Autodesk Q2: My $.02

A lot has hit the media in the last few days about what exactly Autodesk will report on Thursday, when it makes public its Q2 2011 results. Its share price has gone up and gone down on the “news”, much of which has been correct, but some … not so much: • Autodesk’s Q2 ended around July 31; this one month shift from “normal” means that companies following a traditional June 30 end for the quarter tend to scoop its results. • Two Autodesk resellers are cited as recently reporting results that foreshadow what Autodesk will be announcing on Thursday: Mensch und Machine (MuM) in Europe and Avatech in the US. It’s true that Mensch und Machine (MuM) reported in late July; their results showed that their Distribution business was up between 5% and 10% in the June quarter. • Avatech is mentioned as providing recent results that give a view to the North American market. Not so. Avatech last reported in early May on results for its March quarter. So much has happened since then that this should be considered “old news”: Autodesk reported once and adjusted its forecast once since Avatech’s report; its own comments should carry more weight. • There’s also the question of how relevant data from any particular reseller is. MuM accounts for perhaps 1/4 of Autodesk’s sales in EMEA; EMEA is roughly 40% of total revenue. At best, then, MuM accounts for 10% of indirect revenue or perhaps 8% of total revenue. MuM is also going through a massive transformation of its business; who can say what effect this had on its Distribution results? Do we really want to base our opinions about a billion dollar company on such a tiny proportion of its revenue? • To gauge broader market sentiment, brokers do what they call “channel checks”, paying an outside firm to canvas a number of resellers to gauge recent results, inventories, sales cycles, optimism/pessimism and so on. These lead the brokerage firms to announce (with much fanfare) that they are changing their rating on a stock to buy or hold or whatever, and drive the share price up or down on no actual news from the company. Piper Jaffray said that its channel check, apparently only with US resellers, “points to domestic stability, which likely will lead to a slight upside surprise in Q2”. Jeffries also did a channel check, which showed that “[r]esellers in North America are slightly more optimistic about growth at (3 percent quarter-over-quarter), while their international counterparts expect a (2 percent sequential) growth in the quarter.” These results have the benefit of being recent; they have the potential downfall of representing even smaller portions of total revenue. • Autodesk said on May 19, 2010 that it believed Q2 revenue would be between $435 million and $460 million, which would have been a 6% sequential decline but an 8% increase from last year. At the time, Autodesk CFO Mark Hawkins said that this forecast was based on “a fair amount of uncertainty in Europe” and the fact that the company would not have the $15 million one-time benefit from the upgrade pricing introduced in Q1. • But things change and Autodesk nudged upward the bottom end of its guidance during its Investor Day in late June. Said CEO Carl Bass, “We are pleased with global demand levels, including EMEA. As a result, the company is raising the bottom end of its second quarter business outlook. Revenue is now expected to be between $445 million and $460 million.” It worries me that investors are led to believe that they are being offered the latest, most accurate and representative information when that is clearly not the case. I plan to tune in to Autodesk’s earnings call at 5PM ET on Thursday to hear directly from them how their business fared in the July quarter. If you are an investor, drop me an email via the Comment button: how do you weight the various sources of information available to you? Note: As the Disclosure says, no one at Schnitger Corp. owns shares in any of the companies mentioned here.