UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~June~~September 30, 2019



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

Commission File Number: 0-20853

ANSYS, Inc.

(Exact name of registrant as specified in its charter)



Delaware			04-3219960
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
2600 ANSYS Drive,	Canonsburg,	PA	15317
(Address of Principal Executive Offices)			(Zip Code)

844-462-6797

(Registrant's telephone number, including area code)



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

Title of each class	Trading Symbol(s)	Name of exchange on which registered
Common Stock, $0.01 par value per share	ANSS	The Nasdaq Global Select Market

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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

☐

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

Yes ☐ No ☒

The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding as of ~~July~~October 31, 2019 was ~~84,100,767~~84,189,728 shares.

ANSYS, INC. AND SUBSIDIARIES

INDEX




PART I	UNAUDITED FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – ~~June~~September 30, 2019 and December 31, 2018	3

	Condensed Consolidated Statements of Income – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	5

	Condensed Consolidated Statements of Cash Flows – ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	6

	Condensed Consolidated Statements of Stockholders' Equity – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements	8

	Report of Independent Registered Public Accounting Firm	1819

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3940

Item 4.	Controls and Procedures	4041

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	4142

Item 1A.	Risk Factors	4142

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	42

Item 4.	Mine Safety Disclosures	4243

Item 5.	Other Information	4243

Item 6.	Exhibits	4344

	SIGNATURES	4445

PART I – UNAUDITED FINANCIAL INFORMATION

Item 1.Financial Statements:

ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS	ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS						ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
(in thousands, except share and per share data)	(Unaudited)			(Audited)			(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	631,455		$	777,139		$	732,684		$	777,139
Short-term investments	241			225			218			225
Accounts receivable, less allowance for doubtful accounts of $9,000 and $8,000, respectively	297,798			317,700
Accounts receivable, less allowance for doubtful accounts of $8,700 and $8,000, respectively							295,590			317,700
Other receivables and current assets	203,851			216,113			177,734			216,113
Total current assets	1,133,345			1,311,177			1,206,226			1,311,177
Long-term assets:
Property and equipment, net	68,294			61,655			70,295			61,655
Operating lease right-of-use assets	104,509			—			104,160			—
Goodwill	1,775,734			1,572,455			1,771,862			1,572,455
Other intangible assets, net	282,070			211,272			267,378			211,272
Other long-term assets	124,384			82,775			134,757			82,775
Deferred income taxes	24,506			26,630			27,334			26,630
Total long-term assets	2,379,497			1,954,787			2,375,786			1,954,787
Total assets	$	3,512,842		$	3,265,964		$	3,582,012		$	3,265,964
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,865		$	7,953		$	8,172		$	7,953
Accrued bonuses and commissions	42,247			79,945			55,362			79,945
Accrued income taxes	9,264			8,726			7,278			8,726
Other accrued expenses and liabilities	123,230			99,559			111,633			99,559
Deferred revenue	321,060			328,584			291,385			328,584
Total current liabilities	505,666			524,767			473,830			524,767
Long-term liabilities:
Deferred income taxes	36,482			30,077			31,201			30,077
Long-term operating lease liabilities	90,420			—			91,173			—
Other long-term liabilities	62,988			61,573			62,484			61,573
Total long-term liabilities	189,890			91,650			184,858			91,650
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			932			932
Additional paid-in capital	839,696			867,462			865,634			867,462
Retained earnings	3,115,391			2,919,411			3,204,854			2,919,411
Treasury stock, at cost: 9,197,492 and 9,601,670 shares, respectively	(1,069,354		)	(1,075,879		)
Treasury stock, at cost: 9,072,210 and 9,601,670 shares, respectively							(1,057,955		)	(1,075,879		)
Accumulated other comprehensive loss	(69,379		)	(62,379		)	(90,141		)	(62,379		)
Total stockholders' equity	2,817,286			2,649,547			2,923,324			2,649,547
Total liabilities and stockholders' equity	$	3,512,842		$	3,265,964		$	3,582,012		$	3,265,964

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

ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)	ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)												ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

	Three Months Ended						Six Months Ended						Three Months Ended					Nine Months Ended
(in thousands, except per share data)	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			September 30, 2019		September 30, 2018			September 30, 2019			September 30, 2018
Revenue:
Software licenses	$	170,499		$	131,147		$	293,543		$	241,193		$	137,144	$	109,103		$	430,687		$	350,296
Maintenance and service	198,136			174,766			392,222			347,593			206,755		180,315			598,977			527,908
Total revenue	368,635			305,913			685,765			588,786			343,899		289,418			1,029,664			878,204
Cost of sales:
Software licenses	6,204			4,099			10,912			8,010			5,708		4,291			16,620			12,301
Amortization	4,755			9,087			9,302			17,873			4,762		5,530			14,064			23,403
Maintenance and service	29,538			27,264			55,098			53,605			30,895		26,487			85,993			80,092
Total cost of sales	40,497			40,450			75,312			79,488			41,365		36,308			116,677			115,796
Gross profit	328,138			265,463			610,453			509,298			302,534		253,110			912,987			762,408
Operating expenses:
Selling, general and administrative	120,412			95,058			232,581			182,867			120,682		97,576			353,263			280,443
Research and development	75,302			58,357			146,040			115,887			73,018		59,019			219,058			174,906
Amortization	3,796			3,495			7,555			6,930			3,787		3,491			11,342			10,421
Total operating expenses	199,510			156,910			386,176			305,684			197,487		160,086			583,663			465,770
Operating income	128,628			108,553			224,277			203,614			105,047		93,024			329,324			296,638
Interest income	2,980			2,176			6,422			4,461			3,188		3,213			9,610			7,674
Other expense, net	(1,667		)	(1,007		)	(2,092		)	(1,315		)
Other income (expense), net													594		(974		)	(1,498		)	(2,289		)
Income before income tax provision	129,941			109,722			228,607			206,760			108,829		95,263			337,436			302,023
Income tax provision	20,191			17,126			32,627			29,884			19,366		5,927			51,993			35,811
Net income	$	109,750		$	92,596		$	195,980		$	176,876		$	89,463	$	89,336		$	285,443		$	266,212
Earnings per share – basic:
Earnings per share	$	1.31		$	1.10		$	2.34		$	2.11		$	1.06	$	1.06		$	3.40		$	3.17
Weighted average shares	83,978			84,105			83,871			84,018			84,109		84,158			83,951			84,065
Earnings per share – diluted:
Earnings per share	$	1.28		$	1.08		$	2.29		$	2.06		$	1.04	$	1.04		$	3.34		$	3.09
Weighted average shares	85,483			85,986			85,488			86,069			85,733		86,043			85,570			86,060

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

ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)	ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)											ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended					Six Months Ended						Three Months Ended						Nine Months Ended
(in thousands)	June 30, 2019		June 30, 2018			June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net income	$	109,750	$	92,596		$	195,980		$	176,876		$	89,463		$	89,336		$	285,443		$	266,212
Other comprehensive income (loss):
Other comprehensive loss:
Foreign currency translation adjustments	558		(26,188		)	(7,000		)	(17,945		)	(20,762		)	(5,102		)	(27,762		)	(23,047		)
Comprehensive income	$	110,308	$	66,408		$	188,980		$	158,931		$	68,701		$	84,234		$	257,681		$	243,165

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

ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)	ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)						ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended						Nine Months Ended
(in thousands)	June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018
Cash flows from operating activities:
Net income	$	195,980		$	176,876		$	285,443		$	266,212
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and intangible assets amortization	27,518			33,738			42,216			47,341
Operating lease right-of-use assets amortization	8,970			—			13,912			—
Deferred income tax benefit	(6,238		)	(11,943		)	(13,221		)	(28,175		)
Provision for bad debts	2,010			485			2,559			1,389
Stock-based compensation expense	52,922			35,904			84,784			58,887
Other	1,536			1,137			2,560			2,039
Changes in operating assets and liabilities:
Accounts receivable	(2,949		)	27,524			(12,610		)	32,356
Other receivables and current assets	11,780			(1,756		)	37,773			23,207
Other long-term assets	(1,474		)	2,314			(2,288		)	2,458
Accounts payable, accrued expenses and current liabilities	(38,216		)	(45,976		)	(37,289		)	(31,243		)
Accrued income taxes	(179		)	(3,117		)	(2,547		)	(2,581		)
Deferred revenue	(10,341		)	33,138			(35,807		)	1,175
Other long-term liabilities	(1,202		)	(4,782		)	(5,000		)	(19,562		)
Net cash provided by operating activities	240,117			243,542			360,485			353,503
Cash flows from investing activities:
Acquisitions, net of cash acquired	(285,323		)	(283,026		)	(294,987		)	(283,026		)
Capital expenditures	(16,946		)	(6,751		)	(25,781		)	(13,077		)
Other investing activities	(9,008		)	(5,476		)	(12,680		)	(5,510		)
Net cash used in investing activities	(311,277		)	(295,253		)	(333,448		)	(301,613		)
Cash flows from financing activities:
Purchase of treasury stock	(59,116		)	(117,831		)	(59,116		)	(192,787		)
Restricted stock withholding taxes paid in lieu of issued shares	(35,605		)	(25,041		)	(37,936		)	(26,955		)
Proceeds from shares issued for stock-based compensation	20,780			26,602			28,633			37,398
Other financing activities	(1,617		)	(4,939		)	(1,617		)	(4,939		)
Net cash used in financing activities	(75,558		)	(121,209		)	(70,036		)	(187,283		)
Effect of exchange rate fluctuations on cash and cash equivalents	1,034			(12,687		)	(1,456		)	(16,928		)
Net decrease in cash and cash equivalents	(145,684		)	(185,607		)	(44,455		)	(152,321		)
Cash and cash equivalents, beginning of period	777,139			881,501			777,139			881,501
Cash and cash equivalents, end of period	$	631,455		$	695,894		$	732,684		$	729,180
Supplemental disclosure of cash flow information:
Income taxes paid	$	55,700		$	46,662		$	73,561		$	74,086

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

ANSYS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	Common Stock			Additional Paid-In Capital			Retained Earnings		Treasury Stock					Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity			Common Stock			Additional Paid-In Capital			Retained Earnings		Treasury Stock					Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity
(in thousands)	Shares	Amount		Additional Paid-In Capital			Retained Earnings		Shares		Amount			Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity			Shares	Amount		Additional Paid-In Capital			Retained Earnings		Shares		Amount			Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity
Balance, January 1, 2019	93,236	$	932	$	867,462		$	2,919,411	9,602		$	(1,075,879	)	$	(62,379	)	$	2,649,547		93,236	$	932	$	867,462		$	2,919,411	9,602		$	(1,075,879	)	$	(62,379	)	$	2,649,547
Treasury shares acquired									250		(44,856		)				(44,856		)									250		(44,856		)				(44,856		)
Stock-based compensation activity				(42,465		)			(494	)	43,483						1,018						(42,465		)			(494	)	43,483						1,018
Other comprehensive loss														(7,558		)	(7,558		)														(7,558		)	(7,558		)
Net income							86,230										86,230									86,230										86,230
Balance, March 31, 2019	93,236	932		824,997			3,005,641		9,358		(1,077,252		)	(69,937		)	2,684,381			93,236	932		824,997			3,005,641		9,358		(1,077,252		)	(69,937		)	2,684,381
Treasury shares acquired									80		(14,260		)				(14,260		)									80		(14,260		)				(14,260		)
Stock-based compensation activity				14,699					(241	)	22,158						36,857						14,699					(241	)	22,158						36,857
Other comprehensive income														558			558																558			558
Net income							109,750										109,750									109,750										109,750
Balance, June 30, 2019	93,236	$	932	$	839,696		$	3,115,391	9,197		$	(1,069,354	)	$	(69,379	)	$	2,817,286		93,236	932		839,696			3,115,391		9,197		(1,069,354		)	(69,379		)	2,817,286
Stock-based compensation activity																							25,938					(125	)	11,399						37,337
Other comprehensive loss																																	(20,762		)	(20,762		)
Net income																										89,463										89,463
Balance, September 30, 2019																				93,236	$	932	$	865,634		$	3,204,854	9,072		$	(1,057,955	)	$	(90,141	)	$	2,923,324


	Common Stock			Additional Paid-In Capital			Retained Earnings		Treasury Stock					Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity			Common Stock			Additional Paid-In Capital			Retained Earnings			Treasury Stock					Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity
(in thousands)	Shares	Amount							Shares		Amount									Shares	Amount								Shares		Amount
Balance, January 1, 2018	93,236	$	932	$	873,357		$	2,316,916	9,044		$	(907,530	)	$	(37,844	)	$	2,245,831		93,236	$	932	$	873,357		$	2,316,916		9,044		$	(907,530	)	$	(37,844	)	$	2,245,831
Cumulative effect of the ASC 606 adoption							183,132										183,132									183,132											183,132
Treasury shares acquired									750		(117,831		)				(117,831		)										750		(117,831		)				(117,831		)
Stock-based compensation activity				(39,943		)			(492	)	43,648						3,705						(39,943		)				(492	)	43,648						3,705
Other comprehensive income														8,243			8,243																	8,243			8,243
Net income							84,280										84,280									84,280											84,280
Balance, March 31, 2018	93,236	932		833,414			2,584,328		9,302		(981,713		)	(29,601		)	2,407,360			93,236	932		833,414			2,584,328			9,302		(981,713		)	(29,601		)	2,407,360
Stock-based compensation activity				3,910					(313	)	29,801						33,711						3,910						(313	)	29,801						33,711
Other comprehensive loss														(26,188		)	(26,188		)															(26,188		)	(26,188		)
Net income							92,596										92,596									92,596											92,596
Balance, June 30, 2018	93,236	$	932	$	837,324		$	2,676,924	8,989		$	(951,912	)	$	(55,789	)	$	2,507,479		93,236	932		837,324			2,676,924			8,989		(951,912		)	(55,789		)	2,507,479
Cumulative effect of the ASC 606 adoption																										(1		)									(1		)
Treasury shares acquired																													424		(74,956		)				(74,956		)
Stock-based compensation activity																							13,292						(199	)	18,498						31,790
Other comprehensive loss																																		(5,102		)	(5,102		)
Net income																										89,336											89,336
Balance, September 30, 2018																				93,236	$	932	$	850,616		$	2,766,259		9,214		$	(1,008,370	)	$	(60,891	)	$	2,548,546

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

ANSYS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June~~September 30, 2019

(Unaudited)


1.	Organization

ANSYS, Inc. (hereafter the Company or ANSYS) develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, electronics, semiconductors, energy, materials and chemical processing, turbomachinery, consumer products, healthcare, and sports.

