Autodesk, Inc. — FY2016 Form 10-K
Reporting period: Fiscal year ended January 31, 2016. The filing also reports fourth-quarter results. Fiscal 2016 is not calendar 2015.
Business context
Autodesk sells design software and services for architecture, engineering and construction (AEC), manufacturing (MFG), platform solutions and emerging business (PSEB), and media and entertainment (M&E). It was transitioning from upfront perpetual-license sales toward subscriptions, cloud services, and flexible term licenses. Effective February 1, 2016, it discontinued new perpetual licenses for most individual products; it planned to discontinue new perpetual suite licenses on August 1, 2016.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $2,504.1 million | $2,512.2 million |
| Subscription revenue | $1,277.2 million, up 9% | $1,170.8 million |
| License and other revenue | $1,226.9 million, down 9% | $1,341.4 million |
| Gross profit / margin | $2,133.4 million / 85% | $2,170.1 million / 86% |
| Operating income / margin | $1.3 million / approximately 0% | $120.7 million / 5% |
| Net income (loss) | $(330.5) million; diluted EPS $(1.46) | $81.8 million; diluted EPS $0.35 |
| Operating cash flow | $414.0 million | $708.1 million |
The FY2016 net loss primarily reflected a $310.2 million income-tax provision, including a substantial valuation allowance on U.S. deferred tax assets. Non-GAAP net income was $194.1 million, or $0.84 per diluted share; these measures exclude specified items and are not substitutes for GAAP results.
Cash, cash equivalents, and marketable securities totaled approximately $2.8 billion at year-end; net of long-term debt, management reported approximately $1.3 billion. Notes had $1.5 billion aggregate principal outstanding, with a $400 million revolving facility undrawn. Current deferred revenue was $1,068.9 million, and total deferred revenue was approximately $1.52 billion. Operating cash flow fell 42%; higher receivables and a shift in billing timing contributed, while deferred revenue growth was a source of cash. The company repurchased 8.5 million shares for $458.0 million.
Recurring revenue was 54% of total revenue, versus 46% the prior year. Total subscriptions rose 15% to 2.58 million; annualized recurring revenue (ARR) rose 10% to $1.376 billion. New-model ARR grew 68% to $255.0 million, while total annualized revenue per subscription declined 5% to $534.
Changes and segment trends
- Reported revenue was nearly flat year over year; management said constant-currency revenue would have increased 4%.
- AEC revenue increased 9% to $949.1 million and MFG increased 7% to $724.6 million. PSEB decreased 16% to $670.4 million, including a 26% decline in AutoCAD LT revenue; M&E decreased 4% to $160.0 million.
- Americas revenue increased 8%; EMEA declined 5% and Asia Pacific declined 6% as reported, with currency effects weighing on both regions. International revenue was 68% of total, down from 71%.
- Operating income contracted sharply as operating expenses rose 4% and cost of revenue rose 8%, reflecting higher employee, IT, cloud-hosting, and support costs. R&D expense rose 9% to $790.0 million.
Outlook, risks, and unusual items
- FY2017 guidance: Revenue $1.95–$2.05 billion (or $2.0–$2.1 billion excluding currency and hedge effects); GAAP spend growth 3%–4%; non-GAAP spend down 1% to flat; GAAP diluted loss per share $(3.32)–$(2.91); non-GAAP loss per share $(0.85)–$(0.60); net subscription additions of 475,000–525,000.
- Q1 FY2017 guidance: Revenue $500–$520 million; GAAP diluted loss per share $(0.98)–$(0.89); non-GAAP loss per share $(0.17)–$(0.12).
- Management expects the subscription transition to support customer growth and recurring revenue over time, but cautioned that ratable recognition and lower initial subscription prices may pressure near-term revenue, margins, earnings, and operating cash flow. Maintenance subscriptions were expected to peak as perpetual sales ended and decline gradually thereafter.
- In February 2016, Autodesk announced a restructuring affecting approximately 925 employees (about 10% of the workforce) and facility consolidation. It expected $85–$95 million in pre-tax charges, substantially cash, with completion targeted by FY2017 year-end.
- Controls and reporting: Management and the auditor identified a material weakness in controls over technical review of deferred-tax reconciliations and the effective tax rate. The auditor gave an adverse opinion on internal control over financial reporting, while issuing an unqualified opinion on the financial statements. Management had begun remediation but had not established that it was effective.
- Tax and reporting adjustments included a $230.8 million U.S. deferred-tax valuation allowance, a $33.1 million revision to previously reported second-quarter tax expense, a further $4.5 million non-cash tax adjustment affecting FY2016 diluted loss per share, and $5.7 million of operating expenses recorded for prior-period errors. Management said the prior-period errors were not material to those periods.
- Key risks include execution and customer renewals during the subscription transition, foreign exchange and global economic exposure, channel reliance (Tech Data represented 25% of revenue and 22% of trade receivables), competition, cybersecurity and privacy regulation, and potential future tax or goodwill charges. Pending legal matters were not expected by management to have a material overall impact, but potential losses could not be estimated clearly.
Important facts for investors to verify
- Track subscription additions, ARR, renewal rates, ARPS, and the pace of maintenance-revenue decline against the transition plan.
- Compare actual FY2017 revenue, spend, EPS, and cash flow with guidance, accounting for restructuring costs and non-GAAP exclusions.
- Review remediation progress and subsequent auditor or management assessments of the material weakness and disclosure controls.
- Monitor realization of U.S. deferred tax assets, changes in the valuation allowance, and any further tax adjustments.
- Assess receivables and collections, including elevated days sales outstanding (92 versus 63 a year earlier), and concentration in Tech Data.
- Confirm restructuring charges, cash costs, workforce actions, and expected savings; also monitor debt maturities and liquidity.