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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            
Commission File Number: 0-14338
 
 
AUTODESK, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
 
94-2819853
(State or other jurisdiction of
incorporation or organization)
 
 
(I.R.S. employer
Identification No.)
 
 
 
 
111 McInnis Parkway,
 
 
 
San Rafael,
California
 
94903
(Address of principal executive offices)
 
 
(Zip Code)
(415507-5000
(Registrant’s telephone number, including area code)
 

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
ADSK
 
The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.




Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
  
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes  No 
As of May 29, 2020, registrant had outstanding 219,196,718 shares of common stock.
 




AUTODESK, INC. FORM 10-Q
TABLE OF CONTENTS

 
 
Page No.
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 





PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS

AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
(Unaudited)
 
 
Three Months Ended April 30,
 
2020
 
2019
Net revenue:
 
 
 
Subscription
$
803.0

 
$
595.8

Maintenance
62.1

 
112.0

Total subscription and maintenance revenue
865.1

 
707.8

Other
20.6

 
27.7

Total net revenue
885.7

 
735.5

Cost of revenue:

 

Cost of subscription and maintenance revenue
57.4

 
59.7

Cost of other revenue
17.1

 
13.8

Amortization of developed technology
7.4

 
9.2

Total cost of revenue
81.9

 
82.7

Gross profit
803.8

 
652.8

Operating expenses:

 
 
Marketing and sales
341.3

 
313.3

Research and development
217.4

 
205.6

General and administrative
104.8

 
99.1

Amortization of purchased intangibles
9.7

 
9.8

Restructuring and other exit costs, net

 
0.2

Total operating expenses
673.2

 
628.0

Income from operations
130.6

 
24.8

Interest and other expense, net
(40.1
)
 
(16.2
)
Income before income taxes
90.5

 
8.6

Provision for income taxes
(24.0
)
 
(32.8
)
Net income (loss)
$
66.5

 
$
(24.2
)
Basic net income (loss) per share
$
0.30

 
$
(0.11
)
Diluted net income (loss) per share
$
0.30

 
$
(0.11
)
Weighted average shares used in computing basic net income (loss) per share
219.2

 
219.6

Weighted average shares used in computing diluted net income (loss) per share
221.3

 
219.6



See accompanying Notes to Condensed Consolidated Financial Statements.


4



AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)

 
Three Months Ended April 30,
 
2020
 
2019
Net income (loss)
$
66.5

 
$
(24.2
)
Other comprehensive income (loss), net of reclassifications:
 
 
 
Net gain on derivative instruments (net of tax effect of ($0.4) and ($0.3), respectively)
4.0

 
3.3

Change in net unrealized gain on available-for-sale debt securities (net of tax effect of $0.1 and ($0.4), respectively)
0.4

 
1.1

Change in defined benefit pension items (net of tax effect of zero and $0.1, respectively)
(0.3
)
 
(0.6
)
Net change in cumulative foreign currency translation loss (net of tax effect of zero and $0.4, respectively)
(22.9
)
 
(10.4
)
Total other comprehensive loss
(18.8
)
 
(6.6
)
Total comprehensive income (loss)
$
47.7

 
$
(30.8
)


See accompanying Notes to Condensed Consolidated Financial Statements.


5



AUTODESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
 
 
April 30, 2020
 
January 31, 2020
ASSETS
 
 
 
Current assets:



Cash and cash equivalents
$
1,389.7


$
1,774.7

Marketable securities
77.2


69.0

Accounts receivable, net
356.5


652.3

Prepaid expenses and other current assets
200.9


163.3

Total current assets
2,024.3


2,659.3

Computer equipment, software, furniture and leasehold improvements, net
164.2


161.7

Operating lease right-of-use assets
424.7

 
438.8

Developed technologies, net
67.0


70.9

Goodwill
2,430.2


2,445.0

Deferred income taxes, net
50.8


56.4

Long-term other assets
382.7


347.2

Total assets
$
5,543.9


$
6,179.3

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

Current liabilities:



Accounts payable
$
85.2


$
83.7

Accrued compensation
158.1


272.1

Accrued income taxes
25.2


21.2

Deferred revenue
2,163.9


2,176.1

Operating lease liabilities
46.0

 
48.1

Current portion of long-term notes payable, net

 
449.7

Other accrued liabilities
99.9


168.3

Total current liabilities
2,578.3


3,219.2

Long-term deferred revenue
841.2


831.0

Long-term operating lease liabilities
402.0

 
411.7

Long-term income taxes payable
18.9


19.1

Long-term deferred income taxes
81.0

 
82.5

Long-term notes payable, net
1,635.6

 
1,635.1

Long-term other liabilities
126.0


119.8

Stockholders’ deficit:



Common stock and additional paid-in capital
2,401.3


2,317.0

Accumulated other comprehensive loss
(179.1
)

(160.3
)
Accumulated deficit
(2,361.3
)

(2,295.8
)
Total stockholders’ deficit
(139.1
)

(139.1
)
Total liabilities and stockholders' deficit
$
5,543.9


$
6,179.3


See accompanying Notes to Condensed Consolidated Financial Statements.


