Autodesk's 1Q Earning Lags, Down Y/Y
Autodesk Inc. (ADSK) reported first-quarter 2014 non-GAAP earnings of 42 cents, which decreased 10.6% from the year-ago quarter. Including stock-based compensation, earnings came in at 31 cents per share which lagged the Zacks Consensus Estimate by 4 cents.
Revenues
Revenues for the quarter not only decreased 3.1% year over year to $570.4 million but also failed to beat the Zacks Consensus Estimate of $586 million. Revenues were affected by lower license revenues (down 8.9% year over year). However, a 5.8% increase in the subscription revenues arrested the decline in total revenue.
Autodesk had realigned its revenue segment with revenues from cloud service offerings from License and Other Revenues to its new revenue item Subscription Revenues. Now, Autodesk’s Subscription Revenues comprises two components namely, maintenance revenues and revenues from cloud service offerings.
Segment wise, revenues from the Manufacturing segment and Platform Solutions and Emerging Business (“PSEB”) were down 4% and 6% respectively, on a year-over-year basis. Moreover, Autodesk’s Media and Entertainment segment recorded a revenue decline of 8% year over year.
However, revenues from Architecture, Engineering and Construction (AEC) increased 4% from the year-ago quarter. Though, Autodesk reported an 8% increase in revenues from Suites, revenues from its Flagship products were down 9% year over year.
Geographically, decline in revenues from Asia Pacific (down 3.0% from the year-ago quarter), EMEA (down 4.0% year over year) and the Americas (down 3% year over year) led to the revenue declines.
Moreover, revenues from emerging economies, which represented 13.0% of the total revenue, were down 8% on a year-over-year basis.
Operating Results
Gross profit on a non-GAAP basis decreased 4.8% from the year-ago quarter to $515.2 million. Gross margin came in at 90.3% compared with 91.9% in the year-ago quarter. The decline was primarily due to lower revenues and unfavorable revenue mix. Including stock-based compensation, gross margin came in at $513.7 million.
Operating expenses on a non-GAAP basis decreased 4.4% from the year-ago quarter, to $378.3 million, due to lower marketing and sales expenses (down 6.7% year over year) and research and development expenses (down 1.2% year over year). General and administrative expenses were also down 4.4% from the year-ago quarter.
Moreover, operating expenses, as a percentage of revenue, contracted 100 basis points (bps) to 66.3% in the quarter. Including stock based compensation, operating expenses came in at $410.3 million.
Non-GAAP operating income decreased 5.6% from the year-ago quarter to $136.9 million. Operating margin contracted 60 bps from the year-ago quarter to 24.0%, primarily due to lower revenue base. Including stock-based compensation of $33.5 million, operating income came in at $103.4 million.
Net Income on a non-GAAP basis was down 11.7% year over year to $96.3 million. Including stock-based compensation, net income came in at $71.9 million.
Balance Sheet
Autodesk exited the first quarter with total cash and cash equivalents of $1.66 billion million compared with $1.61 billion in the previous quarter. Cash flow from operating activities was $224.1 million compared with $156.0 million in the prior quarter.
Outlook
For the second quarter of 2014, Autodesk expects revenues in the range of $550 million-$570 million and earnings per share in the range of 39 cents - 44 cents on a non-GAAP basis.
Autodesk revised its fiscal 2014 guidance, which reflects a growth of 3% (down from 6% from an earlier forecast) in revenues. Autodesk expects operating margins to expand 50 - 100 bps, down from previous forecast of a 125 - 150 bps expansion, compared to fiscal 2013.
Recommendation
Autodesk’s first-quarter results were marred by mixed macro economic environment and soft end-market demand. However, Autodesk witnessed continued demand for design related suites.
Moreover, going forward, Autodesk’s new cloud-based offerings are expected to gain traction. Autodesk’s focus on expanding its mobile applications for both Apple’s (AAPL) iOS and Google’s (GOOG) Android platform will further drive market share, going forward.
However, sluggish macro-economic environment, weakness in emerging markets, customer concentration and increasing competition from Adobe Systems Inc. (ADBE) are the major concerns. Moreover, continued investments in news products are expected to hurt margins in the near term. These factors have prompted Autodesk to revise down its fiscal 2014 guidance.
Currently, Autodesk has a Zacks Rank #4 (Sell).
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