UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2020

OR

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

For the transition period from ____ to ____

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	Nasdaq Stock Market LLC
		(Nasdaq Global Select Market)
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ☒    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.                            ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐   No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price per share of the registrant's common stock on June 30, 2020, as reported on the Nasdaq Global Select Market, was $20,712,000,000.

The number of shares of the registrant's common stock, par value $0.01 per share, outstanding as of February 17, 2021 was 86,751,764 shares.

Documents Incorporated By Reference:

Portions of the Proxy Statement for the registrant's 2021 Annual Meeting of Stockholders are incorporated by reference into Part III.

ANSYS, Inc.

ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR 2020

Table of Contents

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	25
Item 4.	Mine Safety Disclosures	25
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	26
Item 6.	Selected Financial Data	29
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	59
Item 8.	Financial Statements and Supplementary Data	60
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	61
Item 9A.	Controls and Procedures	61
Item 9B.	Other Information	62
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	63
Item 11.	Executive Compensation	63
Item 12.	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	63
Item 13.	Certain Relationships and Related Transactions, and Director Independence	63
Item 14.	Principal Accounting Fees and Services	63
PART IV
Item 15.	Exhibits and Financial Statement Schedules	64
Item 16.	Form 10-K Summary	106
SIGNATURES		107

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Important Factors Regarding Future Results

Information provided by us in this Annual Report on Form 10-K may contain forward-looking statements concerning such matters as projected financial performance, market and industry segment growth, product development and commercialization, acquisitions or other aspects of future operations. Such statements, made pursuant to the safe harbor established by the securities laws, are based on the assumptions and expectations of management at the time such statements are made. We caution investors that our performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. Various important factors including, but not limited to, those discussed in Item 1A. Risk Factors, may cause our future results to differ materially from those projected in any forward-looking statement. All information presented is as of December 31, 2020, unless otherwise indicated.

Note About Forward-Looking Statements

The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. Our discussion and analysis of our financial condition and results of operations in Part II, Item 7 of this Annual Report on Form 10-K are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to fair values of stock awards, bad debts, contract revenue, acquired deferred revenue, the standalone selling prices of our products and services, the valuation of goodwill and other intangible assets, deferred compensation, income taxes, uncertain tax positions, tax valuation reserves, operating lease assets and liabilities, useful lives for depreciation and amortization, and contingencies and litigation. We base our estimates on historical experience, market experience, estimated future cash flows and various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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

•Our expectations regarding the impacts of the COVID-19 pandemic.

•Our intentions regarding our hybrid sales and distribution model.

•Our intentions related to investments in research and development, particularly as it relates to expanding the ease of use and capabilities of our broad portfolio of simulation software products.

•Our expectations regarding the accelerated development of new and innovative products to the marketplace while lowering design and engineering costs for customers as a result of our acquisitions.

•Our statements regarding the impact of global economic conditions.

•Our expectations regarding the outcome of our service tax audit cases.

•Our belief that, in most geographical locations, our facilities allow for sufficient space to support present and future foreseeable needs, including such expansion and growth as the business may require.

•Our expectation that we can renew existing facility leases as they expire or find alternative facilities without difficulty, as needed.

•Our assessment of the ultimate liabilities arising from various investigations, claims and legal proceedings.

•Our statements regarding the strength of the features, functionality and integrated multiphysics capabilities of our software products.

•Our belief that our overall performance is best measured by fiscal-year results rather than by quarterly results.

•Our expectations regarding increased lease license volatility due to an increased customer preference for time-based licenses.

•Our estimates regarding the expected impact on reported revenue related to the acquisition accounting treatment of deferred revenue.

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•Our expectation that we will continue to make targeted investments in our global sales and marketing organizations and our global business infrastructure to enhance and support our revenue-generating activities.

•Our intention to repatriate previously taxed earnings in excess of working capital needs and to reinvest all other earnings of our non-U.S. subsidiaries.

•Our plans related to future capital spending.

•Our expectations of the impact of income tax payment increases on 2021 operating cash flow.

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

•Our expectations regarding the stock repurchase program.

•Our belief that the best uses of our excess cash are to invest in the business, acquire or make investments in complementary companies, products, services and technologies, make payments on outstanding debt balances and repurchase stock in order to both offset dilution and return capital, in excess of our requirements, to stockholders with the goal of increasing stockholder value.

•Our intentions related to investments in complementary companies, products, services and technologies.

•Our expectation that changes in currency exchange rates will affect our financial position, results of operations and cash flows.

•Our expectations regarding future claims related to indemnification obligations.

•Our estimates regarding future stock-based compensation.

•Our expectations regarding the impacts of new accounting guidance.

•Our assessment of our ability to realize deferred tax assets.

•Our performance expectations related to our partnerships and strategic alliances.

•Our expectations regarding acquisitions and integrating such acquired companies to realize the benefits of cost reductions and other synergies relating thereto.

•Our statements regarding market opportunity, including the size and growth of addressable markets.

Forward-looking statements should not be unduly relied upon because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. Our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause such a difference include risks and uncertainties detailed in Item 1A. Risk Factors.

PART I

ITEM 1.BUSINESS

ANSYS, Inc. (Ansys, we, us, our), a Delaware corporation formed in 1994, develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, electronics, semiconductors, energy, materials and chemical processing, turbomachinery, consumer products, healthcare, and sports. Headquartered south of Pittsburgh, Pennsylvania, we employed approximately 4,800 people as of December 31, 2020. We focus on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. We distribute our suite of simulation technologies through direct sales offices in strategic, global locations and a global network of independent resellers and distributors (collectively, channel partners). It is our intention to continue to maintain this hybrid sales and distribution model. We operate and report as one segment.

Our strategy of Pervasive Engineering Simulation™ seeks to deepen the use of simulation in our core, to inject simulation throughout the product lifecycle and to embed simulation into our partners' ecosystems. The engineering software simulation market is strong and growing. Its market growth is driven by customers’ need for rapid, quality innovation in a cost efficient

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manner, enabling faster time to market of new products and lower warranty costs. While the transition away from physical prototyping toward simulation is prevalent through all industries, its demand is heightened by investments in high-growth solutions, including 5G, electrification, autonomous and the Industrial Internet of Things (IIoT). Our strategy of Pervasive Engineering Simulation is aligned with the market growth.

Our product portfolio consists of the following:

Platform

Ansys Workbench™ is the framework upon which our suite of advanced multiphysics engineering simulation technologies is built. The innovative project schematic view ties together the entire simulation process, guiding the user through complex multiphysics analyses with drag-and-drop simplicity. With bi-directional computer-aided design (CAD) connectivity, powerful highly-automated meshing, a project-level update mechanism, pervasive parameter management and integrated optimization tools, the Ansys Workbench platform enables Pervasive Engineering Simulation.

Our Workbench framework allows engineers and designers to incorporate the compounding effects of multiple physics into a virtual prototype of their design and simulate its operation under real-world conditions. As product architectures become smaller, lighter and more complex, companies must be able to accurately predict how products will behave in real-world environments where multiple types of physics interact in a coupled way. Our multiphysics software enables engineers to simulate the interactions between structures, heat transfer, and fluids and electronics all within a single, unified engineering simulation environment.

Our high-performance computing (HPC) product suite and Cloud solutions enable enhanced insight into product performance and improve the productivity of the design process. The HPC and Cloud offerings provide cross-physics parallel processing capabilities for the full spectrum of our simulation software and support structures, fluids, thermal and electronics simulations. This product suite decreases turnaround time for individual simulations, allowing users to consider multiple design ideas and make the right design decisions early in the design cycle.

Ansys Minerva is a knowledge management application that secures critical simulation data, and provides simulation process and decision support to simulation teams across geographies and functional silos. Available for both on-premise and cloud deployment, Minerva delivers immediate benefits by connecting simulation and optimization to customers’ existing ecosystem of tools and processes. Minerva provides integration and automation of chained data flows and design space exploration for optimal performance parameters. With Ansys Minerva, Ansys customers can connect simulation for life cycle traceability and to enable collaboration and decision support.

Structures

Our structural analysis product suite offers simulation tools for product design and optimization that increase productivity, minimize physical prototyping and help to deliver better and more innovative products in less time. These tools tackle real-world analysis problems by making product development less costly and more reliable. In addition, these tools have capabilities that cover a broad range of analysis types, elements, contacts, materials, equation solvers and coupled physics capabilities, all targeted toward understanding and solving complex design problems. We also provide comprehensive topology optimization tools that engineers use to design structural components to meet loading requirements with minimal material and component weight. We offer a complete simulation workflow for additive manufacturing that allows reliable 3D printing by simulating the laser sintering process and delivering compensated CAD geometries that ensure reliable printed parts.

Fluids

Our fluids product suite enables modeling of fluid flow and other related physical phenomena. Fluid flow analysis capabilities provide all the tools needed to design and optimize new fluids equipment and to troubleshoot already existing installations. The suite contains general-purpose computational fluid dynamics software and specialized products to address specific industry applications.

Electronics

Our electronics product suite provides field simulation software for designing high-performance electronic and electromechanical products. The software streamlines the design process and predicts performance of mobile communication and internet-access devices, broadband networking components and systems, integrated circuits (ICs) and printed circuit boards (PCBs), as well as electromechanical systems such as automotive components and power electronics equipment, all prior to building a prototype.

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Semiconductors

Advancements in semiconductor design and manufacturing enable smaller electronic architectures. Shrinking geometries, especially in the emerging 3D IC, FinFET and stacked-die architectures, reveal design challenges related to power and reliability. Our power analysis and optimization software suite manages the power budget, power delivery integrity and power-induced noise in an electronic design, from initial prototyping to system sign-off. These solutions deliver accuracy with correlation to silicon measurement; the capacity to handle an entire electronic system, including IC, package and PCB, efficiently for ease-of-debugging and fast turnaround time; and comprehensiveness to facilitate cross-domain communications and electronic ecosystem enablement.

Embedded Software

Our SCADE® product suite is a comprehensive solution for embedded software simulation, code production and automated certification. It has been developed specifically for use in critical systems with high dependability requirements, including aerospace, rail transportation, nuclear, industrial and automotive applications. SCADE software supports the entire development workflow, from requirements analysis and design, through verification, implementation and deployment. SCADE solutions easily integrate with each other and the rest of our product suite, allowing for development optimization and increased communication among team members.

Systems

We deliver a unique and comprehensive system simulation capability that is ideal for the design of today's increasingly automated products. This collaborative environment leverages our multiphysics, multibody dynamics, circuit and embedded software simulation capabilities, enabling users to simulate the complex interactions between components, circuits and control software within a single environment. These technologies provide a complete view into predicted product performance, which creates greater design confidence for engineers.

3D Design

Our Discovery™ product family allows every engineer to benefit from the insight of simulation in their product design. The Discovery products range from early design exploration tools powered by interactive real-time simulation and intuitive geometry editing, to detailed product validation solutions utilizing proven flagship solver technology with easy-to-use guided workflows. These tools allow for design engineers of all levels of expertise to utilize simulation across the entire product design process and to work seamlessly with simulation experts using our flagship products for even more advanced analysis.

Optical

Using optical sensor and closed-loop, real-time simulation, our capabilities now span the simulation of all sensors, including lidar, cameras and radar; the multiphysics simulation of physical and electronic components; the analysis of systems functional safety; as well as the automated development of safety-certified embedded software. This functionality can be integrated into a closed-loop simulation environment that interacts with weather and traffic simulators for automotive applications, enabling thousands of driving scenarios to be executed virtually.

Photonics

Our April 1, 2020 acquisition of Lumerical Inc. (Lumerical), a leading developer of photonic design and simulation tools, adds best-in-class photonic products to our multiphysics portfolio, providing customers with a full set of solutions to solve their next-generation product challenges. Refer to the section titled "New Product Offerings" for additional discussion around our photonics offerings.

Missions

Our December 1, 2020 acquisition of Analytical Graphics, Inc. (AGI), a premier provider of mission-simulation, modeling, testing and analysis software for aerospace, defense and intelligence applications, empowers our users to solve challenges by simulating from the chip level all the way to a customer's entire mission. Refer to the section titled "New Product Offerings" for additional discussion around our missions offerings.

Materials

With our materials technology, our customers benefit from access to the world's premier system for managing corporate material intelligence and the market-leading solution for materials sources, selection and management. Ansys Granta MI is a leading system for materials information management in engineering enterprises. Ansys Granta Selector is the standard tool for

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materials selection and graphical analysis of materials properties. A comprehensive materials data library plus unique software tools enable engineers to use materials to innovate and evolve products, quickly identify solutions to material issues, confirm and validate choice of materials, and reduce material and development costs. CES EduPack is a unique set of teaching resources that supports materials education across engineering, design, science and sustainable development. Granta Materials Data for Simulation provides easy access to materials property data from within Ansys Mechanical and the Ansys Electronics Desktop environment.

Academic

Our academic product suite provides a highly scalable portfolio of academic products based on several usage tiers, including associate, research and teaching. Each tier includes various non-commercial products that bundle a broad range of physics and advanced coupled field solver capabilities. The academic product suite provides entry-level tools intended for class demonstrations and hands-on instruction. It includes flexible terms of use and more complex analysis suitable for doctoral and post-doctoral research projects. We also provide a special product at no cost to students that is suitable for use away from the classroom and in non-commercial applications.

PRODUCT DEVELOPMENT

We make significant investments in research and development and emphasize frequent, integrated product releases. Our product development strategy centers on ongoing development and innovation of new technologies to increase productivity and to provide engineering simulation solutions that customers can integrate into enterprise-wide product lifecycle management (PLM) systems. Our product development efforts focus on extensions of the full product line with new functional modules, further integration with CAD, electronic CAD (ECAD) and PLM products, and the development of new products. Our products run on the most widely-used engineering computing platforms and operating systems, including Windows, Linux and most UNIX workstations.

Our total research and development expenses were $355.4 million, $298.2 million and $233.8 million in 2020, 2019 and 2018, respectively, or 21.1%, 19.7% and 18.1% of total revenue, respectively. As of December 31, 2020 and 2019, our product development staff consisted of approximately 1,800 and 1,500 employees, respectively, most of whom hold advanced degrees and have industry experience in engineering, mathematics, computer science or related disciplines. We have traditionally invested significant resources in research and development activities and intend to continue to make investments in expanding the ease of use and capabilities of our broad portfolio of simulation software products.