As defined by the accounting guidance for segment reporting, the Company operates as ~~one~~1 segment.

Given the integrated approach to the multi-discipline problem-solving needs of the Company's customers, a single sale of software may contain components from multiple product areas and include combined technologies. The Company also has 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 Company to provide accurate historical or current reporting among its various product lines.


2.	Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by ANSYS in accordance with accounting principles generally accepted in the United States for interim financial information for commercial and industrial companies, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements (and notes thereto) included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K). The condensed consolidated December 31, 2018 balance sheet presented is derived from the audited December 31, 2018 balance sheet included in the 2018 Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the three and ~~six~~nine months ended ~~June~~September 30, 2019 are not necessarily indicative of the results that may be expected for any future period.

Changes in Accounting Policies

The Company’s accounting policies are described in Note 2, “Accounting Policies,” in the 2018 Form 10-K. Summarized below is the accounting guidance adopted subsequent to December 31, 2018.

Leases: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (ASU 2016-02). The Company adopted ASU 2016-02 and its related amendments (collectively known as Accounting Standards Codification (ASC) 842) on January 1, 2019 using the modified retrospective approach. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 840, Leases. ASC 842 requires virtually all leases, other than leases of intangible assets, to be recorded on the balance sheet with a right-of-use (ROU) asset and a corresponding lease liability.

The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward its historical assessments of whether a contract contains a lease, lease classification and initial direct costs. In addition, the Company elected the accounting policy to combine the lease and nonlease components as a single component for all asset classes.

The Company determines if an arrangement is a lease at inception. Leases are classified as either operating or finance leases based on certain criteria. This classification determines the timing and presentation of expenses on the income statement, as well as the presentation of the related cash flows and balance sheet. Operating leases are recorded on the balance sheet as operating lease right-of-use assets, other accrued expenses and liabilities, and long-term operating lease liabilities. The Company currently has no finance leases.

ROU assets and related liabilities are recorded at lease commencement based on the present value of the lease payments over the expected lease term. Lease payments include future increases unless the increases are based on changes in an index or rate. As the Company's leases do not usually provide an implicit rate, the Company’s incremental borrowing rate is used to calculate ROU assets and related liabilities. The incremental borrowing rate is determined based on the Company’s estimated credit rating, the term of the lease, the economic environment where the asset resides and full collateralization. The ROU assets and related lease liabilities include optional renewals for which the Company is reasonably certain to exercise; whereas, optional terminations are included unless it is reasonably certain not to be elected.

The adoption of the new standard resulted in the recognition of ROU assets of $90.9 million and lease liabilities of $92.5 million, and corresponding deferred tax assets and liabilities, on the Company’s condensed consolidated balance sheet as of January 1, 2019. The adoption had no impact on the Company’s condensed consolidated statements of income or cash flows.

Accounting Guidance Issued and Not Yet Adopted

Credit losses: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). The current guidance requires the allowance for doubtful accounts to be estimated based on an incurred loss model, which considers past and current conditions. ASU 2016-13 requires companies to use an expected loss model that also considers reasonable and supportable forecasts of future conditions. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted for annual periods beginning after December 15, 2018, including interim periods within that reporting period. The standard requires a cumulative-effect adjustment to the balance sheet as of the beginning of the first reporting period in which the guidance is effective. The Company ~~did not early~~is currently in the data gathering phase of the implementation. The Company will adopt the ~~standard. The Company is currently evaluating~~standard effective January 1, 2020 and continues to evaluate the effect that this update will have on its financial results upon adoption.

Implementation cost accounting for cloud computing arrangements: In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). The standard aligns the accounting for costs incurred to implement a cloud computing arrangement (CCA) that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Under ASU 2018-15, an entity would apply Subtopic 350-40 to determine which implementation costs related to a CCA that is a service contract should be capitalized. The standard does not change the accounting for the service component of a CCA. The associated cash flows will be reflected within operating activities. ASU 2018-15 is effective for annual periods beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. Entities can choose to adopt the new guidance (1) prospectively to eligible costs incurred on or after the date the guidance is first applied or (2) retrospectively. The Company ~~plans~~continues to ~~adopt the new guidance prospectively and is currently evaluating~~evaluate the effect that this update will have on its financial results upon adoption.

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’s cash and cash equivalent balances comprise the following:


	June 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
(in thousands, except percentages)	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
Cash accounts	$	381,218	60.4	$	331,084	42.6	$	431,624	58.9	$	331,084	42.6
Money market funds	250,237		39.6	446,055		57.4	301,060		41.1	446,055		57.4
Total	$	631,455		$	777,139		$	732,684		$	777,139

The Company's money market fund balances are held in various funds of a single issuer.


3.	Revenue from Contracts with Customers

Disaggregation of Revenue

The following table summarizes revenue:


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
(in thousands, except percentages)	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Revenue:
Lease licenses	$	100,004		$	56,821		$	169,260		$	105,593		$	70,693		$	43,202		$	239,953		$	148,795
Perpetual licenses	70,495			74,326			124,283			135,600			66,451			65,901			190,734			201,501
Software licenses	170,499			131,147			293,543			241,193			137,144			109,103			430,687			350,296
Maintenance	185,118			165,603			366,579			329,499			193,189			171,463			559,768			500,962
Service	13,018			9,163			25,643			18,094			13,566			8,852			39,209			26,946
Maintenance and service	198,136			174,766			392,222			347,593			206,755			180,315			598,977			527,908
Total revenue	$	368,635		$	305,913		$	685,765		$	588,786		$	343,899		$	289,418		$	1,029,664		$	878,204

Direct revenue, as a percentage of total revenue	79.7		%	76.3		%	75.4		%	76.4		%	76.8		%	75.5		%	75.9		%	76.1		%
Indirect revenue, as a percentage of total revenue	20.3		%	23.7		%	24.6		%	23.6		%	23.2		%	24.5		%	24.1		%	23.9		%

The Company’s software licenses revenue is recognized up front, while maintenance and service revenue is generally recognized over the term of the contract.

Deferred Revenue

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

The changes in deferred revenue, inclusive of both current and long-term deferred revenue, during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were as follows:


(in thousands)	2019			2018			2019			2018
Beginning balance – January 1	$	343,174		$	299,730		$	343,174		$	299,730
Acquired deferred revenue	3,266			2,470			3,266			2,470
Deferral of revenue	675,209			614,064			991,524			868,522
Recognition of revenue	(685,765		)	(588,786		)	(1,029,664		)	(878,204		)
Currency translation	(500		)	(3,941		)	(4,985		)	(6,065		)
Ending balance – June 30	$	335,384		$	323,537
Ending balance – September 30							$	303,315		$	286,453

Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, and includes both deferred revenue and backlog. The Company's backlog represents installment billings for periods beyond the current quarterly billing ~~cycle and customer orders received but not processed.~~cycle. Revenue recognized during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 included amounts in deferred revenue and backlog at the beginning of the period of ~~$305.3~~$409.1 million and ~~$251.3~~$334.4 million, respectively.

Total revenue allocated to remaining performance obligations as of ~~June~~September 30, 2019 will be recognized as revenue as follows:


(in thousands)
Next 12 months	$	496,897	$	445,934
Months 13-24	129,832		122,932
Months 25-36	56,602		52,090
Thereafter	33,983		29,431
Total revenue allocated to remaining performance obligations	$	717,314	$	650,387


4.	Acquisitions

On February 1, 2019, the Company completed the acquisition of 100% of the shares of Granta Design Limited (Granta Design) for a purchase price of ~~$198.7~~$208.7 million, paid in ~~cash.~~cash and inclusive of final net working capital adjustments. The acquisition of Granta Design, the premier provider of materials information technology, expands ANSYS' portfolio into this important area, giving customers access to ~~material~~materials intelligence, including data that is critical to successful simulations.

Additionally, during the ~~six~~nine months ended ~~June~~September 30, 2019, the Company acquired Helic, Inc. and certain assets and liabilities of DfR Solutions to combine the acquired technologies with the Company's existing comprehensive multiphysics portfolio. The acquisitions were not individually significant. The combined purchase price of these other acquisitions was ~~$103.1~~$102.7 million, paid in ~~cash.~~cash and inclusive of final net working capital adjustments.

The assets and liabilities of 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 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 Transferred:


(in thousands)	Granta Design		Other		Total		Granta Design		Other Acquisitions		Total
Cash	$	198,723	$	103,086	$	301,809	$	208,736	$	102,737	$	311,473

Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:


(in thousands)
Cash	$	13,644		$	2,842		$	16,486		$	13,644		$	2,842		$	16,486
Accounts receivable and other tangible assets	7,035			8,653			15,688			7,023			8,653			15,676
Developed software and core technologies (12-year weighted-average life)	32,445			17,761			50,206			32,445			17,761			50,206
Customer lists (13-year weighted-average life)	20,016			14,180			34,196			20,016			14,180			34,196
Trade names (10-year weighted-average life)	4,579			1,381			5,960			4,579			1,381			5,960
Accounts payable and other liabilities	(6,152		)	(4,715		)	(10,867		)	(6,403		)	(4,704		)	(11,107		)
Deferred revenue	(1,426		)	(1,840		)	(3,266		)	(1,426		)	(1,840		)	(3,266		)
Net deferred tax liabilities	(9,822		)	(5,049		)	(14,871		)	(9,822		)	(5,049		)	(14,871		)
Total identifiable net assets	$	60,319		$	33,213		$	93,532		$	60,056		$	33,224		$	93,280
Goodwill	$	138,404		$	69,873		$	208,277		$	148,680		$	69,513		$	218,193

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

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

On May 2, 2018, the Company completed the acquisition of 100% of the shares of OPTIS, a premier provider of software for scientific simulation of light, human vision and physics-based visualization, for a purchase price of $291.0 million, paid in

cash. The acquisition extends the Company's portfolio into the area of optical simulation to provide comprehensive sensor solutions, covering visible and infrared light, electromagnetics and acoustics for camera, radar and lidar.

The operating results of each acquisition have been included in the Company's condensed consolidated financial statements since each respective date of acquisition. The effects of the business combinations were not material to the Company's consolidated results of operations individually or in the aggregate.


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

The Company's other receivables and current assets, and other ~~accrued expenses and~~long-term liabilities, comprise the following balances:


(in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Receivables related to unrecognized revenue	$	119,686	$	167,144	$	101,939	$	167,144
Income taxes receivable, including overpayments and refunds	38,151		13,709		32,921		13,709
Prepaid expenses and other current assets	46,014		35,260		42,874		35,260
Total other receivables and current assets	$	203,851	$	216,113	$	177,734	$	216,113

Accrued vacation	$	26,182	$	20,484
Accrued expenses and other current liabilities	97,048		79,075
Total other accrued expenses and liabilities	$	123,230	$	99,559
Uncertain tax positions					$	33,105	$	29,279
Other long-term liabilities					29,379		32,294
Total other long-term liabilities					$	62,484	$	61,573

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


6.	Earnings Per Share

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

The details of basic and diluted EPS are as follows:


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
(in thousands, except per share data)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Net income	$	109,750	$	92,596	$	195,980	$	176,876	$	89,463	$	89,336	$	285,443	$	266,212
Weighted average shares outstanding – basic	83,978		84,105		83,871		84,018		84,109		84,158		83,951		84,065
Dilutive effect of stock plans	1,505		1,881		1,617		2,051		1,624		1,885		1,619		1,995
Weighted average shares outstanding – diluted	85,483		85,986		85,488		86,069		85,733		86,043		85,570		86,060
Basic earnings per share	$	1.31	$	1.10	$	2.34	$	2.11	$	1.06	$	1.06	$	3.40	$	3.17
Diluted earnings per share	$	1.28	$	1.08	$	2.29	$	2.06	$	1.04	$	1.04	$	3.34	$	3.09
Anti-dilutive shares	—		—		—		—		25		—		8		—


7.	Goodwill and Intangible Assets

The Company's intangible assets are classified as follows:


	June 30, 2019					December 31, 2018					September 30, 2019					December 31, 2018
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Finite-lived intangible assets:
Developed software and core technologies	$	459,406	$	(322,186	)	$	410,680	$	(314,730	)	$	455,998	$	(325,583	)	$	410,680	$	(314,730	)
Customer lists and contract backlog	242,064		(125,058		)	209,031		(117,614		)	238,373		(127,770		)	209,031		(117,614		)
Trade names	142,929		(115,442		)	137,225		(113,677		)	142,224		(116,221		)	137,225		(113,677		)
Total	$	844,399	$	(562,686	)	$	756,936	$	(546,021	)	$	836,595	$	(569,574	)	$	756,936	$	(546,021	)
Indefinite-lived intangible asset:
Trade name	$	357				$	357				$	357				$	357

Amortization expense for the intangible assets reflected above was ~~$8.6~~$8.5 million and ~~$12.6~~$9.0 million for the three months ended ~~June~~September 30, 2019 and 2018, respectively. Amortization expense for the intangible assets reflected above was ~~$16.9~~$25.4 million and ~~$24.8~~$33.8 million for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, respectively.

