Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Autodesk's Cash Surge Shows No Signs of Letting Up

By Demitri Kalogeropoulos - Dec 3, 2019 at 8:23AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The shift towards subscription services is finally paying off for the business.

Autodesk ( ADSK -2.67% ) investors were optimistic heading into the design software specialist's third-quarter earnings report. Its prior results back in August contained plenty of good news, including strong sales growth, cash flow, and earnings.

The software-as-a-service provider extended that positive momentum into the third quarter by announcing last week that it had again exceeded management's guidance thanks to healthy demand across its product categories and across different geographic divisions. Let's take a look at a few highlights from that report.

A user interacts with a design program displayed on a laptop

Image source: Getty Images.

Sales are rising

Sales growth was strong, as revenue increased 28% to $843 million. CEO Andrew Anagnost and his team had forecast a range of between $820 million and $830 million, and so the actual result comfortably exceeded the high end of that guidance. Autodesk executives highlighted the broad-based nature of the demand growth, which included market share gains in the construction and manufacturing industries. "Third quarter results were driven by all regions and products," CFO Scott Herren said in a press release.

The company's base of annualized recurring revenue, which management sees as a key growth metric in its cloud-focused, subscription business, rose 28% to mark a modest slowdown compared to the prior quarter's 31% increase.

Financial wins

Autodesk's earnings are still being pressured by its quick shift into subscription service plans that spread customer payments out over time. Yet its finances are improving. Operating income soared to $111 million compared to $15 million a year ago, pushing operating margin up to 13% of sales from 2%.

Cash flow was another standout success, with operating cash jumping to $276 million from just $39 million last year. "We continue to demonstrate the cash generating power of our business model," Anagnost said, "and this quarter [we] drove a record [trailing] twelve months free cash flow of nearly $1 billion."

ADSK Free Cash Flow (TTM) Chart

ADSK Free Cash Flow (TTM) data by YCharts.

Looking ahead

Investors didn't have to squint to see signs of robust growth for the fourth quarter and likely into 2020. Autodesk managed 30% or higher sales gains in three of its five geographic regions in Q3, and the Europe segment, its slowest, still managed a 24% increase.

Meanwhile, the company's billings, which represent contracted but not yet fulfilled sales, point to plenty of revenue ahead. "Outstanding execution," Herren said, "produced billings over $1 billion, a 55% [increase]."

Autodesk's guidance updates were slightly negative but didn't change the overall robust growth picture. Sales are still on track to rise by about 26% while spending stays restrained. Billings should still increase roughly 50% for the year to over $4 billion.

These trends will translate into non-GAAP earnings of between $2.69 and $2.81 per share. Yet the stronger business is showing up more clearly in Autodesk's free cash flow, which is on pace to hit $1.3 billion his year compared to $300 million last year and a modest decrease in fiscal 2018.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Autodesk, Inc. Stock Quote
Autodesk, Inc.
$254.19 (-2.67%) $-6.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.