AUTODESK, INC. The discussion in our MD&A and elsewhere in this Form 10-Q contains trend analyses and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are any statements that look to future events and consist of, among other things, our business strategies, including those discussed in "Strategy," "Overview of the Six Months EndedJuly 31, 2020 and 2019" and in "Results of Operations-Impacts of COVID-19 to Autodesk's Business." Examples of such forward-looking statements may relate to items such as future net revenue, operating expenses, recurring revenue, net revenue retention rate, cash flow, remaining performance obligations and other future financial results (by product type and geography), the effectiveness of our efforts to successfully manage transitions to new markets; our ability to increase our subscription base; expected market trends, including the growth of cloud and mobile computing; the availability of credit; the effect of unemployment; the effects of global economic conditions, including from an economic downturn or recession inthe United States or in other countries around the world; the effects of revenue recognition; the effects of recently issued accounting standards; expected trends in certain financial metrics, including expenses; expectations regarding our cash needs; the effects of fluctuations in exchange rates and our hedging activities on our financial results; our ability to successfully expand adoption of our products; our ability to gain market acceptance of new business and sales initiatives; the impact of past acquisitions, including our integration efforts; the impact of economic volatility and geopolitical activities in certain countries, particularly emerging economy countries; the timing and amount of purchases under our stock buy-back plan; and the effects of potential non-cash charges on our financial results and the resulting effect on our financial results. In addition, forward-looking statements also consist of statements involving expectations regarding product capability and acceptance, statements regarding our liquidity and short-term and long-term cash requirements, as well as statements involving trend analyses and statements including such words as "may," "believe," "could," "anticipate," "would," "might," "plan," "expect," and similar expressions or the negative of these terms or other comparable terminology. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of a number of factors, including those set forth below in Part II, Item 1A, "Risk Factors," and in our other reports filed with theU.S. Securities and Exchange Commission . We assume no obligation to update the forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
Note: A glossary of terms used in this Form 10-Q appears at the end of this Item 2.
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--------------------------------------------------------------------------------Strategy
Autodesk makes software for people who make things. If you have ever driven a high-performance car, admired a towering skyscraper, used a smartphone, or watched a great film, chances are you have experienced what millions of Autodesk customers are doing with our software. We empower innovators to achieve the new possible - enabling them to discover first-in-kind solutions to complex design challenges, deliver tangible outcomes in record time, and make data-powered decisions for sustainable outcomes. Our strategy is to build enduring relationships with customers, delivering innovative technology that provides valuable automation and insight into their design and make process. To drive execution of our strategy, we are focused on three strategic priorities: delivering on the promise of subscription, digitizing the company, and reimagining construction, manufacturing, and production. We equip and inspire our users with the tailored tools, services, and access they need for success today and tomorrow. At every step, we help users harness the power of data to build upon their ideas and explore new ways of imagining, collaborating, and creating to achieve better outcomes for their customers, for society, and for the world. And because creativity can't flourish in silos, we connect what matters - from steps in a project to collaborators on a unified platform. Autodesk was founded during the platform transition from mainframe computers and engineering workstations to personal computers. We have developed and sustained a compelling value proposition based upon desktop software for the personal computer. Just as the transition from mainframes to personal computers transformed the industry over 30 years ago, the software industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies.
Product Evolution
To address this shift, Autodesk made a strategic decision to shift its business model from selling perpetual licenses and maintenance plans to selling subscriptions.
Today, we offer subscriptions for individual products and Industry Collections,
EBAs, and cloud service offerings (collectively referred to as "subscription
plan"). Subscription plans are designed to give our customers more flexibility
with how they use our offerings and to attract a broader range of customers,
such as project-based users and small businesses.
Our subscription plans currently represent a hybrid of desktop software and
cloud functionality, which provides a device-independent, collaborative design
workflow for designers and their stakeholders. Our cloud offerings, for example,
BIM 360, Shotgun, AutoCAD web app and AutoCAD mobile app, provide tools,
including mobile and collaboration capabilities, to streamline design,
collaboration, building and manufacturing and data management processes. We
believe that customer adoption of these latest offerings will continue to grow
as customers across a range of industries begin to take advantage of the
scalable computing power and flexibility provided through these services.
Industry Collections provide our customers with access to a broader selection of
Autodesk solutions and services, simplifying the customers' ability to benefit
from a complete set of tools for their industry.
We discontinued the sale of new commercial licenses of most individual software
products in fiscal 2016. Additionally, in fiscal 2018, we commenced a program to
incentivize maintenance plan customers to move to subscription plan offerings,
maintenance-to-subscription ("M2S"), while at the same time increasing
maintenance plan pricing over time for customers that remain on maintenance
plans. Since launching the program, a substantial majority of maintenance plan
customers have converted to subscription plan offerings. We will be retiring
maintenance plan offerings as of May 7, 2021 and will allow customers to convert
their remaining maintenance seats to subscription plan offerings prior to this
date.
To support our strategic priority of re-imagining construction, we are
strengthening the foundation of our construction solutions with both organic and
inorganic investments. In fiscal 2020, we continued and expanded our investments
in construction. We continued to make investments in the traditional data
creation tools to support the design and pre-construction phases, while
expanding our investment in the areas of site execution with process and project
management construction cloud tools. To connect the phases of construction
upstream with design, we invested in and announced our construction cloud
project delivery platform that allows individuals, teams and projects to be
connected across all phases in a common data platform and increase efficiencies.
The broadened product portfolio, the Autodesk Construction Cloud, has helped us
expand our presence with sub-contractors, trades people, and building owners.
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As part of our strategy in manufacturing, we continue to attract both global
manufacturing leaders and disruptive startups with our generative design and
cloud-based Fusion 360 technology enhancements.
Our strategy includes improving our product functionality and expanding our
product offerings through internal development as well as through the
acquisition of products, technology, and businesses. Acquisitions often increase
the speed at which we can deliver product functionality to our customers;
however, they entail cost and integration challenges and may, in certain
instances, negatively impact our operating margins. We continually review these
factors in making decisions regarding acquisitions. We currently anticipate that
we will continue to acquire products, technology, and businesses as compelling
opportunities become available.
Global Reach
We sell our products and services globally, through a combination of indirect and direct channels. Our indirect channels include value added resellers, direct market resellers, distributors, computer manufacturers, and other software developers. Our direct channels include internal sales resources dedicated to selling in our largest accounts, our highly specialized solutions, and business transacted through our online Autodesk branded store. See Note 3, "Revenue Recognition" in the Notes to the Condensed Consolidated Financial Statements for further detail on the results of our indirect and direct channel sales for the three and six months endedJuly 31, 2020 and 2019. We anticipate that our channel mix will continue to change as we scale our online Autodesk branded store business and our largest accounts shift towards direct-only business models. However, we expect our indirect channel will continue to transact and support the majority of our customers and revenue. We employ a variety of incentive programs and promotions to align our direct and indirect channels with our business strategies. In addition, we have a worldwide user group organization and we have created online user communities dedicated to the exchange of information related to the use of our products. One of our key strategies is to maintain an open-architecture design of our software products to facilitate third-party development of complementary products and industry-specific software solutions. This approach enables customers and third parties to customize solutions for a wide variety of highly specific uses. We offer several programs that provide strategic investment funding, technological platforms, user communities, technical support, forums, and events to developers who develop add-on applications for our products. For example, we have established the Autodesk Forge developer program to support innovators that build solutions to facilitate the development of a single connected ecosystem for the future of how things are designed, made, and used as well as support ideas that push the boundaries of 3D printing. In addition to the competitive advantages afforded by our technology, our large global network of distributors, resellers, third-party developers, customers, educators, educational institutions, learning partners, and students is a key competitive advantage which has been cultivated over an extensive period. This network of partners and relationships provides us with a broad and deep reach into volume markets around the world. Our distributor and reseller network is extensive and provides our customers with the resources to purchase, deploy, learn, and support our solutions quickly and easily. We have a significant number of registered third-party developers who create products that work well with our solutions and extend them for a variety of specialized applications.
