Autodesk, Inc 10-Q for FY2023 Q1
Autodesk, Inc. (ADSK)
10-Q
2022-06-02
For: 2022-04-30
View Original
Added on
April 10, 2026
About this 10-Q
Autodesk, Inc filed this 10-Q on June 2, 2022, covering the quarter ended April 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended April 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.17B
- up 18.3% from $989M a year earlier
- Net income
- $146M
- down 6.4% from net income of $156M a year earlier
- Diluted EPS
- $0.67
- down 4.3% from $0.70 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended April 30, 2022
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 0-14338
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(415 507-5000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ‘emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 27, 2022, registrant had outstanding 217,272,205 shares of common stock.
AUTODESK, INC. FORM 10-Q
TABLE OF CONTENTS
| Page No. | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 5. | ||||||||
| Item 6. | ||||||||
PART I. FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||
| Subscription | $ | $ | |||||||||||||||||||||
| Maintenance | |||||||||||||||||||||||
Total subscription and maintenance revenue | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total net revenue | |||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Cost of subscription and maintenance revenue | |||||||||||||||||||||||
| Cost of other revenue | |||||||||||||||||||||||
| Amortization of developed technologies | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Marketing and sales | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Amortization of purchased intangibles | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Income from operations | |||||||||||||||||||||||
| Interest and other expense, net | ( | ( | |||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| (Provision) benefit for income taxes | ( | ||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Basic net income per share | $ | $ | |||||||||||||||||||||
| Diluted net income per share | $ | $ | |||||||||||||||||||||
| Weighted average shares used in computing basic net income per share | |||||||||||||||||||||||
| Weighted average shares used in computing diluted net income per share | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Other comprehensive (loss) income, net of reclassifications: | |||||||||||||||||||||||
Net gain on derivative instruments (net of tax effect of $( | |||||||||||||||||||||||
Change in net unrealized (loss) gain on available-for-sale debt securities (net of tax effect of | ( | ||||||||||||||||||||||
Change in defined benefit pension items (net of tax effect of | ( | ||||||||||||||||||||||
Net change in cumulative foreign currency translation (loss) gain (net of tax effect of | ( | ||||||||||||||||||||||
| Total other comprehensive (loss) income | ( | ||||||||||||||||||||||
| Total comprehensive income | $ | $ | |||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
| April 30, 2022 | January 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Accounts receivable, net | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Long-term marketable securities | |||||||||||
| Computer equipment, software, furniture and leasehold improvements, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Deferred income taxes, net | |||||||||||
| Long-term other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued compensation | |||||||||||
| Accrued income taxes | |||||||||||
| Deferred revenue | |||||||||||
| Operating lease liabilities | |||||||||||
| Current portion of long-term notes payable, net | |||||||||||
| Other accrued liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term deferred revenue | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Long-term income taxes payable | |||||||||||
| Long-term deferred income taxes | |||||||||||
| Long-term notes payable, net | |||||||||||
| Long-term other liabilities | |||||||||||
| Stockholders’ equity: | |||||||||||
| Common stock and additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
| Three Months Ended April 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Operating activities: | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation, amortization and accretion | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income taxes | ( | ||||||||||
| Lease-related asset impairments | |||||||||||
| Other | |||||||||||
| Changes in operating assets and liabilities, net of business combinations: | |||||||||||
| Accounts receivable | |||||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable and other liabilities | ( | ( | |||||||||
| Deferred revenue | ( | ( | |||||||||
| Accrued income taxes | |||||||||||
Net cash provided by operating activities | |||||||||||
| Investing activities: | |||||||||||
| Purchases of marketable securities | ( | ||||||||||
| Sales and maturities of marketable securities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Purchases of developed technologies | ( | ( | |||||||||
| Business combinations, net of cash acquired | ( | ( | |||||||||
| Other investing activities | ( | ||||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| Financing activities: | |||||||||||
| Proceeds from issuance of common stock, net of issuance costs | |||||||||||
| Taxes paid related to net share settlement of equity awards | ( | ( | |||||||||
| Repurchases of common stock | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | |||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental cash flow disclosure: | |||||||||||
| Non-cash financing activities: | |||||||||||
| Fair value of common stock issued related to business combination | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
7
AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In millions, except share and per share data, or as otherwise noted)
1. Basis of Presentation
Change in presentation
During the quarter ended April 30, 2022, the Company changed its presentation of certain subscription plan offerings in our Condensed Consolidated Statements of Operations. Revenue from subscription plan offerings in which the customer does not utilize the cloud functionality or that do not incorporate substantial cloud functionality, previously recorded in “Subscription” have been reclassified to “Other” and “Maintenance,” as applicable. Accordingly, prior period amounts have been reclassified to conform to the current period presentation, in all material respects. These reclassifications did not impact total net revenue.
| As Reported Three Months Ended April 30, 2021 | Effect of Change in Presentation | As Adjusted Three Months Ended April 30, 2021 | |||||||||||||||
| Net revenue: | |||||||||||||||||
| Subscription | $ | $ | ( | $ | |||||||||||||
| Other | |||||||||||||||||
| Total net revenue | |||||||||||||||||
In the current fiscal year, the Company changed its rounding presentation to the nearest whole number in millions of reported amounts, except per share data or as otherwise noted. The current year rounding presentation has been applied to all prior year amounts presented and, in certain circumstances, this change may adjust previously reported balances.
2. Recently Issued Accounting Standards
With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or adopted by the Company during the three months ended April 30, 2022, that are applicable to the Company.
Accounting Standards Adopted
In March 2020, FASB issued Accounting Standards Update (“ASU”) No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU No. 2020-04”), which provides optional
8
3. Revenue Recognition
9
Information regarding the components of Autodesk's net revenue from contracts with customers by product family, geographic location, sales channel, and product type is as follows:
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net revenue by product family: | |||||||||||||||||||||||
| Architecture, Engineering and Construction | $ | $ | |||||||||||||||||||||
| AutoCAD and AutoCAD LT | |||||||||||||||||||||||
| Manufacturing | |||||||||||||||||||||||
| Media and Entertainment | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total net revenue | $ | $ | |||||||||||||||||||||
| Net revenue by geographic area: | |||||||||||||||||||||||
| Americas | |||||||||||||||||||||||
| U.S. | $ | $ | |||||||||||||||||||||
| Other Americas | |||||||||||||||||||||||
| Total Americas | |||||||||||||||||||||||
| Europe, Middle East and Africa | |||||||||||||||||||||||
| Asia Pacific | |||||||||||||||||||||||
| Total net revenue | $ | $ | |||||||||||||||||||||
| Net revenue by sales channel: | |||||||||||||||||||||||
| Indirect | $ | $ | |||||||||||||||||||||
| Direct | |||||||||||||||||||||||
| Total net revenue | $ | $ | |||||||||||||||||||||
| Net revenue by product type: | |||||||||||||||||||||||
| Design | $ | $ | |||||||||||||||||||||
| Make | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total net revenue | $ | $ | |||||||||||||||||||||
Payments for product subscriptions, industry collections, cloud subscriptions, and maintenance subscriptions are typically due up front with payment terms of 30 to 45 days. Payments on EBAs are typically due in annual installments over the contract term, with payment terms of 30 to 60 days. Autodesk does not have any material variable consideration, such as obligations for returns, refunds, warranties, or amounts due to customers for which significant estimation or judgment is required as of the reporting date.
Remaining performance obligations consist of total short-term, long-term, and unbilled deferred revenue. As of April 30, 2022, Autodesk had remaining performance obligations of $4.68 billion, which represents the total contract price allocated to remaining performance obligations, which are generally recognized over the next three years . We expect to recognize $3.14 billion or 67 % of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $1.54 billion or 33 % of our remaining performance obligations as revenue thereafter.
The amount of remaining performance obligations may be impacted by the specific timing, duration, and size of customer subscription and support agreements, the specific timing of customer renewals, and foreign currency fluctuations.
Contract Balances
We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to performance completed in advance of scheduled billings. Contract assets were not material as of April 30, 2022. Deferred
10
revenue relates to billings in advance of performance under the contract. The primary changes in our contract assets and deferred revenues are due to our performance under the contracts and billings.
Revenue recognized during the three months ended April 30, 2022 and 2021, that was included in the deferred revenue balances at January 31, 2022 and 2021, was $987 million and $838 million, respectively. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers.
4. Concentration of Credit Risk
Autodesk places its cash, cash equivalents, and marketable securities in highly liquid instruments with, and in the custody of, multiple diversified financial institutions globally with high credit ratings, and limits the amounts invested with any one institution, type of security, and issuer. Autodesk’s primary commercial banking relationship is with Citigroup Inc. and its global affiliates. Citibank, N.A., an affiliate of Citigroup, is one of the lead lenders and an agent in the syndicate of Autodesk’s $1.5 billion revolving credit facility. See Note 14, “Borrowing Arrangements,” in the Notes to Condensed Consolidated Financial Statements for further discussion.
Total sales to the Company's largest distributor Tech Data Corporation and its global affiliates (“Tech Data”) accounted for 36 28 % and 24 % of trade accounts receivable at April 30, 2022, and January 31, 2022, respectively. Ingram Micro Inc. (“Ingram Micro”) accounted for 9 % and 10 % of Autodesk's total net revenue during the three months ended April 30, 2022 and 2021, respectively. No other customer accounted for more than 10% of Autodesk's total net revenue or trade accounts receivable for each of the respective periods.
11
5. Financial Instruments
The following tables summarize the Company's financial instruments' by significant investment category as of April 30, 2022, and January 31, 2022:
| April 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||||||||||||||||||||||||
| Cash equivalents (1): | ||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||||||||||||||
| U.S. government securities | ||||||||||||||||||||||||||||||||||||||
| Agency discount notes | ||||||||||||||||||||||||||||||||||||||
| Other (2) | ||||||||||||||||||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||||||||||||||
| Short-term | ||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||||||||||||
| Asset backed securities | ||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||||||||||||||
| Other (3) | ||||||||||||||||||||||||||||||||||||||
| Long-term | ||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||||||||||||||
| Mutual funds (4) (5) | ( | |||||||||||||||||||||||||||||||||||||
| Convertible debt securities (5) | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
___________________
(1)Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities.
(2)Consists of custody cash deposits, sovereign bonds, asset backed securities, and certificates of deposit.
(3)Consists of common stock and municipal bonds.
(4)See Note 12, “Deferred Compensation” for more information.
(5)Included in “Prepaid expenses and other current assets” or “Long-term other assets” in the accompanying Condensed Consolidated Balance Sheets.
12
| January 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||||||||
| Cash equivalents (1): | |||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||||||||||||||||||||
| U.S government securities | |||||||||||||||||||||||||||||||||||||||||
| Custody cash deposit | |||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||||||||||||||||||||
| Other (2) | |||||||||||||||||||||||||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||||||||||||||||||||
| Short-term | |||||||||||||||||||||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||||||||||||||||||||
| Asset backed securities | |||||||||||||||||||||||||||||||||||||||||
| Certificate of deposit | |||||||||||||||||||||||||||||||||||||||||
| U.S. government securities | |||||||||||||||||||||||||||||||||||||||||
| Municipal bonds | |||||||||||||||||||||||||||||||||||||||||
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| Other (3) | |||||||||||||||||||||||||||||||||||||||||
| Long-term | |||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||||||||||||||||||||
| Other (4) | |||||||||||||||||||||||||||||||||||||||||
| Mutual funds (5) (6) | ( | ||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
____________________
(1)Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities.
(2)Consists of sovereign bonds and municipal bonds.
(3)Consists of sovereign bonds and supranational bonds.
(4)Consists of asset backed securities.
(5)See Note 12, “Deferred Compensation” for more information.
(6)Included in “Prepaid expenses and other current assets,” or “Long-term other assets,” in the accompanying Condensed Consolidated Balance Sheets.
The following table summarizes the fair values of investments classified as marketable debt securities by contractual maturity date as of April 30, 2022:
| Fair Value | |||||
| Due within 1 year | $ | ||||
| Due in 1 year through 5 years | |||||
Total | $ | ||||
As of both April 30, 2022, and January 31, 2022, Autodesk had no material unrealized losses, individually and in the aggregate, for marketable debt securities that are in a continuous unrealized loss position for greater than 12 months. Total unrealized gains for securities with net gains in accumulated other comprehensive income were not material for the three months ended April 30, 2022.
Autodesk monitors all marketable debt securities for potential credit losses by reviewing indicators such as, but not limited to, current credit rating, change in credit rating, credit outlook, and default risk. There were no allowances for credit
13
losses as of both April 30, 2022, and January 31, 2022. There were no write offs of accrued interest receivables for both the three months ended April 30, 2022 and 2021.
There was no realized gain or loss for the sales or redemptions of marketable debt securities during both the three months ended April 30, 2022 and 2021. Realized gains and losses from the sales or redemptions of marketable debt securities are recorded in “Interest and other expense, net” on the Company's Condensed Consolidated Statements of Operations.
| Three Months Ended April 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| Marketable debt securities | $ | $ | |||||||||
Strategic investment equity securities
As of April 30, 2022, and January 31, 2022, Autodesk had $157 million and $134 million, respectively, in direct investments in privately held companies. These strategic investment equity securities do not have readily determined fair values, and Autodesk uses the measurement alternative to account for the adjustment to these investments in a given quarter. If Autodesk determines that an impairment has occurred, Autodesk writes down the investment to its fair value.
| Three Months Ended April 30, | Cumulative Amount as of | ||||||||||||||||||||||||||||
| 2022 | 2021 | April 30, 2022 | |||||||||||||||||||||||||||
| Upward adjustments | $ | $ | $ | ||||||||||||||||||||||||||
| Negative adjustments, including impairments | ( | ( | ( | ||||||||||||||||||||||||||
| Net adjustments | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||
During the three months ended April 30, 2022, Autodesk recognized no gains on the disposition of strategic investment equity securities. During the three months ended April 30, 2021, Autodesk recognized gains of $8 million on the disposition of strategic investment equity securities.
Fair Value
Autodesk applies fair value accounting for certain financial assets and liabilities, which consist of cash equivalents, marketable securities, and other financial instruments, on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The following tables summarize the Company's financial instruments measured at fair value on a recurring basis by significant investment category as of April 30, 2022, and January 31, 2022:
14
| April 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash equivalents (1): | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||||||||||||||||||||||||||
| U.S. government securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Agency discount notes | |||||||||||||||||||||||||||||||||||||||||||||||
| Other (2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Marketable securities: | |||||||||||||||||||||||||||||||||||||||||||||||
| Short-term | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Asset backed securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||||||||||||||||||||||||||
| Other (3) | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term other assets: | |||||||||||||||||||||||||||||||||||||||||||||||
| Mutual funds (4) (5) | |||||||||||||||||||||||||||||||||||||||||||||||
| Convertible debt securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative assets (5): | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative contract assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Strategic investments derivative assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative liabilities (6): | |||||||||||||||||||||||||||||||||||||||||||||||
| Derivative contract liabilities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
(1)Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities.
(2)Consists of custody cash deposits, sovereign bonds, asset backed securities, and certificates of deposit.
(3)Consists of common stock and municipal bonds.
(4)See Note 12, “Deferred Compensation” for more information.
(5)Included in “Prepaid expenses and other current assets” or “Long-term other assets” in the accompanying Condensed Consolidated Balance Sheets.
(6)Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
15
| January 31, 2022 | ||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash equivalents (1): | ||||||||||||||||||||||||||
| Money market funds | $ | $ | $ | $ | ||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||
| U.S government securities | ||||||||||||||||||||||||||
| Custody cash deposit | ||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||
| Certificates of deposit | ||||||||||||||||||||||||||
| Other (2) | ||||||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||
| Short-term | ||||||||||||||||||||||||||
| Commercial paper | ||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||
| Asset backed securities | ||||||||||||||||||||||||||
| Certificate of deposit | ||||||||||||||||||||||||||
| U.S. government securities | ||||||||||||||||||||||||||
| Municipal bonds | ||||||||||||||||||||||||||
| Common Stock | ||||||||||||||||||||||||||
| Other (3) | ||||||||||||||||||||||||||
| Long-term | ||||||||||||||||||||||||||
| Corporate debt securities | ||||||||||||||||||||||||||
| Other (4) | ||||||||||||||||||||||||||
| Long-term other assets: | ||||||||||||||||||||||||||
| Mutual funds (5) (6) | ||||||||||||||||||||||||||
| Derivative assets: | ||||||||||||||||||||||||||
| Derivative contract assets (6) | ||||||||||||||||||||||||||
| Derivative liabilities: | ||||||||||||||||||||||||||
| Derivative contract liabilities (7) | ( | ( | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
____________________
(1)Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities.
(2)Consists of sovereign bonds and municipal bonds.
(3)Consists of sovereign bonds and supranational bonds.
(4)Consists of asset backed securities.
(5)See Note 12, “Deferred Compensation” for more information.
(6)Included in “Prepaid expenses and other current assets,” or “Long-term other assets,” in the accompanying Condensed Consolidated Balance Sheets.
(7)Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
A reconciliation of the change in Autodesk’s Level 3 items for the three months ended April 30, 2022, is as follows:
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| Derivative Contract | Convertible Debt Securities | Total | ||||||||||||||||||
| Balances, January 31, 2022 | $ | $ | $ | |||||||||||||||||
| Purchases | ||||||||||||||||||||
| Balances, April 30, 2022 | $ | $ | $ | |||||||||||||||||
16
6. Equity Compensation
Restricted Stock Units
| Unvested restricted stock units | Weighted average grant date fair value per share | ||||||||||
| (in thousands) | |||||||||||
| Unvested restricted stock units at January 31, 2022 | $ | ||||||||||
| Granted | |||||||||||
| Vested | ( | ||||||||||
| Canceled/Forfeited | ( | ||||||||||
| Performance Adjustment (1) | ( | ||||||||||
Unvested restricted stock units at April 30, 2022 | $ | ||||||||||
The fair value of the shares vested during the three months ended April 30, 2022 and 2021, was $214 million and $149 million, respectively.
During the three months ended April 30, 2022, Autodesk granted 2,392 thousand restricted stock units. Restricted stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights.
Autodesk recorded stock-based compensation expense related to restricted stock units of $117 million and $90 million during the three months ended April 30, 2022 and 2021, respectively.
During the three months ended April 30, 2022, Autodesk granted 231 thousand performance stock units for which the ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units are based on revenue and free cash flow goals adopted by the Compensation and Human Resource Committee and total stockholder return compared against companies in the S&P North American Technology Software Index with a market capitalization over $2.0 billion (“Relative TSR”). The fair value of the performance stock units is expensed using the accelerated attribution method over the three-year vesting period and have the following vesting schedule:
•Up to one third of the performance stock units may vest following year one, depending upon the achievement of the performance criteria for fiscal 2023 as well as 1-year Relative TSR (covering year one).
•Up to one third of the performance stock units may vest following year two, depending upon the achievement of the performance criteria for year two as well as 2-year Relative TSR (covering years one and two).
•Up to one third of the performance stock units may vest following year three, depending upon the achievement of the performance criteria for year three as well as 3-year Relative TSR (covering years one, two and three).
The performance criteria for the performance stock units vested during the three months ended April 30, 2022, was based on revenue and free cash flow goals adopted by the Compensation and Human Resource Committee.
