Overview of the
Three and Six Months Ended July 31,
2016
and
2015
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|
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|
|
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|
|
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|
|
|
(in millions)
|
Three Months Ended July 31, 2016
|
|
As a % of Net
Revenue
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended July 31, 2015
|
|
As a % of Net
Revenue
|
|
|
|
$
|
|
%
|
|
|
Net Revenue
|
$
|
550.7
|
|
|
100
|
%
|
|
$
|
(58.8
|
)
|
|
(10
|
)%
|
|
$
|
609.5
|
|
|
100
|
%
|
Cost of revenue
|
85.1
|
|
|
15
|
%
|
|
(7.9
|
)
|
|
(8
|
)%
|
|
93.0
|
|
|
15
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%
|
Gross Profit
|
465.6
|
|
|
85
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%
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|
(50.9
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)
|
|
(10
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)%
|
|
516.5
|
|
|
85
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%
|
Operating expenses
|
528.5
|
|
|
96
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%
|
|
16.3
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|
|
3
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%
|
|
512.2
|
|
|
84
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%
|
(Loss) income from operations
|
$
|
(62.9
|
)
|
|
(11
|
)%
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|
$
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(67.2
|
)
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|
(1,563
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)%
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|
$
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4.3
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|
|
1
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%
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|
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|
|
|
|
|
|
|
|
|
Six Months Ended July 31, 2016
|
|
As a % of Net
Revenue
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended July 31, 2015
|
|
As a % of Net
Revenue
|
|
|
|
$
|
|
%
|
|
|
Net Revenue
|
$
|
1,062.6
|
|
|
100
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%
|
|
$
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(193.4
|
)
|
|
(15
|
)%
|
|
$
|
1,256.0
|
|
|
100
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%
|
Cost of revenue
|
177.5
|
|
|
17
|
%
|
|
(7.3
|
)
|
|
(4
|
)%
|
|
184.8
|
|
|
15
|
%
|
Gross Profit
|
885.1
|
|
|
83
|
%
|
|
(186.1
|
)
|
|
(17
|
)%
|
|
1,071.2
|
|
|
85
|
%
|
Operating expenses
|
1,097.7
|
|
|
103
|
%
|
|
52.3
|
|
|
5
|
%
|
|
1,045.4
|
|
|
83
|
%
|
(Loss) income from operations
|
$
|
(212.6
|
)
|
|
(20
|
)%
|
|
$
|
(238.4
|
)
|
|
(924
|
)%
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|
$
|
25.8
|
|
|
2
|
%
|
We are undergoing a business model transition in which we have discontinued selling new perpetual licenses for most of our products in favor of new model subscriptions.
During the transition, revenue, gross margin, operating margin, earnings (loss) per share, deferred revenue, billings, and cash flow from operations will be impacted as more revenue is recognized ratably rather than up front and as new offerings bring a wider variety of price points.
Revenue Analysis
Net revenue
decreased
during the
three
months ended
July 31, 2016
, as compared to the same period in the prior fiscal year, primarily due to a
21%
decrease in license and other revenue, partially offset by a
1%
increase in subscription revenue.
The
21%
decrease in license and other revenue was primarily a result of the discontinuation of the sale of most individual perpetual products as of February 1, 2016. The
1%
increase in subscription revenue was primarily driven by a
38%
increase
in revenue from our new model subscription offerings, partially offset by a
3%
decrease
in maintenance revenue.
Net revenue decreased during the
six
months ended
July 31, 2016
, as compared to the same period in the prior fiscal year, primarily due to a
33%
decrease in License and other revenue, partially offset by a
1%
increase in subscription revenue. The
33%
decrease in License and other revenue was primarily a result of the discontinuation of the sale of most individual perpetual products as of February 1, 2016. The
1%
increase in subscription revenue was primarily driven by a
36%
increase
in revenue from our new model subscription offerings, partially offset by a
2%
decrease
in maintenance revenue.
Further discussion of the drivers of these results are discussed 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”). Total sales to Tech Data accounted for
31%
and
30%
of Autodesk’s total net revenue for the
three and six
months ended
July 31, 2016
, respectively, and
23%
and
25%
for the
three and six
months ended
July 31, 2015
, respectively. Our customers through Tech Data are the resellers and end users who purchase our software licenses and services. Should any of our agreements with Tech Data and us be terminated for any reason, we believe the resellers and end users who currently purchase our products through Tech Data 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.
Operating Margin Analysis
Our operating margin
decreased
to
(11)%
for the
three
months ended
July 31, 2016
from
1%
for the
three
months ended
July 31, 2015
. The decrease in operating margin was primarily driven by a decrease in revenue related to the discontinuation of the sale of most individual perpetual products as of February 1, 2016 and an increase in operating expenses during the
three
months ended
July 31, 2016
. The increase in operating expenses was primarily driven by restructuring charges and other facility exit costs during the
three
months ended
July 31, 2016
.
Our operating margin
decreased
to
(20)%
for the
six
months ended
July 31, 2016
from
2%
for the
six
months ended
July 31, 2015
. The decrease in operating margin was primarily driven by a decrease in revenue and an increase in operating expenses during the
six
months ended
July 31, 2016
. The increase in operating expenses was primarily driven by restructuring charges and other facility exit costs during the
six
months ended
July 31, 2016
.
Further discussion regarding the cost of goods sold and operating expense activities are discussed below under the heading “Results of Operations.”
Business Model Transition Metrics
In order to help better understand our financial performance during and after the transition, we have introduced several new metrics including recurring revenue, total subscriptions, ARR, and annualized revenue per subscription ("ARPS"). ARR and ARPS are performance metrics and should be viewed independently of revenue and deferred revenue as ARR and ARPS are not intended to be combined with those items. Please refer to the Glossary of Terms for further discussion regarding the new metric terminology.
Recurring revenue represents
the revenue for the period from our traditional maintenance plans and revenue from our new model subscription offerings, including portions of revenue allocated to license & other revenue for those offerings. It excludes subscription revenue related to consumer product offerings, select Creative Finishing product offerings, Autodesk Buzzsaw, Autodesk Constructware, education offerings, and third party products. Recurring revenue acquired with the acquisition of a business is captured and may cause variability in the comparison of this calculation.
The following table outlines our recurring revenue for the
three
and
six
months ended
July 31, 2016
and
July 31, 2015
:
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|
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|
|
|
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|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended
|
|
July 31, 2016
|
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
|
$
|
|
%
|
|
July 31, 2015
|
(in millions)
|
|
|
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Subscription revenue
|
$
|
322.0
|
|
|
$
|
3.0
|
|
|
1
|
%
|
|
$
|
319.0
|
|
|
$
|
648.0
|
|
|
$
|
9.2
|
|
|
1
|
%
|
|
$
|
638.8
|
|
Add: License and other revenue from new model subscription offerings (1)
|
53.3
|
|
|
29.8
|
|
|
127
|
%
|
|
23.5
|
|
|
93.5
|
|
|
51.2
|
|
|
121
|
%
|
|
42.3
|
|
Less: other adjustments (2)
|
(8.0
|
)
|
|
0.2
|
|
|
(2
|
)%
|
|
(8.2
|
)
|
|
(15.3
|
)
|
|
1.3
|
|
|
(8
|
)%
|
|
(16.6
|
)
|
Total recurring revenue (3)
|
$
|
367.3
|
|
|
$
|
33.0
|
|
|
10
|
%
|
|
$
|
334.3
|
|
|
$
|
726.2
|
|
|
$
|
61.7
|
|
|
9
|
%
|
|
$
|
664.5
|
|
____________________
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|
(1)
|
Includes the portion of revenue for new model subscription offerings allocated to license & other revenue within our Condensed Consolidated Statements of Operations.
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(2)
|
Other adjustments include subscription revenue related to select Creative Finishing product offerings, Autodesk Buzzsaw, Autodesk Constructware, education offerings, and third party products which are excluded from recurring revenue.
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(3)
|
Total recurring revenue as presented may not recalculate on an annualized basis to total ARR in the next table due to rounding.
|
During the
three
months ended
July 31, 2016
and
2015
, recurring revenue was
67%
and
55%
of total net revenue, respectively. During the
six
months ended
July 31, 2016
and
2015
, recurring revenue was
68%
and
53%
of total net revenue, respectively.
