ANSYS, Inc. (ANSS) on Q1 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to ANSYS First Quarter 2020 Earnings Conference Call. With us today are Ajei Gopal, President and Chief Executive Officer; Nicole Anasenes, Chief Financial Officer and Senior Vice President of Finance; and Kelsey DeBriyn, Vice President, Investor and Government Relations. . At this time, I would like to turn the conference over to Ms. DeBriyn for opening remarks. Please go ahead. Kelsey DeBriyn: Good morning, everyone. Our earnings release, the related prepared remarks document and the link to our first quarter Form 10-Q, have all been posted on the homepage of our Investor Relations website. They contain the key financial information and supporting data relative to our first quarter financial results and business update as well as our Q2 and updated fiscal year 2021 outlook and the key underlying quantitative and qualitative assumptions. Today's presentation contains forward-looking information. Important factors that may affect our future results are discussed in our public filings with the SEC, all of which are available on our corporate website. We note that uncertainty regarding the impact of the COVID-19 pandemic on our performance could cause actual results to differ materially from our projections. Forward-looking statements are based upon our view of the business as of today, and ANSYS undertakes no obligation to update any such information. During this call, we will be referring to non-GAAP financial measures unless otherwise stated. A discussion of the various items that are excluded and reconciliations of GAAP to the comparable non-GAAP financial measures are included in this morning's earnings release materials. I would now like to turn the call over to our President and CEO, Ajei Gopal, for his opening remarks. Ajei? Ajei Gopal: Thank you, Kelsey, and welcome to ANSYS, and thanks to everyone for joining us this morning. I am excited to report that Q1 was an excellent quarter for ANSYS, where we beat our financial guidance for revenue, operating margin and EPS. I'm also pleased that we are ahead of our internal plan for ACV. This is significant because, as I explained on our previous call, ACV is heavily loaded towards the back end of the year following the pattern of the past several years. And we are seeing the continued strengthening of the pipeline of ANSYS customer activities across all major geographies. The strong Q1 and our growing sales pipeline, coupled with our excellent Q4 last year, gives us increased confidence in the momentum of our business and in our ability to execute against our goals. As a result, we are increasing our annual guidance for ACV, revenue, EPS and operating cash flow. We expect to see annual ACV growth, for example, to increase by over 1 percentage point in constant currency at the midpoint of our new guidance range. Nicole will provide more details in just a few minutes. In Q1, we were pleased to see that small and medium-sized customers who had slowed their purchasing decisions during the pandemic, showed stronger-than-expected sales growth across geographies and industries. Large customer behavior was as anticipated. From an industry perspective, our traditionally strong sector of hi-tech and semiconductor, aerospace and defense, and automotive and ground transportation continue to be our largest contributors. Our largest deal in the quarter was a 5-year multimillion-dollar agreement with a large North American automotive OEM. This long-time customer is realizing savings by using ANSYS Simulation for its strategic warranty cost control initiative. Nicole Anasenes: Thank you, Ajei. Good morning, everyone. Let me take a few minutes to add some additional perspective on our first quarter financial performance and provide color around our outlook and assumptions for Q2 and 2021. Our strong Q1 results reflect outstanding execution across our business, which yielded revenue, operating margin and EPS all above our Q1 guidance. As Ajei mentioned, in Q1, our large customer behavior was as expected, and we were encouraged to see more momentum with our small and medium-sized customers. We're increasingly optimistic about SMB customer behavior for the full year based on the new deal activity we saw in Q1, which was broad-based across industries and geographies. Now let me discuss some of our Q1 financial highlights. Q1 ACV was $319.4 million and grew 6% or 3% in constant currency, with strong performance from the channel and 78% of ACV coming from recurring sources. Q1 total non-GAAP revenue was $372.1 million and grew 20% or 17% in constant currency. We saw strong performance in lease revenue, driven by new leases signed in the first quarter. In addition, we had a higher mix of sales than expected from perpetual licenses, which drives more upfront revenue recognition. The largest contribution to the growth in perpetual licenses came from Asia Pacific. We closed the quarter with a total balance of deferred revenue and backlog of $936.5 million, representing a 12% increase over last year's first quarter balance. During the quarter, we continued to manage our business with fiscal discipline. This yielded a solid first quarter gross margin of 88.5% and an operating margin of 33.5%, which was better than our Q1 guidance. Operating margins were positively impacted by revenue performance above our guidance as well as the timing of expenses. The result was first quarter EPS of $1.12, which was also above our guidance. Similar to operating margins, EPS benefited from strong revenue results and the timing of expenses. Operator: . And the first question comes from Gal Munda with Berenberg. Gal Munda: The first one, I was just like to double-click a little bit maybe on the linearity of the ACV growth that you're expecting for the year. Obviously, you have significant confidence in the rest of