Better World
To help our customers imagine, design, and make a better world, our
sustainability initiatives focus our efforts on the areas where we can have the
greatest positive impact: products and support, catalyzing impact and
innovation, investing in our customers and employees' ability to learn and
develop relevant skills for in-demand roles, and leading by example with our
100% renewable and sustainable business practices. Through our products and
services, we are supporting our customers to better understand and improve the
environmental performance of everything they make and mitigate the causes and
effects of climate change.
Furthermore, we are committed to fulfill our vision of helping people imagine,
design, and make a better world by prioritizing Diversity and Belonging ("D&B")
efforts. We have launched a project to expand our commitment through the
development of a holistic, updated global D&B strategy. The initiative begins
with a global listening tour across Autodesk where employees representing all
levels, regions, organizations, and a rich mix of demographics, are invited to
join focus groups to share their input. Autodesk is committed to continuing the
hard work that is required to realize progress within the company and to support
the communities where we work.
The Autodesk Foundation (the "Foundation"), a privately funded 501(c)(3) charity
organization established and solely funded by us, leads our philanthropic
efforts. The purpose of the Foundation is twofold: to support employees to make
a better
29
--------------------------------------------------------------------------------world by matching employees' volunteer time and/or donations to nonprofit organizations; and to support organizations and individuals using design to drive positive social and environmental impact. On our behalf, the Foundation also administers a discounted software donation program to nonprofit organizations, social and environmental entrepreneurs, and others who are developing design solutions that will shape a more sustainable future.
Assumptions Behind Our Strategy
Our strategy depends upon a number of assumptions, including: making our technology available to mainstream markets; leveraging our large global network of distributors, resellers, third-party developers, customers, educators, educational institutions, learning partners, and students; improving the performance and functionality of our products; and adequately protecting our intellectual property. If the outcome of any of these assumptions differs from our expectations, we may not be able to implement our strategy, which could potentially adversely affect our business. For further discussion regarding these and related risks, see Part II, Item 1A, "Risk Factors."
Critical Accounting Policies and Estimates
Our Condensed Consolidated Financial Statements are prepared in conformity withU.S. generally accepted accounting principles ("GAAP"). In preparing our Condensed Consolidated Financial Statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our Condensed Consolidated Financial Statements. We evaluate our estimates and assumptions on an ongoing basis. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1, "Business and Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements in our Form 10-K for the fiscal year endedJanuary 31, 2020 . An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We highlighted those policies that involve a higher degree of judgment and complexity with further discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K. There have been no material changes to our critical accounting policies and estimates during the three and six months endedJuly 31, 2020 , as compared to those disclosed in our Form 10-K for the fiscal year endedJanuary 31, 2020 . We believe these policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Overview of the Three and Six Months Ended
• Total net revenue increased 15% and 17% to
million for the three and six months ended
compared to the same periods in the prior fiscal year.
• Recurring revenue as a percentage of net revenue was 98% for both the
three and six months ended
in the prior fiscal year.
• Net revenue retention rate ("NR3") was within the range of 100% and 110%
as of
2019.
• Deferred revenue was $2.88 billion , a decrease of 4% compared to the
fourth quarter in the prior fiscal year.
• Remaining performance obligations (short-term and long-term deferred
revenue plus unbilled deferred revenue) ("RPO") was $3.35 billion , a
decrease of 6% compared to the fourth quarter in the prior fiscal year.
• Current remaining performance obligations were
of 2% compared to the fourth quarter in the prior fiscal year.
Revenue Analysis
Net revenue increased during the three and six months endedJuly 31, 2020 , as compared to the same periods in the prior fiscal year, primarily due to the respective 27% and 31% increase in subscription revenue, partially offset by a respective 51% and 47% decrease in maintenance revenue as a result of the program to migrate customers from maintenance plans to subscription plans.
For further discussion of the drivers of these results, see below under the heading "Results of Operations."
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We rely significantly upon major distributors and resellers in both the U.S. and
international regions, including Tech Data Corporation and its global affiliates
(collectively, "Tech Data"). Total sales to Tech Data accounted for 37% and 38%
of our total net revenue for the three and six months ended July 31, 2020 ,
respectively, and 35% of our total net revenue for both the three and six months
ended July 31, 2019 . During both the three and six months ended July 31, 2020
and 2019, Ingram Micro accounted for 10% of Autodesk's total net revenue. Our
customers through Tech Data and Ingram Micro are the resellers and end users who
purchase our software subscriptions and services. Should any of our agreements
with Tech Data and Ingram Micro be terminated for any reason, we believe the
resellers and end users who currently purchase our products through Tech Data
and Ingram Micro would be able to continue to do so under substantially the same
terms from one of our many other distributors without substantial disruption to
our revenue. Consequently, we believe our business is not substantially
dependent on Tech Data and Ingram Micro.
Recurring Revenue and Net Revenue Retention Rate
In order to help better understand our financial performance, we use metrics such as recurring revenue and NR3. These metrics are key performance metrics and should be viewed independently of revenue and deferred revenue as these metrics are not intended to be combined with those items. We use these metrics to monitor the strength of our recurring business. We believe these metrics are useful to investors because they can help in monitoring the long-term health of our business. Our determination and presentation of these metrics may differ from that of other companies. The presentation of these metrics is meant to be considered in addition to, not as a substitute for or in isolation from, our financial measures prepared in accordance with GAAP. Please refer to the Glossary of Terms for the definitions of these metrics.
The following table outlines our recurring revenue metric for the three and six
months ended
Change compared to
Three Months Ended prior fiscal year Three Months Ended
(In millions, except percentage data) July 31, 2020 $ % July 31, 2019
Recurring revenue (1) $ 892.4 $ 125.2 16 % $ 767.2
As a percentage of net revenue 98 % N/A N/A 96 %
Change compared to
Six Months Ended prior fiscal year Six Months Ended
July 31, 2020 $ % July 31, 2019
Recurring Revenue (1) $ 1,757.5 $ 282.5 19 % $ 1,475.0
As a percentage of net revenue 98 % N/A N/A 96 %
________________
(1) The acquisition of a business may cause variability in the comparison of
recurring revenue in this table above and recurring revenue derived from the
revenue reported in the Condensed Consolidated Statements of Operations.
NR3 was within the range of 100% and 110% as of
Foreign Currency Analysis
We generate a significant amount of our revenue in
31
--------------------------------------------------------------------------------
The following table shows the impact of foreign exchange rate changes on our net
revenue and total spend:
Three Months Ended July 31, 2020 Six Months Ended July 31, 2020
Constant Currency Constant Currency
percent Positive/Negative/Neutral percent Positive/Negative/Neutral
Percent change compared to change compared to impact from foreign Percent change compared to change compared to impact from foreign
prior fiscal year prior fiscal year (1) exchange rate changes prior fiscal year prior fiscal year (1) exchange rate changes
Net revenue 15 % 16 % Negative 17 % 19 % Negative
Total spend 6 % 7 % Positive 6 % 7 % Positive
________________(1) Please refer to the Glossary of Terms for the definitions of our constant
currency growth rates.
Changes in the value of the U.S. dollar may have a significant effect on net
revenue, total spend, and income (loss) from operations in future periods. We
use foreign currency contracts to reduce the exchange rate effect on a portion
of the net revenue of certain anticipated transactions but do not attempt to
completely mitigate the impact of fluctuations of such foreign currency against
the U.S. dollar.
