Ansys (ANSS) Down 5.6% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Ansys (ANSS). Shares have lost about 5.6% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ansys due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

ANSYS Q4 Earnings Top Estimates

ANSYS reported fourth-quarter 2019 non-GAAP earnings of $2.24 per share, which beat the Zacks Consensus Estimate by 12.6% and also increased 5.2% year over year.

Non-GAAP revenues of $492.5 million comfortably outpaced the Zacks Consensus Estimate of $334 million and improved 17.8% from the year-ago quarter as well.

As of Dec 31, 2019, total deferred revenues and backlog came in at $870.7 million, reflecting a 32% surge on a year-over-year basis.

Top-Line Details

Software licenses revenues were $268.9 million, up 18.8% year over year. Lease licenses revenues improved 32% at constant currency (cc) on the back of increase in the value of multi-year lease contracts. Perpetual revenues increased 5.3% year over year.

Maintenance and Service revenues came in at $217.3 million, up 15% year over year.  Notably, maintenance and services revenues improved 15% and 27%, respectively, year over year, respectively.

Service revenue growth reflected broader adoption of the company’s simulation tools and benefits from acquisitions.

Direct and indirect businesses contributed 79% and 21%, respectively, to quarterly revenues.  ACV increased 13% at cc on a year-over-year basis.

Livermore Software Technology (LSTC) and Dynardo, both acquired in the fourth quarter, contributed a combined $8.8 million and $6.7 million to non-GAAP revenues and annual contract value (ACV), respectively.

On a geographic basis, revenues from Americas, EMEA (comprising Germany, the United Kingdom and other EMEA) and the Asia-Pacific (Japan and Other Asia-Pacific) accounted for 44.2%, 29.6% and 26.2% of the total revenues, respectively.

Moreover, at cc, revenues from Americas, EMEA and the Asia-Pacific increased 20.8%, 29.1% and 2% year over year, respectively.

Operating Details

Fourth-quarter non-GAAP gross margin expanded 40 basis points (bps) on a year-over-year basis to 92%.

Selling, general & administrative expenses as a percentage of revenues increased 220 bps to 34.1%. Research & development expenses as a percentage of revenues were 34.4%, up 200 bps year over year.

Non-GAAP operating margin contracted 360 bps on a year-over-year basis to 48% in the reported quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2019, cash and short-term investments of $872.4 million (the United States comprised 72%) compared favorably with $732.9 million (the United States comprised 69%) as of Sep 30, 2019.

The company generated cash from operations of $139.5 million compared with $120.4 million in the previous quarter.

Further, the company repurchased 0.3 million shares in 2019 at an average price of $179.41 per share. As of Dec 31, 2019, the company had 3.5 million shares remaining under the share buyback program.

Key Development

ANSYS released Ansys 2020 R1 solution, which includes Ansys Minerva, a knowledge management application platform during the quarter.

ANSYS also announced several partnerships with entities like Rockwell Automation, TAG Heuer Porsche Formula E Team, Autodesk, BlackBerry Limited, AEye and FLIR Systems.

Guidance

ANSYS expects the coronavirus outbreak in China to delay ACV and its related revenues to the second half of the year. Originally, the same was planned for the first half. Moreover, trade restrictions imposed on certain entities that were put into effect in 2019 are expected to persist in 2020.

ANSYS expects non-GAAP earnings in the range of 75-88 cents per share for first-quarter 2020.

Non-GAAP revenues are anticipated between $300 million and $320 million.

Management projects non-GAAP operating margin in the range of 27.5-30% for the first quarter.

For 2020, ANSYS anticipates non-GAAP revenues of $1.640-$1.7 billion. Non-GAAP earnings are envisioned in the range of $6.19-$6.71 per share.

ACV is anticipated between $1.605 billion and $1.650 billion.

Non-GAAP operating margin is expected in the range of 42-43%.

The company anticipates operating cash flow for 2020 in the range of $500-$530 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -53.15% due to these changes.

VGM Scores

At this time, Ansys has an average Growth Score of C, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ansys has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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