Software giant Autodesk Inc. released May 31 the results of an internal audit that found its practice of signing up customers to multiyear, sometimes-discounted deals for its software licenses resulted in lower income than if the customers had been booked as annual, full-price enterprise-level subscriptions. The audit—which delayed its 2024 first quarterly tax filing—revealed that the practice led to a discrepancy in its books in recent years and a shortfall in free cash flow for early 2024.
The company's statement also noted that Deborah Clifford, chief financial officer since March 2021, will transition to chief strategy officer. Elizabeth Rafael, an Autodesk board member, was appointed interim CFO and remains on the board.
Autodesk said that to meet the company's free cash flow targets, it has traditionally relied on multiyear contracts with its enterprise and individual customers that are billed upfront—a common arrangement for design and construction firms that have ongoing subscriptions to design software, such as Revit.
During 2022 and 2023, Autodesk sought to incentivize customers to accept multiyear upfront billing, renew early and/or pay before the end of the fiscal year, the audit committee found. Autodesk has acknowledged that the practice of encouraging these discounted multiyear upfront contracts reduces the overall amount of money the company takes in.
Prior to fiscal year 2024, while the company did not quantify free cash flow attributable to multiyear upfront billings, it did note that the contribution of upfront collections of multiyear fees from design firms and other customers could contribute to fluctuations in its quarterly reported long-term deferred revenue.
In 2022, Autodesk began to shift its enterprise customers to annually billed contracts, and assumed fiscal 2023 enterprise contracts would be billed annually. However, the company later opted to pursue multiyear upfront contracts with enterprise customers to help meet its fiscal 2023 free cash flow goal. Autodesk's statement said upfront billings of enterprise customers in fiscal 2023 substantially exceeded previous performance, helping it to meet its lowered annual free cash flow target.
The report notes that this incorrectly booked revenue led to spending decisions at the company that impacted free cash flow and contributed to a lower reported margin in the current period. However, this did not affect executive compensation, the audit found.
"We take situations like this very seriously and are grateful to put the investigation behind us," Andrew Anagnost, president and CEO, said in the statement. "In the first quarter of fiscal 2025, we generated broad-based growth in AEC and manufacturing across products and regions. The new transaction model implementation is on track. Our strong start sets us up well to achieve our goals for the year."
As a result of the investigation, Autodesk's audit committee recommended changes to how it files multiyear subscriptions. The firm said it will file its annual report (Form 10-K) as soon as possible and also noted that multiyear upfront billings of enterprise customers in fiscal 2024 were substantially lower than in fiscal 2022 and 2023.