6



AUTODESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
Three Months Ended April 30,
 
2020
 
2019
Operating activities:



Net income (loss)
$
66.5


$
(24.2
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:



Depreciation, amortization and accretion
30.0


32.7

Stock-based compensation expense
98.2


75.2

Deferred income taxes
3.5


24.4

Restructuring and other exit costs, net


0.2

Other operating activities
32.7


15.3

Changes in operating assets and liabilities
 



Accounts receivable
295.5


206.2

Prepaid expenses and other assets
(47.5
)

11.4

Accounts payable and other liabilities
(154.6
)

(172.6
)
Deferred revenue
(1.1
)

62.2

Accrued income taxes
4.1


(9.6
)
Net cash provided by operating activities
327.3


221.2

Investing activities:



Purchases of marketable securities
(11.0
)

(19.8
)
Sales of marketable securities


4.6

Capital expenditures
(19.9
)

(14.7
)
Purchases of developed technologies
(3.6
)
 

Other investing activities
(43.5
)

0.7

Net cash used in investing activities
(78.0
)

(29.2
)
Financing activities:



Proceeds from issuance of common stock, net of issuance costs
56.8


46.9

Taxes paid related to net share settlement of equity awards
(32.5
)

(25.8
)
Repurchases of common stock
(202.0
)

(88.5
)
Repayment of debt
(450.0
)

(125.0
)
Other financing activities
(2.5
)


Net cash used in financing activities
(630.2
)

(192.4
)
Effect of exchange rate changes on cash and cash equivalents
(4.1
)

(2.4
)
Net decrease in cash and cash equivalents
(385.0
)

(2.8
)
Cash and cash equivalents at beginning of period
1,774.7


886.0

Cash and cash equivalents at end of period
$
1,389.7


$
883.2

 
 
 
 
Supplemental cash flow disclosure:
 
 
 
Non-cash financing activities:
 
 
 
Fair value of common stock issued to settle liability-classified restricted stock units
$
28.7

 
$


See accompanying Notes to Condensed Consolidated Financial Statements.


7



AUTODESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Tables in millions, except share and per share data, or as otherwise noted)
 
1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of Autodesk, Inc. (“Autodesk,” “we,” “us,” “our,” or the “Company”) as of April 30, 2020, and for the three months ended April 30, 2020 and 2019, have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information along with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission (“SEC”) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In management’s opinion, Autodesk made all adjustments (consisting of normal, recurring and non-recurring adjustments) during the quarter that were considered necessary for the fair statement of the financial position and operating results of the Company. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. In addition, the results of operations for the three months ended April 30, 2020, are not necessarily indicative of the results for the entire fiscal year ending January 31, 2021, or for any other period. Further, the balance sheet as of January 31, 2020, has been derived from the audited Consolidated Balance Sheet as of this date. There have been no material changes, other than what is discussed herein, to Autodesk's significant accounting policies as compared to the significant accounting policies disclosed in the Annual Report on Form 10-K for the fiscal year ended January 31, 2020. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and related notes, together with management’s discussion and analysis of financial position and results of operations, contained in Autodesk’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed on March 19, 2020.

2. Recently Issued Accounting Standards

With the exception of those discussed below, there have been no recent changes in accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) or adopted by the Company during the three months ended April 30, 2020, that are applicable to the Company.

Accounting standards adopted

In June 2016, FASB issued ASU No. 2016-13 regarding ASC Topic 326, "Financial Instruments - Credit Losses," which requires the measurement and recognition of expected credit losses for certain financial instruments using forward-looking information to calculate credit loss estimates. Autodesk adopted ASU 2016-13 as of the effective date which represents Autodesk’s fiscal year beginning February 1, 2020. The ASU did not have a material impact on Autodesk's consolidated financial statements at adoption.

Adoption and policy elections

Allowances for uncollectible trade receivables and contract assets are subject to impairment using the expected credit loss model. Allowances for expected credit losses are measured based upon the lifetime expected credit loss which is based on historical experience, the number of days that billings are past due, reasonable economic forecast, including revised forecast data for the current economic environment, customer payment behavior, credit reports and other customer specific information. Allowances for credit losses on trade receivables and contract assets were not material for the three months ended April 30, 2020.

Autodesk’s investments in available-for-sale debt securities are subject to a periodic impairment review. If Autodesk does not intend to sell and it is more likely than not that Autodesk will not be required to sell the available-for-sale debt security prior to recovery of its amortized cost basis, Autodesk will determine whether a decline in fair value below the amortized cost basis is due to credit-related factors. The credit loss is measured as the amount by which the debt security’s amortized cost basis exceeds the estimate of the present value of cash flows expected to be collected, up to the difference between the amortized cost basis and the fair value. Impairment will be assessed at the individual security level. Credit-related impairment is recognized as an allowance on the Condensed Consolidated Balance Sheets with a corresponding adjustment to "Interest and other expense, net" on the Company's Condensed Consolidated Statements of Operations. Any impairment that is not credit-related is recognized in “Accumulated other comprehensive loss” on the Condensed Consolidated Balance Sheets.

Autodesk does not measure an allowance for credit losses on accrued interest receivables on available-for-sale debt securities separately. Autodesk writes off accrued interest receivables by reversing interest income in the period deemed

8



uncollectible in “Interest and other expense, net” on the Company's Condensed Consolidated Statements of Operations. Any accrued interest receivable on available-for-sale debt securities is recorded in “Cash and cash equivalents”, “Prepaid expenses and other current assets,” or "Long-term other assets,” in the accompanying Condensed Consolidated Balance Sheets, as applicable.

