Intrinsic value of Autodesk - ADSK

Previous Close

$117.43

  Intrinsic Value

$11.09

stock screener

  Rating & Target

str. sell

-91%

Previous close

$117.43

 
Intrinsic value

$11.09

 
Up/down potential

-91%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  2,031
  2,135
  2,243
  2,357
  2,477
  2,602
  2,734
  2,872
  3,017
  3,169
  3,329
  3,496
  3,672
  3,857
  4,051
  4,254
  4,468
  4,692
  4,928
  5,175
  5,434
  5,706
  5,992
  6,293
  6,608
  6,939
  7,286
  7,651
  8,034
  8,436
  8,858
Variable operating expenses, $m
 
  2,127
  2,227
  2,332
  2,443
  2,558
  2,680
  2,807
  2,941
  3,082
  3,229
  3,228
  3,390
  3,561
  3,740
  3,927
  4,125
  4,332
  4,549
  4,777
  5,016
  5,268
  5,532
  5,809
  6,100
  6,405
  6,726
  7,063
  7,416
  7,788
  8,177
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
  2,127
  2,227
  2,332
  2,443
  2,558
  2,680
  2,807
  2,941
  3,082
  3,229
  3,228
  3,390
  3,561
  3,740
  3,927
  4,125
  4,332
  4,549
  4,777
  5,016
  5,268
  5,532
  5,809
  6,100
  6,405
  6,726
  7,063
  7,416
  7,788
  8,177
Operating income, $m
  -500
  8
  16
  25
  34
  44
  54
  65
  76
  87
  100
  269
  282
  296
  311
  327
  343
  361
  379
  398
  418
  439
  461
  484
  508
  533
  560
  588
  617
  648
  681
EBITDA, $m
  -361
  191
  200
  210
  221
  232
  244
  256
  269
  283
  297
  312
  328
  344
  362
  380
  399
  419
  440
  462
  485
  510
  535
  562
  590
  620
  651
  683
  717
  753
  791
Interest expense (income), $m
  48
  38
  6
  11
  16
  21
  27
  33
  39
  46
  52
  60
  67
  75
  83
  92
  101
  111
  121
  131
  142
  154
  166
  179
  193
  207
  222
  237
  254
  271
  289
Earnings before tax, $m
  -524
  -30
  10
  14
  18
  23
  27
  32
  37
  42
  47
  209
  215
  221
  228
  235
  242
  250
  258
  266
  275
  284
  294
  304
  315
  326
  338
  351
  364
  377
  392
Tax expense, $m
  58
  0
  3
  4
  5
  6
  7
  9
  10
  11
  13
  56
  58
  60
  62
  63
  65
  67
  70
  72
  74
  77
  79
  82
  85
  88
  91
  95
  98
  102
  106
Net income, $m
  -582
  -30
  8
  10
  13
  17
  20
  23
  27
  31
  35
  153
  157
  162
  166
  172
  177
  182
  188
  194
  201
  208
  215
  222
  230
  238
  247
  256
  266
  276
  286

