Autodesk execs ignored accounting risks, documents show

Autodesk Inc. continued to use a controversial sales strategy after promising investors it would stop and ignored internal warnings about the risks of doing so, according to previously unreported internal documents.

The years-long strategy involved offering discounts to certain corporate customers willing to pay up front for large multiyear contracts. In an effort to provide more predictable cash flow and wean itself off of the discounts, the engineering software company in 2021 pledged to halt the practice. 

But Autodesk kept doing it in an effort to meet financial targets, according to the documents, which were reviewed by Bloomberg. The company counted on the upfront payments to boost cash flow, the documents show. 

Employees considered the practice risky because the discounts and other concessions reduced long-term revenue, boosted the chance of mistakes in financial modeling and made it harder for salespeople to do their jobs, the documents said. 

The shares dropped as much as 4.1% in extended trading.

An Autodesk spokesperson said the company’s use of upfront billing continues to decrease, but won’t end entirely “as we consider customer preferences and our presence in emerging countries.” She noted that an internal investigation resulted in no changes to any financial statements.

The accounting issues first came to light in April, when the company delayed its annual financial disclosures and said it was opening a review of processes related to free cash flow and operating margins. In May, the company announced it was replacing Debbie Clifford as chief financial officer. The following month, activist hedge fund Starboard Value LP said it had taken a stake and began pushing for board changes over concerns about how Autodesk was handling the accounting probe.

Employees warned executives about the strategic risk in early 2022, but the company continued to book such deals at least until the fiscal year ending in January 2024, according to the documents. Some of the deals were approved by Chief Operating Officer Steve Blum, the documents show.

Autodesk has offered similar discounts to smaller customers and has said it will phase out those offerings later than discounts for corporate customers.

Autodesk’s accounting probe concluded in May, with the board deciding to remove Clifford as CFO. The company said it had provided related documents to the Securities and Exchange Commission and U.S. Justice Department.

Starboard has urged the board to consider replacing chief executive officer Andrew Anagnost and said the company is “asking shareholders to accept a complete lack of consequences and accountability for” the accounting issues. The hedge fund, led by CEO Jeff Smith, unsuccessfully sued to reopen Autodesk’s board nomination window, saying the company had purposely hidden the probe until after it had closed.

Autodesk has said management and the board met with Starboard multiple times. “Autodesk is taking decisive actions to drive growth, enhance margins and deliver strong free cash flow, and our business has momentum, as evidenced by our strong first-quarter results,” the spokesperson said.