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Autodesk (ADSK) Lags on Q2 Earnings & Sales, Shares Fall

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Autodesk Inc.ADSK reported second-quarter fiscal 2016 results. Adjusted earnings of 1 cent a share lagged the Zacks Consensus Estimate of 2 cents. The company reported non-GAAP earnings of 19 cents in the quarter, down from 35 cents reported in the year-ago quarter.

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Following the earnings release, the company shares declined nearly 5% in Friday's trading session to close at $47.52.

Quarter Details

Revenues for the quarter decreased 4% year over year to $610 million, missing the Zacks Consensus Estimate of $612 million. Revenues were impacted by a 17.1% year-over-year decline in License revenues to $290.5 million. Subscription revenues, however, surged 11.3% from the year-ago quarter to $319 million.

Total billings grew 7% on a year-over-year basis, driven by higher subscription billings. Total subscriptions increased approximately 61,000 from the prior quarter.

Segment wise, revenues from Platform Solutions and Emerging Business (PSEB) declined about 21% from the year-ago quarter to $164 million.

Revenues from the Architecture, Engineering and Construction (AEC) business segment jumped 7% from the year-ago quarter to $233 million.

Manufacturing revenues increased 2% on a year-over-year basis to $171 million. Sales in Autodesk's Media and Entertainment (M&E) segment decreased 6% on a year-over-year basis to $41 million in the reported quarter.

Revenues from Flagship products were $272 million, a decline of 11% on a year-over-year basis. Revenues from Suites decreased 3% on a year-over-year basis to $226 million. Revenues from New and Adjacent products rose 13% from the year earlier quarter to $112 million.

Geographically, revenues in the Americas rose 6% year over year to $236 million. EMEA revenues declined 7% to $226 million, while the same in APAC decreased 13% from the year-ago quarter to $148 million. Revenues in emerging economies decreased 7% from the year-ago quarter to $92 million, representing about 15% of total revenue.

Operating Results

Gross margin contracted 150 basis points (bps) from the year-ago quarter to 84.7% in the reported quarter. Operating expenses were up 2.6% on a year-over-year basis to $512.2 million during the quarter. Operating expenses as a percentage of revenues increased to 84% from 78.4% in the year-ago quarter.

As a result, income from operations plunged over 91% year over year to $4.3 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 quarter with total cash and cash equivalents (including marketable securities) of $2.39 billion compared with $2.02 billion as on Jan 31, 2015. Cash flow from operating activities for the quarter was $77 million compared with $96 million in the prior-year quarter.

Acquisition

Along with the earnings release, Autodesk announced its plans to acquire San Francisco-based company-SeeControl. SeeControl specializes in developing enterprise Internet of Things (IoT) cloud service platform. This acquisition that is scheduled to be closed in the third-quarter is expected to enhance Autodesk's cloud offerings in the booming IoT domain.

Outlook

For the third quarter of fiscal 2016, Autodesk expects revenues in the range of $580 million - $600 million. Non-GAAP EPS is expected in the range of 5-10 cents for the third quarter. The figure does not include stock-based compensation expense of 21 cents per share and amortization of acquisition-related intangibles of 7cents per share.

For fiscal 2016, management expects net billings to grow in the range of 2%-4%. Revenues are expected to increase 3% to 5% (earlier projection was 2%-4%). While operating margin on a non-GAAP basis is expected to be in the range of 9% to 10% versus 12% to 14% projected earlier.

Non-GAAP EPS (excluding stock-based compensation expense and amortization of acquisition-related intangibles) is expected in the range of 60 cents - 72 cents, down from the earlier guidance of 95 cents- $1.10. The company projects subscription additions for fiscal 2016 to be between 375,000 - 425,000.

Our Take

We believe Autodesk's business transition (from licenses to cloud-based services) is boosting its subscriptions and deferred revenues, which are expected to benefit it in the long run. Moreover, increasing demand for the company's cloud - based products like Fusion 360 and PLM 360 are likely to drive the company's business, going forward.

Recently, the company announced that its open 3D printing platform, Spark has been embedded into Windows 10 allowing users to get access to 3D printing.

However, in the near term, the company's profitability will tend to be affected because of investments in cloud-based infrastructure and marketing initiatives. Further, the discontinuation of perpetual license offerings this 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 Corp. MSFT and Google Inc. GOOGL pose concerns.

Presently, Autodesk carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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