We recently completed the following major product development activities and releases:

•In January 2021, we released Ansys 2021 R1, which delivers improvements in simulation technology along with the immense compute power of high-performance computing to reimagine what is now possible for global engineering teams. Our simulation solutions offer new levels of collaboration, providing insight into product safety, reliability and performance. The simplified workflows and unique product enhancements in Ansys 2021 R1 create opportunities for engineers to accomplish design and product development goals that were previously thought unattainable.

Ansys 2021 R1 provides advancements for large electromagnetic system simulations that previously were not possible, while including vendor components in those simulations with greater efficiency and scalability. These components can be encrypted, so vendors can share proprietary 3D component designs and create high-fidelity simulations. Ansys 2021 R1 also pushes semiconductor engineering boundaries, delivering comprehensive analysis of signal integrity, power integrity, and thermal and mechanical stress on 3D multi-die systems. While thermo-mechanical stresses and warpage can damage 3D-IC packages, leveraging proven Ansys flagship technology enables users to increase product lifespan and reliability.

•In July 2020, we released Ansys 2020 R2, which brings enhanced solving and collaboration capabilities, key for enabling globally distributed teams to further organization-wide innovation. This release upgrades our HPC resources and platform solutions that reduce costs and speed production. Our newly updated advanced digital engineering tools help engineering teams develop new products, sustain business continuity, improve productivity and win the race to market.

We also released the new Ansys Discovery, a next generation, easy-to-use product design software application. Ansys Discovery is the first simulation-driven design tool to combine instant physics simulation, Ansys' proven high-fidelity simulation and interactive geometry modeling into a single design exploration application. Conducting real-time, rapid iterative design explorations, more engineers can now explore larger design spaces and quickly answer critical design questions earlier in the product design process.

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Acquired Technologies

Our 2020 acquisitions, each a leader in their respective fields, are intended to bolster our strategy of Pervasive Engineering Simulation. The acquired technologies significantly enhance our portfolio, providing solutions valuable to our customers.

The acquisition of Lumerical enables our customers to predict light's behavior within complex photonic structures and systems. Silicon photonics is an expanding market and Lumerical provides a comprehensive set of tools for the design and analysis of integrated photonic components and systems, similar to the traditional electronic design automation (EDA) environment. Lumerical complements Ansys SPEOS by serving as a de facto light source for predicting the illumination and optical performance of systems such as interior automobile lighting.

The acquisition of AGI enables our customers to consider the entire mission engineering of a product or system. Engineered products and systems can involve thousands of components, subsystems, systems, and systems of systems that must work together intricately. Our software simulates all these pieces of the puzzle and their functional relationships to each other, and increasingly to their environments.

PRODUCT QUALITY

Our employees generally perform product development tasks according to predefined quality plans, procedures and work instructions. Certain technical support tasks are also subject to a quality process. These plans define, for each project, the methods to be used, the responsibilities of project participants and the quality objectives to be met. The majority of our software products are developed under a quality system that is certified to the ISO 9001:2015 standard. We establish quality plans for our products and services, and subject product designs to multiple levels of testing and verification in accordance with processes established under our quality system.

SALES AND MARKETING

We distribute and support our products through our own direct sales offices, as well as a global network of independent channel partners. This channel partner network provides us with a cost-effective, highly-specialized channel of distribution and technical support. It also enables us to draw on business and technical expertise from a global network, provides relative stability to our operations to help mitigate geography-specific economic trends and provides us with an opportunity to take advantage of new geographic markets or enhance our sales coverage in existing markets.

The channel partners market and sell our products to new customers, expand installations within the existing customer base, offer training and consulting services, and provide the first line of our technical support. Our channel partner certification process helps to ensure that each channel partner has the ongoing capability to adequately represent our expanding product lines and to provide an acceptable level of training, consultation and customer support. We derived 22.2%, 22.9% and 22.4% of our total revenue through the indirect sales channel for the years ended December 31, 2020, 2019 and 2018, respectively.

We also have a direct sales organization to develop an enterprise-wide, focused sales approach and to implement a worldwide go-to-market account strategy. The sales management organization also functions as a focal point for requests from the channel partners and provides additional support in strategic locations through the presence of direct sales offices.

During 2020, we continued to invest in our existing domestic and international strategic sales offices. In total, our direct sales and marketing organization comprised 2,400 and 2,100 employees as of December 31, 2020 and 2019, respectively, who were responsible for the sales, technical support, consulting services, marketing initiatives, and administrative activities designed to support our overall revenue growth and expansion strategies.

Our products are utilized by organizations ranging in size from small consulting firms to the world's largest high-tech and industrial companies. No single customer accounted for more than 5% of our revenue in 2020, 2019 or 2018.

Information with respect to foreign and domestic revenue may be found in Note 17 to the consolidated financial statements in Part IV, Item 15 of this Annual Report on Form 10-K and in the section entitled “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K.

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STRATEGIC ALLIANCES AND MARKETING RELATIONSHIPS

We have established and continued to pursue strategic alliances with advanced technology suppliers, cloud computing providers, hardware vendors, software vendors, specialized application developers, and CAD, ECAD and PLM providers. We believe that these relationships facilitate accelerated incorporation of advanced technology into our products, provide access to new customers, expand our sales channels, develop specialized product applications, and provide direct integration with leading CAD, electronic design automation (EDA), product data management and PLM systems.

We have technical and marketing relationships with leading CAD vendors, such as Autodesk, PTC and Siemens Digital Industries, to provide direct links between products. These links facilitate the transfer of electronic data models between the CAD systems and our products.

We partner with PTC to accelerate product innovation by providing customers a world-class simulation-driven design solution. Working together, we are delivering Ansys Live real-time simulation technology within PTC’s Creo® 3D CAD software. The combined solution, Creo Simulation Live, is sold by PTC as part of the Creo product suite. This solution offers customers a unified modeling and simulation environment, removing the boundaries between CAD and simulation and enabling design engineers to gain insight into each of the many design decisions they make throughout the product development process. This insight enables design engineers to create higher quality products, while reducing product and development costs. In November 2020, PTC released Creo Ansys Simulation, which includes a subset of our flagship solver technology integrated into Creo.

We maintain marketing and software development relationships with leading EDA software companies, including Cadence Design Systems, Synopsys, Siemens EDA, and Zuken. These relationships support the transfer of data between electronics design and layout software and our electronics simulation portfolio. We have an integration and distribution agreement with Synopsys to cooperatively integrate Ansys RedHawk technology into an in-design add-on to a Synopsys design tool for the primary purpose of providing customers with direct, in-design access to the RedHawk technology's capabilities. In addition, we continue to focus on customer solutions and are actively working together to build additional products and interoperability workflows.

We have a strategic relationship with Microsoft that spans several Ansys business units and markets. The primary focus of the relationship centers on Ansys Cloud, which is a cloud-based simulation service fully managed by Ansys and hosted on Microsoft’s Azure Cloud infrastructure. Ansys Cloud provides on-demand access to HPC directly from within our flagship applications. We continue to expand the licensing options and functionality of Ansys Cloud, often working closely with Microsoft for support and technical advice. The market-specific projects we have in place with Microsoft include: Ansys digital twins’ connection with Microsoft Azure IoT solutions; Ansys Autonomy software for autonomous vehicles running on Azure; and co-sponsoring the Indy Autonomous Challenge self-driving car race, in which 30+ universities are building and racing self-driving cars around the iconic speedway in Indianapolis in the fall of 2021.

Our Partner Program actively encourages developers of specialized software solutions to use our technology as a development platform for their applications and provides customers with enhanced functionality related to their use of our software. With more than 200 active solution partnerships, spanning a wide range of technologies, including materials, optimization, electronics, optical, mechanical, fluid and systems simulation, our partner ecosystem extends the depth and breadth of our technology offerings. We also work to democratize HPC to a wider audience through partnerships with cloud computing providers, cloud-hosting partners, HPC hardware manufacturers and supercomputing centers.

COMPETITION

We believe that the principal factors affecting sales of our software include ease of use, breadth and depth of functionality, flexibility, quality, ease of integration with other software systems, file compatibility across computer platforms, range of supported computer platforms, performance, price and total cost of ownership, customer service and support, company reputation and financial viability, and effectiveness of sales and marketing efforts.

We continue to experience competition across all markets for our products and services. Our competitors include large, global, publicly traded companies; small, geographically-focused firms; startup firms; and solutions produced in-house by the end users. Some of our current and possible future competitors have greater financial, technical, marketing and other resources than us, and some have well-established relationships with current and potential customers of ours. Our current and possible future competitors also include firms that have elected, or may in the future elect, to compete by means of open source licensing. These competitive pressures may result in decreased sales volumes, price reductions and/or increased operating costs, and could result in lower revenues, margins and net income.

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PROPRIETARY RIGHTS AND LICENSES

We regard our software as proprietary and rely on a combination of trade secret, copyright, patent and trademark laws, license agreements, nondisclosure and other contractual provisions, and technical measures to protect our proprietary rights in our products. We distribute our software products under software license agreements that predominantly grant customers nonexclusive licenses, which are typically nontransferable, for the use of our products. License agreements for our products are generally directly between us and end users. Use of the licensed software product is restricted to specified sites unless the customer obtains a multi-site license for its use of the software product or the software product is by its nature a multi-site use product. Software security measures are also employed to prevent unauthorized use of our software products and the licensed software is subject to terms and conditions prohibiting unauthorized use, distribution, or reproduction. For most products, customers may purchase a perpetual license of the technology with the right to annually purchase ongoing maintenance, technical support and upgrades, or may lease the product on a fixed-term basis for a fee that includes the license, maintenance, technical support and upgrades. For some products, customers purchase an annual subscription for a certain number of named users that includes the license, maintenance, technical support and upgrades or purchase elastic units, which enable the use of any supported product at any time until their licensed volume is met.

We license our software products utilizing a combination of web-based and hard-copy license terms and forms. For certain software products, we primarily rely on "click-wrapped" licenses (i.e. online agreements where the website provider posts terms and conditions, and the user clicks on the "accept" button). The enforceability of these types of agreements under the laws of some jurisdictions is uncertain.

We also seek to protect the source code of our software as a trade secret and as registered unpublished copyrighted work. We have obtained federal trademark registration protection for Ansys and other marks in the U.S. and foreign countries. Additionally, we were awarded numerous patents by the U.S. Patent and Trademark Office or equivalent offices in other jurisdictions and have a number of patent applications pending. To the extent we do not choose to seek patent protection for our intellectual property, we primarily rely on the protection of our source code as a trade secret.

Our employees have signed agreements under which they have agreed not to disclose trade secrets or confidential information. These agreements, where legally permitted, restrict engagement in or connection with any business that is competitive with us anywhere in the world while employed by us (and, in some cases, for specified periods thereafter) and state that any products or technology created by employees during their term of employment are our property. In addition, we require all channel partners to enter into agreements not to disclose our trade secrets and other proprietary information.

Despite these precautions, there can be no assurance that misappropriation of our technology and proprietary information (including source code) will be prevented. Further, there can be no assurance that copyright, trademark, patent and trade secret protection will be available for our products in certain jurisdictions, or that restrictions on the ability of employees and channel partners to engage in activities competitive with us will be enforceable. Costly and time-consuming litigation could be necessary in the future to enforce our rights to our trade secrets and proprietary information or to enforce our patent rights and copyrights, and it is possible that, in the future, our competitors may be able to obtain our trade secrets or to independently develop similar technology.

The software development industry is characterized by rapid technological change. Therefore, we believe that factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable product maintenance are also important to establishing and maintaining technology leadership in addition to the various available legal protections of our technology.

We do not believe that any of our products infringe upon the proprietary rights of third parties. There can be no assurance, however, that third parties will not claim such infringement by us or our licensors or licensees with respect to current or future products. In addition, there are non-practicing entities (NPEs) and patent assertion entities (PAEs) whose business models are built on not producing any products, but rather extracting payments from revenue-generating companies through patent infringement assertions and/or litigation. We expect that software suppliers will increasingly be subject to the risk of such claims as the number of products and suppliers continues to expand and the functionality of products continues to increase. Any such claims, with or without merit, could be time consuming, result in costly litigation, cause product release delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.

SEASONAL VARIATIONS

Our business has experienced seasonality, including quarterly volatility in software sales resulting from slowdowns of customer activities during the summer months, particularly in Europe, as well as from the seasonal purchasing and budgeting patterns of

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our global customers. Lease and maintenance contract renewals, as well as our revenue, are typically highest in the fourth quarter.

DEFERRED REVENUE AND BACKLOG

Deferred revenue consists of billings made or payments received in advance of revenue recognition from customer agreements. The deferred revenue on our consolidated balance sheets does not represent the total value of annual or multi-year, noncancellable agreements. Our backlog represents installment billings for periods beyond the current quarterly billing cycle. Our deferred revenue and backlog as of December 31, 2020 and 2019 consisted of the following:

	Balance at December 31, 2020
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	388,810	$	372,061	$	16,749
Backlog	578,317		234,719		343,598
Total	$	967,127	$	606,780	$	360,347

	Balance at December 31, 2019
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	365,274	$	351,353	$	13,921
Backlog	505,469		218,398		287,071
Total	$	870,743	$	569,751	$	300,992

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

HUMAN CAPITAL RESOURCES

At the heart of our culture is a commitment to our people. We believe that our people are one of our most important investments and greatest assets. The success and the growth of our business depend on our ability to attract, develop, incent and retain a diverse population of talented, qualified and highly-skilled employees at all levels of our organization, including our executive officers, and across our global workforce. We have developed key recruitment and retention strategies, objectives and measures that serve as the framework for our human capital management approach. These strategies, objectives and measures are advanced through a number of programs, policies and initiatives, including: promoting diversity, equity and inclusion; employer branding and talent acquisition; ongoing employee development; competitive compensation, including incentives linked to Ansys’ and the employee’s performance, and competitive benefits programs providing choice and value to our employees; supporting safety and health; and surveying employee satisfaction and engagement.

As of December 31, 2020, we employed approximately 4,800 people, including approximately: 1,800 in product development, 2,400 in sales, support and marketing, and 600 in general and administrative functions. Of these employees, 47% were located in the Americas, 28% were located in Europe, Middle East and Africa (EMEA) and 25% were located in Asia-Pacific (APAC). Certain international employees are subject to collective bargaining agreements or have local work councils.

