ANSYS, Inc.
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 20172023
Table of Contents
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Important Factors Regarding Future Results
Information provided by ANSYS, Inc. (hereafter the Company or ANSYS),us in this Annual Report on Form 10-K may contain forward-looking statements concerning, among other things, such matters as projected financial performance, market and industry segment growth, product development and commercialization, acquisitionsthe proposed transaction with Synopsys, Inc., including the expected date of closing and the potential benefits thereof, or other aspects of future operations. Such statements, made pursuant to the safe harbor established by the securities laws, are based on the assumptions and expectations of the Company's management at the time such statements are made. The Company cautionsWe caution investors that itsour performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. Various important factors including, but not limited to, those discussed in Item 1A. Risk Factors, may cause the Company'sour future results to differ materially from those projected in any forward-looking statement. All information presented is as of December 31, 2017,2023, unless otherwise indicated.
Note About Forward-Looking Statements
The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Our discussion and analysis of our financial condition and results of operations in Part II, Item 7 of this Annual Report on Form 10-K are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). 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 contract revenue, standalone selling prices of our products and services, allowance for doubtful accounts receivable, valuation of goodwill and other intangible assets, useful lives for depreciation and amortization, acquired deferred revenue, operating lease assets and liabilities, fair value of stock awards, deferred compensation, income taxes, uncertain tax positions, tax valuation reserves, 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.
This Annual Report on Form 10-K 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). Forward-looking statements are statements that provide current expectations or forecasts of future events based on certain assumptions. Forward-looking statements are subject to risks, uncertainties, and factors relating to our business which could cause our actual results to differ materially from the expectations expressed in or implied by such forward-looking statements.
Forward-looking statements use words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “likely,” “may,” “outlook,” “plan,” “predict,” “project,” “should,” “target,” or other words of similar meaning. Forward-looking statements include those about market opportunity, including our total addressable market, the proposed transaction with Synopsys, Inc., including the expected date of closing and the potential benefits thereof, or other aspects of future operation. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date they are made. We undertake no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise.
The risks associated with the following, among others, could cause actual results to differ materially from those described in any forward-looking statements:
•our ability to complete the proposed transaction with Synopsys on anticipated terms and timing, including obtaining stockholder and regulatory approvals, and other conditions related to the completion of the transaction;
•the realization of the anticipated benefits of the proposed transaction with Synopsys, including potential disruptions to our and Synopsys’ businesses and commercial relationships with others resulting from the announcement or completion of the proposed transaction and uncertainty as to the long-term value of Synopsys’ common stock;
•restrictions during the pendency of the proposed transaction with Synopsys that could impact our ability to pursue certain business opportunities or strategic transactions, including tuck-in M&A;
•adverse conditions in the macroeconomic environment, including inflation, recessionary conditions and volatility in equity and foreign exchange markets; political, economic and regulatory uncertainties in the countries and regions in which we operate;
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•impacts from tariffs, trade sanctions, export controls or other trade barriers, including export control restrictions and licensing requirements for exports to China;
•impacts resulting from the conflict between Israel and Hamas, including impacts from changes to diplomatic relations and trade policy between the United States and other countries resulting from the conflict; impacts from changes to diplomatic relations and trade policy between the United States and Russia or the United States and other countries that may support Russia or take similar actions due to the conflict between Russia and Ukraine;
•constrained credit and liquidity due to disruptions in the global economy and financial markets, which may limit or delay availability of credit under our existing or new credit facilities, or which may limit our ability to obtain credit or financing on acceptable terms or at all;
•our ability to timely recruit and retain key personnel in a highly competitive labor market, including potential financial impacts of wage inflation and potential impacts due to the proposed transaction with Synopsys;
•our ability to protect our proprietary technology; cybersecurity threats or other security breaches, including in relation to breaches occurring through our products and an increased level of our activity that is occurring from remote global off-site locations; and disclosure and misuse of employee or customer data whether as a result of a cybersecurity incident or otherwise;
•increased volatility in our revenue due to the timing, duration and value of multi-year subscription lease contracts; and our reliance on high renewal rates for annual subscription lease and maintenance contracts;
•declines in our customers’ businesses resulting in adverse changes in procurement patterns; disruptions in accounts receivable and cash flow due to customers’ liquidity challenges and commercial deterioration; uncertainties regarding demand for our products and services in the future and our customers’ acceptance of new products; delays or declines in anticipated sales due to reduced or altered sales and marketing interactions with customers; and potential variations in our sales forecast compared to actual sales;
•our ability and our channel partners’ ability to comply with laws and regulations in relevant jurisdictions; and the outcome of contingencies, including legal proceedings, government or regulatory investigations and tax audit cases;
•uncertainty regarding income tax estimates in the jurisdictions in which we operate; and the effect of changes in tax laws and regulations in the jurisdictions in which we operate;
•the quality of our products, including the strength of features, functionality and integrated multiphysics capabilities; our ability to develop and market new products to address the industry’s rapidly changing technology; failures or errors in our products and services; and increased pricing pressure as a result of the competitive environment in which we operate;
•investments in complementary companies, products, services and technologies; our ability to complete and successfully integrate our acquisitions and realize the financial and business benefits of the transactions; and the impact indebtedness incurred in connection with any acquisition could have on our operations;
•investments in global sales and marketing organizations and global business infrastructure; and dependence on our channel partners for the distribution of our products;
•current and potential future impacts of a global health crisis, natural disaster or catastrophe, and the actions taken to address these events by our customers, suppliers, regulatory authorities and our business, on the global economy and consolidated financial statements, and other public health and safety risks; and government actions or mandates;
•operational disruptions generally or specifically in connection with transitions to and from remote work environments; and the failure of our technological infrastructure or those of the service providers upon whom we rely including for infrastructure and cloud services;
•our intention to repatriate previously taxed earnings and to reinvest all other earnings of our non-U.S. subsidiaries;
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•plans for future capital spending; the extent of corporate benefits from such spending including with respect to customer relationship management; and higher than anticipated costs for research and development or a slowdown in our research and development activities;
•our ability to execute on our strategies related to environmental, social, and governance matters, and meet evolving and varied expectations, including as a result of evolving regulatory and other standards, processes, and assumptions, the pace of scientific and technological developments, increased costs and the availability of requisite financing, and changes in carbon markets; and
•other risks and uncertainties described in our reports filed from time to time with the Securities and Exchange Commission (SEC).
Important Information and Where to Find It
This document relates to a proposed transaction between Synopsys and Ansys. Synopsys will file a registration statement on Form S-4 with the SEC, which will include a document that serves as a prospectus of Synopsys and a proxy statement of Ansys referred to as a proxy statement/prospectus. This proxy statement/prospectus will be sent to all Ansys shareholders. Synopsys and Ansys also will file other documents regarding the proposed transaction with the SEC. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT, PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED TRANSACTION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY AND IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.
Investors and security holders will be able to obtain free copies of the registration statement, proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC by Synopsys or Ansys through the website maintained by the SEC at www.sec.gov.
The documents filed by Synopsys with the SEC also may be obtained free of charge at Synopsys’ website at https://investor.synopsys.com/overview/default.aspx or upon written request to Synopsys at Synopsys, Inc., 675 Almanor Avenue, Sunnyvale, California 94085, Attention: Investor Relations Department. The documents filed by Ansys with the SEC also may be obtained free of charge at Ansys’ website at https://investors.ansys.com/ or upon written request to kelsey.debriyn@ansys.com.
Participants in Solicitation
Synopsys, Ansys and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Ansys’ shareholders in connection with the proposed transaction.
Information about Ansys’ directors and executive officers and their ownership of Ansys’ common stock is set forth in Ansys’ proxy statement for its 2023 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on March 28, 2023. To the extent that holdings of Ansys’ securities have changed since the amounts printed in Ansys’ proxy statement, such changes have been or will be reflected on Statements of Change in Ownership on Form 4 filed with the SEC. Information about Synopsys’ directors and executive officers is set forth in Synopsys’ proxy statement for its 2023 Annual Meeting of Shareholders on Schedule 14A filed with the SEC on February 17, 2023 and Synopsys’ subsequent filings with the SEC. Additional information regarding the direct and indirect interests of those persons and other persons who may be deemed participants in the proposed transaction may be obtained by reading the proxy statement/prospectus regarding the proposed transaction when it becomes available. You may obtain free copies of these documents as described in the preceding paragraph.
No Offer or Solicitation
This document is for informational purposes only and is not intended to and shall not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
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PART I
ITEM 1.BUSINESS
ANSYS, Inc. (Ansys, we, us, our), 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 high-tech, aerospace and defense, automotive, electronics, semiconductors, energy, industrial equipment, materials and chemical processing, turbomachinery,chemicals, consumer products, healthcare and sports.construction. Headquartered south of Pittsburgh, Pennsylvania, the Companywe employed 6,200 and its subsidiaries employed approximately 2,9005,600 people as of December 31, 2017. The Company focuses2023 and 2022, respectively. We focus on the development of open and flexible solutions that enable users to analyze designs directly onon-premises and/or via the desktop,cloud, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing, validation and validation. The Company distributes its ANSYS®deployment. 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 the Company'sour intention to continue to maintain this hybrid sales and distribution model. We operate and report as one segment.
When visionary companies need to know how their world-changing ideas will perform, they close the gap between design and reality using Ansys simulation. For more than 50 years, Ansys software has enabled innovators across industries to push the boundaries of product design by using the predictive power of simulation. From sustainable transportation and advanced satellite systems to life-saving medical devices, Ansys powers innovation that drives human advancement.
Our strategy of Pervasive Insights seeks to deepen the use of simulation in our core market, to inject simulation throughout the product lifecycle and extend the accessibility to a broader set of users and use cases. Our business has three vectors of growth:
•More products. Our broad and deep multiphysics portfolio enables us to grow with customers as they use simulation to solve more complex problems across a broad set of industries.
•More users. Investments in simulation education and user experience simplification has made simulation more accessible to a broader user base.
•More computations. Larger and more complex simulations drive more computation, requiring customers to use more Ansys licenses to complete their simulations.
Through decades of investments in the academic community and enhanced user experiences, our solutions have become accessible and relevant beyond our core "engineering" end user, to reach more users upstream and downstream from our core, which is the product validation process. Our multiphysics solutions enable our customers to address increasingly complex research and development (R&D) challenges from the component through the system and mission level of analysis. Our products seamlessly enable access to high performance compute capacity to run simulations, on-premises or in the cloud, which means our customers' R&D teams are unencumbered by compute capacity limitations that can hinder R&D cycle times. Our investments in artificial intelligence capabilities across our simulation portfolio and technical support services enhance the customer experience, democratize simulation and further next-generation innovation.
The Company'sengineering software simulation market is strong and growing. The market growth is driven by customers' need for rapid, quality innovation in a cost-efficient manner, enabling faster time to market for new products and lower warranty costs. Increasing product complexity is driving sustained demand for simulations. Key industry trends fueling customers' increasing needs for simulation include:
•Electrification;
•Autonomy;
•Connectivity;
•The industrial internet of things (IIoT); and
•Sustainability, including minimizing waste and physical prototyping, and improving circularity and development time.
We have been investing and intend to continue to invest in our portfolio to broaden the range of physics and enable customers to analyze the interactions among physics at the component, system and mission level. Our strategy of Pervasive Insights is aligned with the near-term market growth opportunities and is laying the foundation for a future where simulation can be further democratized to broader classes of end-users and end-use cases. In addition, we have and will continue to partner with industry leaders to extend simulation into other ecosystems and customer R&D workflows.
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Synopsys Merger Agreement
On January 15, 2024, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Synopsys, Inc., a Delaware corporation (“Synopsys”), and ALTA Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Synopsys (“Merger Sub”). The Merger Agreement provides for the merger of Merger Sub with and into Ansys, with Ansys surviving the merger as a wholly owned subsidiary of Synopsys (the “Merger”). Our Board of Directors has unanimously approved the Merger Agreement and, subject to certain exceptions set forth in the Merger Agreement, resolved to recommend that our stockholders adopt the Merger Agreement. If the Merger is consummated, our common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act.
Under the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our common stock (subject to certain exceptions set forth in the Merger Agreement) will be cancelled and converted into the right to receive (i) 0.3450 (the “Exchange Ratio”) of a share of common stock, par value $0.01 per share, of Synopsys (the “Stock Consideration”) and (ii) $197.00 in cash, without interest (the “Per Share Cash Amount”), subject to applicable withholding taxes. With regard to the Stock Consideration, if the aggregate number of shares of Synopsys common stock to be issued in connection with the Merger would exceed 19.9999% of the shares of Synopsys common stock issued and outstanding immediately prior to the effective time of the Merger (the “Maximum Share Number”), (a) the Exchange Ratio will be reduced to the minimum extent necessary such that the aggregate number of shares of Synopsys common stock to be issued in connection with the Merger does not exceed the Maximum Share Number and (b) the Per Share Cash Amount will be correspondingly increased to offset such adjustment.
The Merger Agreement contains customary representations, warranties and covenants made by each of Ansys, Synopsys, and Merger Sub, including, among others, covenants regarding the conduct of our and Synopsys’ businesses during the pendency of the transactions contemplated by the Merger Agreement, the making of certain public disclosures and other matters as described in the Merger Agreement. We and Synopsys have agreed to use reasonable best efforts to take all actions necessary to consummate the Merger, including cooperating to obtain the regulatory approvals necessary to complete the Merger. We have agreed not to, among other things, (a) solicit proposals relating to alternative transactions or (b) enter into discussions or negotiations or provide non-public information in connection with any proposal for an alternative transaction from a third party, subject to certain exceptions to permit our Board of Directors to comply with its fiduciary obligations. We have further agreed to cease and cause to be terminated any existing discussions or negotiations, if any, with regard to alternative transactions.
The Merger Agreement may be terminated under certain circumstances, including that either party may have the right to terminate if the Merger is not completed by January 15, 2025, which may be extended to January 15, 2026 as provided in the Merger Agreement. If the Merger Agreement is terminated, (A) Synopsys, under specified circumstances, including termination following an injunction arising in connection with certain antitrust or foreign investment laws, will be required to pay us a termination fee of $1,500.0 million; and (B) we, under specified circumstances, including our termination of the Merger Agreement to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or Synopsys' termination upon the change by our Board of Directors of its recommendation in favor of the Merger, will be required to pay Synopsys a termination fee of $950.0 million.
The completion of the Merger is subject to customary closing conditions, including, among others, approval of the Merger under certain applicable antitrust and foreign investment regimes and the adoption of the Merger Agreement by our stockholders. We anticipate the transaction to close in the first half of 2025.
The foregoing summary of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the Merger Agreement, which was filed as Exhibit 2.1 to our Current Report on Form 8-K filed on January 16, 2024, and is incorporated herein by reference.
Ansys and any and all ANSYS, Inc. brand, product, service and feature names, logos and slogans are registered trademarks or trademarks of ANSYS, Inc. or its subsidiaries in the United States or other countries. All other brand, product, service and feature names or trademarks are the property of their respective owners.
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PORTFOLIO
Our portfolio consists of the following:following capabilities:
Our flagship product is the Ansys Mechanical™ product, a finite element analysis software used for simulating and analyzing the behavior of mechanical and structural systems. It is commonly used for structural analysis, allowing engineers to simulate and study the response of materials and structures to various mechanical loads, including static, dynamic, vibrational and thermal loads. A key attribute is the ability to perform multiphysics simulations, where multiple physical phenomena, such as structural mechanics, heat transfer, fluid dynamics and electromagnetics, interact with each other. The software can handle nonlinear problems, including large deformations, material nonlinearity and contact interactions.
Ansys has a long history of technological innovations, including pioneering innovations such as nonlinear adaptivity and separating morphing and adaptive remeshing technology to solve the toughest structural simulation challenges. We also provide comprehensive topology optimization tools that engineers use to design structural components to meet loading requirements with reduced material and component weight. Additionally, our comprehensive and scalable additive manufacturing solutions allow customers to reduce risk and provide high quality, certifiable parts.
Our LS-DYNA® solver is a leader in explicit dynamics multiphysics simulation and is used worldwide by leaders in automotive crash, drop tests, airbag deployment and impact analysis. Innovations like multi-scale co-simulation capability for meso-scale effects allow electronics reliability simulations to predict component failure at a tiny scale when a macro scale printed circuit board drop test is analyzed.
Electronics
Our electronics product suite provides electromagnetic field simulation software for designing high-performance electronic and electromechanical products. The software streamlines the design process and predicts performance of mobile communication and internet-access devices, broadband networking components and systems, integrated circuits (ICs) and printed circuit boards (PCBs). It is also used in low-frequency applications such as electromechanical systems, automotive components, industrial electric motors and power electronics equipment.
The flagship Ansys High Frequency Structure Simulator™ (HFSS) product is used in all aspects of radio frequency and microwave design for 5G/6G communications, avionics, aerospace and defense (A&D) and biomedical applications. It is used for advanced antenna design and integration, radar systems and electromagnetic interference analysis. Innovations have enabled the electronics industry to solve some of the most challenging design problems. Advanced automatic adaptive meshing, tangential vector finite elements and commercial implementation of domain decomposition are a few of the Ansys inventions that power finite element analysis for electromagnetics. Technologies such as Mesh Fusion allow virtually unlimited size and scope of system-level electromagnetic simulation by leveraging high-performance computing (HPC) and the cloud.
Fluids
Our fluids product suite enables modeling of fluid flow and other related physical phenomena. The flagship Ansys Fluent® computational fluid dynamics (CFD) software package is used for simulating and analyzing the behavior of fluids (liquids and gases) and their interactions with solid structures. It is commonly employed in various industries to perform simulations that help engineers and researchers gain insights into fluid flow, heat transfer and chemical reactions and related phenomena. Innovations include its mixed-element unstructured solver and interactive architecture with pervasive HPC scaling. Recent additions to our fluids product suite substantially reduce simulation solve time and total power consumption using the native multi-graphics processing unit (GPU) solver available in Fluent, with results showing that four typical GPUs have greater performance than 1,000 central processing unit (CPU) cores. In Ansys 2023 R2, we extended multi-GPU support to sliding mesh, compressible flows and eddy dissipation model combustion simulations for applications such as internal combustion engines, centrifugal pumps and fans, turbochargers and compressors. Also, Ansys 2023 R2 expands to clusters that use ARM-based servers, which have the potential to reduce hardware cost and overall energy consumption.
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Semiconductors
Advancements in semiconductor design and manufacturing enable smaller electronic architectures. Shrinking geometries, especially in the emerging 3D-IC, finFET and stacked-die architectures, reveal design challenges related to power and reliability. Our power analysis and optimization software suite manages the power budget, power delivery integrity and power-induced noise in an electronic design, from initial prototyping to system sign-off. These solutions deliver accuracy with correlation to silicon measurement and the capacity to handle an entire electronic system, including IC, package and PCB.
Ansys RedHawk-SC™ is the flagship electronic design automation (EDA) software tool, used for the analysis and sign-off of ICs, focusing on power integrity and reliability issues. It is used by semiconductor designers and engineers to simulate and optimize power delivery networks in ICs and heterogeneous 3D-ICs ensuring that they operate reliably and efficiently. The Ansys RedHawk-SC product is an industry trusted gold standard voltage drop and electromigration multiphysics sign-off solution for digital designs. Its powerful analytics quickly identify any weaknesses and allow what-if explorations to optimize power and performance. Redhawk-SC’s cloud-based architecture gives it the speed and capacity to handle full-chip analysis. Sign-off accuracy is certified by all major foundries for all finFET nodes, down to 3 nanometer (nm).
Innovations include 'dynamic' power noise simulation technology, behavior simulation of power distribution networks under realistic, time-varying activity loading, and with the distributed, big-data data management capacity to handle full-chip analysis with many billions of electrical nodes. The Redhawk-SC product and other Ansys tools provide the industry's first foundry-validated hierarchical thermal analysis flow for multi-die 3D-IC designs and 5nm/3nm chips.
Optics, Virtual Reality (VR) and Photonics
Modeling light propagation and its impact is crucial for measuring product performance and human comfort, perception and safety. Ansys Optics™ software uniquely simulates a system's optical performance, evaluates the final illumination effect, and predicts and validates the impact of lighting and material variations on appearance and perceived quality all in real conditions. Using optical sensor and closed-loop, real-time simulation, our optics simulation capabilities now span the simulation of a wide range of sensors, including lidar, cameras and radar; the multiphysics simulation of physical and electronic components; the analysis of systems functional safety; as well as the automated development of safety-certified embedded software. This functionality can be integrated into a closed-loop simulation environment that interacts with weather and traffic simulators for automotive applications, enabling thousands of driving scenarios to be executed virtually.
Our photonic design and simulation tools enable customers to predict light's behavior within complex photonic structures and systems. Silicon photonics is an expanding market and our solutions provide a comprehensive set of tools for the design and analysis of integrated photonic components and systems, similar to the traditional EDA environment. The Ansys Lumerical™ product is a complete photonics simulation software solution that enables the design of photonics components, circuits, and systems. Device and system level tools work together to allow designers to model interacting optical, electrical and thermal effects. Flexible interoperability between products enables a variety of workflows that combine device multiphysics and photonic circuit simulation with third-party design automation and productivity tools. Python-based automation and flows for building and using compact models support the industry's leading foundries.
Digital Mission Engineering
Our mission-simulation, modeling, testing and analysis software for aerospace, defense and intelligence applications empowers our users to solve challenges by simulating from the chip level all the way to a customer's entire mission. Digital mission engineering products enable engineers, operators and analysts to connect modeling and simulation efforts across all phases of the engineering product life cycle. Users can model operational environments and the interrelationships of assets with accurate, dynamic, physics-based simulations to validate system designs with respect to the mission's outcome. Modeling of assets may be performed across multiple domains, including land, sea, air and space.
Our technology enables our customers to consider the entire mission engineering of a product or system. Engineered products and systems can involve thousands of components, subsystems, systems and systems of systems that must work together intricately. Our software simulates these puzzle pieces and their functional relationships to each other and, increasingly, to their environments.
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3D Design
Our Discovery™ product family allows engineers to benefit from the insight of simulation in their product design. The Discovery products range from early design exploration tools powered by interactive real-time simulation and intuitive geometry editing, to detailed product validation solutions utilizing proven flagship solver technology with easy-to-use guided workflows. These tools allow for design engineers to utilize simulation across the entire product design process and to work seamlessly with simulation experts using our flagship products for even more advanced analysis.
Our Discovery product’s ease of use and speed enable more engineers to benefit from simulation. Increasingly, “shifting-left” or moving simulation up front in the design process has become a critical business initiative for our customers, enabling more engineers, more analysts and more designers to get early insights into their product design. The Discovery application has become more integrated with the broader Ansys portfolio. This has manifested itself into many analysts starting in the Discovery product and then moving to more detailed analyses in our other applications.
We continue to invest in and advance the Discovery product and Discover Live™ physics technology, improving accuracy, expanding capabilities and accelerating productivity. Recent advances include the addition of electromagnetics simulation for upfront antenna design for IIoT and 5G, breakthroughs in solver numerics to support unstructured meshes that deliver both speed and accuracy across all CFD applications, and a Microsoft 365 integration for enabling data management and collaboration among designers, analysts and stakeholders using a connected digital thread. Additionally, the Discovery application has become more tightly integrated with the broader Ansys portfolio through new Ansys optiSLang™ and ModelCenter® integrations.
Platform
Our platform is the framework upon which the Company'sour suite of advanced multiphysics engineering simulation technologies is built. The innovative project schematic view ties together the entire simulation process, guiding the user through complex multiphysics analyses with drag-and-drop simplicity. With bi-directional computer-aided design (CAD) connectivity, powerful highly-automated meshing, a project-level update mechanism, pervasive parameter management and integrated optimization tools, the ANSYS Workbench platform enables Pervasive Engineering Simulation™.
The Company's structural analysis productfollowing tools are part of our platform and add capability to the core of our offered products:
The Ansys HPC™ software suite offers simulation tools for product design and optimization that increase productivity, minimize physical prototyping and helpleverages multicore computers to deliver better andperform more innovative productssimulations in less time. These tools tackle real-world analysis problems by making product development less costlysimulations can be bigger, more complex and more reliable. In addition, these tools have capabilities that coveraccurate using HPC. Various Ansys HPC licensing options allow organizations to scale to whatever computational level of simulation is preferred, from single-user or small user group options for entry-level parallel processing up to virtually unlimited parallel capacity. Apart from parallel computing, Ansys also offers solutions for parametric computing, which enables users to explore the design parameters more fully (size, weight, shape, materials, mechanical properties, etc.) for products early in the development process.
Our cloud portfolio comprises of two marketplace offerings (Ansys Gateway powered by AWS and Ansys Access on Microsoft Azure) and a broad range of analysis types, elements, contacts, materials, equationmanaged cloud offering (Ansys Cloud Direct™), providing customers scalable location-independent access to simulation. We continue to enhance our solvers and collaborate with HPC leaders such as NVIDIA and Advanced Micro Devices (AMD) to maximize scalability and speed. Ansys 2023 R2 included tuning of our Fluent and Mechanical GPU solvers for NVIDIA’s latest architecture and for AMD’s GPUs. Refinements include an electromagnetically coupled physicssolution that provides a 7.5X speedup for IC applications in HFSS. We also added new features in Ansys HFSS that take advantage of high-performance computing to simulate complex antennas that advance 5G and 6G radio systems. Ansys Maxwell® has a new capability that leverages HPC to enable users to determine the cause of undesired noise and vibrations in PCBs.
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Our Ansys Minerva™ platform is a knowledge management application that secures critical simulation data, and provides simulation process and decision support to simulation teams across geographies and functional silos. Available for both on-premises and cloud deployment, the Minerva platform delivers benefits by connecting simulation and optimization to customers' existing ecosystem of tools and processes. The Minerva platform provides integration and automation of chained data flows and design space exploration for optimal performance parameters. With the Ansys Minerva platform, customers can connect simulation for life cycle traceability and to enable collaboration and decision support.
PyAnsys™ is a collection of Python-based, open-source projects tailored specifically for engineers seeking to extend the capabilities all targeted toward understandingof Ansys products. Developed as a collection of Python client libraries, PyAnsys offers engineers a comprehensive set of tools and solving complex design problems.
The Company's fluidsAnsys optiSLang product suite enables modeling of fluid flowis a leading-edge answer to the challenges posed by computer-aided engineering (CAD)-based robust design optimization (RDO). Its state-of-the-art algorithms efficiently and other related physical phenomena. Fluid flow analysis capabilities provide allautomatically search for the tools neededmost robust design configuration, eliminating the slow, manual process that used to design and optimize new fluids equipment and to troubleshoot already existing installations. The suite contains general-purpose computational fluid dynamics software and specialized products to address specific industry applications.
The Company's electronicsAnsys ModelCenter platform is a Model Based Systems Engineering (MBSE) software platform for managing and automating simulation processes in engineering. It enables the automation of any simulation tool and enables the creation and automation of simulation workflows. A unique capability of the ModelCenter platform is rigorous MBSE enablement by connecting with system architecture modeling tools to verify system performance throughout the product suite provides field simulation software for designing high-performance electronic and electromechanical products.design lifecycle. The software streamlines the design processprovides a centralized environment for managing simulation inputs, outputs and predicts performance of mobile communication and internet-access devices, broadband networking components and systems, integrated circuits (ICs) and printed circuit boards (PCBs),results, as well as electromechanical systems such as automotive componentsfor running trade studies and power electronics equipment, all prior to building a prototype.
Embedded Software
With our materials technology, our customers benefit from access to the world's premier system for managing corporate material intelligence and the market-leading solution for materials sources, selection and management. The Company deliversAnsys Granta MI™ system is a leading system for materials information management in engineering enterprises. Ansys Granta Selector™ technology is the standard tool for materials selection and graphical analysis of materials properties. A comprehensive materials data library plus unique software tools enable engineers to use materials to innovate and evolve products, quickly identify solutions to material issues, confirm and validate choice of materials and reduce material and development costs. The CES EduPack™ product is a unique set of teaching resources that supports materials education across engineering, design, science and comprehensivesustainable development. Granta Materials Data for Simulation provides easy access to materials property data from within Ansys Mechanical and the Ansys Electronics Desktop™ environment.
Safety Analysis
Our safety and cybersecurity threat analysis software facilitates model-based safety analysis, safety concept creation, safety management and cybersecurity assessment for safety-critical electrical, electronic and software-controlled systems. Using this software, engineers can deliver safer and more secure products, reduce time to market, increase profit margins and comply with industry standards. The Ansys Medini Analyze™ desktop product supports efficient application of quality, safety, reliability and cybersecurity analysis engineering methods at system, item, software, hardware and printed circuit board levels. It allows engineers to deliver safe and secure products. The Cloud-based product, Ansys Digital Safety Manager™, provides safety analysis accessible through the web so that teams may collaborate on the management of safety in product development, deployment and operation.
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Autonomous Vehicle Simulation
Our autonomous vehicle simulation capabilitysolutions are designed specifically to support development, testing and validation of safe automated driving and advanced driver-assistance systems (ADAS) technologies. This autonomous vehicle simulation solution saves time and costs versus traditional development and testing methods by allowing testing of drive designs on a virtual vehicle in a real-world environment. Ansys autonomous vehicle simulation solutions offer a set of dedicated features for sensors and headlamps for developing ADAS and autonomous systems. Designers can utilize component-level model-in-the-loop testing and can dynamically test physics-based sensor and lighting systems. Our autonomous solutions connect to popular driving simulators to recreate real-world driving conditions to test systems under variable traffic, terrain, weather and lighting conditions. The Ansys AVxcelerate™ product can generate reliable, synthetic training data enriched with ground truth information for all sensor types; this data is essential for artificial intelligence/machine learning (AI/ML)-based perception algorithm training and validation.
Digital Twin
Our Twin Builder™ product allows customers to implement complete virtual prototypes of real-world systems. These can be deployed to manage the entire lifecycle of products and assets. Our digital twin simulation paradigm allows customers to increase efficiencies over time, scheduling maintenance around predictive methodologies that become more accurate with real-world testing and response. Access to this information allows engineers to unlock additional value out of existing assets, preventing unscheduled downtime and lowering operating costs, while working at optimal efficiency.
Academic
We bundle our commercial software by physics area and work with universities to utilize our software in teaching and research. Currently, there are more than 2,900 university customers across 86 countries using Ansys. Additionally, our digital engagement strategy has evolved to include an “Access, Learn, Engage” model that is idealsupported by our free student downloads, free Ansys Innovation Courses and Learning Forum available through Ansys Innovation Space that makes it easy for the design of today's increasingly automated products. This collaborative environment leverages the Company's multiphysics, multibody dynamics, circuitlearners to access our product, learn how to use it and embedded software simulation capabilities, enabling users to simulate the complex interactions between components, circuits and control software within a single environment. These technologies provide a complete view into predicted product performance, which creates greater design confidence for engineers.
PRODUCT DEVELOPMENT
We recently completed the following major product development activities and releases:
•In early February 2024, we released Ansys R1 2024, which introduces an elevated user interface that facilitates collaboration, amplifies digital engineering productivity and removes barriers caused by engineering complexity. We also recently launched Ansys SimAI™ and Ansys AI+™ technologies. Ansys SimAI is a cloud-enabled, physics-neutral platform that empowers users across industries to accelerate innovation and reduce time to market. With Ansys SimAI, users are able to reliably predict performance of complex simulation scenarios rapidly. The tool allows users to first train an AI model using simulation results and then make predictively accurate analogous designs. With Ansys AI+, Ansys incorporates and extends AI features within its industry-leading desktop products to enhance core functionalities. The new AI+ offerings empower customers with more choice for how they access Ansys AI capabilities across our desktop products.
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•In July 2023 we released Ansys 2023 R2, which brings enhanced computing power to optimize complex products, assemblies and systems across industries. It enables customers to get better products to market faster with systems engineering workflows to help stakeholders understand subsystem interactions. Ansys 2023 R2 enables distributed engineering teams with new technologies and improved performance to drive forward industry innovation. It combines an exceptional range of enhanced numerics capabilities, performance improvements and cross-disciplinary engineering solutions to equip organizations with advanced physics solvers, scalable GPU-based computing and seamless workflows. Ansys 2023 R2 enables users to run large jobs and help overcome hardware capacity limitations with HPC, both on-premises and in the cloud. Enhanced solver algorithms capitalized on GPUs to speed simulation. In Ansys 2023 R2, the Fluids product line enables additional industrial simulations to run natively on GPUs, substantially reducing solve time and total power consumption. For example, Ansys 2023 R2 extends multi-GPU support to sliding mesh, compressible flows and eddy dissipation model combustion simulations. That means analysis of internal combustion engines, centrifugal pumps and fans, turbochargers and compressors, stirred tanks and reactors and hydraulic machinery can now be supercharged with the Ansys Fluent multi-GPU solver.
Acquired Technologies
During the year ended December 31, 2023, we completed several strategic acquisitions to expand our solution offerings and enhance our customers' experience. The effects of the acquisitions were not material to our consolidated results of operations individually or in the aggregate. For further information on our business combinations, see Note 4 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
PRODUCT QUALITY
SALES AND MARKETING
During 2017, the Company2023, we continued to invest in itsour existing domestic and international strategic sales offices. In total, the Company'sour direct sales and marketing organization comprises 1,400comprised 3,000 and 2,700 employees as of December 31, 2023 and 2022, respectively, who arewere responsible for the sales, technical support, consulting services, marketing initiatives and administrative activities designed to support the Company'sour overall revenue growth and expansion strategies.
Our channel partner network provides us with a cost-effective, highly-specialized channel of distribution and technical support. It also enables us to draw on business and technical expertise from a global network, provides relative stability to our operations to help mitigate geography-specific economic trends and provides us with an opportunity to take advantage of new geographic markets or enhance our sales coverage in existing markets.
The Company'schannel partners, under the direction of our sales management team, market and sell our products are utilized by organizations ranging in size from smallto new customers, expand installations within the existing customer base, offer training and consulting firmsservices and often provide the first line of our technical support. Our channel partner certification process helps to confirm that each channel partner has the world's largest industrial companies. ongoing capability to adequately represent our expanding product lines and to provide an appropriate level of training, consultation and customer support. We derived 26.1%, 23.9% and 23.7% of our total revenue through the indirect sales channel for the years ended December 31, 2023, 2022 and 2021, respectively.
No single customer accounted for more than 5% of the Company'sour revenue in 2017, 20162023, 2022 or 2015.
2021. Information with respect to foreign and domestic revenue may be found in Note 1617 to the consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K and in the section entitled “Management's"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" in Part II, Item 7 of this Annual Report on Form 10-K.
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STRATEGIC ALLIANCES AND MARKETING RELATIONSHIPS
We have strategic relationships with Synopsys to cooperatively integrate ANSYS RedHawk technology into an in-design add-on to a Synopsys design tool for the primary purpose of providing customers with direct, in-design access to the RedHawk technology's capabilities.
We also have a strategic relationship with Amazon Web Services (AWS) to transform cloud-based engineering simulations. Ansys Gateway powered by AWS facilitates seamless access and deployment of Ansys products on AWS, making simulation workloads more user-friendly, while offering scalability and flexibility with easy access to software and storage solutions from anywhere with a web browser.