Recently issued accounting standards not yet adopted

In March 2020, FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Autodesk is identifying contracts that may be impacted by reference rate reform, how this standard may be applied to them, and the subsequent impact to the financial statements and disclosure requirements.

3. Revenue Recognition

Revenue Disaggregation

Autodesk recognizes revenue from the sale of (1) product subscriptions, cloud service offerings, and EBAs, (2) renewal fees for existing maintenance plan agreements that were initially purchased with a perpetual software license, and (3) consulting, training and other goods and services. The three categories are presented as line items on Autodesk's unaudited Condensed Consolidated Statements of Operations.

Information regarding the components of Autodesk's net revenue from contracts with customers by product family, geographic location, and sales channel is as follows: 
 
Three Months Ended April 30,
(in millions)
2020
 
2019
Net revenue by product family:
 
 
 
Architecture, Engineering and Construction
$
382.7

 
$
304.3

AutoCAD and AutoCAD LT
262.2

 
213.2

Manufacturing
182.9

 
167.5

Media and Entertainment
52.6

 
45.5

Other
5.3

 
5.0

Total net revenue
$
885.7

 
$
735.5

 
 
 
 
Net revenue by geographic area:
 
 
 
Americas
 
 
 
U.S.
$
300.6

 
$
249.1

Other Americas
61.6

 
46.7

Total Americas
362.2

 
295.8

Europe, Middle East and Africa
344.8

 
297.2

Asia Pacific
178.7

 
142.5

Total net revenue
$
885.7

 
$
735.5

 
 
 
 
Net revenue by sales channel:
 
 
 
Indirect
$
623.4

 
$
516.4

Direct
262.3

 
219.1

Total net revenue
$
885.7

 
$
735.5


9




Payments for product subscriptions, industry collections, cloud subscriptions, and maintenance subscriptions are typically due up front with payment terms of 30 to 60 days. Payments on EBAs are typically due in annual installments over the contract term, with payment terms of 30 to 60 days. Autodesk does not have any material variable consideration, such as obligations for returns, refunds, warranties or amounts due to customers for which significant estimation or judgment is required as of the reporting date.

Remaining performance obligations consist of total short-term, long-term and unbilled deferred revenue. As of April 30, 2020, Autodesk had remaining performance obligations of $3.47 billion, which represents the total contract price allocated to remaining performance obligations, which are generally recognized over the next three years. We expect to recognize $2.35 billion or 68% of our remaining performance obligations as revenue during the next 12 months. We expect to recognize the remaining $1.12 billion or 32% of our remaining performance obligations as revenue thereafter.

The amount of remaining performance obligations may be impacted by 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.

Contract Balances

We receive payments from customers based on a billing schedule as established in our contracts. Contract assets relate to performance completed in advance of scheduled billings. Contract assets were not material as of April 30, 2020. Deferred revenue relates to billings in advance of performance under the contract. The primary changes in our contract assets and deferred revenues are due to our performance under the contracts and billings.

Revenue recognized during the three months ended April 30, 2020 and 2019, that was included in the deferred revenue balances at January 31, 2020 and 2019, was $787.2 million and $643.4 million, respectively. The satisfaction of performance obligations typically lags behind payments received under revenue contracts from customers.

4. Concentration of Credit Risk
    
Autodesk places its cash, cash equivalents and marketable securities in highly liquid instruments with, and in the custody of, multiple diversified financial institutions globally with high credit ratings and limits the amounts invested with any one institution, type of security and issuer. Autodesk’s primary commercial banking relationship is with Citigroup Inc. and its global affiliates. Citibank, N.A., an affiliate of Citigroup, is one of the lead lenders and an agent in the syndicate of Autodesk’s $650.0 million line of credit facility. See Note 13, "Borrowing Arrangements," in the Notes to Condensed Consolidated Financial Statements for further discussion.

Total sales to the Company's largest distributor Tech Data Corporation and its global affiliates (“Tech Data”) accounted for 38% and 35% of Autodesk’s total net revenue for the three months ended April 30, 2020 and 2019, respectively. The majority of the net revenue from sales to Tech Data is for sales made outside of the United States. In addition, Tech Data accounted for 38% and 31% of trade accounts receivable at April 30, 2020, and January 31, 2020, respectively. Ingram Micro Inc. ("Ingram Micro") accounted for 10% of Autodesk's total net revenue during the three months ended April 30, 2020 and 2019. No other customer accounted for more than 10% of Autodesk's total net revenue or trade accounts receivable for each of the respective periods.


