Intrinsic value of Autodesk - ADSK

Previous Close

$127.49

  Intrinsic Value

$8.43

stock screener

  Rating & Target

str. sell

-93%

Previous close

$127.49

 
Intrinsic value

$8.43

 
Up/down potential

-93%

 
Rating

str. sell

We calculate the intrinsic value of ADSK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 27.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -18.89
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,031
  2,072
  2,119
  2,174
  2,235
  2,303
  2,377
  2,458
  2,546
  2,640
  2,741
  2,850
  2,965
  3,088
  3,219
  3,358
  3,505
  3,661
  3,826
  4,000
  4,184
  4,378
  4,582
  4,798
  5,025
  5,264
  5,516
  5,781
  6,060
  6,354
  6,662
Variable operating expenses, $m
 
  2,068
  2,112
  2,163
  2,219
  2,282
  2,350
  2,425
  2,506
  2,593
  2,687
  2,631
  2,737
  2,851
  2,972
  3,100
  3,236
  3,380
  3,532
  3,693
  3,862
  4,041
  4,230
  4,429
  4,639
  4,860
  5,092
  5,337
  5,594
  5,865
  6,150
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  2,531
  2,068
  2,112
  2,163
  2,219
  2,282
  2,350
  2,425
  2,506
  2,593
  2,687
  2,631
  2,737
  2,851
  2,972
  3,100
  3,236
  3,380
  3,532
  3,693
  3,862
  4,041
  4,230
  4,429
  4,639
  4,860
  5,092
  5,337
  5,594
  5,865
  6,150
Operating income, $m
  -500
  3
  7
  11
  16
  21
  27
  33
  40
  47
  55
  219
  228
  237
  247
  258
  269
  281
  294
  307
  322
  336
  352
  369
  386
  405
  424
  444
  466
  488
  512
EBITDA, $m
  -361
  185
  189
  194
  200
  206
  212
  219
  227
  236
  245
  254
  265
  276
  287
  300
  313
  327
  342
  357
  374
  391
  409
  428
  449
  470
  492
  516
  541
  567
  595
Interest expense (income), $m
  48
  38
  3
  5
  8
  10
  13
  17
  20
  24
  29
  33
  38
  43
  49
  55
  61
  67
  74
  82
  90
  98
  107
  116
  126
  136
  146
  158
  170
  182
  195
Earnings before tax, $m
  -524
  -35
  4
  6
  8
  11
  13
  16
  19
  22
  26
  186
  190
  194
  199
  203
  209
  214
  220
  226
  232
  239
  246
  253
  261
  269
  277
  287
  296
  306
  317
Tax expense, $m
  58
  0
  1
  2
  2
  3
  4
  4
  5
  6
  7
  50
  51
  52
  54
  55
  56
  58
  59
  61
  63
  64
  66
  68
  70
  73
  75
  77
  80
  83
  85
Net income, $m
  -582
  -35
  3
  4
  6
  8
  10
  12
  14
  16
  19
  136
  139
  142
  145
  149
  152
  156
  160
  165
  169
  174
  179
  185
  190
  196
  203
  209
  216
  223
  231