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Diversity, Equity and Inclusion

Diversity, equity and inclusion are key tenets of our culture. We believe diversity at all levels of our organization adds value to our business decision making and innovation by encouraging and incorporating a variety of perspectives and experiences.

As of December 31, 2020, our gender diversity was:

	Male		Female		Other/Not Indicated
Global employees	73	%	22	%	5	%
Senior leadership team(1)	76	%	24	%	—	%
Board of Directors	75	%	25	%	—	%

(1)The senior leadership team consists of leaders in our executive career track that report directly to the chief executive officer or within one additional reporting level of the chief executive officer and those at the highest tier of our management career track who report directly to a leader on our executive track. The senior leaders are responsible for directing strategic plans aligned with our corporate strategy through multiple levels of management.

As of December 31, 2020, our ethnic diversity was:

	White		Asian		Hispanic or Latino		Black or African American		Other*		Not Indicated
United States-based employees	52	%	29	%	2	%	1	%	1	%	15	%
Board of Directors	62	%	25	%	—	%	13	%	—	%	—	%

*Other includes Native Hawaiian, American Indian, Alaskan Native, Pacific Islander, or two or more races.

We have a growing number of employee resource groups dedicated to ensuring a culture of inclusion to support our goals of increasing retention of valuable employees and creating an open culture that fuels innovation, including: Women in Tech at Ansys, Ansys Pride Alliance, Black Employee Network at Ansys, Ansys Military Veterans and Families, and most-recently, a group called Accessibility at Ansys. Additionally, we have committed to training 100% of our people managers on inclusive leadership concepts such as unconscious bias, leading to establish belonging, and making objective talent selection decisions.

Employee Recruitment, Development and Retention

Our talent strategy is focused on (i) attracting diverse high-quality talent, (ii) continually developing and engaging our employee base and (iii) retaining our people by recognizing and rewarding performance. Our commitment to recruiting diverse talent is evidenced in the United States through our dedication to increasing recruiting efforts at historically black colleges and universities, as well as our involvement with minority engineering societies, women in technology groups, veterans’ organizations and LGBTQ+A organizations. In addition to targeted outreach, we recruit talent through (i) attending career and networking events aimed towards recruiting diverse audiences, (ii) hiring internally through our Ansys internship/co-op programs for current students and (iii) value partnerships that promote our programs to diverse audiences. Our academic product suite is also widely used in research and teaching settings, which allows students to become familiar with Ansys simulation software and creates opportunities to strengthen our university ties and recruit fresh talent.

We support the development of our employees by providing professional development and tuition assistance, conducting annual individual assessments, and encouraging feedback on performance. We also drive a variety of focused initiatives specifically designed to support employee development. These include our annual talent reviews and succession planning, emotional intelligence trainings, and company-sponsored education programs, such as management essentials to develop front-line leaders in foundational people management skills.

Developing our employees helps keep employees engaged and excited about their future at Ansys. It also helps mitigate risks associated with employee loss and keeping up with rapid technological and social change. For the year ended December 31, 2020, our annual turnover rate was 6%, and of this, 4% was voluntary.

Compensation and Benefits Program

Our compensation programs provide an opportunity for employees to earn higher compensation by aligning their performance, which may include contributions to our environmental, social and governance objectives, with the overall financial and operational success of Ansys. The program includes three key elements: (i) competitive annual salaries, (ii) annual cash incentives and sales commission programs, with a majority of our employees eligible to earn more or less than the target opportunities based on both Ansys’ and the employee’s performance and (iii) long-term equity incentives with over half of

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employees receiving equity grants each year in the form of time-based restricted stock units and, in the case of senior leadership, time-based restricted stock units and performance stock units that vest, if at all, based on our financial performance and shareholder returns. These grants align the long-term financial interests of our employees with those of our stockholders.

Health and welfare benefit programs include market-competitive benefits comprised of a mix of company-provided and other benefits, including those for medical, dental and vision insurance; life and disability insurance; defined contribution retirement plans; and many different employee assistance programs, such as financial, legal, emotional and social well-being employee assistance programs. Our investments in health and welfare benefits focus on providing choice and value to our employees so they can select market-competitive benefits that support their personal needs.

Local regulations are considered when developing our compensation and benefits packages for employees across the globe.

Safety and Health

The health and safety of our employees and their families, our partners and our broad Ansys community around the world continues to be a high priority. At the onset of the COVID-19 pandemic, we took action to enable our employees to work from home. We closed our offices (including our corporate headquarters), transitioned to a remote work environment, and implemented certain travel restrictions, each of which has changed how we operate our business. While a number of our offices have since reopened, most of our locations have limited access or have few employees working on site. We are continuing to monitor and manage the situation, but as of now remote access remains the primary means of work for the vast majority of our workforce.

We utilize a number of technology platforms to facilitate remote working. Most of these tools were implemented prior to the COVID-19 pandemic and have proven to be instrumental in enabling us to work effectively in this environment. We have also provided our employees with support, including stipends, and in some cases, needed hardware and equipment. In addition, we have implemented many protocols in our offices to keep our employees safe.

Employee Satisfaction and Engagement

Employee feedback and engagement is critical to our success. We conduct global employee engagement surveys with the goal of using the feedback to improve the work environment and employee satisfaction. In 2020, this feedback was critical to understand, as nearly all our employees were required to work remotely due to the COVID-19 pandemic.

Survey results showed that our executive team provided outstanding management and leadership during the pandemic. 96% of employees indicated that they were satisfied with our response to the COVID-19 pandemic and 93% reported feeling supported by their immediate manager and their efforts to adapt to the rapidly changing environment related to the COVID-19 pandemic.

Employee feedback is important in the areas of future vision, recognition, communication, leadership, growth and development. Managers communicate results of the survey to their teams and involve employees in the action planning process. The findings from these surveys help us to continually improve performance and engagement. Our 2020 global engagement survey demonstrated that our employees are highly engaged. Our engagement score results indicated that we improved against past performance and also exceeded external benchmarks.

ACQUISITIONS

We make targeted acquisitions in order to support our long-term strategic direction, accelerate innovation, provide increased capabilities to our existing products, supply new products and services, expand our customer base and enhance our distribution channels. For additional details on our recent acquisitions, refer to "Acquisitions" in Part II, Item 7 of this Annual Report on Form 10-K.

AVAILABLE INFORMATION

Information about our products and services is available on the internet at www.ansys.com. We provide information for investors on our corporate website under "About Ansys – Investor Relations."

We make available, free of charge, the following under “About Ansys – Investor Relations” shortly before or promptly following its first use or release: financially-related press releases, including earnings releases and prepared remarks, various SEC filings, including annual, quarterly and current reports and proxy statements, presentation materials associated with earnings conference calls, and access to live and recorded audio from earnings and other investor conference calls or events. For earnings conference calls, we generally include in our posted materials a cautionary statement regarding forward-looking and non-GAAP financial information, and we provide GAAP reconciliations when we include non-GAAP financial information. Such GAAP reconciliations may be in materials for the applicable presentation, in materials for prior presentations or in our annual, quarterly or current reports. Other information posted on our corporate website that may not be available in our filings

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with the SEC includes information relating to our corporate governance. SEC filings may also be obtained on the SEC’s website at www.sec.gov.

Where we have included internet addresses in this Report, such as our internet address and the internet address of the SEC, we have included those internet addresses as inactive textual references only. Except as specifically incorporated by reference into this Report, information on those websites is not part hereof.

ITEM 1A.RISK FACTORS

The following are important factors we have identified that could affect our future results and an investment in our securities. In addition, from time to time we provide information, including information contained in this Annual Report on Form 10-K, that contains forward-looking statements concerning, among other things, projected financial performance, total addressable market, market and industry sector growth, product development and commercialization or other aspects of future operations. Such statements are based on the assumptions and expectations of our management at the time such statements are made. We caution investors that our performance and any forward-looking statements are subject to risks and uncertainties, including but not limited to, the following:

COVID-19 Pandemic Risks

The COVID-19 pandemic has had, and is expected to continue to have, an effect on our business, employees, and consolidated financial statements. The uncertainty surrounding the remaining duration and impact of the COVID-19 pandemic limits our ability to accurately forecast expected business results in the near term.

The health and safety of our employees and their families, our partners and our other constituents around the world is a high priority. At the onset of the COVID-19 pandemic, we took action to enable our employees to work from home. We closed our offices (including our corporate headquarters), transitioned to a remote work environment, and implemented certain travel restrictions, each of which has changed how we operate our business. While a number of our offices have since reopened, most of our locations have limited access and few employees working on site. We continue to monitor and manage the situation, but as of now remote access remains the primary means of work for most of our workforce.

The COVID-19 outbreak and preventative measures taken to contain the COVID-19 outbreak continue to cause business slowdowns and shutdowns in affected areas. A majority of our customer events and those of our channel partners are virtual only experiences. These events may not be as successful as customer events prior to COVID-19 because, among other reasons, the limited number of such events, the varying attendance levels and virtual event fatigue.

An extended period of remote work arrangements negatively impacts the sales pipeline due to reduced, delayed, or altered sales and marketing interactions with customers and potential customers, expose us to increased risk of cyber incidents, delay or alter product roadmaps or research and development due to reduced or limited access to technologies, equipment, or services, and delay or disrupt recruitment efforts. Limitations on availability, ease of use or increased cost related to the use of our products in our customers’ remote work environments could also result in a decline in demand for our products.

We have experienced, and continue to expect, that our larger customer accounts will perform more strongly than the small- and medium-sized businesses during the pandemic. In addition, the shifting preference from perpetual licenses to time-based licenses was, and is expected to continue to be, elevated as a result of the impacts of COVID-19. There may also be continued lower activity levels in the end markets we service or declining financial performance of our customers and channel partners, which could result in lower rates of renewal, which have historically been stable and high, and cancellations, reductions, or delays for our products and services. Due to our subscription-based business model, the effect of the pandemic may not be fully reflected in our results of operations until future periods and could impact future growth rates.

The situation surrounding COVID-19 remains fluid, and given its inherent uncertainty, we expect the pandemic will continue to have an impact on our business and consolidated financial statements in the near term. The duration and extent of the impact from the COVID-19 pandemic depends on future developments that cannot be accurately predicted at this time, such as the timing and effectiveness of vaccination efforts in the markets where we do business, transmission rates of the virus and the development of virus mutations and variants, the nature and scope of government economic recovery measures and the extent and effectiveness of containment actions. The impact of the COVID-19 pandemic may also have the effect of heightening many of the other risks and uncertainties described in this “Risk Factors” section.

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Global Operational Risks

We are subject to trade restrictions that could impact our ability to sell to customers and result in liability for violations.

Due to the global nature of our business, we are subject to trade protection laws, policies, sanctions, and other regulatory requirements affecting trade and investment. For example, we are subject to import and export restrictions and regulations that prohibit the shipment or provision of certain products and services to certain countries, regions and persons targeted by the U.S., including the Export Administration Regulations administered by the U.S. Bureau of Industry and Security (BIS) and economic and trade sanctions administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). During the second quarter of 2019, the BIS placed certain entities on its Entity List. Certain of our existing and prospective customers, including Huawei, were included in this list. At the end of the second quarter of 2020, BIS heightened restrictions relating to certain military end uses impacting the use of our semiconductor and electronics software in China, Russia, and Venezuela.

The Entity List and OFAC restrictions limit our ability to deliver products and services to these customers and, in the absence of a license, our ability to sell products and services to these customers in the future. In addition, restrictions implemented by OFAC restrict our ability to sell to, or transact with, restricted individuals, entities, or countries. The inclusion of companies on the Entity List and subjecting companies to the heightened restrictions may encourage them to seek substitute products from competitors whose products are not subject to these restrictions or to develop their own products. We cannot predict whether or when any changes will be made that eliminate or decrease these limitations on our ability to sell products and provide services to these customers. Additionally, other existing and prospective customers may be added to the Entity List and/or be subjected to trade restrictions in the future, and such actions may result in other indirect impacts that cannot be quantified, including the imposition of additional trade restrictions on our business by the U.S., China, or other countries. Restrictions on our ability to sell and ship to customers could have a significant adverse effect on our business and consolidated financial statements.

Our products could be shipped to restricted parties by third parties, including our channel partners. Even though we take measures to ensure that our channel partners comply with all applicable trade restrictions, any failure by channel partners to comply with such restrictions could have negative consequences for us. Violators of trade restrictions may be subject to significant penalties, which may include considerable monetary fines, criminal proceedings against them and their officers and employees, a denial of export privileges, and suspension or debarment from selling products or services to the federal government. Any such penalties could have a significant adverse effect on our business and consolidated financial statements. In addition, the political and media scrutiny surrounding any governmental investigation could cause significant expense and reputational harm and distract senior executives from managing normal day-to-day operations.

Failure to comply with laws and regulations could harm our business.

We develop and sell software and consulting services and maintain support operations in more than 40 countries whose laws and practices differ from one another and are subject to unexpected changes. Furthermore, our business is subject to regulation by various global governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States. Managing these geographically diverse operations requires significant attention and resources to ensure compliance.

Our global reach includes countries considered high-risk environments for public corruption. This exposes us to risks associated with violations of anti-corruption laws and regulations such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. To promote compliance, we forbid our agents and employees from engaging in corrupt behavior and have implemented a compliance program to prevent and detect violations of anti-corruption laws. There remains, however, a risk that illegal conduct could occur thereby exposing us to the financial and reputational risks associated with a violation of anti-corruption laws.

Non-compliance with applicable regulations or requirements could subject us to investigations, sanctions, enforcement actions, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions and may result in our inability to provide certain products and services to existing or prospective customers. If any governmental sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, or if customers make claims against us for compensation, our business and consolidated financial statements could be harmed. In addition, responding to any action will likely result in a significant diversion of management’s attention and resources and an increase in professional fees and costs. Enforcement actions and sanctions could have a significant adverse effect on our business and consolidated financial statements.

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Our business practices with respect to the collection, use and management of personal information could give rise to operational interruption, liabilities or reputational harm as a result of governmental regulation, legal requirements or industry standards relating to consumer privacy and data protection.

We are subject to the laws and regulations of numerous jurisdictions worldwide regarding accessing, processing, sharing, using, storing, transmitting, disclosing and protecting personal data. As regulatory focus on privacy, data and security issues continues to increase and evolve, and as worldwide laws and regulations concerning the handling of personal data expand and become more complex, data protection standards continue to become more strict and potential risks related to data processing within our business may intensify.

