Autodesk Beats on Q2 Earnings and Revenues, Raises Guidance

Autodesk Inc. (ADSK) reported second-quarter fiscal 2015 earnings of 21 cents per share, which beat the Zacks Consensus Estimate by 4 cents. However, earnings per share (EPS) declined approximately 40% from the year-ago quarter due to higher operating expenses.

Nonetheless, Autodesk raised its fiscal 2015 guidance. As a result, share prices increased 5.72% to $59.50 in after-hour trading.

Revenues

Revenues increased 13% year over year to $637.0 million, ahead of management’s guided range of $595 to $610 million, and beat the Zacks Consensus Estimate of $596.0 million. Recently acquired Delcam contributed $11 million in revenues.

Backlog increased by $24 million year over year in the reported quarter. Total billings increased 27% on a year-over-year basis, driven by higher license and subscription billings (up 31%). Total subscriptions increased almost 74K on a sequential basis.

The year-over-year growth in revenues was primarily attributed to a 15.4% year-over-year jump in subscription revenues to $286.7 million. The improvement in subscription revenues came on the back of an increase in maintenance subscription revenues.

License revenues increased 11.9% from the year-ago quarter to $350.4 million attributable to an increase in upgrade revenues.

Cloud-based PLM 360 billings almost doubled on a year-over-year basis. During the quarter, Autodesk launched the PLM 360 mobile application.

Segment wise, revenues from Platform Solutions and Emerging Business (PSEB) increased 5% from the year-ago quarter to $208 million. AutoCAD and AutoCAD LT revenues increased 8% on a year-over-year basis to $186 million. Revenue from PSEB suites declined 21% year over year, primarily due to a decrease in educational suites.

Revenues from the Architecture, Engineering and Construction (AEC) business segment surged 23% from the year-ago quarter to $218 million. Continued adoption of BIM in the building and infrastructure industries drove growth in AEC suites, which increased 40% from the year-ago quarter.

Manufacturing revenues increased 17% on a year-over-year basis to $168 million. Revenues from manufacturing suites increased 9% from the year-ago quarter.

Autodesk’s Media and Entertainment (M&E) segment remained flat year over year at $44 million. Revenue from Animation products decreased 2% year over year, while revenue from Creative Finishing increased 7% from the year-ago quarter.

Autodesk reported a 20% year-over-year jump in revenues from Suites (36% of revenues). Revenues from flagship products increased 6% year over year. Revenues from new and adjacent products surged 24% on a year-over-year basis.

Geographically, revenues in the Americas increased 11% on a year-over-year basis to $223 million. EMEA revenues increased 21% to $244 million from the second quarter of last year. Revenues in APAC increased 8% to $170 million from the year-ago quarter. Revenues from emerging economies increased 14% to $98 million on a year-over-year basis.

Operating Results

Gross margin (including stock-based compensation) contracted 130 basis points (bps) from the year-ago quarter to 88.8% in the reported quarter. The decline was primarily due to business model transition and higher cloud-based cost.

Operating expenses (including stock-based compensation) increased 22.3% on a year-over-year basis to $488.4 million. The increase was primarily due to the rise in marketing & sales (19.9%), research and development (20.4%) and general and administrative expenses (36.7%) in the quarter.

As a result, operating profit (including stock-based compensation) plunged 28.7% year over year to $75.3 million. Autodesk’s profitability was negatively impacted by the ongoing business model transition, investment in cloud infrastructure and key initiatives and the dilutive effect of the Delcam acquisition.

Net income (including stock-based compensation) was $51 million or 21 cents per share compared with $78.8 million or 35 cents per share in the year-ago quarter.

Balance Sheet

Autodesk exited the second quarter with total cash and cash equivalents (including marketable securities) of $1.91 billion compared with $2.12 billion in the previous quarter. Cash flow from operating activities was $96 million compared with $219 million in the previous quarter.

Deferred revenues increased 22% on a year-over-year basis to a record $981 million at quarter end.

Outlook

For the third quarter of fiscal 2015, Autodesk expects revenues in the range of $590–$605 million. Non-GAAP EPS is expected in the range of 17 cents to 23 cents for the upcoming quarter. This is higher than the Zacks Consensus Estimate of 16 cents.

For fiscal 2015, management expects net billings to grow in the range of 10% to 12% (up from 7% to 9%). Revenues are expected to increase 7% to 9% (up from 4% to 6%), while operating margin on a non-GAAP basis is expected to be in the range of 15% to 16% (up from 14.0% to 16.0%).

Our Take

Autodesk’s second-quarter results reflect an improving demand environment in the AEC market. We believe that the company will have significant growth opportunities in the AEC and manufacturing markets in the long run.

Autodesk believes that the momentum from the BIM product portfolio will help it to penetrate the $7.0 trillion construction market fast. We believe that Autodesk’s new cloud-based offerings are gaining traction. Moreover, the business transition will boost the company’s top line and profitability in the long run.

The company’s focus on expanding its mobile applications for both Apple’s (AAPL) iOS and Google’s (GOOGL) Android platforms would also drive market share, going forward.

However, increasing competition from Adobe (ADBE) is a concern. Continued investments in new products might also hurt margins in the near term.

Currently, Autodesk has a Zacks Rank #3 (Hold).