ANSYS INC - Quarter Report: 2016 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



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

For the quarterly period ended March 31, 2016



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

Commission File Number: 0-20853

ANSYS, Inc.

(Exact name of registrant as specified in its charter)



Delaware		04-3219960
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2600 ANSYS Drive, Canonsburg, PA		15317
(Address of principal executive offices)		(Zip Code)

844-462-6797

(Registrant’s telephone number, including area code)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes x No o

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). (Check one):



Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o

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

Yes o No x

The number of shares of the Registrant’s Common Stock, par value $.01 per share, outstanding as of April 30, 2016 was 88,040,822 shares.

ANSYS, INC. AND SUBSIDIARIES

INDEX




PART I	UNAUDITED FINANCIAL INFORMATION	Page No.

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets – March 31, 2016 and December 31, 2015	3

	Condensed Consolidated Statements of Income – Three Months Ended March 31, 2016 and 2015	4

	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2016 and 2015	5

	Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2016 and 2015	6

	Notes to Condensed Consolidated Financial Statements	7

	Report of Independent Registered Public Accounting Firm	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	28

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Mine Safety Disclosures	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	SIGNATURES	31

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PART I – UNAUDITED FINANCIAL INFORMATION

Item 1.Financial Statements:

ANSYS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2016			December 31, 2015
(in thousands, except share and per share data)	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	863,435		$	784,168
Short-term investments	442			446
Accounts receivable, less allowance for doubtful accounts of $5,200 and $5,200, respectively	82,498			91,579
Other receivables and current assets	172,304			200,233
Total current assets	1,118,679			1,076,426
Property and equipment, net	60,151			61,924
Goodwill	1,334,129			1,332,348
Other intangible assets, net	209,677			220,553
Other long-term assets	5,966			5,757
Deferred income taxes	30,226			32,896
Total assets	$	2,758,828		$	2,729,904
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	4,302		$	4,865
Accrued bonuses and commissions	17,640			46,141
Accrued income taxes	16,790			4,695
Other accrued expenses and liabilities	60,952			63,801
Deferred revenue	375,140			364,644
Total current liabilities	474,824			484,146
Long-term liabilities:
Deferred income taxes	6,571			2,091
Other long-term liabilities	43,530			49,240
Total long-term liabilities	50,101			51,331
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares authorized; zero shares issued or outstanding	—			—
Common stock, $.01 par value; 300,000,000 shares authorized; 93,236,023 shares issued	932			932
Additional paid-in capital	882,438			894,469
Retained earnings	1,848,497			1,792,029
Treasury stock, at cost: 5,262,278 and 5,096,505 shares, respectively	(456,871		)	(440,839		)
Accumulated other comprehensive loss	(41,093		)	(52,164		)
Total stockholders' equity	2,233,903			2,194,427
Total liabilities and stockholders' equity	$	2,758,828		$	2,729,904

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

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

	Three Months Ended
(in thousands, except per share data)	March 31, 2016			March 31, 2015
Revenue:
Software licenses	$	126,051		$	124,969
Maintenance and service	99,855			92,812
Total revenue	225,906			217,781
Cost of sales:
Software licenses	6,738			7,209
Amortization	9,511			9,357
Maintenance and service	19,036			19,322
Total cost of sales	35,285			35,888
Gross profit	190,621			181,893
Operating expenses:
Selling, general and administrative	57,769			56,749
Research and development	44,672			40,009
Amortization	3,158			5,077
Total operating expenses	105,599			101,835
Operating income	85,022			80,058
Interest expense	(86		)	(154		)
Interest income	950			656
Other (expense) income, net	(108		)	767
Income before income tax provision	85,778			81,327
Income tax provision	29,310			25,195
Net income	$	56,468		$	56,132
Earnings per share – basic:
Basic earnings per share	$	0.64		$	0.62
Weighted average shares – basic	88,114			90,059
Earnings per share – diluted:
Diluted earnings per share	$	0.63		$	0.61
Weighted average shares – diluted	90,084			92,140

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

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

	Three Months Ended
(in thousands)	March 31, 2016		March 31, 2015
Net income	$	56,468	$	56,132
Other comprehensive income (loss):
Foreign currency translation adjustments	11,071		(17,630		)
Comprehensive income	$	67,539	$	38,502

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

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

	Three Months Ended
(in thousands)	March 31, 2016			March 31, 2015
Cash flows from operating activities:
Net income	$	56,468		$	56,132
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	17,432			19,428
Deferred income tax expense	8,676			7,116
Provision for bad debts	127			316
Stock-based compensation expense	7,078			7,831
Excess tax benefits from stock-based compensation	(2,148		)	(2,582		)
Other	(225		)	(34		)
Changes in operating assets and liabilities:
Accounts receivable	9,860			18,407
Other receivables and current assets	29,810			17,834
Other long-term assets	(92		)	(238		)
Accounts payable, accrued expenses and current liabilities	(32,258		)	(36,971		)
Accrued income taxes	14,602			9,634
Deferred revenue	5,387			19,734
Other long-term liabilities	(6,142		)	(2,487		)
Net cash provided by operating activities	108,575			114,120
Cash flows from investing activities:
Acquisitions, net of cash acquired	—			(10,477		)
Capital expenditures	(2,695		)	(3,622		)
Other investing activities	4			(67		)
Net cash used in investing activities	(2,691		)	(14,166		)
Cash flows from financing activities:
Principal payments on capital leases	(1		)	(5		)
Purchase of treasury stock	(42,684		)	(125,627		)
Restricted stock withholding taxes paid in lieu of issued shares	(4,752		)	(4,243		)
Contingent consideration payments	(1,048		)	—
Proceeds from shares issued for stock-based compensation	10,136			15,770
Excess tax benefits from stock-based compensation	2,148			2,582
Net cash used in financing activities	(36,201		)	(111,523		)
Effect of exchange rate fluctuations on cash and cash equivalents	9,584			(16,101		)
Net increase (decrease) in cash and cash equivalents	79,267			(27,670		)
Cash and cash equivalents, beginning of period	784,168			788,064
Cash and cash equivalents, end of period	$	863,435		$	760,394
Supplemental disclosures of cash flow information:
Income taxes paid	$	6,037		$	3,273
Interest paid	$	435		$	22

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

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ANSYS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

(Unaudited)


1.	Organization

ANSYS, Inc. (hereafter the "Company" or "ANSYS") develops and globally markets engineering simulation software and technologies widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, industrial equipment, electronics, biomedical, energy, materials and chemical processing, and semiconductors.

