filings.toolsItem 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in our MD&A and elsewhere in this Form 10-K 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” and “Overview of Fiscal 2020” below, in “Results of Operations-Impacts of COVID-19 to Autodesk’s Business,” future net revenue, operating expenses, recurring revenue, annualized recurring revenue, net revenue retention rate, cash flow, remaining performance obligations, other future financial results (by product type and geography), subscriptions and annualized revenue per subscription, the effectiveness of our efforts to successfully manage transitions to new markets, our ability to increase our subscription base, expected market trends, the impact of planned and past acquisitions and investment activities, the effects of global economic conditions, the effects of revenue recognition, the effects of recently issued accounting standards, 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 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 Annual Report on Form 10-K 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 above in Part I, 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.
STRATEGY
Autodesk makes software for people who make things. If you have ever driven a high-performance car, admired a towering skyscraper, used a smartphone, or watched a great film, chances are you have experienced what millions of Autodesk customers are doing with our software. We empower innovators to achieve the new possible - enabling them to discover first-in-kind solutions to complex design challenges, deliver tangible outcomes in record time, and make data-powered decisions for sustainable outcomes.
Our strategy is to build enduring relationships with customers, delivering innovative technology that provides valuable automation and insight into their design and make process. To drive execution of our strategy, we are focused on three strategic priorities: delivering on the promise of subscription, digitizing the company, and reimagining construction, manufacturing, and production.
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 developed and sustained a compelling value proposition based upon desktop software for the personal computer. Just as the transition from mainframes to personal computers transformed the industry over 30 years ago, the software industry has undergone a transition from developing and selling perpetual licenses and on-premises products to subscriptions and cloud-enabled technologies.
Product Evolution
To address this shift, Autodesk made a strategic decision to shift its business model from selling perpetual licenses and maintenance plans to selling subscriptions.
Today, we offer subscriptions for individual products and Industry Collections, EBAs, and cloud service offerings (collectively referred to as "subscription plan"). 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.
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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, Shotgun, 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 new 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 new services.
Industry Collections provide our customers with increased access to a broader selection of Autodesk solutions and services that exceeds those previously available in suites - simplifying the customers' ability to get access to a complete set of tools for their industry.
We discontinued the sale of new commercial licenses of most individual software products in fiscal 2016. Additionally, in fiscal 2018, we commenced a program to incentivize maintenance plan customers to move to subscription plan offerings, maintenance-to-subscription ("M2S"), while at the same time increasing maintenance plan pricing over time for customers that remain on maintenance plans. Since launching the program, a substantial majority of maintenance plan customers have converted to subscription plan offerings. We will be retiring maintenance offerings as of Augest 7, 2021. Customers will have a one-year period starting August 7, 2020, to convert a maintenance seat to subscription plan offerings.
To support our strategic priority of re-imagining construction, in fiscal 2019, we strengthened the foundation of our construction solutions with both organic and inorganic investments. In addition to investing in our BIM 360 portfolio, we acquired Assemble Systems for quantity take off functionality, PlanGrid for document-centric workflows and field execution, and BuildingConnected for bidding and estimation processes. The broadened product portfolio, the Autodesk Construction Cloud, has helped us expand our presence with sub-contractors, trades people, and building owners.
As part of our manufacturing strategy, we continue to attract both global manufacturing leaders and disruptive startups with our generative design and our Fusion 360 technology enhancements.
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. For example, in fiscal 2019, we acquired Assemble Systems, a leading provider of key workflow software solutions, PlanGrid, a leading provider of construction productivity software, and BuildingConnected, a leading pre-construction platform. We believe that these acquisitions have enabled us to offer a more comprehensive, cloud-based construction platform. 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 evaluate annualized recurring revenue ("ARR"), growth of billings, and remaining performance obligations in determining business momentum. To analyze progress, we have disaggregated our growth between the original maintenance model and the subscription plan model. Maintenance plan subscriptions peaked in the fourth quarter of fiscal 2016 as we discontinued selling new maintenance plan subscriptions in fiscal 2017, and we expect the number of these subscriptions to keep declining over time as maintenance plan customers continue to convert to our subscription plans. We will be retiring maintenance offerings as of August 7, 2021. Customers will have a one-year period starting August 7, 2020 to convert a maintenance seat to subscription plan offerings.
Global Reach
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 2, "Revenue Recognition" in the Notes to the Consolidated Financial Statements for further detail on the results of our indirect and direct channel sales for the fiscal years ended January 31, 2020, 2019, and 2018.
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
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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 program 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, educational institutions, educators, 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.
Better World
To help our customers imagine, design, and make a better world, our sustainability initiatives focus our efforts on the areas where we can have the greatest positive impact: products and support, catalyzing impact and innovation in our future markets, and leading by example with our 100% renewable and sustainable business practices. Through our products and services, we are supporting our customers to better understand and improve the environmental performance of everything they make and mitigate the causes and effects of climate change.
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.
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, educational institutions, 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 I, Item 1A, “Risk Factors.”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements are prepared in accordance with U.S. generally accepted accounting principles. In preparing our Consolidated Financial Statements, we make assumptions, judgments, and estimates that can have a significant impact on amounts reported in our 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 Part II, Item 8, Note 1, “Business and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements. 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 believe that of all our significant accounting policies, the following accounting policies and specific estimates involve a greater degree of judgment and complexity. Accordingly, these
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are the accounting policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.
Revenue Recognition - Judgments with Multiple Performance Obligations. Our contracts with customers may include promises to transfer multiple products and services to a customer. A performance obligation is a promise in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as a single performance obligation may require significant judgment that requires us to assess the nature of the promise and value delivered to the customer and the interaction of the desktop applications and cloud functionalities.
For our product subscriptions, cloud service offerings, and flexible enterprise business arrangements, the functional nature of the promise, as well as the customers' value expectations, led us to conclude desktop applications and cloud functionalities are not distinct in the context of the contract and should be accounted for as a single performance obligation. There is a high degree of interaction of the desktop applications and cloud functionalities, which is not available with the desktop applications alone or in conjunction with third-party cloud service providers. Furthermore, customers are not able to use the desktop applications for its intended purpose without our cloud functionalities.
For contracts with more than one performance obligation, the transaction price is allocated among the performance obligations in an amount that depicts the relative standalone selling price ("SSP") of each obligation. Judgment is required to determine the SSP for each distinct performance obligation. We use a range of amounts to estimate SSP when we sell each of the products and services separately and need to determine whether there is a discount that should be allocated based on the relative SSP of the various products and services.
In instances where SSP is not directly observable, such as when we do not sell the product or service separately, we determine the SSP using information that includes market conditions and other observable inputs. We typically have more than one SSP for individual products and services due to the stratification of those products and services by customer and circumstance. In these instances, we use relevant information such as the sales channel and geographic region to determine the SSP.
Privately Held Company Investments. Privately held debt and equity securities are valued using significant unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity. The carrying value is adjusted for our privately held equity securities if there are observable price changes in a same or similar security from the same issuer or if there are identified events or changes in circumstances that may indicate impairment, as discussed below. The determination of whether an orderly transaction is for a same or similar investment requires significant management judgment including the nature of rights and obligations of the investments, the extent to which differences in those rights and obligations would affect the fair values of those investments, and the impact of any differences based on the stage of operational development of the investee.
