Schnitger Corporation

Autodesk: Q1 was “tough”, no plan to end perpetual sales

EarningsAutodesk reported results last night that highlighted how tough the economy is, and perhaps will be for a bit longer than earlier-reporting companies had hoped. Until now, just about everyone pointed to tepid demand that got worse as we moved from January into February and March. That seems to have worsened in April, as CEO Carl Bass said that Autodesk’s “weak April led to a disappointing finish to the quarter”. If April continued the weak streak, how will that affect everyone’s Q2 results? We’ll have to wait and see but let’s take a look at what happened during Autodesk’s quarter ended April 30, 2013.

The big headline, of course, is that total revenue in Q1 was $570 million, a drop of 3% percent year/year, and at the very bottom end of earlier guidance of revenue between $570 million and $590 million (and below the analysts’ consensus of $584 million). In February, Autodesk had guided to overall revenue growth of about 6% for fiscal 2014; last night, that was pulled back to 3% growth. As CEO Carl Bass told investors, “The macro sentiment was just tougher in general [in Q1, it was] just a tougher selling environment.”

He didn’t say that Autodesk is seeing anything unusual in a competitive way, but did say that customers are starting to think about how they buy software: “The news from Adobe during the quarter about ending perpetual licenses, and the lead-up to that, certainly has our customers asking questions about it. There’s clearly a decline in desktop PCs but, on the other hand, our customers still need workstation-quality devices in order to do their day jobs. They continue to buy software and hardware to do it. But I think there is some doubt about the business models, the delivery models, and the platforms going forward. It’s too early for me to declare that this is an ongoing thing, but I do think there are a number of points in there like that.”

Some of the earnings details (look here for the complete package of material):

Autodesk is taking “what we saw in April [and] don’t try to assume that things are going to get better. We think it’s more prudent to plan with what we see” and now forecasts revenue of $550 million to $570 million; for the year, a 3% increase would be about $2,380 million.

All of this presumes a stronger-than-normal second half, which CFO Mark Hawkins says is possible because of relatively weak comparables to last year, growth from Suites and LT and the focus on subscription. Mr. Bass added that the company’s major account business is becoming increasingly back-end loaded, “not a characteristic I particularly love, it just happens to be a fact. It has somewhat to do with our end of year, and our customers’ end of year spend”.

Performance in Q1 and that outlook are sure to drag the stock down at the opening bell this morning (it’s down 6% as I write this at 7AM ET). But mitigating the forecast are improvements in the company’s sales execution and other reactions to the Q1 results. The company had been talking about changes it had made that caused confusion and lowered productivity. Mr. Bass told investors that the after-effects of these changes are “diminishing … we probably saw slightly more effect from overall macro and less from our internal sales things, but there’s probably still some lingering effects”.  Too,  Mr. Bass said, “we’re not particularly pleased with the results this quarter, and we put in a bunch of plans already to rectify it. So, we see kind of small incremental improvements we can make to drive better results for the rest of the year, and so, we will continue to tweak those.”

What does it all mean? Some teeth-gnashing, as we all wait for governments to get their finances in order, industrial demand to pick back up, and nerves to steady. But it’ll smooth back out. Autodesk is taking risks to position itself on the cutting edge of both user experience and tech platform — but they’re measured risks that are likely to pay off once customers resume more normal buying habits.

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