Remaining Performance Obligations
RPO represents deferred revenue and contractually stated or committed orders under early renewal and multi-year billing plans for subscription, services, license and maintenance for which the associated deferred revenue has not yet been recognized. Unbilled deferred revenue is not included as a receivable or deferred revenue on our Condensed Consolidated Balance Sheets. See Note 3, "Revenue Recognition" for more details on Autodesk's performance obligations. (in millions) July 31, 2020 January 31, 2020 Deferred revenue$ 2,878.9 $ 3,007.1 Unbilled deferred revenue 468.5 549.6 RPO$ 3,347.4 $ 3,556.7
RPO consisted of the following:
(in millions)
1,188.1
RPO $ 3,347.4 $ 3,556.7
We expect that the amount of RPO will change from quarter to quarter for several
reasons, including the specific timing, duration and size of customer
subscription and support agreements, varying billing cycles of such agreements,
the specific timing of customer renewals, and foreign currency fluctuations.
Balance Sheet and Cash Flow Items
AtJuly 31, 2020 , we had$1.52 billion in cash and marketable securities. Our cash flow from operations decreased to$418.5 million for the six months endedJuly 31, 2020 , compared to$440.5 million for the six months endedJuly 31, 2019 . We repurchased 1.3 million shares of our common stock for$196.8 million during the six months endedJuly 31, 2020 . Comparatively, we repurchased 0.9 million shares of our common stock for$140.5 million during the six months endedJuly 31, 2019 . See further discussion regarding the balance sheet and cash flow activities under the heading "Liquidity and Capital Resources."
Results of Operations
Impacts of COVID-19 to Autodesk's Business
We are continuing to conduct business during the COVID-19 pandemic with substantial modifications to employee travel, employee work locations, and virtualization, postponement or cancellation of certain sales and marketing events, among other
32
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modifications. We have observed other companies as well as many governments
taking precautionary and preemptive actions to address COVID-19, and they may
take further actions that alter their normal business operations. We will
continue to actively monitor the situation and may take further actions that
alter our business operations as may be required by federal, state or local
authorities, or that we determine are in the best interests of our employees,
customers, partners, suppliers and stockholders.
The COVID-19 pandemic has had some specific effects on our business. During the
six months ended July 31, 2020 , we experienced a slight decrease in usage of our
products. We experienced a stable recovery in growth during the second fiscal
quarter ended July 31, 2020 , and we continue to see an increase in usage of our
cloud collaboration products as customers worked from home. Our product
subscription renewal rates improved steadily throughout the quarter ended July
31, 2020 . New business declined in the range of mid-teens percent during our
second quarter ended July 31, 2020 . Further, we are experiencing recovery in the
markets that were impacted early by the pandemic in prior periods. Among our
target markets, both AEC and Manufacturing revenue increased as compared to the
second quarter in the prior fiscal year.
We also took action to support our customers during the six months ended July
31, 2020 , and extended payment terms to 60 days through August 7, 2020 , offering
free commercial use of our cloud collaboration products through June 2020 , and
delaying the transition from multi-user licenses to named-user licenses from May
2020 to August 2020 to minimize customer disruption. Further, we deferred a 20%
maintenance price increase from May 2020 to August 2020 to give customers
additional time to consider a subscription agreement.
Given the evolving business environment as a result of COVID-19, we are actively
managing our spending, reducing travel and entertainment expense, monitoring our
hiring rate, shifting to virtual events, and rationalizing our marketing spend.
We will continue to invest in critical areas such as R&D, construction, and
digitizing the company to ensure our future success as we come out of the
pandemic.
We believe our investment in cloud products and a subscription business model,
backed by a strong balance sheet, give us a robust foundation to successfully
navigate the economic challenges of COVID-19. The extent of the impact on our
business in fiscal 2021 will depend on several factors, including: the full
duration and the extent of the pandemic; actions taken by governments,
businesses and consumers in response to the pandemic; speed and timing of
economic recovery, including in particular geographies; our billings and renewal
rates including new business close rates, rate of multi-year contracts, pace of
closing larger transactions, and new unit volume growth; and effect of the
pandemic on margins and cash flow. All of these factors continue to evolve and
remain uncertain at this time, and some of these factors are not within our
control. Further discussion of the potential impacts of COVID-19 on our business
can be found in Part II, Item 1A "Risk Factors."
Net Revenue
Net Revenue by Income Statement Presentation
Subscription revenue consists of our term-based product subscriptions, cloud service offerings, and flexible enterprise business arrangements. Revenue from these arrangements is recognized ratably over the contract term commencing with the date our service is made available to customers and when all other revenue recognition criteria have been satisfied.
Maintenance revenue consists of renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license. Under our maintenance plan, customers are eligible to receive unspecified upgrades, when and if available, and technical support. We recognize maintenance revenue ratably over the term of the agreements, which is generally one year.
Other revenue consists of revenue from consulting, training and other services,
and is recognized over time as the services are performed. Other revenue also
includes software license revenue from the sale of products which do not
incorporate substantial cloud services and is recognized up front.
33
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Three Months Three Months
Ended Change Compared to Prior Fiscal Year Ended
(In millions, except
percentages) July 31, 2020 $ % July 31, 2019 Management comments
Net Revenue:
Subscription $ 841.2 $ 177.5 27 % $ 663.7 Increase due to growth
across all subscription
types, led by product
subscription renewal
revenue, which
benefited from the
success of the M2S
program. Also
contributing to the
growth was an increase
in revenue from new
product subscriptions
and EBA offerings.
Maintenance (1) 51.2 (52.3 ) (51
)% 103.5 Decrease primarily due
to the migration of
maintenance plan
subscriptions to
subscription plan
subscriptions with the
M2S program.
Total subscription and
maintenance revenue 892.4 125.2 16 % 767.2
Other 20.7 (8.9 ) (30 )% 29.6
$ 913.1 $ 116.3 15 % $ 796.8
Six Months Change compared to Six Months
Ended prior fiscal year Ended
July 31, 2020 $ % July 31, 2019 Management Comments
Net Revenue:
Subscription $ 1,644.2 $ 384.7 31 % $ 1,259.5 Increase due to growth
across all subscription
types, led by product
subscription renewal
revenue, which
benefited from the
success of the M2S
program. Also
contributing to the
growth was an increase
in revenue from new
product subscriptions
and EBA offerings.
Maintenance (1) 113.3 (102.2 ) (47 )% 215.5 Decrease primarily due
to the migration of
maintenance plan
subscriptions to
subscription plan
subscriptions with the
M2S program.
Total subscription and
maintenance revenue 1,757.5 282.5 19 % 1,475.0
Other 41.3 (16.0 ) (28 )% 57.3
$ 1,798.8 $ 266.5 17 % $ 1,532.3
____________________(1) We expect maintenance revenue will slowly decline; however, the rate of
decline will vary based on the number of renewals, the renewal rate, and our
ability to incentivize maintenance plan customers to switch over to
subscription plan offerings.
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Net Revenue by Product Family
Our product offerings are focused in four primary product families:
Architecture, Engineering and Construction ("AEC"), AutoCAD and AutoCAD LT,
Manufacturing ("MFG"), and
Three Months Change compared to Three Months
Ended prior fiscal year Ended
(In millions, except
percentages) July 31, 2020 $ % July 31, 2019 Management comments
Net Revenue by Product
Family:
AEC $ 397.0 $ 62.8 19 % $ 334.2 Up due to increases in
revenue from AEC
Collections, EBAs, BIM
360, and PlanGrid.