These assumptions are inherently subjective and involve significant management judgment. Whenever possible, we use observable market data and rely on unobservable inputs only when observable market data is not available, when determining fair value.
We assess our privately held debt and equity securities strategic investment portfolio quarterly for impairment. Our impairment analysis encompasses an assessment of the severity and duration of the impairment and qualitative and quantitative analysis of other key factors including the investee’s financial metrics, the investee’s products and technologies meeting or exceeding predefined milestones, market acceptance of the product or technology, other competitive products or technology in the market, general market conditions, management and governance structure of the investee, the investee’s liquidity, debt ratios and the rate at which the investee is using its cash. If the investment is impaired, we record the investment at fair value by recognizing an impairment through the consolidated statement of operations and establishing a new carrying value for the investment.
Business Combinations. The assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values at the acquisition date. Any residual purchase price is recorded as goodwill. Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to intangible assets and deferred revenue obligations.
Although we believe the assumptions and estimates we have made are reasonable, they are based in part on historical experience and information obtained from the management of the acquired companies and are inherently uncertain and unpredictable. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such
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assumptions, estimates or actual results. Examples of critical estimates used in valuing certain of the intangible assets and in determining the assets' useful lives for the assets we have acquired or may acquire in the future include but are not limited to:
| • | future expected cash flows from sales, subscriptions and maintenance agreements, and acquired developed technologies; |
| • | the acquired company's trade name, trademark and existing customer relationship, as well as assumptions about the period of time the acquired trade name and trademark will continue to be used in our product portfolio; |
| • | expected costs to develop the in-process research and development into commercially viable products and estimated cash flows from the projects when completed; |
| • | uncertain tax positions and tax related valuation allowances assumed; and |
| • | discount rates used to determine the present value of estimated future cash flows. |
Realizability of Long-Lived Assets. We assess the realizability of our long-lived assets and related intangible assets, other than goodwill, quarterly, or sooner should events or changes in circumstances indicate the carrying values of such assets may not be recoverable. We consider the following factors important in determining when to perform an impairment review: significant under-performance of a business or product line relative to budget; shifts in business strategies which affect the continued uses of the assets; significant negative industry or economic trends; and the results of past impairment reviews. When such events or changes in circumstances occur, we assess recoverability of these assets.
We assess recoverability of these assets by comparing the carrying amounts to the future undiscounted cash flows the assets are expected to generate. If impairment indicators were present based on our undiscounted cash flow models, which include assumptions regarding projected cash flows, we would perform a discounted cash flow analysis to assess impairments on long-lived assets.
The key assumptions that we use in our discounted cash flow model include the amount and timing of estimated future cash flows to be generated by the asset over an extended period of time and a rate of return that considers the relative risk of achieving the cash flows and the time value of money. Significant judgment is required to estimate the amount and timing of future cash flows and the relative risk of achieving those cash flows. We also make judgments about the remaining useful lives of acquired intangible assets and other long-lived assets that have finite lives.
Variances in these assumptions could have a significant impact on our conclusion as to whether an asset is impaired or the amount of any impairment charge. Impairment charges, if any, result in situations where any fair values of these assets are less than their carrying values.
Income Taxes. We account for income taxes under the asset and liability approach. Under this method, deferred tax assets, including those related to tax loss carryforwards and credits, and deferred tax liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We recognize the tax benefit for an uncertain tax position when it meets the more likely than not threshold for recognition. We recognize potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.
A valuation allowance is recorded to reduce deferred tax assets when management cannot conclude that it is more likely than not that the 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 valuation allowance, we consider all available evidence including past operating results and estimates of future taxable income. As a result of cumulative losses arising from our transition to a subscription model, we considered cumulative losses as a significant source of negative evidence and recorded a valuation allowance against our deferred tax attributes in Canada, Netherlands and the U.S. jurisdictions. We released the valuation allowance against our deferred tax attributes in Singapore in fiscal year 2020 as a result of positive earnings in that jurisdiction.
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.
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Each quarter we will continue to evaluate the positive and negative evidence of our ability to utilize our U.S. and foreign deferred tax assets.
Loss Contingencies. As described in Part I, Item 3, “Legal Proceedings” and Part II, Item 8, Note 10, “Commitments and Contingencies,” in the Notes to Consolidated Financial Statements, we are periodically involved in various legal claims and proceedings. We routinely review the status of each significant matter and assess our potential financial exposure. If the potential loss from any matter is considered probable and the amount can be reasonably estimated, we record a liability for the estimated loss. Significant judgment is required to determine both the likelihood of there being, and the estimated amount of, a loss related to such matters. Due to inherent uncertainties related to these matters, we base our loss accruals on the best information available at the time. Until the final resolution of such matters, there may be an exposure to loss in excess of the amount recorded. As additional information becomes available, we reassess our potential liability and may revise our estimates. Such revisions could have a material impact on future quarterly or annual results of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
See Part II, Item 8, Note 1, “Business and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and estimated effects on results of operations and financial condition.
OVERVIEW OF FISCAL 2020
| • | Total net revenue was $3.27 billion during fiscal 2020, an increase of 27% compared to the prior fiscal year. |
| • | Total ARR was $3.43 billion, an increase of 25% compared to the prior fiscal year. |
| • | Subscription plan ARR was $3.11 billion, an increase of 41% compared to the prior fiscal year. |
| • | Deferred revenue was $3.01 billion, an increase of 44% compared to the prior fiscal year. |
| • | Remaining performance obligations ("RPO") was $3.56 billion, an increase of approximately 33% compared to prior fiscal year. |
Revenue Analysis
During fiscal 2020, net revenue increased 27%, as compared to the prior fiscal year, primarily due to a 53% increase in subscription revenue. The increase in subscription revenue was partially offset by a 39% 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 35%, 35%, and 31% of Autodesk's total net revenue during fiscal 2020, 2019, and 2018, respectively. During fiscal 2020, 2019, and 2018, Ingram Micro accounted for 10%, 11%, and 8% of Autodesk's total net revenue. Should any of our agreements with Tech Data and Ingram Micro be terminated for any reason, we believe the resellers and end users who currently purchase our products through Tech Data and Ingram Micro 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 and Ingram Micro.
Recurring Revenue, ARR and Net Revenue Retention Rate
In order to help better understand our financial performance we use several key performance metrics including recurring revenue, ARR 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 in Part I, Item 1 Business.
