Autodesk, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2015, the three months ended April 30, 2014. Unaudited results are compared with the three months ended April 30, 2013, unless otherwise noted.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change |
|---|---|---|---|
| Net revenue | $592.5 million | $570.4 million | Up 4% |
| Gross profit / margin | $513.8 million / 87% | $502.9 million / 88% | Gross profit up 2%; margin down about 1 percentage point |
| Operating income / margin | $42.2 million / 7% | $81.4 million / 14% | Down 48%; margin down 7 points |
| Net income | $28.3 million | $55.6 million | Down 49% |
| Diluted EPS | $0.12 | $0.24 | Down 50% |
| Operating cash flow | $218.7 million | $224.1 million | Down 2% |
- Subscription revenue rose 12% to $276.3 million; license and other revenue declined 2% to $316.2 million. Billings increased 10% year over year, and total subscriptions were approximately 1.94 million, versus 1.85 million at January 31, 2014.
- Operating expenses increased 12% to $471.6 million, driven primarily by employee-related costs and professional fees. Cost of revenue rose 17% to $78.7 million. The effective tax rate was 21%, compared with 23%.
- Cash and cash equivalents were $1.610 billion at April 30, 2014. Cash, cash equivalents and marketable securities totaled $2.388 billion, down from $2.544 billion at January 31, 2014. Current liabilities were $1.119 billion; deferred revenue totaled $963.5 million, including $848.1 million of deferred subscription revenue.
- Senior notes had $750 million aggregate principal outstanding, with maturities in 2017 and 2022; carrying value was $746.6 million. No borrowings were outstanding under the $400 million revolving credit facility.
- Operating cash flow of $218.7 million was offset by $421.7 million of investing cash outflows, including $322.3 million for acquisitions, net of cash acquired. Autodesk repurchased 2.0 million shares for $102.5 million.
Changes versus the prior comparable period
- Revenue growth was led by AEC, up 14%, and Manufacturing, up 6%; PSEB was essentially flat. Media and Entertainment revenue declined 19%, reflecting weaker end-market demand, product mix and the business-model transition.
- Suite revenue increased 19% and accounted for 35% of revenue, versus 31% a year earlier. Flagship-product revenue declined 4%.
- Despite higher revenue, operating income fell substantially as expenses rose faster than sales. GAAP operating margin declined to 7% from 14%; non-GAAP operating margin was 17%, versus 24%.
Outlook, commentary and risks
- Management is shifting toward cloud services and more flexible, term-based licenses. It expects higher subscriptions and recurring revenue over time, but cautions that ratable recognition reduces upfront revenue and that transition costs may pressure margins and earnings.
- Q2 FY2015 guidance: revenue of $595–$610 million; GAAP diluted EPS of $0.05–$0.10 and non-GAAP diluted EPS of $0.25–$0.30. FY2015 guidance: revenue growth of approximately 4%–6%, billings growth of 7%–9%, GAAP operating margin of 3%–5%, non-GAAP operating margin of 14%–16%, and 150,000–200,000 net additional subscriptions.
- Management expects Q2 cost of revenue and each major operating-expense category to increase in dollars and as a percentage of revenue, citing cloud-service investment and business initiatives.
- Material exposures include execution and customer acceptance of the business-model transition, global economic conditions, foreign exchange, competition, cybersecurity and privacy, acquisition integration, and dependence on indirect channels. Tech Data accounted for 26% of quarterly revenue and 26% of trade receivables; international revenue was 71% of total revenue. About 75% of cash, cash equivalents and marketable securities were held offshore.
- Autodesk reported routine legal claims and proceedings; it did not expect pending matters to materially affect consolidated results, cash flows or financial position, but stated that potential losses could not always be estimated. Gross unrecognized tax benefits were $226.2 million.
- Acquisitions included Delcam for $284.6 million and four other business combinations for approximately $64.2 million. On May 29, 2014, after quarter-end, Autodesk acquired Within Technologies for approximately $88 million in cash.
Important facts for investors to verify
- Whether subscription, billings and deferred-revenue growth can offset declining standalone and upfront license revenue as the business model changes.
- Whether management meets FY2015 revenue, billings, margin and subscription guidance, given rising operating costs and sharply lower Q1 GAAP operating income.
- The sustainability of maintenance renewals and growth in suites, and the drivers of continued weakness in Media and Entertainment.
- Acquisition integration, purchase-accounting estimates and returns from Delcam and other acquisitions; also assess the subsequent Within acquisition.
- Exposure to Tech Data, international markets, currency movements and offshore cash, alongside debt maturities and the effect of ongoing share repurchases on liquidity.