As of ~~June~~September 30, 2019, estimated future amortization expense for the intangible assets reflected above is as follows:


(in thousands)
Remainder of 2019	$	17,241	$	8,499
2020	36,698		36,101
2021	34,730		34,100
2022	33,462		32,780
2023	31,792		31,122
2024	29,373		28,728
Thereafter	98,417		95,691
Total intangible assets subject to amortization	281,713		267,021
Indefinite-lived trade name	357		357
Other intangible assets, net	$	282,070	$	267,378

The changes in goodwill during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were as follows:


(in thousands)	2019			2018			2019			2018
Beginning balance – January 1	$	1,572,455		$	1,378,553		$	1,572,455		$	1,378,553
Acquisitions and adjustments⁽¹⁾	209,093			202,733			219,009			204,271
Currency translation	(5,814		)	(6,010		)	(19,602		)	(7,257		)
Ending balance – June 30	$	1,775,734		$	1,575,276
Ending balance – September 30							$	1,771,862		$	1,575,567

⁽¹⁾ In accordance with the accounting for business combinations, the Company 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 Company 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.

During the first quarter of 2019, the Company 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, 2019. No other events or circumstances changed during the ~~six~~nine months ended ~~June~~September 30, 2019 that would indicate that the fair values of the Company's reporting unit and indefinite-lived intangible asset are below their carrying amounts.


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's own assumptions used to measure assets and liabilities at fair value.

The classification of a financial asset or liability within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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


			Fair Value Measurements at Reporting Date Using:								Fair Value Measurements at Reporting Date Using:
(in thousands)	June 30, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		September 30, 2019		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	250,237	$	250,237	$	—	$	—	$	301,060	$	301,060	$	—	$	—
Short-term investments	$	241	$	—	$	241	$	—	$	218	$	—	$	218	$	—
Deferred compensation plan investments	$	3,107	$	3,107	$	—	$	—	$	4,193	$	4,193	$	—	$	—



			Fair Value Measurements at Reporting Date Using:
(in thousands)	December 31, 2018		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	446,055	$	446,055	$	—	$	—
Short-term investments	$	225	$	—	$	225	$	—
Deferred compensation plan investments	$	1,646	$	1,646	$	—	$	—

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

The short-term investments in the preceding tables represent deposits held by certain foreign subsidiaries of the Company. 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-employee Directors. These securities consist of mutual funds traded in an active market with quoted prices. As a result, the plan assets are classified as Level 1 in the fair value hierarchy. The plan assets are recorded within other long-term assets on the Company's condensed consolidated balance sheets.


9.	Leases

The Company primarily has operating leases for office space and leased cars included in its ROU assets and lease liabilities. The Company's 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 as renewal is not reasonably certain. In addition, the Company is reasonably certain it will not terminate the lease agreement. Absent the exercise of options in the lease, the Company's base rent

(inclusive of property taxes and certain operating costs) is $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 components of the Company's global lease cost reflected in the condensed consolidated statements of income are as follows:


(in thousands)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Lease liability cost	$	5,610	$	10,895	$	5,684	$	16,579
Variable lease cost not included in the lease liability⁽¹⁾	924		1,721		1,126		2,847
Total lease cost	$	6,534	$	12,616	$	6,810	$	19,426

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

~~Lease cost totaled $5.3 million and $10.2 million for~~For the three and ~~six~~nine months ended ~~June~~September 30, 2018, lease cost totaled $6.1 million and $16.3 million, respectively.

Other information related to operating leases is as follows:


(in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of the lease liability:
Operating cash flows from operating leases	$	(4,977	)	$	(9,309	)	$	(5,242	)	$	(14,551	)
Right-of-use assets obtained in exchange for new operating lease liabilities	$	9,272		$	23,107		$	6,155		$	29,262

As of ~~June~~September 30, 2019, the weighted-average remaining lease term of operating leases was 7.8 years, and the weighted-average discount rate of operating leases was ~~3.3%~~3.7%.

The maturity schedule of the operating lease liabilities as of ~~June~~September 30, 2019 is as follows:


(in thousands)
Remainder of 2019	$	11,351		$	6,335
2020	19,526			20,192
2021	17,426			18,178
2022	14,942			15,472
2023	11,034			11,748
Thereafter	49,869			54,966
Total future lease payments	124,148			126,891
Less: Present value adjustment	(16,601		)	(19,059		)
Present value of future lease payments⁽¹⁾	$	107,547		$	107,832

⁽¹⁾Includes the current portion of operating lease liabilities of ~~$17.1~~$16.7 million, which is reflected in other accrued expenses and liabilities in the condensed consolidated balance sheets.

There were no material leases that have been signed but not yet commenced as of ~~June~~September 30, 2019.

The future minimum lease payments under ASC 840, including termination fees, under noncancellable operating leases for office space in effect at December 31, 2018 were as follows:



(in thousands)
2019	$	16,354
2020	12,469
2021	10,177
2022	8,523
2023	6,809
Thereafter	14,267
Total	$	68,599


10.	Debt

In February 2019, the Company entered into a credit agreement for a $500 million unsecured revolving credit facility, which includes a $50 million sublimit for the issuance of letters of credit, with Bank of America, N.A. as the Administrative Agent. The revolving credit facility is available for general corporate purposes, including, among others, to finance acquisitions and capital expenditures and becomes payable in full on February 22, 2024.

Borrowings under the revolving credit facility will accrue interest at the Eurodollar rate plus an applicable margin or at the base rate. The base rate is the applicable margin plus the highest of (i) the federal funds rate plus 0.500%, (ii) the Bank of America prime rate and (iii) the Eurodollar rate plus 1.000%. The applicable margin for these borrowings is a percentage per annum based on the lower of (1) a pricing level determined by the Company’s then-current consolidated leverage ratio and (2) a pricing level determined by the Company’s debt ratings (if such debt ratings exist). This results in a margin ranging from 1.125% to 1.750% and 0.125% to 0.750% for the Eurodollar rate and base rate, respectively.

The credit agreement contains customary representations and warranties, affirmative and negative covenants and events of default. The credit agreement also contains a financial covenant requiring the Company and its subsidiaries to maintain a consolidated leverage ratio of indebtedness to earnings before interest, taxes, depreciation and amortization 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 leverage ratio to 4.00 to 1.00 upon the consummation of certain qualified acquisitions for which the aggregate consideration is at least $250 million.

The credit agreement will terminate and all amounts owing thereunder will be due and payable on February 22, 2024 unless (i) the commitments are terminated earlier upon the occurrence of certain events, including an event of default, or (ii) the maturity date is further extended upon the Company's request, subject to the agreement of the lenders.

As of ~~June~~September 30, 2019, there were no outstanding borrowings under the credit agreement, and the Company was in compliance with all covenants.

See Note 15 Subsequent Events for information on the October 16, 2019 amendment to this credit agreement.


11.	Stock Repurchase Program

Under the Company's stock repurchase program, the Company repurchased shares as follows:


	Six Months Ended				Nine Months Ended
(in thousands, except per share data)	June 30, 2019		June 30, 2018		September 30, 2019		September 30, 2018
Number of shares repurchased	330		750		330		1,174
Average price paid per share	$	179.41	$	157.11	$	179.41	$	164.14
Total cost	$	59,116	$	117,831	$	59,116	$	192,787

In February 2018, the Company's Board of Directors increased the number of shares authorized for repurchase to a total of 5.0 million shares under the stock repurchase program. As of ~~June~~September 30, 2019, 3.5 million shares remained available for repurchase under the program. During the three months ended September 30, 2019, the Company did not repurchase any shares of common stock.


12.	Stock-Based Compensation

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


	Three Months Ended						Six Months Ended						Three Months Ended						Nine Months Ended
(in thousands, except per share data)	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Cost of sales:
Maintenance and service	$	2,374		$	1,432		$	3,602		$	2,442		$	2,422		$	1,438		$	6,024		$	3,880
Operating expenses:
Selling, general and administrative	14,503			11,526			27,634			19,804			16,774			13,484			44,408			33,288
Research and development	12,245			7,677			21,686			13,658			12,666			8,061			34,352			21,719
Stock-based compensation expense before taxes	29,122			20,635			52,922			35,904			31,862			22,983			84,784			58,887
Related income tax benefits	(9,152		)	(10,396		)	(20,228		)	(21,700		)	(9,847		)	(8,611		)	(30,075		)	(30,311		)
Stock-based compensation expense, net of taxes	$	19,970		$	10,239		$	32,694		$	14,204		$	22,015		$	14,372		$	54,709		$	28,576
Net impact on earnings per share:
Basic earnings per share	$	(0.24	)	$	(0.12	)	$	(0.39	)	$	(0.17	)	$	(0.26	)	$	(0.17	)	$	(0.65	)	$	(0.34	)
Diluted earnings per share	$	(0.23	)	$	(0.12	)	$	(0.38	)	$	(0.17	)	$	(0.26	)	$	(0.17	)	$	(0.64	)	$	(0.33	)


13.	Geographic Information

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


	Three Months Ended				Six Months Ended				Three Months Ended				Nine Months Ended
(in thousands)	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
United States	$	137,789	$	122,790	$	278,451	$	221,555	$	146,761	$	106,229	$	425,212	$	327,784
Japan	47,042		42,140		80,615		72,741		35,749		36,309		116,364		109,050
Germany	25,879		23,893		56,306		69,431		37,541		27,831		93,847		97,262
South Korea	40,853		17,471		55,931		32,525		16,902		12,943		72,833		45,468
France	13,990		14,051		29,599		30,603		17,226		14,035		46,825		44,638
China									18,057		14,568		43,904		38,616
Other Europe, Middle East and Africa (EMEA)	53,222		48,099		97,477		91,117		44,860		45,602		142,337		136,719
Other international	49,860		37,469		87,386		70,814		26,803		31,901		88,342		78,667
Total revenue	$	368,635	$	305,913	$	685,765	$	588,786	$	343,899	$	289,418	$	1,029,664	$	878,204

Property and equipment by geographic area is as follows:


(in thousands)	June 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
United States	$	47,927	$	46,605	$	48,886	$	46,605
India	5,016		4,176		5,641		4,176
United Kingdom	3,664		1,238		3,696		1,238
France	3,616		2,887
Other EMEA	4,443		2,995		7,694		5,882
Other international	3,628		3,754		4,378		3,754
Total property and equipment, net	$	68,294	$	61,655	$	70,295	$	61,655


14.	Contingencies and Commitments

The Company is 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, alleged infringement of intellectual property rights and other matters. In the opinion of the Company, the resolution of pending matters is not expected to have a material adverse effect on the Company's consolidated results of operations, cash flows or financial position. However, each of these matters is subject to various uncertainties and it is possible that an unfavorable resolution of one or more of these proceedings could materially affect the Company's results of operations, cash flows or financial position.

An Indian subsidiary of the Company has several service tax audits pending that have resulted in formal inquiries being received on transactions through mid-2012. The Company could incur tax charges and related liabilities of approximately ~~$7.3~~$7.2 million. The service tax issues raised in the Company’s notices and inquiries are very similar to the case, M/s Microsoft Corporation (I) (P) Ltd. Vs. Commissioner of Service Tax, New Delhi, wherein the Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) passed a favorable ruling to Microsoft. The Microsoft case ruling was subsequently challenged in the Supreme Court by the Indian tax authority. The Company can provide no assurances ~~on whether the Microsoft case's favorable ruling will be challenged in higher courts or~~ on the impact that the present Microsoft case’s decision will have on the Company’s cases. The Company is uncertain as to when these service tax matters will be concluded.

The Company sells software licenses and services to its customers under ~~proprietary software license~~contractual agreements. ~~Each license agreement contains the relevant terms of the contractual arrangement with the customer, and~~Such agreements generally ~~includes~~include certain provisions ~~for~~ indemnifying the customer against ~~losses, expenses and liabilities~~claims of intellectual property infringement by third parties arising from ~~damages that are incurred by or awarded against the customer in the event~~such customer’s usage of the Company's ~~software~~products or ~~services are found to infringe upon a patent, copyright or other proprietary right of a third party.~~services. To date, ~~the Company has not had to reimburse any of its customers for any losses~~payments related to these indemnification provisions ~~and no material claims asserted under these indemnification provisions are outstanding as of June 30, 2019.~~have been immaterial. For several reasons, including the lack of prior material indemnification claims, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.