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The following table outlines our recurring revenue metric for the fiscal years ended January 31, 2020, 2019, and 2018:
| Fiscal Year Ended January 31, 2020 | Change compared to prior fiscal year end | Fiscal Year Ended January 31, 2019 | Change compared to prior fiscal year end | Fiscal Year Ended January 31, 2018 | |||||||||||||||||||||
| $ | % | $ | % | ||||||||||||||||||||||
| Recurring Revenue (in millions) (1) | $ | 3,138.5 | $ | 701.3 | 29 | % | $ | 2,437.2 | $ | 554.9 | 29 | % | $ | 1,882.3 | |||||||||||
| As a percentage of net revenue | 96 | % | 95 | % | 92 | % |
| (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 Consolidated Statements of Operations. |
The following table outlines our ARR metric as of fiscal years ended January 31, 2020 and 2019.
| (in millions, except percentages) | Change compared to prior fiscal year | Management Comments | ||||||||||||||
| January 31, 2020 | $ | % | January 31, 2019 | |||||||||||||
| Subscription plan ARR | $ | 3,109.3 | $ | 909.2 | 41 | % | $ | 2,200.1 | Up due to growth in all subscription plan types, led by renewal product subscription, which benefited from the success of the M2S program. | |||||||
| Maintenance plan ARR | 319.8 | (229.5 | ) | (42 | )% | 549.3 | Down primarily due to the migration of maintenance plan subscriptions to subscription plan subscriptions with the M2S program. | |||||||||
| Total ARR (1) | $ | 3,429.1 | $ | 679.7 | 25 | % | $ | 2,749.4 |
| (1) | The acquisition of a business may cause variability in the comparison of ARR reported in this table above and ARR derived from the revenue reported in the Consolidated Statements of Operations. |
NR3 was within the approximate range of 110% and 120% as of January 31, 2020 and 2019.
Foreign Currency Analysis
We generate a significant amount of our revenue in the United States, Japan, Germany, the United Kingdom and Finland.
The following table shows the impact of foreign exchange rate changes on our net revenue and total spend:
| Fiscal Year Ended January 31, 2020 | |||||||
| Percent change compared to prior fiscal year (as reported) | Constant currency percent change compared to prior fiscal year (1) | Positive/negative/neutral impact from foreign exchange rate changes | |||||
| Net revenue | 27 | % | 28 | % | Negative | ||
| Total spend | 13 | % | 14 | % | Positive |
| (1) | Please refer to the "Glossary of Terms" in Part I, Item 1 Business for the 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 (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.
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.
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Unbilled deferred revenue is not included as a receivable or deferred revenue on our Consolidated Balance Sheets. See Part II, Item 8, Note 2, “Revenue Recognition” for more details on Autodesk's performance obligations.
| (in millions) | January 31, 2020 | January 31, 2019 | |||||
| Deferred revenue | $ | 3,007.1 | $ | 2,091.4 | |||
| Unbilled deferred revenue | 549.6 | 591.0 | |||||
| RPO | $ | 3,556.7 | $ | 2,682.4 |
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, varying billing cycles of such agreements, the specific timing of customer renewals, and foreign currency fluctuations.
Balance Sheet and Cash Flow Items
At January 31, 2020, we had $1,843.7 million in cash and marketable securities. Our cash flow from operations increased to $1,415.1 million for the fiscal year ended January 31, 2020, from $377.1 million for the fiscal year ended January 31, 2019. We repurchased 2.7 million shares of our common stock for $455.5 million during fiscal 2020. Comparatively, we repurchased 2.2 million shares of our common stock for $292.5 million during fiscal 2019. Further discussion regarding the balance sheet and cash flow activities are discussed below under the heading “Liquidity and Capital Resources.”
RESULTS OF OPERATIONS
Impacts of COVID-19 to Autodesk’s Business
The impacts of the global emergence of COVID-19 on our business and financial results are currently unknown. We are conducting business with substantial modifications to employee travel, employee work locations, and virtualization or cancellation of certain sales and marketing events, among other modifications. We have observed other companies as well as many governments taking precautionary and preemptive actions to address COVID-19, and they may take further actions that alter their normal business operations. We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners, suppliers and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers and prospects, or on our financial results.
Presentation of Operating Results and Other Financial Information
The revenue and spend balances included in the tables below during the fiscal years ended January 31, 2020 and 2019, are calculated under Accounting Standard Update No. 2014-09, which codified new revenue recognition guidance under ASC Topic 606.
Net Revenue by Income Statement Presentation
Subscription revenue consists of our term-based product subscriptions, cloud service offerings, and flexible enterprise
business arrangements. Revenue from these arrangements is recognized ratably over the contract term commencing when delivered to our customers and when all other revenue recognition criteria have been satisfied.
Maintenance revenue consists of renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license. Under our maintenance plan, customers are eligible to receive unspecified upgrades, when and if available, and technical support. We recognize maintenance revenue ratably over the term of the agreements, which is generally one year.
Other revenue consists of revenue from consulting, training and other services, and is recognized over time as the services are performed. Other revenue also includes software license revenue from the sale of certain products which do not incorporate substantial cloud functionalities and are recognized as the licenses are delivered to our customers.
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| Fiscal Year Ended January 31, 2020 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2019 | Management Comments | |||||||||||||
| (in millions, except percentages) | $ | % | ||||||||||||||
| Net revenue: | ||||||||||||||||
| Subscription | $ | 2,751.9 | $ | 949.6 | 53 | % | $ | 1,802.3 | Up due to growth across all subscription plan types, led by renewal product subscription revenue, which benefited from the success of the M2S program. Also contributing to the increase was growth in new product subscriptions, cloud service offerings (which benefited from our acquisitions in the fourth quarter of fiscal year 2019) and EBA offerings. | |||||||
| Maintenance (1) | 386.6 | (248.5 | ) | (39 | )% | 635.1 | Down primarily due to the migration of maintenance plan subscriptions to subscription plan subscriptions with the M2S program. | |||||||||
| Total subscription and maintenance revenue | 3,138.5 | 701.1 | 29 | % | 2,437.4 | |||||||||||
| Other | 135.8 | 3.4 | 3 | % | 132.4 | |||||||||||
| $ | 3,274.3 | $ | 704.5 | 27 | % | $ | 2,569.8 | |||||||||
| Fiscal Year Ended January 31, 2019 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2018 | Management Comments | ||||||||||||
| (in millions, except percentages) | $ | % | |||||||||||||
| Net revenue: | |||||||||||||||
| Subscription | $ | 1,802.3 | $ | 908.0 | 102 | % | $ | 894.3 | Up due to growth across all subscription types, led by product subscription renewal revenue, which benefited from the success of the M2S program. Also contributing to the growth was an increase in revenue from new product subscriptions and EBA offerings. | ||||||
| Maintenance (1) | 635.1 | (354.5 | ) | (36 | )% | 989.6 | Down primarily due to the migration of maintenance plan subscriptions to subscription plan subscriptions with the M2S program. | ||||||||
| Total subscription and maintenance revenue | 2,437.4 | 553.5 | 29 | % | 1,883.9 | ||||||||||
| Other | 132.4 | (40.3 | ) | (23 | )% | 172.7 | |||||||||
| $ | 2,569.8 | $ | 513.2 | 25 | % | $ | 2,056.6 | ||||||||
| (1) | We expect maintenance revenue will continue to decline; however, the rate of decline will vary based on the number of renewals, the renewal rate, and our ability to incentivize maintenance plan customers to switch over to subscription plan offerings. |
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Net Revenue by Product Family
Our product offerings are focused in four primary product families: Architecture, Engineering and Construction ("AEC"), AutoCAD and AutoCAD LT, Manufacturing ("MFG"), and Media and Entertainment ("M&E").
