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Autodesk (NASDAQ:ADSK) Exceeds Q1 Expectations


Full Report / June 27, 2022
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Design software company Autodesk (NASDAQ:ADSK) reported Q1 FY2023 results that beat analyst expectations, with revenue up 18.2% year on year to $1.17 billion. On the other hand, guidance for the full year slightly missed analyst expectations with revenues guided to $5.01 billion at the midpoint, or 0.58% below analyst estimates. Autodesk made a GAAP profit of $146 million, down on its profit of $155.6 million, in the same quarter last year.

Autodesk (ADSK) Q1 FY2023 Highlights:

  • Revenue: $1.17 billion (2.09% beat)
  • EPS (non-GAAP): $1.43 vs analyst estimates of $1.34 (7% beat)
  • Revenue guidance for Q2 2023 is $1.22 billion at the midpoint, in line with analyst estimates
  • The company dropped revenue guidance for the full year, from $5.07 billion to $5.01 billion at the midpoint, a 1.18% decrease
  • Free cash flow of $422 million, down 41% from previous quarter
  • Gross Margin (GAAP): 90%, in line with same quarter last year

Founded in 1982 by John Walker and growing into one of the industry's behemoths, Autodesk (NASDAQ:ADSK) makes computer-aided design (CAD) software for engineering, construction, and architecture companies.

Autodesk is best known for its flagship software, AutoCAD, which is used to design buildings, cars, and bridges. Being the first CAD software to run on PC, AutoCAD by Autodesk accelerated the shift from paper-based engineering designs to digital designs. Paper-based designs were error-prone, difficult to keep up to date and made cooperation between teams hard. Autodesk and its collection of design tools have made these problems a thing of the past. AutoCAD not only makes edits easy but also allows designers and architects to create a library of components that can be reused later, making the design process much more efficient.

Today, even after 40 years, the software is still an essential go-to tool for a number of industries and its functionality has expanded far beyond its original scope, for example it comes with built-in tools that can analyze and remedy weaknesses in a building’s design. Autodesk also makes software for the entertainment and gaming industries. One of the tools, Maya, is a 3D animation software that is used to add special effects to video games and movies, and was essential in making movies such as Avatar, The Matrix, and Spider-Man.

The demand for rich, interactive 2D, 3D, VR and AR experiences is growing, and while the ubiquitous metaverse might still be more of a buzzword than a real thing, what is real is the demand for the tools to create these experiences, whether they are games or interactive movies.

It is worth highlighting the competition in the design software space, which includes players such as Dassault Systèmes (OTC:DASTY), Adobe (NASDAQ:ADBE), Ansys (NASDAQ:ANSS), PTC (NASDAQ:PTC), and Bentley Systems (NASDAQ:BSY).

Sales Growth

As you can see below, Autodesk's revenue growth has been steady over the last year, growing from quarterly revenue of $989.3 million, to $1.17 billion.

Autodesk Total Revenue

This quarter, Autodesk's quarterly revenue was once again up 18.2% year on year. But the revenue actually decreased by $41.6 million in Q1, compared to $85.8 million increase in Q4 2022. However, Autodesk's sales do seem to have a seasonal pattern to them, and management is guiding for revenue to rebound in the coming quarter.

Guidance for the next quarter indicates Autodesk is expecting revenue to grow 15.8% year on year to $1.22 billion, in line with the 16% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 14% over the next twelve months.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Autodesk's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 90% in Q1.

Autodesk Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.90 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like Autodesk to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Autodesk is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Autodesk's free cash flow came in at $422 million in Q1, up 33.6% year on year.

Autodesk Free Cash Flow

Autodesk has generated $1.58 billion in free cash flow over the last twelve months, an impressive 34.6% of revenues. This robust FCF margin is a result of Autodesk asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Autodesk's Q1 Results

With a market capitalization of $40.5 billion, more than $1.58 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see Autodesk outperform Wall St’s revenue expectations this quarter and the strong free cash flow. On the other hand, it was unfortunate to see that Autodesk's revenue guidance for the full year missed analyst's expectations. Overall, these results were ok, showing the company is mostly staying on target. The company currently trades at $195.7 per share.

Is Now The Time?

When considering Autodesk, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. There are a number of reasons why we think Autodesk is a great business. It is true that its revenue growth has been steady. But on a positive note, its impressive gross margins are indicative of excellent business economics, and its very efficient customer acquisition hints at the potential for strong profitability.

Autodesk's price to sales ratio based on the next twelve months is 8.1x, suggesting that the market is expecting more measured growth, relative to the hottest tech stocks. Looking at the tech landscape today, Autodesk's qualities as a business really stand out and we do like the look of the company at current prices.

The Wall St analysts covering the company had a one year price target of $314.2 per share right before these results, implying that they saw upside in buying Autodesk even in the short term.

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