ANSYS today reported Q2 revenue of $235.5 million, smack in the middle of its prior forecast of $230 million to $238 million and about $1 million ahead of Wall Street consensus. That’s good, and the news sent the share price up about 2%; after the earnings call, it shot up another 3% — let’s see if we can figure out why.
It comes down to the growing importance of simulation in manufacturing company processes, and how ANSYS benefits from that trend. CEO Jim Cashman told investors that the company is increasingly reaching the VP level in its dealings with customers, meaning it’s becoming a more strategic partner and is not simply a selling a point tool or two that no one except the user really understands. ANSYS broader portfolio, which now includes mechanical CAE, electromagnetics, CFD and more, boosts ANSYS’ visibility in its accounts (because more people know the brands it controls) and lets it create enterprise deals that are customized to each account — both good things that let it reach higher. It sounds, too, from Mr. Cashman’s remarks, that the company has been remaking its direct salesforce to work at this level.
Mr. Cashman also said that his team is regularly helping customers create 2 to 10 year roadmaps for simulation tool usage, which is incredible when you consider how quickly this technology is evolving and how misunderstood its value proposition was just a few years ago. Many companies are moving from replacing bend-and-break testing to incorporating early-stage simulation in evaluating design alternative, which grows tool usage across the board.
Finally, also visible in the Q2 results, is the growth of ANSYS’ enterprise business. The company reported 18 deals of over $1 million, “many” of which are enterprise licenses. As we saw with PTC, these big deals take longer to close and can slip into or out of a quarter with no real warning. But ANSYS’ revenue model includes more leases than does PTC’s, so the effect on any one quarter isn’t as drastic. [And demonstrates, again, why PTC wants more subscription revenue.]
It wasn’t all rosy, of course, as industry-specific and country-specific problems can cause even the best plans to be delayed. But Mr. Cashman and CFO Maria Shields seem confident that currency, the slowdown in oil and gas, troubles in China and other parts of the world are nothing new or troubling. Yes, big deals take longer to close; yes, buying in Eastern Europe, Russia and China has slowed — but the team has seen this before and is able to adjust.
- For Q2, ANSYS reported GAAP revenue of $235.5 million, up 1% as reported and up 9% in constant currencies (cc)
- Total software license revenue was $141 million, flat year/year (y/y). It’s a bit strange, that it’s exactly the same y/y: $140,489[,000] –what are the odds of that??– but there it is …
- Within total software revenue, lease revenue was $78 million, down just under 1% y/y as reported but up 9% in cc
- Perpetual license revenue was $63 million, up 1% as reported and up 9% cc
- Maintenance and service revenue was $95 million, up 3%. Maintenance revenue was $90 million, up 4%, while Service revenue continued its planned decline, down 3% to $5 million
- This is relatively constant with prior periods: 33% lease, 27% perpetual, 38% maintenance and 2% service. Ms. Shields said that the preference for lease or perpetual is often geographic, that India, China and Korea –even when they’re growing very fast– tend to buy perpetual license: “While in some geographies, enterprise licenses [which tend to have at least a lease component –Ed.] and subscription is becoming more of an acceptable norm, other parts of the world are still perpetual buyers. We’re going to continue to offer them perpetual licenses.” That’s an important point: as much as software vendors might like the idea of repeatable revenue from subscriptions, not everyone is going to jump on this bandwagon
- Recurring revenue was 71% for Q2, down a bit from the 76% last quarter but even with the 71% reported a year ago. The sequential drop might, therefore, be due to when buyers renew annual agreements
- Revenue from North America was $91 million, up 11%. Mr. Cashman told investors that the oil slowdown in parts of the US and Canada was offset by growth in aerospace and defense, automotive and high-tech industries. Fuel efficiency, environmental regulation and smart technology all continue to drive growth, and a “return of confidence and continued loosening of defense spending by the federal and prime defense contractors” bodes well for future periods.
- Revenue from Europe was $71 million, down 9% as reported but up 7% in cc. The company said Germany was the strongest market in the region while France and Russia dragged down overall results. slower new business growth in France and continued weakness in Russia
- Revenue from ANSYS’ General International Area was $73 million, up 2% as reported and up 10% in cc. Strength in China, South Korea and Taiwan were offset by slower growth in Chinese state-owned enterprises. Investments by high-tech, aerospace and defense, and automotive electronics companies drove the performance
- ANSYS reports 18 six-figure deals in Q2, as compared to 22 in Q1 and 20 a year ago.
- The direct and indirect revenue split remains at 76% / 24%, the same as in Q1. Mr. Cashman cited the success in Germany in Q2, where the company has a hybrid direct/indirect go-to-market, but we have yet to see significant success in finding or growing partners who can successfully represent ANSYS’ broader portfolio — but it takes time to roll out the channel changes and incentives the company announced earlier this year.
The company said it expects revenue in the range of $231.7 million to $239.7 million for the third quarter and $946 million to $962 million for the year. That narrows the range for the year, while keeping the midpoint the same.
What does it all mean? ANSYS is a carefully constructed puzzle of product, channel, end-market and geographic diversity. We might wish that Jim Cashman would say it differently, but on every call he says that ANSYS has a solid, repeatable business, a diversified footprint and world-class employees and customers — but they do. Indeed.