Overview:

ANSYS, Inc.'s results for the three months ended September 30, 2009 reflect a revenue increase of 4.9% as compared to the three months ended September 30, 2008, and basic and diluted earnings per share of $0.35 and $0.33, respectively. ANSYS' results for the nine months ended September 30, 2009 reflect a revenue increase of 6.8% as compared to the nine months ended September 30, 2008, and basic and diluted earnings per share of $0.89 and $0.86, respectively. These results were significantly impacted by the July 2008 acquisition of Ansoft. The Company experienced higher revenues in 2009 from both the Ansoft acquisition and from maintenance growth in the Company's other products, partially offset by a decline in perpetual software license revenue and service revenue, and an adverse impact on revenue from foreign currency fluctuations. The revenue contribution from the Ansoft business was lower for the nine months ended September 30, 2009 than the Company had expected at the time of the acquisition. As compared to the Company's non-Ansoft business, the Ansoft business derives a higher percentage of its revenue from sales of perpetual licenses. Accordingly, there tends to be higher volatility with respect to Ansoft's revenue performance in any quarter than for the non-Ansoft component of the Company's business, which has a higher percentage of lease and maintenance revenue. The unfavorable state of the global economy during the nine months ended September 30, 2009 adversely affected the Company's Ansoft revenues more significantly than the non-Ansoft revenues, contributing significantly to the revenue underperformance as compared to the Company's expectations.

In 2009, the Company incurred increased operating expenses associated with the Ansoft business, which was not acquired by the Company until the third quarter of 2008, and decreased non-Ansoft related operating expenses, including salaries, incentive compensation, and headcount-related costs. Incentive compensation was lower due to the Company underperforming its internal sales and operating plan during the nine months ended September 30, 2009. The decrease in salaries and headcount-related costs was a result of the decision by the Company to reduce its global workforce by approximately 6% as part of the Company's ongoing effort to manage expenses and its overall cost structure. The cost reductions were partially offset by $2.8 million in severance costs that were expensed during the second and third quarter of 2009, of which $1.5 million was paid. The Company expects additional pre-tax charges associated with the workforce reductions in the range of approximately $1.1 million - $1.9 million, a substantial portion of which will be expensed in the fourth quarter of 2009.

Also, in connection with the acquisition of Ansoft on July 31, 2008, the Company borrowed $355.0 million and incurred interest expense, including loan amortization costs, during the three and nine months ended September 30, 2009 of $2.2 million and $8.3 million, respectively. As of September 30, 2009, remaining outstanding borrowings totaled $231.7 million.

During March 2009, the Company repurchased 2.1 million shares of treasury stock for $39.9 million. The Company's financial position includes $293.7 million in cash and short-term investments, and working capital of $186.3 million as of September 30, 2009.

ANSYS develops and globally markets engineering simulation software and services widely used by engineers and designers across a broad spectrum of industries, including aerospace, automotive, manufacturing, electronics, biomedical, energy and defense. Headquartered at Southpointe in Canonsburg, Pennsylvania, the Company and its subsidiaries employ approximately 1,600 people as of September 30, 2009 and 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. The Company distributes its ANSYS and Ansoft suites 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 mixed 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. Given the current global economic conditions, the Company believes that there may continue to be an adverse impact on the Company's revenue. 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 upon short- and long-term sales forecasts which are impacted not only by these long sales cycles but 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 intense 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, consultation 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.

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2009 and 2008, and with the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2008 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 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. 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 fair value of stock awards, bad debts, contract revenue, valuation of goodwill, valuation of intangible assets, income taxes, and contingencies and litigation. The Company bases its estimates on historical experience, market experience, estimated future cash flows and on 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 value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

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 intentions related to investments in global sales and marketing, research and development, its global business infrastructure and in complementary companies, products, services and technologies.

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

• Statements regarding the Company's expected effective tax rate.

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

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

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

• The Company's statements regarding the strength of its software products.

• The Company's statements regarding the strength of its financial position.

• The Company's estimates regarding the impact of the purchase accounting adjustment to acquired Ansoft deferred revenue on the Company's revenue.

• The Company's estimates regarding expected interest expense on its term loan.

