ANSYS struggled in Q1 and, apparently, at the start of Q2 but seems to have ended the quarter with a bang. CEO Jim Cashman told investors that Q2 saw strong contributions from all parts of the business, across all product areas and from software license, maintenance and service. He saw “a minor improvement in the stability of the general business climate [but] continue to see a mixed economic environment, particularly in parts of Europe and Asia, where the uncertain economy affects investment patterns, even in spite of positive customer sentiments.”
- Total GAAP revenue was $215 million, up 10% year/year (y/y) as reported and up 13% in constant currency (cc). Esterel contributed $6 million in non-GAAP revenue, implying ANSYS’ organic growth rate was around 7%. The Esterel acquisition closed exactly a year ago, so all info from here forward will bundle Esterel into “organic”.
- It’s actually a big day at ANSYS. August 1 is the one-year anniversary of the close of the Esterel acquisition, the second anniversary of Apache and the five-year anniversary of Ansoft. ANSYS hasn’t broken out Ansoft for years, but did say that Apache’s revenue was up in the “mid to upper teens”.
- License revenue was $133 million, up 8% as reported and up 7% in cc. On a non-GAAP basis, lease revenue was $74 million, up 5% y/y (8% in cc) while perpetual revenue was $61 million, up 12% (up 14% in cc).
- Maintenance and services revenue was $82 million, up 14%. Looking at non-GAAP, maintenance grew 14% to $76 million while services reversed the decline of the last few periods, and increased 29% to $5.7 million.
- ANSYS reports that it closed 20 deals over $1 million, down from 26 last quarter but up from 19 a year ago. No one commented on the trend, but Mr. Cashman did say that large deals often close with unpredictable timing, coming in earlier or later than expected.
- Sales channels held constant with prior periods, with direct and indirect providing 75% and 25% of revenue.
- On a geo basis, North America was up 12% to non-GAAP revenue of $79 million. Sentiment in Q1 was cautious here, which the company signaled eased a bit towards the latter half of Q2, when a “higher volume of deals closed”. Even so, ANSYS saw “relative strength in energy, electronica and aero” — a shift from the Q1 verticals of automotive, industrial equipment and electronics.
- Sales in Europe were up 17% to non-GAAP revenue of $$73 million. Germany was up 11%, the UK was up 7% while “Other Europe” was up 22% on strong performance from France and Russia. The company again used strong language when speaking about Europe, citing “volatility and and macroeconomic issues … prolonged customer procurement processes”. During the earnings call Mr. Cashman characterized parts of Europe as “wobbly stable”. [Mr. Cashman again holds the lead this earnings season for “best quote”.]
- The company’s General International Area had revenue up 2% as reported to $65 million (up 11% in cc) even though revenue from Japan fell 8% as reported (but rose 10% in cc). In an interesting note, the company said that customers in Japan, in addition to issues raised by the weakening Yen, are seeing stronger competition from other nearby countries, particularly in the electronics and automotive markets, and weaker global demand for their exports. Mr. Cashman said that he sees warning signs in the business climate in India and spending patterns in China that affect the outlook for Q3.
- ANSYS had realigned its business in Japan months ago, and has been working to resolve problems there. Mr. Cashman said that currency and economic effects compounded problems, but pointed out that constant currency growth leads ANSYS to see positive trends going forward.
Given that business seemed to pick up as Q2 went along, ANSYS’ guidance feels a bit cautious. The company basically tightened its range for the full year but didn’t increase it. GAAP revenue for 2013 is now expected to be $855 million to $870 million, little changed from the $850 million and $870 million target set at the start of Q2. Q3 GAAP revenue is expected to be in the range of $209 million to $215 million. CFO Maria Shields says that Q3 is typically their riskiest, since so many buyers are on vacation and deals can slip from Q3 into Q4 — but Mr. Cashman says that there’s nothing beyond possibly elongated sales cycles in the Q3 guidance.
Mr. Cashman wouldn’t be drawn into discussions of the competitive landscape or why ANSYS is growing faster than CAD companies. Instead, he talked about the convergence of different types of physics and the increased complexity –new materials, increased complexity, mechatronics– of his customers’ products as drivers for increased sales.
ANSYS 15 is coming — Mr. Cashman teased it in his closing remarks but didn’t offer any details. Am trying to find out more. Like when. [Update: An ANSYS rep would only say that it “will be out late this year – nothing out on the particulars as of yet. Keep watch on the web site – when anything comes out it will immediately be on there.” — Ed.]
One investor brought up how readily ANSYS takes on debt for an acquisition and then rapidly pays it all off. That, and the anniversary discussion, beg the question: what’s next? ANSYS typically acquires when growth slows. A quarter ago, it seemed we were there, but then these Q2 results come in. Maybe not yet time for another one …
Investors are loving these results, sending shares up 8%-9% at the time of the earnings call.