Additionally, during the three months ended April 30, 2022, Autodesk granted 115 thousand performance stock units, as part of a program offering certain employees the option to receive equity in lieu of the opportunity to receive an annual cash incentive award. The ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units are based on revenue and Non-GAAP income from operations targets adopted by the Compensation and Human Resource Committee. The fair value of these performance stock units is expensed using the accelerated attribution method over the one-year vesting period.
Performance stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights.
17
Autodesk recorded stock-based compensation expense related to performance stock units of $15 million and $12 million for the three months ended April 30, 2022 and 2021, respectively.
Common Stock
Autodesk agreed to issue a fixed amount of $5 million in common stock at a future date to certain employees in connection with a fiscal 2021 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the closing price of Autodesk’s common stock at the issuance date. During fiscal 2022, Autodesk issued 8,300 shares at an aggregate fair value of $3 million. Remaining shares to be issued are estimated to be 11 thousand based on the closing price of Autodesk’s common stock on April 29, 2022, the last trading day of the fiscal quarter. The awards are accounted for as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period.
Autodesk issued 73,632 shares of restricted common stock to certain employees in connection with a fiscal 2021 acquisition. These shares of restricted common stock are subject to forfeiture by the employee if employment terminates prior to the three-year employment period. The fair value of the restricted common stock is recorded as compensation for post-acquisition services and recognized as expense using the straight-line method over the three-year repurchase period.
Autodesk issued 9,277 shares of restricted common stock to certain employees in connection with a fiscal 2022 acquisition. These shares of restricted common stock were recorded as “Prepaid expenses and other current assets” and “Long-term other assets” on our Condensed Consolidated Balance Sheets and will be amortized to stock-based compensation expense for post-acquisition services using the straight-line method over the two-year vesting period.
Autodesk agreed to issue a fixed amount of $13 million in shares of common stock to certain employees in connection with a fiscal 2022 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the volume weighted average closing price (“VWAP”) of Autodesk’s common stock for the ninety consecutive trading day period ending on the release date. Shares to be issued are estimated to be 58 thousand based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending on April 29, 2022, the last trading day of the fiscal quarter. The awards are accrued as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period.
Autodesk agreed to issue a fixed amount of $11 million in common stock at a future date to certain employees in connection with other fiscal 2022 acquisitions. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the VWAP of Autodesk’s common stock at the issuance date. Shares to be issued are estimated to be 48 thousand based on the closing price of Autodesk’s common stock on April 29, 2022, the last trading day of the fiscal quarter. The awards are accounted for as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period. Additionally, Autodesk issued 12,782 shares of restricted common stock to certain employees in connection with these fiscal 2022 acquisitions. These shares of restricted common stock were recorded as “Prepaid expenses and other current assets” and “Long-term other assets” on our Condensed Consolidated Balance Sheets and will be amortized to stock-based compensation expense for post-acquisition services using the straight-line method over the vesting period.
Autodesk issued 40,289 shares of restricted common stock to certain employees in connection with a fiscal 2023 acquisition. These shares of restricted common stock were recorded as “Prepaid expenses and other current assets” and “Long-term other assets” on our Condensed Consolidated Balance Sheets and will be amortized to stock-based compensation expense for post-acquisition services using the straight-line method over the two-year vesting period. Additionally, Autodesk agreed to issue a fixed amount of $5 million in common stock at a future date to certain employees in connection with a fiscal 2023 acquisition. Issuance of the common stock is dependent on the respective employees’ continued employment through the vesting period. The number of shares to be issued will be determined based on the VWAP of Autodesk’s common stock at the issuance date. Shares to be issued are estimated to be 22 thousand based on the closing price of Autodesk’s common stock on April 29, 2022, the last trading day of the fiscal quarter. The awards are accounted for as liability-classified awards and are recognized as compensation expense using the straight-line method over the vesting period. See Note 8, “Acquisitions,” for further information.
Autodesk recorded stock-based compensation expense related to common stock shares of $10 million and $3 million for the three months ended April 30, 2022 and 2021, respectively.
18
1998 Employee Qualified Stock Purchase Plan (“ESPP”)
Under Autodesk’s ESPP, which was approved by stockholders in 1998, eligible employees may purchase shares of Autodesk’s common stock at their discretion using up to 15 % of their eligible compensation, subject to certain limitations, at 85 % of the lower of Autodesk's closing price (fair market value) on the offering date or the exercise date. The offering period for ESPP awards consists of four , six-month exercise periods within a 24 -month offering period.
A summary of the ESPP activity for the three months ended April 30, 2022 and 2021, is as follows:
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Issued shares (in thousands) | |||||||||||||||||||||||
| Average price of issued shares | $ | $ | |||||||||||||||||||||
| Weighted average grant date fair value of shares granted under the ESPP (1) | $ | $ | |||||||||||||||||||||
_______________
During the three months ended April 30, 2022, Autodesk reset the price for certain offering dates in connection with Autodesk’s ESPP as Autodesk’s closing stock price for the respective offering dates was above the closing stock price on March 31, 2022, which triggered a new 24-month offering period through March 31, 2024, resulting in modification expense of approximately $18 million to be recognized over the new offering period.
Stock-based Compensation Expense
The following table summarizes stock-based compensation expense for the three months ended April 30, 2022 and 2021, respectively, as follows:
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Cost of subscription and maintenance revenue | $ | $ | |||||||||||||||||||||
| Cost of other revenue | |||||||||||||||||||||||
| Marketing and sales | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
Stock-based compensation expense related to stock awards and ESPP purchases | |||||||||||||||||||||||
| Tax expense (benefit) | ( | ||||||||||||||||||||||
Stock-based compensation expense related to stock awards and ESPP purchases, net of tax | $ | $ | |||||||||||||||||||||
Stock-based Compensation Expense Assumptions
Autodesk determines the grant date fair value of its share-based payment awards using a BSM option pricing model or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case Autodesk uses the Monte Carlo simulation model. The Monte Carlo simulation model uses multiple input variables to estimate the probability that market conditions will be achieved. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:
| Three Months Ended April 30, 2022 | Three Months Ended April 30, 2021 | ||||||||||||||||||||||
| Performance Stock Units | ESPP | Performance Stock Units | ESPP | ||||||||||||||||||||
| Range of expected volatility | |||||||||||||||||||||||
| Range of expected lives (in years) | N/A | N/A | |||||||||||||||||||||
| Expected dividends | |||||||||||||||||||||||
| Range of risk-free interest rates | |||||||||||||||||||||||
Autodesk estimates expected volatility for stock-based awards based on the average of the following two measures: (1) a measure of historical volatility in the trading market for the Company’s common stock, and (2) the implied volatility of traded forward call options to purchase shares of the Company’s common stock. The expected volatility for performance stock units
19
subject to market conditions includes the expected volatility of Autodesk's peer companies within the S&P North American Technology Software Index with a market capitalization over $2.0 billion, depending on the award type.
The range of expected lives of ESPP awards are based upon the four six-month exercise periods within a 24 -month offering period.
Autodesk does not currently pay, and does not anticipate paying in the foreseeable future, any cash dividends. Consequently, an expected dividend yield of zero is used in the BSM option pricing model and the Monte Carlo simulation model.
The risk-free interest rate used in the BSM option pricing model and the Monte Carlo simulation model for stock-based awards is the historical yield on U.S. Treasury securities with equivalent remaining lives.
Autodesk recognizes expense only for the stock-based awards that ultimately vest. Autodesk accounts for forfeitures of our stock-based awards as those forfeitures occur.
7. Income Tax
Autodesk had income tax expense of $49 million, relative to pre-tax income of $195 million for the three months ended April 30, 2022, and income tax benefit of $25 million, relative to pre-tax income of $131 million for the three months ended April 30, 2021. Income tax expense for the three months ended April 30, 2022, reflects an increase in tax expense relating to stock-based compensation and final U.S. foreign tax credit regulations enacted in fiscal 2023, offset by a U.S. foreign derived intangible income benefit driven by the capitalization of research and development expenditures starting in fiscal 2023 as required by the U.S. Tax Cuts and Jobs Act (“Tax Act”). In addition, fiscal 2022 included a non-recurring discrete tax benefit relating to the Supreme Court decision in India on the taxability of software license payments to nonresidents.
Autodesk regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, Autodesk considers 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 have maintained a valuation allowance on our Netherlands, Canada, Australia, California, Michigan, and U.S. capital loss deferred tax assets as it is more likely than not that some or all of the deferred tax assets will not be realized.
As of April 30, 2022, the Company had $212 million of gross unrecognized tax benefits, of which $34 million would reduce our valuation allowance, if recognized. The remaining $178 million would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will decrease in the next 12 months for an audit settlement of approximately $7 million.
8. Acquisitions
The results of operations for the following acquisitions are included in the accompanying Condensed Consolidated Statements of Operations since the acquisition date. Pro forma results of operations have not been presented because the effects of the acquisition are not material to Autodesk’s Condensed Consolidated Financial Statements.
During the three months ended April 30, 2022, Autodesk completed two business combinations. The acquisition-date fair value of the consideration transferred totaled $114 million, which consisted of $96 million of cash, 40,289 shares of Autodesk’s restricted common stock at an aggregate fair value of $10 million, and Autodesk will issue a fixed amount of $5 million in common stock at future dates to certain employees. Of the total consideration transferred, $97 million is considered purchase consideration. Of the remaining amount, $10 million was recorded in “Prepaid expenses and other current assets” and “Long-term other assets” on our Condensed Consolidated Balance Sheets and will be amortized to stock-based compensation expense using the straight-line method over the vesting period, $5 million was accounted for as liability-classified awards and will be recognized as compensation expense using the straight-line method over the vesting period and $2 million was recorded as stock-based compensation expense during the fiscal quarter ended April 30, 2022. The 40,289 shares of restricted common stock are subject to forfeiture until the second anniversary of the acquisition closing date. The shares are released on the first and second anniversaries, 40 % and 60 %, respectively, subject to continued employment. Issuance of the $5 million fixed value in common stock is dependent on the respective employees’ continued employment and vests 40 % and 60 % on the first and second anniversaries of the closing date, respectively. The number of shares will be determined based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending on the release date. The number of shares is
20
estimated to be 22,000 based on the VWAP of Autodesk’s common stock for the ninety consecutive trading day period ending April 29, 2022, the last trading day of the fiscal quarter. See also Note 6, “Equity Compensation”.
Purchase Price Allocation
The acquisitions were accounted for as business combinations, and Autodesk recorded the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of each respective acquisition. The fair values assigned to the identifiable intangible assets acquired were based on estimates and assumptions determined by management. Autodesk recorded the excess of consideration transferred over the aggregate fair values as goodwill. The goodwill recorded was primarily attributable to synergies expected to arise after the respective acquisition. Goodwill of $43 million is deductible for U.S. income tax purposes. The transaction costs related to the acquisitions were not material.
The following table summarizes the fair value of the assets acquired and liabilities assumed by major class for the business combinations that were completed during the three months ended April 30, 2022:
| Aggregated Total | |||||||||||||||||
| Developed technologies | $ | ||||||||||||||||
| Customer relationships | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Deferred revenue and long-term deferred revenue | ( | ||||||||||||||||
| Long-term deferred income taxes | |||||||||||||||||
| Net tangible assets | |||||||||||||||||
Total | $ | ||||||||||||||||
9. Intangible Assets, Net
The following tables summarize the Company's intangible assets, net, as of April 30, 2022, and January 31, 2022:
| April 30, 2022 | |||||||||||||||||||||||
| Gross Carrying Amount (1) | Accumulated Amortization | Net | |||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||
| Developed technologies | ( | ||||||||||||||||||||||
| Trade names and patents | ( | ||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | |||||||||||||||||||
(1)Includes the effects of foreign currency translation.
| January 31, 2022 | |||||||||||||||||||||||
| Gross Carrying Amount (1) | Accumulated Amortization | Net | |||||||||||||||||||||
| Customer relationships | $ | $ | ( | $ | |||||||||||||||||||
| Developed technologies | ( | ||||||||||||||||||||||
| Trade names and patents | ( | ||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | |||||||||||||||||||
(1)Includes the effects of foreign currency translation.
21
10. Cloud Computing Arrangements
11. Goodwill
Goodwill consists of the excess of the consideration transferred over the fair value of net assets acquired in business combinations. The following table summarizes the changes in the carrying amount of goodwill for the three months ended April 30, 2022, (in millions):
| Balance as of January 31, 2022 | $ | ||||||||||
| Less: accumulated impairment losses as of January 31, 2022 | ( | ||||||||||
| Net balance as of January 31, 2022 | |||||||||||
| Additions arising from acquisitions during the period | |||||||||||
| Effect of foreign currency translation and measurement period adjustments (1) | ( | ||||||||||
| Balance as of April 30, 2022 | $ | ||||||||||
12. Deferred Compensation
At April 30, 2022, Autodesk had investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans and a corresponding deferred compensation liability totaling $85 million. Of this amount, $7 million was classified as current and $78 million was classified as non-current in the Condensed Consolidated Balance Sheets. Of the $89 million related to the investments in a rabbi trust as of January 31, 2022, $7 million was classified as current and $82 million was classified as non-current. The current and non-current asset portions of the investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans are recorded in the Condensed Consolidated Balance Sheets under “Prepaid expenses and other current assets” and “Long-term other assets,” respectively. The current and non-current portions of the liability are recorded in the Condensed Consolidated Balance Sheets under “Accrued compensation” and “Long-term other liabilities,” respectively.
Costs to obtain a contract with a customer
22
13. Computer Equipment, Software, Leasehold Improvements, and Furniture, Net
Computer equipment, software, leasehold improvements, and furniture and equipment and the related accumulated depreciation were as follows:
| April 30, 2022 | January 31, 2022 | ||||||||||
| Computer hardware, at cost | $ | $ | |||||||||
| Computer software, at cost | |||||||||||
| Leasehold improvements, land and buildings, at cost | |||||||||||
| Furniture and equipment, at cost | |||||||||||
| Less: Accumulated depreciation | ( | ( | |||||||||
Computer hardware, software, leasehold improvements, and furniture and equipment, net | $ | $ | |||||||||
14. Borrowing Arrangements
In October 2021, Autodesk issued $1.0 billion aggregate principal amount of 2.4 % notes due December 15, 2031 (“2021 Notes”). Net of a discount of $3 million and issuance costs of $9 million, Autodesk received net proceeds of $988 million from issuance of the 2021 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2021 Notes using the effective interest method. The 2021 Notes were designated as sustainability bonds, the net proceeds of which are used to fund environmentally and socially responsible projects in the following areas: eco-efficient products, production technologies, and processes, sustainable water and wastewater management, renewable energy & energy efficiency, green buildings, pollution prevention and control, and socioeconomic advancement and empowerment.
In September 2021, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) by and among the Company, the lenders party thereto and Citibank, N.A. (“Citibank”), as administrative agent, which provides for an unsecured revolving loan facility in the aggregate principal amount of $1.5 billion, with an option to be increased up to $2.0 billion. The revolving credit facility is available for working capital or other business needs. The Credit Agreement contains customary covenants that could, among other things, restrict the imposition of liens on Autodesk’s assets, and restrict Autodesk’s ability to incur additional indebtedness or make dispositions of assets if Autodesk fails to maintain compliance with the financial covenants. The Credit Agreement requires the Company to maintain a maximum leverage ratio of Consolidated Covenant Debt to Consolidated EBITDA (each as defined in the Credit Agreement) no greater than 3.50 :1.00 during the term of the credit facility, subject to adjustment following the consummation of certain acquisitions up to 4.00 :1.00 for up to four consecutive fiscal quarters. At April 30, 2022, Autodesk was in compliance with the Credit Agreement covenants. Revolving loans under the Credit Agreement will bear interest, at the Company’s option, at either (i) a per annum rate equal to the Base Rate (as defined in the Credit Agreement) plus a margin of between 0.000 % and 0.375 %, depending on the Company’s Public Debt Rating (as defined in the Credit Agreement), or (ii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market, plus a margin of between 0.785 % and 1.375 %, depending on Company’s Public Debt Rating. The Credit Agreement includes customary provisions to provide for the eventual replacement of LIBOR as a benchmark interest rate. The interest rates for the revolving credit facility are subject to upward or downward adjustments, on an annual basis, if the Company achieves, or fails to achieve, certain sustainability-linked targets based on two key performance indicator metrics: (i) the amount of scope 1 and 2 greenhouse gas emissions from the global operations of the Company and its subsidiaries during a fiscal year less qualified emissions reduction instruments and (ii) the percentage of employees of the Company and its subsidiaries identifying as female working in technical roles. The maturity date on the Credit Agreement is September 30, 2026. At April 30, 2022, Autodesk had no outstanding borrowings under the Credit Agreement.
In January 2020, Autodesk issued $500 million aggregate principal amount of 2.85 % notes due January 15, 2030 (“2020 Notes”). Net of a discount of $1 million and issuance costs of $5 million, Autodesk received net proceeds of $494 million from issuance of the 2020 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2020 Notes using the effective interest method. The proceeds of the 2020 Notes were used for the repayment of $450 million of debt due June 15, 2020, and the remainder is available for general corporate purposes.
23
In June 2017, Autodesk issued $500 million aggregate principal amount of 3.5 % notes due June 15, 2027 (the “2017 Notes”). Net of a discount of $3 million and issuance costs of $5 million, Autodesk received net proceeds of $492 million from issuance of the 2017 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2017 Notes using the effective interest method. The proceeds of the 2017 Notes have been used for the repayment of $400 million of debt due December 15, 2017, and the remainder is available for general corporate purposes.
In June 2015, Autodesk issued $300 million aggregate principal amount of 4.375 % notes due June 15, 2025 (“2015 Notes”). Net of a discount of $1 million, and issuance costs of $3 million, Autodesk received net proceeds of $296 million from issuance of the 2015 Notes. Both the discount and issuance costs are being amortized to interest expense over the respective term of the 2015 Notes using the effective interest method. The proceeds of the 2015 Notes are available for general corporate purposes.
In December 2012, Autodesk issued $350 million aggregate principal amount of 3.6 % notes due December 15, 2022 (“2012 Notes”). Autodesk received net proceeds of $347 million from issuance of the 2012 Notes, net of aggregate total discount and issuance costs of $3 million. Both the discount and issuance costs are being amortized to interest expense over the respective terms of the 2012 Notes using the effective interest method. The proceeds of the 2012 Notes are available for general corporate purposes.
The 2021 Notes, 2020 Notes, 2017 Notes, 2015 Notes and the 2012 Notes may all be redeemed at any time, subject to a make whole premium. In addition, upon the occurrence of certain change of control triggering events, Autodesk may be required to repurchase all the aforementioned notes, at a price equal to 101 % of their principal amount, plus accrued and unpaid interest to the date of repurchase. All notes contain restrictive covenants that limit Autodesk's ability to create certain liens, to enter into certain sale and leaseback transactions and to consolidate or merge with, or convey, transfer, or lease all or substantially all of its assets, subject to important qualifications and exceptions.
