Autodesk, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months of fiscal 2022, ended July 31, 2021. Comparisons are with the corresponding periods in fiscal 2021. Amounts are in U.S. dollars.
Business context and operating performance
Autodesk sells design and make software, primarily through subscriptions, cloud offerings, and enterprise business agreements. It reported one operating segment. Subscription and maintenance revenue represented 98% of revenue in both the quarter and first half. Management’s strategy emphasizes subscription, cloud and digitization, and expansion in architecture, engineering and construction and manufacturing.
| Metric | Q2 FY22 | Q2 FY21 | First half FY22 | First half FY21 |
|---|---|---|---|---|
| Net revenue | $1,059.7m | $913.1m | $2,049.0m | $1,798.8m |
| GAAP gross profit | $954.3m | $832.2m | $1,850.8m | $1,636.0m |
| GAAP income from operations | $148.1m | $146.1m | $281.9m | $276.7m |
| GAAP net income | $115.6m | $98.2m | $271.2m | $164.7m |
| Diluted EPS | $0.52 | $0.44 | $1.22 | $0.74 |
| GAAP gross margin | 90.1% | 91.1% | 90.3% | 91.0% |
| GAAP operating margin | 14% | 16% | 14% | 15% |
| Non-GAAP operating margin | 31% | 29% | 30% | 28% |
Revenue, cash flow, debt and liquidity
- Quarterly revenue increased 16%; first-half revenue increased 14%. Subscription revenue rose 21% and 19%, respectively, while maintenance revenue declined 67% and 68%. Management attributed subscription growth mainly to product-subscription renewals and EBA offerings; maintenance is expected to continue declining as customers transition to subscriptions.
- All major product families grew in the quarter: AEC revenue was $478.7m (+21%), AutoCAD and AutoCAD LT $304.4m (+12%), Manufacturing $207.7m (+12%), and Media and Entertainment $58.5m (+10%). Direct-channel revenue grew 31% to $357.5m; indirect-channel revenue grew 10% to $702.2m.
- Operating cash flow for the first half was $538.1m, versus $418.5m a year earlier. Capital expenditures were $36.1m, implying free cash flow of approximately $502m, compared with approximately $372m in the prior-year first half. Cash generation included $266.0m of stock-based compensation and a $292.6m decrease in accounts receivable.
- Investing activities used $1,186.4m, primarily reflecting acquisitions; financing activities used $195.9m. Cash and cash equivalents fell to $923.5m from $1,772.2m at January 31, 2021. Cash and marketable securities totaled $924.9m at quarter-end.
- Notes payable totaled $1.65bn in principal (balance-sheet carrying value $1.638bn). The $650m revolving facility, which may be expanded by up to $350m, had no borrowings; Autodesk reported compliance with its covenants. Management stated that available cash, operating cash flow, and the facility should cover needs for at least 12 months.
- Deferred revenue was $3.30bn and remaining performance obligations (RPO) were $4.14bn, each down 2% from January 31. The company expected to recognize $2.85bn, or 69% of RPO, within 12 months.
Material changes, outlook and notable items
- Revenue growth was led by subscriptions, but operating expenses grew 18% in the quarter, faster than revenue. GAAP operating income rose only 1%; quarterly GAAP operating margin declined two percentage points. Management cited higher headcount, stock-based compensation, cloud costs, professional fees, and acquisition-related amortization.
- Non-GAAP first-half diluted EPS was $2.24, versus $1.83; non-GAAP operating income was $610.8m, versus $510.2m. These measures exclude, among other items, substantial stock-based compensation ($269.0m in the first half), acquired-intangible amortization, and acquisition costs; they are supplemental, not GAAP results.
- Autodesk acquired Innovyze, a water-infrastructure software company, for approximately $1.04bn, and Upchain, a cloud product-data-management provider, for approximately $126.7m in cash plus employee-related stock consideration. First-half business-combination cash outflow, net of cash acquired, was $1,154.6m. Acquisition purchase-price allocations remained preliminary; goodwill increased by $865.5m, to $3,562.2m.
- First-half income tax included a $56.0m discrete tax benefit, primarily related to an Indian Supreme Court decision on withholding taxes; GAAP tax benefit for the period was $1.0m. Gross unrecognized tax benefits were $203.4m.
- Management’s Q3 FY22 expense outlook was qualitative: cost of revenue and R&D were expected to increase as a percentage of revenue; marketing and sales and G&A were expected to increase in dollars but remain flat as a percentage of revenue; purchased-intangible amortization was expected to remain flat. The filing text does not provide a clear Q3 or full-year revenue or EPS forecast.
- Management described COVID-19 effects as uncertain, including possible impacts from outbreaks and variants, customer renewals, new business, margins, and cash flow. Other highlighted exposures include foreign exchange, international economic and political conditions, competition, cybersecurity and privacy, acquisition integration, and customer subscription renewal rates.
Important facts for investors to verify
- Whether subscription growth and renewal performance can sustain revenue growth as maintenance revenue continues to contract; NR3 remained within the disclosed 100%–110% range.
- Distributor concentration: Tech Data accounted for 36% of quarterly and first-half revenue and 33% of accounts receivable at July 31; Ingram Micro accounted for 9% of revenue.
- Whether operating-cost growth, especially stock-based compensation and cloud costs, will constrain GAAP margin improvement; compare GAAP results with the company’s non-GAAP exclusions.
- Integration, expected synergies, and final purchase-price allocations for Innovyze and Upchain, as well as the resulting goodwill and acquired-intangible amortization.
- Cash use and liquidity after acquisitions, including the timing of collections, deferred-revenue trends, and the company’s ability to meet debt obligations and planned investments.
- Potential volatility from COVID-19, currency movements and hedging, tax matters, and legal proceedings. Autodesk said pending legal matters were not expected to have a material adverse impact, but noted that an unfavorable outcome could materially affect a particular period.