Q2 2021 Autodesk Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Autodesk second quarter fiscal year 21 earnings conference call. At this time, all participants I not listen only mode.
So to speak of presentation, there will be a question and answer session.
Good question. During this session you want me to press Star one on your telephone please be advised that today's conference is being recorded.
If you acquire any color there since then he's five stars Yeah, I'd now like turn the conference you're speaking today, a by Lamba VP Investor Relations. Please go ahead Sir.
Thanks, operator, and good afternoon. Thanks for joining a conference call to discuss the results with <unk> second quarter fiscal year 21 on the line is end to end Ignacio and scorecard of fearful.
This conference call is being broadcast live audio webcast. In addition, Oh he feels the call would be available like August dot com slash investor.
You can find the owning the city's slide presentation and transcript of todays opening commentary on our Investor Relations website. Following this call.
During the course of this call we may make forward looking statements about our outlook future results in villages assumptions and strategies. These statements reflect our best judgment based on currently known factors actually rental results could differ materially. Please refer to our SEC filings for important risks and other factors into.
Moving developments in the goal, we spend that Mike and the resulting in bad come out of business and operations that may cause actual results to differ from those in our forward looking statements.
Forward looking statements made during the call are being made that's off today.
This call is displayed on reviewed after today the information presented during the called me not contain garden are accurate information artifice disclaims any obligation to update or revise any forward looking statements. During the call. We would of course, a number of numerical go changes as we discuss our financial performance and unless otherwise noted.
Each such reference it presents a year on year comparison, all non-GAAP numbers the difference in today's call. He concerned in the press release, all the slide presentation on our Investor Relations website, and now I'd like to turn the call over to Andrew. Thank you bye-bye to start I hope everyone is safe and healthy.
Well continues to be impacted by the coded pandemic.
Our priorities only in the safety and well being about employees and the continued support of our customers partners and community.
Before I dive into the quarter I think all our employees for their efforts and persistence during challenging times.
The resiliency of our business model and solid execution helped us deliver strong Q2 results with revenue earnings and free cash flow above expectations, even as we continue to operate in uncertain times.
The secular trends that we've been investing in and preparing for such as the adoption of cloud based solutions are celebrating and we're excited about our position in the market well competitors are just beginning to focus on similar trends our investments from the last few years are already driving positive results with the business model changes we've made.
We continue to live or significant value and functionality and the club.
Because of this and a few other assets all that stuff, we will be stronger on the other side of this pandemic.
As indicated on the last call. We continue to closely monitor the usage pattern of our products across the globe something we could not do historically.
In China, Korea, and Japan, we're seeing usage above pre coded levels in some areas of Europe, we continue to see a recovery as well.
In the Americas, we experienced a slight uptick in usage for most key products in July.
We're also seeing a positive correlation between usage trends and new business performance, which gives us confidence that the green shoots we see and usage will translate into improved new business performance in subsequent quarters.
In all senses work is changing and our cloud collaboration product effectively connect project teams and workload alone businesses and thrive even when their employees and partners are working remotely.
Usage of been Threesixty design, our cloud collaboration tool has accelerated with the adoption by revenues are almost doubling in the past year.
We also continued to gain momentum in manufacturing a fusion threesixty, we had the best quarter over for subscription. Net addition was more than 10000 in the quarter.
The value of the cloud is becoming more and more apparent and cloud based solutions are becoming a necessity.
Our product subscription renewal rates improved steadily throughout Q2 of customers recognize the critical value our offerings brings to their businesses.
Our new business was impacted by the current environment, but the strength of our pipeline entering the second half of the year combined with execution recovering countries make us confident in our full year targets now I'd like to turn it over to start to take you through details of our quarterly performance and guidance for the year before I come back to provide insight.
All right into our strategic growth drivers.
Thanks Sanders.
As you just heard despite facing the economic headwinds from coated with strong performance across all key metrics in the quarter total revenue growth in the quarter came in at 15% as reported 16% at constant currency with subscription plan revenue growing by 27% and operating margin expanding by five percentage points.
Despite offer you extended payment terms through the quarter, we delivered healthy free cash flow of 64 million.
Current Archeo, which reflects committed revenue for the next 12 months is up 15% and total ARPU was up 19%.
Our ongoing investment in digital sales are yielding results as we saw strong double digit billings growth for the online channel during the quarter.
Our online sales are healthy attract new customers to the artist family as nearly three out of for new customers in the quarter came in through E Commerce.
Our run rate business came in strong during the quarter, while the pace of closing larger transactions slowed modestly.
In Q2, our net revenue retention rate was within the 100% to 110% raise we laid out in our previous guidance.
As Andrew mentioned, we saw resilient renewal rates in the quarter.