The General Data Protection Regulation (GDPR), which went into effect in May 2018 and governs data privacy practices within the European Economic Area (EEA), applies to our data processing activities within the EEA, as well as the processing of EEA citizen data globally, and imposes various compliance obligations related to the handling of personal data in the delivery of our products and services and to business operations involving employee data. Compliance with the GDPR has and will continue to require deployment of substantial resources and increased costs. If we fail to comply with the GDPR, it may lead to regulatory enforcement actions, which can result in monetary penalties of up to 4% of annual worldwide revenue, private lawsuits, extensive and prescriptive consent decrees or judgments that may require additional resources or expenses for compliance and may cause reputational damage. As a result of the expiration of the Brexit transition period, on December 24, 2020, the U.K. and the European Union reached a provisional agreement temporarily permitting the continued flow of personal data between the regions. Anticipated further evolution of European Union regulations on this topic, including the impact of Brexit on these regulations in the U.K. and any related changes to the regulatory framework in the U.K., may increase substantially the penalties to which we could be subject in the event of any non-compliance. We may incur substantial expense in complying with the new obligations to be imposed by new regulations and we may be required to make significant changes to our software applications and expanding business operations, all of which may adversely affect our results of operations.

The GDPR restricts transfers of personal data outside of the EEA to third countries deemed to lack adequate privacy protections, including the U.S., unless an appropriate safeguard specified by the GDPR is implemented, such as the Standard Contractual Clauses (“SCCs”) approved by the European Commission, Binding Corporate Rules, and, until July 16, 2020, the Privacy Shield for EU-U.S. data transfers. In July 2020, the Court of Justice of the EU invalidated Privacy Shield, and also opined on compliance obligations for companies relying upon SCCs as their valid basis of transferring personal data outside of the EU. This decision led to uncertainty about the legal basis for personal data transfers out of the EU to the U.S. Potential new rules and restrictions on the transfer of data across borders could increase the cost and complexity of delivering our products and services in some markets. This decision could also give rise to operational interruption in the performance of services for customers and internal processing of employee information, regulatory liabilities or reputational harm.

In addition, California implemented the California Consumer Privacy Act (CCPA) as of January 2020, which requires compliance measures similar to those of the GDPR and establishes the first state standard for a comprehensive set of data privacy rights. The CCPA, among other things, gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing, and receive detailed information about how their personal information is used. In November 2020, California voters passed the California Privacy Rights Act (CPRA). The CPRA, which is expected to take effect on January 1, 2023, significantly expands the CCPA, including by introducing additional obligations such as data minimization and storage limitations, granting additional rights to consumers such as correction of personal information and additional opt-out rights, and creates a new agency to implement and enforce the law. Several other states have proposed data privacy laws that would impose obligations on us with respect to how we collect and use personal data, including customer data. To comply with U.S. state laws and any data breach notification laws that vary across states, we may be required to invest in additional resources or tools to manage our data processing activities. If we fail to comply with the requirements of U.S. data privacy and data breach notification laws, we may be subject to state monetary fines, consent decrees issued by the Federal Trade Commission or other regulatory enforcement agencies, and possible reputational damage.

Adverse economic and geopolitical conditions may impact our operations and financial performance.

Our operations and performance depend significantly on global macroeconomic, specific foreign country and U.S. domestic economic conditions. Adverse conditions in the macroeconomic environment may result in a decreased demand for our products and services, constrained credit and liquidity, reduced government spending and volatility in equity and foreign exchange markets. In addition, significant downturns and volatility in the global economy expose us to impairments of certain assets if their values deteriorate. Tighter credit due to economic conditions may diminish our future borrowing ability and increase borrowing costs under our existing credit facilities. Customers' ability to pay for our products and services may also be impaired, which could lead to an increase in our allowance for doubtful accounts and write-offs of accounts receivable.

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A majority of our business comes from outside the U.S. and our customers supply a wide array of goods and services to most of the world’s major economic regions. International revenue represented 53.8%, 57.9% and 60.9% of our total revenue for the years ended December 31, 2020, 2019 and 2018, respectively. In fiscal year 2020, our largest geographic revenue bases were the U.S., Japan and Germany.

When the significant economies in which we do business deteriorate or suffer a period of uncertainty, our business and financial performance may be impacted through reduced customer and government spending, changes in purchasing cycles or timing and reduced access to credit for our customers, among other events. Furthermore, customer spending levels in any foreign jurisdiction may be adversely impacted by changes in domestic policies, including tax and trade policies.

A substantial portion of our license and maintenance revenue is derived from annual lease and maintenance contracts, which typically have a high rate of customer renewal. When the rate of renewal for these contracts is adversely affected by economic or other factors, our lease license and maintenance growth is adversely affected.

Foreign exchange rate fluctuations may adversely affect our consolidated financial statements.

As a result of our significant international presence, we have revenue, expenses, cash, accounts receivable and payment obligations denominated in foreign currencies, most notably the Euro and Japanese Yen. Our operating results are adversely affected when the U.S. Dollar strengthens relative to foreign currencies and are positively affected when the U.S. Dollar weakens relative to foreign currencies. When the U.S. Dollar strengthens relative to other currencies, certain channel partners who pay us in U.S. Dollars may have trouble paying on time or may have trouble distributing our products due to the impact of the currency exchange fluctuation on their cash flows. This may impact our ability to distribute our products into certain regions and markets.

We seek to reduce our currency exchange transaction risks primarily through our normal operating and treasury activities, including derivative instruments, but there can be no assurance that these activities will be successful in reducing these risks. In addition, we incur transaction fees in the usage of such derivative instruments. Changes in currency exchange rates may adversely affect our consolidated financial statements.

A catastrophic event or infrastructure failure could result in the loss of business and adverse financial consequences.

A significant portion of our personnel, source code and computer equipment is located in each of California, Pennsylvania, British Columbia, India, Japan and throughout Europe. A natural disaster, cyberattack, terrorist act, pandemic, or other unforeseen catastrophe in any of these areas or a breakdown in our business infrastructure, such as an interruption in power supply, telephone system or information technology systems, could cause disruptions to our sales, operations, services and product development activities. As our sales are generally greater at the end of a quarter, the potential adverse effects resulting from any of these events would be accentuated if they occurred at quarter end.

Effective business continuity, disaster recovery and crisis management plans are critical to minimizing the impact of such unplanned or unexpected events. We also face increasing customer certification requirements with respect to such systems. Failure to establish plans that effectively mitigate the impacts of these disruptions or meet customer certification requirements could have a significant adverse effect on our business and consolidated financial statements.

See “The COVID-19 Pandemic” portion of this “Risk Factors” section for a description of the impact of the pandemic on us.

Industry Operational Risks

Our industry is highly competitive, which could result in downward pressure on our prices.

We continue to experience competition across all markets for our products and services. Some of our current and potential competitors have greater financial, technical, marketing and other resources than we do, and some have well-established relationships with our current and potential customers. Our current and potential competitors also include firms that have competed, or may in the future compete, by means of open source licensing. Companies we have, or could have, strategic alliances with could reduce or discontinue technical, software development and marketing relationships with us for competitive purposes.

If our competitors offer deep discounts on certain products or services, or develop products that the marketplace considers more valuable, we may lower prices or offer discounts or other favorable terms to compete successfully. Our maintenance products, which include software license updates and product support fees, are generally priced as a percentage of new software license fees. Our competitors may offer lower percentage pricing on product updates and support. Some competitors may bundle software products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices, product

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implementations or wider geographical license usage provisions. Any of these practices could, over time, significantly constrain the prices that we can charge for certain products.

Furthermore, if we do not adapt pricing models to reflect changes in customer usage of our products or changes in customer demand, our software license revenues could decrease. Additionally, increased distribution of applications through application service providers, including software-as-a-service providers, may reduce the average price of our products or adversely affect other sales of our products, reducing new software license revenues unless we can offset price reductions with volume increases.

These competitive pressures may result in decreased sales volumes, price reductions and/or increased operating costs, and could result in lower revenues, margins and net income.

We may not be successful in developing and marketing new products to adequately address the rapidly changing technology industry.

We operate in an industry generally characterized by rapidly changing technology and frequent new product introductions, which can render existing products obsolete or unmarketable. A major factor in our future success will be our ability to anticipate technological changes and to develop and introduce, in a timely manner, new products to meet those changes. Our ability to grow revenue will be dependent on our ability to respond to customer needs in the areas of, among others, 5G, autonomous vehicles, IIoT and electrification, and to leverage cloud computing and new computing platforms. In addition, our future success may depend on our ability to continue to develop a systems integrator ecosystem able to handle integrations and process and application development to address the challenge of the increasingly complex integration of our products’ different functionalities to address customers’ requirements. In addition, for those customers who authorize a third-party technology partner to access their data, we do not provide any warranty related to the functionality, security and integrity of the data transmission or processing. Despite contract provisions to protect us, customers may look to us to support and provide warranties for the third-party applications, integrations, data and content, even though not developed or sold by us, which may expose us to potential claims, liabilities and obligations, all of which could harm our business.

We devote substantial resources to research and development, which could cause our operating results to decline.

We devote substantial resources to research and development. New competitors, technological advances in the software development industry by us or our competitors, acquisitions, entry into new markets, or other competitive factors may require us to invest significantly greater resources than anticipated. If we are required to invest significantly greater resources than anticipated without a corresponding increase in revenue, operating results could decline. In addition, our periodic research and development expenses may be independent of our level of revenue, which could negatively impact financial results.

There can be no assurance that we will be successful in developing and marketing, on a timely basis, new products or product enhancements or that the new products will adequately address the changing needs of the marketplace or that we will successfully manage the transition from existing products. Software products as complex as those we offer may contain undetected errors, defects or vulnerabilities when first introduced or as new versions are released, and the likelihood of errors, defects or vulnerabilities is increased as a result of our commitment to the frequency of product releases. There can be no assurance that errors, defects or vulnerabilities will not be found in any new or enhanced products after the commencement of commercial shipments. The occurrence of any defects or errors in our products could result in lost or delayed market acceptance and sales of our products, delays in payment to us by customers, loss of customers or market share, product returns, damage to our reputation, diversion of our resources, increased service and warranty expenses or financial concessions, increased insurance costs, and liability for damages.

The price of our common stock is subject to volatility.

The market price of securities of software companies is subject to significant fluctuations. For example, our common stock price ranged from $200.07 to $369.82 per share during 2020. The valuation and trading price of our common stock may not be predictable. Factors that may adversely impact our share price include our failure to meet analyst expectations, reduced expectations regarding financial outlook, increases in our debt levels, changes in management or our material announcements or those of our competitors. In addition, volatility could result from causes that are unrelated to our operating performance such as conditions in the financial markets or the software industry generally.

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Company Operational Risks

We are dependent upon our channel partners for a significant percentage of our revenue and usage of channel partners presents certain heightened compliance risks.

We distribute our products through a global network of independent channel partners, which accounted for 22.2%, 22.9% and 22.4% of our revenue during the years ended December 31, 2020, 2019 and 2018, respectively. Channel partners sell our software products to new and existing customers, expand installations within the existing customer base, offer consulting services and provide the first line of technical support. In the APAC and EMEA regions, we are highly dependent upon our channel partners. Difficulties in ongoing relationships with channel partners, such as failure to meet performance criteria and differences in handling customer relationships, could adversely affect our performance. Additionally, the loss of any major channel partner, including a channel partner's decision to sell competing products rather than ours, could result in reduced revenue. Moreover, our future success will depend substantially on the ability and willingness of our channel partners to dedicate the resources necessary to understand and promote our expanding portfolio of products and to support a larger installed base within each of our geographic regions. If the channel partners are unable or unwilling to do so, we may be unable to sustain revenue growth.

We have been increasing the number of our channel partners, particularly in international locations. The business relationships with many of our channel partners are recently established and could result in additional compliance burdens for us. In addition, these new channel partners have a less-established payment history and revenue from these channel partners could come with a higher rate of bad debt expense. Where channel partners operate on our behalf to collect and process personal data of customer contacts, failure to comply with relevant data privacy laws in the handling of such personal data could result in liability to us for any fines, civil suits or non-financial performance obligations imposed by regulatory authorities on these partners with respect to our customer data.

Certain products require a higher level of sales and support expertise. Failure of our sales channel, particularly the independent channel partners, to obtain this expertise and to sell the new product offerings effectively could have an adverse impact on our sales in future periods. Any of these problems may result in the loss of or delay in customer acceptance, diversion of development resources, damage to our reputation, or increased service and warranty costs, any of which could have a significant adverse effect on our business and consolidated financial statements.

We may not be able to realize the potential benefit of our acquisitions and such acquisitions could pose risks to our business.

We consummate acquisitions to support our long-term strategic direction. Our 2020 acquisitions included Lumerical and AGI and our 2019 acquisitions included Granta Design, Helic, DfR Solutions, LST and Dynardo.

Each acquisition that we complete may present risks, including: difficulty in integrating the management teams, strategies, cultures and operations of the companies or businesses; failing to achieve anticipated synergies, revenue increases or cost savings; difficulty incorporating and integrating the acquired technologies or products with our existing product lines; difficulty with sales, distribution and marketing functions; failure to develop new products and services that utilize the technologies and resources of the companies; disruption of our ongoing business and diversion of management's attention to transition or integration issues; liabilities that were not identified during the acquisition process; the loss of our key employees, customers, partners and channel partners or those of the acquired companies or businesses; and cybersecurity and data privacy risks.

Where customer contacts and leads are a significant consideration in the purchase price or expected financial outcome of an acquisition, failure to identify or mitigate data privacy concerns with the collection, use and retention of personal data may adversely impact our ability to use this information as anticipated and regulatory obligations may require that we delete all or a portion of the database, or take additional remediation measures before use. This may impact the value of the acquisition or reduce forecasted sales.

Future acquisitions may involve the expenditure of significant cash resources; the incurrence of debt, which increases our interest expense and leverage; or the issuance of equity, which is dilutive to stockholders and may decrease earnings per share.

We allocate a portion of the purchase price to goodwill and intangible assets. If we do not realize all the economic benefits of an acquisition, there could be an impairment of goodwill or intangible assets. Furthermore, impairment charges are generally not tax-deductible and will result in an increased effective income tax rate in the period the impairment is recorded.

If we do not achieve the anticipated benefits of our acquisitions as rapidly or to the extent anticipated by our management or the financial and industry analysts, there could be a significant adverse effect on our stock price, business and consolidated financial statements.

