(ADSK) Autodesk Beats Earnings on Strong Revenues

Autodesk Inc.(ADSK) reported second quarter 2012 earnings of 36 cents per share, beating the Zacks Consensus Estimate by two cents. Earnings per share (EPS), including stock-based compensation but excluding one-time charges, increased 20.0% year over year, driven by strong revenue growth across all geographies and business segments.

Operational Performance

Gross profit (including stock-based compensation but excluding one-time charges) was $497.4 million, up 15.1% year over year. However, gross margin decreased 40 basis points (bps) from the year-ago quarter to 91.0%.

Operating expenses (including stock-based compensation but excluding one-time charges) increased 14.6% year over year to $385.9 million, primarily attributed to higher marketing & sales expenses (up 13.2% year over year), research & development expenses (up 16.7% year over year) and general and administrative expenses (up 14.3% year over year).

However, operating expenses, as a percentage of revenue, contracted 60 bps to 70.6% in the quarter.

Operating income (including stock-based compensation but excluding one-time charges) of $111.5 million was up 17.0% year over year. Operating margin came in at 20.4% in the quarter, up 20 bps year over year, attributable to strong revenue growth in the quarter.

Revenue

Revenues increased 15.5% year over year to $546.3 million in the reported quarter, beating the Zacks Consensus Estimate of $539.0 million and management’s guided range of $530.0 million to $545.0 million.

The year-over-year growth in revenue was driven by higher license and other revenues, which increased 18.6% year over year to $333.0 million. Maintenance revenues rose 11.0% year over year to $213.3 million in the quarter.

Autodesk witnessed significant upside across all of its geographical regions. Revenues in America jumped 13.0% year over year to $191.0 million.

International businesses also contributed to the strong revenue growth in the quarter. EMEA revenues climbed 12.0% year over year and 13.0% on a constant currency basis to $212.0 million. Asia-Pacific revenues escalated 24.0% year over year and 16.0% on a constant currency basis to $143.0 million.

Revenues from emerging economies (16.0% of the total revenue) climbed 23.0% year over year and 18.0% on a constant currency basis to $88.0 million.

On a segmental basis, Platform Solutions and Emerging Business revenues jumped 12.0% year over year to $199.0 million in the reported quarter.

Revenues from the Architecture, Engineering and Construction (AEC) business segment were $158.0 million, up 19.0% year over year, while Manufacturing revenues increased 20.0% year over year to $136.0 million in the quarter. Revenues from the Media and Entertainment business rose 9.0% year over year to $54.0 million in the quarter.

Balance Sheet and Cash Flow

Autodesk’s balance sheet remains strong with no debt. The company exited the second quarter of 2012 with total cash and investments of $1.37 billion compared with $1.35 billion in the previous quarter. Cash flow from operating activities was $132.4 million compared with $128.4 million in the previous quarter.

Guidance

For the third quarter of 2012, Autodesk expects revenues in the range of $535.0 million to $550.0 million. The Zacks Consensus Estimate is pegged at $542.0 million.

GAAP EPS is expected in the range of 25 cents to 29 cents. Non-GAAP EPS is expected in the 38 cent-to-42 cent range. The Zacks Consensus Estimate is currently pegged at 35 cents per share, below the guided range.

For fiscal 2012, Autodesk expects revenues to increase 13.0% year over year. Non-GAAP operating margin is expected to increase 200 bps on a year-over-year basis. The company did not provide any EPS guidance for the full year. The current Zacks Consensus Estimate is pegged at $1.39 per share for fiscal 2012.

Recommendation

Autodesk has reported a strong quarter on the back of robust revenue arising from strong growth across the globe and particularly in the Asia-Pacific region. Segment revenue was positively impacted by increase in the Manufacturing and AEC segments. Additionally, the recently unveiled design and creation suites had gained a head start that helped drive revenues.

In our view, the company’s improvements and innovations in 3D design technology and product portfolio provides a competitive edge. Moreover, Autodesk’s expanding product portfolio and broadening industry and geographic reach will help it sustain its longer-term growth strategy of providing high-volume, lower-cost CAD software. We believe this will likely drive earnings going forward.

However, foreign exchange fluctuations and competition from Adobe Systems Inc. (ADBE), Parametric Technology Corp. (PMTC) and Avid Technology Inc. (AVID) remain headwinds.

We have a Neutral recommendation on Autodesk’s shares in the long term.

Currently, Autodesk has a Zacks #3 Rank, which translates into a short-term (1-3 months) Hold rating.

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