Autodesk Inc. (ADSK) reported third quarter 2012 earnings of 36 cents per share, beating the Zacks Consensus Estimate by 2 cents. Earnings per share (EPS), including stock-based compensation but excluding one-time charges increased 33.3% year over year, driven by continued growth in revenues across geographies and business segments.
Revenue
Revenues increased 15.1% year over year to $548.6 million in the reported quarter, beating the Zacks Consensus Estimate of $544.0 million. Revenues were also at the higher end of management’s guided range of $535.0 million to $550.0 million.
The year-over-year growth in revenues was driven by higher license and other revenues, which increased 17.5% year over year to $331.4 million. Maintenance revenues rose 11.6% year over year to $217.2 million in the quarter. Additionally, the revenues for the quarter were boosted by 36.0% increase on a year-over-year basis in the Suites revenue and an increase in the platform solutions and emerging business (PSEB) segments.
On a segmental basis, Platform Solutions and Emerging Business (PSEB) revenues jumped 21.0% year over year to $210.0 million in the reported quarter.
Revenues from the Architecture, Engineering and Construction (AEC) business segment were $152.0 million, up 12.0% year over year, while Manufacturing revenues increased 14.0% year over year to $134.0 million in the quarter. Revenues from the Media and Entertainment business rose 6.0% year over year to $53.0 million in the quarter.
Autodesk posted significant upside in all of its geographical regions on the back of continued adoption of its products. Revenues in America jumped 12.0% year over year to $200.0 million.
International businesses continued its strong performance during the quarter. EMEA revenues climbed 10.0% year over year to $202.0 million. Asia-Pacific revenues escalated 28.0% year over year to $146.0 million.
Revenues from emerging economies (16.0% of the total revenue) climbed 15.0% year over year to $87.0 million.
Operational Performance
Gross profit (including stock-based compensation but excluding one-time charges) was $500.1 million, up 14.5% year over year. However, gross margin decreased 40 basis points (bps) from the year-ago quarter to 91.2%.
Operating expenses (including stock-based compensation but excluding one-time charges) increased 10.6% year over year to $390.6 million, primarily attributable to higher marketing & sales expenses (up 11.4% year over year) and research & development expenses (up 15.0% year over year) which fully offset a 4.8% year-over-year decline in the general and administrative expenses. However, operating expenses, as a percentage of revenue, contracted 290 bps to 71.2% in the quarter.
Operating income (including stock-based compensation but excluding one-time charges) of $109.5 million was up 31.5% year over year. Operating margin came in at 20.0% in the quarter, up 250 bps year over year, attributable to strong revenue growth and cost controls in the quarter.
Balance Sheet and Cash Flow
Autodesk’s balance sheet remains strong with no debt. The company exited the third quarter of 2012 with total cash and cash equivalents of $1.34 billion, compared with $1.37 billion in the previous quarter. The decrease was due to the closing of 10 strategic acquisitions during the quarter. Cash flow from operating activities was $138.0 million compared with $132.4 million in the prior quarter.
Outlook
For fourth quarter 2012, Autodesk expects revenues in the range of $575.0 million to $590.0 million. The Zacks Consensus Estimate is pegged at $581.0 million.
GAAP EPS is expected in the range of 26 cents to 29 cents. Non-GAAP EPS is expected in the 42 cents to 45 cents range. The Zacks Consensus Estimate is currently pegged at 34 cents per share, which is evidently below the guided range.
For fiscal 2012, Autodesk expects revenues in the range of $2.20 billion to $2.21 billion. GAAP EPS is expected in the range of $1.17 to $1.20 and non-GAAP EPS is expected in the range of $1.70 to $1.73. The Zacks Consensus Estimate is pegged at $1.39. Autodesk expects non-GAAP operating margin to improve between 210 and 240 basis points in fiscal 2012.
Additionally, the company provided a sneak peak into their fiscal 2013. For fiscal 2013, Autodesk expects revenues to increase 10.0% on a year-over-year basis, with about 150 basis points increase in the GAAP operating margin and roughly 200 basis points increase in non-GAAP operating margin, over the fiscal 2012 figures.
Recommendation
In our view, Autodesk’s expanding product portfolio and broadening industry and geographic reach will help it sustain its longer-term growth strategy of providing high-volume, lower-cost CAD software. We believe this will likely drive earnings going forward.
Moreover, the acquisitions that are being made in the field of CAD and gaming middleware sections will provide the company with long-term opportunities, particularly in the web-based communities that will likely boost the company’s cloud offerings going forward.
However, foreign exchange fluctuations and increasing exposure in Europe and competition from Adobe Systems Inc. (ADBE), Parametric Technology Corp. (PMTC) are the headwinds. Additionally, there is a risk of customer concentration as an estimated 30% of the Autodesk’s business comes from 1% of the customers.
We have a Neutral recommendation on Autodesk’s shares in the long term. Currently, Autodesk has a Zacks #4 Rank, which translates into a short-term (1-3 months) ‘Sell’ rating.
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