Sunday, March 6, 2011

Ansys ( Nasdaq - ANSS ) -- Cash Flow Automation

Ansys (ANSS $55.00) reported excellent Q4 results, slightly ahead of our expectation.  Revenues advanced 11% to $166.6 million.  Non-GAAP earnings rose 23% to $.65 a share.  Profitability benefited from the R&D tax credit, which Congress resurrected just before the end of the year.  Ansys hadn't reserved for those credits in the previous three quarters, so it took the amount for the entire year in the December period.  Revenues were aided by foreign currency translation gains, although Ansys usually hedges its exposure by matching expenses with revenues.  So that factor contributed just a modest amount to income.  Margins remained at superior levels, bolstered by a high level of recurring revenue and an unrivaled competitive position.  Orders percolated in Q4 following the release of Ansys's next generation line of engineering simulation software.  That momentum is continuing to build and promises to accelerate growth in upcoming periods.  U.S. customers accounted for 34% of Q4 sales.  That proportion may widen in 2011 in response to the accelerated depreciation feature in the latest tax law.  Our estimates are a little above Ansys's own forecast, mainly due to the expected lift in tax related demand.  (Some of that business might end up being stolen from future periods, like the cash for clunkers and first time homebuyer programs.)  Simulation remains a hotbed of innovation.  Ansys is certain to develop plenty of advances internally.  But the company has plenty of cash ($473 million) to make acquisitions if outside opportunities emerge.

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