AUTODESK, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)
The discussion in our MD&A and elsewhere in this Form 10-Q contains trend analyses and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are any statements that look to future events and consist of, among other things, our business strategies, including those discussed in "Strategy," "Overview of the Three Months Ended
April 30, 2022," and in "Results of Operations-Overview." Examples of such forward-looking statements may relate to items such as future net revenue, operating expenses, recurring revenue, net revenue retention rate, cash flow, remaining performance obligations, and other future financial results (by product type and geography), the effectiveness of our efforts to successfully manage transitions to new markets; our ability to increase our subscription base; expected market trends, including the growth of cloud and mobile computing; the availability of credit; the effect of unemployment; the effects of global economic conditions, including from an economic downturn or recession in the United Statesor in other countries around the world; the effects of revenue recognition; the effects of recently issued accounting standards; expected trends in certain financial metrics, including expenses; expectations regarding our cash needs; the effects of fluctuations in exchange rates and our hedging activities on our financial results; our ability to successfully expand adoption of our products; our ability to gain market acceptance of new business and sales initiatives; the impact of past acquisitions, including our integration efforts and expected synergies; the impact of economic volatility and geopolitical activities in certain countries, particularly emerging economy countries; the timing and amount of purchases under our stock buy-back plan; and the effects of potential non-cash charges on our financial results and the resulting effect on our financial results. In addition, forward-looking statements also consist of statements involving expectations regarding product capability and acceptance, statements regarding our liquidity and short-term and long-term cash requirements, as well as statements involving trend analyses and statements including such words as "may," "believe," "could," "anticipate," "would," "might," "plan," "expect," and similar expressions or the negative of these terms or other comparable terminology. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of a number of factors, including those set forth below in Part II, Item 1A, "Risk Factors," and in our other reports filed with the U.S. Securities and Exchange Commission. We assume no obligation to update the forward-looking statements to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
Note: A glossary of terms used in this Form 10-Q appears at the end of this Section 2.
Autodesk is changing how the world is designed and made. Our technology spans architecture, engineering, construction, product design, manufacturing, media and entertainment, empowering innovators everywhere to solve challenges big and small. From greener buildings to smarter products to more mesmerizing blockbusters, Autodesk technology helps our customers to design and make a better world for all. Our strategy is to build enduring relationships with customers, delivering innovative technology that provides valuable automation and insight into their design and make processes. To drive execution of our strategy, we are focused on three strategic priorities: deliver a world-class customer experience, catalyze our customers' digital transformation, and establish an industry-leading platform for Design and Make. We equip and inspire our users with the tailored tools, services, and access they need for success today and tomorrow. At every step, we help users harness the power of data to build upon their ideas and explore new ways of imagining, collaborating, and creating to achieve better outcomes for their customers, for society, and for the world. And because creativity can't flourish in silos, we connect what matters - from steps in a project to collaborators on a unified platform. Autodesk was founded during the platform transition from mainframe computers and engineering workstations to personal computers. We have developed and sustained a compelling value proposition based upon software for the personal computer. Just as the transition from mainframes to personal computers transformed the hardware industry, the software industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies. 32
We offer subscriptions for individual products and Industry Collections, enterprise business arrangements ("EBAs"), and cloud service offerings (collectively referred to as "subscription plans"). Subscription plans are designed to give our customers more flexibility with how they use our offerings and to attract a broader range of customers, such as project-based users and small businesses. Our subscription plans currently represent a hybrid of desktop software and cloud functionality, which provides a device-independent, collaborative design workflow for designers and their stakeholders. Our cloud offerings, for example, BIM 360, Fusion 360, ShotGrid, AutoCAD web app, and AutoCAD mobile app, provide tools, including mobile and collaboration capabilities, to streamline design, collaboration, building and manufacturing, and data management processes. We believe that customer adoption of these latest offerings will continue to grow as customers across a range of industries begin to take advantage of the scalable computing power and flexibility provided through these services. Industry Collections provide our customers with access to a broader selection of Autodesk solutions and services, simplifying the customers' ability to benefit from a complete set of tools for their industry. To support our strategic priority of digital transformation in Architecture, Engineering, and Construction ("AEC"), we are strengthening the foundation of our AEC solutions with both organic and inorganic investments. In fiscal 2023, we acquired a cloud-connected, extended reality (XR) platform which enables AEC professionals to present, collaborate and review projects together in immersive and interactive experiences, from anywhere and at any time. This acquisition enables Autodesk to meet increasing needs for augmented reality (AR) and virtual reality (VR) technology advancements within the AEC industry and further support AEC customers throughout the project delivery lifecycle. In fiscal 2022, we acquired
Storm UK Holdco Limited, the parent of Innovyze, Inc.("Innovyze"), which provides water infrastructure software. Combining Innovyze'shydraulic modeling, simulation, asset performance management and operational analytics solutions with Autodesk's design and analysis solutions (including Autodesk Civil 3D, Autodesk InfraWorks, and the Autodesk Construction Cloud) enables us to deliver end-to-end, cloud-based solutions for our water infrastructure customers that drive efficiency and sustainability. Other acquisitions in fiscal 2022 include a cloud-based estimating solution that enables construction teams to create estimates, perform digital takeoffs, generate detailed reports and proposals and manage bid-day processes. In manufacturing, our strategy is to combine organic and acquired software in existing and adjacent verticals to create end-to-end, cloud-based solutions for our customers that drive efficiency and sustainability. We continue to attract both global manufacturing leaders and disruptive startups with our generative design and cloud-based Fusion 360 that converges the process of design with manufacturing. In the first fiscal quarter of 2023, we acquired a maker of software for optimizing manufacturing processes with automation and digitization from the shop floor upward that provides a real-time system of record for data collection, management, and analysis. In fiscal 2022, we acquired Upchain, an instant-on, cloud-based data management technology that allows product design and manufacturing customers to collaborate in the cloud across their value chains and bring products to market faster. 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 may, in certain instances, negatively impact our operating margins. We continually review these factors in making decisions regarding acquisitions. We currently anticipate that we will continue to acquire products, technology, and businesses as compelling opportunities become available.