the year, hence raising it $19 million midpoint. But can you just talk a little bit about how those deals might come through? And if you have significant large deals in the pipeline that could affect that and that's why it gives you the most of the confidence? Nicole Anasenes: Sure. So thanks for the question, Gal. Yes, we were really, really pleased with our Q1 performance and especially the green shoots that we started to see from the SMB segment, which was part of why we -- what led to our raise, as you noted, the $19 million raise in guidance. So I would say -- I would characterize our outlook to be consistent with what we saw in Q1, which was that large deal performance came in and enterprises came in as we expected them to behave. And we have some more growing optimism around the kind of improvement in the patterns of the smaller customer set, which, as you recall, was the customer set that we were a little bit more cautious about coming into the year. And so I'd say the shape of the things that came out in Q1 are similar things that affect our outlook for the full year. Gal Munda: That's really helpful. And then maybe the second question, a little bit more strategically thinking. You guys have been fairly successful in allocating CapEx over the last couple of years, really consolidated some of that market. You're returning to really strong cash position. Again, balance sheet is strong. How are you thinking about the opportunities at this stage kind of balancing your strong position with the multiples quite elevated? Do you have appetite to potentially add a little bit more to that organic growth with some opportunistic M&A? Nicole Anasenes: Yes. I mean -- so what I would say is that our capital allocation strategy hasn't changed. And as you point out, our greatest return typically comes from investing in the business and acquiring best-in-class simulation technology in support of our clients and the digital transformations that they're undertaking. So M&A is preferred, but we are selective. And so as a result, share repurchases and debt repayments are other areas that we've deployed cash, and we'll continue to do so. Operator: And the next question comes from Jay Vleeschhouwer with Griffin Securities. Jay Vleeschhouwer: Two questions. First, the company has previously said that your customer concentration, that is among your top 100 or so customers, has evolved from -- they are accounting for roughly 1/3 of your business to closer to now half of your business. And the question there is, how is that affected or might -- how it might continue to affect your internal investments, resource requirements, pipeline foreseeability, any of those sorts of metrics pursuant to that higher customer concentration? And then secondly, there are a number of external and internal technology catalysts coming up, some of which were mentioned at Simulation World a couple of weeks ago. For instance, you have a new upcoming ANSYS Rockwell integration coming up. You have additional solvers for ANSYS Cloud coming up over the summer, I think, with the R2 release, plus some additional high core count configurations. Microsoft is going to be previewing manufacturing cloud. And then lastly, the materials business unit is going to be expanding, I think, more into the fluids area. So lots going on in the technology pipeline. Maybe you could talk about how any one of those are factored into your thinking? Nicole Anasenes: Yes. So Jay, maybe I'll take the first question. I'm going to have Ajei take the second question. So as you point out, our strategy of pervasive simulation is playing out in the market and more and more customers are making larger and larger investments in there. And I think that it speaks to the strength of the strategy and the strength of the portfolio that customers are kind of going in going all-in on ANSYS to help them accelerate product development. What I would say about the overall level of investment, I would say it's consistent with the strategy that we've had to be able to allow customers to evaluate, to leverage our technology using multiphysics solutions. And so that benefits our large customers, of course, but it benefits all customers. And I think that the momentum that we saw in SMB, as an example, is just one kind of proof point that would indicate that it's a purchase order. So it's not as though we have a set of products and a set of investments that are for only large customers and only small customers, those investments get really diversified across the customer base. And so it's really about the personalization of the selling motion and how we engage with customers, which has been pretty consistent across the past couple of years. So I don't see anything that's any meaningfully different -- that would be any meaningfully different from an investment standpoint. Ajei Gopal: And Jay, thanks for the question. So just to quickly jump in, this is Ajei. When you think about smaller versus larger customers, we have over 1,000 customers have gone through the ANSYS start-up program. And these companies tend to be some of the most innovative companies in their use of simulation and they push the envelope. Oftentimes because they approach the problem with no frequency of how to build a solution, and they're in a position to take advantage of the best technologies and the best solutions in the market, and of course, they turn to ANSYS. And so we have -- we are seeing the technologies that we are building and developing being used across the board by large companies as well as small companies. And you alluded, and you mentioned several of these technologies. I think it's fair to say that the strategy that we laid out a few years ago, pervasive simulation is working. And if you recall, what we said there at the time was that we were going to diversify or focus from just focusing on the high-end