Autodesk (ADSK) Up 9.4% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Autodesk, Inc. ADSK. Shares have added about 9.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Autodesk Q1 Loss Wider Than Expected, Revenues Beat

Autodesk reported first-quarter fiscal 2018 adjusted loss (including stock-based compensation expense) of $0.43 per share, wider than the Zacks Consensus Estimate of a loss of $0.36.

Excluding stock-based compensation, the company reported loss of $0.16 wider than the year-ago quarter loss of $0.10. However, the figure was much narrower than management’s guided range of a loss of $0.27–$0.21 per share.

Revenues of $485.7 million beat the consensus mark of $473 million but fell nearly 5.1% year over year. The figure was within management’s guided range of $460–$480 million.

Moreover, deferred revenue increased 18% to $1.80 billion in the quarter, which reflects growing strength of the business model.

Management continues to emphasize that revenues, in the near term, will be impacted by the business model transition as revenues are now recognized “ratably” as against realized “upfront” earlier on.

Total recurring revenue was 90% in the reported quarter a significant increase from 72% reported in the year-ago quarter. Moreover, Autodesk continues to make meaningful progress in converting non-paying users into subscribers. The company’s 30% discount promotional offer added 26K product subscriptions during the quarter.

We believe that the development is positive as it improves revenue visibility and growth trajectory in the long haul. Further, improving average revenue per subscriptions (ARPS) owing to price increases as well as lesser discounts related to shift from legacy maintenance plans to product subscriptions will drive growth in second-half fiscal 2018.

Top-line Details

Revenues were impacted by a 65.7% year-over-year decline in License revenues (10% of total revenue), which were $48.7 million in the quarter.

Maintenance revenues (54.3% of total revenue) also declined 7.3% from the year-ago quarter to $263.6 million, primarily due to lower subscriptions. However, the decline was better than management’s anticipation. At the end of the first quarter, the company had nearly 2 million maintenance planned customers.

However, subscription revenues soared 102.8% year over year to $173.4 million. The company stated that demand for the core engineering product was strong as evident from 170% year-over-year growth in product subscriptions.

Total subscriptions increased approximately 186K from the prior quarter to 3.29 million in the quarter. Subscription plan (product, end-of-life and cloud subscriptions) increased approximately 233K from the last quarter to 1.32 million.

New customers represented about a third of the company’s new product subscriptions in the quarter. New enterprise customers’ growth was also strong as evident from the 44K subscription additions in the quarter, 10% more from the prior-year quarter.

Cloud subscription additions continue to show strong growth, improving more than four times from the year-ago quarter driven by robust performance from BIM 360 and Fusion tools.

Total annualized recurring revenue (ARR) was $1.74 billion, up 18% from the year-ago quarter and 20% on a constant currency (cc) basis. Subscription plan ARR surged 105% at cc.

Geographically, revenues in the Americas decreased 3% year over year to $210 million. EMEA revenues declined 6% to $190 million, while the same in APAC decreased 6% from the year-ago quarter to $86 million.

Operating Results

Gross margin contracted 40 basis points (bps) from the year-ago quarter to 85.8%, primarily due to massive contraction in license gross margins.

Operating expenses as percentage of revenues increased 570 bps to 105.1%, primarily due to higher marketing & sales (up 560 bps) and research & development (up 80 bps) expenses, partially offset by lower general & administrative expense (down 70 bps).

Operating loss widened to $98.5 million as compared with $78.6 million reported in the year-ago quarter.

Balance Sheet

Autodesk exited the quarter with total cash and cash equivalents (including marketable securities) of $1.81 billion compared with $1.90 billion as on Jan 31, 2017.

Cash flow from operating activities was $45.2 million in the reported quarter. The company repurchased 2.2 million shares for a total of $192 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted downward by 35.5% due to these changes.

Autodesk, Inc. Price and Consensus

 

Autodesk, Inc. Price and Consensus | Autodesk, Inc. Quote

VGM Scores

At this time, Autodesk's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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