| Fiscal Year Ended January 31, 2020 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2019 | Management Comments | |||||||||||||
| (in millions, except percentages) | $ | % | ||||||||||||||
| Net revenue by product family: | ||||||||||||||||
| AEC | $ | 1,377.1 | 355.5 | 35 | % | $ | 1,021.6 | Up due to an increases in revenue from AEC collections, PlanGrid, EBAs, and BIM 360. | ||||||||
| AutoCAD and AutoCAD LT | 948.2 | 216.4 | 30 | % | 731.8 | Up due to increases in revenue from both AutoCAD and AutoCAD LT. | ||||||||||
| MFG | 726.1 | 109.9 | 18 | % | 616.2 | Up due to increases in revenue from MFG Collections and EBAs. | ||||||||||
| M&E | 199.2 | 17.2 | 9 | % | 182.0 | Up due to increases in revenue from Maya, M&E Collections and 3DS Max. | ||||||||||
| Other | 23.7 | 5.5 | 30 | % | 18.2 | |||||||||||
| $ | 3,274.3 | $ | 704.5 | 27 | % | $ | 2,569.8 |
| Fiscal Year Ended January 31, 2019 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2018 | Management Comments | |||||||||||||
| (in millions, except percentages) | $ | % | ||||||||||||||
| Net revenue by product family: | ||||||||||||||||
| AEC | $ | 1,021.6 | $ | 234.1 | 30 | % | $ | 787.5 | Up due to an increase in AEC collections as well as an increase in revenue from EBAs and our individual product offering, Revit. | |||||||
| AutoCAD and AutoCAD LT | 731.8 | 170.4 | 30 | % | 561.4 | Up due to increases in revenue from both AutoCAD and AutoCAD LT. | ||||||||||
| MFG | 616.2 | 87.4 | 17 | % | 528.8 | Up due to an increase in MFG collections as well as an increase in revenue from EBAs. | ||||||||||
| M&E | 182.0 | 29.9 | 20 | % | 152.1 | Up due to an increase in revenue from our individual product offerings 3DS Max and Maya. | ||||||||||
| Other | 18.2 | (8.6 | ) | (32 | )% | 26.8 | ||||||||||
| $ | 2,569.8 | $ | 513.2 | 25 | % | $ | 2,056.6 |
2020 Form 10-K 43
Net Revenue by Geographic Area
| Fiscal Year Ended January 31, 2020 | Change compared to prior fiscal year | Constant currency change compared to prior fiscal year | Fiscal Year Ended January 31, 2019 | Change compared to prior fiscal year | Constant currency change compared to prior fiscal year | Fiscal Year Ended January 31, 2018 | |||||||||||||||||||||||||
| (in millions, except percentages) | $ | % | % | $ | % | % | |||||||||||||||||||||||||
| Net revenue: | |||||||||||||||||||||||||||||||
| Americas | |||||||||||||||||||||||||||||||
| U.S. | $ | 1,108.9 | $ | 234.3 | 27 | % | * | $ | 874.6 | $ | 134.2 | 18 | % | * | $ | 740.4 | |||||||||||||||
| Other Americas | 226.9 | 51.6 | 29 | % | * | 175.3 | 44.6 | 34 | % | * | 130.7 | ||||||||||||||||||||
| Total Americas | 1,335.8 | 285.9 | 27 | % | 27 | % | 1,049.9 | 178.8 | 21 | % | 20 | % | 871.1 | ||||||||||||||||||
| EMEA | 1,303.5 | 269.2 | 26 | % | 26 | % | 1,034.3 | 218.9 | 27 | % | 24 | % | 815.4 | ||||||||||||||||||
| APAC | 635.0 | 149.4 | 31 | % | 32 | % | 485.6 | 115.5 | 31 | % | 31 | % | 370.1 | ||||||||||||||||||
| Total net revenue | $ | 3,274.3 | $ | 704.5 | 27 | % | 28 | % | $ | 2,569.8 | $ | 513.2 | 25 | % | 24 | % | $ | 2,056.6 | |||||||||||||
| Emerging economies | $ | 396.2 | $ | 88.8 | 29 | % | 29 | % | $ | 307.4 | $ | 80.9 | 36 | % | 34 | % | $ | 226.5 |
- Constant currency data not provided at this level.
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. Increases to the levels of political and economic unpredictability in the global market may impact our future financial results.
2020 Form 10-K 44
Net Revenue by Sales Channel
| Fiscal Year Ended January 31, 2020 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2019 | Management Comments | |||||||||||||
| (in millions, except percentages) | $ | % | ||||||||||||||
| Net revenue by sales channel: | ||||||||||||||||
| Indirect | $ | 2,282.2 | $ | 451.4 | 25 | % | $ | 1,830.8 | Up due to an increase in subscription revenue offset by lower maintenance plan subscriptions as we continue to migrate customers to subscriptions through the M2S program. | |||||||
| Direct | 992.1 | 253.1 | 34 | % | 739.0 | Up due to an increase in revenue from our acquisitions in the fourth quarter of fiscal year 2019, EBAs, and our online Autodesk branded store | ||||||||||
| Total net revenue | $ | 3,274.3 | $ | 704.5 | 27 | % | $ | 2,569.8 | ||||||||
| Fiscal Year Ended January 31, 2019 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2018 | Management Comments | |||||||||||||
| (in millions, except percentages) | $ | % | ||||||||||||||
| Net revenue by sales channel: | ||||||||||||||||
| Indirect | $ | 1,830.8 | $ | 387.0 | 27 | % | $ | 1,443.8 | Up due to an increase in subscription revenue. | |||||||
| Direct | 739.0 | 126.2 | 21 | % | 612.8 | Up due to an increase in revenue from EBAs and our online Autodesk branded store. | ||||||||||
| Total net revenue | $ | 2,569.8 | $ | 513.2 | 25 | % | $ | 2,056.6 | ||||||||
Cost of Revenue and Operating Expenses
Cost of subscription and maintenance revenue includes the labor costs of providing product support to our subscription and maintenance customers, including allocated IT and 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, and stock-based compensation expense.
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, direct material and overhead charges, allocated IT and facilities costs, professional services fees and royalties. Direct material and overhead charges include the cost associated with electronic and physical fulfillment.
Cost of revenue, at least over the near term, is affected by labor costs, the volume and mix of product sales, 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.
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 payment processing fees, the cost of supplies and equipment, gains and losses on our operating expense cash flow hedges, allocated IT and facilities costs, and labor costs associated with sales and order management.
2020 Form 10-K 45
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, gains and losses on our operating expense cash flow hedges, and allocated IT and facilities costs.