Based on the quoted market prices, the approximate fair value of the notes as of April 30, 2022, were as follows:
| Aggregate Principal Amount | Fair value | ||||||||||
| 2012 Notes | $ | $ | |||||||||
| 2015 Notes | |||||||||||
| 2017 Notes | |||||||||||
| 2020 Notes | |||||||||||
| 2021 Notes | |||||||||||
The expected future principal payments for all borrowings as of April 30, 2022, were as follows (in millions):
| Fiscal year ending | |||||||||||||||||||||||
| 2023 (remainder) | $ | ||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Total principal outstanding | $ | ||||||||||||||||||||||
15. Leases
24
maintenance and utilities. The Company’s leases do not contain residual value guarantees or material restrictive covenants. Short-term leases are recognized in the Condensed Consolidated Statements of Operations on a straight-line basis over the lease term. Short-term lease expense was not material for the periods presented. Changes in operating lease right-of-use assets and operating lease liabilities are presented net in the “accounts payable and other liabilities” line in the Condensed Consolidated Statements of Cash Flows with the exception of “Lease-related asset impairments” which is presented in “Adjustments to reconcile net income to net cash provided by operating activities”.
During the three months ended April 30, 2022, Autodesk recorded total operating lease right-of-use assets impairment charges of $2 million. Autodesk did no t recognize any charges during the three months ended April 30, 2021. Autodesk assessed the asset groupings for disaggregation based on the proposed changes in use of the facilities. For asset groups where impairment was triggered, Autodesk utilized an income approach to value the asset groups by developing discounted cash flow models. The significant assumptions used in the discounted cash flow models for each of the asset groups included projected sublease income over the remaining lease terms, expected downtime prior to the commencement of future subleases, expected lease incentives offered to future tenants, and discount rates that reflected the level of risk associated with these future cash flows. These significant assumptions are considered Level 1 and Level 2 inputs in accordance with the fair value hierarchy 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 ended January 31, 2022. The operating lease right-of-use asset charges are included in “general and administrative” in the Company’s Condensed Consolidated Statements of Operations.
The components of lease cost were as follows:
| Three Months Ended April 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of subscription and maintenance revenue | Cost of other revenue | Marketing and sales | Research and development | General and administrative | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended April 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of subscription and maintenance revenue | Cost of other revenue | Marketing and sales | Research and development | General and administrative | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Variable lease cost | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental operating cash flow information related to leases is as follows:
| Three Months Ended April 30, | |||||||||||
| 2022 | 2021 | ||||||||||
Cash paid for operating leases included in operating cash flows (1) | $ | $ | |||||||||
Non-cash operating lease liabilities arising from obtaining operating lease right-of-use assets | |||||||||||
_______________
(1) Includes $5
The weighted average remaining lease term for operating leases is 6.7 and 6.9 years at April 30, 2022, and January 31, 2022, respectively. The weighted average discount rate was 2.37 % and 2.46 % at April 30, 2022, and January 31, 2022, respectively.
25
Maturities of operating lease liabilities were as follows:
| Fiscal year ending | |||||||||||||||||||||||
| 2023 (remainder) | $ | ||||||||||||||||||||||
| 2024 | |||||||||||||||||||||||
| 2025 | |||||||||||||||||||||||
| 2026 | |||||||||||||||||||||||
| 2027 | |||||||||||||||||||||||
| Thereafter | |||||||||||||||||||||||
| Less imputed interest | |||||||||||||||||||||||
| Present value of operating lease liabilities | $ | ||||||||||||||||||||||
As of April 30, 2022, Autodesk had additional operating lease minimum lease payments of $2 million for executed leases that have not yet commenced, primarily for office locations.
16. Derivative Instruments
The fair values of derivative instruments in Autodesk’s Condensed Consolidated Balance Sheets were as follows as of April 30, 2022, and January 31, 2022:
| Balance Sheet Location | Fair Value at | ||||||||||||||||
| April 30, 2022 | January 31, 2022 | ||||||||||||||||
| Derivative Assets | |||||||||||||||||
Foreign currency contracts designated as cash flow hedges | Prepaid expenses and other current assets | $ | $ | ||||||||||||||
| Derivatives not designated as hedging instruments | Prepaid expenses and other current assets and long-term other assets | ||||||||||||||||
| Total derivative assets | $ | $ | |||||||||||||||
| Derivative Liabilities | |||||||||||||||||
Foreign currency contracts designated as cash flow hedges | Other accrued liabilities | $ | $ | ||||||||||||||
| Derivatives not designated as hedging instruments | Other accrued liabilities | ||||||||||||||||
| Total derivative liabilities | $ | $ | |||||||||||||||
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
Amount of gain (loss) recognized in accumulated other comprehensive income, net of tax, (effective portion) | $ | $ | |||||||||||||||||||||
| Amount and location of gain (loss) reclassified from accumulated other comprehensive loss into income (effective portion) | |||||||||||||||||||||||
| Net revenue | $ | $ | ( | ||||||||||||||||||||
| Cost of revenue | ( | ||||||||||||||||||||||
| Operating expenses | ( | ||||||||||||||||||||||
| Total | $ | $ | ( | ||||||||||||||||||||
26
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Interest and other expense, net | $ | $ | |||||||||||||||||||||
Foreign currency contracts designated as cash flow hedges
Autodesk uses foreign currency contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. These currency collars and forward contracts are designated and documented as cash flow hedges. The notional amounts of these contracts are presented net settled and were $896 million at April 30, 2022, and $1.08 billion at January 31, 2022. Outstanding contracts are recognized as either assets or liabilities on the Company's Condensed Consolidated Balance Sheet at fair value. The majority of the net gain of $79 million remaining in “Accumulated other comprehensive loss” as of April 30, 2022, is expected to be recognized into earnings within the next 24 months.
The location and amount of gain or loss recognized in income on cash flow hedges together with the total amount of income or expense presented in the Company's Condensed Consolidated Statements of Operations where the effects of the hedge are recorded were as follows for the three months ended April 30, 2022 and 2021:
| Three Months Ended April 30, 2022 | ||||||||||||||||||||||||||||||||||||||
| Net revenue | Cost of revenue | Operating expenses | ||||||||||||||||||||||||||||||||||||
| Subscription revenue | Maintenance revenue | Cost of subscription and maintenance revenue | Marketing and sales | Research and development | General and administrative | |||||||||||||||||||||||||||||||||
| Total amounts of income and expense line items presented in the condensed consolidated statements of operations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| (Loss) on cash flow hedging relationships in Subtopic ASC 815-20 | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||
| Amount of gain (loss) reclassified from accumulated other comprehensive income into income | $ | $ | $ | ( | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||
27
| Three Months Ended April 30, 2021 | ||||||||||||||||||||||||||||||||||||||
| Net Revenue | Cost of revenue | Operating expenses | ||||||||||||||||||||||||||||||||||||
| Subscription Revenue (1) | Maintenance Revenue | Cost of subscription and maintenance revenue | Marketing and sales | Research and development | General and administrative | |||||||||||||||||||||||||||||||||
| Total amounts of income and expense line items presented in the condensed consolidated statements of operations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20 | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange contracts | ||||||||||||||||||||||||||||||||||||||
| Amount of (loss) gain reclassified from accumulated other comprehensive income into income | $ | ( | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||
____________________
Derivatives not designated as hedging instruments
17. Commitments and Contingencies
Guarantees and Indemnifications
In the normal course of business, Autodesk provides indemnifications of varying scopes, including limited product warranties and indemnification of customers against claims of intellectual property infringement made by third parties arising from the use of its products or services. Autodesk accrues for known indemnification issues if a loss is probable and can be reasonably estimated. Historically, costs related to these indemnifications have not been significant, and because potential future costs are highly variable, Autodesk is unable to estimate the maximum potential impact of these indemnifications on its future results of operations.
In connection with the purchase, sale, or license of assets or businesses with third parties, Autodesk has entered into or assumed customary indemnification agreements related to the assets or businesses purchased, sold, or licensed. Historically, costs related to these indemnifications have not been significant, and because potential future costs are highly variable, Autodesk is unable to estimate the maximum potential impact of these indemnifications on its future results of operations.
As permitted under Delaware law, Autodesk has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at Autodesk’s request in such capacity. The maximum potential amount of future payments Autodesk could be required to make under these indemnification agreements is unlimited; however, Autodesk has directors’ and officers’ liability insurance coverage that is intended to reduce its financial exposure and may enable Autodesk to recover a portion of any future amounts paid. Autodesk believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
Legal Proceedings
Autodesk is involved in a variety of claims, suits, investigations, inquiries, and proceedings in the normal course of business including claims of alleged infringement of intellectual property rights, commercial, employment, tax, prosecution of unauthorized use, business practices, and other matters. Autodesk routinely reviews the status of each significant matter and assesses its potential financial exposure. If the potential loss from any matter is considered probable and the amount can be
28
18. Stockholders' Equity
Changes in stockholders' equity by component, net of tax, as of April 30, 2022, are as follows:
| Common stock and additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders' equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balances, January 31, 2022 | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||
| Common shares issued under stock plans | ( | ( | |||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||
| Shares issued related to business combination | |||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||
| Other comprehensive loss | ( | ( | |||||||||||||||||||||||||||
| Repurchase and retirement of common shares (1) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balances, April 30, 2022 | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||
________________
(1)During the three months ended April 30, 2022, Autodesk repurchased 2,058 thousand shares at an average repurchase price of $211.71 per share. At April 30, 2022, 6 million shares remained available for repurchase under the repurchase program approved by the Board of Directors.
Changes in stockholders' equity by component, net of tax, as of April 30, 2021, are as follows:
| Common stock and additional paid-in capital | Accumulated other comprehensive loss | Accumulated deficit | Total stockholders' equity | ||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||
| Balances, January 31, 2021 | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||
| Common shares issued under stock plans | |||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||
| Shares issued related to business combination | — | — | — | ||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||
| Other comprehensive income | |||||||||||||||||||||||||||||
| Repurchase and retirement of common shares (1) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balances, April 30, 2021 | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||
________________
29
19. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of taxes, consisted of the following at April 30, 2022:
| Net Unrealized Gains (Losses) on Derivative Instruments | Net Unrealized Gains (Losses) on Available-for-Sale Debt Securities | Defined Benefit Pension Components | Foreign Currency Translation Adjustments | Total | |||||||||||||||||||||||||
| Balances, January 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | ||||||||||||||||||||||||||
| Pre-tax gains reclassified from accumulated other comprehensive loss | ( | ( | ( | ||||||||||||||||||||||||||
| Tax effects | ( | ( | |||||||||||||||||||||||||||
| Net current period other comprehensive income (loss) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balances, April 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
Accumulated other comprehensive loss, net of taxes, consisted of the following at April 30, 2021:
| Net Unrealized Gains (Losses) on Derivative Instruments | Net Unrealized Gains on Available-for-Sale Debt Securities | Defined Benefit Pension Components | Foreign Currency Translation Adjustments | Total | |||||||||||||||||||||||||
| Balances, January 31, 2021 | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
| Other comprehensive income before reclassifications | |||||||||||||||||||||||||||||
| Pre-tax losses reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||||||||
| Tax effects | ( | ( | ( | ||||||||||||||||||||||||||
| Net current period other comprehensive income | |||||||||||||||||||||||||||||
| Balances, April 30, 2021 | $ | ( | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||||||
Reclassifications related to gains and losses on available-for-sale debt securities are included in “Interest and other expense, net.” Refer to Note 5, “Financial Instruments,” for the amount and location of reclassifications related to derivative instruments. Reclassifications of the defined benefit pension components of net periodic benefit cost are included in “Interest and other expense, net.”
30
20. Net Income Per Share
Basic net income per share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted net income per share is computed using the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of restricted stock units, performance share awards, and stock options using the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted net income per share amounts:
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income | $ | $ | |||||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Denominator for basic net income per share—weighted average shares | |||||||||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||||||||
| Denominator for dilutive net income per share | |||||||||||||||||||||||
| Basic net income per share | $ | $ | |||||||||||||||||||||
| Diluted net income per share | $ | $ | |||||||||||||||||||||
The computation of diluted net income per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average market value of Autodesk’s stock during the periods. For the three months ended April 30, 2022 and 2021, there were 531 thousand and 410 thousand potentially anti-dilutive shares excluded from the computation of diluted net income per share, respectively.
21. Segments
Autodesk operates in one operating segment and accordingly, all required financial segment information is included in the condensed consolidated financial statements. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance. Autodesk reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions, allocating resources, and assessing performance as the source of the Company’s reportable segments. The Company’s CODM allocates resources and assesses the operating performance of the Company as a whole.
Information regarding Autodesk’s long-lived assets by geographic area is as follows:
| April 30, 2022 | January 31, 2022 | ||||||||||
| Long-lived assets (1): | |||||||||||
| Americas | |||||||||||
| U.S. | $ | $ | |||||||||
| Other Americas | |||||||||||
| Total Americas | |||||||||||
| Europe, Middle East, and Africa | |||||||||||
| Asia Pacific | |||||||||||
| Total long-lived assets | $ | $ | |||||||||
____________________
31
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 Three Months Ended April 30, 2022,” and in “Results of Operations-Overview.” 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 in the 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 and expected synergies; 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 the U.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.
Strategy
Autodesk is changing how the world is designed and made. Our technology spans architecture, engineering, construction, product design, manufacturing, media and entertainment, empowering innovators everywhere to solve challenges big and small. From greener buildings to smarter products to more mesmerizing blockbusters, Autodesk technology helps our customers to design and make a better world for all.
Our strategy is to build enduring relationships with customers, delivering innovative technology that provides valuable automation and insight into their design and make processes. To drive execution of our strategy, we are focused on three strategic priorities: deliver a world-class customer experience, catalyze our customers’ digital transformation, and establish an industry-leading platform for Design and Make.
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 software for the personal computer. Just as the transition from mainframes to personal computers transformed the hardware industry, the software industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies.
32
Product Evolution
We offer subscriptions for individual products and Industry Collections, enterprise business arrangements (“EBAs”), and cloud service offerings (collectively referred to as “subscription plans”). 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, Fusion 360, ShotGrid, 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.
To support our strategic priority of digital transformation in Architecture, Engineering, and Construction (“AEC”), we are strengthening the foundation of our AEC solutions with both organic and inorganic investments. In fiscal 2023, we acquired a cloud-connected, extended reality (XR) platform which enables AEC professionals to present, collaborate and review projects together in immersive and interactive experiences, from anywhere and at any time. This acquisition enables Autodesk to meet increasing needs for augmented reality (AR) and virtual reality (VR) technology advancements within the AEC industry and further support AEC customers throughout the project delivery lifecycle. In fiscal 2022, we acquired Storm UK Holdco Limited, the parent of Innovyze, Inc. (“Innovyze”), which provides water infrastructure software. Combining Innovyze’s hydraulic modeling, simulation, asset performance management and operational analytics solutions with Autodesk’s design and analysis solutions (including Autodesk Civil 3D, Autodesk InfraWorks, and the Autodesk Construction Cloud) enables us to deliver end-to-end, cloud-based solutions for our water infrastructure customers that drive efficiency and sustainability. Other acquisitions in fiscal 2022 include a cloud-based estimating solution that enables construction teams to create estimates, perform digital takeoffs, generate detailed reports and proposals and manage bid-day processes.
In manufacturing, our strategy is to combine organic and acquired software in existing and adjacent verticals to create end-to-end, cloud-based solutions for our customers that drive efficiency and sustainability. We continue to attract both global manufacturing leaders and disruptive startups with our generative design and cloud-based Fusion 360 that converges the process of design with manufacturing. In the first fiscal quarter of 2023, we acquired a maker of software for optimizing manufacturing processes with automation and digitization from the shop floor upward that provides a real-time system of record for data collection, management, and analysis. In fiscal 2022, we acquired Upchain, an instant-on, cloud-based data management technology that allows product design and manufacturing customers to collaborate in the cloud across their value chains and bring products to market faster.
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 months ended April 30, 2022 and 2021.
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
33
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 platform 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.
Impact at Autodesk
Autodesk is committed to advancing a more sustainable, resilient, and equitable world. We don’t believe in waiting for progress, we believe in making it. We take action as a business and to support our employees, customers, and communities in our collective opportunity to design and make a better world for all.
We focus our efforts to advance positive outcomes across three primary areas: energy and materials, health and resilience, and work and prosperity. These impact opportunity areas are derived from the UN Sustainable Development Goals (“SDGs”) and have been focused through a multi-pronged process to align the top needs of our stakeholders, the important issues of our business, and the areas we are best placed to accelerate positive impact at scale.
These opportunities manifest as outcomes through how our customers leverage our technology to design and make net-zero carbon buildings, resilient infrastructure, more sustainable products, and a thriving workforce. We realize these opportunities in our business through our 100% renewable and net-zero greenhouse gas operations and inclusive culture. We advance these opportunities with industry innovators through collaboration, grants, software donations, and training.
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 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.
Additional information about our environmental, social, and governance program is available in our annual impact report on our website at www.autodesk.com. Information contained on or accessible through our website is not part of or incorporated by reference into this report.
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 with U.S. generally accepted accounting principles (“GAAP”). In preparing our Condensed Consolidated Financial Statements, we make assumptions, judgments, and
34
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 ended January 31, 2022.
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 months ended April 30, 2022, as compared to those disclosed in our Form 10-K for the fiscal year ended January 31, 2022. 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 Months Ended April 30, 2022
•Total net revenue increased 18% to $1,170 million for the three months ended April 30, 2022 compared to the same period in the prior fiscal year.
•Recurring revenue as a percentage of net revenue was 98% for both the three months ended April 30, 2022 and 2021.
•Net revenue retention rate (“NR3”) was within the range of 100% and 110% as of both April 30, 2022 and 2021.
•Deferred revenue was $3.75 billion, a decrease of 1% 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 $4.68 billion, a decrease of 1% compared to the fourth quarter in the prior fiscal year.
•Current remaining performance obligations were $3.14 billion, an increase of less than 1% compared to the fourth quarter in the prior fiscal year.
Revenue Analysis
Net revenue increased during the three months ended April 30, 2022, as compared to the same period in the prior fiscal year, primarily due to a 17% increase in subscription revenue, partially offset by a 5% decrease in maintenance revenue.
For further discussion of the drivers of these results, see below under the heading “Results of Operations.”
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”) and Ingram Micro Inc. (“Ingram Micro”). Total sales to Tech Data accounted for 36% of our total net revenue for both the three months ended April 30, 2022 and 2021. Ingram Micro accounted for 9% and 10% of Autodesk's total net revenue for the three months ended April 30, 2022 and 2021, respectively. 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 or Ingram Micro be terminated for any reason, we believe the resellers and end users who currently purchase our products through Tech Data or 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 or Ingram Micro.
Recurring Revenue and Net Revenue Retention Rate
In order to help better understand our financial performance, we use several key performance metrics including 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.
35
The following table outlines our recurring revenue metric for the three months ended April 30, 2022 and 2021:
| Three Months Ended April 30, 2022 | Change compared to prior fiscal year | Three Months Ended April 30, 2021 | |||||||||||||||||||||
| (In millions, except percentage data) | $ | % | |||||||||||||||||||||
Recurring revenue (1) (2) | $ | 1,144 | $ | 171 | 18 | % | $ | 973 | |||||||||||||||
| As a percentage of net revenue | 98 | % | N/A | N/A | 98 | % | |||||||||||||||||
________________
(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.
(2)The prior period amount has been adjusted to conform to the current period presentation for a change in presentation of certain subscription plan offerings.
NR3 was within the range of 100% and 110% as of both April 30, 2022 and 2021.
Foreign Currency Analysis
We generate a significant amount of our revenue in the United States, Japan, Germany, Finland and the United Kingdom.
