Schnitger Corporation

ANSYS glitters — again

ANSYS once again announced results that beat expectations – for something like the 50th
time in a row. ANSYS reported Q2 2008 revenue of $111 million, up 21% from a year ago
(and not including any contribution from Ansoft, which closed after the quarter ended). On a
geographic basis, revenue in North America was up over 20%; Europe was up 28%, led by
Germany and Central Europe (excluding the effects of the strong Euro, European revenue
was up 20%); the general international area was up 17%, led by Japan. Orders in China were
delayed as companies there refocused to deal with the earthquake suffered during Q2.

Software revenue was $73.9 million in Q2 2008, up 24% from a year ago, but essentially flat
on a sequential basis. The lease business makes up 39% of total revenue (or $36 million)
and grew 20% over last year while the paid-up business grew 30% for the quarter. High-end
products grew “in excess of 20%,” slightly ahead of the lower-end products because of
ANSYS’ growing portfolio at the high end – not because of lack of demand for other
products. Maintenance and services revenue was $37 million, up 14% year over year, led by
“mid-20” percent growth in the “pure software and enhancement subscription” plans. The
company said that the services-only revenue component declined as it focuses on
higher-margin services.

One interesting note: Jim Cashman, CEO, said on the earnings call that the company had
recorded “12 seven-figure orders that actually disproportionately went to deferred revenue….
[T]hey were forecasted as part of our Q2 guidance.’ First of all: seven figures. In a CAE deal.
Amazing – and then to have 12 in one quarter. But the most impressive aspect is that these
deals largely went to deferred revenue, meaning that ANSYS didn’t recognize the bulk of the
revenue in Q2 yet turned in solid results anyway.

It’s likely that these mega deals are possible because ANSYS now sells a portfolio of
products to customers who may have been used to dealing with separate vendors, sales
teams and renewal periods but are now dealing with a single vendor as ANSYS continues to
roll Fluent customers into the ANSYS “family.” It’s likely that this will ramp up as it
integrates Ansoft into the product list, but one has to wonder if such huge deals usually
include discounts simply to get them done. Might this lead to eventual price pressure on the
market as a whole?

Curiously, this is countered by Cashman’s statement that ASPs in Q2 “increased notably at
the high end” while ASPs at the low end “adjusted for volume purchases” rose slightly. It’s
summertime and I can’t quite wrap my brain around the conflict between mega deals and
rising ASPs. The only thing I can conclude right now is that the revenue recognized in Q2
doesn’t include enough license revenue that would change an ASP calculation; perhaps any
license revenue in the deals will be recognized in coming quarters and ASP changes would
happen then. Hmm.

For Q3, ANSYS forecasts total GAAP revenue of between $115 million and $121 million and
non-GAAP revenue of around $125 million. For the year, ANSYS forecasts total revenue of
between $476 million and $486 million, with non-GAAP revenue of just under $500 million.
While an increase over the company’s last forecasts, these totals reflect the addition of
Ansoft for the remainder of the year; the company still sees organic revenue growth of 15%
to 17%.

I’ll be attending the ANSYS User Group meeting, so look for a write-up on my return.

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