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,900
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  4,798
  2,955
  3,023
  3,101
  3,188
  3,285
  3,391
  3,506
  3,631
  3,766
  3,911
  4,065
  4,230
  4,406
  4,592
  4,791
  5,001
  5,223
  5,458
  5,706
  5,968
  6,245
  6,537
  6,844
  7,168
  7,509
  7,869
  8,247
  8,645
  9,064
  9,504
Adjusted assets (=assets-cash), $m
  2,898
  2,955
  3,023
  3,101
  3,188
  3,285
  3,391
  3,506
  3,631
  3,766
  3,911
  4,065
  4,230
  4,406
  4,592
  4,791
  5,001
  5,223
  5,458
  5,706
  5,968
  6,245
  6,537
  6,844
  7,168
  7,509
  7,869
  8,247
  8,645
  9,064
  9,504
Revenue / Adjusted assets
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
  0.701
Average production assets, $m
  344
  350
  358
  367
  378
  389
  402
  415
  430
  446
  463
  482
  501
  522
  544
  568
  592
  619
  647
  676
  707
  740
  774
  811
  849
  890
  932
  977
  1,024
  1,074
  1,126
Working capital, $m
  276
  -1,249
  -1,278
  -1,311
  -1,348
  -1,388
  -1,433
  -1,482
  -1,535
  -1,592
  -1,653
  -1,718
  -1,788
  -1,862
  -1,941
  -2,025
  -2,114
  -2,208
  -2,307
  -2,412
  -2,523
  -2,640
  -2,763
  -2,893
  -3,030
  -3,174
  -3,326
  -3,486
  -3,654
  -3,831
  -4,017
Total debt, $m
  1,491
  87
  148
  218
  296
  383
  479
  583
  695
  816
  946
  1,086
  1,234
  1,392
  1,560
  1,739
  1,927
  2,127
  2,339
  2,562
  2,798
  3,047
  3,310
  3,587
  3,878
  4,185
  4,509
  4,849
  5,207
  5,584
  5,981
Total liabilities, $m
  4,065
  2,660
  2,721
  2,791
  2,869
  2,956
  3,052
  3,156
  3,268
  3,389
  3,519
  3,659
  3,807
  3,965
  4,133
  4,312
  4,500
  4,700
  4,912
  5,135
  5,371
  5,620
  5,883
  6,160
  6,451
  6,758
  7,082
  7,422
  7,780
  8,157
  8,554
Total equity, $m
  734
  296
  302
  310
  319
  328
  339
  351
  363
  377
  391
  407
  423
  441
  459
  479
  500
  522
  546
  571
  597
  624
  654
  684
  717
  751
  787
  825
  864
  906
  950
Total liabilities and equity, $m
  4,799
  2,956
  3,023
  3,101
  3,188
  3,284
  3,391
  3,507
  3,631
  3,766
  3,910
  4,066
  4,230
  4,406
  4,592
  4,791
  5,000
  5,222
  5,458
  5,706
  5,968
  6,244
  6,537
  6,844
  7,168
  7,509
  7,869
  8,247
  8,644
  9,063
  9,504
Debt-to-equity ratio
  2.031
  0.290
  0.490
  0.700
  0.930
  1.170
  1.410
  1.660
  1.910
  2.170
  2.420
  2.670
  2.920
  3.160
  3.400
  3.630
  3.850
  4.070
  4.290
  4.490
  4.690
  4.880
  5.060
  5.240
  5.410
  5.570
  5.730
  5.880
  6.020
  6.160
  6.290
Adjusted equity ratio
  -0.402
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -582
  -35
  3
  4
  6
  8
  10
  12
  14
  16
  19
  136
  139
  142
  145
  149
  152
  156
  160
  165
  169
  174
  179
  185
  190
  196
  203
  209
  216
  223
  231
Depreciation, amort., depletion, $m
  139
  182
  182
  183
  184
  185
  186
  187
  188
  189
  190
  35
  37
  38
  40
  42
  44
  45
  48
  50
  52
  54
  57
  60
  62
  65
  69
  72
  75
  79
  83
Funds from operations, $m
  527
  147
  185
  187
  190
  192
  195
  198
  202
  205
  209
  171
  175
  180
  185
  190
  196
  202
  208
  214
  221
  229
  236
  244
  253
  262
  271
  281
  291
  302
  314
Change in working capital, $m
  357
  -24
  -29
  -33
  -37
  -41
  -45
  -49
  -53
  -57
  -61
  -65
  -70
  -74
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -152
  -160
  -168
  -177
  -186
Cash from operations, $m
  170
  171
  214
  220
  227
  233
  240
  247
  255
  262
  270
  236
  245
  254
  264
  274
  285
  296
  307
  319
  332
  345
  359
  374
  390
  406
  423
  441
  460
  479
  500
Maintenance CAPEX, $m
  0
  -25
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -45
  -48
  -50
  -52
  -54
  -57
  -60
  -62
  -65
  -69
  -72
  -75
  -79
New CAPEX, $m
  -76
  -6
  -8
  -9
  -10
  -11
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -52
Cash from investing activities, $m
  272
  -31
  -34
  -35
  -37
  -39
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -67
  -70
  -73
  -77
  -81
  -85
  -89
  -93
  -98
  -102
  -108
  -114
  -119
  -125
  -131
Free cash flow, $m
  442
  140
  180
  185
  189
  194
  199
  204
  209
  215
  220
  184
  190
  197
  203
  211
  218
  226
  234
  242
  251
  261
  271
  281
  292
  303
  315
  328
  341
  354
  369
Issuance/(repayment) of debt, $m
  0
  -1,005
  61
  70
  79
  87
  95
  104
  113
  121
  130
  139
  148
  158
  168
  178
  189
  200
  212
  223
  236
  249
  263
  277
  292
  307
  323
  340
  358
  377
  396
Issuance/(repurchase) of shares, $m
  -502
  1,098
  4
  4
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -578
  93
  65
  74
  82
  89
  96
  104
  113
  121
  130
  139
  148
  158
  168
  178
  189
  200
  212
  223
  236
  249
  263
  277
  292
  307
  323
  340
  358
  377
  396
Total cash flow (excl. dividends), $m
  -140
  232
  245
  258
  271
  283
  295
  308
  322
  336
  350
  323
  339
  355
  372
  389
  407
  426
  445
  466
  487
  510
  533
  558
  583
  610
  638
  668
  699
  731
  765
Retained Cash Flow (-), $m
  886
  -1,098
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
Prev. year cash balance distribution, $m
 