General and administrative expenses include salaries, bonuses, acquisition-related transition costs, 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, certain foreign business taxes, gains and losses on our operating expense cash flow hedges, expense of travel, entertainment and training, net IT and facilities costs, and the cost of supplies and equipment.
| Fiscal Year Ended January 31, 2020 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2019 | Management Comments | |||||||||||||
| (In millions, except percentages) | $ | % | ||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Subscription and maintenance | $ | 223.9 | $ | 7.9 | 4 | % | $ | 216.0 | Up due to an increase in cloud hosting and employee-related costs driven by higher headcount. | |||||||
| Other | 66.5 | 12.1 | 22 | % | 54.4 | Up due to an increase in employee-related costs due to higher headcount. | ||||||||||
| Amortization of developed technology | 34.5 | 19.0 | 123 | % | 15.5 | Up due to an increase in amortization expense from acquired developed technologies as a result of our acquisitions in the fourth quarter of fiscal year 2019. | ||||||||||
| Total cost of revenue | $ | 324.9 | $ | 39.0 | 14 | % | $ | 285.9 | ||||||||
| Operating expenses: | ||||||||||||||||
| Marketing and sales | $ | 1,310.3 | $ | 126.4 | 11 | % | $ | 1,183.9 | Up primarily due to increased employee-related costs driven by higher headcount as well as an increase in stock-based compensation expense driven by awards granted and assumed through our acquisitions in the fourth quarter of fiscal 2019. | |||||||
| Research and development | 851.1 | 126.1 | 17 | % | 725.0 | Up primarily due to increased employee-related costs driven by higher headcount as well as an increase in stock-based compensation expense driven by awards granted and assumed through our acquisitions in the fourth quarter of fiscal 2019. | ||||||||||
| General and administrative | 405.6 | 65.5 | 19 | % | 340.1 | Up primarily due to an increase in stock-based compensation expense driven by awards granted and assumed through our acquisitions in the fourth quarter of fiscal 2019 as well as increased employee-related costs driven by higher headcount. | ||||||||||
| Amortization of purchased intangibles | 38.9 | 20.9 | 116 | % | 18.0 | Up due to an increase in amortization expense from acquired purchased intangibles as a result of our acquisitions in the fourth quarter of fiscal year 2019. | ||||||||||
| Restructuring and other exit costs, net | 0.5 | (41.4 | ) | (99 | )% | 41.9 | Decreased as we substantially completed the actions authorized under the Fiscal 2018 restructuring plan. | |||||||||
| Total operating expenses | $ | 2,606.4 | $ | 297.5 | 13 | % | $ | 2,308.9 | ||||||||
2020 Form 10-K 46
| Fiscal Year Ended January 31, 2019 | Change compared to prior fiscal year | Fiscal Year Ended January 31, 2018 | Management comments | |||||||||||||
| (In millions, except percentages) | $ | % | ||||||||||||||
| Cost of revenue: | ||||||||||||||||
| Subscription and maintenance | $ | 216.0 | $ | 1.6 | 1 | % | $ | 214.4 | Up primarily due to an increase in cloud hosting costs partially offset by a decrease in royalty and depreciation expense. | |||||||
| Other | 54.4 | (18.2 | ) | (25 | )% | 72.6 | Down primarily due to lower employee-related costs from reduced headcount associated with the Fiscal 2018 Plan restructuring and lower professional fees. | |||||||||
| Amortization of developed technology | 15.5 | (0.9 | ) | (5 | )% | 16.4 | Down as previously acquired developed technologies continue to become fully amortized. | |||||||||
| Total cost of revenue | $ | 285.9 | $ | (17.5 | ) | (6 | )% | $ | 303.4 | |||||||
| Operating expenses: | ||||||||||||||||
| Marketing and sales | $ | 1,183.9 | $ | 96.6 | 9 | % | $ | 1,087.3 | Up due to increased employee-related costs driven by higher headcount, as well as higher cloud hosting costs and professional fees. | |||||||
| Research and development | 725.0 | (30.5 | ) | (4 | )% | 755.5 | Down due to a decrease in employee-related costs from lower headcount associated with the Fiscal 2018 plan restructuring partially offset by higher professional fees. | |||||||||
| General and administrative | 340.1 | 34.9 | 11 | % | 305.2 | Up primarily due to higher professional fees, employee-related costs and facilities costs, partially offset by lower employee benefits costs. | ||||||||||
| Amortization of purchased intangibles | 18.0 | (2.2 | ) | (11 | )% | 20.2 | Down as previously acquired intangible assets continue to become fully amortized. | |||||||||
| Restructuring and other exit costs, net | 41.9 | (52.2 | ) | (55 | )% | 94.1 | Down as we substantially completed the reduction in force and facilities consolidation of the Fiscal 2018 Plan. | |||||||||
| Total operating expenses | $ | 2,308.9 | $ | 46.6 | 2 | % | $ | 2,262.3 | ||||||||
The following table highlights our expectation for the absolute dollar change and percent of revenue change for fiscal 2021 as compared to fiscal 2020:
| Absolute dollar impact | Percent of net revenue impact | ||
| Cost of revenue | increase | decrease | |
| Marketing and sales | increase | decrease | |
| Research and development | increase | decrease | |
| General and administrative | increase | decrease | |
| Amortization of purchased intangibles | decrease | decrease |
2020 Form 10-K 47
Interest and Other Expense, Net
The following table sets forth the components of interest and other expense, net:
| Fiscal year ended January 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (in millions) | |||||||||||
| Interest and investment expense, net | $ | (54.0 | ) | $ | (52.1 | ) | $ | (34.5 | ) | ||
| Gain (loss) on foreign currency | 3.9 | 5.1 | (3.3 | ) | |||||||
| (Loss) gain on strategic investments | (3.3 | ) | 12.5 | (16.4 | ) | ||||||
| Other income | 5.2 | 16.8 | 6.0 | ||||||||
| Interest and other expense, net | $ | (48.2 | ) | $ | (17.7 | ) | $ | (48.2 | ) |
Interest and other expense, net, increased by $30.5 million during fiscal 2020, as compared to fiscal 2019. This was primarily driven by losses in the current year versus gains in the previous year for unrealized gain (loss) on our privately-held strategic investments, curtailment gains on our pension plans in the prior period and an increase in interest expense resulting from our term loan entered into on December 17, 2018, in aggregate principal amount of $500.0 million, which has been paid in full as of January 31, 2020. The increase in interest and other expense, net, was partially offset by mark-to-market gains in the current year versus losses in the prior year on marketable securities.
Interest and other expense, net, positively changed $30.5 million during fiscal 2019, as compared to fiscal 2018, primarily driven by curtailment gains on our pension plans, mark-to-market gains on certain of our privately-held strategic investments, realized gains on sales of strategic investments, offset by an increase in interest expense resulting from our term loan entered into on December 17, 2018 in aggregate principal amount of $500 million and mark-to-market losses on marketable securities.
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 year.
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 $80.3 million and $38.1 million for fiscal 2020 and 2019, respectively, relative to pre-tax income of $294.8 million and pre-tax losses of $42.7 million, respectively, for the same periods. Tax expense for fiscal 2020 consists primarily of foreign tax expense, including withholding tax, and U.S. tax amortization on indefinite-lived intangibles offset by a benefit for the release of the Singapore valuation allowance. Tax expense for fiscal 2019 consisted of foreign tax expense, including withholding tax, and U.S. tax amortization on indefinite-lived intangibles offset by a tax benefit from the release of valuation allowance from acquired deferred tax liabilities and a tax benefit for the release of uncertain tax positions upon finalization of IRS examination. We recorded a tax benefit of the Tax Act in our financial statements as of January 31, 2018 of approximately $32.3 million mainly driven by the corporate rate re-measurement of the indefinite-lived intangible deferred tax liability.
