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Autodesk Inc. Reports Operating Results (10-Q)

September 01, 2010 | About:
10qk

10qk

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Autodesk Inc. (ADSK) filed Quarterly Report for the period ended 2010-07-31.

Autodesk Inc. has a market cap of $6.36 billion; its shares were traded at around $27.73 with a P/E ratio of 31.5 and P/S ratio of 3.7. Autodesk Inc. had an annual average earning growth of 9.2% over the past 10 years.ADSK is in the portfolios of Steve Mandel of Lone Pine Capital, Richard Aster Jr of Meridian Fund, Manning & Napier Advisors, Inc, Andreas Halvorsen of Viking Global Investors LP, Bruce Kovner of Caxton Associates, Louis Moore Bacon of Moore Capital Management, LP, Paul Tudor Jones of The Tudor Group, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, Kenneth Fisher of Fisher Asset Management, LLC, Dodge & Cox.

Highlight of Business Operations:

Product Returns Reserves. We permit our distributors and resellers to return products up to a percentage of prior quarter purchases. The product returns reserve is based on historical experience of actual product returns, estimated channel inventory levels, the timing of new product introductions and promotions, channel sell-in for applicable markets and other factors. Our product returns reserves were $10.5 million at July 31, 2010 and $11.8 million at January 31, 2010. Actual product returns as a percentage of applicable revenue were 4.4% and 5.5% for the three months ended July 31, 2010 and 2009, respectively, and 4.9% and 5.5% for the six months ended July 31, 2010 and 2009, respectively. During the three months ended July 31, 2010 and 2009, we recorded additions to our product returns reserve of $10.4 million and $9.5 million, respectively, which reduced our revenue. During the six months ended July 31, 2010 and 2009, we recorded additions to our product returns reserve of $21.4 million and $21.9 million, respectively, which reduced our revenue.

During the three and six months ended July 31, 2010, as compared to the same periods of the prior fiscal year, net revenue increased, gross profit increased and income from operations increased. The increases in income from operations during the three and six months ended July 31, 2010, as compared to the same periods in the prior fiscal year, were due to the increases in our net revenue along with decreases in total spend, defined as cost of revenue plus operating expenses. The majority of our costs are relatively fixed in the short term as they relate primarily to our workforce. In an attempt to adjust our cost structure, we initiated restructuring plans that resulted in us recording restructuring charges of $1.9 million and $9.0 million during the three and six months ended July 31, 2010, respectively, as compared to the $26.4 million and $42.9 million recorded in the respective periods of the prior fiscal year. In addition, during the six months ended July 31, 2009 we recorded a goodwill impairment charge of $21.0 million associated with our M&E segment. The favorable impacts of the increase in revenue and decrease in restructuring and impairment charges during the three and six months ended July 31, 2010, as compared the same period of the prior fiscal year, were partially offset by the increase in operating costs resulting from the return of some previously suppressed costs and costs associated with higher revenue. Our spending decisions are based in part on our expectations for future revenue and are not directly variable with fluctuations in revenue. Accordingly, our inability to immediately adjust our operating costs for any revenue shortfall below expectations could have an immediate and significant adverse effect on our profitability. We constantly monitor and adjust our cost structure to align with our recent and anticipated financial results. In addition to restructuring activities, other actions that we have taken to adjust our cost structure include reductions in discretionary spending and contingent labor costs. In taking these actions, we may incur additional costs that could negatively impact our net income and cash flows from operating activities.

Net revenue for the three months ended July 31, 2010 increased $57.9 million, or 14%, as compared to the same period in the prior fiscal year due to a 22% increase in license and other revenue and a 4% increase in maintenance revenue. We experienced increases in net revenue in all of our major geographies during the three months ended July 31, 2010 as compared to the same period in the prior fiscal year. Net revenue for the six months ended July 31, 2010 increased $106.7 million, or 13%, as compared to the same period in the prior fiscal year due to an 18% increase in license and other revenue and a 6% increase in maintenance revenue. We experienced increases in net revenue in all of our major geographies during the six months ended July 31, 2010 as compared to the same period in the prior fiscal year.

Our total spend decreased by $19.2 million, or 5%, during the three months ended July 31, 2010, as compared to the same period of the prior fiscal year. During the six months ended July 31, 2010, our total spend decreased by $40.7 million, or 5%, as compared to the same period of the prior fiscal year. However, we continued to invest in areas important to the future success of Autodesk. Our total spend of $393.0 million for the second quarter of fiscal 2011 included $21.0 million of stock-based compensation expenses, $7.7 million attributable to amortization of developed technology for acquisitions subsequent to December 2005, $5.9 million attributable to amortization of customer relationships and trade names for acquisitions subsequent to December 2005 and $1.9 million for restructuring charges. Our total spend of $816.8 million for the first half of fiscal 2011 included $45.3 million of stock-based compensation expenses, $15.4 million attributable to amortization of developed technology for acquisitions subsequent to December 2005, $12.1 million attributable to amortization of customer relationships and trade names for acquisitions subsequent to December 2005 and $9.0 million for restructuring charges.

Our total operating margin increased from $2.7 million, or 1%, during the three months ended July 31, 2009, to $79.8 million, or 17%, during the three months ended July 31, 2010. Our total operating margin increased from a loss of $16.8 million, or negative 2%, during the six months ended July 31, 2009, to income of $130.6 million, or 14%, during the three months ended July 31, 2010. The increase in our operating margin during the three and six months ended July 31, 2010 was primarily due to net revenue increasing more rapidly than the increase in our costs due to our cost saving initiatives during fiscal 2010 and 2011. Also contributing to the increase in total operating margin were the decreases in restructuring charges during the three and six months ended July 31, 2010 as compared to the same period of the prior fiscal year and the decrease in goodwill impairment charges during the six months ended July 31, 2010. During the three months ended July 31, 2010, our operating margin increased $24.5 million due to the decrease in restructuring charges. During the six months ended July 31, 2010 our operating margin increased $21.0 million due to the decrease in goodwill impairment charges and $33.9 million for the decrease in restructuring charges. These decreases were partially offset by an increase in expenses due to the return of some previously suppressed costs and costs associated with higher revenue.

At July 31, 2010, we had $1,270.7 million in cash and marketable securities. We completed the quarter ended July 31, 2010 with a higher deferred revenue balance and a lower accounts receivable balance as compared to the quarter ended January 31, 2010. Our deferred revenue balance at July 31, 2010 included $472.7 million of customer maintenance contracts, which will be recognized as revenue ratably over the life of the contracts, which is predominantly one year. We repurchased 2.5 million shares of our common stock for $70.4 million during the three months ended July 31, 2010 and 4.5 million shares of our common stock for $129.2 million during the six months ended July 31, 2010. Comparatively, we had no repurchases of our common stock during the three and six months ended July 31, 2009.

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