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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 July 31, 2019
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
 
 
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
 
94-2819853
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. employer
Identification No.)
 
 
 
 
111 McInnis Parkway,
 
 
 
San Rafael,
California
 
94903
(Address of principal executive offices)
 
 
(Zip Code)
(415507-5000
(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
Common Stock, par value $0.01 per share
 
ADSK
 
The Nasdaq Global Select Market

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      No  

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      No  

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.




Large accelerated filer
 
  
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 August 29, 2019, registrant had outstanding 219,587,608 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 July 31,
 
Six Months Ended July 31,
 
2019
 
2018
 
2019
 
2018
Net revenue:
 
 
 
 
 
 
 
Subscription
$
663.7

 
$
420.6

 
$
1,259.5

 
$
771.0

Maintenance
103.5

 
166.4

 
215.5

 
347.6

Total subscription and maintenance revenue
767.2

 
587.0

 
1,475.0

 
1,118.6

Other
29.6

 
24.7

 
57.3

 
53.0

Total net revenue
796.8

 
611.7


1,532.3

 
1,171.6

Cost of revenue:

 

 

 

Cost of subscription and maintenance revenue
53.0

 
54.1

 
112.7

 
104.5

Cost of other revenue
17.9

 
12.3

 
31.7

 
25.1

Amortization of developed technology
8.6

 
3.4

 
17.8

 
7.0

Total cost of revenue
79.5

 
69.8


162.2

 
136.6

Gross profit
717.3

 
541.9


1,370.1

 
1,035.0

Operating expenses:

 
 
 

 

Marketing and sales
316.8

 
289.1

 
630.1

 
565.5

Research and development
215.4

 
180.8

 
421.0

 
353.6

General and administrative
101.4

 
79.1

 
200.5

 
152.0

Amortization of purchased intangibles
9.7

 
3.8

 
19.5

 
7.6

Restructuring and other exit costs, net
0.2

 
13.8

 
0.4

 
36.3

Total operating expenses
643.5

 
566.6


1,271.5

 
1,115.0

Income (loss) from operations
73.8

 
(24.7
)

98.6

 
(80.0
)
Interest and other (expense) income, net
(7.3
)
 
1.3

 
(23.5
)
 
(7.2
)
Income (loss) before income taxes
66.5

 
(23.4
)

75.1

 
(87.2
)
Provision for income taxes
(26.3
)
 
(16.0
)
 
(59.1
)
 
(34.6
)
Net income (loss)
$
40.2

 
$
(39.4
)

$
16.0

 
$
(121.8
)
Basic net income (loss) per share
$
0.18

 
$
(0.18
)
 
$
0.07

 
$
(0.56
)
Diluted net income (loss) per share
$
0.18

 
$
(0.18
)
 
$
0.07

 
$
(0.56
)
Weighted average shares used in computing basic net income (loss) per share
219.6

 
219.0

 
219.6

 
218.8

Weighted average shares used in computing diluted net income (loss) per share
222.4

 
219.0

 
222.3

 
218.8





See accompanying Notes to Condensed Consolidated Financial Statements.


4



AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)

 
Three Months Ended July 31,
 
Six Months Ended July 31,
 
2019
 
2018
 
2019
 
2018
Net income (loss)
$
40.2

 
$
(39.4
)
 
$
16.0

 
$
(121.8
)
Other comprehensive income (loss), net of reclassifications:
 
 
 
 
 
 
 
Net (loss) gain on derivative instruments (net of tax effect of ($1.7), ($1.1), ($2.0) and ($1.8), respectively)
(4.3
)
 
11.6

 
(1.0
)
 
17.6

Change in net unrealized (loss) gain on available-for-sale debt securities (net of tax effect of $0.1, ($0.1), ($0.3) and $0.0, respectively)
(0.2
)
 
(1.3
)
 
0.9

 
(0.7
)
Change in defined benefit pension items (net of tax effect of $0.4, ($0.1), $0.5 and ($1.5), respectively)
(1.8
)
 
2.3

 
(2.4
)
 
10.0

Net change in cumulative foreign currency translation loss (net of tax effect of ($0.4), $0.2, $0.0 and $0.5, respectively)
(22.8
)
 
(29.7
)
 
(33.2
)
 
(54.0
)
Total other comprehensive loss
(29.1
)
 
(17.1
)
 
(35.7
)
 
(27.1
)
Total comprehensive income (loss)
$
11.1

 
$
(56.5
)
 
$
(19.7
)
 
$
(148.9
)


See accompanying Notes to Condensed Consolidated Financial Statements.


