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Stock-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

We have an equity incentive plan - the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan (Stock Plan). The Stock Plan, as amended, authorizes the grant of approximately 39.8 million shares of our common stock in the form of: (i) incentive stock options (ISOs), (ii) nonqualified stock options, (iii) common stock with or without vesting or other restrictions, (iv) common stock upon the attainment of specified performance goals, (v) restricted stock awards, (vi) the right to receive cash dividends with the holders of the common stock as if the recipient held a specified number of shares of the common stock, (vii) deferred stock awards, (viii) restricted stock unit awards, (ix) stock appreciation rights and (x) cash-based awards.

The Stock Plan provides that: (i) the exercise price of any stock option must be no less than the fair value of the stock at the date of grant and (ii) the exercise price of an ISO held by an optionee who possesses more than 10% of the total combined voting power of all classes of stock must be no less than 110% of the fair market value of the stock at the time of grant. The Compensation Committee of the Board of Directors has the authority to set expiration dates that are no later than ten years from the date of grant (or five years for an optionee who meets the 10% criterion), payment terms, and other provisions for each grant. Shares associated with unexercised options or reacquired shares of common stock (except those shares withheld as a result of tax withholding, shares used to pay an option exercise price or pursuant to a net issuance) become available again for option grants and common stock-related awards under the Stock Plan.

The Compensation Committee of the Board of Directors may, at its sole discretion, accelerate the date or dates on which an award granted under the Stock Plan may vest or extend, in the case of a stock option, the exercise period up to the expiration date of the option, subject to the terms and conditions of the Stock Plan. Upon termination of service of a participant due to the participant’s death or disability, the vesting of restricted stock units held by the participant accelerates (in case of performance-based vesting, subject to the attainment of the performance requirement).

In the event of a "sale event," defined in the Stock Plan as a "Transaction," all outstanding awards will be assumed or continued by the successor entity, with appropriate adjustment in the awards to reflect the transaction. In such event, except as the Compensation Committee may otherwise specify with respect to particular awards in the award agreements, if the service relationship of the holder of an award is terminated without cause on or within 18 months after the sale event, then all awards held by such holder will become fully vested and exercisable at that time. If there is a sale event in which the successor entity refuses to assume or continue outstanding awards, then subject to the consummation of the sale event, all awards with time-based vesting conditions will become fully vested and exercisable at the effective time of the sale event and all awards with performance-based vesting conditions may become vested at the discretion of the Compensation Committee and then all such awards will terminate at the time of the sale event. In the event of the termination of stock options or stock appreciation rights in connection with a sale event, the Compensation Committee may either make or provide for a cash payment to the holders of such awards equal to the difference between the per share transaction consideration and the exercise price of such awards or permit each holder to have at least a 15-day period to exercise such awards prior to their termination.

We currently issue shares related to exercised stock options or vested awards from our existing pool of treasury shares and have no specific policy to repurchase treasury shares as stock options are exercised or as awards vest. If the treasury pool is depleted, we will issue new shares.

Total stock-based compensation expense recognized for the years ended December 31, 2020, 2019 and 2018 is as follows:


	Year Ended December 31,
(in thousands, except per share amounts)	2020		2019		2018
Cost of sales:
Maintenance and service	13,626		8,494		5,224
Operating expenses:
Selling, general and administrative	73,491		60,639		47,099
Research and development	58,498		47,057		31,023
Stock-based compensation expense before taxes	145,615		116,190		83,346
Related income tax benefits	(56,485)		(47,454)		(34,518)
Stock-based compensation expense, net of taxes	$	89,130	$	68,736	$	48,828
Net impact on earnings per share:
Basic earnings per share	$	(1.04)	$	(0.82)	$	(0.58)
Diluted earnings per share	$	(1.02)	$	(0.80)	$	(0.57)

As of December 31, 2020, total unrecognized estimated compensation expense related to awards granted prior to that date was $160.7 million, which is expected to be recognized over a weighted average period of 1.4 years. Forfeitures of awards are accounted for as they occur.

Stock Options

Prior to 2017, we granted stock option awards. The value of each stock option award was estimated on the date of grant, or date of acquisition for options issued in a business combination, using the Black-Scholes option pricing model (Black-Scholes model). The determination of the fair value of stock-based payment awards using an option pricing model was affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables included our stock volatility during the preceding six years, actual and projected employee stock option exercise behaviors, interest rate assumptions using the five-year U.S. Treasury Note yield on the date of grant or acquisition date, and expected dividends. The stock-based compensation expense for options was recorded ratably over the requisite service period.

As of December 31, 2020, there is no unrecognized estimated compensation cost related to unvested stock options.