analyst to with a broader set of individuals, so it's a broader engineering population so that we could address the needs of engineers across the entire product development life cycle. And you talked about our relationship with Rockwell. That's a great example where we're trying to address the needs of the manufacturing engineer, for example. And in other areas with digital twin technologies, we can go after operations engineers and so on. So there's a very different -- it's a very different approach than we may have had 5 or 7 years ago. It's a much broader approach. And as you see, the technologies that we have developed, the acquisitions that we've made have all been in support of the core of the business as well as this diversification towards the pervasive simulation strategy, and it benefits both large companies as well as small companies. Operator: And the next question comes from Andrew Obin with Bank of America. Andrew Obin: You mentioned that there was some sort of hiring that lagged in the quarter. What do you think about the sort of the broader job market? How do you think about your ability to hire people as a potential gating factor in 2021 as the economy continues to recover? Nicole Anasenes: Yes. So thanks so much for your question. So in February, we spoke about more modest expectations for hiring in 2021, particularly in the first half. So in the second half of last year, we brought on about 300 new hires, plus we acquired AGI. And our focus -- employee experience is a very high priority for us at ANSYS. And given all of those people that we brought on board, our focus in -- at least in the first half of the year is really primarily to ensure all of them are properly onboarded, feeling engaged. And as all of us know, it's a little bit more challenging to do that during these times of COVID where we can't see each other. So to date, we're a bit behind our objective, but that objective was a bit more modest. And so overall, we consider ourselves really on track, and we would expect to close the gap throughout the year. This is more of a matter of our own intentionality around our customer experience, and the competitiveness in the market and the ability to attract talent has not changed. Ajei Gopal: Yes. If I could just add to that, I mean one of the things that we pride ourselves for is our -- is the culture within ANSYS. We see our employee engagement scores continue to go up and to the right, which I think is really important. We've won some Employer of Choice Awards, which I think is important as well. So all of that points to a great culture within the company. And given the technology and given the capabilities that we provide, frankly, for a number of students graduating from engineering school, what we do and the technologies that we provide represent their career objectives. They want to work in ANSYS. What we do is essentially what they've been training for as they've been getting their bachelor's degrees and their master's degrees or even their PhDs. And so we have that capability to attract, I think, top-quality talent into the organization, both from universities as well as from -- as well as people who are working at other organizations. So I'm very pleased about our ability to create that pipeline and also about the culture that we've been able to build at ANSYS. Andrew Obin: And just a follow-up question for me. The semiconductor industry is clearly one of your areas of expertise and dominance. And we have several high-profile announcements on semiconductor CapEx shifting to the U.S. How much visibility do you have in your penetration here? And how should we think about sort of longer-term opportunity for ANSYS as incremental growth CapEx does start showing up in North America? Ajei Gopal: Well, the way you should think about our technology is really helping our customers, primarily with the design of their products, whether it's semiconductors or frankly, with any product that they may be working with. And so as you start to look at investments, for example, in other geographies, for example, in the U.S., across the board, whether it's in semiconductors or elsewhere. And you start to look at the increase in capacity, that translates into the need for more simulation. And that translates into the need for more ANSYS. And because of the breadth of the portfolio because we have the ability to support multiphysics simulations, I think this puts us in a very, very good position. If you look at our capabilities for advanced process nodes for semiconductors, if you look at the abilities -- capabilities that we have for 3D ICs, that's where, as I said, this multiphysics portfolio that we have really shines. And so we're in a position to support our customers as they evolve their plans and their design capabilities. Operator: And the next question comes from John Walsh with Crédit Suisse. John Walsh: Maybe a first question, just thinking about and appreciate the color you provided thinking first half to second half. Just wanted to understand maybe the margin driver dynamics a little bit more, maybe particularly around either the SG&A line? And then just as a follow-up to that, great discussion earlier on the small and medium businesses. Was just curious if that's kind of the economy coming back? Or if you also have some targeted sales initiatives into those customers? Nicole Anasenes: Yes. So thanks, John, for your question. So how I would think about margin overall is related to the skew of the business. So as we've communicated in the past, revenue is more highly skewed towards the fourth quarter and second half. Overall, first quarter tends to be kind of the smallest revenue generation quarter just based on the pattern of our customers' purchases and behavior. With that said, our overall business is -- the cost structure associated with our business is largely people, which