AutoCAD and AutoCAD LT 271.9 40.6 18 % 231.3 Up due to increases in
revenue from both AutoCAD
and AutoCAD LT.
MFG 185.5 10.9 6 % 174.6 Up due to increases in
revenue from MFG
Collections, EBAs and
Fusion360.
M&E 53.3 2.5 5 % 50.8 Up due to increases in
revenue from M&E
Collections, Maya, and 3DS
Max.
Other 5.4 (0.5 ) (8 )% 5.9
$ 913.1 $ 116.3 15 % $ 796.8
Six Months Change compared to Six Months
Ended prior fiscal year Ended
July 31, 2020 $ % July 31, 2019
Net Revenue by Product
Family:
AEC $ 779.7 $ 141.2 22 % $ 638.5 Up due to increases in
revenue from AEC
Collections, EBAs, BIM
360, and PlanGrid.
ACAD and AutoCAD LT 534.1 89.6 20 % 444.5 Up due to increases in
revenue from both AutoCAD
and AutoCAD LT.
MFG 368.4 26.3 8 % 342.1 Up due to increases in
revenue from MFG
Collections, EBAs, and
Fusion360.
M&E 105.9 9.6 10 % 96.3 Up due to increases in
revenue from M&E
Collections, Maya, 3DS Max
and EBAs.
Other 10.7 (0.2 ) (2 )% 10.9
$ 1,798.8 $ 266.5 17 % $ 1,532.3
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Net Revenue by Geographic Area
Constant
currency
change
compared to
Three Months Change compared to prior fiscal Three Months
Ended July 31, prior fiscal year year Ended July 31,
(In millions, except percentages) 2020 $ % % 2019
Net Revenue:
Americas
U.S. $ 309.5 $ 41.6 16 % * $ 267.9
Other Americas 62.0 4.0 7 % * 58.0
Total Americas 371.5 45.6 14 % 14 % 325.9
EMEA 354.7 38.5 12 % 16 % 316.2
APAC 186.9 32.2 21 % 21 % 154.7
Total Net Revenue $ 913.1 $ 116.3 15 % 16 % $ 796.8
Emerging Economies $ 113.7 $ 16.3 17 % 17 % $ 97.4
Constant
currency
change
compared to
Six Months Change compared to prior fiscal Six Months
Ended July 31, prior fiscal year year Ended July 31,
(In millions, except percentages) 2020 $ % % 2019
Net Revenue:
Americas
U.S. $ 610.1 $ 93.1 18 % * $ 517.0
Other Americas 123.6 18.9 18 % * 104.7
Total Americas 733.7 112 18 % 18 % 621.7
EMEA 699.5 86.1 14 % 18 % 613.4
APAC 365.6 68.4 23 % 23 % 297.2
Total Net Revenue $ 1,798.8 $ 266.5 17 % 19 % $ 1,532.3
Emerging Economies $ 225.1 $ 39.8 21 % 22 % $ 185.3
____________________* Constant currency data not provided at this level.
We believe that international revenue will continue to comprise a majority of our net revenue. Unfavorable economic conditions in the countries that contribute a significant portion of our net revenue, including in emerging economies such asBrazil ,Russia ,India , andChina , may have an adverse effect on our business in those countries and our overall financial performance. Changes in the value of theU.S. dollar relative to other currencies have significantly affected, and could continue to significantly affect, our financial results for a given period even though we hedge a portion of our current and projected revenue. Increases to the levels of political and economic unpredictability or protectionism in the global market may impact our future financial results. 36
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Net Revenue by Sales Channel
Three Months Change compared to Three Months
Ended prior fiscal year Ended
(In millions, except
percentages) July 31, 2020 $ % July 31, 2019 Management Comments
Net Revenue by Sales
Channel:
Indirect $ 639.3 $ 79.1 14 % $ 560.2 Up due to an increase in
subscription revenue
offset by lower
maintenance plan
subscriptions as we
continue to migrate
customers to subscriptions
through the M2S program.
Direct 273.8 37.2 16 % 236.6 Up due to an increase in
EBAs and our online
Autodesk branded store.Total Net Revenue$ 913.1 $ 116.3 15 %$ 796.8 Six Months Change compared to Six Months Ended prior fiscal year Ended July 31, 2020 $ % July 31, 2019 Management Comments Net Revenue by Sales Channel: Indirect$ 1,262.7 $ 186.1 17 %$ 1,076.6 Up due to an increase in subscription revenue offset by lower maintenance plan subscriptions as we continue to migrate customers to subscriptions through the M2S program. Direct 536.1 80.4 18 % 455.7 Up due to an increase in EBAs and our online Autodesk branded store.
Total Net Revenue$ 1,798.8 $ 266.5 17 %$ 1,532.3
Cost of Revenue and Operating Expenses
Cost of subscription and maintenance revenue includes the labor costs of
providing product support to our subscription and maintenance customers,
including allocated IT and facilities costs, professional services fees related
to operating our network and cloud infrastructure, royalties, depreciation
expense and operating lease payments associated with computer equipment, data
center costs, salaries, related expenses of network operations, stock-based
compensation expense and gains and losses on our operating expense cash flow
hedges.
Cost of other revenue includes labor costs associated with product setup, costs
of consulting and training services contracts, and collaborative project
management services contracts. Cost of other revenue also includes stock-based
compensation expense, overhead charges, allocated IT and facilities costs,
professional services fees, and gains and losses on our operating expense cash
flow hedges.
Cost of revenue, at least over the near term, is affected by labor costs, the
volume and mix of product sales, fluctuations in consulting costs, amortization
of developed technology, new customer support offerings, royalty rates for
licensed technology embedded in our products, stock-based compensation expense
and gains and losses on our operating expense cash flow hedges.
Marketing and sales expenses include salaries, bonuses, benefits and stock-based
compensation expense for our marketing and sales employees, the expense of
travel, entertainment and training for such personnel, sales and dealer
commissions, and the costs of programs aimed at increasing revenue, such as
advertising, trade shows and expositions, and various sales and promotional
programs. Marketing and sales expenses also include payment processing fees, the
cost of supplies and equipment, gains and losses on our operating expense cash
flow hedges, allocated IT and facilities costs, and labor costs associated with
sales and order management.
37
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Research and development expenses, which are expensed as incurred, consist
primarily of salaries, bonuses, benefits and stock-based compensation expense
for research and development employees, the expense of travel, entertainment and
training for such personnel, professional services such as fees paid to software
development firms and independent contractors, gains and losses on our operating
expense cash flow hedges, and allocated IT and facilities costs.
General and administrative expenses include salaries, bonuses, benefits and
stock-based compensation expense for our CEO, finance, human resources and legal
employees, as well as professional fees for legal and accounting services,
certain foreign business taxes, gains and losses on our operating expense cash
flow hedges, expense of travel, entertainment and training, net IT and
facilities costs, acquisition-related transition costs, and the cost of supplies
and equipment.
Three Months Change compared to Three Months
Ended prior fiscal year Ended
(In millions, except
percentages) July 31, 2020 $ % July 31, 2019 Management comments
Cost of revenue:
Subscription and $ 58.5 $ 5.5 10 % $ 53.0 Increase primarily due to an
maintenance increase in cloud hosting costs as
well as an increase in stock-based
compensation expense partially
offset by lower travel and
entertainment expenses.
Other 15.0 (2.9 ) (16 )% 17.9 Decrease primarily due to a
decrease in other revenue as a
result of lower consulting service
revenue as well as decrease in
travel and entertainment expenses.
