0001013462-19-000013.txt : 20191107 0001013462-19-000013.hdr.sgml : 20191107 20191107103505 ACCESSION NUMBER: 0001013462-19-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 87 CONFORMED PERIOD OF REPORT: 20190930 FILED AS OF DATE: 20191107 DATE AS OF CHANGE: 20191107 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: 191198609 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 anss2019093010q.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 September 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 October 31, 2019 was 84,189,728 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

 
September 30,
2019
 
December 31,
2018
(in thousands, except share and per share data)
(Unaudited)
 
(Audited)
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
732,684

 
$
777,139

Short-term investments
218

 
225

Accounts receivable, less allowance for doubtful accounts of $8,700 and $8,000, respectively
295,590

 
317,700

Other receivables and current assets
177,734

 
216,113

Total current assets
1,206,226

 
1,311,177

Long-term assets:
 
 
 
Property and equipment, net
70,295

 
61,655

Operating lease right-of-use assets
104,160

 

Goodwill
1,771,862

 
1,572,455

Other intangible assets, net
267,378

 
211,272

Other long-term assets
134,757

 
82,775

        Deferred income taxes
27,334

 
26,630

Total long-term assets
2,375,786

 
1,954,787

Total assets
$
3,582,012

 
$
3,265,964

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
8,172

 
$
7,953

Accrued bonuses and commissions
55,362

 
79,945

Accrued income taxes
7,278

 
8,726

Other accrued expenses and liabilities
111,633

 
99,559

Deferred revenue
291,385

 
328,584

Total current liabilities
473,830

 
524,767

Long-term liabilities:
 
 
 
Deferred income taxes
31,201

 
30,077

Long-term operating lease liabilities
91,173

 

Other long-term liabilities
62,484

 
61,573

Total long-term liabilities
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

Additional paid-in capital
865,634

 
867,462

Retained earnings
3,204,854

 
2,919,411

Treasury stock, at cost: 9,072,210 and 9,601,670 shares, respectively
(1,057,955
)
 
(1,075,879
)
Accumulated other comprehensive loss
(90,141
)
 
(62,379
)
Total stockholders' equity
2,923,324

 
2,649,547

Total liabilities and stockholders' equity
$
3,582,012

 
$
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

Nine Months Ended
(in thousands, except per share data)
September 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018
Revenue:







Software licenses
$
137,144


$
109,103


$
430,687


$
350,296

Maintenance and service
206,755


180,315


598,977


527,908

Total revenue
343,899


289,418


1,029,664


878,204

Cost of sales:







Software licenses
5,708


4,291


16,620


12,301

Amortization
4,762


5,530


14,064


23,403

Maintenance and service
30,895


26,487


85,993


80,092

Total cost of sales
41,365


36,308


116,677


115,796

Gross profit
302,534


253,110


912,987


762,408

Operating expenses:







Selling, general and administrative
120,682


97,576


353,263


280,443

Research and development
73,018


59,019


219,058


174,906

Amortization
3,787


3,491


11,342


10,421

Total operating expenses
197,487


160,086


583,663


465,770

Operating income
105,047


93,024


329,324


296,638

Interest income
3,188


3,213


9,610


7,674

Other income (expense), net
594


(974
)

(1,498
)

(2,289
)
Income before income tax provision
108,829


95,263


337,436


302,023

Income tax provision
19,366


5,927


51,993


35,811

Net income
$
89,463


$
89,336


$
285,443


$
266,212

Earnings per share – basic:







Earnings per share
$
1.06


$
1.06


$
3.40


$
3.17

Weighted average shares
84,109


84,158


83,951


84,065

Earnings per share – diluted:







Earnings per share
$
1.04


$
1.04


$
3.34


$
3.09

Weighted average shares
85,733


86,043


85,570


86,060

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
 
Nine Months Ended
(in thousands)
September 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Net income
$
89,463

 
$
89,336

 
$
285,443

 
$
266,212

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(20,762
)
 
(5,102
)
 
(27,762
)
 
(23,047
)
Comprehensive income
$
68,701

 
$
84,234

 
$
257,681

 
$
243,165

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)

 
Nine Months Ended
(in thousands)
September 30,
2019
 
September 30,
2018
Cash flows from operating activities:
 
 
 
Net income
$
285,443

 
$
266,212

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and intangible assets amortization
42,216