In addition to marketing relationships to promote the same workflows on-premiseadoption of HPC, we maintain technical relationships with Intel, NVIDIA and AMD to optimize the solver performance and scalability of our portfolio, enabling faster simulations, better graphics and a shorter time to market for our customers. In the area of GPU computing, we have tuned and optimized the Fluent GPU and Mechanical solvers for "Hopper" GPUs from NVIDIA. With AMD, we have expanded support in the Ansys Mechanical product for the latest AMD Instinct MI200 Series accelerators, AMD's data-center-class GPU family. Support for these new GPUs gives customers more flexibility when choosing HPC hardware, both on-premises and in the Cloud. In addition, the Company strengthened its other cloud-hosting service partnerships by further improving best practices for executing engineering simulationcloud. As an inaugural member, we have joined both Intel Foundry Services' (IFS) Design Ecosystem Alliance and Intel Foundry Services Cloud Alliance. We expect that our EDA tools and multiphysics solutions will help IFS to deliver industry-leading bespoke silicon to their customers, both on-premises and in the Cloud. Cloud-hosting partners such as Nimbix, Rescale and Gompute provide friction-free cloud access to ANSYS solutions for customers. Furthermore, the Company enjoys mutually-committed alliances with large cloud platform providers such as Microsoft and AWS.cloud.
COMPETITION
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PROPRIETARY RIGHTS AND LICENSES
Despite these precautions, there can be no assurance that misappropriation of the Company'sour technology and proprietary information (including source code) will be prevented. Further, there can be no assurance that copyright, trademark, patent and trade secret protection will be available for the Company'sour products in certain jurisdictions, or that restrictions on the ability of employees and channel partners to engage in activities competitive with the Companyus will be enforceable. Costly and time-
The software development industry is characterized by rapid technological change. Therefore, the Company believeswe believe that factors such as the technological and creative skills of itsour personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are also important to establishing and maintaining technology leadership in addition to the various available legal protections of its technology that may be available.our technology.
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SEASONAL VARIATIONS
DEFERRED REVENUE AND BACKLOG
Deferred revenue consists of billings made or payments received in advance of revenue recognition from software license and maintenancecustomer agreements. The deferred revenue on the Company'sour consolidated balance sheets does not represent the total value of annual or multi-year, noncancellable software license and maintenance agreements. The Company'sOur backlog represents deferred revenue associated with installment billings for periods beyond the current quarterly billing cycle and customer orders received but not processed. The Company'scommitted contracts with start dates beyond the end of the current period. Our deferred revenue and backlog as of December 31, 20172023 and 20162022 consisted of the following:
| Balance at December 31, 2023 | |||||||||||||||||
| (in thousands) | Total | Current | Long-Term | ||||||||||||||
| Deferred revenue | $ | 479,754 | $ | 457,514 | $ | 22,240 | |||||||||||
| Backlog | 992,830 | 439,879 | 552,951 | ||||||||||||||
| Total | $ | 1,472,584 | $ | 897,393 | $ | 575,191 | |||||||||||
| Balance at December 31, 2017 | |||||||||||
| (in thousands) | Total | Current | Long-Term | ||||||||
| Deferred revenue | $ | 468,560 | $ | 440,491 | $ | 28,069 | |||||
| Backlog | 301,150 | 97,283 | 203,867 | ||||||||
| Total | $ | 769,710 | $ | 537,774 | $ | 231,936 | |||||
| Balance at December 31, 2022 | |||||||||||||||||
| (in thousands) | Total | Current | Long-Term | ||||||||||||||
| Deferred revenue | $ | 435,758 | $ | 413,989 | $ | 21,769 | |||||||||||
| Backlog | 981,088 | 432,323 | 548,765 | ||||||||||||||
| Total | $ | 1,416,846 | $ | 846,312 | $ | 570,534 | |||||||||||
| Balance at December 31, 2016 | |||||||||||
| (in thousands) | Total | Current | Long-Term | ||||||||
| Deferred revenue | $ | 415,846 | $ | 403,279 | $ | 12,567 | |||||
| Backlog | 221,994 | 64,361 | 157,633 | ||||||||
| Total | $ | 637,840 | $ | 467,640 | $ | 170,200 | |||||
Revenue associated with deferred revenue and backlog that will be recognized in the subsequent twelve months is classified as current in the tabletables above.
At the heart of our culture is a commitment to our people who collectively are powering innovations that drive human advancement. People are our most important investment and our greatest asset. We have a diverse population of talented, qualified and highly-skilled employees at all levels of our organization, including our executive officers, and across our global workforce. The success and the growth of our business depend on our ability to attract, develop, incentivize (and engage/motivate) and retain these employees. We have developed key recruitment and retention strategies, objectives and measures that serve as the framework for our human capital management approach. These strategies, objectives and measures are advanced through several programs, policies and initiatives, including: promoting diversity, equity, inclusion and belonging; employer branding and talent acquisition; and employee training and development. We strive to provide competitive compensation, including incentives linked to Ansys' and employees' performance and competitive benefits programs providing choice and value to our employees. We also seek to enhance the safety and wellness of all employees. We survey employees annually to measure satisfaction and engagement and manage progress.
As of December 31, 2017,2023, we employed 6,200 people, including: 2,400 in product development, 3,000 in sales, support and marketing, and 800 in general and administrative functions. Of these employees, 44% were located in the Company employed approximately 2,900 people. At that date, thereAmericas, 29% were also contract personnellocated in Europe, Middle East and co-op students providing ongoing development servicesAfrica (EMEA) and technical support.27% were located in Asia-Pacific (APAC). Certain international employees of the Company are subject to collective bargaining agreements andor have local work councils.
Culture of Inclusion and Belonging
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As of December 31, 2023, our global self-identified gender diversity was:
| Male | Female | Other/Not Indicated | |||||||||||||||
| Global employees | 74 | % | 23 | % | 3 | % | |||||||||||
Senior leadership(1) | 73 | % | 25 | % | 2 | % | |||||||||||
| Board of Directors | 70 | % | 30 | % | — | % | |||||||||||
(1)Senior leadership consists of leaders in our executive career track that report directly to the chief executive officer or within one additional reporting level of the chief executive officer and those at the highest tier of our management career track who report directly to a leader on our executive track. The senior leaders, who represent 1% of global employees, are responsible for directing strategic plans aligned with our corporate strategy through multiple levels of management.
As of December 31, 2023, our self-identified racial/ethnic diversity was:
| White | Asian | Hispanic or Latino | Black or African American | Other* | Not Indicated | ||||||||||||||||||||||||||||||
| United States-based employees | 52 | % | 24 | % | 2 | % | 2 | % | 2 | % | 18 | % | |||||||||||||||||||||||
| United States-based senior leadership | 68 | % | 18 | % | — | % | 2 | % | — | % | 12 | % | |||||||||||||||||||||||
| Board of Directors | 60 | % | 30 | % | — | % | 10 | % | — | % | — | % | |||||||||||||||||||||||
*Other includes Native Hawaiian, American Indian, Alaskan Native, Pacific Islander, two or more races or not applicable.
We continue to support employee resource groups to create a culture of inclusion and belonging that increases retention of valuable employees and creates an open culture that fuels innovation. Our employee resource groups include Women in Tech at Ansys, Ansys Pride Alliance, Black Employee Network at Ansys, Veterans at Ansys, Ansys (dis)ability Network and Ansys Latino Connection. Our inclusive culture is further reinforced through education on understanding and mitigating bias in management processes and business decisions.
Employee Recruitment, Development and Retention
Our talent strategy is focused on (i) attracting diverse high-quality talent, (ii) continually developing and engaging our employee base and (iii) retaining our people by recognizing and rewarding performance. Our commitment to recruiting diverse talent is evidenced in the United States through our recruiting efforts at historically black colleges and universities and Hispanic serving institutions, as well as our involvement with minority engineering societies, women in technology groups, veterans' organizations and LGBTQ+A organizations. In addition to targeted outreach, we recruit talent through (i) attending career and networking events aimed towards recruiting diverse audiences, (ii) hiring internally through our Ansys internship/co-op programs for current students and (iii) value partnerships including professional societies that promote our programs to diverse audiences. We continue to evolve our talent acquisition efforts, as evidenced by our expanded events strategy, as well as our priority focus on external partnerships and recruitment tools that expand our reach to diverse audiences. Additionally, we drive a global focus on hiring emerging talent, placing an emphasis on offering full-time positions through our global internship, co-op and new college graduate programs. Our academic product suite is also widely used in research and teaching settings, which allows students to become familiar with our simulation software and creates opportunities to strengthen our university ties and recruit top talent.
The Company makes targeted acquisitions in orderdevelopment of our employees is paramount to our success and provided through internal professional development programs and tuition assistance for external programs. We conduct annual individual assessments, encourage development planning and build a culture of feedback that drives performance. We drive a variety of focused initiatives specifically designed to support itsemployee development. These include annual talent reviews and succession planning, leadership and executive development and company-sponsored education programs, such as management essentials to develop front-line leaders in foundational people management skills. New programs in 2023 included developing a global mindset, improved new employee orientation and custom learning paths for emerging leaders. We also expanded our Ansys digital academy to be the one-stop-shop for all Ansys developers to build the technical skills needed to support our Pervasive Insights strategy. Additional ongoing programs include mentoring and sponsorship programs and skills development for technical staff in support of the digital transformation of our internal processes.
Developing our employees helps create an engaged workforce that is ready to embrace future business challenges. It also helps mitigate risks associated with employee loss and keeping up with rapid technological and social change. For the year ended December 31, 2023, our annual turnover rate was 5%, or 4% on a voluntary basis.
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Compensation and Benefits Program
Our compensation programs provide an opportunity for employees to earn higher compensation by aligning their performance, which may include contributions to our environmental, social and governance objectives, with our overall financial and operational success. The program includes three key elements: (i) competitive annual salaries, (ii) annual cash incentives and sales commission programs, with a majority of our employees eligible to earn more or less than the target opportunities based on both our and the employee's performance and (iii) long-term strategic direction, accelerate innovation, provide increased capabilitiesequity incentives with over half of employees receiving equity grants each year in the form of time-based restricted stock units. These grants align the long-term financial interests of our employees with those of our stockholders.
Health and welfare benefit programs include market-competitive benefits comprised of a mix of company-provided and other benefits, including those for medical, dental and vision insurance; life and disability insurance; defined contribution retirement plans; and global employee wellness programs. In addition, we offer many different employee assistance programs, such as financial, legal, emotional and social well-being employee assistance programs. Our investments in health and welfare benefits and other employee programs focus on providing choice and value to its existing products, supply newour employees so they can select market-competitive benefits that support their personal needs.
Local regulations are considered when developing our compensation and benefits packages for employees across the globe.
Flexible Work Environment
Hybrid ways of working continue to enable us to remain productive while meeting customer needs and staying engaged. Our employees continue to respond favorably to the statement: "I am able to manage my work responsibilities in a way that allows me flexibility."
Employee Satisfaction and Engagement
Employee feedback and engagement are critical to our success. We conduct global employee engagement surveys with the goal of using the feedback to improve the work environment and employee satisfaction. This feedback continues to be a critical component of our listening strategy. The survey itself has become an even more important tool to stay connected with employee sentiment in our hybrid work environments.
Our 2023 engagement score remained steady compared to 2022, confirming that our employees continue to be highly engaged. Our scores exceeded the external norm across all dimensions of engagement that were measured with themes this year, including: employees feeling valued and part of a team; employees empowered to excel; trust in the future vision that leaders are creating; and employees feeling they have opportunities for learning and development.
Employee feedback is also strong in other important areas including communication and overall leadership. These findings continue to help us improve performance, manager effectiveness, culture and engagement.
AVAILABLE INFORMATION
Information about our products and services expandis available on the internet at www.ansys.com. We provide information for investors on our corporate website under "Why Ansys – Investor Relations".
We make available, free of charge, the following under "Why Ansys – Investor Relations" shortly before or promptly following its customer base and enhance its distribution channels.
Where we have included internet addresses in this Annual Report on Form 10-K.10-K, such as our internet address and the internet address of the SEC, we have included those internet addresses as inactive textual references only. Except as specifically incorporated by reference into this Annual Report on Form 10-K, information on those websites is not part hereof.
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The following are important factors we have identified that could affect our future results and an investment in our securities. Although the risks are organized by headings and each risk is described separately, many of the Companyrisks are interrelated.
You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or its spokespersons,that are not currently believed to be significant that may adversely affect our business, prospects, financial condition, results of operations or cash flows in the future. In addition, from time to time we provide information, including information contained in this Annual Report on Form 10-K, may from time to time containthat contains forward-looking statements concerning, among other things, projected financial performance, total addressable market, market and industry sector growth, product development and commercialization or other aspects of future operations. Such statements will beare based on the assumptions and expectations of the Company'sour management at the time such statements are made. The Company cautionsWe caution investors that itsour performance (and, therefore,and any forward-looking statement) isstatements are subject to risks and uncertainties. Various important factors,uncertainties, including but not limited to, the following:
Risks Associated with the Proposed Transaction with Synopsys
The proposed transaction with Synopsys may be delayed or not occur at all for a variety of reasons, including that the Merger Agreement is terminated, and the failure to complete the Merger could adversely affect our business, results of operations, financial condition, and the market price of our common stock.
On January 15, 2024, we entered into the Merger Agreement with Synopsys and Merger Sub, pursuant to which Merger Sub will merge with and into Ansys with Ansys surviving the Merger as a wholly owned subsidiary of Synopsys. Completion of the Merger is subject to customary closing conditions, including (1) the adoption of the Merger Agreement by a majority of the holders of the outstanding shares of our common stock, (2) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the approval of the Merger under certain other antitrust and foreign investment regimes, (3) the absence of any order, injunction or law prohibiting the Merger, (4) the effectiveness of the registration statement of Synopsys pursuant to which shares of Synopsys common stock to be issued in connection with the Merger will be registered with the SEC, (5) the shares of Synopsys common stock to be issued in connection with the Merger being approved for listing on Nasdaq, (6) the accuracy of the other party’s representations and warranties, subject to certain standards set forth in the Merger Agreement, (7) compliance in all material respects by the other party with its obligations under the Merger Agreement, and (8) the absence of a continuing material adverse effect with respect to each of Ansys and Synopsys. Therefore, there can be no assurance that the Merger will be completed in the expected timeframe (first half of 2025), or at all.
The Merger Agreement may be terminated under certain circumstances, including that either party may have the right to terminate if the Merger is not completed by January 15, 2025, which may be extended to January 15, 2026 as provided in the Merger Agreement. Upon termination of the Merger Agreement, (A) Synopsys, under specified circumstances, including termination following a permanent injunction arising under certain antitrust or foreign investment laws, will be required to pay us a termination fee of $1,500.0 million; and (B) we, under specified circumstances, including our termination of the Merger Agreement to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or Synopsys' termination upon the change by our Board of Directors of its recommendation in favor of the Merger, will be required to pay Synopsys a termination fee of $950.0 million.
Failure to complete the Merger within the expected timeframe or at all could adversely affect our business and the market price of our common stock in a number of ways, including:
•the market price of our common stock may decline to the extent that the current market price reflects an assumption that the Merger will be consummated;
•if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, we would be required to pay a termination fee of $950.0 million;
•we have incurred, and will continue to incur, significant expenses for professional services in connection with the Merger for which we will have received little or no benefit if the Merger is not consummated; and
•we may experience negative publicity and/or reactions from our investors, employees, customers, channel partners, and other business partners.
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Additionally, as Synopsys common stock will be a component of the merger consideration our stockholders will receive in the Merger, our stock price may be adversely impacted by a decline in Synopsys’ stock price and any adverse developments in Synopsys’ business outlook. Synopsys' stock price changes may result from a variety of factors, such as changes in its business operations and outlook, changes in general market and economic conditions, and regulatory considerations. These factors are beyond our control. Also, because the number of shares of Synopsys common stock issuable in connection with the Merger Agreement in respect to one share of Ansys common stock is based on a fixed exchange ratio and the market price of Synopsys common stock may fluctuate, our stockholders cannot be sure of the market value of the stock consideration they will receive in exchange for their shares of our common stock in connection with the Merger.
Completion of the proposed Merger is subject to the satisfaction or waiver of closing conditions contained in the Merger Agreement, including certain regulatory approvals which may not be received, may take longer than expected or the receipt of which may impose conditions that are not presently anticipated or that cannot be met, and if these closing conditions are not satisfied or waived, the proposed Merger will not be completed.
Various consents, clearances, approvals, authorizations and declarations of non-objection, or expiration of waiting periods (or extensions thereof), from certain regulatory and governmental authorities in the United States, the European Union and certain other jurisdictions are included in the Merger Agreement as conditions to completing the proposed Merger. Regulatory and governmental entities may impose conditions on their respective approvals, in which case lengthy negotiations may ensue among such regulatory or governmental entities, Synopsys and Ansys. Such conditions, any such negotiations and the process of obtaining such regulatory approvals, consents or clearances could have the effect of delaying or preventing consummation of the proposed Merger.
Subject to the terms of the Merger Agreement, we have agreed to use our reasonable best efforts to take all actions necessary to consummate the Merger, including cooperating to obtain the regulatory approvals necessary to complete the Merger. Nonetheless, certain conditions to the completion of the pending Merger are not within our or Synopsys’ control, and we cannot predict when or if these conditions will be satisfied (or waived, as applicable). There can be no assurance that all required approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable), and, if all required approvals are obtained and all closing conditions are satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of such approvals or that the pending Merger will be completed in a timely manner or at all. Even if regulatory approvals are obtained, it is possible conditions will be imposed that could result in a material delay in, or the abandonment of, the pending Merger or otherwise have an adverse effect on Ansys.
Efforts to complete the Merger could disrupt our relationships with third parties and employees, divert management’s attention, or result in negative publicity or legal proceedings, any of which could negatively impact our operating results and ongoing business.
We have expended, and continue to expend, significant management time and resources in an effort to complete the Merger, which may have a negative impact on our ongoing business and operations. Uncertainty regarding the outcome of the Merger and our future could disrupt our business relationships with our existing and potential customers, channel partners, service providers and other business partners, who may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than Ansys. Uncertainty regarding the outcome of the Merger could also adversely affect our ability to recruit and retain key personnel and other employees. The pendency of the Merger may also result in negative publicity and a negative impression of us in the financial markets, and may lead to litigation against us and our directors and officers. Such litigation would be distracting to management and, may, in the future, require us to incur significant costs. Such litigation could result in the Merger being delayed and/or enjoined by a court of competent jurisdiction, which could prevent the Merger from being completed. The occurrence of any of these events individually or in combination could have a material and adverse effect on our business, financial condition and results of operations.
The Merger Agreement contains provisions that limit our ability to pursue alternative transactions to the Merger which could discourage a potential competing acquirer from making an alternative transaction proposal.
The Merger Agreement contains provisions that preclude us from soliciting proposals relating to alternative transactions or entering into discussions or negotiations or providing non-public information in connection with any proposal for an alternative transaction from a third party, subject to certain exceptions to permit our Board of Directors to comply with its fiduciary obligations. We have further agreed to cease and cause to be terminated any existing discussions or negotiations, if any, with regard to alternative transactions. These prohibitions could discourage a potential third-party acquirer or merger partner from making an alternative transaction proposal. Additionally, if the Company's future resultsMerger Agreement is terminated and we determine to differ materiallyseek another business combination, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger Agreement.
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While the Merger Agreement is in effect, we are subject to restrictions on our business activities.
The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants regarding the conduct of our business during the pendency of the transactions contemplated by the Merger Agreement. These restrictions could prevent us from those projected in any forward-looking statement.pursuing attractive business opportunities that may arise prior to the consummation of the Merger. Although we may be able to pursue such activities with Synopsys’ consent, there is no guarantee that Synopsys will provide us with the necessary consent.
Global Economic Conditions.The Company'sOperational Risks
Adverse economic and geopolitical conditions have impacted, and may continue to impact, our operations and financial performance.
Our operations and performance depend significantly on global macroeconomic, specific foreign country and U.S. domestic economic conditions. UncertaintyGlobal inflation and interest rates continued to be elevated throughout 2023. A deterioration in the macroeconomic environment, as well as geopolitical conditions, canincluding the impact of high inflation, may result in significantdecreased demand for our products and services, constrained credit and liquidity, reduced government spending and volatility in credit, equity and foreign exchange markets. This volatility and the related economic conditions may negatively impact the Company as customers defer spending in response to tighter credit, higher unemployment, financial market volatility, government austerity programs, negative financial news, declining valuations of investments and other factors. In addition, certain of the Company's customers' budgets may be constrainedsignificant downturns and they may be unable to purchase the Company's products at the same level as they havevolatility in prior periods. Customer spending levels may be impacted by decreased government spending in certain countries as concerns continue regarding economic conditions and government debt levels. These economic conditions can change abruptly. To the extent the global economy experiences volatility, the Company may be exposedexpose us to impairments of certain assets asif their values deteriorate.
Tighter credit due to economic conditions may diminish the Company'sour future borrowing ability. The Company's customers'ability and increase borrowing costs under our existing credit facilities. Customers' ability to pay for the Company'sour products and services may also be impaired, which maycould lead to an increase in the Company'sour allowance for doubtful accounts and write-offs of accounts receivable. Since the Company is exposed
Furthermore, escalating global tensions, including due to the majority of major world markets, uncertainty in any significant market may negatively impact the Company's performance and results, particularly with respect to the Company's largest geographic customer bases. The Company is unable to predict the likely duration and magnitude of changing economic conditions or the likelihood of additional uncertainty arising in anydeterioration of the Company's key markets. Adverse economic conditionsdiplomatic and political relationships between the United States and other countries where we conduct business, such as China, and the ongoing global volatility due to wars and conflicts (such as those between Russia and Ukraine and/or Israel and Hamas), could negatively impact the Company's operating results, cash flows and financial condition.
A significant portion of the Company's operating expenses are related to personnel, facilities and marketing programs. The level of personnel and related expenses may not be able to be adjusted quickly and is based, in significant part, on the Company's expectation for future revenue.
When the significant economies in which the Company doeswe do business deteriorate or suffer periodsa period of uncertainty, the Company'sour business and financial performance may be negatively impacted through reduced customer and government spending, changes in purchasing cycles or timing and reduced access to credit for itsour customers, among other factors. Furthermore, customer spending levels in any foreign jurisdiction may be adversely impacted by changes in domestic policies, including tax and trade policies. A substantial portion of our license and maintenance revenue is derived from annual subscription lease and maintenance contracts, which typically have a high rate of customer renewal. When the rate of renewal for these contracts is adversely affected by economic or other factors, impactingour subscription lease license and maintenance growth is adversely affected.
We are subject to trade restrictions that could impact our ability to sell to customers and result in liabilities for violations.
Due to the Company'sglobal nature of our business, we are subject to domestic and international trade protection laws, policies, sanctions and other regulatory requirements affecting trade and investment. For example, we are subject to import and export restrictions and regulations that prohibit the shipment or provision of certain products and services to certain countries, regions and persons targeted by the United States and certain end uses identified by the United States, including the Export Administration Regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), economic and trade sanctions administered by the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) and International Traffic in Arms Regulations (ITAR) administered by the Department of State’s Directorate of Defense Trade Controls (DDTC).
BIS continues to expand its export control restrictions, including with respect to the export to China of certain technologies, impose new export licensing requirements, and require enhanced denied party screening processes. These additional restrictions have limited and could continue to limit our ability to sell and deliver products and services to certain customers, including to entities performing research and development and certain controlled activities in China. Export control restrictions and enhanced screening processes have led to, and, in the future may continue to lead to, elongated transaction cycles with certain customers. In addition, export control restrictions have resulted, and may continue to result, in reduced sales and/or delays in our ability to deliver products and collections. The Company's resultsservices to certain prospects, adversely affecting our business and consolidated financial statements. In certain cases, when an export license may be required to deliver products and services to certain customers, the receipt of licenses to export to certain countries, including China, is not guaranteed and, in the absence of a license or applicable license exception, our ability to sell and deliver products and services to certain customers may be negatively impacted.
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Additionally, BIS continues to add more companies, including existing customers, to its Entity List, and OFAC continues to increase the number of companies subject to its sanctions, which continues to limit the companies with which we can do business.
Adding companies as restricted parties and subjecting companies to heightened export control restrictions may additionally encourage those companies to seek substitute products from competitors whose products are not subject to these restrictions or to develop their own products.
Existing and prospective customers have been and may continue to be added as restricted parties and/or be subjected to trade restrictions and additional end uses, products or services have been and may continue to be identified for further restrictions. Such actions have resulted in, and may continue to result in, increases to our operating costs and time to market. Additional trade restrictions on our business by the United States, China or other countries may also result in other indirect impacts that cannot be negatively impactedquantified. Restrictions on our ability to sell and ship to customers could have a significant adverse effect on our business and consolidated financial statements.
Our products could also be delivered to restricted parties by geopolitical tensions,third parties, including our channel partners. We take measures to confirm that our channel partners comply with all applicable trade restrictions, but any failure by channel partners to comply with such restrictions could have negative consequences for us.
Violators of trade restrictions or restricted end uses may be subject to significant penalties, which may include considerable monetary fines, criminal proceedings against them and their officers and employees, a denial of export privileges and suspension or debarment from selling products or services to the federal government. Any such penalties could have a significant adverse effect on our business and consolidated financial statements. In addition, the political and media scrutiny surrounding any governmental investigation could cause significant expense and reputational harm and distract senior executives from managing normal day-to-day operations.
If we are unable to attract and retain key talent, our business could be adversely affected.
Due to the highly technical nature of our products and services, our continued success depends on our ability to attract and retain particular employees with specialized skill sets. These skilled roles have been and are expected to continue to be challenging to fill given the recent job market dynamics, including wage inflation and the general labor market shortage, which has caused an increase in competition for talent within the technology industry. Additionally, our talent has been, and continues to be, the subject of recruitment by our competitors and we may incur significant cost to attract and retain our skilled employees. Remote and hybrid options remain the primary means of work. Our working environment options may adversely affect our ability to recruit and retain employees who prefer a different working environment. While we have non-competition and non-solicitation agreements with many of our current employees, the enforceability of these agreements may be limited by legislation and by the courts.
In addition, our success depends upon the continued service of our senior executives and our key technical and sales employees. Most of these individuals could terminate their relationship with us at any time. The loss of any of them for which there has not been adequate knowledge-sharing and transfer might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships.
While we have historically recruited globally for positions in the United States, in recent years our ability to do so has been curbed by more restrictive domestic immigration laws. If the immigration laws become even stricter or the processing of immigration requests becomes even more cumbersome or less efficient, or if we have less success in recruiting and retaining key personnel, our business, reputation and operating results could be materially and adversely affected.
Failure to comply with global data privacy laws could give rise to regulatory enforcement action, monetary penalties, loss of the ability to do business in certain jurisdictions or reputational harm.
We are subject to global data privacy laws and regulations addressing the processing of personal data. As the global focus on data privacy regulation continues to increase, standards governing the processing of personal data continue to become more strict, conflicting and numerous. As a result, potential risks may intensify as our global business pursues data privacy compliance.
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The General Data Protection Regulation (European Union), the Data Protection Act (United Kingdom), the Personal Information Protection and Electronic Documents Act (Canada), the Personal Information Protection Law (China), the Law Concerning the Protection of Personal Information (Japan), the Personal Information Protection Act (South Korea), many state and federal privacy laws within the United States and other similar global laws in locations in which we do business (collectively, "Privacy Laws") govern our global data privacy practices. Additionally, Privacy Laws impose abundant compliance obligations related to our processing of personal data arising from: (i) the delivery of our products and services to our customers; and (ii) our business operations involving employee data.
Compliance with Privacy Laws has and will continue to require the deployment of substantial resources and increased costs. As the global data privacy landscape continues to change, including: (i) new and varying restrictions on the transfer of personal data across borders; (ii) the growing list of privacy rights afforded to individuals of certain jurisdictions; (iii) data minimization requirements; and (iv) the growing number of governmental agencies dedicated to the preservation of data privacy rights, we may be required to make significant changes to our software applications or business operations. Such changes may increase the cost and complexity of delivering our products and services in some markets, require an investment in additional resources or tools to manage our data privacy compliance, give rise to operational interruption in the performance of services for customers or adversely affect the internal processing of employee information.
Failure to comply with Privacy Laws may lead to regulatory enforcement actions, loss of the ability to do business in certain jurisdictions or inquiries and investigations into our activities; all of which could result in monetary penalties, reputational damage, lawsuits, extensive and prescriptive consent decrees or judgments. Additional software resources, increased workforce or added expenses may be required to return us to a compliant data privacy status.
Failure to comply with laws and regulations could harm our business.
We develop and sell software and consulting services and maintain support operations in various countries whose laws and practices differ from one another and are subject to unexpected changes. Furthermore, our business is subject to regulation by various global governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, securities laws, laws related to compliance with U.S. government contracts and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Managing these geographically diverse operations requires significant attention and resources to promote compliance.
Our global reach includes countries considered high-risk environments for public corruption. This exposes us to risks associated with violations of anti-corruption laws and regulations such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. To promote compliance, we forbid our agents, channel partners and employees from engaging in corrupt behavior and we have a compliance program to prevent and detect violations of anti-corruption laws. There remains, however, a risk that illegal conduct could occur thereby exposing us to the financial and reputational risks associated with a violation of anti-corruption laws.
Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions and may result in increased economic volatility.our inability to provide certain products and services to existing or prospective customers. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation or if customers make claims against us for compensation, our business and consolidated financial statements could be harmed. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees and costs. Enforcement actions and sanctions could have a significant adverse effect on our business and consolidated financial statements.
Our personnel, source code and computer equipment is located in various regions throughout the United States and the world. A natural disaster (including significant disruptions in weather as a result of itsglobal climate change), cyberattack, terrorist act, pandemic or other unforeseen catastrophe in any of these areas or a breakdown in our business infrastructure, such as an interruption in power supply, telephone system or information technology systems, could cause disruptions to our sales, operations, services and product development activities. As our sales are generally greater at the end of a quarter, the potential adverse effects resulting from any of these events would be accentuated if they occurred at quarter end.
Effective business continuity, disaster recovery and crisis management plans are critical to minimizing the impact of such unplanned or unexpected events. We also face increasing customer certification requirements with respect to such systems. Failure to establish plans that effectively mitigate the impacts of these disruptions or meet customer certification requirements could have a significant international presence,adverse effect on our business and consolidated financial statements.
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Industry Operational Risks
Our industry is highly competitive, which could result in downward pressure on our prices.
We continue to experience competition across all markets for our products and services. Some of our current and potential competitors have greater financial, technical, marketing and other resources than we do, some could establish strategic alliances with one another, and some have well-established relationships with our current and potential customers. Our current and potential competitors also include firms that have competed, or may in the Company has revenue, expenses, cash, accounts receivablefuture compete, by means of open source licensing. Companies we have, or could have, strategic alliances with could reduce or discontinue technical, software development and payment obligations denominated in foreign currencies. Asmarketing relationships with us for competitive purposes.
Our competitors may offer deep discounts on certain products or services, or develop products that the marketplace considers more valuable. If we are unable to provide products or services that address our customers’ needs or preferences, or we are unable to match favorable pricing offered by our competitors, we could lose customers or fail to attract new customers.Further, we may be required to lower prices or offer discounts or other favorable terms to compete successfully. Our maintenance products, which include software license updates and product support fees, are generally priced as a result,percentage of new software license fees. Our competitors may offer lower percentage pricing on product updates and support. Some competitors may bundle software products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices, product implementations or wider geographical license usage provisions. Any of these practices could, over time, significantly constrain the Company is subjectprices that we can charge for certain products.
Furthermore, if we do not adapt pricing models to currency exchange risk. The Company's revenues and operating results are adversely affected when the U.S. Dollar strengthens relative to other currencies and are positively affected when the U.S. Dollar weakens. As a result,reflect changes in currency exchange rates will affect the Company's financial position, resultscustomer usage of operations and cash flows. In the event that there are economic declines in countries in which the Company conducts transactions, the resultingour products or changes in currency exchange ratescustomer demand, our software license revenues could decrease. Additionally, increased distribution of applications through application service providers, including software-as-a-service providers, may reduce the average price or margin of our products or adversely affect other sales of our products, reducing new software license revenues or profitability.
These competitive pressures may result in decreased sales volumes, price reductions and/or increased operating costs, and could result in lower revenues, margins and net income.
We may not be successful in integrating emerging technologies or developing and marketing new products to adequately address the Company'srapidly changing technology industry.
We operate in an industry generally characterized by rapidly changing technology and frequent new product introductions. A major factor in our future success will be our ability to anticipate technological changes and to integrate emerging technologies (including AI) to develop and introduce, in a timely manner, new products and new ways to deliver them to meet those changes. Our ability to grow revenue will be dependent on our ability to respond to customer needs in the areas of, among others, AI/ML, next generation connectivity, autonomous vehicles, IIoT, electrification and sustainability, and to leverage cloud computing and new computing platforms. In addition, our future success may depend on our ability to continue to develop a systems integrator ecosystem able to handle integrations and process and application development to address the challenge of the increasingly complex integration of our products' different functionalities to address customers' requirements. For those customers who authorize a third-party technology partner to access their data, we do not provide any warranty related to the functionality, security and integrity of the data transmission or processing. Despite contract provisions to protect us, customers may look to us to support and provide warranties for the third-party applications, integrations, data and content, even though not developed or sold by us, which may expose us to potential claims, liabilities and obligations, all of which could harm our business.
We devote substantial resources to research and development, which could cause our operating profits to decline.
We devote substantial resources to research and development. New competitors, technological advances in the software development industry by us or our competitors, acquisitions, entry into new markets or other competitive factors may require us to invest significantly greater resources than anticipated. If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, operating profits could decline. In addition, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact financial position, results of operations and cash flows. The Company is most impacted by movements in and among the Euro, Japanese Yen, South Korean Won, British Pound, Taiwan Dollar, Indian Rupee and U.S. Dollar. The Company seeks to reduce currency exchange transaction risks primarily through its normal operating and treasury activities, but thereresults.
There can be no assurance that itwe will be successful in reducingdeveloping and marketing, on a timely basis, new products or product enhancements or that the new products will adequately address the changing needs of the marketplace or that we will successfully manage the transition from existing products. Software products as complex as those we offer may contain undetected errors, defects or vulnerabilities when first introduced or as new versions are released, and the likelihood of errors, defects or vulnerabilities is increased as a result of our commitment to the frequency of product releases.
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There can be no assurance that errors, defects or vulnerabilities will not be found in any new or enhanced products after the commencement of commercial shipments. The occurrence of any defects or errors in our products could result in lost or delayed market acceptance and sales of our products, delays in payment to us by customers, loss of customers or market share, product returns, damage to our reputation, diversion of our resources, increased service and warranty expenses or financial concessions, increased insurance costs and liability for damages.
Company Operational Risks
We are dependent upon our channel partners for a significant percentage of our revenue and usage of channel partners presents certain heightened compliance risks.
We distribute our products through a global network of independent channel partners, which accounted for 26.1%, 23.9% and 23.7% of our revenue during the years ended December 31, 2023, 2022 and 2021, respectively. Channel partners sell our software products to new and existing customers, expand installations within the existing customer base, offer consulting services and provide the first line of technical support. A meaningful amount of our APAC and EMEA revenue is from channel partners. Difficulties in ongoing relationships with channel partners, such as failure to meet performance criteria and differences in handling customer relationships, could adversely affect our performance. Additionally, the loss of any major channel partner, including a channel partner's decision to sell competing products rather than ours, could result in reduced revenue. Moreover, our future success will depend substantially on the ability and willingness of our channel partners to dedicate the resources necessary to understand and promote our expanding portfolio of products and to support a larger installed base within each of our geographic regions. If the channel partners are unable or unwilling to do so, we may be unable to sustain revenue growth.
