Autodesk, Inc. — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended July 31, 2023. Financial amounts are in U.S. dollars; figures are in millions unless stated otherwise. The quarter’s results are unaudited.
Business context
Autodesk sells design and make software across architecture, engineering and construction (AEC), AutoCAD, manufacturing, and media and entertainment. Its business is predominantly subscription-based: recurring revenue was 98% of net revenue. Management’s strategy emphasizes customer experience, digital transformation, and an industry platform for Design and Make, including cloud offerings and Autodesk Forma.
Financial results and liquidity
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net revenue | $1,345 | $1,237 | $2,614 | $2,407 |
| Gross profit | $1,218 | $1,118 | $2,360 | $2,171 |
| Income from operations | $262 | $242 | $479 | $456 |
| GAAP operating margin | 19% | 20% | 18% | 19% |
| Net income | $222 | $186 | $383 | $332 |
| Diluted EPS | $1.03 | $0.85 | $1.77 | $1.52 |
| Non-GAAP operating margin | 36% | 36% | 34% | 35% |
| Non-GAAP diluted EPS | $1.91 | $1.65 | $3.44 | $3.09 |
- Revenue increased 9% year over year in both periods. Subscription revenue grew 9% in the quarter and 10% for six months; maintenance revenue declined 18% and 20%, respectively. Subscription growth reflected a larger subscriber base, renewals, EBAs, and cloud services.
- Q2 net income increased about 19% year over year. Operating expenses rose 9% to $956; research and development increased 16%, partly reflecting higher headcount and stock-based compensation.
- Operating cash flow was $858 for six months, versus $691 a year earlier. Capital expenditures were $16; operating cash flow less capital expenditures was therefore $842. Cash and cash equivalents were $1,714 at July 31, compared with $1,947 at January 31. Cash, cash equivalents, and marketable securities totaled $2.29 billion.
- Cash used in investing was $418, primarily reflecting purchases of marketable securities; cash used in financing was $665, primarily share repurchases. The cash flow statement reports $616 of repurchases. Management separately described repurchasing 3.1 million shares for $621 during the six months.
- At July 31, deferred revenue was $4.23 billion and remaining performance obligations (RPO) were $5.22 billion, down 8% and 7%, respectively, from January 31. Autodesk expects to recognize $3.51 billion, or 67% of RPO, within 12 months.
- Long-term notes payable were $2.282 billion on the balance sheet; aggregate note principal was $2.30 billion. The company had no revolving-credit borrowings and reported compliance with the facility’s covenants. It had a $1.5 billion revolving facility, with an option to increase it to $2.0 billion.
Material changes and management commentary
- Revenue growth was broad-based: Q2 AEC revenue rose 11%, AutoCAD and AutoCAD LT 6%, manufacturing 6%, and media and entertainment 4%. Direct-channel revenue grew 18%, compared with 4% for indirect-channel revenue.
- Reported revenue growth was 9%; constant-currency growth was 12%, meaning foreign exchange reduced reported growth by about three percentage points. International revenue represented 64% of six-month revenue.
- NR3 was in the 100%–110% range, on a constant-currency basis, in both current and comparable periods. Management says the transition toward annual billing for multi-year contracts may affect billings and cash-collection timing. It may also reduce unbilled RPO if customers choose annual contracts, while management expects deferred revenue, current RPO, revenue, non-GAAP operating margin, and free cash flow to remain broadly unchanged in that scenario.
- Management expects, for Q3 FY2024 versus Q3 FY2023, cost of revenue to increase in dollars but remain flat as a percentage of revenue; marketing and sales to decrease in dollars and as a percentage; and research and development, and general and administrative expenses, to increase in dollars but remain flat as a percentage. This filing text does not provide a clear full-year revenue or earnings guidance range.
Risks, contingencies, and unusual items
- TD Synnex accounted for 40% of Q2 and six-month revenue, up from 37% in the comparable periods, and 22% of accounts receivable at July 31. Autodesk is transitioning distributor arrangements and plans to expand sales through value-added resellers, agents, and direct channels; disruption or execution challenges could affect sales and collections.
- Management cites macroeconomic and geopolitical uncertainty, higher interest rates, labor and inflation pressures, China weakness, and currency volatility. Hedging mitigates only part of foreign-exchange exposure.
- Autodesk recorded a $15 loss on strategic investments in both Q2 and the six-month period; six-month cash flow also reflected $11 of negative adjustments to privately held equity investments. These investments are inherently risky and may lose value.
- A renewed cloud-services agreement commits Autodesk to spend $750 through March 31, 2028. Legal proceedings are in the ordinary course of business; management does not expect pending matters to materially affect results overall, but says an unfavorable outcome could materially affect a particular period and estimates are unavailable for certain potential losses.
- Gross unrecognized tax benefits were $220, of which $181 would affect the effective tax rate if recognized. Autodesk also maintains valuation allowances on certain deferred tax assets and is monitoring the Inflation Reduction Act’s tax provisions.
- Key stated risks include subscription renewals, competition and product acceptance, acquisitions and integration, reliance on indirect channels, cybersecurity and third-party cloud services, privacy regulation, AI-related issues, international operations, and debt obligations.
Investor verification priorities
- Track subscription growth, renewal rates, NR3, and the balance between subscription growth and declining maintenance revenue.
- Reconcile RPO and deferred-revenue trends with annual-billing changes, seasonality, billings, and cash collections.
- Monitor distributor transition progress and concentration, particularly TD Synnex’s revenue and receivables exposure.
- Assess operating-expense growth, stock-based compensation, and the widening difference between GAAP and non-GAAP results.
- Review liquidity, debt maturities, repurchases, and the $750 cloud-services commitment alongside future operating cash flow.
- Follow foreign-exchange impacts, strategic-investment valuations, tax exposures, and any material developments in legal proceedings.