is not variable. And so the margin profile as we go throughout the year is going to be much more elevated in the back half of the year and much more muted in the first half of the year. And so we -- that's a normal pattern we saw -- we see it -- we saw it in 1Q. We've seen it in prior years. And so we would expect that pattern overall to follow suit. Ajei Gopal: And then with respect to your comment about the small and medium business, as you recall, last year, when we talked about the impact of the pandemic, we pointed out that small and medium business was likely to be disproportionately affected. They typically don't have the financial resources that larger organizations do, and therefore, have to be a little bit more conservative with cash. Obviously, now we're in a situation where there is vaccine rollout in parts of the world. Obviously, we have tragic situations in parts of the globe, like, for example, the situation in India. But at the same time, we have a broad-based perception that there's going to be a recovery around the world, and that translates into the economy coming back. So we certainly see that in general across the space and SMB is no exception. In many cases, the smaller customers are seeing the need to catch up with activities that they may have missed out on. And so there's perhaps an even greater emphasis on trying to drive some of this work. The other point here is that we have global channel partners. And our channel partners oftentimes manage the relationships with the small and medium businesses. And so we have many, many arms and legs on the Street working with these smaller companies to help them get to the stage where they can get back into the main line of their operations. And so we're able to leverage this global channel network to also help us by being able to reach the small and medium business customers. Operator: And the next question comes from Tyler Radke with Citi. Tyler Radke: First question for -- maybe for you, Ajei. Obviously, you talked about some large auto wins in the quarter, I think, one with a leading kind of EV company. Curious if that was kind of an expansion deal on an existing relationship. And if so, how much it expanded? And then more broadly, could you just kind of talk about your pipeline in the auto industry? I know this has been an area of strength and with a lot of the trends around autonomous and electrification, you've had a lot of success there. But are there large deals coming up for renewal? Maybe just give us a sense for how the automotive pipeline looks relative to years past? Ajei Gopal: Sure. The customer that I referenced in the call was, in fact, a long time existing customer of ANSYS. And they obviously were in a position to renew some of their existing relationship of some of their existing product usage and expand in other areas. And so that was a good relationship, and that was important for us to be able to manage. They expanded, for example, into materials, that was a new area for us. And that came in, as you recall, through an acquisition that we did a few years ago, with Granta. What we're excited about in the broader automotive space is, I mean, you pointed to electrification, you pointed to autonomy. With electrification, clearly, the imperative seems to have continued to accelerate, and there is -- there continues to be activity, frankly, in all of the geos and through the supply chain. The complexity of electrification, new government mandates to becoming carbon neutral, frankly, all of those things are driving a huge demand for simulation. And we're seeing a wide adoption of our electric machine design solutions as customers try to get to more reliable and efficient motors for electric vehicle powertrains. We're seeing battery and battery management system designs. Those are areas where simulation is growing as you have new regulations in place regarding things like thermal runaway, which is the major cause of fires in electric vehicles. And then, of course, you see customers who are trying to focus on EMI and C testing, things like cable harnesses. So there's just a number of situations and examples of electrification, which represent, frankly, a significant level of investment across the board. And then, of course, with respect to autonomy, that continues to be an area of ongoing interest. And you see certainly a lot of customers participating in that space. I would argue that the market expectations of when we will have fully autonomous vehicles on the market has been pushed back because I think people are coming to terms with the complexity involved in creating a fully autonomous car on public streets. And so that's being pushed back. But if you look at the work that we've been doing, we announced this partnership with BMW back in 2019. And over the last couple of years almost, we've had tremendous amount of positive customer feedback supporting our efforts. Earlier last year, we announced a partnership with FLIR that focused on hazard detection capabilities for autonomous driving. We've partnered with NVIDIA. We talked at the NVIDIA conferences where we've talked about our advanced radar capabilities. We've done some work with Velodyne on their LIDAR design. So it's -- we have a comprehensive set of capabilities in a partnership strategy with autonomy. Most recently, you may have seen we announced a partnership with National Instruments, which was another important partner who's taken where we can work with our physics sensors. So we've got a partnership strategy with autonomy, which allows us to address the breadth and the complexity of that market as it develops as well. So I'm very excited about both of those markets. They represent tailwinds. And frankly, we were early to invest in that space because we saw those -- we saw both electrification and autonomy is being important, and I think our investments