15.	Subsequent Events

On November 1, 2019, the Company completed the acquisition of 100% of the shares of Livermore Software Technology Corporation (LSTC), the premier provider of explicit dynamics and other advanced finite element analysis technology. The acquisition will empower ANSYS customers to solve a new class of engineering challenges, including developing safer automobiles, aircraft and trains while reducing or even eliminating the need for costly physical testing. The transaction closed with a purchase price of $779.9 million, which included $472.7 million in cash and the issuance of 1.4 million shares of ANSYS common stock in an unregistered offering to the prior owners of LSTC. The fair value of the common stock issued as consideration was based on the volume-weighted average price of ANSYS common stock on November 1, 2019 of $220.74, resulting in a fair value of $307.2 million.

In connection with the acquisition of LSTC, the Company entered into an amendment to its existing credit agreement dated October 16, 2019. The amendment provides for a new $500.0 million unsecured term loan facility to finance the acquisition. The term loan was funded on November 1, 2019 and matures on November 1, 2024. Principal on the term loan will be payable on the last business day of each fiscal quarter commencing with the ninth full fiscal quarter after the funding date at a rate of 5% per annum, increasing to 10% per annum after the next four fiscal quarters. All other terms, including financial covenants and the applicable interest rate on all loans under the credit agreement, including the new term loan, remain the same.

On November 1, 2019, the Company completed the acquisition of 100% of the shares of Dynardo, a leading provider of multidisciplinary analysis and optimization technology, for a purchase price of approximately €30.0 million. The acquisition gives ANSYS customers access to a full suite of process integration and robust design tools — empowering users to identify optimal product designs faster and more economically.

Due to the limited time since the respective acquisition dates, the initial accounting for the business combinations is incomplete. As a result, the Company is unable to provide the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed. For LSTC, this information will be included in an amendment expected to be filed in January 2020 to the Company's Current Report on Form 8-K that was initially filed on November 6, 2019. For Dynardo, this information will be included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

Results of Review of Interim Financial Information

We have reviewed the accompanying condensed consolidated balance sheet of ANSYS, Inc. and subsidiaries (the “Company”) as of ~~June~~September 30, 2019, the related condensed consolidated statements of income, comprehensive income, and stockholders’ equity for the three-month and ~~six-month~~nine-month periods ended ~~June~~September 30, 2019 and 2018, and of cash flows for the ~~six-month~~nine-month periods ended ~~June~~September 30, 2019 and 2018, and the related notes (collectively referred to as the “interim financial information"). Based on our ~~review,~~reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 28, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

Basis for Review Results

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

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

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania

~~August 6,~~November 7, 2019

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

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the ~~six~~nine months ended ~~June~~September 30, 2019, and with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the 2018 Form 10-K filed with the Securities and Exchange Commission. The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with GAAP.

Overview:

Overall GAAP and Non-GAAP Results

The Company's growth rates of GAAP and non-GAAP results for the three and ~~six~~nine months ended ~~June~~September 30, 2019 as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2018 were as follows:


	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP		Non-GAAP
Revenue	20.5	%	20.0	%	16.5	%	16.6	%	18.8	%	17.9	%	17.2	%	17.0	%
Operating income	18.5	%	15.7	%	10.1	%	11.9	%	12.9	%	16.1	%	11.0	%	13.3	%
Diluted earnings per share	18.5	%	19.3	%	11.2	%	14.6	%	0.0	%	8.4	%	8.1	%	12.2	%

The Company experienced higher revenue during the three and ~~six~~nine months ended ~~June~~September 30, 2019 from growth in lease licenses, maintenance and service, ~~while~~and additional revenue ~~from perpetual licenses decreased.~~related to acquisitions. The Company also experienced increased operating expenses primarily due to increased personnel costs, higher stock-based compensation and additional operating expenses related to acquisitions, partially offset by a reduction in expenses due to a stronger U.S. Dollar.

The non-GAAP results exclude the income statement effects of the acquisition accounting adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets, transaction costs related to business combinations, and adjustments related to the transition tax associated with the Tax Cuts and Jobs Act. For further disclosure regarding non-GAAP results, see the section titled "Non-GAAP Results" immediately preceding the section titled "Liquidity and Capital Resources."

Constant currency amounts exclude the ~~effect~~effects of foreign currency fluctuations on the reported results. To present this information, the 2019 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 2018 comparable period, rather than the actual exchange rates in effect for 2019. Constant currency growth rates are calculated by adjusting the 2019 reported revenue and operating income amounts by the 2019 currency fluctuation impacts and comparing to the 2018 comparable period reported revenue and operating income amounts.

Impact of Foreign Currency

The Company's comparative financial results were impacted by fluctuations in the U.S. Dollar during the three and ~~six~~nine months ended ~~June~~September 30, 2019 as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2018. The impacts on the Company's revenue and operating income due to currency fluctuations are reflected in the table below. Amounts in brackets indicate a net adverse impact from currency fluctuations.


	Three Months Ended June 30, 2019						Six Months Ended June 30, 2019						Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
(in thousands)	GAAP			Non-GAAP			GAAP			Non-GAAP			GAAP			Non-GAAP			GAAP			Non-GAAP
Revenue	$	(8,203	)	$	(8,286	)	$	(17,361	)	$	(17,567	)	$	(4,481	)	$	(4,543	)	$	(21,842	)	$	(22,110	)
Operating income	$	(4,016	)	$	(4,289	)	$	(7,159	)	$	(7,793	)	$	(2,051	)	$	(2,246	)	$	(9,210	)	$	(10,039	)

In constant currency, the Company's growth rates were as follows:


	Three Months Ended June 30, 2019				Six Months Ended June 30, 2019				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
	GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP		Non-GAAP		GAAP		Non-GAAP
Revenue	23.2	%	22.6	%	19.4	%	19.6	%	20.4	%	19.5	%	19.7	%	19.5	%
Operating income	22.2	%	18.6	%	13.7	%	14.8	%	15.1	%	17.9	%	14.1	%	15.8	%

Other Financial Information

The Company’s financial position includes ~~$631.7~~$732.9 million in cash and short-term investments, and working capital of ~~$627.7~~$732.4 million as of ~~June~~September 30, 2019.

During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company repurchased 0.3 million shares for $59.1 million at an average price of $179.41 per share. No shares were repurchased during the three months ended September 30, 2019.

During the fourth quarter of 2019, the Company completed the acquisitions of LSTC for $779.9 million and Dynardo for €30.0 million. In conjunction with the LSTC transaction, ANSYS amended its existing credit agreement and obtained $500.0 million of term debt financing to fund the cash component of the purchase price.

Business:

ANSYS develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, electronics, semiconductors, energy, materials and chemical processing, turbomachinery, consumer products, healthcare, and sports. Headquartered south of Pittsburgh, Pennsylvania, the Company employed approximately ~~3,800~~3,900 people as of ~~June~~September 30, 2019. ANSYS focuses on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company distributes its suite of simulation technologies through a global network of independent channel partners and direct sales offices in strategic, global locations. It is the Company’s intention to continue to maintain this hybrid sales and distribution model.

The Company licenses its technology to businesses, 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. The Company believes that the features, functionality and integrated multiphysics capabilities of its software products are as strong as they have ever been. However, the software business is generally characterized by long sales cycles. These long sales cycles increase the difficulty of predicting sales for any particular quarter. The Company makes 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 believes that its overall performance is best measured by fiscal-year results rather than by quarterly results.

The Company’s management considers the competition and price pressure that it faces in the short- and long-term by focusing on expanding the breadth, depth, ease of use and quality of the technologies, features, functionality and integrated multiphysics capabilities of its software products as compared to its competitors; investing in research and development to develop new and innovative products and increase the capabilities of its existing products; supplying new products and services; focusing on customer needs, training, consulting and support; and enhancing its distribution channels. ~~From time to time, the~~The Company also ~~considers~~uses acquisitions to supplement its global engineering talent, product offerings and distribution channels.

Geographic Trends:

The following table presents the Company's geographic constant currency revenue growth during the three and ~~six~~nine months ended ~~June~~September 30, 2019 as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2018:


	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Americas	13.0	%	25.6	%	34.8	%	28.6	%
EMEA	13.3	%	1.7	%	19.0	%	7.1	%
Asia-Pacific	46.6	%	31.2	%	3.4	%	21.5	%
Total	23.2	%	19.4	%	20.4	%	19.7	%

The Company continues to focus on a number of sales improvement activities across the geographic regions, including sales hiring, pipeline building, productivity initiatives and customer engagement activities.

As trade tensions between the U.S. and China continue, the Company's ability to sell and ship the Company's products to certain customers may be further restricted and could have an adverse effect on the Company's business, results of operations or financial condition. Refer to additional details within Part II, Item 1A of this Quarterly Report on Form 10-Q.

Industry Commentary:

The Company experienced industry trends consistent with those of the first ~~quarter of 2019 and the second~~ half of ~~2018.~~2019. The high-tech ~~industry's growth benefited from the intense competition among the Company's customers for share~~industry was positively impacted by companies' investments in ~~the~~ 5G ~~market~~ and other applications. The automotive industry continued its momentum due to continued investments in ~~data centers~~autonomous vehicles and ~~smart connected products. Autonomous vehicles, electrification and functional safety continue to drive growth in the automotive industry.~~electrification. Defense spending ~~on next-generation systems resulted~~continued to support growth in ~~continued growth for~~ the aerospace and defense industry.

Use of Estimates:

The preparation of these financial statements requires the Company 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, the Company evaluates its estimates, including those related to the fair values of stock awards, bad debts, contract revenue, acquired deferred revenue, the standalone selling prices of its products and services, the valuation of goodwill and other intangible assets, deferred compensation, income taxes, uncertain tax positions, tax valuation reserves, operating lease assets and liabilities, useful lives for depreciation and amortization, and contingencies and litigation. The Company bases its estimates on historical experience, market experience, estimated future cash flows and various other assumptions that are believed to be 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 available from other sources. Actual results may differ from these estimates.

Note About Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, the following statements, as well as statements that contain such words as "anticipates," "intends," "believes," "plans" and other similar expressions:

The Company's expectations regarding the impacts of new accounting guidance.

The Company's ~~estimates regarding the expected impact on reported revenue related to the acquisition accounting treatment of deferred revenue.~~

~~The Company's~~ expectations regarding the outcome of its service tax audit cases.

The Company's assessment of the ultimate liabilities arising from various investigations, claims and legal proceedings.

The Company's expectations regarding future claims related to indemnification obligations.

The Company's intentions regarding its hybrid sales and distribution model.

The Company's statement regarding the strength of the features, functionality and integrated multiphysics capabilities of its software products.

The Company's belief that its overall performance is best measured by fiscal-year results rather than by quarterly results.

The Company's expectations regarding increased lease license volatility due to an increased customer preference for time-based licenses.

The Company's estimates regarding the expected impact on reported revenue related to the acquisition accounting treatment of deferred revenue.

The Company's expectation that it will continue to make targeted investments in its global sales and marketing organizations and its global business infrastructure to enhance and support its revenue-generating activities.

The Company's intentions related to investments in research and development, particularly as it relates to expanding the ease of use and capabilities of its broad portfolio of simulation software products.

The Company's intention to repatriate previously taxed earnings in excess of working capital needs and to reinvest all other earnings of its non-U.S. subsidiaries.

The Company's plans related to future capital spending.

The sufficiency of existing cash and cash equivalent balances to meet future working capital and capital expenditure requirements.

The Company's belief that the best uses of its excess cash are to invest in the business and to repurchase stock in order to both offset dilution and return capital to stockholders, in excess of its requirements, with the goal of increasing stockholder value.

The Company's intentions related to investments in complementary companies, products, services and technologies.

The Company's expectation that changes in currency exchange rates will affect the Company's financial position, results of operations and cash flows.

The Company’s expectations regarding acquisitions and integrating such acquired companies to realize the benefits of cost reductions and other synergies relating thereto.

Forward-looking statements should not be unduly relied upon because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the Company’s control. The Company’s actual results could differ materially from those set forth in forward-looking statements. Certain factors, among others, that might cause such a difference include risks and uncertainties disclosed in the Company’s 2018 Form 10-K, Part I, Item 1A. "Risk Factors." Information regarding any new risk factors or material changes to these risk factors has been included within Part II, Item 1A of this Quarterly Report on Form 10-Q.