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

Given the integrated approach to the multi-discipline problem-solving needs of the Company's customers, a single sale of software may contain components from multiple product areas and include combined technologies. The Company also has a multi-year product and integration strategy that will result in new, combined products or changes to or discontinuation of the historical product offerings. As a result, it is impracticable for the Company to provide accurate historical or current reporting among its various product lines.


2.	Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by ANSYS in accordance with accounting principles generally accepted in the United States for interim financial information for commercial and industrial companies and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the accompanying statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements (and notes thereto) included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015. The condensed consolidated December 31, 2015 balance sheet presented is derived from the audited December 31, 2015 balance sheet included in the most recent Annual Report on Form 10-K. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for any future period.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of highly liquid investments such as deposits held at major banks and money market mutual funds. Cash equivalents are carried at cost, which approximates fair value. The Company’s cash and cash equivalent balances comprise the following:



	March 31, 2016			December 31, 2015
(in thousands, except percentages)	Amount		% of Total	Amount		% of Total
Cash accounts	$	521,033	60.3	$	427,244	54.5
Money market mutual funds	342,402		39.7	356,924		45.5
Total	$	863,435		$	784,168

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

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3.	Other Receivables and Current Assets

The Company's other receivables and current assets comprise the following balances:



(in thousands)	March 31, 2016		December 31, 2015
Receivables related to unrecognized revenue	$	135,425	$	170,186
Income taxes receivable, including overpayments and refunds	10,327		7,877
Prepaid expenses and other current assets	26,552		22,170
Total other receivables and current assets	$	172,304	$	200,233

Receivables for unrecognized revenue represent the current portion of billings made for annual lease licenses and software maintenance that have not yet been recognized as revenue.


4.	Earnings Per Share

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

The details of basic and diluted EPS are as follows:



	Three Months Ended
(in thousands, except per share data)	March 31, 2016		March 31, 2015
Net income	$	56,468	$	56,132
Weighted average shares outstanding – basic	88,114		90,059
Dilutive effect of stock plans	1,970		2,081
Weighted average shares outstanding – diluted	90,084		92,140
Basic earnings per share	$	0.64	$	0.62
Diluted earnings per share	$	0.63	$	0.61
Anti-dilutive shares	287		237


5.	Goodwill and Intangible Assets

The Company's intangible assets and estimated useful lives are classified as follows:



	March 31, 2016					December 31, 2015
(in thousands)	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Finite-lived intangible assets:
Developed software and core technologies (3 – 11 years)	$	336,884	$	(257,505	)	$	336,262	$	(251,201	)
Customer lists and contract backlog (5 – 15 years)	162,650		(80,712		)	159,885		(76,160		)
Trade names (2 – 10 years)	127,991		(79,988		)	127,903		(76,493		)
Total	$	627,525	$	(418,205	)	$	624,050	$	(403,854	)
Indefinite-lived intangible assets:
Trade name	$	357				$	357

Amortization expense for the intangible assets reflected above was $12.7 million and $14.4 million for the three months ended March 31, 2016 and 2015, respectively.

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As of March 31, 2016, estimated future amortization expense for the intangible assets reflected above is as follows:



(in thousands)
Remainder of 2016	$	38,143
2017	47,999
2018	34,640
2019	21,164
2020	20,061
2021	15,927
Thereafter	31,386
Total intangible assets subject to amortization	209,320
Indefinite-lived trade name	357
Other intangible assets, net	$	209,677

The changes in goodwill during the three months ended March 31, 2016 and 2015 were as follows:



(in thousands)	2016		2015
Beginning balance – January 1	$	1,332,348	$	1,312,182
Acquisitions	—		5,411
Adjustments⁽¹⁾	—		657
Currency translation	1,781		(3,205		)
Ending balance – March 31	$	1,334,129	$	1,315,045

⁽¹⁾ In accordance with the accounting for business combinations, the Company recorded adjustments to goodwill for the effect of changes in the provisional fair values of the assets acquired and liabilities assumed during the measurement period (up to one year from the acquisition date) as the Company obtained new information about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date.

During the first quarter of 2016, the Company completed the annual impairment test for goodwill and the indefinite-lived intangible asset and determined that these assets had not been impaired as of the test date, January 1, 2016. No other events or circumstances changed during the three months ended March 31, 2016 that would indicate that the fair values of the Company's reporting unit and indefinite-lived intangible asset are below their carrying amounts.


6.	Fair Value Measurement

The valuation hierarchy for disclosure of assets and liabilities reported at fair value prioritizes the inputs for such valuations into three broad levels:


•	Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;


•	Level 2: quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; or


•	Level 3: unobservable inputs based on the Company's own assumptions used to measure assets and liabilities at fair value.