Amortization of 7.4 (1.2 ) (14 )% 8.6 Decrease primarily due to
developed technology previously acquired developed
technologies continuing to become
fully amortized partially offset
by amortization from recently
acquired developed technology.Total cost of revenue$ 80.9 $ 1.4 2 %$ 79.5
Operating expenses:
Marketing and sales
increase in employee-related costs
driven by higher headcount as well
as an increase in stock-based
compensation expense partially
offset by lower travel and
entertainment expenses.
Research and 232.5 17.1 8 % 215.4 Increase primarily due to an
development increase in employee-related costs
driven by higher headcount as well
as an increase in stock-based
compensation expense partially
offset by lower travel and
entertainment expenses.
General and 93.2 (8.2 ) (8 )% 101.4 Decrease primarily due to a
administrative decrease in stock-based
compensation expense and lower
travel and entertainment expenses
partially offset by an increase in
employee-related costs driven by
higher headcount.
Amortization of 9.5 (0.2 ) (2 )% 9.7 Decrease as previously acquired
purchased intangibles purchased intangibles continue to
become fully amortized.
Restructuring and - (0.2 ) * 0.2
other exit costs, netTotal operating$ 686.1 $ 42.6 7 %$ 643.5 expenses Six Months Change compared to Six Months Ended prior fiscal year Ended July 31, 2020 $ % July 31, 2019 Management comments Cost of revenue: Subscription and$ 115.9 $ 3.2 3 %$ 112.7 Increase primarily due to an maintenance increase in cloud hosting costs partially offset by lower travel and entertainment expenses. Other 32.1 0.4 1 %
31.7 Increase primarily due to an
increase in stock-based
compensation expense as well as
employee related costs partially
offset by a decrease in travel and
entertainment expense.
Amortization of 14.8 (3.0 ) (17 )% 17.8 Decrease primarily due to
developed technology previously acquired developed
technologies continuing to become
fully amortized partially offset
by amortization from recently
acquired developed technology.
38--------------------------------------------------------------------------------
Total cost of revenue$ 162.8 $ 0.6 - %$ 162.2
Operating expenses:
Marketing and sales
increased employee-related costs
driven by higher headcount as well
as an increase in stock-based
compensation expense offset by a
decrease in travel and
entertainment expenses.
Research and 449.9 28.9 7 % 421.0 Increase primarily due to
development increased employee-related costs
driven by higher headcount as well
as an increase in stock-based
compensation expense offset by a
decrease in travel and
entertainment expenses.
General and 198.0 (2.5 ) (1 )% 200.5 Decrease primarily due to lower
administrative stock-based compensation expense
and a decrease in travel and
entertainment expenses offset by
increased employee-related costs
driven by higher headcount.
Amortization of 19.2 (0.3 ) (2 )% 19.5 Decrease as previously acquired
purchased intangibles purchased intangibles continue to
become fully amortized.
Restructuring and - (0.4 ) * 0.4
other exit costs, net
Total operating
____________________
* Percentage is not meaningful.
The following table highlights our expectation for the absolute dollar change and percent of revenue change between the third quarter of fiscal 2021, as compared to the third quarter of fiscal 2020:
Absolute dollar Percent of net
impact revenue impact
Cost of revenue Increase Flat
Marketing and sales Increase Flat
Research and development Increase Flat
General and administrative Decrease Decrease
Amortization of purchased intangibles Decrease Flat
Interest and Other Expense, Net
The following table sets forth the components of interest and other expense,
net:
Three Months Ended July 31, Six Months Ended July 31,
(in millions) 2020 2019 2020 2019
Interest and investment expense, net
4.7 2.3 2.9 3.0
(Loss) gain on non-marketable equity
securities, net (14.3 ) 2.2 (30.9 ) (2.8 )
Other income 0.5 3.6 1.1 4.7
Interest and other expense, net
Interest and other expense, net, increased by$9.8 million and$33.7 million during the three and six months endedJuly 31, 2020 , respectively, as compared to the same periods in the prior fiscal year. The increase in the three months endedJuly 31, 2020 , as compared to the same period in the prior fiscal year was primarily due to an increase in negative adjustments, including impairments, on our non-marketable equity securities offset by an increase in mark-to-market gains on marketable securities and a decrease in interest expense as result of the payment in full of our term loan. The increase in the six months endedJuly 31, 2020 , as compared to the same period in the prior fiscal year was primarily due to an increase in negative adjustments, including impairments, on our non-marketable equity securities and a decrease in mark-to-market gains on marketable securities offset by a decrease in interest expense as result of the payment in full of our term loan.
Interest expense and investment income fluctuates based on average cash, marketable securities, debt balances, average maturities and interest rates.
39
--------------------------------------------------------------------------------
Gains and losses on foreign currency are primarily due to the impact of
re-measuring foreign currency transactions and net monetary assets into the
functional currency of the corresponding entity. The amount of the gain or loss
on foreign currency is driven by the volume of foreign currency transactions and
the foreign currency exchange rates for the period.
Provision for Income Taxes
We account for income taxes and the related accounts under the liability method. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted rates expected to be in effect during the year in which the basis differences reverse. We had an income tax expense of$30.8 million , relative to pre-tax income of$129.0 million for the three months endedJuly 31, 2020 , and an income tax expense of$26.3 million , relative to pre-tax income of$66.5 million for the three months endedJuly 31, 2019 . We had an income tax expense of$54.8 million , relative to pre-tax income of$219.5 million for the six months endedJuly 31, 2020 , and an income tax expense of$59.1 million , relative to pre-tax income of$75.1 million for the six months endedJuly 31, 2019 . Income tax expense for the three and six months endedJuly 31, 2020 , increased and decreased, respectively, as a result of the jurisdictional mix of year-to-date earnings relative to the worldwide annual effective tax rate. We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. We anticipate a significant increase inU.S. taxable income in fiscal 2021 due to current year increase in global earnings. We currently forecast the utilization ofU.S. deferred tax assets to offsetU.S. taxable income resulting from the inclusion of foreign earnings. While increasedU.S. taxable income is considered positive evidence, we believe that theU.S. jurisdiction's cumulative losses should be given more weight and have maintained the valuation allowance on ourU.S. deferred tax assets. As we continually strive to optimize our overall business model, tax planning strategies may become feasible and prudent allowing us to realize many of the deferred tax assets that are offset by a valuation allowance; therefore, we will continue to evaluate the ability to utilize the deferred tax assets each quarter, both in theU.S. and in foreign jurisdictions, based on all available evidence, both positive and negative. As ofJuly 31, 2020 , we had$222.4 million of gross unrecognized tax benefits, of which$204.7 million would reduce our valuation allowance, if recognized. The remaining$17.7 million would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will change in the next twelve months; however, an estimate of the range of the possible change cannot be made at this time. We anticipate that theU.S. Department of Treasury will continue to interpret or issue guidance on how provisions of theU.S. Tax Cuts and Jobs Act ("Tax Act") will be applied or otherwise administered. As future guidance is issued, we may make adjustments to the amounts that we have previously recorded that may materially impact our financial statements. Our future effective annual tax rate may be materially impacted by the amount of benefits and charges from tax amounts associated with our foreign earnings that are taxed at rates different from the federal statutory rate, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, business combinations, closure of statute of limitations or settlement of tax audits, and changes in tax laws including impacts of the Tax Act. A significant amount of our earnings is generated by ourEurope andAsia Pacific subsidiaries. Our future effective tax rates may be adversely affected to the extent earnings are lower than anticipated in countries where we have lower statutory tax rates. OnMarch 27, 2020 , the President ofthe United States signed into law the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"). The CARES Act, among other things, included certain income tax provisions for individuals and corporations; however, these benefits do not impact the Company's current tax provision due to theU.S. full valuation allowance. In addition to the CARES Act,California enacted AssemblyBill No . 