Establishing relationships with new channel partners could result in additional compliance burdens for us. In addition, new channel partners may have a less-established payment history and revenue from these channel partners could come with a higher rate of bad debt expense. Where channel partners operate on our behalf to collect and process personal data of customer contacts, failure to comply with relevant data privacy laws in the handling of such personal data could result in liability to us for any fines, civil suits or non-financial performance obligations imposed by regulatory authorities on these partners with respect to our customer data.
Certain products require a higher level of sales and support expertise. Failure of our sales channel, particularly the independent channel partners, to obtain this expertise and to sell the new product offerings effectively could have an adverse impact on our sales in future periods. Any of these problems may result in the loss of or delay in customer acceptance, diversion of development resources, damage to our reputation or increased service and warranty costs, any of which could have a significant adverse effect on our business and consolidated financial statements.
We may not be able to realize the potential benefit of our acquisitions and such acquisitions could pose risks to our business.
We have a track record of acquiring businesses and technology to support our long-term strategic direction.
Each acquisition that we complete may present risks, including: difficulty in integrating the management teams, strategies, cultures and operations of the companies or businesses; failing to achieve anticipated synergies, including product synergies, revenue increases or cost savings; difficulty incorporating and integrating the acquired technologies or products with our existing product lines; difficulty with coordinating and integrating sales, distribution and marketing functions; failure to develop new products and services that utilize the technologies and resources of the companies; disruption of our ongoing business and diversion of management's attention to transition or integration issues; liabilities that were not identified during the acquisition process; the loss of our key employees, customers, partners and channel partners or those of the acquired companies or businesses; and cybersecurity and data privacy risks.
Future acquisitions may involve the expenditure of significant cash resources; the incurrence of debt, which increases our interest expense and leverage; or the issuance of equity, which could be dilutive to stockholders and may decrease earnings per share. We allocate a portion of the purchase price to goodwill and intangible assets. If we do not realize all the economic benefits of an acquisition, there could be an impairment of goodwill or intangible assets. Furthermore, impairment charges are generally not tax-deductible and will result in an increased effective income tax rate in the period the impairment is recorded.
If we do not achieve the anticipated benefits of our acquisitions as rapidly or to the extent anticipated by our management or financial and industry analysts, there could be a significant adverse effect on our stock price, business and consolidated financial statements.
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The ongoing digital transformation of our operational processes may not achieve the benefits identified.
In June 2016, the United Kingdom votednormal course of our business, we implement new processes, tools and technology to leavetransform our business operations and to enable future scalability. While these transformations are intended to streamline, automate and deliver efficiencies across multiple commercial and operational processes within the European Union. The long-termbusiness, there is a risk that the systems or processes could be more difficult to implement than anticipated, that the new processes will not be effectively or efficiently used, and that the benefits of such systems and processes could be substantially delayed. There is also a risk that we will have to write off previously capitalized expenditures if the projects are not successful or if implementation decisions regarding the project are modified. Factors that could further delay the timing or impact of the decision is uncertain. As a result, the Company's business in the United Kingdom and Europe could be adversely impacted due to political and economic instability, fluctuations in currency exchange rates,benefits realization include (i) changes in lawsleadership and regulations,project objectives; (ii) diversion of management's attention to different projects; (iii) additional needs for technical expertise and manpower; and (iv) longer than anticipated time horizon for employee adoption and mastery.
Any of the above could divert efforts of key operational management away from other factors.aspects of the business, including the maintenance of current commercial and business platforms, and result in increased consulting and software costs. These risksfactors could negativelyhave a significant negative impact the Company'son our business and consolidated financial position, results of operations and cash flows.statements.
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 litigation, alleged infringement of intellectual property rights and other matters. Use or distribution of our products could generate product liability, particularly with respect to new ways of going to market, including offering our products in cloud environments, selling software as a service and licensing or otherwise providing our products as part of a third-party developer ecosystem, or 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 personal data, as well as measures taken to promote license compliance, may also result in claims by customers and individual employees of customers. Each of these requirements, which include potentiallymatters is subject to various uncertainties, and it is possible that an unfavorable resolution of one or more of these matters could have a significant monetary penalties for noncompliance. If the Company fails to comply with the new regulations, its reputationadverse effect on our consolidated financial statements as well as cause reputational damage.
We may suffer reputational or financial harm if we have product standard or quality issues.
We have separate quality systems and itsregistrations under the ISO 9001:2015 standard in addition to other governmental and industrial regulations. Our continued compliance with quality standards and favorable outcomes in periodic examinations is important to retain current customers and vital to procure new sales. If it was determined that we were not in compliance with various regulatory or ISO 9001 standards, our certificates of registration could be suspended, requiring remedial action and a time-consuming re-registration process. Product quality issues or failures could result in our reputation becoming diminished, resulting in a material adverse impact on our business and consolidated financial position, results of operationsstatements.
Our short-term and cash flows may be negatively impacted.
The software business is generally characterized by long sales cycles. These long sales cycles increase the Company sells its products and services. The Company's business, financial position, resultsdifficulty of operations and cash flows could be materially, adversely affected bypredicting sales for any of these risks.
A variation in actual sales activity from that forecasted could cause the Companyus to plan or budget incorrectly and, therefore, could adversely affect the Company'shave a significant adverse effect on our business and consolidated financial position, results of operations and cash flows. The Company's management teamstatements. Management also forecasts macroeconomic trends and developments and integrates them through long-range planning into budgets, research and development strategies and a wide variety of general management duties. Global economic conditions, and the effect those conditions and otherany disruptions in global markets have on the Company'sour customers, may have a significant impact on the accuracy of the Company'sour sales forecasts. These conditions may increase the likelihood or the magnitude of variations between actual sales activity and the Company'sour sales forecasts and, as a result, the Company'sour performance may be hindered because of a failure to properly match corporate strategy with economic conditions. This, in turn, may adversely affectcould have a significant adverse effect on our business and consolidated financial statements. To the Company's business, financial position, results of operationsextent our forecasts are incorrect and, cash flows.
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We may not meet our targets and strategies relating to environmental, social and governance considerations, which could expose us to potential liabilities, increased costs, reputational harm and other adverse effects on our business.
We have established targets and strategies related to our reduction of greenhouse gas emissions. Our ability to achieve any such targets or strategies is subject to numerous factors affecting the Company, the software industry or the securities markets in general. Suchand conditions, many of which are outside of our control. Examples of such factors include, but are not limited to, declinesevolving legal, regulatory and other standards, processes and assumptions, the pace of scientific and technological developments, increased costs, the availability of requisite financing and changes in trading pricecarbon markets. Failures or delays (whether actual or perceived) in achieving our targets or strategies related to climate change and other environmental matters could adversely affect our business, operations and reputation, and increase risk of litigation.
Furthermore, many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion. We make statements about our environmental, social and governance (ESG) targets and strategies through information provided on our website, press statements and other communications, including through our Corporate Responsibility Report. Responding to these environmental, social and governance considerations and implementation of these targets and strategies involves risks and uncertainties, including those described under "Note About Forward-Looking Statements".In addition, some stakeholders may disagree with our targets and strategies and the focus of stakeholders may change and evolve over time. Stakeholders also may have very different views on where environmental, social and governance focus should be placed, including differing views of regulators in various jurisdictions in which we operate. Any failure, or perceived failure, by us to achieve our targets, further our strategies, adhere to public statements, comply with federal, state or international environmental, social and governance laws and regulations or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition and stock price.
Additionally, new laws, regulations, policies, and international accords relating to environmental, social and governance matters, including sustainability, climate change, human capital and diversity, are being developed and formalized in the United States, Europe and elsewhere, which may require specific, target-driven frameworks or disclosure requirements. For example, in the United States, the SEC has proposed rules requiring, among other things, disclosure of public companies’ climate-related strategies, costs, impacts and targets. The California Legislature recently passed two bills that will impose climate-related reporting requirements for many companies doing business in the state, including Ansys.Standards for reporting ESG metrics, including ESG-related disclosures that may be triggeredrequired by the Company's failure to meet the expectations of securities analysts and investors. Moreover, the trading price could be subject to additional fluctuations in response to quarter-to-quarter variations in the Company's operating results, material announcements made by the Company or its competitors, conditions in the financial markets or the software industry generally,SEC or other eventsregulators, are complex and factors, many of which are beyond the Company's control.
Our success is highly dependent upon itsthe legal protection of our proprietary technology. The Company generally relies on
We primarily rely upon contracts, and the laws of copyrights, patents, trademarkscopyright, patent, trademark and trade secrets laws to protect itsour technology. The Company maintains aWe maintain intellectual property programs, including applying for patents, registering trademarks and copyrights, protecting trade secrets, program, entersentering into confidentiality agreements with itsour employees, customers and channel partners and limitslimiting access to and distribution of itsour software, documentation and other proprietary information. There canHowever, software programs are particularly prone to piracy, which is a global phenomenon, and as a result we may lose revenue from piracy or usage and distribution of unlicensed software. Additionally, patent, copyright, trademark and trade secret protection do not provide the same coverage in every country in which we sell our products and services and some forms of contractual protections (including limited licenses, "click-wrapped" licenses and online agreement) may not be no assuranceadequately enforced. Policing the unauthorized distribution and use of our products is difficult, and software piracy (including online piracy) is a persistent problem. While we continue to develop better mechanisms to detect and report or investigate unauthorized use of our software, we are also constrained by data privacy laws that restrict our ability to collect data about unlawful usage in some countries. We cannot assure that the steps taken by the Companywe take to protect itsour proprietary technology will beare adequate to prevent misappropriation of its technologyour software by third parties, or that third parties will not be able tocopy our technology or develop similar technology independently. Costlyindependently to compete with our products. Despite our efforts to prevent such activities, we may nonetheless lose significant revenue due to illegal use of our software or technology.
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In the event of an infringement or misappropriation of our intellectual property, costly and time-consuming litigation couldmay be necessary to enforce and determine the scope of trade secret rights and related confidentiality and nondisclosure provisions. Although the Company is not aware that any of its technology infringes upon the rights ofour rights. In addition, third parties there can be no assurance that other parties will not assert technologymay subject us to infringement claims with respect to their intellectual property rights. Any such litigation could be costly to defend, damage our reputation and distract our employees from their daily work. Any successful infringement claims asserted against us could require us to develop technology workarounds for the Companyimpacted technologies, products or solutions, which could be costly, disrupt product development and delay go-to-market activities. Such disruption and delay could negatively impact our financial results.
We may not be able to continue to obtain licenses to third-party software and intellectual property on reasonable terms or at all, which may disrupt our business and harm our financial results.
We license third-party software, including third-party open source software, and other intellectual property for use in product research and development and, in some instances, for inclusion in our products. We also license third-party software, including the software of our competitors, to test the interoperability of our products with other industry products and in connection with our solutions and professional services. These licenses may need to be renegotiated or renewed from time to time, or we may need to obtain new licenses in the future. Third parties may stop adequately supporting or maintaining their technology, or they or their technology may be acquired by our competitors who elect to terminate our contractual relationship. Furthermore, third parties may challenge our use of open source software and compliance with the open source software license terms, or we may inadvertently use third-party open source software in a manner that if asserted,exposes us to non-compliance claims. We may, additionally, acquire companies that license third-party software from our competitors or others who may elect to terminate the contractual relationship once the acquisition is announced. If we are unable to obtain licenses to such claims willthird-party software and intellectual property on reasonable terms or at all, we may not prevail.
Cybersecurity Risks
Cyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims or harm to our reputation.
While we undertake commercially reasonable efforts to maintain and improve the security and integrity of itsour products, source code, computer systems and data. Despite significant effortsdata with respect to create security barriers tothe relative sensitivity of such programs, it is virtually impossible forsoftware, systems and data, the Company to entirely mitigate this risk. There appears to be an increasing number of computer “hackers”"hackers" developing and deploying a variety of destructive software programs (such as viruses, worms and the like) that could attack the Company'sour products and computer systems. As a result, the Company maysystems continues to increase. We have incurred and will continue to incur additional costs to increase personnel and technology to prevent such attacks.enhance our cybersecurity efforts. Because the techniquestactics and tools used to obtain unauthorized access to networks or to sabotage systems change frequently and generally are not recognized until launched against a target, the Companyconstantly evolving, we may be unable to anticipate these techniques or to implement adequate preventativepreventive measures. Like all software products, the Company's software is vulnerableFurthermore, employees working from remote work environments could expose us to suchincreased security risks and attacks. The impact of such an attackSuch attacks could disrupt the proper functioning of the Company's softwareour products, cause errors in the output of itsour customers' work, or allow unauthorized access to and disclosure of our sensitive, proprietary or confidential information or that of the Company or itsour customers and result in other destructive outcomes. If this wereemployees. In the event of a serious breach of our products or systems, or where a breach occurs due to occur, the Company'sour failure to implement reasonable and appropriate safeguards, our reputation may suffer, customers may stop buying products the Companyor may terminate current services, we could face lawsuits and potential civil liability, as well as regulatory fines and the Company'snon-financial penalties for any personal data breach and our financial performance could be negatively impacted.
There is also a danger of industrial espionage, cyber-attacks,cyberattacks (including state-sponsored attacks), misuse, theft of information or assets (including source code), or damage to assets by people who have gained unauthorized access to the Company'sour facilities, systems or information. We have in the past, and may in the future, experience such attacks. This includes access to systems or information through email phishing attacks on our employees, which has become a very prevalent technique.technique used against companies, often delaying detection through increasingly complex practices. The objective of these attacks is often to acquire user account credentials in order to access other computer systems through linked accounts or where users have recycled passwords across systems. There is also risk of infection of software while it is under assembly, known as a supply chain attack. As a software provider, there is the risk that we could become the subject of a significant network breach through our usage of compromised third-party software. Similarly, the subversion of popular open source modules presents a widespread and ongoing risk across the software development sector. Increasing use of artificial intelligence may increase these risks.
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Inadequate security practices or inadvertent acts or omissions by our employees and partners may also result in unauthorized access to our data. Employees or third parties may also intentionally compromise our or our customers' security or systems. Such cybersecurity breaches, misuse of data or other disruptions could lead to theloss of or unauthorized disclosure of portions of the Company's productour source code or other confidential information, improper usageunlicensed use and distribution of the Company'sour products without compensation, illegal usageuse of the Company'sour products whichthat could jeopardize the security of customer information stored in and transmitted through itsour computer systems and theft, manipulation and destruction of private and proprietary data, resulting in defective products, performance downtimes and production downtimes.possible violation of export laws and other regulatory compliance requirements. Although the Companywe actively employsemploy measures to combat unlicensed copying, access and use of software and intellectual property through a variety of techniques,such activities, preventing unauthorized use or infringement of the Company's rightsaccess to our systems and data is inherently difficult. These events could adversely affect the Company's financial resultsIn addition, litigation to either pursue our legal rights or could result in significantdefend any claims for damages against it. Participating in lawsuits to protect against any such unauthorized access to, usage of or disclosure of any of the Company's products or any portion of the Company's product source code, or in prosecutions in connection with any such cybersecurity breach,us could be costly and time-consuming and may divert management's attention and adversely affect the market's perception of the Companyus and itsour products.
A number of the Company'sour core processes, such as software development, sales and marketing, customer service and financial transactions, rely on its IT infrastructure and applications. The CompanyWe also relies uponrely on third-party service providers and products, which are exposed to various security vulnerabilities.vulnerabilities outside of our control. Malicious software, sabotage and other cybersecurity breaches of the types discussed above could cause an outage of the Company'sour infrastructure, which could cause short-term disruption in operations or, in the event of a longer disruption, lead to a substantial denial of service to our customers and ultimately to production downtime, recovery costs and customer claims. This could have a significant negativeclaims for breach of contract, as well as reputational damage and impact to employee morale and productivity.
We rely on the Company's business, financial position, profitservice providers for infrastructure and cash flows.cloud-based products.
These risks, though largely outside our control, may impact customer perception of our products, service and support, and may damage our brand. While we devote resources to maintaining the security and integrity of our products and systems, as well as ensuring adequate due diligence for our third-party service providers, cloud security and reliability is inherently challenging. In the event of a material breach of data hosted by our service providers or a serious security incident on behalf of, caused by or experienced by a service provider, we may experience significant operational and technical difficulties, loss of data including customer data, diminished competitive position or reputation and loss of customer relationships, could adversely affect the Company's performance. Additionally, the loss of any major channel partner for any reason, including a channel partner's decision to sell competing products rather than the Company's products, could have a material adverse effect on the Company. Moreover, the Company's future success will depend substantially on the ability and willingness of its channel partners to continue to dedicate the resources necessary to promote the Company's portfolio of products and to support a larger installed base of the Company's products. If the channel partners are unable or unwilling to do so, the Company may be unable to sustain revenue growth.
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Financial Risks
Foreign exchange rate fluctuations may adversely affect our consolidated financial statements.
As a result of our significant international presence, we have revenue, expenses, cash, accounts receivable and payment obligations denominated in foreign currencies, most notably the Company. These partners also have a less-established payment history withEuro and Japanese Yen. Our operating results are adversely affected when the CompanyU.S. Dollar strengthens relative to foreign currencies and revenue from these partners could come with a higher rate of bad debt expense.
We seek to reduce our currency exchange transaction risks primarily through our normal operating and may have an adverse effect on the Company's results of operations and cash flows.
Our operations are subject to the rulesincome and regulations of the SEC, including those that require the Company to report on and receive an attestation from its independent registered public accounting firm regarding the Company's internal control over financial reporting. Compliance with these requirements causes the Company to incur additional expenses and causes management to divert time from the day-to-day operations of the Company. While the Company anticipates being able to fully comply with these requirements, if it is not able to comply with the reporting or attestation requirements relating to internal control over financial reporting, the Company may be subject to sanctions by the SEC or NASDAQ. Such sanctions could divert the attention of the Company's management from implementing its business plan and could have an adverse effect on the Company's business and results of operations.
which the Company operates. Failure to comply with any of these laws and regulations could adversely affect the Company'swe do business, financial position, results of operations and cash flows.
We also make significant estimates in determining our worldwide income tax provision. These estimates involve complex tax regulations in many jurisdictions and are subject to many transactions and calculations in which the ultimate tax outcome is uncertain. The Company has significant operationsoutcome of tax matters could be different than the estimates reflected in India. There have been court rulings concerning certain Indianthe historical income tax laws that have been inconsistent with tax positions taken by the Company and inconsistent with the advice provided to the Company by its tax advisors.
The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities. These audits can result in additional assessments, including interest and penalties. Our estimates for liabilities associated with uncertain tax positions are highly judgmental and actual future outcomes may result in favorable or unfavorable adjustments to our estimated tax liabilities, including estimates for uncertain tax positions, in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis.
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Our indebtedness could adversely affect our business, financial position,condition and results of operations.
We have outstanding borrowings of $755.0 million under a term loan facility, which matures on June 30, 2027. We also have access to a $500.0 million revolving loan facility, which includes a $50.0 million sublimit for the issuance of letters of credit. The credit agreement governing these loans contains customary representations and warranties, affirmative and negative covenants and events of default. The credit agreement also contains a financial covenant requiring us to maintain a consolidated net leverage ratio not in excess of 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 net 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.
Notwithstanding the limits contained in the credit agreement governing our term loan facility and revolving loan facility, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, share repurchases, investments or acquisitions or for other purposes. If we do so, the risks related to our level of debt could intensify. Specifically, our level of debt could:
•make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults;
•result in an event of default if we fail to comply with the financial and other covenants contained in the agreement governing our debt, which could result in all of our debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;
•limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
•reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
•increase our vulnerability to the impact of adverse economic and industry conditions;
•expose us to the risk of increased interest rates as our borrowings are at variable rates of interest, which can adversely impact our operating cash flow;
•limit our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate and the overall economy;
•place us at a competitive disadvantage compared to other, less leveraged competitors;
•increase our cost of borrowing; and
•increase our effective tax rate as interest expense could become non-deductible.
Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and cash flows if the ultimate outcome of those cases is similarly inconsistent with tax positions taken by the Company.
ITEM 1B.UNRESOLVED STAFF COMMENTS
None.
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ITEM 1C.CYBERSECURITY
Risk Management and Strategy
We are subject to various cybersecurity risks in connection with our business. See the section entitled “Cybersecurity Risks” in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K. Our cybersecurity program is led by an experienced team of cybersecurity professionals headed by our Vice President of Cybersecurity, reporting to our General Counsel.
Our Cybersecurity Management System (CSMS) is part of our cybersecurity program and operates under the Ansys CSMS Risk Management Methodology and Policy (Policy), which establishes a process to identify, assess and mitigate potential cybersecurity threats. The CompanyPolicy provides for conducting risk assessments to identify Ansys information assets (such as software assets or data), identifying potential vulnerabilities related to those assets, assessing the potential impact should the vulnerability be exploited and working with our internal cybersecurity team to provide recommendations to eliminate or mitigate the potential risk. The risk assessments allow our management to validate threats and investigate potential vulnerabilities to more effectively make risk management decisions and assign resources to mitigate risk.
Our CSMS uses third-party software to identify and prioritize cybersecurity threats and has received no written comments regardingdedicated personnel whose core responsibilities are to document and track cybersecurity threats. We use security technology tools and methodologies to protect our information systems. We also use tools for risk and vulnerability management and perform periodic penetration testing and vulnerability scanning. Further, we provide our employees information security awareness training upon hire and annually thereafter.
We conduct an enterprise risk assessment that is updated on an annual basis and includes periodic monitoring of new and emerging risks and preparation for and progress on mitigation efforts. Cybersecurity is directly integrated into this process as an operational risk and has been classified within the enterprise risk management program based on the risk assessment. Any identified gaps are incorporated and monitored through a cybersecurity roadmap, with progress reported to management. Controls put in place to manage any identified risks are evaluated against an established risk-mitigation framework.
We engage multiple third-party consultants to advise us on our cybersecurity processes. We conduct external, third-party assessments of our cybersecurity program against specified industry frameworks, as well as annual re-assessments designed to help us understand program changes and the impact that they have had on overall program maturity. Additionally, we engage an external third-party penetration testing entity to measure the effectiveness of our cybersecurity strategy against cybersecurity threats.
Lastly, we use third-party intelligence resources to help identify cybersecurity threats via finished intelligence, alerts and consulting services that help answer requests for information. We have collaborative relationships with The Information Technology - Information Sharing and Analysis Center and several governmental agencies for identification of threats that target technology.
Ansys also has an established Third-Party Risk Management Program and Policy that is designed to identify and manage cybersecurity risks associated with third-party service providers. The program includes processes designed to identify, assess and mitigate and/or current reportsmanage third-party service provider risks. Under the Third-Party Risk Management Program and Policy, we evaluate third-party service providers through five stages: planning, due diligence, contracting/onboarding, ongoing monitoring and termination/off-boarding.
We have in the past, and may in the future, experience cybersecurity incidents. Although prior incidents have not materially affected Ansys, future incidents from cybersecurity threats could have a materially adverse impact on us, including on our reputation, the results of our operations and our financial condition and could implicate lawsuits and potential civil liability, as well as regulatory fines and non-financial penalties.
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Governance
Our cybersecurity program is overseen by the Audit Committee of the Ansys Board of Directors. This oversight is anchored in the Audit Committee’s charter, which specifically grants the Audit Committee oversight responsibility on our risks related to cybersecurity, including a review of the state of our cybersecurity program, emerging cybersecurity developments and threats and our strategy to mitigate cybersecurity risks. The Senior Director of Internal Audit and Risk Management, with input from the staffVice President of Cybersecurity, reports on the status of the SECcybersecurity program to the Audit Committee and, periodically or where appropriate, to the Ansys Board of Directors. These reports generally include recent updates and improvements to the cybersecurity program, information on the cybersecurity program’s status and intelligence on recent cybersecurity threats, actions we have taken to mitigate such threats and recent material incidents, or potentially material incidents, if any. In addition, the Senior Director of Internal Audit and Risk Management reports to the Audit Committee on the enterprise risk management program, which includes risks associated with cybersecurity.
Our cybersecurity program, and its associated CSMS, is led by an experienced team of cybersecurity professionals headed by the Vice President of Cybersecurity. In the event of a cybersecurity incident, we have a dedicated Cybersecurity Incident Response Team that were issued 180 days or more precedingis responsible for identifying, escalating, responding to and managing cybersecurity incidents, including interdiction and remediation, as well as conducting the endinitial investigation, gathering and analyzing data, mitigating damage to the informational assets and infrastructure of Ansys, restoring normal services and system integrity and implementing actions designed to prevent future cybersecurity incidents. This team reports to the Vice President of Cybersecurity. In the event of a significant cybersecurity incident, a cross-functional team comprised of cyber, legal and finance personnel work together to determine the materiality of an incident.
Our Cybersecurity Steering Committee, which includes the Vice President of Cybersecurity and several members of management, is responsible for the oversight of our fiscal year 2017cybersecurity program. The Vice President of Cybersecurity has over 20 years of experience in cybersecurity. Members of this committee include our General Counsel, Chief Financial Officer and that remain unresolved.the Senior Director of Internal Audit and Risk Management, all of whom have significant experience in managing enterprise risk, including risk from cybersecurity threats. The Cybersecurity Steering Committee meets routinely to discuss the status of the cybersecurity program, the status of responses to cybersecurity incidents or threats, any updates on certification programs and any emerging cybersecurity threats. Information received by management through the Cybersecurity Steering Committee is regularly included in the quarterly updates to the Audit Committee.
Our executive offices and those related to certain domestic product development, marketing, production and administration are located in a LEED certified, 186,000 square foot office facility in Canonsburg, Pennsylvania. The lease for this facility was effective as of September 14, 2012began on October 1, 2014 and expires on December 31, 2029.2029, excluding any renewal or termination options.
We are subject to various claims, investigations claims and legal and regulatory proceedings that arise in the ordinary course of business, including, but not limited to, commercial disputes, labor and employment matters, tax audits, alleged infringement of third parties' intellectual property rights and other matters. In the opinionUse or distribution of the Company, the resolutionour products could generate product liability, regulatory infraction or claims by our customers, end users, channel partners, government entities or third parties. Sales and marketing activities that impact processing of pending matters is not expectedpersonal data, as well as measures taken to have a material adverse effect on the Company's consolidated resultspromote license compliance against pirated or unauthorized usage of operations, cash flowsour commercial products, may also result in claims by customers and individual employees of customers or financial position. However, eachby non-customers using pirated versions of our products. Each of these matters is subject to various uncertainties, and it is possible that an unfavorable resolution of one or more of these proceedingsmatters could materially affecthave a significant adverse effect on our consolidated financial statements as well as cause reputational damage. In our opinion, the Company'sresolution of pending matters is not expected to have a material adverse effect on our financial position, results of operations or cash flows or financial position.flows.
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ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Our common stock trades on the NASDAQNasdaq Global Select Market tier of the NASDAQNasdaq Stock Market under the symbol: "ANSS". The following table sets forth the low and high sale prices of the Company's common stock in each of the Company's last eight fiscal quarters:
| Fiscal Quarter Ended 2017 | Fiscal Quarter Ended 2016 | |||||||||||||||
Low Sale Price | High Sale Price | Low Sale Price | High Sale Price | |||||||||||||
| December 31 | $ | 123.16 | $ | 155.14 | $ | 82.28 | $ | 96.21 | ||||||||
| September 30 | $ | 119.20 | $ | 132.74 | $ | 88.30 | $ | 98.99 | ||||||||
| June 30 | $ | 104.65 | $ | 129.85 | $ | 81.41 | $ | 92.48 | ||||||||
| March 31 | $ | 91.89 | $ | 108.92 | $ | 80.51 | $ | 91.62 | ||||||||
On February 19, 2018,7, 2024, there were 139215 stockholders of record. On December 5, 2017, there were 78,301 beneficial holdersrecord of the Company'sour common stock.
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Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on the Company'sof our common stock, based on the market price per share of the Company'sour common stock, with the total return of companies included within the NASDAQ Composite Stock Market Index, the Russell 1000NASDAQ 100 Stock Market Index, the S&P 500 Stock Index and an industry peer group of fourseven companies (Autodesk,(Altair Engineering Inc., PTCAspen Technology, Inc., Autodesk, Inc., Cadence Design Systems, Inc., Dassault Systemes SE, PTC Inc., and Synopsys, Inc.) selected by the Company pursuant to Item 201(e) of Regulation S-K, for the period commencing December 31, 20122018 and ending December 31, 2017. Due to the fact that the Company is now included in the S&P 500 Stock Index, the SEC's rules require the use of that index for the required five-year graph.2023. The calculation of total cumulative returns assumes a $100 investment in the Company'sour common stock, the NASDAQ Composite Stock Market Index, the Russell 1000NASDAQ 100 Stock Market Index, the S&P 500 Stock Index and the peer group on December 31, 2012,2018, and the reinvestment of all dividends, and accounts for all stock splits. The historical information set forth below is not necessarily indicative of future performance.
ASSUMES $100 INVESTED ON DECEMBER 31, 20122018
ASSUMES DIVIDENDS REINVESTED
FIVE FISCAL YEARS ENDINGENDED DECEMBER 31, 20172023
| As of December 31, | |||||||||||||||||||||||||||||||||||
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | ||||||||||||||||||||||||||||||
| ANSYS, Inc. | $100 | $180 | $255 | $281 | $169 | $254 | |||||||||||||||||||||||||||||
| NASDAQ Composite | $100 | $137 | $198 | $242 | $163 | $236 | |||||||||||||||||||||||||||||
| NASDAQ 100 | $100 | $139 | $208 | $265 | $179 | $278 | |||||||||||||||||||||||||||||
| S&P 500 Stock Index | $100 | $131 | $156 | $200 | $164 | $207 | |||||||||||||||||||||||||||||
| Peer Group | $100 | $142 | $223 | $275 | $210 | $311 | |||||||||||||||||||||||||||||
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| As of December 31, | ||||||||||||||||||
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | |||||||||||||
| ANSYS, Inc. | $ | 100 | $ | 129 | $ | 122 | $ | 137 | $ | 137 | $ | 219 | ||||||
| NASDAQ Composite | $ | 100 | $ | 140 | $ | 161 | $ | 172 | $ | 187 | $ | 243 | ||||||
| Russell 1000 Index | $ | 100 | $ | 133 | $ | 151 | $ | 152 | $ | 170 | $ | 207 | ||||||
| S&P 500 Stock Index | $ | 100 | $ | 132 | $ | 151 | $ | 153 | $ | 171 | $ | 208 | ||||||
| Peer Group | $ | 100 | $ | 133 | $ | 155 | $ | 159 | $ | 198 | $ | 289 | ||||||
Contents
| (a) | (b) | (c) | ||||||||
| Plan Category | Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a)) | |||||||
| Equity Compensation Plans Approved by Security Holders | ||||||||||
| 1996 Stock Option and Grant Plan | 2,001,106 | $ | 61.72 | 7,799,333(3) | ||||||
| Ansoft Corporation 2006 Stock Incentive Plan | 101,309 | $ | 35.86 | — | ||||||
| Apache Design Solutions, Inc. 2001 Stock/Option Issuance Plan | 56,919 | $ | 18.78 | — | ||||||
| SpaceClaim Corporation 2005 Stock Incentive Plan | 5,411 | $ | 23.86 | — | ||||||
| Gear Design Solutions, Inc. Stock Incentive Plan | 5,415 | $ | 12.26 | — | ||||||
| 1996 Employee Stock Purchase Plan | (1) | (2) | 291,495 | |||||||
| Equity Compensation Plans Not Approved by Security Holders | ||||||||||
| None | ||||||||||
| Total | 2,170,160 | 8,090,828 | ||||||||
Unregistered Sale of Equity Securities and Use of Proceeds
None.
ITEM 6.[RESERVED]
37
Contents
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs(1) | |||||||||
| October 1 - October 31, 2017 | — | $ | — | — | 3,500,000 | ||||||||
| November 1 - November 30, 2017 | 655,740 | $ | 150.80 | 655,740 | 2,844,260 | ||||||||
| December 1 - December 31, 2017 | 94,260 | $ | 147.12 | 94,260 | 2,750,000 | ||||||||
| Total | 750,000 | $ | 150.33 | 750,000 | 2,750,000 | ||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands, except per share data) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Total revenue | $ | 1,095,250 | $ | 988,465 | $ | 942,753 | $ | 936,021 | $ | 861,260 | ||||||||||
| Operating income | 390,728 | 376,242 | 353,679 | 347,450 | 321,863 | |||||||||||||||
| Net income | 259,251 | 265,636 | 252,521 | 254,690 | 245,327 | |||||||||||||||
| Earnings per share – basic | $ | 3.05 | $ | 3.05 | $ | 2.82 | $ | 2.77 | $ | 2.65 | ||||||||||
| Weighted average shares – basic | 84,988 | 87,227 | 89,561 | 92,067 | 92,691 | |||||||||||||||
| Earnings per share – diluted | $ | 2.98 | $ | 2.99 | $ | 2.76 | $ | 2.70 | $ | 2.58 | ||||||||||
| Weighted average shares – diluted | 86,854 | 88,969 | 91,502 | 94,194 | 95,139 | |||||||||||||||
| Total assets | $ | 2,941,623 | $ | 2,800,526 | $ | 2,729,904 | $ | 2,752,879 | $ | 2,702,097 | ||||||||||
| Working capital | 661,713 | 630,301 | 592,280 | 617,240 | 601,183 | |||||||||||||||
| Long-term liabilities | 87,239 | 53,021 | 51,331 | 70,303 | 125,469 | |||||||||||||||
| Stockholders' equity | 2,245,831 | 2,208,405 | 2,194,427 | 2,217,501 | 2,136,246 | |||||||||||||||
| Cash provided by operating activities | 430,438 | 365,980 | 375,699 | 399,838 | 342,954 | |||||||||||||||
The Company's GAAPfollowing discussion and analysis should be read in conjunction with our consolidated financial statements and notes thereto. This section generally discusses our results of operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For discussion and analysis of our results for the year ended December 31, 2017 reflect growth in revenue of 10.8% and operating income of 3.9% while diluted earnings per share was comparable to the year ended December 31, 2016. The Company experienced higher revenue in 2017 across all classes of revenue, including license revenue, maintenance and services. The Company also experienced increased operating expenses primarily due to increased personnel costs, costs associated with workforce realignment activities and higher stock-based compensation. The Company's effective tax rate increased significantly in 2017 as a result of charges associated with the enactment of the U.S. Tax Cuts and Jobs Act.
| Year Ended December 31, 2017 | |||||||
| (in thousands) | GAAP | Non-GAAP | |||||
| Revenue | $ | 5,394 | $ | 5,403 | |||
| Operating income | $ | 3,501 | $ | 3,560 | |||
| Year Ended December 31, 2017 | |||||
| GAAP | Non-GAAP | ||||
| Revenue | 10.3 | % | 10.5 | % | |
| Operating income | 2.9 | % | 8.9 | % | |
Business
When visionary companies need to know how their world-changing ideas will perform, they close the gap between design and reality using Ansys simulation. For more than 50 years, Ansys software has enabled innovators across industries to push the boundaries of product design by using the predictive power of simulation. From sustainable transportation and advanced satellite systems to life-saving medical devices, Ansys powers innovation that drives human advancement.