A financial asset's or liability's classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

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



			Fair Value Measurements at Reporting Date Using:
(in thousands)	March 31, 2016		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	342,402	$	342,402	$	—	$	—
Short-term investments	$	442	$	—	$	442	$	—



				Fair Value Measurements at Reporting Date Using:
(in thousands)	December 31, 2015			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	356,924		$	356,924	$	—	$	—
Short-term investments	$	446		$	—	$	446	$	—
Liabilities
Contingent consideration	$	(1,376	)	$	—	$	—	$	(1,376	)

The cash equivalents in the preceding tables represent money market mutual funds.

The short-term investments in the preceding tables represent deposits held by certain foreign subsidiaries of the Company. The deposits have fixed interest rates with maturity dates ranging from three months to one year.

The contingent consideration in the table above represents the final payment related to the 2013 acquisition of EVEN - Evolutionary Engineering AG ("EVEN"). The net present value calculation for the contingent consideration, which was paid during the quarter ended March 31, 2016, included significant unobservable inputs as of December 31, 2015 in the assumption that the remaining payment would be made, and, therefore, the liability was classified as Level 3 in the fair value hierarchy.

The following tables present the changes in the Company’s Level 3 liabilities that are measured at fair value on a recurring basis during the three months ended March 31, 2016 and 2015:



	Fair Value Measurement Using Significant Unobservable Inputs
(in thousands)	Contingent Consideration
Balance as of January 1, 2016	$	1,376
Contingent payment	(1,448		)
Interest expense and foreign exchange activity included in earnings	72
Balance as of March 31, 2016	$	—



	Fair Value Measurement Using Significant Unobservable Inputs
(in thousands)	Contingent Consideration
Balance as of January 1, 2015	$	2,621
Interest expense and foreign exchange activity included in earnings	122
Balance as of March 31, 2015	$	2,743

The carrying values of cash, accounts receivable, accounts payable, accrued expenses, other accrued liabilities and short-term obligations approximate their fair values because of their short-term nature.

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7.	Geographic Information

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



	Three Months Ended
(in thousands)	March 31, 2016		March 31, 2015
United States	$	85,377	$	81,469
Japan	27,855		26,698
Germany	23,367		23,227
South Korea	11,891		11,146
France	11,714		11,540
Canada	3,383		3,283
Other European	33,989		33,568
Other international	28,330		26,850
Total revenue	$	225,906	$	217,781

Property and equipment by geographic area is as follows:



(in thousands)	March 31, 2016		December 31, 2015
United States	$	47,184	$	47,971
Europe	6,305		6,808
India	2,977		3,286
Other international	3,685		3,859
Total property and equipment, net	$	60,151	$	61,924


8.	Stock-Based Compensation

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



	Three Months Ended
(in thousands, except per share data)	March 31, 2016			March 31, 2015
Cost of sales:
Software licenses	$	155		$	193
Maintenance and service	367			416
Operating expenses:
Selling, general and administrative	2,924			4,067
Research and development	3,632			3,155
Stock-based compensation expense before taxes	7,078			7,831
Related income tax benefits	(2,043		)	(2,818		)
Stock-based compensation expense, net of taxes	$	5,035		$	5,013
Net impact on earnings per share:
Basic earnings per share	$	(0.06	)	$	(0.06	)
Diluted earnings per share	$	(0.06	)	$	(0.05	)

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9.	Stock Repurchase Program

Under the Company's stock repurchase program, the Company repurchased shares during the three months ended March 31, 2016 and 2015, as follows:



	Three Months Ended
(in thousands, except per share data)	March 31, 2016		March 31, 2015
Number of shares repurchased	500		1,507
Average price paid per share	$	85.37	$	83.38
Total cost	$	42,684	$	125,627

In February 2016, the Company's Board of Directors increased the number of shares authorized for repurchase to a total of 5.0 million shares under the stock repurchase program. As of March 31, 2016, 4.5 million shares remained available for repurchase under the program.


10.	Contingencies and Commitments

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

An Indian subsidiary of the Company received a formal inquiry after a service tax audit was held in 2011. The Company could incur tax charges and related liabilities, including those related to the service tax audit case, of approximately $7 million. The service tax issues raised in the Company’s notice are very similar to the case, M/s Microsoft Corporation (I) (P) Ltd. Vs Commissioner of Service Tax, New Delhi, wherein the Delhi Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has passed a favorable ruling to Microsoft. The Company can provide no assurances on whether the Microsoft case’s favorable ruling will be challenged in higher courts or on the impact that the present Microsoft case’s decision will have on the Company’s audit case. The Company is uncertain as to when the service tax audit will be completed.

The Company sells software licenses and services to its customers under proprietary software license agreements. Each license agreement contains the relevant terms of the contractual arrangement with the customer, and generally includes certain provisions for indemnifying the customer against losses, expenses and liabilities from damages that are incurred by or awarded against the customer in the event the Company’s software or services are found to infringe upon a patent, copyright or other proprietary right of a third party. To date, the Company has not had to reimburse any of its customers for any losses related to these indemnification provisions and no material claims asserted under these indemnification provisions are outstanding as of March 31, 2016. For several reasons, including the lack of prior material indemnification claims, the Company cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions.


11.	New Accounting Guidance

Employee share-based payment accounting: In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). This update includes various areas for simplification related to aspects of the accounting for share-based payment transactions. One simplification is that the tax effects of share-based payment settlements will be recorded in the income statement. Prior guidance required tax windfalls at settlement, and tax shortfalls to the extent of previous windfalls, to be recorded in equity. This provision is required to be adopted prospectively. These tax effects will be reported as operating cash flows according to the new guidance as opposed to financing cash flows in the prior guidance. Other simplifications involve the classification of awards as either equity or liabilities and classification on the statements of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the effect that implementation of this update will have on its financial results upon adoption.

