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A month has gone by since the last earnings report for Ansys (ANSS). Shares have added about 5.4% 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 its most recent earnings report in order to get a better handle on the important drivers.
ANSYS Q2 Earnings & Revenues Beat Estimates, Ups ‘20 View
ANSYS reported second-quarter 2020 non-GAAP earnings of $1.55 per share, which beat the Zacks Consensus Estimate by 33.6%. However, the bottom line declined 4% year over year.
Non-GAAP revenues of $389.7 million surpassed the Zacks Consensus Estimate by 10.2%. The figure improved 5% (up 6% at constant currency or cc) from the year-ago quarter.
Management is elated on closure of “the largest deal in 50-year history and largest sales agreement for new business.”
Deferred revenues and backlog were $846 million, reflecting an increase of 18% on a year-over-year basis.
Lease licenses revenues (29.2% of non-GAAP revenues) declined 13.7% at cc to $113.9 million. Perpetual licenses revenues (14.4%) fell 20% year over year at cc to $56.1 million.
Maintenance revenues and Service revenues improved 11.2% and 1.9%, year over year, at cc, to $206.5 million and $13.1 million, contributing 53% and 3.4% to non-GAAP revenues, respectively.
Direct and indirect channels contributed 77.9% and 22.1%, respectively, to non-GAAP revenues. ACV improved 5.6% year over year (up 5.9% at cc) to $344.4 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) accounted for 49.6%, 22.6% and 27.8% of non-GAAP revenues, respectively.
Notably, at cc, revenues from Americas improved 33.1% to $193.3 million, while revenues from EMEA and the Asia-Pacific declined 4.6% and 17.5% year over year to $88 million and $108.5 million, respectively.
New deal wins in high-tech and automotive verticals across North America aided growth. Despite strength in high-tech and automotive sectors with growing clout of digital twins and process optimization solutions, softness in the industrial equipment industry led to decline in revenues from the APAC region. Meanwhile, performance across EMEA was impacted by coronavirus crisis-induced weakness in the oil and gas industry despite strength in defense segment and improvement in semiconductor end-market.
Non-GAAP gross margin contracted 140 basis points (bps) on a year-over-year basis to 89.6%.
Total operating expenses increased 9.8% year over year to $219 million.
Non-GAAP operating margin expanded 600 bps on a year-over-year basis to 42.9%.
Balance Sheet & Cash Flow
As of Jun 30, 2020, cash and short-term investments of $745 million (the United States comprised 54%) compared with $718 million (the United States comprised 60%) as of Mar 31, 2020.
As of Jun 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 the next 12 months.
The company generated cash from operations of $131.6 million compared with $147.4 million in the prior quarter. Negative business impacts across China owing to COVID-19 outbreak, led to delay in payments, affecting cash flows.
The company did not repurchase shares in the second quarter. As of Jun 30, 2020, it had 2.8 million shares remaining under the share buyback program.
ANSYS expects non-GAAP earnings in the range of $1.10-$1.34 per share for third-quarter 2020.
Non-GAAP revenues are anticipated between $347 million and $377 million.
Management projects non-GAAP operating margin in the range of 34.5-38.5%.
For 2020, ANSYS has raised guidance. The company now expects non-GAAP revenues of $1.57-$1.645 billion compared with the prior range of $1.555-$1.63 billion.
Non-GAAP earnings are now envisioned in the range of $5.75-$6.35 per share compared with the prior range of $5.61-$6.23 per share.
ACV is now anticipated between $1.52 billion and $1.585 billion compared with the prior range of $1.5-$1.575 billion.
Management continues to expect non-GAAP operating margin in the range of 40-42%.
The company now anticipates operating cash flow for 2020 between $435 million and $475 million compared with the previous range of $425-$470 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -16.74% due to these changes.
Currently, Ansys has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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 #2 (Buy). We expect an above average return from the stock in the next few months.
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