A month has gone by since the last earnings report for Ansys (ANSS). Shares have added about 2.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Ansys due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
ANSYS Earnings and Revenues Top Estimates in Q3
ANSYS reported third-quarter 2020 non-GAAP earnings of $1.36 per share, which beat the Zacks Consensus Estimate by 7.9%. However, the bottom line declined 4.2% year over year.
Non-GAAP revenues of $369.1 million surpassed the Zacks Consensus Estimate by 0.7%. The figure increased 7% (up 5% at constant currency or cc) from the year-ago quarter’s levels.
Continued momentum in recurring revenues, strength in aerospace and defense verticals along with growth in all the regions especially Asia-Pacific drove the top line. Notably, revenue from Japan and South Korea improved in double digits in the Asia-Pacific region.
Deferred revenues and backlog were $879.9 million, up 35% on a year-over-year basis.
The company also announced that it will acquire Analytical Graphics, Inc for $700 million in cash (67%) and stock (33%) deal. Analytical Graphics provides analytical software solutions that are used by companies engaged in aerospace and defense verticals among others.
Also, ANSYS Startup Program is now supporting twice the number of startups than it did two years back across multiple sectors in over 44 countries.
Lease licenses revenues (21.4% of non-GAAP revenues) improved 9.7% at cc to $79.1 million. Perpetual licenses revenues (17%) fell 6.8% year over year at cc to $62.7 million.
Maintenance revenues (58%) increased 8.3% at cc to $214 million but Service revenues (3.6%) declined 3% year over year, at cc, to $13.4 million.
Direct and indirect channels contributed 74.8% and 25.2%, respectively, to non-GAAP revenues. ACV improved 5% year over year (up 3.4% at cc) to $305.3 million.
On a geographic basis, non-GAAP revenues from Americas, EMEA (comprising Germany, the UK and other EMEA) and the Asia-Pacific (Japan and Other Asia-Pacific) contributed 44%, 29% and 27% to non-GAAP revenues, respectively.
Notably, at cc, non-GAAP revenues from Americas improved 6.2% to $162.5 million, while revenues from EMEA and the Asia-Pacific increased 1.9% and 7.4% year over year to $107 million and $99.7 million, respectively.
The deal wins in aerospace and defense verticals across North America and EMEA boosted growth. The strength in high-tech and semiconductor sectors with growing clout in the automotive sector led to increases in revenues from the APAC region.
Meanwhile, the coronavirus crisis-induced weakness in the oil and gas industry and low oil prices continue to plague the global energy markets, which is overhang for ANSYS.
Despite this, during the quarter, the company made a seven-figure sale to a notable energy company, which is a testament to the strength in its solutions.
Non-GAAP gross margin contracted 90 basis points (bps) on a year-over-year basis to 89.2%.
Total operating expenses increased 13.2% year over year to $223.5 million due to higher research and development as well as selling, general and administrative expenses.
Non-GAAP operating margin contracted 350 bps on a year-over-year basis to 39.8%.
Balance Sheet & Cash Flow
As of Sep 30, 2020, cash and short-term investments of $845.2 million (the United States comprised 59%) compared with $745 million (the United States comprised 54%) as of Jun 30, 2020.
As of Sep 30, 2020, the company has an unsecured term loan with an outstanding principal balance of $425 million. Notably, the debt agreement currently requires no principal payments through 2024.
The company generated cash from operations of $94.5 million for the third quarter compared with $131.6 million in the prior quarter.
The company did not repurchase shares in the third quarter. As of Sep 30, 2020, it had 2.8 million shares remaining under the share buyback program.
ANSYS expects non-GAAP earnings in the range of $2.36-$2.67 per share for fourth-quarter 2020.
Non-GAAP revenues are anticipated between $542.3 million and $582.3 million (mid-point of $562.3 million).
Management projects non-GAAP operating margin in the range of 47.5-49.5%.
For 2020, ANSYS has raised guidance. The company now expects non-GAAP revenues of $1.61-$1.65 billion (mid-point of $1.63 billion) compared with the prior range of $1.57-$1.645 billion (mid-point of $1.61 billion).
Non-GAAP earnings are now envisioned in the range of $6.09-$6.40 per share compared with the prior range of 5.75-$6.35 per share.
ACV is now anticipated between $1.555 billion and $1.59 billion compared with the prior range of $1.52-$1.585 billion.
Management now expects non-GAAP operating margin in the range of 41-42%. Previously, the operating margin was guided in the range of 40-42%.
The company continues to anticipate operating cash flow for 2020 between $435 million and $475 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
Currently, Ansys has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren’t focused on one strategy, this score is the one you should be interested in.
Ansys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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