Company Announces Restructuring Plan to Focus on Strategic Priorities

(PRNewswire) —   Autodesk, Inc. (NASDAQ: ADSK) today reported financial results for the third quarter of fiscal 2018.

Third Quarter Fiscal 2018

• Subscription plan (formerly known as new model) annualized recurring revenue (ARR) was $924 million and increased 106 percent compared to the third quarter last year as reported, and 108 percent on a constant currency basis.
• Total ARR was $1.90 billion, an increase of 24 percent compared to the third quarter last year as reported, and 25 percent on a constant currency basis.
• Subscription plan subscriptions increased 307,000 from the second quarter of fiscal 2018 to 1.9 million at the end of the third quarter. Subscription plan subscriptions benefited from 110,000 maintenance subscribers that converted to product subscription under the maintenance-to-subscription program.
• Total subscriptions increased 146,000 from the second quarter of fiscal 2018 to 3.6 million at the end of the third quarter.
• Deferred revenue increased 15 percent to $1.76 billion, compared to $1.53 billion in the third quarter last year. Unbilled deferred revenue at the end of the third quarter was $148 million.
• Revenue was $515 million, an increase of 5 percent compared to the third quarter last year as reported, and 6 percent on a constant currency basis.
• Total GAAP spend (cost of revenue plus operating expenses) was $615 million, an increase of 1 percent compared to the third quarter last year.
• Total non-GAAP spend was $542 million, an increase of 2 percent compared to the third quarter last year. A reconciliation of GAAP to non-GAAP results is provided in the accompanying tables.
• GAAP diluted net loss per share was $(0.55), compared to GAAP diluted net loss per share of $(0.64) in the third quarter last year.
• Non-GAAP diluted net loss per share was $(0.12), compared to non-GAAP diluted net loss per share of $(0.18) in the third quarter last year.

"We are pleased with another solid quarter of execution and progress on our business model transition," said Andrew Anagnost, Autodesk president and CEO.  "We're experiencing healthy trends in several key transition metrics, including ARR and deferred revenue growth, as customers continue to embrace our new subscription offerings.  As we enter the growth phase of our model transition, we need to re-balance investments to focus on our strategic priorities. This includes divesting from some areas and increasing our investment in others.  We're taking this restructuring action from a position of strength.  This is not a cost reduction activity as we maintain our commitment to keep total non-GAAP spend flat this year and next."

"Our third quarter results mark our return to revenue growth as we reached the one year mark of subscription-only sales," said Scott Herren, Autodesk CFO.  "We are excited to have reached a significant milestone where the base of subscription plan subscriptions has surpassed the base of maintenance plan subscriptions for the first time.  We are also experiencing early success with the maintenance-to-subscription program, which is a winning combination for both our customers and Autodesk.  Our solid third quarter results and stable macro operating environment keep us confident in our near-term and long-term goals."

Third Quarter Operational Overview

Subscription plan ARR was $924 million and increased 106 percent compared to the third quarter last year as reported, and 108 percent on a constant currency basis.  Subscription plan ARR includes $70 million related to the maintenance-to-subscription program.  Maintenance plan ARR was $978 million and decreased 10 percent compared to the third quarter last year as reported, and on a constant currency basis.  Total ARR for the third quarter increased 24 percent to $1.90 billion compared to the third quarter last year as reported, and 25 percent on a constant currency basis.

Subscription plan subscriptions (product, EBA, and cloud) were 1.90 million, a net increase of 307,000 from the second quarter of fiscal 2018, led by new product subscriptions and 110,000 product subscriptions that migrated from maintenance plan subscriptions.  Maintenance plan subscriptions were 1.69 million, a net decrease of 161,000 from the second quarter of fiscal 2018, which includes the 110,000 that migrated to product subscription.  Total subscriptions were 3.59 million, a net increase of 146,000 from the second quarter of fiscal 2018.   

Total recurring revenue in the third quarter was 92 percent of total revenue compared to 78 percent of total revenue in the third quarter last year.

Revenue in the Americas was $215 million, an increase of 1 percent compared to the third quarter last year. Revenue in EMEA was $205 million, an increase of 8 percent compared to the third quarter last year as reported, and 10 percent on a constant currency basis. Revenue in APAC was $95 million, an increase of 12 percent compared to the third quarter last year as reported, and 10 percent on a constant currency basis.