  1,501
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  636
  239
  250
  262
  273
  285
  296
  309
  322
  336
  308
  322
  337
  353
  369
  386
  403
  422
  441
  461
  482
  504
  527
  551
  576
  602
  630
  659
  689
  721
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  609
  218
  218
  216
  212
  207
  200
  193
  185
  176
  146
  138
  128
  118
  108
  98
  88
  78
  68
  59
  50
  42
  35
  28
  22
  18
  14
  10
  8
  5
Current shareholders' claim on cash, %
  100
  50.0
  49.9
  49.9
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8
  49.8

Autodesk, Inc. is a design software and services company, offering customers productive business solutions through technology products and services. The Company's segments include Architecture, Engineering and Construction (AEC), Platform Solutions and Emerging Business (PSEB), Manufacturing (MFG), and Media and Entertainment (M&E). The Company serves customers in the architecture, engineering and construction; product design and manufacturing; and digital media and entertainment industries. The Company's product development and manufacturing software provides manufacturers in automotive, transportation, industrial machinery, consumer products and building products with digital engineering solutions. The Company's product offerings include, AutoCAD, AutoCAD LT, Industry Collections, 3ds Max, Maya, Revit, Inventor, AutoCAD Civil three dimensional (3D), CAM Solutions, Fusion 360, BIM 360 and Shotgun.

FINANCIAL RATIOS  of  Autodesk (ADSK)

Valuation Ratios
P/E Ratio -48.3
Price to Sales 13.8
Price to Book 38.3
Price to Tangible Book
Price to Cash Flow 165.2
Price to Free Cash Flow 298.8
Growth Rates
Sales Growth Rate -18.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 5.6%
Cap. Spend. - 3 Yr. Gr. Rate 3.5%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 148.8%
Total Debt to Equity 203.1%
Interest Coverage -10
Management Effectiveness
Return On Assets -10.3%
Ret/ On Assets - 3 Yr. Avg. -1.1%
Return On Total Capital -21.8%
Ret/ On T. Cap. - 3 Yr. Avg. -10%
Return On Equity -49.4%
Return On Equity - 3 Yr. Avg. -21%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 83.2%
Gross Margin - 3 Yr. Avg. 84.9%
EBITDA Margin -16.6%
EBITDA Margin - 3 Yr. Avg. -0.1%
Operating Margin -24.6%
Oper. Margin - 3 Yr. Avg. -6.6%
Pre-Tax Margin -25.8%
Pre-Tax Margin - 3 Yr. Avg. -7.8%
Net Profit Margin -28.7%
Net Profit Margin - 3 Yr. Avg. -12.9%
Effective Tax Rate -11.1%
Eff/ Tax Rate - 3 Yr. Avg. -521.6%
Payout Ratio 0%

ADSK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ADSK stock intrinsic value calculation we used $2031 million for the last fiscal year's total revenue generated by Autodesk. The default revenue input number comes from 2017 income statement of Autodesk. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our ADSK stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for ADSK is calculated based on our internal credit rating of Autodesk, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Autodesk.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of ADSK stock the variable cost ratio is equal to 100%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for ADSK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Autodesk.