 
47,341

Operating lease right-of-use assets amortization
13,912

 

Deferred income tax benefit
(13,221
)
 
(28,175
)
Provision for bad debts
2,559

 
1,389

Stock-based compensation expense
84,784

 
58,887

Other
2,560

 
2,039

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(12,610
)
 
32,356

Other receivables and current assets
37,773

 
23,207

Other long-term assets
(2,288
)
 
2,458

Accounts payable, accrued expenses and current liabilities
(37,289
)
 
(31,243
)
Accrued income taxes
(2,547
)
 
(2,581
)
Deferred revenue
(35,807
)
 
1,175

Other long-term liabilities
(5,000
)
 
(19,562
)
Net cash provided by operating activities
360,485

 
353,503

Cash flows from investing activities:
 
 
 
Acquisitions, net of cash acquired
(294,987
)
 
(283,026
)
Capital expenditures
(25,781
)
 
(13,077
)
Other investing activities
(12,680
)
 
(5,510
)
Net cash used in investing activities
(333,448
)
 
(301,613
)
Cash flows from financing activities:
 
 
 
Purchase of treasury stock
(59,116
)

(192,787
)
Restricted stock withholding taxes paid in lieu of issued shares
(37,936
)
 
(26,955
)
Proceeds from shares issued for stock-based compensation
28,633

 
37,398

Other financing activities
(1,617
)
 
(4,939
)
Net cash used in financing activities
(70,036
)
 
(187,283
)
Effect of exchange rate fluctuations on cash and cash equivalents
(1,456
)
 
(16,928
)
Net decrease in cash and cash equivalents
(44,455
)
 
(152,321
)
Cash and cash equivalents, beginning of period
777,139

 
881,501

Cash and cash equivalents, end of period
$
732,684

 
$
729,180

Supplemental disclosure of cash flow information:
 
 
 
Income taxes paid
$
73,561

 
$
74,086

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

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
(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

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.


7


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

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 is currently in the data gathering phase of the implementation. The Company will adopt the 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 continues to 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:
 
September 30, 2019
 
December 31, 2018
(in thousands, except percentages)
Amount
 
% of Total
 
Amount
 
% of Total
Cash accounts
$
431,624

 
58.9
 
$
331,084

 
42.6
Money market funds
301,060

 
41.1
 
446,055

 
57.4
Total
$
732,684

 
 
 
$
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
 
Nine Months Ended
(in thousands, except percentages)
September 30, 2019
 
September 30, 2018
 
September 30, 2019
 
September 30, 2018
Revenue:
 
 
 
 
 
 
 
Lease licenses
$
70,693

 
$
43,202

 
$
239,953

 
$
148,795

Perpetual licenses
66,451

 
65,901

 
190,734

 
201,501

Software licenses
137,144

 
109,103

 
430,687

 
350,296

Maintenance
193,189

 
171,463

 
559,768

 
500,962

Service
13,566

 
8,852

 
39,209

 
26,946

Maintenance and service
206,755

 
180,315

 
598,977

 
527,908

Total revenue
$
343,899

 
$
289,418

 
$
1,029,664

 
$
878,204

 
 
 
 
 
 
 
 
Direct revenue, as a percentage of total revenue
76.8
%
 
75.5
%
 
75.9
%
 
76.1
%
Indirect revenue, as a percentage of total revenue
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 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 nine months ended September 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
991,524

 
868,522

Recognition of revenue
(1,029,664
)
 
(878,204
)
Currency translation
(4,985
)
 
(6,065
)
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. Revenue recognized during the nine months ended September 30, 2019 and 2018 included amounts in deferred revenue and backlog at the beginning of the period of $409.1 million and $334.4 million, respectively.

