Autodesk Beats Zacks Consensus - Analyst Blog

Software design maker, Autodesk Inc. (ADSK) reported third quarter 2011 earnings of 27 cents per share, beating the Zacks Consensus Estimate by 2 cents.

However, shares were down $2.06 (5.68%) to $34.20 in after hours trading.

Earnings, including stock-based compensation but excluding one-time items, leaped 58.8% year over year, primarily driven by strong revenue growth.

Operational Performance

Net Income, including stock-based compensation ($17.0 million) but excluding one-time items ($14.4 million), was $63.4 million, up 73.7% year over year as compared with $38.6 million.  

Gross profit was $436.6 million, up 14.7% year over year as compared with $380.6 million. Gross margin increased 30 bps to 91.6% as compared with 91.3% in the prior- year quarter, primarily due to higher revenues and a lower cost of license in the quarter.

Operating expenses increased 5.7% year over year to $353.3 million, primarily attributed to higher marketing & sales expense and research & development expense.

Operating income was $83.3 million, up 80.0% year over year as compared with $46.3 million in the year-ago quarter. Operating margin was 17.5% as compared with 11.1% in the prior-year quarter. This was primarily driven by strong revenue growth in the quarter.

Revenue

Revenues increased 14.3% year over year to $476.7 million in the third quarter, as compared with $416.9 million in the prior-year quarter. This was well above the Zacks Consensus Estimate of $472.0 million.

The year-over-year growth was driven by higher license and other revenues, which increased 19.4% year over year to $282.0 million. Maintenance revenues rose 7.7% year over year to $194.7 million in the quarter.

Autodesk experienced a year-over-year growth in all of its geographical regions. Revenues in America increased 10.0% year over year to $179.0 million.

International businesses posted a strong revenue growth in the quarter. EMEA revenues were up 15.0% year over year and 19.0% on a constant currency basis to $183.0 million.

Asia Pacific revenues escalated 22.0% year over year and 19.0% on a constant currency basis to $115.0 million.

Revenues from emerging economies represented 16.0% of total revenue in the quarter and climbed 23.0% year over year and 25.0% on a constant currency basis to $76.0 million.

On a segmental basis, Platform Solutions and Emerging Business revenues grew 12.0% year over year to $174.0 million in the third quarter.

Revenues from the Architecture, Engineering and Construction (AEC) business segment were $136.0 million, an increase of 9% year over year whereas Manufacturing revenues were $117.0 million, up 30% year over year in the third quarter.

Autodesk continued to gain significant market share in the Manufacturing business segment as a result of the strong adoption of its digital prototyping portfolio and growing customer wins. Increasing adoption of building information model (BIM) drove the AEC results in the quarter.

Revenues from the Media and Entertainment business inched up 5.0% year over year to $50.0 million in the third quarter.

Balance Sheet and Cash Flow

Exiting third quarter 2011, total cash and investments were $1.14 billion, as compared with $1.30 billion in the previous quarter. Cash flow from operating activities was $364.9 million, up 225.8% from $112.0 million in the previous quarter.

Guidance

For the fourth quarter of 2011, Autodesk expects revenues to be in the range of $500.0 million to $520.0 million. Non-GAAP earnings are expected in the range of 30 cents to 33 cents per share for the quarter. The current Zacks Consensus Estimate is pegged at 27 cents per share for fourth quarter 2011.

For fiscal 2011, Autodesk expects revenues in the range of $1.924 billion to $1.944 billion (12.0% to 13.0% year over year). Non-GAAP operating margin is expected to increase in the range of 430 to 460 basis points on a year-over-year basis. Non-GAAP earnings are expected to be in the range of $1.27 to $1.30 per share for the fiscal year. The current Zacks Consensus Estimate is pegged at $1.03 per share in earnings for fiscal 2011.

For fiscal 2012, Autodesk forecasts revenues to increase 10.0% year over year. Non-GAAP operating margin is expected to increase approximately 200 basis points on a year-over-year basis. Autodesk did not provide any earnings guidance.

Our Take

We maintain a Neutral recommendation on the stock on a long-term basis (6-12 months). Autodesk faces tough competition from Adobe Systems Inc. (ADBE), Apple Inc. (AAPL), Avid Technology (AVID), Sony Corp. (SNE), Dassault Systems SA (DASTY) and Thomson Reuters (TRI). However, we believe Autodesk's large customer base provides a distinct competitive edge.

Autodesk continues to gain significant market share in the majority of its businesses. New customer wins and strong adoption of its products are expected to boost its top-line growth going forward. Moreover, increasing operating efficiency is expected to boost earnings growth in the near term.

Currently, Autodesk has a Zacks #2 Rank, which translates into a short-term Outperform rating on the stock (1-3 months).