Information regarding stock option transactions is summarized below:


	Year Ended December 31,
	2020			2019			2018
(options in thousands)	Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price
Outstanding, beginning of year	984	$	67.49	1,484	$	62.80	2,170	$	59.17
Granted	—	$	—	—	$	—	—	$	—
Exercised	(336)	$	54.43	(495)	$	53.53	(679)	$	50.92
Forfeited	—	$	—	(5)	$	64.21	(7)	$	86.28
Outstanding, end of year	648	$	74.26	984	$	67.49	1,484	$	62.80
Vested and Exercisable, end of year	648	$	74.26	924	$	65.71	1,347	$	59.69
Nonvested	—	$	—	60	$	94.77	137	$	93.44


	2020		2019		2018
Weighted Average Remaining Contractual Term (in years)
Outstanding	2.93		3.18		3.55
Vested and Exercisable	2.93		2.95		3.14
Nonvested	0.00		6.71		7.60
Aggregate Intrinsic Value (in thousands)
Exercised	$	78,269	$	72,098	$	78,648
Outstanding	$	187,679	$	186,926	$	118,908
Vested and Exercisable	$	187,679	$	177,111	$	112,133
Nonvested	$	—	$	9,815	$	6,775
Compensation Expense - Stock Options (in thousands)	$	1,030	$	1,709	$	2,006

Information regarding stock options outstanding as of December 31, 2020 is summarized below:


(options in thousands)	Options Outstanding & Exercisable
Range of Exercise Prices	Options	Weighted- Average Remaining Contractual Life (years)	Weighted- Average Exercise Price
$12.26 - $24.42	13	0.40	$	22.10
$58.67	167	0.86	$	58.67
$67.44	226	1.85	$	67.44
$78.56 - $95.09	242	5.48	$	94.15

There were no unvested stock options as of December 31, 2020.

Restricted Stock Units

Under the terms of the Fifth Amended and Restated ANSYS, Inc. 1996 Stock Option and Grant Plan, we issue various restricted stock unit awards. The following table summarizes the types of awards and vesting conditions:


Award	Vesting Period	Vesting Condition
Restricted stock units with a service condition only	Three years	Continued employment through the vesting period. One third vests annually.
Restricted stock units with an operating performance and service condition	Three years	Operating performance metrics as defined at the beginning of each sub-performance period and subject to continued employment.
Restricted stock units with a market and service condition	Three years	Our performance measured by total stockholder return relative to the Nasdaq Composite Index for the performance period and subject to continued employment through the vesting period.

The fair value of RSUs with only a service condition is based on the fair market value of our stock on the date of the grant and is recognized over the vesting period.

The fair value of RSUs with operating performance metrics is based on the fair market value of our stock on the date of the grant and is recognized from the grant date through the conclusion of the performance period associated with each operating performance metric based on management's estimates concerning the probability of vesting.

The fair values of restricted stock units (RSUs) with a market condition were estimated using a Monte Carlo simulation model and are recognized over the vesting period. The determination of the fair values of the awards was affected by the grant date and several variables, each of which has been identified in the chart below:


	Year Ended December 31,
Assumptions used in Monte Carlo lattice pricing model	2020	2019	2018
Risk-free interest rate	0.7%	2.5%	2.4%
Expected dividend yield	—%	—%	—%
Expected volatility—Ansys stock price	25%	23%	21%
Expected volatility—Nasdaq Composite Index	18%	16%	15%
Expected term	2.8 years	2.8 years	2.8 years
Correlation factor	0.77	0.71	0.65
Weighted average fair value per share	$245.08	$238.99	$191.76

Total compensation expense for employee RSU awards recorded for the years ended December 31, 2020, 2019 and 2018 was $138.3 million, $109.9 million and $77.4 million, respectively.

Information regarding all employee RSU transactions is summarized below:


	Year Ended December 31,
	2020			2019			2018
(RSUs in thousands)	RSUs	Weighted- Average Grant Date Fair Value		RSUs	Weighted- Average Grant Date Fair Value		RSUs	Weighted- Average Grant Date Fair Value
Nonvested, beginning of year	1,618	$	165.26	1,522	$	129.96	1,361	$	100.66
Granted(1)	501	$	256.47	843	$	192.37	681	$	163.67
Performance adjustment - awards with market condition(2)	18	$	191.76	12	$	120.96	10	$	78.71
Performance adjustment - awards with performance condition(2)	(10)	$	279.08	62	$	176.89	66	$	162.64
Vested	(742)	$	158.13	(704)	$	125.84	(524)	$	101.38
Forfeited	(62)	$	193.28	(117)	$	140.43	(72)	$	125.29
Nonvested, end of year	1,323	$	201.98	1,618	$	165.26	1,522	$	129.96

(1) Includes all RSUs granted during the year. RSUs with operating performance conditions are issued annually and have one performance cycle or three sub-performance cycles. Performance conditions are assigned near the beginning of each performance cycle or sub-performance cycle, as applicable, and awards are reflected as grants at the target number of units at that time.