Results of Operations

Three Months Ended ~~June~~September 30, 2019 Compared to Three Months Ended ~~June~~September 30, 2018

Revenue:


	Three Months Ended June 30,				Change							Three Months Ended September 30,				Change
(in thousands, except percentages)	2019		2018		Amount			%		Constant Currency %		2019		2018		Amount		%	Constant Currency %
Revenue:
Lease licenses	$	100,004	$	56,821	$	43,183		76.0		80.4		$	70,693	$	43,202	$	27,491	63.6	66.4
Perpetual licenses	70,495		74,326		(3,831		)	(5.2	)	(3.5	)	66,451		65,901		550		0.8	2.1
Software licenses	170,499		131,147		39,352			30.0		32.8		137,144		109,103		28,041		25.7	27.5
Maintenance	185,118		165,603		19,515			11.8		14.3		193,189		171,463		21,726		12.7	14.0
Service	13,018		9,163		3,855			42.1		45.9		13,566		8,852		4,714		53.3	54.7
Maintenance and service	198,136		174,766		23,370			13.4		15.9		206,755		180,315		26,440		14.7	16.0
Total revenue	$	368,635	$	305,913	$	62,722		20.5		23.2		$	343,899	$	289,418	$	54,481	18.8	20.4

The Company’s revenue in the quarter ended ~~June~~September 30, 2019 increased ~~20.5%~~18.8% as compared to the quarter ended ~~June~~September 30, 2018, while revenue grew ~~23.2%~~20.4% in constant currency. The growth rate was favorably impacted by the Company’s continued investment in its global sales, support and marketing organizations, as well as its acquisitions. Lease license revenue increased ~~76.0%~~63.6%, or ~~80.4%~~66.4% in constant currency, as compared to the prior-year quarter, driven primarily by an increase in multi-year lease contracts. Annual maintenance contracts that were sold with new perpetual licenses, maintenance contracts for new perpetual licenses sold in previous quarters and the maintenance portion of lease license contracts each contributed to maintenance revenue growth of ~~11.8%~~12.7%, or ~~14.3%~~14.0% in constant currency. Service revenue, driven primarily by a focus on service offerings that provide on-site mentorship on simulation best practices, training and expanding simulation adoption, increased ~~42.1%~~53.3%, or ~~45.9% in constant currency, as compared to the prior-year quarter. Perpetual license revenue, which is derived primarily from new sales during the quarter, decreased 5.2%, or 3.5%~~54.7% in constant currency, as compared to the prior-year quarter.

The Company continues to experience increased interest by some of its larger customers in enterprise agreements that often include longer-term, time-based licenses involving a larger number of the Company's software products. While these arrangements typically involve a higher overall transaction price, the upfront recognition of license revenue related to these larger, multi-year transactions can result in significantly higher lease license revenue and corresponding revenue growth volatility. As software products, across a large variety of applications and industries, become increasingly distributed in software-as-a-service, cloud and other subscription environments in which the licensing approach is time-based rather than perpetual, the Company is also experiencing a shifting preference from perpetual licenses to time-based licenses across a broader spectrum of its customers. ~~In the current quarter, the shift from perpetual to lease license was most evident in the U.S. geographic market.~~

(in thousands) Three Months Ended June 30, 2019
Euro $ (3,810 )
South Korean Won (2,809 )
British Pound (710 )
Taiwan Dollar (314 )
Indian Rupee (229 )
Japanese Yen (223 )
Other (108 )
Total $ (8,203 )



(in thousands)	Three Months Ended September 30, 2019
Euro	$	(4,123	)
South Korean Won	(972		)
British Pound	(611		)
Taiwan Dollar	(87		)
Indian Rupee	(23		)
Japanese Yen	1,336
Other	(1		)
Total	$	(4,481	)

The net overall stronger U.S. Dollar also resulted in decreased operating income of ~~$4.0~~$2.1 million for the quarter ended ~~June~~September 30, 2019 as compared to the quarter ended ~~June~~September 30, 2018.

As a percentage of revenue, the Company's international and domestic revenues, and the Company's direct and indirect revenues, were as follows:

Three Months Ended June 30,
2019 2018
International 62.6 % 59.9 %
Domestic 37.4 % 40.1 %

Direct 79.7 % 76.3 %
Indirect 20.3 % 23.7 %

~~Deferred Revenue and Backlog:~~

Deferred revenue consists of billings made or payments received in advance of revenue recognition. The deferred revenue on the Company's condensed consolidated balance sheets does not represent the total value of annual or multi-year, noncancellable agreements. The Company's backlog represents installment billings for periods beyond the current quarterly billing cycle and custom~~er orders received but not processed. The Company's deferred revenue and backlog as of June 30, 2019 and December 31, 2018 consisted of the following:~~

Balance at June 30, 2019
(in thousands) Total Current Long-Term
Deferred revenue $ 335,384
$ 321,060
$ 14,324
Backlog 381,930
175,837
206,093
Total $ 717,314
$ 496,897
$ 220,417

Balance at December 31, 2018
(in thousands) Total Current Long-Term
Deferred revenue $ 343,174
$ 328,584
$ 14,590
Backlog 315,998
147,299
168,699
Total $ 659,172
$ 475,883
$ 183,289

~~Revenue associated with deferred revenue and backlog that will be recognized in the subsequent twelve months is classified as current in the tables above.~~

~~Cost of Sales and Operating Expenses:~~

The tables below reflect the Company's operating results as presented on the condensed consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussions that follow each table are provided in constant currency. The impact, where material, of foreign exchange translation on each expense line is provided separately.

Three Months Ended June 30,
2019 2018 Change
(in thousands, except percentages) Amount
% of
Revenue
Amount
% of
Revenue
Amount %
Cost of sales:
Software licenses $ 6,204
1.7 $ 4,099
1.3 $ 2,105
51.4
Amortization 4,755
1.3 9,087
3.0 (4,332 ) (47.7 )
Maintenance and service 29,538
8.0 27,264
8.9 2,274
8.3
Total cost of sales 40,497
11.0 40,450
13.2 47
0.1
Gross profit $ 328,138
89.0 $ 265,463
86.8 $ 62,675
23.6

~~Software Licenses:~~ ~~The increase in the cost of software licenses was primarily due to increased third-party royalties of $2.3 million.~~

~~Amortization:~~ The decrease in amortization expense was primarily due to a decrease in the amortization of trade names and acquired technology due to assets that became fully amortized, which was partially offset by the amortization of newly acquired intangible assets.

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

~~Increased salaries of $1.1 million.~~

~~Increased stock-based compensation of $0.9 million.~~

~~The improvement in gross profit was a result of the increase in revenue while the related cost of sales remained consistent.~~

Three Months Ended June 30,
2019 2018 Change
(in thousands, except percentages) Amount
% of
Revenue
Amount
% of
Revenue
Amount %
Operating expenses:
Selling, general and administrative $ 120,412
32.7 $ 95,058
31.1 $ 25,354
26.7
Research and development 75,302
20.4 58,357
19.1 16,945
29.0
Amortization 3,796
1.0 3,495
1.1 301
8.6
Total operating expenses $ 199,510
54.1 $ 156,910
51.3 $ 42,600
27.1

~~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 $16.4 million.~~

~~Increased stock-based compensation of $3.0 million.~~

~~Increased business travel of $1.9 million.~~

~~Increased marketing expenses of $1.4 million.~~

~~Cost decrease related to foreign exchange translation of $2.2 million due to a stronger U.S. Dollar.~~

The Company anticipates that it will continue to make targeted investments in its global sales and marketing organizations and its global business infrastructure to enhance and support its 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 costs of $11.3 million.~~

~~Increased stock-based compensation of $4.6 million.~~

The Company has traditionally invested significant resources in research and development activities and intends to continue to make investments in expanding the ease of use and capabilities of its broad portfolio of simulation software products.

~~Interest Income:~~ Interest income for the quarter ended June 30, 2019 was $3.0 million as compared to $2.2 million for the quarter ended June 30, 2018. Interest income increased as a result of an increase in the average rate of return on invested cash balances.

~~Other Expense, net:~~ ~~The Company's other expense consisted of the following:~~

Three Months Ended
(in thousands) June 30,
2019 June 30,
2018
Foreign currency losses, net $ (1,869 ) $ (1,059 )
Other 202
52
Total other expense, net $ (1,667 ) $ (1,007 )

~~Income Tax Provision:~~ ~~The Company's income before income tax provision, income tax provision and effective tax rate were as follows:~~

Three Months Ended
(in thousands, except percentages) June 30,
2019 June 30,
2018
Income before income tax provision $ 129,941
$ 109,722
Income tax provision $ 20,191
$ 17,126
Effective tax rate 15.5 % 15.6 %

The decrease in the effective tax rate from the prior year is primarily due to decreased global intangible low-taxed income (GILTI) costs and increased foreign-derived intangible income (FDII) benefit, partially offset by decreased deductions for stock-based compensation.

When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the quarters ended June 30, 2019 and 2018 were favorably impacted by tax benefits from stock-based compensation, the FDII deduction, and research and development credits.

~~Net Income:~~ ~~The Company's net income, diluted earnings per share and weighted average shares used in computing diluted earnings per share were as follows:~~

Three Months Ended
(in thousands, except per share data) June 30,
2019 June 30,
2018
Net income $ 109,750
$ 92,596
Diluted earnings per share $ 1.28
$ 1.08
Weighted average shares outstanding - diluted 85,483
85,986

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~Revenue:~~

Six Months Ended June 30, Change
(in thousands, except percentages) 2019 2018 Amount % Constant Currency %
Revenue:
Lease licenses $ 169,260
$ 105,593
$ 63,667
60.3
64.0
Perpetual licenses 124,283
135,600
(11,317 ) (8.3 ) (6.1 )
Software licenses 293,543
241,193
52,350
21.7
24.6
Maintenance 366,579
329,499
37,080
11.3
14.2
Service 25,643
18,094
7,549
41.7
45.9
Maintenance and service 392,222
347,593
44,629
12.8
15.9
Total revenue $ 685,765
$ 588,786
$ 96,979
16.5
19.4

The Company’s revenue in the six months ended June 30, 2019 increased 16.5% as compared to the six months ended June 30, 2018, while revenue grew 19.4% in constant currency. The growth rate was favorably impacted by the Company’s continued investment in its global sales, support and marketing organizations, as well as its acquisitions. Lease license revenue increased 60.3%, or 64.0% in constant currency, as compared to the six months ended June 30, 2018, driven primarily by an increase in multi-year lease contracts. Annual maintenance contracts that were sold with new perpetual licenses, maintenance contracts for new perpetual licenses sold in previous quarters and the maintenance portion of lease license contracts each contributed to maintenance revenue growth of 11.3%, or 14.2% in constant currency. Service revenue, driven primarily by a focus on service offerings that provide on-site mentorship on simulation best practices, training and expanding simulation adoption, increased 41.7%, or 45.9% in constant currency, as compared to the six months ended June 30, 2018. Perpetual license revenue, which is derived primarily from new sales during the six months ended June 30, 2019, decreased 8.3%, or 6.1% in constant currency, as compared to the six months ended June 30, 2018. Consistent with the quarterly analysis, the decline in perpetual revenue has been driven by a shifting preference from perpetual to time-based licenses across a broad spectrum of the Company's customers.

With respect to revenue, on average for the six months ended June 30, 2019, the U.S. Dollar was approximately 5.0% stronger, when measured against the Company’s primary foreign currencies, than for the six months ended June 30, 2018. The table below presents the impacts of currency fluctuations on revenue for the six months ended June 30, 2019. Amounts in brackets indicate an adverse impact from currency fluctuations.

(in thousands) Six Months Ended June 30, 2019
Euro $ (9,796 )
South Korean Won (3,453 )
British Pound (1,347 )
Japanese Yen (1,022 )
Indian Rupee (810 )
Taiwan Dollar (539 )
Other (394 )
Total $ (17,361 )

~~The net overall stronger U.S. Dollar also resulted in decreased operating income of $7.2 million for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.~~

~~As a percentage of revenue, the Company's international and domestic revenues, and the Company's direct and indirect revenues, were as follows:~~


	Six Months Ended June 30,				Three Months Ended September 30,
	2019		2018		2019		2018
International	59.4	%	62.4	%	57.3	%	63.3	%
Domestic	40.6	%	37.6	%	42.7	%	36.7	%

Direct	75.4	%	76.4	%	76.8	%	75.5	%
Indirect	24.6	%	23.6	%	23.2	%	24.5	%

In valuing deferred revenue on the balance sheets of the Company's recent acquisitions, as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impacts on reported revenue were ~~$4.7~~$1.6 million and ~~$3.3~~$3.5 million for the ~~six~~quarters ended September 30, 2019 and 2018, respectively. The expected impacts on reported revenue, including an estimate for the Company's fourth quarter acquisitions, range from $3.9 million to $4.5 million and $10.1 million to $10.7 million for the quarter and the year ending December 31, 2019, respectively. The Company has not yet performed a valuation of the acquired deferred revenue for its fourth quarter acquisitions. Until such valuation is completed, the expected impacts on revenue will remain preliminary estimates that are likely to change.

Deferred Revenue and Backlog:

Deferred revenue consists of billings made or payments received in advance of revenue recognition. The deferred revenue on the Company's condensed consolidated balance sheets does not represent the total value of annual or multi-year, noncancellable agreements. The Company's backlog represents installment billings for periods beyond the current quarterly billing cycle. The Company's deferred revenue and backlog as of September 30, 2019 and December 31, 2018 consisted of the following:



	Balance at September 30, 2019
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	303,315	$	291,385	$	11,930
Backlog	347,072		154,549		192,523
Total	$	650,387	$	445,934	$	204,453



	Balance at December 31, 2018
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	343,174	$	328,584	$	14,590
Backlog	315,998		147,299		168,699
Total	$	659,172	$	475,883	$	183,289

Revenue associated with deferred revenue and backlog that will be recognized in the subsequent twelve months is classified as current in the tables above.

Cost of Sales and Operating Expenses:

The tables below reflect the Company's operating results as presented on the condensed consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussions that follow each table are provided in constant currency and are inclusive of costs related to the Company's acquisitions. The impact of foreign exchange translation is discussed separately, where material. Granta Design contributed $4.4 million to the overall increase in operating expenses.



