ANSYS, Inc.

Q3 ACV was $457.5 million, up 12% year over year, or 10% in constant currency. Q3 revenue was $458.8 million, down 3% year over year, or down 4% in constant currency. Gross margin was 91%, operating margin was 34.1%, and EPS was $1.41. Deferred revenue and backlog totaled $1.2 billion, up 9% year over year, and unlevered operating cash flow was $170.6 million; cash and short-term investments were $640 million. For full-year 2023, ANSYS raised ACV guidance to $2.243 billion-$2.288 billion and revenue guidance to $2.234 billion-$2.284 billion. EPS is expected at $8.34-$8.75, and unlevered operating cash flow at $705 million-$735 million. For Q4, management guided to ACV of $897.8 million-$942.8 million, revenue of $769.2 million-$819.2 million, operating margin of 48.9%-51.2%, and EPS of $3.48-$3.89. Management also said it expects to start 2024 with around 10% constant-currency ACV growth excluding tuck-in M&A, and reaffirmed the 2022-2025 long-term outlook of 12% constant-currency ACV growth including tuck-in M&A and $3 billion of cumulative unlevered operating cash flow.

Ajei Gopal framed the quarter as one where ANSYS was tracking to plan until new U.S. Commerce Department restrictions on certain China sales slowed transactions late in the quarter. He emphasized that the core business remains strong worldwide, citing broad demand, a strong pipeline, and growth in high-tech, aerospace and defense, and automotive. He spent much of his remarks highlighting strategic areas like electrification, autonomy, software-defined vehicles, and the expanding role of simulation in automotive development.

Nicole Anasenes quantified the quarter’s performance and the China impact: a roughly $20 million headwind in Q3, with the full-year 2023 headwind from China restrictions and approval processes expected to be $25 million for ACV and revenue. She said Q3 gross margin was 91%, operating margin was 34.1%, EPS was $1.41, and unlevered operating cash flow was $170.6 million; cash and short-term investments ended at $640 million. For 2024, she said the China-related impact is expected to be $10 million-$30 million on both ACV and revenue, and that some of that is timing shift while some is lost business; she also noted the business generated strong operating leverage and that the effective tax rate in Q3 was 17.5%, expected to remain there for the rest of 2023.

Analysts focused heavily on China: whether the added vetting was company-specific or industry-wide, which products were affected, how much of the Q3 miss was timing versus lost business, and whether 2024 guidance assumed delayed deals would return. Management said the new process is an additional layer of vetting required by the Commerce Department for prospects located in China, affects certain prospects rather than the whole base, and adds latency to transactions; it is not just about EDA and is broad across applicable products. They estimated roughly two-thirds of the Q3 impact was timing and one-third lost business, and said the 2024 headwind should be $10 million-$30 million. Other questions covered Q4 growth drivers, the contribution of new AI-related products, and apparent weakness in Germany/Europe. Management said Q4 confidence is supported by a strong renewal book, with just under half of Q4 already committed by end of October, and that AI products like ANSYSGPT, AI Plus, and SimAI will be priced accordingly but pricing is not yet announced. On Europe, Nicole said the revenue pattern was heavily influenced by ASC 606 and mix dynamics, while ACV in EMEA was described as strong.