The following table outlines our total subscriptions, ARR and ARPS metrics as of
July 31, 2016
, April 30, 2016, and
January 31, 2016
:
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|
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|
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|
|
Balances, July 31, 2016
|
|
Change compared to
prior quarter end
|
|
Balances, April 30, 2016
|
|
Balances, July 31, 2016
|
|
Change compared to
prior fiscal year end
|
|
Balances, January 31, 2016
|
|
|
$
|
|
%
|
|
|
|
$
|
|
%
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance subscriptions
|
2,127.0
|
|
|
(16.3
|
)
|
|
(1
|
)%
|
|
2,143.3
|
|
|
2,127.0
|
|
|
(24.0
|
)
|
|
(1
|
)%
|
|
2,151.0
|
|
New model subscriptions
|
692.7
|
|
|
125.8
|
|
|
22
|
%
|
|
566.9
|
|
|
692.7
|
|
|
265.5
|
|
|
62
|
%
|
|
427.2
|
|
Total subscriptions
|
2,819.7
|
|
|
109.5
|
|
|
4
|
%
|
|
2,710.2
|
|
|
2,819.7
|
|
|
241.5
|
|
|
9
|
%
|
|
2,578.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance ARR
|
$
|
1,097.7
|
|
|
$
|
(29.9
|
)
|
|
(3
|
)%
|
|
$
|
1,127.6
|
|
|
$
|
1,097.7
|
|
|
$
|
(23.7
|
)
|
|
(2
|
)%
|
|
$
|
1,121.4
|
|
New model ARR
|
371.3
|
|
|
63.3
|
|
|
21
|
%
|
|
308.0
|
|
|
371.3
|
|
|
116.3
|
|
|
46
|
%
|
|
255.0
|
|
Total ARR
|
$
|
1,469.0
|
|
|
$
|
33.4
|
|
|
2
|
%
|
|
$
|
1,435.6
|
|
|
$
|
1,469.0
|
|
|
$
|
92.6
|
|
|
7
|
%
|
|
$
|
1,376.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(ARR divided by Subscriptions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance ARPS
|
$
|
516
|
|
|
$
|
(10
|
)
|
|
(2
|
)%
|
|
$
|
526
|
|
|
$
|
516
|
|
|
$
|
(5
|
)
|
|
(1
|
)%
|
|
$
|
521
|
|
New Model ARPS
|
536
|
|
|
(7
|
)
|
|
(1
|
)%
|
|
543
|
|
|
536
|
|
|
(61
|
)
|
|
(10
|
)%
|
|
597
|
|
Total ARPS
|
$
|
521
|
|
|
$
|
(9
|
)
|
|
(2
|
)%
|
|
$
|
530
|
|
|
$
|
521
|
|
|
$
|
(13
|
)
|
|
(2
|
)%
|
|
$
|
534
|
|
Total subscriptions increased
4%
or
109,000
from the end of the first quarter of fiscal
2017
to
2.82 million
as of
July 31, 2016
. Maintenance subscriptions decreased
16,000
from the end of the first quarter of fiscal
2017
, primarily as a result of the discontinuation of new perpetual license sales for most individual products at the end of the fourth quarter of fiscal
2016
. New model subscriptions increased
22%
or
125,000
as of
July 31, 2016
as compared to the end of the first quarter of fiscal
2017
, primarily driven by growth in all new model subscription types, led by product subscription.
Total subscriptions
increased
9%
or
241,000
from the fourth quarter of fiscal
2016
to
2.82 million
as of
July 31, 2016
. Maintenance subscriptions
decreased
24,000
from the end of fiscal
2016
, primarily as a result of the discontinuation of new perpetual license sales for most individual products at the end of the fourth quarter of fiscal 2016. New model subscriptions
increased
62%
or
265,000
as of
July 31, 2016
as compared to the end of fiscal
2016
, primarily driven by growth in all new model subscription types, led by product subscription.
ARR increased
2%
or
$33.4 million
from the first quarter of fiscal
2017
to
$1,469.0 million
as of
July 31, 2016
, primarily due to a
21%
increase in new model ARR driven by growth in all new model subscription types, led by product subscription.
ARR
increased
7%
or
$92.6 million
from the fourth quarter of fiscal
2016
to
$1,469.0 million
as of
July 31, 2016
, primarily due to a
46%
increase in new model ARR driven by growth in all new model subscription types, led by product subscription.
ARPS decreased
2%
from the first quarter of fiscal
2017
to
$521
as of
July 31, 2016
primarily due to a
2%
decrease in maintenance ARPS, which decreased as a result of a decrease in hedging gains and a linearity shift in new subscription billings.
ARPS decreased
2%
from the fourth quarter of fiscal
2016
to
$521
as of
July 31, 2016
primarily due to a
10%
decrease in new model ARPS, which decreased as a result of individual product subscriptions leading the growth in new model subscriptions, which are priced lower than our flexible enterprise business agreements.
Foreign Currency Analysis
We generate a significant amount of our revenue in the U.S., Germany, Japan, the United Kingdom, and Canada. Our revenue was negatively impacted by foreign exchange rate changes during the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year. Had applicable exchange rates from the
three
months ended
July 31, 2015
been in effect during the
three
months ended
July 31, 2016
and had we excluded foreign exchange hedge gains and losses from the
three
months ended
July 31, 2016
, net revenue would have
decreased
6%
on a constant currency basis during the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year.
Our revenue was negatively impacted by foreign exchange rate changes during the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year. Had applicable exchange rates from the
six
months ended
July 31, 2015
been in effect during the
six
months ended
July 31, 2016
and had we excluded foreign exchange hedge gains and losses from the
six
months ended
July 31, 2016
, net revenue would have
decreased
12%
on a constant currency basis during the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year.
Our total spend, defined as cost of revenue plus operating expenses, during the
three
months ended
July 31, 2016
increased
1%
, on an as reported basis as compared to the same period in the prior fiscal year. Had applicable exchange rates from the
three
months ended
July 31, 2015
been in effect during the
three
months ended
July 31, 2016
and had we excluded foreign exchange hedge gains and losses from the
three
months ended
July 31, 2016
, total spend would have
increased
3%
, on a constant currency basis compared to the same period in the prior fiscal year.
Our total spend during the
six
months ended
July 31, 2016
increased
4%
, on an as reported basis as compared to the same period in the prior fiscal year. Had applicable exchange rates from the
six
months ended
July 31, 2015
been in effect during the
six
months ended
July 31, 2016
and had we excluded foreign exchange hedge gains and losses from the
six
months ended
July 31, 2016
, total spend would have
increased
5%
, on a constant currency basis compared to the same period in the prior fiscal year.
Changes in the value of the U.S. dollar may have a significant effect on net revenue, total spend, and income (loss) 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.
Balance Sheet and Cash Flow Items
At
July 31, 2016
, we had $
2.6 billion
in cash and marketable securities. We completed the
six
months ended
July 31, 2016
with lower accounts receivable and higher deferred revenue balances as compared to the fiscal year ended
January 31, 2016
. Our deferred revenue balance at
July 31, 2016
was
$1.5 billion
, which will be recognized as revenue ratably over the life of the contracts. The term of our subscription contracts is typically between one and three years. Our cash flow from operations
decreased
11%
to $
146.4 million
for the
six
months ended
July 31, 2016
compared to $
163.7 million
for the
six
months ended
July 31, 2015
. We repurchased
3.0 million
and
4.8 million
shares of our common stock for
$169.9 million
and
$270.0 million
during the
three and six
months ended
July 31, 2016
, respectively. Comparatively, we repurchased
2.1 million
and
3.7 million
shares of our common stock for
$112.3 million
and
$207.7 million
during the
three and six
months ended
July 31, 2015
, respectively. Further discussion regarding the balance sheet and cash flow activities are discussed below under the heading “Liquidity and Capital Resources.”