The Tax Act provided broad and significant changes to the U.S. corporate income tax regime. In light of our fiscal year-end, the Tax Act reduced the statutory federal corporate rate from 35% to 34% for fiscal 2018 and to 21% for fiscal 2019 and forward. The Tax Act also, among many other provisions, imposed a one-time mandatory tax on accumulated earnings of foreign subsidiaries (commonly referred to as the "transition tax") to which we were subject in our fiscal year 2018, subjects the deemed intangible income of our foreign subsidiaries to current U.S. taxation (commonly referred to as "GILTI"), provides for a full dividends received deduction upon repatriation of untaxed earnings of our foreign subsidiaries, imposes a minimum taxation (without most tax credits) on modified taxable income, which is generally taxable income without deductions for payments to related foreign companies (commonly referred to as “BEAT”), modifies the accelerated depreciation deduction
2020 Form 10-K 48
rules, and made updates to the deductibility of certain expenses. We have completed our determination of the accounting implications of the Tax Act on our tax accruals. The U.S. global taxation resulting from the significant changes of the Tax Act could have a material effect on our future judgment of the realization of the net U.S. deferred tax assets.
As of January 31, 2018, we estimated taxable income associated with offshore earnings of $831.5 million, and as of January 31, 2019, we adjusted the taxable income to $819.6 million for transition tax. We had an incremental adjustment to our transition tax in our fiscal year 2020 of $45.5 million, as a result of additional Treasury Regulations published this year. Transition tax related to adjustments in the offshore earnings or correlated foreign tax credits resulted in no impact to the effective tax rate as it is primarily offset by net operating losses that are subject to a full valuation allowance. As a result of transition tax, we recorded a deferred tax asset of approximately $43.2 million for foreign tax credits, which are also subject to a full valuation allowance.
We have not had a GILTI inclusion in fiscal 2019 and fiscal 2020 resulting in no impact to the effective tax rate. We anticipate we will be subject to GILTI in fiscal 2021, resulting in utilization of carryforward net operating losses. Given the increase in our global earnings in the current year and expectation of continued increase in global earnings, the Company anticipates a significant increase in U.S. taxable income beginning fiscal 2021. Moreover, if we are subject to GILTI in fiscal 2021, the inclusion of foreign earnings will be positive evidence in our evaluation of our need for a valuation allowance on the U.S. deferred tax assets.
We anticipate that the U.S. Department of Treasury and other standard-setting bodies will 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 amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made.
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. In our fiscal year 2016, we considered cumulative losses in the U.S. from our 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 the U.S. to realize the deferred tax assets, we determined that it was more likely than not that we would not realize the U.S. federal and state deferred tax assets and recorded a full valuation allowance. Foreign operation in the Netherlands and Canada that generated non-deductible interest expense and future creditable research and development in excess of earnings, respectively, also resulted in the historic recording of a full valuation under the more-likely-than-not realizability criteria. Furthermore, in the first quarter of fiscal 2018, our Singapore operation, similar to the U.S. incurred cumulative losses and recorded a full valuation allowance against the net deferred tax asset. As a result of positive earnings in Singapore, our valuation allowance was released in our fiscal year 2020 resulting in a $42.0 million non-cash benefit to earnings. Future sources of taxable income from book earning trends and reversal of deferred temporary taxable differences, including the interplays of the Tax Act on U.S. global taxable income, will continue to be monitored by the company for future release of our valuation allowances. As we continually strive to optimize our overall business model, tax planning strategies may become feasible whereby management may determine, based on all available evidence, both positive and negative, that it is more likely than not that the federal and state deferred tax assets will be realized.
As of January 31, 2020, we had $220.6 million of gross unrecognized tax benefits, of which $203.7 million would reduce our valuation allowance, if recognized. The remaining $16.9 million would impact the effective tax rate. 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 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 Europe and Asia Pacific 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.
2020 Form 10-K 49
At January 31, 2020, we had non-current foreign net deferred tax assets of $56.4 million that management believes are more likely than not to be realized in future years.
For additional information regarding our income tax provision and reconciliation of our effective rate to the federal statutory rate of 21%, see Part II, Item 8, Note 5, “Income Taxes,” in the Notes to Consolidated Financial Statements.
OTHER FINANCIAL INFORMATION
In addition to our results determined under U.S. generally accepted accounting principles (“GAAP”) discussed above, we believe the following non-GAAP measures are useful to investors in evaluating our operating performance. For the fiscal years ended January 31, 2020, 2019, and 2018, 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):
| Fiscal Year Ended January 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (Unaudited) | |||||||||||
| Gross profit | $ | 2,949.4 | $ | 2,283.9 | $ | 1,753.2 | |||||
| Non-GAAP gross profit | $ | 3,004.0 | $ | 2,317.0 | $ | 1,785.5 | |||||
| Gross margin | 90 | % | 89 | % | 85 | % | |||||
| Non-GAAP gross margin | 92 | % | 90 | % | 87 | % | |||||
| Income (loss) from operations | $ | 343.0 | $ | (25.0 | ) | $ | (509.1 | ) | |||
| Non-GAAP income (loss) from operations | $ | 802.6 | $ | 316.0 | $ | (112.0 | ) | ||||
| Operating margin | 10 | % | (1 | )% | (25 | )% | |||||
| Non-GAAP operating margin | 25 | % | 12 | % | (5 | )% | |||||
| Net income (loss) | $ | 214.5 | $ | (80.8 | ) | $ | (566.9 | ) | |||
| Non-GAAP net income (loss) | $ | 621.2 | $ | 223.3 | $ | (106.3 | ) | ||||
| Diluted net income (loss) per share | $ | 0.96 | $ | (0.37 | ) | $ | (2.58 | ) | |||
| Non-GAAP diluted net income (loss) per share | $ | 2.79 | $ | 1.01 | $ | (0.48 | ) | ||||
| GAAP diluted weighted average shares used in per share calculation | 222.5 | 218.9 | 219.5 | ||||||||
| Non-GAAP diluted weighted average shares used in per share calculation | 222.5 | 222.0 | 219.5 |
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 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
2020 Form 10-K 50
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.
