Ansys Earnings: Overachievement in Q1 Speaks to Safeguarded R&D Budgets; Maintaining $262 FVE

Ansys ANSS reported robust first-quarter results, well surpassing our top- and bottom-line expectations as well as management’s, thanks to broad-based growth across all regions (with Americas leading the pack). Altogether, we remain convinced Ansys will still see slight revenue acceleration in 2023, as we believe that research and development budgets are one of the least vulnerable in uncertain times due to their long-term orientation. We think it’s important to stress that Ansys software is not at the mercy of its customers’ total R&D headcount. Rather, Ansys receives revenue from customers based on total compute required for simulation needs. We think this lack of vulnerability is reflected in management’s decision to reiterate its outlook for the year. All in all, we are maintaining our fair value estimate for the wide-moat firm at $262 per share, which places the stock in overvalued territory. We recommend investors hold off on investing in this high-quality name until the market bakes in more realistic revenue and margin assumptions for this mature company.

Ansys’ first-quarter revenue increased 19% year over year in constant currency to $509 million, exceeding management’s high end of guidance and our projections (continuing a trend from last quarter). In addition, average contract value, which we believe is the best indicator of Ansys’ overall health, grew at an encouraging 19% year over year at constant currency to $399 million. On profitability, first-quarter non-GAAP operating margins expanded to 40% from 35% in the year-ago period, and non-GAAP EPS was $1.85. The margin improvement was a result of revenue outperformance as well as a more beneficial license type mix.

Management expects second-quarter revenue to come in at a midpoint of $486 million, paired with expectations of non-GAAP EPS at a midpoint of $1.44. For the full year, management maintained its outlook which includes revenue at a midpoint of $2.28 billion and non-GAAP EPS at a midpoint of $8.6.