85, suspending utilization of net operating losses and limiting R&D credits utilization againstCalifornia taxable income in excess of$5.0 million for the succeeding 3 years. The enactment of this state tax legislation will result in an increase inCalifornia taxes for Autodesk. In response to the impact of COVID-19, certain governmental agencies have provided employer wage and retirement subsidies or employment tax deferrals. Where Autodesk has availed itself of such subsidies or deferrals, we have accounted for the tax impact in our income tax provision. As of the second quarter of fiscal 2021, the Company continues to be able to reliably estimate forecasted earnings and tax by jurisdiction for the year. 40 --------------------------------------------------------------------------------
Other Financial Information
In addition to our results determined under GAAP discussed above, we believe the following non-GAAP measures are useful to investors in evaluating our operating performance. For the three and six months endedJuly 31, 2020 and 2019, our gross profit, gross margin, income from operations, operating margin, net income and diluted net income per share on a GAAP and non-GAAP basis were as follows (in millions except for gross margin, operating margin, and per share data): Three Months Ended July 31, Six Months Ended July 31, 2020 2019 2020 2019 (Unaudited) Gross profit$ 832.2 $ 717.3 $ 1,636.0 $ 1,370.1 Non-GAAP gross profit$ 845.5 $ 730.7 $ 1,662.0 $ 1,397.6 Gross margin 91 % 90 % 91 % 89 % Non-GAAP gross margin 93 % 92 % 92 % 91 % Income from operations$ 146.1 $ 73.8 $ 276.7 $ 98.6 Non-GAAP income from operations$ 262.4 $ 186.5 $ 510.2 $ 318.4 Operating margin 16 % 9 % 15 % 6 % Non-GAAP operating margin 29 % 23 % 28 % 21 % Net income$ 98.2 $ 40.2 $ 164.7 $ 16.0 Non-GAAP net income$ 218.0 $ 145.1 $ 406.4 $ 244.1 GAAP diluted net income per share$ 0.44 $ 0.18 $ 0.74 $ 0.07 Non-GAAP diluted net income per share$ 0.98 $ 0.65 $ 1.83 $ 1.10 For our internal budgeting and resource allocation process and as a means to evaluate period-to-period comparisons, we use non-GAAP measures to supplement our condensed consolidated financial statements presented on a GAAP basis. These non-GAAP measures do not include certain items that may have a material impact upon our reported financial results. We also use non-GAAP measures in making operating decisions because we believe those measures provide meaningful supplemental information regarding our earning potential and performance for management by excluding certain expenses and charges that may not be indicative of our core business operating results. For the reasons set forth below, we believe these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of our business. This allows investors and others to better understand and evaluate our operating results and future prospects in the same manner as management, to compare financial results across accounting periods and to those of peer companies and to better understand the long-term performance of our core business. We also use some of these measures for purposes of determining company-wide incentive compensation. There are limitations in using non-GAAP financial measures because non-GAAP financial measures are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. The non-GAAP financial measures included above are limited in value because they exclude certain items that may have a material impact upon our reported financial results. In addition, they are subject to inherent limitations as they reflect the exercise of judgments by management about which charges are excluded from the non-GAAP financial measures. We compensate for these limitations by analyzing current and future results on a GAAP basis as well as a non-GAAP basis and also by providing GAAP measures in our public disclosures. The presentation of non-GAAP financial information is meant to be considered in addition to, not as a substitute for or in isolation from, the directly comparable financial measures prepared in accordance with GAAP. We urge investors to review the reconciliation of our non-GAAP financial measures to the comparable GAAP financial measures included below, and not to rely on any single financial measure to evaluate our business. 41 --------------------------------------------------------------------------------
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
(In millions except for gross margin, operating margin, and per share data):
Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(Unaudited)
Gross profit $ 832.2 $ 717.3 $ 1,636.0 $ 1,370.1
Stock-based compensation expense 5.8 4.8 10.9 9.7
Amortization of developed technologies 7.4 8.6 14.8 17.8
Acquisition-related costs 0.1 - 0.3 -
Non-GAAP gross profit $ 845.5 $ 730.7 $ 1,662.0 $ 1,397.6
Gross margin 91 % 90 % 91 % 89 %
Stock-based compensation expense 1 % 1 % 1 % 1 %
Amortization of developed technologies 1 % 1 % 1 % 1 %
Non-GAAP gross margin (1) 93 % 92 % 92 % 91 %
Income from operations $ 146.1 $ 73.8 $ 276.7 $ 98.6
Stock-based compensation expense 95.9 88.2 194.1 163.4
Amortization of developed technologies 7.4 8.6 14.8 17.8
Amortization of purchased intangibles 9.5 9.7 19.2 19.5
Acquisition-related costs 3.5 6.0 5.4 18.7
Restructuring and other exit costs, net - 0.2 - 0.4
Non-GAAP income from operations $ 262.4 $ 186.5 $ 510.2 $ 318.4
Operating margin 16 % 9 % 15 % 6 %
Stock-based compensation expense 11 % 11 % 11 % 11 %
Amortization of developed technologies 1 % 1 % 1 % 1 %
Amortization of purchased intangibles 1 % 1 % 1 % 1 %
Acquisition-related costs - % 1 % - % 1 %
Non-GAAP operating margin (1) 29 % 23 % 28 % 21 %
Net income $ 98.2 $ 40.2 $ 164.7 $ 16.0
Stock-based compensation expense 95.9 88.2 194.1 163.4
Amortization of developed technologies 7.4 8.6 14.8 17.8
Amortization of purchased intangibles 9.5 9.7 19.2 19.5
Acquisition-related costs 3.5 6.0 5.4 18.7
Restructuring and other exit costs, net - 0.2 - 0.4
Loss (gain) on strategic investments and
dispositions, net 14.3 (2.2 ) 30.9 2.8
Discrete tax benefit items 0.6 3.3 1.1 1.0
Income tax effect of non-GAAP adjustments (11.4 ) (8.9 ) (23.8 ) 4.5
Non-GAAP net income $ 218.0 $ 145.1 $ 406.4 $ 244.1
42--------------------------------------------------------------------------------
Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(Unaudited)
Diluted net income per share$ 0.44 $ 0.18 $ 0.74 $ 0.07 Stock-based compensation expense 0.43 0.40 0.87 0.74 Amortization of developed technologies 0.03 0.04 0.07 0.08 Amortization of purchased intangibles 0.04 0.05 0.09 0.09 Acquisition-related costs 0.03 0.02 0.03 0.09 Loss (gain) on strategic investments and dispositions, net 0.06 (0.01 ) 0.14 0.01 Discrete tax provision items - 0.01 - - Income tax effect of non-GAAP adjustments (0.05 ) (0.04 ) (0.11 ) 0.02
Non-GAAP diluted net income per share
____________________
(1) Totals may not sum due to rounding.
