Opinion
The problem with subscriptions is that they generate a lot of money that companies cannot immediately report as income. Think of it: you pay Autodesk $2,000 to use AutoCAD for one year. Autodesk earns $2,000, but then can report only one-quarter of it ($500) in its next quarterly report. The other $1,500 sit in a bank account and cannot be used. Then, in the next quarter, it can report another $500 and start spending it. And so on.
What if there were clever ways to report more of it sooner? Autodesk “incentivized customers” to
- Accept multi-year upfront billing, typically three years instead of one
- Renew early, so that the income could be counted in an earlier quarter
- Pay before the fiscal year ended, to boost Q4 results.
Apparently, PTC did similar things starting in 2008. In the case of PTC, the ceo of the time resigned. Much more cleverer writers than me, like Randall Newton, explain it at “Autodesk’s rhyming history of financial reporting.” See https://www.consiliavektor.com/2024/06/01/autodesks-rhyming-history-of-financial-reporting/
To Autodesk’s credit, it realized that there was a problem, mounted an investigation, and declared the problem fixed. Indeed, one CAD observer announced, “Autodesk: everything is fine; nothing to see here.” It appears that Autodesk corrected things by reporting the result of its investigation, giving the cfo a lateral promotion, and putting into place new financial safeguards. You can read more about it on page 4 of Autodesk's 2024 annual report: https://investors.autodesk.com/static-files/c8b18520-59fa-478b-b665-2fb51c45062f
Questions remain: who came up with the scheme? Did shareholders lose out because of misleading free cash flow statements? Were executives overcompensated? Will the ceo resign?
The Backlash Begins
Autodesk’s financial scandal won't go away. Bronstein, Gewirtz & Grossman this week filed a class action lawsuit against Autodesk, ceo Anagnost and former cfo Clifford for making materially false statements. Read the complaint here: https://bgandg.com/wp-content/uploads/2024/04/ADSK-Complaint-w.pdf
Activist fund Starboard Value took a $500-million stake in Autodesk and is concerned about the probe that led to its cfo's lateral promotion. It, too, is considering a law suit. https://www.cnbc.com/2024/06/17/autodesk-adsk-starboard-activist-probe-sec-lawsuit.html
The sharks are circling, and I expect more lawsuits to be launched.
Wow! Don't think my eyes have been drier in my lifetime.
Posted by: Dairobi Paul | Sep 29, 2024 at 07:38 PM