It has been about a month since the last earnings report for Ansys (ANSS - Free Report) . Shares have lost about 6.8% 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 catalysts.
ANSYS Q3 Earnings Top Estimates, Raises '18 View
ANSYS Inc. delivered third-quarter 2018 non-GAAP earnings of $1.31 per share (per ASC 606), surpassing the Zacks Consensus Estimate of $1.04. The figure also fared better than higher end of management’s guided range of 93 cents to $1.07 per share.
Earnings surged 39% on a year-over-year basis to $1.46 per share, according to ASC 605 standard.
Non-GAAP revenues of almost $293 million (per ASC 606) comfortably surpassed the higher end of the guided range of $265-$285 million. The Zacks Consensus Estimate was pegged at $284 million.
Non-GAAP revenues increased 11.3% (11.9% in constant currency) from the year-ago quarter to $307.9 million, according to ASC 605 standard. Year-over-year revenue growth was driven by double-digit growth across lease, maintenance and service revenues.
As of Sep 30, 2018, total deferred revenues and backlog came in at $544.7 million per ASC 606. The figure increased 13.8% on a year-over-year basis to $761.6 million, per ASC 605.
Robust investments in autonomous vehicles, electrification, smart, connected solutions and 5G were a tailwind. 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.
In the reported quarter, ANSYS unveiled the latest Pervasive Engineering Simulation offerings, named ANSYS 19.2 to accelerate problem-solving capabilities across its comprehensive portfolio. It is anticipated to enhance the company’s go-to-market strategy.
Segment Revenue Details
Lease and Perpetual license revenues came in at $43.2 million and $65.9 million, respectively, per ASC 606. While Lease revenues grew 15.3%, perpetual revenues declined 1.1% on a year-over year basis, at constant currency, per ASC 605.
Maintenance and Service revenues came in at $175 million and $8.9 million, respectively. The figures surged 15% and 33.6% year over year, respectively, at constant currency, on ASC 605 basis.
Geographic Revenue Details
Region wise, Americas, EMEA and Asia-Pacific revenues increased 14.3%, 11.2% and 9.4%, respectively, at constant currency.
Although Americas reflected demand for ANSYS’s solutions, the company had nine customers with cumulative orders amounting more than $1 million as compared with 14 customers in the year-ago period. Management notes that the reduction primarily pertains to seasonality in regard to large deals.
EMEA had 10 customers with orders above $1 million up from seven in the year-ago quarter. Germany and other EMEA delivered constant currency year-over-year revenue growth of 11.8% and 15.4%, respectively. However, revenues from United Kingdom declined 10.1% in the same period. 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 2018.
Asia-Pacific had 11 customers with orders above $1 million up from four in the year-ago quarter. Japan and other Asia-Pacific delivered constant currency year-over-year revenue growth of 13.2% and 7.1%, respectively. Strong performance in Japan and India was a positive but revenue growth was limited by weakness in Taiwan and South Korea.
Direct and indirect businesses contributed 77% and 23%, respectively, to quarterly revenues. During the reported quarter, the company had 30 customers with orders in excess of $1 million, including one having cumulative orders in excess of $10 million. This compares with 25 customers with orders over $1 million in the year-ago period.
Recurring revenues base was 77%.ACV increased 12.7% (13.5% on a constant currency basis)from the year-ago quarter to $257.8 million.
Non-GAAP gross margin came in at approximately 90% and 90.5% per ASC 606 and ASC 605, respectively, during the third quarter.
Non-GAAP operating margin contracted 200 bps on a year-over-year basis to 46.7% per ASC 605. Non-GAAP operating margin came in at 44% per ASC 606, in the reported quarter.
Balance Sheet & Cash Flow
ANSYS exited the quarter with cash and short-term investments of $729.4 million (of which 77% was held in the United States) compared with $696.2 million (76% held in the United States) in the previous quarter. The company generated cash from operations of $110 million compared with $111.1 million in the previous quarter.
Further, the company repurchased 1.2 million shares during the first nine months of 2018 (0.4 million shares in the reported quarter for approximately $176.58 each). Notably, ANSYS' board of directors had increased authorized share repurchase program in February 2018, to a total of 5 million shares. As of Sep 30, 2018, the company reported 4.3 million shares remaining in the share buyback program.
Per ASC 606, ANSYS expects non-GAAP earnings in the range of $1.39 to $1.55 per share for fourth-quarter 2018.
Non-GAAP revenues are anticipated in the range of $352 million to $372 million.
Management projects non-GAAP operating margin to be in the range of 43-45% for the fourth quarter.
For 2018, ANSYS updated outlook. The company now anticipates non-GAAP revenues of $1.237-$1.257 better than the earlier band of $1.210-$1.250 billion. Non-GAAP earnings are now envisioned in the range of $5.25-$5.41 per share better than the previously guided range of $4.87-$5.14.
ANSYS now anticipates operating cash flow for fiscal 2018 to be in the range of $455-$480 million, up from the previously guided range of $435-$470 million. Non-GAAP operating margin is expected to be in the range of 44.5-45.5%, compared with the earlier range of 43-45%for the full year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, Ansys has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 looks promising. Notably, Ansys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.