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ANSYS customers “receptive to LT vision”, boost Q2

ANSYS reported results today that were at worst in line with and often ahead of expectations, causing shareholders to drive the stock price up 12% in early trading. CEO Jim Cashman summed it up this way: “All key metrics of our business were strong, including our balance sheet, cash flows and margins … Our business model has demonstrated superior resiliency over a variety of economic cycles … While there are obvious macro-economic issues that are affecting our customers’ buying patterns, we continued to see an increased customer reliance on engineering innovation as a priority.”

The details:

It’s interesting to listen to ANSYS talk about growth. With its expanded portfolio, ANSYS is clearly focused on selling more of its offering into existing accounts (that whole “share of wallet” thing that I wrote about a while back). In fact, Mr. Cashman said today that large customers are growing their ANSYS installations disproportionately — in other words, revenue from large customers is growing faster than revenue from smaller customers. It seems to me that ANSYS is talking less about new wins, new types of customers and new territories than it has in the past. There’s the occasional statement about  “sales expansion in … major accounts, balanced by the addition of new customers”, but I can’t recall the last time I saw a slide of new accounts added, other than by acquisition. There are still a lot of companies not doing ANY simulation and wonder if ANSYS has ceded these accounts to its competitors.

Speaking of acquisitions, ANSYS announced yesterday that it had closed the Esterel acquisition. It’s early days, but it sounds as though the acquisition will continue to operate independently (at least for now), with product integration coming where it makes sense. The company anticipates that Esterel will add $5 million to $7 million in revenue for the year, but that there may be revenue recognition issues that lower this total for the 2012 and push some into 2012. It is expected to be neutral to earnings.

Mr. Cashman was clear that the company continues to explore further acquisitions but that there aren’t many companies out there to buy in the $200 million to $300 million range, so they are now looking at smaller companies (from “tech tuck-ins” on up) that supply specific technology that ANSYS wants to add to its portfolio.

ANSYS slightly tweaked its guidance for Q3 and the rest of the year. Mr. Cashman cautioned about Europe, currency rates, deal timing and general uncertainty –he said “uneven probability across the range”, but that’s really geeky, even for him– as downers, mitigated by the uppers of the release of ANSYS 14.5 and the inclusion of Esterel. Net net, for Q3, the company expects GAAP revenue between $194 million and $202 million. For the year, it now sees GAAP revenue in the range of $801 million to $824 million, a slight tweak on the earlier forecast of $807 million to $827 million. (Non-GAAP revenue guidance is unchanged.)

So many factoids. What’s the bottom line? ANSYS organic license revenue was up 6% in the paid-up category and up 16% in the lease category. While overall organic software revenue growth of 11% is good, it’s the growth in lease revenue that’s most important. Leases mean lower revenue right now but more stability in the long run, when those lease payments keep coming in and when a renewal is a bill sent in the mail rather than a complicated sales cycle. That cash cushion funds ANSYS’ R&D and acquisition programs — and those, in turn, keep ANSYS’ customers coming back.

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