A month has gone by since the last earnings report for Autodesk (ADSK - Free Report) . Shares have added about 0.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Autodesk due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Autodesk Q1 Earnings Miss Estimates, Revenues Up Y/Y
Autodesk reported first-quarter fiscal 2020 non-GAAP earnings of 45 cents per share that missed the Zacks Consensus Estimate by a couple of cents. However, the figure was much better than earnings of 6 cents posted in the year-ago quarter.
Revenues of $735.5 million lagged the Zacks Consensus Estimate of $741 million but increased 31.4% year over year. At constant currency (cc), revenues grew 30%.
Recurring revenues represented 96% of Autodesk’s first-quarter fiscal 2020 revenues compared with 95% in the year-ago quarter.
The results were driven by higher subscription revenues, gross margin expansion and lower operating expenses.
Autodesk stated that portfolio strength is helping it steer past competition and win customers. The company won 15 head-to-head bids against competitors in recent times.
Subscription revenues (81% of revenues) soared 70% year over year to $595.8 million. However, maintenance revenues (15.2% of revenues) declined 38.2% to $112 million.
Revenues were also negatively impacted by a 2.1% year-over-year decrease in other revenues (3.8% of revenues), which totaled $27.7 million in the reported quarter.
Direct revenues rallied 36% year over year and accounted for 36% of revenues. eStore revenues jumped 45%.
Geographically, revenues from Americas (40.2% of revenues) increased 26.7% from the year-ago quarter to $295.8 million. Europe, Middle East and Africa (EMEA) revenues (40.4% of revenues) rallied 34.5% to $297.2 million. Revenues from Asia-Pacific (19.4% of revenues) increased 35.1% to $142.5 million.
Product wise, AEC (41.4% of revenues) revenues went up 37.2% year over year to $304.3 million. AutoCAD and AutoCAD LT (29% of revenues) revenues rose 37% to $213.2 million. MFG (22.8% of revenues) revenues increased 23.7% to $167.5 million. M&E (6.2% of revenues) climbed 8.9% to $45.5 million. However, other revenues (0.7% of revenues) declined 5.7% to $5 million.
Manufacturing revenues were up 24% year over year, driven by strength across all products and geographies. Fusion 360 adoption accelerated with more than 100% growth in Fusion commercial Monthly Active Users (MAU).
Billings of $798 million, adjusting for adoption of ASC 606, surged 40% year over year.
Annualized Recurring Revenues (ARR) in Detail
ARR was $2.83 billion, up 33% year over year (32% at cc). Latest acquisitions contributed $83 million to ARR.
Notably, BIM 360 ARR growth accelerated in the reported quarter. Autodesk stated that introduction of PlanGrid BIM generated 5 times more customer interest than past PlanGrid launches. Further, BuildingConnected user base grew from almost 700K to more than 800K since acquisition.
Subscription plan ARR of $2.38 billion surged 70% (69% at cc). The figure includes $505 million related to the maintenance-to-subscription (M2S) program.
Autodesk stated that M2S conversion rate was consistent with prior quarters. Almost one-third of maintenance renewal opportunities migrated to product subscriptions. Of these, upgrade rates among eligible subscriptions were within the historical range of 25-35%.
However, maintenance plan ARR of $448 million declined 38% (40% at cc) from the year-ago quarter.
Core ARR rallied 29% to $2.65 billion. Cloud ARR skyrocketed 164% to $181 million, driven by strong performance in construction. Organic Cloud ARR, which primarily comprises BIM 360 and Fusion 360, surged 43%.
Net revenue retention rate was within the fiscal 2019 range of 110-120%.
Non-GAAP gross margin expanded 130 basis points (bps) from the year-ago quarter to 90.7%.
Research & development, sales & marketing and general & administrative expenses as percentage of revenues declined 340 bps, 690 bps and 120 bps year over year, respectively.
As a result, non-GAAP operating expenses, as percentage of revenues, declined to 72.7% from 84.2% reported in the year-ago quarter.
The lower operating expenses reflected disciplined cost management in the reported quarter.
Autodesk reported non-GAAP operating income of $131.9 million compared with the year-ago quarter’s income of $29 million.
Balance Sheet & Cash Flow
As of Apr 30, 2019, Autodesk had cash and cash equivalents (including marketable securities) of $972.1 million compared with $953.6 million as of Jan 31, 2019.
Deferred revenues increased 19% to $2.15 billion. The growth was driven by increase in subscription plan billings and recent acquisitions.
Unbilled deferred revenues at the end of the first quarter were $589 million, down $2 million sequentially due to the normal seasonality of EBA billings.
Total deferred revenues (deferred revenue plus unbilled deferred revenue) were $2.74 billion, up 24% year over year.
Cash flow from operating activities was $221 million, increasing $238 million year over year. Free cash flow was $207 million, rising $240 million from the year-ago quarter.
Autodesk repurchased 582K shares for $100 million.
For second-quarter fiscal 2020, Autodesk expects revenues between $782 million and $792 million.Non-GAAP earnings are anticipated in the range of 59-63 cents per share.
For fiscal 2020, Autodesk expects revenues between $3.25 billion and $3.3 billion, indicating growth of 26-28% from the year-ago quarter’s reported quarter.
Billings are projected to be $4.05-$4.15 billion, implying growth of 50-53% from the figure reported in the year-ago quarter.Total ARR is still expected between $3.5 billion and $3.55 billion, indicating year-over-year growth in the range of 27-29%.
Non-GAAP spend is expected to increase 9%.Non-GAAP earnings are still expected between $2.71 and $2.90 per share.
Free cash flow is expected to be almost $1.35 billion. Autodesk anticipates almost three-fourth of the free cash flow to be generated in the second half of the year.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a flat path over the past two months. The consensus estimate has shifted -12.02% due to these changes.
Currently, Autodesk has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Autodesk has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.