Autodesk, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended July 31, 2020. Amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. Autodesk reports as one operating segment.
Financial performance
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $913.1 | $796.8 | $1,798.8 | $1,532.3 |
| Subscription revenue | $841.2 | $663.7 | $1,644.2 | $1,259.5 |
| Gross profit / GAAP gross margin | $832.2 / 91% | $717.3 / 90% | $1,636.0 / 91% | $1,370.1 / 89% |
| Operating income / GAAP operating margin | $146.1 / 16% | $73.8 / 9% | $276.7 / 15% | $98.6 / 6% |
| Net income | $98.2 | $40.2 | $164.7 | $16.0 |
| Diluted EPS | $0.44 | $0.18 | $0.74 | $0.07 |
| Operating cash flow | Not separately stated | Not separately stated | $418.5 | $440.5 |
Quarterly revenue rose 15% year over year; six-month revenue rose 17%. Subscription revenue grew 27% and 31%, respectively, while maintenance revenue fell 51% and 47%, primarily as customers migrated to subscriptions under the maintenance-to-subscription program. Recurring revenue was 98% of revenue in both 2020 periods, versus 96% a year earlier. GAAP diluted EPS differs materially from non-GAAP diluted EPS: $0.98 for Q2 and $1.83 for the six months in FY2021. Non-GAAP measures exclude, among other items, stock-based compensation and investment losses.
Balance sheet, liquidity and debt
- At July 31, 2020, cash and cash equivalents were $1,439.8 and marketable securities were $79.7, totaling about $1.52 billion. Cash declined from $1,774.7 at January 31.
- Notes payable totaled $1.65 billion principal; no borrowings were outstanding on the $650 million revolving credit facility. Autodesk reported compliance with the facility’s covenants.
- Six-month financing cash use was $642.6, including $450.0 of debt repayment and $209.0 of share repurchases. Investing cash use was $111.8; capital expenditures were $46.7.
- Deferred revenue was $2.88 billion. Remaining performance obligations were $3.35 billion, down 6% from January 31; $2.31 billion, or 69%, was expected to be recognized over the next 12 months.
- Stockholders’ equity was $67.3, compared with a deficit of $139.1 at January 31, 2020.
Material changes and management commentary
- Growth was broad across product families in Q2: AEC revenue increased 19%, AutoCAD and AutoCAD LT 18%, Manufacturing 6%, and Media and Entertainment 5% year over year.
- Net revenue retention rate (NR3) was in the 100%–110% range, compared with 110%–120% a year earlier. Management cited improved subscription renewal rates during the quarter, but new business declined in the mid-teens percentage range.
- COVID-19 effects included slightly lower product usage during the six-month period, stronger use of cloud collaboration products as customers worked remotely, and market recovery in AEC and Manufacturing. Autodesk extended payment terms, offered temporary cloud collaboration access, delayed named-user transitions, and deferred a 20% maintenance price increase. The payment-term extension ended August 7, 2020.
- Management said it was controlling travel, hiring and marketing spending while continuing investment in R&D, construction and company digitization. It believed available cash, expected operating cash flows and the credit facility would cover working capital and operating needs for at least 12 months; pandemic impacts remained uncertain.
- Interest and other expense increased to $57.2 for the six months from $23.5, mainly due to $30.9 of net losses on non-marketable equity securities. The company recorded no goodwill impairment.
Outlook, risks and contingencies
- The filing provides no specific revenue or earnings guidance. For Q3 FY2021 versus Q3 FY2020, management expected cost of revenue to increase in dollars but remain flat as a percentage of revenue; marketing and R&D to increase in dollars but remain flat as a percentage; and G&A and purchased-intangible amortization to decrease in dollars.
- Maintenance revenue is expected to continue declining, with the rate dependent on renewals and migration to subscriptions. Maintenance plans were scheduled to retire May 7, 2021.
- COVID-19, economic conditions, renewal and new-business trends, customer spending, foreign exchange, and the pace of recovery could affect revenue, margins and cash flow. International revenue represented 66% of revenue for the six months.
- Distributor concentration is notable: Tech Data accounted for 37% of Q2 revenue and 38% of six-month revenue, and 39% of accounts receivable at July 31. Management said other distributors could serve affected resellers and end users if needed.
- Pending legal matters were not expected by management to materially affect consolidated results, cash flows or financial position, though an unfavorable outcome could materially affect an individual period; potential losses were not clearly quantifiable.
- Autodesk maintained a valuation allowance on U.S. deferred tax assets despite anticipating higher U.S. taxable income in FY2021. Gross unrecognized tax benefits were $222.4, with the possible change over the next 12 months not estimable.
Important facts for investors to verify
- Whether subscription growth and renewal trends offset declining maintenance revenue and the reported NR3 slowdown.
- Whether new-business activity recovers after the mid-teens Q2 decline, and how COVID-19 affects renewals, cash flow and margins.
- Whether RPO and deferred-revenue trends support the expected conversion of $2.31 billion of current RPO over the next 12 months.
- The quality and comparability of non-GAAP earnings, including exclusions for stock-based compensation and investment losses.
- Exposure to Tech Data, foreign exchange, private-company investment losses, and the $1.65 billion notes balance; confirm liquidity and covenant compliance in subsequent filings.