Simulation software specialist Ansys (ANSS -0.13%) reported stellar third-quarter earnings on Wednesday, Nov. 6, that exceeded expectations. Q3 revenue soared 31% year over year to $602 million, surpassing analyst estimates of $523 million. Adjusted diluted EPS jumped 83% to reach $2.58, beating the forecasted $1.78.
Overall, the quarter showcased Ansys's success in capitalizing on demand across sectors, despite facing regulatory challenges related to its merger with Synopsys (SNPS -0.99%) and export restrictions that are affecting its Chinese operations.
| Metric | Q3 2024 | Analyst Estimates | Q3 2023 | Change (YOY) |
|---|---|---|---|---|
| Revenue | $601.9 million | $522.7 million | $458.8 million | 31.2% |
| Non-GAAP EPS | $2.58 | $1.78 | $1.41 | 83% |
| ACV | $540.5 million | N/A | $457.5 million | 18.1% |
| Operating profit margin | 26.8% | N/A | 15.2% | N/A |
Source: Ansys. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. GAAP = Generally accepted accounting principles. ACV = Annual contract value.
An Overview of Ansys and Its Business Focus
Ansys is a global leader in engineering simulation software, catering to diverse industries including automotive, aerospace, and healthcare. Its flagship offerings enable companies to simulate and test new products, thereby reducing development time and manufacturing costs. Recently, Ansys turned its attention to electrification, autonomy, and connectivity in industries, and the move is contributing significantly to its growth trajectory.
The company's strategy, termed "Pervasive Insights," aims to expand its market presence by broadening the use of simulation software throughout its core markets. This strategy involves enhancing product capabilities, increasing accessibility, and meeting computational demands by offering more licenses. Simultaneously, Ansys invests significantly in research and development to maintain its technological edge.
Quarterly Highlights and Financial Developments
During Q3 2024, Ansys reported notable growth across its segments. The Americas contributed 50.9% of total revenue and it rose 40% year over year. The rise was driven by major contracts in the high-tech industry, including an $88 million deal in the Americas. The company's annual contract value (ACV) -- a key measure of long-term revenue potential -- increased by 18.1% year over year, surpassing initial projections of double-digit growth.
Ansys' GAAP operating profit margin expanded to 26.8%, compared to 15.2% in the previous year, while non-GAAP operating margin rose to 45.8% from 34.1% in the prior year, indicating strong operational performance and cost control. Operating cash flows also saw an increase of 8.4%, totaling $174.2 million.
Strategically, the ongoing merger with Synopsys remains a key focus and a potential growth accelerator for Ansys. However, this merger faces regulatory challenges, particularly in the U.K., introducing uncertainty about its completion. Meanwhile, regulatory changes, specifically new export restrictions, impacted earnings in China. These restrictions resulted in a $20 million revenue headwind, demonstrating the inherent risks in geographical revenue streams. Despite these challenges, Ansys maintained a diverse revenue base, with growth in EMEA and Asia-Pacific regions further underpinning its strong performance.
Looking Ahead
Management said it opted to suspend future guidance temporarily due to the ongoing merger and subsequent regulatory scrutiny. Despite these uncertainties, investor sentiment remains positive given the robust demand demonstrated in the current quarter and potential synergies from the Synopsys merger.
Going forward, Ansys has said on other occasions that it plans to focus on maintaining momentum in high-growth sectors such as automotive, particularly electrification and autonomous technologies. As it navigates the merger and regulatory landscape, key areas for investors to watch include geopolitical developments related to export restrictions and the merger's progression in regulatory channels.
