Autodesk, Inc. — Form 10-Q Summary
Business context and reporting period. This unaudited filing covers the quarter and nine months ended October 31, 2011, in Autodesk’s fiscal year ending January 31, 2012. Autodesk sells design, engineering, manufacturing, architecture, and media software through four reportable segments: Platform Solutions and Emerging Business (PSEB), Architecture, Engineering and Construction (AEC), Manufacturing (MFG), and Media and Entertainment (M&E). Unless stated otherwise, amounts below are in millions of U.S. dollars.
Financial performance and liquidity
| Metric | Q3 FY2012 | Q3 FY2011 | Nine months FY2012 | Nine months FY2011 |
|---|---|---|---|---|
| Revenue | $548.6 | $476.7 | $1,623.2 | $1,424.1 |
| Gross profit / margin | $489.0 / 89% | $428.2 / 90% | $1,451.6 / 89% | $1,275.9 / 90% |
| Operating income / margin | $90.2 / 16% | $69.2 / 15% | $263.8 / 16% | $199.8 / 14% |
| Net income | $72.8 | $53.6 | $213.3 | $150.4 |
| Diluted EPS | $0.32 | $0.23 | $0.91 | $0.64 |
| Cash from operating activities | Not provided for quarter | Not provided for quarter | $398.3 | $364.9 |
- Quarterly revenue grew 15% year over year; nine-month revenue grew 14%. Quarterly and nine-month net income rose approximately 36% and 42%, respectively.
- Revenue comprised license and other revenue of $331.4 million for the quarter and $987.4 million for nine months, plus maintenance revenue of $217.2 million and $635.8 million, respectively.
- Quarterly revenue growth was driven by new-seat licenses, maintenance, and upgrades. Suites revenue grew 36% for the quarter and 33% for nine months, reaching 27% of revenue in both periods.
- All four segments grew in the quarter: PSEB 21%, AEC 12%, MFG 14%, and M&E 6%. Asia Pacific revenue rose 28% (19% constant currency); foreign exchange contributed to reported growth overall.
- Operating expenses rose 11% in both the quarter and nine-month period. Management attributed the increases mainly to higher headcount, salaries and benefits, and restored employee incentives; operating income grew faster than expenses.
- Cash, cash equivalents, and marketable securities totaled $1,534.2 million at October 31, 2011. Cash and cash equivalents were $1,103.3 million; current liabilities were $813.6 million. The filing reports no outstanding borrowings under its $400 million credit facility, which expires in May 2016.
- For nine months, investing cash outflow was $293.1 million, including $142.6 million for business combinations and $88.8 million for capital expenditures, including developed technologies. Financing cash outflow was $74.4 million, including $263.7 million of share repurchases and $156.3 million of stock issuance proceeds.
- Deferred revenue was $619.9 million, including $552.9 million from maintenance contracts. Accounts receivable was $259.2 million; days sales outstanding were 43, versus 55 at January 31, 2011.
- Autodesk reported $198.3 million of gross unrecognized tax benefits, excluding interest, and $172.9 million of net deferred tax assets. The effective tax rate was 20% for the quarter and 21% for nine months, below prior-year rates.
Material changes versus the prior comparable periods
- Quarterly operating margin increased to 16% from 15%; nine-month operating margin increased to 16% from 14%. GAAP gross margin declined by one percentage point to 89% in both current periods.
- License and other revenue increased 18% for the quarter and 17% for nine months; maintenance revenue increased 12% and 9%, respectively. Subscription enrollment was approximately 3.1 million users at October 31, versus 2.9 million at January 31.
- Management reported constant-currency revenue growth of 12% for the quarter and 13% for nine months, compared with reported growth of 15% and 14%.
- Cash from operations increased to $398.3 million from $364.9 million for nine months. Capital expenditures increased substantially from $18.1 million to $88.8 million, and business-combination spending rose from $8.5 million to $142.6 million.
- Autodesk completed several acquisitions and technology purchases, including Scaleform, Blue Ridge Numerics, Instructables, Turbo Squid assets, and MAP. Purchase-price allocations for certain acquisitions remained preliminary.
- Share repurchases totaled 7.7 million shares for $263.7 million in the nine-month period, compared with 7.0 million shares for $204.1 million in the prior-year period.
Outlook, management commentary, risks, and unusual items
- Management’s stated priorities for the remainder of fiscal 2012 were revenue growth and improved operating-margin percentage through product delivery and investment in product functionality, new product lines, and suites. The filing gives no specific revenue or earnings guidance.
- For Q4 FY2012, management expected cost of revenue to rise in dollars but remain relatively stable as a share of revenue; marketing and sales expense to rise slightly in dollars but decline as a share of revenue; R&D expense to rise in dollars and as a share of revenue; and G&A expense to rise in dollars but remain relatively stable as a share of revenue.
- Management said existing liquidity, expected operating cash flows, and the available credit facility should meet working-capital and operating-resource needs for the next 12 months. Cash balances could decline with a weaker global economy or changes in planned spending; some foreign-held funds may incur U.S. tax if repatriated.
- Key risks include weak global economic conditions, customer and channel-partner credit constraints, foreign-exchange movements, reliance on maintenance renewals and indirect distribution, competition and technology shifts, acquisition integration, and dependence on core AutoCAD-related products. Tech Data represented 16% of revenue and 17% of trade receivables; following its acquisition of certain MuM assets, Autodesk estimated it would represent 20% and 22% of quarterly and nine-month revenue, respectively, on a pro forma basis.
- Autodesk cited ongoing legal and regulatory matters but said their resolution was not expected to materially adversely affect consolidated results, cash flows, or financial position. It could not estimate potential losses for matters where an adverse outcome might be material.
- An auction-rate security valued at $4.2 million had failed to settle at auction since 2007. Autodesk expected to recover substantially all of its holdings, net of reserves, but could not predict the timing or amount.
- Other notable items include favorable restructuring reserve adjustments of $1.8 million for nine months, a lower effective tax rate partly reflecting discrete tax benefits, and stock-based compensation expense of $78.8 million for nine months. Autodesk’s non-GAAP results exclude specified items, including stock compensation and acquired-intangible amortization; investors should compare them with GAAP results.
Important facts for investors to verify
- Whether revenue growth, suite adoption, and maintenance renewals continued, and whether the shift from standalone products to suites supported the company’s targets.
- How acquisition integration, preliminary purchase accounting, and elevated acquisition and capital spending affected subsequent margins and cash generation.
- The sustainability of the reported operating-margin improvement given lower GAAP gross margin and rising R&D and employee costs.
- Exposure to Tech Data and other distributors, and whether the distributor concentration changed after the MuM asset purchase.
- Developments in unrecognized tax benefits, deferred-tax-asset recoverability, legal contingencies, and the illiquid auction-rate security.
- The filing’s segment revenue table shows a total of $1,623.5 million for nine months, while the consolidated statements and geographic table report $1,623.2 million; verify the discrepancy against the original filing.