We sell our products and services globally, through a combination of indirect and direct channels. Our indirect channels include value added resellers, direct market resellers, distributors, computer manufacturers, and other software developers. Our direct channels include internal sales resources dedicated to selling in our largest accounts, our highly specialized solutions, and business transacted through our online Autodesk branded store. See Note 3, "Revenue Recognition" in the Notes to the Condensed Consolidated Financial Statements for further detail on the results of our indirect and direct channel sales for the three months ended
April 30, 2022and 2021. We anticipate that our channel mix will continue to change as we scale our online Autodesk branded store business and our largest accounts shift towards direct-only business models. However, we expect our indirect channel will continue to transact and support the majority of our customers and revenue. We employ a variety of incentive programs and promotions to 33 -------------------------------------------------------------------------------- align our direct and indirect channels with our business strategies. In addition, we have a worldwide user group organization and we have created online user communities dedicated to the exchange of information related to the use of our products. One of our key strategies is to maintain an open-architecture design of our software products to facilitate third-party development of complementary products and industry-specific software solutions. This approach enables customers and third parties to customize solutions for a wide variety of highly specific uses. We offer several programs that provide strategic investment funding, technological platforms, user communities, technical support, forums, and events to developers who develop add-on applications for our products. For example, we have established the Autodesk Forge developer platform to support innovators that build solutions to facilitate the development of a single connected ecosystem for the future of how things are designed, made, and used as well as support ideas that push the boundaries of 3D printing. In addition to the competitive advantages afforded by our technology, our large global network of distributors, resellers, third-party developers, customers, educators, educational institutions, learning partners, and students is a key competitive advantage which has been cultivated over an extensive period. This network of partners and relationships provides us with a broad and deep reach into volume markets around the world. Our distributor and reseller network is extensive and provides our customers with the resources to purchase, deploy, learn, and support our solutions quickly and easily. We have a significant number of registered third-party developers who create products that work well with our solutions and extend them for a variety of specialized applications.
Impact at Autodesk
Autodesk is committed to advancing a more sustainable, resilient, and equitable world. We don't believe in waiting for progress, we believe in making it. We take action as a business and to support our employees, customers, and communities in our collective opportunity to design and make a better world for all. We focus our efforts to advance positive outcomes across three primary areas: energy and materials, health and resilience, and work and prosperity. These impact opportunity areas are derived from the UN Sustainable Development Goals ("SDGs") and have been focused through a multi-pronged process to align the top needs of our stakeholders, the important issues of our business, and the areas we are best placed to accelerate positive impact at scale. These opportunities manifest as outcomes through how our customers leverage our technology to design and make net-zero
carbonbuildings, resilient infrastructure, more sustainable products, and a thriving workforce. We realize these opportunities in our business through our 100% renewable and net-zero greenhouse gas operations and inclusive culture. We advance these opportunities with industry innovators through collaboration, grants, software donations, and training. The Autodesk Foundation(the "Foundation"), a privately funded 501(c)(3) charity organization established and solely funded by us, leads our philanthropic efforts. The purpose of the Foundation is twofold: to support employees to make a better world by matching employees' volunteer time and/or donations to nonprofit organizations; and to support organizations and individuals using design to drive positive social and environmental impact. On our behalf, the Foundation also administers a discounted software donation program to nonprofit organizations, social and environmental entrepreneurs, and others who are developing design solutions that will shape a more sustainable future. Additional information about our environmental, social, and governance program is available in our annual impact report on our website at www.autodesk.com. Information contained on or accessible through our website is not part of or incorporated by reference into this report.
Assumptions behind our strategy
Our strategy depends upon a number of assumptions, including: making our technology available to mainstream markets; leveraging our large global network of distributors, resellers, third-party developers, customers, educators, educational institutions, learning partners, and students; improving the performance and functionality of our products; and adequately protecting our intellectual property. If the outcome of any of these assumptions differs from our expectations, we may not be able to implement our strategy, which could potentially adversely affect our business. For further discussion regarding these and related risks see Part II, Item 1A, "Risk Factors."
Significant Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with
34 -------------------------------------------------------------------------------- estimates that can have a significant impact on amounts reported in our Condensed Consolidated Financial Statements. We evaluate our estimates and assumptions on an ongoing basis. We base our assumptions, judgments, and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are described in Note 1, "Business and Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements in our Form 10-K for the fiscal year ended
January 31, 2022. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We highlighted those policies that involve a higher degree of judgment and complexity with further discussion in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in our Form 10-K. There have been no material changes to our critical accounting policies and estimates during the three months ended April 30, 2022, as compared to those disclosed in our Form 10-K for the fiscal year ended January 31, 2022. We believe these policies are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Overview of the three months ended
• Total net income increased by 18% to reach
• Recurring revenue as a percentage of net revenue was 98% for the two months ended
• The net revenue retention rate (“NR3”) was between 100% and 110% for both
• Deferred revenue has been
• The remaining performance obligations (short-term and long-term deferred revenue plus unbilled deferred revenue) (“RPO”) have been
• The current remaining performance obligations have been
Net revenue increased during the three months ended
April 30, 2022, as compared to the same period in the prior fiscal year, primarily due to a 17% increase in subscription revenue, partially offset by a 5% decrease in maintenance revenue.