Leases: In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02). ASU 2016-02 requires virtually all leases, other than leases that meet the definition of a short-term lease, to be recorded on the balance sheet with a right-of-use asset and corresponding lease liability. Leases will be classified as either operating or finance leases based on certain criteria. This classification will determine the timing and presentation of expenses on the income statement, as well as the presentation of related cash flows. The standard is effective for annual periods beginning after

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December 15, 2018, including interim periods within that reporting period. Early adoption is permitted and a modified retrospective transition is required upon adoption. The Company is currently evaluating the effect that implementation of this update will have on its financial results upon adoption.

Revenue from contracts with customers: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 supersedes most current revenue recognition guidance, including industry-specific guidance. Previous guidance requires an entity to recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller's price to the buyer is fixed or determinable, and collectibility is reasonably assured. Under the new guidance, an entity is required to evaluate revenue recognition by identifying a contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations in the contract and recognizing revenue when (or as) the entity satisfies a performance obligation. ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, delayed the effective date of ASU 2014-09 to annual periods beginning after December 15, 2017, including interim periods within that reporting period. Entities have the option of using a full retrospective, cumulative effect or modified approach to adopt ASU 2014-09. This update will impact the timing and amounts of revenue recognized. The Company is currently evaluating the effect that implementation of this update will have on its financial results upon adoption.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

ANSYS, Inc.

Canonsburg, Pennsylvania

We have reviewed the accompanying condensed consolidated balance sheet of ANSYS, Inc. and subsidiaries (the "Company") as of March 31, 2016, and the related condensed consolidated statements of income, comprehensive income, and cash flows for the three-month periods ended March 31, 2016 and 2015. These interim financial statements are the responsibility of the Company’s management.

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

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of ANSYS, Inc. and subsidiaries as of December 31, 2015, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 2016, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2015 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ Deloitte & Touche LLP

Pittsburgh, Pennsylvania

May 5, 2016

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

Overview:

The Company's GAAP results for the three months ended March 31, 2016 reflect growth in revenue of 3.7%, operating income of 6.2% and diluted earnings per share of 3.3% as compared to the three months ended March 31, 2015. The Company experienced higher revenue in 2016 primarily from growth in lease license and maintenance revenue, partially offset by decreased perpetual license revenue. The Company also experienced increased operating expenses primarily due to increased personnel costs. In addition, the Company's GAAP and non-GAAP results for the quarter ended March 31, 2016 as compared to the quarter ended March 31, 2015 were impacted by a stronger U.S. Dollar.

The Company's non-GAAP results for the three months ended March 31, 2016 reflect growth in revenue of 3.5% and operating income of 1.6% as compared to the three months ended March 31, 2015. The non-GAAP results exclude the income statement effects of acquisition accounting adjustments to deferred revenue, stock-based compensation, acquisition-related amortization of intangible assets and transaction costs related to business combinations. For further disclosure regarding non-GAAP results, see the section titled "Non-GAAP Results" immediately preceding the section titled "Liquidity and Capital Resources".

The Company's comparative financial results were impacted by a stronger U.S. Dollar during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015. The adverse impacts on the Company's revenue and operating income due to the stronger U.S. Dollar are reflected in the table below.

The amounts in the table represent the difference between the actual 2016 results and the same results calculated at the 2015 exchange rates. Amounts in brackets indicate an adverse impact from currency fluctuations.



	Three Months Ended March 31, 2016
(in thousands)	GAAP			Non-GAAP
Revenue	$	(4,126	)	$	(4,126	)
Operating income	$	(2,557	)	$	(2,589	)

In constant currency⁽¹⁾, the Company's growth rates were as follows:



	Three Months Ended March 31, 2016
	GAAP		Non-GAAP
Revenue	5.6	%	5.4	%
Operating income	9.4	%	4.1	%

⁽¹⁾Constant currency amounts exclude the effect of foreign currency fluctuations on the reported results. To present this information, the results for 2016 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 2015, rather than the actual exchange rates in effect for 2016.

The Company’s financial position includes $863.9 million in cash and short-term investments, and working capital of $643.9 million as of March 31, 2016.

During the three months ended March 31, 2016, the Company repurchased 0.5 million shares for $42.7 million at an average price of $85.37 per share under the Company’s stock repurchase program.

ANSYS develops and globally markets engineering simulation software and services widely used by engineers, designers, researchers and students across a broad spectrum of industries and academia, including aerospace and defense, automotive, industrial equipment, electronics, biomedical, energy, materials and chemical processing, and semiconductors. Headquartered south of Pittsburgh, Pennsylvania, the Company employed approximately 2,800 people as of March 31, 2016. ANSYS focuses on the development of open and flexible solutions that enable users to analyze designs directly on the desktop, providing a common platform for fast, efficient and cost-conscious product development, from design concept to final-stage testing and validation. The Company distributes its suite of simulation technologies through a global network of independent channel partners and direct sales offices in strategic, global locations. It is the Company’s intention to continue to maintain this hybrid sales and distribution model.

The Company licenses its technology to businesses, educational institutions and governmental agencies. Growth in the Company’s revenue is affected by the strength of global economies, general business conditions, currency exchange rate fluctuations, customer budgetary constraints and the competitive position of the Company’s products. The Company believes that the features, functionality and integrated multiphysics capabilities of its software products are as strong as they have ever been. However, the software business is generally characterized by long sales cycles. These long sales cycles increase the difficulty of predicting sales for any particular quarter. The Company makes many operational and strategic decisions based

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upon short- and long-term sales forecasts that are impacted not only by these long sales cycles but also by current global economic conditions. As a result, the Company believes that its overall performance is best measured by fiscal-year results rather than by quarterly results.

