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Ansys (ANSS) Up 8.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Ansys (ANSS). Shares have added about 8.2% 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 Q1 Earnings Top Estimates, Coronavirus Dims '20 View

ANSYS reported first-quarter 2020 non-GAAP earnings of 83 cents per share, which beat the Zacks Consensus Estimate by 6.4%. The bottom line declined 35.7% year over year.

Non-GAAP revenues of $308.9 million declined 3.4% (down 2.6% at constant currency or cc) from the year-ago quarter. Decline in multi-year lease contracts weighed on the top line.

Negative business impacts across China owing to COVID-19 outbreak and trade restrictions affected the first quarter performance.

As of Mar 31, 2020, total deferred revenues and backlog came in at $835 million, reflecting an increase of 24% on a year-over-year basis.

Top-Line Details

Total revenues came in nearly $305 million, down 3.8% year over year. Software licenses revenues (28.8% of total revenues) were $87.8 million, down 28.6% year over year. Maintenance and Service revenues (71.2% of total revenues) came in at $217.2 million, up 11.9% year over year.

Lease licenses revenues (14.5% of non-GAAP revenues) declined 35% at cc to $44.9 million due to an anticipated and substantial reduction in multi-year lease contracts. Perpetual licenses revenues (13.9%) fell 19.7% year over year at cc to $43 million.

Maintenance revenues and Service revenues improved 12.2% and 33%, year over year, at cc, to $204.3 million and $16.7 million, contributing 66.1% and 5.4% to non-GAAP revenues, respectively. Service revenue growth reflected broader adoption of the company’s simulation tools and benefits from acquisitions.

Direct and indirect channels contributed 73% and 27%, respectively, to non-GAAP revenues.  ACV remained flat year over year on cc basis.

On a geographic basis, revenues from Americas, EMEA (comprising Germany, the United Kingdom and other EMEA) and the Asia-Pacific (Japan and Other Asia-Pacific) accounted for 43.1%, 29.2% and 27.7% of non-GAAP revenues, respectively.

Notably, at cc, revenues from Americas declined 9.7%, while revenues from EMEA and the Asia-Pacific improved 1.1% and 6.2% year over year, respectively.

New deal wins in high-tech and automotive verticals across the Asia-Pacific aided growth. Strength in automotive sector with growing clout of cost-effective 3D printing solutions fueling demand for additive manufacturing solutions, favored growth in the EMEA region. Meanwhile, performance across Americas was due to anticipated reduction in multi-year lease contracts.

Operating Details

Non-GAAP gross margin contracted 310 basis points (bps) on a year-over-year basis to 88%, owing to lower revenue base.

Selling, general & administrative expenses as a percentage of total revenues expanded 740 bps to 42.8%. Research & development expenses as a percentage of revenues expanded 590 bps year over year to 28.2%.

Non-GAAP operating margin came in at 29.3% compared with 42.9% reported in the year-ago quarter on account of decline in gross margin and higher expenses.

Balance Sheet & Cash Flow

As of Mar 31, 2020, cash and short-term investments of $718 million (the United States comprised 60%) compared with $872.4 million (the United States comprised 72%) as of Dec 31, 2019.

As of Mar 31, 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 $147.4 million compared with $139.5 million in the prior quarter.

Further, the company repurchased 0.7 million shares in first quarter at an average price of $233.48 per share. As of Mar 31, 2020, the company had 2.8 million shares remaining under the share buyback program.

Guidance

ANSYS expects the coronavirus outbreak to delay ACV and related revenues to the second half of the year. Moreover, trade restrictions imposed on certain entities that were put into effect in 2019 are expected to persist in 2020.

ANSYS expects non-GAAP earnings in the range of $1.01-$1.33 per share for second-quarter 2020.

Non-GAAP revenues are anticipated between $335 million and $375 million.

Management projects non-GAAP operating margin in the range of 33.5-39%.

For 2020, ANSYS has trimmed guidance. The company now expects non-GAAP revenues of $1.555-$1.63 billion compared with the prior range of $1.64-$1.70 billion.

Non-GAAP earnings are now envisioned in the range of $5.61-$6.23 per share (mid-point of $5.92) compared with the prior range of $6.19-$6.71.

ACV is now anticipated between $1.5 billion and $1.575 billion compared with the prior range of $1.605-$1.650 billion.

Non-GAAP operating margin is now expected in the range of 40-42%, compared with the earlier guided range of 42-43%.

The company now anticipates operating cash flow for 2020 in the range of $425-$470 million compared with the previous range of $500-$530 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -22.03% due to these changes.

VGM Scores

Currently, Ansys has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, 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.

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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