Business Outlook
Autodesk is undergoing a business model transition in which the company has discontinued selling new perpetual licenses in favor of subscriptions and flexible license arrangements. During the transition, revenue, gross margin, operating margin, EPS, deferred revenue, and cash flow from operations will be impacted as more revenue is recognized ratably rather than up front and as new offerings generally have a lower initial purchase price. We expect our business model transition to expand our customer base by eliminating higher up-front licensing costs and provide more flexibility in how customers gain access to and pay for our products. We expect this business model transition will increase our long-term revenue growth rate by increasing total subscriptions, ARR, and customer value over time.
In February 2016, we commenced a restructuring plan to reduce headcount by approximately 10% and to consolidate certain facilities around the world in order to accelerate the Company’s transition to a subscription-based business model and its move to the cloud. Through the restructuring, we seek to reduce expenses, streamline the organization, and reallocate resources to align more closely with the Company’s needs going forward. See further discussion of our restructuring plan in Note 13, “Restructuring charges and other facility exit costs, net” of the Notes to Condensed Consolidated Financial Statements. As a result of these actions, we have incurred and will incur additional costs in the short term that negatively impact our net income and cash flows from operating activities and have the effect of reducing our operating margins.
|
|
|
Q3 FY17 Guidance Metrics
|
Q3 FY17 (ending October 31, 2016)
|
Revenue (in millions)
|
$470 - $485
|
EPS GAAP
|
($0.81) - ($0.74)
|
EPS non-GAAP (1)
|
($0.27) - ($0.22)
|
_______________
|
|
(1)
|
Non-GAAP earnings per diluted share excludes $0.27 related to stock-based compensation expense, between $0.15 and $0.13 related to GAAP-only tax charges, $0.08 for the amortization of acquisition related intangibles, and $0.04 related to restructuring charges and other facility exit costs.
|
|
|
|
FY17 Guidance Metrics
|
FY17 (ending January 31, 2017)
|
Revenue (in millions) (1)
|
$2,000 - $2,050
|
GAAP spend growth
(cost of revenue plus operating expenses)
|
Approx. 2%
|
Non-GAAP spend growth
(cost of revenue plus operating expenses) (2)
|
Approx. (2%)
|
EPS GAAP
|
($2.97) - ($2.74)
|
EPS non-GAAP (3)
|
($0.70) - ($0.55)
|
Net subscription additions
|
475,000 - 525,000
|
_______________
|
|
(1)
|
Excluding the impact of foreign currency exchange rates and hedge gains/losses, revenue guidance would be $2,045 - $2,095 million.
|
|
|
(2)
|
Non-GAAP spend excludes $226 million related to stock-based compensation expense, $86 million related to restructuring charges and other facility exit costs, and $69 million for the amortization of acquisition-related intangibles.
|
|
|
(3)
|
Non-GAAP earnings per diluted share excludes $1.01 related to stock-based compensation expense, between $0.56 and $0.48 of GAAP-only tax charges, $0.39 related to restructuring charges and other facility exit costs, and $0.31 for the amortization of acquisition-related intangibles.
|
We remain diligent about managing our spend while making essential investments to drive growth.
Results of Operations
Net Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
$
|
322.0
|
|
|
$
|
3.0
|
|
|
1
|
%
|
|
$
|
319.0
|
|
|
$
|
648.0
|
|
|
$
|
9.2
|
|
|
1
|
%
|
|
$
|
638.8
|
|
License and other
|
228.7
|
|
|
(61.8
|
)
|
|
(21
|
)%
|
|
290.5
|
|
|
414.6
|
|
|
(202.6
|
)
|
|
(33
|
)%
|
|
617.2
|
|
|
$
|
550.7
|
|
|
$
|
(58.8
|
)
|
|
(10
|
)%
|
|
$
|
609.5
|
|
|
$
|
1,062.6
|
|
|
$
|
(193.4
|
)
|
|
(15
|
)%
|
|
$
|
1,256.0
|
|
Net Revenue by Operating Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Architecture, Engineering and Construction
|
$
|
253.2
|
|
|
$
|
19.8
|
|
|
8
|
%
|
|
$
|
233.4
|
|
|
$
|
472.1
|
|
|
$
|
2.0
|
|
|
—
|
%
|
|
$
|
470.1
|
|
Manufacturing
|
176.9
|
|
|
5.7
|
|
|
3
|
%
|
|
171.2
|
|
|
334.9
|
|
|
(20.9
|
)
|
|
(6
|
)%
|
|
355.8
|
|
Platform Solutions and Emerging Business
|
86.2
|
|
|
(77.9
|
)
|
|
(47
|
)%
|
|
164.1
|
|
|
186.2
|
|
|
(163.2
|
)
|
|
(47
|
)%
|
|
349.4
|
|
Media and Entertainment
|
34.4
|
|
|
(6.4
|
)
|
|
(16
|
)%
|
|
40.8
|
|
|
69.4
|
|
|
(11.3
|
)
|
|
(14
|
)%
|
|
80.7
|
|
|
$
|
550.7
|
|
|
$
|
(58.8
|
)
|
|
(10
|
)%
|
|
$
|
609.5
|
|
|
$
|
1,062.6
|
|
|
$
|
(193.4
|
)
|
|
(15
|
)%
|
|
$
|
1,256.0
|
|
Subscription Revenue
Our subscription revenue
consists of three components: (1) maintenance revenue from our perpetual software products; (2) maintenance revenue from our term-based product subscriptions and flexible enterprise business agreements; and (3) revenue from our cloud service offerings.
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 plan, 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.
Revenue for our cloud service offerings is 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.
Subscription revenue
increased
1%
during the
three
months ended
July 31, 2016
, as compared to the
three
months ended
July 31, 2015
, primarily due to a
38%
increase in new model subscription revenue, partially offset by a
3%
decrease in maintenance revenue. The
38%
increase in new model subscription revenue was due to a
197%
increase in product subscription revenue and a
29%
increase in revenue from flexible enterprise business agreements. The
3%
decrease in maintenance revenue was attributable to the business model transition, as we expect maintenance revenue will slowly decline as perpetual license sales end, and customers adopt our new model subscription offerings.
Maintenance revenue represented
87%
and
90%
of subscription revenue for the
three
months ended
July 31, 2016
and
2015
, respectively. New model subscription revenue represented
13%
and
10%
of subscription revenue for the
three
months ended
July 31, 2016
and
2015
, respectively.
Subscription revenue
increased
1%
during the
six
months ended
July 31, 2016
, as compared to the
six
months ended
July 31, 2015
, primarily due to a
36%
increase in new model subscription revenue, partially offset by a
2%
decrease in maintenance revenue. The
36%
increase in new model subscription revenue was due to a
31%
increase in revenue from flexible enterprise business agreements and a
200%
increase in product subscription revenue. The
2%
decrease in maintenance revenue was attributable to the business model transition, as we expect maintenance revenue will slowly decline as perpetual license sales end, and customers adopt our new model subscription offerings.
Maintenance revenue represented
87%
and
90%
of subscription revenue for the
six
months ended
July 31, 2016
and
2015
, respectively. New model subscription revenue represented
13%
and
10%
of subscription revenue for the
six
months ended
July 31, 2016
and
2015
, respectively.
License and Other Revenue
License and other revenue consists of two components: (1) all forms of product license revenue and (2) other revenue. Product license revenue includes software license revenue from the sale of perpetual licenses, term-based licenses from our product subscriptions and flexible enterprise business agreements, and product revenue for Creative Finishing. Other revenue includes revenue from consulting, training, Autodesk Developers Network and Creative Finishing customer support, and is recognized over time, as the services are performed.
License and other revenue
decreased
21%
during the
three
months ended
July 31, 2016
, as compared to the
three
months ended
July 31, 2015
. Product license revenue, as a percentage of license and other revenue, was
86%
and
88%
for the
three
months ended
July 31, 2016
and
2015
, respectively. The decrease in product license revenue was due to the business model transition, which led to a
38%
decrease
in revenue from perpetual licenses as we have discontinued selling perpetual seats of most of our product offerings. This decrease was partially offset by a
111%
increase
in license revenue from our new model subscription offerings.