5



AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
July 31, 2019
 
January 31, 2019
ASSETS
 
 
 
Current assets:



Cash and cash equivalents
$
923.9


$
886.0

Marketable securities
67.4


67.6

Accounts receivable, net
347.4


474.3

Prepaid expenses and other current assets
176.8


192.1

Total current assets
1,515.5


1,620.0

Computer equipment, software, furniture and leasehold improvements, net
151.4


149.7

Operating lease right-of-use assets
298.8

 

Developed technologies, net
87.6


105.6

Goodwill
2,431.8


2,450.8

Deferred income taxes, net
46.3


65.3

Other assets
341.3


337.8

Total assets
$
4,872.7


$
4,729.2

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

Current liabilities:



Accounts payable
$
93.0


$
101.6

Accrued compensation
213.8


280.8

Accrued income taxes
5.9


13.2

Deferred revenue
1,772.1


1,763.3

Operating lease liabilities
58.9

 

Current portion of long-term notes payable, net
449.2

 

Other accrued liabilities
114.4


142.3

Total current liabilities
2,707.3


2,301.2

Long-term deferred revenue
477.4


328.1

Long-term operating lease liabilities
258.1

 

Long-term income taxes payable
19.5


21.5

Long-term deferred income taxes
98.9

 
79.8

Long-term notes payable, net
1,389.8

 
2,087.7

Other liabilities
116.0


121.8

Stockholders’ deficit:



Common stock and additional paid-in capital
2,200.7


2,071.5

Accumulated other comprehensive loss
(170.7
)

(135.0
)
Accumulated deficit
(2,224.3
)

(2,147.4
)
Total stockholders’ deficit
(194.3
)

(210.9
)
Total liabilities and stockholders' deficit
$
4,872.7


$
4,729.2


See accompanying Notes to Condensed Consolidated Financial Statements.


6



AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Six Months Ended July 31,
 
2019
 
2018
Operating activities:



Net income (loss)
$
16.0


$
(121.8
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:



Depreciation, amortization and accretion
64.8


46.3

Stock-based compensation expense
163.4


111.3

Deferred income taxes
35.8

 
(0.3
)
Restructuring and other exit costs, net
0.4


36.6

Other operating activities
(4.2
)

(1.3
)
Changes in operating assets and liabilities
 



Accounts receivable
125.8

 
204.2

Prepaid expenses and other current assets
27.4

 
7.9

Accounts payable and accrued liabilities
(138.1
)
 
(201.3
)
Deferred revenue
158.3

 
(66.7
)
Accrued income taxes
(9.1
)
 
11.5

Net cash provided by operating activities
440.5


26.4

Investing activities:



Purchases of marketable securities
(19.9
)

(110.1
)
Sales of marketable securities
22.4


27.0

Maturities of marketable securities
5.0


119.6

Capital expenditures
(29.5
)

(36.7
)
Acquisitions, net of cash acquired


(34.1
)
Other investing activities
(10.5
)

(6.0
)
Net cash used in investing activities
(32.5
)

(40.3
)
Financing activities:



Proceeds from issuance of common stock, net of issuance costs
49.7


50.4

Taxes paid related to net share settlement of equity awards
(31.2
)

(53.0
)
Repurchases of common stock
(134.6
)

(154.7
)
Repayment of debt
(250.0
)


Net cash used in financing activities
(366.1
)

(157.3
)
Effect of exchange rate changes on cash and cash equivalents
(4.0
)

(11.4
)
Net increase (decrease) in cash and cash equivalents
37.9


(182.6
)
Cash and cash equivalents at beginning of period
886.0


1,078.0

Cash and cash equivalents at end of period
$
923.9


$
895.4

 
 
 
 
Supplemental cash flow disclosure:
 
 
 
Non-cash investing activities:
 
 
 
Fair value of common stock issued as consideration for business combination
$

 
$
44.8


See accompanying Notes to Condensed Consolidated Financial Statements.