The following table shows the impact of foreign exchange rate changes on our net revenue and total spend:
| Three Months Ended April 30, 2022 | |||||||||||||||||||||||||||||||||||
| Percent change compared to prior fiscal year | Constant Currency percent change compared to prior fiscal year (1) | Positive/Negative/Neutral impact from foreign exchange rate changes | |||||||||||||||||||||||||||||||||
| Net revenue | 18 | % | 17 | % | Positive | ||||||||||||||||||||||||||||||
| Total spend | 12 | % | 12 | % | Neutral | ||||||||||||||||||||||||||||||
________________
(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 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) | April 30, 2022 | January 31, 2022 | |||||||||||||||||||||||||||
| Deferred revenue | $ | 3,749 | $ | 3,790 | |||||||||||||||||||||||||
| Unbilled deferred revenue | 934 | 949 | |||||||||||||||||||||||||||
RPO | $ | 4,683 | $ | 4,739 | |||||||||||||||||||||||||
RPO consisted of the following:
| (in millions) | April 30, 2022 | January 31, 2022 | |||||||||||||||||||||||||||
| Current RPO | $ | 3,142 | $ | 3,141 | |||||||||||||||||||||||||
| Non-current RPO | 1,541 | 1,598 | |||||||||||||||||||||||||||
RPO | $ | 4,683 | $ | 4,739 | |||||||||||||||||||||||||
36
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, the specific timing of customer renewals, and foreign currency fluctuations. Historically, we have had increased EBA sales activity in our fourth fiscal quarter and this seasonality may affect the relative value of our billings, RPO, and collections in the fourth and first fiscal quarters.
Balance Sheet and Cash Flow Items
At April 30, 2022, we had $1.62 billion in cash, cash equivalents, and marketable securities. Our cash flow from operations increased to $434 million for the three months ended April 30, 2022, compared to $336 million for the three months ended April 30, 2021. We repurchased 2,058 thousand shares of our common stock for $436 million during the three months ended April 30, 2022. Comparatively, we repurchased 1 million shares of our common stock for $143 million during the three months ended April 30, 2021. See further discussion regarding the balance sheet and cash flow activities under the heading “Liquidity and Capital Resources.”
Results of Operations
Overview
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 complex geopolitical and global macro-economic challenges. However, supply chain disruption and resulting inflationary pressures, a global labor shortage, the ebb and flow of COVID-19, including in specific geographies, the war in Ukraine, and foreign exchange rate fluctuations, may impact our outlook. The extent of the impact of these risks on our business in the remainder of fiscal 2023 and beyond will depend on several factors, some of which are out of our control, and which are discussed in Part II, Item 1A, “Risk Factors.”
The COVID-19 pandemic has spurred changes in the way we work as we move to a more hybrid workforce resulting in an evaluation of our office space needs. Accordingly, we are reducing our facilities portfolio worldwide and incurred charges associated with our operating leases for real estate during the three months ended April 30, 2022. See Note 15, “Leases” in the Notes to Condensed Consolidated Financial Statements for more information. Optimizing our facilities costs will allow us to better deploy capital to further our strategy and drive growth. However, there is no guarantee that we will realize any anticipated benefits to our business, including any cost savings or operational efficiencies, or that our impairment charges would be limited to that amount.
Net Revenue
Net Revenue by Income Statement Presentation
Subscription revenue consists of our term-based product subscriptions, cloud service offerings, and flexible EBAs. Revenue from these arrangements is predominately 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 products and services, and is recognized as the products are delivered and services are performed.
37
| Three Months Ended | Change Compared to Prior Fiscal Year | Three Months Ended | Management comments | ||||||||||||||||||||||||||
| (In millions, except percentages) | April 30, 2022 | $ | % | April 30, 2021 | |||||||||||||||||||||||||
| Net Revenue (1): | |||||||||||||||||||||||||||||
| Subscription | $1,089 | $162 | 17% | $927 | Increase due to growth across subscription types, led by product subscription renewal revenue. Also contributing to the growth was an increase in revenue from EBA offerings. | ||||||||||||||||||||||||
| Maintenance | 18 | (1) | (5)% | 19 | |||||||||||||||||||||||||
| Total subscription and maintenance revenue | 1,107 | 161 | 17% | 946 | |||||||||||||||||||||||||
| Other | 63 | 20 | 47% | 43 | |||||||||||||||||||||||||
| $1,170 | $181 | 18% | $989 | ||||||||||||||||||||||||||
____________________
(1) Prior periods amounts have been reclassified to conform to the current period presentation in all material respects. See Note 1, “Basis of Presentation” in the Notes to the Condensed Consolidated Financial Statements for the change in presentation of certain subscription plan offerings in our Condensed Consolidated Statement of Operations.
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 Media and Entertainment (“M&E”).
| Three Months Ended | Change compared to prior fiscal year | Three Months Ended | Management comments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | April 30, 2022 | $ | % | April 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue by Product Family: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| AEC | $518 | $75 | 17% | $443 | Increase due to growth in revenue from AEC Collections, EBAs, Innovyze, and Revit . | ||||||||||||||||||||||||||||||||||||||||||||||||
| AutoCAD and AutoCAD LT | 346 | 61 | 21% | 285 | Increase due to growth in revenue from both AutoCAD and AutoCAD LT. | ||||||||||||||||||||||||||||||||||||||||||||||||
| MFG | 225 | 28 | 14% | 197 | Increase due to growth in revenue from MFG Collections , Fusion360, Vault, and EBAs. | ||||||||||||||||||||||||||||||||||||||||||||||||
| M&E | 68 | 13 | 24% | 55 | Increase due to growth in revenue from Maya, 3DS Max, and EBAs. | ||||||||||||||||||||||||||||||||||||||||||||||||
| Other | 13 | 4 | 44% | 9 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Net Revenue | $1,170 | $181 | 18% | $989 | |||||||||||||||||||||||||||||||||||||||||||||||||
38
Net Revenue by Geographic Area
| Three Months Ended April 30, 2022 | Change compared to prior fiscal year | Constant currency change compared to prior fiscal year | Three Months Ended April 30, 2021 | ||||||||||||||||||||||||||||||||
| (In millions, except percentages) | $ | % | % | ||||||||||||||||||||||||||||||||
| Net Revenue: | |||||||||||||||||||||||||||||||||||
| Americas | |||||||||||||||||||||||||||||||||||
| U.S. | $ | 398 | $ | 74 | 23 | % | * | $ | 324 | ||||||||||||||||||||||||||
| Other Americas | 86 | 19 | 28 | % | * | 67 | |||||||||||||||||||||||||||||
| Total Americas | 484 | 93 | 24 | % | 23 | % | 391 | ||||||||||||||||||||||||||||
| EMEA | 449 | 66 | 17 | % | 15 | % | 383 | ||||||||||||||||||||||||||||
| APAC | 237 | 22 | 10 | % | 12 | % | 215 | ||||||||||||||||||||||||||||
| Total Net Revenue | $ | 1,170 | $ | 181 | 18 | % | 17 | % | $ | 989 | |||||||||||||||||||||||||
____________________
* 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, including as a result of the COVID-19 pandemic or in connection with the significant military action against Ukraine launched by Russia (and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy), in the countries that contribute a significant portion of our net revenue, including in emerging economies such as Brazil, India, and China, may have an adverse effect on our business in those countries and our overall financial performance. Changes in the value of the U.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.
Net Revenue by Sales Channel
| Three Months Ended | Change compared to prior fiscal year | Three Months Ended | Management Comments | ||||||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | April 30, 2022 | $ | % | April 30, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Revenue by Sales Channel: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Indirect | $ | 769 | $ | 108 | 16 | % | $ | 661 | Increase due to growth in subscription revenue, led by product subscription renewal revenue. | ||||||||||||||||||||||||||||||||||||||||||||
| Direct | 401 | 73 | 22 | % | 328 | Increase due to an increase in EBAs and our online Autodesk branded store. | |||||||||||||||||||||||||||||||||||||||||||||||
| Total Net Revenue | $ | 1,170 | $ | 181 | 18 | % | $ | 989 | |||||||||||||||||||||||||||||||||||||||||||||
Net Revenue by Product Type
| Three Months Ended April 30, 2022 | Change compared to prior fiscal year | Three Months Ended April 30, 2021 | |||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | $ | % | Management Comments | ||||||||||||||||||||||||||||||||||||||
| Net Revenue by Product Type: | |||||||||||||||||||||||||||||||||||||||||
| Design | $ | 1,004 | $ | 139 | 16 | % | $ | 865 | Increase due to growth in AEC & MFG collections, AutoCAD Family, EBA offerings, and AutoCAD LT. | ||||||||||||||||||||||||||||||||
| Make | 103 | 22 | 27 | % | 81 | Increase primarily due to growth in revenue from Plangrid, Fusion 360, and BIM 360 products. | |||||||||||||||||||||||||||||||||||
| Other | 63 | 20 | 47 | % | 43 | ||||||||||||||||||||||||||||||||||||
| Total Net Revenue | $ | 1,170 | $ | 181 | 18 | % | $ | 989 | |||||||||||||||||||||||||||||||||
39
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, SaaS vendor costs and allocated IT costs, 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, hosting costs for our cloud offerings, 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 SaaS vendor costs and allocated IT costs, payment processing fees, the cost of supplies and equipment, gains and losses on our operating expense cash flow hedges, facilities costs, and labor costs associated with sales and order management.
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, SaaS vendor costs and allocated IT costs, gains and losses on our operating expense cash flow hedges, 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, SaaS vendor costs and net IT costs, certain foreign business taxes, gains and losses on our operating expense cash flow hedges, expense of travel, entertainment, and training, facilities costs, acquisition-related costs, and the cost of supplies and equipment.
40
| Three Months Ended | Change compared to prior fiscal year | Three Months Ended | Management comments | ||||||||||||||||||||||||||||||||||||||
| (In millions, except percentages) | April 30, 2022 | $ | % | April 30, 2021 | |||||||||||||||||||||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||||||||||||||||||||
| Subscription and maintenance | $ | 84 | $ | 16 | 24 | % | $ | 68 | Increase primarily due to an increase in cloud hosting costs and employee-related costs driven by higher headcount as well as an increase in stock-based compensation expense. | ||||||||||||||||||||||||||||||||
| Other | 19 | 5 | 36 | % | 14 | Increase primarily due to an increase in employee-related costs driven by higher headcount as well as an increase in stock-based compensation expense. | |||||||||||||||||||||||||||||||||||
| Amortization of developed technologies | 14 | 4 | 40 | % | 10 | Increase due to growth in amortization expense from acquired developed technologies as a result of our acquisitions in the remainder of fiscal 2022 and the first quarter of fiscal 2023. | |||||||||||||||||||||||||||||||||||
| Total cost of revenue | $ | 117 | $ | 25 | 27 | % | $ | 92 | |||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||
| Marketing and sales | $ | 419 | $ | 42 | 11 | % | $ | 377 | Increase primarily due to an increase in employee-related costs driven by higher headcount and sales commission expense, stock-based compensation expense, and an increase in cloud hosting costs. | ||||||||||||||||||||||||||||||||
| Research and development | 289 | 23 | 9 | % | 266 | Increase primarily due to an increase in stock-based compensation expense, an increase in employee-related costs due to higher headcount, professional fees, and cloud hosting costs. | |||||||||||||||||||||||||||||||||||
| General and administrative | 120 | 8 | 7 | % | 112 | Increase primarily due to an increase in professional fees as well as an increase in cloud hosting costs. | |||||||||||||||||||||||||||||||||||
| Amortization of purchased intangibles | 11 | 3 | 38 | % | 8 | Increase due to growth in amortization expense from acquired intangibles as a result of our acquisitions in the remainder of fiscal 2022 and the first quarter of fiscal 2023. | |||||||||||||||||||||||||||||||||||
| Total operating expenses | $ | 839 | $ | 76 | 10 | % | $ | 763 | |||||||||||||||||||||||||||||||||
The following table highlights our expectation for the absolute dollar change and percent of revenue change between the second quarter of fiscal 2023, as compared to the second quarter of fiscal 2022:
| Absolute dollar impact | Percent of net revenue impact | ||||||||||
| Cost of revenue | Increase | Flat | |||||||||
| Marketing and sales | Increase | Decrease | |||||||||
| Research and development | Increase | Flat | |||||||||
| General and administrative | Increase | Flat | |||||||||
| 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 April 30, | |||||||||||||||||||||||||||||||||||
| (in millions) | 2022 | 2021 | |||||||||||||||||||||||||||||||||
| Interest and investment expense, net | $ | (29) | $ | (10) | |||||||||||||||||||||||||||||||
| Gain on foreign currency | 10 | 2 | |||||||||||||||||||||||||||||||||
| Gain on strategic investments | — | 4 | |||||||||||||||||||||||||||||||||
| Other income | — | 1 | |||||||||||||||||||||||||||||||||
| Interest and other expense, net | $ | (19) | $ | (3) | |||||||||||||||||||||||||||||||
Interest and other expense, net, increased by $16 million during the three months ended April 30, 2022, as compared to the same period in the prior fiscal year. The increase in the three months ended April 30, 2022, as compared to the same period
41
in the prior fiscal year was primarily due to mark-to-market losses in the current period, compared to gains in the prior period, on debt and equity securities held in a rabbi trust under non-qualified deferred compensation plans and an increase in interest expense as a result of the issuance of debt in fiscal year 2022 partially offset by an increase in gains on foreign currency due to foreign currency exchange rate fluctuations.
Interest expense and investment income fluctuates based on average cash, marketable securities, debt balances, average maturities, and interest rates.
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 $49 million, relative to pre-tax income of $195 million for the three months ended April 30, 2022, and an income tax benefit of $25 million, relative to pre-tax income of $131 million for the three months ended April 30, 2021. Income tax expense for the three months ended April 30, 2022, reflects an increase in tax expense relating to stock-based compensation and the final U.S. foreign tax credit regulations enacted in fiscal 2023, offset by a U.S. foreign derived intangible income benefit driven by the capitalization of research and development expenditures starting in fiscal 2023 as required by the Tax Act. In addition, fiscal year 2022 included a non-recurring discrete tax benefit relating to the Supreme Court decision in India on the taxability of software license payments to nonresidents.
Tax Act enacted on December 22, 2017, eliminates the option to deduct research and development expenditures and requires taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal 2023. Although Congress is considering legislation that would defer the capitalization and amortization requirement, there is no assurance that the provision will be repealed or otherwise modified. If the requirement is not modified, the Company may recognize an increase to cash taxes.
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 have maintained a valuation allowance on our Netherlands, Canada, Australia, California, Michigan, and U.S. capital loss deferred tax assets as it is more likely than not that some or all of the deferred tax assets will not be realized.
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 the U.S. and in foreign jurisdictions, based on all available evidence, both positive and negative.
As of April 30, 2022, we had $212 million of gross unrecognized tax benefits, of which $34 million would reduce our valuation allowance, if recognized. The remaining $178 million would impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will decrease in the next 12 months for an audit settlement of approximately $7 million.
We anticipate that the U.S. Department of Treasury will continue to interpret or issue guidance on how provisions of the 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 our Europe and Asia 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.
42
On June 29, 2020, California enacted Assembly Bill No. 85, suspending utilization of net operating losses and limiting R&D credits utilization against California taxable income in excess of $5.0 million for the remaining 2 years. On February 9, 2022, California enacted Senate Bill No. 113 which reinstated the ability to utilize net operating loss and R&D credits against all income without limitation for fiscal 2023 and later years.
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 months ended April 30, 2022 and 2021, our gross profit, 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 operating margin and per share data):
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Gross profit | $ | 1,053 | $ | 897 | |||||||||||||||||||
| Non-GAAP gross profit | $ | 1,077 | $ | 914 | |||||||||||||||||||
| Income from operations | $ | 214 | $ | 134 | |||||||||||||||||||
| Non-GAAP income from operations | $ | 397 | $ | 280 | |||||||||||||||||||
| Operating margin | 18 | % | 14 | % | |||||||||||||||||||
| Non-GAAP operating margin | 34 | % | 28 | % | |||||||||||||||||||
| Net income | $ | 146 | $ | 156 | |||||||||||||||||||
| Non-GAAP net income | $ | 314 | $ | 229 | |||||||||||||||||||
| GAAP diluted net income per share | $ | 0.67 | $ | 0.70 | |||||||||||||||||||
| Non-GAAP diluted net income per share | $ | 1.43 | $ | 1.03 | |||||||||||||||||||
For our internal budgeting and resource allocation process and as a means to provide consistency in 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 benefits, credits, 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, 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.
43
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
(In millions except for operating margin and per share data):
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Gross profit | $ | 1,053 | $ | 897 | |||||||||||||||||||
| Stock-based compensation expense | 11 | 7 | |||||||||||||||||||||
| Amortization of developed technologies | 13 | 10 | |||||||||||||||||||||
| Non-GAAP gross profit | $ | 1,077 | $ | 914 | |||||||||||||||||||
| Income from operations | $ | 214 | $ | 134 | |||||||||||||||||||
| Stock-based compensation expense | 155 | 116 | |||||||||||||||||||||
| Amortization of developed technologies | 13 | 10 | |||||||||||||||||||||
| Amortization of purchased intangibles | 11 | 8 | |||||||||||||||||||||
| Acquisition-related costs | 3 | 12 | |||||||||||||||||||||
| Lease-related asset impairments and other charges | 1 | — | |||||||||||||||||||||
| Non-GAAP income from operations | $ | 397 | $ | 280 | |||||||||||||||||||
| Operating margin | 18 | % | 14 | % | |||||||||||||||||||
| Stock-based compensation expense | 13 | % | 12 | % | |||||||||||||||||||
| Amortization of developed technologies | 1 | % | 1 | % | |||||||||||||||||||
| Amortization of purchased intangibles | 1 | % | 1 | % | |||||||||||||||||||
| Acquisition-related costs | — | % | 1 | % | |||||||||||||||||||
| Non-GAAP operating margin (1) | 34 | % | 28 | % | |||||||||||||||||||
| Net income | $ | 146 | $ | 156 | |||||||||||||||||||
| Stock-based compensation expense | 155 | 116 | |||||||||||||||||||||
| Amortization of developed technologies | 13 | 10 | |||||||||||||||||||||
| Amortization of purchased intangibles | 11 | 8 | |||||||||||||||||||||
| Acquisition-related costs | 3 | 12 | |||||||||||||||||||||
| Lease-related asset impairments and other charges | 1 | — | |||||||||||||||||||||
| Gain on strategic investments and dispositions, net | — | (4) | |||||||||||||||||||||
| Discrete tax provision items | (8) | (56) | |||||||||||||||||||||
| Income tax effect of non-GAAP adjustments | (7) | (13) | |||||||||||||||||||||
| Non-GAAP net income | $ | 314 | $ | 229 | |||||||||||||||||||
44
| Three Months Ended April 30, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Diluted net income per share | $ | 0.67 | $ | 0.70 | |||||||||||||||||||
| Stock-based compensation expense | 0.71 | 0.52 | |||||||||||||||||||||
| Amortization of developed technologies | 0.06 | 0.05 | |||||||||||||||||||||
| Amortization of purchased intangibles | 0.05 | 0.04 | |||||||||||||||||||||
| Acquisition-related costs | 0.01 | 0.05 | |||||||||||||||||||||
| Gain on strategic investments and dispositions, net | — | (0.02) | |||||||||||||||||||||
| Discrete tax provision items | (0.04) | (0.25) | |||||||||||||||||||||
| Income tax effect of non-GAAP adjustments | (0.03) | (0.06) | |||||||||||||||||||||
| Non-GAAP diluted net income per share | $ | 1.43 | $ | 1.03 | |||||||||||||||||||
____________________
(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 technologies 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.
