A month has gone by since the last earnings report for Autodesk (ADSK). Shares have added about 11.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Autodesk due for a pullback? 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’s Q2 Benefits from Robust Subscription Revenues
Autodesk reported second-quarter fiscal 2019 non-GAAP earnings of 19 cents per share, which beat the Zacks Consensus Estimate by couple of cents. In the year-ago quarter, the company reported non-GAAP loss of 11 cents.
Revenues of $611.7 million beat the consensus mark and increased nearly 22% year over year. The figure was better than management’s guidance of $595-$605 million.
Billings of $605 million surged 27% year over year, driven by growth in subscription plan billings, particularly product subscription.
Moreover, total deferred revenues increased 20% to $2.21 billion in the quarter, which reflects growing strength of the business model. Total recurring revenues were 96%, a significant increase from 91% reported in the year-ago quarter.
Autodesk’s business model transition continues to be on track. Subscription revenues (68.8% of revenues) soared 114.5% year over year (111% at constant currency) to $420.6 million, driven by strong growth in subscription plan revenues, well-supported by higher product subscriptions.
However, maintenance revenues (27.2% of revenues) declined 36.4% from the year-ago quarter to $166.4 million, primarily due to continued migration of maintenance plan subscriptions to subscription plan.
Revenues were also impacted by a 43.7% year-over-year decline in other revenues (4% of revenues), which totaled $24.7 million in the quarter. The decline was primarily attributed to decrease in license revenues.
Geographically, revenues from Americas increased 16% from the year-ago quarter to $248 million. Europe, Middle East and Africa (EMEA) revenues jumped 25% to $248 million. Asia-Pacific soared 31% to $116 million.
Revenues from Emerging Economies jumped 38% year over year to $74 million. Emerging economies accounted for 12% of revenues in the reported quarter.
Architecture, Engineering and Construction (AEC) revenues increased 28% year over year to $243 million. AutoCAD Product Family and AutoCAD LT revenues jumped 30% to $177 million.
Both Manufacturing, and Media and Entertainment (M&E) segments’ revenues grew 10% from the year-ago quarter to $146 million and $42 million, respectively.
However, other revenues declined 33% year over year to $4 million.
Annualized Recurring Revenues (ARR) Detail
Total annualized recurring revenues (ARR) were $2.35 billion, up 28% from the year-ago quarter, driven by higher product subscription. Core business ARR (combination of maintenance, product, and enterprise business agreement (EBA)) subscriptions were $2.27 billion, up 29% year over year.
Cloud business ARR increased 21% to $75 million, which was mostly from BIM 360. Autodesk added 31,000 subscribers in the BIM 360 product line.
Subscription plan ARR of $1.68 billion increased 115% year over year, driven by growth in all subscription plan types, primarily supported by product subscription including the maintenance-to-subscription (M2S) program (revenues of $342 million).
However, maintenance plan ARR of $666 million declined 36% 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 290K sequentially to 2.86 million in the second quarter. Subscription plan subscriptions benefited from 117K maintenance subscribers that converted to product subscription under the M2S program. Total subscriptions increased 119K sequentially to 3.94 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 more than 75% in the reported quarter. New customers represented about 25% and contributed a significant portion of subscription additions.
Non-GAAP gross margin expanded 310 basis points (bps) from the year-ago quarter to 89.8%.
Research & development, sales & marketing, and general & administrative expenses, as a percentage of revenues, declined 810 bps, 310 bps and 50 bps, respectively.
As a result, non-GAAP operating expenses as a percentage of revenues declined to 80.7% from 92.4% reported in the year-ago quarter.
Autodesk reported non-GAAP operating income of $55.6 million in the quarter against the year-ago quarter’s operating loss of $28.8 million.
As of Jul 31, 2018, Autodesk had cash and cash equivalents (including marketable securities) of $1.29 billion compared with $1.46 billion as of Apr 30, 2018.
Total debt at the end of the second quarter was $1.59 billion.
The company generated $43 million of cash flow from operating activities compared with $17 million of cash outflow in the previous quarter.
Autodesk repurchased 1.1 million shares for $147 million in the quarter.
For third-quarter fiscal 2019, Autodesk expects revenues between $635 million and $645 million. Non-GAAP earnings are anticipated in the range of 24-28 cents per share.
For fiscal 2019, management now expects revenues between $2.485 billion and $2.505 billion, which reflect growth of 21-22%. Billings are projected to be in the range of $2.580-$2.640 billion.
Autodesk maintained its earlier guidance for subscription additions in the range of 500K and 550K. Total ARR is still expected to be in the range of 28-30%.
Non-GAAP spend growth (cost of revenue plus operating expenses) is expected to increase 1-2%. Moreover, non-GAAP earnings are now expected in the range of 87-95 cents per share.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -25% due to these changes.
Currently, Autodesk has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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