Autodesk Inc. (ADSK - Analyst Report) reported first-quarter fiscal 2016 results. Adjusted earnings of 15 cents per share matched the Zacks Consensus Estimate.
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The company reported non-GAAP earnings of 30 cents in the quarter, down from 32 cents reported in the year-ago quarter.
Quarter Details
Revenues for the quarter increased 9.1% year over year to $646.5 million, ahead of both management’s guided range of $625 million – $645 million and the Zacks Consensus Estimate of $624 million.
The year-over-year growth in revenues was primarily attributed to a 15.7% jump in subscription revenues to $320 million.
License revenues rose 3.3% from the year-ago quarter to $327 million attributable to an increase in upgrade revenues.
Total billings grew 3% on a year-over-year basis, driven by higher license and subscription billings. Total subscriptions increased approximately 95,000 from the prior quarter.
Segment wise, revenues from Platform Solutions and Emerging Business (PSEB) declined about 13% from the year-ago quarter to $185 million.
Revenues from the Architecture, Engineering and Construction (AEC) business segment surged 21% from the year-ago quarter to $237 million.
Manufacturing revenues increased 25% on a year-over-year basis to $185 million. Autodesk’s Media and Entertainment (M&E) segment rose 6% on a year-over-year basis to $40 million in the reported quarter.
Revenues from Flagship products reached $299 million, flat on a year-over-year basis. Revenues from Suites increased 14% on a year-over-year basis to $240 million. Revenues from New and Adjacent products rose 30% from the year earlier quarter to $108 million.
Geographically, revenues in the Americas rose 19% year over year to $244 million. EMEA revenues grew 9% to $245 million, while the same in APAC increased 3% from the year-ago quarter to $157 million. Revenues in emerging economies rose 17% from the year-ago quarter to $93 million, representing about 14% of total revenue.
Operating Results
Gross margin contracted 90 basis points (bps) from the year-ago quarter to 88% in the reported quarter. Operating expenses spiked 13.1% on a year-over-year basis to $533 million during the quarter. Operating expenses as a percentage of revenues increased to 82.5% from 79.6% in the year-ago quarter.
As a result, income from operations plunged over 49% year over year to $21.5 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 $1.83 billion compared with $2.03 billion in the previous quarter. Cash flow from operating activities for the quarter was $86.5 million compared with $218.7 million in the prior-year quarter.
Outlook
For the second quarter of fiscal 2016, Autodesk expects revenues in the range of $600 million - $620 million. Non-GAAP EPS is expected in the range of 14–19 cents for the upcoming quarter. The figure does not include stock-based compensation expense of 16 cents per share and amortization of acquisition-related intangibles of 8 cents per share.
For fiscal 2016, management expects net billings to grow in the range of 2%-4% compared with the earlier provided outlook of 3%–5% increase. Revenues are expected to increase 2%-4% (earlier projection was 3% to 5%), while operating margin on a non-GAAP basis is expected to be in the range of 12% to 14% versus 13% to 15% projected earlier.
Non-GAAP EPS (excluding stock-based compensation expense and amortization of acquisition-related intangibles) is expected in the range of 95 cents- $1.10, down from the earlier guidance of $1.05 – $1.20. The company projects subscription additions for fiscal 2016 to be between 375,000 and 425,000.
Our Take
We believe Autodesk is likely to benefit from the increasing adaptability of cloud-based services Also, its ongoing business transition remains a positive. The transition is boosting the company’s subscriptions and deferred revenues that 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.
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 - Analyst Report), Microsoft Corp. (MSFT - Analyst Report) and Google Inc. (GOOGL - Analyst Report) pose concerns.
Presently, Autodesk carries a Zacks Rank #3 (Hold).
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