7



AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Tables in millions, except share and per share data, or as otherwise noted)
 
1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Autodesk, Inc. (“Autodesk,” “we,” “us,” “our,” or the “Company”) as of July 31, 2019, and for the three and six months ended July 31, 2019 and 2018, have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information along with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In management’s opinion, Autodesk made all adjustments (consisting of normal, recurring and non-recurring adjustments) during the quarter that were considered necessary for the fair statement of the financial position and operating results of the Company. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. In addition, the results of operations for the three and six months ended July 31, 2019, are not necessarily indicative of the results for the entire fiscal year ending January 31, 2020, or for any other period. Further, the balance sheet as of January 31, 2019, has been derived from the audited Consolidated Balance Sheet as of this date. There have been no material changes, other than what is discussed herein, to Autodesk's significant accounting policies as compared to the significant accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2019. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes, together with management’s discussion and analysis of financial position and results of operations, contained in Autodesk’s Annual Report on Form 10-K for the fiscal year ended January 31, 2019, filed on March 25, 2019.

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 six months ended July 31, 2019, that are applicable to the Company.

Accounting standards adopted

Autodesk adopted ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities" on February 1, 2019. The amendment helps simplify certain aspects of hedge accounting and results in a more accurate portrayal of the economics of an entity’s risk management activities in its financial statements. For cash flow and net investment hedges as of the adoption date, the guidance required a modified retrospective approach. The amended presentation and disclosure guidance is required only prospectively. The transition impact was immaterial and no substantive changes were made to Autodesk’s current processes, accounting, or disclosures for cash flow hedges.

Autodesk adopted ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income” on February 1, 2019.  The amendment allows entities the option to reclassify tax effects stranded in accumulated other comprehensive income as a result of the U.S. Tax Cuts and Jobs Act (the "Tax Act") to retained earnings. Upon adoption, the amount reclassified from other comprehensive loss to stockholders' deficit was not material.
 
Leases

In February 2016, FASB issued ASU No. 2016-02, Leases (ASC Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing transactions. The new standard requires entities to reflect the net present value of all future fixed lease payments for both operating and finance leases on the balance sheet. It also requires entities to disclose fixed and variable lease payments separately and by lease type (operating vs. finance leases). In addition, FASB issued ASU No. 2018-10 and 2018-11 in July 2018 and ASU No. 2018-20 in December 2018 to help provide accommodations and interpretive clarifications on various issues raised by stakeholders. ASU No. 2018-10 clarifies ambiguous or potentially conflicting guidance in ASU No. 2016-02. ASU No. 2018-11 provides an additional transition option to apply ASU No. 2016-02 upon adoption of the new standard.


8



Adoption and policy elections

Autodesk adopted ASU No. 2016-02 as of February 1, 2019, using the modified retrospective method permitted under ASU No. 2018-11 for all existing leases which does not include retrospectively adjusting prior periods presented in the financial statements. Under ASU No. 2016-02, as the lessee, Autodesk recognized a right-of-use ("ROU") asset and offsetting lease liability for leases that existed on adoption. The asset and liability were measured at present value of all future fixed lease payments, discounted using the Company’s incremental borrowing rate. Autodesk has elected to opt for the practical expedients: to not reassess whether any existing contracts are leases or contain a lease; to not reassess the lease classification of existing leases; and to not reassess initial direct costs for existing leases. Autodesk has elected to combine lease and non-lease components for new leases post adoption for all lease assets.

Autodesk determines if an arrangement is a lease at inception. Operating leases are included in “Operating lease right-of-use assets”, “Operating lease liabilities”, and “Long-term operating lease liabilities” in the Condensed Consolidated Balance Sheets.

Operating lease ROU assets represent Autodesk’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, Autodesk uses its incremental borrowing rate, adjusted for local country-specific borrowing rates as applicable, based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU assets include any adjustments for prepayments and any lease incentives. Options to extend or terminate the lease are considered in determining the lease term when it is reasonably certain that the option will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Autodesk has lease agreements with lease and non-lease components. Autodesk accounts for the lease and non-lease components as a single lease component.

Quantitative effect of ASC Topic 842 adoption

Under the modified retrospective method, Autodesk recorded $(0.7) million to the opening balance of "Accumulated deficit" as of February 1, 2019. The comparative information has not been adjusted and continues to be reported as under previous accounting guidance. The adoption of ASU No. 2016-02 did not have a material impact to the Company’s condensed consolidated statement of operations or net cash provided by operating activities as of February 1, 2019.

