Last week Autodesk, Inc. (NASDAQ: ADSK) reported strong financials for the second quarter of fiscal year 2018 for the period ended July 31, 2017. The company reported annualized recurring revenue (ARR) of $784 million, an increase of 94 percent compared to the same period last year. Total ARR for the quarter was $1.83 billion, a 21 percent increase year-over-year. Deferred revenue was $1.78 billion, a 17 percent increase compared to $1.52 billion for the same period last year. Unbilled deferred revenue for the second quarter of fiscal year 2018 was $63 million.
Other financial highlights include:
- Revenue was $502 million, a 9 percent decrease year-over-year, due, in part, to the transition to a subscription model.
- Total GAAP spend was $609 million, a 1 percent decrease year-over-year.
- GAAP diluted net loss per share was $(0.66), compared to $(0.44) in the second quarter of fiscal year 2017.
Subscription highlights include:
- Subscription plan subscriptions (product, enterprise business agreements and cloud) were 1.59 million at the end of the second quarter, an increase of 270,000. Subscriptions are a hybrid of desktop and SaaS functionality for a device-independent, collaborative design workflow. The increase was driven by growth in all subscription types.
- Subscription plan subscriptions included 63,000 maintenance subscribers that converted to product subscriptions under the maintenance-to-subscription program.
- Maintenance plan subscriptions were 1.85 million, a net decrease of 117,000 from the first quarter of fiscal year 2018. This decrease was expected and it will continue to decline.
- Total subscriptions increased 153,000 from the first quarter to 3.44 million at the end of the second quarter.
- Total recurring revenue in the second quarter was 91 percent of total revenue, compared to 69 percent of total revenue for the same period last year.
- Subscription Plan Annualized Revenue Per Subscription (ARPS) was $493. Maintenance Plan ARPS was $564. Total ARPS was $531.
‘Once again, we experienced broad-based strength across all subscription plan types and geographies. We’re seeing positive trends in ARR growth, especially with products that were first to move to subscription-only. These products are further into the transition and have ARR growth rates well above our current average, offering additional proof that our model transition is working,’ said Autodesk president and CEO Andrew Anagnost.
‘Subscription is delivering a better experience to our customers, expanding our market opportunities in construction and manufacturing, and increasing the customer lifetime value for Autodesk,’ Anagnost added. ‘During the second quarter, we started offering a simple path for maintenance customers to move to subscription. While the program didn’t begin until midway through the quarter, it is off to a great start with nearly one-in-four renewal opportunities moving to subscription.’
Autodesk provided the following guidance:
Third quarter of fiscal year 2018:
- Revenue between $505 million and $515 million
- GAAP earnings/loss per share between $(0.64) – $(0.58)
Full year fiscal 2018:
- Revenue between $2.03 billion and $2.05 billion
- GAAP earnings/loss per share between $(2.55) and $(2.44)
Autodesk investors weren’t particularly moved by the financial report. On August 24, the day financials were released, stock closed at $110.61. As of 11:59 AM Eastern yesterday, Autodesk stock was valued at $110.84 per share. This is a significant increase over Autodesk’s stock price of $68.32 a year ago on August 29, 2016.
If you look at the company’s annualized recurring revenue figure, which Autodesk uses as a performance metric, the company is making great strides in its transition to a subscription-based model. If you look at the company’s net loss per share, Autodesk’s quarterly results aren’t particularly impressive. However, it is important to remember that the business model transition is still in play.
New products have a lower initial purchase price, and revenue of subscription products is spread out over time, as the company phases out perpetual licenses. Maintenance subscriptions are down, but the net result is an overall increase in subscriptions. During the transition, revenue, margins, earnings per share, deferred revenue and cash flow from operations will all be impacted as revenue is recognized ratably rather than up front. So far, everything indicates that the transition to a subscription model has been nothing but positive for Autodesk.