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Autodesk (ADSK) Q1 Loss Wider Than Expected, Revenues Beat

Zacks Equity Research

Autodesk Inc. ADSK reported first-quarter fiscal 2018 adjusted loss (including stock-based compensation expense) of 43 cents per share, wider than the Zacks Consensus Estimate of a loss of 36 cents.

Excluding stock-based compensation, the company reported loss of 16 cents wider than the year-ago quarter loss of a dime. However, the figure was much narrower than management’s guided range of a loss of 27–21 cents 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.
 

Autodesk, Inc. Price, Consensus and EPS Surprise
 

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

 

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.

Shares were up almost 10% in after-hour trading. We note that shares of Autodesk have outperformed the S&P 500 on a year-to-date basis. While the stock gained 37.8%, the index returned 5.5%.



 

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.

Outlook

For second-quarter fiscal 2018, Autodesk expects revenues in the range of $488–$500 million. Non-GAAP loss per share is anticipated in the range of 18–14 cents for the quarter.

The Zacks Consensus Estimate is currently pegged at a loss of 28 cents on revenues of $491.4 million.

For fiscal 2018, Autodesk continues to expect revenues in the range of $2.000–$2.050 billion. Non-GAAP loss is expected in the range of 73–56 cents.

The Zacks Consensus Estimate is currently pegged at a loss of $1.38 on revenues of $2.03 billion.

Autodesk projects subscription additions to be between 600K and 650K. Total ARR is still expected to be 24% to 26%. The company expects to keep non GAAP spend unchanged on a year-over-year basis.

Management expects maintenance plan subscriptions to continue to decline going forward. The rate of decline will vary and will depend on the number of subscriptions that come up for renewal, the renewal rate at the time and the company’s ability to shift maintenance planned customers to product subscriptions.

Our Take

Autodesk’s business transition from licenses to cloud-based services is expected to benefit it in the long run by boosting subscriptions and deferred revenues. We expect its broad product portfolio to generate new customers in both domestic and overseas markets.

However, in the near term, the company’s financials may also be affected by increasing investments in cloud-based infrastructure and marketing initiatives.

Zacks Rank & Key Picks

Currently, Autodesk carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector are DST Systems DST, ACI Worldwide ACIW and Guidance Software GUID. While DST Systems sports Zacks Rank #1 (Strong Buy), ACI Worldwide and Guidance carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for DST Systems, ACI Worldwide and Guidance Software is currently pegged at 10%, 11.50% and 25%, respectively.

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