9




The following table shows line items that were materially impacted by the adoption of ASC Topic 842 on February 1, 2019, on Autodesk’s Condensed Consolidated Balance Sheet:
 
As reported January 31, 2019
 
Impact from the adoption (1)
 
As adjusted
ASSETS
 
 
 
 
 
Prepaid expenses and other current assets
$
192.1

 
$
(5.9
)
 
$
186.2

Total current assets
1,620.0

 
(5.9
)
 
1,614.1

Operating lease right-of-use assets

 
283.4

 
283.4

Total assets
4,729.2

 
277.5

 
5,006.7

LIABILITIES AND STOCKHOLDERS’ DEFICIT
 
 


 
 
Current liabilities:
 
 
 
 
 
Other accrued liabilities
142.3

 
(4.9
)
 
137.4

Operating lease liabilities

 
54.1

 
54.1

Long-term operating lease liabilities

 
245.9

 
245.9

Other liabilities
121.8

 
(16.9
)
 
104.9

Accumulated deficit
$
(2,147.4
)
 
$
(0.7
)
 
$
(2,148.1
)
____________________ 
(1)
Adoption of ASC Topic 842 did not have any other material impacts on Autodesk's condensed consolidated financial statements.

See Note 13, "Leases" for disclosures under ASC Topic 842.

Recently issued accounting standards not yet adopted

In June 2016, FASB issued ASU No. 2016-13 regarding ASC Topic 326, "Financial Instruments - Credit Losses," which modifies the measurement of expected credit losses of certain financial instruments. Autodesk plans to adopt ASU 2016-13 as of the effective date which represents Autodesk’s fiscal year beginning February 1, 2020. Autodesk does not believe the ASU will have a material impact on its consolidated financial statements.

3. Revenue Recognition

Revenue Recognition    

Autodesk’s revenue is divided into three categories: subscription revenue, maintenance revenue, and other revenue. Revenue is recognized when control for these offerings is transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for products and services.

Our contracts with customers may include promises to transfer multiple products and services to a customer. Determining whether the products and services are considered distinct performance obligations that should be accounted for separately or as one combined performance obligation may require significant judgment. Judgment is required to determine the level of integration and interdependency between individual components of software and cloud functionality. This determination influences whether the software is considered distinct and accounted for separately as a license performance obligation, or not distinct and accounted for together with the cloud functionality as a single subscription performance obligation recognized over time.

For product subscriptions and enterprise business agreement ("EBA") subscriptions in which the desktop software and related cloud functionality are highly interrelated, the combined performance obligation is recognized ratably over the contract term as the obligation is delivered. For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer. For standalone maintenance subscriptions, cloud subscriptions, and technical support services, the performance obligation is satisfied ratably over the contract term as those services are delivered. For consulting services, the performance obligation is satisfied over a period of time as those services are delivered.


10



When an arrangement includes multiple performance obligations, which are concurrently delivered and have the same pattern of transfer to the customer (the services transfer to the customer over the contract period), we account for those performance obligations as a single performance obligation.

For contracts with more than one performance obligation, the transaction price is allocated among the performance obligations in an amount that depicts the relative standalone selling price ("SSP") of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount that should be allocated based on the relative SSP of the various products and services. 

In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that includes market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customer and circumstance. In these instances, we use relevant information such as the sales channel and geographic region to determine the SSP.

Our indirect channel model includes both a two-tiered distribution structure, where Autodesk sells to distributors that subsequently sell to resellers, and a one-tiered structure where Autodesk sells directly to resellers. For these arrangements, transfer of control begins at the time access to our subscriptions is made available electronically to our customer, provided all other criteria for revenue recognition are met. Judgment is required to determine whether our distributors and resellers have the ability to honor their commitment to pay, regardless of whether they collect payment from their customers. If we were to change this assessment, it could cause a material increase or decrease in the amount of revenue that we report in a particular period.

As part of the indirect channel model, we have a partner incentive program that uses quarterly attainment of monetary rewards to motivate distributors and resellers to achieve mutually agreed upon business goals in a specified time period. Incentives related to our subscription program are recorded as a reduction to deferred revenue in the period the subscription transaction is billed, and are subsequently recognized as a reduction to subscription revenue over the contract period. A small portion of partner incentives reduce maintenance revenue in the current period. These incentive balances do not require significant assumptions or judgments. Depending on how the payments are made, the reserves associated with the partner incentive program are recorded on the balance sheet as either contra accounts receivable or accounts payable.