Lease-related asset impairments and other charges. These charges are associated with the optimization of our facilities costs related to leases for facilities that we have recently vacated as a result of our one-time move to a more hybrid remote workforce. In connection with these facility leases, we recognize costs related to the impairment or abandonment of operating lease right-of-use assets, computer equipment, furniture, and leasehold improvements, and other costs. 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.
45
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.
Loss (gain) on strategic investments and dispositions. We exclude gains and losses related to our strategic investments and dispositions of strategic investments, purchased intangibles, and businesses 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 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 gain and loss on 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 income (loss), 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.
At April 30, 2022, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1.62 billion and net accounts receivable of $384 million.
In September 2021, Autodesk entered into an amended and restated credit agreement (“Credit Agreement”) by and among Autodesk, the lenders party thereto, and Citibank, N.A., as agent, that provides for a revolving credit facility in the aggregate principal amount of $1.5 billion with an option to be increased up to $2.0 billion. The revolving credit facility is available for working capital or other business needs. The maturity date on the Credit Agreement is September 30, 2026. At April 30, 2022, Autodesk had no outstanding borrowings under the Credit Agreement. Additionally, as of June 2, 2022, we have no amounts outstanding under the Credit Agreement. See Part I, Item 1, Note 14, “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 revolving credit facility.
As of April 30, 2022, we have $2.65 billion aggregate principal amount of notes outstanding. See Part I, Item 1, Note 14, “Borrowing Arrangements,” in the Notes to Condensed Consolidated Financial Statements for further discussion.
46
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 $1.5 billion revolving credit facility.
Our cash and cash equivalents balances are concentrated in a few locations around the world, with substantial amounts held outside of the United States. As of April 30, 2022, approximately 59% of our total cash or cash equivalents 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 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 eliminated U.S. taxes on foreign subsidiary distributions in future periods. As a result, earnings in foreign jurisdictions are generally available for distribution to the United States with little to no incremental U.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.” 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 revolving 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.
| Three Months Ended April 30, | |||||||||||
| (in millions) | 2022 | 2021 | |||||||||
| Net cash provided by operating activities | $ | 434 | $ | 336 | |||||||
| Net cash provided by (used in) investing activities | 31 | (1,040) | |||||||||
| Net cash used in financing activities | (460) | (142) | |||||||||
Net cash provided by operating activities of $434 million for the three months ended April 30, 2022, primarily consisted of $146 million of our net income adjusted for $197 million non-cash items such as stock-based compensation expense, and depreciation, amortization, and accretion expense, lease-related impairment charges, and deferred income tax. The increase in cash provided by working capital was primarily due to a decrease in accounts receivable of $332 million due to the seasonality of our billings in the fourth fiscal quarter and timing of cash collections from customers offset in part by a decrease in accounts payable and other liabilities of $218 million due to the timing of payments related to employee compensation and related costs.
Net cash provided by operating activities of $336 million for the three months ended April 30, 2021, primarily consisted of $156 million of our net income adjusted for $187 million non-cash items such as stock-based compensation expense, and depreciation, amortization, and accretion expense. The decrease in cash provided by changes in working capital was due to a decrease in accounts payable and other liabilities of $182 million, due to the timing of payments related to employee compensation and related costs, an increase in prepaid expenses and other assets of $126 million, due to timing of prepaid operating expenses offset by a decrease in accounts receivable of $324 million, due to the seasonality of our billings in the fourth fiscal quarter and timing of cash collections from customers.
Net cash provided by investing activities was $31 million for the three months ended April 30, 2022, primarily due to the sales and maturities of marketable securities partially offset by business combinations, net of cash acquired. Net cash used in investing activities was $1,040 million for the three months ended April 30, 2021, and was primarily due to a business combination, net of cash acquired.
Net cash used in financing activities was $460 million for the three months ended April 30, 2022, primarily due to repurchases of common stock. Net cash used in financing activities was $142 million for the three months ended April 30, 2021, primary due to the repurchases of common stock. These cash outflows were offset in part by cash proceeds from the issuance of common stock.
47
Issuer Purchases of Equity Securities
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 April 30, 2022:
| (Shares in thousands) | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||||||||||||||||
| February 1 - February 28 | 761 | $ | 231.13 | 761 | 7,362 | ||||||||||||||||||
| March 1 - March 31 | 501 | 204.14 | 501 | 6,861 | |||||||||||||||||||
| April 1- April 30 | 796 | 197.89 | 796 | 6,065 | |||||||||||||||||||
| Total | 2,058 | $ | 211.71 | 2,058 | |||||||||||||||||||
________________
(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 publicly announced and approved by the Board of Directors in September 2016 that authorized the repurchase of 30 million shares. The plan does not have a fixed expiration date. See Note 18, “Stockholders' Equity ,” in the Notes to the Condensed Consolidated Financial Statements for further discussion.
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.
Design Business: Represents the combination of maintenance, product subscriptions, and all EBAs. Main products include, but are not limited to, AutoCAD, AutoCAD LT, Industry Collections, Revit, Inventor, Maya and 3ds Max. Certain products, such as our computer aided manufacturing solutions, incorporate both Design and Make functionality and are classified as Design.
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 and Manufacturing Collection, and Autodesk Media and Entertainment Collection.
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.
48
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.
Make Business: Represents certain cloud-based product subscriptions. Main products include, but are not limited to, Assemble, Autodesk Build, BuildingConnected, Fusion 360 and ShotGrid. Certain products, such as Fusion 360, incorporate both Design and Make functionality and are classified as Make.
Net Revenue Retention Rate (NR3): Measures the year-over-year change in Recurring Revenue for the population of customers that existed one year ago (“base customers”). Net revenue retention rate is calculated by dividing the current quarter Recurring Revenue related to base customers by the total corresponding quarter Recurring Revenue from one year ago. Recurring 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. Recurring 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.
Other Revenue: Consists of revenue from consulting, training, and other products and services, and is recognized as the products are delivered and services are performed.
Product Subscription: Provides customers a 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 cloud 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, our subscription plan offerings, and certain Other revenue. It excludes subscription revenue related to 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 our cloud-enabled term-based product subscriptions, cloud service offerings, and flexible 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.
49
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Risk
Our revenue, earnings, cash flows, receivables, and payables are subject to fluctuations due to changes in foreign currency exchange rates. Our risk management strategy utilizes foreign currency contracts to manage our exposure to foreign currency volatility that exists as part of our ongoing business operations. We utilize cash flow hedge contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. In addition, we use balance sheet hedge contracts to reduce the exchange rate risk associated primarily with foreign currency denominated receivables and payables. As of April 30, 2022, and January 31, 2022, we had open cash flow and balance sheet hedge contracts with future settlements generally within one to 12 months. Contracts were primarily denominated in euros, Japanese yen, British pounds, Canadian dollars, Australian dollars, Singapore dollars, Swiss francs, Swedish krona, and Czech koruna. We do not enter into foreign exchange derivative instruments for trading or speculative purposes.
Our option and foreign exchange forward contracts outstanding as of the respective period-ends are summarized in U.S. dollar equivalents as follows (in millions):
| April 30, 2022 | January 31, 2022 | ||||||||||||||||||||||
| Notional Amount | Fair Value | Notional Amount | Fair Value | ||||||||||||||||||||
| Forward Contracts: | |||||||||||||||||||||||
| Purchased | $ | 614 | $ | (20) | $ | 852 | $ | (10) | |||||||||||||||
| Sold | 1,257 | 27 | 1,612 | 7 | |||||||||||||||||||
| Option Contracts: | |||||||||||||||||||||||
| Purchased | 1,165 | 71 | 1,273 | 18 | |||||||||||||||||||
| Sold | 1,209 | (5) | 1,322 | (8) | |||||||||||||||||||
We use foreign currency contracts to reduce the exchange rate impact on the net revenue and operating expenses of certain anticipated transactions. A sensitivity analysis performed on our hedging portfolio as of April 30, 2022, indicated that a hypothetical 10% appreciation of the U.S. dollar from its value at April 30, 2022, and January 31, 2022, would increase the fair value of our foreign currency contracts by $240 million and $218 million, respectively. A hypothetical 10% depreciation of the dollar from its value at April 30, 2022, and January 31, 2022, would decrease the fair value of our foreign currency contracts by $84 million and $138 million, respectively.
Interest Rate Risk
Interest rate movements affect both the interest income we earn on our short-term investments and the market value of certain longer-term securities. At April 30, 2022, we had $790 million of cash equivalents and marketable securities, including $67 million classified as short-term marketable securities. If interest rates were to move up or down by 50 or 100 basis points over a 12-month period, the market value change of these securities would not have a material impact on our results of operations.
Other Market Risk
From time to time, we make direct investments in privately held companies. Privately held company investments generally are considered inherently risky. The technologies and products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of all or a substantial part of our initial investment in these companies. The evaluation of privately held companies is based on information that we request from these companies, which is not subject to the same disclosure regulations as U.S. publicly traded companies, and as such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies. See Note 5, “Financial Instruments,” in the Notes to Condensed Consolidated Financial Statements for further discussion regarding these strategic investments.
50
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our Exchange Act reports is (i) recorded, processed, summarized, and reported within the time periods specified in the rules of the Securities and Exchange Commission, and (ii) accumulated and communicated to Autodesk management, including our CEO and CFO, to allow timely decisions regarding required disclosure. We conducted an evaluation, under the supervision and with the participation of our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were effective to meet the objective for which they were designed and operated at the reasonable assurance level.
Our disclosure controls and procedures include components of our internal control over financial reporting. Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Autodesk have been detected.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended April 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
51
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
We are involved in a variety of claims, suits, investigations, inquiries and proceedings in the normal course of business activities including claims of alleged infringement of intellectual property rights, commercial, employment, tax, prosecution of unauthorized use, business practices, and other matters. In our opinion, resolution of pending matters is not expected to have a material adverse impact on our consolidated results of operations, cash flows, or financial position. Given the unpredictable nature of legal proceedings, there is a reasonable possibility that an unfavorable resolution of one or more such proceedings could in the future materially affect our results of operations, cash flows, or financial position in a particular period; however, based on the information known by us as of the date of this filing and the rules and regulations applicable to the preparation of our financial statements, any such amount is either immaterial or it is not possible to provide an estimated amount of any such potential loss.
ITEM 1A.RISK FACTORS
We operate in a rapidly changing environment that involves significant risks, a number of which are beyond our control. In addition to the other information contained in this Form 10-Q, the following discussion highlights some of these risks and the possible impact of these factors on our business, financial condition, and future results of operations. If any of the following risks actually occur, our business, financial condition, or results of operations may be adversely impacted, causing the trading price of our common stock to decline. In addition, these risks and uncertainties may impact the forward-looking statements described elsewhere in this Form 10-Q and in the documents incorporated herein by reference. They could affect our actual results of operations, causing them to differ materially from those expressed in forward-looking statements.
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our securities. These risks are described more fully below and include, but are not limited to, risks relating to the following:
•Our strategy to develop and introduce new products and services, exposing us to risks such as limited customer acceptance, costs related to product defects, and large expenditures.
•The effects of the COVID-19 pandemic and related public health measures.
•Global economic and political conditions.
•Costs and challenges associated with strategic acquisitions and investments.
•Dependency on international revenue and operations, exposing us to significant international regulatory, economic, intellectual property, collections, currency exchange rate, taxation, political, and other risks.
•Inability to predict subscription renewal rates and their impact on our future revenue and operating results.
•Existing and increased competition and rapidly evolving technological changes.
•Fluctuation of our financial results, key metrics and other operating metrics.
•Deriving a substantial portion of our net revenue from a small number of solutions, including our AutoCAD-based software products and collections.
•Any failure to successfully execute and manage initiatives to realign or introduce new business and sales initiatives.
•Net revenue, billings, earnings, cash flow, or subscriptions shortfalls or volatility of the market causing the market price of our stock to decline.
•Social and ethical issues relating to the use of artificial intelligence in our offerings.
•Security incidents compromising the integrity of our or our customers’ offerings, services, data, or intellectual property.
•Reliance on third parties to provide us with a number of operational and technical services as well as software.
•Our highly complex software, which may contain undetected errors, defects, or vulnerabilities.
•Increasing regulatory focus on privacy issues and expanding laws.
52
•Governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.
•Protection of our intellectual property rights and intellectual property infringement claims from others.
•The government procurement process.
•Fluctuations in currency exchange rates.
•Our debt service obligations.
•Our investment portfolio consisting of a variety of investment vehicles that are subject to interest rate trends, market volatility, and other economic factors.
Risks Relating to Our Business and Strategy
Our strategy to develop and introduce new products and services exposes us to risks such as limited customer acceptance, costs related to product defects, and large expenditures, each of which may result in no additional net revenue or decreased net revenue.
The software industry is characterized by rapid technological changes as well as changes in customer requirements and preferences. In recent years, the industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies. Customers are also reconsidering how they purchase software products, which requires us to constantly evaluate our business model and strategy. In response, we are focused on providing solutions to enable our customers to be more agile and collaborative on their projects. We devote significant resources to the development of new technologies. In addition, we frequently introduce new business models or methods that require a considerable investment of technical and financial resources, such as our introduction of flexible subscription and service offerings and our transition of multi-subscription plans to named-user plans. It is uncertain whether these strategies, including our product and pricing changes, will accurately reflect customer demand or be successful, or whether we will be able to develop the necessary infrastructure and business models more quickly than our competitors. We make such investments through further development and enhancement of our existing products and services, as well as through acquisitions. Such investments may not result in sufficient revenue generation to justify their costs and could result in decreased net revenue or profitability. If we are not able to meet customer requirements, either with respect to our software or the manner in which we provide such products, or if we are not able to adapt our business model to meet our customers’ requirements, our business, financial condition, or results of operations may be adversely impacted.
In particular, a critical component of our growth strategy is to have customers of our AutoCAD and AutoCAD LT products, as well as other individual Autodesk products, expand their portfolios to include our other offerings and cloud-based functionality, and we are taking steps to accelerate this migration. At times, sales of our AutoCAD and AutoCAD LT or individual Autodesk flagship products have decreased without a corresponding increase in Industry Collections or cloud-based functionality revenue, or without purchases of customer seats to our Industry Collections. Should this continue, our results of operations will be adversely affected.
Our executive management team must continuously act quickly and with vision, given the rapidly changing customer expectations and technology advancements inherent in the software industry, the extensive and complex efforts required to create useful and widely accepted products, and the rapid evolution of cloud computing, mobile devices, new computing platforms, and other technologies, such as consumer products. Although we have articulated a strategy that we believe will fulfill these challenges, if we fail to execute properly on that strategy or adapt the strategy as market conditions evolve, we may fail to meet our customers’ expectations, be unable to compete with our competitors' products and technology, and lose the confidence of our channel partners and employees. This in turn could adversely affect our business and financial performance.
The effects of the COVID-19 pandemic and related public health measures have affected how we and our customers are operating our respective businesses, and the extent of the impact on our business and results of operations remains uncertain.
We are continuing to conduct business during the COVID-19 pandemic with substantial modifications to employee travel and work locations, as well as virtualization, postponement, or cancellation of certain sales and marketing events, among other changes. We have observed other companies as well as governments taking precautionary measures to address COVID-19. While government authorities in some geographies are removing COVID-19 related business operations restrictions, we continue to actively monitor the situation and may take further actions to 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, including in response to outbreaks and variants. The extent of the impact of any such
53
modifications on our business, including the effects on our customers and prospects, and on our financial results, remains uncertain.
We will continue to invest in critical areas such as research and development, construction, and digitizing the company to support our future success as we come out of the pandemic. If we are not able to successfully manage our spending and investment, it could have a material adverse effect on our cash balances, business, and results of operations.
Although recent vaccine approvals and rollouts have raised hopes of a turnaround in the COVID-19 pandemic, renewed waves and new variants as well as delays in vaccinations pose risks to recovery and our outlook. In addition, global economic and political conditions described elsewhere in this Risk Factor section, including supply chain disruption and resulting inflationary pressures, a global labor shortage, and the ebb and flow of COVID-19, including in specific geographies, the war in Ukraine, and foreign exchange rate fluctuations may impact our outlook. Growth may slow if virus outbreaks (including from new variants) prove difficult to contain, infections and deaths mount rapidly before vaccines are widely available, and social distancing measures and/or lockdowns return and are more stringent than anticipated. Moreover, if economic policy support is insufficient or withdrawn before full economic recovery, bankruptcies of viable but illiquid companies could mount, leading to further or renewed employment and income losses and a more protracted recovery. Together, these uncertainties and risks could have a material adverse impact on our financial condition, business and results of operations.
Global economic and political conditions may further impact our industries, business, and financial results.
Our overall performance depends largely upon domestic and worldwide economic and political conditions. The United States and other countries’ economies have experienced cyclical downturns, in which economic activity was impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, decreased government spending, reduced corporate profitability, volatility in credit, equity, and foreign exchange markets, bankruptcies, and overall uncertainty. These economic conditions can occur abruptly. For example, current geopolitical and global macro-economic challenges and the coronavirus (COVID-19) pandemic have caused uncertainty in the global economy, and an economic downturn or recession in the United States or in other countries may occur or has already occurred and may continue. The extent to which these challenges will impact our financial condition or results of operations is still uncertain and will continue to depend on developments such as the impact of these challenges on our customers, vendors, distributors, and resellers, such as the supply chain disruption and resulting inflationary pressures and global labor shortage that we have seen recently, as well as other factors; the ebb and flow of COVID-19, including in specific geographies and as a result of outbreaks and variants; actions taken by governments, businesses, and consumers in response to these challenges; speed and timing of economic recovery, including in specific geographies; speed of rollout of COVID-19 vaccines, lifting of restrictions on movement, and normalization of full-time return to work and social events; 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; the war in Ukraine; foreign exchange rate fluctuations; and the effect of these challenges 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. Due to our subscription-based business model, the effect of COVID-19 may not be fully reflected in our results of operations until future periods, if at all. If economic growth in countries where we do business slows or if such countries experience further economic recessions, customers may delay or reduce technology purchases, which we have seen recently in certain countries including China. Our customers include government entities, including the U.S. federal government, and if spending cuts impede the ability of governments to purchase our products and services, our revenue could decline. In addition, a number of our customers rely, directly and indirectly, on government spending.
As described elsewhere in these risk factors, we are dependent on international revenue and operations and are subject to related risks of conducting business globally. Trends toward nationalism and protectionism and the weakening or dissolution of international trade pacts may increase the cost of, or otherwise interfere with, conducting business. These trends have increased political and economic unpredictability globally and may increase the volatility of global financial markets, and the impact of such developments on the global economy remains uncertain. Political instability or adverse political developments in any of the countries in which we do business could harm our business, results of operations, and financial condition. A financial sector credit crisis could impair credit availability and the financial stability of our customers, including our distribution partners and channels. A disruption in the financial markets may also have an effect on our derivative counter-parties and could also impair our banking partners, on which we rely for operating cash management. War, including the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy, could also affect our business. Any of these events could harm our business, results of operations, and financial condition.
Our business could be adversely impacted by the costs and challenges associated with strategic acquisitions and investments.