For a more in-depth discussion of the drivers of these results, see 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") and Ingram Micro Inc.("Ingram Micro"). Total sales to Tech Data accounted for 36% of our total net revenue for both the three months ended April 30, 2022and 2021. Ingram Microaccounted for 9% and 10% of Autodesk's total net revenue for the three months ended April 30, 2022and 2021, respectively. Our customers through Tech Data and Ingram Microare the resellers and end users who purchase our software subscriptions and services. Should any of our agreements with Tech Data or Ingram Microbe terminated for any reason, we believe the resellers and end users who currently purchase our products through Tech Data or Ingram Microwould 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 or Ingram Micro.
Recurring revenue and net revenue retention rate
In order to help better understand our financial performance, we use several key performance metrics including recurring revenue and NR3. These metrics are key performance metrics and should be viewed independently of revenue and deferred revenue as these metrics are not intended to be combined with those items. We use these metrics to monitor the strength of our recurring business. We believe these metrics are useful to investors because they can help in monitoring the long-term health of our business. Our determination and presentation of these metrics may differ from that of other companies. The presentation of these metrics is meant to be considered in addition to, not as a substitute for or in isolation from, our financial measures prepared in accordance with GAAP. Please refer to the Glossary of Terms for the definitions of these metrics. 35 --------------------------------------------------------------------------------
The following table presents our recurring revenue indicator for the three months ended
Change compared to Three Months Ended prior fiscal year Three Months Ended (In millions, except percentage data) April 30, 2022 $ % April 30, 2021 Recurring revenue (1) (2)
$ 1,144$ 171 18 % $ 973 As a percentage of net revenue 98 % N/A N/A 98 %
(1)The acquisition of a business may cause variability in the comparison of recurring revenue in this table above and recurring revenue derived from the revenue reported in the Condensed Consolidated Statements of Operations. (2)The prior period amount has been adjusted to conform to the current period presentation for a change in presentation of certain subscription plan offerings.
NR3 was between 100% and 110% for both
Foreign Currency Analysis
We generate a significant portion of our revenue by
The following table shows the impact of exchange rate fluctuations on our net revenues and total expenses:
Three Months Ended
April 30, 2022Constant Currency percent
Percent change compared to change compared to impact from foreign exchange prior fiscal year prior fiscal year (1) rate changes Net revenue 18 % 17 % Positive Total spend 12 % 12 % Neutral ________________
(1)Please refer to the Glossary of Terms for definitions of our constant currency growth rates.
Changes in the value of the
U.S.dollar may have a significant effect on net revenue, total spend, and income 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.
Remaining performance obligations
RPO represents deferred revenue and contractually stated or committed orders under early renewal and multi-year billing plans for subscription, services, license, and maintenance for which the associated deferred revenue has not yet been recognized. Unbilled deferred revenue is not included as a receivable or deferred revenue on our Condensed Consolidated Balance Sheets. See Note 3, "Revenue Recognition," for more details on Autodesk's performance obligations. (in millions) April 30, 2022 January 31, 2022 Deferred revenue $ 3,749
$ 3,790Unbilled deferred revenue 934 949 RPO $ 4,683 $ 4,739RPO consisted of the following: (in millions) April 30, 2022 January 31, 2022 Current RPO $ 3,142 $ 3,141Non-current RPO 1,541 1,598 RPO $ 4,683 $ 4,73936
-------------------------------------------------------------------------------- We expect that the amount of RPO will change from quarter to quarter for several reasons, including the specific timing, duration, and size of customer subscription and support agreements, the specific timing of customer renewals, and foreign currency fluctuations. Historically, we have had increased EBA sales activity in our fourth fiscal quarter and this seasonality may affect the relative value of our billings, RPO, and collections in the fourth and first fiscal quarters.
Balance sheet and cash flow items
April 30, 2022, we had $1.62 billionin cash, cash equivalents, and marketable securities. Our cash flow from operations increased to $434 millionfor the three months ended April 30, 2022, compared to $336 millionfor the three months ended April 30, 2021. We repurchased 2,058 thousand shares of our common stock for $436 millionduring the three months ended April 30, 2022. Comparatively, we repurchased 1 million shares of our common stock for $143 millionduring the three months ended April 30, 2021. See further discussion regarding the balance sheet and cash flow activities under the heading "Liquidity and Capital Resources."