Our non-GAAP financial measures may exclude the following, as applicable:
Stock-based compensation expenses. We exclude stock-based compensation expenses from non-GAAP measures primarily because they are non-cash expenses and management finds it useful to exclude certain non-cash charges to assess the appropriate level of various operating expenses to assist in budgeting, planning and forecasting future periods. Moreover, because of varying available valuation methodologies, subjective assumptions and the variety of award types that companies can use under FASB ASC Topic 718, we believe excluding stock-based compensation expenses allows investors to make meaningful comparisons between our recurring core business operating results and those of other companies. Amortization of developed technologies and purchased intangibles. We incur amortization of acquisition-related developed technology and purchased intangibles in connection with acquisitions of certain businesses and technologies. Amortization of developed technologies and purchased intangibles is inconsistent in amount and frequency and is significantly affected by the timing and size of our acquisitions. Management finds it useful to exclude these variable charges from our cost of revenues to assist in budgeting, planning and forecasting future periods. Investors should note that the use of intangible assets contributed to our revenues earned during the periods presented and will contribute to our future period revenues as well. Amortization of developed technologies and purchased intangible assets will recur in future periods. CEO transition costs. We exclude amounts paid to the Company's former CEOs upon departure under the terms of their transition agreements, including severance payments, acceleration of restricted stock units, and continued vesting of performance stock units, and legal fees incurred with the transition. Also excluded from our non-GAAP measures are recruiting costs related to the search for a new CEO. These costs represent non-recurring expenses and are not indicative of our ongoing operating expenses. We further believe that excluding the CEO transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.Goodwill impairment. This is a non-cash charge to write-down goodwill to fair value when there was an indication that the asset was impaired. As explained above, management finds it useful to exclude certain non-cash charges to assess the appropriate level of various operating expenses to assist in budgeting, planning and forecasting future periods. Restructuring and other exit costs, net. These expenses are associated with realigning our business strategies based on current economic conditions. In connection with these restructuring actions or other exit actions, we recognize costs related to termination benefits for former employees whose positions were eliminated, the closure of facilities and cancellation of certain contracts. We exclude these charges because these expenses are not reflective of ongoing business and operating results. We believe it is useful for investors to understand the effects of these items on our total operating expenses. Acquisition-related costs. We exclude certain acquisition-related costs, including due diligence costs, professional fees in connection with an acquisition, certain financing costs, and certain integration-related expenses. These expenses are unpredictable, and dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired business, or our Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. We believe excluding acquisition-related costs facilitates the comparison of our financial results to the Company's historical operating results and to other companies in our industry. 43 -------------------------------------------------------------------------------- Loss (gain) on strategic investments and dispositions. We exclude gains and losses related to our strategic investments and dispositions from our non-GAAP measures primarily because management finds it useful to exclude these variable gains and losses on these investments and dispositions in assessing our financial results. Included, but not limited to, in these amounts are non-cash unrealized gains and losses on the derivative components, dividends received, realized gains and losses on the sales or losses on the impairment of these investments and dispositions. We believe excluding these items is useful to investors because these excluded items do not correlate to the underlying performance of our business and these losses or gains were incurred in connection with strategic investments and dispositions which do not occur regularly. Discrete tax provision items. We exclude the GAAP tax provision, including discrete items, from the non-GAAP measure of net (loss) income, and include a non-GAAP tax provision based upon the projected annual non-GAAP effective tax rate. Discrete tax items include income tax expenses or benefits that do not relate to ordinary income from continuing operations in the current fiscal year, unusual or infrequently occurring items, or the tax impact of certain stock-based compensation. Examples of discrete tax items include, but are not limited to, certain changes in judgment and changes in estimates of tax matters related to prior fiscal years, certain costs related to business combinations, certain changes in the realizability of deferred tax assets or changes in tax law. Management believes this approach assists investors in understanding the tax provision and the effective tax rate related to ongoing operations. We believe the exclusion of these discrete tax items provides investors with useful supplemental information about our operational performance. Establishment (release) of a valuation allowance on certain net deferred tax assets. This is a non-cash charge to record or to release a valuation allowance on certain deferred tax assets. As explained above, management finds it useful to exclude certain non-cash charges to assess the appropriate level of various cash expenses to assist in budgeting, planning and forecasting future periods. Income tax effects on the difference between GAAP and non-GAAP costs and expenses. The income tax effects that are excluded from the non-GAAP measures relate to the tax impact on the difference between GAAP and non-GAAP expenses, primarily due to stock-based compensation, amortization of purchased intangibles and restructuring charges and other exit costs (benefits) for GAAP and non-GAAP measures.
Liquidity and Capital Resources
Our primary source of cash is from the sale of our software and related services. Our primary use of cash is payment of our operating costs, which consist primarily of employee-related expenses, such as compensation and benefits, as well as general operating expenses for marketing, facilities and overhead costs. Long-term cash requirements for items other than normal operating expenses are anticipated for the following: the acquisition of businesses, software products, or technologies complementary to our business; repayment of debt; common stock repurchases; and capital expenditures, including the purchase and implementation of internal-use software applications. AtJuly 31, 2020 , our principal sources of liquidity were cash, cash equivalents and marketable securities totaling$1.52 billion and net accounts receivable of$490.1 million . OnDecember 17, 2018 , Autodesk entered into a Credit Agreement (the "Credit Agreement") for an unsecured revolving loan facility in the aggregate principal amount of$650.0 million , with an option to request increases in the amount of the credit facility by up to an additional$350.0 million . The maturity date on the credit facility isDecember 2023 . AtJuly 31, 2020 , Autodesk had no outstanding borrowings on this line of credit. As ofSeptember 2, 2020 , we have no amounts outstanding under the credit facility. See Part I, Item 1, Note 13, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion on our covenant requirements. If we are unable to remain in compliance with the covenants under the Credit Agreement, we will not be able to draw on our credit facility. As ofJuly 31, 2020 , we have$1.65 billion aggregate principal amount of notes outstanding. See Part I, Item 1, Note 13, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion. Our cash and cash equivalents are held by diversified financial institutions globally. Our primary commercial banking relationship is with Citigroup and its global affiliates. In addition,Citibank N.A ., an affiliate of Citigroup, is one of the lead lenders and agent in the syndicate of our$650.0 million line of credit. Our cash, cash equivalents, and marketable securities balances are concentrated in a few locations around the world, with substantial amounts held outside ofthe United States . As ofJuly 31, 2020 , approximately 58% of our total cash or cash equivalents and marketable securities are located in foreign jurisdictions and that percentage will fluctuate subject to business needs. There are several factors that can impact our ability to utilize foreign cash balances, such as foreign exchange 44 -------------------------------------------------------------------------------- restrictions, foreign regulatory restrictions or adverse tax costs. The Tax Act included a mandatory one-time tax on accumulated earnings of foreign subsidiaries and generally eliminatedU.S. taxes on foreign subsidiary distributions in future periods. As a result, earnings in foreign jurisdictions are generally available for distribution to theU.S. with little to no incrementalU.S. taxes. We regularly review our capital structure and consider a variety of potential financing alternatives and planning strategies to ensure we have the proper liquidity available in the locations in which it is needed. We expect to meet our liquidity needs through or in combination of current cash balances, ongoing cash flows, and external borrowings. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to the risks detailed in Part II, Item 1A titled "Risk Factors." Additionally, as a result of the COVID-19 pandemic, we extended contract payment terms for up to 60 days for all customers and partners for new orders and renewals placed directly with Autodesk. This payment terms extension program began onMarch 16, 2020 and ended onAugust 7, 2020 . We currently expect to have sufficient liquidity to manage through the COVID-19 pandemic but we will continue to monitor the impact of potential disruptions beyond our control. Based on our current business plan and revenue prospects, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations and our available credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next 12 months. Our revenue, earnings, cash flows, receivables, and payables are subject to fluctuations due to changes in foreign currency exchange rates, for which we have put in place foreign currency contracts as part of our risk management strategy. See Part I, Item 3, "Quantitative and Qualitative Disclosures about Market Risk" for further discussion. Six Months Ended July 31, (in millions) 2020 2019
Net cash provided by operating activities
(111.8 ) (32.5 )
Net cash used in financing activities (642.6 ) (366.1 )
Net cash provided by operating activities of $418.5 million for the six months
ended July 31, 2020 , was primarily impacted by our net income adjusted for
non-cash expenses, including stock-based compensation expense, depreciation,
amortization and accretion expense, and (loss) gain on strategic investments, a
source of working capital primarily from a decrease in accounts receivable
partially offset by a use of working capital from a decrease in deferred revenue
and other liabilities and an increase in prepaid and other assets from
January 31, 2020 , to July 31, 2020 . Net cash provided by operating activities of
$440.5 million for the six months ended July 31, 2019 , was primarily impacted by
our net income adjusted for non-cash expenses, including stock-based
compensation expense, depreciation, amortization and accretion expense, a source
of working capital from an increase in deferred revenue, and a decrease in
accounts receivable from January 31, 2019 , to July 31, 2019 , partially offset by
a use of working capital from a decrease in accounts payable and other
liabilities.