2020 Form 10-K 51
RECONCILATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(In millions except for gross margin, operating margin, and per share data) (1):
| Fiscal Year Ended January 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (Unaudited) | |||||||||||
| Gross profit | $ | 2,949.4 | $ | 2,283.9 | $ | 1,753.2 | |||||
| Stock-based compensation expense | 19.6 | 17.6 | 15.9 | ||||||||
| Acquisition related costs | 0.5 | — | — | ||||||||
| Amortization of developed technologies | 34.5 | 15.5 | 16.4 | ||||||||
| Non-GAAP gross profit | $ | 3,004.0 | $ | 2,317.0 | $ | 1,785.5 | |||||
| Gross margin | 90 | % | 89 | % | 85 | % | |||||
| Stock-based compensation expense | 1 | % | 1 | % | 1 | % | |||||
| Amortization of developed technologies | 1 | % | 1 | % | 1 | % | |||||
| Non-GAAP gross margin (1) | 92 | % | 90 | % | 87 | % | |||||
| Income (loss) from operations | $ | 343.0 | $ | (25.0 | ) | $ | (509.1 | ) | |||
| Stock-based compensation expense | 362.4 | 249.5 | 245.0 | ||||||||
| Amortization of developed technologies | 34.5 | 15.5 | 16.4 | ||||||||
| Amortization of purchased intangibles | 38.9 | 18.0 | 20.2 | ||||||||
| CEO transition costs (2) | — | (0.1 | ) | 21.4 | |||||||
| Acquisition related costs | 23.3 | 16.2 | — | ||||||||
| Restructuring and other exit costs, net | 0.5 | 41.9 | 94.1 | ||||||||
| Non-GAAP income (loss) from operations | $ | 802.6 | $ | 316.0 | $ | (112.0 | ) | ||||
| Operating margin | 10 | % | (1 | )% | (25 | )% | |||||
| Stock-based compensation expense | 11 | % | 10 | % | 12 | % | |||||
| Amortization of developed technologies | 1 | % | 1 | % | 1 | % | |||||
| Amortization of purchased intangibles | 1 | % | 1 | % | 1 | % | |||||
| CEO transition costs (2) | — | % | — | % | 1 | % | |||||
| Acquisition related costs | 1 | % | 1 | % | — | % | |||||
| Restructuring and other exit costs, net | — | % | 1 | % | 5 | % | |||||
| Non-GAAP operating margin (1) | 25 | % | 12 | % | (5 | )% | |||||
| Net income (loss) | $ | 214.5 | $ | (80.8 | ) | $ | (566.9 | ) | |||
| Stock-based compensation expense | 362.4 | 249.5 | 245.0 | ||||||||
| Amortization of developed technologies | 34.5 | 15.5 | 16.4 | ||||||||
| Amortization of purchased intangibles | 38.9 | 18.0 | 20.2 | ||||||||
| CEO transition costs (2) | — | (0.1 | ) | 21.4 | |||||||
| Acquisition related costs | 23.3 | 16.2 | — | ||||||||
| Restructuring and other exit costs, net | 0.5 | 31.7 | 94.1 | ||||||||
| Loss (gain) on strategic investments | 3.2 | (12.5 | ) | 16.5 | |||||||
| Release of valuation allowance on deferred tax assets (3) | (40.4 | ) | (16.8 | ) | — | ||||||
| Discrete tax provision items | 2.1 | (14.6 | ) | (20.7 | ) | ||||||
| Income tax effect of non-GAAP adjustments | (17.8 | ) | 17.2 | 67.7 | |||||||
| Non-GAAP net income (loss) | $ | 621.2 | $ | 223.3 | $ | (106.3 | ) |
2020 Form 10-K 52
| Fiscal Year Ended January 31, | |||||||||||
| 2020 | 2019 | 2018 | |||||||||
| (Unaudited) | |||||||||||
| Diluted net income (loss) per share | $ | 0.96 | $ | (0.37 | ) | $ | (2.58 | ) | |||
| Stock-based compensation expense | 1.63 | 1.12 | 1.11 | ||||||||
| Amortization of developed technologies | 0.16 | 0.08 | 0.08 | ||||||||
| Amortization of purchased intangibles | 0.17 | 0.08 | 0.09 | ||||||||
| CEO transition costs (2) | — | — | 0.09 | ||||||||
| Acquisition related costs | 0.11 | 0.07 | — | ||||||||
| Restructuring and other exit costs, net | — | 0.14 | 0.43 | ||||||||
| Loss (gain) on strategic investments | 0.01 | (0.05 | ) | 0.08 | |||||||
| Release of valuation allowance on deferred tax assets (3) | (0.18 | ) | (0.08 | ) | — | ||||||
| Discrete tax provision items | 0.01 | (0.06 | ) | (0.09 | ) | ||||||
| Income tax effect of non-GAAP adjustments | (0.08 | ) | 0.08 | 0.31 | |||||||
| Non-GAAP diluted net income (loss) per share | $ | 2.79 | $ | 1.01 | $ | (0.48 | ) |
| (1) | Totals may not sum due to rounding. |
| (2) | CEO transition costs include stock-based compensation of $16.4 million related to the acceleration of eligible stock awards in conjunction with the Company's former CEOs' transition agreements for the fiscal year ended January 31, 2018. |
| (3) | Fiscal year 2019 balances previously presented in "Discrete tax provision items." |
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.
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.
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 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.
2020 Form 10-K 53
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.
(Gain) loss on strategic investments and dispositions. We exclude gains and losses related to our strategic investments and dispositions 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 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 items. We exclude the GAAP tax provision, including discrete items, from the non-GAAP measure of net (loss) 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.
Establishment (release) of a valuation allowance on certain net deferred tax assets. These are 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.
LIQUIDITY 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. In addition to operating expenses, we also use cash to fund our stock repurchase program, repay existing debt and invest in our growth initiatives, which include acquisitions of products, technology and businesses. See further discussion of these items below.
At January 31, 2020, our principal sources of liquidity were cash, cash equivalents, and marketable securities totaling $1,843.7 million and net accounts receivable of $652.3 million. On March 4, 2020, we redeemed in full $450.0 million in aggregate principal amount of our outstanding 3.125% senior notes due June 15, 2020. See Note 17, "Subsequent Events," for further discussion on the repayment.
On December 17, 2018, Autodesk entered into a new Credit Agreement (the “Credit Agreement”) for an unsecured revolving loan facility in the aggregate principal amount of $650.0 million, with an option to request increases in the amount of the credit facility by up to an additional $350.0 million. The maturity date on the line of credit facility is December 2023. At January 31, 2020, Autodesk had no outstanding borrowings on this line of credit. As of March 19, 2020, we have no amounts outstanding under the credit facility. See Part II, Item 8, Note 8, "Borrowing Arrangements," in the Notes to Consolidated Financial Statements for further discussion on our covenant requirements. If we are unable to remain in compliance with the covenants, we will not be able to draw on our credit facility.
2020 Form 10-K 54
On December 17, 2018, we also entered into a Term Loan Agreement (the “Term Loan Agreement”) which provided for a delayed draw term loan facility in the aggregate principal amount of $500.0 million. On December 19, 2018, we borrowed a $500.0 million term loan under the Term Loan Agreement in connection with the acquisition of PlanGrid in December 2018. See Part II, Item 8, Note 8, "Borrowing Arrangements," in the Notes to Consolidated Financial Statements for further discussion on the Term Loan Agreement terms and Part II, Item 8, Note 6, "Acquisitions" for further discussion on the PlanGrid acquisition. At January 31, 2020, the Term Loan Agreement was paid in full.
As of January 31, 2020, we have $2.1 billion aggregate principal amount of long-term notes payable outstanding, of which $449.7 million is classified as "Current portion of long-term notes payable, net" in the Consolidated Balance Sheets in Part II, Item 8. See Part II, Item 8, Note 8, "Borrowing Arrangements," in the Notes to Consolidated Financial Statements for further discussion.