License and other revenue
decreased
33%
during the
six
months ended
July 31, 2016
, as compared to the
six
months ended
July 31, 2015
. Product license revenue, as a percentage of license and other revenue, was
83%
and
89%
for the
six
months ended
July 31, 2016
and
2015
, respectively. The decrease in product license revenue was due to the business model transition, which led to a
50%
decrease
in revenue from perpetual licenses as we have discontinued selling perpetual seats of most of our product offerings. This decrease was partially offset by a
104%
increase
in license revenue from our new model subscription offerings.
Other revenue
de
creased
9%
during the
three
months ended
July 31, 2016
, as compared to the
three
months ended
July 31, 2015
due to a decrease in revenue from Creative Finishing. Other revenue represented
6%
of total net revenue for both the
three
months ended
July 31, 2016
and
2015
, respectively,
Other revenue
de
creased
2%
during the
six
months ended
July 31, 2016
, as compared to the
six
months ended
July 31, 2015
due to a decrease in revenue from Creative Finishing, partially offset by an increase in revenue from consumer products.
Other revenue represented
6%
of total net revenue for both the
six
months ended
July 31, 2016
and
2015
, respectively,
Backlog related to current software license product orders that had not been delivered at the end of the quarter
increased
by
$6.7 million
during the
six
months ended
July 31, 2016
from
$31.4 million
at
January 31, 2016
to
$38.1 million
at
July 31, 2016
. Backlog from current software license product orders that have not been delivered consists of orders for currently available licensed software products from customers with approved credit status.
Net Revenue by Operating Segment
We have four reportable segments: AEC, MFG, PSEB, and M&E. We have no material inter-segment revenue. During the business model transition, revenue has been and will be 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, we discontinued new perpetual license sales for most individual products at the end of the fourth quarter of fiscal 2016, and on August 1, 2016, we discontinued selling most new perpetual license of suites, which lead to a surge in revenue from our perpetual suites during the
three
months ended
July 31, 2016
. These broad impacts are reflected in the drivers below.
During the
three
months ended
July 31, 2016
, net revenue for AEC
increased
by
8%
as compared to the same period in the prior fiscal year, primarily due to a 26% increase in our AEC suites driven by Autodesk Building Design Suite and Autodesk Infrastructure Design Suite. Partially offsetting the increase in AEC suites was a 14% decline in revenue from individual product offerings.
During the
six
months ended
July 31, 2016
, net revenue for AEC was
flat
compared to the same period in the prior fiscal year, primarily due to a 10% increase in our AEC suites driven by Autodesk Building Design Suite and Autodesk Infrastructure Design Suite. Offsetting the increase in AEC suites was a 12% decline in revenue from individual product offerings.
During the
three
months ended
July 31, 2016
, net revenue for MFG
increased
by
3%
as compared to the same period in the prior fiscal year primarily due to a 7% increase in our MFG suites driven by an increase in revenue from our Product Design Suite.
During the
six
months ended
July 31, 2016
, net revenue for MFG
decreased
by
6%
as compared to the same period in the prior fiscal year primarily due to a 6% decline in our MFG suites, driven by a decrease in revenue from our Product Design Suite, and a 6% decrease in individual product offerings.
During both the
three and six
months ended
July 31, 2016
, net revenue for PSEB
decreased
by
47%
as compared to the same periods in the prior fiscal year primarily due to 49% and 48% respective decreases in revenue from our AutoCAD and AutoCAD LT products. As part of the transition to term-based product subscriptions for our individual software products in February 2016, products like AutoCAD and ACAD LT will be negatively impacted when compared to the same period in the prior fiscal year as revenue is recognized ratably rather than up front.
During the
three and six
months ended
July 31, 2016
, net revenue for M&E
decreased
by
16%
and
14%
, respectively, as compared to the same periods in the prior fiscal year, primarily due to 60% and 46% respective decreases in Creative Finishing, which were driven by lower revenue on Creative Finishing hardware products.
Net Revenue by Geographic Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Three Months Ended July 31, 2016
|
|
As a % of Net
Revenue
|
|
Three Months Ended July 31, 2015
|
|
As a % of Net
Revenue
|
Net Revenue:
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
230.1
|
|
|
42
|
%
|
|
$
|
235.7
|
|
|
39
|
%
|
Europe, Middle East and Africa
|
220.5
|
|
|
40
|
%
|
|
225.7
|
|
|
37
|
%
|
Asia Pacific
|
100.1
|
|
|
18
|
%
|
|
148.1
|
|
|
24
|
%
|
Total Net Revenue
|
$
|
550.7
|
|
|
100
|
%
|
|
$
|
609.5
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
(in millions)
|
Six Months Ended July 31, 2016
|
|
As a % of Net
Revenue
|
|
Six Months Ended July 31, 2015
|
|
As a % of Net
Revenue
|
Net Revenue:
|
|
|
|
|
|
|
|
Americas
|
$
|
447.8
|
|
|
42
|
%
|
|
$
|
479.7
|
|
|
38
|
%
|
Europe, Middle East and Africa
|
423.1
|
|
|
40
|
%
|
|
471.1
|
|
|
38
|
%
|
Asia Pacific
|
191.7
|
|
|
18
|
%
|
|
305.2
|
|
|
24
|
%
|
Total Net Revenue
|
$
|
1,062.6
|
|
|
100
|
%
|
|
$
|
1,256.0
|
|
|
100
|
%
|
Net revenue in the Americas geography
decreased
by
2%
on an as reported basis and on a constant currency basis during the
three
months ended
July 31, 2016
, as compared to the same period in the prior fiscal year. Net revenue in the Americas attributable to the United States was approximately
85%
and
83%
for
three
months ended
July 31, 2016
and 2015, respectively.
Net revenue in the Americas geography
decreased
by
7%
on an as reported basis and
6%
on a constant currency basis during the
six
months ended
July 31, 2016
, as compared to the same period in the prior fiscal year. Net revenue in the Americas attributable to the United States was approximately
85%
and
82%
for the
six
months ended
July 31, 2016
and 2015, respectively.
International net revenue represented
65%
and
68%
of our net revenue for the
three
months ended
July 31, 2016
and 2015, respectively. Net revenue in the Europe, Middle East and Africa ("EMEA") geography
decreased
by
2%
on an as reported basis and increased
5%
on a constant currency basis during the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year. Net revenue in the Asia Pacific ("APAC") geography
decreased
by
32%
on an as reported basis and
30%
on a constant currency basis during the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year, primarily as a result of the business model transition and continued weakness in Japan and emerging economies.
International net revenue represented
64%
and
69%
of our net revenue for the
six
months ended
July 31, 2016
and 2015, respectively. Net revenue in the Europe, Middle East and Africa ("EMEA") geography
decreased
by
10%
on an as reported basis and
3%
on a constant currency basis during the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year. Net revenue in the Asia Pacific ("APAC") geography
decreased
by
37%
on an as reported basis and
35%
on a constant currency basis during the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year, primarily as a result of the business model transition and continued weakness in Japan and emerging economies.
We believe that international revenue will continue to comprise a majority of our net revenue. Unfavorable economic conditions in the countries that contribute a significant portion of our net revenue, including in emerging economies such as Brazil, Russia, 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. Weak global economic conditions that have been characterized by restructuring of sovereign debt, high unemployment, and volatility in the financial markets may impact our future financial results. Additionally during the business model transition, revenue has been and will be negatively impacted as more revenue is recognized ratably rather than up front and as new product offerings generally have a lower initial purchase price. This transition has a particular impact to emerging economies as sales of perpetual licenses have historically comprised a greater percentage of total emerging economy sales in comparison to mature markets.
Net revenue in emerging economies
decreased
by
32%
on an as reported basis and on a constant currency basis during the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year. Revenue from emerging economies represented
11%
and
15%
of net revenue for the
three
months ended
July 31, 2016
and
2015
, respectively.
Net revenue in emerging economies
decreased
by
36%
on an as reported basis and on a constant currency basis during the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year. Revenue from emerging economies represented
11%
and
15%
of net revenue for the
six
months ended
July 31, 2016
and
2015
, respectively.