10


Total revenue allocated to remaining performance obligations as of September 30, 2019 will be recognized as revenue as follows:
(in thousands)
 
Next 12 months
$
445,934

Months 13-24
122,932

Months 25-36
52,090

Thereafter
29,431

Total revenue allocated to remaining performance obligations
$
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 $208.7 million, paid in cash and inclusive of final net working capital adjustments. The acquisition of Granta Design, the premier provider of materials information technology, expands ANSYS' portfolio into this important area, giving customers access to materials intelligence, including data that is critical to successful simulations.
Additionally, during the nine months ended 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 $102.7 million, paid in 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 Acquisitions
 
Total
Cash
$
208,736

 
$
102,737

 
$
311,473


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

 
$
2,842

 
$
16,486

Accounts receivable and other tangible assets
7,023

 
8,653

 
15,676

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
(6,403
)
 
(4,704
)
 
(11,107
)
Deferred revenue
(1,426
)
 
(1,840
)
 
(3,266
)
Net deferred tax liabilities
(9,822
)
 
(5,049
)
 
(14,871
)
Total identifiable net assets
$
60,056

 
$
33,224

 
$
93,280

Goodwill
$
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

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 Long-Term Liabilities
The Company's other receivables and current assets, and other long-term liabilities, comprise the following balances:
(in thousands)
September 30,
2019
 
December 31,
2018
Receivables related to unrecognized revenue
$
101,939

 
$
167,144

Income taxes receivable, including overpayments and refunds
32,921

 
13,709

Prepaid expenses and other current assets
42,874

 
35,260

Total other receivables and current assets
$
177,734

 
$
216,113

 
 
 
 
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
 
Nine Months Ended
(in thousands, except per share data)
September 30,
2019
 
September 30,
2018
 
September 30,
2019
 
September 30,
2018
Net income
$
89,463

 
$
89,336

 
$
285,443

 
$
266,212

Weighted average shares outstanding – basic
84,109

 
84,158

 
83,951

 
84,065

Dilutive effect of stock plans
1,624

 
1,885

 
1,619

 
1,995

Weighted average shares outstanding – diluted
85,733

 
86,043

 
85,570

 
86,060

Basic earnings per share
$
1.06

 
$
1.06

 
$
3.40

 
$
3.17

Diluted earnings per share
$
1.04

 
$
1.04

 
$
3.34

 
$
3.09

Anti-dilutive shares
25

 

 
8

 




12


7.
Goodwill and Intangible Assets
The Company's intangible assets are classified as follows:
 
September 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
$
455,998

 
$
(325,583
)
 
$
410,680

 
$
(314,730
)
Customer lists and contract backlog
238,373

 
(127,770
)
 
209,031

 
(117,614
)
Trade names
142,224

 
(116,221
)
 
137,225

 
(113,677
)
Total
$
836,595

 
$
(569,574
)
 
$
756,936

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

 
 
 
$
357

 
 

Amortization expense for the intangible assets reflected above was $8.5 million and $9.0 million for the three months ended September 30, 2019 and 2018, respectively. Amortization expense for the intangible assets reflected above was $25.4 million and $33.8 million for the nine months ended September 30, 2019 and 2018, respectively.
As of September 30, 2019, estimated future amortization expense for the intangible assets reflected above is as follows:
(in thousands)
 
Remainder of 2019
$
8,499

2020
36,101

2021
34,100

2022
32,780

2023
31,122

2024
28,728

Thereafter
95,691

Total intangible assets subject to amortization
267,021

Indefinite-lived trade name
357

Other intangible assets, net
$
267,378


The changes in goodwill during the nine months ended September 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)
219,009

 
204,271

Currency translation
(19,602
)
 
(7,257
)
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 nine months ended 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.


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)
September 30,
2019
 
Quoted Prices in
Active Markets
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Cash equivalents
$
301,060

 
$
301,060

 
$

 
$

Short-term investments
$
218

 
$

 
$
218

 
$

Deferred compensation plan investments
$
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

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 September 30, 2019
 
Nine Months Ended September 30, 2019
Lease liability cost
$
5,684

 
$
16,579

Variable lease cost not included in the lease liability(1)
1,126

 
2,847

     Total lease cost

$
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.
For the three and nine months ended 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 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
$
(5,242
)
 
$
(14,551
)
Right-of-use assets obtained in exchange for new operating lease liabilities

$
6,155

 
$
29,262


As of 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 3.7%.
The maturity schedule of the operating lease liabilities as of September 30, 2019 is as follows:
(in thousands)
 
Remainder of 2019
$
6,335

2020
20,192

2021
18,178

2022
15,472

2023
11,748

Thereafter
54,966

     Total future lease payments
126,891

Less: Present value adjustment

(19,059
)
     Present value of future lease payments(1)

$
107,832

(1)Includes the current portion of operating lease liabilities of $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 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