We believe our investment in cloud products and a subscription business model, backed by a strong balance sheet, give us a robust foundation to successfully navigate complex geopolitical and global macro-economic challenges. However, supply chain disruption and resulting inflationary pressures, a global labor shortage, the ebb and flow of COVID-19, including in specific geographies, the war in
Ukraine, and foreign exchange rate fluctuations, may impact our outlook. The extent of the impact of these risks on our business in the remainder of fiscal 2023 and beyond will depend on several factors, some of which are out of our control, and which are discussed in Part II, Item 1A, "Risk Factors." The COVID-19 pandemic has spurred changes in the way we work as we move to a more hybrid workforce resulting in an evaluation of our office space needs. Accordingly, we are reducing our facilities portfolio worldwide and incurred charges associated with our operating leases for real estate during the three months ended April 30, 2022. See Note 15, "Leases" in the Notes to Condensed Consolidated Financial Statements for more information. Optimizing our facilities costs will allow us to better deploy capital to further our strategy and drive growth. However, there is no guarantee that we will realize any anticipated benefits to our business, including any cost savings or operational efficiencies, or that our impairment charges would be limited to that amount.
Presentation of net income by income statement
Subscription revenue consists of our term-based product subscriptions, cloud service offerings, and flexible EBAs. Revenue from these arrangements is predominately 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.
Maintenance revenue consists of renewal fees for existing maintenance plan contracts that were originally purchased with a perpetual software license. Under our maintenance plan, customers are eligible to receive unspecified upgrades, when available, and technical support. We recognize maintenance revenue on a pro rata basis over the term of the contracts, which is typically one year.
Other revenue consists of revenue from consulting, training, and other products and services, and is recognized as the products are delivered and services are performed. 37 -------------------------------------------------------------------------------- Three Months Ended Change Compared to Prior Fiscal Year Three Months Ended (In millions, except percentages) April 30, 2022 $ % April 30, 2021 Management comments Net Revenue (1): Subscription
$1,089 $16217% $927Increase due to growth across subscription types, led by product subscription renewal revenue. Also contributing to the growth was an increase in revenue from EBA offerings. Maintenance 18 (1) (5)% 19 Total subscription and maintenance revenue 1,107 161 17% 946 Other 63 20 47% 43 $1,170 $18118% $989____________________ (1) Prior periods amounts have been reclassified to conform to the current period presentation in all material respects. See Note 1, "Basis of Presentation" in the Notes to the Condensed Consolidated Financial Statements for the change in presentation of certain subscription plan offerings in our Condensed Consolidated Statement of Operations.
Net sales by product family
Our product offerings focus on four primary product families: Architecture, Engineering and Construction (“AEC”), AutoCAD and AutoCAD LT, Manufacturing (“MFG”) and
Three Months Ended prior fiscal year Three Months Ended (In millions, except percentages) April 30, 2022 $ % April 30, 2021 Management
Net Revenue by Product Family: AEC
$518 $7517% $443Increase
due to revenue growth
Revit . AutoCAD and AutoCAD LT 346 61 21% 285 Increase due to growth in revenue from both AutoCAD and AutoCAD LT. MFG 225 28 14% 197 Increase due to growth in revenue from MFG
Collections, Fusion360, Vault,
and EBAs. M&E 68 13 24% 55 Increase due to growth in revenue from Maya, 3DS Max, and EBAs. Other 13 4 44% 9 Total Net Revenue
$1,170 $18118% $98938
Net sales by geographical area
Constant currency Three Months Change compared to change compared to Three Months Ended April 30, prior fiscal year prior fiscal year Ended April 30, (In millions, except percentages) 2022 $ % % 2021 Net Revenue: Americas U.S. $ 398 $ 74 23 % * $ 324 Other Americas 86 19 28 % * 67 Total Americas 484 93 24 % 23 % 391 EMEA 449 66 17 % 15 % 383 APAC 237 22 10 % 12 % 215 Total Net Revenue
$ 1,170$ 181 18 % 17 % $ 989 ____________________
* Data in constant currencies not provided at this level.
We believe that international revenue will continue to comprise a majority of our net revenue. Unfavorable economic conditions, including as a result of the COVID-19 pandemic or in connection with the significant military action against
Ukrainelaunched by Russia(and any related political or economic responses and counter-responses or otherwise by various global actors or the general effect on the global economy), in the countries that contribute a significant portion of our net revenue, including in emerging economies such as Brazil, 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. Increases to the levels of political and economic unpredictability or protectionism in the global market may impact our future financial results. Net Revenue by Sales Channel Three Three Months Change compared to Months Ended prior fiscal year Ended April 30, April 30, (In millions, except percentages) 2022 $ % 2021 Management Comments Net Revenue by Sales Channel: Indirect $ 769$ 108 16 % $ 661Increase due to growth in subscription revenue, led by product subscription renewal revenue. Direct 401 73 22 % 328 Increase due to an increase in EBAs and our online Autodesk branded store. Total Net Revenue $ 1,170$ 181 18 % $ 989Net Revenue by Product Type Change compared to Three Months prior fiscal year (In millions, except Ended April 30, Three Months Ended percentages) 2022 $ % April 30, 2021 Management Comments Net Revenue by Product Type: Design $ 1,004$ 139 16 % $ 865 Increase due to growth in AEC & MFG collections, AutoCAD Family, EBA offerings, and AutoCAD LT. Make 103 22 27 % 81 Increase primarily due to growth in revenue from Plangrid, Fusion 360, and BIM 360 products. Other 63 20 47 % 43 Total Net Revenue $ 1,170$ 181 18 % $ 989 39
Cost of Operating Revenues and Expenses
Cost of subscription and maintenance revenue includes the labor costs of providing product support to our subscription and maintenance customers, SaaS vendor costs and allocated IT costs, facilities costs, professional services fees related to operating our network and cloud infrastructure, royalties, depreciation expense and operating lease payments associated with computer equipment, data center costs, salaries, related expenses of network operations, stock-based compensation expense, and gains and losses on our operating expense cash flow hedges. Cost of other revenue includes labor costs associated with product setup, costs of consulting and training services contracts, and collaborative project management services contracts. Cost of other revenue also includes stock-based compensation expense, overhead charges, allocated IT and facilities costs, professional services fees, and gains and losses on our operating expense cash flow hedges.
