Subscription Strength Highlights Autodesk Second Quarter Results

SAN RAFAEL, Calif., Aug. 24, 2017 /PRNewswire/ -- Autodesk, Inc. (NASDAQ: ADSK) today reported financial results for the second quarter of fiscal 2018.

Second Quarter Fiscal 2018

• Subscription plan (formerly known as new model) annualized recurring revenue (ARR) was $784 million and increased 94 percent compared to the second quarter last year as reported, and 98 percent on a constant currency basis.
• Total ARR was $1.83 billion, an increase of 21 percent compared to the second quarter last year as reported, and 23 percent on a constant currency basis.
• Subscription plan subscriptions increased 270,000 from the first quarter of fiscal 2018 to 1.59 million at the end of the second quarter.  Subscription plan subscriptions benefited from 63,000 maintenance subscribers that converted to product subscription under the maintenance-to-subscription program.
• Total subscriptions increased 153,000 from the first quarter of fiscal 2018 to 3.44 million at the end of the second quarter.
• Deferred revenue increased 17 percent to $1.78 billion, compared to $1.52 billion in the second quarter last year.  Unbilled deferred revenue at the end of the second quarter was $63 million.
• Revenue was $502 million, a decrease of 9 percent compared to the second quarter last year as reported, and 8 percent on a constant currency basis.  During Autodesk's business model transition, revenue is negatively impacted as more revenue is recognized ratably rather than up front and as new offerings generally have a lower initial purchase price.
• Total GAAP spend (cost of revenue plus operating expenses) was $609 million, a decrease of 1 percent compared to the second quarter last year.
• Total non-GAAP spend was $531 million, an increase of 1 percent compared to the second quarter last year.  A reconciliation of GAAP to non-GAAP results is provided in the accompanying tables.
• GAAP diluted net loss per share was $(0.66), compared to GAAP diluted net loss per share of $(0.44) in the second quarter last year.
• Non-GAAP diluted net loss per share was $(0.11), compared to non-GAAP diluted net income per share of $0.05 in the second quarter last year.

"Once again, we experienced broad-based strength across all subscription plan types and geographies," said Andrew Anagnost, Autodesk president and CEO.  "We're seeing positive trends in ARR growth, especially with products that were first to move to subscription-only.  These products are further into the transition and have ARR growth rates well above our current average, offering additional proof that our model transition is working.  Subscription is delivering a better experience to our customers, expanding our market opportunities in construction and manufacturing, and increasing the customer lifetime value for Autodesk.

"During the second quarter we started offering a simple path for maintenance customers to move to subscription," continued Anagnost.  "While the program didn't begin until midway through the quarter, it is off to a great start with nearly one-in-four renewal opportunities moving to subscription."

"Strong execution across the board and a steady macro operating environment led to another quarter of better than expected results," said Scott Herren, Autodesk CFO.  "We've been able to achieve these results while diligently controlling costs.  Overall, our first half results increase our confidence that the transition is working for our customers and partners.  It also sets us up for success for the rest of the year and reinforces our conviction in our FY 20 targets."

Second Quarter Operational Overview

Subscription plan ARR was $784 million and increased 94 percent compared to the second quarter last year as reported, and 98 percent on a constant currency basis.  Subscription plan ARR includes $8 million related to the maintenance-to-subscription program.  Maintenance plan ARR was $1.05 billion and decreased 5 percent compared to the second quarter last year as reported, and on a constant currency basis.  Total ARR for the second quarter increased 21 percent to $1.83 billion compared to the second quarter last year as reported, and 23 percent on a constant currency basis.  Similar to the prior three quarters, second quarter total ARR growth was impacted by the allocation of existing marketing development funds (MDF).  MDF is recorded as contra revenue and historically was predominantly allocated against license revenue.  With the end of sale of perpetual licenses, MDF is allocated against recurring revenue, negatively impacting subscription plan ARR growth by 5 percentage points, maintenance plan ARR growth by 2 percentage points, and total ARR growth by 3 percentage points.

Subscription plan subscriptions (product, EBA, and cloud) were 1.59 million, a net increase of 270,000 from the first quarter of fiscal 2018, led by new product subscriptions and 63,000 product subscriptions that migrated from maintenance plan subscriptions.  Maintenance plan subscriptions were 1.85 million, a net decrease of 117,000 from the first quarter of fiscal 2018, which includes the 63,000 that migrated to product subscription.  Total subscriptions were 3.44 million, a net increase of 153,000 from the first quarter of fiscal 2018.

Total recurring revenue in the second quarter was 91 percent of total revenue compared to 69 percent of total revenue in the second quarter last year.

As a reminder, during the business model transition, revenue is negatively impacted as more revenue is recognized ratably rather than up front and as new product offerings generally have a lower initial purchase price.  As part of the business model transition, Autodesk discontinued new perpetual license sales for most individual products at the end of the fourth quarter of fiscal 2016 and for suites at the end of the second quarter of fiscal 2017.

Revenue in the Americas was $214 million, a decrease of 7 percent compared to the second quarter last year as reported, and on a constant currency basis.  Revenue in EMEA was $199 million, a decrease of 10 percent compared to the second quarter last year as reported, and 7 percent on a constant currency basis.  Revenue in APAC was $89 million, a decrease of 12 percent compared to the second quarter last year as reported, and on a constant currency basis.

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 third 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 third quarter and full year fiscal 2018 outlook assume a projected annual effective tax rate of (14) 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 in the paragraphs under "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, 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, including the introduction of additional ratable revenue streams and our continuing efforts to attract customers to our cloud-based offerings and expenses related to the transition of our business model; 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; failure to control our expenses; 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 April 30, 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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