of remote work arrangements may negatively impact the sales pipeline due to reduced, delayed, or altered sales and marketing interactions with customers and potential customers, expose us to increased risk of cyber incidents, delay or alter product roadmaps or research and development due to reduced or limited access to technologies, equipment, or services, and delay or disrupt recruitment efforts. Limitations on availability, ease of use or increased cost related to the use of our products in our customers’ remote work environments could also result in a decline in demand for our products. Furthermore, if the COVID-19 pandemic has a substantial impact on our employees, partners or customers’ attendance or productivity, our results of operations and overall financial performance may be harmed.

We anticipate continued adverse revenue and net income impacts from COVID-19 as a result of the economic slowdown and the decrease in customer spending. Customers have delayed transactions with us due to the uncertainty resulting from COVID-19. In the first half of 2020 there was a decrease in multi-year leases and large enterprise agreements. Furthermore, during this same period, the shifting preference from perpetual licenses to time-based licenses was elevated as a result of the impacts of COVID-19. We expect both of these trends to continue. There may also be continued lower activity levels in the end markets we service or declining financial performance of our customers and channel partners, which could result in lower rates of renewal, which have historically been stable and high, and cancellations, reductions, or delays for our products and services. Due to our subscription-based business model, the effect of the pandemic may not be fully reflected in our results of operations until future periods. Recessionary macroeconomic conditions could suppress customer demand broadly and could negatively affect stock prices, including the price of our common stock.

The situation surrounding COVID-19 remains fluid, and given its inherent uncertainty, we expect the pandemic will continue to have an adverse impact on our business in the near term. The duration and extent of the impact from the COVID-19 pandemic

~~Table of Contents~~

depends on future developments that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, the nature and scope of government economic recovery measures and the impact of these and other factors on our employees, customers, partners and vendors. Should these conditions persist for a prolonged period, the COVID-19 pandemic, including any of the above factors and others that are currently unknown, could have a material adverse effect on our business, employees, liquidity, financial condition, results of operations and cash flows.

Our business practices with respect to the collection, use and management of personal information could give rise to operational interruption, liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

As regulatory focus on privacy, data and security issues continues to increase and evolve, and as worldwide laws and regulations concerning the handling of personal data expand and become more complex, implementation standards remain uncertain and potential risks related to data processing within our business may intensify.

In addition to Standard Contractual Clauses (“SCCs”) or Binding Corporate Rules, the E.U. and the United States formally entered into a framework in July 2016 that provided an additional mechanism for companies to transfer data from E.U. member states to the U.S., known as the Privacy Shield. On July 16, 2020, the Court of Justice invalidated the Privacy Shield, and also opined on compliance obligations for companies relying upon SCCs as their valid basis of transferring personal data outside of the E.U. This decision leads to uncertainty about the legal basis for personal data transfers out of the E.U. to the U.S. Potential new rules and restrictions on the flow of data across borders could increase the cost and complexity of delivering our products and services in some markets. This decision could also give rise to operational interruption in the performance of services for customers and internal processing of employee information, regulatory liabilities or reputational harm.10-K.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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Item 6.Exhibits


Exhibit No.						Exhibit
15						Independent Registered Public Accountant’s Letter Regarding Unaudited Financial Information.

31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

10.24						2021 Form of Award Notice (Annual Contract Value) under the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan.*

10.25						2021 Form of Award Notice (Total Shareholder Return) under the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan.*

10.26						2021 Form of Restricted Stock Unit Agreement under the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan.*

101.INS						Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)

101.SCH						Inline XBRL Taxonomy Extension Schema

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase

104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*						Indicates management contract or compensatory plan, contract or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ANSYS, Inc.

Date:

~~August~~May 5, ~~2020~~2021

By:

/s/ Ajei S. Gopal

Ajei S. Gopal

President and Chief Executive Officer

(Principal Executive Officer)

Date:

~~August~~May 5, ~~2020~~2021

By:

/s/ ~~Maria T. Shields~~Nicole Anasenes

~~Maria T. Shields~~Nicole Anasenes

Chief Financial Officer and Senior Vice President, Finance

(Principal Financial Officer and Principal Accounting Officer)

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	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





	Three Months Ended
	June 30, 2019
(in thousands, except percentages and per share data)	Revenue		Gross Profit		%		Operating Income		%		Net Income		EPS - Diluted¹
Total GAAP	$	368,635	$	328,138	89.0	%	$	128,628	34.9	%	$	109,750	$	1.28

Acquisition accounting for deferred revenue	1,873		1,873		0.1	%	1,873		0.3	%	1,873		0.02

Stock-based compensation expense	—		2,374		0.7	%	29,122		7.9	%	29,122		0.35

Excess payroll taxes related to stock-based awards	—		11		—	%	389		0.1	%	389		—

Amortization of intangible assets from acquisitions	—		4,755		1.2	%	8,551		2.3	%	8,551		0.10

Transaction expenses related to business combinations	—		—		—	%	450		0.1	%	450		0.01

Rabbi trust (income) / expense	—		—		—	%	—		—	%	(58)		—

Adjustment related to the Tax Cuts and Jobs Act	—		—		—	%	—		—	%	(498)		(0.01)

Adjustment for income tax effect	—		—		—	%	—		—	%	(11,673)		(0.14)

Total non-GAAP	$	370,508	$	337,151	91.0	%	$	169,013	45.6	%	$	137,906	$	1.61


	Period-End Exchange Rates
As of	GBP/USD	EUR/USD	USD/JPY	USD/KRW
June 30, 2019	1.269	1.137	107.910	1,157.407
December 31, 2019	1.326	1.121	108.637	1,156.069
June 30, 2020	1.240	1.123	107.945	1,199.616