• The Company's statements regarding the impact of current global economic conditions.

• The Company's expectations of its revenue growth rate in 2009 and the related impact on the Company's operating income, net income and earnings per share.

• The Company's statements regarding increased exposure to volatility of foreign exchange rates and expectations regarding the impact of currency exchange rate fluctuations on revenue and operating income for the quarter ending December 31, 2009.

• The Company's expectations regarding the revenue growth rate of the non-Ansoft operations as compared to recent historical periods.

• The Company's statement regarding the estimated pre-tax charges related to the workforce reduction.

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 that might cause such a difference include risks and uncertainties detailed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in the 2008 Form 10-K Annual Report to Stockholders and any such changes to these factors have been included within Part II, Item 1A of this Quarterly Report on Form 10-Q.

Results of Operations

Three Months Ended September 30, 2009 Compared to Three Months Ended
September 30, 2008

Revenue:



                                           Three Months Ended
                                             September 30,              Change
    (in thousands, except percentages)      2009        2008       Amount         %
    Revenue:
    Lease licenses                       $   45,448   $  44,880   $    568        1.3
    Perpetual licenses                       30,947      35,346     (4,399 )    (12.4 )
    Software licenses                        76,395      80,226     (3,831 )     (4.8 )
    Maintenance                              47,713      35,764     11,949       33.4
    Service                                   4,079       6,257     (2,178 )    (34.8 )
    Maintenance and service                  51,792      42,021      9,771       23.3
    Total revenue                        $  128,187   $ 122,247   $  5,940        4.9

The Company's nominal increase in lease license revenue was more than offset by a decline in perpetual license sales. The decline in perpetual licenses sales was primarily driven by certain macroeconomic factors as discussed further below. The Company's license revenue included Ansoft operations for a full three months in 2009 of $9.8 million as compared to two months in 2008 of $7.9 million.

The increase in maintenance revenue was primarily the result of annual maintenance subscriptions sold in connection with new perpetual license sales in recent quarters, as well as the impact of Ansoft operations for a full three months in 2009 of $12.5 million as compared to two months in 2008 of $2.6 million.

The decrease in service revenue was primarily the result of reduced revenue from engineering consulting services.

With respect to revenue, on average for the third quarter of 2009, the U.S. Dollar was approximately 3.6% stronger, when measured against the Company's primary foreign currencies, than for the third quarter of 2008. The U.S. Dollar strengthened against the British Pound, Euro, Indian Rupee, Swedish Krona, Canadian Dollar, Korean Won and the Taiwan Dollar, while it weakened against the Japanese Yen and Chinese Renminbi. The net overall strengthening resulted in decreased revenue and operating income during the third quarter of 2009, as compared with the corresponding 2008 third quarter, of approximately $2.6 million and $1.5 million, respectively.

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 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.

The Company's revenue in the quarter ended September 30, 2009 increased 4.9% as compared to the quarter ended September 30, 2008. The Company's quarterly growth rate is influenced by the Company's organic growth rate, incremental growth from acquired companies and the impact of currency exchange rate fluctuations. Although the Company's overall revenue growth in 2009 will benefit from the inclusion of a full twelve months of Ansoft operations as compared to five months of Ansoft operations in 2008, the Company is experiencing a reduction in the revenue growth rate of the non-Ansoft operations as compared to recent historical periods, particularly with respect to perpetual license revenue. This slowing revenue growth is primarily impacted by the current disruption in domestic and global economies, as well as by the adverse impact of currency fluctuations on revenue growth in 2009. Reductions in the Company's revenue growth rate are adversely impacting the Company's operating income, net income and earnings per share in 2009.

International and domestic revenues, as a percentage of total revenue, were 66.1% and 33.9%, respectively, during the quarter ended September 30, 2009 and 69.7% and 30.3%, respectively, during the quarter ended September 30, 2008.

In valuing deferred revenue on the Ansoft balance sheet as of the acquisition date, the Company applied the fair value provisions applicable to the accounting for business combinations. Although this purchase accounting requirement had no impact on the Company's business or cash flow, the Company's reported revenue under accounting principles generally accepted in the United States, primarily for the first 12 months post-acquisition, was less than the sum of what would otherwise have been reported by Ansoft and ANSYS absent the acquisition.