Our strategy of Pervasive Insights seeks to deepen the use of simulation in our core market, to inject simulation throughout the product lifecycle and extend the accessibility to a broader set of users and use cases. Our business has three vectors of growth:
•More products. Our broad and deep multiphysics portfolio enables us to grow with customers as they use simulation to solve more complex problems across a broad set of industries.
•More users. Investments in simulation education and user experience simplification has made simulation more accessible to a broader user base.
•More computations. Larger and more complex simulations drive more computation, requiring customers to use more Ansys licenses to complete their simulations.
Through decades of investments in the academic community and enhanced user experiences, our solutions have become accessible and relevant beyond our core "engineering" end user, to reach more users upstream and downstream from our core, which is the product validation process. Our multiphysics solutions enable our customers to address increasingly complex R&D challenges from the component through the system and mission level of analysis. Our products seamlessly enable access to high performance compute capacity to run simulations, on-premises or in the cloud, which means our customers' R&D teams are unencumbered by compute capacity limitations that can hinder R&D cycle times. Our investments in artificial intelligence capabilities across our simulation portfolio and technical support services enhance the customer experience, democratize simulation and further next-generation innovation.
The Company licenses itsengineering software simulation market is strong and growing. The market growth is driven by customers' need for rapid, quality innovation in a cost-efficient manner, enabling faster time to market for new products and lower warranty costs. Increasing product complexity is driving sustained demand for simulations. Key industry trends fueling customers' increasing needs for simulation include:
•Electrification;
•Autonomy;
•Connectivity;
•IIoT; and
•Sustainability, including minimizing waste and physical prototyping, and improving circularity and development time.
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We have been investing and intend to continue to invest in our portfolio to broaden the range of physics and enable customers to analyze the interactions among physics at the component, system and mission level. Our strategy of Pervasive Insights is aligned with the near-term market growth opportunities and is laying the foundation for a future where simulation can be further democratized to broader classes of end-users and end-use cases. In addition, we have and will continue to partner with industry leaders to extend simulation into other ecosystems and customer R&D workflows.
We license our technology to businesses in a diverse set of industries, educational institutions and governmental agencies. Growth in the Company's revenue is affected by the strength of global economies, general business conditions, currency exchange rate fluctuations, customer budgetary constraints and the competitive position of the Company's products. Please see Item 1A. Risk Factors for a complete discussion of factors that might impact the Company's financial condition and operating results. The Company believesWe believe that the features, functionality and integrated multiphysics capabilities of itsour software products are as strong as they have ever been. However, theThe software business is generally characterized by long sales cycles. These long sales cycles which increase the difficulty of predicting sales for any particular quarter. The Company makesWe 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. As a result, the Company believeswe believe that itsour overall performance is best measured by fiscal year results rather than by quarterly results. Please see the sub-section entitled "Sales Forecasts""Company Operational Risks" under Part I, Item 1A. Risk Factorsof this Annual Report on Form 10-K for a completeadditional discussion of the potential impact of the Company'sour sales forecasts on the Company'sour financial condition, cash flows and operating results.
On January 15, 2024, we entered into the Merger Agreement with Synopsys and Merger Sub, pursuant to which Merger Sub will merge with and into Ansys, with Ansys surviving the Merger as a wholly owned subsidiary of Synopsys. Our Board of Directors has unanimously approved the Merger Agreement and, subject to certain exceptions set forth in the Merger Agreement, resolved to recommend that our stockholders adopt the Merger Agreement. If the Merger is consummated, our common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act.
Under the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our common stock (subject to certain exceptions set forth in the Merger Agreement) will be cancelled and converted into the right to receive (i) 0.3450 of a share of common stock, par value $0.01 per share, of Synopsys and (ii) $197.00 in cash, without interest, subject to applicable withholding taxes. With regard to the Stock Consideration, if the aggregate number of shares of Synopsys common stock to be issued in connection with the Merger would exceed the Maximum Share Number, (a) the Exchange Ratio will be reduced to the minimum extent necessary such that the aggregate number of shares of Synopsys common stock to be issued in connection with the Merger does not exceed the Maximum Share Number and (b) the Per Share Cash Amount will be correspondingly increased to offset such adjustment.
The Merger Agreement contains customary representations, warranties and covenants made by each of Ansys, Synopsys, and Merger Sub, including, among others, covenants regarding the conduct of our and Synopsys’ businesses during the pendency of the transactions contemplated by the Merger Agreement, the making of certain public disclosures and other matters as described in the Merger Agreement. We and Synopsys have agreed to use reasonable best efforts to take all actions necessary to consummate the Merger, including cooperating to obtain the regulatory approvals necessary to complete the Merger. We have agreed not to, among other things, (a) solicit proposals relating to alternative transactions or (b) enter into discussions or negotiations or provide non-public information in connection with any proposal for an alternative transaction from a third party, subject to certain exceptions to permit our Board of Directors to comply with its fiduciary obligations. We have further agreed to cease and cause to be terminated any existing discussions or negotiations, if any, with regard to alternative transactions.
The Merger Agreement may be terminated under certain circumstances, including that either party may have the right to terminate if the Merger is not completed by January 15, 2025, which may be extended to January 15, 2026 as provided in the Merger Agreement. If the Merger Agreement is terminated, (A) Synopsys, under specified circumstances, including termination following table presentsan injunction arising in connection with certain antitrust or foreign investment laws, will be required to pay us a termination fee of $1,500.0 million; and (B) we, under specified circumstances, including our termination of the Company's geographic constant currencyMerger Agreement to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or Synopsys' termination upon the change by our Board of Directors of its recommendation in favor of the Merger, will be required to pay Synopsys a termination fee of $950.0 million.
The completion of the Merger is subject to customary closing conditions, including, among others, approval of the Merger under certain applicable antitrust and foreign investment regimes and the adoption of the Merger Agreement by our stockholders. We anticipate the transaction to close in the first half of 2025.
39
Overview
Overall GAAP and Non-GAAP Results
This section includes a discussion of GAAP and Non-GAAP results. For reconciliations of Non-GAAP results to GAAP results, see the section titled "Non-GAAP Results" herein.
The 2023 period non-GAAP results exclude the income statement effects of stock-based compensation, excess payroll taxes related to stock-based compensation, amortization of acquired intangible assets, expenses related to business combinations and adjustments for the income tax effect of the excluded items. The 2022 period non-GAAP results also exclude the income statement effects of acquisition accounting adjustments to deferred revenue growth duringfrom business combinations closed prior to 2022. This adjustment is not material in 2023.
Our GAAP and non-GAAP results for the year ended December 31, 20172023 as compared to the year ended December 31, 2016:2022 reflected the following variances:
| Year Ended December 31, 2023 | |||||||||||||||||||||||
| GAAP | Non-GAAP | ||||||||||||||||||||||
| Revenue | 9.9 | % | 9.5 | % | |||||||||||||||||||
| Operating income | 5.6 | % | 11.1 | % | |||||||||||||||||||
| Diluted earnings per share | (4.3) | % | 10.1 | % | |||||||||||||||||||
Our results reflect an increase in revenue during the year ended December 31, 2023 due to growth in subscription lease license, maintenance and service revenue. We also experienced increased operating expenses during the year ended December 31, 2023, primarily due to increased personnel costs. The actual U.S. Dollar reported results were impacted by a stronger U.S. Dollar.
This section also includes a discussion of constant currency results, which we use for financial and operational decision-making and as a means to evaluate period-to-period comparisons by excluding the effects of foreign currency fluctuations on the reported results. Constant currency is a non-GAAP measure. All constant currency results presented in this Item 7 exclude the effects of foreign currency fluctuations on the reported results. To present this information, the 2023 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 2022 comparable period, rather than the actual exchange rates in effect for 2023. Constant currency growth rates are calculated by adjusting the 2023 reported amounts by the 2023 currency fluctuation impacts and comparing to the 2022 comparable period reported amounts.
Impact of Foreign Currency
Our comparative financial results were impacted by fluctuations in the U.S. Dollar during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The impacts on our revenue and operating income as a result of the fluctuations of the U.S. Dollar when measured against our foreign currencies based on 2022 exchange rates are reflected in the table below. Amounts in brackets indicate an adverse impact from currency fluctuations.
| Year Ended December 31, 2023 | |||||||||||
| (in thousands) | GAAP | Non-GAAP | |||||||||
| Revenue | $ | (5,753) | $ | (5,753) | |||||||
| Operating income | $ | (1,393) | $ | (958) | |||||||
In North America,constant currency, our variances were as follows:
| Year Ended December 31, 2023 | |||||||||||
| GAAP | Non-GAAP | ||||||||||
| Revenue | 10.2 | % | 9.8 | % | |||||||
| Operating income | 5.9 | % | 11.2 | % | |||||||
40
Other Key Business Metric
Annual Contract Value (ACV) is a key performance metric and is useful to investors in assessing the Company'sstrength and trajectory of our business. ACV is a supplemental metric to help evaluate the annual performance was primarily drivenof the business. Over the life of the contract, ACV equals the total value realized from a customer. ACV is not impacted by the timing of license revenue recognition. ACV is used by management in financial and operational decision-making and in setting sales targets used for compensation. ACV is not a replacement for, and should be viewed independently of, GAAP 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 subscription 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.
When we refer to the anniversary dates in the definition of ACV above, we are referencing the date of the beginning of the next twelve-month period in a contractually committed multi-year contract. If a contract is three years in duration, with a start date of July 1, 2023, the anniversary dates would be July 1, 2024 and July 1, 2025. We label these anniversary dates as they are contractually committed. While this contract would be up for renewal on July 1, 2026, our ACV performance metric does not assume any contract renewals.
Example 1: For purposes of calculating ACV, a $100,000 subscription lease contract or a $100,000 maintenance contract with a term of July 1, 2023 – June 30, 2024, would each contribute $100,000 to ACV for fiscal year 2023 with no contribution to ACV for fiscal year 2024.
Example 2: For purposes of calculating ACV, a $300,000 subscription lease contract or a $300,000 maintenance contract with a term of July 1, 2023 – June 30, 2026, would each contribute $100,000 to ACV in each of fiscal years 2023, 2024 and 2025. There would be no contribution to ACV for fiscal year 2026 as each period captures the full annual value upon the anniversary date.
Example 3: A perpetual license valued at $200,000 with a contract start date of March 1, 2023 would contribute $200,000 to ACV in fiscal year 2023.
During the year ended December 31, 2023 and 2022 our ACV was as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||||
| Actual | Constant Currency | Actual | Actual | Constant Currency | |||||||||||||||||||||||||||||||||||||
| Amount | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||||
| ACV | $ | 2,300,466 | $ | 2,303,344 | $ | 2,031,744 | $ | 268,722 | 13.2 | $ | 271,600 | 13.4 | |||||||||||||||||||||||||||||
| Recurring ACV | $ | 1,919,467 | $ | 1,921,686 | $ | 1,653,230 | $ | 266,237 | 16.1 | $ | 268,456 | 16.2 | |||||||||||||||||||||||||||||
Recurring ACV includes both subscription lease license and maintenance ACV and excludes perpetual license and service ACV.
Industry Commentary
In 2023, ACV growth was broad based across industries. Our core industries of high-tech, aerospace and defense electronics, semiconductors(A&D) and automotive industries. The performance within aerospaceexperienced growth as we continue to see trends, such as generative AI, pervasive connectivity and defense continuedelectrification, transform industry landscapes. Our technology remains a vital component to be driven by majorour customers’ success as the need for innovation and strategic accounts, growing demand fromagility reaches new heights. In the commercial space sectorhigh-tech industry, the proliferation of connected devices is driving more applications for analog chips across industries, including automotive and increased U.S. defense spending. The electronicshealthcare. In tandem, our customers continue to invest in our solutions to develop advanced packaging technologies, such as 3D-IC, to overcome integration density constraints and meet the needs of compute-intensive applications, such as AI/ML. Within the automotive industry, continued to benefit from the placement of software into a wide range of smart, connected products. The automotive manufacturers maintained their strong investments in developing advanced technologies for autonomous, electric and smart, connected vehicles. The renewable energy sector remained strong as energy companies continued their investment initiatives and commodity prices improved.
41
Geographic Trends
The results in Asia-Pacific were driven byfollowing table presents our geographic revenue variances using actual and constant currency rates during the aerospace and defense, electronics, automotive and industrial equipment sectors. The region continued to benefit from investment in domestic development programs, particularly in China and India. The indirect channel performance was especially strong in this region and contributedyear ended December 31, 2023 as compared to the year ended December 31, 2022:
| Year Ended December 31, 2023 | |||||||||||||||||||||||||||||
| GAAP | Non-GAAP | ||||||||||||||||||||||||||||
| Actual | Constant Currency | Actual | Constant Currency | ||||||||||||||||||||||||||
| Americas | 14.1 | % | 14.2 | % | 13.8 | % | 13.8 | % | |||||||||||||||||||||
| EMEA | 10.6 | % | 8.3 | % | 10.2 | % | 7.9 | % | |||||||||||||||||||||
| Asia-Pacific | 1.7 | % | 5.0 | % | 1.3 | % | 4.6 | % | |||||||||||||||||||||
| Total | 9.9 | % | 10.2 | % | 9.5 | % | 9.8 | % | |||||||||||||||||||||
Revenue results from region to region can fluctuate due to the timing, duration and size of multi-year lease subscription contracts in any particular period and are not necessarily indicative of the underlying operational performance. To drive growth, rate even more significantly than in Europe.
On January 3, 2023, we completed the acquisition of its requirements,DYNAmore for a purchase price of $139.2 million, or $126.4 million net of cash acquired. The acquisition expands our position as a simulation solution provider within the automotive industry. The effects of the acquisition were not material to stockholders withour consolidated results of operations.
Additionally, during the goalyear ended December 31, 2023 and 2022, we completed other acquisitions to expand our solution offerings and enhance our customers' experience. The effects of increasing stockholder value.
For further information on the Company'sour business combinations during the years ended December 31, 2023 and 2022, see Note 34 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
42
Results of Operations
The results of operations discussed below are on a GAAP basis unless otherwise stated.
For purposes of the following discussion and analysis, the table below sets forth certain consolidated financial data for the years 2017, 20162023 and 2015.2022. The operating results of the Company'sour acquisitions have been included in the results of operations since their respective acquisition dates.
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Software licenses | $ | 1,088,748 | $ | 988,978 | ||||||||||||||||
| Maintenance and service | 1,181,201 | 1,076,575 | ||||||||||||||||||
| Total revenue | 2,269,949 | 2,065,553 | ||||||||||||||||||
| Cost of sales: | ||||||||||||||||||||
| Software licenses | 40,004 | 33,081 | ||||||||||||||||||
| Amortization | 80,990 | 69,372 | ||||||||||||||||||
| Maintenance and service | 150,304 | 148,188 | ||||||||||||||||||
| Total cost of sales | 271,298 | 250,641 | ||||||||||||||||||
| Gross profit | 1,998,651 | 1,814,912 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 855,135 | 772,871 | ||||||||||||||||||
| Research and development | 494,869 | 433,661 | ||||||||||||||||||
| Amortization | 22,512 | 15,722 | ||||||||||||||||||
| Total operating expenses | 1,372,516 | 1,222,254 | ||||||||||||||||||
| Operating income | 626,135 | 592,658 | ||||||||||||||||||
| Interest income | 19,588 | 5,717 | ||||||||||||||||||
| Interest expense | (47,145) | (22,726) | ||||||||||||||||||
| Other expense, net | (6,440) | (334) | ||||||||||||||||||
| Income before income tax provision | 592,138 | 575,315 | ||||||||||||||||||
| Income tax provision | 91,726 | 51,605 | ||||||||||||||||||
| Net income | $ | 500,412 | $ | 523,710 | ||||||||||||||||
43
| Year Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||||
| Revenue: | ||||||||||||
| Software licenses | $ | 624,964 | $ | 568,174 | $ | 555,105 | ||||||
| Maintenance and service | 470,286 | 420,291 | 387,648 | |||||||||
| Total revenue | 1,095,250 | 988,465 | 942,753 | |||||||||
| Cost of sales: | ||||||||||||
| Software licenses | 34,421 | 28,860 | 29,105 | |||||||||
| Amortization | 36,794 | 38,092 | 38,755 | |||||||||
| Maintenance and service | 78,949 | 79,908 | 79,386 | |||||||||
| Total cost of sales | 150,164 | 146,860 | 147,246 | |||||||||
| Gross profit | 945,086 | 841,605 | 795,507 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 338,640 | 269,515 | 253,603 | |||||||||
| Research and development | 202,746 | 183,093 | 168,831 | |||||||||
| Amortization | 12,972 | 12,755 | 19,394 | |||||||||
| Total operating expenses | 554,358 | 465,363 | 441,828 | |||||||||
| Operating income | 390,728 | 376,242 | 353,679 | |||||||||
| Interest income | 6,962 | 4,209 | 2,829 | |||||||||
| Other (expense) income, net | (1,996 | ) | (136 | ) | 257 | |||||||
| Income before income tax provision | 395,694 | 380,315 | 356,765 | |||||||||
| Income tax provision | 136,443 | 114,679 | 104,244 | |||||||||
| Net income | $ | 259,251 | $ | 265,636 | $ | 252,521 | ||||||
Year Ended December 31, 20172023 Compared to Year Ended December 31, 20162022
Revenue:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||||||||
| GAAP | Constant Currency | GAAP | GAAP | Constant Currency | |||||||||||||||||||||||||||||||||||||
| Amount | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||||||||
| Subscription lease licenses | $ | 786,050 | $ | 786,926 | $ | 687,665 | $ | 98,385 | 14.3 | $ | 99,261 | 14.4 | |||||||||||||||||||||||||||||
| Perpetual licenses | 302,698 | 303,459 | 301,313 | 1,385 | 0.5 | 2,146 | 0.7 | ||||||||||||||||||||||||||||||||||
| Software licenses | 1,088,748 | 1,090,385 | 988,978 | 99,770 | 10.1 | 101,407 | 10.3 | ||||||||||||||||||||||||||||||||||
| Maintenance | 1,103,523 | 1,107,650 | 1,004,245 | 99,278 | 9.9 | 103,405 | 10.3 | ||||||||||||||||||||||||||||||||||
| Service | 77,678 | 77,667 | 72,330 | 5,348 | 7.4 | 5,337 | 7.4 | ||||||||||||||||||||||||||||||||||
| Maintenance and service | 1,181,201 | 1,185,317 | 1,076,575 | 104,626 | 9.7 | 108,742 | 10.1 | ||||||||||||||||||||||||||||||||||
| Total revenue | $ | 2,269,949 | $ | 2,275,702 | $ | 2,065,553 | $ | 204,396 | 9.9 | $ | 210,149 | 10.2 | |||||||||||||||||||||||||||||
| Year Ended December 31, | Change | ||||||||||||
| (in thousands, except percentages) | 2017 | 2016 | Amount | % | |||||||||
| Revenue: | |||||||||||||
| Lease licenses | $ | 376,886 | $ | 340,331 | $ | 36,555 | 10.7 | ||||||
| Perpetual licenses | 248,078 | 227,843 | 20,235 | 8.9 | |||||||||
| Software licenses | 624,964 | 568,174 | 56,790 | 10.0 | |||||||||
| Maintenance | 440,428 | 394,745 | 45,683 | 11.6 | |||||||||
| Service | 29,858 | 25,546 | 4,312 | 16.9 | |||||||||
| Maintenance and service | 470,286 | 420,291 | 49,995 | 11.9 | |||||||||
| Total revenue | $ | 1,095,250 | $ | 988,465 | $ | 106,785 | 10.8 | ||||||
We continue to experience increased 10.7% as compared to the prior year. Perpetualdemand from our customers for contracts that often include longer-term, subscription leases involving a larger number of our software products. These arrangements typically involve a higher overall transaction price. The upfront recognition of license revenue related to these larger transactions can result in significant subscription lease revenue volatility. Software products, across a large variety of applications and industries, are increasingly distributed in software-as-a-service, cloud and other subscription environments in which the licensing approach is derived primarilytime-based rather than perpetual. This preference could result in a shift from new sales, increased 8.9% as compared to the prior year. Annual maintenance contracts that were sold with new perpetual licenses along with maintenance contracts sold with new perpetualto time-based licenses, in previous years, contributed to maintenance revenue growth of 11.6%. Service revenue, primarily composed of consulting projects, increased 16.9%.such as subscription leases, over the long term.
With respect to revenue, on average for the year ended December 31, 2017,2023, the U.S. Dollar was 1.0% weaker,0.6% stronger, when measured against the Company's primaryour foreign currencies, than for the year ended December 31, 2016.2022. The table below presents the net impacts of currency fluctuations on revenue for the year ended December 31, 2017.2023. Amounts in brackets indicate a net adverse impact from currency fluctuations.
| (in thousands) | Year Ended December 31, 2023 | ||||
| Japanese Yen | $ | (13,457) | |||
| Indian Rupee | (1,988) | ||||
| Taiwan Dollar | (1,666) | ||||
| South Korean Won | (1,010) | ||||
| Euro | 13,179 | ||||
| Other | (811) | ||||
| Total | $ | (5,753) | |||
44
| (in thousands) | Year Ended December 31, 2017 | ||
| Euro | $ | 6,634 | |
| South Korean Won | 1,439 | ||
| Taiwan Dollar | 886 | ||
| Indian Rupee | 838 | ||
| Japanese Yen | (3,416 | ) | |
| British Pound | (1,316 | ) | |
| Other | 329 | ||
| Total | $ | 5,394 | |
| Year Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| International | 53.4 | % | 54.9 | % | |||||||
| Domestic | 46.6 | % | 45.1 | % | |||||||
| Direct | 73.9 | % | 76.1 | % | |||||||
| Indirect | 26.1 | % | 23.9 | % | |||||||
Cost of Sales and Gross Profit:Operating Expenses:
The tabletables below reflects the Company'sreflect our operating results as presented on the consolidated statements of income, which are inclusive of foreignboth a GAAP and constant currency translation impacts.basis. Amounts included in the discussiondiscussions that followsfollow each table are provided in constant currency.currency and are inclusive of costs related to our acquisitions. The impact where material, of foreign exchange translation on each expense line is provided separately.discussed separately, where material.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GAAP | Constant Currency | GAAP | GAAP | Constant Currency | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | Amount | % | Amount | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Software licenses | $ | 40,004 | 1.8 | $ | 40,052 | 1.8 | $ | 33,081 | 1.6 | $ | 6,923 | 20.9 | $ | 6,971 | 21.1 | ||||||||||||||||||||||||||||||||||||||||||||
| Amortization | 80,990 | 3.6 | 80,728 | 3.5 | 69,372 | 3.4 | 11,618 | 16.7 | 11,356 | 16.4 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Maintenance and service | 150,304 | 6.6 | 151,268 | 6.6 | 148,188 | 7.2 | 2,116 | 1.4 | 3,080 | 2.1 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total cost of sales | 271,298 | 12.0 | 272,048 | 12.0 | 250,641 | 12.1 | 20,657 | 8.2 | 21,407 | 8.5 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Gross profit | $ | 1,998,651 | 88.0 | $ | 2,003,654 | 88.0 | $ | 1,814,912 | 87.9 | $ | 183,739 | 10.1 | $ | 188,742 | 10.4 | ||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||
| 2017 | 2016 | Change | ||||||||||||||||
| (in thousands, except percentages) | Amount | % of Revenue | Amount | % of Revenue | Amount | % | ||||||||||||
| Cost of sales: | ||||||||||||||||||
| Software licenses | $ | 34,421 | 3.1 | $ | 28,860 | 2.9 | $ | 5,561 | 19.3 | |||||||||
| Amortization | 36,794 | 3.4 | 38,092 | 3.9 | (1,298 | ) | (3.4 | ) | ||||||||||
| Maintenance and service | 78,949 | 7.2 | 79,908 | 8.1 | (959 | ) | (1.2 | ) | ||||||||||
| Total cost of sales | 150,164 | 13.7 | 146,860 | 14.9 | 3,304 | 2.2 | ||||||||||||
| Gross profit | $ | 945,086 | 86.3 | $ | 841,605 | 85.1 | $ | 103,481 | 12.3 | |||||||||
Software Licenses: The increase in the cost of software licenses was primarily due to the following:
Amortization: The decreaseincrease in amortization expense was primarily due to a net decrease in the amortization of newly acquired technology, partially offset by an increase in the amortization of trade names.intangible assets.
Maintenance and Service: The net decreaseincrease in maintenance and service costs was primarily due to the following:
•Increased stock-based compensation of $1.0$3.3 million.
•Decreased salaries of $1.2 million.
The improvement in gross profit was a result of the increase in revenue, partially offset by the increase in the related costrevenue.
45
Contents
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| GAAP | GAAP | Constant Currency | GAAP | Constant Currency | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages) | Amount | % of Revenue | Amount | % of Revenue | Amount | % | (in thousands, except percentages) | Amount | % of Revenue | Amount | % of Revenue | Amount | % of Revenue | Amount | % | Amount | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative | $ | 338,640 | 30.9 | $ | 269,515 | 27.3 | $ | 69,125 | 25.6 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Research and development | 202,746 | 18.5 | 183,093 | 18.5 | 19,653 | 10.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Amortization | 12,972 | 1.2 | 12,755 | 1.3 | 217 | 1.7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 554,358 | 50.6 | $ | 465,363 | 47.1 | $ | 88,995 | 19.1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 $42.1$50.2 million.
•Increased stock-based compensation of $14.8$33.1 million.
•Increased consultingbusiness travel of $8.1 million as in-person meetings and live attendance at trade events have continued to expand.
•Increased IT maintenance and software hosting costs of $7.3$3.0 million.
•Decreased costs related to foreign exchange translation of $3.5 million due to a stronger U.S. Dollar.
•Decreased bad debt expense of $3.5 million.
We anticipate that itwe will continue to make targeted investments in itsour global sales and marketing organizations and itsour global business infrastructure to enhance and support itsour revenue-generating activities.
Research and Development: The increase in research and development costs was primarily due to the following:
•Increased salaries, incentive compensation and other headcount-related costsexpenses of $9.6$41.0 million.
•Increased stock-based compensation of $3.8$17.4 million.
•Increased IT maintenance and software hosting costs of $2.9 million.
Amortization:The Company hasincrease in amortization expense was primarily due to the amortization of newly acquired intangible assets.
We have traditionally invested significant resources in research and development activities and intendsintend to continue to make investments in expanding the ease of use and capabilities of itsour broad portfolio of simulation software products.
Overall, the impacts from currency fluctuations resulted in decreased operating income of $1.4 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Interest Income: Interest income for the year ended December 31, 20172023 was $7.0$19.6 million as compared to $4.2$5.7 million for the year ended December 31, 2016. Interest income increased as a result of an2022. The higher interest rate environment and the related increase in both the Company's average invested cash balances and the average rate of return on those balances.invested cash balances was partially offset by a lower invested cash balance as a result of investments in acquisitions and share repurchases.
| Year Ended December 31, | |||||||
| (in thousands) | 2017 | 2016 | |||||
| Foreign currency (losses) gains, net | $ | (1,935 | ) | $ | 77 | ||
| Other | (61 | ) | (213 | ) | |||
| Total other expense, net | $ | (1,996 | ) | $ | (136 | ) | |
46
Other Expense, net: Our other expense consisted of the Company’s deferredfollowing:
| Year Ended December 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Investment loss, net | $ | (2,233) | $ | (1,628) | |||||||
| Foreign currency (loss) gain, net | (3,981) | 1,568 | |||||||||
| Other | (226) | (274) | |||||||||
| Total other expense, net | $ | (6,440) | $ | (334) | |||||||
Income Tax Provision: Our income before income tax assetsprovision, income tax provision and liabilities. The lower statutory rate of 21% will have a favorable impact on the Company’s effective tax rate in future years.were as follows:
| Year Ended December 31, | |||||||||||
| (in thousands, except percentages) | 2023 | 2022 | |||||||||
| Income before income tax provision | $ | 592,138 | $ | 575,315 | |||||||
| Income tax provision | $ | 91,726 | $ | 51,605 | |||||||
| Effective tax rate | 15.5 | % | 9.0 | % | |||||||
| Year Ended December 31, | Change | |||||||||||||
| (in thousands, except percentages) | 2016 | 2015 | Amount | % | ||||||||||
| Revenue: | ||||||||||||||
| Lease licenses | $ | 340,331 | $ | 316,367 | $ | 23,964 | 7.6 | |||||||
| Perpetual licenses | 227,843 | 238,738 | (10,895 | ) | (4.6 | ) | ||||||||
| Software licenses | 568,174 | 555,105 | 13,069 | 2.4 | ||||||||||
| Maintenance | 394,745 | 364,591 | 30,154 | 8.3 | ||||||||||
| Service | 25,546 | 23,057 | 2,489 | 10.8 | ||||||||||
| Maintenance and service | 420,291 | 387,648 | 32,643 | 8.4 | ||||||||||
| Total revenue | $ | 988,465 | $ | 942,753 | $ | 45,712 | 4.8 | |||||||
| (in thousands) | Year Ended December 31, 2016 | ||
| Euro | $ | (5,595 | ) |
| British Pound | (3,935 | ) | |
| South Korean Won | (1,720 | ) | |
| Indian Rupee | (941 | ) | |
| Japanese Yen | 10,360 | ||
| Other | (416 | ) | |
| Total | $ | (2,247 | ) |
| Year Ended December 31, | ||||||||||||||||||
| 2016 | 2015 | Change | ||||||||||||||||
| (in thousands, except percentages) | Amount | % of Revenue | Amount | % of Revenue | Amount | % | ||||||||||||
| Cost of sales: | ||||||||||||||||||
| Software licenses | $ | 28,860 | 2.9 | $ | 29,105 | 3.1 | $ | (245 | ) | (0.8 | ) | |||||||
| Amortization | 38,092 | 3.9 | 38,755 | 4.1 | (663 | ) | (1.7 | ) | ||||||||||
| Maintenance and service | 79,908 | 8.1 | 79,386 | 8.4 | 522 | 0.7 | ||||||||||||
| Total cost of sales | 146,860 | 14.9 | 147,246 | 15.6 | (386 | ) | (0.3 | ) | ||||||||||
| Gross profit | $ | 841,605 | 85.1 | $ | 795,507 | 84.4 | $ | 46,098 | 5.8 | |||||||||
| Year Ended December 31, | ||||||||||||||||||
| 2016 | 2015 | Change | ||||||||||||||||
| (in thousands, except percentages) | Amount | % of Revenue | Amount | % of Revenue | Amount | % | ||||||||||||
| Operating expenses: | ||||||||||||||||||
| Selling, general and administrative | $ | 269,515 | 27.3 | $ | 253,603 | 26.9 | $ | 15,912 | 6.3 | |||||||||
| Research and development | 183,093 | 18.5 | 168,831 | 17.9 | 14,262 | 8.4 | ||||||||||||
| Amortization | 12,755 | 1.3 | 19,394 | 2.1 | (6,639 | ) | (34.2 | ) | ||||||||||
| Total operating expenses | $ | 465,363 | 47.1 | $ | 441,828 | 46.9 | $ | 23,535 | 5.3 | |||||||||
| Year Ended December 31, | |||||||
| (in thousands) | 2016 | 2015 | |||||
| Foreign currency gains, net | $ | 77 | $ | 486 | |||
| Other | (213 | ) | (229 | ) | |||
| Total other (expense) income, net | $ | (136 | ) | $ | 257 | ||
The increase in the effective tax rate from the prior year iswas primarily due to a non-recurring benefit in 2022 of $22.8 million related to U.S. tax benefits on foreign earnings from entity structuring activities, a decrease in benefits related to stock-based compensation of $9.0 million, a non-recurring benefit in 2022 of $8.7 million related to Extraterritorial Income Exclusions from prior periods and an $8.3 million decrease in the merger of the Company's Japan subsidiaries in 2010 recognized in 2015 that did not recur in 2016, partiallybenefit related to foreign-derived intangible income (FDII). These increases were offset by a $10.6 million decrease in tax benefitsrelated to global intangible low-taxed income as a result of a change in estimate from restructuring activities in 2016. the prior year.
When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the years ended December 31, 20162023 and 20152022 were favorably impacted by tax benefits from the domestic manufacturingFDII deduction and research and development credits. The quarterly benefit of approximately $3.1 million associated with the merger of the Company's Japan subsidiaries was fully amortized in the third quarter of 2015. There will be no additional ongoing benefit from this transaction. The rates were also favorably impactedcredits, partially offset by the recurring itemimpact of lower statutory tax rates in many of the Company's foreign jurisdictions.non-deductible compensation.