Revenue cost, at least in the short term, is affected by labor costs, hosting costs for our cloud offerings, product sales volume and mix, consulting cost fluctuations, amortization of developed technology, new customer support offerings, royalty rates for licensed technology incorporated into our products, stock-based compensation expense, and gains and losses on our cash flow hedges operating expenses.
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, sales and dealer commissions, and 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 SaaS vendor costs and allocated IT costs, payment processing fees, the cost of supplies and equipment, gains and losses on our operating expense cash flow hedges, facilities costs, and labor costs associated with sales and order management. 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, the expense of travel, entertainment, and training for such personnel, professional services such as fees paid to software development firms and independent contractors, SaaS vendor costs and allocated IT costs, gains and losses on our operating expense cash flow hedges, and facilities costs. General and administrative expenses include salaries, bonuses, benefits, and stock-based compensation expense for our CEO, finance, human resources, and legal employees, as well as professional fees for legal and accounting services, SaaS vendor costs and net IT costs, certain foreign business taxes, gains and losses on our operating expense cash flow hedges, expense of travel, entertainment, and training, facilities costs, acquisition-related costs, and the cost of supplies and equipment. 40 --------------------------------------------------------------------------------
Three Three Months Change compared to Months Ended prior fiscal year Ended April 30, (In millions, except percentages) 2022 $ % April 30, 2021 Management
Cost of revenue: Subscription and maintenance
$ 84$ 16 24 % $ 68Increase
mainly due to an increase
cloud hosting costs and employee-related costs driven by higher headcount as well as an increase in stock-based compensation expense. Other 19 5 36 % 14 Increase
mainly due to an increase
personnel costs resulting from an increase in
headcount as well as an increase in stock-based compensation expense. Amortization of developed 14 4 40 % 10 Increase due to growth in amortization technologies expense from acquired developed technologies as a result of our acquisitions in the remainder of fiscal 2022 and the first quarter of fiscal 2023. Total cost of revenue
$ 117$ 25 27 % $ 92Operating expenses: Marketing and sales $ 419$ 42 11 % $ 377Increase
mainly due to an increase
personnel costs resulting from an increase in
headcount and sales commission expense, stock-based
compensation expense and
increase in cloud hosting costs. Research and development 289 23 9 % 266 Increase
mainly due to an increase
stock-based compensation expense, an increase in employee-related costs due to higher headcount, professional fees, and cloud hosting costs. General and administrative 120 8 7 % 112 Increase
mainly due to an increase
costs as well as an increase
in cloud hosting costs. Amortization of purchased 11 3 38 % 8 Increase due to growth in amortization intangibles expense from acquired intangibles as a result of our acquisitions in the remainder of fiscal 2022 and the first quarter of fiscal 2023. Total operating expenses
$ 839$ 76 10 % $ 763
The following table highlights our expectations for the absolute change in the dollar and the percentage change in revenue between the second quarter of fiscal 2023 and the second quarter of fiscal 2022:
Percent of net Absolute dollar impact revenue impact Cost of revenue Increase Flat Marketing and sales Increase Decrease Research and development Increase Flat General and administrative Increase Flat Amortization of purchased intangibles Decrease Flat
Interest and other charges, net
The following table sets forth the components of interest and other expense, net: Three Months Ended April 30, (in millions) 2022 2021 Interest and investment expense, net $ (29)
$ (10)Gain on foreign currency 10 2 Gain on strategic investments - 4 Other income - 1 Interest and other expense, net $ (19)
Interest and other expense, net, increased by
$16 millionduring the three months ended April 30, 2022, as compared to the same period in the prior fiscal year. The increase in the three months ended April 30, 2022, as compared to the same period 41 -------------------------------------------------------------------------------- in the prior fiscal year was primarily due to mark-to-market losses in the current period, compared to gains in the prior period, on debt and equity securities held in a rabbi trust under non-qualified deferred compensation plans and an increase in interest expense as a result of the issuance of debt in fiscal year 2022 partially offset by an increase in gains on foreign currency due to foreign currency exchange rate fluctuations.
