ANSYS’ Q4 shows it’s not immune from subs’ effects
By now you’ve heard that ANSYS had an OK Q4 but still only reported revenue 2015 that was about on par with revenue in 2014. And the forecast for 2016 is, at best, lukewarm. Why? Yes, some of this is macro-economic and currency-related, but ANSYS is also seeing longer sales cycles and its own shift from licenses to subscriptions. Let’s unpack it all, shall we?
For Q4, ANSYS reported that
- Total revenue was $252 million, basically flat with Q4 2014, and up 4% in constant currency (cc). That was at the low end of ANSYS’ expectations. So far, so good. But now we start to hit some turbulence:
- Software revenue was $149 million, down 5% as reported. On a non-GAAP basis (close enough for our purposes to reported this quarter), lease revenue was up 7% cc but perpetual revenue was down 8% in cc. Some of this was due to customers opting for a lease when they may have signaled going perpetual. If you recall, both PTC and Autodesk have said that it’s hard to predict what a customer may choose until the deal is signed. As we’ve talked about before, a lot of it comes down to which budget (operating versus capital, so lease versus perpetual), how much signature authority is needed (higher for perpetual, lower for lease), how confident the business is (perhaps opting for perpetual if confident in the now but not so much in the later; or going for lease if the business is steady) … Lots plays into the business decision after the technical evaluations are concluded.
- Adding to the customer choice aspect is the sense that ANSYS is trying to shift customers to looking at its offering as a portfolio, and not as point solutions. CEO Jim Cashman said that ANSYS continues to focus on enterprise portfolio sales, cross-selling and driving customers to leases, which “contributed to building the deferred revenue and backlog balance” — in other words, like Autodesk, ANSYS is encouraging customers to buy leases. Unlike Autodesk, of course, it’s still offering most of its products via both mechanisms.
- But there’s more. One customer, a really big deal (though unnamed), bought on a perpetual basis but the $6 million in revenue was deferred to future periods. (Not sure, but it must be due to the way the software is being rolled out; ANSYS can’t recognize the revenue until the customer accepts the product.) Finally, the mix of lease/perpetual suffered because of the company’s weaker performance in Asia, where perpetual licenses are still often preferred.
- Maintenance and service revenue was $102 million, up 6% as reported. Within that total, Maintenance on a non-GAAP basis grew 13% cc, to $95 million.
- By geo, all non-GAAP, revenue from North America was $96 million, up 5%. ANSYS says that it saw particular strength in electronics and high-tech as customers prep offerings for IoT.
- Revenue from Europe was $78 million,up 2% — but within that, it was a confusing picture. Revenue from Germany was up 10% cc, while revenue from the UK was down 7% cc. ANSYS says Q4 was good in Italy, Spain and the Netherlands but weak in the UK, France, Sweden and Russia.
- Revenue from Japan revenue was $27 million, up 9% cc while revenue from the company’s General International Area was up 3% cc to $51 million. China contributed double-digit growth in Q4 (but isn’t singled out yet; perhaps in the 10K filing due soon) while business “struggled” in South Korea and Brazil.
- GIA is becoming more and more relevant, at 20% of total revenue for Q4 2015 and 19% for the year as a whole, up 0.5% since 2014.
ANSYS issued 2016 guidance which many have characterized as weak. The company sees the Q4 business climate continuing into 2016, with a possible increase in economic uncertainty. (But they almost always say that.) For Q1, ANSYS forecasts total revenue of $224 million to $232 million and, for fiscal 2016, revenue of $995 million to $1,030 million. That would be growth of 5% to 9% for the year, a couple of points below prior indications.
So what does this all mean? A couple of things: ANSYS isn’t immune to the shift in customer preference for leases — or, at least, the randomness by which customers decide on lease vs. perpetual. It’s not a big shift overall, as perpetual license revenue grew 3% in FY 2015 in cc while the lease business grew 5% cc in FY 2015, a year where total revenue was up 7% cc (maintenance grew faster, at 13% cc, than license revenue, to get to that 7% cc total). But it is a trend to watch, as we’ve seen how Autodesk has to tune its business model to deal with slower short-term growth.
A bigger issue, for me, is how ANSYS is going to boost growth back to its more typical level. Usually, when ANSYS’ growth slows to the 5% to 7% level, it does a big acquisition. Fluent immediately springs to mind. But there aren’t that many possibilities out there in traditional CAE, so ANSYS wisely branched out into electronics with the Ansoft acquisition and, from there, Apache. Getting further into the IoT would certainly be a natural extension — big data, visualization, round-tripping from input to scenario to output. But so would a lot of other types of simulation, perhaps that take it deeper into manufacturing (like mold design, perhaps). ANSYS has deep pockets and an acquisitive nature. I’d stay tuned.
Too, ANSYS focuses a lot in its messaging about bringing simulation to a much, much wider audience than it covers today, The company says it is targeting a 10x growth in the number of simulation users. As we discussed at ASSESS, that type of expansion carries huge implications for usability, appification and licensing mechanisms. If ANSYS is serious about this 10x, it might make some moves in this direction, too.
Bottom line: ANSYS is fine. The headlines you saw last week had more to do, in the end, with the shift to subscriptions/leases than with customers not buying or macro-economic anything. And, as I said in my Autodesk write-up, that’s a bumpy ride we all have to make it through. And we will.