ANSYS Q2 shows big deals CAN be closed during a pandemic
Large deals made ANSYS’ Q2 look unusually strong, in what otherwise has been a relatively weak reporting season in our PLMish world. ANSYS CEO Ajay Gopal said the company closed the largest deal in its history in Q2, as an existing automotive customer standardized on ANSYS products for multiphysics, electrification, additive manufacturing, and digital twins — at a total deal value of almost $100 million. From Mr. Gopal’s remarks, it sounds like this was a major upgrade by this customer: renewing some products and extending into new ones as well.
Mr. Gopal called out one other big, noteworthy contract signed in Q2: a new business, perpetual deal for HFSS and LS-Dyna with a major high-tech company for $12 million. This deal moved from the second half of the year to Q2 and contributed $10 million to the perpetual revenue total — leading to most of the revenue beat.
Given those two headline deals, it’s a bit jarring that a lot of ANSYS’ comments around its customers’ buying sentiment is downbeat — about how the channel had a hard time reaching small- and medium-sized businesses, and that closing any new business was hard during the quarter. Looking ahead, ANSYS expects its SMB customers (about 1/3 of ANSYS’ business) to have liquidity problems that slow spending for much of the rest of 2020. In general, ANSYS now expects the business environment in Q3 to be similar to Q2 instead of showing a more pronounced recovery.
- Total GAAP revenue was $385.7 million, up 5% as reported and in constant currencies (cc). The company’s forecast had been $330 million to $370 million; Mr. Gopal said that big high-tech deal pushed the company over the top of guidance
- Total software license revenue was $169.3 million, down 1%. Within that total, lease revenue was $113.2 million, up 13% as reported and cc. Perpetual revenue was $56.1 million, down 20%
- If we track this over time, we can see ANSYS shifting to more lease sales — a fact ANSYS explains by noting that its larger customers often sign enterprise agreements that feature “longer-term, time-based licenses involving a larger number of our software products … [and] we are also experiencing a shifting preference from perpetual licenses to time-based licenses across a broader spectrum of our customers. This shifting preference was elevated in the first half of 2020 as a result of the economic impacts of COVID-19, and we expect it to continue into the foreseeable future.”
- Total maintenance and service revenue was $216.3 million, up 9%. Within this total, revenue from maintenance was $203.2 million, up 10% (up 11% cc) and services revenue was $13.1 million, up 1%
- By geo, revenue from the Americas was $191.5 million, up 33%. ANSYS said it closed a multi-year deal with a “global multinational, multiproduct high-tech company” and that record deal at “a global leader in automotive and ground transportation”
- Revenue from EMEA was $87.4 million, down 6% (down 5% cc) as “relative stability in the defense segment … resulting in a seven-figure, multi-year deal at a European defense contractor during the quarter”. Another “multi-year deal was also concluded with a central European semiconductor manufacturer”
- Revenue from Asia was $106.9 million, up 5%, on strength in Japan “but its revenue results were more than offset by contractions within the rest of the region due to a strong comparable” a year ago. The company signing multiple multi-year deals in high-tech and “a global automotive components manufacturer committed to an eight-figure, three-year deal”
- The channel mix was 78% direct/22% indirect — showing a slight move towards direct
CFO Maria Shields provided guidance for the rest of the year. Q3 GAAP revenue is expected to be $345 million to $375 million, flat to up 9% year/year. FY20 guidance was raised by about $15 million to $1,558.7 million to $1,633.7 million, which would be up 5% at the midpoint. Don’t see this increase as hugely optimistic; the $15 million bump reflects Q2 revenue and the movement of the US Dollar versus other currencies.
Ms. Shields and Mr. Gopal mentioned that some customers may need extended payment terms on existing contracts (primarily in China so far) or may be negotiating them into new agreements. According to ANSYS’ published materials, “While such requests were initially in the automotive industry, during the second quarter we experienced the expansion of such requests in other industries, particularly related to larger contract commitments.” This is undoubtedly realistic but hasn’t really featured in other PLMish earnings calls; it’s something to keep an eye on during the Q3 conference calls next quarter.
Ms. Shields raised an interesting point when discussing this with investors: yes, extended payment terms may affect cash flow, but that’s under control. Being flexible on the shape of these agreements leads to stronger customer relationships, to partnering rather than selling/buying — which is ultimately very good for business. She’s right; as humans, we tend to remember who helps us succeed and reward that behavior with continued business.
So, what have we learned? Two main things: That customer relationships are built one interaction at a time and that these are cumulative. Solid work over years probably contributed to closing both of those large deals — and likely made it possible to close them remotely when traveling wasn’t possible.
And that diversity (of end-industries, geographies, and products) makes all the difference. When one area is cut off, the others may be open. When oil and gas is struggling, defense may not be. And that its broad portfolio is likely why ANSYS was able to record a $100 million deal – as good as it may be, no one needs $100 million worth of Fluent. But add in LS-Dyna, HFSS, and who knows what else, that $100 million price tag is possible.