Interest expense and investment income fluctuate with average cash, marketable securities, 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. We had an income tax expense of
$49 million, relative to pre-tax income of $195 millionfor the three months ended April 30, 2022, and an income tax benefit of $25 million, relative to pre-tax income of $131 millionfor the three months ended April 30, 2021. Income tax expense for the three months ended April 30, 2022, reflects an increase in tax expense relating to stock-based compensation and the final U.S.foreign tax credit regulations enacted in fiscal 2023, offset by a U.S.foreign derived intangible income benefit driven by the capitalization of research and development expenditures starting in fiscal 2023 as required by the Tax Act. In addition, fiscal year 2022 included a non-recurring discrete tax benefit relating to the Supreme Courtdecision in Indiaon the taxability of software license payments to nonresidents. Tax Act enacted on December 22, 2017, eliminates the option to deduct research and development expenditures and requires taxpayers to capitalize and amortize such expenditures over five or fifteen years beginning in fiscal 2023. Although Congressis considering legislation that would defer the capitalization and amortization requirement, there is no assurance that the provision will be repealed or otherwise modified. If the requirement is not modified, the Company may recognize an increase to cash taxes. We regularly assess the need for a valuation allowance against our deferred tax assets. In making that assessment, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. We have maintained a valuation allowance on our Netherlands, Canada, Australia, California, Michigan, and U.S.capital loss deferred tax assets as it is more likely than not that some or all of the deferred tax assets will not be realized. As we continually strive to optimize our overall business model, tax planning strategies may become feasible and prudent allowing us to realize many of the deferred tax assets that are offset by a valuation allowance; therefore, we will continue to evaluate the ability to utilize the 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 April 30, 2022, we had $212 millionof gross unrecognized tax benefits, of which $34 millionwould reduce our valuation allowance, if recognized. The remaining $178 millionwould impact the effective tax rate, if recognized. It is possible that the amount of unrecognized tax benefits will decrease in the next 12 months for an audit settlement of approximately $7 million. We anticipate that the U.S. Department of Treasurywill continue to interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered. As future guidance is issued, we may make adjustments to the amounts that we have previously recorded that may materially impact our financial statements. Our future effective annual 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, changes in valuation allowances, level of profit before tax, accounting for uncertain tax positions, business combinations, closure of statute of limitations or settlement of tax audits, and changes in tax laws including impacts of the Tax Act. A significant amount of our earnings is generated by our Europeand Asia Pacificsubsidiaries. 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. 42 -------------------------------------------------------------------------------- On June 29, 2020, Californiaenacted Assembly Bill No. 85, suspending utilization of net operating losses and limiting R&D credits utilization against Californiataxable income in excess of $5.0 millionfor the remaining 2 years. On February 9, 2022, Californiaenacted Senate Bill No. 113 which reinstated the ability to utilize net operating loss and R&D credits against all income without limitation for fiscal 2023 and later years.
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 months ended
April 30, 2022and 2021, our gross profit, income from operations, operating margin, net income, and diluted net income per share on a GAAP and non-GAAP basis were as follows (in millions except for operating margin and per share data): Three Months Ended April 30, 2022 2021 (Unaudited) Gross profit $ 1,053 $ 897Non-GAAP gross profit $ 1,077 $ 914Income from operations $ 214 $ 134Non-GAAP income from operations $ 397 $ 280Operating margin 18 % 14 % Non-GAAP operating margin 34 % 28 % Net income $ 146 $ 156Non-GAAP net income $ 314 $ 229GAAP diluted net income per share $ 0.67 $ 0.70Non-GAAP diluted net income per share $ 1.43
For our internal budgeting and resource allocation process and as a means to provide consistency in 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 benefits, credits, 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. 43 --------------------------------------------------------------------------------
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
(In millions except for operating margin and per share data):
Three Months Ended April 30, 2022 2021 (Unaudited) Gross profit
$ 1,053 $ 897Stock-based compensation expense 11 7 Amortization of developed technologies 13 10 Non-GAAP gross profit $ 1,077 $ 914Income from operations $ 214 $ 134Stock-based compensation expense 155 116 Amortization of developed technologies 13 10 Amortization of purchased intangibles 11 8 Acquisition-related costs 3 12 Lease-related asset impairments and other charges 1 - Non-GAAP income from operations $ 397 $ 280Operating margin 18 % 14 % Stock-based compensation expense 13 % 12 % Amortization of developed technologies 1 % 1 % Amortization of purchased intangibles 1 % 1 % Acquisition-related costs - % 1 % Non-GAAP operating margin (1) 34 % 28 % Net income $ 146 $ 156Stock-based compensation expense 155 116 Amortization of developed technologies 13 10 Amortization of purchased intangibles 11 8 Acquisition-related costs 3 12 Lease-related asset impairments and other charges 1 - Gain on strategic investments and dispositions, net - (4) Discrete tax provision items (8) (56) Income tax effect of non-GAAP adjustments (7) (13) Non-GAAP net income $ 314 $ 22944
-------------------------------------------------------------------------------- Three Months Ended April 30, 2022 2021 (Unaudited) Diluted net income per share $ 0.67
$ 0.70Stock-based compensation expense 0.71 0.52 Amortization of developed technologies 0.06 0.05 Amortization of purchased intangibles 0.05 0.04 Acquisition-related costs 0.01 0.05 Gain on strategic investments and dispositions, net - (0.02) Discrete tax provision items (0.04) (0.25) Income tax effect of non-GAAP adjustments (0.03) (0.06) Non-GAAP diluted net income per share
(1) Totals may not add due to rounding.
Our non-GAAP financial measures may exclude the following items, as applicable:
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 technologies 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. CEO transition costs. We exclude amounts paid to the Company's former CEOs upon departure under the terms of their transition agreements, including severance payments, acceleration of restricted stock units, and continued vesting of performance stock units, and legal fees incurred with the transition. Also excluded from our non-GAAP measures are recruiting costs related to the search for a new CEO. These costs represent non-recurring expenses and are not indicative of our ongoing operating expenses. We further believe that excluding the CEO transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.
