Autodesk, Inc. — Q1 FY2019 Form 10-Q
Reporting period: Three months ended April 30, 2018; comparative period is the three months ended April 30, 2017. Results are unaudited. Autodesk adopted ASC 606 and ASC 340-40 this quarter using modified-retrospective methods; prior-year figures were not restated, so reported comparisons are not fully like-for-like.
Key financial results
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Net revenue, as reported | $559.9 million | $485.7 million |
| Gross profit / margin | $493.1 million / 88% | $407.5 million / 84% |
| Operating loss / margin | $(55.3) million / (10)% | $(119.6) million / (25)% |
| Net loss / diluted loss per share | $(82.4) million / $(0.38) | $(129.6) million / $(0.59) |
| Non-GAAP operating income (loss) | $29.0 million | $(39.5) million |
| Non-GAAP net income (loss) / diluted EPS | $14.4 million / $0.06 | $(34.8) million / $(0.16) |
| Operating cash flow | $(16.9) million | $45.2 million |
- Reported revenue increased 15%. Subscription revenue rose 102% to $350.4 million, while maintenance revenue fell 31% to $181.2 million and other revenue fell 42% to $28.3 million. Management attributed the mix shift to subscription growth and migration from maintenance plans, alongside the discontinuation of most perpetual-license sales.
- Under ASC 605, Q1 FY2019 revenue would have been $573.5 million, gross profit $506.5 million, net loss $60.0 million, and diluted loss per share $0.27. Thus, the new revenue and contract-cost standards reduced reported Q1 net income by $22.4 million relative to the ASC 605 presentation. Adoption also reduced opening accumulated deficit by a cumulative $178.0 million.
- Operating cash flow declined by $62.1 million year over year. The filing cites changes in accrued liabilities and deferred revenue as uses of working capital; the accounts-receivable decrease was a source of cash.
Liquidity, debt, and operating indicators
- Cash and cash equivalents were $1.093 billion; marketable securities totaled $371.4 million. Combined cash and securities were approximately $1.46 billion at April 30, 2018.
- Long-term notes payable, net, were $1.587 billion; aggregate principal debt was approximately $1.6 billion. Autodesk had no borrowings under its $400 million revolving credit facility and reported covenant compliance. The facility matures in May 2020.
- Current assets were $1.698 billion and current liabilities $1.853 billion. Current deferred revenue was $1.469 billion as reported.
- Billed and unbilled deferred revenue under ASC 606 totaled $2.218 billion; Autodesk expected to recognize $1.6 billion, or 72%, over the next 12 months. Revenue recognized in the quarter from opening deferred revenue was $493.8 million.
- ARR was $2.126 billion under ASC 606; subscription-plan ARR was $1.402 billion and maintenance-plan ARR $725 million. Total subscriptions were 3.817 million. Subscription-plan ARR increased 19% from January 31, while maintenance-plan ARR declined 18%. Management separately reported total ARR up 22% year over year.
- International revenue represented 65% of net revenue. Tech Data accounted for 34% of revenue and 36% of trade receivables.
Material changes, outlook, and risks
- Business transition: Autodesk is shifting from perpetual licenses and maintenance toward product subscriptions, cloud offerings, and enterprise agreements. About 154,000 maintenance subscriptions converted to product subscriptions during the quarter. Management expects maintenance revenue and subscriptions to continue declining over time as customers migrate, with the pace dependent on renewals and conversion.
- Restructuring: A global plan approved in Q4 FY2018 targets approximately 13% of the workforce, or about 1,150 employees, and facility consolidation. The company expects substantial completion by fiscal year-end. Q1 restructuring and facility-exit expense was $22.5 million; remaining accrued costs were $24.4 million.
- Near-term expense commentary: For Q2 FY2019 versus Q2 FY2018, management expected cost of revenue, research and development, and purchased-intangible amortization to decrease; marketing and sales dollars to increase but decline as a percentage of revenue; and general and administrative expense to decrease slightly. The filing provides no clear numerical full-year revenue or earnings guidance in the supplied text.
- Accounting and tax items: Adoption of ASC 606 and ASC 340-40 changed revenue timing and capitalization of qualifying sales commissions. Sales-commission contract-cost assets were $93.3 million, with $26.2 million amortized in the quarter. The company reported an $18.6 million income-tax expense despite a pretax loss and maintained a valuation allowance against U.S. deferred tax assets. The Tax Act accounting remained provisional; gross unrecognized tax benefits were $341.3 million.
- Principal risks: Execution of the subscription/cloud transition, subscription renewals and maintenance migration, international economic and currency exposure, channel concentration, cybersecurity and privacy compliance (including GDPR), competition, and restructuring execution. Approximately 79% of cash and securities were held outside the United States. Autodesk disclosed an IRS examination of fiscal 2014–2015 returns and an OFAC voluntary self-disclosure concerning licenses worth less than $700,000; its review remained pending. Legal proceedings were not expected by management to have a material adverse effect, though an adverse outcome could materially affect a particular period.
- Disclosure controls were assessed as effective; the company implemented new and modified controls related to adoption of the revenue and contract-cost standards.
Most important facts for investors to verify
- Compare operating trends using consistent accounting: reported FY2019 Q1 results use ASC 606, while FY2018 Q1 comparatives use ASC 605; review the filing’s ASC 605 bridge when assessing growth.
- Track subscription ARR, maintenance ARR, total subscriptions, renewals, and conversion rates to assess whether subscription growth offsets maintenance decline.
- Assess operating cash generation alongside deferred-revenue and working-capital movements; Q1 operating cash flow was negative despite higher revenue.
- Monitor restructuring costs, workforce and facility actions, and whether planned investment shifts support growth without impairing execution.
- Review Tech Data concentration, foreign-currency exposure and overseas liquidity, debt covenants, tax uncertainties, and the status of the disclosed IRS and OFAC matters.