Autodesk, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended July 31, 2014 (Autodesk fiscal 2015 Q2). Financial statements are unaudited.
Business context and performance
Autodesk sells design and related software and services across architecture, engineering and construction (AEC), manufacturing, platform solutions and emerging business (PSEB), and media and entertainment (M&E). The company is transitioning toward cloud services and more flexible, term-based licenses, which shift more revenue recognition over time.
Key financial metrics
| Metric | Three months ended July 31, 2014 | Year-over-year change | Six months ended July 31, 2014 | Year-over-year change |
|---|---|---|---|---|
| Net revenue | $637.1 million | +13% | $1,229.6 million | +9% |
| License and other revenue | $350.4 million | +12% | $666.6 million | +5% |
| Subscription revenue | $286.7 million | +15% | $563.0 million | +14% |
| Gross profit / margin | $549.2 million / 86% | Margin down from 88% | $1,063.0 million / 86% | Margin down from 88% |
| Operating income / margin | $49.9 million / 8% | Income down 40%; margin down from 15% | $92.1 million / 7% | Income down 44%; margin down from 15% |
| Net income | $31.3 million; diluted EPS $0.13 | Net income down from $61.7 million; EPS from $0.27 | $59.6 million; diluted EPS $0.26 | Net income down from $117.3 million; EPS from $0.51 |
| Non-GAAP operating margin | 18% | Down from 24% | 18% | Down from 24% |
| Non-GAAP diluted EPS | $0.35 | Down from $0.45 | $0.67 | Down from $0.86 |
For the six-month period, operating cash flow was $314.9 million, versus $289.4 million in the prior year. Investing activities used $730.4 million, including $548.3 million for acquisitions; financing activities used $114.7 million, including $204.3 million for share repurchases. Cash and cash equivalents ended at $1,323.1 million, down from $1,853.0 million at January 31, 2014.
At July 31, cash, cash equivalents and marketable securities totaled $2,168.5 million. Current assets were $2,450.0 million and current liabilities $1,157.3 million; deferred revenue totaled $980.8 million, including $839.1 million of deferred subscription revenue. Senior notes had $750 million principal outstanding (approximately $746.8 million carrying value); the $400 million revolving credit facility had no borrowings. About 78% of cash and securities was held offshore.
Material changes versus prior comparable periods
- Revenue grew, led by AEC and MFG. Q2 AEC revenue rose 23% and MFG 17%; PSEB rose 5%, while M&E was essentially flat. For the first six months, M&E revenue fell 9%.
- Suites revenue rose 20% in both the quarter and six-month period. Billings increased 27% in Q2 and 18% over six months; total subscriptions rose to 2.01 million from 1.85 million at fiscal year-end.
- Profitability weakened despite revenue growth: operating expenses rose 22% in Q2 and 17% over six months, while cost of revenue rose 30% and 23%, respectively. Management cited higher employee costs and professional fees, cloud investment, business-model transition spending, and acquisition-related dilution.
- Acquisition activity was substantial: Delcam, Within Technologies, Shotgun Software and other acquisitions were completed for approximately $578.6 million in aggregate stated consideration. Goodwill increased to $1,447.6 million from $1,009.9 million at January 31, 2014.
- Cash and securities declined by $375.9 million from fiscal year-end, principally due to acquisitions, repurchases and capital expenditures. Accounts receivable decreased to $365.3 million from $423.7 million.
Guidance, commentary and risks
Management raised fiscal 2015 guidance after Q2 performance and a more optimistic view of the macroeconomic environment. It expects revenue growth of 7%–9%, billings growth of 10%–12%, and 200,000–250,000 additional subscriptions. Fiscal 2015 GAAP operating margin is expected at approximately 4%–5%; non-GAAP operating margin at 15%–16%.
For fiscal 2015 Q3, Autodesk forecast revenue of $590–$605 million, GAAP diluted EPS from a loss of $0.05 to income of $0.01, and non-GAAP diluted EPS of $0.17–$0.23. The non-GAAP outlook excludes specified stock-based compensation and acquisition-intangible amortization.
- The business-model transition may reduce upfront perpetual-license revenue and near-term margins before subscription growth offsets the impact. Customer adoption, renewals, channel acceptance, pricing and cloud infrastructure execution remain uncertain.
- Other principal risks include international and macroeconomic exposure, foreign-exchange movements, reliance on distributors and resellers, competition, cybersecurity and privacy risks, acquisition integration, and maintenance renewal trends. Tech Data represented 26% of quarterly and six-month revenue and 24% of receivables at quarter-end.
- Autodesk reported $233.5 million of gross unrecognized tax benefits. It said pending legal matters were not expected to have a material adverse impact, but an unfavorable resolution could materially affect a particular period; potential loss amounts were not estimable or were considered immaterial based on information available.
- Unusual items included a $3.2 million impairment of privately held investments during the six months and increased losses on strategic investments. The quarter also included $0.8 million of restructuring charges; the existing restructuring plan covered about 85 positions and four facility consolidations.
Investor verification points
- Track billings, subscription additions, maintenance renewals and deferred revenue to assess whether recurring growth is offsetting the shift away from upfront license revenue.
- Compare GAAP margins and earnings with non-GAAP measures and examine the contribution of stock compensation, acquired-intangible amortization, restructuring and investment losses.
- Review acquisition integration, purchase-price allocations, goodwill growth and resulting operating costs, particularly for Delcam and other recent transactions.
- Monitor liquidity and cash deployment, including offshore cash availability, repurchases, acquisition spending and the $750 million senior-note obligations.
- Assess distributor concentration, foreign-exchange exposure, tax uncertainty and the status and potential financial impact of legal matters.