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The ongoing implementation of a new functionality to the existing Customer Relationship Management (CRM) system may not achieve the corporate benefits identified.

We are in the process of implementing new functionality in our existing (CRM) system. While this system is anticipated to automate and deliver operational efficiencies across the demand generation, sales cycle, order processing and customer service phases of the customer journey, to date this project has not achieved the anticipated benefits and there is a risk that the benefits could be further substantially delayed. There is also a risk that we will have to write off previously capitalized expenditures if the project is not successful or if implementation decisions regarding the project are modified. Factors that could further delay the timing of benefits realization include:

•changes in leadership and project objectives;

•additional needs for technical expertise and manpower; and

•longer than anticipated time horizon for employee adoption and mastery.

Any of the above could divert efforts of key operational management away from other aspects of the business, including the maintenance of the current CRM platform, and result in increased consulting and software costs. These factors could have a significant negative impact on our business and consolidated financial statements.

If we are unable to attract and retain key talent, our business could be adversely affected.

Our success depends upon the continued service of our senior executives and our key technical and sales employees. Most of these individuals could terminate their relationship with us at any time. The loss of any of them for which there has not been adequate knowledge-sharing and transfer might significantly delay or prevent the achievement of our business objectives and could materially harm our business and customer relationships.

In addition, because of the highly technical nature of our products and services, we must attract and retain highly skilled engineering and development personnel. The market for this talent is highly competitive. We have difficulty filling these roles and our talent has been the subject of recruitment by our competitors. While we have non-competition and non-solicitation agreements with many of these individuals, the enforceability of these agreements may be limited by courts.

While we have historically recruited globally for positions in the U.S., in recent years our ability to do so has been curbed by more restrictive domestic immigration laws. If the immigration laws become even stricter or the processing of immigration requests becomes even more cumbersome or less efficient, or if we have less success in recruiting and retaining key personnel, our business, reputation and operating results could be materially and adversely affected.

We may be subject to proceedings that could harm our business.

We are subject to various investigations, claims and legal proceedings that arise in the ordinary course of business, including commercial disputes, labor and employment matters, tax audits and litigations, alleged infringement of intellectual property rights and other matters. Use or distribution of our products could generate product liability, regulatory infraction, or similar claims by our customers, end users, channel partners, government entities or other third parties. Sales and marketing activities that impact processing of personal data, as well as measures taken to ensure license compliance, may also result in claims by customers and individual employees of customers. Each of these matters is subject to various uncertainties, and it is possible that an unfavorable resolution of one or more of these matters could have a significant adverse effect on our consolidated financial statements as well as cause reputational damage.

We may suffer reputational or financial harm if we have product standard or quality issues.

We have separate quality systems and registrations under the ISO 9001:2015 standard in addition to other governmental and industrial regulations. Our continued compliance with quality standards and favorable outcomes in periodic examinations is important to retain current customers and vital to procure new sales. If it was determined that we were not in compliance with various regulatory or ISO 9001 standards, our certificates of registration could be suspended, requiring remedial action and a time-consuming re-registration process. Product quality issues or failures could result in our reputation becoming diminished, resulting in a material adverse impact on our business and consolidated financial statements.

Our short-term and long-term sales forecast may not be accurate, which could result in an adverse impact on our business and consolidated financial statements.

The software business is generally characterized by long sales cycles. These long sales cycles increase the difficulty of predicting sales for any particular quarter. Many operational and strategic decisions are based upon short- and long-term sales

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forecasts. Our sales personnel continually monitor the status of proposals, including the estimated closing date and the value of the sale, in order to forecast quarterly sales. These forecasts are subject to significant estimation and are impacted by many external factors, including global economic conditions and the performance of our customers. The heightened uncertainty resulting from the COVID-19 pandemic results in greater ranges and variability of these forecasts.

A variation in actual sales activity from that forecasted could cause us to plan or budget incorrectly and, therefore, could have a significant adverse effect on our business and consolidated financial statements. Management also forecasts macroeconomic trends and developments and integrates them through long-range planning into budgets, research and development strategies and a wide variety of general management duties. Global economic conditions, and the effect those conditions and any disruptions in global markets have on our customers, may have a significant impact on the accuracy of our sales forecasts. These conditions may increase the likelihood or the magnitude of variations between actual sales activity and our sales forecasts and, as a result, our performance may be hindered because of a failure to properly match corporate strategy with economic conditions. This, in turn, could have a significant adverse effect on our business and consolidated financial statements. To the extent our forecasts are incorrect and, as a result, we fail to meet analyst expectations regarding financial performance or miss or reduce the financial guidance we give to investors, our share price may be adversely impacted.

Intellectual Property Risks

Our success is highly dependent upon the legal protection of our proprietary technology.

We primarily rely upon contracts, copyright, patent, trademark, and trade secrets laws to protect our technology. We maintain intellectual property programs, including applying for patents, registering trademarks and copyrights, protecting trade secrets, entering into confidentiality agreements with our employees and channel partners, and limiting access to and distribution of our software, documentation, and other proprietary information. However, software programs are particularly prone to piracy, which is a global phenomenon, and as a result we may lose revenue from piracy or usage and distribution of unlicensed software. Additionally, patent, copyright, trademark, and trade secret protection do not provide the same coverage in every country in which we sell our products and services. Policing the unauthorized distribution and use of our products is difficult, and software piracy (including online piracy) is a persistent problem. While we continue to develop better mechanisms to detect and report or investigate unauthorized use of our software, we are also constrained by data privacy laws that restrict our ability to collect data about unlawful usage in some countries. We cannot assure that the steps we take to protect our proprietary technology are adequate to prevent misappropriation of our software by third parties, or that third parties will not copy our technology or develop similar technology independently to compete with our products. Despite our efforts to prevent such activities, we may nonetheless lose significant revenue due to illegal use of our software or technology.

Costly and time-consuming litigation would be necessary to enforce and determine the scope of trade secret rights and related confidentiality and nondisclosure provisions across our contractual agreements and partnerships. In addition, third parties may subject us to infringement claims with respect to their intellectual property rights. Any such litigation could be costly to defend, damage our reputation, and distract our employees from their daily work. Any successful infringement claims asserted against us could require us to develop technology workarounds for the impacted technologies, products, or solutions, which could be costly, disrupt product development, and delay go-to-market activities. Such disruption and delay could negatively impact our financial results.

We may not be able to continue to obtain licenses to third-party software and intellectual property on reasonable terms or at all, which may disrupt our business and harm our financial results.

We license third-party software and other intellectual property for use in product research and development and, in several instances, for inclusion in our products. We also license third-party software, including the software of our competitors, to test the interoperability of our products with other industry products and in connection with our solutions and professional services. These licenses may need to be renegotiated or renewed from time to time, or we may need to obtain new licenses in the future. Third parties may stop adequately supporting or maintaining their technology, or they or their technology may be acquired by our competitors who elect to terminate our contractual relationship. If we are unable to obtain licenses to such third-party software and intellectual property on reasonable terms or at all, we may not be able to sell the affected products, our customers’ usage of the products may be interrupted, or our product development processes and professional services offerings may be disrupted, which could in turn harm our financial results, our customers' ability to utilize our software, and our reputation.

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Cybersecurity Risks

Cyberattacks and security vulnerabilities could lead to reduced revenue, increased costs, liability claims, or harm to our reputation.

While we undertake commercially reasonable efforts to maintain and improve the security and integrity of our products, source code, computer systems and data with respect to the relative sensitivity of such software, systems and data, the number of computer “hackers” developing and deploying destructive software programs that attack our products and computer systems continues to increase. We have incurred and will continue to incur additional costs to enhance our cybersecurity efforts. Because the tactics and tools used to obtain unauthorized access to networks or to sabotage systems are constantly evolving, we may be unable to implement adequate preventive measures. Such an attack could disrupt the proper functioning of our products, cause errors in the output of our customers' work, or allow unauthorized access to and disclosure of our sensitive, proprietary or confidential information or that of our customers and employees. In the event of a serious breach of our products or systems, or where a breach occurs due to our failure to implement reasonable and appropriate safeguards, our reputation may suffer, customers may stop buying products or may terminate current services, we could face lawsuits and potential civil liability, as well as regulatory fines and non-financial penalties for any personal data breach, and our financial performance could be negatively impacted.

There is also a danger of industrial espionage, cyberattacks, misuse, theft of information or assets (including source code), or damage to assets by people who have gained unauthorized access to our facilities, systems or information. This includes access to systems or information through email phishing attacks on our employees which has become a very prevalent technique used against companies, often delaying detection through increasingly complex practices. The objective of these attacks is often to acquire user account credentials in order to access other computer systems through linked accounts or where users have recycled passwords across systems. Additionally, the recent attack against SolarWinds, in which hackers inserted malware into a SolarWinds software update, highlights the growing risk from the infection of software while it is under assembly, known as a supply chain attack. As a software provider, we could become a vector for a similar style attack or could become the subject of one through a supply chain compromise.

Inadequate security practices or inadvertent acts or omissions by our employees and partners may also result in unauthorized access to our data. Employees or third parties may also intentionally compromise our or our customers’ security or systems. Such cybersecurity breaches, misuse of data or other disruptions could lead to loss of or unauthorized disclosure of our source code or other confidential information, unlicensed use and distribution of our products without compensation, illegal use of our products that could jeopardize the security of customer information stored in and transmitted through our computer systems, and theft, manipulation and destruction of proprietary data, resulting in defective products, performance downtimes and possible violation of export laws and other regulatory compliance requirements. Although we actively employ measures to combat such activities, preventing unauthorized access to our systems and data is inherently difficult. In addition, litigation to either pursue our legal rights or defend any claims against us could be costly and time-consuming and may divert management's attention and adversely affect the market's perception of us and our products.

We have experienced targeted and non-targeted cybersecurity attacks and incidents in the past that have resulted in unauthorized persons gaining access to our information and systems, and we could in the future experience similar attacks. To date, no cybersecurity incident or attack has had a material impact on our business or consolidated financial statements.

A number of our core processes, such as software development, sales and marketing, customer service and financial transactions, rely on IT infrastructure and applications. We also rely on third-party service providers and products, which are exposed to various security vulnerabilities outside of our control. Malicious software, sabotage and other cybersecurity breaches of the types discussed above could cause an outage of our infrastructure, which could cause short-term disruption in operations or, in the event of a longer disruption, lead to a substantial denial of service to our customers and ultimately to production downtime, recovery costs and customer claims for breach of contract, as well as reputational damage and impact to employee morale and productivity.

We rely on service providers for infrastructure and cloud-based products.

We use a number of third-party service providers, which we do not control, for key components of our infrastructure, particularly with respect to development and delivery of our cloud-based products. The utilization of these service providers gives us greater flexibility in efficiently delivering a more tailored, scalable customer experience, but also exposes us to additional risks and vulnerabilities. Third-party service providers operate their own platforms that we access, and we are, therefore, vulnerable to their service interruptions. We may experience interruptions, delays and outages in service and availability from time to time as a result of problems with our third-party service providers’ infrastructure. Lack of availability of this infrastructure could be due to a number of potential causes including technical failures, natural disasters, fraud or security attacks that we cannot predict or prevent. Such outages could lead to the triggering of our service level agreements and

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the issuance of credits to our cloud-based product customers, which may impact our business and consolidated financial statements. In addition, those of our products and services that depend upon hosted components are vulnerable to security risks inherent in web-based technologies, including greater risk of unauthorized access to or use of customers’ protected data. Interception of data transmission, misappropriation or modification of data, corruption of data and attacks by bad actors against our service providers may also adversely affect our products or product and service delivery. Malicious code, viruses or vulnerabilities that are undetected by our service providers may disrupt our business operations generally and may have a disproportionate effect on those of our products that are developed and delivered in the cloud environment. If our security, or that of any of our third-party service providers, is compromised, our software is unavailable or our customers are unable to use our software within a reasonable amount of time or at all, then our business and financial statements could be adversely affected.

These risks, though largely outside our control, may impact customer perception of our products, service and support, and may damage our brand. While we devote resources to maintaining the security and integrity of our products and systems, as well as ensuring adequate due diligence for our third-party service providers, cloud security and reliability is inherently challenging. In the event of a material breach of data hosted by our service providers or a serious security incident on behalf of, caused by or experienced by a service provider, we may experience significant operational and technical difficulties, loss of data including customer data, diminished competitive position or reputation, and loss of customer engagement, which could result in civil liabilities and a negative impact to financial performance. It is also possible that our customers and potential customers would hold us accountable for any breach of security affecting a third-party service provider’s infrastructure and we may incur significant liability from those customers and from third parties with respect to any breach affecting these systems. We may not be able to recover a material portion of our liabilities to our customers and third parties from a third-party cloud provider.

Financial Risks

Our indebtedness could adversely affect our business, financial condition and results of operations.

In connection with our acquisitions of AGI and LST, we have outstanding borrowings of $375.0 million and $425.0 million, respectively, under term loan facilities which mature on November 1, 2024. We also have access to a $500.0 million revolving credit facility, which includes a $50.0 million sublimit for the issuance of letters of credit. The credit agreements governing these loans contain customary representations and warranties, affirmative and negative covenants and events of default. The credit agreements also contain a financial covenant requiring us to maintain a consolidated leverage ratio of indebtedness to earnings before interest, taxes, depreciation and amortization not exceeding 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 $250.0 million.

Notwithstanding the limits contained in the credit agreements governing our term loan facilities and credit facility, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, share repurchases, investments or acquisitions, or for other purposes. If we do so, the risks related to our level of debt could intensify. Specifically, our level of debt could:

•make it more difficult for us to satisfy our debt obligations and other ongoing business obligations, which may result in defaults;

•result in an event of default if we fail to comply with the financial and other covenants contained in the agreement governing our debt, which could result in all of our debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses;

•limit our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;

•reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;

•increase our vulnerability to the impact of adverse economic and industry conditions;

•expose us to the risk of increased interest rates as certain of our borrowings, including borrowings under the credit facility, are at variable rates of interest;

•limit our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy;

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•place us at a competitive disadvantage compared to other, less leveraged competitors;

•increase our cost of borrowing; and

•increase our effective tax rate as interest expense could become non-deductible

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment obligations under our debt agreements.