Goodwillimpairment. 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 and other exit costs, 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. Lease-related asset impairments and other charges. These charges are associated with the optimization of our facilities costs related to leases for facilities that we have recently vacated as a result of our one-time move to a more hybrid remote workforce. In connection with these facility leases, we recognize costs related to the impairment or abandonment of operating lease right-of-use assets, computer equipment, furniture, and leasehold improvements, and other costs. 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. 45 -------------------------------------------------------------------------------- Acquisition-related costs. We exclude certain acquisition-related costs, including due diligence costs, professional fees in connection with an acquisition, certain financing costs, and certain integration-related expenses. These expenses are unpredictable, and dependent on factors that may be outside of our control and unrelated to the continuing operations of the acquired business or our Company. In addition, the size and complexity of an acquisition, which often drives the magnitude of acquisition-related costs, may not be indicative of such future costs. We believe excluding acquisition-related costs facilitates the comparison of our financial results to the Company's historical operating results and to other companies in our industry. Loss (gain) on strategic investments and dispositions. We exclude gains and losses related to our strategic investments and dispositions of strategic investments, purchased intangibles, and businesses from our non-GAAP measures primarily because management finds it useful to exclude these variable gains and losses on these investments and dispositions in assessing our financial results. Included in these amounts are non-cash unrealized gains and losses on the derivative components, dividends received, realized gains and losses on the sales or losses on the impairment of these investments, and gain and loss on dispositions. 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 and dispositions which do not occur regularly. Discrete tax provision items. We exclude the GAAP tax provision, including discrete items, from the non-GAAP measure of net income (loss), 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. Establishment (release) of a valuation allowance on certain net deferred tax assets. This is a non-cash charge to record or to release 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. 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 exit costs (benefits) for GAAP and non-GAAP measures.
Cash and capital resources
Our primary source of cash is from the sale of our software and related services. 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. Long-term cash requirements for items other than normal operating expenses are anticipated for the following: the acquisition of businesses, software products, or technologies complementary to our business; repayment of debt; common stock repurchases; and capital expenditures, including the purchase and implementation of internal-use software applications.
September 2021, Autodesk entered into an amended and restated credit agreement ("Credit Agreement") by and among Autodesk, the lenders party thereto, and Citibank, N.A., as agent, that provides for a revolving credit facility in the aggregate principal amount of $1.5 billionwith an option to be increased up to $2.0 billion. The revolving credit facility is available for working capital or other business needs. The maturity date on the Credit Agreement is September 30, 2026. At April 30, 2022, Autodesk had no outstanding borrowings under the Credit Agreement. Additionally, as of June 2, 2022, we have no amounts outstanding under the Credit Agreement. See Part I, Item 1, Note 14, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion on our covenant requirements. If we are unable to remain in compliance with the covenants under the Credit Agreement, we will not be able to draw on our revolving credit facility. As of April 30, 2022, we have $2.65 billionaggregate principal amount of notes outstanding. See Part I, Item 1, Note 14, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion. 46 -------------------------------------------------------------------------------- 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 $1.5 billionrevolving credit facility. Our cash and cash equivalents balances are concentrated in a few locations around the world, with substantial amounts held outside of the United States. As of April 30, 2022, approximately 59% of our total cash or cash equivalents are located in foreign jurisdictions and that percentage will fluctuate subject to business needs. There are several factors that can impact our ability to utilize foreign cash balances, such as foreign exchange restrictions, foreign regulatory restrictions, or adverse tax costs. The Tax Act included a mandatory one-time tax on accumulated earnings of foreign subsidiaries and generally eliminated U.S.taxes on foreign subsidiary distributions in future periods. As a result, earnings in foreign jurisdictions are generally available for distribution to the United Stateswith little to no incremental U.S.taxes. 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. We expect to meet our liquidity needs through or in combination of current cash balances, ongoing cash flows, and external borrowings. 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." Based on our current business plan and revenue prospects, we believe that our existing cash and cash equivalents, our anticipated cash flows from operations, and our available revolving 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. Three Months Ended April 30, (in millions) 2022 2021 Net cash provided by operating activities $ 434 $ 336Net cash provided by (used in) investing activities 31 (1,040) Net cash used in financing activities (460) (142) Net cash provided by operating activities of $434 millionfor the three months ended April 30, 2022, primarily consisted of $146 millionof our net income adjusted for $197 millionnon-cash items such as stock-based compensation expense, and depreciation, amortization, and accretion expense, lease-related impairment charges, and deferred income tax. The increase in cash provided by working capital was primarily due to a decrease in accounts receivable of $332 milliondue to the seasonality of our billings in the fourth fiscal quarter and timing of cash collections from customers offset in part by a decrease in accounts payable and other liabilities of $218 milliondue to the timing of payments related to employee compensation and related costs. Net cash provided by operating activities of $336 millionfor the three months ended April 30, 2021, primarily consisted of $156 millionof our net income adjusted for $187 millionnon-cash items such as stock-based compensation expense, and depreciation, amortization, and accretion expense. The decrease in cash provided by changes in working capital was due to a decrease in accounts payable and other liabilities of $182 million, due to the timing of payments related to employee compensation and related costs, an increase in prepaid expenses and other assets of $126 million, due to timing of prepaid operating expenses offset by a decrease in accounts receivable of $324 million, due to the seasonality of our billings in the fourth fiscal quarter and timing of cash collections from customers. Net cash provided by investing activities was $31 millionfor the three months ended April 30, 2022, primarily due to the sales and maturities of marketable securities partially offset by business combinations, net of cash acquired. Net cash used in investing activities was $1,040 millionfor the three months ended April 30, 2021, and was primarily due to a business combination, net of cash acquired. Net cash used in financing activities was $460 millionfor the three months ended April 30, 2022, primarily due to repurchases of common stock. Net cash used in financing activities was $142 millionfor the three months ended April 30, 2021, primary due to the repurchases of common stock. These cash outflows were offset in part by cash proceeds from the issuance of common stock. 47 --------------------------------------------------------------------------------
Issuer Purchases of
Autodesk's stock repurchase program provides Autodesk with the ability to offset the dilution from the issuance of stock under our employee stock plans and reduce shares outstanding over time, and has the effect of returning excess cash generated from our business to stockholders. Under the share repurchase program, Autodesk may repurchase shares from time to time in open market transactions, privately negotiated transactions, accelerated share repurchase programs, tender offers, or by other means. The share repurchase program does not have an expiration date and the pace and timing of repurchases will depend on factors such as cash generation from operations, available surplus, the volume of employee stock plan activity, remaining shares available in the authorized pool, cash requirements for acquisitions, economic and market conditions, stock price, and legal and regulatory requirements.
