Ansys Earnings: Headwinds in China Appear Temporary as ACV Still Shines; Maintaining $262 FVE

Wide-moat Ansys delivered third-quarter results that fell short of our top-line expectations but were above our expectations on the bottom line as expenses were lower than anticipated along with beneficial timing of investments for the quarterly results. Its top line and annual contract value, or ACV, was negatively impacted to the tune of about $20 million by incremental approval processes and export restrictions on the sale of some of its products in China. This headwind was not included in management’s initial guidance for the third quarter, resulting in the disappointing revenue results. However, Ansys has worked to become compliant with the restrictions through adjusting business operations and will resume the affected business, albeit at a slower pace. We would also note that its business in China is 5% of total ACV, but we would like to see operations resume as normal. When considering this headwind and management’s guidance, our model adjustments are modest, and we are maintaining our fair value estimate of $262 per share. Shares are down around 2% upon our writing, getting a bit closer to our fair value estimate, and we view shares as fairly valued. Ansys’ business in China will be important to monitor moving forward.