We regularly acquire or invest in businesses, software solutions, and technologies that are complementary to our business through acquisitions, strategic alliances, or equity or debt investments, including several transactions in fiscal 2022 and the first fiscal quarter in fiscal 2023. The risks associated with such acquisitions include the difficulty of integrating solutions,
54
operations, and personnel; inheriting liabilities such as intellectual property infringement claims; failure to realize anticipated revenue and cost projections and expected synergies; the requirement to test and assimilate the internal control processes of the acquired business in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002; and diversion of management's time and attention. In addition, such acquisitions and investments involve other risks such as:
•the inability to retain customers, key employees, vendors, distributors, business partners, and other entities associated with the acquired business;
•the potential that due diligence of the acquired business or solution does not identify significant problems;
•exposure to litigation or other claims in connection with, or inheritance of claims or litigation risk as a result of, an acquisition, including claims from terminated employees, customers, or other third parties;
•the potential for incompatible business cultures;
•significantly higher than anticipated transaction or integration-related costs;
•potential additional exposure to economic, tax, currency, political, legal, and regulatory risks associated with specific countries; and
•the potential impact on relationships with existing customers, vendors, and distributors as business partners as a result of acquiring another business.
We may not be successful in overcoming such risks, and such acquisitions and investments may negatively impact our business. In addition, if we do not complete an announced acquisition transaction or integrate an acquired business successfully and in a timely manner, we may not realize the benefits of the acquisition to the extent anticipated. Acquisitions and investments have in the past and may in the future contribute to fluctuations in our quarterly financial results. These fluctuations could arise from transaction-related costs and charges associated with eliminating redundant expenses or write-offs of impaired assets recorded in connection with acquisitions and investments, and could negatively impact our financial results.
We are dependent on international revenue and operations, exposing us to significant international regulatory, economic, intellectual property, collections, currency exchange rate, taxation, political, and other risks, which could adversely impact our financial results.
International net revenue represented 66% and 67% of our net revenue for the three months ended April 30, 2022 and 2021, respectively. Our international revenue, some of which comes from emerging economies, is subject to economic and political conditions in foreign markets, including those resulting from economic and political conditions in the United States, as well as country-specific conditions related to COVID-19, such as varied speed of recovery in different geographies. For example, we have recently seen a deceleration in growth in certain geographies including China. Our total revenue is also impacted by the relative geographical and country mix of our revenue over time. Our dependency on international revenue makes us much more exposed to global economic and political trends, which can negatively impact our financial results even if our results in the United States are strong for a particular period.
We anticipate that our international operations will continue to account for a significant portion of our net revenue and, as we expand our international development, sales, and marketing expertise, will provide significant support to our overall efforts in countries outside of the United States. Risks inherent in our international operations include:
•economic volatility;
•tariffs, quotas, and other trade barriers and restrictions, including any political or economic responses and counter-responses or otherwise by various global actors to the significant military action against Ukraine launched by Russia;
•fluctuating currency exchange rates, including devaluations, currency controls, and inflation, and risks related to any hedging activities we undertake;
•changes in regulatory requirements and practices;
•delays resulting from difficulty in obtaining export licenses for certain technology;
•different purchase patterns as compared to the developed world;
•operating in locations with a higher incidence of corruption and fraudulent business practices, particularly in emerging economies;
•compliance with the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and other anti-corruption laws;
•difficulties in staffing and managing foreign sales and development operations;
55
•local competition;
•longer collection cycles for accounts receivable;
•U.S. and foreign tax law changes and the complexities of tax reporting;
•laws regarding the free flow of data across international borders and management of and access to data and public networks;
•possible future limitations upon foreign-owned businesses;
•increased financial accounting and reporting burdens and complexities;
•inadequate local infrastructure;
•greater difficulty in protecting intellectual property;
•software piracy; and
•other factors beyond our control, including popular uprisings, terrorism, war (including the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy), natural disasters, and diseases and pandemics, such as COVID-19.
Some of our business partners also have international operations and are subject to the risks described above.
The application of the Trade and Cooperation Agreement between the European Union, the European Atomic Energy Community, and the United Kingdom signed in December 2020 (the “TCA”), which took effect January 1, 2021, could have adverse tax, tax treaty, banking, operational, legal, regulatory, or other impacts on our businesses in the region. The withdrawal could also, among other potential outcomes, create currency volatility; disrupt the free movement of goods, services, and people between the United Kingdom and the European Union; and significantly disrupt trade between the United Kingdom and the European Union and other parties. Uncertainty around these and related issues could lead to adverse effects on the United Kingdom economy, the European Union economies, and the other economies in which we operate.
In addition, in recent years, the United States has instituted or proposed changes to foreign trade policy, including the negotiation or termination of trade agreements, the imposition of tariffs on products imported from certain countries, economic sanctions on individuals, corporations, or countries, and other government regulations affecting trade between the United States and other countries in which we do business. More recently, the United States and other global actors have imposed sanctions as a result of the significant military action against Ukraine launched by Russia. New or increased tariffs and other changes in U.S. trade policy, including new sanctions, could trigger retaliatory actions by affected countries, including Russia. In addition, certain foreign governments, including the Chinese government, have instituted or considered imposing trade sanctions on certain U.S.-manufactured goods. The escalation of protectionist or retaliatory trade measures in either the United States or any other countries in which we do business, such as announcing sanctions, a change in tariff structures, export compliance, or other trade policies, may increase the cost of, or otherwise interfere with, the conduct of our business, and could have a material adverse effect on our operations and business outlook.
Furthermore, in response to the Russian invasion of Ukraine, effective early March 2022 we suspended all new and renewal business in Russia. Our revenue in both the first fiscal quarter of 2022 and in the fiscal year ended 2022 generated in Russia was less than 2% of total revenue for the respective period. We continue to evaluate our business operations there, including whether and how to support existing customers.
Even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage these risks.
We may not be able to predict subscription renewal rates and their impact on our future revenue and operating results.
Our customers are not obligated to renew their subscriptions for our offerings, and they may elect not to renew, upgrade, or expand their subscriptions. We cannot assure renewal rates or the mix of subscriptions renewals. Customer renewal rates may decline or fluctuate due to a number of factors, including offering pricing; competitive offerings; customer satisfaction; and reductions in customer spending levels, customer activity, or number of users due to economic downturns, including as a result of the current COVID-19 pandemic, or financial markets uncertainty. If our customers do not renew their subscriptions or if they renew on less favorable terms, our revenues may decline.
Existing and increased competition and rapidly evolving technological changes may reduce our revenue and profits.
56
The software industry has limited barriers to entry, and the availability of computing devices with continually expanding performance at progressively lower prices contributes to the ease of market entry. The industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies. This shift further lowers barriers to entry and poses a disruptive challenge to established software companies. The markets in which we operate are characterized by vigorous competition, both by entrants with innovative technologies and by consolidation of companies with complementary offerings and technologies. Some of our competitors have greater financial, technical, sales and marketing, and other resources. Furthermore, a reduction in the number and availability of compatible third-party applications or our inability to rapidly adapt to technological and customer preference changes, including those related to cloud computing, mobile devices, and new computing platforms, may adversely affect the sale of our solutions. Because of these and other factors, competitive conditions in the industry are likely to intensify in the future. Increased competition could result in price reductions, reduced net revenue and profit margins, and loss of market share, any of which would likely harm our business.
Our financial results, key metrics, and other operating metrics fluctuate within each quarter and from quarter to quarter, making our future revenue and financial results difficult to predict.
Our quarterly financial results, key metrics, and other operating metrics have fluctuated in the past and will continue to do so in the future. These fluctuations could cause our stock price to change significantly or experience declines. We also provide investors with quarterly and annual financial forward-looking guidance that could prove to be inaccurate as a result of these fluctuations. In addition to the other risks described in these risk factors, some of the factors that could cause our financial results, key metrics, and other operating metrics to fluctuate include:
•general market, economic, business, and political conditions in Europe, APAC, and emerging economies, including from an economic downturn or recession in the United States or other countries;
•failure to produce sufficient revenue, billings, subscription, profitability, and cash flow growth, including as a result of the COVID-19 pandemic;
•failure to accurately predict the impact of acquired businesses or to identify and realize the anticipated benefits of acquisitions, and successfully integrate such acquired businesses and technologies;
•potential goodwill impairment charges related to prior acquisitions;
•failure to manage spend;
•changes in billings linearity;
•changes in subscription mix, pricing pressure, or changes in subscription pricing;
•weak or negative growth in one or more of the industries we serve, including AEC, manufacturing, and digital media and entertainment markets;
•the success of new business or sales initiatives;
•security breaches, related reputational harm, and potential financial penalties to customers and government entities;
•restructuring or other accounting charges and unexpected costs or other operating expenses;
•timing of additional investments in our technologies or deployment of our services;
•changes in revenue recognition or other accounting guidelines employed by us and/or established by the Financial Accounting Standards Board, Securities and Exchange Commission, or other rulemaking bodies;
•fluctuations in foreign currency exchange rates and the effectiveness of our hedging activity;
•dependence on and timing of large transactions;
•adjustments arising from ongoing or future tax examinations;
•the ability of governments around the world to adopt fiscal policies, meet their financial and debt obligations, and finance infrastructure projects;
•failure to expand our AutoCAD and AutoCAD LT customer base to related design products and services;
•our ability to rapidly adapt to technological and customer preference changes, including those related to cloud computing, mobile devices, and new computing platforms;
•timing of the introduction of new products by us or our competitors;
•the financial and business condition of our reseller and distribution channels;
57
•perceived or actual technical or other problems with a product or combination of subscriptions;
•unexpected or negative outcomes of matters and expenses relating to litigation or regulatory inquiries;
•increases in cloud functionality-related expenses;
•timing of releases and retirements of offerings;
•changes in tax laws or tax or accounting rules and regulations, such as increased use of fair value measures;
•changes in sales compensation practices;
•failure to effectively implement and maintain our copyright legalization programs, especially in developing countries;
•renegotiation or termination of royalty or intellectual property arrangements;
•interruptions or terminations in the business of our consultants or third-party developers;
•timing and degree of expected investments in growth and efficiency opportunities;
•failure to achieve continued success in technology advancements;
•catastrophic events, natural disasters, or public health events, such as pandemics and epidemics, including COVID-19;
•regulatory compliance costs; and
•failure to appropriately estimate the scope of services under consulting arrangements.
We have also experienced fluctuations in financial results in interim periods in certain geographic regions due to seasonality or regional economic or political conditions. In particular, our financial results in Europe during our third quarter are usually affected by a slower summer period, and our APAC operations typically experience seasonal slowing in our third and fourth quarters. War, including the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy, could also affect our business.
Our operating expenses are based in part on our expectations for future revenue and are relatively fixed in the short term. Accordingly, any revenue shortfall below expectations has had, and in the future could have, an immediate and significant adverse effect on our profitability. Greater than anticipated expenses or a failure to maintain rigorous cost controls would also negatively affect profitability.
We derive a substantial portion of our net revenue from a small number of solutions, including our AutoCAD-based software products and collections, and if these offerings are not successful, our revenue would be adversely affected.
We derive a substantial portion of our net revenue from sales of subscriptions of a limited number of our offerings, including AutoCAD software, solutions based on AutoCAD, which include our collections that serve specific markets, and products that are interoperable with AutoCAD. Any factor adversely affecting sales of these subscriptions, including the product release cycle, market acceptance, product competition, performance and reliability, reputation, price competition, economic and market conditions, and the availability of third-party applications, would likely harm our financial results. During the three months ended April 30, 2022 and 2021, combined revenue from our AutoCAD and AutoCAD LT family products, not including collections having AutoCAD or AutoCAD LT as a component, represented 30% and 29% of our total net revenue, respectively.
From time to time we realign or introduce new business and sales initiatives; if we fail to successfully execute and manage these initiatives, our results of operations could be negatively impacted.
As part of our effort to accommodate our customers’ needs and demands and the rapid evolution of technology, from time to time we evolve our business and sales initiatives, such as realigning our development and marketing organizations, offering software as a service, and realigning our internal resources in an effort to improve efficiency. We may take such actions without clear indications that they will prove successful and, at times, we have been met with short-term challenges in the execution of such initiatives. Market acceptance of any new business or sales initiative is dependent on our ability to match our customers’ needs at the right time and price. Often, we have limited prior experience and operating history in these new areas of emphasis. If any of our assumptions about expenses, revenue, or revenue recognition principles from these initiatives proves incorrect, or our attempts to improve efficiency are not successful, our actual results may vary materially from those anticipated, and our financial results will be negatively impacted.
58
Net revenue, billings, earnings, cash flow, or subscriptions shortfalls or volatility of the market generally may cause the market price of our stock to decline.
The market price for our common stock has experienced significant fluctuations and may continue to fluctuate significantly. The market price for our common stock may be affected by a number of factors, including the other risks described in these risk factors and the following:
•shortfalls in our expected financial results, including net revenue, billings, earnings, and cash flow or key performance metrics, such as subscriptions, including as a result of the current COVID-19 pandemic, and how those results compare to securities analyst expectations, including whether those results fail to meet, exceed, or significantly exceed securities analyst expectations;
•quarterly variations in our or our competitors’ results of operations;
•general socioeconomic, political, or market conditions, including from an economic downturn or recession in the United States or in other countries;
•changes in forward-looking estimates of future results, how those estimates compare to securities analyst expectations, or changes in recommendations or confusion on the part of analysts and investors about the short- and long-term impact to our business;
•uncertainty about certain governments’ abilities to repay debt or effect fiscal policy;
•announcements of new offerings or enhancements by us or our competitors;
•unusual events such as significant acquisitions, divestitures, regulatory actions, and litigation;
•changes in laws, rules, or regulations applicable to our business;
•outstanding debt service obligations; and
•other factors, including factors unrelated to our operating performance, such as instability affecting the economy or the operating performance of our competitors.
Significant changes in the price of our common stock could expose us to costly and time-consuming litigation. Historically, after periods of volatility in the market price of a company's securities, a company becomes more susceptible to securities class action litigation. This type of litigation is often expensive and diverts management’s attention and resources.
As a result of our strategy of partnering with other companies for product development, our product delivery schedules could be adversely affected if we experience difficulties with our product development partners.
We partner with certain independent firms and contractors to perform some of our product development activities. We believe our partnering strategy allows us to achieve efficiencies in developing new products and maintaining and enhancing existing product offerings. This strategy creates a dependency on independent developers. Independent developers, including those who currently develop solutions for us in the United States and throughout the world, may not be able or willing to provide development support to us in the future. In addition, use of development resources through consulting relationships, particularly in non-U.S. jurisdictions with developing legal systems, may be adversely impacted by, and expose us to risks relating to, evolving employment, export, and intellectual property laws. These risks could, among other things, expose our intellectual property to misappropriation and result in disruptions to product delivery schedules.
Social and ethical issues relating to the use of artificial intelligence in our offerings may result in reputational harm or liability.
Social and ethical issues relating to the use of new and evolving technologies such as artificial intelligence (“AI”) in our offerings, may result in reputational harm and liability, and may cause us to incur additional research and development costs to resolve such issues. We are increasingly building AI into many of our offerings. As with many innovations, AI presents risks and challenges that could affect its adoption, and therefore our business. AI presents emerging ethical issues and if we enable or offer solutions that draw controversy due to their perceived or actual impact on society, we may experience brand or reputational harm, competitive harm, or legal liability. Potential government regulation in the space of AI ethics may also increase the burden and cost of research and development in this area, subjecting us to brand or reputational harm, competitive harm, or legal liability. Failure to address AI ethics issues by us or others in our industry could undermine public confidence in AI and slow adoption of AI in our products and services.
59
Risks Relating to Our Operations
Security incidents may compromise the integrity of our or our customers’ systems, solutions, offerings, services, applications, data, or intellectual property, harm our reputation, damage our competitiveness, create additional liability, and adversely impact our financial results.
As we digitize Autodesk and use cloud- and web-based technologies to leverage customer data to deliver the total customer experience, we are exposed to increased security risks and the potential for unauthorized access to, or improper use of, our and our customers’ information. Like other software offerings and systems, ours are vulnerable to security incidents, including those from acquired companies. Also, our ability to mitigate the security incident risk may be impacted by our limited control over our customers or third-party technology providers and vendors, or the processing of data by third-party technology providers and vendors, which may not allow us to maintain the integrity or security of such transmissions or processing. We devote significant resources in an effort to maintain the security and integrity of our systems, offerings, services, and applications (online, mobile, and desktop), including by enhancing security features, conducting penetration tests, code hardening, releasing security vulnerability updates, and accelerating our incident response time. We also provide annual information security training to our employees. Despite these efforts, we may not prevent security incidents, and we may face delays or other difficulties in identifying, responding to, or remediating security incidents.
Hackers regularly have targeted our systems, offerings, services, and applications, and we expect them to do so in the future. To date, such identified security events have not been material or significant to us or our customers, including to our reputation or business operations, or had a material financial impact, but there can be no assurance that future cyberattacks will not be material or significant. Security incidents could disrupt the proper functioning of our systems, solutions, offerings, applications, or services; cause errors in the output of our customers’ work; allow unauthorized access to or unauthorized use, disclosure, modification, loss, or destruction of, sensitive data or intellectual property, including proprietary or confidential information of ours or our customers; or cause other destructive outcomes. The risk of a security incident, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has increased as the number, intensity, and sophistication of attempted attacks and intrusions from around the world have increased. These threats include identity theft, unauthorized access, DNS attacks, wireless network attacks, viruses and worms, malware, bugs, vulnerabilities, advanced persistent threats (APT), application-centric attacks, peer-to-peer attacks, social engineering, phishing, credential stuffing, malicious file uploads, backdoor trojans, supply chain attacks, ransomware attacks, and distributed denial of service (DDoS) attacks. In addition, third parties may attempt to fraudulently induce our employees, vendors, partners, customers, or users to disclose information to gain access to our data or our customers’ or users’ data and there is the risk of employee, contractor, or vendor error or malfeasance. These existing risks are compounded given the COVID-19 pandemic and the resulting shift to work-from-home arrangements for a large population of employees and contractors, as well as employees and contractors of our third-party technology providers and vendors, and the risks could also be elevated in connection with the Russian invasion of Ukraine as we and our third-party technology providers and vendors are vulnerable to a heightened risk of cyberattacks from or affiliated with nation-state actors, including retaliatory attacks from Russian actors against U.S.-based companies. Despite our significant efforts to create security barriers to such threats, we cannot entirely mitigate these risks, and there is no guarantee that inadvertent or unauthorized use or disclosure of such information will not occur or that third parties will not gain unauthorized access to such information.
Many governments have enacted laws requiring companies to provide notice of security incidents involving certain types of personal data and personal information. We are also contractually required to notify certain customers of certain security incidents. If any of the foregoing security incidents were to occur or to be perceived to have occurred, our reputation may suffer, our competitive position may be diminished, customers may stop paying for our solutions and services, we could be required to expend significant capital and other resources to evaluate and alleviate the security incident and to try to prevent further or additional incidents, and we could face regulatory inquiry, lawsuits, and potential liability. We could incur significant costs and liabilities, including due to litigation, indemnity obligations, damages for contract breach, penalties for violation of applicable laws or regulations, and costs for remediation and other incentives offered to customers or other business partners in an effort to maintain business relationships after a security incident, and our financial performance could be negatively impacted.