Cost of Revenue and Operating Expenses
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
$
|
38.2
|
|
|
$
|
(1.8
|
)
|
|
(5
|
)%
|
|
$
|
40.0
|
|
|
$
|
78.0
|
|
|
$
|
(0.7
|
)
|
|
(1
|
)%
|
|
$
|
78.7
|
|
License and other
|
46.9
|
|
|
(6.1
|
)
|
|
(12
|
)%
|
|
53.0
|
|
|
99.5
|
|
|
(6.6
|
)
|
|
(6
|
)%
|
|
106.1
|
|
|
$
|
85.1
|
|
|
$
|
(7.9
|
)
|
|
(8
|
)%
|
|
$
|
93.0
|
|
|
$
|
177.5
|
|
|
$
|
(7.3
|
)
|
|
(4
|
)%
|
|
$
|
184.8
|
|
As a percentage of net revenue
|
15
|
%
|
|
|
|
|
|
15
|
%
|
|
17
|
%
|
|
|
|
|
|
15
|
%
|
Cost of subscription revenue includes the labor costs of providing product support to our maintenance and new model subscription customers, including allocated IT and facilities costs, shipping and handling costs, professional services fees related to operating our network and cloud infrastructure, depreciation expense and operating lease payments associated with computer equipment, data center costs, salaries, related expenses of network operations, amortization of developed technologies, and stock-based compensation expense.
Cost of subscription revenue
decreased
5%
during the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year, primarily due to a decrease in product support costs to our maintenance and new model subscription customers.
Cost of subscription revenue
decreased
1%
during the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year, primarily due to a decrease in amortization expense of developed technologies.
Cost of license and other revenue includes labor costs associated with product setup and fulfillment and costs of consulting and training services contracts and collaborative project management services contracts. Cost of license and other revenue also includes stock-based compensation expense, direct material and overhead charges, amortization of developed technology, allocated IT and facilities costs, professional services fees and royalties. Direct material and overhead charges include the cost of hardware sold (mainly Ember printers in the PSEB segment), and costs associated with electronic and physical fulfillment.
Cost of license and other revenue
decreased
12%
and
6%
for the
three and six
months ended
July 31, 2016
, respectively, as compared to the same period in the prior fiscal year, primarily due to the discontinued sales and associated costs of our creative finishing hardware business in the fourth quarter of fiscal 2016 as well as lower professional fees for our consulting related offerings.
Cost of revenue, at least over the near term, is affected by the volume and mix of product sales, mix of physical versus electronic fulfillment, fluctuations in consulting costs, amortization of developed technology, new customer support offerings, royalty rates for licensed technology embedded in our products and employee stock-based compensation expense.
We expect cost of revenue to decrease in absolute dollars and slightly increase as a percentage of net revenue during the third quarter of fiscal
2017
, as compared to the third quarter of fiscal
2016
.
Marketing and Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
Marketing and sales
|
$
|
243.1
|
|
|
$
|
2.3
|
|
|
1
|
%
|
|
$
|
240.8
|
|
|
$
|
483.9
|
|
|
$
|
(10.8
|
)
|
|
(2
|
)%
|
|
$
|
494.7
|
|
As a percentage of net revenue
|
44
|
%
|
|
|
|
|
|
40
|
%
|
|
46
|
%
|
|
|
|
|
|
39
|
%
|
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, 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 labor costs associated with sales and order management, sales and dealer commissions, rent and occupancy, payment processing fees, the cost of supplies and equipment, and allocated IT and facilities costs.
Marketing and sales expenses
increased
1%
for the
three
months ended
July 31, 2016
as compared to the same period in the prior fiscal year, primarily due to an increase in stock-based compensation expense as a result of a higher fair market value of awards granted, partially offset by lower employee-related costs and a decrease in travel, entertainment and training expenses.
Marketing and sales expenses
decreased
2%
for the
six
months ended
July 31, 2016
as compared to the same period in the prior fiscal year, primarily due to lower employee-related costs.
We expect marketing and sales expenses to increase in absolute dollars and as a percentage of net revenue during the third quarter of fiscal
2017
, as compared to the third quarter of fiscal
2016
.
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
Research and development
|
$
|
193.0
|
|
|
$
|
(0.1
|
)
|
|
—
|
%
|
|
$
|
193.1
|
|
|
$
|
386.5
|
|
|
$
|
(1.1
|
)
|
|
—
|
%
|
|
$
|
387.6
|
|
As a percentage of net revenue
|
35
|
%
|
|
|
|
|
|
32
|
%
|
|
36
|
%
|
|
|
|
|
|
31
|
%
|
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, and the expense of travel, entertainment and training for such personnel, rent and occupancy, professional services such as fees paid to software development firms and independent contractors, and allocated IT and facilities costs.
Research and development expenses remained flat during both the
three and six
months ended
July 31, 2016
as compared to the same periods in the prior fiscal year, primarily due to an increase in stock-based compensation expense as a result of a higher fair market value of awards granted, offset by a decrease in employee related costs and professional fees.
We expect research and development expenses to increase in absolute dollars and as a percentage of net revenue during the third quarter of fiscal
2017
, as compared to the third quarter of fiscal
2016
.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
General and administrative
|
$
|
68.6
|
|
|
$
|
(1.5
|
)
|
|
(2
|
)%
|
|
$
|
70.1
|
|
|
$
|
143.3
|
|
|
$
|
(2.7
|
)
|
|
(2
|
)%
|
|
$
|
146.0
|
|
As a percentage of net revenue
|
12
|
%
|
|
|
|
|
|
12
|
%
|
|
13
|
%
|
|
|
|
|
|
12
|
%
|
General and administrative expenses include salaries, bonuses, benefits and stock-based compensation expense for our finance, human resources and legal employees, as well as professional fees for legal and accounting services, certain foreign business taxes, gains and losses on our operating expense cash flow hedges, expense of travel, entertainment and training, IT and facilities costs, and the cost of supplies and equipment.
General and administrative expenses
decreased
2%
during both the
three and six
months ended
July 31, 2016
, as compared to the same periods in the prior fiscal year primarily due to a decrease in employee related costs.
We expect general and administrative expenses to decrease in absolute dollars and slightly increase as a percentage of net revenue during the third quarter of fiscal
2017
, as compared to the third quarter of fiscal
2016
.
Amortization of Purchased Intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
Amortization of purchased intangibles
|
$
|
7.8
|
|
|
$
|
(0.4
|
)
|
|
(5
|
)%
|
|
$
|
8.2
|
|
|
$
|
15.7
|
|
|
$
|
(1.4
|
)
|
|
(8
|
)%
|
|
$
|
17.1
|
|
As a percentage of net revenue
|
1
|
%
|
|
|
|
|
|
1
|
%
|
|
1
|
%
|
|
|
|
|
|
1
|
%
|
Amortization of purchased intangibles
decreased
5%
and
8%
during the
three and six
months ended
July 31, 2016
, respectively, as compared to the same periods in the prior fiscal year, primarily related to the accumulated effects associated with amortization expense of intangible assets purchased over time.
We expect amortization of purchased intangibles to decrease in absolute dollars and remain flat as a percentage of net revenue during the third quarter of fiscal
2017
, as compared to the third quarter of fiscal
2016
.
Restructuring Charges and Other Facility Exit Costs, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Change compared to
prior fiscal year
|
|
Three Months Ended
|
|
Six Months Ended
|
|
Change compared to
prior fiscal year
|
|
Six Months Ended
|
(in millions)
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
July 31, 2016
|
$
|
|
%
|
|
July 31, 2015
|
Restructuring charges and other facility exit costs, net
|
$
|
16.0
|
|
|
$
|
16.0
|
|
|
*
|
|
$
|
—
|
|
|
$
|
68.3
|
|
|
$
|
68.3
|
|
|
*
|
|
$
|
—
|
|
As a percentage of net revenue
|
3
|
%
|
|
|
|
|
|
—
|
%
|
|
6
|
%
|
|
|
|
|
|
—
|
%
|
____________________
|
|
*
|
Percentage is not meaningful
|
In February 2016, the Board of Directors approved a world-wide restructuring plan (“Fiscal 2017 Plan”) in order to re-balance staffing levels and reduce operating expenses to better align them with the evolving needs of the Company's business. The Company's Fiscal 2017 Plan consist of employee termination benefits related to the reduction of its workforce of approximately
$69.0 million
, and lease terminations and other exit costs of approximately
$10.0 million
. Under the Fiscal 2017 Plan, we recorded
$8.6 million
and
$60.9 million
in employee termination benefits, lease termination costs and other facility exit costs during the
three and six
months ended
July 31, 2016
, respectively. Additionally, during the
three and six
months ended
July 31, 2016
, we recorded
$7.4 million
in other facility exit costs not related to the Fiscal 2017 Plan. See Note
13
, "Restructuring charges and other facility exit costs, net" in the Notes to Condensed Consolidated Financial Statements for additional information.
