Autodesk, Inc. — Q1 FY2012 Form 10-Q
Reporting period: Three months ended April 30, 2011. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts are in millions except per-share data. Comparisons are with the three months ended April 30, 2010.
Business context
Autodesk sells design and engineering software and related services through four reportable segments: Platform Solutions and Emerging Business (PSEB), Architecture, Engineering and Construction (AEC), Manufacturing (MFG), and Media and Entertainment (M&E). Revenue is primarily from software licenses and maintenance contracts; 73% of quarterly revenue was international.
Financial performance
| Metric | Q1 FY2012 | Prior-year quarter | Change |
|---|---|---|---|
| Net revenue | $528.3 | $474.6 | +11% |
| License and other revenue | $323.0 | $279.8 | +15% |
| Maintenance revenue | $205.3 | $194.8 | +5% |
| Gross profit / margin | $473.7 / 90% | $423.3 / 89% | Margin up about 1 point |
| Operating income / margin | $78.6 / 15% | $50.8 / 11% | Income +55% |
| Net income | $69.3 | $36.9 | +88% |
| Diluted EPS | $0.29 | $0.16 | Up $0.13 |
| Operating cash flow | $128.4 | $139.1 | Down $10.7 |
Non-GAAP diluted EPS was $0.40 versus $0.29; non-GAAP operating margin was 23% versus 20%. These measures exclude specified items, including stock-based compensation and acquired-intangible amortization; the filing cautions that non-GAAP measures supplement, not replace, GAAP results.
Operating expenses rose 6% to $395.1, slower than revenue growth. There were no restructuring charges in the quarter, compared with $7.1 in the prior-year period. The effective tax rate was 18%, versus 22%; the current-period rate included $4.1 of discrete stock-compensation tax benefits, and was 23% excluding those benefits.
Liquidity, cash flow and debt
At April 30, Autodesk had $1,091.4 of cash and cash equivalents and $434.3 of marketable securities, totaling $1,525.7. Current assets were $1,732.4 and current liabilities $819.5. The company reported no borrowings on its then-existing $250 million credit line. On May 26, 2011, it replaced that facility with a $400 million unsecured revolving facility, with an option to request up to $100 million more, maturing in May 2016; no amounts were outstanding as of June 3.
Quarterly cash flow included $128.4 provided by operations, $152.7 used in investing and $42.7 provided by financing. Investing outflows included $76.2 for business combinations and $23.4 for capital expenditures. Cash increased $16.3 to $1,091.4. Autodesk repurchased 1.7 million shares for $68.6, while net proceeds from common-stock issuance were $111.3.
Changes and management commentary
- Growth was broad across revenue types, geographies and segments, though AEC grew only 3%. Segment revenue growth was PSEB 15%, MFG 14%, M&E 15%, and AEC 3%.
- Commercial new-seat revenue increased 23%; management attributed 16 percentage points to more seats sold and 7 points to higher average revenue per seat. Suites revenue grew 17% and represented 23% of total revenue.
- Management attributed improved operating profitability to revenue growing faster than costs, as well as the absence of the prior-year restructuring charge. Foreign exchange benefited reported revenue; management stated revenue growth was 11% on a constant-currency basis.
- Backlog rose to $647.4 from $615.4 at January 31; $622.4 was deferred revenue. Deferred revenue included $543.0 related to maintenance contracts.
- Management’s stated priorities for the remainder of FY2012 were revenue growth and improved operating-margin percentage, supported by product investment and suites. It anticipated Q2 cost of revenue and each major operating-expense category to increase in dollars but remain relatively consistent as a percentage of revenue year over year. The filing provides no specific numerical full-year revenue or earnings guidance.
Acquisitions, risks and contingencies
- Autodesk acquired Scaleform for $36.2 and Blue Ridge Numerics for $41.2 during the quarter. Preliminary purchase accounting recorded $22.6 and $22.3 of goodwill, respectively; allocations, including tax items and residual goodwill, were not final.
- A $4.2 auction-rate security remained illiquid, having failed to settle at auction since 2007. The company expected to recover substantially all of its current holding, net of reserves, but could not predict timing or proceeds.
- Tech Data accounted for 17% of revenue in both comparison periods and 17% of trade receivables at quarter-end. Autodesk said it was not substantially dependent on the distributor, but channel concentration remains a point to monitor.
- Japan generated $60.7, about 11% of revenue. Management expected the March 2011 earthquake and tsunami to have an immaterial financial impact, while acknowledging uncertainty.
- Gross unrecognized tax benefits were $192.0, of which $178.6 could affect the effective tax rate if recognized. Legal claims and proceedings were described as not expected to have a material adverse effect, although an unfavorable resolution could materially affect a particular period.
- Key disclosed risks include global economic weakness, foreign-exchange movements, dependence on maintenance renewals and indirect sales channels, competition and technology shifts, acquisition integration, intellectual-property matters, and security or operational disruptions. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether new-seat demand, suites adoption and maintenance renewals sustain revenue growth, particularly given AEC’s comparatively modest growth.
- How operating cash generation develops: operating cash flow declined year over year despite higher net income.
- Whether the new acquisitions deliver expected product and growth benefits, and how their preliminary purchase-price allocations change.
- Liquidity and valuation developments for the auction-rate security, and the company’s exposure to foreign exchange and investment-market changes.
- Potential tax exposure, including changes in unrecognized tax benefits and realization of $141.8 of net deferred tax assets.
- Future share repurchases, stock-based compensation and dilution; the filing reports 22.7 million shares remaining under repurchase authorizations at April 30.