have been validated. Tyler Radke: Great. And just a quick follow-up maybe for Nicole. You talked about the SMB segment improving, which is good to see. But in terms of impacted industries or impacted verticals, kind of where are we in terms of those improvements? Did you kind of see those perform above expectations in Q1? And just maybe help us understand when you expect those to normalize? Nicole Anasenes: Yes. So what I would say about the SMB segment, in particular, is that it was broad-based. It was across geographies, industries, and so that was not industry specific. Overall, industry performance was in line with the expectations we had coming into the quarter. And any volatility in any given industry in a quarter is usually due to the timing of large deals or the timing of renewals. And so that could vary. So overall, the performance of the business in its entirety in the quarter was really in line with our expectations around large customers. And as we had mentioned, what really exceeded our expectations and what was encouraging was just the broad kind of level of improvement that we saw in SMB overall. Operator: And the next question comes from Joe Vruwink with Baird. Joseph Vruwink: Just to stick on the SMB performance in the quarter. I think at one point last year, you had revised your top line plans by about $80 million, and you said about 2/3 of that related to SMB accounts. I'm just wondering how much of that 2/3 of $80 million is maybe expected to now actually come back over the course of 2021? And then second question more on just the midterm performance of SMB customers. I'd say, the 1,000 customers that have gone through the ANSYS start-up program, what's been the experience of graduating onto kind of the upper tiers of the go-to-market period? And do you have any changes in ambitions for SMB within kind of the midterm horizon? Ajei Gopal: So let me address the second part of the question first, as we think about the SMB program that we have or the start-up program that we have. So the ANSYS start-up program is really targeting companies that are very, very early in their life cycle. They may be pre-revenue, they may have very small amounts of revenue. And we work with them as they continue to develop their capabilities. And as I said, in many cases, we'll continue to push the envelope for simulation and what's possible. If -- I mentioned at Simulation World, there were -- we had a number of companies speak. You certainly heard from -- I mentioned Lucid Motors, that was an example of a company in our start-up program. Relativity, you may have heard me speak about them as well. Their business model is as a service. They're using our additive solutions and in our suite of technologies to be able to create satellites and launch vehicles for low earth orbit. So very -- it's a very exciting group of companies. Obviously, small and medium business is not only related to the start-up program. We have others as well who are just smaller companies who participate in that program. Our expectation for the start-up program is that they continue to participate in -- they participate as part of members of the start-up program. And once their revenue reaches a certain level, they then graduate, if you will, into being mainline ANSYS customers. And we've seen, obviously, as I mentioned, success, I mentioned a couple of anecdotes. I don't have the statistics in front of me, but we certainly can give you more information on that later. Nicole Anasenes: Yes. So -- and on your question about the overall performance of the quarter, so look, we were really encouraged by what we saw. And I would characterize it as a beginning of a return to normalized patterns. This particular segment was very quick to shut things off when the pandemic hit. And they're going to be slower to return to normal as a result. They're just not as well capitalized as large companies. They're also more subject to any capitulation that continues to be in the market as the COVID pandemic kind of -- we get out of the pandemic. And so I would say our outlook includes a portion of that coming back. And it's really centered around -- we try to be transparent about what we see right -- what we see in front of us as opposed to speculate on how behavior can change. And so that's kind of how we've thought about the recovery in the context of our outlook. Operator: And the next question comes from Adam Borg with Stifel. Adam Borg: Maybe just two quick ones. First, Ajei, just on the competitive landscape. Obviously, you've seen a lot of success, but some of your competitors are talking more about getting deeper into the simulation market. I love to hear a little bit on any changes competitively and what you're seeing there. And then maybe just as a quick follow-up for Nicole, more of a housekeeping. Can you just help remind us what the inorganic contribution was in the quarter for revenue and ACV? And what the expectations are for the '21 guidance? Ajei Gopal: Yes. So I think ANSYS is a unique company. And we are, I would argue, unequal in the marketplace in terms of our expertise in physics-based simulation. We've got deep and lasting customer relationships. And frankly, that's allowed us to drive innovation across the portfolio, and it's allowed us to create a very efficient and sustainable business model and a very deep competitive mode. And that strength of the business model, it's no wonder that competitors want to try to enter the space because they see this as being an attractive model, perhaps more attractive than the markets in which they participate in. And over the years, we've seen competitors try to enter the space with a point solution or two. And in the meantime, we've continued to expand our physics. We've achieved integrated multiphysics at scale. I mean, some of our most -- some of our solutions scale up to 200,000 