Revenue Disaggregation

Autodesk recognizes revenue from the sale of (1) product subscriptions, cloud service offerings, and EBAs, (2) renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license, and (3) consulting, training and other goods and services. The three categories are presented as line items on Autodesk's unaudited Condensed Consolidated Statements of Operations.


11



Information regarding the components of Autodesk's net revenue from contracts with customers by geographic location, product family, and sales channel is as follows:
 
 
Three Months Ended July 31,
 
Six Months Ended July 31,
 
2019
 
2018
 
2019
 
2018
Net revenue by product family:
 
 
 
 
 
 
 
Architecture, Engineering and Construction
$
334.2

 
$
243.1

 
$
638.5

 
$
464.9

AutoCAD and AutoCAD LT
231.3

 
176.6

 
444.5

 
332.2

Manufacturing
174.6

 
146.1

 
342.1

 
281.5

Media and Entertainment
50.8

 
41.7

 
96.3

 
83.5

Other
5.9

 
4.2

 
10.9

 
9.5

Total net revenue
$
796.8

 
$
611.7

 
$
1,532.3

 
$
1,171.6

 
 
 
 
 
 
 
 
Net revenue by geographic area:
 
 
 
 
 
 
 
Americas
 
 
 
 
 
 
 
U.S.
$
267.9

 
$
205.2

 
$
517.0

 
$
401.1

Other Americas
58.0

 
42.3

 
104.7

 
79.9

Total Americas
325.9

 
247.5

 
621.7

 
481.0

Europe, Middle East and Africa
316.2

 
248.3

 
613.4

 
469.2

Asia Pacific
154.7

 
115.9

 
297.2

 
221.4

Total net revenue
$
796.8

 
$
611.7

 
$
1,532.3

 
$
1,171.6

 
 
 
 
 
 
 
 
Net revenue by sales channel:
 
 
 
 
 
 
 
Indirect
$
560.2

 
$
440.2

 
$
1,076.6

 
$
838.5

Direct
236.6

 
171.5

 
455.7

 
333.1

Total net revenue
$
796.8

 
$
611.7

 
$
1,532.3

 
$
1,171.6


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 billed and unbilled deferred revenue. As of July 31, 2019, Autodesk had remaining performance obligations of $2.81 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 $2.01 billion or 72% of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $798.9 million or 28% of our remaining performance obligations as revenue thereafter.

We expect that the amount of remaining performance obligations will change from quarter to quarter for several reasons, including the specific timing, duration and size of customer subscription and support agreements, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations.

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 July 31, 2019. Deferred 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 six months ended July 31, 2019, that was included in the deferred revenue balances at January 31, 2019, was $1.19 billion. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers, which may lead to an increase in our deferred revenue balance over time.


12



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 $650.0 million line of credit facility as well as our Term Loan Agreement. See Note 12, "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 35% of Autodesk’s total net revenue for both the three and six months ended July 31, 2019 and 2018. The majority of the net revenue from sales to Tech Data is for sales made outside of the United States. In addition, Tech Data accounted for 28% and 29% of trade accounts receivable at July 31, 2019, and January 31, 2019, respectively. During the three and six months ended July 31, 2019 and 2018, Ingram Micro Inc. ("Ingram Micro") accounted for 10% and 11% of Autodesk's total net revenue, 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.


13



5. Financial Instruments

The following tables summarize the Company's financial instruments' amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category as of July 31, 2019, and January 31, 2019:
 
 
 
 
July 31, 2019
 
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
$
32.0

 
$

 
$

 
$
32.0

 
$

 
$
32.0

 
$

 
Agency discount notes
10.0

 

 

 
10.0

 

 
10.0

 

 
Money market funds
365.0

 

 

 
365.0

 
365.0

 

 

 
Other (2)
1.9

 

 

 
1.9

 
0.9

 
1.0

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
59.8

 
7.6

 

 
67.4

 
67.4

 

 

Derivative contract assets (3)
2.2

 
11.3

 
(1.9
)
 
11.6

 

 
11.0

 
0.6

Derivative contract liabilities (4)

 

 
(5.9
)
 
(5.9
)
 

 
(5.9
)
 

 
 
Total
$
470.9


$
18.9


$
(7.8
)

$
482.0


$
433.3


$
48.1


$
0.6

____________________ 
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Consists of custody cash deposits and certificates of deposit.
(3)
Included in “Prepaid expenses and other current assets” or “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
(4)
Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.





















