Autodesk(US:ADSK)2023-12-03 16:00Financial Information (Part I) Financial Statements The company reported year-over-year growth in revenue and net income for both the three and nine months ended October 31, 2023, with total assets slightly decreasing while stockholders' equity increased, and net cash from operating activities decreased primarily due to changes in working capital Condensed Consolidated Statements of Operations Highlights (Unaudited) | Metric (In millions, except per share data) | Three Months Ended Oct 31, 2023 | Three Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2023 | Nine Months Ended Oct 31, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total net revenue | $1,414 | $1,280 | $4,028 | $3,687 | | Gross profit | $1,287 | $1,160 | $3,647 | $3,331 | | Income from operations | $334 | $256 | $813 | $712 | | Net income | $241 | $198 | $624 | $530 | | Diluted net income per share | $1.12 | $0.91 | $2.89 | $2.43 | Condensed Consolidated Balance Sheets Highlights (Unaudited) | Metric (In millions) | October 31, 2023 | January 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,526 | $1,947 | | Total current assets | $2,939 | $3,341 | | Total assets | $9,226 | $9,438 | | Deferred revenue (Current) | $3,120 | $3,203 | | Total current liabilities | $3,912 | $4,000 | | Long-term notes payable, net | $2,283 | $2,281 | | Total liabilities | $7,744 | $8,293 | | Total stockholders' equity | $1,482 | $1,145 | Condensed Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric (In millions) | Nine Months Ended Oct 31, 2023 | Nine Months Ended Oct 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $876 | $1,160 | | Net cash used in investing activities | ($524) | ($84) | | Net cash used in financing activities | ($753) | ($897) | | Net decrease in cash and cash equivalents | ($421) | $137 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Autodesk's financial performance showed continued growth, with a 10% increase in total net revenue for Q3 FY24, driven by subscription growth, while the company executes its strategy focused on customer experience, digital transformation, and its Design and Make platform, maintaining a strong recurring revenue base despite macroeconomic challenges and increased operating expenses Strategy Autodesk's strategy focuses on building customer relationships by delivering innovative technology for automation and insight in design and make processes, with key priorities including customer experience, digital transformation, and establishing an industry-leading Design and Make platform, while rolling out a new direct transaction model - The company's strategy is centered on three priorities: delivering a world-class customer experience, catalyzing customer digital transformation, and establishing an industry-leading platform for Design and Make125 - Autodesk is strengthening its AEC solutions with investments in Autodesk Forma, an industry cloud for early-stage design, and acquisitions like Innovyze for water infrastructure software130 - In manufacturing, the strategy involves creating end-to-end cloud solutions, highlighted by the growth of the Fusion 360 platform and acquisitions like Upchain for cloud-based data management131 - A new transaction model is being introduced where channel partners provide quotes, but the transaction occurs directly between Autodesk and the customer, expected to transition globally in fiscal 2025 and 2026134 Financial Performance Overview For the three and nine months ended October 31, 2023, Autodesk reported solid financial results with revenue growth of 10% and 9% respectively, maintaining high recurring revenue at 98% of total net revenue, though Remaining Performance Obligations (RPO) decreased by 7% compared to the end of the prior fiscal year Key Performance Metrics Highlights (Q3 FY24) | Metric | Q3 FY24 Result | Change vs. Prior Year Period | | :--- | :--- | :--- | | Total Net Revenue | $1.41B | +10% | | Recurring Revenue % | 98% | Flat | | Net Revenue Retention Rate (NR3) | 100% - 110% | Within range | | Remaining Performance Obligations (RPO) | $5.24B | -7% (vs. Q4 FY23) | | Current RPO | $3.52B | Flat (vs. Q4 FY23) | - Total sales to distributor TD Synnex accounted for 39% of total net revenue for the three months ended October 31, 2023, up from 37% in the prior-year period148 - On a constant currency basis, net revenue for Q3 FY24 grew 13%, indicating a negative impact from foreign exchange rate changes152 Results of Operations Revenue growth was driven by an 11% increase in subscription revenue in Q3 FY24, led by renewals and EBA offerings, with the AEC product family as the strongest contributor and the Americas leading geographically, while operating expenses rose 5% primarily due to increased R&D and G&A costs Net Revenue by Product Family (Three Months Ended Oct 31, in millions) | Product Family | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | AEC | $675 | $575 | 17% | | AutoCAD and AutoCAD LT | $372 | $354 | 5% | | MFG | $269 | $254 | 6% | | M&E | $73 | $78 | (6)% | | Other | $25 | $19 | 32% | | Total Net Revenue | $1,414 | $1,280 | 10% | Net Revenue by Geographic Area (Three Months Ended Oct 31, in millions) | Geographic Area | 2023 | 2022 | % Change | Constant Currency % Change | | :--- | :--- | :--- | :--- | :--- | | Total Americas | $640 | $541 | 18% | 19% | | EMEA | $516 | $476 | 8% | 11% | | APAC | $258 | $263 | (2)% | 3% | | Total Net Revenue | $1,414 | $1,280 | 10% | 13% | - Direct sales channel revenue grew 19% in Q3 FY24, outpacing the 6% growth in the indirect channel, driven by EBA offerings