Autodesk Beats Easily

| About: Autodesk, Inc. (ADSK)
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Autodesk, Inc. (NASDAQ:ADSK) reported better-than-expected fiscal first quarter 2011 results, with diluted earnings per share and revenue increasing 58.8% and 11.5%, respectively, from the year-ago period.

Net income on a non-GAAP basis was $64.5 million in the first quarter, up 58.4% year over year from $40.7 million. Diluted earnings per share on a non-GAAP basis increased 58.8% year over year to 29 cents. This was well ahead of the conservative Zacks Consensus Estimate of 16 cents and beat the high end of the company's guidance between 18 cents and 23 cents, primarily based on strong year-over-year revenue growth in international markets and recovery in corporate spending.

The company experienced strong year-over-year growth in maintenance billings and commercial new licenses in the first quarter, which along with the continued focus on cost control led to significant improvement in operating profits.

First quarter operating expense was $359.2 million, up from $349.0 million in the year-ago period. Consequently, the operating income on a non-GAAP basis was $85.1 million, up 21.0% year over year from $70.3 million. Operating margin was 17.9% in the first quarter versus 16.5% in the year-ago period. The increase was primarily driven by higher revenue growth.


First-quarter revenue was $474.6 million, up 11.5% year over year from $425.8 million. Favorable foreign exchange contributed $21.0 million in the quarter. This was well ahead of both the Zacks Consensus Estimate of $437.0 million and the high end of the company's guidance ($420.0 - $440.0 million). The year-over-year growth was primarily driven by continued improvement in the demand environment and strong international revenue growth.

License and other revenue increased 14.8% year over year to $280.0 million. Revenue from commercial new licenses increased 24.0% from the first quarter last year.

Maintenance revenue increased 7.1% year over year to $195.0 million in the first quarter 2011.

First quarter revenue includes a one-time benefit of $15.0 million that resulted from a change in the upgrade pricing for subscription customers, which also pulled in other customers onto the subscription platform. Management believes this to be a one-time item and anticipates a sequential decline in upgrade revenue in the second quarter. Total upgrade revenue in the first quarter was $51.0 million, up 18.0% from the year-ago period.

Revenue by Geography - The company's international businesses posted strong revenue growth in the quarter. EMEA revenue increased 19.0% year over year and 10.0% on a constant currency basis to $199.0 million. This region generated the majority of upgrade revenue in the quarter.

Asia Pacific revenue increased 21.0% year over year and 15.0% on a constant currency basis to $115.0 million.

Revenue from emerging economies represented 14.0% of total revenue in the quarter and increased 16.0% year over year and 13.0% on a constant currency basis to $68.0 million.

The Americas revenue decreased 1.0% year over year to $161.0 million, reflecting difficult comps compared to the year-ago period.

Revenue by Product Type – First quarter model-based design products (29.0% of total revenue) increased 13.0% year over year.

Horizontal Design products and Vertical design products increased 20.0% and 8.0% year over year, respectively. Combined revenue from these two segments was $240.0 million, up 17.0% compared to the first quarter of 2010.

Revenue by Business Segment – Revenue from Platform Solutions and Emerging Business segment increased 18.0% year over year to $184.0 million. Both AutoCAD and AutoCAD LT reported strong growth driven primarily by upgrades.

Architecture, Engineering and Construction revenue increased 7.0% year over year to $137.0 million, driven by strong sales from the Revit family of products and AutoCAD Architecture.

Manufacturing revenue increased 15.0% year over year to $108.0 million, primarily attributable to a 21.0% increase in revenue from the Inventor family of products.

Media and Entertainment revenue decreased 4.0% year-over-year to $46.0 million, due to a 25.0% decline in revenue from creative finishing, partially offset by a 10.0% increase in revenue from animation products.

In the first quarter, the company launched the 2011 portfolio of design software products. These are high end products with powerful new features for 3D design, visualization and simulation for engineers, architects and other creative professionals. The new user interface makes it easier for the customers to navigate between multiple Autodesk products.

The company launched the Sketch Book Pro application for the iPad. The company also launched AutoCAD Freestyle and Autodesk Home Styler during the quarter.

Balance Sheet and Cash Flow

Total cash and investments at the end of the first quarter increased to $1.24 billion from $966.0 million in the year-ago period. Cash Flow from operating activities of $139.1 million was significantly higher on a year-over-year basis from $27.2 million.


For the second quarter, management expects revenue between $435.0 and $460.0 million. Diluted earnings per share on a non-GAAP basis is expected in the range of $0.23-$0.28 and, on a GAAP basis, in the range of $0.12 to $0.17. The effective tax rate is expected to be 27% and excludes any benefit from the R&D tax credit.

For full year 2011, management did not provide any particular guidance. However, they expect GAAP operating margin to increase significantly compared to 2010. Non-GAAP operating margin is expected to increase by approximately 300 bps in 2011.

Management remains somewhat cautious due to de-valuation of the euro and the general instability of the European economy. However, they expect a strong global demand environment going forward.

We believe a weak European economy will temper Autodesk's growth over the coming period. With around 40% of first quarter revenue coming from the region, any softness in Europe would have a significant negative impact. Moreover, the company can also face some foreign exchange headwind as it is not fully hedged.

Although Autodesk has a strong market position in the "mainstream" CAD market, it faces competition from Dassault Systems. Moreover, the company competes against Adobe Systems Inc. (NASDAQ:ADBE), Apple Inc. (NASDAQ:AAPL), Avid Technology (NASDAQ:AVID), Sony (NYSE:SNE) and Thomson Reuters (NYSE:TRI).