The following table provides information on the repurchase of Common Shares in open market transactions during the three months ended
Total Number of Shares Maximum Number of Total Number of Purchased as Part of Shares that May Yet Be Shares
Average price of publicly announced plans purchased under the (shares in thousands)
Purchased Paid per Share or Programs (1) Plans or Programs (2) February 1 - February 28 761
$ 231.13761 7,362 March 1 - March 31 501 204.14 501 6,861 April 1- April 30 796 197.89 796 6,065 Total 2,058 $ 211.712,058 ________________ (1)This 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 publicly announced and approved by the Board of Directors in September 2016that authorized the repurchase of 30 million shares. The plan does not have a fixed expiration date. See Note 18, "Stockholders' Equity ," in the Notes to the Condensed Consolidated Financial Statements for further discussion.
Glossary of terms
Billing: total revenue plus the net change in deferred revenue from the beginning to the end of the period.
Cloud Service Offerings: Represents individual term-based offerings deployed through web browser technologies or in a hybrid configuration of software and cloud. 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. 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.
Design Business: Represents the combination of maintenance, product subscriptions, and all EBAs. Major products include, but are not limited to, AutoCAD, AutoCAD LT, Industry Collections, Revit, Inventor, Maya, and 3ds Max. Some products, such as our computer-aided manufacturing solutions, integrate both design and manufacturing functionality and are classified as design.
Enterprise Business Agreements (EBAs): Represents programs providing enterprise customers with token-based access to a broad pool of Autodesk products over a defined contract term.
Free Cash Flow: cash flow from operating activities minus capital expenditures.
Industry Collections: Autodesk Industry Collections are a combination of products and services that target a specific user objective and support a set of workflows for that objective. Our Industry Collections consist of: Autodesk Architecture, Engineering and Construction Collection, Autodesk Product Design and Manufacturing Collection, and Autodesk Media and Entertainment Collection. 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. 48 --------------------------------------------------------------------------------
Under our maintenance plans, customers are eligible to receive unspecified upgrades when available, as well as technical support. We recognize maintenance revenue over the term of the contracts, typically one year.
Make Business: Represents certain cloud-based product subscriptions. Major products include, but are not limited to, Assemble, Autodesk Build, BuildingConnected, Fusion 360, and ShotGrid. Some products, such as Fusion 360, incorporate both Design and Make functionality and are classified as Make.
Net Revenue Retention Rate (NR3): Measures the year-over-year change in Recurring Revenue for the population of customers that existed one year ago ("base customers"). Net revenue retention rate is calculated by dividing the current quarter Recurring Revenue related to base customers by the total corresponding quarter Recurring Revenue from one year ago. Recurring Revenue is based on USD reported revenue, and fluctuations caused by changes in foreign currency exchange rates and hedge gains or losses have not been eliminated. Recurring Revenue related to acquired companies, one year after acquisition, has been captured as existing customers until such data conforms to the calculation methodology. This may cause variability in the comparison. Other Revenue: Consists of revenue from consulting, training, and other products and services, and is recognized as the products are delivered and services are performed.
Product Subscription: Provides customers with a flexible, cost-effective way to access and manage 3D design, engineering, and entertainment software tools. Our product subscriptions currently represent a hybrid of desktop and cloud functionality, which provides a device-agnostic collaborative design workflow for designers and their stakeholders.
Recurring Revenue: Consists of the revenue for the period from our traditional maintenance plans, our subscription plan offerings, and certain Other revenue. It excludes subscription revenue related to 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. Remaining Performance Obligations (RPO): The sum of total short-term, long-term, and unbilled deferred revenue. Current remaining performance obligations is the amount of revenue we expect to recognize in the next twelve months.
Expenses: The sum of the cost of revenue and operating expenses.
Subscription Plan: Comprises our term-based product subscriptions, cloud service offerings, and EBAs. Subscriptions represent a combined hybrid offering of desktop software and cloud 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 our cloud-based product subscriptions, cloud service offerings, and flexible EBAs.
Unbilled Deferred Revenue: Unbilled deferred revenue represents contractually stated or committed orders under early renewal and multi-year billing plans for subscription, services, and maintenance for which the associated deferred revenue has not been recognized. Under FASB Accounting Standards Codification ("ASC") Topic 606, unbilled deferred revenue is not included as a receivable or deferred revenue on our Condensed Consolidated Balance Sheet. 49
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