Autodesk - Earnings review Q4'22

Autodesk (ADSK) Fourth Quarter Fiscal 2022 Financial Highlights

Autodesk reported its fiscal Q4 2022 results on 24/2/2022. The below commentary is a preview of Q4 2022 earnings.

The company reported revenues of $1.21 billion versus $1.20 billion expected and Non-GAAP EPS of $1.5 vs $1.44 expected. Overall, it was a decent quarter for Autodesk without any surprises since the Company met expectations.

Financial highlights

• Revenue for Q4 2022 of $1.21 billion, up 17%. Revenue for the year of $4.39 billion, up 16%.

• Total billings for Q4 2022 increased by 13% to $1.66 billion. Billings for the year of $4.82 billion, up 16%.

• Net revenue retention rate was within the range of 100% to 110%.

• GAAP operating margin was 12%, down 6 percentage points, including lease-related asset impairments and other charges of $104 million. Adjusting for the lease related charges, operating margin would have been 20%, up 2 percentage points from 2021.

• Non-GAAP operating margin was 35%, up 5 percentage points.

• GAAP diluted EPS was $0.40, including a $0.47 negative impact of lease-related charges. GAAP diluted EPS in Q4 2021 was $4.1 but included a $3.05 impact of release on valuation allowance on DTA.

• Non-GAAP EPS of $1.5, up by 27% compared to Q4 2021.

• Cash flow from operating activities was $723 million, up 10%.

• Free cash flow was $716 million (59% of revenue), up 13%

• Year-end cash and marketable securities of $1.764 billion and debt plus operating lease liabilities of $3.061 billion.

Guidance for Q1 2023 and FY 2023

Revenue growth and operating margins

Revenue has been trending in the right direction, accelerating in the second half of the year. Management guided revenue growth will be sustained for the year 2023 as well.

Non-GAAP margins expanded from 28% in Q1 2022 (fiscal) to 35% in Q4 2022 (fiscal) and management guided for further expansion in 2023 demonstrating the operating leverage of the business.

GAAP operating margin decreased to 12% in Q4 2022. However, the decrease was due to non-recurring lease-related charges of $104 million. If we adjust for the lease related charges, operating margin would have been 20%.

Management guided for 21% GAAP operating margin for the year 2023, yet we would like to see a further expansion in GAAP operating margin given the subscription basis of revenue. Shared based compensation (SBC) is the main difference between GAAP and Non-GAAP operating margins. In Q4 2022, SBC was 12% of sales compared to 10% in Q4 2021, whereas, for the fiscal year 2022 SBC was 13% of sales compared to 11% in 2021.

Revenue by product family

• In Q4 2022, AutoCAD and AutoCAD LT revenue ($345M) grew by 20%, AEC revenue ($528M) grew by 17%, manufacturing revenue ($246M) grew by 4% and Media and Entertainment ($82M) grew by 38%.

• The single digit growth in manufacturing was due to strong performance in automotive Enterprise Business Agreements which included significant upfront revenue in the prior year Q4. Excluding these impacts, manufacturing revenue grew in double digits in Q4.

• Media and Entertainment signed its largest ever Enterprise Business Agreement in the fourth quarter and as a result, revenue from M&E included some upfront revenue from its largest ever EBA. Even if the upfront revenue is excluded, M&E grew by more than 20% in Q4.

Notes from earnings call

• Revenue growth was driven by robust renewal rates, strong growth in subscriptions and rapidly expanding digital sales

• Monetization of non-compliant users – During the quarter the company closed 16 deals over $500,000, 4 of which were over $1 million. During the investors’ day in 2021, the Company claimed to have 15 million of non-compliant users. Monetization of the non-compliant user base will enable the company to further grow revenues in the following years.

• Direct revenue for Q4’2022 increased by 27% and represented 38% of total revenue, up from 34% in last year due to strength from both enterprise and e-commerce. Annual e-commerce sales surpassed $0.5B for the first time. Increase in direct sales (long term goal of 50%) can further improve operating margins since they have higher operating margins than sales through network of resellers and distributors.

• Lease-related charges of approximately $100 million reflects the Company’s plan to reduce its real estate footprint and to further its hybrid workforce strategy.

• In Q4, the Company accelerated its share repurchase activity. The result was an offset of the SBC dilution with a slight reduction in the weighted average shares outstanding at the end of the year.

Valuation

Autodesk is currently trading at forward GAAP P/E of 50.8 and forward EV/Sales of 9.5. The stock is by no means cheap. However, given the durability of the business and its leadership position, the high multiples can be justified if the Company retains revenue growth in the high teens and manages to further expand its GAAP operating margins in the range of 25%-30%.