Furthermore, borrowings under the credit agreement use the London Interbank Offering Rate (LIBOR) as a benchmark for establishing the interest rate. LIBOR has been the subject of recent national, international and other regulatory guidance and proposals for reform, and the financial industry is currently transitioning away from LIBOR as a benchmark for the interbank lending market. The consequences of these developments cannot be entirely predicted but could include an increase in the cost of our variable rate indebtedness.

Changes to tax laws, variable tax estimates and tax authority audits could impact our financial results and operations.

Our operations are subject to income and transaction taxes in the U.S. and in multiple foreign jurisdictions. A change in the tax law in the jurisdictions in which we do business, including an increase in tax rates, an adverse change in the treatment of an item of income or expense, or a decrease in tax rates in a jurisdiction in which we have significant deferred tax assets, could result in a material increase in tax expense. Furthermore, we have recorded significant deferred tax liabilities related to acquired intangible assets that are not deductible for tax purposes. These deferred tax liabilities are based on future statutory tax rates in the locations in which the intangible assets are recorded. Any future changes in statutory tax rates would be recorded as an adjustment to the deferred tax liabilities in the period the change is announced and could have a material impact on our effective tax rate during that period.

We also make significant estimates in determining our worldwide income tax provision. These estimates involve complex tax regulations in many jurisdictions and are subject to many transactions and calculations in which the ultimate tax outcome is uncertain. The outcome of tax matters could be different than the estimates reflected in the historical income tax provision and related accruals. Such differences could have a material impact on income tax expense and net income in the periods in which such determinations are made.

The amount of income tax we pay is subject to ongoing audits by federal, state and foreign tax authorities. These audits can result in additional assessments, including interest and penalties. Our estimates for liabilities associated with uncertain tax positions is highly judgmental and actual future outcomes may result in favorable or unfavorable adjustments to our estimated tax liabilities, including estimates for uncertain tax positions, in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate significantly on a quarterly or annual basis.

ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.PROPERTIES

Our executive offices and those related to certain domestic product development, marketing, production and administration are located in a LEED certified, 186,000 square foot office facility in Canonsburg, Pennsylvania. The lease for this facility was effective as of September 14, 2012 and expires on December 31, 2029, excluding any renewal or termination options.

We own: a 70,000 square foot office facility in Lebanon, New Hampshire; a 62,000 square foot office building near our current Canonsburg headquarters; a 59,000 square foot facility in Pune, India; a 40,000 square foot campus in Livermore, California; and a 5,000 square foot facility in Apex, North Carolina. These properties are used as general office space and/or data centers.

We also lease office space in various locations throughout the world. We own substantially all equipment used in our facilities. Management believes that our facilities generally allow for sufficient space to support present and future foreseeable needs, including such expansion and growth as the business may require.

Our properties and equipment are in good operating condition and are adequate for our current needs. We do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities.

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ITEM 3.LEGAL PROCEEDINGS

We are subject to various investigations, claims and legal proceedings that arise in the ordinary course of business, including commercial disputes, labor and employment matters, tax audits, alleged infringement of intellectual property rights and other matters. In our opinion, the resolution of pending matters is not expected to have a material adverse effect on our consolidated results of operations, cash flows or financial position. However, each of these matters is subject to various uncertainties and it is possible that an unfavorable resolution of one or more of these proceedings could materially affect our results of operations, cash flows or financial position.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on the Nasdaq Global Select Market tier of the Nasdaq Stock Market under the symbol: "ANSS".

On February 10, 2021, there were 284 stockholders of record.

We have not historically paid cash dividends on our common stock as we have retained earnings primarily for acquisitions, for future business opportunities, to make payments on outstanding debt balances and to repurchase stock when authorized by the Board of Directors and when such repurchase meets our objectives. We review our policy with respect to the payment of dividends from time to time; however, there can be no assurance that any dividends will be paid in the future.

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Performance Graph

Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return of our common stock, based on the market price per share of our common stock, with the total return of companies included within the Nasdaq Composite Stock Market Index, the Nasdaq 100 Stock Market Index, the S&P 500 Stock Index and an industry peer group of seven companies (Autodesk, Inc., PTC Inc., Cadence Design Systems, Inc., Synopsys, Inc., Altair Engineering Inc., Aspen Technology, Inc. and Dassault Systemes SE) for the period commencing December 31, 2015 and ending December 31, 2020. The calculation of total cumulative returns assumes a $100 investment in our common stock, the Nasdaq Composite Stock Market Index, the Nasdaq 100 Stock Market Index, the S&P 500 Stock Index and the peer group on December 31, 2015, and the reinvestment of all dividends, and accounts for all stock splits. The historical information set forth below is not necessarily indicative of future performance.

ASSUMES $100 INVESTED ON DECEMBER 31, 2015

ASSUMES DIVIDENDS REINVESTED

FIVE FISCAL YEARS ENDED DECEMBER 31, 2020

	As of December 31,
	2015	2016	2017	2018	2019	2020
ANSYS, Inc.	$100	$100	$160	$155	$278	$393
Nasdaq Composite	$100	$109	$141	$137	$187	$272
Nasdaq 100(1)	$100	$107	$143	$143	$199	$296
S&P 500 Stock Index	$100	$112	$136	$130	$171	$203
Peer Group	$100	$115	$163	$186	$265	$415

(1) The Nasdaq 100 Stock Market Index was added to the performance graph above as Ansys joined the index in December 2019.

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Unregistered Sale of Equity Securities and Use of Proceeds

On December 1, 2020, in connection with our acquisition of AGI, we issued 0.6 million shares of common stock with an aggregate value of $206.8 million, based on the 30-day volume-weighted average price of our common stock on December 1, 2020 of $323.72, to the former stockholders of AGI as part of the consideration for the acquisition. The shares were issued in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act), provided by Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder for an issuance not involving a public offering.

Issuer Purchases of Equity Securities

None.

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ITEM 6.SELECTED FINANCIAL DATA

The following table sets forth selected financial data as of and for the year ended December 31 for each of the last five years. This selected financial data should be read in conjunction with the consolidated financial statements and related notes included in Part IV, Item 15 of this Annual Report on Form 10-K.

	Year Ended December 31,
(in thousands, except per share data)	2020		2019(1)		2018(2)		2017		2016
Total revenue	$	1,681,297	$	1,515,892	$	1,293,636	$	1,095,250	$	988,465
Operating income	496,356		515,040		476,574		390,728		376,242
Net income	433,887		451,295		419,375		259,251		265,636
Earnings per share – basic	$	5.05	$	5.36	$	4.99	$	3.05	$	3.05
Weighted average shares – basic	85,840		84,259		83,973		84,988		87,227
Earnings per share – diluted	$	4.97	$	5.25	$	4.88	$	2.98	$	2.99
Weighted average shares – diluted	87,288		85,925		85,913		86,854		88,969
Total assets	$	5,940,590	$	4,838,887	$	3,265,964	$	2,941,623	$	2,800,526
Working capital	990,412		860,340		786,410		661,713		630,301
Long-term liabilities	1,113,893		690,368		91,650		87,239		53,021
Stockholders' equity	4,097,872		3,453,379		2,649,547		2,245,831		2,208,405
Cash provided by operating activities(3)	547,310		499,936		484,988		427,660		365,980

(1)Effective January 1, 2019, we adopted new guidance on leases. We elected to adopt the change in accounting principle using the modified retrospective approach. Results for reporting periods beginning after January 1, 2019 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

(2)Effective January 1, 2018, we adopted new guidance on revenue recognition. We elected to adopt the change in accounting principle using the modified retrospective approach. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with previous guidance.

(3)During fiscal year 2019, we retrospectively adopted new guidance on the accounting for costs incurred to implement a cloud computing arrangement (CCA) that is a service arrangement. As a result of the adoption, operating cash flows decreased with a corresponding increase to investing cash flows by $1.4 million and $2.8 million for the years ending December 31, 2018 and 2017, respectively. The adoption had no impact on our consolidated balance sheets or consolidated statements of income. Fiscal year 2016 has not been restated in the table above.

In the table above, the comparability of information among the years presented is impacted by our acquisitions. The operating results of our acquisitions have been included in the results of operations since their respective acquisition dates. For further information, see the “Acquisitions” section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 and Note 4 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business

Ansys, a Delaware corporation formed in 1994, develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, electronics, semiconductors, energy, materials and chemical processing, turbomachinery, consumer products, healthcare, and sports. Headquartered south of Pittsburgh, Pennsylvania, we employed approximately 4,800 people as of December 31, 2020. We focus on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. We distribute our suite of simulation technologies through direct sales offices in strategic, global locations and a global network of independent resellers and distributors (collectively, channel partners). It is our intention to continue to maintain this hybrid sales and distribution model.

Our strategy of Pervasive Engineering Simulation seeks to deepen the use of simulation in our core, to inject simulation throughout the product lifecycle and to embed simulation into our partners' ecosystems. The engineering software simulation market is strong and growing. Its market growth is driven by customers’ need for rapid, quality innovation in a cost efficient manner, enabling faster time to market of new products and lower warranty costs. While the transition away from physical prototyping toward simulation is prevalent through all industries, its demand is heightened by investments in high-growth solutions, including 5G, electrification, autonomous and the IIoT. Our strategy of Pervasive Engineering Simulation is aligned with the market growth.

We license our technology to businesses, educational institutions and governmental agencies. Growth in our revenue is affected by the strength of global economies, general business conditions, currency exchange rate fluctuations, customer budgetary constraints and the competitive position of our products. We believe that the features, functionality and integrated multiphysics capabilities of our software products are as strong as they have ever been. However, the software business is generally characterized by long sales cycles. These long sales cycles increase the difficulty of predicting sales for any particular quarter. We make many operational and strategic decisions based upon short- and long-term sales forecasts that are impacted not only by these long sales cycles, but also by current global economic conditions, including the impact of the current COVID-19 pandemic. As a result, we believe that our overall performance is best measured by fiscal year results rather than by quarterly results. Please see the sub-section entitled "Company Operational Risks" under Part I. Item 1A. of this Annual Report on Form 10-K for additional discussion of the potential impact of our sales forecasts on our financial condition, cash flows and operating results.

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

Overview

Impact of COVID-19

We are continuing to closely monitor the spread of COVID-19 and have employed measures to mitigate its potential effects on our business as described in this Annual Report on Form 10-K. The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our business and our employees.

The health and safety of our employees and their families, our partners and our broad Ansys community around the world is a high priority. At the onset of the crisis, we took action to enable our employees to work from home. We closed our offices (including our corporate headquarters), transitioned to a remote work environment and implemented certain travel restrictions, each of which have disrupted how we operate our business. We are continuing to monitor the situation, but as of now remote access remains the primary means of work for a majority of our workforce. Remote work arrangements have not adversely affected our ability to maintain effective financial operations, including our financial reporting systems, internal controls over financial reporting and disclosure controls and procedures. We expect to maintain these effective controls as we continue to work remotely during the COVID-19 pandemic.

The impact from the rapidly changing market and economic conditions due to the COVID-19 pandemic has disrupted the business of our customers and partners, and has impacted our business and consolidated results of operations. Our current expectations regarding future performance are subject to significant uncertainty and dependent upon how widespread the virus

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becomes, the duration and severity of the outbreak, the geographic markets affected, the actions taken by governmental authorities to contain the spread of the virus, including the shelter-in-place orders, the nature and scope of government economic recovery measures and other factors. The spread of the virus and economic deterioration caused by the virus have had an adverse impact on our business and, in the future, could have a material adverse impact on our business, as well as on our ability to achieve our financial guidance. We continue to adjust our spending to reflect our expectations for the pace at which economic recovery will occur, while balancing the need to invest for the long-term opportunity. We have also maintained and intend to maintain our commitment to invest in our acquisitions, R&D and certain digital transformation projects, in particular our CRM and human resources information system (HRIS) projects, as those projects are critical to our ability to operate efficiently and scale the business for future growth. During 2020, we onboarded our partner community in CRM and we implemented several HRIS modules, including remote on-boarding. In addition, we continue to strategically invest in research and development, enabling us to stay on track with our product release targets.

Please see "Risk Factors" under Part I. Item 1A. of this Annual Report on Form 10-K for discussion on additional business risks, including those associated with the COVID-19 pandemic.

Overall GAAP and Non-GAAP Results

This section includes a discussion of GAAP and Non-GAAP results. For reconciliations of Non-GAAP results to GAAP results, see the section titled "Non-GAAP Results" herein.

Our GAAP and non-GAAP results for the year ended December 31, 2020 as compared to the year ended December 31, 2019 reflected the following variances:

	Year Ended December 31, 2020
	GAAP		Non-GAAP
Revenue	10.9	%	10.9	%
Operating income	(3.6)	%	5.3	%
Diluted earnings per share	(5.3)	%	1.8	%

We experienced an increase in revenue during the year ended December 31, 2020 due to growth in lease licenses, maintenance and service revenue and contributions from our recent acquisitions, partially offset by reductions in perpetual license revenue. The COVID-19 pandemic and trade restrictions with China adversely impacted our revenue during the year ended December 31, 2020 with the most pronounced reductions occurring in perpetual licenses. However, due to our diverse customer base, both from a vertical and geographic perspective, as well as the close relationships with customers, we were able to conduct a large amount of business remotely, which partially mitigated the impacts of the COVID-19 outbreak.

We also experienced increased operating expenses primarily due to increased personnel costs, higher stock-based compensation and additional operating expenses related to acquisitions. While our hiring pace was slowed and certain discretionary operational expenses, such as travel, were reduced, the COVID-19 pandemic did not have a material impact on our operating expenses during the year ended December 31, 2020.

The non-GAAP results exclude the income statement effects of the acquisition accounting adjustments to deferred revenue, stock-based compensation, amortization of acquired intangible assets, transaction expenses related to business combinations, and adjustments related to the transition tax associated with the Tax Cuts and Jobs Act.

Impact of Foreign Currency

Our comparative financial results were impacted by fluctuations in the U.S. Dollar during the year ended December 31, 2020 as compared to the year ended December 31, 2019. The net favorable impacts on our GAAP and non-GAAP revenue and operating income as a result of the weakened U.S. Dollar when measured against our primary foreign currencies are reflected in the table below.