Restructuring

Autodesk today announced a restructuring plan to focus on the company's strategic priorities of completing the subscription transition; digitizing the company; and re-imagining manufacturing, construction, and production.  Through the restructuring, Autodesk seeks to streamline the organization and re-balance resources to better align with the company's priorities.  By realigning its investments, Autodesk is positioning itself to meet its long-term goals, including keeping non-GAAP spend flat in fiscal 2019.

The company anticipates taking a pre-tax restructuring charge in the range of $135 million to $149 million.  Approximately $91 million to $100 million in pre-tax charges will be taken in the fourth quarter of fiscal 2018.  The remaining charge will be taken in fiscal 2019.

Business Outlook

The following are forward-looking statements based on current expectations and assumptions, and involve risks and uncertainties some of which are set forth below under "Safe Harbor Statement."  Autodesk's business outlook for the fourth quarter and full year fiscal 2018 assumes, among other things, a continuation of the current economic environment and foreign exchange currency rate environment.  A reconciliation between the fiscal 2018 GAAP and non-GAAP estimates is provided below or in the tables following this press release.

The fourth quarter and full year fiscal 2018 outlook assume a projected annual effective tax rate of (15) percent and 26 percent for GAAP and non-GAAP results, respectively.  Assumptions for the annual effective tax rate are regularly evaluated and may change based on the projected geographic mix of earnings.  At this stage of the business model transition, small shifts in geographic profitability significantly impact the annual effective tax rate.

Earnings Conference Call and Webcast

Autodesk will host its second quarter conference call today at 5:00 p.m. ET. The live broadcast can be accessed at http://www.autodesk.com/investor. Supplemental financial information and prepared remarks for the conference call will be posted to the investor relations section of Autodesk's website simultaneously with this press release.

A replay of the broadcast will be available at 7:00 p.m. ET at http://www.autodesk.com/investor. This replay will be maintained on Autodesk's website for at least 12 months.

Glossary of Terms

Annualized Recurring Revenue (ARR): Represents the annualized value of our average monthly recurring revenue for the preceding three months. "Maintenance plan ARR" captures ARR relating to traditional maintenance attached to perpetual licenses. "Subscription plan ARR" captures ARR relating to term-based product subscriptions, cloud service offerings, and flexible enterprise business arrangements. Refer to the definition of recurring revenue below for more details on what is included within ARR. Recurring revenue acquired with the acquisition of a business may cause variability in the comparison of this calculation.

ARR is currently one of our key performance metrics to assess the health and trajectory of our business. ARR should be viewed independently of revenue and deferred revenue as ARR is a performance metric and is not intended to be combined with any of these items.

Constant Currency (CC) Growth Rates: We calculate constant currency growth rates by (i) applying the applicable prior period exchange rates to current period results and (ii) excluding any gains or losses from foreign currency hedge contracts that are reported in the current and comparative periods.

Enterprise Business Agreements (EBAs): These represent programs providing enterprise customers with token-based access or a fixed maximum number of seats to a broad pool of Autodesk products over a defined contract term.

License and Other Revenue: Represents (1) perpetual license revenue and (2) other revenue. Perpetual license revenue includes software license revenue from the sale of perpetual licenses, and Creative Finishing. Other revenue includes revenue such as standalone consulting and training, and is recognized over time as the services are performed.

Maintenance Plan: Our maintenance plans provide our customers with a cost effective and predictable budgetary option to obtain the productivity benefits of our new releases and enhancements when and if released during the term of their contracts. Under our maintenance plans, customers are eligible to receive unspecified upgrades when and if available, and technical support. We recognize maintenance revenue over the term of the agreements, generally between one and three years.

Recurring Revenue: Consists of the revenue for the period from our traditional maintenance plans and revenue from our subscription plan offerings. It excludes subscription revenue related to consumer product offerings, select Creative Finishing product offerings, education offerings, and third party products. Recurring revenue acquired with the acquisition of a business is captured when total subscriptions are captured in our systems and may cause variability in the comparison of this calculation. 