(2) RSUs with a market or performance condition are granted at target and vest based on achievement of the market or operating performance and service conditions. The actual number of RSUs issued may be more or less than the target RSUs depending on the achievement of the market or operating performance conditions.

Board of Directors

During and prior to 2015, we granted deferred stock awards to non-employee Directors, which are rights to receive shares of common stock upon termination of service as a Director. Associated with these awards, we established a non-qualified 409(a) deferred compensation plan with assets held under a rabbi trust to provide Directors an opportunity to diversify their vested awards. During open trading windows and at their elective option, the Directors may convert their Ansys shares into a variety of non-Ansys-stock investment options in order to diversify a portion of their holdings, subject to meeting ownership guidelines.

Information regarding deferred stock awards to non-employee Directors is summarized below:


	Year Ended December 31, 2020
	Diversified	Undiversified	Total
Deferred Awards Outstanding, beginning of year	5,598	60,081	65,679
Shares Diversified	1,400	(1,400)	—
Deferred Awards Outstanding, end of year	6,998	58,681	65,679


	Year Ended December 31, 2019
	Diversified	Undiversified	Total
Deferred Awards Outstanding, beginning of year	12,250	120,449	132,699
Shares Diversified	13,348	(13,348)	—
Shares Issued Upon Retirement	(20,000)	(47,020)	(67,020)
Deferred Awards Outstanding, end of year	5,598	60,081	65,679


	Year Ended December 31, 2018
	Diversified	Undiversified	Total
Deferred Awards Outstanding, beginning of year	29,500	159,599	189,099
Shares Diversified	6,105	(6,105)	—
Shares Issued Upon Retirement	(23,355)	(33,045)	(56,400)
Deferred Awards Outstanding, end of year	12,250	120,449	132,699

Information regarding RSU awards to non-employee Directors is summarized below:


	Year Ended December 31,
	2020			2019			2018
(RSUs in thousands)	BOD RSUs	Weighted- Average Grant Date Fair Value		BOD RSUs	Weighted- Average Grant Date Fair Value		BOD RSUs	Weighted- Average Grant Date Fair Value
Nonvested, beginning of year	9,688	$	187.53	13,632	$	165.71	18,018	$	123.38
Granted	9,664	$	253.40	11,259	$	187.53	13,632	$	165.71
Vested	(10,704)	$	193.35	(14,287)	$	166.71	(18,018)	$	123.38
Forfeited	(577)	$	253.93	(916)	$	187.53	—	$	—
Nonvested, end of year	8,071	$	253.93	9,688	$	187.53	13,632	$	165.71

The RSUs to non-employee Directors vest in full upon the earlier of one year from the date of grant or the date of the next regular meeting of stockholders. If a non-employee Director retires prior to the vest date, the non-employee Director receives a pro-rata portion of the RSUs. Total compensation expense associated with the awards recorded for the years ended December 31, 2020, 2019 and 2018 was $2.2 million, $2.5 million and $2.3 million, respectively.

Employee Stock Purchase Plan

Our 1996 Employee Stock Purchase Plan (the “Purchase Plan”) was adopted by the Board of Directors on April 19, 1996 and was subsequently approved by our stockholders. The stockholders approved an amendment to the Purchase Plan in May 2016 to increase the number of shares available for offerings to 1.8 million shares of which 0.1 million shares are available for future purchases as of December 31, 2020. The Purchase Plan is administered by the Compensation Committee. Offerings under the Purchase Plan commence on each February 1 and August 1, and have a duration of six months. An employee who owns or is deemed to own shares of stock representing in excess of 5% of the combined voting power of all classes of our stock may not participate in the Purchase Plan.

During each offering, an eligible employee may purchase shares under the Purchase Plan by authorizing payroll deductions of up to 10% of his or her cash compensation during the offering period. The maximum number of shares that may be purchased by any participating employee during any offering period is limited to 3,840 shares (as adjusted by the Compensation Committee from time to time). Unless the employee has previously withdrawn from the offering, his or her accumulated payroll

deductions will be used to purchase common stock on the last business day of the period at a price equal to 90% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. Under applicable tax rules, an employee may not accrue the right to purchase more than $25,000 of common stock, based on the grant-date fair value, in any calendar year in which the option is outstanding at any time. As of December 31, 2020, 1.7 million shares of common stock had been issued under the Purchase Plan. The total compensation expense recorded under the Purchase Plan during the years ended December 31, 2020, 2019 and 2018 was $4.1 million, $2.0 million and $1.8 million, respectively.