10



5. Financial Instruments

The following tables summarize the Company's financial instruments' amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category as of April 30, 2020, and January 31, 2020:
 
 
 
 
April 30, 2020
 
 
                                                                                      
(in millions)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
$
29.0

 
$

 
$

 
$
29.0

 
$

 
$
29.0

 
$

 
Money market funds
690.2

 

 

 
690.2

 
690.2

 

 

 
Other (2)
5.1

 

 

 
5.1

 
4.1

 
1.0

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term available for sale
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial paper
11.0

 

 

 
11.0

 

 
11.0

 

 
Short-term trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds (3)
62.1

 
5.4

 
(1.3
)
 
66.2

 
66.2

 

 

Non-marketable equity security derivative asset (4)
0.1

 
0.4

 
(0.2
)
 
0.3

 

 

 
0.3

Derivative contract assets (4)
0.2

 
12.0

 
(0.1
)
 
12.1

 

 
12.1

 

Derivative contract liabilities (5)

 

 
(6.5
)
 
(6.5
)
 

 
(6.5
)
 

 
 
Total
$
797.7


$
17.8


$
(8.1
)

$
807.4


$
760.5


$
46.6


$
0.3

____________________ 
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities with stated contractual maturities due within one year.
(2)
Consists of custody cash deposits and certificates of deposit.
(3)
See Note 11, "Deferred Compensation " for more information.
(4)
Included in “Prepaid expenses and other current assets” or “Long-term other assets” in the accompanying Condensed Consolidated Balance Sheets.
(5)
Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.

 
 
 
January 31, 2020
 
 
(in millions)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Cash equivalents (1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Agency bonds
$
6.0

 
$

 
$

 
$
6.0

 
$

 
$
6.0

 
$

 
Commercial paper
36.8

 

 

 
36.8

 

 
36.8

 

 
Money market funds
1,135.5

 

 

 
1,135.5

 
1,135.5

 

 

 
Other (2)
2.3

 

 

 
2.3

 
1.3

 
1.0

 

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term trading securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mutual funds (3)
59.9

 
9.2

 
(0.1
)
 
69.0

 
69.0

 

 

Non-marketable equity security derivative asset (4)
0.1

 
0.5

 

 
0.6

 

 

 
0.6

Derivative contract assets (4)
1.0

 
9.2

 
(1.3
)
 
8.9

 

 
8.9

 

Derivative contract liabilities (5)

 

 
(4.7
)
 
(4.7
)
 

 
(4.7
)
 

 
 
Total
$
1,241.6

 
$
18.9

 
$
(6.1
)
 
$
1,254.4

 
$
1,205.8

 
$
48.0

 
$
0.6

____________________ 
(1)
Included in “Cash and cash equivalents” in the accompanying Condensed Consolidated Balance Sheets. These investments are classified as debt securities with stated contractual maturities due in one year.
(2)
Consists of custody cash deposits and certificates of deposit.
(3)
See Note 11, "Deferred Compensation " for more information.

11



(4)
Included in “Prepaid expenses and other current assets,” or "Long-term other assets," in the accompanying Condensed Consolidated Balance Sheets.
(5)
Included in “Other accrued liabilities” in the accompanying Condensed Consolidated Balance Sheets.

Autodesk applies fair value accounting for certain financial assets and liabilities, which consist of cash equivalents, marketable securities and other financial instruments, on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

As of April 30, 2020, and January 31, 2020, Autodesk had no material unrealized losses, individually and in the aggregate, for marketable debt securities that are in a continuous unrealized loss position for greater than twelve months. Total unrealized gains for securities with net gains in accumulated other comprehensive income was not material for the three months ending April 30, 2020.

Autodesk monitors all marketable debt securities for potential credit losses by reviewing indicators such as, but not limited to, current credit rating, change in credit rating, credit outlook, and default risk. There were no allowances for credit losses for the three months ending April 30, 2020. There were no write offs of accrued interest receivables for the three months ending April 30, 2020.

There was no realized gain or loss for the sales or redemptions of debt securities during the three months ended April 30, 2020 and 2019. Gains and losses resulting from the sale or redemption of debt securities are recorded in “Interest and other expense, net” on the Company's Condensed Consolidated Statements of Operations.

There were no proceeds from the sale and maturity of marketable debt securities for the three months ended April 30, 2020. Proceeds from the sale and maturity of marketable debt securities for the three months ended April 30, 2019 were $4.6 million.

Non-marketable equity securities

As of April 30, 2020, and January 31, 2020, Autodesk had $148.5 million and $122.5 million in direct investments in privately held companies, respectively. These non-marketable equity security investments do not have readily determined fair values, and Autodesk uses the measurement alternative to account for the adjustment to these investments in a given quarter. If Autodesk determines that an impairment has occurred, Autodesk writes down the investment to its fair value.

Adjustments to the carrying value of our non-marketable equity securities with no readily determined fair values measured using the measurement alternative were as follows:
 
Three Months Ended April 30,
 
Cumulative Amount as of April 30, 2020
(in millions)
2020
 
2019
 
 
Upward adjustments (1)
$
3.0

 
$
0.5

 
$
12.4

Negative adjustments, including impairments (1)
(19.1
)
 
(3.2
)
 
(28.1
)
Net adjustments
$
(16.1
)
 
$
(2.7
)
 
$
(15.7
)
____________________ 
(1)
Included in "Interest and other expense, net" on the Company's Condensed Consolidated Statements of Operations.

Foreign currency contracts designated as cash flow hedges

Autodesk uses foreign currency contracts to reduce the exchange rate impact on a portion of the net revenue or operating expense of certain anticipated transactions. These currency collars and forward contracts are designated and documented as cash flow hedges. The notional amounts of these contracts are presented net settled and were $889.3 million at April 30, 2020, and $981.3 million at January 31, 2020. Outstanding contracts are recognized as either assets or liabilities on the balance sheet at fair value. The majority of the net gain of $12.4 million remaining in “Accumulated other comprehensive loss” as of April 30, 2020 is expected to be recognized into earnings within the next twenty-four months.