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

Geographic Trends:

The following table presents the Company's geographic constant currency revenue growth during the three months ended March 31, 2016 as compared to the three months ended March 31, 2015:



	Three Months Ended March 31, 2016
North America	5.0	%
Europe	5.5	%
Asia-Pacific	6.6	%
Total	5.6	%

In North America, the Company experienced pockets of cautious customer spending and protracted sales cycles. The Company's performance was primarily driven by the aerospace and defense, automotive, industrial equipment and high-tech industries. The performance within aerospace and defense was driven by improved performance in the commercial aerospace supply chain, loosened defense budgets and growth in the demand from the military and commercial space sectors. The automotive manufacturers continued to invest in developing advanced technologies for electric and autonomous vehicles, fuel efficiency and emissions reductions. High-tech companies invested heavily in technologies for converging industries and a variety of Internet of Things ("IoT") initiatives.

Europe delivered growth reflective of the economic and geopolitical challenges across the region. Germany was the strongest of the Company's large European markets. The Company experienced relatively weak performance in the United Kingdom and France, as well as continued weakness in the Company's Russian business. From an industry perspective, the Company experienced pockets of strength from automotive and energy companies.

In the Asia-Pacific region, markets such as China, India and Taiwan delivered growth driven by a combination of improved sales and channel execution, and a stable-to-improved business climate. Investments by chemicals and metals, aerospace and defense, high-tech and consumer electronics companies drove the performance. The development of domestic aerospace and defense programs in India and China drove sales performance. In addition, consumer electronics companies invested heavily in research and development with a focus on wireless, mobile and IoT trends. Materials and chemicals customers continued to focus on energy efficiency, engineered products and sustainability.

A number of sales improvement activities are ongoing across the geographic regions, including sales hiring, pipeline building, productivity initiatives and customer engagement activities.

Note About Forward-Looking Statements

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the three months ended March 31, 2016, and with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2015 filed on the Annual Report on Form 10-K with the Securities and Exchange Commission. The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to the fair values of stock awards, bad debts, contract revenue, the valuation of goodwill and other intangible assets, contingent consideration, deferred compensation, income taxes, uncertain tax positions, tax valuation reserves, useful lives for depreciation and amortization, and contingencies and litigation. The Company bases its estimates on historical experience, market experience, estimated future cash flows and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.

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


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


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


•	The Company's expectations regarding the outcome of its service tax audit case.


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


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


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


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


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

•

The Company's intentions related to investments in research and development, particularly as it relates to expanding the ease of use and capabilities of its broad portfolio of simulation software products. More specifically, this includes the evolution of its ANSYS^® Workbench^™ platform, expansion of high-performance computing capabilities, ANSYS^®AIM^™ immersive user interface, offerings on ANSYS Enterprise Cloud^™, robust design and ongoing integration of acquired technology.


•	The Company's intention to repatriate previously taxed earnings and to reinvest all other earnings of its non-U.S. subsidiaries.


•	The Company's plans related to future capital spending.


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


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


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


•	The Company's statement regarding increased exposure to volatility of foreign exchange rates.

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

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Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015

Revenue:



	Three Months Ended March 31,				Change
(in thousands, except percentages)	2016		2015		Amount			%
Revenue:
Lease licenses	$	81,639	$	78,238	$	3,401		4.3
Perpetual licenses	44,412		46,731		(2,319		)	(5.0	)
Software licenses	126,051		124,969		1,082			0.9
Maintenance	93,618		87,651		5,967			6.8
Service	6,237		5,161		1,076			20.8
Maintenance and service	99,855		92,812		7,043			7.6
Total revenue	$	225,906	$	217,781	$	8,125		3.7

The Company’s revenue in the quarter ended March 31, 2016 increased 3.7% as compared to the quarter ended March 31, 2015, while revenue grew 5.6% in constant currency. The growth rate was favorably impacted by the Company’s continued investment in its global sales, support and marketing organizations. Lease license revenue increased 4.3% as compared to the prior-year quarter primarily due to growth in lease license revenue of electronics simulation products. Perpetual license revenue, which is derived primarily from new sales during the quarter, decreased 5.0% as compared to the prior-year quarter. Annual maintenance contracts that were sold with new perpetual licenses, along with maintenance contracts sold with new perpetual licenses in previous quarters, contributed to maintenance revenue growth of 6.8%. This growth was primarily due to maintenance contracts sold with electronics simulation products.

With respect to revenue, on average for the quarter ended March 31, 2016, the U.S. Dollar was approximately 3.7% stronger, when measured against the Company’s primary foreign currencies, than for the quarter ended March 31, 2015. The net overall strengthening resulted in decreased revenue of $4.1 million during the quarter ended March 31, 2016 as compared with the same quarter of 2015. The impact on revenue was primarily driven by $2.5 million, $0.8 million and $0.5 million of adverse impact due to a weakening Euro, South Korean Won and British Pound, respectively. The net overall strengthening of the U.S. Dollar also resulted in decreased operating income of $2.6 million during the quarter ended March 31, 2016 as compared with the same quarter of 2015.

A substantial portion of the Company’s license and maintenance revenue is derived from annual lease and maintenance contracts. These contracts are generally renewed on an annual basis and typically have a high rate of customer renewal. In addition to the recurring revenue base associated with these contracts, a majority of customers purchasing new perpetual licenses also purchase related annual maintenance contracts. As a result of the significant recurring revenue base, the Company’s license and maintenance revenue growth rate in any period does not necessarily correlate to the growth rate of new license and maintenance contracts sold during that period. To the extent the rate of customer renewal for lease and maintenance contracts is high, incremental lease contracts, and maintenance contracts sold with new perpetual licenses, will result in license and maintenance revenue growth in constant currency. Conversely, if the rate of renewal for these contracts is adversely affected by economic or other factors, the Company’s license and maintenance growth will be adversely affected over the term that the revenue for those contracts would have otherwise been recognized.