	Three Months Ended September 30,
	2019			2018			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount			%
Cost of sales:
Software licenses	$	5,708	1.7	$	4,291	1.5	$	1,417		33.0
Amortization	4,762		1.4	5,530		1.9	(768		)	(13.9	)
Maintenance and service	30,895		9.0	26,487		9.2	4,408			16.6
Total cost of sales	41,365		12.0	36,308		12.5	5,057			13.9
Gross profit	$	302,534	88.0	$	253,110	87.5	$	49,424		19.5

Software Licenses: The increase in the cost of software licenses was primarily due to increased third-party royalties of $1.2 million.

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

Increased stock-based compensation of $1.0 million.

Increased salaries of $0.9 million.

Increased IT maintenance and software hosting costs of $0.7 million.

Increased consulting costs of $0.6 million.

Increased third-party technical support of $0.5 million.

Increased severance costs of $0.5 million.

The improvement in gross profit was a result of the increase in revenue, partially offset by the increase in the related cost of sales.



	Three Months Ended September 30,
	2019			2018			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Operating expenses:
Selling, general and administrative	$	120,682	35.1	$	97,576	33.7	$	23,106	23.7
Research and development	73,018		21.2	59,019		20.4	13,999		23.7
Amortization	3,787		1.1	3,491		1.2	296		8.5
Total operating expenses	$	197,487	57.4	$	160,086	55.3	$	37,401	23.4

Selling, General and Administrative: The increase in selling, general and administrative costs was primarily due to the following:

Increased salaries, incentive compensation and other headcount-related costs of $12.8 million.

Increased stock-based compensation of $3.3 million.

Increased professional services of $2.8 million.

Increased business travel of $1.4 million.

Increased third-party commissions of $1.2 million.

Research and Development: The increase in research and development costs was primarily due to the following:

Increased salaries, incentive compensation and other headcount-related costs of $7.5 million.

Increased stock-based compensation of $4.6 million.

Interest Income: Interest income was $3.2 million for the quarters ended September 30, 2019 and 2018. Interest income remained consistent as a higher average rate of return on invested cash balances was offset by the Company's lower average invested cash balances.

Other Income (Expense), net: The Company's other income (expense) consisted of the following:



	Three Months Ended
(in thousands)	September 30, 2019			September 30, 2018
Foreign currency gains (losses), net	$	826		$	(1,023	)
Other	(232		)	49
Total other income (expense), net	$	594		$	(974	)

Income Tax Provision: The Company's income before income tax provision, income tax provision and effective tax rate were as follows:



	Three Months Ended
(in thousands, except percentages)	September 30, 2019			September 30, 2018
Income before income tax provision	$	108,829		$	95,263
Income tax provision	$	19,366		$	5,927
Effective tax rate	17.8		%	6.2		%

The increase in the effective tax rate from the prior year was primarily due to benefits of $6.8 million recorded in 2018 related to global legal entity restructuring activities that did not recur in 2019 and decreased benefits related to stock-based compensation.

When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the quarters ended September 30, 2019 and 2018 were favorably impacted by tax benefits from stock-based compensation, the foreign-derived intangible income (FDII) deduction, and research and development credits.

Net Income: The Company's net income, diluted earnings per share and weighted average shares used in computing diluted earnings per share were as follows:



	Three Months Ended
(in thousands, except per share data)	September 30, 2019		September 30, 2018
Net income	$	89,463	$	89,336
Diluted earnings per share	$	1.04	$	1.04
Weighted average shares outstanding - diluted	85,733		86,043

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Revenue:



	Nine Months Ended September 30,				Change
(in thousands, except percentages)	2019		2018		Amount			%		Constant Currency %
Revenue:
Lease licenses	$	239,953	$	148,795	$	91,158		61.3		64.7
Perpetual licenses	190,734		201,501		(10,767		)	(5.3	)	(3.5	)
Software licenses	430,687		350,296		80,391			22.9		25.5
Maintenance	559,768		500,962		58,806			11.7		14.1
Service	39,209		26,946		12,263			45.5		48.8
Maintenance and service	598,977		527,908		71,069			13.5		15.9
Total revenue	$	1,029,664	$	878,204	$	151,460		17.2		19.7

The Company’s revenue in the nine months ended ~~June~~September 30, 2019 increased 17.2% as compared to the nine months ended September 30, 2018, while revenue grew 19.7% in constant currency. The growth rate was favorably impacted by the Company’s continued investment in its global sales, support and marketing organizations, as well as its acquisitions. Lease license revenue increased 61.3%, or 64.7% in constant currency, as compared to the nine months ended September 30, 2018, driven primarily by an increase in multi-year lease contracts. Annual maintenance contracts that were sold with new perpetual licenses, maintenance contracts for new perpetual licenses sold in previous quarters and the maintenance portion of lease license contracts each contributed to maintenance revenue growth of 11.7%, or 14.1% in constant currency. Service revenue, driven primarily by a focus on service offerings that provide on-site mentorship on simulation best practices, training and expanding simulation adoption, increased 45.5%, or 48.8% in constant currency, as compared to the nine months ended September 30, 2018. Perpetual license revenue, which is derived primarily from new sales during the nine months ended September 30, 2019, decreased 5.3%, or 3.5% in constant currency, as compared to the nine months ended September 30, 2018. The decline in perpetual license revenue was driven by a shifting preference from perpetual to lease licenses across a broad spectrum of the Company's customers.

With respect to revenue, on average for the nine months ended September 30, 2019, the U.S. Dollar was approximately 4.3% stronger, when measured against the Company’s primary foreign currencies, than for the nine months ended September 30, 2018. The table below presents the impacts of currency fluctuations on revenue for the nine months ended September 30, 2019. Amounts in brackets indicate an adverse impact from currency fluctuations.



(in thousands)	Nine Months Ended September 30, 2019
Euro	$	(13,919	)
South Korean Won	(4,425		)
British Pound	(1,958		)
Indian Rupee	(833		)
Taiwan Dollar	(626		)
Japanese Yen	314
Other	(395		)
Total	$	(21,842	)

The net overall stronger U.S. Dollar also resulted in decreased operating income of $9.2 million for the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018.

As a percentage of revenue, the Company's international and domestic revenues, and the Company's direct and indirect revenues, were as follows:



	Nine Months Ended September 30,
	2019		2018
International	58.7	%	62.7	%
Domestic	41.3	%	37.3	%

Direct	75.9	%	76.1	%
Indirect	24.1	%	23.9	%

In valuing deferred revenue on the balance sheets of the Company's recent acquisitions as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impacts on reported revenue were $6.2 million and $6.9 million for the nine months ended September 30, 2019 and 2018, respectively.

Cost of Sales and Operating Expenses:

The tables below reflect the Company's operating results as presented on the condensed consolidated statements of income, which are inclusive of ~~acquisition and~~ foreign currency translation impacts. Amounts included in the discussions that follow each table are provided in constant ~~currency.~~currency and are inclusive of costs related to the Company's acquisitions. The ~~constant currency impact of the OPTIS acquisition and the~~ impact of foreign exchange translation ~~are~~is discussed separately, where material. The OPTIS and Granta Design acquisitions contributed $11.6 million and $11.7 million, respectively, to the overall increase in operating expenses.


	Six Months Ended June 30,											Nine Months Ended September 30,
	2019			2018			Change					2019			2018			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount			%		Amount		% of Revenue	Amount		% of Revenue	Amount			%
Cost of sales:
Software licenses	$	10,912	1.6	$	8,010	1.4	$	2,902		36.2		$	16,620	1.6	$	12,301	1.4	$	4,319		35.1
Amortization	9,302		1.4	17,873		3.0	(8,571		)	(48.0	)	14,064		1.4	23,403		2.7	(9,339		)	(39.9	)
Maintenance and service	55,098		8.0	53,605		9.1	1,493			2.8		85,993		8.4	80,092		9.1	5,901			7.4
Total cost of sales	75,312		11.0	79,488		13.5	(4,176		)	(5.3	)	116,677		11.3	115,796		13.2	881			0.8
Gross profit	$	610,453	89.0	$	509,298	86.5	$	101,155		19.9		$	912,987	88.7	$	762,408	86.8	$	150,579		19.8

Software Licenses: The increase in the cost of software licenses was primarily due to ~~the following:~~

~~Increased~~increased third-party royalties of ~~$1.8~~$4.4 million.

~~Increased OPTIS-related cost of software licenses of $1.4 million as a result of six months of OPTIS activity in the current year as compared to two months of activity in the prior year.~~

Amortization: The net decrease in amortization expense was primarily due to a decrease in the amortization of trade names and acquired technology due to assets that became fully amortized, which was partially offset by the amortization of newly acquired intangible assets.

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

Increased ~~salaries~~stock-based compensation of ~~$1.2~~$2.1 million.

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

Increased third-party technical support of $1.1 million.

~~Cost decrease~~Increased consulting costs of $1.1 million.

Decreased costs related to foreign exchange translation of ~~$1.5~~$1.9 million due to a stronger U.S. Dollar.

The improvement in gross profit was a result of the increase in revenue, ~~and decrease~~partially offset by the increase in the related cost of sales.


	Six Months Ended June 30,									Nine Months Ended September 30,
	2019			2018			Change			2019			2018			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Operating expenses:
Selling, general and administrative	$	232,581	33.9	$	182,867	31.1	$	49,714	27.2	$	353,263	34.3	$	280,443	31.9	$	72,820	26.0
Research and development	146,040		21.3	115,887		19.7	30,153		26.0	219,058		21.3	174,906		19.9	44,152		25.2
Amortization	7,555		1.1	6,930		1.2	625		9.0	11,342		1.1	10,421		1.2	921		8.8
Total operating expenses	$	386,176	56.3	$	305,684	51.9	$	80,492	26.3	$	583,663	56.7	$	465,770	53.0	$	117,893	25.3

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 ~~$28.8~~$44.7 million.

Increased stock-based compensation of ~~$7.4~~$11.1 million.

Increased OPTIS-related selling, general and administrative expenses of $4.9 million as a result of six months of OPTIS activity in the current year as compared to two months of activity in the prior year.

Increased business travel of ~~$3.3~~$5.2 million.

Increased professional fees of $4.0 million.

Increased consulting costs of $3.0 million.

Increased marketing expenses of $2.9 million.

~~Cost decrease~~Decreased costs related to foreign exchange translation of ~~$5.3~~$6.5 million due to a stronger U.S. Dollar.

Research and Development: The net increase in research and development costs was primarily due to the following:

Increased salaries, incentive compensation and other headcount-related costs of ~~$12.3~~$27.4 million.

Increased stock-based compensation of ~~$7.3~~$12.6 million.

~~Increased OPTIS-related research and development expenses~~Decreased costs related to foreign exchange translation of ~~$6.5~~$3.5 million asdue to a ~~result of six months of OPTIS activity in the current year as compared to two months of activity in the prior year.~~stronger U.S. Dollar.

Interest Income: Interest income for the ~~six~~nine months ended ~~June~~September 30, 2019 was ~~$6.4~~$9.6 million as compared to ~~$4.5~~$7.7 million for the ~~six~~nine months ended ~~June~~September 30, 2018. Interest income increased as a result of an increase in the average rate of return on invested cash balances.

Other Expense, net: The Company's other expense consisted of the following:


	Six Months Ended						Nine Months Ended
(in thousands)	June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018
Foreign currency losses, net	$	(2,382	)	$	(1,323	)	$	(1,556	)	$	(2,346	)
Other	290			8			58			57
Total other expense, net	$	(2,092	)	$	(1,315	)	$	(1,498	)	$	(2,289	)

Income Tax Provision: The Company's income before income tax provision, income tax provision and effective tax rate were as follows:


	Six Months Ended						Nine Months Ended
(in thousands, except percentages)	June 30, 2019			June 30, 2018			September 30, 2019			September 30, 2018
Income before income tax provision	$	228,607		$	206,760		$	337,436		$	302,023
Income tax provision	$	32,627		$	29,884		$	51,993		$	35,811
Effective tax rate	14.3		%	14.5		%	15.4		%	11.9		%

In February 2019, the U.S. government published final regulations relating to the transition tax, enacted as part of the Tax Cuts and Jobs Act. In accordance with the final regulations, the Company adjusted its provisional transition tax calculations and recorded a tax benefit of $1.8 million during the ~~six~~nine months ended ~~June~~September 30, 2019.

The ~~decrease~~increase in the effective tax rate from the prior year iswas primarily due to ~~decreased costs~~benefits of $6.8 million recorded in 2018 related to ~~the transition tax~~global legal entity restructuring activities that did not recur in 2019 and ~~uncertain tax positions, partially offset by~~ decreased ~~deductions for~~benefits related to stock-based compensation.

When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018 were favorably impacted by tax benefits from stock-based compensation, the FDII deduction, and research and development credits.