Digging deeper into our renewal rates, our product subscription renewal rates improved on a sequential basis, which has a strong endorsement of the strategic nature of our products in the stickiness of our customer base in this new business model.
We experienced a decline in maintenance renewal rates as expected since we announced the end of life of our maintenance offerings.
With our transition to a subscription business model behind US maybe this is only about 5% of our revenue.
Similar to last quarter more than 40% of the maintenance customers, who came up for renewal converted to subscription.
Our into US revenue combined with our maintenance revenue this quarter at 229 million as close to 80%.
Of our peak quarterly maintenance revenue in Q1 fiscal 16.
This speaks to the great success, we've had with the program.
In Q2, we also saw industry collections grow sequentially as a share of total new business.
While multiyear payments are down year over year for the into the second quarter, we saw a slight uptick and multiyear payments as customers continue to make long term commitments to our products.
APEC led the way can share of multi year deals consistent with the regions relatively strong performance in new business.
As we anticipated our second quarter, new business activity was more impacted that in Q1 with new business declining in the range of mid teens percent.
In line with our commentary on the last call. We think the second quarter will be the most impacted by the pandemic.
Our businesses recovering in the markets that were impacted by the pandemic earlier on.
Over some of our major markets like the us and UK have stabilized, but are yet to show meaningful improvement.
As such we continue with a wider than normal revenue range for the remainder of the year, while raising the midpoint of our guidance.
Our updated guidance implies continued improvement in all of our end markets over the next two quarters and we expect the pace of closing larger transactions to improve.
In addition to the impact of large deal activity the range of our forecast factors in varying degrees of demand environment in the Americas, which includes our largest end market.
At the upper end of our guidance range, we're modeling meaningful recovery in the region in the third quarter with continued improvement in the fourth quarter.
At the low to the raise we anticipate a slower recovery in the third quarter and improvement in Q4.
We're very pleased with performance of our product subscription renewal rates in the second quarter and expect them to continue improving for the rest of the year.
For the remaining maintenance space, we expect churn to further increase but recall that we are in the final stages of ending our maintenance offerings and the number of seemed to small versus our total installed base.
We expect our net revenue retention rate to remain between 100 and 110% for the rest of the year.
Our full year operating margins should expand by approximately three to four and a half percentage points as we keep exercising our strong discipline around spend management, while continuing to invest in strategic priorities.
Despite improving multi year trends, we experienced at the end of the quarter, we're taking a cautious view of their continued uptake in the second half of the year, which is impacting the upper end of our billings forecast range for the year.
Our billings adjustment does not affect free cash flow estimate of 1.3 to 1.4 billion for fiscal 2001, as we expect strong cash collections to continue.
Finally, we are confident in our fiscal 2003 free cash flow target of 2.4 billion.
And now I'd like turn it back to 200.
Thank you Scott I am proud of the team for what we accomplished in Q2 with the investments we made over the last few years and our move to make everyone to named user. We're in the final stages of becoming a true staff provider and delivering a significant amount of capabilities in the cloud we can now deliver enhanced value to our users and administrators and our named user.
Model enables our customers to operate efficiently in a remote work environment.
Our transition and end users is off to a promising start with some customers choosing to adopt it ahead of the launch earlier this month.
Even allow me one of the largest construction in engineering consulting firms in the middle East Paul the value and its ability to accelerate work from home and reached out to transition early.
A transition to the named using model is not the only thing ensuring their business continuity all working from home during the quarter. They increase this piece of intrinsic to design, breaking silos and enabling their building infrastructure teams to collaborate on revenue and civil Threed models from different locations.
During the quarter. We also launched our premium subscription plan, which would not have been possible without converting every once in named users. We can now offer added security was single fire capabilities, either administration and advanced product usage information for administrators.
One of the first to make the investment in the premium plan was one of our long time customers caliber vianna, a leading provider of professional infrastructure and build environment solutions headquartered in Australia. The most compelling features for them as a single sign on capability and the license usage visibility.
However, the owner has been partnering with audit for 20 years and our products have enabled them to continue innovating to deliver valuable design and engineering solutions to their customers as both can't technology and engineering processes have evolved from the drawing board to Autocad and now that there.
The next phase of our journey will enable us to offer even greater value to our customers as a true cloud technology provider.
Now let me update you on our three key growth initiatives accelerating Digitization 18 convergence of design and make in manufacturing and.
And monetization of non compliant and legacy users.
Our agency businesses continued to be resilient, our products enable more efficient communication increased oversight as the industry works through additional steps in their profitable such as new shift paradigm and optimize site labs, we continued to make investments in construction, where we expect technology adoption to keep growing especially as we exit.
Pandemic.
