Executive Summary / Key Takeaways

• ANSYS is a market leader in engineering simulation software, providing essential tools across high-tech, aerospace, and automotive industries, underpinned by over 50 years of software history and a strategy focused on pervasive insights through technological innovation.
• The company's growth is driven by increasing adoption of its broad multiphysics portfolio, expanding user base through improved accessibility, and the rising demand for computational power to solve increasingly complex design challenges.
• Recent financial performance in Q1 2025 showed revenue growth of 8.2% (10% in constant currency), primarily fueled by a 12.6% increase in high-margin maintenance and service revenue, demonstrating the strength of its recurring business model and existing customer base.
• ANSYS possesses significant technological differentiators across numerics, HPC, AI/ML, cloud, and digital engineering, offering quantifiable benefits like accelerated simulation times (e.g., 1000x speedup in optimization, 96% runtime reduction in CFD) and enabling complex, multi-domain analysis critical for next-generation product development.
• While facing near-term headwinds from U.S. export restrictions impacting sales to certain entities in China (expected $10M-$30M impact in 2024, mostly loss business), the company remains confident in its long-term outlook of 12% constant currency ACV CAGR (2022-2025) and $3 billion cumulative unlevered operating cash flow, supported by broad-based demand and a robust pipeline, despite the pending acquisition by Synopsys (SNPS) expected to close in H1 2025.

The Engine of Innovation: ANSYS's Enduring Role in Engineering

ANSYS, Inc., with roots tracing back over 50 years in software development and formally established in 1994, stands as a foundational provider of engineering simulation software and services. Its core mission is to empower engineers, designers, and researchers across a vast spectrum of industries—from the cutting edge of high-tech and semiconductors to the demanding realms of aerospace, defense, and automotive—to predict how their world-changing ideas will perform in reality. The company operates as a single, integrated segment, reflecting its holistic approach to solving complex, multi-discipline problems.

At the heart of ANSYS's strategy is the pursuit of "Pervasive Insights." This involves deepening the application of simulation within core markets, integrating it throughout the entire product lifecycle, and broadening its accessibility to a wider range of users and use cases. This strategy is propelled by three key growth vectors: enabling customers to utilize more of ANSYS's diverse product portfolio, expanding the base of users who can leverage simulation, and driving the need for more computations as simulations become larger and more complex. This approach has allowed ANSYS's solutions to become relevant beyond traditional engineering validation, reaching users both upstream and downstream in the product development process.

Technological Edge: The Power of Multiphysics and Advanced Computing

ANSYS's competitive advantage is deeply rooted in its technological leadership, built upon continuous investment across five strategic pillars: numerics, high-performance computing (HPC), artificial intelligence (AI) and machine learning (ML), cloud and experience, and digital engineering. These pillars are not isolated but work in concert to enhance the entire portfolio, enabling customers to tackle challenges previously deemed intractable.

In numerics, the core science of accurate physical prediction, ANSYS has made strides such as enabling HFSS users to solve simulations 8 times larger than before. HPC advancements are particularly impactful, with the Fluent multi-GPU solver offering a 7 times lower hardware purchase cost and consuming 4 times less power than equivalent CPU solutions. Collaborations highlight this power: a joint effort with Baker Hughes (BKR) and Oak Ridge National Laboratory using Fluent on AMD Instinct GPUs achieved a remarkable 96% reduction in simulation runtime for a massive axial turbine model, while Volvo Cars (TICKER:VOLCAR B.ST) leveraged ANSYS and NVIDIA (NVDA) GPUs to accelerate CFD simulations for the EX90 EV by 2.5x.

AI/ML is being integrated to democratize and accelerate simulation. AI techniques in the optiSLang optimization engine, for instance, reduced the time for a complex electric motor optimization problem from 7 hours across 4800 simulations to just 17 minutes. New features like resource prediction in ANSYS 2023 R1 leverage AI to guide users toward more efficient computation. The cloud strategy includes both marketplace offerings for flexible access to existing products on hyperscalers and the development of cloud-native capabilities targeting new users and workflows. Digital engineering tools, such as the EV battery safety workflow in LS-Dyna, integrate multiple physics to analyze complex problems, a functionality the company notes is unique among commercial solutions. These technological strengths translate directly into customer value—faster design cycles, reduced physical testing, lower costs, and the ability to innovate in critical areas like electrification and autonomy—reinforcing ANSYS's essential role in modern R&D.

Competitive Positioning: A Niche Leader in a Dynamic Market

The engineering simulation market is strong and growing, driven by increasing product complexity and the imperative for faster, more cost-efficient innovation. ANSYS operates within this landscape alongside significant competitors like Autodesk (ADSK), Adobe (ADBE), and PTC Inc. (PTC), as well as indirect players and emerging technologies.

While broader software companies like Adobe command a larger overall market share (58.53% for 12 months ending Q1 2025) and often exhibit higher net margins (25-30% vs. ANSYS's TTM 22.95%), ANSYS holds a specialized leadership position with an estimated 6.86% market share in its core simulation segments. Its strength lies in the depth and breadth of its multiphysics capabilities and the accuracy of its solvers, which are critical for high-stakes, performance-driven applications in industries like aerospace and advanced semiconductors. This technological differentiation provides a competitive moat, allowing ANSYS to command pricing power in niche areas and fostering deep customer relationships.

