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Why Is Autodesk (ADSK) Down 4.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Autodesk (ADSK). Shares have lost about 4.4% in that time frame, underperforming 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 drivers.

Autodesk Q4 Results Benefit from Higher ARR and ARPS

Autodesk reported non-GAAP earnings of 46 cents per share in the fourth quarter of fiscal 2019 against a loss of 9 cents posted in the year-ago quarter. The figure beat the Zacks Consensus Estimate by 4 cents.

Revenues of $737.3 million beat the Zacks Consensus Estimate of $707 million and increased 33.1% year over year.

The year-over-year growth was driven by robust growth in subscription revenues, new customer wins and declining expenses.

Quarter in Details

Autodesk’s business model transition continues to be on track. Subscription revenues (74.6% of its total revenues) soared 87.3% year over year to $550 million, driven by strong growth in subscription plan revenues and well supported by higher product subscriptions.

However, maintenance revenues (18.6% of its total revenues) declined 37.5% from the year-ago quarter to $137.4 million, primarily due to continued migration of maintenance plan subscriptions to subscription plan.

Revenues also benefited from a 23.8% year-over-year increase in other revenues (6.8% of its total revenues), which totaled $49.9 million in the quarter.

Geographically, revenues from Americas increased 29% from the year-ago quarter to $300 million. Europe, Middle East and Africa (EMEA) revenues jumped 35% to $299 million. Revenues from Asia-Pacific soared 38% to $138 million.

The company also witnessed growing traction in the adoption of BIM 360 solutions. Notably, Autodesk benefited from customer wins who will be using BIM to manage designs and processes in the AEC industry.

Notably, billings of $1.04 billion surged 39% year over year.

Moreover, total deferred revenues increased 18% to $2.68 billion. Total recurring revenues were 93% of its total revenues, flat sequentially.

Autodesk completed the acquisition of PlanGrid in the reported quarter. The deal will expand its presence in the construction space.

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 $2.75 billion, up 34% from the year-ago quarter, driven by 17% increase in total annualized revenues per subscription (ARPS) and 13% increase in subscriptions.

Moreover, Autodesk added 51,000 subscribers in the BIM 360 product line.

Subscription plan ARR of $2.2 billion increased 87% 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 $549 million declined 38% 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 418K sequentially to 3.53 million in the fourth quarter. The increase was driven by new product subscription and 111K maintenance subscribers who switched to product subscription under the M2S program. Total subscriptions increased 252K sequentially to 4.33 million.

Autodesk is also benefiting from its growth in enterprise business, which grew 30% year over year. Further, the company’s enterprise business agreement (EBA)s posted over 60% revenue growth in the quarter.

Full- Year Details

For fiscal 2019, Autodesk recorded revenues of $2.57 billion, up 25% year over year. Earnings per share were $1.01 compared against a loss of 48 cents in fiscal 2018.

Total ARR and ARPS increased 34% and 15% year over year, respectively in fiscal 2019.

The company witnessed migration of 452,000 maintenance customers to subscription and reached a milestone of 4 million active subscriptions.

Operating Results

Non-GAAP gross margin expanded 270 basis points (bps) from the year-ago quarter to 90.9%.

Research & development, sales & marketing expenses and general & administrative expenses, as a percentage of revenues, declined 670 bps, 1000 bps and 230 bps, year over year, respectively.

As a result, non-GAAP operating expenses, as a percentage of revenues, declined to 72% from 91.4% reported in the year-ago quarter.

Autodesk reported non-GAAP operating income of $139.2 million in the quarter against the year-ago quarter’s operating loss of $17.5 million.

Balance Sheet

As of Dec 31, 2018, Autodesk had cash and cash equivalents (including marketable securities) of $953.6 million compared with $1.08 billion on Oct 31, 2018

Total long-term debt at the end of the fourth quarter stayed at $2.09 billion compared with $1.59 billion in the previous quarter.

The company generated $312 million of cash flow from operating activities compared with $39 million in the fiscal third quarter.

On a year-to-date basis, Autodesk repurchased 2.2 million shares for $293 million. The company’s repurchase program slowed down in the reported quarter as the company aims to conserve cash for making future acquisitions.

Guidance

For first-quarter fiscal 2020, Autodesk expects revenues between $735 million and $745 million. Non-GAAP earnings are anticipated in the range of 44-48 cents per share. Additionally, the company expects cash flow to accelerate in the first quarter.

For fiscal 2020, management now expects revenues between $3.25 billion and $3.3 billion, indicating growth of 26-28%. Billings are projected in the range of $4.05-$4.15 billion, indicating growth of 50-53%.

Total ARR is still expected in the range of 27-29%. Non-GAAP spend growth (cost of revenues plus operating expenses) is expected to increase 9%. Non-GAAP earnings are now expected in the range of $2.71-$2.90 per share.

Additionally, the company expects the number of M2S interest migrations to moderate in fiscal 2020 as they have less than 800,000 maintenance subs remaining.

Management stated that they will not be disclosing subs and ARPS on a quarterly basis

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 -29.55% due to these changes.

VGM Scores

Currently, Autodesk has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Autodesk has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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