Autodesk Inc. rang in another strong quarter, with sales of 3D products, new seats, and subscriptions continuing to be the bright spots that company executives say position the software maker for continued growth.
For its first fiscal quarter in 2007, ended April 30, Autodesk (San Rafael, CA) beat its own and analysts' estimates, reporting record sales of $436 million, a 23% increase from the $355 million registered in the like period last year, which equated to a 28% spike on a constant currency basis.
Net income for the quarter, however, decreased to $49 million, or 20 cents per diluted share on a GAAP (Generally Accepted Accounting Principles) basis. This compares to net income of $76 million, or 31 cents per diluted share on a GAAP basis, in the corresponding period last year. Autodesk executives attributed the profit decline to litigation expenses, stock-based compensation expenses, and amortization of purchased intangibles.
"Autodesk had another terrific quarter of financial performance," said company president and CEO Carl Bass, in remarks during a conference call with financial analysts. Bass recently took Autodesk's operational reins from 14-year company veteran Carole Bartz, who is now serving as executive chairman of the board. "During the quarter, we had record results on many of most important business metrics, including 3D revenue, new seat revenue, subscription revenue, as well as strong growth in our 2D business, which fuels a future 3D opportunity."
Revenue from new seats, including the company's new 2007 family of over 25 products, was up 19% (or 25% in constant currencies) from the like period last year, with strong growth coming from 3D and vertical products. Revenue from new seats and emerging businesses continues to represent approximately two-thirds of Autodesk's total revenue, Bass said. The other third of Autodesk's total revenue comes from combined subscription and upgrade sales, which grew 36% to $162 million, compared with the same quarter last year.
Bass called out 3D products as a particular bright spot. During the quarter, combined revenues from Autodesk's 3D products (Inventor, Revit, and Civil 3D) grew 53% compared with the prior year's fiscal first period and now represent 20% of total revenue. Sales of Inventor, Autodesk's 3D CAD tool for the mainstream market, was up 17% compared with last year's fiscal first quarter, with shipments of more than 10,000 commercial seats.
Bass and crew continue to see 3D as a giant opportunity for Autodesk. "We're still in the early stages of penetrating our installed base of 2D users and converting users of competitive legacy systems," Bass said. He estimated that only 10% of Autodesk's 2D installed base has converted to 3D, and in the most recent quarter, 3D penetration of its installed base grew another two percentage points. "Clearly the opportunity is significant," he said.
Momentum in the 2D-to-3D conversion has definitely picked up steam this last quarter, but the big question is whether Autodesk can sustain that kind of growth over a protracted period, noted Ken Versprille, PLM research director at CPD Associates LLC (Stamford, CT), a research and consulting firm focused on engineering and manufacturing. In addition, as Autodesk tries to move beyond its small company base to address the needs of mid-size enterprises, the vendor's weakness in Product Data Management (PDM) and Product Lifecycle Management (PLM) capabilities will be exposed, Versprille said. "Vault is weak," he said, of Autodesk's PDM offering, "and that's a hurdle for larger companies." Autodesk executives made no mention of their PLM and PDM offerings during the analysts' call.
One area where Bass did admit some weakness was in Autodesk's Advanced Systems revenue, which declined 20% during the quarter compared with the prior period last year. Autodesk is moving its high-end systems away from proprietary Silicon Graphics workstations to run on the open Linux platform. That transition has temporarily slowed sales, Bass contended, and the company is adjusting its business model to accommodate lower revenue expectations.
The weakness in Advanced Systems sales also stems from Autodesk's ongoing efforts to integrate its two animation product lines, which resulted from last year's acquisition of Alias. Product line rationalization requires time and resources and is keeping some customers on the fence, Bass said, adding that he expects revenue to be impacted for the next several quarters.
Despite the hiccup, Ovum Analyst David Bradshaw said in a brief written statement after the earnings release, that successful product line integration will have an upside to sales in the long-term.
Autodesk executives remain confident about continued momentum. Autodesk executives said the company expects net revenues of between $440 and $450 million in the second fiscal quarter, with GAAP earnings per diluted share in the 26 to 28 cents range. For fiscal year 2007, officials said Autodesk should log between $1.81 billion and $1.85 billion in sales. GAAP earnings per diluted share for year are expected to be between $1.07 and $1.15.