Net Income: The Company's Our net income, for the year ended December 31, 2016 was $265.6 million as compared to net income of $252.5 million for the year ended December 31, 2015. Diluteddiluted earnings per share was $2.99 for the year ended December 31, 2016 and $2.76 for the year ended December 31, 2015. The weighted average shares used in computing diluted earnings per share were 89.0 million and 91.5 million for the years ended December 31, 2016 and 2015, respectively.as follows:
| Year Ended December 31, | |||||||||||
| (in thousands, except per share data) | 2023 | 2022 | |||||||||
| Net income | $ | 500,412 | $ | 523,710 | |||||||
| Diluted earnings per share | $ | 5.73 | $ | 5.99 | |||||||
| Weighted average shares outstanding - diluted | 87,386 | 87,490 | |||||||||
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Non-GAAP Results
| ANSYS, INC. AND SUBSIDIARIES | |||||||||||||||||||||||||||||||||||||||||
| Reconciliations of GAAP to Non-GAAP Measures | |||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages and per share data) | Revenue | Gross Profit | % | Operating Income | % | Net Income | EPS - Diluted1 | ||||||||||||||||||||||||||||||||||
| Total GAAP | $ | 2,269,949 | $ | 1,998,651 | 88.0 | % | $ | 626,135 | 27.6 | % | $ | 500,412 | $ | 5.73 | |||||||||||||||||||||||||||
| Stock-based compensation expense | — | 13,337 | 0.6 | % | 221,891 | 9.9 | % | 221,891 | 2.54 | ||||||||||||||||||||||||||||||||
| Excess payroll taxes related to stock-based awards | — | 307 | 0.1 | % | 5,541 | 0.2 | % | 5,541 | 0.06 | ||||||||||||||||||||||||||||||||
| Amortization of intangible assets from acquisitions | — | 80,990 | 3.5 | % | 103,502 | 4.5 | % | 103,502 | 1.18 | ||||||||||||||||||||||||||||||||
| Expenses related to business combinations | — | — | — | % | 9,422 | 0.4 | % | 9,422 | 0.11 | ||||||||||||||||||||||||||||||||
| Adjustment for income tax effect | — | — | — | % | — | — | % | (71,460) | (0.82) | ||||||||||||||||||||||||||||||||
| Total non-GAAP | $ | 2,269,949 | $ | 2,093,285 | 92.2 | % | $ | 966,491 | 42.6 | % | $ | 769,308 | $ | 8.80 | |||||||||||||||||||||||||||
1 Diluted weighted average shares were 87,386.
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| (in thousands, except percentages and per share data) | Revenue | Gross Profit | % | Operating Income | % | Net Income | EPS - Diluted1 | ||||||||||||||||||||||||||||||||||
| Total GAAP | $ | 2,065,553 | $ | 1,814,912 | 87.9 | % | $ | 592,658 | 28.7 | % | $ | 523,710 | $ | 5.99 | |||||||||||||||||||||||||||
| Acquisition accounting for deferred revenue | 7,333 | 7,333 | — | % | 7,333 | 0.2 | % | 7,333 | 0.08 | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 10,073 | 0.5 | % | 168,128 | 8.2 | % | 168,128 | 1.92 | ||||||||||||||||||||||||||||||||
| Excess payroll taxes related to stock-based awards | — | 510 | — | % | 6,118 | 0.3 | % | 6,118 | 0.07 | ||||||||||||||||||||||||||||||||
| Amortization of intangible assets from acquisitions | — | 69,372 | 3.4 | % | 85,094 | 4.1 | % | 85,094 | 0.97 | ||||||||||||||||||||||||||||||||
| Expenses related to business combinations | — | — | — | % | 10,335 | 0.5 | % | 10,335 | 0.12 | ||||||||||||||||||||||||||||||||
| Adjustment for income tax effect | — | — | — | % | — | — | % | (101,813) | (1.16) | ||||||||||||||||||||||||||||||||
| Total non-GAAP | $ | 2,072,886 | $ | 1,902,200 | 91.8 | % | $ | 869,666 | 42.0 | % | $ | 698,905 | $ | 7.99 | |||||||||||||||||||||||||||
1 Diluted weighted average shares were 87,490.
48
| Year Ended December 31, | |||||||||||||||||||||||
| 2017 | 2016 | ||||||||||||||||||||||
| (in thousands, except percentages and per share data) | As Reported | Adjustments | Non-GAAP Results | As Reported | Adjustments | Non-GAAP Results | |||||||||||||||||
| Total revenue | $ | 1,095,250 | $ | 2,856 | (1) | $ | 1,098,106 | $ | 988,465 | $ | 103 | (4) | $ | 988,568 | |||||||||
| Operating income | 390,728 | 118,567 | (2) | 509,295 | 376,242 | 88,114 | (5) | 464,356 | |||||||||||||||
| Operating profit margin | 35.7 | % | 46.4 | % | 38.1 | % | 47.0 | % | |||||||||||||||
| Net income | $ | 259,251 | $ | 88,663 | (3) | $ | 347,914 | $ | 265,636 | $ | 57,286 | (6) | $ | 322,922 | |||||||||
| Earnings per share – diluted: | |||||||||||||||||||||||
| Earnings per share | $ | 2.98 | $ | 4.01 | $ | 2.99 | $ | 3.63 | |||||||||||||||
| Weighted average shares | 86,854 | 86,854 | 88,969 | 88,969 | |||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||
| 2016 | 2015 | ||||||||||||||||||||||
| (in thousands, except percentages and per share data) | As Reported | Adjustments | Non-GAAP Results | As Reported | Adjustments | Non-GAAP Results | |||||||||||||||||
| Total revenue | $ | 988,465 | $ | 103 | (1) | $ | 988,568 | $ | 942,753 | $ | 1,725 | (4) | $ | 944,478 | |||||||||
| Operating income | 376,242 | 88,114 | (2) | 464,356 | 353,679 | 94,665 | (5) | 448,344 | |||||||||||||||
| Operating profit margin | 38.1 | % | 47.0 | % | 37.5 | % | 47.5 | % | |||||||||||||||
| Net income | $ | 265,636 | $ | 57,286 | (3) | $ | 322,922 | $ | 252,521 | $ | 60,854 | (6) | $ | 313,375 | |||||||||
| Earnings per share – diluted: | |||||||||||||||||||||||
| Earnings per share | $ | 2.99 | $ | 3.63 | $ | 2.76 | $ | 3.42 | |||||||||||||||
| Weighted average shares | 88,969 | 88,969 | 91,502 | 91,502 | |||||||||||||||||||
While management believeswe 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 of the Company'sour competitors and may not be directly comparable to similarly titled measures of the Company'sour competitors due to potential differences in the exact method of calculation. The Company compensatesWe 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 and its related tax impact.revenue. Historically, the Company haswe have consummated acquisitions in order to support itsour strategic and other business objectives. In accordance with theUnder prior accounting guidance, a fair value provisions applicable to the accounting for business combinations,provision resulted in acquired deferred revenue isthat was often recorded on the opening balance sheet at an amount that iswas lower than the historical carrying value. Although this acquisition accounting requirementfair value provision has no impact on the Company'sour business or cash flow, it adversely impacts the Company'sour reported GAAP revenue in the reporting periods following an acquisition. In 2022, we adopted accounting guidance which eliminates the fair value provision that resulted in the deferred revenue adjustment on a prospective basis. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company provideswe have historically provided non-GAAP financial measures which exclude the impact of the acquisition accounting adjustment.adjustment for acquisitions prior to the adoption of the new guidance in 2022. The Company believes that this2022 non-GAAP financial measures presented in this document include the adjustment to exclude the income statement effects of acquisition accounting adjustments to deferred revenue from business combinations closed prior to 2022. There is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past and future reports of financial results of the Companyno adjustment included for 2023 as the revenue reduction related to acquired deferred revenue willimpact is not recur when related annual lease licenses and software maintenance contracts are renewed in future periods. material.
Amortization of intangible assets from acquisitions and its related tax impact. The Company incursacquisitions. We incur amortization of intangible assets, included in itsour GAAP presentation of amortization expense, related to various acquisitions it haswe have made. Management excludesWe exclude these expenses and their related tax impact 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 it evaluates thewe evaluate our continuing operational performance of the Company 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 managementus after the acquisition. Accordingly, management doeswe do not consider these expenses for purposes of evaluating theour performance of the Company during the applicable time period after the acquisition, and it excludeswe exclude such expenses when making decisions to allocate resources. The Company believesWe 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 managementus in itsour financial and operational decision-making, and (b) compare our past reports of financial results of the Company as the Company haswe have historically reported these non-GAAP financial measures.
49
Stock-based compensation expense and its related tax impact. The Company incursWe incur expense related to stock-based compensation included in itsour GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. Stock-based compensationThis non-GAAP adjustment also includes excess payroll tax expense (benefit) incurred in connection with the Company's deferred compensation plan held in a rabbi trust includes an offsetting benefit (charge) recorded in other income (expense).related to stock-based compensation. Although stock-based compensation is an expense of the Company and viewed as a form of compensation, management excludeswe 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 it evaluates thewe evaluate our continuing operational performance of the Company. Management similarly excludes income (expense) related to assets held in a rabbi trust in connection with the Company's deferred compensation plan.performance. Specifically, the Company excludeswe exclude stock-based compensation and income related to assets held in the deferred compensation plan rabbi trust during itsour annual budgeting process and itsour quarterly and annual assessments of the Company's and management'sour performance. The annual budgeting process is the primary mechanism whereby the Company allocateswe allocate resources to various initiatives and operational requirements. Additionally, the annual review by the boardour Board of directorsDirectors during which it compares the Company'sour 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, the Company recordswe record stock-based compensation expense into a stand-alone cost center for which no single operational manager is responsible or accountable. In this way, management is able towe can review, on a period-to-period basis, each manager'smanager’s performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. The Company believesWe believe that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company'sour operating results and the effectiveness of the methodology used by managementus to review the Company'sour operating results, and (b) review historical comparability in the Company'sour financial reporting as well as comparability with competitors'competitors’ operating results.
Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company'sOur 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 the Company'sour consolidated financial statements prepared in accordance with GAAP.
| 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 | ||||
50
Constant currency. In addition to the non-GAAP financial measures detailed above, we use constant currency results for financial and operational decision-making and as a means to evaluate period-to-period comparisons by excluding the effects of foreign currency fluctuations on the reported results. To present this information, the 2023 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 2022 comparable period, rather than the actual exchange rates in effect for 2023. Constant currency growth rates are calculated by adjusting the 2023 reported amounts by the 2023 currency fluctuation impacts and comparing the adjusted amounts to the 2022 comparable period reported amounts. 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 reported results to our past reports of financial results without the effects of foreign currency fluctuations.
51
Liquidity and Capital Resources
| As of December 31, | Change | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | Amount | % | ||||||||||||||||||||||
| Cash, cash equivalents and short-term investments | $ | 860,390 | $ | 614,574 | $ | 245,816 | 40.0 | |||||||||||||||||||
| Working capital | $ | 1,160,273 | $ | 869,286 | $ | 290,987 | 33.5 | |||||||||||||||||||
| As of December 31, | Change | |||||||||||||
| (in thousands, except percentages) | 2017 | 2016 | Amount | % | ||||||||||
| Cash, cash equivalents and short-term investments | $ | 881,787 | $ | 822,860 | $ | 58,927 | 7.2 | |||||||
| Working capital | $ | 661,713 | $ | 630,301 | $ | 31,412 | 5.0 | |||||||
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 of the Company with original maturities of three months to one year. The following table presents the Company'sour foreign and domestic holdings of cash, cash equivalents and short-term investments:investments as of December 31, 2023 and 2022:
| As of December 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | % of Total | 2022 | % of Total | |||||||||||||||||||
| Domestic | $ | 529,092 | 61.5 | $ | 326,784 | 53.2 | |||||||||||||||||
| Foreign | 331,298 | 38.5 | 287,790 | 46.8 | |||||||||||||||||||
| Total | $ | 860,390 | $ | 614,574 | |||||||||||||||||||
| As of December 31, | |||||||||||
| (in thousands, except percentages) | 2017 | % of Total | 2016 | % of Total | |||||||
| Domestic | $ | 561,417 | 63.7 | $ | 593,348 | 72.1 | |||||
| Foreign | 320,370 | 36.3 | 229,512 | 27.9 | |||||||
| Total | $ | 881,787 | $ | 822,860 | |||||||
In general, it is the practice andour intention to permanently reinvest all earnings in excess of previously taxed amounts. Substantially all of the Company to repatriatepre-2018 earnings of our non-U.S. subsidiaries were taxed through the transition tax and post-2018 current earnings are taxed as part of global intangible low-taxed income tax expense. These taxes increase our previously taxed earnings and to reinvest all other earnings of its non-U.S. subsidiaries. As part of the Tax Cuts and Jobs Act enacted in the United States in 2017, the Company incurred U.S. tax on substantially all of the earnings of its non-U.S. subsidiaries. The Company recorded a provisional adjustment for the Transition Tax. This tax increased the Company’s previously taxed earnings and will allow for the repatriation of the majority of itsour foreign earnings without any residual U.S. federal tax. The Company doesUnrecognized provisions for taxes on indefinitely reinvested undistributed earnings of foreign subsidiaries would not believe that there is an excess of the financial reporting basis over the tax basis of investments in foreign subsidiaries. Accordingly, any repatriation in excess of previously taxed earnings will be a non-taxable return of basis.significant.
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 the Company'sour consolidated balance sheet.
Cash Flows from Operating Activities
| Year Ended December 31, | Change | |||||||||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||
| Net cash provided by operating activities | $ | 430,438 | $ | 365,980 | $ | 375,699 | $ | 64,458 | $ | (9,719 | ) | |||||||||
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | Amount | % | ||||||||||||||||||||||
| Net cash provided by operating activities | $ | 717,122 | $ | 631,003 | $ | 86,119 | 13.6 | |||||||||||||||||||
Net cash provided by operating activities increased during the current fiscal year due to increased net cash flows fromcustomer receipts driven primarily by ACV growth, partially offset by payments related to higher operating assets and liabilities of $46.5 million and increased net income (net of non-cash operating adjustments) of $17.9 million.
associated with higher taxable income.
Cash Flows from Investing Activities
| Year Ended December 31, | Change | |||||||||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||
| Net cash used in investing activities | $ | (97,443 | ) | $ | (32,173 | ) | $ | (62,032 | ) | $ | (65,270 | ) | $ | 29,859 | ||||||
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | Amount | % | ||||||||||||||||||||||
| Net cash used in investing activities | $ | (240,042) | $ | (411,368) | $ | 171,326 | 41.6 | |||||||||||||||||||
Net cash used in investing activities decreased during the prior fiscal year due to decreased acquisition-related net cash outlays of $38.2 million and decreased capital expenditures of $3.7 million, partially offset by increased net cash outlays of $12.1 million for other investing activities.
| Year Ended December 31, | Change | |||||||||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | 2017 vs. 2016 | 2016 vs. 2015 | |||||||||||||||
| Net cash used in financing activities | $ | (294,651 | ) | $ | (288,630 | ) | $ | (299,927 | ) | $ | (6,021 | ) | $ | 11,297 | ||||||
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Cash Flows from Financing Activities
| Year Ended December 31, | Change | |||||||||||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | Amount | % | ||||||||||||||||||||||
| Net cash used in financing activities | $ | (231,319) | $ | (245,508) | $ | 14,189 | 5.8 | |||||||||||||||||||
Net cash used in financing activities decreased during the priorcurrent fiscal year primarily due primarily to decreased stock repurchases of $9.1 million and increased proceeds from shares issued for stock-based compensation of $10.2$4.5 million.
Other Cash Flow Information
On June 30, 2022, we entered into a credit agreement (the 2022 Credit Agreement) with PNC Bank, National Association as administrative agent, swing line lender, and an L/C issuer, the lenders party thereto, and the other L/C issuers party thereto. The 2022 Credit Agreement refinanced our previous credit agreements in their entirety. The 2022 Credit Agreement provides for a $755.0 million unsecured term loan facility and a $500.0 million unsecured revolving loan facility, which includes a $50.0 million sublimit for the issuance of letters of credit. Terms used in this description of the 2022 Credit Agreement with initial capital letters that are not otherwise defined herein are as defined in the 2022 Credit Agreement.
As of December 31, 2023, the carrying value of our term loan was $753.9 million, with no principal payments due in the next twelve months. Borrowings under the term loan and revolving loan facilities accrue interest at a rate that is based on the Term SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available).
On September 29, 2023, the 2022 Credit Agreement was amended to provide for an interest rate adjustment (Sustainability Rate Adjustment) based upon the achievement of certain environmental, social and governance key performance indicators (KPIs). The Sustainability Rate Adjustment range is +/- 0.05% and will go into effect in the first quarter of 2024 based on the 2023 KPIs and will be adjusted annually based on the KPIs of the preceding year.
The Company believesrate in effect for the first quarter of 2024 under the 2022 Credit Agreement is 6.32%.
We previously entered into operating lease commitments, primarily for our domestic and international offices. The commitments related to these operating leases is $137.6 million, of which $27.0 million is due in the next twelve months.
Under our stock repurchase program, we repurchased shares as follows:
| Year Ended December 31, | |||||||||||
| (in thousands, except per share data) | 2023 | 2022 | |||||||||
| Number of shares repurchased | 650 | 725 | |||||||||
| Average price paid per share | $ | 302.34 | $ | 283.38 | |||||||
| Total cost | $ | 196,494 | $ | 205,571 | |||||||
As of December 31, 2023, 1.1 million shares remained available for repurchase under the program. Average price paid per share excludes excise tax. As of January 1, 2023, our share repurchases in excess of issuances are subject to a 1% excise tax enacted by the Inflation Reduction Act. As of December 31, 2023, we had $0.1 million of accrued excise tax. Any excise tax incurred is recognized and reflected as part of the cost basis of the shares acquired in the Consolidated Statements of Stockholders' Equity. The authorized repurchase program does not have an expiration date.
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.
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We believe that existing cash and cash equivalent balances, of $881.5 million, together with cash generated from operations and access to the $500.0 million revolving loan facility, will be sufficient to meet the Company'sour working capital, and capital expenditure requirements and contractual obligations through at least the next twelve months. The Company'smonths and the foreseeable future thereafter. Our cash requirements in the future may also be financed through additional equity or debt financings. ThereHowever, future disruptions in the capital markets could make financing more challenging and there can be no assurance that such financingsfinancing can be obtained on favorablecommercially reasonable terms, ifor at all.
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| Year Ended December 31, | |||||||||||
| (in thousands, except per share data) | 2017 | 2016 | 2015 | ||||||||
| Number of shares repurchased | 2,750 | 3,700 | 3,833 | ||||||||
| Average price paid per share | $ | 122.20 | $ | 90.90 | $ | 88.16 | |||||
| Total cost | $ | 336,042 | $ | 336,335 | $ | 337,910 | |||||
Contractual and Other Obligations
| (in thousands) | Total | Current | Long-Term | |||||||||||||||||
| Long-term debt: | ||||||||||||||||||||
| Principal payments | $ | 755,000 | $ | — | $ | 755,000 | ||||||||||||||
Interest payments(1) | 169,211 | 48,403 | 120,808 | |||||||||||||||||
Global headquarters operating lease(2) | 27,343 | 4,480 | 22,863 | |||||||||||||||||
Other operating leases(3) | 110,235 | 22,550 | 87,685 | |||||||||||||||||
Unconditional purchase obligations(4) | 111,770 | 66,421 | 45,349 | |||||||||||||||||
Obligations related to uncertain tax positions, including interest and penalties(5) | — | — | — | |||||||||||||||||
Equity investment(6) | 300,000 | 300,000 | — | |||||||||||||||||
| Total contractual obligations | $ | 1,473,559 | $ | 441,854 | $ | 1,031,705 | ||||||||||||||
(1)Borrowings under long-term debt accrue interest at a rate that is based on the Term SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available). As the interest rate is variable, interest on the long-term debt is estimated using the interest rate as of December 31, 2023. For additional information, see Note 10 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
(2)We previously entered into a lease agreement for 186,000 square feet of rentable space located in an office facility in Canonsburg, Pennsylvania, which serves as our headquarters. The term of the lease is 183 months, beginning on October 1, 2014 and expiring on December 31, 2029. We have a one-time right to terminate the lease on December 31, 2025 by providing the landlord with at least 18 months' prior written notice of such termination.
(3)Other operating leases primarily include lease commitments for our other domestic and international offices as well as certain operating equipment.
(4)Unconditional purchase obligations primarily include minimum royalty contracts, software licenses and support, and network services, which are unrecorded as of December 31, 2023. The unconditional purchase obligations are in addition to the current and long-term liabilities recorded on our December 31, 2023 consolidated balance sheet.
(5)We have $54.9 million of unrecognized tax benefits, including estimated interest and penalties, that have been recorded as liabilities in accordance with income tax accounting guidance for which we are uncertain as to if or when such amounts may be settled. As a result, such amounts are excluded from the table above.
(6)On December 5, 2023, we entered into an agreement to make a strategic equity investment. The investment is subject to regulatory approvals and customary closing conditions and is expected to close in the first half of 2024.
If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, we would be required to pay a termination fee of $950.0 million.
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| Payments Due by Period | ||||||||||||||||||||
| (in thousands) | Total | Within 1 year | 2 – 3 years | 4 – 5 years | After 5 years | |||||||||||||||
Global headquarters operating lease(1) | $ | 36,581 | $ | 4,278 | $ | 8,742 | $ | 8,928 | $ | 14,633 | ||||||||||
Other operating leases(2) | 30,064 | 10,884 | 12,112 | 5,802 | 1,266 | |||||||||||||||
Unconditional purchase obligations(3) | 51,930 | 22,408 | 24,977 | 4,545 | — | |||||||||||||||
Obligations related to uncertain tax positions, including interest and penalties(4) | 2 | 2 | — | — | — | |||||||||||||||
Other long-term obligations(5) | 31,432 | 5,064 | 7,101 | 4,345 | 14,922 | |||||||||||||||
| Total contractual obligations | $ | 150,009 | $ | 42,636 | $ | 52,932 | $ | 23,620 | $ | 30,821 | ||||||||||
Critical Accounting Policies and Estimates
The accounting policies, methods and estimates used in the preparation of itsto prepare our consolidated financial statements.statements are described in Note 2 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K. The most critical accounting judgments and estimates that we made in preparing our consolidated financial statements involved:
•Revenue Recognition: recognition;
•Valuation of assets acquired and liabilities assumed in business combinations; and
•Income taxes.
Revenue Recognition
Description
Our revenue is derived principally from the licensing of computer software products and from related maintenance contracts. Revenue from perpetualWe enter into contracts that include combinations of products, maintenance and services, which are accounted for as separate performance obligations with differing revenue recognition patterns.
Judgments and Estimates
Our contracts with customers typically include promises to transfer licenses and services to a customer. Judgment is classifiedrequired to determine if the promises are separate performance obligations, and if so, to allocate the transaction price to each performance obligation. We use the estimated standalone selling price method to allocate the transaction price for each performance obligation. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs. The corresponding revenues are recognized as the related performance obligations are satisfied.
Our time-based subscription lease license revenuecontracts with customers are sold as a bundled arrangement that includes the rights to a term software license as well as post-contract support (PCS), which includes unspecified technical enhancements and customer support. Revenue is recognized upon deliveryup front at the commencement of the licensed productlease for the term software lease license and the utility that enables the customer to access authorization keys, provided that acceptance has occurred and a signed contractual obligation has been received, the price is fixed and determinable, and collectibility of the receivable is probable. The Company determines the fair value of post-contract customer support (PCS) sold together with perpetual licenses based on the rate charged for PCS when sold separately. Revenue from PCS contracts is classified as maintenance and service revenue and is recognized ratably over the term of the contract.
Changes in these estimates could significantly impact the recognition of the Company's software lease licenses, is not separated from lease revenue for accounting purposes. Both the lease licenses and PCS are recognized ratably over the lease period. The Company includes the revenue for the entire lease arrangement within software license revenue in a given period.
Valuation of Assets Acquired and Liabilities Assumed in Business Combinations
Description
In accordance with business combination accounting, we allocate the consolidated statementspurchase price of income.
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Judgments and Estimates
Determining these fair values requires us to make significant estimates and assumptions, particularly with respect to acquired intangible assets. 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, customer attrition rate and obsolescence rate. The fair values of the lease contract duringintangible assets will be amortized over their useful lives.
If actual results are materially different than the infrequent occurrenceassumptions we used to determine fair value of these licenses being sold with semiconductor leases in multiple-element arrangements.
Income Taxes
Description
Our income tax expense reflects management's best estimate of current and the second level of technical support to the end user, which is based on the rate charged for PCS when sold separately, and is recognized over the period that PCS isfuture taxes to be provided. The Company does not offer right of return, product rotation or price protection to any of its channel partners.
Judgments and penalties relatedEstimates
We are subject to income taxes within the income tax expense line in the consolidated statements of income. Accrued interestUnited States and penaltiesnumerous foreign jurisdictions. Significant judgements and estimates are included within the related tax liability line in the consolidated balance sheets.
The calculation of whether an exposureour tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Significant judgment is reasonably estimable. Asrequired in the identification and measurement of uncertain tax positions. Our liability for unrecognized tax benefits contains uncertainties because we are required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. We adjust the liabilities when our judgement changes as a result of new information not previously available.
Although we believe that the uncertainties involved in making thesejudgments and estimates the Companydiscussed herein are reasonable, actual results could differ and we may havebe exposed to revise its estimates as facts and circumstances change. The revision of these estimateslosses or gains that could have a material impact on the Company's financial position and results of operations.
| Year Ended December 31, | ||||
| 2016 | 2015 | |||
| Risk-free interest rate | 1.19% to 1.93% | 1.18% to 1.65% | ||
| Expected dividend yield | —% | —% | ||
| Expected volatility | 24% | 25% | ||
| Expected term | 5.7 years | 5.6 years | ||
| Weighted-average fair value per share | $23.96 | $30.83 | ||
| Year Ended December 31, | |||||
| Assumptions used in Monte Carlo lattice pricing model | 2017 | 2016 | 2015 | ||
| Risk-free interest rate | 1.5% | 1.0% | 1.1% | ||
| Expected dividend yield | —% | —% | —% | ||
| Expected volatility—ANSYS stock price | 19% | 21% | 23% | ||
| Expected volatility—NASDAQ Composite Index | 15% | 16% | 14% | ||
| Expected term | 2.8 years | 2.8 years | 2.8 years | ||
| Correlation factor | 0.70 | 0.65 | 0.60 | ||
| Weighted-average fair value per share | $120.94 | $78.71 | $81.61 | ||
material. To the extent actual results differ from estimated amounts recorded, such differences will impact the Company changes the terms of its stock-based compensation programs, experiences market volatilityincome tax provision in the pricing of its common stock that increasesperiod in which the implied volatility assumption used in the Black-Scholes model, refines different assumptions, or assumes stock awards from acquired companies that are different in nature than the Company's stock award arrangements, among other potential impacts, the stock-based compensation expense recorded in future periods and the related tax benefits may differ significantly from what was recorded in previous reporting periods. The Company accounts for forfeitures of stock-based awards as they occur.
Recent Accounting Guidance
For information regarding recent accounting guidance and its impact on the Company'sour consolidated financial statements, see Note 2 to the consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K.
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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange 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. We seek to reduce our currency exchange transaction risks primarily through our normal operating and treasury activities, including the use of derivative instruments.
With respect to revenue, on average for the year ended December 31, 2023, the U.S. Dollar was 0.6% stronger, when measured against our foreign currencies, than for the year ended December 31, 2022. The table below presents the net impacts of currency fluctuations on revenue for the year ended December 31, 2023. Amounts in brackets indicate a net adverse impact from currency fluctuations.
| (in thousands) | Year Ended December 31, 2023 | ||||
| (13,457) | |||||
| Indian Rupee | (1,988) | ||||
| Taiwan Dollar | (1,666) | ||||
| South Korean Won | (1,010) | ||||
| Euro | 13,179 | ||||
| Other | (811) | ||||
| Total | $ | (5,753) | |||
The impacts from currency fluctuations resulted in decreased operating income of $1.4 million for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
A hypothetical 10% strengthening in the U.S. Dollar against other currencies would have decreased our revenue by $97.2 million and decreased our operating income by $41.2 million for the year ended December 31, 2023.
The most meaningful currency impacts on revenue and operating income are typically attributable to U.S. Dollar exchange rate changes against the Euro and Japanese Yen. Historical exchange rates for these currency pairs are reflected in the charts below:
| Period End Exchange Rates | ||||||||||||||
| As of | EUR/USD | USD/JPY | ||||||||||||
| December 31, 2023 | 1.10 | 141 | ||||||||||||
| December 31, 2022 | 1.07 | 131 | ||||||||||||
| December 31, 2021 | 1.14 | 115 | ||||||||||||
| December 31, 2020 | 1.22 | 103 | ||||||||||||
| Average Exchange Rates | |||||||||||
| Year Ended | EUR/USD | USD/JPY | |||||||||
| December 31, 2023 | 1.08 | 140 | |||||||||
| December 31, 2022 | 1.05 | 131 | |||||||||
| December 31, 2021 | 1.18 | 110 | |||||||||
Interest Income Rate Risk. Changes in the overall level of interest rates affect the interest income that is generated from the Company'sour cash, cash equivalents and short-term investments.investments and the interest expense that is generated from our outstanding borrowings. For the year ended December 31, 2017, total2023, interest income was $7.0$19.6 million. and interest expense was $47.1 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 of the Company with original maturities of three months to one year. A hypothetical 100 basis point change in interest rates on these holdings could have an $8.6 million impact on our financial results.
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Our outstanding term loan borrowings of $755.0 million as of December 31, 2023 accrue interest at a rate that is based on the Company operatesTerm SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available).
On September 29, 2023, the 2022 Credit Agreement was amended to provide for an interest rate adjustment (Sustainability Rate Adjustment) based upon the achievement of certain environmental, social and governance key performance indicators (KPIs). The Sustainability Rate Adjustment range is +/- 0.05% and will go into effect in international regions, a portionthe first quarter of its revenue, expenses, cash, accounts receivable2024 based on the 2023 KPIs and payment obligationswill be adjusted annually based on the KPIs of the preceding year.
Because interest rates applicable to the outstanding borrowings are denominated in foreign currencies. As a result,variable, we are exposed to interest rate risk from changes in currency exchangethe underlying index rates, will affectwhich affects our interest expense. A hypothetical increase of 100 basis points in interest rates would result in an increase in interest expense of $7.7 million and a corresponding decrease in cash flows over the Company's financial position, results of operations and cash flows. The Company is most impacted by movements in and among the Euro, Japanese Yen, South Korean Won, British Pound, Taiwan Dollar, Indian Rupee and U.S. Dollar.
| (in thousands) | Year Ended December 31, 2017 | ||
| Euro | $ | 6,634 | |
| South Korean Won | 1,439 | ||
| Taiwan Dollar | 886 | ||
| Indian Rupee | 838 | ||
| Japanese Yen | (3,416 | ) | |
| British Pound | (1,316 | ) | |
| Other | 329 | ||
| Total | $ | 5,394 | |
| Period End Exchange Rates | |||||||||||
| As of | GBP/USD | EUR/USD | USD/JPY | USD/KRW | |||||||
| December 31, 2014 | 1.557 | 1.210 | 119.703 | 1,094.930 | |||||||
| December 31, 2015 | 1.474 | 1.086 | 120.337 | 1,176.886 | |||||||
| December 31, 2016 | 1.234 | 1.051 | 116.918 | 1,208.313 | |||||||
| December 31, 2017 | 1.351 | 1.200 | 112.701 | 1,068.376 | |||||||
| Average Exchange Rates | |||||||||||
| Year Ended | GBP/USD | EUR/USD | USD/JPY | USD/KRW | |||||||
| December 31, 2015 | 1.528 | 1.110 | 121.018 | 1,131.542 | |||||||
| December 31, 2016 | 1.355 | 1.107 | 108.530 | 1,160.699 | |||||||
| December 31, 2017 | 1.289 | 1.130 | 112.139 | 1,130.945 | |||||||
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following tables set forth selected unaudited quarterly information. The Company believes that the amounts stated below present fairly the results of such periods when read in conjunction with the consolidated financial statements and related notes included in Part IV, Item 15 of this Annual Report on Form 10-K.
| Fiscal Quarter Ended | ||||||||||||||||
| (in thousands, except per share data) | December 31, 2017 | September 30, 2017 | June 30, 2017 | March 31, 2017 | ||||||||||||
| Revenue | $ | 302,336 | $ | 275,585 | $ | 263,924 | $ | 253,405 | ||||||||
| Gross profit | 261,524 | 239,602 | 227,586 | 216,374 | ||||||||||||
| Operating income | 100,679 | 106,183 | 98,394 | 85,472 | ||||||||||||
| Net income | 52,585 | 73,630 | 69,730 | 63,306 | ||||||||||||
| Earnings per share – basic | $ | 0.62 | $ | 0.87 | $ | 0.82 | $ | 0.74 | ||||||||
| Earnings per share – diluted | $ | 0.61 | $ | 0.85 | $ | 0.80 | $ | 0.73 | ||||||||
| Fiscal Quarter Ended | ||||||||||||||||
| (in thousands, except per share data) | December 31, 2016 | September 30, 2016 | June 30, 2016 | March 31, 2016 | ||||||||||||
| Revenue | $ | 270,628 | $ | 245,862 | $ | 246,069 | $ | 225,906 | ||||||||
| Gross profit | 231,650 | 210,276 | 209,058 | 190,621 | ||||||||||||
| Operating income | 96,966 | 100,099 | 94,155 | 85,022 | ||||||||||||
| Net income | 69,983 | 69,557 | 69,628 | 56,468 | ||||||||||||
| Earnings per share – basic | $ | 0.81 | $ | 0.80 | $ | 0.79 | $ | 0.64 | ||||||||
| Earnings per share – diluted | $ | 0.80 | $ | 0.78 | $ | 0.78 | $ | 0.63 | ||||||||
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.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, the Company haswe 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 itsour 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) or Rule 15d-15(e) of the Exchange Act.
From time to time, we review the disclosure controls and procedures and may periodically make changes to enhance their effectiveness and to confirm that our systems evolve with our business.
Management's Annual Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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.
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Additionally, Deloitte & Touche LLP, an independent registered public accounting firm, has audited the financial statements included in this Annual Report on Form 10-K and has issued an attestation report on the Company'sour internal control over financial reporting. This report is included in Item 15 of this Annual Report on Form 10-K.
Changes in Internal Controls. There were no changes in the Company'sour internal controlscontrol over financial reporting that occurred during the three months ended December 31, 20172023 that materially affected, or werethat are reasonably likely to materially affect, the Company'sour internal control over financial reporting. During fiscal year 2017, the Company implemented internal controls to ensure it has adequately evaluated contracts and properly assessed the impact of the new accounting standard related to revenue recognition on the Company's financial statements to facilitate the adoption on January 1, 2018. The Company does not expect significant changes to its internal controls over financial reporting due to the adoption of the new standard.
Trading Arrangements
None of the directors or "officers" of ANSYS, Inc. (as defined in Rule 16a-1(f) promulgated under the Exchange Act of 1934) adopted, modified or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, during the fiscal quarter ended December 31, 2023.
Transition Agreement
As previously disclosed, on November 29, 2023, Nicole Anasenes notified the Company that, after three years as the Company’s Chief Financial Officer and Senior Vice President of Finance, she intended to resign. On February 15, 2024, the Company and Ms. Anasenes entered into a Transition Agreement (the Transition Agreement). Pursuant to the Transition Agreement, Ms. Anasenes will resign as Chief Financial Officer and Senior Vice President of Finance effective February 22, 2024 (the Transition Date) and will remain an employee of the Company until June 7, 2024, following which she will transition to providing consulting services to the Company until August 8, 2024 pursuant to the Consulting Agreement (as defined below). Under the Transition Agreement, Ms. Anasenes provided a customary general release to the Company, and the parties also agreed to certain confidentiality, non-disclosure, non-solicitation and non-disparagement covenants.
The Transition Agreement provides that the Company and Ms. Anasenes will enter into a Consulting Services Agreement (the Consulting Agreement) with an effective date of June 8, 2024, pursuant to which Ms. Anasenes will provide consulting services to the Company beginning on June 8, 2024 and continuing through August 8, 2024. In consideration for her provision of consulting services, the Company will pay to Ms. Anasenes a total fee of $50,000. A form of Consulting Agreement is attached as an exhibit to the Transition Agreement.
The foregoing descriptions of the Transition Agreement and form of Consulting Agreement attached as an exhibit thereto do not purport to be complete and are subject to and qualified in their entirety by reference to the full text of such agreements, which are attached hereto as Exhibit 10.27 to this Annual Report on Form 10-K and incorporated herein by reference.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to the Company's 2018our 2024 Proxy Statement and is set forth under “Our Board"Corporate Governance at Ansys," "Director Nominees," "Continuing Directors Following the 2024 Annual Meeting" and "Our Executive Officers" therein.
We have a Code of Directors”, “Our Executive Officers”Business Conduct and “OwnershipEthics that applies to our principal executive officer, principal financial officer and principal accounting officer, and all of our directors and employees. Our Common Stock” therein.Code of Business Conduct and Ethics is posted under the Governance tab of the Investor Relations section of our website at https://investors.ansys.com. We post any amendments to, or waiver of, our Code of Business Conduct and Ethics that apply to our principal executive officer, principal financial officer and principal accounting officer on our website.
ITEM 11.EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the Company's 2018our 2024 Proxy Statement and is set forth under “Our Board of Directors”"Compensation Discussion and “Our Executive Officers”Analysis," "Compensation Policies and Practices Related to Risk Management," "Fiscal 2023 Compensation Tables," "2023 CEO Pay Ratio," "Compensation Committee Report," "Corporate Governance at Ansys--Compensation Committee Interlocks and Insider Participation," "Non-Employee Director Compensation" and "Director Compensation Table Fiscal Year 2023" therein.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference to the Company's 2018our 2024 Proxy Statement and is set forth under “Ownership"Equity Compensation Plans" and "Ownership of Our Common Stock”Stock" therein.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference to the Company's 2018our 2024 Proxy Statement and is set forth under “Our Board of Directors”"Corporate Governance at Ansys--Director Independence" and "Corporate Governance at Ansys--Related-Party Transactions" therein.
ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference to the Company's 2018our 2024 Proxy Statement and is set forth under “Independent"Independent Registered Public Accounting Firm”Firm Services and Fees" therein.
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PART IV
ITEM 15.EXHIBIT AND FINANCIAL STATEMENT SCHEDULES
(a)Documents Filed as Part of this Annual Report on Form 10-K:
i.Financial Statements: The following consolidated financial statements and reports are filed as part of this report:
| - | ||||||||
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 34) | ||||||||
| - | ||||||||
| - | ||||||||
| - | ||||||||
| - | ||||||||
| - | ||||||||
| - | ||||||||
ii.Financial Statement Schedules: Schedules not listed above have been omitted because they are not applicable, are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.
iii.Exhibits:The Companyexhibits listed in the accompanying Exhibit Index are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.
(b)Exhibits:
We hereby filesfile as part of this Annual Report on Form 10-K the exhibits listed in the Exhibit Index immediately following the financial statement schedule of this Annual Report on Form 10-K.
None.
62
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of ANSYS, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ANSYS, Inc. and subsidiaries (the "Company"“Company”) as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, stockholders'stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018,21, 2024, expressed an unqualified opinion on the Company'sCompany’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current‐period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue—Time-Based Subscription Lease Licenses—Refer to Notes 2 and 3 to the financial statements
Critical Audit Matter Description
The Company sells time‐based subscription lease license contracts with customers that are sold as a bundled arrangement that include the rights to a term software license as well as post‐contract support (PCS). Revenue is recognized up front at the commencement of the lease for the term software license and recognized ratably over the term of the contract for the PCS in the arrangement. Utilizing observable inputs, the Company determined that 50% of the estimated standalone selling price of the subscription lease license is attributable to the term license, while 50% is attributable to PCS. This determination involved judgment, particularly as it relates to the value relationship between the Company’s PCS to subscription lease licenses, the value relationship between PCS and the Company’s perpetual licenses and its linkage to the shortened term of a subscription lease license, the average economic life of the Company’s software, renewal rates of its customers, and the price of the bundled arrangement in relation to the perpetual licensing approach.
Given the judgments necessary to determine the allocation between the term software license and PCS, auditing this estimate involved a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimate of the allocation between the term software license and PCS in a subscription lease license included the following, among others:
63
•We evaluated the pricing relationship between PCS and perpetual licenses on the net licensing fee of the arrangement, as well as the Company’s renewal rate of PCS sales on perpetual licenses through those arrangements selected for testing that contained both elements as a consideration point of the value relationship between the term software license and PCS when a customer purchases a bundled subscription lease license.
•We evaluated the estimated economic life of the Company’s software through observable data points.
•Through our current and historical audit procedures, we confirmed that the term software license portion and PCS portion of an arrangement are not sold separately from one another.
•We selected a sample of arrangements and performed the following:
–Compared the list price of the subscription lease license to the consideration received from the customer and recalculated the discount from list price for each arrangement.
–Evaluated whether management appropriately calculated the estimated standalone selling price for the subscription lease license.
–Tested management’s identification of distinct performance obligations.
–Tested the mathematical accuracy of revenue recognized at a point in time or over time based upon the identification of subscription lease licenses within the arrangement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 21, 2024
We have served as the Company's auditor since 2002.
64
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and Stockholders of ANSYS, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of ANSYS, Inc. and subsidiaries (the “Company”) as of December 31, 2017,2023, based on criteria established inInternal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017,2023, of the Company and our report datedFebruary 22, 2018,21, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Reportreport on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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 the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
February 21, 2024
65
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| December 31, | |||||||||||
| (in thousands, except share and per share data) | 2023 | 2022 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 860,201 | $ | 614,391 | |||||||
| Short-term investments | 189 | 183 | |||||||||
| Accounts receivable, less allowance for doubtful accounts of $20,700 and $18,300, respectively | 864,526 | 760,287 | |||||||||
| Other receivables and current assets | 324,651 | 289,261 | |||||||||
| Total current assets | 2,049,567 | 1,664,122 | |||||||||
| Long-term assets: | |||||||||||
| Property and equipment, net | 77,780 | 80,838 | |||||||||
| Operating lease right-of-use assets | 116,980 | 129,140 | |||||||||
| Goodwill | 3,805,874 | 3,658,267 | |||||||||
| Other intangible assets, net | 835,417 | 809,183 | |||||||||
| Other long-term assets | 273,030 | 261,880 | |||||||||
| Deferred income taxes | 164,227 | 84,515 | |||||||||
| Total long-term assets | 5,273,308 | 5,023,823 | |||||||||
| Total assets | $ | 7,322,875 | $ | 6,687,945 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 22,772 | $ | 14,021 | |||||||
| Accrued bonuses and commissions | 170,909 | 160,908 | |||||||||
| Accrued income taxes | 22,454 | 7,698 | |||||||||
| Other accrued expenses and liabilities | 215,645 | 198,220 | |||||||||
| Deferred revenue | 457,514 | 413,989 | |||||||||
| Total current liabilities | 889,294 | 794,836 | |||||||||
| Long-term liabilities: | |||||||||||
| Deferred income taxes | 75,301 | 58,126 | |||||||||
| Long-term operating lease liabilities | 100,505 | 112,802 | |||||||||
| Long-term debt | 753,891 | 753,574 | |||||||||
| Other long-term liabilities | 113,520 | 102,756 | |||||||||
| Total long-term liabilities | 1,043,217 | 1,027,258 | |||||||||
| Commitments and contingencies | |||||||||||
| Stockholders' equity: | |||||||||||
| Preferred stock, $0.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding | — | — | |||||||||
| Common stock, $0.01 par value; 300,000,000 shares authorized; 95,267,307 shares issued | 953 | 953 | |||||||||
| Additional paid-in capital | 1,670,450 | 1,540,317 | |||||||||
| Retained earnings | 5,283,342 | 4,782,930 | |||||||||
| Treasury stock, at cost: 8,361,447 and 8,317,389 shares, respectively | (1,474,110) | (1,335,627) | |||||||||
| Accumulated other comprehensive loss | (90,271) | (122,722) | |||||||||
| Total stockholders' equity | 5,390,364 | 4,865,851 | |||||||||
| Total liabilities and stockholders' equity | $ | 7,322,875 | $ | 6,687,945 | |||||||
| December 31, | |||||||
| (in thousands, except share and per share data) | 2017 | 2016 | |||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 881,501 | $ | 822,479 | |||
| Short-term investments | 286 | 381 | |||||
| Accounts receivable, less allowance for doubtful accounts of $6,800 and $5,700, respectively | 124,659 | 107,192 | |||||
| Other receivables and current assets | 263,820 | 239,349 | |||||
| Total current assets | 1,270,266 | 1,169,401 | |||||
| Property and equipment, net | 57,096 | 54,677 | |||||
| Goodwill | 1,378,553 | 1,337,215 | |||||
| Other intangible assets, net | 157,625 | 172,619 | |||||
| Other long-term assets | 35,972 | 24,287 | |||||
| Deferred income taxes | 42,111 | 42,327 | |||||
| Total assets | $ | 2,941,623 | $ | 2,800,526 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 6,042 | $ | 7,395 | |||
| Accrued bonuses and commissions | 69,925 | 49,487 | |||||
| Accrued income taxes | 5,760 | 5,263 | |||||
| Other accrued expenses and liabilities | 86,335 | 73,676 | |||||
| Deferred revenue | 440,491 | 403,279 | |||||
| Total current liabilities | 608,553 | 539,100 | |||||
| Long-term liabilities: | |||||||
| Deferred income taxes | 1,461 | 2,259 | |||||
| Other long-term liabilities | 85,778 | 50,762 | |||||
| Total long-term liabilities | 87,239 | 53,021 | |||||
| Commitments and contingencies | |||||||
| Stockholders' equity: | |||||||
| Preferred stock, $.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding | — | — | |||||
| Common stock, $.01 par value; 300,000,000 shares authorized; 93,236,023 shares issued | 932 | 932 | |||||
| Additional paid-in capital | 873,357 | 883,010 | |||||
| Retained earnings | 2,316,916 | 2,057,665 | |||||
| Treasury stock, at cost: 9,044,498 and 7,548,188 shares, respectively | (907,530 | ) | (675,550 | ) | |||
| Accumulated other comprehensive loss | (37,844 | ) | (57,652 | ) | |||
| Total stockholders' equity | 2,245,831 | 2,208,405 | |||||
| Total liabilities and stockholders' equity | $ | 2,941,623 | $ | 2,800,526 | |||
The accompanying notes are an integral part of the consolidated financial statements.
66
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
| Year Ended December 31, | |||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2021 | ||||||||||||||
| Revenue: | |||||||||||||||||
| Software licenses | $ | 1,088,748 | $ | 988,978 | $ | 945,797 | |||||||||||
| Maintenance and service | 1,181,201 | 1,076,575 | 960,918 | ||||||||||||||
| Total revenue | 2,269,949 | 2,065,553 | 1,906,715 | ||||||||||||||
| Cost of sales: | |||||||||||||||||
| Software licenses | 40,004 | 33,081 | 38,156 | ||||||||||||||
| Amortization | 80,990 | 69,372 | 60,762 | ||||||||||||||
| Maintenance and service | 150,304 | 148,188 | 159,066 | ||||||||||||||
| Total cost of sales | 271,298 | 250,641 | 257,984 | ||||||||||||||
| Gross profit | 1,998,651 | 1,814,912 | 1,648,731 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling, general and administrative | 855,135 | 772,871 | 715,377 | ||||||||||||||
| Research and development | 494,869 | 433,661 | 404,870 | ||||||||||||||
| Amortization | 22,512 | 15,722 | 15,213 | ||||||||||||||
| Total operating expenses | 1,372,516 | 1,222,254 | 1,135,460 | ||||||||||||||
| Operating income | 626,135 | 592,658 | 513,271 | ||||||||||||||
| Interest income | 19,588 | 5,717 | 2,078 | ||||||||||||||
| Interest expense | (47,145) | (22,726) | (12,405) | ||||||||||||||
| Other (expense) income, net | (6,440) | (334) | 12,410 | ||||||||||||||
| Income before income tax provision | 592,138 | 575,315 | 515,354 | ||||||||||||||
| Income tax provision | 91,726 | 51,605 | 60,727 | ||||||||||||||
| Net income | $ | 500,412 | $ | 523,710 | $ | 454,627 | |||||||||||
| Earnings per share – basic: | |||||||||||||||||
| Earnings per share | $ | 5.76 | $ | 6.02 | $ | 5.22 | |||||||||||
| Weighted average shares | 86,833 | 87,051 | 87,100 | ||||||||||||||
| Earnings per share – diluted: | |||||||||||||||||
| Earnings per share | $ | 5.73 | $ | 5.99 | $ | 5.16 | |||||||||||
| Weighted average shares | 87,386 | 87,490 | 88,102 | ||||||||||||||
| Year Ended December 31, | |||||||||||
| (in thousands, except per share data) | 2017 | 2016 | 2015 | ||||||||
| Revenue: | |||||||||||
| Software licenses | $ | 624,964 | $ | 568,174 | $ | 555,105 | |||||
| Maintenance and service | 470,286 | 420,291 | 387,648 | ||||||||
| Total revenue | 1,095,250 | 988,465 | 942,753 | ||||||||
| Cost of sales: | |||||||||||
| Software licenses | 34,421 | 28,860 | 29,105 | ||||||||
| Amortization | 36,794 | 38,092 | 38,755 | ||||||||
| Maintenance and service | 78,949 | 79,908 | 79,386 | ||||||||
| Total cost of sales | 150,164 | 146,860 | 147,246 | ||||||||
| Gross profit | 945,086 | 841,605 | 795,507 | ||||||||
| Operating expenses: | |||||||||||
| Selling, general and administrative | 338,640 | 269,515 | 253,603 | ||||||||
| Research and development | 202,746 | 183,093 | 168,831 | ||||||||
| Amortization | 12,972 | 12,755 | 19,394 | ||||||||
| Total operating expenses | 554,358 | 465,363 | 441,828 | ||||||||
| Operating income | 390,728 | 376,242 | 353,679 | ||||||||
| Interest income | 6,962 | 4,209 | 2,829 | ||||||||
| Other (expense) income, net | (1,996 | ) | (136 | ) | 257 | ||||||
| Income before income tax provision | 395,694 | 380,315 | 356,765 | ||||||||
| Income tax provision | 136,443 | 114,679 | 104,244 | ||||||||
| Net income | $ | 259,251 | $ | 265,636 | $ | 252,521 | |||||
| Earnings per share – basic: | |||||||||||
| Earnings per share | $ | 3.05 | $ | 3.05 | $ | 2.82 | |||||
| Weighted average shares | 84,988 | 87,227 | 89,561 | ||||||||
| Earnings per share – diluted: | |||||||||||
| Earnings per share | $ | 2.98 | $ | 2.99 | $ | 2.76 | |||||
| Weighted average shares | 86,854 | 88,969 | 91,502 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
67
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Net income | $ | 500,412 | $ | 523,710 | $ | 454,627 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Foreign currency translation adjustments | 32,451 | (66,610) | (38,337) | ||||||||||||||
| Comprehensive income | $ | 532,863 | $ | 457,100 | $ | 416,290 | |||||||||||
| Year Ended December 31, | |||||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||||
| Net income | $ | 259,251 | $ | 265,636 | $ | 252,521 | |||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation adjustments | 19,808 | (5,488 | ) | (20,410 | ) | ||||||
| Comprehensive income | $ | 279,059 | $ | 260,148 | $ | 232,111 | |||||
The accompanying notes are an integral part of the consolidated financial statements.
68
ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 500,412 | $ | 523,710 | $ | 454,627 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | 132,504 | 114,563 | 106,867 | ||||||||||||||
| Operating lease right-of-use assets expense | 23,514 | 22,721 | 22,193 | ||||||||||||||
| Deferred income tax benefit | (91,306) | (130,716) | (34,490) | ||||||||||||||
| Provision for bad debts | 2,704 | 6,222 | 1,006 | ||||||||||||||
| Stock-based compensation expense | 221,891 | 168,128 | 166,338 | ||||||||||||||
| Gain on equity investment | — | — | (15,139) | ||||||||||||||
| Other | 1,238 | 4,680 | 2,708 | ||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | (102,516) | (114,986) | (149,017) | ||||||||||||||
| Other receivables and current assets | (30,204) | 30,259 | (64,316) | ||||||||||||||
| Other long-term assets | (8,563) | (3,613) | (3,217) | ||||||||||||||
| Accounts payable, accrued expenses and current liabilities | 27,853 | (8,250) | 53,846 | ||||||||||||||
| Accrued income taxes | 13,731 | 99 | (18,429) | ||||||||||||||
| Deferred revenue | 34,507 | 33,003 | 26,547 | ||||||||||||||
| Other long-term liabilities | (8,643) | (14,817) | (42) | ||||||||||||||
| Net cash provided by operating activities | 717,122 | 631,003 | 549,482 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Acquisitions, net of cash acquired | (208,911) | (386,264) | (510,805) | ||||||||||||||
| Capital expenditures | (25,318) | (24,370) | (23,018) | ||||||||||||||
| Other investing activities | (5,813) | (734) | (2,990) | ||||||||||||||
| Net cash used in investing activities | (240,042) | (411,368) | (536,813) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Principal payments on long-term debt | — | — | (45,000) | ||||||||||||||
| Purchase of treasury stock | (196,494) | (205,571) | (134,679) | ||||||||||||||
| Restricted stock withholding taxes paid in lieu of issued shares | (63,645) | (64,242) | (97,037) | ||||||||||||||
| Proceeds from shares issued for stock-based compensation | 30,114 | 25,595 | 31,377 | ||||||||||||||
| Other financing activities | (1,294) | (1,290) | (513) | ||||||||||||||
| Net cash used in financing activities | (231,319) | (245,508) | (245,852) | ||||||||||||||
| Effect of exchange rate fluctuations on cash and cash equivalents | 49 | (27,403) | (11,822) | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 245,810 | (53,276) | (245,005) | ||||||||||||||
| Cash and cash equivalents, beginning of period | 614,391 | 667,667 | 912,672 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 860,201 | $ | 614,391 | $ | 667,667 | |||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||||||||
| Income taxes paid | $ | 144,117 | $ | 115,339 | $ | 130,426 | |||||||||||
| Interest paid | $ | 46,069 | $ | 20,844 | $ | 11,146 | |||||||||||
| Non-cash and unpaid consideration in connection with acquisitions | $ | 5,056 | $ | 5,391 | $ | — | |||||||||||
| Year Ended December 31, | |||||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 259,251 | $ | 265,636 | $ | 252,521 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 67,678 | 69,587 | 77,670 | ||||||||
| Deferred income tax benefit | (2,693 | ) | (10,921 | ) | (15,196 | ) | |||||
| Provision for bad debts | 1,474 | 2,009 | 1,304 | ||||||||
| Stock-based compensation expense | 53,154 | 33,347 | 33,951 | ||||||||
| Other | 21 | 1,290 | 1,413 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (14,406 | ) | (17,388 | ) | 6,044 | ||||||
| Other receivables and current assets | (18,498 | ) | (39,644 | ) | (17,662 | ) | |||||
| Other long-term assets | 2,343 | (7,167 | ) | 273 | |||||||
| Accounts payable, accrued expenses and current liabilities | 27,045 | 16,919 | (6,993 | ) | |||||||
| Accrued income taxes | 1,215 | 9,052 | 5,770 | ||||||||
| Deferred revenue | 20,648 | 41,430 | 40,566 | ||||||||
| Other long-term liabilities | 33,206 | 1,830 | (3,962 | ) | |||||||
| Net cash provided by operating activities | 430,438 | 365,980 | 375,699 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Acquisitions, net of cash acquired | (63,885 | ) | (7,891 | ) | (46,117 | ) | |||||
| Capital expenditures | (19,149 | ) | (12,443 | ) | (16,145 | ) | |||||
| Other investing activities | (14,409 | ) | (11,839 | ) | 230 | ||||||
| Net cash used in investing activities | (97,443 | ) | (32,173 | ) | (62,032 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Purchase of treasury stock | (336,042 | ) | (336,335 | ) | (337,910 | ) | |||||
| Restricted stock withholding taxes paid in lieu of issued shares | (11,112 | ) | (5,057 | ) | (4,446 | ) | |||||
| Contingent consideration payments | — | (1,048 | ) | (1,173 | ) | ||||||
| Proceeds from shares issued for stock-based compensation | 52,503 | 53,811 | 43,623 | ||||||||
| Other financing activities | — | (1 | ) | (21 | ) | ||||||
| Net cash used in financing activities | (294,651 | ) | (288,630 | ) | (299,927 | ) | |||||
| Effect of exchange rate fluctuations on cash and cash equivalents | 20,678 | (6,866 | ) | (17,636 | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | 59,022 | 38,311 | (3,896 | ) | |||||||
| Cash and cash equivalents, beginning of period | 822,479 | 784,168 | 788,064 | ||||||||
| Cash and cash equivalents, end of period | $ | 881,501 | $ | 822,479 | $ | 784,168 | |||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Income taxes paid | $ | 116,389 | $ | 118,455 | $ | 107,218 | |||||
| Interest paid | $ | 199 | $ | 822 | $ | 620 | |||||
| Fair value of stock options and restricted stock awards assumed in connection with acquisitions | $ | — | $ | — | $ | 3,528 | |||||
The accompanying notes are an integral part of the consolidated financial statements.
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ANSYS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss)/Income | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | 95,266 | $ | 953 | $ | 1,434,203 | $ | 3,804,593 | 8,694 | $ | (1,124,102) | $ | (17,775) | $ | 4,097,872 | |||||||||||||||||||||||||||||||||
| Acquisition of Analytical Graphics Inc. | 1 | 3,069 | (10) | 819 | 3,888 | ||||||||||||||||||||||||||||||||||||||||||
| Treasury shares acquired | 347 | (134,679) | (134,679) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation activity | 28,422 | (843) | 72,255 | 100,677 | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (38,337) | (38,337) | |||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year | 454,627 | 454,627 | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 95,267 | 953 | 1,465,694 | 4,259,220 | 8,188 | (1,185,707) | (56,112) | 4,484,048 | |||||||||||||||||||||||||||||||||||||||
| Acquisition of Analytical Graphics Inc. | 511 | (3) | 300 | 811 | |||||||||||||||||||||||||||||||||||||||||||
| Treasury shares acquired | 725 | (205,571) | (205,571) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation activity | 74,112 | (593) | 55,351 | 129,463 | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | (66,610) | (66,610) | |||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year | 523,710 | 523,710 | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 95,267 | 953 | 1,540,317 | 4,782,930 | 8,317 | (1,335,627) | (122,722) | 4,865,851 | |||||||||||||||||||||||||||||||||||||||
| Treasury shares acquired, including excise tax | 650 | (196,609) | (196,609) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation activity | 130,133 | (606) | 58,126 | 188,259 | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 32,451 | 32,451 | |||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year | 500,412 | 500,412 | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | 95,267 | $ | 953 | $ | 1,670,450 | $ | 5,283,342 | 8,361 | $ | (1,474,110) | $ | (90,271) | $ | 5,390,364 | |||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive (Loss)/Income | Total Stockholders' Equity | |||||||||||||||||||||||
| (in thousands) | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
| Balance, January 1, 2015 | 93,236 | $ | 932 | $ | 904,825 | $ | 1,539,508 | 2,471 | $ | (196,010 | ) | $ | (31,754 | ) | $ | 2,217,501 | ||||||||||||
| Treasury shares acquired | 3,833 | (337,910 | ) | (337,910 | ) | |||||||||||||||||||||||
| Stock-based compensation activity, including tax benefit of $6,068 | (8,434 | ) | (1,139 | ) | 87,631 | 79,197 | ||||||||||||||||||||||
| Other comprehensive loss | (20,410 | ) | (20,410 | ) | ||||||||||||||||||||||||
| Net income for the year | 252,521 | 252,521 | ||||||||||||||||||||||||||
| Acquisition-related activity | (1,922 | ) | (68 | ) | 5,450 | 3,528 | ||||||||||||||||||||||
| Balance, December 31, 2015 | 93,236 | 932 | 894,469 | 1,792,029 | 5,097 | (440,839 | ) | (52,164 | ) | 2,194,427 | ||||||||||||||||||
| Treasury shares acquired | 3,700 | (336,335 | ) | (336,335 | ) | |||||||||||||||||||||||
| Stock-based compensation activity, including tax benefit of $8,065 | (11,459 | ) | (1,249 | ) | 101,624 | 90,165 | ||||||||||||||||||||||
| Other comprehensive loss | (5,488 | ) | (5,488 | ) | ||||||||||||||||||||||||
| Net income for the year | 265,636 | 265,636 | ||||||||||||||||||||||||||
| Balance, December 31, 2016 | 93,236 | 932 | 883,010 | 2,057,665 | 7,548 | (675,550 | ) | (57,652 | ) | 2,208,405 | ||||||||||||||||||
| Treasury shares acquired | 2,750 | (336,042 | ) | (336,042 | ) | |||||||||||||||||||||||
| Stock-based compensation activity | (9,653 | ) | (1,254 | ) | 104,062 | 94,409 | ||||||||||||||||||||||
| Other comprehensive income | 19,808 | 19,808 | ||||||||||||||||||||||||||
| Net income for the year | 259,251 | 259,251 | ||||||||||||||||||||||||||
| Balance, December 31, 2017 | 93,236 | $ | 932 | $ | 873,357 | $ | 2,316,916 | 9,044 | $ | (907,530 | ) | $ | (37,844 | ) | $ | 2,245,831 | ||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
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ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 20172023
We develop and globally marketsmarket engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including high-tech, aerospace and defense, automotive, electronics, semiconductors, energy, industrial equipment, materials and chemical processing, turbomachinery,chemicals, consumer products, healthcare and sports.construction.
As defined by the accounting guidance for segment reporting, the Company operateswe operate as one segment.
Given the integrated approach to the multi-discipline problem-solving needs of the Company'sour customers, a single sale of software may contain components from multiple product areas and include combined technologies. The CompanyWe also hashave 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 the Companyus to provide accurate historical or current reporting among itsour various product lines.
Pending Acquisition
On January 15, 2024, we entered into a definitive agreement with Synopsys, Inc. (Synopsys) under which Synopsys will acquire Ansys. Under the terms of the agreement, Ansys stockholders will receive $197.00 in cash and 0.3450 of a share of Synopsys common stock for each Ansys share, representing an enterprise value of approximately $35.0 billion based on the closing price of Synopsys common stock on December 21, 2023. The transaction is anticipated to close in the first half of 2025, subject to approval by Ansys stockholders, the receipt of required regulatory approvals and other customary closing conditions. See Note 20 "Subsequent Event" for additional details.
2.Accounting Policies
Accounting Principles
The consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States. Certain items in the notes to the 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.
Principles of Consolidation
The accompanying consolidated financial statements include theour accounts and those of the Company and itsour wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
Recently Adopted Accounting Guidance
Business combinations: In October 2021, the Financial Accounting Standards Board (FASB) issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08). ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, as if the acquirer had originated the contracts. We adopted the standard effective January 1, 2022. Under the prior guidance, such assets and liabilities were recognized by the acquirer at fair value on the acquisition date. The adoption of the new standard did not have a material effect on our consolidated financial statements and accompanying notes.
Accounting Guidance Issued and Not Yet Adopted
Segment reporting: In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07). ASU 2023-07 requires enhanced disclosures related to segment information, including for entities with one reportable segment. It does not change the determination of reportable segments. The enhanced disclosures in accordance with the new guidance are required to be reported in the annual period beginning after December 15, 2023. Early adoption is permitted. The standard only impacts footnote disclosures and will not impact our consolidated financial statements.
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Income tax disclosures: In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09). ASU 2023-09 requires disclosure of greater disaggregation of information in the rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The standard is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The standard only impacts footnote disclosures and will not impact our consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the amounts of revenue and expenses during the reported periods. Significant estimates included in or impacting these consolidated financial statements include:
•Standalone selling prices of our products and services
•Allowance for doubtful accounts receivable
•Useful lives for depreciation and amortization
•Operating lease assets and liabilities
•Fair values of goodwillstock awards
•Income taxes
•Uncertain tax positions
•Tax valuation reserves
•Contingencies and other intangible assets
Actual results could differ from these estimates. Changes in estimates are recorded in the results of operations in the period that the changes occur.
Revenue Recognition
Revenue from perpetual licenses is classified as software license revenue. Software license revenue and is recognized up front upon delivery of the licensed product andand/or the utility that enables the customer to access authorization keys, provided that acceptance has occurred and a signed contractual obligationan enforceable contract has been received, the price is fixedreceived. Typically, our perpetual licenses are sold with post-contract support (PCS), which includes unspecified technical enhancements and determinable,customer support. We allocate value in bundled perpetual and collectibility of the receivable is probable. The Company determines the fair value of PCS sold together with perpetual licensesarrangements based on the rate charged for PCS when sold separately.standalone selling prices of the perpetual license and PCS. Revenue from PCS contracts is classified as maintenance and service revenue and is recognized ratably over the term of the contract.contract, as we satisfy the PCS performance obligation.
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Revenue from training, supportconsulting and other services is recognized as the services are performed. The Company applies the specific performance method toFor contracts in which the service consists of a single act,performance obligation, such as providing a training class to a customer, andwe recognize revenue upon completion of the proportional performance method to otherobligation. For service contracts that are longer in duration and often include multiple actsperformance obligations (for example, both training and consulting)., we measure the progress toward completion of the obligations and recognize revenue accordingly. In applyingmeasuring progress towards the proportionalcompletion of performance method, the Companyobligations, we typically utilizesutilize output-based estimates for services with contractual billing arrangements that are not based on time and materials, and estimatesestimate output based on the total tasks completed as compared to the total tasks required for each work contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure.
Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheet as accounts receivable and accrued expenses. The collection and payment of these amounts are reported on a net basis in the consolidated statements of income and do not impact reported revenues or expenses.
The warranty does not provide any type of additional service to the Company hascustomer or performance obligation for us.
Our agreements with our customers generally require us to indemnify the customer against claims that our software infringes third-party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects, including our right to replace an infringing product.
Significant Judgments
Our contracts with customers typically include promises to transfer licenses and services to a customer. Judgment is required to determine if the promises are separate performance obligations, and if so, to allocate the transaction price to each performance obligation. We use the estimated standalone selling price method to allocate the transaction price for each performance obligation. The estimated standalone selling price is determined using all information reasonably available to us, including market conditions and other observable inputs. The corresponding revenues are recognized as the related performance obligations are satisfied.
We apply a practical expedient to expense sales commissions as incurred when the amortization period would have been one year or less. Sales commissions associated with the initial year of multi-year contracts are expensed as incurred due to their immateriality. Sales commissions associated with multi-year contracts beyond the initial year are subject to an employee service requirement and are expensed as incurred as they are not established reservesconsidered incremental costs to obtain a contract.
We are required to adjust promised amounts of consideration for warranty obligations.the effects of the time value of money if the timing of the payments provides the customer or us with a significant financing benefit. We consider various factors in assessing whether a financing component exists, including the duration of the contract, market interest rates and the timing of payments. Our contracts do not include a significant financing component requiring adjustment to the transaction price.
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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. The Company'sOur cash and cash equivalents balances comprise the following:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (in thousands, except percentages) | Amount | % of Total | Amount | % of Total | |||||||||||||||||||
| Cash accounts | $ | 689,380 | 80.1 | $ | 503,733 | 82.0 | |||||||||||||||||
| Money market funds | 170,821 | 19.9 | 110,658 | 18.0 | |||||||||||||||||||
| Total | $ | 860,201 | $ | 614,391 | |||||||||||||||||||
| December 31, 2017 | December 31, 2016 | ||||||||||
| (in thousands, except percentages) | Amount | % of Total | Amount | % of Total | |||||||
| Cash accounts | $ | 568,587 | 64.5 | $ | 488,504 | 59.4 | |||||
| Money market funds | 312,914 | 35.5 | 333,975 | 40.6 | |||||||
| Total | $ | 881,501 | $ | 822,479 | |||||||
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the various classes of assets, which range from one year to forty years. Repairs and maintenance are charged to expense as incurred. Gains or losses from the sale or retirement of property and equipment are included in operating income.
Research and Development
Research and development costs other than certain capitalized software development costs, are expensed as incurred.
Internally developed software costs required to be capitalized as defined by the accounting guidance are not material to the Company'sour consolidated financial statements.
Business Combinations
When the Company consummateswe consummate an acquisition, the assets acquired and the liabilities assumed are recognized separately from goodwill at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of the fair value of consideration transferred over the net of the acquisition date fair valuesvalue of the net identifiable assets acquired and the liabilities assumed.acquired. While best estimates and assumptions are used to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, the Company'sour estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company recordswe record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill as the Company obtainswe obtain 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. Upon the earlier of the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, any subsequent adjustments are recorded in the consolidated statements of income.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the fair value of consideration transferred over the fair value of net identifiable assets acquired. Other intangible assets consist of trade names, customer lists, contract backlog and acquired software and technology.technology, customer lists and trade names. Intangible assets that are not considered to have an indefinite useful life are amortized over their useful lives, which are generallyrange from two years to fifteenseventeen years. Amortization expense for intangible assets was $49.8$103.5 million,, $50.8 $85.1 million and $58.1$76.0 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
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Concentrations of Credit Risk
| Year Ended December 31, | ||||||||||||||||||||
| (as a % of revenue) | 2023 | 2022 | 2021 | |||||||||||||||||
| Revenue from channel partners | 26 | % | 24 | % | 24 | % | ||||||||||||||
| Year Ended December 31, | |||||||||
| (as a % of revenue) | 2017 | 2016 | 2015 | ||||||
| Revenue from channel partners | 25 | % | 24 | % | 24 | % | |||
| Largest channel partner | 5 | % | 5 | % | 5 | % | |||
2nd largest channel partner | 2 | % | 2 | % | 2 | % | |||
No single customer or channel partner accounted for more than 5% of the Company'sour revenue in 2017, 20162023, 2022 or 2015.2021.
In addition to the concentration of credit risk with respect to trade receivables, the Company'sour cash and cash equivalents are also exposed to concentration of credit risk. The Company'sOur cash and cash equivalent accounts are insured through various public and private bank deposit insurance programs, foreign and domestic; however, a significant portion of the Company'sour funds are not insured. The following table outlines concentrations of risk with respect to the Company'sour cash and cash equivalents:
| As of December 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Cash and cash equivalents held domestically | $ | 529,092 | $ | 326,784 | |||||||
| Cash and cash equivalents held by foreign subsidiaries | 331,109 | 287,607 | |||||||||
| Cash and cash equivalents held in excess of deposit insurance, foreign and domestic | 846,723 | 597,471 | |||||||||
| Largest balance of cash and cash equivalents held with one financial institution, foreign and domestic | 359,362 | 238,058 | |||||||||
| As of December 31, | |||||||
| (in thousands) | 2017 | 2016 | |||||
| Cash and cash equivalents held domestically | $ | 561,417 | $ | 593,348 | |||
| Cash and cash equivalents held by foreign subsidiaries | 320,084 | 229,131 | |||||
| Cash and cash equivalents held in excess of deposit insurance, foreign and domestic | 852,138 | 805,374 | |||||
| Largest balance of cash and cash equivalents held with one financial institution, foreign and domestic | 328,902 | 377,602 | |||||
Allowance for Doubtful Accounts
The changes in the customer's industry and geographic region. The Company recorded provisionsallowance for doubtful accounts of $1.5 million, $2.0 million and $1.3 million forduring the years ended December 31, 2017, 20162023, 2022 and 2015, respectively.2021 were as follows:
| (in thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Beginning balance – January 1 | $ | 18,300 | $ | 14,600 | $ | 14,000 | |||||||||||
| Additions: Charges to expense | 2,704 | $ | 6,222 | 1,006 | |||||||||||||
| Deductions: Write-offs | (304) | (2,522) | (406) | ||||||||||||||
| Ending balance – December 31 | $ | 20,700 | $ | 18,300 | $ | 14,600 | |||||||||||
Income Taxes
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Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more-likely-than-not threshold. Otherwise, these tax benefits are recorded when a tax position has been effectively
settled, which means that the statute of limitations has expired or the appropriate taxing authority has completed its examination even though the statute of limitations remains open. The Company recognizes
We recognize interest and penalties related to income taxes within the income tax expense line in the consolidated statements of income. Accrued interest and penalties are included within the related tax liability line in the consolidated balance sheets.
Foreign Currencies
Certain of the Company'sour sales and intercompany transactions are denominated in foreign currencies. These transactions are translatedconverted to the functional currency atin the exchange rate on the transaction date.period in which they occur. Assets and liabilities denominated in a currency other than the Company'sour functional currency or subsidiary'sour subsidiaries' functional currencycurrencies are translated at the effective exchange rate on the balance sheet date. Gains and losses resulting from foreign exchange transactions are included in other (expense) income, net. The CompanyWe recorded net foreign exchange losses of $1.9$4.0 million for the year ended December 31, 2017, and2023, net foreign exchange gains of $0.1 million and $0.5$1.6 million for the yearsyear ended December 31, 20162022 and 2015, respectively.net foreign exchange losses of $1.8 million for the year ended December 31, 2021.
