Autodesk, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended April 30, 2020. Amounts are U.S. dollars; financial figures are in millions unless noted. Comparisons are with the three months ended April 30, 2019, unless otherwise stated.
Business context
Autodesk provides design and engineering software, increasingly through subscriptions and cloud services. The company reported one operating segment. Its ongoing migration from maintenance plans to subscriptions continued during the quarter.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Revenue | $885.7 | $735.5 |
| Gross profit / margin | $803.8 / 91% | $652.8 / 89% |
| Operating income / margin | $130.6 / 15% | $24.8 / 3% |
| Net income (loss) | $66.5 | $(24.2) |
| Diluted EPS | $0.30 | $(0.11) |
| Operating cash flow | $327.3 | $221.2 |
- Revenue rose 20%. Subscription revenue increased 35% to $803.0; maintenance revenue fell 45% to $62.1, primarily due to customer migration to subscriptions. Other revenue declined 26% to $20.6.
- Revenue increased across product families: AEC +26% to $382.7; AutoCAD and AutoCAD LT +23% to $262.2; Manufacturing +9% to $182.9; and Media and Entertainment +16% to $52.6.
- Recurring revenue was $865.0, or 98% of net revenue, compared with 96% a year earlier. Management reported NR3 within the approximate range of 110%–120% in both periods.
- GAAP operating expenses increased 7% to $673.2. Non-GAAP operating income was $247.8 and non-GAAP diluted EPS was $0.85; these measures exclude specified costs, notably $98.2 of stock-based compensation and $16.6 of losses on strategic investments and dispositions.
- Interest and other expense, net, rose to $40.1 from $16.2, mainly reflecting larger negative adjustments and impairments on non-marketable equity investments. The quarter included $16.6 of net losses on those investments.
Balance sheet, liquidity and cash flow
- At April 30, cash and cash equivalents were $1,389.7 and marketable securities were $77.2; management described cash and marketable securities as totaling $1.47 billion. Cash and cash equivalents were $1,774.7 at January 31.
- Operating cash flow was $327.3; investing cash outflow was $78.0; financing cash outflow was $630.2. Financing outflows included $450.0 of debt repayment and $202.0 of share repurchases. Ending cash was $1,389.7, down $385.0 during the quarter.
- Notes payable totaled $1.65 billion principal. Autodesk had no borrowings under its $650.0 million revolving credit facility and was in compliance with its covenants. Current liabilities included $2,163.9 of deferred revenue; stockholders’ deficit was $139.1.
- Deferred revenue was $3.01 billion and remaining performance obligations (RPO) were $3.47 billion, down 2% from January 31. Management expected $2.35 billion, or 68% of RPO, to be recognized in the next 12 months.
- Management stated that cash, expected operating cash flows and the available credit facility should be sufficient for working capital and operating needs for at least the next 12 months.
Material changes, outlook and risks
- COVID-19: Renewals held relatively steady, but new business slowed in the second half of the quarter; weekly average product users dipped slightly, cloud collaboration usage increased, AEC revenue held up, and Manufacturing slowed. Autodesk extended customer payment terms to 60 days, offered temporary free cloud collaboration access, delayed a user-transition program and deferred a planned 20% maintenance price increase.
- The company reduced travel, monitored hiring, moved events online and rationalized marketing spend, while continuing investment in R&D, construction and digitization. Management said the pandemic’s effects on FY2021 revenue, margins and cash flow remained uncertain. The filing provides no specific quarterly or annual financial guidance.
- Autodesk repurchased 1.2 million shares for $189.0 during the quarter. A $450.0 million note due in 2020 was repaid in March, funded by proceeds from $500.0 million of 2.85% notes due 2030 issued in January.
- Maintenance offerings are scheduled to retire May 7, 2021; eligible customers had a one-year conversion period beginning May 7, 2020. Management expects maintenance revenue to decline, with the pace dependent on renewals and conversions.
- Key exposures include pandemic-driven customer and economic uncertainty, foreign exchange movements, distributor concentration (Tech Data accounted for 38% of quarterly revenue and 38% of receivables), competition, subscription renewals, cybersecurity and privacy risks, and potential investment impairments. Autodesk maintained valuation allowances against U.S. and certain foreign deferred tax assets; gross unrecognized tax benefits were $218.6.
- Pending legal matters were not expected by management to have a material adverse effect, although an unfavorable resolution could materially affect a particular period. No goodwill impairment or significant off-balance-sheet arrangement was reported.
Investor verification points
- Track subscription growth, maintenance runoff, renewals and new-business conversion as COVID-19 effects develop.
- Assess whether RPO and deferred revenue trends support expected revenue recognition and whether temporary customer concessions affect collections or cash flow.
- Monitor cash use, including repurchases, debt obligations and any change in access to or compliance with the revolving facility.
- Review distributor concentration and the effects of foreign exchange, investment losses and deferred-tax valuation allowances.
- Compare GAAP results with non-GAAP measures and their exclusions, especially stock-based compensation and strategic investment losses.