Interest and Other Expense, Net
The following table sets forth the components of interest and other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
(in millions)
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Interest and investment expense, net
|
$
|
(6.2
|
)
|
|
$
|
(8.0
|
)
|
|
$
|
(12.7
|
)
|
|
$
|
(10.0
|
)
|
(Loss) gain on foreign currency
|
(4.5
|
)
|
|
0.3
|
|
|
(3.1
|
)
|
|
(1.3
|
)
|
(Loss) gain on strategic investments
|
(0.3
|
)
|
|
2.4
|
|
|
0.1
|
|
|
3.4
|
|
Other income
|
0.9
|
|
|
1.9
|
|
|
2.0
|
|
|
4.8
|
|
Interest and other expense, net
|
$
|
(10.1
|
)
|
|
$
|
(3.4
|
)
|
|
$
|
(13.7
|
)
|
|
$
|
(3.1
|
)
|
Interest and other expense, net
increased
$6.7 million
in the
three
months ended
July 31, 2016
, as compared to the same period in the prior fiscal year, primarily due to an increase in foreign currency losses, as well as non-recurring gains on certain of our privately-held strategic investments and mark-to-market gains recognized on the derivative portion on certain of our other privately-held strategic investments during the prior fiscal year affecting the comparative balance.
Interest and other expense, net
increased
$10.6 million
in the
six
months ended
July 31, 2016
, as compared to the same period in the prior fiscal year, primarily due to an increase in interest expense from the June 2015 issuance of $
450.0 million
aggregate principal amount of
3.125%
notes due
June 15, 2020
and $
300.0 million
aggregate principal amount of
4.375%
notes due
June 15, 2025
, as well as non-recurring gains on certain of our privately-held strategic investments and mark-to-market gains recognized on the derivative portion on certain of our other privately-held strategic investments during the prior fiscal year affecting the comparative balance.
Interest expense and investment income fluctuates based on average cash, marketable securities and 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.
Income tax expense was $
25.2 million
and $
269.5 million
for the
three
months ended
July 31, 2016
and
2015
, respectively. Income tax expense was $
39.6 million
and $
272.2 million
for the
six
months ended
July 31, 2016
and
2015
, respectively. Income tax expense consists primarily of foreign taxes and U.S. tax expense related to indefinite-lived intangibles.
A valuation allowance is recorded to reduce deferred tax assets when management cannot conclude that it is more likely than not that the net deferred tax asset will be recovered. The valuation allowance is determined by assessing both positive and negative evidence to determine whether it is more likely than not that deferred tax assets are recoverable; such assessment is required on a jurisdiction-by-jurisdiction basis. Significant judgment is required in determining whether the valuation allowance should be recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence including past operating results and estimates of future taxable income. Beginning in the second quarter of fiscal 2016, we considered recent cumulative losses in the United States arising from the Company's business model transition as a significant source of negative evidence. Considering this negative evidence and the absence of sufficient positive objective evidence that we would generate sufficient taxable income in our United States tax jurisdiction to realize the deferred tax assets, we determined that it was not more likely than not that the Company would realize the U.S. federal and state deferred tax assets and recorded a full valuation allowance. As we continually strive to optimize our overall business model, tax planning strategies may become feasible and prudent whereby management may determine that it is more likely than not that the federal and state deferred tax assets will be realized; therefore, we will continue to evaluate the realizability of our net 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
July 31, 2016
, we had
$261.6 million
of gross unrecognized tax benefits, excluding interest, of which approximately
$246.9 million
represents the amount of unrecognized tax benefits that would impact the effective tax rate, if recognized. However, this rate impact would be offset to the extent that recognition of unrecognized tax benefits currently presented as a reduction of deferred tax assets would increase the valuation allowance. It is possible that the amount of unrecognized tax benefits will change in the next twelve months; however, an estimate of the range of the possible change cannot be made at this time.
Our future effective 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, research credits, state income taxes, the tax impact of stock-based compensation, accounting for uncertain tax positions, business combinations, U.S. Manufacturer's deduction, closure of statute of limitations or settlement of tax audits, changes in valuation allowances and changes in tax laws including possible U.S. tax law changes that, if enacted, could significantly impact how U.S. multinational companies are taxed on foreign subsidiary earnings. A significant amount of our earnings is generated by our Europe and APAC 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 or we repatriate certain foreign earnings on which U.S. taxes have not previously been provided.
During the three months ended July 31, 2016, we negotiated a settlement of a tax audit in China covering certain transfer pricing matters from 2004-2013. The settlement is currently under review by the State Administration of Taxation. The estimated tax liability, including interest, is approximately $11.4 million for the years under audit and calendar years 2014 and 2015. The Company accrued this tax liability during the three months ended July 31, 2016.
The Internal Revenue Service has notified us that it intends to begin an examination of the Company's U.S. consolidated federal income tax returns for fiscal years 2014 and 2015. While it is possible that our tax positions may be challenged, we believe our positions are consistent with the tax law, and the balance sheet reflects appropriate liabilities for uncertain federal tax positions for the years to be examined.
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 and six
months ended
July 31, 2016
and
2015
, our gross profit, gross margin, income (loss) from operations, operating margin, net income (loss), diluted net income (loss) per share and diluted shares used in per share calculation on a GAAP and non-GAAP basis were as follows (in millions except for gross margin, operating margin, and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(Unaudited)
|
|
(Unaudited)
|
Gross profit
|
$
|
465.6
|
|
|
$
|
516.5
|
|
|
$
|
885.1
|
|
|
$
|
1,071.2
|
|
Non-GAAP gross profit
|
$
|
479.7
|
|
|
$
|
530.9
|
|
|
$
|
913.5
|
|
|
$
|
1,102.0
|
|
Gross margin
|
85
|
%
|
|
85
|
%
|
|
83
|
%
|
|
85
|
%
|
Non-GAAP gross margin
|
87
|
%
|
|
87
|
%
|
|
86
|
%
|
|
88
|
%
|
(Loss) income from operations
|
$
|
(62.9
|
)
|
|
$
|
4.3
|
|
|
$
|
(212.6
|
)
|
|
$
|
25.8
|
|
Non-GAAP income from operations
|
$
|
25.9
|
|
|
$
|
65.2
|
|
|
$
|
(1.1
|
)
|
|
$
|
159.3
|
|
Operating margin
|
(11
|
)%
|
|
1
|
%
|
|
(20
|
)%
|
|
2
|
%
|
Non-GAAP operating margin
|
5
|
%
|
|
11
|
%
|
|
—
|
%
|
|
13
|
%
|
Net loss
|
$
|
(98.2
|
)
|
|
$
|
(268.6
|
)
|
|
$
|
(265.9
|
)
|
|
$
|
(249.5
|
)
|
Non-GAAP net income (loss)
|
$
|
11.9
|
|
|
$
|
44.0
|
|
|
$
|
(11.1
|
)
|
|
$
|
113.1
|
|
GAAP diluted net loss per share (1)
|
$
|
(0.44
|
)
|
|
$
|
(1.18
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(1.10
|
)
|
Non-GAAP diluted net income (loss) per share (1)
|
$
|
0.05
|
|
|
$
|
0.19
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.49
|
|
GAAP diluted shares used in per share calculation
|
223.2
|
|
|
227.0
|
|
|
223.8
|
|
|
227.1
|
|
Non-GAAP diluted weighted average shares used in per share calculation
|
227.4
|
|
|
231.1
|
|
|
223.8
|
|
|
231.6
|
|
_______________
|
|
(1)
|
Net (loss) income per share was computed independently for each of the periods presented; therefore the sum of the net (loss) income per share amount for the quarters may not equal the total for the year.
|
For our internal budgeting and resource allocation process and as a means to evaluate 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 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.
