Autodesk, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2020, the three months ended April 30, 2019; comparisons are with the three months ended April 30, 2018 unless noted. Figures are unaudited.
Business context
Autodesk sells design, engineering, construction, manufacturing, and media software. Its strategy is to shift customers from perpetual licenses and maintenance plans to subscriptions, cloud services, and enterprise agreements. The quarter’s results reflect rapid subscription growth and continued migration from maintenance, alongside costs associated with recent acquisitions.
Financial performance and liquidity
| Metric | Q1 FY2020 | Comparison / context |
|---|---|---|
| Revenue | $735.5 million | Up 31%; subscription revenue $595.8 million, up 70%; maintenance revenue $112.0 million, down 38%; other revenue $27.7 million, down 2%. |
| Gross profit and margin | $652.8 million; 89% | Prior-year gross profit $493.1 million; margin 88%. |
| Operating income (loss) and margin | $24.8 million; 3% | Prior-year operating loss $55.3 million; margin (10%). |
| Net loss and diluted loss per share | $24.2 million; $0.11 | Prior-year net loss $82.4 million; diluted loss per share $0.38. Tax expense was $32.8 million on pretax income of $8.6 million. |
| Non-GAAP results | Operating income $131.9 million; margin 18%; net income $99.0 million; diluted EPS $0.45 | Management’s non-GAAP measures exclude specified items, including stock compensation, acquisition costs, amortization, and investment losses. |
| Operating cash flow | $221.2 million | Prior-year use of $16.9 million. Free cash flow, defined by the company as operating cash flow less capital expenditures, was approximately $206.5 million. |
| Cash, cash equivalents, and marketable securities | $972.1 million | At April 30, 2019; cash and cash equivalents were $883.2 million. |
| Debt | $1.963 billion carrying value of long-term notes payable | Includes $375 million outstanding on the term loan; Autodesk repaid $125 million of debt during the quarter. No revolver borrowings were outstanding. |
| Deferred revenue | $2.153 billion billed; $2.743 billion including unbilled | Total billed and unbilled deferred revenue rose 2% from January 31, 2019. |
Gross margin improved modestly, while operating income turned positive. Operating expenses rose 15% to $628.0 million, reflecting higher employee-related costs and acquired-intangible amortization; restructuring expense fell to $0.2 million from $22.5 million. Interest and other expense increased to $16.2 million, including higher interest expense and losses on strategic investments. Autodesk recorded $3.2 million of impairments on privately held investments.
Operating cash flow benefited from collections: accounts receivable declined to $268.1 million from $474.3 million at January 31. Financing cash outflows included $88.5 million of share repurchases and $125.0 million of debt repayment. The company said existing liquidity, expected operating cash flows, and its available credit facility should cover working capital and operating needs for at least the next 12 months. Its $650 million revolving facility was undrawn, and it was in compliance with its covenants.
Material changes and operating trends
- Total ARR was $2.831 billion, up 33% year over year. Subscription-plan ARR was $2.383 billion, up 70% year over year; maintenance-plan ARR was $447.9 million, down 18% from fiscal year-end.
- Subscription and maintenance revenue together rose 33%. Management attributed subscription growth to renewals, new subscriptions, cloud offerings, enterprise agreements, and the maintenance-to-subscription program.
- Revenue increased across product families: Architecture, Engineering and Construction rose 37% to $304.3 million; AutoCAD and AutoCAD LT rose 37% to $213.2 million; Manufacturing rose 24% to $167.5 million; and Media and Entertainment rose 9% to $45.5 million.
- International revenue represented 66% of total revenue. Tech Data accounted for 35% of revenue and 31% of trade receivables, a material distribution and credit concentration.
- Adoption of lease accounting (ASC 842) added $309.9 million of operating lease right-of-use assets and recognized lease liabilities on the balance sheet. The company reported no material impact on the income statement or operating cash flow.
Outlook, risks, and unusual items
No specific revenue or earnings guidance is presented in the supplied filing text. Management expects maintenance revenue to continue declining as customers migrate to subscriptions. It expects to recognize approximately $2.0 billion, or 73%, of billed and unbilled deferred revenue over the next 12 months. For Q2 FY2020, management indicated that several operating expense categories were expected to rise in dollars while declining as a share of revenue; exact amounts are not provided clearly in the filing text.
Key risks include execution of the subscription and cloud transition; subscription renewals and customer acceptance; integration of acquisitions, including PlanGrid, Assemble Systems, and BuildingConnected; competition and pricing; foreign exchange, global economic and political conditions; cybersecurity, privacy, and service-provider risks; and reliance on distributors. The company also disclosed $211.4 million of gross unrecognized tax benefits, with the possible change over the next 12 months not estimable. Pending legal matters were not expected by management to have a material adverse effect, although an unfavorable resolution could materially affect a particular period and potential losses were not estimable from the disclosed information.
Other notable items include the elevated tax expense despite pretax income, investment impairments, $75.2 million of stock-based compensation, and a $100.0 million share repurchase program outlay reported in MD&A (the cash flow statement reports $88.5 million of repurchases; the filing’s presentations differ in scope or timing). Autodesk reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether subscription growth and ARR expansion continue to offset declining maintenance revenue, and how renewal rates and net revenue retention develop.
- The reconciliation and drivers of GAAP versus non-GAAP profitability, especially stock-based compensation, acquisition-related costs, investment losses, amortization, and taxes.
- Cash-flow sustainability after the quarter’s favorable receivables collections, and the timing of debt repayments and share repurchases.
- Acquisition integration and the effect of acquired businesses on expenses, margins, and revenue growth.
- Exposure to Tech Data and other distribution partners, foreign exchange, international markets, and privately held investment impairments.
- The exact Q2 expense outlook and the share-repurchase amount represented by the differing MD&A and cash-flow presentations.