Autodesk’s total revenues of $476.7 million, up 14%, exceeded my $465.8 million estimate, with each of the four business segments exceeding the segment forecasts. Maintenance revenues were slightly more than estimated, but billings were lighter than estimated, resulting in a sequential decline in deferred maintenance revenues.
Non-GAAP earnings of $0.32 a share were slightly below my $0.33 a share estimate, on higher sales & marketing and G&A expenses (R&D was in line); still, the 21.0% non-GAAP operating margin was a 260 basis point improvement year/year, and the company should be on its way to a more than 400 basis point improvement for all of FY11 (ending January 2011), including expected additional spending in the fourth quarter.
The 4QFY11 revenue guidance of $500-$520 million comfortably encompasses my prior $504 million forecast, though the non-GAAP earnings range is under my $0.39 a share estimate due to the expected large sequential ramp in expenses (e.g., performance-based compensation). The initial forecast of 10% growth for next year (FY12) also seems quite reasonable (and, perhaps coincidentally, matches the Adobe forecast for itself for next year, with Autodesk however having more margin leverage from a lower base).
By segment, the highlights were as follows:
Platform & Emerging Business. Revenues of $174 million, up 13%, vs. estimate of $172 million. AutoCAD & AutoCAD LT revenues were about 33% of revenues, or about $161 million, up 20%, slightly higher than expected. However, LT -- the second-largest product -- did decline by at least several million dollars, consistent with the typical 2Q/3Q sequential pattern for most of the past decade.
AEC. Revenues of $136 million, up 9%, vs. estimate of $135 million. For the year to date, AEC is up 8%, with a long way to go to return to pre-recession levels. (3QFY11 AEC was more than 15% below the third quarter of two years ago). Still, the underlying momentum in BIM (building information modeling) is real (by next year, the total number of Revit licenses shipped to date should be approaching the mid-six-figures). In the meantime, Revit revenue was up 22% year/year, implying (given the 9% segment growth) that one or more other products, such as Architecture and/or Civil, were less robust.
Manufacturing. Revenues of $117 million, up 31%, vs. estimate of $114.5 million. Not surprisingly, Manufacturing did substantially better than AEC year/year. Inventor revenues, the largest part of this business unit, were up 2% sequentially, and up 29% year/year, following the pattern of their closest peers as we see a general recovery underway in this part of technical software.
Media & Entertainment Group. Revenues of $50 million, vs. $44.2 million estimate. Animation products, e.g., Max, Maya, were down 2% year/year, to about $34 million, and Creative Finishing (the hardware-based products formerly known as Advanced Systems) were up 21% year/year to about $16 million (after having declined by more than half a year ago).
Geographic. On an as-reported basis, Asia/Pacific was the strongest region, with the 22% year/year growth, though on a constant-currency basis, both Europe, Autodesk’s largest region, and Asia/Pacific grew 19% year/year. Autodesk highlighted double-digit growth in all regions, for the first time in three years.
Subscriptions & upgrades. While upgrades are now down to only a single-digit percentage of revenues, 3QFY11 upgrades revenue of $32 million was above my forecast, up sequentially from 2Q (which has not been the typical pattern since FY00), and up 20% year/year. The company noted the success of a cross-grade promo during the quarter.
Maintenance revenues were $194.7 million, up 8% year/year, and slightly higher than modeled; on the other hand, maintenance billings were up only 11% year/year (in 3QFY10, such billings were down 11% year/year), to an implied $172 million. The company added 182,000 net new seats and deferred maintenance was $450 million, down from a high of $492 million in 1QFY11. We can reasonably expect some recovery in 4Q for seasonal reasons (the company attributed the slight sequential decline in maintenance billings from 2Q to seasonality, though such a decline did not occur in FY07 and FY08. Anyway, it was only a small decline). For the year to date, maintenance billings appear to have been up 17%, so there is a very good likelihood the company in FY11 will more than reverse the 7% billings decline of FY10.
Suites & Upgrades. It is fundamentally important that the company is as focused as they are now on growing their suites business. I liked that the company was explicit about the contribution from suites: $107 million, up 24%, accounting for 22% of total revenues (corroborating the inferred one-fifth proportion I calculated earlier this year).
Clearly there is substantial proportionate room to grow the suites business; in addition to enlarging average revenues per new license sale, as with Adobe's Creative Suite, Autodesk’s suites should also enhance the maintenance business given the high attach rates of AutoCAD and other model-based (“3D”) component apps that comprise the suites -- and maintenance carries a 95%+ gross margin, vs. a mere 85%+ for license and other revenues. The company has not completed its full launch of the suites, and it expects to do so by next Spring.
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