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
(In millions except for gross margin, operating margin, and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(Unaudited)
|
|
(Unaudited)
|
Gross profit
|
$
|
465.6
|
|
|
$
|
516.5
|
|
|
$
|
885.1
|
|
|
$
|
1,071.2
|
|
Stock-based compensation expense
|
3.4
|
|
|
2.4
|
|
|
6.8
|
|
|
5.3
|
|
Amortization of developed technologies
|
10.7
|
|
|
12.0
|
|
|
21.6
|
|
|
25.5
|
|
Non-GAAP gross profit
|
$
|
479.7
|
|
|
$
|
530.9
|
|
|
$
|
913.5
|
|
|
$
|
1,102.0
|
|
Gross margin
|
85
|
%
|
|
85
|
%
|
|
83
|
%
|
|
85
|
%
|
Stock-based compensation expense
|
—
|
%
|
|
—
|
%
|
|
1
|
%
|
|
1
|
%
|
Amortization of developed technologies
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
Non-GAAP gross margin
|
87
|
%
|
|
87
|
%
|
|
86
|
%
|
|
88
|
%
|
(Loss) income from operations
|
$
|
(62.9
|
)
|
|
$
|
4.3
|
|
|
$
|
(212.6
|
)
|
|
$
|
25.8
|
|
Stock-based compensation expense
|
54.3
|
|
|
40.7
|
|
|
105.9
|
|
|
90.9
|
|
Amortization of developed technologies
|
10.7
|
|
|
12.0
|
|
|
21.6
|
|
|
25.5
|
|
Amortization of purchased intangibles
|
7.8
|
|
|
8.2
|
|
|
15.7
|
|
|
17.1
|
|
Restructuring charges and other facility exit costs, net
|
16.0
|
|
|
—
|
|
|
68.3
|
|
|
—
|
|
Non-GAAP income from operations
|
$
|
25.9
|
|
|
$
|
65.2
|
|
|
$
|
(1.1
|
)
|
|
$
|
159.3
|
|
Operating margin
|
(11
|
)%
|
|
1
|
%
|
|
(20
|
)%
|
|
2
|
%
|
Stock-based compensation expense
|
10
|
%
|
|
7
|
%
|
|
10
|
%
|
|
7
|
%
|
Amortization of developed technologies
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
|
2
|
%
|
Amortization of purchased intangibles
|
1
|
%
|
|
1
|
%
|
|
2
|
%
|
|
2
|
%
|
Restructuring charges and other facility exit costs, net
|
3
|
%
|
|
—
|
%
|
|
6
|
%
|
|
—
|
%
|
Non-GAAP operating margin
|
5
|
%
|
|
11
|
%
|
|
—
|
%
|
|
13
|
%
|
Net loss
|
$
|
(98.2
|
)
|
|
$
|
(268.6
|
)
|
|
$
|
(265.9
|
)
|
|
$
|
(249.5
|
)
|
Stock-based compensation expense
|
54.3
|
|
|
40.7
|
|
|
105.9
|
|
|
90.9
|
|
Amortization of developed technologies
|
10.7
|
|
|
12.0
|
|
|
21.6
|
|
|
25.5
|
|
Amortization of purchased intangibles
|
7.8
|
|
|
8.2
|
|
|
15.7
|
|
|
17.1
|
|
Restructuring charges and other facility exit costs, net
|
16.0
|
|
|
—
|
|
|
68.3
|
|
|
—
|
|
Loss (gain) on strategic investments
|
0.3
|
|
|
(2.4
|
)
|
|
(0.2
|
)
|
|
(3.4
|
)
|
Discrete tax items
|
14.9
|
|
|
4.3
|
|
|
13.0
|
|
|
1.2
|
|
Establishment of valuation allowance on deferred tax assets
|
—
|
|
|
230.9
|
|
|
—
|
|
|
230.9
|
|
Income tax effect of non-GAAP adjustments
|
6.1
|
|
|
18.9
|
|
|
30.5
|
|
|
0.4
|
|
Non-GAAP net income (loss)
|
$
|
11.9
|
|
|
$
|
44.0
|
|
|
$
|
(11.1
|
)
|
|
$
|
113.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(Unaudited)
|
|
(Unaudited)
|
GAAP diluted net loss per share (1)
|
$
|
(0.44
|
)
|
|
$
|
(1.18
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(1.10
|
)
|
Stock-based compensation expense
|
0.24
|
|
|
0.18
|
|
|
0.47
|
|
|
0.39
|
|
Amortization of developed technologies
|
0.05
|
|
|
0.05
|
|
|
0.10
|
|
|
0.11
|
|
Amortization of purchased intangibles
|
0.03
|
|
|
0.04
|
|
|
0.07
|
|
|
0.07
|
|
Restructuring charges and other facility exit costs, net
|
0.07
|
|
|
—
|
|
|
0.30
|
|
|
—
|
|
Loss (gain) on strategic investments
|
—
|
|
|
(0.01
|
)
|
|
—
|
|
|
(0.01
|
)
|
Discrete tax items
|
0.07
|
|
|
0.02
|
|
|
0.06
|
|
|
0.02
|
|
Establishment of valuation allowance on deferred tax assets
|
—
|
|
|
1.01
|
|
|
—
|
|
|
1.01
|
|
Income tax effect of non-GAAP adjustments
|
0.03
|
|
|
0.08
|
|
|
0.14
|
|
|
—
|
|
Non-GAAP diluted net income (loss) per share (1)
|
$
|
0.05
|
|
|
$
|
0.19
|
|
|
$
|
(0.05
|
)
|
|
$
|
0.49
|
|
GAAP diluted shares used in per share calculation
|
223.2
|
|
|
227.0
|
|
|
223.8
|
|
|
227.1
|
|
Shares included in non-GAAP net income per share, but excluded from GAAP net loss per share as they would have been anti-dilutive
|
4.2
|
|
|
4.1
|
|
|
—
|
|
|
4.5
|
|
Non-GAAP Diluted weighted average shares used in per share calculation
|
227.4
|
|
|
231.1
|
|
|
223.8
|
|
|
231.6
|
|
____________________
|
|
(1)
|
Net (loss) income per share was computed independently for each of the periods presented; therefore the sum of the net (loss) income per share amount for the quarters may not equal the total for the year.
|
Our non-GAAP financial measures may exclude the following:
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 technology 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.
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 charges and other facility exit costs (benefits), 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.
Loss (gain) on strategic investments.
We exclude gains and losses related to our strategic investments from our non-GAAP measures primarily because management finds it useful to exclude these variable gains and losses on these investments in assessing our financial results. Included in these amounts are non-cash unrealized gains and losses on the derivative components, realized gains and losses on the sales or losses on the impairment of these investments. 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 which do not occur regularly.
Establishment of a valuation allowance on certain net deferred tax assets.
This is a non-cash charge to record 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.
Discrete tax items.
We exclude the GAAP tax provision, including discrete items, from the non-GAAP measure of income, 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.
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 facilities exit costs (benefits) for GAAP and non-GAAP measures.
Liquidity and Capital Resources
Our primary source of cash is from the sale and maintenance of our products. 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. In addition to operating expenses, we also use cash to fund our stock repurchase program and invest in our growth initiatives, which include acquisitions of products, technology and businesses. See further discussion of these items below.
At
July 31, 2016
, our principal sources of liquidity were cash, cash equivalents and marketable securities totaling
$2.6 billion
and net accounts receivable of
$306.9 million
.
In June 2015, we issued $
450.0 million
aggregate principal amount of
3.125%
notes due
June 15, 2020
and $
300.0 million
aggregate principal amount of
4.375%
notes due
June 15, 2025
. In December 2012, we issued $
400.0 million
aggregate principal amount of
1.95%
notes due
December 15, 2017
and $
350.0 million
aggregate principal amount of
3.6%
notes due
December 15, 2022
(all four series of notes collectively, the “Notes”). As of
August 30, 2016
, we have $
1.5 billion
aggregate principal amount of Notes outstanding. In addition, we have a line of credit facility that permits unsecured short-term borrowings of up to $
400.0 million
with a
May 2020
maturity date. As of
August 30, 2016
, we have
no
amounts outstanding under the credit facility. Borrowings under the credit facility and the net proceeds from the offering of the Notes are available for general corporate purposes.