The Company is starting to experience an increased interest by some of its larger customers in enterprise license agreements that often include longer-term, time-based licenses involving a larger number of the Company's software products. While these arrangements typically involve a higher overall transaction price, the revenue from these contracts is typically deferred and recognized over the period of the contract, resulting in increased deferred revenue and backlog. To the extent these types of contracts replace sales of perpetual licenses, there could be a near-term adverse impact on software license and maintenance revenue growth.

International and domestic revenues, as a percentage of total revenue, were 62.2% and 37.8%, respectively, during the quarter ended March 31, 2016, and 62.6% and 37.4%, respectively, during the quarter ended March 31, 2015. The Company derived 23.5% and 24.3% of its total revenue through the indirect sales channel for the quarters ended March 31, 2016 and 2015, respectively.

In valuing deferred revenue on the balance sheets of the Company's recent acquisitions as of their respective acquisition dates, the Company applied the fair value provisions applicable to the accounting for business combinations, resulting in a reduction of deferred revenue as compared to its historical carrying amount. As a result, the Company's post-acquisition revenue will be

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less than the sum of what would have otherwise been reported by ANSYS and each acquiree absent the acquisitions. The impacts on reported revenue were $0.1 million and $0.6 million for the quarters ended March 31, 2016 and 2015, respectively.

Deferred Revenue and Backlog:

Deferred revenue consists of billings made or payments received in advance of revenue recognition from lease license and maintenance agreements. The deferred revenue on the Company's condensed consolidated balance sheets does not represent the total value of annual or multi-year, noncancellable lease license and maintenance agreements. The Company's backlog represents installment billings for periods beyond the current quarterly billing cycle and customer orders received but not processed. The Company's deferred revenue and backlog as of March 31, 2016 and December 31, 2015 consist of the following:



	Balance at March 31, 2016
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	384,404	$	375,140	$	9,264
Backlog	121,968		48,427		73,541
Total	$	506,372	$	423,567	$	82,805



	Balance at December 31, 2015
(in thousands)	Total		Current		Long-Term
Deferred revenue	$	379,740	$	364,644	$	15,096
Backlog	124,290		47,015		77,275
Total	$	504,030	$	411,659	$	92,371

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

Cost of Sales and Gross Profit:

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



	Three Months Ended March 31,
	2016			2015			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount			%
Cost of sales:
Software licenses	$	6,738	3.0	$	7,209	3.3	$	(471	)	(6.5	)
Amortization	9,511		4.2	9,357		4.3	154			1.6
Maintenance and service	19,036		8.4	19,322		8.9	(286		)	(1.5	)
Total cost of sales	35,285		15.6	35,888		16.5	(603		)	(1.7	)
Gross profit	$	190,621	84.4	$	181,893	83.5	$	8,728		4.8

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


•	Decreased salaries, incentive compensation and other headcount-related costs of $0.3 million, primarily due to a decrease in headcount.


•	Cost reduction from foreign exchange translation of $0.1 million due to a stronger U.S. Dollar.

Amortization: The increase in amortization expense was primarily due to a net increase in the amortization of trade names, partially offset by a net decrease in the amortization of acquired technology.

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


•	Cost reduction related to foreign exchange translation of $0.3 million.


•	Decreased depreciation and third-party technical support costs, each of $0.2 million.


•	Net increase in salaries, incentive compensation and other headcount-related costs of $0.7 million.

The improvement in gross profit was a result of the increase in revenue and the decrease in related cost of sales.

Operating Expenses:



	Three Months Ended March 31,
	2016			2015			Change
(in thousands, except percentages)	Amount		% of Revenue	Amount		% of Revenue	Amount			%
Operating expenses:
Selling, general and administrative	$	57,769	25.6	$	56,749	26.1	$	1,020		1.8
Research and development	44,672		19.8	40,009		18.4	4,663			11.7
Amortization	3,158		1.4	5,077		2.3	(1,919		)	(37.8	)
Total operating expenses	$	105,599	46.7	$	101,835	46.8	$	3,764		3.7

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 $2.2 million, primarily due to an increase in sales headcount.


•	Decreased stock-based compensation of $1.1 million.

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

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


•	Increased salaries, incentive compensation and other headcount-related costs of $4.0 million.


•	Increased stock-based compensation of $0.5 million.


•	Cost reduction related to foreign exchange translation of $0.5 million.

The Company has traditionally invested significant resources in research and development activities and intends to continue to make investments in expanding the ease of use and capabilities of its broad portfolio of simulation software products. More specifically, this includes the evolution of the ANSYS Workbench platform, expansion of high-performance computing capabilities, ANSYSAIM immersive user interface, offerings on ANSYS Enterprise Cloud, robust design and ongoing integration of acquired technology.

Amortization: The decrease in amortization expense was primarily due to a net decrease in the amortization of acquired customer lists.

Interest Income: Interest income for the quarter ended March 31, 2016 was $1.0 million as compared to $0.7 million for the quarter ended March 31, 2015. Interest income increased as a result of an increase in the Company's average invested cash balances and the average rate of return on those balances.

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



	Three Months Ended
(in thousands)	March 31, 2016			March 31, 2015
Foreign currency (losses) gains, net	$	(107	)	$	762
Other	(1		)	5
Total other (expense) income, net	$	(108	)	$	767

Income Tax Provision: The Company recorded income tax expense of $29.3 million and had income before income taxes of $85.8 million for the quarter ended March 31, 2016. During the quarter ended March 31, 2015, the Company recorded income tax expense of $25.2 million and had income before income taxes of $81.3 million. The effective tax rates were 34.2% and 31.0% for the first quarters of 2016 and 2015, respectively.

