Engineering simulation software provider Ansys (NASDAQ:ANSS) beat analysts' expectations in Q2 FY2023, with revenue up 4.8% year on year to $496.6 million. Revenue guidance for the full year also exceeded analysts' estimates but next quarter's guidance of $463.7 million was less impressive, coming in 11.9% below expectations. ANSYS made a GAAP profit of $69.5 million, down from its profit of $98.8 million in the same quarter last year.
ANSYS (ANSS) Q2 FY2023 Highlights:
- Revenue: $496.6 million vs analyst estimates of $490.1 million (1.33% beat)
- EPS (non-GAAP): $1.60 vs analyst estimates of $1.52 (5.25% beat)
- Revenue Guidance for Q3 2023 is $463.7 million at the midpoint, below analyst estimates of $526.5 million
- The company reconfirmed revenue guidance for the full year of $2.29 billion at the midpoint
- Gross Margin (GAAP): 86.2%, down from 90.5% in the same quarter last year
Used to help design the Mars Rover, Ansys (NASDAQ:ANSS) offers a software-as-a-service platform that enables simulation for engineering and design.
The company’s product suite includes Ansys Fluent for fluid dynamics analysis, Ansys Mechanical for structural assessments, and Ansys Electronics for electromagnetic testing. These products provide engineers with the ability to simulate and analyze complex designs, identify potential issues, and optimize performance before production. Ansys software is also compatible with third-party CAD and product lifecycle management (PLM) tools, making engineers' lives easier because it integrates into their favorite tools.
Product development and design optimization would be an extremely expensive and time-consuming (as well as frustrating) process if manufactured goods could only be tested after production, only to be redesigned and produced again and again. Instead, simulations in different thermal environments or testing the structural integrity of a product can be done using Ansys’ software. This saves resources and time, as designs can be altered over and over before going to final production.
Ansys principally generates revenue by selling seat licenses for its software suite, based on number of users in a customer’s organization. In addition, the company generates a smaller portion of revenue from training, consulting, and support services to ensure that customers succeed with the Ansys software suite.
The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games, 3D tours or interactive movies.
Competitors in engineering and design software include Aspen Technology (NASDAQ:AZPN), Cadence Design Systems (NASDAQ:CDNS), and Bentley (NASDAQ:BSY).Sales Growth
As you can see below, ANSYS's revenue growth has been over the last two years, growing from $446.7 million in Q2 FY2021 to $496.6 million this quarter.

ANSYS's quarterly revenue was only up 4.8% year on year, which isn't particularly great. On top of that, its revenue decreased again in Q2 by $12.8 million, following the same trend as its $184.7 million decrease in Q1 2023. While one-off fluctuations aren't always concerning, we have no doubt that shareholders would like to see its revenue rebound soon.
Next quarter, ANSYS is guiding for a 1.86% year-on-year revenue decline to $463.7 million, a further deceleration from the 7.1% year-on-year decrease it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 9.97% over the next 12 months.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. ANSYS's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 86.2% in Q2.

That means that for every $1 in revenue the company had $0.86 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite its recent drop, ANSYS still has an excellent gross margin that allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Key Takeaways from ANSYS's Q2 Results
With a market capitalization of $29.2 billion and more than $478 million in cash on hand, ANSYS can continue prioritizing growth.
It was comforting to see that ANSYS topped analysts' revenue expectations this quarter, even if just narrowly. That really stood out as a positive in these results. On the other hand, its underwhelming revenue guidance for next quarter was disappointing and its gross margin declined. Overall, this was a mixed quarter for ANSYS. The stock is flat after reporting and currently trades at $325.37 per share.
Is Now The Time?
When considering an investment in ANSYS, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter. We cheer for everyone who's making the lives of others easier through technology but in case of ANSYS, we'll be cheering from the sidelines. Its revenue growth has been very weak, and analysts expect growth rates to deteriorate from there. And while its impressive gross margins are indicative of excellent business economics, unfortunately customer acquisition is less efficient than many comparable companies.
Given its price to sales ratio based on the next 12 months is 11.9x, ANSYS is priced with expectations of a long-term growth, and there's no doubt it's a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.
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