cores, for example, in our CFD space, and that's just an enormous capability for our customers. And we continue to deepen and broaden our understanding of customer pain points. We've added new techniques to be able to solve them. We've -- and you see these advancements taking place across our entire portfolio. So I'm very excited about our portfolio. I think we're laser-focused on customer success. We have a strategy that we're executing. This is the right strategy for us. By being able to broaden and deepen our capabilities in physics, we continue to support our customers from small to large across a number of different industries. And I think that puts us in a very good position competitively. And frankly, if there are any -- one of a smaller company gets acquired by another company, it fundamentally doesn't make any difference in our competitive dynamic as we see the market. Nicole Anasenes: Yes. And Adam, just to answer your question quickly on inorganic contribution, our guidance hasn't changed from what we gave in February, which was the $75 million to $85 million contribution of AGI, is consistent with our outlook overall. The acquisition is going well, and we're tracking well against that. Operator: And the next question comes from Jackson Ader with JPMorgan. Jackson Ader: First question is actually on the -- on kind of more near term in the automotive space. Appreciate that the largest deal in the quarter came from an auto OEM. But if we just think about maybe any potential for delays or spending patterns changing from the automotive sector, just with the chip shortage that's just right here in front of us the next few quarters? Ajei Gopal: Jackson, as you know, our technology is tied to R&D initiatives. We're not tied to manufacturing or to a number of units that are being produced. And so what we are seeing is an ongoing continued interest in our customers to produce newer and better technology. As I've mentioned, and I talked about it at some length about electrification, I talked about autonomy. But these have implications not only for the OEMS but through the entire supply chain. The challenges of just getting electric cars to market, as I said, are quite significant. And again, that's where ANSYS comes in. So in the design activity, in the R&D initiatives, that's where there continues to be significant levels of investment. And as I said, we're not tied to the number of units being produced. And so any shortage or challenge in being able to produce cars doesn't affect us from an economic perspective. Jackson Ader: Okay. And then switching over to another industry. I'm just curious to hear what you're seeing in the commercial aerospace customer base and whether investments and budgets are growing and accompanying the growing vaccine rates. Ajei Gopal: Well, as we talked about last year, and I think I gave on a couple of other previous earnings calls, I talked a little bit about some of the activity that we have in the commercial aerospace segment. And in particular, I talked about engine manufacturers and how we are working closely with them. Some of the challenges that they have, that they're dealing with are quite significant. When you think about an aircraft engine, it is a really sophisticated component -- it is a sophisticated machine and the tolerances are remarkably small. And so it requires the use of multiphysics simulation. It's a combination of fluids of structures, of thermal, all of those things come together to be able to solve these problems. And of course, our customers are now struggling with not just the traditional use cases, but next-generation use cases. For example, with eco-friendly and green initiatives, there is a significant amount of pressure on the commercial aerospace world to be able to come up with more efficient aircraft design. I talked in the script about electric aircraft, but that's still some time away. And so certainly, that's a trend in the industry. But it's a -- but getting to these lighter weight, fuel-efficient, eco-friendly engines continues to be an initiative. What's important to realize is that aircraft programs, engine programs, for example, or aircraft programs, in general, are multiyear initiatives. These are not things that change on a quarter-by-quarter basis. So these are multiyear initiatives with significant amounts of R&D that stretches over a long period of time. And obviously, we're engaged with our customers and working with them to help them be successful. Operator: And the next question comes from Ken Wong with Guggenheim. Ken Wong: The first one for you, Ajei. With about 2% of your business coming from construction, I guess, it's not obvious that you guys might benefit meaningfully from an infrastructure bill? Are there other aspects of your business that would potentially see some sort of an uplift? And then for Nicole, just wondering in terms of a rebound in discretionary spend that might have been suppressed during the pandemic? With 5 months in the bag now, any change to how you're thinking about the pace or magnitude of that recovery and spend? Ajei Gopal: Let me just take the first question. I think it's important to realize that when we are talking about infrastructure investment, certainly, we see the opportunity with heavy industries, construction equipment, manufacturing. So there are a number of industries for which we have -- where we have strong exposure, which we think will benefit from investment in infrastructure. And you're right, of course, about construction in and of itself, but it goes significantly beyond that. And then even in the context of construction, as you start to look at next-generation techniques like digital twins and physics-based digital twins, we have technology and capability that would be relevant. So we are very excited about the infrastructure -- investments in infrastructure, we think