Corporate tax rate of 27% is the nominal tax rate for Autodesk. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the ADSK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for ADSK are equal to 16.9%.

Life of production assets of 13.6 years is the average useful life of capital assets used in Autodesk operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for ADSK is equal to -60.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $734 million for Autodesk - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 219.187 million for Autodesk is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Autodesk at the current share price and the inputted number of shares is $27.9 billion.

Management's discussion and analysis

Strategy

Autodesk makes software for people who make things. If you've ever driven a high-performance car, admired a towering skyscraper, used a smartphone, or watched a great film, chances are you've experienced what millions of Autodesk customers are doing with our software. Autodesk gives you the power to make anything.

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, we believe our industry is undergoing a similar transition from the personal computer to cloud, mobile, and social computing. To address this transition we have accelerated our move to the cloud and mobile devices and are offering more flexible licensing. Our product subscriptions presently represent a hybrid of desktop software and cloud-based functionality, which provides a device-independent, collaborative design workflow for designers and their stakeholders. Our cloud service offerings, for example, BIM 360, Shotgun, Fusion 360, and AutoCAD 360 Pro, provide tools, including mobile and social capabilities, to help streamline design, collaboration, 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.

Our strategy is to lead the industries we serve to cloud-based technologies and business models. This entails both a technological shift and a business model shift. As part of the transition, we discontinued selling new perpetual licenses of most individual software products effective February 1, 2016, and discontinued selling new perpetual licenses of suites while introducing industry collections effective August 1, 2016. Industry collections allow access to a broad set of products and services that exceeds those previously available in suites - simplifying the customer ability to get access to a complete set of tools for their industry. We now offer subscriptions for individual products and industry collections, cloud service offerings, and flexible enterprise business agreements ("new model subscription offerings"). These offerings are designed to give our customers more flexibility with how they use our products and service offerings and to attract a broader range of customers, such as project-based users and small businesses.

With the discontinuation of the sale of most perpetual licenses, we have accelerated our transition away from selling a mix of perpetual licenses and term-based product subscriptions toward a single subscription model. As a result of this shift and various other factors described in Note 13, "Segments" in the Notes to our Consolidated Financial Statements, we have 

reassessed the way we allocate resources and evaluate financial performance and now operate as a single operating segment. During the transition, revenue, margins, EPS, deferred revenue and cash flow from operations have been and will be impacted as more revenue is recognized ratably rather than upfront and as new product subscription offerings generally have a lower initial purchase price.

As we progress through the business model transition, reported revenue is less relevant to measure the success of the business as perpetual license sales have been discontinued in favor of subscription offerings, which have considerably lower upfront prices. Annualized recurring revenue ("ARR") and growth of subscriptions better reflect business momentum and provide additional transparency into the transition. To further analyze progress, we disaggregate our growth in these metrics between the original maintenance model ("maintenance") and the new model subscription offerings. Maintenance subscriptions peaked in the fourth quarter of our fiscal 2016, and we expect them to decline slowly over time.

We sell our products and services globally, through a combination of indirect and direct channels.  During the fiscal year ended January 31, 2017, 2016, and 2015, our indirect channels, which include value added resellers, direct market resellers, distributors, computer manufacturers, and other software developers, were responsible for 72%, 79%, and 83% of our overall revenue, respectively.  During the same periods, our direct channels, which include sales resources dedicated to selling in our largest accounts, our highly specialized products, and business transacted through our online Autodesk branded store, were responsible for 28%, 21%, and 17% of our overall revenue, respectively.

We anticipate that our channel mix will continue to change, particularly as we scale our digitally transacted online Autodesk branded store business and our largest accounts shift towards direct-only business models. Importantly, we expect our indirect channel will continue to transact and support the majority of our revenue as we move beyond the business model transition. We employ a variety of incentive programs and promotions to 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 Spark program to support ideas that push the boundaries of 3D printing and nurture the companies that will advance innovations within 3D printing hardware and software. We have also created the Autodesk Forge 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. 

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. 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 products quickly and easily. We have a significant number of registered third-party developers who create products that work well with our products and extend them for a variety of specialized applications.

