A month has gone by since the last earnings report for Ansys (ANSS). Shares have added about 12.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
ANSYS Q3 Earnings & Revenues Top Estimates
ANSYS Inc. reported third-quarter 2019 non-GAAP earnings of $1.42 per share, surpassing the Zacks Consensus Estimate of $1.25. The figure was also higher than management’s guided range of $1.15 per share to $1.28 per share. Further, the bottom line improved from the year-ago quarter figure of $1.31 per share.
Non-GAAP revenues of almost $345.5 million comfortably outpaced the Zacks Consensus Estimate of $334 million. Further, the figure was higher than management’s guided range of $320 million to $340 million. Non-GAAP revenues increased approximately 18% from the year-ago quarter, driven by double-digit growth across lease, maintenance and service revenues.
Moreover, robust growth across each of the three major geographies and strong product portfolio drove the quarterly results.
As of Sep 30, 2019, total deferred revenues and backlog came in at $650.4 million, reflecting an improvement of 19% on a year-over-year basis.
Segment Revenue Details
Software licenses revenues during the reported quarter came in at $137.1 million, up 25.7% year over year. While Lease licenses revenues improved 67% on the back of higher multi-year contracts, Perpetual revenues were up 2.1% on a year-over-year basis.
Maintenance and Service revenues came in at $206.8 million, up 14.7% year over year. Notably, individually, maintenance and services revenues improved 13% and 55% year over year, respectively.
Geographic Revenue Details
Region wise, Americas and Asia-Pacific revenues increased 34.7% and 1.8%, respectively, at constant currency. Meanwhile, EMEA revenues were up 18% on a year-over-year basis.
Americas witnessed demand for ANSYS’s solutions. Robust investments in data centers, smart, connected solutions and 5G acted as primary catalyst. Customers’ focus on utilizing simulation across repair, maintenance and other overhaul projects was a positive. Budgetary increase in allocation for defense spending across Europe and the United States favored growth in aerospace and defense domains.
EMEA revenues were up primarily due to investments in autonomous vehicles, electrification and functional safety. Moreover, robust adoption of 5G was a key growth driver.
Strong performance in China, Japan and South Korea related to 5G, artificial intelligence and semiconductor technologies was a positive in Asia-Pacific region. Robust investments in autonomous vehicles and electrification also acted as a catalyst.
Direct and indirect businesses contributed 77% and 23%, respectively, to quarterly revenues. ACV increased 12.8% (14.1% on a constant currency basis) from the year-ago quarter to $290.9 million.
Non-GAAP gross margin came in at approximately 90.1% during the quarter as compared with 90% reported in the year-ago quarter.
Non-GAAP operating margin contracted 70 bps on a year-over-year basis to 43.3% in the reported quarter.
Balance Sheet & Cash Flow
ANSYS exited the quarter with cash and short-term investments of $732.9 million (the United States comprised 69%) compared with $631.7 million (the United States comprised 66%) in the previous quarter. The company generated cash from operations of $120.4 million compared with $88.5 million in the previous quarter.
Further, the company repurchased 0.3 million shares during the first nine months of fiscal 2019 for approximately $179.41 per share. As of Sep 30, 2019, the company has 3.5 million shares remaining in the share buyback program.
In the quarter under review, ANSYS inked a deal to acquire Livermore Software Technology Corporation, in a bid to strengthen its explicit dynamics suite and finite element analysis capabilities. With the latest buyout, the company aims to aid developers design cost-efficient and safer vehicles while minimizing costs concerning physical testing.
The acquisition is expected to aid ANSYS in enhancing strength in automotive, avionics and aerospace, and other domains. This is expected to provide a boost ANSYS’ financial performance in the days ahead.
ANSYS expects non-GAAP earnings in the range of $1.87 per share to $2.05 per share for fourth-quarter 2019.
Non-GAAP revenues are anticipated in the range of $454.1 million to $479.1 million. Management projects non-GAAP operating margin to be in the range of 45-46.5% for the fourth quarter.
For 2019, ANSYS updated outlook. The company now anticipates non-GAAP revenues of $1.490-$1.515 (previously $1.460-$1.500). Non-GAAP earnings are envisioned in the range of $6.20-$6.38 per share (previously $5.98-$6.28 per share).
The company anticipates operating cash flow for fiscal 2019 to be in the range of $485-$510 million (previously $470-$510 million). Non-GAAP operating margin is projected to be in the range of 44.5-45% (previously 43.5-44.5%).
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
Currently, Ansys has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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