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Autodesk (ADSK) Q3 Loss Wider than Expected, Stock Down

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Autodesk Inc. ADSK reported third-quarter fiscal 2017 adjusted loss (including stock-based compensation expense but excluding all other non-recurring items) of 43 cents a share, wider than the Zacks Consensus Estimate of a loss of 42 cents. Though revenues of $489.6 million topped the consensus mark of $477.3 million, it fell nearly 18.4% year over year. Shares were down a little over 2% in the aftermarket session.

Management has yet again stated that revenues, in the near term, will be impacted by the business model transition as revenues are now recognized “ratably” as against realized “upfront” earlier on.

The company also updated its outlook for fiscal 2017. Autodesk lowered its revenue guidance, whereas loss per share is now expected be narrower than the earlier projections, which is a positive.

Quarter Details


The company reported non-GAAP earnings per share of 18 cents in the quarter compared with earnings of 14 cents in the year-ago quarter.

Revenues were impacted by a 39.4% year-over-year decline in License revenues to $170.1 million. The results in the quarter were impacted by the exit from perpetual license offerings. Subscription revenues however were almost flat year over year at $319.5 million.

Total subscriptions increased approximately 134K million from the prior quarter to 2.95 million in the quarter. New model subscriptions (product, enterprise flexible license, and cloud subscription) increased approximately 168K from the last quarter to 861K.

Segment wise, revenues from the Architecture, Engineering and Construction (AEC) business segment decreased 6% from the year-ago quarter to $212 million.

Manufacturing revenues decreased 16% on a year-over-year basis to $147 million.

Revenues from AutoCAD and AutoCAD LT (combined)plummeted about 44% from the year-ago quarter to $80 million.

Sales from Autodesk’s Media and Entertainment (M&E) segment decreased 13% on a year-over-year basis to $34 million in the reported quarter.

Geographically, revenues in the Americas decreased 10% year over year to $213 million. EMEA revenues declined 15% to $191 million, while the same in APAC decreased 39% from the year-ago quarter to $85 million.

AUTODESK INC Price, Consensus and EPS Surprise

AUTODESK INC Price, Consensus and EPS Surprise | AUTODESK INC Quote

Operating Results

Gross margin contracted 140 basis points (bps) from the year-ago quarter to 83.4% in the reported quarter.

Operating expenses were $528 million during the quarter, up 0.8%. Autodesk’s loss from operations was $119.9 million, much wider than $14.8 million reported in the year-ago quarter.

Balance Sheet

Autodesk exited the quarter with total cash and cash equivalents (including marketable securities) of $1.97 billion compared with $2.25 billion as on Jan 31, 2016.

Cash flow from operating activities for the nine-month period ended Oct 31, 2016 was $154.1 million compared with $244.1 million in the comparable period last year.

Outlook

For the fourth quarter of fiscal 2017, Autodesk expects revenues in the range of $460 million – $480 million. Non-GAAP loss per share (excluding stock-based compensation expense and amortization of acquisition-related intangibles) is expected in the range of 32 cents– 39 cents for the quarter.

For fiscal 2017, Autodesk continues to expect revenues in the range of $2,012 million – $2,032 million (earlier expectation was $2,000 million – $2,050 million). Non-GAAP loss (excluding stock-based compensation expense and amortization of acquisition-related intangibles) is expected in the range of 54 cents- 61 cents per share, narrower than the earlier projection of 55 cents – 70 cents per share. The company projects subscription additions for fiscal 2017 to be between 515,000 – 525,000 compared with the earlier expectation of 475,000 – 525,000.

Our Take

With Autodesk’s business transition from licenses to cloud-based services complete, its subscriptions and deferred revenues will get a boost going ahead but will impact financials in the near term. Also, the company remains focused on undertaking more cost-cutting initiatives as a part of its business transition.

Autodesk’s aggressive acquisition strategy has played a pivotal part in developing its business over the last couple of years. Plus, Autodesk also expanded its share repurchase program in its efforts to maximize shareholder value.

However, in the near term, the company’s financials may also be affected by increasing investments in cloud-based infrastructure and marketing initiatives. Foreign exchange fluctuations and competition in the cloud-computing domain from the likes of Amazon.com Inc. AMZN, Microsoft Corp. MSFT and Adobe Systems ADBE also remain headwinds.

Presently, Autodesk carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Autodesk have registered impressive growth in the last six months. The stock generated a return of 29.83% compared with the Zacks Computer Software Services industry gain of 5.29%.

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