Tuesday, May 8, 2012

Ansys ( Nasdaq - ANSS ) -- Customer Purse Strings Grow Tighter

Ansys (ANSS $60.00) reported excellent on target Q1 results.  Sales improved 17% to $185.3 million.  Earnings advanced 16% to $.66 a share.  Ansys is the leading provider of engineering simulation software used in a wide range of industries.  The company sells its products either as a perpetual license, which requires a large upfront payment and smaller annual maintenance fees which provide customers with all the latest enhancements; or as an annual license.  That format provides for a less expensive upfront fee but higher renewal rates.  In the March quarter a higher than normal percentage of customers adopted the year to year approach.  The total number of licenses sold was on track in the period.  But revenue was less than it would have been otherwise.  The main factor was tighter customer budgets.  That pressure may cause further shifts to annual licenses.  It also could impact overall unit volume in upcoming periods.  Most customers find the technology essential and are unlikely to eliminate purchases altogether.  But they may cut their own engineering staffs if the economy weakens materially, which might cause some scaling back in the number of software packages they need.

Our 2012 estimates are unchanged.  The economic slowdown makes it less likely those figures will be revised higher, though.  And if things don't pick up growth probably will remain subdued in 2013, as well.  Barring a total collapse Ansys remains well positioned to sustain a high level of financial performance.  It also could improve its already dominant competitive position.  Free cash is running $50-$100 million per quarter, more often towards the high end of the range.  That financial muscle could support further R&D and marketing improvements, plus potential acquisitions of complementary technologies.

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