Autodesk, Inc. — Q2 Fiscal 2023 Form 10-Q
Reporting period: Three and six months ended July 31, 2022. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. Comparisons are with the corresponding prior-year periods unless stated otherwise.
Business context
Autodesk provides design and make software for architecture, engineering and construction (AEC), manufacturing, and media and entertainment. Its business is predominantly subscription-based: recurring revenue was 98% of net revenue in both the quarter and first half. Autodesk reported one operating segment.
Financial performance and liquidity
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Net revenue | $1,237 | $1,060 | $2,407 | $2,049 |
| Gross profit | $1,118 | $954 | $2,171 | $1,851 |
| Income from operations | $242 | $148 | $456 | $282 |
| GAAP operating margin | 20% | 14% | 19% | 14% |
| Net income | $186 | $115 | $332 | $271 |
| Diluted EPS | $0.85 | $0.52 | $1.52 | $1.22 |
| Non-GAAP operating margin | 36% | 31% | 35% | 30% |
| Non-GAAP diluted EPS | $1.65 | $1.21 | $3.09 | $2.24 |
Quarterly revenue rose 17%; subscription revenue increased 16%, while maintenance revenue was flat and other revenue rose 30%. Revenue growth was broad-based: Q2 AEC grew 18%, AutoCAD and AutoCAD LT 13%, manufacturing 16%, and media and entertainment 20%. For the first half, revenue also rose 17%, led by subscription growth. Management attributed subscription growth mainly to renewals, with additional contributions from new subscriptions and enterprise business agreements.
Operating income increased faster than revenue. Operating expenses rose 9% in both the quarter and first half, with higher employee-related costs, stock-based compensation, cloud hosting, sales and marketing, and research and development among the cited drivers. Non-GAAP results exclude, among other items, stock-based compensation, acquired-intangible amortization, acquisition costs, and lease-related impairment charges; investors should consider these alongside GAAP results.
- Cash flow: First-half operating cash flow was $691, versus $538 a year earlier. Capital expenditures were $23; free cash flow, defined by the company as operating cash flow less capital expenditures, was therefore $668.
- Cash and liquidity: Cash, cash equivalents, and marketable securities totaled $1.57 billion at July 31, compared with $1.81 billion at January 31. Cash and cash equivalents alone were $1.44 billion. Autodesk said existing liquidity, expected operating cash flows, and its credit facility should cover working capital and operating needs for at least 12 months.
- Debt: Principal debt outstanding was $2.65 billion, including $350 due in December 2022. The company planned to use cash to retire those 2012 notes. It had no borrowings under its $1.5 billion revolving credit facility and was in compliance with its covenants.
- Share repurchases: Autodesk repurchased 3.475 million shares for $693 during the first half; $708 of repurchases appears as a cash-flow statement financing outflow. Five million shares remained authorized for repurchase at quarter-end.
- Deferred revenue and demand indicators: Deferred revenue was $3.70 billion, down 2% from January 31. Remaining performance obligations (RPO) were $4.69 billion, down 1%; $3.14 billion, or 67%, was expected to be recognized in the next 12 months. Net revenue retention rate was within the company’s 100%–110% range.
Material changes and notable items
- Compared with the prior-year quarter, GAAP net income rose 62% and diluted EPS increased from $0.52 to $0.85. For the first half, net income rose 23%; the prior-year period included a non-recurring tax benefit related to an Indian Supreme Court decision, contributing to the change in tax results.
- First-half financing cash outflow was $733, mainly reflecting share repurchases; investing cash outflow was $23, versus $1.19 billion in the prior-year period, which primarily reflected a business combination.
- Autodesk completed two acquisitions in the first half. Cash consideration was $96; total acquisition-date consideration was $114, including employee-related equity consideration. Preliminary purchase-price allocations included $85 of goodwill.
- The company recorded $7 of lease-related asset impairment charges in the first half as it reduced its global facilities portfolio in response to a more hybrid workforce. First-half stock-based compensation expense was $322, up from $266.
- The company reclassified certain subscription-plan revenue between subscription, maintenance, and other presentation categories; prior periods were adjusted, with no change to total revenue. It also corrected an immaterial classification error between AEC and AutoCAD product-family revenue.
Outlook, commentary, and risks
The filing does not provide a clear full-year revenue or earnings guidance range. For Q3 FY2023, management expected cost of revenue, marketing and sales, research and development, and general and administrative expenses to increase in dollars; as a percentage of revenue, marketing and sales was expected to decrease, while the other listed categories were expected to be flat. Purchased-intangible amortization was expected to decrease in dollars and remain flat as a percentage of revenue.
Management cited supply-chain disruption and inflation, labor shortages, COVID-19 developments, the war in Ukraine, foreign-exchange movements, and global economic uncertainty as factors that could affect the outlook. International revenue represented 66% of first-half net revenue. Foreign exchange was neutral to reported revenue growth in the quarter and first half, but management warned currency movements could affect future revenue, spending, and operating income. Autodesk hedges some, but not all, of its exposure.
- Concentration: Tech Data accounted for 37% of quarterly and first-half revenue and 31% of accounts receivable at July 31. Ingram Micro represented 9% of revenue. The company said alternative distributors could reduce disruption if a relationship ended, but distributor disruption could still temporarily affect sales.
- Tax and contingencies: Gross unrecognized tax benefits were $207. The company was assessing potential effects of the Inflation Reduction Act, including the minimum tax and stock-buyback excise tax. It reported ordinary-course legal matters and said resolution was not expected to materially harm its consolidated results, cash flows, or financial position, while noting an unfavorable outcome could materially affect a particular period.
- Key risks: Subscription renewals and customer spending; competition and product acceptance; acquisition integration and expected synergies; cybersecurity, privacy, and third-party service-provider risks; international and currency exposure; and debt service and refinancing obligations.
Investor verification points
- Check subsequent results against the $4.69 billion RPO, especially the expected $3.14 billion to convert to revenue over the next 12 months, and assess renewal and retention trends.
- Monitor the December 2022 repayment of $350 million of notes and the company’s liquidity after debt repayment and ongoing repurchases.
- Compare GAAP performance with non-GAAP measures, including the effects of stock compensation, acquisition-related costs, lease impairments, amortization, and tax adjustments.
- Track customer and distributor concentration, foreign-exchange impacts, and developments in China and other international markets.
- Review acquisition integration, facilities optimization, and the final purchase-price allocations, which remained preliminary for certain items.