Autodesk, Inc. — Q3 FY2013 Form 10-Q
Reporting period: Three and nine months ended October 31, 2012. Autodesk develops design and engineering software across architecture, construction, manufacturing, and media and entertainment. Its strategy emphasizes expanding software suites and moving toward cloud, social, and mobile offerings. Unless stated otherwise, amounts are in millions.
Financial performance
| Metric | Q3 FY2013 | Q3 FY2012 | Nine months FY2013 | Nine months FY2012 |
|---|---|---|---|---|
| Revenue | $548.0 | $548.6 | $1,705.3 | $1,623.2 |
| Gross profit / margin | $490.1 / 89% | $489.0 / 89% | $1,528.8 / 90% | $1,451.6 / 89% |
| Operating income / margin | $34.4 / 6% | $90.2 / 16% | $221.3 / 13% | $263.8 / 16% |
| Net income | $29.4 | $72.8 | $172.9 | $213.3 |
| Diluted EPS | $0.13 | $0.32 | $0.75 | $0.91 |
- Q3 revenue was essentially flat year over year; nine-month revenue increased 5%. Q3 license and other revenue declined 4%, partly offset by 6% maintenance growth. For nine months, license and other revenue rose 3% and maintenance rose 8%.
- Q3 operating income fell 62%; nine-month operating income fell 16%, as expenses rose faster than revenue. The filing reports GAAP operating margins of 6% and 13%, respectively, versus 16% in each comparable 2011 period. Non-GAAP operating margins were 27% and 26%, versus 25% and 24%.
- GAAP diluted EPS was $0.13 for Q3 and $0.75 for nine months; non-GAAP diluted EPS was $0.47 and $1.42. Non-GAAP measures exclude specified items and should be considered alongside GAAP results.
- Cash from operations was $403.5 for nine months, versus $398.3. Investing cash use was $730.5, including $204.2 for acquisitions; financing cash use was $3.5, including $340.5 of repurchases and $110.0 drawn on the credit line. Cash and cash equivalents declined $329.9 to $827.0.
- At October 31, cash, cash equivalents, and marketable securities totaled $1,737.4; net receivables were $293.3. Current liabilities were $985.3, including $558.1 current deferred revenue and $110.0 of credit-line borrowings. The $400.0 credit facility expires in May 2016. Management said liquidity and expected operating cash flows plus available credit should cover requirements for the next 12 months.
- Deferred revenue, current and non-current, totaled $713.7. Stockholders’ equity was $2,017.9. The company repurchased 9.9 million shares for $340.5 during the nine months; 34.8 million shares remained authorized for repurchase.
Material changes and business drivers
- Segment revenue for Q3: Platform Solutions and Emerging Business (PSEB) $204.7, down 2%; Architecture, Engineering and Construction (AEC) $163.1, up 7%; Manufacturing $131.8, down 1%; Media and Entertainment $48.4, down 9%. For nine months, AEC and Manufacturing grew 8% and 7%; Media and Entertainment declined 8%.
- Suites revenue grew 10% in Q3 and 15% for nine months, representing 30% and 29% of revenue. Emerging-market revenue declined 9% and 1%, respectively, and represented 15% of revenue in both periods.
- Management attributed weaker-than-expected results to uneven global demand and execution challenges following internal organizational changes, including sales-team realignment. Foreign exchange also weighed on reported revenue; constant-currency Q3 growth would have been 2%.
- Tech Data accounted for 24% of Q3 and 23% of nine-month revenue, compared with 16% in both 2011 periods, increasing distributor concentration. It also represented 23% of trade receivables at quarter-end.
Outlook, unusual items, and risks
- Management disclosed a reduced revenue outlook for the fiscal year but gave no clear numeric full-year guidance in the filing text. It aimed to grow revenue from current levels consistent with seasonal trends, manage operating margins, and further reduce spending while continuing investment in products and growth initiatives.
- A worldwide restructuring plan tied to the shift toward cloud and mobile computing included approximately 500 position reductions and consolidation of eight facilities. Q3 charges were $36.7, and the plan’s estimated total cost was $42–$52. Further restructuring or non-recurring charges were expected during the remainder of FY2013.
- For Q4, management expected cost of revenue to rise slightly in dollars and as a share of revenue; marketing and sales expense to decline; and research and development and general and administrative expense to increase. These are directional expectations, not quantified guidance.
- Unusual items included a $10.5 impairment of privately held equity investments, a $3.3 gain from the Vela acquisition completed in stages, and $16.6 of accelerated Socialcam employee equity compensation recorded in R&D. Autodesk completed acquisitions including Vela, Socialcam, and Qontext; acquisition accounting for Vela and Socialcam remained preliminary.
- Q3 and nine-month effective tax rates were 14% and 23%; discrete tax benefits were $15.4 and $19.0. Gross unrecognized tax benefits were $206.0, and management could not estimate the possible change over the next 12 months.
- Key risks include weak or volatile global demand, execution of the reorganization and cloud transition, reliance on indirect distribution and Tech Data, maintenance renewals, foreign exchange, competition and technology shifts, acquisition integration, and tax uncertainty. The company reported ordinary-course legal matters; it said pending matters were not expected to materially affect results, but could not estimate potential losses for certain proceedings.
- The filing states that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter. No significant off-balance-sheet arrangements were reported.
Most important facts for investors to verify
- Whether revenue and license demand recover after Q3 weakness, and whether maintenance billings and renewals support deferred revenue and future revenue.
- Whether restructuring delivers sustainable expense savings without impairing product development, sales execution, or the cloud and mobile transition; monitor remaining charges against the $42–$52 total estimate.
- Whether suite growth offsets declines in standalone products, particularly in Media and Entertainment, and whether acquisition investments generate expected returns.
- Distributor concentration and the continued high share of revenue sold through indirect channels; also monitor foreign-exchange effects and emerging-market demand.
- Liquidity and capital allocation: cash and securities, credit-line borrowings, acquisition spending, and continued share repurchases.
- The filing says adjustments made after Autodesk furnished preliminary results increased nine-month diluted EPS from $0.74 to $0.75 and non-GAAP diluted EPS from $1.41 to $1.42; verify use of the final filed figures in comparisons.