Autodesk (ADSK 133.12, -5.79, -4.17%) is trading lower today after reporting Q1
(Apr) results and providing guidance. Autodesk offers a broad suite of 3D
computer-aided design (CAD) software and tools. Its customers are architects,
engineers, product designers, manufacturing firms, and digital
media/entertainment firms. ADSK products allow customers to build better things
by visualizing, simulating, and analyzing real-world performance early in the
design process. These capabilities allow customers to foster innovation,
optimize and improve designs, save resources, and improve quality.
The company’s largest flagship product is its AutoCAD software, a customizable CAD application for professional design, drafting, detailing, and visualization. This software provides digital tools that can be used in fields ranging from construction and civil engineering to manufacturing and plant design. The company’s second largest revenue-generating product, AutoCAD LT software, is purpose-built for professional drafting and detailing. It includes document sharing capabilities that support collaboration by enabling users to share design data with team members who use AutoCAD or other Autodesk products built on AutoCAD.
Another key product is Industry Collections, which launched in August 2016 and replaced previous product suites. This is ADSK's newest subscription offering. The product and services collections are tailored for each industry: AEC, Product Design, and M&E. The AEC Collection provides resources used for building and civil infrastructure projects, such as AutoCAD, AutoCAD Civil3D, and Revit. The Product Design Collection offers tools that help customers with product design, including AutoCAD and Inventor. The M&E Collection enables animators, modelers, and visual effect artists to access the tools they need, including Maya and 3ds Max, to create compelling effects, 3D characters, and digital worlds.
Turning to the Q1 (Apr) results, ADSK reported non-GAAP EPS of $0.06, which was above prior guidance of $0.01-0.04. Revenue rose 15.3% year/year to $559.9 mln, which was in-line with prior guidance of $550-560 mln. Looking ahead to Q2 (Jul), ADSK is guiding to non-GAAP EPS of $0.13-0.16 and revenue of $595-605 mln. While the revenue guidance was in-line, the EPS guidance came in below market expectations. Of note, ADSK is using a new revenue accounting standard (ASC 606) starting in AprQ. This results in lower EPS and revenue, but it is comparable to prior guidance.
In addition to the financials, there are several operating metrics that investors watch closely with ADSK. Subscription plan ARR in AprQ was $1.40 bln, an increase of 103% year/year. Total ARR was $2.13 bln, an increase of 22%. Subscription plan subscriptions increased 307,000 year/year to 2.57 mln, helped by the conversion of 154,000 maintenance subscribers to product subscription under the maintenance-to-subscription (M2S) program. Total subscriptions increased 101,000 year/year to 3.82 mln. ADSK also reaffirmed prior guidance for total ARR growth of +28-30% in FY19, and they reaffirmed prior guidance for 500-550K net subscription additions.
During its earnings conference call last night, ADSK said it continues to see rapid migration of maintenance customers to subscription via the M2S program, and customers continue to engage with its platforms for constructing and manufacturing projects. The Autodesk machine has been focused on driving ARR: subscription plan ARR more than doubled in AprQ, driven by growth in all subscription plan types but led by product subscription. Strength in total ARR was broad-based, with all three major geographies showing strong growth, led by APAC.
Commenting in more detail about the status of net subscription adds, CEO Andrew Anagnost explained that the M2S-driven upsell to collections is resulting in a consolidation of subscriptions in many of its accounts. This lowers total net adds but leads to a higher total account value. Furthermore, cloud subscriptions will continue to consolidate as new packaging for BIM 360 works its way through the market. These factors are expected to impact net subscription adds for the next several quarters. However, ADSK continues to expect strong ARR growth resulting from elevated ARPS.
In sum, the AprQ results were good, but it seems that downside EPS guidance for JulQ is hitting the stock. On a positive note for the stock, ADSK reported its first profit in seven quarters and reaffirmed full year guidance on ARR and net sub add growth. However, the stock had run from $125 in early May to nearly $140 earlier this week. This suggests that investors had high expectations coming in, and these were not quite met.
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