12



The location and amount of gain or loss recognized in income on cash flow hedges together with the total amount of income or expense presented in the Company's Condensed Consolidated Statements of Operations where the effects of the hedge are recorded were as follows for the three months ended April 30, 2020 and 2019:
 
 
Three Months Ended April 30, 2020
 
 
Net revenue
 
Cost of revenue
 
Operating expenses
(in millions)
 
Subscription revenue
 
Maintenance revenue
 
Cost of subscription and maintenance revenue
 
Marketing and sales
 
Research and development
 
General and administrative
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded
 
$
803.0

 
$
62.1

 
$
57.4

 
$
341.3

 
$
217.4

 
$
104.8

 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
 
$
2.1

 
$
0.6

 
$
(0.2
)
 
$
(0.8
)
 
$
(0.1
)
 
$
(0.4
)


 
 
Three Months Ended April 30, 2019
 
 
Net Revenue
 
Cost of revenue
 
Operating expenses
(in millions)
 
Subscription Revenue
 
Maintenance Revenue
 
Cost of subscription and maintenance revenue
 
Marketing and sales
 
Research and development
 
General and administrative
Total amounts of income and expense line items presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded
 
$
595.8

 
$
112.0

 
$
59.7

 
$
313.3

 
$
205.6

 
$
99.1

 
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on cash flow hedging relationships in Subtopic ASC 815-20
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
 
 
 
 
 
 
 
 
 
 
 
Amount of gain (loss) reclassified from accumulated other comprehensive income into income
 
$
2.2

 
$
1.3

 
$
(0.1
)
 
$
(1.6
)
 
$
(0.3
)
 
$
(0.8
)


Derivatives not designated as hedging instruments

Autodesk uses foreign currency contracts that are not designated as hedging instruments to reduce the exchange rate risk associated primarily with foreign currency denominated receivables, payables, and cash. The notional amounts of these foreign currency contracts are presented net settled and were $219.1 million at April 30, 2020, and $736.2 million at January 31, 2020.


13



Fair Value of Derivative Instruments

The fair values of derivative instruments in Autodesk’s Condensed Consolidated Balance Sheets were as follows as of April 30, 2020 and January 31, 2020:

 
Balance Sheet Location
 
Fair Value at
(in millions)
April 30, 2020
 
January 31, 2020
Derivative Assets
 
 
 
 
 
Foreign currency contracts designated as cash flow hedges
Prepaid expenses and other current assets
 
$
7.4

 
$
1.0

Derivatives not designated as hedging instruments
Prepaid expenses and other current assets and long-term other assets
 
5.0

 
8.4

Total derivative assets
 
 
$
12.4

 
$
9.4

Derivative Liabilities
 
 
 
 
 
Foreign currency contracts designated as cash flow hedges
Other accrued liabilities
 
$
4.0

 
$
2.8

Derivatives not designated as hedging instruments
Other accrued liabilities
 
2.5

 
1.9

Total derivative liabilities
 
 
$
6.5

 
$
4.7



The effects of derivatives designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three months ended April 30, 2020 and 2019, (amounts presented include any income tax effects):
 
Foreign Currency Contracts
 
Three Months Ended April 30,
(in millions)
2020
 
2019
Amount of gain recognized in accumulated other comprehensive loss on derivatives (effective portion)
$
5.1

 
$
4.0

Amount and location of gain (loss) reclassified from accumulated other comprehensive loss into income (effective portion)

 

Net revenue
$
2.7

 
$
3.5

Cost of revenue
(0.2
)
 
(0.1
)
Operating expenses
(1.3
)
 
(2.7
)
Total
$
1.2

 
$
0.7


The effects of derivatives not designated as hedging instruments on Autodesk’s Condensed Consolidated Statements of Operations were as follows for the three months ended April 30, 2020 and 2019, (amounts presented include any income tax effects):
 
Three Months Ended April 30,
(in millions)
2020
 
2019
Amount and location of (loss) gain recognized on derivatives in net income (loss)
 
 
 
Interest and other expense, net
$
(1.0
)
 
$
4.1




14



6. Stock-based Compensation Expense

Restricted Stock Units:

A summary of restricted stock activity for the three months ended April 30, 2020, is as follows:
 
Unvested
restricted
stock units
 
Weighted
average grant
date fair value
per share
 
(in thousands)
 
 
Unvested restricted stock units at January 31, 2020
4,732.3

 
$
147.24

Granted
775.4

 
168.55

Vested
(727.6
)
 
148.38

Canceled/Forfeited
(63.4
)
 
148.64

        Performance Adjustment (1)
15.4

 
166.97

Unvested restricted stock units at April 30, 2020
4,732.1

 
$
150.43


 _______________
(1)
Based on Autodesk's financial results and relative total stockholder return for the fiscal 2020 performance period. The performance stock units were attained at rates ranging from 96.6% to 101.1% of the target award.

The fair value of the shares vested during the three months ended April 30, 2020 and 2019, was $111.4 million and $50.3 million, respectively.

During the three months ended April 30, 2020, Autodesk granted 0.5 million restricted stock units. Autodesk recorded stock-based compensation expense related to restricted stock units of $76.9 million and $54.4 million during the three months ended April 30, 2020 and 2019, respectively.