	Year Ended December 31, 2020
(in thousands)	GAAP		Non-GAAP
Revenue	$	16,841	$	16,775
Operating income	$	11,986	$	12,211

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In constant currency, our variances were as follows:

	Year Ended December 31, 2020
	GAAP		Non-GAAP
Revenue	9.8	%	9.8	%
Operating income	(6.0)	%	3.5	%

Constant currency amounts exclude the effects of foreign currency fluctuations on the reported results. To present this information, the 2020 results for entities whose functional currency is a currency other than the U.S. Dollar were converted to U.S. Dollars at rates that were in effect for the 2019 comparable period, rather than the actual exchange rates in effect for 2020. Constant currency growth rates are calculated by adjusting the 2020 reported revenue and operating income amounts by the 2020 currency fluctuation impacts and comparing to the 2019 comparable period reported revenue and operating income amounts.

Other Key Business Metric

Annual Contract Value (ACV) is one of our key performance metrics and is useful to investors in assessing the strength and trajectory of our business. Given that revenue is variable due to the upfront revenue recognition of multi-year lease license sales, we provide ACV as a supplemental metric to help evaluate the annual performance of the business. Summed over the long term, ACV and revenue lead to similar outcomes. However, there will be years where ACV growth lags revenue growth and other years where ACV growth leads revenue growth. It is used by management in financial and operational decision-making and in setting sales targets used for compensation. ACV should be viewed independently of revenue and deferred revenue as ACV is a performance metric and is not intended to be combined with any of these items. There is no GAAP measure comparable to ACV. ACV is composed of the following:

•the annualized value of maintenance and lease contracts with start dates or anniversary dates during the period, plus

•the value of perpetual license contracts with start dates during the period, plus

•the annualized value of fixed-term services contracts with start dates or anniversary dates during the period, plus

•the value of work performed during the period on fixed-deliverable services contracts.

Our ACV was as follows:

	Year Ended December 31,						Change
(in thousands, except percentages)	2020			2019			Amount		%	Constant Currency %
ACV	$	1,616,301		$	1,461,759		$	154,542	10.6	9.3
Recurring ACV as a percentage of ACV	82.0		%	77.4		%

Recurring ACV is composed of both lease licenses and maintenance contracts. The increase in recurring ACV reflected for the year ended December 31, 2020 has been driven by a meaningful reduction in perpetual licenses and an increased preference for lease licenses, due in part to the impacts of COVID-19.

While the resilience of our business is evident in the growth shown above, the economic conditions due to the COVID-19 outbreak have disrupted the business of our customers and partners, and have adversely impacted our business and consolidated results. In addition, trade discussions between the U.S. and China led to certain entities being placed on a restricted entity list. These restrictions limited our ability to deliver products and services to these customers. The 2019 operating results include approximately $20.0 million of ACV related to transactions that occurred prior to the placement of the restrictions. These restrictions remained in place throughout 2020.

Other Financial Information

Our financial position includes $913.2 million in cash and short-term investments, and working capital of $990.4 million as of December 31, 2020.

During the year ended December 31, 2020, we repurchased 0.7 million shares for $161.0 million at an average price of $233.48 per share under our stock repurchase program, all of which occurred during the first quarter. As of December 31, 2020, we had 2.8 million shares remaining available for repurchase under our authorized share repurchase program.

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Geographic Trends

The following table presents our geographic constant currency revenue growth during the year ended December 31, 2020 as compared to the year ended December 31, 2019:

	Year Ended December 31, 2020
Americas	21.2	%
Europe, Middle East and Africa (EMEA)	3.8	%
Asia-Pacific	(2.1)	%
Total	9.8	%

To drive growth, we continue to focus on a number of sales improvement activities across the geographic regions, including sales hiring, pipeline building, productivity initiatives and customer engagement activities.

Continued trade tensions between the U.S. and China, together with the uncertainty around the COVID-19 outbreak, may further restrict our ability to sell and distribute our products to certain customers and our ability to collect against existing trade receivables and could have an adverse effect on our business, results of operations or financial condition. Refer to additional details in "Risk Factors" under Part I. Item 1A. of this Annual Report on Form 10-K

Industry Commentary:

Our three largest industries - high-tech, automotive and aerospace and defense (A&D) - remained strong throughout 2020 as companies accelerate their digital transformation initiatives. The high-tech industry was positively impacted by companies' continued investments in the development of the next generation of increasingly complex chips and technology to support the applications of 5G, autonomy and other high growth areas. The automotive industry maintained its growth through the development of electrification and autonomous technologies. While the commercial aviation sector continues to be significantly impacted by the dramatic reduction in demand for global air travel, the continued needs of national security ensure that the defense segment has remained strong and buoyed our overall performance in the aerospace and defense industry.

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Acquisitions

We make targeted acquisitions in order to support our long-term strategic direction, accelerate innovation, provide increased capabilities to our existing products, supply new products and services, expand our customer base and enhance our distribution channels. Our recent acquisitions are as follows:

Date of Closing	Company	Purchase Price	Details
2020 Acquisitions
December 1, 2020	AGI	$722.5 million	AGI, a premier provider of mission-simulation, modeling, testing and analysis software for aerospace, defense and intelligence applications, expands the scope of our offerings, empowering users to solve challenges by simulating from the chip level all the way to a customer's entire mission.
April 1, 2020	Lumerical	$107.5 million	Lumerical, a leading developer of photonic design and simulation tools, adds best-in-class photonic products to our multiphysics portfolio, providing customers with a full set of solutions to solve their next-generation product challenges.
2019 Acquisitions
November 1, 2019	LST	$781.5 million	LST, the premier provider of explicit dynamics and other advanced finite element analysis technology, empowers our customers to solve a new class of engineering challenges, including developing safer automobiles, aircraft and trains while reducing or even eliminating the need for costly physical testing.
November 1, 2019	Dynardo	(1)	Dynardo, a leading provider of multidisciplinary analysis and optimization technology, gives our customers access to a full suite of process integration and robust design tools — empowering users to identify optimal product designs faster and more economically.
May 1, 2019	DfR Solutions	(1)	DfR Solutions' electronics reliability technology, combined with our existing comprehensive multiphysics portfolio, gives our customers a complete designer-level solution to analyze for electronics failure earlier in the design cycle.
February 4, 2019	Helic	(1)	Helic, the industry-leading provider of electromagnetic crosstalk solutions for systems on chips, combined with our flagship electromagnetic and semiconductor solvers, provides a comprehensive solution for on-chip, 3D integrated circuit and chip-package-system electromagnetics and noise analysis.
February 1, 2019	Granta Design	$208.7 million	Granta Design, the premier provider of materials information technology, expands our portfolio into this important area, giving customers access to materials intelligence, including data that is critical to successful simulations.
2018 Acquisition
May 2, 2018	OPTIS	$291.0 million	OPTIS, a premier provider of software for scientific simulation of light, human vision and physics-based visualization, extends our 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.

(1) The combined purchase price of these acquisitions was $138.5 million, each of which was individually insignificant.

For further information on our business combinations during the years ended December 31, 2020, 2019 and 2018, see Note 4 to the consolidated financial statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

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Results of Operations

For purposes of the following discussion and analysis, the table below sets forth certain consolidated financial data for the years 2020, 2019 and 2018. The operating results of our acquisitions have been included in the results of operations since their respective acquisition dates.

	Year Ended December 31,
(in thousands)	2020		2019		2018
Revenue:
Software licenses	$	780,850	$	699,630	$	576,717
Maintenance and service	900,447		816,262		716,919
Total revenue	1,681,297		1,515,892		1,293,636
Cost of sales:
Software licenses	30,618		23,944		18,619
Amortization	40,642		21,710		27,034
Maintenance and service	154,004		120,619		110,232
Total cost of sales	225,264		166,273		155,885
Gross profit	1,456,033		1,349,619		1,137,751
Operating expenses:
Selling, general and administrative	587,707		521,200		413,580
Research and development	355,371		298,210		233,802
Amortization	16,599		15,169		13,795
Total operating expenses	959,677		834,579		661,177
Operating income	496,356		515,040		476,574
Interest income	5,073		12,796		11,419
Interest expense	(10,988)		(3,461)		(59)
Other income (expense), net	3,484		(1,792)		(849)
Income before income tax provision	493,925		522,583		487,085
Income tax provision	60,038		71,288		67,710
Net income	$	433,887	$	451,295	$	419,375

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

ACV:

	Year Ended December 31,						Change
(in thousands, except percentages)	2020			2019			Amount		%	Constant Currency %
ACV	$	1,616,301		$	1,461,759		$	154,542	10.6	9.3
Recurring ACV as a percentage of ACV	82.0		%	77.4		%

Revenue:

	Year Ended December 31,				Change
(in thousands, except percentages)	2020		2019		Amount		%	Constant Currency %
Revenue:
Lease licenses	$	500,105	$	406,043	$	94,062	23.2	21.3
Perpetual licenses	280,745		293,587		(12,842)		(4.4)	(5.4)
Software licenses	780,850		699,630		81,220		11.6	10.1
Maintenance	840,597		760,574		80,023		10.5	9.8
Service	59,850		55,688		4,162		7.5	6.8
Maintenance and service	900,447		816,262		84,185		10.3	9.6
Total revenue	$	1,681,297	$	1,515,892	$	165,405	10.9	9.8

Our revenue in the year ended December 31, 2020 increased 10.9% as compared to the year ended December 31, 2019, while revenue grew 9.8% in constant currency. The growth rate was favorably impacted by our continued investments in our global sales, support and marketing organizations, the timing and duration of our multi-year lease contracts, and our 2020 and 2019 acquisitions product sales contributed incremental revenue of $84.9 million. The growth rate was negatively impacted by the trade restrictions between the United States and China, and the impact of COVID-19. Lease license revenue increased 23.2%, or 21.3% in constant currency, as compared to the year ended December 31, 2019. Annual maintenance contracts that were sold with new perpetual licenses, maintenance contracts for new perpetual licenses sold in previous years and the maintenance portion of lease license contracts collectively contributed to maintenance revenue growth of 10.5%, or 9.8% in constant currency. Service revenue, driven primarily by a focus on service offerings that provide mentorship on simulation best practices, training and expanding simulation adoption, increased 7.5%, or 6.8% in constant currency, as compared to the year ended December 31, 2019. Perpetual license revenue, which is derived primarily from new sales during the year ended December 31, 2020, decreased 4.4%, or 5.4% in constant currency, as compared to the year ended December 31, 2019.

We continue to experience increased interest by some of our larger customers in enterprise agreements that often include longer-term, time-based licenses involving a larger number of our software products. While these arrangements typically involve a higher overall transaction price, the upfront recognition of license revenue related to these larger, multi-year transactions can result in significantly higher lease license revenue volatility. Software products, across a large variety of applications and industries, are increasingly distributed in software-as-a-service, cloud and other subscription environments in which the licensing approach is time-based rather than perpetual, resulting in shifting preferences from perpetual licenses to time-based licenses across a broader spectrum of our customers. This dynamic was elevated in 2020 as a result of the economic impacts of COVID-19, and we expect it to continue into the foreseeable future.

In relation to COVID-19 and our revenue, we currently expect a recovery in the business environment as reliable vaccines become more readily available. Globally, businesses have not resumed full operations and our teams and those of our customers will likely continue working remotely into 2021. As a result of social distancing, our in-person demand generation events and those of our channel partners have been canceled. While we have adjusted to have a stronger digital focus, as evidenced by our hosting of our annual sales conference virtually in January, the absence of certain events has had and is expected to continue to have an adverse impact on our results, especially for certain channel partners. In addition, we have experienced delays in the timing of closing certain transactions, including large enterprise-type deals. These deals are often multi-year leases which have a significant impact on our operating results due to up-front revenue recognition of the license. We expect this trend to continue and anticipate that customers will delay certain purchases, reduce the size of planned purchases or forgo purchases that otherwise were expected to occur. Additional waves or mutated variants of COVID-19 could result in renewed shutdowns that stop or regress economic recovery.

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With respect to revenue, on average for the year ended December 31, 2020, the U.S. Dollar was approximately 2.4% weaker, when measured against our primary foreign currencies, than for the year ended December 31, 2019. The table below presents the impacts of currency fluctuations on revenue for the year ended December 31, 2020. Amounts in brackets indicate a net adverse impact from currency fluctuations.

(in thousands)	Year Ended December 31, 2020
Euro	$	11,803
Japanese Yen	4,067
Taiwan Dollar	1,376
British Pound	1,078
Indian Rupee	(1,294)
Other	(189)
Total	$	16,841

The impacts from currency fluctuations resulted in increased operating income of $12.0 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

As a percentage of revenue, our international and domestic revenues, and our direct and indirect revenues, were as follows:

	Year Ended December 31,
	2020		2019
International	53.8	%	57.9	%
Domestic	46.2	%	42.1	%
Direct	77.8	%	77.1	%
Indirect	22.2	%	22.9	%

In valuing deferred revenue on the balance sheets of our recent acquisitions as of their respective acquisition dates, we applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to the historical carrying amount. As a result, our post-acquisition revenue will be less than the sum of what would have otherwise been reported by us and each acquiree absent the acquisitions. The impacts on reported revenue were $14.2 million and $12.5 million for the years ended December 31, 2020 and 2019, respectively. The expected impacts on reported revenue are $9.0 million and $19.5 million for the quarter ending March 31, 2021 and the year ending December 31, 2021, respectively.

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Cost of Sales and Operating Expenses:

The tables below reflect our operating results as presented on the consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussions that follow each table are provided in constant currency and are inclusive of costs related to our acquisitions. The impact of foreign exchange translation is discussed separately, where material. The 2020 and 2019 acquisitions contributed $57.9 million to the overall increase in cost of sales and operating expenses, inclusive of intangible asset amortization, with the most significant contribution from LST (acquired November 1, 2019) of $37.9 million.

	Year Ended December 31,
	2020			2019			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Cost of sales:
Software licenses	$	30,618	1.8	$	23,944	1.6	$	6,674	27.9
Amortization	40,642		2.4	21,710		1.4	18,932		87.2
Maintenance and service	154,004		9.2	120,619		8.0	33,385		27.7
Total cost of sales	225,264		13.4	166,273		11.0	58,991		35.5
Gross profit	$	1,456,033	86.6	$	1,349,619	89.0	$	106,414	7.9

Software Licenses: The increase in the cost of software licenses was due to increased third-party royalties of $7.1 million.

Amortization: The increase in amortization expense was due to the amortization of newly acquired intangible assets.

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

•Increased salaries and other headcount-related costs of $15.8 million.

•Increased third-party technical support of $7.1 million.

•Increased stock-based compensation of $5.1 million.

•Increased consulting costs of $2.7 million.

