Schnitger Corporation

Ansys has a solid Q1 but ACV concerns drag down the stock price

Ansys has a solid Q1 but ACV concerns drag down the stock price

May 6, 2021 | Hot Topics

Ansys reported Q1 results yesterday that were both good and not-so good –are you seeing a pattern here? PTC and ESI also reported mixed news, with positive Q1 results tamped down by uncertainty around the rest of 2021. First, the details:

  • Ansys reported Q1 GAAP total revenue of $363 million, up 19%. That’s huge, and should be positive but
  • Ansys also reports a metric it calls ACV, which combines the annualized value of maintenance and leases plus the value of perpetual license contracts with start dates during the quarter, plus the annualized value of fixed-term services contracts with start dates or anniversary dates during the quarter, plus the value of work performed during the quarter on fixed-deliverable services contracts. Basically, it’s an attempt to turn things that cover many periods into a figure that can be compared across time periods. And that’s the problem. ACV in Q1 was up 6% (up 3% cc) from a year ago to $319 million but that’s up basically flat when compared to Q1 2019. Investors are seeing this as showing zero organic growth and a letdown from strong performance in the second half of 2020. That’s what sent the share price down 8% or so since the announcement hit the news wires yesterday afternoon
  • But back to revenue. In Q1 2021, Ansys reported software license revenue of $132.6 million, up 51%
  • Within the software total, lease revenue of $66 million, up 45% as reported and up 42% in constant currencies (cc)
  • Perpetual revenue was $68 million, up 57% (up 53%). This was an unusually high perpetual total; since most things are trending towards subscriptions these days. CFO Nicole Anasenes told investors several times during the earnings call that this was simply due to customer choice and not the result of any long-term trends or efforts on Ansys’ part
  • Maintenance revenue was $214 million, up 7% (up 3% cc) but down from $224 million in Q4. I’m not sure why that is and will try to find out
  • Service revenue was $17 million, up 2% (down 1% cc)
  • By geo, revenue from the Americas was $160 million, up 21% (up 21% cc) in part due to a 5-year, multi-million dollar deal with a North American automotive OEM that is looking to “dramatically shorten their electric vehicle development time” and to million-dollar deals with aerospace and defense companies
  • From EMEA, total revenue was $103 million, up 16% (up 8% cc), as Ansys reports also signing aerospace deals there
  • From Asia, revenue was $100 million, up 20% (up 16% cc) also on strength in automotive, as Ansys signed deals with several OEMs in Japan
  • Lots was made of strength in SMB. What Ansys said in its prepared remarks “we saw wide-ranging growth across industry and geography in our small- and medium-sized customer set. These customers have been slowest to return to normal patterns of spend, and we are increasingly optimistic about the patterns we saw in Q1.” What (I think) investors heard:” SMB SMB SMB is our growth driver”. Ansys didn’t quantify what proportion of revenue came from SMB but it’s likely that some of this is catchup from 2020, when a lot of SMB companies, with less cash overall, spent very cautiously while waiting to see what the pandemic would do to their businesses. It’s awesome that SMBs are investing, but it’s at most a small part of Ansys’ overall business
  • We don’t have a concrete number but we do know about Ansys direct (not likely to be SMBs) and indirect (more likely to be SMB) sales – and it hasn’t changed much. Direct sales were 71.8% of total (down from 73.6% of total revenue in Q1 2020), which means indirect/channel sales were 28.2% (versus 26,4%) of total revenue. Doing the math, the channel did just over $100 million in Q1 2021, up from $81 million a year ago. Not likely to move Ansys’ needle

So, a very good Q1 and some investor alarm about the rest of 2021. Ansys itself does not sound at all alarmed about the year. tweaking its guidance for currency movements. The company expects Q2 revenue of $410 million to $440 million; and 2021 revenue of $1791 million to $1856 million.

Two interesting notes from the earnings call. Ansys CEO Ajei Gopal was asked if he’s seeing any changes in the competitive landscape (without naming names, it was clear the investor was asking because Cadence is snapping up CAE companies). Paraphrasing, Mr. Gopal replied that it’s an attractive space, so he’s not surprised at the activity. But it doesn’t bother him, since Ansys has a broad, connected offering that others can’t match. When a large company acquires a point solution, it just adds to the buzz around the solution type (CFD, meshing, etc.) while, in effect, steering companies to Ansys, which can solve huge complex CFD problems and lots of others as well.

And finally, about large versus SMB accounts. One investor said that Ansys’s largest accounts are making up an ever-increasing proportion of revenue; how does this drive Ansys’ investment priorities? Ms. Anasenes said that it’s not surprising that the biggest companies are investing more in simulation to be competitive, but that this “all-in” approach to CAE spreads down the customer pyramid to … yes, SMB. She said something like “Our investment strategy is consistent — technologies like multiphysics benefit all customers. This quarter’s momentum in SMB is a proof point of that broader appeal. We don’t invest for one set of customers — we personalization the selling motion and how we interact with customers” but they all benefit from the same technology.

Are investors right to send the share price down 8% as I finish this? I don’t know; WAY above my pay grade. I do know that Ansys had a great Q1, forecasts growth for the rest of the year, and seems to be chugging along, delivering what its (large andSMB) customers need.

ESI turns the corner, back to growth in Q1 Altair has a great Q1 on the convergence of CAE, HPC & AI
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