Acquired deferred revenue of $7.5 million was recorded on the Ansoft opening balance sheet. This amount was approximately $23.5 million lower than the historical carrying value. The impact on reported revenue for the quarter ended September 30, 2009 was $100,000 for lease license revenue and $450,000 for maintenance revenue. The expected impact on reported revenue for the quarter ending December 31, 2009 is approximately $200,000.

Cost of Sales and Gross Profit:



                                         Three Months Ended September 30,
                                            2009                  2008                Change
                                                  % of                 % of
(in thousands, except percentages)    Amount     Revenue    Amount    Revenue    Amount         %
Cost of sales:
Software licenses                    $   2,417       1.9   $  2,508       2.1   $    (91 )     (3.6 )
Amortization                             9,005       7.0      8,120       6.6        885       10.9
Maintenance and service                 12,295       9.6     13,959      11.4     (1,664 )    (11.9 )
Restructuring charges                      172       0.1         -         -         172         -
Total cost of sales                     23,889      18.6     24,587      20.1       (698 )     (2.8 )
Gross profit                         $ 104,298      81.4   $ 97,660      79.9   $  6,638        6.8

The change in cost of sales is primarily due to the following:

• Increase in Ansoft-related costs of $1.5 million, including an additional $1.3 million in acquired software amortization expense, primarily the result of a full quarter of Ansoft activity in the current year quarter as compared to two months of activity in the prior year quarter.

• Decrease in salary and headcount-related costs, including incentive compensation, of $1.2 million.

• Decrease in external technical support of $400,000.

• Decrease in amortization of $850,000 on acquired Fluent technology. This decrease was partially offset by an increase in amortization of $500,000 on certain trademarks. During the third quarter of 2008, the Company reconsidered the indefinite lives associated with certain trademarks as part of the product and naming strategy changes that occurred as a result of the July 31, 2008 acquisition of Ansoft. The Company determined that such trademarks had a remaining useful life of ten years and, therefore, amortization of these intangible assets began July 31, 2008.

• Decrease in depreciation expense of $300,000.

• Restructuring charges of $172,000 associated with workforce reduction activities that related to the Company's ongoing effort to manage expenses and cost structure.

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

Operating Expenses:



                                                   Three Months Ended September 30,
                                                      2009                  2008                Change
                                                            % of                 % of
(in thousands, except percentages)              Amount     Revenue    Amount    Revenue    Amount         %
Operating expenses:
Selling, general and administrative            $  31,719      24.7   $ 36,071      29.5   $ (4,352 )    (12.1 )
Research and development                          19,462      15.2     20,282      16.6       (820 )     (4.0 )
Amortization                                       4,115       3.2      3,011       2.5      1,104       36.7
Restructuring charges                              1,370       1.1         -         -       1,370         -
Total operating expenses                       $  56,666      44.2   $ 59,364      48.6   $ (2,698 )     (4.5 )

Selling, General and Administrative: Ansoft-related selling, general and administrative costs increased $500,000, primarily the result of a full quarter of activity for the quarter ended September 30, 2009 compared to two months of activity for the quarter ended September 30, 2008. The additional Ansoft activity was partially offset by a reduction in certain expenses associated with the Ansoft business, including decreased salary costs associated with workforce reduction activities, decreased incentive compensation costs as a result of lower sales volume and decreased marketing costs. Non-Ansoft related expenses decreased by $4.9 million during the quarter ended September 30, 2009, primarily the result of decreased salary and headcount-related costs, including incentive compensation, of $2.4 million, decreased marketing, advertising and event costs of $600,000, decreased consulting costs of $500,000 and decreased depreciation expenses and business travel expenses each of $300,000.

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 major account sales activities and to support both its worldwide sales distribution and marketing strategies and the business in general.

Research and Development: Ansoft-related research and development costs increased $1.3 million, primarily associated with a full quarter of activity for the quarter ended September 30, 2009 compared to two months of activity for the quarter ended September 30, 2008. Non-Ansoft related expenses decreased by $2.1 million during the quarter ended September 30, 2009, primarily the result of decreased salary and headcount-related costs, including incentive compensation costs, of $1.5 million and decreased consulting fees of $500,000.

