0001013462-19-000011.txt : 20190806 0001013462-19-000011.hdr.sgml : 20190806 20190806101301 ACCESSION NUMBER: 0001013462-19-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 84 CONFORMED PERIOD OF REPORT: 20190630 FILED AS OF DATE: 20190806 DATE AS OF CHANGE: 20190806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANSYS INC CENTRAL INDEX KEY: 0001013462 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 043219960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20853 FILM NUMBER: 191000715 BUSINESS ADDRESS: STREET 1: 2600 ANSYS DRIVE, SOUTHPOINTE CITY: CANONSBURG STATE: PA ZIP: 15317 BUSINESS PHONE: 8444626797 MAIL ADDRESS: STREET 1: 2600 ANSYS DRIVE, SOUTHPOINTE CITY: CANONSBURG STATE: PA ZIP: 15317 10-Q 1 anss2019063010q.htm 10-Q Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
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 31, 2019 was 84,100,767 shares.



ANSYS, INC. AND SUBSIDIARIES
INDEX
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I – UNAUDITED FINANCIAL INFORMATION
Item 1.Financial Statements:
ANSYS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

 
June 30,
2019
 
December 31,
2018
(in thousands, except share and per share data)
(Unaudited)
 
(Audited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
631,455

 
$
777,139

Short-term investments
241

 
225

Accounts receivable, less allowance for doubtful accounts of $9,000 and $8,000, respectively
297,798

 
317,700

Other receivables and current assets
203,851

 
216,113

Total current assets
1,133,345

 
1,311,177

Long-term assets:
 
 
 
Property and equipment, net
68,294

 
61,655

Operating lease right-of-use assets
104,509

 

Goodwill
1,775,734

 
1,572,455

Other intangible assets, net
282,070

 
211,272

Other long-term assets
124,384

 
82,775

        Deferred income taxes
24,506

 
26,630

Total long-term assets
2,379,497

 
1,954,787

Total assets
$
3,512,842

 
$
3,265,964

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
9,865

 
$
7,953

Accrued bonuses and commissions
42,247

 
79,945

Accrued income taxes
9,264

 
8,726

Other accrued expenses and liabilities
123,230

 
99,559

Deferred revenue
321,060

 
328,584

Total current liabilities
505,666

 
524,767

Long-term liabilities:
 
 
 
Deferred income taxes
36,482

 
30,077

Long-term operating lease liabilities
90,420

 

Other long-term liabilities
62,988

 
61,573

Total long-term liabilities
189,890

 
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

Additional paid-in capital
839,696

 
867,462

Retained earnings
3,115,391

 
2,919,411

Treasury stock, at cost: 9,197,492 and 9,601,670 shares, respectively
(1,069,354
)
 
(1,075,879
)
Accumulated other comprehensive loss
(69,379
)
 
(62,379
)
Total stockholders' equity
2,817,286

 
2,649,547

Total liabilities and stockholders' equity
$
3,512,842

 
$
3,265,964

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

3


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


Three Months Ended

Six Months Ended
(in thousands, except per share data)
June 30,
2019

June 30,
2018

June 30,
2019

June 30,
2018
Revenue:







Software licenses
$
170,499


$
131,147


$
293,543


$
241,193

Maintenance and service
198,136


174,766


392,222


347,593

Total revenue
368,635


305,913


685,765


588,786

Cost of sales:







Software licenses
6,204


4,099


10,912


8,010

Amortization
4,755


9,087


9,302


17,873

Maintenance and service
29,538


27,264


55,098


53,605

Total cost of sales
40,497


40,450


75,312


79,488

Gross profit
328,138


265,463


610,453


509,298

Operating expenses:







Selling, general and administrative
120,412


95,058


232,581


182,867

Research and development
75,302


58,357


146,040


115,887

Amortization
3,796


3,495


7,555


6,930

Total operating expenses
199,510


156,910


386,176


305,684

Operating income
128,628


108,553


224,277


203,614

Interest income
2,980


2,176


6,422


4,461

Other expense, net
(1,667
)

(1,007
)

(2,092
)

(1,315
)
Income before income tax provision
129,941


109,722


228,607


206,760

Income tax provision
20,191


17,126


32,627


29,884

Net income
$
109,750


$
92,596


$
195,980


$
176,876

Earnings per share – basic:







Earnings per share
$
1.31


$
1.10


$
2.34


$
2.11

Weighted average shares
83,978


84,105


83,871


84,018

Earnings per share – diluted:







