A month has gone by since the last earnings report for Autodesk (ADSK). Shares have lost about 5.1% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Autodesk due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Autodesk Q3 Results Benefit from Higher Recurring Revenues
Autodesk reported non-GAAP earnings of 29 cents per share in the third quarter of fiscal 2019 against a loss of 12 cents recorded in the year-ago quarter. Earnings beat the Zacks Consensus Estimate by 3 cents.
Revenues of $660.9 million beat the Zacks Consensus Estimate of $642 million and also increased 28.3% year over year. The figure was better than management’s guided range of $635-$645 million.
Notably, billings of $654 million surged 30% year over year.
Moreover, total deferred revenues increased 17% to $2.24 billion, with short-term deferred revenues up 14% due to strong billing in the reported quarter. Total recurring revenues were 96% of its total revenues, reflecting a significant increase from 92% reported in the year-ago quarter.
Quarter in Details
Autodesk’s business model transition continues to be on track. Subscription revenues (72.8% of its total revenues) soared 108.3% year over year to $481.3 million, driven by strong growth in subscription plan revenues and well supported by higher product subscriptions.
However, maintenance revenues (22.7% of its total revenues) declined 38.6% from the year-ago quarter to $150.1 million, primarily due to continued migration of maintenance plan subscriptions to subscription plan.
Revenues were also impacted by a 25.9% year-over-year decline in other revenues (4.5% of its total revenues), which totaled $29.5 million in the quarter.
Geographically, revenues from Americas increased 25% from the year-ago quarter to $269 million. Europe, Middle East and Africa (EMEA) revenues jumped 30% to $267 million. Revenues from Asia-Pacific soared 32% to $126 million.
Autodesk acquired PlanGrid in the reported quarter, in a bid to expand its presence in the construction space. The deal is financed with cash on hand and a short-term pre-payable loan of $875 million.
For a smooth exchange of 2D and 3D project information, the company aims to integrate workflows between PlanGrid software and BIM 360 construction management platform in the near term.
Annualized Recurring Revenues (ARR) in Detail
Total annualized recurring revenues (ARR) were $2.53 billion, up 33% from the year-ago quarter, driven by both product and cloud offerings. Core business ARR [combination of maintenance, product, and enterprise business agreement (EBA)] subscriptions were up 33% year over year.
Cloud business ARR increased 36%, which was mostly from BIM 360. Autodesk added 53,000 subscribers in the BIM 360 product line.
Subscription plan ARR of $1.93 billion increased 108% year over year, driven by growth in all subscription plan types, primarily supported by product subscription, with a meaningful increase in enterprise business agreement (EBA).
However, maintenance plan ARR of $601 million declined 39% from the year-ago quarter, primarily due to the ongoing migration of maintenance plan subscriptions to product subscriptions through the M2S program.
Subscription plan subscriptions increased 252K sequentially to 3.12 million in the third quarter. Subscription plan subscriptions benefited from new product subscription and 71K maintenance subscribers that converted to product subscription under the M2S program. Total subscriptions increased 143K sequentially to 4.08 million.
Autodesk is also benefiting from its investment in digital infrastructure. The company’s e-store generated nearly 20% of products subscription revenues and grew 65% in the reported quarter.
Notably, growth in total ARR and annualized revenues per subscription (ARPS) was the highest in the reported quarter, since the beginning of the business model transition.
Non-GAAP gross margin expanded 390 basis points (bps) from the year-ago quarter to 90.3%.
Research & development as well as sales & marketing expenses, as a percentage of revenues, declined 910 bps and 670 bps, respectively. Whereas, general & administrative expenses increased 60 bps in the quarter.
As a result, non-GAAP operating expenses, as a percentage of revenues, declined to 76.4% from 91.6% reported in the year-ago quarter.
Autodesk reported non-GAAP operating income of $92.2 million in the quarter against the year-ago quarter’s operating loss of $26.2 million.
As of Oct 31, 2018, Autodesk had cash and cash equivalents (including marketable securities) of $1.08 billion compared with $1.29 billion on Jul 31, 2018
Total long-term debt at the end of the third quarter remained flat sequentially at $1.59 billion.
The company generated $39 million of cash flow from operating activities compared with $43 million of cash outflow in the fiscal second quarter.
On a year-to-date basis, Autodesk repurchased 2.1 million shares for $270 million.
For fourth-quarter fiscal 2019, Autodesk expects revenues between $700 million and $710 million. Non-GAAP earnings are anticipated in the range of 40-44 cents per share. Additionally, the company expects cash flow to accelerate in the fourth quarter.
Moreover, the company expects to see continued sequential increases in ARR, ARPS, billings, revenues, spend and earnings.
For fiscal 2019, management now expects revenues between $2.53 billion and $2.54 billion, reflecting growth of 23-24%. Billings are projected in the range of $2.61-$2.64 billion, reflecting growth of 17-19%
Autodesk maintained its earlier guidance for subscription additions in the range of 500-550K. Total ARR is still expected in the range of 30-31%.
Non-GAAP spend growth (cost of revenues plus operating expenses) is expected to increase 3%. Moreover, non-GAAP earnings are now expected in the range of 95-99 cents per share.
Additionally, the company now expects operating margin for the year to be higher by one percentage point compared with the previous guidance.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 10.85% due to these changes.
Currently, Autodesk has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Autodesk has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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