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
$400.0 million
line of credit.
Our cash, cash equivalents and marketable securities decreased to
$2.6 billion
as of
July 31, 2016
from
$2.8 billion
as of
January 31, 2016
primarily as a result of cash used for repurchases of our common stock (net of stock issuance proceeds), acquisitions including business combinations and technology purchases, and capital expenditures. The cash proceeds from issuance of common stock vary based on our stock price, stock option exercise activity and the volume of employee purchases under the ESPP.
The primary source of net cash provided by operating activities of
$146.4 million
for the six months ended
July 31, 2016
was cash flow provided by changes in operating assets and liabilities of
$183.1 million
. The primary working capital source of cash was a decrease in accounts receivable. The primary working capital uses of cash were decreases in accrued compensation and other accrued liabilities. Our days sales outstanding in trade receivables was
51
at
July 31, 2016
compared to
92
at
January 31, 2016
. The days sales outstanding decrease relates primarily to a seasonal decline in maintenance billings and the discontinuation of the sale of most individual perpetual products as of February 1, 2016.
At
July 31, 2016
, our short-term investment portfolio had an estimated fair value of
$597.6 million
and a cost basis of
$595.6 million
. The portfolio fair value consisted of
$267.3 million
invested in corporate bonds,
$119.4 million
invested in commercial paper,
$55.4 million
invested in certificates of deposit,
$41.9 million
invested in agency bonds,
$37.6 million
invested in U.S. government securities,
$19.6 million
invested in sovereign debt, and
$10.8 million
invested in asset backed securities.
At
July 31, 2016
,
$45.6 million
of trading securities were invested in a defined set of mutual funds as directed by the participants in our Deferred Compensation Plan (see Note
10
, “
Deferred Compensation
,” in the Notes to Condensed Consolidated Financial Statements for further discussion).
Long-term cash requirements for items other than normal operating expenses are anticipated for the following: common stock repurchases; the acquisition of businesses, software products, or technologies complementary to our business; and capital expenditures, including the purchase and implementation of internal-use software applications.
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, in certain instances, negatively impact our operating margins. We continually review these trade-offs in making decisions regarding acquisitions. We currently anticipate that we will continue to acquire products, technology and businesses as compelling opportunities become available. Our decision to acquire businesses or technology is dependent on our business needs, the availability of suitable sellers and technology, and our own financial condition.
As of
July 31, 2016
, there have been no material changes in our contractual obligations or commercial commitments compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended
January 31, 2016
.
Our cash, cash equivalent and marketable securities balances are concentrated in a few locations around the world, with substantial amounts held outside of the U.S. As of
July 31, 2016
, approximately
86%
of our total cash, cash equivalents and marketable securities are located offshore and will fluctuate subject to business needs. Certain amounts held outside the U.S. could be repatriated to the U.S. (subject to local law restrictions), but under current U.S. tax law, could be subject to U.S. income taxes less applicable foreign tax credits. We have provided for the U.S. income tax liability on foreign earnings, except for foreign earnings that are considered permanently reinvested outside the U.S. Our intent is that amounts related to foreign earnings permanently reinvested outside the U.S. will remain outside the U.S. and we will meet our U.S. liquidity needs through ongoing cash flows, external borrowings, or both. 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 and to fund our existing stock buyback program with cash that has not been permanently reinvested outside the U.S.
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
.” However, based on our current business plan and revenue prospects, we believe that our existing balances, our anticipated cash flows from operations and our available 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.
Issuer Purchases of Equity Securities
Autodesk's stock repurchase program is largely to help offset the dilution from the issuance of stock under our employee stock plans and for such other purposes as may be in the interests of Autodesk and its stockholders, and has the effect of returning excess cash generated from our business to stockholders. The number of shares acquired and the timing of the purchases are based on several factors, including general market and economic conditions, the number of employee stock option exercises and restricted stock unit issuances, the trading price of Autodesk common stock, cash on hand and available in the United States, cash requirements for acquisitions, and Company defined trading windows.
During the
three and six
months ended
July 31, 2016
, we repurchased
3.0 million
and
4.8 million
shares of our common stock, respectively. At
July 31, 2016
,
1.5 million
shares remained available for repurchase under the repurchase program approved by the Board of Directors. This program does not have a fixed expiration date. See Note
15
, “
Common Stock Repurchase Program
,” in the Notes to Condensed Consolidated Financial Statements for further discussion.
The following table provides information about the repurchase of common stock in open-market transactions during the quarter ended
July 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in millions)
|
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)
|
May 1 - May 31
|
0.5
|
|
|
$
|
58.35
|
|
|
0.5
|
|
|
4.0
|
|
June 1 - June 30
|
2.0
|
|
|
54.98
|
|
|
2.0
|
|
|
2.0
|
|
July 1 - July 31
|
0.5
|
|
|
56.76
|
|
|
0.5
|
|
|
1.5
|
|
Total
|
3.0
|
|
|
$
|
55.88
|
|
|
3.0
|
|
|
|
|
________________
|
|
(1)
|
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 approved by the Board of Directors in June 2012 that authorized the repurchase of
30.0 million
shares. This plan does not have a fixed expiration date.
|
There were no sales of unregistered securities during the
six
months ended
July 31, 2016
.
Off-Balance Sheet Arrangements
As of
July 31, 2016
, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.
Glossary of terms
Annualized Recurring Revenue (ARR)—
Represents the annualized value of our average monthly recurring revenue for the preceding three months. "Maintenance ARR" captures ARR relating to traditional maintenance attached to perpetual licenses. "New Model ARR" captures ARR relating to new model subscription offerings. Recurring revenue acquired with the acquisition of a business may cause variability in the comparison of this calculation. ARR is currently our key performance metric 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.
Annualized Revenue Per Subscription (ARPS)—
Is calculated by dividing our annualized recurring revenue by total subscriptions.
Building Information Modeling (BIM)
—
BIM describes a model-based technology linked with a database of project information, and is the process of generating and managing information throughout the life cycle of a building. BIM is used as a digital representation of the building process to facilitate exchange and interoperability of information in digital formats.
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. Our constant currency methodology removes all hedging gains and losses from the calculation.
Flexible Enterprise Business Agreements
—
Represents 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
—
License and other revenue consists of two components: (1) all forms of product license revenue and (2) other revenue. Product license revenue includes software license revenue from the sale of perpetual licenses, term-based licenses from our product subscriptions and flexible enterprise business agreements, and product revenue for Creative Finishing. Other revenue includes revenue from consulting, training, Autodesk Developers Network and Creative Finishing customer support, and is recognized over time, as the services are performed.
Maintenance plans
—
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 plan, 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.
New Model Subscription Offerings (New Model)
—
Comprises our term-based product subscriptions (formerly titled Desktop subscription), cloud service offerings, and flexible enterprise business agreements.
Recurring Revenue
—
Represents
the revenue for the period from our traditional maintenance plans and revenue from our new model subscription offerings, including portions of revenue allocated to license & other revenue for those offerings. It excludes subscription revenue related to consumer product offerings, select Creative Finishing product offerings, Autodesk Buzzsaw, Autodesk Constructware, education offerings, and third party products. Recurring revenue acquired with the acquisition of a business is captured and may cause variability in the comparison of this calculation.
Suites
—
Autodesk suites are a combination of products that target a specific user objective (product design, building design, etc.) and support a set of workflows for that objective. Our primary suites include: Autodesk Building Design Suite, Autodesk Entertainment Creation Suite, Autodesk Factory Design Suite, Autodesk Infrastructure Design Suite, Autodesk Plant Design Suite, and Autodesk Product Design Suite.
Subscription revenue
—
Autodesk subscription revenue
consists of three components: (1) maintenance revenue from our perpetual software products; (2) maintenance revenue from our term-based product subscriptions and flexible enterprise business agreements; and (3) revenue from our cloud service offerings.
Total Subscriptions
—Consists of subscriptions from our maintenance plans and new model subscription offerings that are active and paid as of the quarter end date. For certain cloud service offerings and flexible enterprise business agreements, 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.