Autodesk, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2021, ended October 31, 2020; comparisons are with the corresponding 2019 periods unless stated otherwise. Autodesk provides design, engineering, construction, manufacturing, and media software, with a predominantly subscription-based business model.
Financial results
| Metric | Three months ended Oct. 31, 2020 | Year-over-year | Nine months ended Oct. 31, 2020 | Year-over-year |
|---|---|---|---|---|
| Revenue | $952.4 million | +13% | $2.751 billion | +16% |
| Gross profit / GAAP gross margin | $868.7 million / 91% | Margin flat | $2.505 billion / 91% | Margin up from 90% |
| Operating income / GAAP operating margin | $168.0 million / 18% | Up from $110.6 million / 13% | $444.7 million / 16% | Up from $209.2 million / 9% |
| Net income / diluted EPS | $132.2 million / $0.59 | Up from $66.7 million / $0.30 | $296.9 million / $1.34 | Up from $82.7 million / $0.37 |
| Operating cash flow | Not separately reported for the quarter | — | $779.6 million | Up from $716.9 million |
For the nine-month period, capital expenditures were $67.6 million, making operating cash flow less capital expenditures approximately $712.0 million. GAAP operating expenses rose 7% for both the quarter and nine months, with higher marketing and sales and R&D spending partly offset by lower G&A costs. Non-GAAP diluted EPS was $1.04 for the quarter and $2.87 for nine months; these measures exclude, among other items, stock-based compensation, acquired-intangible amortization, acquisition costs, and strategic investment losses.
Revenue, liquidity, and debt
- Subscription revenue increased 24% in the quarter and 28% year to date; maintenance revenue declined 56% and 50%, respectively, primarily as customers migrated to subscriptions under the maintenance-to-subscription program. Recurring revenue was 97% of revenue, versus 96% a year earlier.
- Revenue increased across all four main product families in the quarter: Architecture, Engineering and Construction (AEC) +17%; AutoCAD and AutoCAD LT +14%; Manufacturing +7%; and Media and Entertainment +7%. International revenue was 66% of nine-month revenue.
- Cash and cash equivalents were $1.537 billion and marketable securities were $78.5 million at October 31, 2020, totaling about $1.62 billion. Cash declined $237.7 million from January 31, 2020. Current assets were $2.340 billion and current liabilities $2.812 billion.
- Notes payable totaled $1.650 billion; there were no borrowings under the $650 million revolving credit facility, which matures in December 2023. Autodesk reported covenant compliance. Cash and marketable securities exceeded note principal by approximately $32 million, before other liquidity needs and obligations.
- Deferred revenue was $2.933 billion. Remaining performance obligations (RPO) were $3.582 billion, up 1% from January 31, 2020; Autodesk expects to recognize $2.383 billion, or 67%, over the next 12 months.
Material changes and unusual items
- Nine-month financing cash outflow was $844.0 million, including $450.0 million of debt repayment and $399.4 million of share repurchases. Autodesk repurchased 2.1 million shares for $392.9 million during the period.
- Nine-month investing cash outflow was $176.7 million, including capital expenditures, acquisitions, and strategic investments. Autodesk recorded $31.2 million of net losses on non-marketable equity securities in interest and other expense, compared with $3.3 million a year earlier; this contributed to the year-over-year increase in nine-month interest and other expense.
- Two business combinations were completed during the period for $45.4 million in cash consideration. In November 2020, Autodesk agreed to acquire Spacemaker AS for approximately $240 million net of cash acquired; the transaction closed November 23, after quarter-end.
- Stock-based compensation expense was $291.5 million for nine months, versus $257.4 million a year earlier. GAAP results therefore differ materially from the company’s non-GAAP presentation.
Outlook, management commentary, and risks
- The filing provides no specific revenue or EPS forecast. Its expense outlook for fiscal Q4 2021 versus Q4 2020 indicated cost of revenue, marketing and sales, and R&D dollars would increase while remaining flat as a percentage of revenue; G&A dollars and percentage of revenue would decrease; purchased-intangible amortization would be flat.
- Management said customer usage in parts of Asia and most of Europe was above pre-pandemic levels, while U.S. and parts of European usage remained below those levels. Strong enterprise activity, improving renewals, digital sales, and sequential improvement in new business supported the quarter. Management also said it was controlling discretionary spending while continuing to invest in R&D, construction, and digitization.
- COVID-19 continued to create uncertainty around customer activity, renewals, new business, billings, margins, and cash flow. Customer support measures included temporary extended payment terms, free access to certain collaboration products, and delayed license and maintenance-price changes. Management believed available liquidity and expected operating cash flow would meet needs for at least 12 months.
- Net revenue retention rate was in the 100%–110% range, down from 110%–120% a year earlier. Management expects maintenance revenue to continue declining as the migration to subscriptions proceeds; maintenance plans are scheduled to retire May 7, 2021.
- Key exposures include foreign-exchange movements, international economic and political conditions, reliance on distribution partners, competition and subscription renewals, cybersecurity and privacy regulation, and acquisition integration. Tech Data accounted for 37% of quarterly and nine-month revenue; Ingram Micro accounted for 10%.
- The company maintained a valuation allowance on U.S. deferred tax assets despite anticipating higher U.S. taxable income, citing COVID-19 uncertainty and cumulative losses. Gross unrecognized tax benefits were $221.3 million. Pending legal matters were not expected by management to have a material adverse effect, but an unfavorable outcome could materially affect a particular period; a potential loss estimate was not provided.
Important facts for investors to verify
- Whether subscription growth and renewals can sustain revenue as maintenance revenue declines, particularly given the lower reported retention-rate range.
- How COVID-19, customer payment behavior, billings, and deferred revenue affect future cash flow and margins.
- The composition and sustainability of GAAP-to-non-GAAP adjustments, especially stock-based compensation and strategic investment losses.
- Cash availability relative to debt, share repurchases, the Spacemaker acquisition, and other capital needs.
- Any changes in distributor concentration, tax positions and valuation allowances, or the status and potential financial exposure of legal proceedings.