that would benefit us and certainly the customers whom we serve. Nicole Anasenes: Yes. And on your discretionary question, well, the vast majority of our employees are still working in a remote setting today. And we expect that's going to -- that they return to work. It's going to be really market dependent, and it's -- we're really focused on providing alternatives to employees, which ensures they're engaged and feeling secure about returning to work. And so from an office standpoint, we've considered incremental investments to ensure safe return to work, although we consider that it's probably going to be slow. Travel is the one specific unknown to everyone. And what we would expect is that it would ramp more in the second half as markets become more open. But whether or not people continue to feel comfortable traveling during that time frame or not, that remains to be seen because we're not further enough along in the recovery. Operator: And the next question comes from Saket Kalia with Barclays. Saket Kalia: Nicole, maybe first for you. Thanks for that tidbit on the inorganic contribution to ACV. Just maybe given the changing sort of FX backdrop and what sounds like certainly improved organic growth. I guess, the question is, how do you kind of think about organic constant currency growth in ACV for this year, just to sort of level set broad brush? Does that make sense? Nicole Anasenes: Yes. I mean -- well, I would think about it in -- from the perspective of how we shared the AGI contribution. So the AGI contribution being $75 million to $85 million is kind of how we think about the inorganic portion of the business. Saket Kalia: Right. But then also sort of the changing FX. I know that there's an incremental $14 million FX headwind versus the guide that you gave last. But on a year-over-year basis, how is that sort of FX part of it kind of play into it as well? Nicole Anasenes: Yes. So the year-to-year impact, overall -- let's go back to the overall guidance. So overall guidance, we've raised constant currency growth by a point -- by a little bit over a point at the midpoint, a little bit higher on the low end, right? And so how I would think about that raise is pretty consistent with the organic momentum in the business, given that our guidance around the inorganic component is remaining the same. Saket Kalia: Okay. Got it. Got it. And then maybe the follow-up is just kind of given what you're seeing from the SMB base and just broader kind of recovery, it was nice to see perpetual actually kind of get back to maybe some more normalized levels that we've seen in the past. I know you called out APAC. So maybe the question is, is this perpetual performance maybe isolated to that region and to this quarter? Or do you sort of see perpetual kind of maybe starting to get back to sort of pre-pandemic levels? Nicole Anasenes: Yes. So I mean, the -- there was -- Asia Pacific is a region that has a disproportionate percentage of customers who prefer the perpetual model, and that was a stronger performer in the quarter. And so there's a relationship between those 2 things. Overall, we feel that the long -- that over the long term, there will be a continued shift towards the leasing model. Customers have very dynamic development, R&D needs and project change and needs change over time. And so the leasing model provides customers with the level of flexibility to be able to use the capabilities that they need to as they need them over time and change those things over time. And so overall, the long-term pattern and the momentum seems to be favoring more towards that more flexible model. And that's consistent with trends that are in the market today around customers wanting subscription licenses and more time-based licenses. So I would say there's nothing that we're seeing that is a sea change in preference. But in any given quarter, depending on the mix of customers, depending on the geographic region of customers, I wouldn't be surprised to see a dynamic like we saw in the quarter. Kelsey DeBriyn: Operator, we have time for one more question. Operator: And then last question comes from Jason Celino with KeyBanc Capital Markets. Jason Celino: I'll just ask one. Maybe a follow-up to Saket's question. This is the highest perpetual growth quarter that we've seen maybe potentially ever. But was the strength in perpetual at all attributed to pull forward, which would explain maybe the growth rate? Just trying to understand the magnitude of the strength here. Nicole Anasenes: Yes. No, the perpetual growth in the quarter is really attributed to customers in the quarter disproportionately in the Asia Pacific region who chose to purchase -- they were in the pipeline and they chose to purchase in perpetual modes versus lease mode. So it really was about the in-quarter mix of pipeline and what resulted. Operator: And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing comments. Ajei Gopal: Thank you, operator. With our excellent start to the year, our strengthening customer pipeline and the importance of simulation to our customers, I am confident that we will meet our newly raised goals for 2021. I want to thank all my colleagues at ANSYS for their commitment, their focus and their many successes. And I'd like to recognize the great contributions from our global channel partner network for their efforts in a difficult business environment. And with that, thank you for attending today's call, and I hope you enjoy the rest of your day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.ANSS Ratings Summary
ANSS Quant Ranking
Related Analysis
ANSYS Jumps 20% On Sales Rumors
Shares of ANSYS (NASDAQ:ANSS) experienced a significant rise of more than 20% intra-day today following a Bloomberg report suggesting that the company is exploring various options, including a potential sale, in response to takeover interest.