Earnings per share
$
1.28


$
1.08


$
2.29


$
2.06

Weighted average shares
85,483


85,986


85,488


86,069

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

4


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

 
Three Months Ended
 
Six Months Ended
(in thousands)
June 30,
2019
 
June 30,
2018
 
June 30,
2019
 
June 30,
2018
Net income
$
109,750

 
$
92,596

 
$
195,980

 
$
176,876

Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustments
558

 
(26,188
)
 
(7,000
)
 
(17,945
)
Comprehensive income
$
110,308

 
$
66,408

 
$
188,980

 
$
158,931

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

5


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

 
Six Months Ended
(in thousands)
June 30,
2019
 
June 30,
2018
Cash flows from operating activities:
 
 
 
Net income
$
195,980

 
$
176,876

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and intangible assets amortization
27,518

 
33,738

Operating lease right-of-use assets amortization
8,970

 

Deferred income tax benefit
(6,238
)
 
(11,943
)
Provision for bad debts
2,010

 
485

Stock-based compensation expense
52,922

 
35,904

Other
1,536

 
1,137

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(2,949
)
 
27,524

Other receivables and current assets
11,780

 
(1,756
)
Other long-term assets
(1,474
)
 
2,314

Accounts payable, accrued expenses and current liabilities
(38,216
)
 
(45,976
)
Accrued income taxes
(179
)
 
(3,117
)
Deferred revenue
(10,341
)
 
33,138

Other long-term liabilities
(1,202
)
 
(4,782
)
Net cash provided by operating activities
240,117

 
243,542

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(285,323
)
 
(283,026
)
Capital expenditures
(16,946
)
 
(6,751
)
Other investing activities
(9,008
)
 
(5,476
)
Net cash used in investing activities
(311,277
)
 
(295,253
)
Cash flows from financing activities:
 
 
 
Purchase of treasury stock
(59,116
)

(117,831
)
Restricted stock withholding taxes paid in lieu of issued shares
(35,605
)
 
(25,041
)
Proceeds from shares issued for stock-based compensation
20,780

 
26,602

Other financing activities
(1,617
)
 
(4,939
)
Net cash used in financing activities
(75,558
)
 
(121,209
)
Effect of exchange rate fluctuations on cash and cash equivalents
1,034

 
(12,687
)
Net decrease in cash and cash equivalents
(145,684
)
 
(185,607
)
Cash and cash equivalents, beginning of period
777,139

 
881,501

Cash and cash equivalents, end of period
$
631,455

 
$
695,894

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid
$
55,700

 
$
46,662

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



6


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
(in thousands)
Shares
 
Amount
 
Shares
 
Amount
 
Balance, January 1, 2019
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
)
Stock-based compensation activity
 
 
 
 
(42,465
)
 
 
 
(494
)
 
43,483

 
 
 
1,018

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(7,558
)
 
(7,558
)
Net income
 
 
 
 
 
 
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

Treasury shares acquired

 


 


 


 
80

 
(14,260
)
 


 
(14,260
)
Stock-based compensation activity

 


 
14,699

 


 
(241
)
 
22,158

 


 
36,857

Other comprehensive income

 


 


 


 


 


 
558

 
558

Net income

 


 


 
109,750

 


 


 


 
109,750

Balance, June 30, 2019
93,236
 
$
932

 
$
839,696

 
$
3,115,391

 
9,197

 
$
(1,069,354
)
 
$
(69,379
)
 
$
2,817,286


 
Common Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Treasury Stock
 
Accumulated
Other
Comprehensive (Loss)/Income
 
Total
Stockholders'
Equity
(in thousands)
Shares
 
Amount
 
Shares
 
Amount
 
Balance, January 1, 2018
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

Treasury shares acquired

 
 
 
 
 
 
 
 
750

 
(117,831
)
 
 
 
(117,831
)
Stock-based compensation activity
 
 
 
 
(39,943
)
 
 
 
(492
)
 
43,648

 
 
 
3,705

Other comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
8,243

 
8,243

Net income
 
 
 
 
 
 
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

Stock-based compensation activity
 
 
 
 
3,910

 
 
 
(313
)
 
29,801

 
 
 
33,711

Other comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(26,188
)
 
(26,188
)
Net income
 
 
 
 
 
 
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

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


7


ANSYS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 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 months ended June 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.