We cannot assure you that any limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security incident. We also cannot be sure that our existing insurance coverage will continue to be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims related to a security incident, or that the insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results, and reputation.
60
Our use of third-party open source software could negatively affect our ability to sell subscriptions to access our products and subject us to possible litigation and greater security risks.
We use third-party open source software. From time to time, companies that use third-party open source software have faced claims challenging the use of such open source software and compliance with the open source software license terms. Accordingly, we may be subject to suits by parties claiming ownership of what we believe to be open source software or claiming non-compliance with the applicable open source licensing terms. Some open source software licenses require end-users, who distribute or make available across a network software and services that include open source software, to make publicly available or to license all or part of such software (which in some circumstances could include valuable proprietary code, such as modifications or derivative works created, based upon, incorporating, or using the open source software) under the terms of the particular open source license. While we employ practices designed to monitor our compliance with the licenses of third-party open source software and protect our valuable proprietary source code, we may inadvertently use third-party open source software in a manner that exposes us to claims of non-compliance with the terms of the applicable license, including claims of intellectual property rights infringement or for breach of contract. Furthermore, there exists today an increasing number of types of open source software licenses, almost none of which have been tested in courts of law to provide clarity on their proper legal interpretation. If we were to receive a claim of non-compliance with the terms of any of these open source licenses, we may be required to publicly release certain portions of our proprietary source code. We could also be required to expend substantial time and resources to re-engineer some or all of our software. Any of the foregoing could materially adversely affect our business, financial condition, results of operations, and prospects.
In addition, the use of third-party open source software typically exposes us to greater risks than the use of third-party commercial software because open source licensors generally do not provide warranties or controls on the functionality or origin of the software. Use of open source software may also present additional security risks because the public availability of such software may make it easier for hackers and other third parties to determine how to compromise our platform. Any of the foregoing could materially adversely affect our business, financial condition, results of operations, and prospects and could help our competitors develop products and services that are similar to or better than ours.
We rely on third parties to provide us with a number of operational and technical services; third-party security incidents could result in the loss of our or our customers’ data, expose us to liability, harm our reputation, damage our competitiveness, and adversely impact our financial results.
We rely on third parties, such as Amazon Web Services, to provide us with operational and technical services. These third parties may have access to our systems, provide hosting services, or otherwise process data about us or our customers, employees, or partners. Our ability to monitor such third parties’ security measures is limited. There have been and may continue to be significant supply chain attacks, and we cannot guarantee that our or our such third parties’ systems have not been breached or that they do not contain exploitable defects, bugs, or vulnerabilities that could result in an incident, breach, or other disruption to, our or these third parties’ systems. Any security incident involving such third parties could compromise the integrity or availability of, or result in the theft of, our and our customers’ data. In addition, our operations or the operations of our customers or partners could be negatively affected in the event of a security incident and could be subject to the loss or theft of confidential or proprietary information, including source code. Unauthorized access to data and other confidential or proprietary information may be obtained through break-ins, network breaches by unauthorized parties, employee theft or misuse, or other misconduct. If any of the foregoing were to occur or to be perceived to occur, our reputation may suffer, our competitive position may be diminished, customers may buy fewer of our offerings and services, we could face lawsuits, regulatory investigation, fines, and potential liability, and our financial results could be negatively impacted.
Delays in service from third-party service providers could expose us to liability, harm our reputation, damage our competitiveness, and adversely impact our financial results.
From time to time, we may rely on a single or limited number of suppliers, or upon suppliers in a single country, for the provision of services and materials that we use in the operation of our business and production of our solutions. Inability of such third parties to satisfy our requirements could disrupt our operations or make it more difficult for us to implement our strategy. If any of these situations were to occur, our reputation could be harmed, we could be subject to third-party liability, including under data protection and privacy laws in certain jurisdictions, and our financial results could be negatively impacted.
We are investing in resources to update and improve our information technology systems to digitize Autodesk and support our customers. Should our investments not succeed, or if delays or other issues with new or existing information technology systems disrupt our operations, our business could be harmed.
61
We rely on our network and data center infrastructure, technology systems, and websites for our development, marketing, operational, support, sales, accounting, and financial reporting activities. We continually invest resources to update and improve these systems to meet the evolving requirements of our business and customers. In particular, our transition to cloud-based products and a subscription-only business model involves considerable investment in the development of technologies, as well as back-office systems for technical, financial, compliance, and sales resources. Such improvements are often complex, costly, and time consuming. In addition, such improvements can be challenging to integrate with our existing technology systems, or may uncover problems with those systems. Unsuccessful implementation of hardware or software updates and improvements could result in disruption in our business operations, loss of customers, loss of revenue, errors in our accounting and financial reporting, or damage to our reputation, all of which could harm our business.
Our software is highly complex and may contain undetected errors, defects, or vulnerabilities, each of which could harm our business and financial performance.
The software solutions that we offer are complex and, despite extensive testing and quality control, may contain errors, defects, or vulnerabilities. Some errors, defects, or vulnerabilities in our software solutions may only be discovered after they have been released. Any errors, defects, or vulnerabilities could result in the need for corrective releases to our software solutions, damage to our reputation, loss of revenue, an increase in subscription cancellations, or lack of market acceptance of our offerings, any of which would likely harm our business and financial performance.
If we do not maintain good relationships with the members of our distribution channel, or if our distribution channel suffers financial losses, becomes financially unstable or insolvent, or is not provided the right mix of incentives to sell our subscriptions, our ability to generate revenue will be adversely affected.
We sell our software products both directly to end users and through a network of distributors and resellers. For the three months ended April 30, 2022 and 2021, approximately 66% and 67%, respectively, of our revenue was derived from indirect channel sales through distributors and resellers, and we expect that the majority of our revenue will continue to be derived from indirect channel sales in the near future. Our ability to effectively distribute our solutions depends in part upon the financial and business condition of our distributor and reseller network. Computer software distributors and resellers typically are not highly capitalized, and have previously experienced difficulties during times of economic contraction as well as during the past several years. We have processes to ensure that we assess the creditworthiness of distributors and resellers prior to our sales to them. In the past we have taken steps to support them, and may take additional steps in the future, such as extending credit terms and adjusting our incentives. These steps, if taken, could harm our financial results. If our distributors and resellers were to become insolvent, they would not be able to maintain their business and sales or provide customer support services, which would negatively impact our business and revenue.
We rely significantly upon major distributors and resellers in both the U.S. and international regions, including the distributors Tech Data and Ingram Micro. Tech Data accounted for 36% of our total net revenue for both the three months ended April 30, 2022 and 2021, and Ingram Micro accounted for 9% and 10% of our total net revenue for the three months ended April 30, 2022 and 2021, respectively. Should any of our agreements with Tech Data or Ingram Micro be terminated, we believe the resellers and end users who currently purchase our products through Tech Data or 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 either Tech Data or Ingram Micro. However, if either distributor were to experience a significant business disruption or if our relationship with either were to significantly deteriorate, it is possible that our ability to sell to end users would, at least temporarily, be negatively impacted. This could, in turn, negatively impact our financial results. For example, in June 2020, an affiliate of funds managed by affiliates of Apollo Global Management, a global alternative investment manager, acquired Tech Data, and in July 2021, Platinum Equity, a global investment firm, acquired Ingram Micro from HNA Technology Co., Ltd. If there is any reseller or end user uncertainty caused by either acquisition, our ability to sell to these resellers and end users could, at least temporarily, be negatively impacted.
Over time, we have modified and will continue to modify aspects of our relationship with our distributors and resellers, such as their incentive programs, pricing to them, and our distribution model to motivate and reward them for aligning their businesses with our strategy and business objectives. Changes in these relationships and underlying programs could negatively impact their business and harm our business. Further, our distributors and resellers may lose confidence in our business, move to competitive products, or not have the skills or ability to support customers. The loss of or a significant reduction in business with those distributors or resellers could harm our business. In particular, if one or more of such distributors or resellers were unable to meet their obligations with respect to accounts payable to us, we could be forced to write off such accounts and may be required to delay the recognition of revenue on future sales to these customers. These events could have a material adverse effect on our financial results.
62
We rely on software from third parties, and a failure to properly manage our use of third-party software could result in increased costs or loss of revenue.
Many of our products are designed to include software licensed from third parties. Such third-party software includes software licensed from commercial suppliers and under public open source licenses. While we have internal processes to manage our use of such third-party software, if such processes are inadequate, we may be subject to copyright infringement or other third-party claims. If we are non-compliant with a license for commercial software, we may be required to pay penalties or undergo costly audits pursuant to the license agreement. In the case of open-source software licensed under certain “copyleft” licenses, the license itself, or a court-imposed remedy for non-compliant use of the open source software, may require that proprietary portions of our own software be publicly disclosed or licensed. This could result in a loss of intellectual property rights, increased costs, re-engineering of our software, damage to our reputation, or loss of revenue.
In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties, support, indemnities, assurances of title or controls on origin of the software, or other contractual protections regarding infringement claims or the quality of the code. Likewise, some open source projects have known security and other vulnerabilities and architectural instabilities, or are otherwise subject to security attacks due to their wide availability, and are provided on an “as-is” basis.
Our business could be adversely affected if we are unable to attract and retain key personnel.
Our success and ability to invest and grow depend largely on our ability to attract and retain highly skilled technical, professional, managerial, sales, and marketing personnel. Historically, competition for these key personnel has been intense. The loss of services of any of our key personnel, including key personnel joining our company through acquisitions, inability to retain and attract qualified employees in the future, or delays in hiring required personnel, particularly engineering and sales personnel, could make it difficult to meet key objectives, such as timely and effective product introductions and financial goals.
We rely on third-party technologies and if we are unable to use or integrate these technologies, our solutions and service development may be delayed and our financial results negatively impacted.
We rely on certain software that we license from third parties, including software that is integrated with internally developed software and used in our offerings to perform key functions. These third-party software licenses may not continue to be available on commercially reasonable terms, and the software may not be appropriately supported, maintained, or enhanced by the licensors. The loss of licenses to, or inability to support, maintain, and enhance any such software could result in increased costs or delays until equivalent software can be developed, identified, licensed, and integrated, which would likely harm our business.
Disruptions in licensing relationships and with third-party developers could adversely impact our business.
We license certain key technologies from third parties. Licenses may be restricted in the term or the use of such technology in ways that negatively affect our business. Similarly, we may not be able to obtain or renew license agreements for key technology on favorable terms, if at all, and any failure to do so could harm our business. Our business strategy has historically depended in part on our relationships with third-party developers who provide products that expand the functionality of our design software. Some developers may elect to support other products or may experience disruption in product development and delivery cycles or financial pressure during periods of economic downturn. In particular markets, such disruptions have in the past, and would likely in the future, negatively impact these third-party developers and end users, which could harm our business.
Technology created by outsourced product development, whether outsourced to third parties or developed externally and transferred to us through business or technology acquisitions, involves additional risks such as effective integration into existing products, adequate transfer of technology know-how, and ownership and protection of transferred intellectual property.
Risks Relating to Laws and Regulations
Increasing regulatory focus on privacy, data protection, and information security issues and new and expanding laws may impact our business and expose us to increased liability.
Our strategy to digitize Autodesk involves increasing our use of cloud- and web-based technologies and applications to leverage customer data to improve our offerings for the benefit of our customers. To accomplish this strategy, we must collect
63
and otherwise process customer data, which may include personal data and personal information of users from different jurisdictions globally. We also collect and otherwise process personal data and personal information of our employees and contractors. As a result, federal, state, and global laws relating to privacy, data protection, and information security apply to Autodesk’s personal data and personal information processing activities. The scope of these laws and regulations is rapidly evolving, subject to differing interpretations, may be inconsistent among jurisdictions, or conflict with other rules and is likely to remain uncertain for the foreseeable future. We also expect that there will continue to be new laws, regulations, and industry standards concerning privacy, data protection, and information security proposed and enacted in various jurisdictions. Globally, laws such as the General Data Protection Regulation (EU) 2016/679 (“GDPR”) in the European Union (“EU”) and the Personal Information Protection Law (“PIPL”) in China have been enacted. In addition, new and emerging state laws in the United States governing privacy, data protection, and information security, such as the California Consumer Privacy Act (“CCPA”), the California Privacy Rights Act (“CPRA”), the Virginia Consumer Data Protection Act (“VCDPA”), the Colorado Privacy Act (“CPA”), the Utah Consumer Privacy Act (“UCPA”), and Connecticut’s Act Concerning Personal Data Privacy and Online Monitoring (“CTDPA”) have been enacted. These laws and regulations, as well as industry self-regulatory codes, create new compliance obligations and substantially expand the scope of potential liability and provide greater penalties for non-compliance. For example, the GDPR provides for penalties of up to €20 million or 4% of a company’s annual global revenue, whichever is greater, the PIPL provides for penalties of up to 50 million renminbi or 5% of a company's annual revenue and disgorgement of all illegal gains, whichever is greater, and the CCPA provides for penalties of up to $7,500 per violation. These laws, regulations and codes may also impact our innovation and business drivers in developing new and emerging technologies (e.g., artificial intelligence and machine learning). These requirements, among others, may impact demand for our offerings and force us to bear the burden of expanded obligations in our contracts.
In addition, there is continued instability of international personal data transfer legal mechanisms that are complex, uncertain, and subject to active litigation and enforcement actions in a number of jurisdictions around the world. For example, on June 4, 2021, the European Commission published a new set of modular standard contractual clause (“SCCs”), providing for an 18-month implementation period, which became effective on June 29, 2021, and imposes on companies obligations relating to personal data transfers, including the obligation to conduct a transfer impact assessment and, depending on a party’s role in the transfer, to implement additional security measures and to update internal privacy practices. If we elect to rely on the new SCCs for personal data transfers, we may be required to expend significant time and resources to update our contractual arrangements and to comply with new obligations. If we are unable to implement a valid mechanism for personal data transfers from the EU, we will face increased exposure to regulatory actions, substantial fines and injunctions against processing personal data from the EU.
In addition, the United Kingdom’s (“UK”) exit from the EU, and ongoing developments in the UK, have created uncertainty with regard to data protection regulation in the UK. Data processing in the UK is now governed by the UK General Data Protection Regulation and supplemented by other domestic data protection laws, such as the UK Data Protection Act 2018, which authorizes fines of up to £17.5 million or 4% of annual global revenue, whichever is higher. We are also exposed to potentially divergent enforcement actions for certain violations. Furthermore, the new SCCs apply only to the transfer of personal data outside the EU and not the UK. Although the European Commission adopted an adequacy decision for the UK on June 28, 2021, allowing the continued flow of personal data from the EU to the UK, this decision will be regularly reviewed going forward and may be revoked if the UK diverges from its current adequate data protection laws following its exit from the EU. On February 2, 2022, the UK’s Information Commissioner’s Office issued new standard contractual clauses to support personal data transfers out of the UK (“UK SCCs”), which became effective March 21, 2022. We may, in addition to other impacts, experience additional costs associated with increased compliance burdens and be required to engage in new contract negotiations with third parties that aid in processing personal data on our behalf or localize certain personal data.
Several other countries, including China, Australia, New Zealand, Brazil, and Japan, have also established specific legal requirements for cross-border data transfers. There is also an increasing trend towards data localization policies. For example, in 2015, Russia introduced data localization laws. In 2021, China introduced localization requirements for certain data. There are also other countries, such as India, that are considering data localization requirements. If this trend continues, and countries implement more restrictive regulations for cross-border personal data transfers (or do not permit personal data to leave the country of origin), our business, financial condition, and results of operations in those jurisdictions could be impacted.
In addition, the new state laws – the CPRA and the VCDPA – that become effective on January 1, 2023, the CPA and CTDPA that become effective on July 1, 2023, and the UCPA that becomes effective on December 31, 2023, introduce additional obligations such as data minimization and storage limitations, granting additional rights to consumers such as correction of personal information and additional opt-out rights. The CPRA also creates a new agency to implement and enforce the law. These new state laws will require us to modify our data processing practices and policies and may cause us to incur substantial costs and expenses in order to comply. Laws in all 50 states, and some of our contracts, require us to provide notice under certain circumstances to customers whose personal information has been disclosed as a result of a data breach. Also, if third parties we work with, such as suppliers, violate applicable data protection laws or regulations, such violations may also put our users’ information at risk and could materially adversely affect our business, financial condition, results of
64
operations, and prospects. Additionally, in addition to government activity, privacy advocacy groups and technology and other industries are considering various new, additional or different self-regulatory standards that may place additional burdens on us. Evolving legislation and the interplay of federal and state laws may be subject to varying interpretations by courts and government agencies, creating complex compliance issues and have and may cause variation in requirements, increase restrictions and potential legal risk and impact strategies and the availability of previously useful data, potentially exposing us to additional expense, adverse publicity, and liability.
In the EU and the UK, regulators are increasingly focusing on compliance with requirements in the online behavioral advertising ecosystem, and current national laws that implement the ePrivacy Directive are highly likely to be replaced by an EU regulation known as the ePrivacy Regulation, which is expected to significantly increase fines for non-compliance. While the text of the ePrivacy Regulation is under development, recent European case law and regulators’ recent guidance are driving increased attention to cookies and tracking technologies. This could lead to substantial costs, require significant system changes, limit the effectiveness of our marketing activities, divert the attention of our technology personnel, adversely affect our margins, increase costs, and subject us to additional liabilities. Regulation of cookies and similar technologies, and any decline of cookies or similar online tracking technologies as a means to identify and potentially target users, may lead to broader restrictions and impairments on our marketing and personalization activities and may negatively impact our efforts to understand our customers.
Governments, regulators, plaintiffs’ attorneys, privacy advocates have increased their focus on how companies collect, process, use, store, share, and transmit personal data and personal information. Any perception of our practices, products, offerings, or services as a violation of individual privacy or data protection rights may subject us to public criticism, lawsuits, reputational harm, or investigations or claims by regulators, industry groups or other third parties, all of which could disrupt or adversely impact our business and expose us to increased liability. Moreover, because the interpretation and application of many laws and regulations relating to privacy, data protection, and information security are uncertain, it is possible that these laws and regulations may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our products, offerings, and services. We could be required to fundamentally change our business activities and practices or modify our offerings and services, any of which could require significant additional expense and adversely affect our business, including impacting our ability to innovate, delaying our development roadmap and adversely affecting our relationships with customers and our ability to compete. If we are obligated to fundamentally change our business activities and practices or modify our products, offerings, or services, we may be unable to make such changes and modifications in a commercially reasonable manner, or at all, and our ability to develop new products, offerings, and services could be limited.
We are subject to governmental export and import controls that could impair our ability to compete in international markets or subject us to liability if we violate the controls.
Our offerings are subject to export controls and economic sanctions laws and regulations that prohibit the delivery of certain solutions and services without the required export authorizations or export to locations, governments, and persons targeted by applicable sanctions. While we have processes to prevent our offerings from being exported in violation of these laws, including obtaining authorizations as appropriate and screening against U.S. government and international lists of restricted and prohibited persons, we cannot guarantee that these processes will prevent all violations of export control and sanctions laws.
If our channel partners fail to obtain appropriate import, export, or re-export licenses or permits, we may also be adversely affected, through reputational harm as well as other negative consequences including government investigations and penalties. We presently incorporate export control and sanctions compliance requirements in our channel partner agreements. Complying with export control and sanctions regulations for a particular sale may be time-consuming and may result in the delay or loss of sales opportunities. Violations of applicable sanctions or export control laws can result in fines or penalties.