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
  3,045
  3,200
  3,363
  3,533
  3,712
  3,900
  4,097
  4,304
  4,521
  4,749
  4,988
  5,239
  5,502
  5,779
  6,069
  6,374
  6,694
  7,029
  7,382
  7,752
  8,140
  8,548
  8,977
  9,426
  9,898
  10,394
  10,914
  11,461
  12,034
  12,637
Adjusted assets (=assets-cash), $m
  2,898
  3,045
  3,200
  3,363
  3,533
  3,712
  3,900
  4,097
  4,304
  4,521
  4,749
  4,988
  5,239
  5,502
  5,779
  6,069
  6,374
  6,694
  7,029
  7,382
  7,752
  8,140
  8,548
  8,977
  9,426
  9,898
  10,394
  10,914
  11,461
  12,034
  12,637
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
  361
  379
  398
  419
  440
  462
  485
  510
  536
  563
  591
  621
  652
  685
  719
  755
  793
  833
  875
  918
  964
  1,013
  1,063
  1,117
  1,173
  1,231
  1,293
  1,358
  1,426
  1,497
Working capital, $m
  276
  -1,287
  -1,353
  -1,421
  -1,494
  -1,569
  -1,649
  -1,732
  -1,819
  -1,911
  -2,007
  -2,108
  -2,214
  -2,326
  -2,443
  -2,565
  -2,694
  -2,829
  -2,971
  -3,120
  -3,277
  -3,441
  -3,613
  -3,794
  -3,985
  -4,184
  -4,394
  -4,614
  -4,844
  -5,087
  -5,342
Total debt, $m
  1,491
  168
  307
  453
  607
  768
  937
  1,114
  1,301
  1,496
  1,701
  1,916
  2,142
  2,379
  2,628
  2,889
  3,163
  3,451
  3,753
  4,071
  4,404
  4,753
  5,121
  5,506
  5,911
  6,336
  6,782
  7,250
  7,742
  8,258
  8,800
Total liabilities, $m
  4,065
  2,741
  2,880
  3,026
  3,180
  3,341
  3,510
  3,687
  3,874
  4,069
  4,274
  4,489
  4,715
  4,952
  5,201
  5,462
  5,736
  6,024
  6,326
  6,644
  6,977
  7,326
  7,694
  8,079
  8,484
  8,909
  9,355
  9,823
  10,315
  10,831
  11,373
Total equity, $m
  734
  305
  320
  336
  353
  371
  390
  410
  430
  452
  475
  499
  524
  550
  578
  607
  637
  669
  703
  738
  775
  814
  855
  898
  943
  990
  1,039
  1,091
  1,146
  1,203
  1,264
Total liabilities and equity, $m
  4,799
  3,046
  3,200
  3,362
  3,533
  3,712
  3,900
  4,097
  4,304
  4,521
  4,749
  4,988
  5,239
  5,502
  5,779
  6,069
  6,373
  6,693
  7,029
  7,382
  7,752
  8,140
  8,549
  8,977
  9,427
  9,899
  10,394
  10,914
  11,461
  12,034
  12,637
Debt-to-equity ratio
  2.031
  0.550
  0.960
  1.350
  1.720
  2.070
  2.400
  2.720
  3.020
  3.310
  3.580
  3.840
  4.090
  4.320
  4.550
  4.760
  4.960
  5.160
  5.340
  5.510
  5.680
  5.840
  5.990
  6.130
  6.270
  6.400
  6.520
  6.640
  6.750
  6.860
  6.960
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
  -30
  8
  10
  13
  17
  20
  23
  27
  31
  35
  153
  157
  162
  166
  172
  177
  182
  188
  194
  201
  208
  215
  222
  230
  238
  247
  256
  266
  276
  286
Depreciation, amort., depletion, $m
  139
  183
  184
  185
  187
  188
  190
  192
  194
  195
  197
  43
  46
  48
  50
  53
  56
  58
  61
  64
  68
  71
  74
  78
  82
  86
  91
  95
  100
  105
  110
Funds from operations, $m
  527
  152
  192
  196
  200
  205
  210
  215
  220
  226
  232
  196
  203
  210
  217
  224
  232
  241
  250
  259
  268
  279
  289
  300
  312
  325
  337
  351
  365
  380
  396
Change in working capital, $m
  357
  -62
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -135
  -142
  -149
  -156
  -164
  -172
  -181
  -190
  -200
  -210
  -220
  -231
  -242
  -255
Cash from operations, $m
  170
  215
  257
  265
  272
  281
  289
  298
  308
  318
  328
  297
  309
  321
  334
  347
  361
  376
  391
  408
  425
  443
  462
  481
  502
  524
  547
  571
  596
  623
  651
Maintenance CAPEX, $m
  0
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
New CAPEX, $m
  -76
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -71
Cash from investing activities, $m
  272
  -42
  -45
  -47
  -49
  -52
  -54
  -57
  -61
  -63
  -66
  -69
  -73
  -77
  -81
  -84
  -89
  -94
  -98
  -103
  -108
  -114
  -119
  -125
  -131
  -138
  -145
  -153
  -160
  -168
  -176
Free cash flow, $m
  442
  173
  212
  217
  223
  229
  235
  241
  248
  255
  262
  228
  236
  244
  253
  262
  272
  283
  293
  305
  317
  329
  342
  356
  371
  386
  402
  419
  437
  455
  475
Issuance/(repayment) of debt, $m
  0
  -924
  139
  146
  154
  161
  169
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
  288
  302
  317
  333
  350
  367
  385
  405
  425
  446
  468
  492
  516
  542
Issuance/(repurchase) of shares, $m
  -502
  1,102
  8
  6
  4
  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
  0
Cash from financing (excl. dividends), $m  
  -578
  178
  147
  152
  158
  162
  169
  177
  186
  195
  205
  215
  226
  237
  249
  261
  274
  288
  302
  317
  333
  350
  367
  385
  405
  425
  446
  468
  492
  516
  542
Total cash flow (excl. dividends), $m
  -140
  350
  360
  370
  380
  391
  404
  418
  434
  450
  467
  443
  461
  481
  502
  524
  546
  570
  596
  622
  650
  679
  710
  742
  775
  811
  848
  887
  928
  971
  1,017
Retained Cash Flow (-), $m
  886
  -1,102
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
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
 