8


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 adopt the standard. The Company is currently evaluating 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 to adopt the new guidance prospectively and is currently evaluating 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
(in thousands, except percentages)
Amount
 
% of Total
 
Amount
 
% of Total
Cash accounts
$
381,218

 
60.4
 
$
331,084

 
42.6
Money market funds
250,237

 
39.6
 
446,055

 
57.4
Total
$
631,455

 
 
 
$
777,139

 
 

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


9


3.
Revenue from Contracts with Customers
Disaggregation of Revenue
The following table summarizes revenue:
 
Three Months Ended
 
Six Months Ended
(in thousands, except percentages)
June 30, 2019
 
June 30, 2018
 
June 30, 2019
 
June 30, 2018
Revenue:
 
 
 
 
 
 
 
Lease licenses
$
100,004

 
$
56,821

 
$
169,260

 
$
105,593

Perpetual licenses
70,495

 
74,326

 
124,283

 
135,600

Software licenses
170,499

 
131,147

 
293,543

 
241,193

Maintenance
185,118

 
165,603

 
366,579

 
329,499

Service
13,018

 
9,163

 
25,643

 
18,094

Maintenance and service
198,136

 
174,766

 
392,222

 
347,593

Total revenue
$
368,635

 
$
305,913

 
$
685,765

 
$
588,786

 
 
 
 
 
 
 
 
Direct revenue, as a percentage of total revenue
79.7
%
 
76.3
%
 
75.4
%
 
76.4
%
Indirect revenue, as a percentage of total revenue
20.3
%
 
23.7
%
 
24.6
%
 
23.6
%

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 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 months ended June 30, 2019 and 2018 were as follows:
(in thousands)
2019
 
2018
Beginning balance – January 1
$
343,174

 
$
299,730

Acquired deferred revenue
3,266

 
2,470

Deferral of revenue
675,209

 
614,064

Recognition of revenue
(685,765
)
 
(588,786
)
Currency translation
(500
)
 
(3,941
)
Ending balance – June 30
$
335,384

 
$
323,537


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. Revenue recognized during the six months ended June 30, 2019 and 2018 included amounts in deferred revenue and backlog at the beginning of the period of $305.3 million and $251.3 million, respectively.

10


Total revenue allocated to remaining performance obligations as of June 30, 2019 will be recognized as revenue as follows:
(in thousands)
 
Next 12 months
$
496,897

Months 13-24
129,832

Months 25-36
56,602

Thereafter
33,983

Total revenue allocated to remaining performance obligations
$
717,314



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 million, paid in cash. The acquisition of Granta Design, the premier provider of materials information technology, expands ANSYS' portfolio into this important area, giving customers access to material intelligence, including data that is critical to successful simulations.
Additionally, during the six months ended June 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 million, paid in cash.
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
Cash
$
198,723

 
$
103,086

 
$
301,809


Recognized Amounts of Identifiable Assets Acquired and Liabilities Assumed:
(in thousands)
 
 
 
 
 
Cash
$
13,644

 
$
2,842

 
$
16,486

Accounts receivable and other tangible assets
7,035

 
8,653

 
15,688

Developed software and core technologies (12-year weighted-average life)
32,445

 
17,761

 
50,206

Customer lists (13-year weighted-average life)
20,016

 
14,180

 
34,196

Trade names (10-year weighted-average life)
4,579

 
1,381

 
5,960

Accounts payable and other liabilities
(6,152
)
 
(4,715
)
 
(10,867
)
Deferred revenue
(1,426
)
 
(1,840
)
 
(3,266
)
Net deferred tax liabilities
(9,822
)
 
(5,049
)
 
(14,871
)
Total identifiable net assets
$
60,319

 
$
33,213

 
$
93,532

Goodwill
$
138,404

 
$
69,873

 
$
208,277


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

11


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 Liabilities
The Company's other receivables and current assets, and other accrued expenses and liabilities, comprise the following balances:
(in thousands)
June 30,
2019
 
December 31,
2018
Receivables related to unrecognized revenue
$
119,686

 
$
167,144

Income taxes receivable, including overpayments and refunds
38,151

 
13,709

Prepaid expenses and other current assets
46,014

 
35,260

Total other receivables and current assets
$
203,851

 
$
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


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
(in thousands, except per share data)
June 30,
2019
 
June 30,
2018
 
June 30,
2019
 
June 30,
2018
Net income
$
109,750

 
$
92,596

 
$
195,980

 
$
176,876

Weighted average shares outstanding – basic
83,978

 
84,105

 
83,871

 
84,018

Dilutive effect of stock plans
1,505

 
1,881

 
1,617

 
2,051

Weighted average shares outstanding – diluted
85,483

 
85,986

 
85,488

 
86,069

Basic earnings per share
$
1.31

 
$
1.10

 
$
2.34

 
$
2.11

Diluted earnings per share
$
1.28

 
$
1.08

 
$
2.29

 
$
2.06

Anti-dilutive shares

 

 

 