14



 
 
 
January 31, 2019
 
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit
$
1.0

 
$

 
$

 
$
1.0

 
$

 
$
1.0

 
$

 
Commercial paper
87.9

 

 

 
87.9

 

 
87.9

 

 
Corporate debt securities
5.0

 

 

 
5.0

 

 
5.0

 

 
Custody cash deposit
0.8

 

 

 
0.8

 
0.8

 

 

 
Money market funds
281.4

 

 

 
281.4

 
281.4

 

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other (2)
6.2

 
1.1

 

 
7.3

 
2.7

 
4.6

 

 
Short-term trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds
56.6

 
3.7

 

 
60.3

 
60.3

 

 

 
Long-term
 
 
 
 
 
 
 
 
 
 
 
 
 
Convertible debt securities (3)
4.6

 
1.9

 
(2.1
)
 
4.4

 

 

 
4.4

Derivative contract assets (4)
1.7

 
8.6

 
(1.8
)
 
8.5

 

 
7.7

 
0.8

Derivative contract liabilities (5)

 

 
(7.4
)
 
(7.4
)
 

 
(7.4
)
 

 
 
Total
$
445.2

 
$
15.3

 
$
(11.3
)
 
$
449.2

 
$
345.2

 
$
98.8

 
$
5.2

____________________ 
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Consists of corporate bonds, commercial paper, and common stock.
(3)
Considered "available for sale" and included in “Other assets” in the accompanying Condensed Consolidated Balance Sheets.
(4)
Included in “Prepaid expenses and other current assets,” “Other assets,” or “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
(5)
Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.
    
Autodesk classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date. Generally, marketable securities with remaining maturities of up to 12 months are classified as short-term and marketable securities with remaining maturities greater than 12 months are classified as long-term. Autodesk may sell certain of its marketable securities prior to their stated maturities for strategic purposes or in anticipation of credit deterioration.

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 Company has elected to use the income approach to value derivatives using the observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted). Mid-market pricing is used as a practical expedient and when required, rates are interpolated from commonly quoted intervals published by market sources.

Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and (Level 3) unobservable inputs for which there is little or no market data, which require Autodesk to develop its own assumptions. When determining fair value, Autodesk uses observable market data and relies on unobservable inputs only when observable market data is not available. Key inputs for currency derivatives are spot rates, forward rates, interest rates, volatility, and credit default rates. The spot rate for each currency is the same spot rate used for all balance sheet translations at the measurement date. Autodesk reviews for any potential changes on a quarterly basis, in conjunction with our fiscal quarter-end close. It is Autodesk's assessment that the leveling best reflects current market activity when observing the pricing information for these assets.


15



Autodesk's cash equivalents, marketable securities and financial instruments are primarily classified within Level 1 or Level 2 of the fair value hierarchy. Autodesk values its securities on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1) or inputs other than quoted prices that are observable either directly or indirectly in determining fair value (Level 2). Autodesk's Level 2 securities and derivatives are valued primarily using observable inputs other than quoted prices in active markets for identical assets and liabilities. Autodesk's Level 3 securities consist of derivative contracts.

A reconciliation of the change in Autodesk’s Level 3 items for the six months ended July 31, 2019, was as follows:

 
Fair Value Measurements Using
Significant Unobservable Inputs
 
(Level 3)
 
 
Derivative Contracts
 
Convertible Debt Securities
 
Total
Balances, January 31, 2019
 
$
0.8

 
$
4.4

 
$
5.2

Impairments
 

 
(1.0
)
 
(1.0
)
Settlements
 

 
(3.5
)
 
(3.5
)
(Loss) gain included in earnings (1)
 
(0.2
)
 
0.2

 

Loss included in OCI
 

 
(0.1
)
 
(0.1
)
Balances, July 31, 2019
 
$
0.6

 
$

 
$
0.6


____________________
(1) Included in "Interest and other (expense) income, net" in the accompanying Condensed Consolidated Statements of Operations.

As of July 31, 2019, and January 31, 2019, Autodesk had no material unrealized losses, individually and in the aggregate, for securities that are in a continuous unrealized loss position for greater than twelve months.

There was no gain or loss for the sales or redemptions of securities during the six months ended July 31, 2019, and July 31, 2018. Gains and losses resulting from the sale or redemption of securities are recorded in “Interest and other (expense) income, net” on the Company's Condensed Consolidated Statements of Operations.