Net cash used in investing activities was $111.8 million for the six months
ended July 31, 2020 , primarily due to purchases of non-marketable equity
securities, capital expenditures and purchases of marketable securities. Net
cash used in investing activities was $32.5 million for the six months ended
July 31, 2019 , and was primarily due to capital expenditures and purchases of
marketable securities partially offset by the sale and maturities of marketable
securities.
At July 31, 2020 , our short-term investment portfolio had an estimated fair
value of $79.7 million and a cost basis of $69.4 million . The portfolio fair
value primarily consists of short-term trading securities that were invested in
a defined set of mutual funds as directed by the participants in our Deferred
Compensation Plan (see Note 11, "Deferred Compensation," in the Notes to the
Condensed Consolidated Financial Statements for further discussion).
Net cash used in financing activities was $642.6 million and $366.1 million for
the six months ended July 31, 2020 and 2019, respectively, primary due to the
repayment of debt and the repurchases of common stock. These cash outflows were
offset in part by cash proceeds from the issuance of common stock.
45
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Issuer Purchases of
Autodesk's stock repurchase program provides Autodesk with the ability to offset the dilution from the issuance of stock under our employee stock plans and reduce shares outstanding over time, and has the effect of returning excess cash generated from our business to stockholders. Under the share repurchase program, Autodesk may repurchase shares from time to time in open market transactions, privately-negotiated transactions, accelerated share repurchase programs, tender offers, or by other means. The share repurchase program does not have an expiration date and the pace and timing of repurchases will depend on factors such as cash generation from operations, available surplus, the volume of employee stock plan activity, remaining shares available in the authorized pool, cash requirements for acquisitions, economic and market conditions, stock price and legal and regulatory requirements.
The following table provides information about the repurchase of common stock in
open-market transactions during the three months ended
Total Number of Maximum Number of
Shares Purchased Shares that May
as Part of Yet Be
Total Number of Publicly Purchased Under
Shares Average Price Announced Plans the Plans or
(Shares in thousands) Purchased Paid per Share or Programs (1) Programs (2)
May 1 - May 31 10.0 $ 174.42 10.0 13,479.0
June 1 - June 30 - - - 13,479.0
July 1 - July 31 26.0 232.70 26.0 13,453.0
Total 36.0 $ 216.84 36.0
________________(1) This represents shares purchased in open-market transactions under the stock
repurchase plan approved by the Board of Directors.
(2) These amounts correspond to the plan approved by the Board of Directors in
plan does not have a fixed expiration date. See Note 16, "Stockholders'
Equity (Deficit)," in the Notes to the Condensed Consolidated Financial
Statements for further discussion.
Off-Balance Sheet Arrangements
As of
Glossary of Terms
Billings: Total revenue plus the net change in deferred revenue from the beginning to the end of the period.
Cloud Service Offerings: Represents individual term-based offerings deployed through web browser technologies or in a hybrid software and cloud configuration. Cloud service offerings that are bundled with other product offerings are not captured as a separate cloud service offering.
Constant Currency (CC) Growth Rates: We attempt to represent the changes in the underlying business operations by eliminating fluctuations caused by changes in foreign currency exchange rates as well as eliminating hedge gains or losses recorded within the current and comparative periods. We calculate constant currency growth rates by (i) applying the applicable prior period exchange rates to current period results and (ii) excluding any gains or losses from foreign currency hedge contracts that are reported in the current and comparative periods. Enterprise Business Agreements (EBAs): Represents programs providing enterprise customers with token-based access to a broad pool of Autodesk products over a defined contract term.
Free Cash Flow: Cash flow from operating activities minus capital expenditures.
Industry Collections: Autodesk Industry Collections are a combination of
products and services that target a specific user objective and support a set of
workflows for that objective. Our Industry Collections consist of: Autodesk
Architecture, Engineering and Construction Collection, Autodesk Product Design &
Manufacturing Collection, and Autodesk Media and Entertainment Collection.
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Maintenance Plan: Our maintenance plans provide our customers with a cost
effective and predictable budgetary option to obtain the productivity benefits
of our new releases and enhancements when and if released during the term of
their contracts. Under our maintenance plans, customers are eligible to receive
unspecified upgrades when and if available, and technical support. We recognize
maintenance revenue over the term of the agreements, generally one year.
Net Revenue Retention Rate (NR3): Measures the year-over-year change in
subscription and maintenance revenue for the population of customers that
existed one year ago ("base customers"). Net revenue retention rate is
calculated by dividing the current quarter subscription and maintenance revenue
related to base customers by the total corresponding quarter subscription and
maintenance revenue from one year ago. Subscription and maintenance revenue is
based on USD reported revenue, and fluctuations caused by changes in foreign
currency exchange rates and hedge gains or losses have not been eliminated.
Subscription and maintenance revenue related to acquired companies, one year
after acquisition, has been captured as existing customers until such data
conforms to the calculation methodology. This may cause variability in the
comparison. Beginning with the first quarter of fiscal 2021, Autodesk modified
its definition of NR3 to the definition above. The effect of this change is not
material for the periods presented.
Other Revenue: Consists of revenue from consulting, training and other services,
and is recognized over time as the services are performed. Other Revenue also
includes software license revenue from the sale of products that do not
incorporate substantial cloud services and is recognized up front.
Product Subscription: Provides customers the most flexible, cost-effective way
to access and manage 3D design, engineering, and entertainment software tools.
Our product subscriptions currently represent a hybrid of desktop and SaaS
functionality, which provides a device-independent, collaborative design
workflow for designers and their stakeholders.
Recurring Revenue: Consists of the revenue for the period from our traditional
maintenance plans and revenue from our subscription plan offerings. It excludes
subscription revenue related to consumer product offerings, select Creative
Finishing product offerings, education offerings, and third-party products.
Recurring revenue acquired with the acquisition of a business is captured when
total subscriptions are captured in our systems and may cause variability in the
comparison of this calculation.
Remaining Performance Obligations (RPO): The sum of total short-term, long-term,
and unbilled deferred revenue. Current remaining performance obligations is the
amount of revenue we expect to recognize in the next twelve months.
Spend: The sum of cost of revenue and operating expenses.
Subscription Plan: Comprises our term-based product subscriptions, cloud service offerings, and EBAs. Subscriptions represent a combined hybrid offering of desktop software and cloud functionality which provides a device-independent, collaborative design workflow for designers and their stakeholders. With subscription, customers can use our software anytime, anywhere, and get access to the latest updates to previous versions.
Subscription Revenue: Includes subscription fees from product subscriptions, cloud service offerings, and EBAs.
Unbilled Deferred Revenue: Unbilled deferred revenue represents contractually
stated or committed orders under early renewal and multi-year billing plans for
subscription, services and maintenance for which the associated deferred revenue
has not been recognized. Under FASB Accounting Standards Codification ("ASC")
Topic 606, unbilled deferred revenue is not included as a receivable or deferred
revenue on our Condensed Consolidated Balance Sheet.
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