According to Bloomberg, sources close to the matter indicated that ANSYS, a provider of engineering software, is currently working with financial advisors. However, it's important to note that no definitive decision has been made, and the Pennsylvania-based company may still opt to maintain its independence.
Reacting to the news, Oppenheimer analysts, who maintain an Outperform rating on ANSYS with a $320 price target, commented on the situation. Given ANSYS's market capitalization, which exceeds $25 billion, the analysts anticipate a limited number of potential buyers. They noted that in the context of recent large-scale mergers and acquisitions in the software sector, traditional valuation ratios are taking a back seat to the more turbulent market conditions seen before and after the pandemic. Instead, they suggest that 2021 levels should be considered, which could mean a potential sale price of around $400 per share is feasible.
ANSYS Reports Better Than Expected Q1 Earnings
ANSYS (NASDAQ:ANSS) reported its Q1 earnings results, with EPS of $1.85 beating the Street estimate of $1.61. Revenue came in at $509.4 million, better than the Street estimate of $492.1 million.
Results were strong with double-digit ACV growth driven by broad-based strength, consistent execution and resiliency of the platform in a challenging macro backdrop.
For Q2/23, management anticipates EPS to be in the range of $1.35-$1.53, compared to the Street estimate of $1.87, and revenue of $473-498 million, compared to the Street estimate of $521.15 million.
For the full year, the company expects EPS in the range of $8.39-$8.91, compared to the Street’s $8.65, and revenue of $2.24-2.32 billion, compared to the Street’s $2.29 billion.
ANSYS Reports Better Than Expected Q1 Earnings
ANSYS (NASDAQ:ANSS) reported its Q1 earnings results, with EPS of $1.85 beating the Street estimate of $1.61. Revenue came in at $509.4 million, better than the Street estimate of $492.1 million.
Results were strong with double-digit ACV growth driven by broad-based strength, consistent execution and resiliency of the platform in a challenging macro backdrop.
For Q2/23, management anticipates EPS to be in the range of $1.35-$1.53, compared to the Street estimate of $1.87, and revenue of $473-498 million, compared to the Street estimate of $521.15 million.
For the full year, the company expects EPS in the range of $8.39-$8.91, compared to the Street’s $8.65, and revenue of $2.24-2.32 billion, compared to the Street’s $2.29 billion.
ANSYS Price Target Lowered to $282 From $420 at Berenberg Bank
Berenberg Bank analysts lowered their price target on ANSYS, Inc. (NASDAQ:ANSS) to $282 from $420 on the back of a slight estimate cut to reflect some slowdown in H2/22 and H1/23 and the impact of higher yields.
According to the analysts, the company is the leading simulation provider globally with both depth and breadth in its product offerings that they believe will help outgrow the market over the next few years. Design software is cyclical but diverse geographic/vertical exposure, the company’s shift to multi-year contracts, growing share of recurring revenue, customer R&D that is resilient to macro headwinds, and a return to free cash flow growth underpin the analyst’s Buy rating on the company.
The company has a 25% share and is growing above market growth rates of 8-10%, which the analysts expect will continue long term.
ANSYS to Acquire OnScale
ANSYS, Inc.(NASDAQ:ANSS) shares closed more than 4% lower yesterday following the company’s announcement, according which it had entered into a definitive agreement to acquire OnScale, a cloud simulation platform founded in 2017 that offers a broad spectrum of cloud-based solvers from mechanical, thermal, to parametric sweeps.
According to the analysts at Berenberg Bank, OnScale is a key acquisition that should directly benefit from the industry’s trend to lower the barriers of simulation adoption. The cloud-based simulation will make simulation much more accessible to designers and smaller companies, removing the barriers to hefty license and IT commitments.
The analysts believe that cloud simulation platforms can be a positive gateway for designers to start exploring simulation.
