A month has gone by since the last earnings report for Ansys (ANSS - Free Report) . Shares have added about 8.4% 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 catalysts.
ANSYS Inc. delivered strong results for second-quarter 2018, wherein both the top and bottom lines fared better than the respective Zacks Consensus Estimate and came ahead of management’s guided range.
Notably, the company has adopted the new revenue rules of ASC 606. The company has incorporated both ASC 605 and ASC 606 calculations while reporting second-quarter results.
Second-quarter 2018 non-GAAP earnings came in at $1.35 per share (per ASC 606), better than management’s guidance of 94 cents to $1.09 per share. The Zacks Consensus Estimate was pegged at $1.05.
Earnings surged 25.3% on a year-over-year basis to $1.24 per share, according to ASC 605 standard.
Non-GAAP revenues increased 13% (10% in constant currency) from the year-ago quarter to $308.9 million. The top line also crossed the high end of management’s guided range of $$272-$292 million. GAAP revenues during the quarter came in at $305.6 million, up 11% year over year. The Zacks Consensus Estimate was pegged at $290 million.
Year-over-year revenue growth of 11.4% (per ASC 605) was driven by increase of 7.5% in software license revenues and growth of 16.5% in maintenance and service revenues.
As of Jun 30, 2018, deferred revenues and backlog came in at $586.9 million per ASC 606. The figure increased 24% on a year-over-year basis, per ASC 605.
Segment Revenue Details
At constant currency, Lease and Perpetual license revenues were $56.9 million and $74.3 million, respectively, per ASC 606. The figures grew 8.4% and 5.4% on a year-over year basis, respectively, per ASC 605.
Maintenance and Service revenues (at constant currency) were $168.5 million and $9.2 million, respectively. The figures increased 13.3% and 40.4% year over year, respectively, on ASC 605 basis.
Geographic Revenue Details
Region wise, Americas, EMEA and Asia-Pacific revenues increased 14.7%, 10.8% and 4.6%, respectively, at constant currency.
The strength in Americas reflected strong demand for ANSYS’s solutions in the aerospace & defense, electronics/semiconductors, automotive and energy industries. Notably, the company had 17 customers with cumulative orders amounting more than $1 million as compared with 14 customers in the year-ago period
EMEA had eight customers with orders above $1 million up from five in the year-ago quarter. France, Italy and the U.K., each delivered double-digit constant currency revenues growth. ANSYS is rebuilding sales organization and improving operational execution to enhance go-to-market strategy in the EMEA region which is likely to aid recovery in growth in 2018.
Asia-Pacific revenues benefited from strong performance in China and Taiwan. Further, growth in Japan was a positive.
China's investment in infrastructure programs and domestic energy generation benefited the energy industry.
Further, the industrial equipment industry gained on the back of strength in India but was marginally hurt by weakness in South Korea.
Direct and indirect businesses contributed 76% and 24%, respectively, to quarterly revenues. During the reported quarter, the company had 35 customers with orders in excess of $1 million, including one customer with cumulative orders in excess of $30 million. This compares with 28 customers with orders over $1 million in the year-ago period.
Recurring revenues base was 76%. ACV increased 8% on a year-over-year basis to $293 million.
Non-GAAP gross margin came in at 90% and 90.3% per ASC 605 and ASC 606, respectively, during the quarter.
Non-GAAP operating margin contracted 280 bps on a year-over-year basis to 45.5%, per ASC 605. Non-GAAP operating margin came in at 47.3% per ASC 606, in the reported quarter.
Balance Sheet & Cash Flow
ANSYS exited the quarter with cash and short-term investments of $696.2 million (of which 76% was held in the United States) compared with $889.8 million (62% held in the United States) in the previous quarter. The company generated cash from operations of $111.1 million compared with $132.4 million in the previous quarter.
Further, the company repurchased 0.8 million shares during the first six months of 2018. ANSYS' board of directors increased authorized share repurchase program in February 2018, to a total of 5 million shares. As of Jun 30, 2018, the company had 4.8 million shares remaining in the authorized share repurchase program.
Per ASC 606, for third-quarter 2018, ANSYS expects non-GAAP earnings in the range of 93 cents to $1.07 per share.
Non-GAAP revenues are anticipated in the range of $265-$285 million. The Zacks Consensus Estimate is pegged at $308.3 million.
Management projects non-GAAP operating margin to be in the range of 37-40% for the third quarter.
For 2018, ANSYS updated its outlook. The company now anticipates non-GAAP revenues of $1.210-$1.250 better than the earlier band of $1.197-$1.262 billion. Non-GAAP earnings are now envisioned in the range of $4.87-$5.14 per share better than the previously guided range of $4.60-$5.08.
ANSYS now anticipates operating cash flow for fiscal 2018 to be in the range of $435-$470 million, down from the previously guided range of $435-$475 million. The company's operating cash flow outlook reveals an adverse impact of roughly $12 to $15.0 million related to “the acceleration of income tax payments associated with deferred revenue and backlog credited to retained earnings and never recognized as revenue in the financial statements.”
However, non-GAAP operating margin is expected to be in the range of 43-45%, compared with the earlier range of 42-44%for the full year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25.07% due to these changes.
Currently, Ansys has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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 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 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.