By Tim Brugger
Investors don’t always give executive management teams the time needed to facilitate a significant transition in business models. But thankfully for Autodesk (NASDAQ:ADSK) shareholders, it’s been the exception to the rule. Up nearly 12% year-to-date and 7% since announcing better-than-expected fiscal 2017 Q2 earnings last month, Autodesk CEO Carl Bass is beginning to hit on all cylinders as he transforms its business.
Autodesk handily beat analyst’s earnings-per-share (EPS) expectations and revenue in Q2. Estimates were for negative $0.13 a share on a non-GAAP basis (excluding one-time items) and sales of $512.07 million, which Autodesk obliterated, announcing a positive $0.05 per share on revenue of $559.7 million. Bass went on to share guidance for Q3 and fiscal 2017 that also pleasantly surprised.
Autodesk is an intriguing investment alternative based on how well it’s delivering on several new initiatives.
Patience is a virtue
Whether it’s included in its quarterly earnings release or an integral component of Bass’ conference call, there’s one thing Autodesk management wants to make abundantly clear: total sales have “been and will be negatively impacted as more revenue is recognized ratably rather than up front.”
As part of Autodesk’s “business model transition,” it discontinued new licensing sales for most products several quarters ago and instead is focused on its new model subscriptions. The new subscriptions in turn generate what Autodesk refers to as “annual recurring revenue (ARR).” Measuring the success of Autodesk’s new-ish ARR model is based on its quarterly billings and deferred revenue: and it’s absolutely killing both key metrics.
Total ARR climbed 10% last quarter to an impressive $1.47 billion, and that’s not even the best part. Autodesk’s new model ARR — which includes product, enterprise, and cloud subscriptions — soared to $371 million in fiscal Q2, good for a whopping 82% improvement year-over-year. Autodesk shared a couple more indicators its ARR strategy is spot on: recurring revenue now makes up 67% of total sales, compared to “just” 55% a year-ago, and deferred revenue climbed 23% to $1.52 billion.
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