12


7.
Goodwill and Intangible Assets
The Company's intangible assets are classified as follows:
 
June 30, 2019
 
December 31, 2018
(in thousands)
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
)
Customer lists and contract backlog
242,064

 
(125,058
)
 
209,031

 
(117,614
)
Trade names
142,929

 
(115,442
)
 
137,225

 
(113,677
)
Total
$
844,399

 
$
(562,686
)
 
$
756,936

 
$
(546,021
)
Indefinite-lived intangible asset:
 
 
 
 
 
 
 
Trade name
$
357

 
 
 
$
357

 
 

Amortization expense for the intangible assets reflected above was $8.6 million and $12.6 million for the three months ended June 30, 2019 and 2018, respectively. Amortization expense for the intangible assets reflected above was $16.9 million and $24.8 million for the six months ended June 30, 2019 and 2018, respectively.
As of June 30, 2019, estimated future amortization expense for the intangible assets reflected above is as follows:
(in thousands)
 
Remainder of 2019
$
17,241

2020
36,698

2021
34,730

2022
33,462

2023
31,792

2024
29,373

Thereafter
98,417

Total intangible assets subject to amortization
281,713

Indefinite-lived trade name
357

Other intangible assets, net
$
282,070


The changes in goodwill during the six months ended June 30, 2019 and 2018 were as follows:
(in thousands)
2019
 
2018
Beginning balance – January 1
$
1,572,455

 
$
1,378,553

Acquisitions and adjustments(1)
209,093

 
202,733

Currency translation
(5,814
)
 
(6,010
)
Ending balance – June 30
$
1,775,734

 
$
1,575,276


(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 months ended June 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.


13


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:
(in thousands)
June 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

 
$

 
$

Short-term investments
$
241

 
$

 
$
241

 
$

Deferred compensation plan investments
$
3,107

 
$
3,107

 
$

 
$

 
 
 
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

14


(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
Lease liability cost
$
5,610

 
$
10,895

Variable lease cost not included in the lease liability(1)
924

 
1,721

     Total lease cost

$
6,534

 
$
12,616

(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 the three and six months ended June 30, 2018, respectively.
Other information related to operating leases is as follows:
(in thousands)
Three Months Ended June 30, 2019
 
Six Months Ended June 30, 2019
Cash paid for amounts included in the measurement of the lease liability:
 
 
 
     Operating cash flows from operating leases
$
(4,977
)
 
$
(9,309
)
Right-of-use assets obtained in exchange for new operating lease liabilities

$
9,272

 
$
23,107


As of June 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%.
The maturity schedule of the operating lease liabilities as of June 30, 2019 is as follows:
(in thousands)
 
Remainder of 2019
$
11,351

2020
19,526

2021
17,426

2022
14,942

2023
11,034

Thereafter
49,869

     Total future lease payments
124,148

Less: Present value adjustment

(16,601
)
     Present value of future lease payments(1)

$
107,547

(1)Includes the current portion of operating lease liabilities of $17.1 million, which is reflected in other accrued expenses and liabilities in the condensed consolidated balance sheets.
There were no material leases that have been signed but not yet commenced as of June 30, 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



15


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

11.
Stock Repurchase Program
Under the Company's stock repurchase program, the Company repurchased shares as follows:
 
Six Months Ended
(in thousands, except per share data)
June 30,
2019
 
June 30,
2018
Number of shares repurchased
330

 
750

Average price paid per share
$
179.41

 
$
157.11

Total cost
$
59,116

 
$
117,831


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 30, 2019, 3.5 million shares remained available for repurchase under the program.


16


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
(in thousands, except per share data)
June 30,
2019

June 30,
2018

June 30,
2019

June 30,
2018
Cost of sales:







Maintenance and service
$
2,374


$
1,432


$
3,602


$
2,442

Operating expenses:




 


Selling, general and administrative
14,503


11,526


27,634


19,804

Research and development
12,245


7,677


21,686


13,658

Stock-based compensation expense before taxes
29,122


20,635


52,922


35,904

Related income tax benefits
(9,152
)

(10,396
)

(20,228
)

(21,700
)
Stock-based compensation expense, net of taxes
$
19,970


$
10,239


$
32,694


$
14,204

Net impact on earnings per share:




 


Basic earnings per share
$
(0.24
)

$
(0.12
)

$
(0.39
)

$
(0.17
)
Diluted earnings per share
$
(0.23
)

$
(0.12
)

$
(0.38
)

$
(0.17
)


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
(in thousands)
June 30,
2019
 
June 30,
2018
 
June 30,
2019
 
June 30,
2018
United States
$
137,789

 
$