For additional risks regarding sanctions and trade protectionism, please see the risk factor entitled “We are dependent on international revenue and operations . . .” earlier in this section.
If we are not able to adequately protect our proprietary rights, our business could be harmed.
We rely on a combination of patent, copyright, and trademark laws, trade secret protections, confidentiality procedures, and contractual provisions to protect our proprietary rights. However, the steps we take to protect our intellectual property rights may be inadequate. While we have patent applications pending in the United States and throughout the world, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, any patents issued to us in the future may not provide us with competitive advantages or may be successfully challenged by third parties. Furthermore,
65
legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights are uncertain. Despite our efforts to protect our proprietary rights, unauthorized parties from time to time have copied or reverse engineered aspects of our software or have obtained and used information that we regard as proprietary. Policing unauthorized use of our software is time-consuming and costly. We are unable to measure the extent to which unauthorized use of our software exists and we expect that unauthorized use of software will remain a persistent problem, particularly in emerging economies.
Additionally, we actively protect the secrecy of our confidential information and trade secrets, including our source code. If unauthorized disclosure of our source code occurs, we could potentially lose future trade secret protection for that source code. Unauthorized disclosure of our source code could make it easier for third parties to compete with our offerings by copying functionality, which could adversely affect our financial performance and our reputation. We also seek to protect our confidential information and trade secrets through the use of non-disclosure agreements with our employees, customers, contractors, vendors, and partners. However, it is possible that our confidential information and trade secrets may be disclosed or published without our authorization. If this were to occur, it may be difficult and/or costly for us to enforce our rights, and our financial performance and reputation could be negatively impacted.
We may face intellectual property infringement claims that could be costly to defend and result in the loss of significant rights.
Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our business. Third parties may claim that we are infringing upon or misappropriating their intellectual property rights, and we may be found to be infringing upon such rights, even if we are unaware of the intellectual property rights claimed against us. As more software patents are granted worldwide, the number of offerings and competitors in our industries grows, and the functionality of products in different industries overlaps, we expect that software developers will be increasingly subject to infringement claims. Additionally, certain patent assertion entities have become more aggressive in threatening and pursuing litigation in attempts to obtain fees for licensing the right to use patents.
Any claims or threats of infringement or misappropriation, whether with or without merit, have been and could in the future be time-consuming to defend, result in costly litigation and diversion of resources, cause product delays, require us to change our products or business practices, prevent us from offering our software and services, or require us to enter into royalty or licensing agreements. In addition, such royalty or license agreements, if required, may not be available on acceptable terms, if at all, which would likely harm our business. We may also be obligated to indemnify our customers or business partners or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to obtain licenses, modify applications, or refund fees, which could be costly. Furthermore, from time to time we may introduce or acquire new products, including in areas where we historically have not competed, which could increase our exposure to patent and other intellectual property claims.
Contracting with government entities exposes us to additional risks inherent in the government procurement process.
We provide products and services, directly and indirectly, to a variety of government entities. Risks associated with licensing and selling products and services to government entities include extended sales and collection cycles, varying governmental budgeting processes, and adherence to complex procurement regulations and other government-specific contractual requirements. We may be subject to audits and investigations relating to our government contracts and any violations could result in civil and criminal penalties and administrative sanctions, including termination of contracts, payment of fines, and suspension or debarment from future government business, as well as harm to our reputation and financial results.
Risks Relating to Financial Developments
We are exposed to fluctuations in currency exchange rates that could negatively impact our financial results and cash flows.
Because we conduct a substantial portion of our business outside the United States, we face exposure to adverse movements in foreign currency exchange rates, which could have a material adverse impact on our financial results and cash flows. These exposures may change over time as business practices evolve and economic conditions change. We use derivative instruments to manage a portion of our cash flow, revenue and expense exposure to fluctuations in foreign currency exchange rates. As part of our risk management strategy, we use foreign currency contracts to manage a portion of our exposures of underlying assets, liabilities, and other obligations, which exist as part of our ongoing business operations. These foreign currency instruments may have maturities that extend for one to 18 months in the future and provide us with some protection against currency exposures. However, our attempts to hedge against these risks may not be completely successful, resulting in an adverse impact on our financial results.
66
The fluctuations of currencies in which we conduct business can both increase and decrease our overall revenue and expenses for any given period. Although our foreign currency cash flow hedge program extends beyond the current quarter in order to reduce our exposure to foreign currency volatility, we do not attempt to completely mitigate this risk, and in any case, will incur transaction fees in adopting such hedging programs. Such volatility, even when it increases our revenues or decreases our expenses, impacts our ability to accurately predict our future results and earnings.
In addition, global events, including the sudden and unexpected effects of the COVID-19 pandemic as well as geopolitical developments, may contribute to volatility in foreign exchange markets, which we may not be able to effectively manage, and our financial results could be adversely impacted. Additionally, countries in which we operate may be classified as highly inflationary economies, requiring special accounting and financial reporting treatment for such operations, or such countries’ currencies may be devalued, or both, which may adversely impact our business operations and financial results.
Our debt service obligations may adversely affect our financial condition and cash flows from operations.
We have $2.65 billion of principal debt, consisting of notes due at various times from December 2022 to December 2031, as of April 30, 2022, as described in Part I, Item 1. We also entered into a credit agreement that provides for an unsecured revolving loan facility in the aggregate principal amount of $1.5 billion, with an option to be increased up to $2.0 billion, as described in Part I, Item 1. Maintenance of our indebtedness, contractual restrictions, and additional issuances of indebtedness could:
•cause us to dedicate a substantial portion of our cash flows from operations towards debt service obligations and principal repayments;
•increase our vulnerability to adverse changes in general economic, industry, and competitive conditions;
•limit our flexibility in planning for, or reacting to, changes in our business and our industry;
•impair our ability to obtain future financing for working capital, capital expenditures, acquisitions, general corporate, or other purposes; and
•due to limitations within the debt instruments, restrict our ability to grant liens on property, enter into certain mergers, dispose of all or substantially all of the assets of Autodesk and its subsidiaries, taken as a whole, materially change our business, and incur subsidiary indebtedness, subject to customary exceptions.
We are required to comply with the covenants set forth in our credit agreement. If we breach any of the covenants and do not obtain a waiver from the note holders or lenders, then, subject to applicable cure periods, we would not be able to incur additional indebtedness under the credit agreement described in Part I, Item 1, and any outstanding indebtedness under the credit agreement may be declared immediately due and payable. In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of our securities. Under certain circumstances, if our credit ratings are downgraded or other negative action is taken, the interest rate payable by us under our credit agreement could increase. Downgrades in our credit ratings could also restrict our ability to obtain additional financing in the future and could affect the terms of any such financing.
Our investment portfolio consists of a variety of investment vehicles that are subject to interest rate trends, market volatility, and other economic factors. If general economic conditions decline, this could cause the credit ratings of our investments to deteriorate and illiquidity in the financial marketplace, and we may experience a decline in interest income and an inability to sell our investments, leading to impairment in the value of our investments.
It is our policy to invest our cash, cash equivalents, and marketable securities in highly liquid instruments with, and in the custody of, financial institutions with high credit ratings and to limit the amounts invested with any one institution, type of security, or issuer. However, we are subject to general economic conditions, interest rate trends, and volatility in the financial marketplace that can affect the income that we receive from our investments, the net realizable value of our investments (including our cash, cash equivalents, and marketable securities), and our ability to sell them. Any one of these factors could reduce our investment income or result in material charges, which in turn could impact our overall net income (loss) and earnings (loss) per share.
From time to time we make direct investments in privately held companies. Investments in privately held companies are considered inherently risky. The technologies and products these companies have under development are typically in the early stages and may never materialize, which could result in a loss of all or a substantial part of our initial investment in these companies. The evaluation of privately held companies is based on information that we request from these companies, which is not subject to the same disclosure regulations as U.S. publicly traded companies and, as such, the basis for these evaluations is subject to the timing and accuracy of the data received from these companies.
67
A loss on any of our investments may cause us to record an other-than-temporary impairment charge. The effect of this charge could impact our overall net income (loss) and earnings (loss) per share. In any of these scenarios, our liquidity may be negatively impacted, which in turn may prohibit us from making investments in our business, taking advantage of opportunities, and potentially meeting our financial obligations as they come due.
Changes in tax rules and regulations, and uncertainties in interpretation and application, could materially affect our tax obligations and effective tax rate.
We are a U.S.-based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Our effective tax rate is primarily based on our geographic mix of earnings; statutory rates; stock-based compensation; intercompany arrangements, including the manner we develop, value, and license our intellectual property; and enacted tax rules. Significant judgment is required in determining our effective tax rate and in evaluating our tax positions on a worldwide basis. While we believe our tax positions, including intercompany transfer pricing policies, are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be challenged by tax authorities and may have a significant impact on our effective tax rate and cash taxes.
Tax laws in the United States and in foreign tax jurisdictions are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. For example, the U.S. government enacted significant tax law changes in December 2017, the Tax Act, which impacted our tax obligations and effective tax rate beginning in our fiscal 2018 tax year, and significant tax legislation was included in the March 2020 CARES Act and subsequent Consolidated Appropriations Act in December 2020. Due to the complexity and varying interpretations of the Tax Act and the CARES Act, the U.S. Department of Treasury and other standard-setting bodies have been issuing and will continue to issue regulations and interpretative guidance that could significantly impact how we will apply the law and the ultimate effect on our results of operations from both the Tax Act and the CARES Act, including for our prior tax years. In addition, increases in corporate tax rates, could increase our effective tax rate, cash taxes and have an adverse effect on our results from operations.
Increasingly, tax authorities are reviewing existing corporate tax regulatory and legal regimes. Many countries in the European Union as well as other countries and organizations such as the Organization for Economic Cooperation and Development are actively considering new taxing regimes and changes to existing tax laws. If U.S. or foreign tax authorities change applicable tax laws or successfully challenge how or where our profits are currently recognized, our overall taxes could increase, and our business, financial condition, or results of operations may be adversely impacted.
If we were required to record an impairment charge related to the value of our long-lived assets or an additional valuation allowance against our deferred tax assets, our results of operations would be adversely affected.
Our long-lived assets are tested for impairment if indicators of impairment exist. If impairment testing shows that the carrying value of our long-lived assets exceeds their estimated fair values, we would be required to record a non-cash impairment charge, which would decrease the carrying value of our long-lived assets, adversely affecting our results of operations. Our deferred tax assets include net operating loss, amortizable tax assets, and tax credit carryforwards that can be used to offset taxable income and reduce income taxes payable in future periods. Each quarter, we assess the need for a valuation allowance, considering both positive and negative evidence to determine whether all or a portion of the deferred tax assets are more likely than not to be realized. We continue to have a full valuation allowance against certain U.S. and foreign deferred tax assets. Changes in the amount of the U.S. and foreign jurisdictions valuation allowance could also result in a material non-cash expense or benefit in the period in which the valuation allowance is adjusted, and our results of operations could be materially affected. We will continue to perform these tests on our worldwide deferred tax assets, and any future adjustments to the realizability of our deferred tax assets may have a material effect on our financial condition and results of operations.
General Risk Factors
Our business may be significantly disrupted upon the occurrence of a catastrophic event.
Our business is highly automated and relies extensively on the availability of our network and data center infrastructure, our internal technology systems, and our websites. We also rely on hosted computer services from third parties for services that we provide to our customers and computer operations for our internal use. The failure of our systems or hosted computer services due to a catastrophic event, such as an earthquake, fire, flood, tsunami, weather event, telecommunications failure, power failure, cyber attack, terrorism or war (including the significant military action against Ukraine launched by Russia and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on
68
the global economy), or business interruption from epidemics or pandemics, or the fear of such events, could adversely impact our business, financial results, and financial condition. For example, our corporate headquarters and executive offices are located near major seismic faults in the San Francisco Bay Area and face annual periods of wildfire danger, which increase the probability of power outages and may impact employees’ abilities to commute to work or to work from home. We have developed disaster recovery plans and maintain backup systems in order to reduce the potential impact of a catastrophic event; however, there can be no assurance that these plans and systems would enable us to return to normal business operations. In addition, any such event could negatively impact a country or region in which we sell our products. This could in turn decrease that country’s or region’s demand for our products, negatively impacting our financial results.
We are subject to legal proceedings and regulatory inquiries, and we may be named in additional legal proceedings or become involved in regulatory inquiries in the future, all of which are costly, distracting to our core business, and could result in an unfavorable outcome or a material adverse effect on our business, financial condition, results of operations, cash flows, or the trading prices for our securities.
We are involved in legal proceedings and receive inquiries from regulatory agencies. As the global economy has changed and our business has evolved, we have seen an increase in litigation activity and regulatory inquiries. Like many other technology companies, the number and frequency of inquiries from U.S. and foreign regulatory agencies we have received regarding our business and our business practices, as well as the business practices of others in our industry, have increased in recent years. In the event we are involved in significant disputes or are the subject of a formal action by a regulatory agency, we could be exposed to costly and time-consuming legal proceedings that could result in any number of outcomes. Any claims or regulatory actions initiated by or against us, whether successful or not, could result in high defense costs, damage awards, injunctive relief, increased costs of business, fines or orders to change certain business practices, significant dedication of management time, diversion of operational resources, or otherwise harm our business. In any such event, our financial results, results of operations, cash flows, or trading prices for our securities could be negatively impacted.
Changes in existing financial accounting standards or practices, or taxation rules or practices may adversely affect our results of operations.
Changes in existing accounting or taxation rules or practices, new accounting pronouncements or taxation rules, or varying interpretations of current accounting pronouncements or taxation practices could have a significant adverse effect on our results of operations or the way we conduct our business. Further, such changes could potentially affect our reporting of transactions completed before such changes are effective.
We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting, including an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year. This assessment must include a statement as to whether or not our internal control over financial reporting is effective and disclosure of any material weaknesses in our internal control over financial reporting identified by management. If our management or independent registered public accounting firm identifies one or more material weaknesses in our internal control over financial reporting, we are unable to assert that our internal control over financial reporting is effective, or our independent registered public accounting firm is unable to express an opinion that our internal controls are effective, investors could lose confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our business and stock price.
In preparing our financial statements we make certain assumptions, judgments, and estimates that affect amounts reported in our consolidated financial statements which, if not accurate, may significantly impact our financial results.
We make assumptions, judgments, and estimates for a number of items, including revenue recognition for product subscriptions and enterprise business arrangements (“EBAs”), the determination of the fair value of acquired assets and liabilities, goodwill, financial instruments including strategic investments, long-lived assets, and intangible assets, the realizability of deferred tax assets, and the fair value of stock awards. We also make assumptions, judgments, and estimates in determining the accruals for uncertain tax positions, variable compensation, partner incentive programs, product returns reserves, allowances for credit losses, asset retirement obligations, legal contingencies, and operating lease liabilities. These assumptions, judgments, and estimates are drawn from historical experience and various other factors that we believe are reasonable under the circumstances as of the date of the consolidated financial statements. Actual results could differ materially from our estimates, and such differences could significantly impact our financial results.
69
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We issued 40,289 shares of our restricted common stock, in connection with an acquisition completed during the three months ended April 30, 2022, as partial consideration for the acquisition. The restricted common stock is subject to transfer restrictions. 40% of the shares are released from restriction on the one-year anniversary of the issuance date and the remaining 60% on the two-year anniversary of the issuance date contingent on continued employment. These shares were issued in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), in reliance on the exemptions set forth in Section 4(a)(2) of the Securities Act and Rule 506 under Regulation D.
In connection with an acquisition completed during the three months ended April 30, 2022, we entered into an agreement to issue up to an estimated 22,000 shares of our common stock (based on the closing price of our common stock on April 29, 2022, the last trading day of the fiscal quarter) as partial consideration for the acquisition, contingent upon the achievement of certain events expected to occur in fiscal 2024 and fiscal 2025. The exact number of shares will be determined and issued following these events. The issuance of shares of our common stock in this acquisition will not be registered under the Securities Act of 1933, as amended (the "Securities Act"). Such shares will be issued in a private placement exempt from the registration requirements of the Securities Act in reliance on the exemptions set forth in Section 4(a)(2) of the Securities Act and Rule 506 under Regulation D.
The information concerning issuer purchases of equity securities required by this Item is incorporated by reference herein to the section of this Report entitled "Issuer Purchases of Equity Securities" in Part I, Item 2 above.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4.MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.OTHER INFORMATION
None.
70
ITEM 6.EXHIBITS
The Exhibits listed below are filed or incorporated by reference as part of this Form 10-Q.
| Exhibit No. | Description | ||||||||||
| 10.1* | Amended and Restated Executive Change in Control Program (incorporated by reference from Exhibit 10.1 of the Form 8-K filed on April 28, 2022) | ||||||||||
| 10.2* | First Amendment to the Employment Agreement, dated as of June 19, 2017, by and between the Company and Andrew Anagnost (incorporated by reference from Exhibit 10.2 of the Form 8-K filed on April 28, 2022) | ||||||||||
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 † | |||||||||||
| 101.INS †† | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||||||
| 101.SCH †† | XBRL Taxonomy Extension Schema | ||||||||||
| 101.CAL †† | XBRL Taxonomy Extension Calculation Linkbase | ||||||||||
| 101.DEF †† | XBRL Taxonomy Definition Linkbase | ||||||||||
| 101.LAB †† | XBRL Taxonomy Extension Label Linkbase | ||||||||||
| 101.PRE †† | XBRL Taxonomy Extension Presentation Linkbase | ||||||||||
| 104 †† | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | ||||||||||
| * | Denotes a management contract or compensatory plan or arrangement. | ||||
| † | The certifications attached as Exhibit 32 that accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Autodesk, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing. | ||||
| †† | The financial information contained in these XBRL documents is unaudited. | ||||
71
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June 2, 2022
| AUTODESK, INC. | ||
| (Registrant) | ||
| /s/ STEPHEN W. HOPE | ||
| Stephen W. Hope | ||
| Vice President and Chief Accounting Officer | ||
| (Principal Accounting Officer) | ||
72
Exhibit 31.1
CERTIFICATIONS
I, Andrew Anagnost, certify that:
1.I have reviewed this report on Form 10-Q of Autodesk, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: June 2, 2022
| /s/ ANDREW ANAGNOST | |||||
| Andrew Anagnost | |||||
| President and Chief Executive Officer (Principal Executive Officer) | |||||
Exhibit 31.2
CERTIFICATIONS
I, Deborah L. Clifford, certify that:
1.I have reviewed this report on Form 10-Q of Autodesk, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: June 2, 2022
| /s/ DEBORAH L. CLIFFORD | |||||
| Deborah L. Clifford | |||||
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Based on my knowledge, I, Andrew Anagnost, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Autodesk, Inc. on Form 10-Q for the quarterly period ended April 30, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Autodesk, Inc.
Dated: June 2, 2022
| /s/ ANDREW ANAGNOST | |||||
| Andrew Anagnost | |||||
| President and Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
Based on my knowledge, I, Deborah L. Clifford, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Autodesk, Inc. on Form 10-Q for the quarterly period ended April 30, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Autodesk, Inc.
Dated: June 2, 2022
| /s/ DEBORAH L. CLIFFORD | |||||
| Deborah L. Clifford | |||||
| Executive Vice President and Chief Financial Officer | |||||
| (Principal Financial Officer) | |||||