Autodesk, Inc. — Form 10-Q Summary
Business context and reporting period. This quarterly report covers the three and nine months ended October 31, 2018, Autodesk’s third quarter of fiscal 2019. Autodesk is transitioning from perpetual licenses and maintenance plans toward product subscriptions, enterprise agreements and cloud services. Unless noted otherwise, financial amounts are in millions of dollars.
Financial performance
| Metric | Three months ended October 31, 2018 | Prior-year quarter | Nine months ended October 31, 2018 | Prior-year period |
|---|---|---|---|---|
| Revenue | $660.9 | $515.3 | $1,832.5 | $1,502.8 |
| Gross profit / margin | $588.6 / 89% | $437.8 / 85% | $1,623.6 / 89% | $1,272.5 / 85% |
| Operating income (loss) | $14.7 | $(100.0) | $(65.3) | $(327.2) |
| Net loss | $(23.7) | $(119.8) | $(145.5) | $(393.4) |
| Diluted loss per share | $(0.11) | $(0.55) | $(0.67) | $(1.79) |
- Quarterly revenue increased 28%; subscription revenue rose 108% to $481.3, while maintenance revenue fell 39% to $150.1, primarily reflecting customer migration to subscriptions. For the nine-month period, revenue increased 22%, subscription revenue rose 109%, and maintenance revenue declined 35%.
- Quarterly operating results improved to income from a prior-year loss. Nine-month operating loss narrowed substantially. GAAP net loss remained, despite the operating improvement.
- Non-GAAP results were $65.0 million net income and $0.29 diluted EPS for the quarter, versus a non-GAAP net loss of $26.4 million and EPS loss of $0.12 a year earlier. These measures exclude specified expenses and gains; they are not substitutes for GAAP results.
- For the nine months, operating cash flow was $65.6, compared with cash used of $78.4 in the prior-year period. Investing activities provided $39.7 and financing activities used $291.9. Cash and cash equivalents declined $202.3 to $875.7.
- At October 31, cash, cash equivalents and marketable securities totaled approximately $1.19 billion. Current assets were $1.59 billion against current liabilities of $1.99 billion. Long-term notes payable were $1.59 billion net, or $1.60 billion principal; no borrowings were outstanding under the $400 million revolving credit facility, and Autodesk reported covenant compliance.
- Deferred revenue was $1.79 billion; including $450.5 million of unbilled deferred revenue, total deferred revenue was $2.24 billion. The company expected to recognize $1.66 billion, or 74%, over the next 12 months.
Material changes and accounting context
- Total annualized recurring revenue (ARR) was $2.53 billion, up 33% year over year under the company’s reported metric. Subscription-plan ARR was $1.93 billion, up 108%; maintenance-plan ARR was $600.6 million, down 32%. Total subscriptions reached 4.08 million, up 10% from fiscal year-end.
- Autodesk adopted ASC 606 and ASC 340-40 using the modified retrospective method. The company reported an opening accumulated-deficit reduction of $179.4 million from their combined cumulative effect. For the quarter, adoption reduced reported revenue by $9.9 million and reduced net loss by $6.0 million; reported quarterly net loss was $(23.7) million versus $(17.7) million on the filing’s ASC 605-adjusted presentation. Prior-year comparative results were not restated, so reported year-over-year comparisons are affected by differing accounting bases.
- Operating expenses included $40.0 million of restructuring and other exit costs for the nine-month period. The worldwide plan targets about 13% of the workforce, or approximately 1,150 employees, and facility consolidation; completion was expected by fiscal year-end.
- Autodesk acquired Assemble Systems in July for consideration valued at $93.6 million, including cash, shares and the remeasurement of its existing investment. The acquisition added $71.9 million of goodwill. A $4.6 million remeasurement gain was recorded.
Outlook, risks and contingencies
- Management described subscription growth and migration from maintenance as central to its business-model transition. It expects maintenance revenue and subscriptions to decline over time, with the pace dependent on renewals and conversions. The filing provides directional fourth-quarter fiscal 2019 expense expectations, but no clear quantitative revenue or earnings guidance in the supplied text.
- On November 20, 2018, Autodesk agreed to acquire PlanGrid for $875 million, net of cash acquired, subject to customary closing conditions and regulatory approvals. The transaction was expected to close in fiscal fourth-quarter 2019 and be funded with a term loan and cash on hand.
- Key exposures include execution and customer acceptance of the subscription and cloud transition; subscription renewals; competition and technology changes; foreign exchange and international economic or political conditions; cybersecurity, privacy and service-provider risks; and integration and funding risks from acquisitions.
- Tech Data accounted for 35% of revenue in both the quarter and nine-month period, and 23% of trade receivables at quarter-end. The company stated that it was not substantially dependent on the distributor, but concentration remains relevant.
- Income tax expense was $35.2 million on quarterly pretax income of $11.5 million, and $69.8 million on nine-month pretax losses of $75.7 million. Autodesk maintained a valuation allowance against U.S. deferred tax assets and reported $344.8 million of gross unrecognized tax benefits. The IRS was examining fiscal 2014 and 2015 federal returns.
- Management said pending legal matters were not expected to materially adversely affect results, cash flows or financial position, while noting that an unfavorable resolution could materially affect a particular period and potential losses were not estimable. Disclosure controls and procedures were assessed as effective.
Important facts for investors to verify
- Compare subscription-plan growth and customer renewals with the continuing decline in maintenance revenue; account for the ASC 606 and ASC 340-40 reporting changes when making comparisons.
- Track operating profitability and cash generation alongside non-GAAP results, restructuring charges, stock-based compensation and other excluded items.
- Review liquidity and debt covenant headroom after the planned PlanGrid acquisition, including the expected term-loan funding and the extent of cash held outside the United States.
- Assess revenue and receivable exposure to Tech Data and the company’s broader indirect sales channel.
- Monitor restructuring completion, tax uncertainties and the final acquisition accounting and integration outcomes for Assemble and PlanGrid.