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Why Is Ansys (ANSS) Down 1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Ansys (ANSS). Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ansys due for a breakout? 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 Q1 Earnings and Revenues Top Estimates

ANSYS reported first-quarter 2021 non-GAAP earnings of $1.12 per share, which beat the Zacks Consensus Estimate by 31.8% and increased 35% year over year.

Non-GAAP revenues of $372.1 million surpassed the Zacks Consensus Estimate by 5.5%. The top line increased 20.5% (up 17.3% at constant currency or cc) from the year-ago quarter’s levels.

Continued momentum in recurring revenues, strength in defense, high tech and semiconductor verticals along with growth in all regions drove the top line. Also, improving business conditions at small and medium sized customers contributed to the top line.

Deferred revenues and backlog were $936.5 million, up 12.2% on a year-over-year basis.

Quarter in Details

Lease licenses revenues (17.8% of non-GAAP revenues) increased 45% at cc to $66.2 million. Perpetual licenses revenues (18.1%) rose 52.7% year over year at cc to $67.5 million.

Maintenance revenues (59.5%) increased 5.2% at cc to $221.4 million. Service revenues (4.6%) declined 1.1% year over year at cc to $17 million.

Direct and indirect channels contributed 72.2% and 27.8%, respectively, to non-GAAP revenues.

Annual contract value or ACV increased 6.1% year over year (up 3% at cc) to $319.4 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) contributed 44.9%, 27.9% and 27.2% to non-GAAP revenues, respectively.

Non-GAAP revenues from Americas rallied 25.4% to $167.2 million at cc, while revenues from EMEA and the Asia-Pacific increased 7.3% and 15% year over year to $103.8 million and $101.2 million, respectively.

The strength in aerospace and defense, high-tech, automotive and semiconductor sectors led to increases in overall revenues.

Operating Details

Non-GAAP gross margin expanded 50 basis points (bps) on a year-over-year basis to 88.5%.

Total operating expenses increased 13.7% year over year to $251.1 million due to higher research and development as well as selling, general and administrative expenses.

Non-GAAP operating margin expanded 420 bps on a year-over-year basis to 33.5%.

Balance Sheet & Cash Flow

As of Mar 31, 2021, cash and short-term investments amounted to $987.9 million (the United States contributed 67%) compared with $913.2 million (the United States comprised 64%) as of Dec 31, 2020.

As of Mar 31, 2021, the company’s long-term debt  stood at $793.5 million.

The company generated cash from operations of $171.1 million for the first quarter compared with $173.8 million in the prior quarter.

The company did not repurchase shares in the first quarter. As of Mar 31, 2021, it had 2.8 million shares remaining under the share buyback program.

Guidance

For the second quarter of 2021, ANSYS expects non-GAAP earnings in the range of $1.43-$1.67.

Non-GAAP revenues are anticipated between $415 million and $445 million (mid-point of $430 million).

Management projects non-GAAP operating margin in the range of 34.5-38%.

For 2021, ANSYS now expects non-GAAP revenues of $1.81-$1.875 billion (mid-point of $1.843 billion) compared with the previous guidance of $1.79-$1.875 billion (mid-point of $1.833 billion).

Management expects non-GAAP operating margin in the range of 40-41% for 2021.

Non-GAAP earnings are now envisioned in the range of $6.69-$7.10 per share compared with the previous guidance of $6.44-$6.92.

ACV is now anticipated between $1.76 billion and $1.825 billion, while operating cash flow are anticipated between $480 million and $520 million for 2021.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Ansys has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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