During the three months ended April 30, 2020, Autodesk settled the remaining liability-classified awards in the amount of $28.7 million. The ultimate number of shares earned was based on the Autodesk closing stock price on the vesting date. As these awards were settled in a fixed dollar amount of shares, the awards were accounted for as a liability-classified award and were expensed using the straight-line method over the vesting period.
 
During the three months ended April 30, 2020, Autodesk granted 0.3 million performance stock units for which the ultimate number of shares earned is determined based on the achievement of performance criteria at the end of the stated service and performance period. The performance criteria for the performance stock units are based on revenue goals adopted by the Compensation and Human Resource Committee, as well as total stockholder return compared against companies in the S&P North American Technology Software Index with a market capitalization over $2.0 billion (“Relative TSR”). The fair value of the performance stock units is expensed using the accelerated attribution method over the three-year vesting period and have the following vesting schedule:

Up to one third of the performance stock units may vest following year one, depending upon the achievement of the performance criteria for fiscal 2021 as well as 1-year Relative TSR (covering year one).

Up to one third of the performance stock units may vest following year two, depending upon the achievement of the performance criteria for year two as well as 2-year Relative TSR (covering years one and two).

Up to one third of the performance stock units may vest following year three, depending upon the achievement of the performance criteria for year three as well as 3-year Relative TSR (covering years one, two and three).

Performance stock units are not considered outstanding stock at the time of grant, as the holders of these units are not entitled to any of the rights of a stockholder, including voting rights.

Autodesk recorded stock-based compensation expense related to performance stock units of $7.4 million and $6.5 million for the three months ended April 30, 2020 and 2019, respectively.


15



1998 Employee Qualified Stock Purchase Plan (“ESPP”)

Under Autodesk’s ESPP, which was approved by stockholders in 1998, eligible employees may purchase shares of Autodesk’s common stock at their discretion using up to 15% of their eligible compensation, subject to certain limitations, at 85% of the lower of Autodesk's closing price (fair market value) on the offering date or the exercise date. The offering period for ESPP awards consists of four, six-month exercise periods within a 24-month offering period.

A summary of the ESPP activity for the three months ended April 30, 2020 and 2019 is as follows:
 
Three Months Ended April 30,
 
2020
 
2019
Issued shares (in millions)
0.5

 
0.5

Average price of issued shares
$
122.54

 
$
99.46

Weighted average grant date fair value of awards granted under the ESPP (1)
$
45.70

 
$
52.41

 _______________
(1)
Calculated as of the award grant date using the Black-Scholes Merton (“BSM") option pricing model.

Stock-based Compensation Expense

The following table summarizes stock-based compensation expense for the three months ended April 30, 2020 and 2019, respectively, as follows:
 
Three Months Ended April 30,
(in millions)
2020
 
2019
Cost of subscription and maintenance revenue
$
3.7

 
$
3.6

Cost of other revenue
1.5

 
1.3

Marketing and sales
40.7

 
32.5

Research and development
32.9

 
26.7

General and administrative
19.4

 
11.1

Stock-based compensation expense related to stock awards and ESPP purchases
98.2

 
75.2

Tax benefit
(0.1
)
 
(0.2
)
Stock-based compensation expense related to stock awards and ESPP purchases, net of tax
$
98.1

 
$
75.0


 
Stock-based Compensation Expense Assumptions

Autodesk determines the grant date fair value of its share-based payment awards using a BSM option pricing model or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case Autodesk uses a binomial-lattice model (e.g., Monte Carlo simulation model). The Monte Carlo simulation model uses multiple input variables to estimate the probability that market conditions will be achieved. Autodesk uses the following assumptions to estimate the fair value of stock-based awards:
 
Three Months Ended April 30, 2020
 
Three Months Ended April 30, 2019
 
Performance Stock Units
 
ESPP
 
Performance Stock Units

ESPP
Range of expected volatilities
50.7%
 
39.4 - 45.8%
 
36.3%

36.6 - 39.7%
Range of expected lives (in years)
N/A
 
0.5 - 2.0
 
N/A

0.5 - 2.0
Expected dividends
%
 
%
 
%

%
Range of risk-free interest rates
0.3%
 
0.3 - 0.5%
 
2.5%

2.4 - 2.5%


Autodesk estimates expected volatility for stock-based awards based on the average of the following two measures: (1) a measure of historical volatility in the trading market for the Company’s common stock, and (2) the implied volatility of traded forward call options to purchase shares of the Company’s common stock. The expected volatility for performance stock units subject to market conditions includes the expected volatility of Autodesk's peer companies within the S&P North American Technology Software Index with a market capitalization over $2.0 billion, depending on the award type.


16



The range of expected lives of ESPP awards are based upon the four, six-month exercise periods within a 24-month offering period.

Autodesk does not currently pay, and does not anticipate paying in the foreseeable future, any cash dividends. Consequently, an expected dividend yield of zero is used in the BSM option pricing model and the Monte Carlo simulation model.

The risk-free interest rate used in the BSM option pricing model and the Monte Carlo simulation model for stock-based awards is the historical yield on U.S. Treasury securities with equivalent remaining lives.