•Increased IT maintenance and software hosting costs of $1.5 million.

•Increased costs related to foreign exchange translation of $1.1 million due to a weaker U.S. Dollar.

•Decreased business travel of $2.2 million due to COVID-19.

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

sales.

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	Year Ended December 31,
	2020			2019			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Operating expenses:
Selling, general and administrative	$	587,707	35.0	$	521,200	34.4	$	66,507	12.8
Research and development	355,371		21.1	298,210		19.7	57,161		19.2
Amortization	16,599		1.0	15,169		1.0	1,430		9.4
Total operating expenses	$	959,677	57.1	$	834,579	55.1	$	125,098	15.0

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

•Increased salaries, incentive compensation and other headcount-related costs of $40.3 million.

•Increased stock-based compensation of $12.9 million.

•Increased third-party commissions of $8.4 million.

•Increased IT maintenance and software hosting costs of $5.2 million.

•Increased bad debt expense of $3.5 million due to expected losses related to COVID-19.

•Increased marketing expenses of $3.0 million.

•Increased costs related to foreign exchange translation of $2.8 million due to a weaker U.S. Dollar.

•Decreased business travel of $16.0 million due to COVID-19.

We anticipate that we will continue to make targeted investments in our global sales and marketing organizations and our global business infrastructure to enhance and support our revenue-generating activities.

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

•Increased salaries and other headcount-related costs of $38.0 million.

•Increased stock-based compensation of $11.4 million.

•Increased IT maintenance and software hosting costs of $4.4 million.

We have traditionally invested significant resources in research and development activities and intend to continue to make investments in expanding the ease of use and capabilities of our broad portfolio of simulation software products, even with the on-going COVID-19 pandemic.

Interest Income: Interest income for the year ended December 31, 2020 was $5.1 million as compared to $12.8 million for the year ended December 31, 2019. Interest income decreased as a result of a lower interest rate environment and the related decrease in the average rate of return on invested cash balances.

Interest Expense: Interest expense for the year ended December 31, 2020 was $11.0 million as compared to $3.5 million for the year ended December 31, 2019. Interest expense increased as a result of the interest incurred on debt financing obtained in connection with the acquisitions of AGI and LST in the fourth quarters of 2020 and 2019, respectively.

Other Income (Expense), net: Our other income (expense) consisted of the following:

	Year Ended December 31,
(in thousands)	2020		2019
Investment gains, net	$	3,648	$	333
Foreign currency losses, net	(194)		(2,510)
Other	30		385
Total other income (expense), net	$	3,484	$	(1,792)

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Income Tax Provision: Our income before income tax provision, income tax provision and effective tax rate were as follows:

	Year Ended December 31,
(in thousands, except percentages)	2020			2019
Income before income tax provision	$	493,925		$	522,583
Income tax provision	$	60,038		$	71,288
Effective tax rate	12.2		%	13.6		%

The decrease in the effective tax rate from the prior year was primarily due to tax benefits of $7.5 million related to entity structuring activities and increased benefits from research and development credits of $4.1 million. These benefits were partially offset by decreased benefits of $6.1 million in the foreign-derived intangible income (FDII) deduction and the decrease in releases of valuation allowance of $2.6 million.

When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the years ended December 31, 2020 and 2019 were also favorably impacted by tax benefits from stock-based compensation, the FDII deduction, and research and development credits.

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

	Year Ended December 31,
(in thousands, except per share data)	2020		2019
Net income	$	433,887	$	451,295
Diluted earnings per share	$	4.97	$	5.25
Weighted average shares outstanding - diluted	87,288		85,925

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Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

ACV:

	Year Ended December 31,						Change
(in thousands, except percentages)	2019			2018			Amount		%	Constant Currency %
ACV	$	1,461,759		$	1,325,211		$	136,548	10.3	12.0
Recurring ACV as a percentage of ACV	77.4		%	76.9		%

Revenue:

	Year Ended December 31,				Change
(in thousands, except percentages)	2019		2018		Amount		%	Constant Currency %
Revenue:
Lease licenses	$	406,043	$	275,619	$	130,424	47.3	49.4
Perpetual licenses	293,587		301,098		(7,511)		(2.5)	(1.1)
Software licenses	699,630		576,717		122,913		21.3	23.1
Maintenance	760,574		676,883		83,691		12.4	14.3
Service	55,688		40,036		15,652		39.1	41.5
Maintenance and service	816,262		716,919		99,343		13.9	15.8
Total revenue	$	1,515,892	$	1,293,636	$	222,256	17.2	19.0

Our revenue in the year ended December 31, 2019 increased 17.2% as compared to the year ended December 31, 2018, or 19.0% in constant currency. The growth rate was favorably impacted by our continued investments in our global sales, support and marketing organizations, as well as our 2019 and 2018 acquisitions which contributed incremental revenue of $72.9 million. Lease license revenue increased 47.3%, or 49.4% in constant currency, as compared to the year ended December 31, 2018, driven primarily by an increase in multi-year lease contracts. Annual maintenance contracts that were sold with new perpetual licenses, maintenance contracts for new perpetual licenses sold in previous years and the maintenance portion of lease license contracts each contributed to maintenance revenue growth of 12.4%, or 14.3% in constant currency. Service revenue, driven primarily by a focus on service offerings that provide on-site mentorship on simulation best practices, training and expanding simulation adoption, increased 39.1%, or 41.5% in constant currency, as compared to the year ended December 31, 2018. Perpetual license revenue, which is derived primarily from new sales during the year ended December 31, 2019, decreased 2.5%, or 1.1% in constant currency, as compared to the year ended December 31, 2018.

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With respect to revenue, on average for the year ended December 31, 2019, the U.S. Dollar was approximately 3.3% stronger, when measured against our primary foreign currencies, than for the year ended December 31, 2018. The table below presents the impacts of currency fluctuations on revenue for the year ended December 31, 2019. Amounts in brackets indicate an adverse impact from currency fluctuations.

(in thousands)	Year Ended December 31, 2019
Euro	$	(17,361)
South Korean Won	(5,097)
British Pound	(1,881)
Japanese Yen	1,791
Other	(1,460)
Total	$	(24,008)

The impacts from currency fluctuations resulted in decreased operating income of $10.2 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018.

As a percentage of revenue, our international and domestic revenues, and our direct and indirect revenues, were as follows:

	Year Ended December 31,
	2019		2018
International	57.9	%	60.9	%
Domestic	42.1	%	39.1	%
Direct	77.1	%	77.6	%
Indirect	22.9	%	22.4	%

In valuing deferred revenue on the balance sheets of our recent acquisitions as of their respective acquisition dates, we applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to the historical carrying amount. As a result, our post-acquisition revenue will be less than the sum of what would have otherwise been reported by us and each acquiree absent the acquisitions. The impacts on reported revenue were $12.5 million and $9.4 million for the years ended December 31, 2019 and 2018, respectively.

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Cost of Sales and Operating Expenses:

The tables below reflect our operating results as presented on the consolidated statements of income, which are inclusive of foreign currency translation impacts. Amounts included in the discussions that follow each table are provided in constant currency and are inclusive of costs related to our acquisitions. The impact of foreign exchange translation is discussed separately, where material. The 2019 and 2018 acquisitions contributed $54.7 million to the overall increase in cost of sales and operating expenses with the most significant contributions from the OPTIS (May 2, 2018) and Granta Design (February 1, 2019) acquisitions of $17.3 million and $18.9 million, respectively.

	Year Ended December 31,
	2019			2018			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Cost of sales:
Software licenses	$	23,944	1.6	$	18,619	1.4	$	5,325	28.6
Amortization	21,710		1.4	27,034		2.1	(5,324)		(19.7)
Maintenance and service	120,619		8.0	110,232		8.5	10,387		9.4
Total cost of sales	166,273		11.0	155,885		12.1	10,388		6.7
Gross profit	$	1,349,619	89.0	$	1,137,751	87.9	$	211,868	18.6

Software Licenses: The increase in the cost of software licenses was primarily due to increased third-party royalties of $5.6 million.

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

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

•Increased salaries of $4.0 million.

•Increased stock-based compensation of $3.3 million.

•Increased consulting costs of $1.7 million.

•Increased IT maintenance and software hosting costs of $1.3 million.

•Decreased costs related to foreign exchange translation of $2.0 million due to a stronger U.S. Dollar.

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

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	Year Ended December 31,
	2019			2018			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount		%
Operating expenses:
Selling, general and administrative	$	521,200	34.4	$	413,580	32.0	$	107,620	26.0
Research and development	298,210		19.7	233,802		18.1	64,408		27.5
Amortization	15,169		1.0	13,795		1.1	1,374		10.0
Total operating expenses	$	834,579	55.1	$	661,177	51.1	$	173,402	26.2

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

•Increased salaries, incentive compensation and other headcount-related costs of $63.7 million.

•Increased stock-based compensation of $13.5 million.

•Increased business travel of $6.5 million.

•Increased marketing expenses of $5.4 million.

•Increased professional fees of $4.5 million.

•Increased consulting costs of $4.2 million.

•Decreased costs related to foreign exchange translation of $7.1 million due to a stronger U.S. Dollar.

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

•Increased salaries, incentive compensation and other headcount-related costs of $41.1 million.

•Increased stock-based compensation of $16.0 million.

Interest Income: Interest income for the year ended December 31, 2019 was $12.8 million as compared to $11.4 million for the year ended December 31, 2018. Interest income increased as a result of an increase in the average rate of return on invested cash balances.

Interest Expense: Interest expense for the year ended December 31, 2019 was $3.5 million as compared to $0.1 million for the year ended December 31, 2018. Interest expense increased as a result of the interest incurred on debt financing obtained in fiscal year 2019.

Other Expense, net: Our other expense consisted of the following:

	Year Ended December 31,
(in thousands)	2019		2018
Foreign currency losses, net	$	(2,510)	$	(3,058)
Investment gains, net	333		2,204
Other	385		5
Total other expense, net	$	(1,792)	$	(849)

Income Tax Provision: Our income before income tax provision, income tax provision and effective tax rate were as follows:

	Year Ended December 31,
(in thousands, except percentages)	2019			2018
Income before income tax provision	$	522,583		$	487,085
Income tax provision	$	71,288		$	67,710
Effective tax rate	13.6		%	13.9		%

The decrease in the effective tax rate from the prior year was primarily due to $6.7 million of benefit related to the release of a valuation allowance in a foreign jurisdiction and $1.8 million of benefit related to transition tax recorded in 2019. These

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benefits are offset by $6.7 million of benefit recorded in 2018 related to global legal entity restructuring activities that did not recur in 2019.

When compared to the federal and state combined statutory rate for each respective period, the effective tax rates for the years ended December 31, 2019 and 2018 were favorably impacted by tax benefits from stock-based compensation, the foreign-derived intangible income deduction, and research and development credits.

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

	Year Ended December 31,
(in thousands, except per share data)	2019		2018
Net income	$	451,295	$	419,375
Diluted earnings per share	$	5.25	$	4.88
Weighted average shares outstanding - diluted	85,925		85,913

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Non-GAAP Results

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

ANSYS, INC. AND SUBSIDIARIES
Reconciliations of GAAP to Non-GAAP Measures
(Unaudited)
	Year Ended December 31, 2020
(in thousands, except percentages and per share data)	Revenue		Gross Profit		%		Operating Income		%		Net Income		EPS - Diluted1
Total GAAP	$	1,681,297	$	1,456,033	86.6	%	$	496,356	29.5	%	$	433,887	$	4.97
Acquisition accounting for deferred revenue	14,201		14,201		0.1	%	14,201		0.6	%	14,201		0.16
Stock-based compensation expense	—		13,626		0.8	%	145,615		8.6	%	145,615		1.66
Excess payroll taxes related to stock-based awards	—		813		0.1	%	10,111		0.6	%	10,111		0.12
Amortization of intangible assets from acquisitions	—		40,642		2.4	%	57,241		3.4	%	57,241		0.66
Transaction expenses related to business combinations	—		—		—	%	5,129		0.3	%	5,129		0.06
Rabbi trust (income) / expense	—		—		—	%	—		—	%	(6)		—
Adjustment for income tax effect	—		—		—	%	—		—	%	(81,574)		(0.93)
Total non-GAAP	$	1,695,498	$	1,525,315	90.0	%	$	728,653	43.0	%	$	584,604	$	6.70

1 Diluted weighted average shares were 87,288.

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	Year Ended December 31, 2019
(in thousands, except percentages and per share data)	Revenue		Gross Profit		%		Operating Income		%		Net Income		EPS - Diluted1
Total GAAP	$	1,515,892	$	1,349,619	89.0	%	$	515,040	34.0	%	$	451,295	$	5.25
Acquisition accounting for deferred revenue	12,514		12,514		0.1	%	12,514		0.5	%	12,514		0.15
Stock-based compensation expense	—		8,494		0.5	%	116,190		7.7	%	116,190		1.34
Excess payroll taxes related to stock-based awards	—		518		0.1	%	4,920		0.3	%	4,920		0.06
Amortization of intangible assets from acquisitions	—		21,710		1.4	%	36,879		2.4	%	36,879		0.43
Transaction expenses related to business combinations	—		—		—	%	6,590		0.4	%	6,590		0.08
Rabbi trust (income) / expense	—		—		—	%	—		—	%	(369)		—
Adjustment related to the Tax Cuts and Jobs Act	—		—		—	%	—		—	%	(1,834)		(0.02)
Adjustment for income tax effect	—		—		—	%	—		—	%	(61,188)		(0.71)
Total non-GAAP	$	1,528,406	$	1,392,855	91.1	%	$	692,133	45.3	%	$	564,997	$	6.58

1 Diluted weighted average shares were 85,925.

	Year Ended December 31, 2018
(in thousands, except percentages and per share data)	Revenue		Gross Profit		%		Operating Income		%		Net Income		EPS - Diluted1
Total GAAP	$	1,293,636	$	1,137,751	87.9	%	$	476,574	36.8	%	$	419,375	$	4.88
Acquisition accounting for deferred revenue	9,442		9,442		0.1	%	9,442		0.4	%	9,442		0.11
Stock-based compensation expense	—		5,224		0.4	%	83,346		6.4	%	83,346		0.97
Excess payroll taxes related to stock-based awards	—		354		0.1	%	4,299		0.4	%	4,299		0.05
Amortization of intangible assets from acquisitions	—		27,034		2.0	%