Autodesk Inc. (ADSK) reported fourth-quarter and fiscal 2015 results. Adjusted earnings of 12 cents per share missed the Zacks Consensus Estimate by a penny.
The company reported non-GAAP earnings of 25 cents in the quarter, significantly down from 40 cents reported in the year-ago quarter. For fiscal 2015, Autodesk reported non-GAAP earnings of $1.17, significantly down from $1.68 a year ago.
The company’s bottom line in the quarter was impacted by higher expenses owing to the ongoing business-model transition in areas like software, subscription and a shift toward cloud-based offerings.
Revenues
Revenues for the quarter increased 13.3% year over year to $664.6 million, ahead of both management’s guided range of $640–$655 million and the Zacks Consensus Estimate of $652 million. Revenue contribution from the Delcam acquisition was approximately $20 million.
The year-over-year growth in revenues was primarily attributed to a 16.7% year-over-year jump in subscription revenues to $310.3 million. The improvement in subscription revenues came on the back of strong growth in subscription process through Autodesk eStore and also non-maintenance subscription revenues.
License revenues rose 10.5% from the year-ago quarter to $354.3 million attributable to an increase in upgrade revenues. However, flexible enterprise license agreements partially offset the increase.
Total billings grew 13% on a year-over-year basis, driven by higher license and subscription billings. Total maintenance, desktop (rental), and cloud subscriptions increased approximately 100,000 from the prior quarter, including approximately 17,000 subscriptions related to the recent Shotgun acquisition.
Segment wise, revenues from Platform Solutions and Emerging Business (PSEB) declined about 4% from the year-ago quarter to $189 million.
Revenues from the Architecture, Engineering and Construction (AEC) business segment surged 24% from the year-ago quarter to $242 million.
Manufacturing revenues increased 23% on a year-over-year basis to $190 million. Autodesk’s Media and Entertainment (M&E) segment rose 5% on a year-over-year basis to $43 million in the reported quarter.
Revenues from Flagship products reached $298 million, an increase of 4% compared to the prior-year quarter. Revenues from Suites increased 15% on a year-over-year basis to $249 million. Revenues from New and Adjacent products rose 41% from the year-earlier quarter to $117 million.
Geographically, revenues in the Americas rose 15% year over year to $238 million. EMEA revenues grew 19% to $273 million, while the same in APAC increased 2% from the year-ago quarter to $154 million. Revenues in emerging economies rose 21% from the year-ago quarter to $107 million, representing about 16% of total revenue.
Operating Results
Gross margin contracted 120 basis points (bps) from the year-ago quarter to 86.5% in the reported quarter. The decline was primarily due to business model transition and higher cloud-based cost.
Operating expenses spiked 21.2% on a year-over-year basis to $561.1 million during the fourth quarter. The increase was primarily due to a rise in marketing & sales (up 24.8%), research and development (up 17.9%), general and administrative expenses (up 32.8%) and amortization of purchased intangibles (up 3.3%).
As a result, income from operations plunged nearly 73% year over year to $14 million in the quarter. Autodesk’s profitability was negatively impacted by the ongoing business model transition and investment in cloud infrastructure.
Balance Sheet
Autodesk exited the year with total cash and cash equivalents (including marketable securities) of $2,026.4 million compared with $2,267.1 billion in the previous quarter. Cash flow from operating activities for fiscal 2015 was $708.1 million compared with $563.5 million in fiscal 2014.
Deferred revenues for the quarter increased 28% on a year-over-year basis to a record $1.16 billion.
Outlook
For the first quarter of fiscal 2016, Autodesk expects revenues in the range of $625–$645 million. Non-GAAP EPS is expected in the range of 25–30 cents for the upcoming quarter. The figure does not include stock-based compensation expense of 16 cents per share and amortization of acquisition-related intangibles of 8 cents per share.
For fiscal 2016, management expects net billings to grow in the range of 3%–5%. Revenues are also expected to increase 3% to 5%, while operating margin on a non-GAAP basis is expected to be in the range of 13% to 15%. Non-GAAP EPS (excluding stock-based compensation expense and amortization of acquisition-related intangibles) is expected in the range of $1.05– $1.20. The company projects subscription additions for fiscal 2016 to be between 375,000 and 425,000.
Our Take
We believe Autodesk is likely to benefit from its ongoing business transition. Further, the increasing adaptability of cloud-based services remains a positive. The transition is boosting the company’s subscriptions and deferred revenues that are expected to benefit it in the long run. Moreover, the increasing demand for the company’s novel cloud-based products like Fusion 360, BIM 360 and PLM 360 are likely to drive the company’s business, going forward.
However, in the near term, the company’s profitability will tend to be affected because of the investments in cloud-based infrastructure and marketing initiatives. Further, the discontinuation of the perpetual license offerings in the following year may have some impact on the company’s financials. In addition, foreign exchange fluctuations and competition in the cloud-computing domain from the likes of Amazon.com Inc. (AMZN), Microsoft Corporation (MSFT) and Google Inc. (GOOGL) pose concern.
Presently, Autodesk carries a Zacks Rank #3 (Hold).
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