The increase in the effective tax rate is primarily due to tax benefits occurring in the first quarter of 2015 related to the merger of the Company's Japan subsidiaries in 2010 that did not recur in the first quarter of 2016. This quarterly benefit of approximately $3.1 million was fully amortized in the third quarter of 2015. There will be no additional ongoing benefit from this transaction. When compared to the federal and state combined statutory rate, the effective tax rates for the quarters ended March 31, 2016 and 2015 were favorably impacted by the domestic manufacturing deduction and lower statutory tax rates in many of the Company's foreign jurisdictions.

Net Income: The Company’s net income in the first quarter of 2016 was $56.5 million as compared to net income of $56.1 million in the first quarter of 2015. Diluted earnings per share was $0.63 in the first quarter of 2016 and $0.61 in the first quarter of 2015. The weighted average shares used in computing diluted earnings per share were 90.1 million and 92.1 million in the first quarters of 2016 and 2015, respectively.

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Non-GAAP Results

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



	Three Months Ended
	March 31, 2016									March 31, 2015
(in thousands, except percentages and per share data)	As Reported			Adjustments			Non-GAAP Results			As Reported			Adjustments			Non-GAAP Results
Total revenue	$	225,906		$	103	(1)	$	226,009		$	217,781		$	593	(4)	$	218,374
Operating income	85,022			19,850		(2)	104,872			80,058			23,133		(5)	103,191
Operating profit margin	37.6		%				46.4		%	36.8		%				47.3		%
Net income	$	56,468		$	12,965	(3)	$	69,433		$	56,132		$	14,682	(6)	$	70,814
Earnings per share – diluted:
Diluted earnings per share	$	0.63					$	0.77		$	0.61					$	0.77
Weighted average shares – diluted	90,084						90,084			92,140						92,140


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


(2)	Amount represents $12.7 million of amortization expense associated with intangible assets acquired in business combinations, $7.1 million of stock-based compensation expense and the $0.1 million adjustment to revenue as reflected in (1) above.


(3)	Amount represents the impact of the adjustments to operating income referred to in (2) above, adjusted for the related income tax impact of $6.9 million.


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


(5)	Amount represents $14.4 million of amortization expense associated with intangible assets acquired in business combinations, $7.8 million of stock-based compensation expense, the $0.6 million adjustment to revenue as reflected in (4) above and $0.3 million of transaction expenses related to business combinations.


(6)	Amount represents the impact of the adjustments to operating income referred to in (5) above, adjusted for the related income tax impact of $8.5 million.

Non-GAAP Measures

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

While management believes that these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company’s competitors and may not be directly comparable to similarly titled measures of the Company’s competitors due to potential differences in the exact method of calculation. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

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The adjustments to these non-GAAP financial measures, and the basis for such adjustments, are outlined below:

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

Amortization of intangible assets from acquisitions and its related tax impact. The Company incurs amortization of intangible assets, included in its GAAP presentation of amortization expense, related to various acquisitions it has made. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP operating income, non-GAAP operating profit margin, non-GAAP net income and non-GAAP diluted earnings per share when it evaluates the continuing operational performance of the Company because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management does not consider these expenses for purposes of evaluating the performance of the Company during the applicable time period after the acquisition, and it excludes such expenses when making decisions to allocate resources. The Company believes that these non-GAAP financial measures are useful to investors because they allow investors to (a) evaluate the effectiveness of the methodology and information used by management in its financial and operational decision-making, and (b) compare past reports of financial results of the Company as the Company has historically reported these non-GAAP financial measures.

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

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

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Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

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



GAAP Reporting Measure	Non-GAAP Reporting Measure
Revenue	Non-GAAP Revenue
Operating Income	Non-GAAP Operating Income
Operating Profit Margin	Non-GAAP Operating Profit Margin
Net Income	Non-GAAP Net Income
Diluted Earnings Per Share	Non-GAAP Diluted Earnings Per Share

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Liquidity and Capital Resources



(in thousands)	March 31, 2016		December 31, 2015		Change
Cash, cash equivalents and short-term investments	$	863,877	$	784,614	$	79,263
Working capital	$	643,855	$	592,280	$	51,575

Cash, Cash Equivalents and Short-Term Investments

Cash and cash equivalents consist primarily of highly liquid investments such as money market mutual funds and deposits held at major banks. Short-term investments consist primarily of deposits held by certain foreign subsidiaries of the Company with original maturities of three months to one year. The following table presents the Company's foreign and domestic holdings of cash, cash equivalents and short-term investments as of March 31, 2016 and December 31, 2015:



(in thousands, except percentages)	March 31, 2016		% of Total	December 31, 2015		% of Total
Domestic	$	594,477	68.8	$	539,031	68.7
Foreign	269,400		31.2	245,583		31.3
Total	$	863,877		$	784,614

If the foreign balances were repatriated to the U.S., unless previously taxed in the U.S., they would be subject to domestic tax, resulting in a tax obligation in the period of repatriation. In general, it is the practice and intention of the Company to repatriate previously taxed earnings and to reinvest all other earnings of its non-U.S. subsidiaries. The amount of cash, cash equivalents and short-term investments held by foreign subsidiaries is subject to translation adjustments caused by changes in foreign currency exchange rates as of the end of each respective reporting period, the offset to which is recorded in accumulated other comprehensive loss on the Company’s condensed consolidated balance sheet.

Cash Flows from Operating Activities



	Three Months Ended March 31,
(in thousands)	2016		2015		Change
Net cash provided by operating activities	$	108,575	$	114,120	$	(5,545	)

Net cash provided by operating activities decreased during the current fiscal year due to decreased net cash flows from operating assets and liabilities of $4.7 million and decreased net income (net of non-cash operating adjustments) of $0.8 million.