The Company has traditionally invested significant resources in research and development activities and intends to continue to make investments in this area, particularly as it relates to ongoing integration and evolution of its ANSYSฎWorkbenchTM platform and expanding capabilities within its broad portfolio of software technologies.

Amortization: Ansoft-related amortization increased $1.2 million for the quarter ended September 30, 2009 compared to the prior year quarter. The increase relates to a full quarter in 2009 of amortization expense associated with certain acquired intangible assets as compared to two months of amortization in the third quarter of 2008.

Restructuring Charges: The Company incurred operating restructuring charges of $1.4 million during the quarter ended September 30, 2009 associated with workforce reduction activities that related to the Company's ongoing effort to manage expenses and cost structure.

Interest Expense: The Company's interest expense is as follows:

                                                     Three Months Ended
                                              September 30,      September 30,
      (in thousands)                              2009               2008
      Bank interest on term loans            $           890    $         2,493
      Loss on interest rate swap agreement             1,044                293
      Amortization of debt financing costs               295                253
      Other                                               84                 83

      Total interest expense                 $         2,313    $         3,122

The decreased interest costs shown above for the 2009 period are primarily a result of a lower average outstanding debt balance and a decrease in the weighted-average effective interest rate of 3.18% as compared to 4.63% in the prior year quarter.

The Company's interest rate swap agreement is utilized to hedge a portion of each of the first eight forecasted quarterly variable rate interest payments on the Company's term loan. Under the swap agreement, the Company receives the variable, three-month LIBOR rate required under its term loan and pays a fixed LIBOR interest rate of 3.32% on the notional amount. This swap agreement resulted in additional interest expense during the three months ended September 30, 2009 because the variable, three-month LIBOR rate was 0.60% as compared to the fixed LIBOR rate of 3.32%.

Interest Income: Interest income for the quarter ended September 30, 2009 was $425,000 as compared to $1.7 million for the three months ended September 30, 2008. Interest income decreased as a result of a significant decline in interest rates in the 2009 period as compared to the 2008 period, partially offset by additional interest income associated with an increase in invested cash balances.

Other Income (Expense), net: The Company recorded other income of $54,000 during the quarter ended September 30, 2009 as compared to other expense of $273,000 during the quarter ended September 30, 2008. The net change was primarily the result of foreign currency transaction gains and losses. As the Company's presence in foreign locations continues to expand, the Company, for the foreseeable future, will have increased exposure to volatility of foreign exchange rates.

Income Tax Provision: The Company recorded income tax expense of $15.3 million and had income before income taxes of $45.8 million for the quarter ended September 30, 2009. This represents an effective tax rate of 33.3% in the third quarter of 2009. During the quarter ended September 30, 2008, the Company recorded income tax expense of $10.8 million and had income before income taxes of $36.6 million. The Company's effective tax rate was 29.5% in the third quarter of 2008. During the third quarter of 2008, the Company filed its 2007 U.S. federal and state income tax returns. In conjunction with the completion of these returns, the Company adjusted its estimate for 2007 taxes to reflect the actual results and recorded a net tax benefit of $1.2 million. The effect of this adjustment reduced the third quarter 2008 effective tax rate from 32.7% to 29.5%. The filing of the 2008 tax returns during the third quarter of 2009 resulted in no material impact to the effective tax rate for the third quarter of 2009.

When compared to the federal and state combined statutory rate, these rates are favorably impacted by lower statutory tax rates in many of the Company's foreign jurisdictions, domestic manufacturing deductions and research and experimentation credits. These rates are also impacted by charges or benefits associated with the Company's uncertain tax positions. The Company currently expects that the effective tax rate will be in the range of 31% - 33% for the year ending December 31, 2009.

Net Income: The Company's net income in the third quarter of 2009 was $30.5 million as compared to net income of $25.8 million in the third quarter of 2008. Diluted earnings per share was $0.33 in the third quarter of 2009 and $0.29 in the third quarter of 2008. The weighted average shares used in computing diluted earnings per share were 91.6 million in the third quarter of 2009 and 90.1 million in the third quarter of 2008.

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