Proceeds from the sale and maturity of marketable securities for the three and six months ended July 31, 2019 was $22.8 million and $27.4 million, respectively, and $71.8 million and $146.6 million for the three and six months ended July 31, 2018, respectively.

Non-marketable equity securities

As of July 31, 2019, and January 31, 2019, Autodesk had $121.9 million and $111.6 million in direct investments in privately held companies. These non-marketable equity security investments 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.

Under the measurement alternative method, these investments are measured at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer in the current period. To determine if a transaction is deemed a similar investment, Autodesk considers the rights and obligations between the investments and the extent to which those differences would affect the fair values of those investments with additional consideration for the stage of development of the investee company. The fair value would then be adjusted positively or negatively based on available information such as pricing in recent rounds of financing. During the six months ended July 31, 2019 and July 31, 2018, Autodesk recorded $1.7 million and $6.2 million, respectively, as an upward adjustment on certain of its privately held investments, reflected as a gain in "Interest and other (expense) income, net" on the Company's Condensed Consolidated Statement of Operations. As of July 31, 2019, Autodesk has recorded $7.9 million in cumulative upward adjustments on its privately held investments.

Non-marketable equity securities investments are periodically assessed for impairment based on available information such as current cash positions, earnings and cash flow positions, earnings and cash flow forecasts, recent operational performance and any other readily available market data. Autodesk does not intend to sell these investments and it is not more likely than not that Autodesk will be required to sell the investment before recovery of the cost basis. If Autodesk determines that an impairment has occurred, Autodesk writes down the investment to its fair value. During the six months ended July 31, 2019 and July 31, 2018 Autodesk recorded $3.4 million and $4.8 million, respectively, in impairments and negative

16



adjustments on its privately held investments, reflected as a loss in "Interest and other (expense) income, net" on the Company's Condensed Consolidated Statements of Operations. As of July 31, 2019, Autodesk has recorded $8.2 million in cumulative impairments and negative adjustments on its privately held investments. Autodesk does not consider the remaining investments to be impaired at July 31, 2019.

Derivative Financial Instruments

Under its risk management strategy, Autodesk uses derivative instruments to manage its short-term exposures to fluctuations in foreign currency exchange rates that exist as part of ongoing business operations. Autodesk's general practice is to hedge a portion of transaction exposures primarily denominated in euros, Japanese yen, Swiss francs, British pounds, Canadian dollars, Australian dollars, Singapore dollars, Swedish krona and Czech koruna. These instruments generally have maturities between one and twelve months in the future. Autodesk does not enter into derivative instrument transactions for trading or speculative purposes.

The bank counterparties to the derivative contracts potentially expose Autodesk to credit-related losses in the event of their nonperformance. However, to mitigate that risk, Autodesk only contracts with counterparties who meet the Company's minimum requirements under its counterparty risk assessment process. Autodesk monitors counterparty risk on at least a quarterly basis and will adjust its exposure to various counterparties as necessary. Autodesk generally enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions with the same counterparty.  Autodesk does not have any master netting arrangements in place with collateral features.

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 effectiveness of the cash flow hedge contracts is assessed quantitatively using regression at inception and qualitatively thereafter considering transaction timing and probability and counterparty credit quality. To receive cash flow hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge relationship and the hedges are expected to be highly effective in offsetting changes to future cash flows on hedged transactions. The gains and losses on these hedges are included in “Accumulated other comprehensive loss” and are reclassified into earnings at the time the forecasted revenue or expense is recognized. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, Autodesk reclassifies and discloses the gain or loss on the related cash flow hedge from “Accumulated other comprehensive loss” to “Interest and other (expense) income, net” in the Company's Condensed Consolidated Financial Statements at that time.

The notional amounts of these contracts are presented net settled and were $1.06 billion at July 31, 2019, and $803.5 million at January 31, 2019. Outstanding contracts are recognized as either assets or liabilities on the balance sheet at fair value. The majority of the net gain of $14.0 million remaining in “Accumulated other comprehensive loss” as of July 31, 2019, is expected to be recognized into earnings within the next twenty-four months.

17




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 and six months ended July 31, 2019.

 
 
Three Months Ended July 31, 2019
 
 
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 in which the effects of cash flow hedges are recorded
 
$
663.7

 
$
103.5

 
$
53.0

 
$
316.8

 
$
215.4

 
$
101.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (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
 
$
3.2

 
$
1.8

 
$
(0.2
)
 
$
(0.8
)
 
$
(