ANSYS’ Q1 again tops forecasts. A lot.

I posted a quick update about ANSYS’s Q1 results right after they were announced yesterday and managed to leave out one important item: an acquisition. So let’s start there and then dive into more earnings detail.

ANSYS continues to built out its offering for the electronics industry, yesterday announcing the acquisition of the assets of DfR Solutions. DfR is the developer of Sherlock, an automated design reliability analysis software. ANSYS says that Sherlock plus its existing tools enable designers to “quickly and easily analyze for electronics failure earlier in the design cycle – saving users time and money during the development process”. Electronics isn’t my strong suit, but I understand that Sherlock lets designers simulate real-world scenarios like temperature and power cycling, vibration, and movements like bending. According to DfR, it has more than 1100 clients across the main electronics verticals: consumer, computer, mobile, enterprise, telecom, medical, industrial controls, commercial avionics, military, space and many more.

ANSYS didn’t announce financial terms or how the acquisition will affect 2019 and 2020 results, so we have to assume it was a relatively small addition that won’t move the financial needle.

More on the financials, all under ASC 606 accounting and on a non-GAAP basis:

• Total revenue was $317 million, well ahead of prior guidance of $286 million to $308 million
• Lease revenue was $69 million, up 42% driven primarily by an increase in multi-year contracts, typically 2-3 years in duration
• Perpetual revenue was $54 million, down 12%
• Maintenance revenue was $184 million, up 12%
• Services revenue was $13 million, up 41% as ANSYS engaged in projects to “assist our customers with broader adoption of ANSYS simulation tools, as well as the contributions from recent acquisitions”.
• The direct/indirect channel mix was 71%/29% in Q1 2019, in part because a partner was involved in a large multi-year deal. The channel mix was 77%/23% last quarter as well as a year ago
• By geo, revenue from the Americas was up 42% to $148 million. ANSYS called out high-tech, with investments in smart connected products, 5G, artificial intelligence and data centers; aerospace and defense responding to increases in spending on next-generation systems; and the automotive industry’ spend on autonomous vehicles and electrification as growth drivers
• Revenue from EMEA was $91 million, down 7% cc — but it was a very mixed picture. Revenue from Germany was $31 million, down 27% cc while revenue from the U.K. was $10 million, up 22% cc. ANSYS said that the decline in Germany was due to a tough comparable with Q1 2018, when it entered into large multi-year contracts. The company commented that “the automotive industry bolstered EMEA” while “the region’s aerospace and defense performance was limited by the absence of new aircraft programs”
• Revenue from Japan was $34 million, up 13% cc, and from Other Asia-Pacific was $47 million, up 13% cc. ANSYS commented that it saw increases across all countries in the region, driven by high-tech and automotive autonomous vehicle and electrification

Granta, acquired in Q1, is doing very well under ANSYS’ ownership. ANSYS CEO Ajai Gopal announced the largest-ever deal in Granta’s history, which closed (at least in part) because the customer believes ANSYS will continue to invest and integrate Granta into its offerings.

Partnerships continue to roll, though not yet adding significantly to revenue. Mr. Gopal called out PTC, which just said it already has 70 customers for the Creo Simulation Live offering, and SAP, which showed off its simulation-driven digital twin technology at Hannover Fair earlier this year.

Given the strength of Q1, ANSYS upped its targets for Q2 and the rest of the year. For Q2, the company expects revenue between $323 million and $343 million; for the year, between $1,422 million and $1,472 million.

There were lots of other comments about annual contract value (up 7% in Q1), pipelines and customer relationships that lead to visibility implying a strong second half to the year … It was a remarkably upbeat and positive call.

OK. So what does all this tell us? It seems to me that ANSYS is combining its strong portfolio of CAE solutions with partnerships (channel as well as peer companies like PTC and SAP) and a vastly improved go-to-market to drive the trend to more simulation by more people. And that only leads to more opportunities and more revenue.