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Autodesk Inc. (ADSK - Analyst Report) reported fourth-quarter 2013 non-GAAP earnings of 53 cents, which increased 15.2% from the year-ago quarter. Including stock-based compensation, earnings came in at 39 cents per share and beat the Zacks Consensus Estimate by a penny. The better-than-expected result was primarily based on higher revenues.

Revenues

Revenues for the quarter increased 2.4% year over year to $606.9 million and was also ahead of the Zacks Consensus Estimate of $590 million. Sequentially, revenues increased 10.7%. Revenues were aided by higher maintenance revenues (up 5.7% year over year) and a marginal increase in product revenues (up 0.5% year over year).

Moreover, strong performance from Autodesk’s Architecture, Engineering and Construction (“AEC”) business (up 18% year over year) and Manufacturing segment (up 5% year over year) more than offset the 7% year-over-year decline in revenues from Platform Solutions and Emerging Business (“PSEB”) and 16.0% slump in Media and Entertainment business revenues from the year-ago quarter.

Autodesk reported a 17.0% increase in revenues from Suites, which now comprises 30% of total revenue, from the year-ago period. Additionally, Autodesk secured 45 deals each worth $1 million, up 25% from the year-ago quarter. Also, during the quarter, the company introduced Fusion 360, a cloud-based 3D mechanical modeling and industrial design product.

On geographic basis, revenue from Asia-Pacific (up 11.0% from the year-ago quarter) and EMEA (up 2.0% year over year) more than offset the 2.0% decrease in revenues from America. Moreover, revenues from emerging economies, which represented 14.0% of the total revenue, were down 11.0% on a year-over-year basis.

Operating Results

Gross Profit on non-GAAP basis increased 2.0% from the year-ago quarter to $556.7 million. Gross margin came in at 91.7% compared with 92.2% in the year-ago quarter. Including stock-based compensation, gross margin came in at $555.3 million.

Operating expenses on non-GAAP basis decreased marginally from the year-ago quarter by 0.4% to $404.4 million, due to lower marketing and sales expenses (down 0.4% year over year) and research and development expenses (down 1.3% year over year). General and administrative expenses were up 2.6% from the year-ago quarter. Moreover, operating expenses, as a percentage of revenue, contracted 190 basis points to 66.6% in the quarter.

Non-GAAP operating income increased 8.5% from the year-ago quarter to $152.3 million. Operating margin expanded 140 basis points from the year-ago quarter to 25.1%, primarily due to higher revenue base and lower-than-expected operating expenses. Including stock-based compensation of $37.5 million, operating income came in at $114.8 million.

Net Income on a non-GAAP basis was up 14.2% year over year to $120.8 million. Including stock-based compensation of $37.5 million, net income came in at $89.5 million.

Balance Sheet

The company exited the fourth quarter with total cash and cash equivalents of $1.61 billion million compared with $827.0 million in the previous quarter. Cash flow from operating activities was $156.0 million compared with $157.0 million in the prior quarter.

Outlook

For the first quarter of 2014, Autodesk expects revenues in the range of $570 million–$590 million and earnings per share in the range of 41 cents–46 cents on a non-GAAP basis.

Autodesk provided fiscal 2014 guidance, which reflects growth of 6% in revenues. Autodesk expects operating margins to expand 125–150 basis points compared with fiscal 2013.

Recommendation  

Although Autodesk reported a better-than-expected fourth quarter, sluggish macroeconomic environment and weakness in emerging markets, customer concentration and increasing competition from Adobe Systems Inc. (ADBE - Analyst Report) are the major concerns.

However, we believe that Autodesk will continue to benefit from its expanding product portfolio in the near term. Autodesk’s focus on expanding its mobile applications for both Apple’s ( ">AAPL )  iOS and Google’s ( ">GOOG )  Android platform will further drive market share going forward. Moreover, the new cloud-based products will boost Autodesk’s subscriber base in the near term.

Currently, Autodesk has a Zacks Rank #2 (Buy).

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