Compared to Autodesk (15.17% market share), which has a strong presence in design and broader simulation tools, ANSYS's focus on high-fidelity, integrated multiphysics analysis offers a distinct advantage for complex engineering problems. Similarly, while PTC competes in PLM and simulation, ANSYS's specialized solvers and academic ties provide an edge in R&D-intensive environments. The company addresses competition by continuously investing in its technology, expanding its portfolio, and emphasizing the quantifiable ROI simulation delivers, such as reducing physical prototyping costs and accelerating time to market. The pending acquisition by Synopsys, a leader in electronic design automation (EDA), is a strategic move that aims to create a combined entity with enhanced capabilities across chip design and simulation, potentially altering the competitive dynamics, particularly in the high-tech sector.

Financial Performance and Operational Resilience

ANSYS's financial performance reflects the strength of its business model and the demand for its solutions. In the first quarter of 2025, the company reported total revenue of $504.9 million, an increase of 8.2% year-over-year (10% in constant currency). This growth was primarily driven by the maintenance and service segment, which saw revenue increase by 12.6% to $344.9 million. This highlights the stability and recurring nature of a significant portion of ANSYS's revenue base, which is recognized over the contract term. Software license revenue, which is recognized upfront, remained relatively flat at $159.9 million, influenced by the mix of subscription lease and perpetual licenses.

Operating expenses increased in Q1 2025, primarily due to higher personnel costs, including salaries, incentive compensation, and stock-based compensation, as well as increased marketing and professional fees. Despite this, GAAP operating income rose significantly by 35.9% to $58.9 million, and non-GAAP operating income increased by 12.5% to $169.1 million. The GAAP operating profit margin was 11.7%, while the non-GAAP operating profit margin stood at 33.5%. Interest income benefited from a higher invested cash balance, while interest expense decreased due to a lower interest rate environment on the company's variable-rate debt. Net income for the quarter was $51.9 million, resulting in GAAP diluted EPS of $0.59 and non-GAAP diluted EPS of $1.64.

The company maintains a strong liquidity position. As of March 31, 2025, cash and cash equivalents totaled $1.76 billion, and short-term investments were $70.4 million, resulting in total cash, cash equivalents, and short-term investments of $1.83 billion. Net cash provided by operating activities in Q1 2025 was robust at $398.9 million, a substantial increase of 41.1% compared to the prior year, driven by strong customer receipts. The company's total debt stood at a carrying value of $754.3 million, primarily from its unsecured term loan, with no principal payments due in the next twelve months. Management believes its existing cash, operational cash flow, and access to its $500 million revolving credit facility are sufficient to meet its near-term and foreseeable future obligations.

Outlook and Risks

ANSYS has reaffirmed its confidence in its long-term outlook, targeting 12% constant currency ACV compounded annual growth (including tuck-in M&A) and $3 billion of cumulative unlevered operating cash flow from 2022 to 2025. For fiscal year 2025, the company expects double-digit ACV growth. This outlook is supported by a robust pipeline and the inherent resilience of its business model, which benefits from high renewal rates on recurring contracts.

However, the company faces specific near-term headwinds related to U.S. Department of Commerce export restrictions on sales to certain entities in China. These incremental approval processes, implemented in Q3 2023, introduce delays and are expected to mute ANSYS's growth in China in both 2023 and 2024. The estimated impact on ACV and revenue in 2024 is between $10 million and $30 million, with the majority expected to be lost business rather than just timing shifts. While China represents only about 5% of ANSYS's total ACV, this headwind is a factor in the near-term growth trajectory. The company anticipates a return to steady-state growth in China after 2024.

The pending acquisition by Synopsys, expected to close in the first half of 2025, introduces both strategic opportunity and execution risk. While regulatory approvals are progressing (including clearances in the UK, Turkey, Japan, Korea, and Taiwan), obtaining approval in all relevant jurisdictions, including China, remains a condition. The required divestitures, such as the PowerArtist RTL business to Keysight (KEYS) and certain optics/photonics software, must also be completed. The pendency of the transaction could also impose restrictions on ANSYS's operations. Beyond the merger, other risks include macroeconomic uncertainties, geopolitical conflicts, foreign currency fluctuations, the ability to attract and retain talent, and cybersecurity threats.

Conclusion

ANSYS is a deeply entrenched leader in the critical field of engineering simulation, providing essential software that enables innovation across the world's most dynamic industries. Its strategic focus on pervasive insights, powered by continuous technological advancements across numerics, HPC, AI/ML, cloud, and digital engineering, creates a powerful competitive moat built on quantifiable performance benefits and unique multiphysics capabilities. The company's financial performance, particularly the strong growth in recurring maintenance and service revenue and robust cash flow generation, underscores the resilience and durability of its business model, even amidst broader economic uncertainties.

While the pending acquisition by Synopsys and near-term headwinds in the China market present specific challenges, ANSYS's underlying business momentum, diversified customer base, and market-leading technology portfolio provide a strong foundation. The company's reaffirmed long-term targets for ACV growth and unlevered operating cash flow signal confidence in its ability to capitalize on the increasing demand for simulation driven by major industry transformations. For investors, ANSYS represents a play on the fundamental need for predictive engineering, offering exposure to a high-margin software business with significant technological differentiation and a clear path for continued growth, albeit with the complexities introduced by the ongoing strategic transaction and geopolitical factors.