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ANSYS (ANSS) Q3 Earnings Outshine on Solid Revenues & Orders

ANSYS Inc. ANSS reported third-quarter 2017 non-GAAP earnings of $1.05 per share, which beat the Zacks Consensus Estimate by 8 cents. The figure increased 10.5% year over year and was better than management’s guidance of 94-98 cents.

Revenues increased 12.6% (12% in constant currency) from the year-ago quarter to $276.8 million, surpassing the Zacks Consensus Estimate of $264 million and management’s guidance of $258-$267 million.

The year-over-year growth was driven by 12.2% increase in software license revenues and 11.9% growth in maintenance and service revenues.

As of Sep 30, deferred revenues and backlog increased 38% year over year to $669.3 million.

ANSYS’s shares have returned 46.6% year to date, substantially outperforming the 35.8% rally of the industry.

 

 

Segment Revenue Details

At constant currency, lease license revenues grew 10.3% to $94.7 million, while maintenance revenues increased 11.7% to $112.7 million in the reported quarter. Perpetual license revenues increased 15.8% to $62.6 million. Service revenues increased 10.5% to $6.7 million.

Direct and indirect businesses contributed 76% and 24%, respectively, to quarterly revenues. During the quarter, the company had 25 customers with orders in excess of $1 million, including three customers with orders in excess of $5 million and two customers with orders of more than $10 million.

ANSYS closed a three-year contract worth more than $45 million, which was the largest deal in the company’s history.

Recurring revenues base was 75%. Bookings jumped 38.2% from the year-ago quarter to $285.2 million.

Region wise, North America, Europe and Asia-Pacific revenues increased 18%, 5.2% and 11.2%, respectively, at constant currency.

North America had 14 customers with orders above $1 million, including three customers with orders in excess of $5 million and two with orders of more than $10 million. The strength in North America reflected strong demand for ANSYS’s solutions in the aerospace & defense, electronics/semiconductors, automotive and energy industries.

Europe, France and the United Kingdom, each delivered double-digit constant currency revenues growth. This strength was partially offset by weak performance in Germany. Europe had 7 customers with orders above $1 million.

ANSYS remains focused on rebuilding sales organization in the region, which management believes will help growth to rebound in 2018.

Asia-Pacific revenues benefited from strong performance in China and Taiwan.

ANSYS, Inc. Price, Consensus and EPS Surprise

ANSYS, Inc. Price, Consensus and EPS Surprise | ANSYS, Inc. Quote

Operating Details

Non-GAAP gross margin expanded 50 basis points (bps) from the year-ago quarter to 90.7%.

Operating expenses (excluding amortization), as a percentage of revenues, increased 370 bps from the year-ago quarter. The increase was driven by higher selling, general & administrative (up 400 bps) expenses and was partially offset by lower research & development expenses (down 30 bps).

Consequently, non-GAAP operating margin expanded 90 bps on a year-over-year basis to 48.7% in the reported quarter.

Balance Sheet & Cash Flow

ANSYS exited the quarter with cash and short-term investments of $926.6 million (of which 66% was held in the United States), up from $863.5 million in the previous quarter. The company generated cash from operations of $88.9 million compared with $112.2 million in the quarter.

Further, ANSYS repurchased 2 million shares in the reported quarter. As of Sep 30, 2017, the company had 3.5 million shares remaining in the authorized share repurchase program.

Guidance

For fourth-quarter 2017, ANSYS expects non-GAAP earnings in the range of 99 cents to $1.05 per share. The company expects to incur additional charges of $2 million ($1.3 million, net of tax), primarily in the quarter, related to additional realignment charges.

Net revenues are anticipated in the range of $284-$293 million.

Management expects gross margin of 90% and operating margin between 44% and 45% for the fourth quarter.

For 2017, ANSYS now anticipates revenues of $1.079-$1.088 billion (up from $1.053-$1.073 billion) and earnings in the range of $3.93-$3.99 (up from $3.77–$3.89) per share.

Gross margin is now anticipated at 90% and operating margin between 46.5% and 47% for the full year.

ANSYS currently plans on total capital expenditure in the range of $17-22 million (up from previous guidance of $15-20 million) for 2017.

Zacks Rank & Key Picks

ANSYS carries a Zacks Rank #3 (Hold).

Adobe Systems Inc. ADBE, Microsoft Corporation MSFT and Cadence Design Systems Inc. CDNS are better-ranked stocks worth considering in the sector. While Adobe sports a Zacks Rank #1 (Strong Buy), Microsoft and Cadence carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Adobe, Microsoft and Cadence are pegged at 17.00%, 12.20% and 12.00%, respectively.

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