Autodesk is committed to helping fuel a lifelong passion for design in students of all ages. We offer free educational subscriptions of Autodesk software worldwide to students, educators, and educational institutions. Through Autodesk Design Academy, we provide secondary and postsecondary school markets hundreds of standards-aligned class projects to support design-based disciplines in Science, Technology, Engineering, Digital Arts, and Math (STEAM) while using Autodesk's professional-grade 3D design, engineering and entertainment software used in industry. We also have made Autodesk Design Academy curricula available on iTunes U. Our intention is to make Autodesk software ubiquitous and the design software of choice for those poised to become the next generation of professional users.

Our strategy includes improving our product functionality and expanding our product offerings through internal development as well as through the acquisition of products, technology, and businesses. Acquisitions often increase the speed at which we can deliver product functionality to our customers; however, they entail cost and integration challenges and may, in certain instances, negatively impact our operating margins. We continually review these trade-offs in making decisions regarding acquisitions. We currently anticipate that we will continue to acquire products, technology, and businesses as compelling opportunities become available.

Our strategy depends upon a number of assumptions to successfully make the transition toward new cloud and mobile platforms, including: the related technology and business model shifts; 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 conformity 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 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. We regularly reevaluate our assumptions, judgments, and estimates. Our significant accounting policies are described in Note 1, “Business and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements. We believe that of all our significant accounting policies, the following policies involve a higher degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

Revenue Recognition.    We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is probable. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report.

For multiple element arrangements containing only software and software-related elements, we allocate the sales price among each of the deliverables using the residual method, under which revenue is allocated to undelivered elements based on our vendor-specific objective evidence (“VSOE”) of fair value. VSOE is the price charged when an element is sold separately or a price set by management with the relevant authority. If we do not have VSOE of an undelivered software license, we defer revenue recognition on the entire sales arrangement until all elements for which we do not have VSOE are delivered. If we do not have VSOE for undelivered product subscriptions, maintenance or services, the revenue for the arrangement is recognized over the longest contractual service period in the arrangement. We are required to exercise judgment in determining whether VSOE exists for each undelivered element based on whether our pricing for these elements is sufficiently consistent.

For multiple elements arrangements involving non-software elements, including cloud subscription services, our revenue recognition policy is based upon the accounting guidance contained in Accounting Standards Codification ("ASC") 605, Revenue Recognition. For these arrangements, we first allocate the total arrangement consideration based on the relative selling prices of the software group of elements as a whole and to the non-software elements. We then further allocate consideration within the software group to the respective elements within that group using the residual method as described above. We exercise judgment and use estimates in connection with the determination of the amount of revenue to be recognized in each accounting period.

We allocate the total arrangement consideration among the various elements based on a selling price hierarchy. The selling price for a deliverable is based on its VSOE if available, third-party evidence ("TPE") if VSOE is not available, or the best estimated selling price ("BESP") if neither VSOE nor TPE is available. BESP represents the price at which Autodesk would transact for the deliverable if it were sold regularly on a standalone basis. To establish BESP for those elements for which neither VSOE nor TPE are available, we perform a quantitative analysis of pricing data points for historical standalone transactions involving such elements for a twelve-month period. As part of this analysis, we monitor and evaluate the BESP against actual pricing to ensure that it continues to represent a reasonable estimate of the standalone selling price, considering several other external and internal factors including, but not limited to, pricing and discounting practices, contractually stated prices, the geographies in which we offer our products and services, and the type of customer (i.e. distributor, value-added reseller, and direct end user, among others). We analyze BESP at least annually or on a more frequent basis if a significant change in our business necessitates a more timely analysis or if we experience significant variances in our selling prices.

In situations when we have multiple contracts with a single counterparty, we use the guidance in ASC 985-605 to evaluate both the form and the substance of the arrangements to determine if they should be combined and accounted for as one arrangement or as separate arrangements.

