10-QPeriod: Q3 FY2017

Autodesk, Inc. Quarterly Report for Q3 Ended Oct 31, 2016

Filed December 1, 2016For Securities:ADSK

Summary

Autodesk, Inc.'s (ADSK) Form 10-Q for the period ending October 31, 2016, reveals a company undergoing a significant business model transition. Total net revenue declined by 18% year-over-year for the third quarter and 16% for the first nine months, largely due to the discontinuation of perpetual software license sales. This strategic shift towards a subscription-based model, while expected to create a more predictable recurring revenue stream long-term, impacted short-term financial performance. Subscription revenue showed modest growth, driven by new model subscriptions, which offset a decline in maintenance revenue. Operating expenses increased, primarily due to restructuring charges, leading to a significant net loss for both the quarter and year-to-date periods. Despite the top-line decline and net loss, the company maintained a strong cash position and continued its share repurchase program.

Financial Highlights

50 data points
Beta

Revenue

$489.60M

83.4% Gross Margin

Net Income

-$142.80M

-29.2% Net Margin

EPS (Diluted)

$-0.64

Total Assets

$4.83B

Cash & Equivalents

$1.44B

Free Cash Flow

-$14.80M

Financial Statements
Beta
Revenue$489.60M
Cost of Revenue$81.50M
Gross Profit$408.10M
R&D Expenses$192.60M
Operating Expenses$528.00M
Operating Income-$119.90M
Net Income-$142.80M
EPS (Basic)$-0.64
EPS (Diluted)$-0.64
Shares Outstanding (Basic)222.30M
Shares Outstanding (Diluted)222.30M

Key Highlights

  • 1Total net revenue decreased by 18% YoY to $489.6 million for the third quarter and 16% YoY to $1,552.2 million for the first nine months.
  • 2The decrease in revenue is primarily attributed to the discontinuation of perpetual license sales, resulting in a 39% drop in license and other revenue for the quarter and 35% for the nine months.
  • 3Subscription revenue saw a slight increase of 1% for the nine months, driven by a 37% increase in new model subscriptions, partially offset by a 3% decrease in maintenance revenue.
  • 4The company reported a net loss of $142.8 million ($0.64 per share) for the third quarter and $408.7 million ($1.83 per share) for the nine months, compared to net losses in the prior year periods.
  • 5Operating expenses increased due to restructuring charges and other facility exit costs, contributing to the operating loss.
  • 6Autodesk's balance sheet remains strong, with $1.4 billion in cash and cash equivalents and $532 million in marketable securities as of October 31, 2016.
  • 7The company continued its share repurchase program, buying back 6.8 million shares for $409.6 million during the first nine months.

Frequently Asked Questions

The primary driver for the decline in Autodesk's revenue is the company's strategic business model transition. They have discontinued the sale of most new perpetual software licenses, shifting towards a subscription-based model. This transition, while aimed at creating more predictable recurring revenue in the long term, significantly reduced upfront license revenue in the current period.

The shift to a subscription model is impacting financial results by recognizing revenue more ratably over time, rather than upfront as with perpetual licenses. This leads to lower reported revenue and billings in the short term, as well as changes in gross margins and operating expenses. The company is experiencing a decline in traditional maintenance revenue and a slower growth in upfront license revenue, while new model subscription revenue is growing, but not yet fully offsetting the declines.

Autodesk's balance sheet and cash flow statements indicate a strong financial position despite the current net losses. As of October 31, 2016, the company held $1.4 billion in cash and cash equivalents and $532 million in marketable securities, totaling approximately $2.4 billion in liquid assets. Net cash provided by operating activities for the first nine months was $154.1 million, and the company continued its share repurchase program, demonstrating its ability to manage cash effectively.

Yes, there are a couple of notable points. The company adopted new accounting standards related to employee share-based payment accounting (ASU 2016-09) which resulted in a cumulative-effect adjustment increasing accumulated deficit. There was also a prior period adjustment related to understated income tax expense for the three and six months ended July 31, 2015, primarily due to an error in establishing a valuation allowance. This adjustment was deemed not material to prior financial statements but was corrected by revising prior period results for the specific quarters affected.