  749
  344
  353
  363
  373
  385
  399
  413
  428
  444
  419
  436
  455
  474
  495
  516
  538
  562
  587
  613
  640
  669
  699
  730
  764
  799
  835
  874
  914
  956
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
 
  718
  315
  307
  299
  289
  279
  269
  258
  246
  233
  199
  186
  173
  159
  145
  131
  117
  103
  90
  78
  66
  55
  46
  37
  30
  23
  18
  14
  10
  7
Current shareholders' claim on cash, %
  100
  50.0
  49.9
  49.8
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7
  49.7

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 -44.4
Price to Sales 12.7
Price to Book 35.2
Price to Tangible Book
Price to Cash Flow 152.2
Price to Free Cash Flow 275.2
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 5.1% 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 220.738 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 $25.9 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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COMPANY NEWS

▶ Autodesk Gets Relative Strength Rating Upgrade   [03:00AM  Investor's Business Daily]
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▶ ETFs with exposure to Autodesk, Inc. : December 15, 2017   [Dec-15-17 12:48PM  Capital Cube]
▶ Inside Autodesk's Restructuring Plan   [Dec-07-17 06:16PM  Bloomberg Video]
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▶ Autodesk Sees Relative Strength Rating Improve To 74   [03:00AM  Investor's Business Daily]
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▶ 2 Stocks Lose Ground on Wednesday   [04:40PM  GuruFocus.com]
▶ Autodesk to Slash Workforce By 13%   [08:18PM  Fortune]
▶ Autodesk Stock Tanks On Guidance, Plans For Restructuring   [05:54PM  Investor's Business Daily]
▶ Autodesk falls on news of restructuring   [04:24PM  CNBC Videos]
▶ Autodesk reports 3Q loss   [04:11PM  Associated Press]
▶ 3 Things to Watch in the Stock Market This Week   [Nov-26-17 07:09PM  Motley Fool]
▶ How Financially Strong Is Autodesk Inc (ADSK)?   [Nov-24-17 11:45AM  Simply Wall St.]
▶ Autodesk to Present at Upcoming Investor Conferences   [Nov-22-17 08:00AM  PR Newswire]
▶ [$$] TJX Gears Up to Face Another Amazon Christmas   [Nov-17-17 10:40PM  Barrons.com]
▶ Have Investors Already Priced In Autodesk Incs (ADSK) Growth?   [Nov-09-17 06:35PM  Simply Wall St.]
▶ Cramer Remix: How Under Armour could turn around   [Oct-31-17 07:09PM  CNBC Videos]
Financial statements of ADSK
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