Well, it is nice to report on a good quarter from one of the companies that I follow. In this case, it is the results from Autodesk. Let us start with the raw numbers. The company reported Revenue of $485M and a loss of $0.59 per share. Revenue was down year over year and they lost less money. Given what I have written about other companies, why is this such a good result?
Well, the financial statements are all whacked up at the moment due to the change from Selling Software to Selling Subscriptions to Use Software. There is a large number of changes that go on when that happens. The biggest of which in the short term is Revenue Recognition. If you sign a 1 year contract for a Cell Phone Service, companies can Recognize that Revenue 1 month at a time (for 1/12th of the total). This is true even if you paid completely up front. Autodesk’s software was generally pretty expensive, some licenses cost thousands of dollars annually. So people converted to the subscription model slowly. I have had the same Microsoft Office package for over 5 years. I don’t see the reason to get the latest version. Over time, Autodesk has converted many people to this new model and it looks to have turned the corner on that.
One big gain for investors this quarter is the way they have started breaking down Revenue. I have been been asking for this transparency for some time. Now they report in 3 categories: Subscription, Maintenance, and License and Other. Subscription Revenue is the kind of Software Revenue that we have been talking about. Maintenance is Software Maintenance for those that had previously bought software and have a Maintenace Subscription. License and Other is a catch-all for all one-time revenue like those last few Sales of Software that have existed.
There are 3 pools of people left to convert to the subscriptions. First, there are those people that bought Software relatively recently. This will take time and the company estimates that there are about 2M packages left to convert. Not all of these will convert, but that is the idea. The second group is software that is pirated. The company estimates that this is 12M packages. Some of this will become legitimate. Given the size of the pool, even a modest transition could be quite good. Finally, there are the Maintenace users. The company is instituting a program to convert these customers by raising Maintenance Costs over time, with a Reduction in Subscription Cost for those that convert sooner.
All of this is essentially growth in this model before we talk about new users and new products. If you are concerned about whether the company is viable, the place to look is the Cash Flow Statement. Here the important number is Net Cash Provided by Operating Activities. In this case, the company generated $45M in cash in the quarter. This is a key number for all companies as it tells you if the ongoing operations of the business is producing positive cash flow or not. With all the vaguaries of reporting under Sarbanes-Oxley, this one number is an investor’s best friend. Just to compare this one number, Enphase burned $24M and Calix burned $23M in Operating Cash. Think of it this way. Imagine you have one bank account and it is a free checking account. You check your balance at the start of a quarter and at the end. If did not do any investing or take out/pay back any loans, then this number would be how to look at how you are doing financially. If you are generating cash (adding), that is good. If you are burning cash (subtracting), that is bad.
So, we have a really nice quarter by Autodesk and a reporting structure that makes sense AND we can use to understand how the transition is going.
Have a great day!
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