PLM software provider Autodesk Inc. yesterday reported strong fourth-quarter revenue growth, driven by increasing business from the company's manufacturing customers, rising demand for Autodesk's 3D products, and vigorous growth in revenues from emerging economies.
The strong financial results, however, were marred by the company's admission that it had made "numerous administrative errors" since 1998 in processing employee stock option grants, which will require Autodesk to restate its earnings for the past four years. Discovery of the improprieties, which followed a seven-month internal audit and investigation, also prevented Autodesk from issuing full fourth-quarter financial results. The company has not publicly reported its net earnings or earnings-per-share results since the second quarter of fiscal 2007.
Autodesk said it expects pre-tax, non-cash charges incurred as a result of the restatement to be between $38 million and $45 million.
For the fourth quarter ended Jan. 31, 2007, Autodesk reported revenues of $497 million, an increase of 19% compared to the fourth quarter of 2006. The company said revenues from new seat licenses in the quarter grew by 15% year over year. That growth was led by Autodesk's model-based 3D products. Overall, revenues from 3D products — including Inventor, Revit, and Civil 3D — grew by 40% during the fourth quarter compared to the year-earlier period. In the fourth quarter, revenue from 3D products represented 24% of Autodesk's total revenue.
For the year, Autodesk reported revenues of $1.84 billion, an increase of 21% compared to fiscal 2006. Full-year revenues from 3D products grew 41%.
The manufacturing sector was a significant contributor to Autodesk's strong quarter. The company's Manufacturing Solutions division reported fourth-quarter revenues of $98 million, up 32% over the like period a year ago. For the year, Manufacturing Solutions division revenues grew by 30% to $333 million.
The company also reported major revenue gains from emerging economies. Sales from emerging markets in Asia, Eastern Europe, the Middle East, and Latin America increased by 44% during the fourth quarter to $75 million.
Revenues from the Americas increased by 15% year over year to $203 million in the quarter. Revenues from Europe, the Middle East, and Africa grew by 26%, while revenues from Asia were up 18%. Autodesk's Asia results were hindered by continuing poor performance in Japan, where revenues declined 3% during the quarter. Autodesk has struggled to correct poor performance in Japan, which it has attributed to poor leadership and distribution channel problems there. Autodesk President and CEO Carl Bass, on a conference call with investors, said the company's business in Japan has "stabilized," but he declined to predict when revenues will begin to improve.
Overall, Bass expressed satisfaction with Autodesk's fourth-quarter and full-year results, although he acknowledged that the ongoing problems in Japan and the stock options investigation affected results.
"The options review is almost behind us," said Bass in remarks to analysts. "Our business performed remarkably well during the distraction of the review, but it was a distraction. Customer demand for Autodesk solutions remains very strong."
Bass said Autodesk's 2007 results suggest that the company is gaining market share, particularly against manufacturing market competitors. "Many of our competitors are getting long in the tooth in the manufacturing market," Bass said. "There's this old legacy software that they're selling at prices that no longer are appropriate in this market. We continue each quarter to win considerably sized deals from each of these competitors."
Among them, Bass said, is UGS, which was recently acquired by automation vendor Siemens. Bass posited that the decision by UGS's equity investor backers to sell the company was a reflection of UGS's competitive disadvantage, and predicted that UGS may struggle under Siemens.
"So far, we haven't seen a successful acquisition of engineering software companies by industrial conglomerates," Bass said. "I would bet dollars to donuts that private equity will have another shot at UGS in a few years."
Autodesk predicted that its results will continue to improve in 2008. The company anticipates first-quarter fiscal 2008 revenues to be in the range of $490 million to $500 million. For the full year 2008, Autodesk predicted that it will report revenues of between $2.075 billion and $2.125 billion.
Meanwhile, investors will have to continue to wait for Autodesk's full 2007 earnings results and its restated revenues from earlier years. While the company has completed its own review of its stock options practices, it said the Securities and Exchange Commission is conducting an informal inquiry. Autodesk said it plans to file restated earnings and delinquent quarterly reports for the periods ended July 31, 2006, Oct. 31, 2006, and Jan. 31, 2007, "as soon as practicable."
The company said its own investigation showed that between August 2000 and February 2005 the company made employee stock grants under a process where "grant dates were typically chosen after the fact to coincide with low trading prices..." The effect of the practice was to increase the value of the grants while under-reporting the cost to Autodesk and its shareholders.
Autodesk noted that it has since improved its grant processes. The company also said, "There was no evidence that any officer or director backdated any stock option grant himself or herself."
In unrelated news, Autodesk recently introduced what it described as an initial offering in a planned suite of products focusing on digital process and power plant design. AutoCAD Piping and Instrumentation Diagram (P&ID) is intended to help engineers complete plant project designs quickly and to easily share plant, structural, civil, building, mechanical, and electrical design information. AutoCAD P&ID is currently available only in English.