Net Income: The Company's net income, diluted earnings per share and weighted average shares used in computing diluted earnings per share were as follows:


	Six Months Ended				Nine Months Ended
(in thousands, except per share data)	June 30, 2019		June 30, 2018		September 30, 2019		September 30, 2018
Net income	$	195,980	$	176,876	$	285,443	$	266,212
Diluted earnings per share	$	2.29	$	2.06	$	3.34	$	3.09
Weighted average shares outstanding - diluted	85,488		86,069		85,570		86,060

Non-GAAP Results

The Company provides non-GAAP revenue, non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share as supplemental measures to GAAP regarding the Company’s operational performance. These financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. A detailed explanation and a reconciliation of each non-GAAP financial measure to its most comparable GAAP financial measure are described below.


	Three Months Ended																		Three Months Ended
	June 30, 2019									June 30, 2018									September 30, 2019									September 30, 2018
(in thousands, except percentages and per share data)	GAAP Results			Adjustments			Non-GAAP Results			GAAP Results			Adjustments			Non-GAAP Results			GAAP Results			Adjustments			Non-GAAP Results			GAAP Results			Adjustments			Non-GAAP Results
Total revenue	$	368,635		$	1,873	(1)	$	370,508		$	305,913		$	2,948	(4)	$	308,861		$	343,899		$	1,596	(1)	$	345,495		$	289,418		$	3,548	(4)	$	292,966
Operating income	128,628			40,385		(2)	169,013			108,553			37,556		(5)	146,109			105,047			44,675		(2)	149,722			93,024			35,889		(5)	128,913
Operating profit margin	34.9		%				45.6		%	35.5		%				47.3		%	30.5		%				43.3		%	32.1		%				44.0		%
Net income	$	109,750		$	28,156	(3)	$	137,906		$	92,596		$	23,250	(6)	$	115,846		$	89,463		$	32,245	(3)	$	121,708		$	89,336		$	23,557	(6)	$	112,893
Earnings per share – diluted:
Earnings per share	$	1.28					$	1.61		$	1.08					$	1.35		$	1.04					$	1.42		$	1.04					$	1.31
Weighted average shares	85,483						85,483			85,986						85,986			85,733						85,733			86,043						86,043


(1)	Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(2)

Amount represents ~~$29.1~~$31.9 million of stock-based compensation expense, ~~$0.4~~$0.1 million of excess payroll taxes related to stock-based awards, ~~$8.6~~$8.5 million of amortization expense associated with intangible assets acquired in business combinations, ~~$0.5~~$2.5 million of transaction expenses related to business combinations and the ~~$1.9~~$1.6 million adjustment to revenue as reflected in (1) above.


(3)	Amount represents the impact of the adjustments to operating income referred to in (2) above, decreased for the related income tax impact of ~~$11.7 million, adjustments related to the transition tax associated with the Tax Cuts and Jobs Act of $0.5 million, and rabbi trust income of $0.1~~$12.4 million.


(4)	Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(5)

Amount represents ~~$20.6~~$23.0 million of stock-based compensation expense, ~~$0.4~~$0.3 million of excess payroll taxes related to stock-based awards, ~~$12.6~~$9.0 million of amortization expense associated with intangible assets acquired in business combinations ~~$1.0 million of transaction expenses related to business combinations~~ and the ~~$2.9~~$3.5 million adjustment to revenue as reflected in (4) above.


(6)	Amount represents the impact of the adjustments to operating income referred to in (5) above, decreased for the related income tax impact of ~~$14.2~~$11.7 million, adjustments related to the transition tax associated with the Tax Cuts and Jobs Act of $0.5 million, and rabbi trust income of $0.1 million.


	Six Months Ended																		Nine Months Ended
	June 30, 2019									June 30, 2018									September 30, 2019									September 30, 2018
(in thousands, except percentages and per share data)	GAAP Results			Adjustments			Non-GAAP Results			GAAP Results			Adjustments			Non-GAAP Results			GAAP Results			Adjustments			Non-GAAP Results			GAAP Results			Adjustments			Non-GAAP Results
Total revenue	$	685,765		$	4,653	(1)	$	690,418		$	588,786		$	3,349	(4)	$	592,135		$	1,029,664		$	6,249	(1)	$	1,035,913		$	878,204		$	6,897	(4)	$	885,101
Operating income	224,277			81,922		(2)	306,199			203,614			69,907		(5)	273,521			329,324			126,597		(2)	455,921			296,638			105,796		(5)	402,434
Operating profit margin	32.7		%				44.3		%	34.6		%				46.2		%	32.0		%				44.0		%	33.8		%				45.5		%
Net income	$	195,980		$	52,596	(3)	$	248,576		$	176,876		$	42,034	(6)	$	218,910		$	285,443		$	84,841	(3)	$	370,284		$	266,212		$	65,591	(6)	$	331,803
Earnings per share – diluted:
Earnings per share	$	2.29					$	2.91		$	2.06					$	2.54		$	3.34					$	4.33		$	3.09					$	3.86
Weighted average shares	85,488						85,488			86,069						86,069			85,570						85,570			86,060						86,060


(1)	Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(2)

Amount represents ~~$52.9~~$84.8 million of stock-based compensation expense, ~~$4.4~~$4.5 million of excess payroll taxes related to stock-based awards, ~~$16.9~~$25.4 million of amortization expense associated with intangible assets acquired in business combinations, ~~$3.1~~$5.6 million of transaction expenses related to business combinations and the ~~$4.7~~$6.2 million adjustment to revenue as reflected in (1) above.


(3)	Amount represents the impact of the adjustments to operating income referred to in (2) above, decreased for the related income tax impact of ~~$27.3~~$39.7 million, adjustments related to the transition tax associated with the Tax Cuts and Jobs Act of $1.8 million, and rabbi trust income of ~~$0.2~~$0.3 million.


(4)	Amount represents the revenue not reported during the period as a result of the acquisition accounting adjustment associated with the accounting for deferred revenue in business combinations.

(5)

Amount represents ~~$35.9~~$58.9 million of stock-based compensation expense, ~~$3.5~~$3.8 million of excess payroll taxes related to stock-based awards, ~~$24.8~~$33.8 million of amortization expense associated with intangible assets acquired in business combinations, ~~$2.3~~$2.4 million of transaction expenses related to business combinations and the ~~$3.3~~$6.9 million adjustment to revenue as reflected in (4) above.


(6)	Amount represents the impact of the adjustments to operating income referred to in (5) above, decreased for the related income tax impact of ~~$29.3~~$41.0 million and rabbi trust income of $0.1 million, and increased for adjustments related to the transition tax associated with the Tax Cuts and Jobs Act of ~~$1.4~~$0.9 million.

Non-GAAP Measures

Management uses non-GAAP financial measures (a) to evaluate the Company's historical and prospective financial performance as well as its performance relative to its competitors, (b) to set internal sales targets and spending budgets, (c) to allocate resources, (d) to measure operational profitability and the accuracy of forecasting, (e) to assess financial discipline over operational expenditures and (f) as an important factor in determining variable compensation for management and its employees. In addition, many financial analysts that follow the Company focus on and publish both historical results and future projections based on non-GAAP financial measures. The Company believes that it is in the best interest of its investors to provide this information to analysts so that they accurately report the non-GAAP financial information. Moreover, investors have historically requested, and the Company has historically reported, these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.

While management believes 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 the Company's competitors and may not be directly comparable to similarly titled measures of the Company's competitors due to potential differences in the exact method of calculation. The Company compensates 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. Historically, the Company has consummated acquisitions in order to support its strategic and other business objectives. In accordance with the fair value provisions applicable to the accounting for business combinations, acquired deferred revenue is often recorded on the opening balance sheet at an amount that is lower than the historical carrying value. Although this acquisition accounting requirement has no impact on the Company's business or cash flow, it adversely impacts the Company's reported GAAP revenue in the reporting periods following an acquisition. In order to provide investors with financial information that facilitates comparison of both historical and future results, the Company provides non-GAAP financial measures which exclude the impact of the acquisition accounting adjustment. The Company believes that this non-GAAP financial adjustment is useful to investors because it allows investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past and future reports of financial results of the Company as the revenue reduction related to acquired deferred revenue will not recur when related annual lease licenses and software maintenance contracts are renewed in future periods.

Amortization of intangible assets from acquisitions and its related tax impact. The Company incurs amortization of intangible assets, included in its GAAP presentation of amortization expense, related to various acquisitions it has made. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the 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 management after the acquisition. Accordingly, management does not consider these expenses for purposes of evaluating the performance of the Company during the applicable time period after the acquisition, and it excludes such expenses when making decisions to allocate resources. The Company believes 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 management in its financial and operational decision-making, and (b) compare past reports of financial results of the Company as the Company has historically reported these non-GAAP financial measures.

Stock-based compensation expense and its related tax impact. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. This non-GAAP adjustment also includes excess payroll tax expense related to stock-based compensation. Stock-based compensation expense (benefit) incurred in connection with the Company's deferred compensation plan held in a rabbi trust includes an offsetting benefit (charge) recorded in other income (expense). Although stock-based compensation is an expense of the Company and viewed as a form of compensation, management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the 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. Specifically, the Company excludes stock-based compensation and income (expense) related to assets held in the deferred compensation plan rabbi trust during its annual budgeting process and its quarterly and annual assessments of the Company's and management's performance. The annual budgeting process is the primary mechanism whereby the Company allocates resources to various initiatives and operational requirements. Additionally, the annual review by the board of directors during which it compares the Company's 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 senior management and department managers, charges related to stock-based compensation are excluded from expenditure and profitability results. In fact, the Company records stock-based compensation expense into a stand-alone cost center for which no single operational manager is responsible or accountable. In this way, management can review, on a period-to-period basis, each manager's performance and assess financial discipline over operational expenditures without the effect of stock-based compensation. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.

Restructuring charges and the related tax impact. The Company occasionally incurs expenses for restructuring its workforce included in its GAAP presentation of cost of software licenses; cost of maintenance and service; research and development expense; and selling, general and administrative expense. Management excludes these expenses for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally does not incur these expenses as a part of its operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology

used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.

Transaction costs related to business combinations. The Company incurs expenses for professional services rendered in connection with business combinations, which are included in its GAAP presentation of selling, general and administrative expense. These expenses are generally not tax-deductible. Management excludes these acquisition-related transaction expenses, derived from announced acquisitions, for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as it generally would not have otherwise incurred these expenses in the periods presented as a part of its operations. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting as well as comparability with competitors' operating results.

Tax Cuts and Jobs Act. The Company recorded impacts to its income tax provision related to the enactment of the Tax Cuts and Jobs Act, specifically for the transition tax related to unrepatriated cash and the impacts of the tax rate change on net deferred tax assets. Management excludes these impacts for the purpose of calculating non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company, as (i) the charges are not expected to recur as part of its normal operations and (ii) the charges resulted from the extremely infrequent event of major U.S. tax reform, the last such reform having occurred in 1986. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the Company's operating results and the effectiveness of the methodology used by management to review the Company's operating results, and (b) review historical comparability in the Company's financial reporting.

Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company's 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's consolidated financial statements prepared in accordance with GAAP.

The Company has provided a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures as listed below:



GAAP Reporting Measure	Non-GAAP Reporting Measure
Revenue	Non-GAAP Revenue
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

Liquidity and Capital Resources

(in thousands) June 30,
2019 December 31,
2018 Change
Cash, cash equivalents and short-term investments $ 631,696
$ 777,364
$ (145,668 )
Working capital $ 627,679
$ 786,410
$ (158,731 )

Cash, cash equivalents and short-term investments decreased during the current fiscal year primarily due to cash utilized for acquisitions, partially offset by the excess of cash provided by operating activities over cash used in financing activities.



(in thousands)	September 30, 2019		December 31, 2018		Change
Cash, cash equivalents and short-term investments	$	732,902	$	777,364	$	(44,462	)
Working capital	$	732,396	$	786,410	$	(54,014	)

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 foreign subsidiaries of the Company with original maturities of three months to one year. The following table presents the Company's foreign and domestic holdings of cash, cash equivalents and short-term investments as of ~~June~~September 30, 2019 and December 31, 2018:


(in thousands, except percentages)	June 30, 2019		% of Total	December 31, 2018		% of Total	September 30, 2019		% of Total	December 31, 2018		% of Total
Domestic	$	414,542	65.6	$	616,249	79.3	$	502,706	68.6	$	616,249	79.3
Foreign	217,154		34.4	161,115		20.7	230,196		31.4	161,115		20.7
Total	$	631,696		$	777,364		$	732,902		$	777,364

In general, it is the practice and intention of the Company to repatriate previously taxed earnings in excess of working capital needs and to reinvest all other earnings of its non-U.S. subsidiaries. As part of the Tax Cuts and Jobs Act, the Company incurred U.S. tax on substantially all of the earnings of its non-U.S. subsidiaries as part of the transition tax. This tax increased the Company’s previously taxed earnings and allows for the repatriation of the majority of its foreign earnings without any residual U.S. federal tax. The Company does 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.

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's condensed consolidated balance sheet.

Cash Flows from Operating Activities


	Six Months Ended June 30,							Nine Months Ended September 30,
(in thousands)	2019		2018		Change			2019		2018		Change
Net cash provided by operating activities	$	240,117	$	243,542	$	(3,425	)	$	360,485	$	353,503	$	6,982

Net cash provided by operating activities ~~decreased~~increased during the current fiscal year due to increased net income (net of non-cash operating adjustments) of $70.6 million, partially offset by decreased net cash flows from operating assets and liabilities of ~~$49.9 million, partially offset by increased net income (net of non-cash operating adjustments) of $46.5~~$63.6 million.