Subscription Plan: Comprises our term-based product subscriptions, cloud service offerings, and enterprise business agreements (EBAs). Subscriptions represent a hybrid of desktop and SaaS functionality which provides a device-independent, collaborative design workflow for designers and their stakeholders. With subscription, customers can use our software anytime, anywhere, and get access to the latest updates to previous versions.

Subscription Revenue: Includes subscription fees from term-based product subscriptions, flexible enterprise business arrangements and all other services as part of a bundled subscription agreement accounted for as a single unit of accounting. (i.e. cloud services, maintenance, and consulting).

Total Subscriptions: Consists of subscriptions from our maintenance plans and subscription plan offerings that are active and paid as of the quarter end date.  For certain cloud service offerings and flexible enterprise business arrangements, subscriptions represent the monthly average activity reported within the last three months of the quarter end date.  Total subscriptions do not include education offerings, consumer product offerings, select Creative Finishing product offerings, Autodesk Buzzsaw, Autodesk Constructware, and third party products.  Subscriptions acquired with the acquisition of a business are captured once the data conforms to our subscription count methodology and when added, may cause variability in the comparison of this calculation.

Unbilled deferred revenue: Unbilled deferred revenue represents contractually stated or committed orders under multi-year billing plans for subscription, services, license and maintenance for which the associated revenue has not been recognized and the customer has not been invoiced. Unbilled deferred revenue is not included on our Consolidated Balance Sheet until invoiced to the customer.

Safe Harbor Statement

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the effectiveness of efforts to maintain our spend, statements in the paragraphs under "Restructuring" and "Business Outlook" above, other statements about our short-term and long-term targets, statements regarding the impacts and results of our business model transition, expectations regarding the transition of product offerings to subscription and acceptance by our customers and partners of subscriptions, expectations for subscriptions and ARR, statements about the expansion of our market opportunity, statements about our restructuring activities, and other statements regarding our strategies, market and product positions, performance, and results. There are a significant number of factors that could cause actual results to differ materially from statements made in this press release, including: failure to achieve our revenue and profitability objectives; failure to successfully manage transitions to new business models and markets; failure to maintain cost reductions or otherwise control our expenses; the success of our restructuring activities; difficulty in predicting revenue from new businesses and the potential impact on our financial results from changes in our business models; general market, political, economic, and business conditions; any imposition of new tariffs or trade barriers; the impact of non-cash charges on our financial results; fluctuation in foreign currency exchange rates; the success of our foreign currency hedging program; our performance in particular geographies, including emerging economies; the ability of governments around the world to meet their financial and debt obligations, and finance infrastructure projects; weak or negative growth in the industries we serve; slowing momentum in subscription billings or revenues; difficulties encountered in integrating new or acquired businesses and technologies; the inability to identify and realize the anticipated benefits of acquisitions; the financial and business condition of our reseller and distribution channels; dependence on and the timing of large transactions; failure to achieve sufficient sell-through in our channels for new or existing products; pricing pressure; unexpected fluctuations in our annual effective tax rate; the timing and degree of expected investments in growth and efficiency opportunities; changes in the timing of product releases and retirements; and any unanticipated accounting charges.

Further information on potential factors that could affect the financial results of Autodesk are included in Autodesk's Annual Report on Form 10-K for the fiscal year ended January 31, 2017 and Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2017, which are on file with the U.S. Securities and Exchange Commission.  Autodesk disclaims any obligation to update the forward-looking statements provided to reflect events that occur or circumstances that exist after the date on which they were made.

About Autodesk

Autodesk makes software for people who make things. If you've ever driven a high-performance car, admired a towering skyscraper, used a smartphone, or watched a great film, chances are you've experienced what millions of Autodesk customers are doing with our software. Autodesk gives you the power to make anything. For more information visit autodesk.com or follow @autodesk.

Autodesk, AutoCAD, AutoCAD LT, BIM 360 and Fusion 360 are registered trademarks of Autodesk, Inc., and/or its subsidiaries and/or affiliates in the USA and/or other countries. All other brand names, product names or trademarks belong to their respective holders. Autodesk reserves the right to alter product and service offerings, and specifications and pricing at any time without notice, and is not responsible for typographical or graphical errors that may appear in this document.

© 2017 Autodesk, Inc. All rights reserved.

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SOURCE Autodesk, Inc.