and the online store171 - Total operating expenses increased by 5% in Q3 FY24, driven by a 9% increase in R&D and a 28% increase in G&A, partially offset by a 3% decrease in Marketing & Sales180 Non-GAAP Financial Measures On a non-GAAP basis, the company reported higher profitability than GAAP results, primarily by excluding stock-based compensation and amortization of acquired intangibles, with non-GAAP income from operations at $547 million (39% margin) and non-GAAP net income at $447 million for Q3 FY24 GAAP to Non-GAAP Reconciliation (Three Months Ended Oct 31, 2023, in millions) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Gross Profit | $1,287 | $24 | $1,311 | | Income from Operations | $334 | $213 | $547 | | Net Income | $241 | $206 | $447 | - The largest adjustments between GAAP and non-GAAP results are stock-based compensation expense ($181 million) and amortization of developed technologies and purchased intangibles ($21 million) for Q3 FY24198200 Liquidity and Capital Resources As of October 31, 2023, Autodesk maintained a strong liquidity position with $2.17 billion in cash, cash equivalents, and marketable securities, despite a decrease in net cash from operations to $876 million for the nine-month period, while continuing its share repurchase program - Principal sources of liquidity as of October 31, 2023, were cash, cash equivalents, and marketable securities totaling $2.17 billion211 - Net cash provided by operating activities decreased to $876 million for the nine months ended Oct 31, 2023, compared to $1.16 billion for the same period in 2022215 - During Q3 FY24, the company repurchased 543 thousand shares of common stock for approximately $111 million110220 Quantitative and Qualitative Disclosures About Market Risk Autodesk is exposed to market risks primarily from foreign currency exchange rates, interest rate fluctuations, and investments in privately held companies, utilizing foreign currency contracts to hedge a portion of its exposure, while interest rate risk on its cash and securities portfolio is not considered material - The company utilizes foreign currency contracts to manage exposure to volatility in currencies such as the Euro, British pound, and Japanese yen, with the notional amount of forward and option contracts approximately $4.97 billion as of October 31, 2023231232 - Interest rate movements on the company's $1.53 billion portfolio of cash equivalents and marketable securities are not expected to have a material impact on results of operations233 - The company makes direct investments in privately held companies, which are considered inherently risky and could result in a loss of all or a substantial part of the investment234 Controls and Procedures Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were deemed effective as of October 31, 2023, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarter236 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting238 Other Information (Part II) Legal Proceedings Autodesk is involved in various routine claims and legal proceedings, but management does not expect their resolution to have a material adverse impact on the company's consolidated financial results, cash flows, or financial position - The company is involved in routine legal matters including claims of intellectual property infringement, commercial, employment, and tax issues240 - Management believes that the resolution of pending legal matters will not have a material adverse impact on the company's financial condition240 Risk Factors The company faces numerous risks, including those related to its business strategy, global economic conditions, competition, and operational execution, with key concerns involving customer acceptance of new products, dependency on international revenue, prediction of subscription renewals, and potential security incidents - Strategic Risks: Challenges in developing and introducing new products, predicting subscription renewal rates, intense competition, and executing new business initiatives242244263 - Economic & International Risks: Dependency on global economic conditions and international revenue (64% of total for the nine months ended Oct 31, 2023), exposing the company to currency fluctuations, political instability, and trade policy changes242249257 - Operational & Technology Risks: Potential for security incidents, reliance on third-party services like AWS, complexities and potential errors in software, and challenges in managing the use of AI in offerings242283294 - Legal & Regulatory Risks: Increasing regulatory focus on privacy and data protection (e.g., GDPR, CCPA), compliance with export controls, and potential for costly intellectual property infringement claims242310326 Issuer Purchases of Equity Securities and Other Information During the third quarter of fiscal 2024, Autodesk repurchased 543,000 shares of its common stock at an average price of $205.70 per share, with no unregistered securities sold, and a director adopted a Rule 10b5-1 trading plan in September 2023 Issuer Purchases of Equity Securities (Q3 FY24) | Period | Total Shares Purchased (thousands) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | August 2023 | 139 | $206.25 | | September 2023 | 200 | $208.03 | | October 2023 | 204 | $203.05 | | Total | 543 | $205.70 | - As of October 31, 2023, approximately $4.80 billion remained available for future repurchases under the board-authorized plan220 - On September 13, 2023, Director Mary McDowell adopted a Rule 10b5-1 trading plan for the potential sale of up to 14,100 shares357