Cash Flows from Investing Activities


	Six Months Ended June 30,									Nine Months Ended September 30,
(in thousands)	2019			2018			Change			2019			2018			Change
Net cash used in investing activities	$	(311,277	)	$	(295,253	)	$	(16,024	)	$	(333,448	)	$	(301,613	)	$	(31,835	)

Net cash used in investing activities increased during the current fiscal year due primarily to increased capital expenditures of ~~$10.2~~$12.7 million and increased acquisition-related net cash outlays of $12.0 million. The Company currently plans capital spending of ~~$35~~$44 million to ~~$40~~$50 million for the 2019 fiscal year as compared to the $21.8 million that was spent in 2018. The capital spending plan in 2019 includes $9.5 million to acquire the corporate headquarters building in connection with the acquisition of LSTC in the fourth quarter. The level of spending will depend on various factors, including the growth of the business and general economic conditions.

Cash Flows from Financing Activities


	Six Months Ended June 30,								Nine Months Ended September 30,
(in thousands)	2019			2018			Change		2019			2018			Change
Net cash used in financing activities	$	(75,558	)	$	(121,209	)	$	45,651	$	(70,036	)	$	(187,283	)	$	117,247

Net cash used in financing activities decreased during the current fiscal year due primarily to decreased stock repurchases of ~~$58.7~~$133.7 million, partially offset by increased restricted stock withholding taxes paid in lieu of issued shares of ~~$10.6~~$11.0 million and decreased proceeds from shares issued for stock-based compensation of ~~$5.8~~$8.8 million.

Other Cash Flow Information

The Company believes that existing cash and cash equivalent balances of ~~$631.5~~$732.7 million, together with cash generated from operations and access to the $500 million revolving credit facility, will be sufficient to meet the Company’s working capital and capital expenditure requirements through the next twelve months. The Company’s cash requirements in the future may also be financed through additional equity or debt financings. There can be no assurance that such financings can be obtained on favorable terms, if at all.

On November 1, 2019, the Company completed the acquisition of 100% of the shares of LSTC, the premier provider of explicit dynamics and other advanced finite element analysis technology. The transaction closed with a purchase price of $779.9 million, which included $472.7 million in cash and the issuance of 1.4 million shares of ANSYS common stock in an unregistered offering to the prior owners of LSTC. The fair value of the common stock issued as consideration was based on the volume-weighted average price of ANSYS common stock on November 1, 2019 of $220.74, resulting in a fair value of $307.2 million. In conjunction with the transaction, ANSYS obtained $500.0 million of term debt financing to fund the cash component of the purchase price.

Under the Company's stock repurchase program, the Company repurchased shares during the ~~six~~nine months ended ~~June~~September 30, 2019 and 2018, as follows:


	Six Months Ended				Nine Months Ended
(in thousands, except per share data)	June 30, 2019		June 30, 2018		September 30, 2019		September 30, 2018
Number of shares repurchased	330		750		330		1,174
Average price paid per share	$	179.41	$	157.11	$	179.41	$	164.14
Total cost	$	59,116	$	117,831	$	59,116	$	192,787

The Company's authorized repurchase program does not have an expiration date, and the pace of the repurchase activity will depend on factors such as working capital needs, cash requirements for acquisitions, the Company's stock price, and economic and market conditions. The Company's stock repurchases may be effected from time to time through open market purchases or pursuant to a Rule 10b5-1 plan.

The Company continues to generate positive cash flows from operating activities and believes that the best uses of its excess cash are to invest in the business and acquire or make investments in complementary companies, products, services and technologies. Any future acquisitions may be funded by available cash and investments, cash generated from operations, ~~credit facilities,~~debt financing, or the issuance of additional securities. Additionally, the Company has in the past, and expects in the future, to repurchase stock in order to both offset dilution and return capital, in excess of its requirements, to stockholders with the goal of increasing stockholder value.

Off-Balance-Sheet Arrangements

The Company does not have any special-purpose entities or off-balance-sheet financing.

Contractual Obligations

During the ~~six~~nine months ended ~~June~~September 30, 2019, the Company entered into an office lease amendment that resulted in an additional $12.6 million obligation and expires in December 2028. The Company's base rent escalates over the lease term and will range from approximately $1.2 million - $1.6 million per annum.

There were no other material changes to the Company’s contractual obligations during the ~~six~~nine months ended ~~June~~September 30, 2019 as compared to those previously reported in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within the Company’s 2018 Form 10-K.

Critical Accounting Policies and Estimates

No significant changes have occurred to the Company’s critical accounting policies and estimates as previously reported within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2018 Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Income Rate Risk. Changes in the overall level of interest rates affect the interest income that is generated from the Company’s cash, cash equivalents and short-term investments. For the three and ~~six~~nine months ended ~~June~~September 30, 2019, total interest income was ~~$3.0~~$3.2 million and ~~$6.4~~$9.6 million, respectively. 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.

Foreign Currency Transaction Risk. As the Company operates in international regions, a portion of its revenue, expenses, cash, accounts receivable and payment obligations are denominated in foreign currencies. As a result, changes in currency exchange rates will affect the Company’s financial position, results of operations and cash flows. The Company is most impacted by movements in and among the British Pound, Euro, Japanese Yen, South Korean Won, and U.S. Dollar.

With respect to revenue, on average for the quarter ended ~~June~~September 30, 2019, the U.S. Dollar was approximately ~~4.2%~~2.7% stronger, when measured against the Company’s primary foreign currencies, than for the quarter ended ~~June~~September 30, 2018. With respect to revenue, on average for the ~~six~~nine months ended ~~June~~September 30, 2019, the U.S. Dollar was approximately ~~5.0%~~4.3% stronger, when measured against the Company’s primary foreign currencies, than for the ~~six~~nine months ended ~~June~~September 30, 2018. The table below presents the impacts of currency fluctuations on revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2019. Amounts in brackets indicate a net adverse impact from currency fluctuations.


(in thousands)	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019			Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Euro	$	(3,810	)	$	(9,796	)	$	(4,123	)	$	(13,919	)
South Korean Won	(2,809		)	(3,453		)	(972		)	(4,425		)
British Pound	(710		)	(1,347		)	(611		)	(1,958		)
Japanese Yen	(223		)	(1,022		)
Indian Rupee	(229		)	(810		)	(23		)	(833		)
Taiwan Dollar	(314		)	(539		)	(87		)	(626		)
Japanese Yen							1,336			314
Other	(108		)	(394		)	(1		)	(395		)
Total	$	(8,203	)	$	(17,361	)	$	(4,481	)	$	(21,842	)

The net overall stronger U.S. Dollar also resulted in decreased operating income of ~~$4.0~~$2.1 million and ~~$7.2~~$9.2 million for the three and ~~six~~nine months ended ~~June~~September 30, 2019, respectively, as compared to the three and ~~six~~nine months ended ~~June~~September 30, 2018.

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


	Period-End Exchange Rates				Period-End Exchange Rates
As of	GBP/USD	EUR/USD	USD/JPY	USD/KRW	GBP/USD	EUR/USD	USD/JPY	USD/KRW
June 30, 2018	1.321	1.168	110.705	1,116.196
September 30, 2018					1.303	1.161	113.714	1,110.371
December 31, 2018	1.276	1.147	109.589	1,115.325	1.276	1.147	109.589	1,115.325
June 30, 2019	1.269	1.137	107.910	1,157.407
September 30, 2019					1.229	1.090	108.085	1,200.048

Average Exchange Rates
Three Months Ended GBP/USD EUR/USD USD/JPY USD/KRW
June 30, 2018 1.360
1.192
109.154
1,081.354
June 30, 2019 1.285
1.124
109.905
1,166.680



	Average Exchange Rates
Three Months Ended	GBP/USD	EUR/USD	USD/JPY	USD/KRW
September 30, 2018	1.303	1.163	111.532	1,121.957
September 30, 2019	1.232	1.111	107.335	1,195.362

Average Exchange Rates
Six Months Ended GBP/USD EUR/USD USD/JPY USD/KRW
June 30, 2018 1.376
1.210
108.713
1,077.412
June 30, 2019 1.294
1.130
110.052
1,146.110



	Average Exchange Rates
Nine Months Ended	GBP/USD	EUR/USD	USD/JPY	USD/KRW
September 30, 2018	1.352	1.195	109.636	1,091.862
September 30, 2019	1.273	1.123	109.131	1,162.070

No other material change has occurred in the Company’s market risk subsequent to December 31, 2018.

Item 4.Controls and Procedures

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

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

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

From time to time, the Company reviews the disclosure controls and procedures and may make changes to enhance their effectiveness and to ensure that the Company’s systems evolve with its business.

Changes in Internal Control. There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended ~~June~~September 30, 2019 that materially affected, or were reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.Legal Proceedings

Item 1A.Risk Factors

The Company cautions investors that its performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. Various important factors may cause the Company’s future results to differ materially from those projected in any forward-looking statement. These factors were disclosed in, but are not limited to, the items within the Company’s 2018 Form 10-K, Part I, Item 1A. "Risk Factors." The risk factor set forth below is an addition to those included in the Company's 2018 Form 10-K.

Additional Risks Associated with International Activities

Due to the global nature of the Company’s business, it is subject to import and export restrictions and regulations including the Export Administration Regulations administered by the U.S.’s Bureau of Industry and Security (BIS). During the second quarter of 2019, the BIS placed certain entities on the Entity List. Among the entities included on the list are existing or prospective customers of the Company, including Huawei. The restrictions limit the Company’s ability to deliver products and services to these existing or prospective customers and, in the absence of a license from the BIS, there may be a negative effect on the Company’s ability to sell products and services to these customers in the future. The inclusion of companies on the restricted Entity List may also encourage customers to seek substitute products from the Company’s competitors that are not subject to these restrictions or to develop their own products. In addition, although customers are not prohibited from paying accounts receivable for products or services the Company previously provided, the credit risks associated with these accounts may have increased as a result of these limitations. The Company cannot predict whether or when any changes will be made that eliminate or decrease these limitations on the Company’s ability to sell products and provide services to these customers. Based on current restrictions, the Company does not believe there will be a material impact to its financial results for the remainder of 2019. However, other customers have been and may continue to be added to the Entity List and/or subject to trade restrictions. The Company is unable to predict the duration of the export restrictions imposed with respect to any particular customer or the long-term effects on the Company. In addition, there may be indirect impacts to the Company’s business that cannot be reasonably quantified, including that the Company’s business may also be impacted by other trade restrictions that may be imposed by the U.S., China, or other countries. Restrictions on the Company’s ability to sell and ship the Company’s products to customers on the Entity List could have an adverse effect on the Company's business, results of operations or financial condition.

Violators of these export controls may be subject to significant penalties, which may include significant 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 an adverse effect on the Company’s business, financial condition, operating results and cash flows. In addition, the political and media scrutiny surrounding any governmental investigation of the Company could cause significant expense and reputational harm and distract senior executives from managing normal day-to-day operations.

The Company’s products could also be shipped to denied parties by third parties, including the Company’s channel partners. Even though the Company takes precautions to ensure that its channel partners comply with all relevant import and export regulations, any failure by channel partners to comply with such regulations could have negative consequences for the Company, including reputational harm, government investigations and penalties.

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

~~(c) Issuer Purchases of Equity Securities~~

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⁾
April 1 - April 30, 2019 —
$ —
—
3,575,505
May 1 - May 31, 2019 —
$ —
—
3,575,505
June 1 - June 30, 2019 79,510
$ 179.36
79,510
3,495,995
Total 79,510
$ 179.36
79,510
3,495,995

⁽¹⁾ The Company initially announced its stock repurchase program in February 2000, and subsequently announced various amendments to the program. The most recent amendment to the program, authorizing the repurchase of up to 5.0 million shares, was approved by the Company's Board of Directors in February 2018. There is no expiration date for the stock repurchase program.None.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

Item 6.Exhibits



Exhibit No.			Exhibit
10.1			First Amendment to Credit Agreement dated October 16, 2019, by and among ANSYS, Inc., the lenders party thereto and Bank of America, N.A. (filed as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed October 21, 2019, and incorporated herein by reference).

10.2			Non-Employee Director Deferred Compensation Plan, attached hereto as Exhibit 10.2*.

15			Independent Registered Public Accountant’s Letter Regarding Unaudited Financial Information.

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

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

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

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

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

101.SCH			Inline XBRL Taxonomy Extension Schema

101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB			Inline XBRL Taxonomy Extension Label Linkbase

101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase

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



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

SIGNATURES

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



		ANSYS, Inc.

Date:	~~August 6,~~November 7, 2019	By:	/s/ Ajei S. Gopal
			Ajei S. Gopal
			President and Chief Executive Officer

Date:	~~August 6,~~November 7, 2019	By:	/s/ Maria T. Shields
			Maria T. Shields
			Chief Financial Officer

4445



	Balance at June 30, 2019
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	335,384	$	321,060	$	14,324
Backlog	381,930		175,837		206,093
Total	$	717,314	$	496,897	$	220,417



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⁾
April 1 - April 30, 2019	—	$	—	—	3,575,505
May 1 - May 31, 2019	—	$	—	—	3,575,505
June 1 - June 30, 2019	79,510	$	179.36	79,510	3,495,995
Total	79,510	$	179.36	79,510	3,495,995