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 $650.0 million line of credit.
Long-term cash requirements for items other than normal operating expenses are anticipated for the following: repayment of debt; 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 cash, cash equivalents, and marketable securities balances are concentrated in a few locations around the world, with substantial amounts held outside of the United States. As of January 31, 2020, approximately 54% of our total cash or cash equivalents and marketable securities 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, company law restrictions such as negative distributable reserves, or adverse tax costs. 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 a 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 I, 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 from the date of this Annual Report.
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 II, Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” for further discussion.
| Fiscal year ended January 31, | |||||||||||
| (in millions) | 2020 | 2019 | 2018 | ||||||||
| Net cash provided by operating activities | $ | 1,415.1 | $ | 377.1 | $ | 0.9 | |||||
| Net cash (used in) provided by investing activities | (57.3 | ) | (710.4 | ) | 506.4 | ||||||
| Net cash (used in) provided by financing activities | (466.8 | ) | 151.9 | (656.6 | ) |
Net cash provided by operating activities of $1.42 billion for fiscal 2020 consisted of $712.0 million of cash flow provided by changes in operating assets and liabilities, $488.6 million of non-cash expenses, including stock-based compensation expense, and depreciation, amortization and accretion expense, and our net income of $214.5 million.
The primary working capital source of cash was an increase in deferred revenue of $916.7 million from fiscal 2019. The primary working capital uses of cash were increases in accounts receivable of $178.5 million, and decreases in accounts payable and accrued liabilities of $90.8 million from fiscal 2019.
Net cash provided by operating activities of $377.1 million for fiscal 2019 consisted of $371.8 million of non-cash expenses, including stock-based compensation expense, restructuring charges, net, depreciation, amortization and accretion expense, offsetting our net loss of $80.8 million, and included $86.1 million of cash flow provided by changes in operating assets and liabilities.
2020 Form 10-K 55
Net cash used in investing activities was $57.3 million for fiscal 2020 and was primarily due to capital expenditures and purchases of marketable securities. These cash outflows were partially offset by sales and maturities of marketable securities.
At January 31, 2020, our short-term investment portfolio had an estimated fair value of $69.0 million and a cost basis of $59.9 million. The portfolio fair value consisted of $69.0 million of trading securities that were invested in a defined set of mutual funds as directed by the participants in our Deferred Compensation Plan (see Note 7, “Deferred Compensation,” in the Notes to Consolidated Financial Statements for further discussion).
Net cash used in investing activities was $710.4 million for fiscal 2019 and was primarily due to acquisitions, net of cash acquired and purchases of marketable securities. These cash outflows were partially offset by sales and maturities of marketable securities.
Net cash used in financing activities was $466.8 million in fiscal 2020 and was primarily due to repayment of debt and repurchases of our common stock and taxes paid related to net share settlement of equity awards. These cash outflows were partially offset by proceeds from debt issuance, net of discount and proceeds from issuance of common stock.
Net cash provided by financing activities was $151.9 million in fiscal 2019 and was primarily due to proceeds from debt issuance, net of discount and proceeds from issuance of stock. These cash inflows were partially offset by repurchases of our common stock and taxes paid related to net share settlement of equity awards.
2020 Form 10-K 56
CONTRACTUAL OBLIGATIONS
The following table summarizes our significant financial contractual obligations at January 31, 2020, and the effect such obligations are expected to have on our liquidity and cash flows in future periods.
| (in millions) | Total | Fiscal year 2021 | Fiscal years 2022-2023 | Fiscal years 2024-2025 | Thereafter | Management Comments | ||||||||||||||
| Notes payable | $ | 2,483.1 | $ | 512.7 | $ | 463.5 | $ | 89.8 | $ | 1,417.1 | Notes payable consist of the notes issued in December 2012, June 2015, June 2017 and January 2020 including interest. See Part II, Item 8, Note 8, "Borrowing Arrangements," in the Notes to Consolidated Financial Statements for further discussion. | |||||||||
| Operating leases | 526.9 | 60.4 | 175.3 | 123.6 | 167.6 | Operating lease obligations consist primarily of obligations for real estate, vehicles and certain equipment. | ||||||||||||||
| Purchase obligations | 402.0 | 89.3 | 133.1 | 176.1 | 3.5 | Purchase obligations are contractual obligations for purchase of goods or services and are defined as agreements that are enforceable and legally binding to Autodesk and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. Purchase obligations relate primarily to acquisition of cloud services, IT infrastructure, marketing, and software development services, as well as commitments related to our investment agreements with limited liability partnership funds. | ||||||||||||||
| Deferred compensation obligations | 69.0 | 5.3 | 10.7 | 11.0 | 42.0 | Deferred compensation obligations relate to amounts held in a rabbi trust under our non-qualified deferred compensation plan. See Part II, Item 8, Note 7, “Deferred Compensation,” in our Notes to Consolidated Financial Statements for further information regarding this plan. | ||||||||||||||
| Pension obligations | 23.9 | 2.3 | 4.2 | 5.0 | 12.4 | Pension obligations relate to our obligations for pension plans outside of the U.S. See Part II, Item 8, Note 15, “Retirement Benefit Plans,” in our Notes to Consolidated Financial Statements for further information regarding these obligations. | ||||||||||||||
| Asset retirement obligations | 10.2 | 1.0 | 6.1 | 2.3 | 0.8 | Asset retirement obligations represent the estimated costs to bring certain office buildings that we lease back to their original condition after the termination of the lease. | ||||||||||||||
| Total (1) | $ | 3,515.1 | $ | 671.0 | $ | 792.9 | $ | 407.8 | $ | 1,643.4 |
| (1) | This table generally excludes amounts already recorded on the balance sheet as current liabilities, certain purchase obligations as discussed below, long term deferred revenue, and amounts related to income tax liabilities for uncertain tax positions, since we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities (see Part II, Item 8, Note 5, “Income Taxes” in the Notes to Consolidated Financial Statements). |
Purchase orders or contracts for the purchase of supplies and other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on our current procurement or development needs and are fulfilled by our vendors within short time horizons. We do not have significant agreements for the purchase of supplies or other goods specifying minimum quantities or set prices that exceed our expected requirements for three months. In addition, we have certain software royalty commitments associated with the shipment and licensing of certain products.
The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.
2020 Form 10-K 57
We provide indemnifications of varying scopes and certain guarantees, including limited product warranties. Historically, costs related to these warranties and indemnifications have not been significant, but because potential future costs are highly variable, we are unable to estimate the maximum potential impact of these guarantees on our future results of operations.
ISSUER PURCHASES OF EQUITY SECURITIES
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.
During the three and twelve months ended January 31, 2020, we repurchased 1.0 million and 2.7 million shares of our common stock, respectively. At January 31, 2020, 14.7 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 Part II, Item 8, Note 11, “Stock Repurchase Program,” in the Notes to Consolidated Financial Statements for further discussion.
OFF-BALANCE SHEET ARRANGEMENTS
As of January 31, 2020, we did not have any significant off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
2020 Form 10-K 58
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