Autodesk Still Singing the Revenue Blues
By
Richard McCaffery (TMF Gibson)
November 24, 1999
Computer-aided design software maker Autodesk (Nasdaq: ADSK) reported better- than-expected results for the third quarter as workforce reductions and other cost control efforts boosted pro forma net income to $16.7 million, or $0.27 per diluted share. Analysts polled by First Call expected earnings of $0.13 per share.
The company also announced plans to repurchase 8 million shares of stock to offset the dilutive effects of its employee stock plan.
Despite beating estimates, the results are a far cry from last year's Q3 mark of $24 million, or $0.42 per diluted share, as sales of its flagship design product, AutoCad, still look sluggish. AutoCad, which is used by architects and engineers to design, model, and draft products, has an installed base of more than 2.1 million units worldwide. Though the company has diversified its product line, AutoCad and its upgrade products still account for the bulk of Autodesk's sales.
Sales for the quarter came in at $202 million, down 1% from $204.6 million a year ago. The results are actually a big improvement from earlier this year, when revenue fell 12.5% and 10.5% in the first quarter and second quarter, respectively. For the first nine months of 1999, Autodesk sales are down 8.3%.
This is especially disappointing since the company historically has grown revenues about 20% annually, and fiscal 2000 looked promising as Autodesk released more than 20 new design solutions in 1998, paving the way for robust sales this year.
It seems the company is running up against the same blockade many software firms hit around the $1 billion threshold (Autodesk had sales of $740 million last year), namely, they lose steam once their primary user base is saturated. The company's quandary looks more serious than merely the typical Wall Street overreaction to a string of bad quarters.
Nevertheless, it has made moves to reinvigorate its product line, adding an array of 3-D applications to its 2-D product suite, purchasing an array of new technologies through acquisitions, and expanding into new design markets as well as lower margin segments of the industry. Now, the company is focused on Web enabling all of existing applications.
The future may look bright, but it's hard to see it from here. What you can see is disturbing erosion in its operating margins from last year and a deteriorating cash flow situation. (In fairness, Autodesk's operating margins are way up sequentially, jumping to 9% this quarter from 1.3% in Q2.)
But turning back to cash flows, for the first six months of the year Autodesk generated a paltry $889,000 in cash from operations, compared to $79 million from the same period last year. The main reason for this is a $30 million charge related to "changes in operating assets and liabilities."
Until the company shows it has some traction in critical categories like revenue growth, investors should probably stay on the sidelines.