Results of Operations

Our Subscription revenue consists of three components: (1) maintenance plan revenue from our perpetual software products; (2) maintenance revenue from our term-based product subscriptions and flexible enterprise business agreements; and (3) revenue from our cloud service offerings. Our maintenance plan provides our customers with a cost effective and predictable budgetary option to obtain the productivity benefits of our new releases and enhancements when and if released during the term of their contracts. Under our maintenance plan, customers are eligible to receive unspecified upgrades when and if available, and online support. We recognize maintenance plan revenue over the term of the agreements, generally between one and three years. With the discontinuation of our perpetual license sales, we no longer offer new maintenance subscriptions and expect our maintenance subscription revenue to decline over time. Our flexible enterprise business agreements are designed to give our customers increased flexibility with how they use our products and service offerings and to attract a broader range of customers such as project-based users and small businesses. We recognize maintenance revenue from these enterprise agreements ratably over their contract terms. Revenue for our cloud service offerings is recognized ratably over the contract term commencing with the date our service is made available to customers and when all other revenue recognition criteria have been satisfied.

Subscription revenue increased 1% during fiscal 2017 as compared to fiscal 2016 primarily due to a 39% increase in new model subscription revenue, partially offset by a 3% decrease in maintenance plan revenue. The 39% increase in new model subscription revenue was primarily attributable to a 186% increasein product subscription revenue and a 28% increase in revenue from flexible enterprise business agreements. The 3% decrease in maintenance plan revenue was attributable to the business model transition, as we expect maintenance plan revenue will slowly decline as perpetual license sales have ended, and customers adopt our new model subscription offerings.

Maintenance revenue from perpetual software products represented 86% and 90% of subscription revenue for the fiscal 2017 and 2016, respectively. New model subscription revenue represented 14% and 10% of subscription revenue for the fiscal year ended January 31, 2017 and 2016, respectively.

License and Other Revenue

License and other revenue consists of two components: (1) all forms of product license revenue and (2) other revenue. Product license revenue includes software license revenue from the sale of perpetual licenses, term-based licenses from our product subscriptions and flexible enterprise business agreements, and product revenue for Creative Finishing. Other revenue includes revenue from consulting, training, Autodesk Developers Network and Creative Finishing customer support, and is recognized over time, as the services are performed.

License and other revenue decreased 40% during fiscal 2017 as compared to fiscal 2016. Product license revenue, as a percentage of license and other revenue, was 82% and 88% for fiscal 2017 and 2016, respectively. The decrease in product license revenue was due to the business model transition, which led to a 63% decrease in revenue from perpetual licenses as we have discontinued selling perpetual seats of most of our product offerings. This decrease was partially offset by a 122% increase in license revenue from our new model subscription offerings.

Other revenue decreased by 7% during fiscal 2017 as compared to fiscal 2016. Other revenue represented 7% and 6% of total net revenue for fiscal 2017 and 2016, respectively.

There was no backlog at January 31, 2017 compared to $31.4 million at January 31, 2016. Due to the business model transition, we do not expect material backlog in future periods.

Net Revenue by Product Family

Our product offerings are focused in four primary product families: AEC, MFG, AutoCAD and AutoCAD LT (“ACAD”), and M&E. During the business model transition, revenue has been and will be negatively impacted as more revenue is recognized ratably rather than upfront and as new product offerings generally have a lower initial purchase price. As part of the transition, we discontinued selling new perpetual licenses of most individual software products effective February 1, 2016, and discontinued selling new perpetual licenses of suites effective August 1, 2016. These broad impacts are reflected in the drivers below.

Net revenue for AEC product family decreased by 7% during fiscal 2017 as compared to the prior fiscal year, primarily due to 15% decrease in revenue from individual product offerings.

Net revenue for MFG product family decreased by 14% during fiscal 2017 as compared to the prior fiscal year, primarily due to a 14% decrease in individual product offerings and a 13% decrease in our MFG suites.

Net revenue for ACAD product family decreased by 45% during fiscal 2017 as compared to the prior fiscal year. As part of the transition to term-based product subscriptions for our individual software products in February 2016, products like AutoCAD and ACAD LT are negatively impacted when compared to the same period in the prior fiscal year as revenue is recognized ratably rather than upfront.

Net revenue for M&E product family decreased by 13% during fiscal 2017 as compared to the prior fiscal year, primarily due to a 50% decrease in Creative Finishing, as we exited the Creative Finishing hardware business at the beginning of the fourth quarter of fiscal 2016.

[Source: Form 10-K dated 2017-03-21]

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Financial statements of ADSK
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