Ansys Earnings: Firm Assures Strong Momentum With Unwavering Annual Contract Value

Ansys ANSS delivered solid second-quarter results that came ahead of our expectations as well as management’s, thanks to broad-based growth across all verticals. While the firm guided to a weaker third quarter due to a mix of license types that generate upfront recognition, management assured this is a temporary headwind, and increased its full-year revenue and annual contract value, or ACV, guidance. Given the strength we see in simulation demand paired with Ansys’ robust research and development channel, we expect revenue acceleration in 2023, and our long-term outlook is unchanged. With this, we are maintaining our fair value estimate for the wide-moat firm at $262 per share. While shares are down around 6%, we view current levels as overvalued and suggest investors wait for a better entry point to invest in this high-quality name.

Second-quarter revenue increased 5% year over year in constant currency to $497 million, exceeding the midpoint of guidance. In addition, ACV, which we view as the best indicator of Ansys’ health, grew 7% year over year at constant currency to $488 million. Within this, ACV from recurring revenue sources grew 17% year over year, driven by the shift to subscription lease licenses. On profitability, second-quarter non-GAAP operating margin came in at 36%, and non-GAAP EPS was $1.60, above guidance. Margins in the quarter were boosted by strength in revenue and favorable product mix.

Management expects third-quarter revenue of $464 million at the midpoint, and non-GAAP EPS in the range of $1.18-$1.31. While the outlook is light because of the impact of revenue recognition, the overall momentum of the business is strong, and we are encouraged by the firm’s third-quarter ACV growth outlook of 10.5%-15.3% year over year in constant currency. As well, management raised its full-year guide for revenue to be $2.29 billion at the midpoint, up from $2.28 billion and ACV year-over-year growth of 11.4%-14.6% in constant currency, up from 10.8%-14.2%.