Autodesk recognizes expense only for the stock-based awards that ultimately vest. Autodesk accounts for forfeitures of our stock-based awards as those forfeitures occur.

7. Income Tax

 Autodesk had income tax expense of $24.0 million, relative to pre-tax income of $90.5 million for the three months ended April 30, 2020, and income tax expense of $32.8 million, relative to pre-tax income of $8.6 million for the three months ended April 30, 2019. Income tax expense for the three months ended April 30, 2020, decreased primarily due to the jurisdictional mix of earnings, offset by the U.S. full valuation allowance and a reduction in withholding taxes.

Autodesk regularly assesses the need for a valuation allowance against its deferred tax assets. In making that assessment, Autodesk considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more likely than not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, Autodesk considered cumulative losses as a significant source of negative evidence and maintained a valuation allowance against our deferred tax attributes in the U.S. and certain foreign jurisdictions as of April 30, 2020.

The Company anticipates a significant increase in U.S. taxable income in fiscal 2021 due to current year increase in global earnings. We currently forecast the utilization of U.S. deferred tax assets to offset U.S. taxable income resulting from the inclusion of foreign earnings. While increased U.S. taxable income is considered positive evidence, we believe that the cumulative losses should be given more weight and have maintained the valuation allowance on our U.S. deferred tax assets.

As Autodesk continually strives to optimize the overall business model, tax planning strategies may become feasible and prudent allowing the Company to realize many of the deferred tax assets that are offset by a valuation allowance; therefore, Autodesk will continue to evaluate the ability to utilize the deferred tax assets each quarter, both in the U.S. and in foreign jurisdictions, based on all available evidence, both positive and negative

As of April 30, 2020, the Company had $218.6 million of gross unrecognized tax benefits, of which $201.7 million would reduce our valuation allowance, if recognized. The remaining $16.9 million would impact the effective tax rate, if recognized. 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.

8. Other Intangible Assets, Net

Other intangible assets, including developed technologies, customer relationships, trade names, patents, user lists and the related accumulated amortization were as follows:
(in millions)
April 30, 2020
 
January 31, 2020
Developed technologies, at cost
$
649.4

 
$
647.1

Customer relationships, trade names, patents, and user lists, at cost (1)
529.6

 
532.2

Other intangible assets, at cost (2)
1,179.0

 
1,179.3

Less: Accumulated amortization
(985.6
)
 
(972.2
)
Other intangible assets, net
$
193.4

 
$
207.1

_______________ 
(1)
Included in “Long-term other assets” in the accompanying Condensed Consolidated Balance Sheets.
(2)
Includes the effects of foreign currency translation.


17



9. Cloud Computing Arrangements

Autodesk enters into certain cloud-based software hosting arrangements that are accounted for as service contracts. Costs incurred for these arrangements are capitalized for application development activities, if material, and immediately expensed for preliminary project activities and post-implementation activities. Autodesk amortizes the capitalized development costs straight-line over the fixed, non-cancellable term of the associated hosting arrangement plus any reasonably certain renewal periods. The capitalized costs are included in "Prepaid expenses and other current assets" and "Long-term other assets" on our Condensed Consolidated Balance Sheets. Capitalized costs were $31.1 million and $22.3 million at April 30, 2020, and January 31, 2020, respectively. Accumulated amortization was $2.1 million and $1.2 million at April 30, 2020, and January 31, 2020, respectively. Amortization expense for the three months ended April 30, 2020 and 2019, was $0.9 million and none, respectively.

10. Goodwill

Goodwill consists of the excess of the consideration transferred over the fair value of net assets acquired in business combinations. The following table summarizes the changes in the carrying amount of goodwill for the three months ended April 30, 2020 (in millions):
 
Balance as of January 31, 2020
$
2,594.2

Less: accumulated impairment losses as of January 31, 2020
(149.2
)
Net balance as of January 31, 2020
2,445.0

Effect of foreign currency translation
(14.8
)
Balance as of April 30, 2020
$
2,430.2



Autodesk operates as a single operating segment and single reporting unit. As such, when Autodesk tests goodwill for impairment annually in its fourth fiscal quarter, it is performed on the Company's single reporting unit. Autodesk performs impairment testing more often if circumstances indicate a potential impairment may exist, or if events have affected the composition of reporting units.

When goodwill is assessed for impairment, Autodesk has the option to perform an assessment of qualitative factors of impairment (“optional assessment”) prior to necessitating a quantitative impairment test. Should the optional assessment be used for any given fiscal year, qualitative factors to consider include cost factors; financial performance; legal, regulatory, contractual, political, business, or other factors; entity specific factors; industry and market considerations, macroeconomic conditions, and other relevant events and factors affecting the reporting unit. If, after assessing the totality of events or circumstances, it is more likely than not that the fair value of the reporting unit is greater than its carrying value, then performing the quantitative impairment test is unnecessary.

The quantitative impairment test is necessary when either Autodesk does not use the optional assessment or, as a result of the optional assessment, it is not more likely than not that the fair value of the reporting unit is greater than its carrying value. In situations in which an entity's reporting unit is publicly traded, the fair value of the Company may be approximated by its market capitalization, in performing the quantitative impairment test.

Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced to fair value through an impairment charge recorded in our Condensed Consolidated Statements of Operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. The value of Autodesk’s goodwill could also be impacted by future adverse changes such as: (i) declines in Autodesk’s actual financial results, (ii) a sustained decline in Autodesk’s market capitalization, (iii) a significant slowdown in the worldwide economy or the industries Autodesk serves, or (iv) changes in Autodesk’s business strategy.

There was no goodwill impairment during the three months ended April 30, 2020.


18



11. Deferred Compensation

At April 30, 2020, Autodesk had marketable securities totaling $77.2 million, of which, $66.2 million is related to investments in debt and equity securities that are held in a rabbi trust under non-qualified deferred compensation plans. Of the $66.2 million related to the deferred compensation liability at April 30, 2020, $4.7 million was classified as current and $61.5 million was classified as non-current liabilities. Of the $69.0 million related to the deferred compensation liability at January 31, 2020, $5.3 million was classified as current and $63.7 million was classified as non-current liabilities. The securities are recorded in the Condensed Consolidated Balance Sheets under the current portion of "Marketable securities." The current and non-current portions of the liability are recorded in the Condensed Consolidated Balance Sheets under “Accrued compensation” and “Long-term other liabilities,” respectively.

Costs to obtain a contract with a customer

Sales commissions earned by our internal sales personnel and our reseller partners are considered incremental and recoverable costs of obtaining a contract with a customer. The ending balance of assets recognized from costs to obtain a contract with a customer was $91.5 million as of April 30, 2020 and $98.8 million as of January 31, 2020. Amortization expense related to assets recognized from costs to obtain a contract with a customer was $22.8 million and $24.7 million during the three months ended April 30, 2020 and 2019, respectively. Autodesk did not recognize any contract cost impairment losses during the three months ended April 30, 2020 and 2019.

12. Computer Equipment, Software, Furniture and Leasehold Improvements, Net

Computer equipment, software, furniture, leasehold improvements and the related accumulated depreciation were as follows:
 
(in millions)
April 30, 2020
 
January 31, 2020
Computer hardware, at cost
$
155.0

 
$
159.7

Computer software, at cost
64.8

 
64.0

Leasehold improvements, land and buildings, at cost
292.5

 
284.0

Furniture and equipment, at cost
75.5

 
69.0

 
587.8


576.7

Less: Accumulated depreciation
(423.6
)
 
(415.0
)
Computer software, hardware, leasehold improvements, furniture and equipment, net
$
164.2

 
$
161.7



13. Borrowing Arrangements

In January 2020, Autodesk issued $500.0 million aggregate principal amount of 2.85% notes due January 15, 2030 (“2020 Notes”). Net of a discount of $1.1 million and issuance costs of $4.8 million, Autodesk received net proceeds of $494.1 million from issuance of the 2020 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2020 Notes using the effective interest method. The proceeds of the 2020 Notes have been used for the repayment of the $450.0 million 2015 Notes, as defined below, and the remainder is available for general corporate purposes.

19




In December 2018, Autodesk entered into a credit agreement by and among Autodesk, the lenders from time to time party thereto and Citibank, N.A., as agent, which provides for an unsecured revolving loan facility in the aggregate principal amount of $650.0 million with an option, subject to customary conditions, to request an increase in the amount of the credit facility by up to an additional $350.0 million, and is available for working capital or other business needs. The credit agreement contains customary covenants that could, among other things, restrict the imposition of liens on Autodesk's assets, and restrict Autodesk's ability to incur additional indebtedness or make dispositions of assets if Autodesk fails to maintain compliance with the financial covenants. The credit agreement financial covenants consist of (1) a minimum interest coverage ratio of 2.50:1.0 starting with the fiscal quarter ending January 31, 2019, and increasing to 3.00:1.0 starting with the fiscal quarter ending April 30, 2019, and (2) a maximum leverage ratio of 3.50:1.0 starting with the fiscal quarter ending July 31, 2019, and dropping to 3.00:1.0 in the fiscal quarter ending January 31, 2020. At April 30, 2020, Autodesk was in compliance with the credit agreement covenants. Revolving loans under the credit agreement bear interest, at Autodesk's option, at either (i) a floating rate per annum equal to the base rate plus a margin of between 0.000% and 0.500%, depending on Autodesk’s Public Debt Rating (as defined in the credit agreement) or (ii) a per annum rate equal to the rate at which dollar deposits are offered in the London interbank market, plus a margin of between 0.900% and 1.500%, depending on Autodesk’s Public Debt Rating. The maturity date on the credit agreement is December 2023. At April 30, 2020, Autodesk had no outstanding borrowings under the credit agreement.

In June 2017, Autodesk issued $500.0 million aggregate principal amount of 3.5% notes due June 15, 2027 (the “2017 Notes”). Net of a discount of $3.1 million and issuance costs of $4.9 million, Autodesk received net proceeds of $492.0 million from issuance of the 2017 Notes. Both the discount and issuance costs are being amortized to interest expense over the term of the 2017 Notes using the effective interest method. The proceeds of the 2017 Notes have been used for the repayment of $400.0 million of debt due December 15, 2017, and the remainder is available for general corporate purposes.

In June 2015, Autodesk issued $450.0 million aggregate principal amount of 3.125% notes due June 15, 2020 ("$450.0 million 2015 Notes") and $300.0 million aggregate principal amount of 4.375% notes due June 15, 2025 (“$