Autodesk (ADSK) Q2 Loss Lower Than Expected, Revenues Beat

Autodesk Inc. (NASDAQ:ADSK) reported second-quarter fiscal 2018 non-GAAP loss of 11 cents per share, narrower than the Zacks Consensus Estimate of a loss of 15 cents. The figure was also much narrower than the guided range of a loss of 14–18 cents per share.

Revenues of $501.8 million beat the consensus mark of $494.8 million but fell nearly 8.9% year over year. The figure was better than the guided range of $488–$500 million.

Moreover, deferred revenues increased 17% to $1.78 billion in the quarter, which reflects growing strength of the business model. Total recurring revenue was 91% in the reported quarter, a significant increase from 69% reported in the year-ago quarter.

Management continues to emphasize that revenues will be negatively impacted by the business model transition from “upfront” to “ratably” as well as lower initial purchase price of new offerings.

Improvement in average revenue per subscriptions (ARPS) owing to price increases as well as lesser discounts related to shift from legacy maintenance plans to product subscriptions will drive growth in second half fiscal 2018.

Notably, shares of Autodesk have gained 49.5% year to date, substantially outperforming the industry’s 21.9% rally.

Top Line Details

Revenues were impacted by a 74.4% year-over-year decline in License revenues (8.7% of total revenue), which were $43.9 million in the quarter.

Maintenance revenues (52.2% of total revenue) also declined 5.7% from the year-ago quarter to $261.8 million, primarily due to lower subscriptions.

However, subscription revenues soared 92.6% year over year to $196.1 million, driven by strong adoption of product subscription.

Total subscriptions increased approximately 153K from the prior quarter to 3.44 million in the quarter. Subscription plan (product, end-of-life and cloud subscriptions) increased approximately 270K from the last quarter to 1.59 million.

The company’s maintenance to subscription or M2S program generated 63K subscriptions. New customers represented about 30% of the mix for the quarter and continue to contribute a significant portion of product subscription additions.

Cloud subscription additions continue to show impressive growth driven by robust performance from BIM 360 and Fusion tools.

Total annualized recurring revenue (ARR) was $1.83 billion, up 21% from the year-ago quarter and 23% on a constant currency (cc) basis. Subscription plan ARR surged 98% at cc.

Geographically, revenues in the Americas decreased 7% year over year to $214 million. EMEA revenues declined 10% to $199 million, while the same from APAC decreased 12% from the year-ago quarter to $89 million.

Operating Results

Non-GAAP gross margin contracted 43 basis points (bps) from the year-ago quarter to 86.7%, primarily due to massive contraction in license gross margins.

The company reported non-GAAP operating loss of $28.8 million in the quarter while in the year-ago quarter the company had reported operating income of $25.9 million.

Balance Sheet

Autodesk exited the quarter with total cash and cash equivalents (including marketable securities) of $1.71 billion compared with $1.90 billion as on Jan 31, 2017.

However, the company lost $27.3 million of cash from operating activities as of Jul 31, 2017. The company repurchased 1.2 million shares for a total of $119 million.

Outlook

For third-quarter fiscal 2018, Autodesk expects revenues in the range of $505–$515 million. Non-GAAP loss per share is anticipated in the range of 12-16 cents for the quarter.

The Zacks Consensus Estimate is currently pegged at a loss of 13 cents on revenues of $517.1 million.

Buoyed by the encouraging second-quarter results, Autodesk revised its full-year revenue and EPS expectations. The company now expects revenues in the range of $2.030-$2.050 billion (mid-point $2.040 billion), narrowed from the prior guidance of $2.000–$2.050 billion (mid-point $2.025). Non-GAAP loss is now expected in the range of 54 cents to 61 cents compared with the previous guidance of 56 cents to 73 cents.

The Zacks Consensus Estimate is currently pegged at a loss of 56 cents on revenues of $2.05 billion.

Autodesk now projects subscription additions to be between 625K and 675K compared with the prior guidance of 600K and 650K. Total ARR is still expected to be in the range of 24% to 26%. Non GAAP spending is expected to remain unchanged on a year-over-year basis.

Our Take

Autodesk’s business transition from licenses to cloud-based services is expected to benefit it in the long run by boosting subscriptions and deferred revenues. The company’s marketing and promotional activities are expected to sustain its growing subscription base.

Autodesk’s broad product portfolio will generate new customers in both domestic and overseas markets as evident from the year-over-year triple digit growth in product subscriptions in major geographies including emerging countries.

However, although the company plans to keep spending unchanged over the next one year, it remains concerned about the increasing foreign exchange headwinds, which might weigh heavily on its expenses.

Zacks Rank & Stocks to Consider

Autodeskcarries Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Better-ranked stocks in the broader technology sector includeApplied Optoelectronics (NASDAQ:AAOI) , Lam Research (NASDAQ:LRCX) and IPG Photonics (NASDAQ:IPGP) , all sporting a Zacks Rank #1.

Long-term earnings growth rate for Applied Optoelectronics, Lam Research and IPG Photonics is projected to be 17.5%, 17.2% and 19.7%, respectively.

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