Autodesk, Inc. — Q1 FY2013 Form 10-Q
Reporting period: Three months ended April 30, 2012; comparisons are with the three months ended April 30, 2011 unless otherwise stated. Amounts are in millions, except per-share data and percentages.
Financial performance and liquidity
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Net revenue | $588.6 | $528.3 | +11% |
| Gross profit / margin | $529.8 / 90% | $473.7 / 90% | +12% gross profit |
| Operating income / margin | $94.0 / 16% | $78.6 / 15% | +20% |
| Net income | $78.9 | $69.3 | +14% |
| Diluted EPS | $0.34 | $0.29 | +17% |
| Operating cash flow | $139.3 | $128.4 | +$10.9 |
- License and other revenue was $361.0, up 12%; maintenance revenue was $227.6, up 11%. Commercial new-seat license revenue grew 19%, while upgrade revenue fell 11%. Maintenance billings increased just 1%.
- Operating expenses rose 10% to $435.8, mainly from higher salaries, benefits and headcount. GAAP operating margin improved as revenue grew faster than expenses.
- Cash and cash equivalents were $1,074.5; marketable securities totaled $721.6. Combined cash and securities were $1,796.1 at April 30, versus $1,604.1 at January 31. Net accounts receivable was $300.6 and deferred revenue was $726.9.
- Cash flow: operating activities provided $139.3; investing used $287.0, largely reflecting net purchases of marketable securities; financing provided $63.7, including $153.0 from stock issuance and $99.2 of repurchases. Cash and cash equivalents decreased $82.4 during the quarter.
- No borrowings were outstanding under the $400.0 million credit facility, which expires in May 2016. The filing reports no material changes in contractual obligations and no off-balance-sheet arrangements other than operating leases.
- The reported effective tax rate was 19%, versus 18%. A $6.3 discrete tax benefit lowered the current-quarter rate; excluding it, the rate was 26%. Non-GAAP diluted EPS was $0.47 versus $0.40; non-GAAP measures exclude stock compensation, acquired-intangible amortization and specified tax items.
Material changes and business trends
- Revenue grew across the Americas (+14%), EMEA (+4%) and Asia Pacific (+19%); constant-currency growth was 9% overall, 2% in EMEA and 13% in Asia Pacific. International revenue was 72% of total.
- By segment, Platform Solutions and Emerging Business revenue was $229.0 (+9%); Architecture, Engineering and Construction was $163.4 (+16%); Manufacturing was $145.7 (+18%); Media and Entertainment was $50.5 (-5%). M&E weakness reflected declines in Creative Finishing and Animation.
- Suites revenue increased 34% and reached 28% of revenue, compared with 23% a year earlier. Flagship products represented 57% of revenue and grew 4%; new and adjacent products represented 15% and grew 9%.
- Tech Data accounted for 22% of revenue, up from 17%, and 21% of trade receivables. The filing attributes part of the higher channel concentration to Tech Data’s acquisition of certain MuM assets.
- Autodesk repurchased 2.5 million shares for $99.2 million, at an average $39.79 per share. 12.2 million shares remained authorized for repurchase.
Outlook, commentary and risks
- Management’s stated priorities for the remainder of FY2013 were revenue growth and improved operating-margin percentage, supported by product investment, suites and new product lines. This filing does not provide specific full-year revenue or earnings guidance.
- For Q2 FY2013, management expected cost of revenue and each major operating-expense category to rise in absolute dollars but remain relatively consistent as a percentage of revenue versus Q2 FY2012.
- Management described organizational changes to accelerate cloud initiatives, improve customer experience, increase industry focus and strengthen marketing. Strategy emphasizes growing desktop software, transitioning products and services to cloud delivery, and expanding through cloud, mobile and social offerings.
- Management cited global economic uncertainty, customer credit and spending, foreign-exchange movements, seasonal patterns, and the health of served industries as risks to performance. Other disclosed risks include competition and technology shifts, channel reliance, maintenance renewals, software piracy and intellectual-property claims, acquisitions, cybersecurity and tax uncertainty.
- Foreign-exchange contracts had $478.1 million notional value and were used for hedging, not speculation. Tech Data concentration, international exposure and the possibility of adverse litigation outcomes warrant attention. Autodesk said pending legal matters were not expected to have a material adverse effect, but could affect results in a particular period; potential losses could not be estimated clearly.
- Unrecognized tax benefits were $203.2 million, excluding interest; the company could not estimate the range of possible changes over the next 12 months. Net deferred tax assets were $168.0 million. Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Most important facts for investors to verify
- Whether new-seat growth and suite adoption continue, and whether weak maintenance billings translate into slower maintenance revenue or renewals.
- Whether the reported margin and earnings improvement persists as staffing and product-development investment increases; compare GAAP results with non-GAAP adjustments.
- Whether distributor concentration, particularly Tech Data’s share of revenue and receivables, changes or creates collection or sell-through risk.
- How foreign exchange, global economic conditions and international markets affect constant-currency growth and cash generation.
- Developments in tax reserves, legal proceedings, and the company’s use of cash for share repurchases, investments and acquisitions.