It has been about a month since the last earnings report for Ansys (ANSS). Shares have added about 3.9% 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 catalysts.
ANSYS Q2 Earnings Beat Estimates, View Raised
ANSYS) delivered second-quarter 2019 non-GAAP earnings of $1.61 per share, surpassing the Zacks Consensus Estimate of $1.28. The figure also came ahead of management’s guided range of $1.18 per share to $1.30 per share. Further, the bottom line surged 19% on a year-over-year basis.
Non-GAAP revenues of almost $370.5 million comfortably outpaced the Zacks Consensus Estimate of $339 million. Further, the figure was higher than management’s guided range of $325 million to $345 million. Non-GAAP revenues increased approximately 20% 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 quarterly results.
As of Jun 30, 2019, total deferred revenues and backlog came in at $717.3 million, reflecting an improvement of 22% on a year-over-year basis.
In the reported quarter, ANSYS announced it is teaming up with BMW Group, which will utilize the company’s simulation tools to design robust AV technologies. It is also collaborating with Airbus Defence and Space to develop a new solution, which facilitates AI-driven, secure flight controls to design robust autonomous drone flight control solution by 2030.
ANSYS also entered into a strategic partnership with AVSimulation with an aim to enhance development of autonomous vehicles (AV). The integration of ANSYS' autonomous driving simulation capabilities with AVSimulation’s expertise simulation technology is anticipated to accelerate design development process.
The company unveiled ANSYS 2019 R2, in a bid to help engineers design more pervasive simulation solutions across multiple industries.
Notably, ANSYS’ VRXPERIENCE integrated service is already aiding RENAULT’s design developers to accelerate testing and validation of automotive applications. The company’s RedHawk-SC solution is enabling Mellanox to speed up development of FinFET chip design.
The company also concluded a $49 million, multi-year lease deal in the technology space. The deal is anticipated to be the largest single-physics deal in the company’s history.
Segment Revenue Details
Software licenses revenues during the quarter came in at $170.5 million, up 30% year over year. While Lease licenses revenues improved 75.9% on the back of higher multi-year contracts, Perpetual revenues were down 3.5% on a year-over-year basis.
Maintenance and Service revenues came in at $198.1 million, up 13.4% year over year. Notably, individually, maintenance and services revenues grew 11% and 42.1% year over year, respectively.
Geographic Revenue Details
Region wise, Americas and Asia-Pacific revenues increased 13.3% and 44.6%, respectively, at constant currency. Meanwhile, EMEA revenues were up 12.8% on a year-over-year basis.
Americas reflected 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 acted as a key catalyst.
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 80% and 20%, respectively, to quarterly revenues. ACV increased 11% (14% on a constant currency basis) from the year-ago quarter to $326.1 million
Non-GAAP gross margin came in at approximately 91% during the quarter as compared with 90.3% reported in the year-ago quarter.
Non-GAAP operating margin contracted 170 bps on a year-over-year basis to 45.6% in the reported quarter.
Balance Sheet & Cash Flow
ANSYS exited the quarter with cash and short-term investments of $631.7 million (the United States comprised 66%) compared with $607.6 million (the United States comprised 66%) in the previous quarter. The company generated cash from operations of $88.5 million compared with $151.6 million in the previous quarter.
Further, the company repurchased 0.1 million shares during the reported quarter for approximately $179.36 per share. As of Jun 30, 2019, the company reported 3.5 million shares remaining in the share buyback program.
ANSYS expects non-GAAP earnings in the range of $1.15 per share to $1.28 per share for third-quarter 2019.
Non-GAAP revenues are anticipated in the range of $320 million to $340 million.
Management projects non-GAAP operating margin to be in the range of 39-40% for the third quarter.
For 2019, ANSYS updated outlook. The company now anticipates non-GAAP revenues of $1.460-$1.500 (previously $1.430-$1.480). Non-GAAP earnings are envisioned in the range of $5.98-$6.28 per share (previously $5.75-$6.10 per share).
ANSYS anticipates operating cash flow for fiscal 2019 to be in the range of $470-$510 million. Non-GAAP operating margin is projected to be in the range of 43.5-44.5% (previously 43-44%).
Note: The EPS data mentioned in the text of this section differs from the rest of report due to the difference in calculation or consideration of one-time items.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -7.69% due to these changes.
Currently, Ansys has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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 D. 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 has been net zero. 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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