Cash Flows from Investing Activities



	Three Months Ended March 31,
(in thousands)	2016			2015			Change
Net cash used in investing activities	$	(2,691	)	$	(14,166	)	$	11,475

Net cash used in investing activities decreased during the current fiscal year due primarily to decreased acquisition-related net cash outlays of $10.5 million and decreased capital expenditures of $0.9 million. The Company currently plans capital spending of $17 million to $22 million for the 2016 fiscal year as compared to $16.1 million that was spent in 2015. The level of spending will depend on various factors, including growth of the business and general economic conditions.

Cash Flows from Financing Activities



	Three Months Ended March 31,
(in thousands)	2016			2015			Change
Net cash used in financing activities	$	(36,201	)	$	(111,523	)	$	75,322

Net cash used in financing activities decreased during the current fiscal year due primarily to decreased stock repurchases of $82.9 million, partially offset by decreased proceeds from shares issued for stock-based compensation of $5.6 million.

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Other Cash Flow Information

The Company believes that existing cash and cash equivalent balances of $863.4 million, together with cash generated from operations, will be sufficient to meet the Company’s working capital and capital expenditure requirements through the next twelve months. The Company’s cash requirements in the future may also be financed through additional equity or debt financings. There can be no assurance that such financings can be obtained on favorable terms, if at all.

Under the Company's stock repurchase program, the Company repurchased shares during the three months ended March 31, 2016 and 2015, as follows:



	Three Months Ended
(in thousands, except per share data)	March 31, 2016		March 31, 2015
Number of shares repurchased	500		1,507
Average price paid per share	$	85.37	$	83.38
Total cost	$	42,684	$	125,627

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

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

Off-Balance-Sheet Arrangements

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

Contractual Obligations

There were no material changes to the Company’s significant contractual obligations during the three months ended March 31, 2016 as compared to those previously reported in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within the Company’s most recent Annual Report on Form 10-K.

Critical Accounting Policies and Estimates

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

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Item 3.Quantitative and Qualitative Disclosures About Market Risk

Interest Income Rate Risk. Changes in the overall level of interest rates affect the interest income that is generated from the Company’s cash, cash equivalents and short-term investments. For the three months ended March 31, 2016, total interest income was $1.0 million. Cash and cash equivalents consist primarily of highly liquid investments such as money market mutual funds and deposits held at major banks. Short-term investments consist primarily of deposits held by certain foreign subsidiaries of the Company with original maturities of three months to one year.

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

The Company has foreign-currency-denominated liabilities. In order to provide a natural hedge to mitigate the foreign currency exchange risk, the Company will purchase foreign currencies and hold these currencies in cash until the liabilities are settled.

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



	Period-End Exchange Rates
As of	GBP/USD	EUR/USD	USD/JPY	USD/KRW
March 31, 2015	1.482	1.073	120.149	1,110.001
December 31, 2015	1.474	1.086	120.337	1,176.886
March 31, 2016	1.436	1.138	112.613	1,144.951



	Average Exchange Rates
Three Months Ended	GBP/USD	EUR/USD	USD/JPY	USD/KRW
March 31, 2015	1.515	1.127	119.163	1,101.969
December 31, 2015	1.517	1.095	121.469	1,158.167
March 31, 2016	1.432	1.104	115.256	1,200.768

No other material change has occurred in the Company’s market risk subsequent to December 31, 2015.

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Item 4.Controls and Procedures

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

The Company has a Disclosure Review Committee to assist in the quarterly evaluation of the Company’s internal disclosure controls and procedures and in the review of the Company’s periodic filings under the Exchange Act. The membership of the Disclosure Review Committee consists of the Company’s Chief Executive Officer; Chief Financial Officer; Global Controller; General Counsel; Senior Director, Global Investor Relations; Vice President of Worldwide Sales and Support; Vice President of Marketing; and Chief Product Officer. This committee is advised by external counsel, particularly on SEC-related matters. Additionally, other members of the Company’s global management team advise the committee with respect to disclosure via a sub-certification process.

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

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

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

Changes in Internal Control. There were no changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2016 that materially affected, or were reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.Legal Proceedings

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

Item 1A.Risk Factors

The Company cautions investors that its performance (and, therefore, any forward-looking statement) is subject to risks and uncertainties. Various important factors may cause the Company’s future results to differ materially from those projected in any forward-looking statement. These factors were disclosed in, but are not limited to, the items within the Company’s most recent Annual Report on Form 10-K, Part I, Item 1A. No material changes have occurred regarding the Company's risk factors subsequent to December 31, 2015.

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



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs⁽¹⁾
January 1 - January 31, 2016	—	$	—	—	2,097,082
February 1 - February 29, 2016	—	$	—	—	5,000,000
March 1 - March 31, 2016	500,000	$	85.37	500,000	4,500,000
Total	500,000	$	85.37	500,000	4,500,000

⁽¹⁾ The Company initially announced its stock repurchase program in February 2000, and subsequently announced various amendments to the program. The most recent amendment to the program, authorizing the repurchase of up to 5,000,000 shares, was approved by the Company's Board of Directors in February 2016. There is no expiration date to this amendment.

Item 3.Defaults Upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

None.

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Item 6.Exhibits



Exhibit No.			Exhibit
15			Independent Registered Public Accountant’s Letter Regarding Unaudited Financial Information.

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

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

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

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

101.INS			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema

101.CAL			XBRL Taxonomy Extension Calculation Linkbase

101.DEF			XBRL Taxonomy Extension Definition Linkbase

101.LAB			XBRL Taxonomy Extension Label Linkbase

101.PRE			XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

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



		ANSYS, Inc.

Date:	May 5, 2016	By:	/s/ James E. Cashman III
			James E. Cashman III
			President and Chief Executive Officer

Date:	May 5, 2016	By:	/s/ Maria T. Shields
			Maria T. Shields
			Chief Financial Officer