The financial statements of the Company'sour foreign subsidiaries are translated from the functional (local) currency to U.S. Dollars. Assets and liabilities are translated at the exchange rates on the balance sheet date. Results of operations are translated at average exchange rates, which approximate rates in effect when the underlying transactions occurred.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is composed entirely of foreign currency translation adjustments.
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:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2021 | |||||||||||||||||
| Net income | $ | 500,412 | $ | 523,710 | $ | 454,627 | ||||||||||||||
| Weighted average shares outstanding – basic | 86,833 | 87,051 | 87,100 | |||||||||||||||||
| Dilutive effect of stock plans | 553 | 439 | 1,002 | |||||||||||||||||
| Weighted average shares outstanding – diluted | 87,386 | 87,490 | 88,102 | |||||||||||||||||
| Basic earnings per share | $ | 5.76 | $ | 6.02 | $ | 5.22 | ||||||||||||||
| Diluted earnings per share | $ | 5.73 | $ | 5.99 | $ | 5.16 | ||||||||||||||
| Anti-dilutive shares | 218 | 300 | 23 | |||||||||||||||||
| Year Ended December 31, | ||||||||||||
| (in thousands, except per share data) | 2017 | 2016 | 2015 | |||||||||
| Net income | $ | 259,251 | $ | 265,636 | $ | 252,521 | ||||||
| Weighted average shares outstanding – basic | 84,988 | 87,227 | 89,561 | |||||||||
| Dilutive effect of stock plans | 1,866 | 1,742 | 1,941 | |||||||||
| Weighted average shares outstanding – diluted | 86,854 | 88,969 | 91,502 | |||||||||
| Basic earnings per share | $ | 3.05 | $ | 3.05 | $ | 2.82 | ||||||
| Diluted earnings per share | $ | 2.98 | $ | 2.99 | $ | 2.76 | ||||||
| Anti-dilutive shares | 84 | 260 | 206 | |||||||||
Stock-Based Compensation
Fair Value of Financial Instruments
76
3.Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 supersedes most current
Disaggregation of Revenue
The following table summarizes revenue:
| Year Ended December 31, | |||||||||||||||||
| (in thousands, except percentages) | 2023 | 2022 | 2021 | ||||||||||||||
| Revenue: | |||||||||||||||||
| Subscription lease licenses | $ | 786,050 | $ | 687,665 | $ | 617,643 | |||||||||||
| Perpetual licenses | 302,698 | 301,313 | 328,154 | ||||||||||||||
| Software licenses | 1,088,748 | 988,978 | 945,797 | ||||||||||||||
| Maintenance | 1,103,523 | 1,004,245 | 896,037 | ||||||||||||||
| Service | 77,678 | 72,330 | 64,881 | ||||||||||||||
| Maintenance and service | 1,181,201 | 1,076,575 | 960,918 | ||||||||||||||
| Total revenue | $ | 2,269,949 | $ | 2,065,553 | $ | 1,906,715 | |||||||||||
| Direct revenue, as a percentage of total revenue | 73.9 | % | 76.1 | % | 76.3 | % | |||||||||||
| Indirect revenue, as a percentage of total revenue | 26.1 | % | 23.9 | % | 23.7 | % | |||||||||||
Our software licenses revenue recognition guidance, including industry-specific guidance. Previous guidance requires an entity to recognizeis recognized up front, while maintenance and service revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,
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 years ended December 31, 2023 and 2022 were as follows:
| (in thousands) | 2023 | 2022 | |||||||||
| Beginning balance – January 1 | $ | 435,758 | $ | 412,781 | |||||||
| Acquired deferred revenue | 8,030 | 5,818 | |||||||||
| Deferral of revenue | 2,305,294 | 2,099,550 | |||||||||
| Recognition of deferred revenue | (2,269,949) | (2,065,553) | |||||||||
| Currency translation | 621 | (16,838) | |||||||||
| Ending balance – December 31 | $ | 479,754 | $ | 435,758 | |||||||
Total revenue allocated to remaining performance obligations as of December 31, 2023 will be recognized as lease license revenue ratably overas follows:
| (in thousands) | |||||
| Next 12 months | $ | 897,393 | |||
| Months 13-24 | 371,957 | ||||
| Months 25-36 | 150,744 | ||||
| Thereafter | 52,490 | ||||
| Total revenue allocated to remaining performance obligations | $ | 1,472,584 | |||
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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 deferred revenue associated with installment billings for periods beyond the termcurrent quarterly billing cycle and committed contracts with start dates beyond the end of the license. Undercurrent period. Revenue recognized during the new standardyears ended December 31, 2023 and the existing interpretations, the Company expects to recognize approximately 50% of the revenue related to these licenses up-front at the time the license is delivered. The up-front portion will continue to be reported within lease license revenue, but the ratable portion allocation to PCS will be reflected2022 included amounts in maintenance revenue, resulting in a significant shift from software license revenue to maintenance and services revenue as reported on the consolidated statement of income. In addition, it is anticipated that there will be an acceleration of income tax payments associated with deferred revenue and backlog credited to retained earningsat the beginning of the period of $846.3 million, of which $414.0 million was in deferred revenue, and never recognized as$764.9 million, of which $391.5 million was in deferred revenue, inrespectively.
4.Acquisitions
On January 3, 2023, we completed the financial statements. The 2018 accelerationacquisition of DYNAmore for a purchase price of $139.2 million, or $126.4 million net of cash payments is expected to be between $15.0 million - $20.0 million.acquired. The Company has also madeacquisition expands our position as a preliminary assessment thatsimulation solution provider within the expense related to sales commissions will not be materially different under the new standard. However, the Company's preliminary assessments could change as additional interpretations relating to the new standard are provided and as issues identified by software industry groups are addressed.
During the year ended December 31, 2023, we incurred acquisition-related expenses of $9.4 million. Acquisition-related expenses are recognized as selling, general and administrative and research and development expenses on the consolidated statements of cash flows onincome.
The assets acquired and liabilities assumed in connection with the acquisitions have been recorded based upon management's estimates of their fair market values as of each respective date of acquisition. The following tables summarize the fair value of consideration and the fair values of identified assets acquired and liabilities assumed at each respective date of acquisition:
Fair Value of Consideration:
| (in thousands) | |||||||||||||||||
| Cash | $ | 228,520 | |||||||||||||||
| Non-cash consideration | 5,056 | ||||||||||||||||
| Total consideration | $ | 233,576 | |||||||||||||||
| Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed: | |||||||||||||||||
| (in thousands) | |||||||||||||||||
| Cash | $ | 18,870 | |||||||||||||||
| Accounts receivable and other tangible assets | 18,524 | ||||||||||||||||
| Developed software and core technologies | 28,110 | ||||||||||||||||
| Customer lists | 83,790 | ||||||||||||||||
| Trade names | 2,910 | ||||||||||||||||
| Accounts payable and other liabilities | (9,176) | ||||||||||||||||
| Deferred revenue | (8,030) | ||||||||||||||||
| Net deferred tax liabilities | (31,597) | ||||||||||||||||
| Total identifiable net assets | $ | 103,401 | |||||||||||||||
| Goodwill | $ | 130,175 | |||||||||||||||
The goodwill, which is generally not tax-deductible, is attributed to intangible assets that do not qualify for separate recognition, including the assembled workforces of the acquired businesses and the synergies expected to arise as a retrospective basis, resulting in an increase to both net cash provided by operating activitiesresult of the acquisitions.
The fair values of the assets acquired and net cash used in financing activities of $9.2 million and $8.2 million for the years ended December 31, 2016 and 2015, respectively.
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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.
The weighted-average useful life, valuation method and assumptions used to determine the fair value of the grossintangible assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquiree is not a business. The update also requires a business to include an input and a substantive process that significantly contributesrelated to the ability to create outputs. This definition is expected to reduce the number of acquisitions accounted for as business combinations, which will impact the accounting treatment of certain items, including the accounting treatment of contingent consideration and transaction expenses. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted and the update will be applied prospectively. The effect of the implementation will depend upon the nature of the Company's future acquisitions, if any. Historically, the Company has entered into acquisitions that would meet the definition of a business under ASU 2017-01. The Company plans to adopt ASU 2017-01 effective January 1, 2018.
| Intangible Asset | Weighted-Average Useful Life | Valuation Method | Assumptions | |||||||||||||||||
| Developed software and core technologies | 5 years | Relief-from-royalty or multi-period excess earnings | Royalty rate: 20.0% Obsolescence rate: 15.0% - 20.0% Discount rate: 12.5% - 22.0% | |||||||||||||||||
| 5 years | Relief-from-royalty | Royalty rate: 1.0% - 2.0% Discount rate: 15.5% - 22.0% | ||||||||||||||||||
| 13 years | Multi-period excess earnings | |||||||||||||||||||
The operating results of each acquisition have been included in the Company'sour consolidated financial statements since each respective date of acquisition. The effects of the business combinations were not material to the Company'sour consolidated results of operations individually or in the aggregate.aggregate during 2023.
During the year ended December 31, 2022, we completed several strategic acquisitions to enhance our customers' experience. The effects of the acquisitions were not material to our consolidated results of operations individually or in the aggregate. The combined purchase price of the acquisitions completed during the year ended December 31, 2022 was $401.7 million, or $390.8 million net of cash acquired.
During the year ended December 31, 2022, we incurred acquisition-related expenses of $10.3 million. Acquisition-related expenses are recognized as selling, general and administrative and research and development expenses on the balance sheetsconsolidated statements of income.
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The assets and liabilities of the Company's acquisitions have been recorded based upon management's estimates of their fair market values as of theireach respective acquisition dates,date of acquisition. The following tables summarize the Company appliedfair values of consideration transferred and the fair values of identified assets acquired and liabilities assumed at each respective date of acquisition:
| Fair Value of Consideration: | |||||
| (in thousands) | |||||
| Cash | $ | 397,629 | |||
| Consideration not yet paid | 4,035 | ||||
| Total Consideration | $ | 401,664 | |||
| Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed: | |||||
| (in thousands) | |||||
| Cash | $ | 10,862 | |||
| Accounts receivable and other tangible assets | 4,914 | ||||
| Developed software and core technologies | 127,830 | ||||
| Customer lists | 7,926 | ||||
| Trade names | 5,304 | ||||
| Accounts payable and other liabilities | (7,247) | ||||
| Deferred revenue | (6,408) | ||||
| Net deferred tax liabilities | (19,854) | ||||
| Total identifiable net assets | $ | 123,327 | |||
| Goodwill | $ | 278,337 | |||
The goodwill, which is generally not tax-deductible, is attributed to intangible assets that do not qualify for separate recognition, including the assembled workforces of the acquired businesses and the synergies expected to arise as a result of the acquisitions.
The weighted-average useful life, valuation method and assumptions used to determine the fair value provisions applicable toof the accounting forintangible assets acquired in 2022 are as follows:
| Intangible Asset | Weighted-Average Useful Life | Valuation Method | Assumptions | |||||||||||||||||
| Developed software and core technologies | 9 years | Multi-period excess earnings | Discount rate: 9.5% - 18.0% | |||||||||||||||||
| Trade names | 10 years | Relief-from-royalty | Royalty rate: 1.0% - 2.0% Discount rate: 10.0% - 18.0% | |||||||||||||||||
| Customer lists | 14 years | Multi-period excess earnings | Attrition rate: 5.0% - 30.0% Discount rate: 9.5% - 15.0% | |||||||||||||||||
The operating results of each acquisition have been included in our consolidated financial statements since each respective date of acquisition. The effects of the business combinations resultingwere not material to our consolidated results of operations individually or in a reductionthe aggregate during 2022.
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5.Other Receivables and each acquiree absent the acquisitions. The impacts on reported revenue for the years ended December 31, 2017, 2016Current Assets and 2015 were $2.9 million, $0.1 millionOther Accrued Expenses and $0.8 million, respectively.Liabilities
| December 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Receivables related to unrecognized revenue | $ | 253,646 | $ | 209,139 | |||||||
| Income taxes receivable, including overpayments and refunds | 22,104 | 28,963 | |||||||||
| Prepaid expenses and other current assets | 48,901 | 51,159 | |||||||||
| Total other receivables and current assets | $ | 324,651 | $ | 289,261 | |||||||
| Consumption, sales and VAT tax liabilities | 43,101 | $ | 41,812 | ||||||||
| Accrued expenses and other current liabilities | 172,544 | 156,408 | |||||||||
| Total other accrued expenses and liabilities | $ | 215,645 | $ | 198,220 | |||||||
| December 31, | |||||||
| (in thousands) | 2017 | 2016 | |||||
| Receivables related to unrecognized revenue | $ | 215,155 | $ | 199,119 | |||
| Income taxes receivable, including overpayments and refunds | 21,663 | 15,718 | |||||
| Prepaid expenses and other current assets | 27,002 | 24,512 | |||||
| Total other receivables and current assets | $ | 263,820 | $ | 239,349 | |||
Receivables forrelated to unrecognized revenue represent the current portion of billings made for annual lease licenses and software maintenancecustomer contracts that have not yet been recognized as revenue.
6.Property and Equipment
Property and equipment consists of the following:
| December 31, | ||||||||||||||||||||
| (in thousands) | Estimated Useful Lives | 2023 | 2022 | |||||||||||||||||
| Equipment | 1-15 years | $ | 136,112 | $ | 127,672 | |||||||||||||||
| Computer software | 1-5 years | 29,210 | 27,030 | |||||||||||||||||
| Buildings and improvements | 2-40 years | 39,728 | 38,991 | |||||||||||||||||
| Leasehold improvements | 1-17 years | 29,587 | 27,560 | |||||||||||||||||
| Furniture | 1-10 years | 15,921 | 15,196 | |||||||||||||||||
| Land | 2,696 | 2,696 | ||||||||||||||||||
| Property and equipment, gross | 253,254 | 239,145 | ||||||||||||||||||
| Less: Accumulated depreciation | (175,474) | (158,307) | ||||||||||||||||||
| Property and equipment, net | $ | 77,780 | $ | 80,838 | ||||||||||||||||
| December 31, | ||||||||||
| (in thousands) | Estimated Useful Lives | 2017 | 2016 | |||||||
| Equipment | 1-10 years | $ | 88,189 | $ | 78,614 | |||||
| Computer software | 1-5 years | 34,994 | 30,867 | |||||||
| Buildings and improvements | 5-40 years | 26,423 | 25,472 | |||||||
| Leasehold improvements | 1-16 years | 13,316 | 11,571 | |||||||
| Furniture | 1-13 years | 9,239 | 8,618 | |||||||
| Land | 1,759 | 1,759 | ||||||||
| Property and equipment, gross | 173,920 | 156,901 | ||||||||
| Less: Accumulated depreciation | (116,824 | ) | (102,224 | ) | ||||||
| Property and equipment, net | $ | 57,096 | $ | 54,677 | ||||||
Depreciation expense related to property and equipment was $17.9$29.0 million,, $18.7 $29.5 million and $19.5$30.9 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively.
7.Goodwill and Intangible Assets
Goodwill represents the excess of the fair value of the consideration transferred over the fair value of net tangible and identifiable intangible assets of acquired businesses.acquired. Identifiable intangible assets acquired in business combinations are recorded based on their fair values on the date of acquisition.
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Intangible assets had not been impaired as of the test date, January 1, 2017. No other events or circumstances changed during the year ended December 31, 2017 that would indicate that the fair values of the Company's reporting unit and indefinite-lived intangible asset are below their carrying values.
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||||||||
| Finite-lived intangible assets: | |||||||||||||||||||||||
| Developed software and core technologies | $ | 1,146,022 | $ | (557,359) | $ | 1,106,789 | $ | (483,033) | |||||||||||||||
| Customer lists | 289,874 | (89,800) | 205,484 | (71,618) | |||||||||||||||||||
| Trade names | 190,203 | (143,880) | 186,424 | (135,220) | |||||||||||||||||||
| Total | $ | 1,626,099 | $ | (791,039) | $ | 1,498,697 | $ | (689,871) | |||||||||||||||
| Indefinite-lived intangible asset: | |||||||||||||||||||||||
| Trade name | $ | 357 | $ | 357 | |||||||||||||||||||
| December 31, 2017 | December 31, 2016 | ||||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||
| Finite-lived intangible assets: | |||||||||||||||
| Developed software and core technologies (3 – 11 years) | $ | 365,317 | $ | (297,645 | ) | $ | 338,594 | $ | (275,130 | ) | |||||
| Customer lists and contract backlog (5 – 15 years) | 171,048 | (104,522 | ) | 159,549 | (88,414 | ) | |||||||||
| Trade names (2 – 10 years) | 127,200 | (104,130 | ) | 127,952 | (90,289 | ) | |||||||||
| Total | $ | 663,565 | $ | (506,297 | ) | $ | 626,095 | $ | (453,833 | ) | |||||
| Indefinite-lived intangible assets: | |||||||||||||||
| Trade name | $ | 357 | $ | 357 | |||||||||||
As of December 31, 2017,2023, estimated future amortization expense for the intangible assets reflected above is as follows:
| (in thousands) | (in thousands) | |||||||
| 2018 | $ | 39,162 | ||||||
| 2019 | 26,362 | |||||||
| 2020 | 25,449 | |||||||
| 2021 | 21,225 | |||||||
| 2022 | 16,197 | |||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | 28,873 | |||||||
| Total intangible assets subject to amortization, net | 157,268 | |||||||
| Indefinite-lived trade name | 357 | |||||||
| Other intangible assets, net | $ | 157,625 | ||||||
The changes in goodwill during the years ended December 31, 20172023 and 2016 are2022 were as follows:
| (in thousands) | 2023 | 2022 | |||||||||
| Beginning balance - January 1 | $ | 3,658,267 | $ | 3,409,271 | |||||||
Acquisitions and adjustments(1) | 122,635 | 284,503 | |||||||||
| Currency translation | 24,972 | (35,507) | |||||||||
| Ending balance - December 31 | $ | 3,805,874 | $ | 3,658,267 | |||||||
| (in thousands) | 2017 | 2016 | |||||
| Beginning balance - January 1 | $ | 1,337,215 | $ | 1,332,348 | |||
| Acquisitions | 36,554 | 6,184 | |||||
Adjustments(1) | (111 | ) | (1 | ) | |||
| Currency translation | 4,895 | (1,316 | ) | ||||
| Ending balance - December 31 | $ | 1,378,553 | $ | 1,337,215 | |||
(1) In addition to goodwill from acquisitions completed within the period, in accordance with the accounting for business combinations, the Companywe 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 the Companywe 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 2023, 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, 2023. No other events or circumstances changed during the year ended December 31, 2023 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 the Company'sour 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 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 debt approximates the estimated fair value. See Note 10, "Debt", for additional information on these borrowings.
The following tables provide the assets carried at fair value and measured on a recurring basis:
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||||||
| (in thousands) | December 31, 2023 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets (Liabilities) | |||||||||||||||||||||||
| Cash equivalents | $ | 170,821 | $ | 170,821 | $ | — | $ | — | |||||||||||||||
| Short-term investments | $ | 189 | $ | — | $ | 189 | $ | — | |||||||||||||||
| Deferred compensation plan investments | $ | 2,337 | $ | 2,337 | $ | — | $ | — | |||||||||||||||
| Equity securities | $ | 634 | $ | 634 | $ | — | $ | — | |||||||||||||||
| Forward contracts | $ | (412) | $ | — | $ | (412) | $ | — | |||||||||||||||
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||
| (in thousands) | December 31, 2017 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Assets | |||||||||||||||
| Cash equivalents | $ | 312,914 | $ | 312,914 | $ | — | $ | — | |||||||
| Short-term investments | $ | 286 | $ | — | $ | 286 | $ | — | |||||||
| Deferred compensation plan investments | $ | 3,742 | $ | 3,742 | $ | — | $ | — | |||||||
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||||||||||
| (in thousands) | December 31, 2022 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Cash equivalents | $ | 110,658 | $ | 110,658 | $ | — | $ | — | |||||||||||||||
| Short-term investments | $ | 183 | $ | — | $ | 183 | $ | — | |||||||||||||||
| Deferred compensation plan investments | $ | 1,618 | $ | 1,618 | $ | — | $ | — | |||||||||||||||
| Equity securities | $ | 892 | $ | 892 | $ | — | $ | — | |||||||||||||||
| Fair Value Measurements at Reporting Date Using: | |||||||||||||||
| (in thousands) | December 31, 2016 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Assets | |||||||||||||||
| Cash equivalents | $ | 333,975 | $ | 333,975 | $ | — | $ | — | |||||||
| Short-term investments | $ | 381 | $ | — | $ | 381 | $ | — | |||||||
| Deferred compensation plan investments | $ | 459 | $ | 459 | $ | — | $ | — | |||||||
The cash equivalents in the preceding tables represent money market funds.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 of the Company.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 the non-affiliate Independent Directors.non-employee directors. These securities consist of mutual funds traded in an active market with quoted prices. As a result, the plan assets wereare classified as Level 1 in the fair value hierarchy. The plan assets are recorded within other long-term assets on the Company'sour consolidated balance sheet.sheets.
The carrying valuesequity securities represent our investment in a publicly traded company. These securities are traded in an active market with quoted prices. As a result, the securities are classified as Level 1 in the fair value hierarchy. The securities are recorded within other long-term assets on our consolidated balance sheets.
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The forward contracts represent currency hedges to mitigate exchange rate exposure. These contracts are classified within Level 2 because these contracts are not actively traded and the valuation inputs are based on quoted prices and market observable data of similar instruments. The liabilities associated with the forward contracts are recorded at fair value in other accrued expenses and liabilities in the consolidated balance sheets.
9.Leases
Our right-of-use (ROU) assets and lease 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 lease liability. 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.
The components of our global lease cost reflected in the consolidated statements of income for the years ended December 31, 2023, 2022 and 2021 are as follows:
| (in thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| Lease liability cost | $ | 28,481 | $ | 27,543 | $ | 28,357 | |||||||||||
Variable lease cost not included in the lease liability(1) | 5,749 | 4,436 | 4,085 | ||||||||||||||
| Total lease cost | $ | 34,230 | $ | 31,979 | $ | 32,442 | |||||||||||
(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 for the years ended December 31, 2023, 2022 and 2021 is as follows:
| (in thousands) | 2023 | 2022 | 2021 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of the lease liability: | |||||||||||||||||||||||
| Operating cash flows from operating leases | $ | (28,281) | $ | (26,767) | $ | (28,474) | |||||||||||||||||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ | 12,913 | $ | 36,735 | $ | 13,586 | |||||||||||||||||
| As of December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Weighted-average remaining lease term of operating leases | 6.4 years | 6.9 years | |||||||||||||||
| Weighted-average discount rate of operating leases | 3.4 | % | 3.1 | % | |||||||||||||
The maturity schedule of the operating lease liabilities as of December 31, 2023 is as follows:
| (in thousands) | |||||
| 2024 | $ | 27,030 | |||
| 2025 | 22,843 | ||||
| 2026 | 20,460 | ||||
| 2027 | 18,930 | ||||
| 2028 | 17,266 | ||||
| Thereafter | 31,049 | ||||
| Total future lease payments | 137,578 | ||||
| Less: Present value adjustment | (13,767) | ||||
Present value of future lease payments(1) | $ | 123,811 | |||
(1)Includes the current portion of operating lease liabilities of $23.3 million, which is reflected in other accrued liabilitiesexpenses and short-term obligations approximateliabilities in the consolidated balance sheets.
There were no material leases that have been signed but not yet commenced as of December 31, 2023.
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10.Debt
On June 30, 2022, we entered into a credit agreement (as amended, the 2022 Credit Agreement) with PNC Bank, National Association, as administrative agent, swing line lender, and an L/C issuer, the lenders party thereto, and the other L/C issuers party thereto. The 2022 Credit Agreement refinanced our previous credit agreements in their fair values becauseentirety. Terms used in this description of their short-term nature.the 2022 Credit Agreement with initial capital letters that are not otherwise defined herein are as defined in the 2022 Credit Agreement.
The 2022 Credit Agreement provides for a $755.0 million unsecured term loan facility and a $500.0 million unsecured revolving loan facility, which includes a $50.0 million sublimit for the issuance of letters of credit. The revolving loan facility is available for working capital and general corporate purposes. Each of the term loan facility and the revolving loan facility matures on June 30, 2027.
Borrowings under the term loan and revolving loan facilities accrue interest at a rate that is based on the Term SOFR plus an applicable margin or at the base rate plus an applicable margin, at our election. The base rate is the highest of (i) the Overnight Bank Funding Rate, plus 0.500%, (ii) the PNC Bank, National Association prime rate, and (iii) Daily Simple SOFR plus an adjustment for SOFR plus 1.00%. The applicable margin for the borrowings is a percentage per annum based on the lower of (1) a pricing level determined by our then-current consolidated net leverage ratio and (2) a pricing level determined by our public debt rating (if available).
On September 29, 2023, the 2022 Credit Agreement was amended to provide for an interest rate adjustment (Sustainability Rate Adjustment) based upon the achievement of certain environmental, social and governance key performance indicators (KPIs). The Sustainability Rate Adjustment range is +/- 0.05% and will go into effect in the first quarter of 2024 based on the 2023 KPIs and will be adjusted annually based on the KPIs of the preceding year.
The 2022 Credit Agreement also provides for the option to add certain foreign subsidiaries as borrowers and to borrow in Euros, Sterling, Yen and Swiss Francs under the revolving loan facility, up to a sublimit of $150.0 million. Borrowings under the revolving loan facility denominated in these currencies will accrue interest at a rate that is based on (a) for Euros, €STR, (b) for Sterling, SONIA, (c) for Yen, TONAR and (d) for Swiss Francs, SARON, plus an applicable margin calculated as described above.
Under the 2022 Credit Agreement, the weighted average interest rate in effect for the year ended December 31, 2023 was 6.01%. Under the 2022 Credit Agreement and prior credit agreements, the weighted average interest rate in effect for the year ended December 31, 2022 was 2.72%. The rate in effect as of December 31, 2023 and for the first quarter of 2024 under the 2022 Credit Agreement is 6.32%.
The 2022 Credit Agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The 2022 Credit Agreement also contains a financial covenant requiring us and our subsidiaries to maintain a consolidated net leverage ratio not in excess of 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 net 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 December 31, 2023, we had $755.0 million of borrowings outstanding under the term loan, with a carrying value of $753.9 million, which is net of $1.1 million of unamortized debt discounts and issuance costs. The total amount was included in long-term debt. As of December 31, 2023, no borrowings were outstanding under the revolving loan facility.
As of December 31, 2022, we had $755.0 million of borrowings outstanding under the term loan, with a carrying value of $753.6 million, which is net of $1.4 million of unamortized debt discounts and issuance costs. The total amount was included in long-term debt. As of December 31, 2022, no borrowings were outstanding under the revolving loan facility.
We were in compliance with all covenants under the 2022 Credit Agreement as of December 31, 2023 and December 31, 2022, respectively.
As of December 31, 2023, all debt is scheduled to mature in 2027 with no principal payments required prior to the maturity date.
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11.Income Taxes
Income before income taxes includestax provision included the following components:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | |||||||||||||||||
| Domestic | $ | 458,581 | $ | 504,797 | $ | 460,395 | ||||||||||||||
| Foreign | 133,557 | 70,518 | 54,959 | |||||||||||||||||
| Total | $ | 592,138 | $ | 575,315 | $ | 515,354 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||||
| Domestic | $ | 344,447 | $ | 340,251 | $ | 325,097 | ||||||
| Foreign | 51,247 | 40,064 | 31,668 | |||||||||
| Total | $ | 395,694 | $ | 380,315 | $ | 356,765 | ||||||
The provision for income taxes is was composed of the following:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | |||||||||||||||||
| Current: | ||||||||||||||||||||
| Federal | $ | 115,942 | $ | 103,007 | $ | 44,805 | ||||||||||||||
| State | 11,759 | 11,286 | 6,626 | |||||||||||||||||
| Foreign | 55,332 | 68,028 | 43,786 | |||||||||||||||||
| Deferred: | ||||||||||||||||||||
| Federal | (79,251) | (94,398) | (32,449) | |||||||||||||||||
| State | (8,145) | (9,647) | (1,691) | |||||||||||||||||
| Foreign | (3,911) | (26,671) | (350) | |||||||||||||||||
| Total | $ | 91,726 | $ | 51,605 | $ | 60,727 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||||
| Current: | ||||||||||||
| Federal | $ | 112,414 | $ | 99,783 | $ | 93,853 | ||||||
| State | 7,879 | 8,338 | 7,733 | |||||||||
| Foreign | 18,843 | 17,479 | 17,854 | |||||||||
| Deferred: | ||||||||||||
| Federal | (7,387 | ) | (13,368 | ) | (14,472 | ) | ||||||
| State | (584 | ) | (1,036 | ) | (1,987 | ) | ||||||
| Foreign | 5,278 | 3,483 | 1,263 | |||||||||
| Total | $ | 136,443 | $ | 114,679 | $ | 104,244 | ||||||
The reconciliation of the U.S. federal statutory tax rate to the consolidated effective tax rate iswas as follows:
| Year Ended December 31, | ||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Federal statutory tax rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||||||||||
| Nondeductible expenses | 2.1 | 2.3 | 2.8 | |||||||||||||||||
| State income taxes, net of federal benefit | 0.6 | 0.9 | 0.6 | |||||||||||||||||
| Foreign rate differential | 0.4 | — | (0.1) | |||||||||||||||||
| Stock-based compensation | — | (1.5) | (5.4) | |||||||||||||||||
| Benefit from tax planning and entity structuring activities | (0.3) | (2.5) | (0.8) | |||||||||||||||||
| U.S. federal tax (benefit) expense on foreign earnings | (1.2) | (2.4) | 0.4 | |||||||||||||||||
| Research and development credits | (3.2) | (3.2) | (3.1) | |||||||||||||||||
| Foreign-derived intangible income deduction | (4.1) | (5.7) | (4.0) | |||||||||||||||||
| Other | 0.2 | 0.1 | 0.4 | |||||||||||||||||
| 15.5 | % | 9.0 | % | 11.8 | % | |||||||||||||||
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| Year Ended December 31, | |||||||||
| 2017 | 2016 | 2015 | |||||||
| Federal statutory tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
| U.S. tax reform | 4.5 | — | — | ||||||
| State income taxes, net of federal benefit | 1.1 | 1.6 | 1.1 | ||||||
| Uncertain tax positions | 0.3 | (0.2 | ) | (0.4 | ) | ||||
| Benefit from restructuring activities | — | (2.2 | ) | (2.7 | ) | ||||
| Research and development credits | (1.4 | ) | (1.0 | ) | (1.1 | ) | |||
| Domestic production activity benefit | (2.6 | ) | (3.7 | ) | (3.1 | ) | |||
| Stock-based compensation | (3.1 | ) | 0.2 | — | |||||
| Other | 0.7 | 0.5 | 0.4 | ||||||
| 34.5 | % | 30.2 | % | 29.2 | % | ||||
The components of deferred tax assets and liabilities are as follows:
| December 31, | ||||||||
| (in thousands) | 2017 | 2016 | ||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | 21,391 | $ | 32,969 | ||||
| Stock-based compensation | 17,825 | 23,652 | ||||||
| Uncertain tax positions | 15,424 | 11,562 | ||||||
| Employee benefits | 8,603 | 17,187 | ||||||
| Deferred revenue | 5,134 | 6,382 | ||||||
| Research and development credits | 3,699 | 3,889 | ||||||
| Allowance for doubtful accounts | 1,462 | 2,078 | ||||||
| Other | 2,003 | 3,114 | ||||||
| Valuation allowance | (1,906 | ) | (1,625 | ) | ||||
| 73,635 | 99,208 | |||||||
| Deferred tax liabilities: | ||||||||
| Other intangible assets | (29,924 | ) | (56,195 | ) | ||||
| Property and equipment | (1,557 | ) | (2,994 | ) | ||||
| Unremitted foreign earnings | (1,504 | ) | 49 | |||||
| (32,985 | ) | (59,140 | ) | |||||
| Net deferred tax assets | $ | 40,650 | $ | 40,068 | ||||
| December 31, | ||||||||||||||
| (in thousands) | 2023 | 2022 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Research and experimentation capitalization | $ | 148,355 | $ | 85,677 | ||||||||||
| Uncertain tax positions | 52,685 | 41,569 | ||||||||||||
| Net operating loss carryforwards | 34,907 | 39,034 | ||||||||||||
| Stock-based compensation | 33,473 | 27,548 | ||||||||||||
| Debt obligation basis difference | 30,289 | 28,758 | ||||||||||||
| Operating lease liabilities | 28,380 | 31,726 | ||||||||||||
| Employee benefits | 13,662 | 13,343 | ||||||||||||
| Research and development credits | 5,506 | 5,390 | ||||||||||||
| Allowance for doubtful accounts | 4,836 | 4,376 | ||||||||||||
| Other | — | 2,638 | ||||||||||||
| Valuation allowance | (17,608) | (17,336) | ||||||||||||
| Total deferred tax assets | 334,485 | 262,723 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Other intangible assets | (202,404) | (192,018) | ||||||||||||
| Operating lease right-of-use assets | (26,878) | (30,308) | ||||||||||||
| Deferred revenue | (12,080) | (8,979) | ||||||||||||
| Property and equipment | (3,607) | (5,029) | ||||||||||||
| Other | (590) | — | ||||||||||||
| Total deferred tax liabilities | (245,559) | (236,334) | ||||||||||||
| Net deferred tax assets | $ | 88,926 | $ | 26,389 | ||||||||||
The net increase in the valuation allowance was primarily due to $0.5 million of currency fluctuations on balances relating to foreign jurisdictions, partially offset by a change$0.2 million decrease in circumstances related to the ability to utilize a net operating loss in a foreign jurisdiction.unrealizable tax assets. As of each reporting date, management considers new evidence, both positive and negative, that could affect the future realization of deferred tax assets. If management determines it is more likely than not that an asset, or a portion of an asset, will not be realized, a valuation allowance is recorded.
As of December 31, 2017, the Company2023, we had federal net operating loss carryforwards of $16.7 million. These losses expire between 2024 - 2034, and$7.2 million, which are subject to limitations onof their utilization. Losses totaling $6.5 million are not currently subject to expiration dates, while the remaining $0.7 million of losses expire between 2028 - 2037. Deferred tax assets of $0.6$2.3 million have been recorded for state operating loss carryforwards. These losses expire between 20252031 - 2035,2042, and are subject to limitations on their utilization. The CompanyWe had total foreign net operating loss carryforwards of $66.4$128.3 million, of which $29.6$88.7 million are not currently subject to expiration dates. The remainder, $36.8$39.6 million, expires between 20192025 - 2034. The Company2038. We had tax credit carryforwards of $4.6$7.5 million, of which $2.3$0.5 million are not currently subject to expiration dates and $7.0 million expire in various years between 2025 - 2043. Of these tax credit carryforwards, $0.9 million are subject to limitations on their utilization. Approximately $0.6 million
In general, it is our intention to permanently reinvest all earnings in excess of thesepreviously taxed amounts. Substantially all of the pre-2018 earnings of our non-U.S. subsidiaries were taxed through the transition tax credit carryforwardsand post-2018 current earnings are taxed as part of global intangible low-taxed income tax expense. These taxes increase our previously taxed earnings and allow for the repatriation of the majority of our foreign earnings without any residual U.S. federal tax. Unrecognized provisions for taxes on indefinitely reinvested undistributed earnings of foreign subsidiaries would not currently subject to expiration dates. The remainder, $4.0 million, expires in various years between 2019 - 2037.be significant.
