Autodesk (ADSK) is trading higher today (+12%) after reporting Q4 (Jan) results and providing guidance. In case you're not familiar, 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. Its 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 their designs, save time and money, improve quality etc.
Its largest product is its AutoCAD software, which is a customizable CAD application for professional design, drafting, detailing, and visualization. Its AutoCAD software provides digital tools that can be used in fields ranging from construction and civil engineering to manufacturing and plant design. ADSK also offers AutoCAD LT software, which is purpose built for professional drafting and detailing. Users can share all design data with team members who use AutoCAD or other Autodesk products built on AutoCAD. AutoCAD LT software is the company's second largest revenue-generating product.
Another key product is Industry Collections, which launched in August 2016. This is ADSK's newest subscription offering. The collections are tailored for each industry: AEC, Product Design, and M&E. The AEC Collection is used for building and civil infrastructure projects, commonly used by AEC industry experts, such as AutoCAD, AutoCAD Civil3D, and Revit. The Product Design Collection offers tools that help customers with product design, this includes AutoCAD and Inventor. The M&E Collection enables animators, modelers and visual effect artists to access the tool they need, including Maya and 3ds Max, to create compelling effects, 3D characters and digital worlds.
Turning to the Q4 (Jan) results, ADSK reported a non-GAAP loss of $(0.09) per share, which was above prior guidance of $(0.14)-(0.10). Revenue rose 15.7% year/year to $553.8 mln, which also was above prior guidance of $537-547 mln. Looking ahead to Q1 (Apr), ADSK is guiding to non-GAAP EPS of $0.01-0.04 and revenue of $550-560 mln. Of note, ADSK is using a new revenue accounting standard, starting in Q1 (Apr). This is resulting in lower EPS and revenue, which is below consensus estimates, but it is not really comparable since those analyst models are using the old accounting method.
Total annualized recurring revenue, or ARR, grew 25% and subscription plan ARR more than doubled again. Both ARR and subscriptions for subscription plan are now greater than the ARR and subscription base for maintenance, which is a significant milestone and in line with internal projections when the company began the transition.
It was not all good news as management described on the call. Net sub additions fall short of expectations. We need to break out core and cloud subscriptions. The core business represents a combination of maintenance, product subscription and EBA subscriptions, while the cloud business represents all the results generated by standalone cloud offerings. When you break these out, its core business, which drives the overwhelming majority of revenue ARR and billings growth, is performing quite well.
ADSK added 45,000 cloud subscriptions in Q4, which represented a nearly 50% decrease against the tough compare to Q4 of last year when ADSK ran a seeding program for a component of BIM 360. However, from a billings perspective, cloud had its biggest quarter ever, fueled by several large wins including six with top ranked construction companies. ADSK sees continued momentum in terms of customers moving to higher value products like BIM 360 Docs and Field. Overall, the company remains very enthusiastic about the opportunity with its cloud products, but keep in mind that cloud is still a small contributor to the overall business.
So why did the net sub additions fall short for JanQ? The answer is that ADSK experienced greater-than-expected subscription consolidation as customers are reducing their total subscriptions in favor of collections. ADSK is seeing this reflected in the general adoption of collections where the mix of collections within the product subscription base more than doubled YoY and now represents over 20% of the product subscription base. The good news is that most of these customers are increasing their total spend with Autodesk, contributing to solid increases in ARPS and ARR. So the company's core strategy of driving upsell to industry collections is working better than anticipated.
In sum, this was a good overall quarter for ADSK and the explanation for why net sub adds fell short makes sense to us. It's more due to customers buying more collections. After selling off in late November on OctQ results and weak FY18 subscription guidance, it's nice to see the stock rebound today with a solid JanQ report.