Autodesk, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended October 31, 2021. Comparisons are with the corresponding periods ended October 31, 2020, unless stated otherwise. Amounts are in U.S. dollars.
Business context
Autodesk sells design, engineering, construction, manufacturing, and media software, primarily through subscriptions, cloud services, and enterprise business agreements. It reported one operating segment. Subscription and maintenance revenue represented 97% of net revenue in both the quarter and nine-month period.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Net revenue | $1,125.8m (+18%) | $952.4m | $3,174.8m (+15%) | $2,751.2m |
| Subscription revenue | $1,070.7m (+21%) | $884.4m | $3,034.9m (+20%) | $2,528.6m |
| Maintenance revenue | $17.6m (−56%) | $39.8m | $53.6m (−65%) | $153.1m |
| Gross profit | $1,018.7m | $868.7m | $2,869.5m | $2,504.7m |
| Operating income | $193.3m | $168.0m | $475.2m | $444.7m |
| GAAP operating margin | 17% (vs. 18%) | 18% | 15% (vs. 16%) | 16% |
| Non-GAAP operating margin | 32% (vs. 30%) | 30% | 31% (vs. 29%) | 29% |
| Net income | $136.7m | $132.2m | $407.9m | $296.9m |
| Diluted GAAP EPS | $0.61 | $0.59 | $1.83 | $1.34 |
| Diluted non-GAAP EPS | $1.33 | $1.04 | $3.57 | $2.87 |
| Cash from operations | Not separately presented | Not separately presented | $808.5m | $779.6m |
| Capital expenditures | Not separately presented | Not separately presented | $49.5m | $67.6m |
Nine-month free cash flow, calculated as operating cash flow less capital expenditures, was approximately $759.0m, compared with $712.0m. Cash and cash equivalents were $1,748.9m at October 31, 2021; cash, cash equivalents, and marketable securities totaled $1,811.8m.
Balance sheet and material changes
- Long-term notes payable, net, were $2,626.8m; principal debt outstanding was $2.65bn. Autodesk issued $1.0bn of 2.4% notes due 2031 in October.
- A new $1.5bn unsecured revolving credit facility, expandable to $2.0bn, replaced the prior $650m facility. No revolving borrowings were outstanding at October 31, and the company reported covenant compliance.
- Operating cash flow increased to $808.5m from $779.6m. Investing cash outflow rose to $1,299.0m, primarily reflecting $1,185.1m spent on business combinations, net of cash acquired. Financing cash inflow was $473.3m, including debt proceeds and offset by share repurchases.
- Autodesk repurchased 1.7m shares for $476.0m during the nine months. Deferred revenue was $3,342.9m, and remaining performance obligations (RPO) were $4,231.4m, nearly unchanged from January 31, 2021; current RPO increased 5% to $2,877.0m.
- Acquisitions included Innovyze, a water infrastructure software provider, and Upchain, a cloud-based product lifecycle and data management provider. Acquisitions added $886.8m of goodwill; goodwill totaled $3,579.2m at period-end.
Management outlook, risks, and unusual items
- Management expected to recognize $2.88bn, or 68%, of RPO as revenue over the next 12 months; the balance was expected thereafter. No clear numerical full-year revenue or earnings guidance is provided in the supplied filing text.
- Management said maintenance revenue is expected to decline gradually, with the pace dependent on renewals and transitions to subscription plans. The filing’s expense outlook for Q4 FY2022 anticipated increases in cost of revenue and each operating expense category; as a percentage of revenue, marketing and sales was expected to decrease, while other listed categories were expected to be flat.
- COVID-19 effects remained uncertain. Management cited supply-chain disruption, inflationary pressures, labor shortages, and uneven recovery by geography as factors affecting recovery and outlook. It estimated potential real-estate lease impairment charges of up to approximately $180m over coming quarters, subject to market conditions.
- Tech Data accounted for 37% of quarterly and 36% of nine-month revenue; Ingram Micro accounted for 9% in both periods. The company also identified risks from renewal rates, competition, international exposure and foreign exchange, acquisitions, cybersecurity, privacy regulation, and reliance on distributors.
- Quarterly tax expense was $50.7m, compared with $23.9m, partly reflecting jurisdictional earnings mix and the prior-year comparison with a U.S. valuation allowance release. Nine-month tax expense included a discrete benefit primarily related to an Indian Supreme Court decision. Gross unrecognized tax benefits were $204.6m.
- Stock-based compensation expense was $412.7m for the nine months, up from $291.5m. Non-GAAP results exclude stock compensation, acquired-intangible amortization, acquisition costs, strategic investment gains or losses, and certain tax items; the company cautions these measures are supplemental, not substitutes for GAAP.
- The company reported pending legal matters but did not expect their resolution to materially affect consolidated results, cash flows, or financial position; it said potential unfavorable outcomes cannot be reliably quantified. Disclosure controls were deemed effective. The filing noted completion of a second phase of ERP implementation and related internal-control process changes.
Most important facts for investors to verify
- Whether subscription growth and customer renewals continue to offset the steep decline in maintenance revenue; NR3 remained in the 100%–110% range.
- Whether RPO converts to revenue as expected, and how billings, deferred revenue, and seasonality develop.
- How acquisition integration, purchase-price adjustments, goodwill, and acquired-intangible amortization affect future results and margins.
- Whether the estimated lease impairment charges materialize and whether cost growth, especially stock-based compensation and cloud costs, affects GAAP profitability.
- Debt service, liquidity, and compliance with credit-facility covenants, alongside ongoing repurchases and acquisition spending.
- Exposure to distributor concentration, foreign exchange, COVID-related economic uncertainty, cybersecurity and privacy risks, and unresolved legal or tax matters.