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The following is a reconciliation of the total amounts of unrecognized tax benefits:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | |||||||||||||||||
| Unrecognized tax benefit as of January 1 | $ | 45,772 | $ | 39,641 | $ | 24,075 | ||||||||||||||
| Gross changes—acquisitions | — | — | — | |||||||||||||||||
| Gross increases—tax positions in prior period | — | 403 | 10,183 | |||||||||||||||||
| Gross decreases—tax positions in prior period | (1,782) | (2,780) | (2,281) | |||||||||||||||||
| Gross increases—tax positions in current period | 14,814 | 13,905 | 13,223 | |||||||||||||||||
| Reductions due to a lapse of the applicable statute of limitations | (3,236) | (3,743) | (3,226) | |||||||||||||||||
| Changes due to currency fluctuation | (684) | (1,654) | (912) | |||||||||||||||||
| Settlements | — | — | (1,421) | |||||||||||||||||
| Unrecognized tax benefit as of December 31 | $ | 54,884 | $ | 45,772 | $ | 39,641 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| (in thousands) | 2017 | 2016 | 2015 | |||||||||
| Unrecognized tax benefit as of January 1 | $ | 15,209 | $ | 16,067 | $ | 16,342 | ||||||
| Gross increases—tax positions in prior period | 905 | 983 | 64 | |||||||||
| Gross decreases—tax positions in prior period | (765 | ) | (2,502 | ) | (850 | ) | ||||||
| Gross increases—tax positions in current period | 3,757 | 2,725 | 4,064 | |||||||||
| Reductions due to a lapse of the applicable statute of limitations | (847 | ) | (927 | ) | (2,808 | ) | ||||||
| Changes due to currency fluctuation | 1,414 | (348 | ) | (653 | ) | |||||||
| Settlements | (16 | ) | (789 | ) | (92 | ) | ||||||
| Unrecognized tax benefit as of December 31 | $ | 19,657 | $ | 15,209 | $ | 16,067 | ||||||
We have a 401(k)/profit-sharing plan for all qualifying salaried domestic employees that permits participants to make contributions by salary reductiondefer a portion of their pay pursuant to Section 401(k) of the Internal Revenue Code. The Company makesWe make matching contributions on behalf of each eligible participant in an amount equal to 100% of the first 3% and an additional 25% of the next 5%, for a maximum total of 4.25% of the employee's eligible compensation. The CompanyWe may make a discretionary contribution based onmatching contributions. We may also make discretionary nonelective contributions in an amount to be determined by the participant's eligible compensation,Board of Directors for each plan year, provided the employee is employed at the end of the year and has worked at least 1,000 hours. The CompanyDomestic employees of acquired businesses may participate in the 401(k) plan when they become eligible. We also maintainsmaintain and contribute to various defined contribution and defined benefit pension arrangements for itsour international employees. The Company meetsWe meet the minimum statutory funding requirements for itsour foreign defined benefitplans. As of December 31, 2023 and contribution plans. The2022, the total unfunded portionportions of the defined benefit obligation for each plan is accrued in other long-term liabilities.obligations were $11.8 million and $9.4 million, respectively.
Expenses related to the Company'sour retirement programs were $10.1$25.9 million in 2017, $9.12023, $21.9 million in 20162022 and $8.4$20.0 million in 2015.2021.
Our employees have signed agreements under which they have agreed not to disclose trade secrets or confidential information that, where legally permitted, restrict engagement in or connection with any business that is competitive with the Companyus anywhere in the world while employed by the Companyus (and, in some cases, for specified periods thereafter in relevant geographic areas), and that any products or technology created by them during their term of employment are the property of the Company.our property. In addition, the Company requireswe require all channel partners to enter into agreements not to disclose the Company'sour trade secrets and other proprietary information.
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We have an employment agreement with our Chief Executive Officer. Under the terms of the employment agreement, in the event that the Chief Executive Officer. This agreement provides for, among other things,Officer's employment with us is terminated by us without "Cause" or as a result of his resignation with "Good Reason," (each as defined in the case of termination for reasons other than death, disability or cause and subjectagreement) the Chief Executive Officer will be entitled to non-compete and non-solicit clauses, minimum severance payments(i) receive an amount equal to two times the sum of his then effective base salary andplus his target bonus, paid outpayable over 24 months in equal installments, (ii) receive payment of the prior year's earned annual cash incentive, to the extent unpaid, (iii) receive payment of a pro-rated target annual cash incentive for the year of termination, (iv) in certain circumstances, receive a lump sum amount equal to 24 months of the COBRA premium applicable to the health, dental and vision plans in which the Chief Executive Officer was participating prior to termination, (v) have any outstanding performance-based and time-based equity awards receive accelerated vesting treatment equal to an additional two years fromafter termination, and (vi) have the period of time during which the Chief Executive Officer may exercise his vested stock options be extended to the longer of (x) six months after his date of termination or (y) seven days after the commencement of our first open trading window that occurs after the date of termination, but in no event later than the 10-year expiration date of such options. During his employment with us and up tofor two years of payments for health care coverage from the date of termination. The Chief Executive Officer is subject to a two-year restriction on competition and solicitationthereafter, following termination of employment under thecertain circumstances described in the contract.contract, he will be subject to non-competition and non-solicitation obligations.
14.Stock-Based Compensation
On May 14, 2021, our stockholders approved the ANSYS, Inc. 2021 Equity and Incentive Compensation Plan (the 2021 Plan). The Company has2021 Plan is a long-term incentive plan pursuant to which awards may be granted to directors, officers, other employees and certain consultants of Ansys and its subsidiaries. These awards include stock option rights, stock appreciation rights, restricted stock, restricted stock units, cash incentives, performance shares, performance units and grant plan—other awards. The 2021 Plan authorizes 4.4 million shares of common stock for issuance, plus 1.6 million shares that remained available for issuance under the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan (Stock(the Predecessor Plan). The Stock Plan, as amended, authorizes the grant of up to 39.8 million shares of the Company's common stock in the form of: (i) incentive stock options (ISOs), (ii) nonqualified stock options, (iii) common stock with or without vesting or other restrictions, (iv) common stock upon the attainment of specified performance goals, (v) restricted stock awards, (vi) the right to receive cash dividends with the holderseffective date of the common stock as if2021 Plan plus any shares relating to the recipient held a specified number of sharesoutstanding awards under the Predecessor Plan or the 2021 Plan that are subsequently forfeited. As of the common stock, (vii) deferred stock awards, (viii) restricted stock unit awards, (ix) stock appreciation rights and (x) cash-based awards.effective date of the 2021 Plan, grants were no longer made under the Predecessor Plan.
The Stock2021 Plan provides that: (i) the exercise pricerequires a minimum vesting period or performance period of an ISO mustone year for most award types and a maximum period for options to be no less than the fair value of the stock at the date of grant and (ii) the exercise price of an ISO held by an optionee who possesses more than 10% of the total combined voting power of all classes of stock must be no less than 110% of the fair market value of the stock at the time of grant. The Compensation Committee of the Board of Directors has the authority to set expiration dates no later thanexercisable as ten years from the dategrant date. Upon the death or disability of grant (or five years for an optionee who meets the 10% criterion), payment terms,a participant, performance awards are vested pro-rata, subject to any performance target requirements, and all other provisions for each grant. The majority of options granted have a four-year vesting period. Shares associated with unexercised options or reacquired shares of common stock (except those shares withheld as a result of tax withholding or net issuance)awards become available for option grants and common stock issuances under the Stock Plan.fully vested. The Compensation Committee of the Board of Directors may, at its sole discretion, accelerate or extend the date or dates on which all or any particularan award or awards granted under the Stock2021 Plan may vest or be exercised.
89
Total stock-based compensation expense recognized for the years ended December 31, 2017, 20162023, 2022 and 20152021 is as follows:
| Year Ended December 31, | ||||||||||||||||||||
| (in thousands, except per share amounts) | 2023 | 2022 | 2021 | |||||||||||||||||
| Cost of sales: | ||||||||||||||||||||
| Maintenance and service | 13,337 | 10,073 | 12,390 | |||||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Selling, general and administrative | 126,175 | 93,117 | 91,772 | |||||||||||||||||
| Research and development | 82,379 | 64,938 | 62,176 | |||||||||||||||||
| Stock-based compensation expense before taxes | 221,891 | 168,128 | 166,338 | |||||||||||||||||
| Related income tax benefits | (53,880) | (50,209) | (75,241) | |||||||||||||||||
| Stock-based compensation expense, net of taxes | $ | 168,011 | $ | 117,919 | $ | 91,097 | ||||||||||||||
| Net impact on earnings per share: | ||||||||||||||||||||
| Basic earnings per share | $ | (1.93) | $ | (1.35) | $ | (1.05) | ||||||||||||||
| Diluted earnings per share | $ | (1.92) | $ | (1.35) | $ | (1.03) | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| (in thousands, except per share amounts) | 2017 | 2016 | 2015 | |||||||||
| Cost of sales: | ||||||||||||
| Software licenses | $ | 969 | $ | 701 | $ | 745 | ||||||
| Maintenance and service | 2,533 | 1,578 | 1,868 | |||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | 30,817 | 15,990 | 17,153 | |||||||||
| Research and development | 18,835 | 15,078 | 14,185 | |||||||||
| Stock-based compensation expense before taxes | 53,154 | 33,347 | 33,951 | |||||||||
| Related income tax benefits | (20,503 | ) | (10,538 | ) | (11,656 | ) | ||||||
| Stock-based compensation expense, net of taxes | $ | 32,651 | $ | 22,809 | $ | 22,295 | ||||||
| Net impact on earnings per share: | ||||||||||||
| Basic earnings per share | $ | (0.38 | ) | $ | (0.26 | ) | $ | (0.25 | ) | |||
| Diluted earnings per share | $ | (0.38 | ) | $ | (0.26 | ) | $ | (0.24 | ) | |||
As of December 31, 2023, total unrecognized estimated compensation expense related to awards granted prior to that date was $306.2 million, which is expected to be recognized over a weighted average period of 1.5 years. Forfeitures of awards are accounted for as they occur.
Prior to 2017, we granted stock option transactions is summarized below:
| Year Ended December 31, | |||||||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||||||
| (options in thousands) | Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | |||||||||||||||
| Outstanding, beginning of year | 3,136 | $ | 56.37 | 3,986 | $ | 51.07 | 4,932 | $ | 48.76 | ||||||||||||
| Granted | — | $ | — | 260 | $ | 94.38 | 57 | $ | 88.10 | ||||||||||||
| Issued pursuant to acquisitions | — | $ | — | — | $ | — | 8 | $ | 12.26 | ||||||||||||
| Exercised | (956 | ) | $ | 49.78 | (1,082 | ) | $ | 45.57 | (975 | ) | $ | 40.52 | |||||||||
| Forfeited | (10 | ) | $ | 80.92 | (28 | ) | $ | 72.07 | (36 | ) | $ | 70.15 | |||||||||
| Outstanding, end of year | 2,170 | $ | 59.17 | 3,136 | $ | 56.37 | 3,986 | $ | 51.07 | ||||||||||||
| Vested and Exercisable, end of year | 1,930 | $ | 55.11 | 2,762 | $ | 51.80 | 3,539 | $ | 48.29 | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
Weighted-Average Remaining Contractual Term (in years) | ||||||||||||
| Outstanding | 4.10 | 4.62 | 4.85 | |||||||||
| Vested and Exercisable | 3.57 | 4.04 | 4.53 | |||||||||
Aggregate Intrinsic Value (in thousands) | ||||||||||||
| Outstanding | $ | 191,895 | $ | 113,822 | $ | 165,131 | ||||||
| Vested and Exercisable | $ | 178,456 | $ | 112,379 | $ | 156,487 | ||||||
awards. The fair value of each stock option grant isaward was estimated on the date of grant, or date of acquisition for options issued in a business combination, using the Black-Scholes option pricing model which was developed for use in estimating(Black-Scholes model). The determination of the fair value of traded options that have no vesting restrictions and are fully transferable. The Company's options have characteristics significantly different from those of traded options, and changes in input assumptions can materially affect the fair value estimates. The interest rates used were determined by using the five-year Treasury Note yield at the date of grant or date of acquisition for options issued in a business combination. The volatility was determined based on the historic volatility of the Company's stock during the preceding six years for 2017, 2016 and 2015.
| Year Ended December 31, | ||||
| 2016 | 2015 | |||
| Risk-free interest rate | 1.19% to 1.93% | 1.18% to 1.65% | ||
| Expected dividend yield | —% | —% | ||
| Expected volatility | 24% | 25% | ||
| Expected term | 5.7 years | 5.6 years | ||
| Weighted-average fair value per share | $23.96 | $30.83 | ||
As of December 31, 2017, total2023, there is no unrecognized estimated compensation cost related to unvested stock options granted prior to that date was $5.0 million, whichoptions.
Information regarding stock option transactions is expected to be recognized over a weighted-average periodsummarized below:
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| (options in thousands) | Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | ||||||||||||||||||||||||||||||||
| Outstanding, beginning of year | 226 | $ | 94.24 | 375 | $ | 83.67 | 648 | $ | 74.26 | |||||||||||||||||||||||||||||
| Granted | — | $ | — | — | $ | — | — | $ | — | |||||||||||||||||||||||||||||
| Exercised | (123) | $ | 94.32 | (148) | $ | 67.56 | (270) | $ | 61.42 | |||||||||||||||||||||||||||||
| Forfeited | — | $ | — | (1) | $ | 67.44 | (3) | $ | 55.46 | |||||||||||||||||||||||||||||
| Outstanding, end of year | 103 | $ | 94.23 | 226 | $ | 94.24 | 375 | $ | 83.67 | |||||||||||||||||||||||||||||
| Vested and Exercisable, end of year | 103 | $ | 94.23 | 226 | $ | 94.24 | 375 | $ | 83.67 | |||||||||||||||||||||||||||||
| Nonvested | — | $ | — | — | $ | — | — | $ | — | |||||||||||||||||||||||||||||
90
| 2023 | 2022 | 2021 | ||||||||||||||||||
Weighted Average Remaining Contractual Term (in years) | ||||||||||||||||||||
| Outstanding | 2.52 | 3.53 | 3.09 | |||||||||||||||||
| Vested and Exercisable | 2.52 | 3.53 | 3.09 | |||||||||||||||||
Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Exercised | $ | 28,231 | $ | 30,358 | $ | 82,790 | ||||||||||||||
| Outstanding | $ | 27,717 | $ | 33,361 | $ | 118,995 | ||||||||||||||
| Vested and Exercisable | $ | 27,717 | $ | 33,361 | $ | 118,995 | ||||||||||||||
Compensation Expense - Stock Options (in thousands) | $ | — | $ | — | $ | — | ||||||||||||||
Information regarding stock options outstanding as of December 31, 20172023 is summarized below:
| (options in thousands) | Options Outstanding & Exercisable | |||||||||||||||||||
| Exercise Price | Options | Weighted- Average Remaining Contractual Life (years) | ||||||||||||||||||
| $86.01 | 2 | 0.01 | ||||||||||||||||||
| $86.57 | 8 | 1.67 | ||||||||||||||||||
| $94.15 | 1 | 1.58 | ||||||||||||||||||
| $95.09 | 92 | 2.67 | ||||||||||||||||||
| (options in thousands) | Options Outstanding | Options Exercisable | ||||||||||||||
| Range of Exercise Prices | Options | Weighted- Average Remaining Contractual Life (years) | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | |||||||||||
| $5.91 - $40.89 | 437 | 1.74 | $ | 32.01 | 434 | $ | 32.15 | |||||||||
| $48.97 - $55.30 | 392 | 2.80 | $ | 49.11 | 392 | $ | 49.11 | |||||||||
| $58.67 | 492 | 3.85 | $ | 58.67 | 492 | $ | 58.67 | |||||||||
| $61.68 - $95.09 | 849 | 6.05 | $ | 78.06 | 612 | $ | 72.35 | |||||||||
There were no unvested stock options as of December 31, 2023.
Restricted Stock Units
Under the terms of the ANSYS, Inc. Long-Term Incentive2021 Plan, the Company issueswe have issued various restricted stock unit awards which may have a market condition, an operating performance(RSUs). The following table summarizes the types of awards and vesting conditions:
| Award | Vesting Period | Vesting Condition | ||||||
| Restricted stock units with a service condition only | Three years | Prior to March 2023, one third of the awards vested annually. Commencing in March 2023, one third vests in the first year and then one eighth quarterly thereafter. | ||||||
| Restricted stock units with an operating performance and service condition | Three years | Operating performance metrics as defined at the beginning of each sub-performance period and subject to continued employment through the vesting period. | ||||||
| Restricted stock units with a market and service condition | Three years | Our performance measured by total stockholder return relative to the Nasdaq Composite Index for the performance period and subject to continued employment through the vesting period. | ||||||
| Board of Director restricted stock unit awards | The earlier of one year or the next regular meeting of stockholders | Continued service on the Board of Directors through the vesting period. Directors that retire prior to the vest date receive a pro-rata portion of the RSUs. | ||||||
The fair value of RSUs with only a service condition or any combinationis based on the fair market value of our stock on the date of the three. grant and is recognized straight-line over the vesting period.
The Company granted 26,227, 35,000fair value of RSUs with operating performance metrics is based on the fair market value of our stock on the date of the grant and 34,450 performance-based restricted stock unitsis recognized from the grant date through the vesting period based on management's estimates concerning the probability of operating performance metric achievement.
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The fair values of RSUs with a market condition in 2017, 2016 and 2015, respectively. The percentage of the award that vests is based on the Company's performance as measured by total shareholder return relative to the appreciation of a specified stock index over the measurement period, subject to each participant's continued employment with the Company through the conclusion of the measurement period. As of December 31, 2017, 33,187 units of the total 2015 awards granted were earned and will be issued in 2018. The measurement periods for the restricted stock units granted pursuant to the Long-Term Incentive Plan are one-, two- and three-year periods beginning January 1 of the year of the grant. Each restricted stock unit relates to one share of the Company's common stock. The weighted-average fair value of each restricted stock unit granted in 2017, 2016 and 2015 was estimated on the grant date to be $120.94, $78.71 and $81.61, respectively. The fair value of the restricted stock units was estimated using a Monte Carlo simulation model.model and are recognized over the vesting period. The determination of the fair valuevalues of the awards was affected by the grant date and a number ofseveral variables, each of which has been identified in the chart below. Share-based compensation expense based on the fair value of the award is being recorded from the grant date through the conclusion of the three-year measurement period. below:
| Year Ended December 31, | |||||||||||||||||
| Assumptions used in Monte Carlo lattice pricing model | 2023 | 2022 | 2021 | ||||||||||||||
| Risk-free interest rate | 4.6% | 1.8% | 0.3% | ||||||||||||||
| Expected dividend yield | —% | —% | —% | ||||||||||||||
| Expected volatility—Ansys stock price | 36% | 37% | 36% | ||||||||||||||
| Expected volatility—Nasdaq Composite Index | 25% | 26% | 26% | ||||||||||||||
| Expected term | 2.8 years | 2.8 years | 2.8 years | ||||||||||||||
| Correlation factor | 0.83 | 0.84 | 0.84 | ||||||||||||||
| Weighted average fair value per share | $452.14 | $290.65 | $238.87 | ||||||||||||||
Total compensation expense associated with the market conditionfor RSU awards recorded for the years ended December 31, 2017, 20162023, 2022 and 20152021 was $1.8$213.5 million, $2.2$164.0 million and $3.1$162.3 million, respectively.
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||||||||||||||||||||
| (RSUs in thousands) | RSUs | Weighted- Average Grant Date Fair Value | RSUs | Weighted- Average Grant Date Fair Value | RSUs | Weighted- Average Grant Date Fair Value | ||||||||||||||||||||||||||||||||
| Nonvested, beginning of year | 1,220 | $ | 301.72 | 1,074 | $ | 278.02 | 1,331 | $ | 202.30 | |||||||||||||||||||||||||||||
Granted(1) | 867 | $ | 314.04 | 861 | $ | 299.08 | 508 | $ | 333.45 | |||||||||||||||||||||||||||||
Performance adjustment - awards with market condition(2) | (11) | $ | 279.42 | (8) | $ | 276.73 | 17 | $ | 238.99 | |||||||||||||||||||||||||||||
Performance adjustment - awards with performance condition(2) | 79 | $ | 310.37 | 73 | $ | 300.28 | 63 | $ | 376.48 | |||||||||||||||||||||||||||||
| Vested | (558) | $ | 300.30 | (598) | $ | 257.51 | (802) | $ | 195.12 | |||||||||||||||||||||||||||||
| Forfeited | (59) | $ | 313.58 | (182) | $ | 295.13 | (43) | $ | 263.13 | |||||||||||||||||||||||||||||
| Nonvested, end of year | 1,538 | $ | 309.33 | 1,220 | $ | 301.72 | 1,074 | $ | 278.02 | |||||||||||||||||||||||||||||
(1) Includes all RSUs granted during the assumptions used inyear. RSUs with operating performance conditions are issued annually and have one performance cycle or three sub-performance cycles. Performance conditions are assigned near the Monte Carlo simulation model to determinebeginning of each performance cycle or sub-performance cycle, as applicable, and awards are reflected as grants at the fair valuetarget number of units at that time.
(2) RSUs with a market or performance condition are granted at target and vest based on achievement of the restricted stock units during each respective year:
| Year Ended December 31, | |||||
| Assumptions used in Monte Carlo lattice pricing model | 2017 | 2016 | 2015 | ||
| Risk-free interest rate | 1.5% | 1.0% | 1.1% | ||
| Expected dividend yield | —% | —% | —% | ||
| Expected volatility—ANSYS stock price | 19% | 21% | 23% | ||
| Expected volatility—NASDAQ Composite Index | 15% | 16% | 14% | ||
| Expected term | 2.8 years | 2.8 years | 2.8 years | ||
| Correlation factor | 0.70 | 0.65 | 0.60 | ||
market or operating performance and service conditions. The Companyactual number of RSUs issued 104,910, 35,000 and 115,485 performance-based restricted stock awards during 2017, 2016 and 2015, respectively. Ofmay be more or less than the cumulative performance-based restricted stock awards issued, defined operating metrics were assigned to 85,132, 63,462 and 51,795 awards with grant-date fair values of $106.95, $84.61 and $86.38 during 2017, 2016 and 2015, respectively. The grant-date fair valuetarget RSUs depending on the achievement of the awards is being recorded frommarket or operating performance conditions.
Employee Stock Purchase Plan
On May 12, 2022, our stockholders approved the grant date throughANSYS, Inc. 2022 Employee Stock Purchase Plan (2022 ESPP) and the conclusionreservation by our Board of the measurement period associated with each operating metric based on management's estimates concerning the probabilityDirectors of
| Year Ended December 31, | |||||||||||
| (in thousands, except per share data) | 2017 | 2016 | 2015 | ||||||||
| Number of shares repurchased | 2,750 | 3,700 | 3,833 | ||||||||
| Average price paid per share | $ | 122.20 | $ | 90.90 | $ | 88.16 | |||||
| Total cost | $ | 336,042 | $ | 336,335 | $ | 337,910 | |||||
The Purchase Plan isPlans are administered by the Compensation Committee. Offerings under the Purchase PlanPlans commence on the first business day occurring on or before each February 1 and August 1, and have a duration of six months.end on the last business day occurring on or before the following July 31 and January 31, respectively. An employee who owns or is deemed to own shares of stock representing in excess of 5% of the combined voting power of all classes of our stock of the Company may not participate in the Purchase Plan.Plans.
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During each offering, an eligible employee may purchase shares under the Purchase Plan by authorizing payroll deductions of up to 10% of his or her cash compensation during the offering period. The maximum number of shares that may be purchased by any participating employee during any offering period is limited to 3,840 shares (as adjusted byshares. Subject to limitations within the Compensation
Under our stock repurchase program, we repurchased shares as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2021 | ||||||||||||||
| Number of shares repurchased | 650 | 725 | 347 | ||||||||||||||
| Average price paid per share | $ | 302.34 | $ | 283.38 | $ | 388.35 | |||||||||||
| Total cost | $ | 196,494 | $ | 205,571 | $ | 134,679 | |||||||||||
All of the lease is 183 months, beginning on October 1, 2014 and expiring on December 31, 2029. Absentshares repurchased during the exercise of options in the lease for additional rentable space or early lease termination, the Company's base rent (inclusive of property taxes and certain operating expenses) will be $4.3 million per annum for the first five years of the lease term, $4.5 million per annum for years six through ten and $4.7 million per annum for years eleven through fifteen. The Company incurred $4.4 million in lease expense related to this facility during each of the yearsyear ended December 31, 2017, 2016 and 2015.
16.Royalty Agreements
| (in thousands) | |||
| 2018 | $ | 14,139 | |
| 2019 | 11,570 | ||
| 2020 | 8,785 | ||
| 2021 | 7,675 | ||
| 2022 | 7,046 | ||
| Thereafter | 15,898 | ||
| Total | $ | 65,113 | |
17.Geographic Information
Revenue to external customers is attributed to individual countries based upon the location of the customer. Revenue by geographic area iswas as follows:
| Year Ended December 31, | |||||||||||||||||
| (in thousands) | 2023 | 2022 | 2021 | ||||||||||||||
| United States | $ | 1,058,293 | $ | 932,587 | $ | 867,125 | |||||||||||
| Japan | 203,013 | 186,199 | 193,096 | ||||||||||||||
| Germany | 199,068 | 198,612 | 158,541 | ||||||||||||||
| China and Hong Kong | 111,467 | 105,101 | 82,933 | ||||||||||||||
| South Korea | 106,261 | 127,948 | 105,853 | ||||||||||||||
| Other EMEA | 406,719 | 349,159 | 359,074 | ||||||||||||||
| Other international | 185,128 | 165,947 | 140,093 | ||||||||||||||
| Total revenue | $ | 2,269,949 | $ | 2,065,553 | $ | 1,906,715 | |||||||||||
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| Year Ended December 31, | |||||||||||
| (in thousands) | 2017 | 2016 | 2015 | ||||||||
| United States | $ | 417,342 | $ | 367,937 | $ | 354,433 | |||||
| Japan | 126,262 | 120,160 | 104,299 | ||||||||
| Germany | 108,216 | 99,814 | 94,546 | ||||||||
| South Korea | 63,011 | 56,790 | 55,142 | ||||||||
| France | 53,672 | 49,294 | 49,444 | ||||||||
| Canada | 13,824 | 13,284 | 13,314 | ||||||||
| Other European | 153,826 | 139,813 | 145,985 | ||||||||
| Other international | 159,097 | 141,373 | 125,590 | ||||||||
| Total revenue | $ | 1,095,250 | $ | 988,465 | $ | 942,753 | |||||
Property and equipment by geographic area iswas as follows:
| December 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| United States | $ | 56,421 | $ | 58,258 | |||||||
| India | 5,057 | 5,978 | |||||||||
| France | 4,771 | 3,535 | |||||||||
| Other EMEA | 6,924 | 7,508 | |||||||||
| Other international | 4,607 | 5,559 | |||||||||
| Total property and equipment, net | $ | 77,780 | $ | 80,838 | |||||||
18.Unconditional Purchase Obligations
| December 31, | |||||||
| (in thousands) | 2017 | 2016 | |||||
| United States | $ | 45,498 | $ | 43,810 | |||
| Europe | 5,059 | 4,753 | |||||
| India | 3,704 | 3,033 | |||||
| Other international | 2,835 | 3,081 | |||||
| Total property and equipment, net | $ | 57,096 | $ | 54,677 | |||
| (in thousands) | |||||
| 2024 | $ | 66,421 | |||
| 2025 | 27,144 | ||||
| 2026 | 9,980 | ||||
| 2027 | 7,927 | ||||
| 2028 | 298 | ||||
| Total | $ | 111,770 | |||
19.Contingencies and Commitments
| (in thousands) | |||
| 2018 | $ | 22,408 | |
| 2019 | 18,271 | ||
| 2020 | 6,706 | ||
| 2021 | 4,545 | ||
| 2022 | — | ||
| Total | $ | 51,930 | |
| (in thousands) | Gross | Net of Tax | |||||
| Q4 2016 | $ | 3,419 | $ | 2,355 | |||
| Q1 2017 | 9,273 | 6,176 | |||||
| Q2 2017 | 2,000 | 1,435 | |||||
| Q3 2017 | 466 | 331 | |||||
| Total restructuring charges | $ | 15,158 | $ | 10,297 | |||
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(in thousands) Description | Balance at Beginning of Year | Additions: Charges to Costs and Expenses | Deductions: Returns and Write-Offs | Balance at End of Year | ||||||||||||
| Year ended December 31, 2017 Allowance for doubtful accounts | $ | 5,700 | $ | 1,474 | $ | 374 | $ | 6,800 | ||||||||
| Year ended December 31, 2016 Allowance for doubtful accounts | $ | 5,200 | $ | 2,009 | $ | 1,509 | $ | 5,700 | ||||||||
| Year ended December 31, 2015 Allowance for doubtful accounts | $ | 5,500 | $ | 1,304 | $ | 1,604 | $ | 5,200 | ||||||||
20.Subsequent Event
Synopsys Merger Agreement
On January 15, 2024, we entered into the Merger Agreement with Synopsys and Merger Sub, pursuant to which Merger Sub will merge with and into Ansys, with Ansys surviving the Merger as a wholly owned subsidiary of Synopsys. Our Board of Directors has unanimously approved the Merger Agreement and, subject to certain exceptions set forth in the Merger Agreement, resolved to recommend that our stockholders adopt the Merger Agreement. If the Merger is consummated, our common stock will be delisted from the Nasdaq Global Select Market and deregistered under the Exchange Act.
Under the Merger Agreement, at the effective time of the Merger, each issued and outstanding share of our common stock (subject to certain exceptions set forth in the Merger Agreement) will be cancelled and converted into the right to receive (i) 0.3450 of a share of common stock, par value $0.01 per share, of Synopsys and (ii) $197.00 in cash, without interest, subject to applicable withholding taxes. With regard to the Stock Consideration, if the aggregate number of shares of Synopsys common stock to be issued in connection with the Merger would exceed the Maximum Share Number, (a) the Exchange Ratio will be reduced to the minimum extent necessary such that the aggregate number of shares of Synopsys common stock to be issued in connection with the Merger does not exceed the Maximum Share Number and (b) the Per Share Cash Amount will be correspondingly increased to offset such adjustment.
The Merger Agreement contains customary representations, warranties and covenants made by each of Ansys, Synopsys, and Merger Sub, including, among others, covenants regarding the conduct of our and Synopsys’ businesses during the pendency of the transactions contemplated by the Merger Agreement, the making of certain public disclosures and other matters as described in the Merger Agreement. We and Synopsys have agreed to use reasonable best efforts to take all actions necessary to consummate the Merger, including cooperating to obtain the regulatory approvals necessary to complete the Merger. We have agreed not to, among other things, (a) solicit proposals relating to alternative transactions or (b) enter into discussions or negotiations or provide non-public information in connection with any proposal for an alternative transaction from a third party, subject to certain exceptions to permit our Board of Directors to comply with its fiduciary obligations. We have further agreed to cease and cause to be terminated any existing discussions or negotiations, if any, with regard to alternative transactions.
The Merger Agreement may be terminated under certain circumstances, including that either party may have the right to terminate if the Merger is not completed by January 15, 2025, which may be extended to January 15, 2026 as provided in the Merger Agreement. If the Merger Agreement is terminated, (A) Synopsys, under specified circumstances, including termination following an injunction arising in connection with certain antitrust or foreign investment laws, will be required to pay us a termination fee of $1,500.0 million; and (B) we, under specified circumstances, including our termination of the Merger Agreement to accept and enter into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or Synopsys' termination upon the change by our Board of Directors of its recommendation in favor of the Merger, will be required to pay Synopsys a termination fee of $950.0 million.
The completion of the Merger is subject to customary closing conditions, including, among others, approval of the Merger under certain applicable antitrust and foreign investment regimes and the adoption of the Merger Agreement by our stockholders. We anticipate the transaction to close in the first half of 2025.
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EXHIBIT INDEX
| Exhibit No. | Exhibit | |||||||
| 2.1 | ||||||||
| 3.1 | ||||||||
| 3.2 | ||||||||
| 4.1 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 10.3 | ||||||||
| 10.4 | ||||||||
| Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan (filed as Appendix 1 to the | ||||||||
| 10.9 | ||||||||
| 10.11 | ||||||||
| 10.12 | ||||||||
| 10.13 | ||||||||
| 10.14 | ||||||||
| 10.15 | ||||||||
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| 10.16 | ||||||||
| 10.17 | ||||||||
| 10.18 | ||||||||
| 10.20 | ||||||||
| 10.21 | ||||||||
| 10.22 | ||||||||
| 10.23 | ||||||||
| 10.24 | ||||||||
| 10.26 | ||||||||
| 10.27 | ||||||||
| 21.1 | ||||||||
| 23.1 | ||||||||
| 24.1 | ||||||||
| 31.1 | ||||||||
| 31.2 | ||||||||
| 32.1 | ||||||||
| 32.2 | ||||||||
| 97.1 | ||||||||
| 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 | |||||||
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| 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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ITEM 16.FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: | February 21, 2024 | ||||||||||||
| By: | /s/ | ||||||||||||
| Ajei S. Gopal | |||||||||||||
| President and Chief Executive Officer | |||||||||||||
| (Principal Executive Officer) | |||||||||||||
| Date: | February | By: | /s/ | ||||||||||
| Chief Financial Officer and Senior Vice President, Finance | |||||||||||||
| (Principal Financial Officer and Principal Accounting Officer) | |||||||||||||
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ajei S. Gopal, his or her attorney-in-fact, with the power of substitution, for such person in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
| Signature | Title | Date | ||||||
/s/ AJEI S. GOPAL | President, and Director (Principal Executive Officer) | February | ||||||
| Ajei S. Gopal | ||||||||
/s/ | Chief Financial Officer and Senior Vice President, Finance (Principal Financial Officer and Principal Accounting Officer) | February | ||||||
/s/ GLENDA M. DORCHAK | Director | February 21, 2024 | ||||||
| Glenda M. Dorchak | ||||||||
/s/ DR. ANIL CHAKRAVARTHY | Director | February 21, 2024 | ||||||
| Dr. Anil Chakravarthy | ||||||||
/s/ | February 21, 2024 | |||||||
| Dr. Alec D. Gallimore | ||||||||
/s/ RONALD W. HOVSEPIAN | Chairman of the Board of Directors | February | ||||||
| Ronald W. Hovsepian | ||||||||
/s/ BARBARA V. SCHERER | Director | February 21, 2024 | ||||||
| Barbara V. Scherer | ||||||||
/s/ ROBERT M. CALDERONI | Director | February 21, 2024 | ||||||
| Robert M. Calderoni | ||||||||
/s/ RAVI K. VIJAYARAGHAVAN | Director | February 21, 2024 | ||||||
| Ravi K. Vijayaraghavan | ||||||||
/s/ | Director | February | ||||||
/s/ CLAIRE BRAMLEY | Director | February 21, 2024 | ||||||
| Claire Bramley | ||||||||
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