Autodesk Tops Zacks Consensus - Analyst Blog

Software design maker, Autodesk Inc. (ADSK) reported better-than-expected second quarter 2011 results, with earnings per share of 27 cents, beating the Zacks Consensus Estimate of 20 cents per share. Earnings per share leaped 80.0% year over year from 15 cents reported in the year-ago quarter and were well ahead of the company's guidance of 19 cents to 22 cents per share.

Earnings exclude one-time charges but include stock based compensation expense. Net income of $64.0 million was up 81.8% year over year from $35.2 million. Earnings were boosted by higher revenues, growth in international markets and impressive cost controls.

The company continues to grow its maintenance revenues and installed base. Autodesk experienced a strong year-over-year growth in maintenance billings and commercial new licenses in the quarter, which along with the continued focus on cost control led to a significant improvement in operating profits.

Operating Performance

Gross profit improved to $432.1 million or 91.4% of total revenue in the second quarter of 2011 from $373.1 million or 89.9% of total revenue in the second quarter of 2010, driven by higher revenues.

Excluding one-time charges but including stock based compensation expense, the second quarter operating expense was $336.8 million, up 2.4% from $329.0 million in the year-ago quarter. Consequently, operating margin was 20.2% in the reported quarter versus 10.6% in the year-ago quarter. The increase was primarily driven by a higher revenue growth and stringent cost controls.

Revenue

Total revenue of $472.8 million was up 14.0% year over year from $414.9 million, primarily attributable to a strong global end market demand. This was well ahead of both the Zacks Consensus Estimate of $457.0 million and the company's guidance of $445.0 million to $460.0 million (upped at its Analyst Day from previous guidance of $435.0 million to $460.0 million).

Favorable foreign exchange contributed $5.0 million in the quarter. The year-over-year growth was primarily driven by a continued improvement in the demand environment and a strong international revenue growth.

Sequentially, the revenues were flat as the first quarter 2011 revenues included a one-time benefit of $15.0 million that resulted from a change in the upgrade pricing for subscription customers. This resulted in a sequential decline in upgrade revenues in the second quarter. Total upgrade revenue in the reported quarter totaled $18.0 million versus $51.0 million in the last quarter.

License and other revenues upped 21.5% year over year to $280.7 million. Revenues from commercial new licenses increased 46.0% from the year-ago quarter. Maintenance revenues increased 4.5% year over year to $192.1 million in the second quarter 2011.

Revenue by Geography

The company experienced year-over-year growth in all of its geographical regions. Revenues in America increased 6.0% year over year and 4% sequentially to $168.0 million.

The company's international businesses posted a strong revenue growth in the quarter. EMEA revenues increased 20.0% year over year and 19.0% on a constant currency basis to $189.0 million. EMEA revenues decreased 5% sequentially and 4% on a constant currency basis. Asia Pacific revenues increased 17.0% year over year and 14.0% on a constant currency basis to $116.0 million. Sequentially, Asia Pacific revenues increased 1% and 2%, respectively, on a constant currency basis.

Revenues from emerging economies represented 15.0% of total revenue in the quarter and increased 13.0% year over year and 14.0% on a constant currency basis to $71.0 million. Sequentially, revenues from emerging economies increased 5% and 6% on a constant currency basis.

Revenue by Segment

Revenues from Platform Solutions and Emerging Business segment increased 19.0% year over year, but decreased 3% sequentially to $177.0 million. Architecture, Engineering and Construction revenues increased 8.0% year over year, but decreased 3% from the last quarter to $133.0 million. Manufacturing revenues were up 18.0% year over year and 4% sequentially to $113.0 million. Media and Entertainment revenues increased 6.0% year over year and 8% sequentially to $50.0 million.

Both AutoCAD and AutoCAD LT reported strong growth, driven primarily by upgrades and contributed 34.0% to total revenue. Model-based design products contributed 29.0% to total revenue.

Balance Sheet and Cash Flow

Total cash and investments at the end of the second quarter increased to $1.30 billion compared with $1.24 billion in the previous quarter. Cash flow from operating activities of $112.0 million was significantly higher on a year-over-year basis and increased 136.0%, but fell 20.0% sequentially.

Guidance

For the third quarter, management expects revenues between $450.0 million and $475.0 million, in line with the Street expectation of $463.8 million.

Earnings per share on a non-GAAP basis are expected in the range of 28 cents to 33 cents. Excluding 4 cents for the amortization of acquisition related intangibles but including 6 cents related to stock-based compensation expense, earnings per share are expected to be in the range of 22 cents to 77 cents. The Zacks Consensus Estimate is pegged at 22 cents per share in earnings. The effective tax rate is expected to be 27%.
 
For full year 2011, management did not provide any specific guidance. Give the strong first half of fiscal 2011 results, management anticipates increased revenues and higher operating margins in 2011. Non-GAAP operating margin for 2011 is expected to increase by approximately 400 to 450 basis points (bps) in 2011 compared with previous expectation of an increase of 300 bps.
 
Over the long term (next five years), the company expects to deliver operating margin of at least 30%. Autodesk has set a target of 12% to 14% compound annual revenue growth (CAGR) in the next five years and expects to achieve non-GAAP operating margin of at least 30%.

Maintain Neutral
 
With around one-third of revenues coming from the region, any softness in Europe would have a significant negative impact. Autodesk faces competition from Adobe Systems Inc. (ADBE), Apple Inc. (AAPL), Avid Technology (AVID), Sony Corp. (SNE) and Thomson Reuters (TRI).
 
We remain positive on the stock in the long term, given its strong revenues and operating performance and advise investors to wait for a favorable entry point. Therefore, we maintain a Neutral recommendation on the stock, given our long-term confidence about ADSK’s growth opportunities.
 
Currently, Autodesk has a Zacks rank of #3, which translates into a short-term hold rating on the stock.

 
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