We recently announced three notable investments.
First we acquired pipe, which closed this month and will add significant value for other construction cloud users along general contractors and subcontractors and owners to automate workloads, such as Submittals and project close outs to increase overall productivity and reduce risk throughout the project lifecycle second we also made a strategic investment in Bridget.
Richard offers workforce optimization solutions for contractors.
Third we expanded our existing relationship with factory outlets factory outlet is helping us improve our products to support the convergence of construction and manufacturing nearby advancing pre fabrication offsite and modular construction practices.
We continue to have enhance our project and cost management capabilities by improving connected workflows and cost tracking functionality as you may recall, a large number of construction cited shutdown and we started the quarter sales of our construction solutions targeted at field activities started off slowly but improved during the quarter as construction sites began to rise.
Okay.
During the quarter sonorous construction, a top in our 400 provider of comprehensive construction management and general contracting services signed a three year renewal expansion with us, citing their previous success with our product in the ongoing value we deliver in terms of productivity gains across the project lifecycle Southers has been successful using revett in coordination with.
Tim 360, this field and glue and now this works for field execution and Bim coordination for years. This enable Saunders decentralize the document management connector office and field teams build out their quality and safety programs minimized rework and enable company enterprise recording with disagreement there now positioned to continue growing.
Their deployment of our construction cloud with our dedicated support and we're excited to expand our partnership with them.
Our Bim 360 design solutions continued to perform stalling throughout the quarter as architects and contractors adjusted to the new remote work environment and found immense value at cloud based collaboration capabilities.
Caveat one of the largest architecture firms in New York City with offices in project all over the World is also investing in 360 solutions James Brogan Principal Tcf said quote a caveat collaborating effectively with global clients and design team is critical to our success as such our partnership with Autodesk and the.
Use of Bim 360 in conjunction with revenue in particular have become fundamental to our business, enabling us to efficiently manage design data across global teams and deliver a world class outcomes for our clients and booked.
We continue to make progress and provide more value to customers in the infrastructure space during the quarter one of the largest infrastructure design firms in the us renewed and expanded their enterprise business agreement or EPA with Autodesk. This customer is leveraging the EPA token offering to digitize the company and move traditional file based workflows the data driven design.
And leveraging the cloud and displacing competition.
With the ever growing need to work remotely and in large project teams with multiple stakeholders. This customer is investing in auto has been 350 at the common data platform for managing project information collaboration and model coordination. This design customer is all has also added program to manage RF buys in the middle of in the field as well as a.
Symbol for conditioning models for estimating and quantity take us.
As I mentioned earlier fusion is continuing to accelerate within our manufacturing portfolio and gain traction with Gener design. This quarter Firefly Aerospace rocket in spacecraft company based in Austin, Texas committed to Autodesk over multiple competitors as their partner of choice for design analysis and manufacturing software because of AFFO.
Once again, realizing they are designed to make workloads and lightweighting opportunities provided by generated design.
Our first launch vehicle has been designed and built using the entirety of Autodesk design and make solution and the team in Firefly is already thinking about again and design can be used to optimize the design further.
In a market where reduction in weight directly correlates to a reduction in costs general designed to not only firmly established firefly the thought leader in their space, but also is the most economical launch platform in the market.
Leveraging these advanced tools from Autodesk will enable them to stay one step ahead of the competition.
Today, we announced that our existing advanced manufacturing technology power no power shape and power instead will become part of the fusion 360 platform. This complements our existing operating a fusion 360 with feature camp for production machine application and also allows us to bring new advanced capabilities to our core fusion 360 cloud.
Hey software. This is a natural progression as we see high interest from customers. He is next generation design and manufacturing workloads in fusion 360, alongside our advanced manufacturing tool. It is also a key step towards our long standing vision, a seamless collaboration between designers and engineers uniting design and manufacturing under the.
Power at a single cloud platform.
In Q2, we also signed to deal with Nobel Biocare, which included subscriptions the powerful power shape and fusion 360 with feature Cam headquartered in Switzerland, Nobel Biocare manufacturers dental implants, and CAD Cam based individualized prosthetics and they receive orders for custom single and multi unit.
Implant restorations from all over the world. The custom record restoration is manufactured from start to finish using audit at software and using our technology Nobel Biocare created a fully automated process that allows us to produce completely unique dental restoration meeting the individual needs of their dental patients.
We are the preferred vendor for building product manufacturers, who need to design within the context of the building information model during the quarter, we signed a new enterprise business agreement with one of the largest manufacturers of exterior building products in North America, even amid an uncertain business climate, the us based manufacturer and strategically investing.
And partnering with Autodesk to support their focus on innovation and industrialized construction.
They are looking to automotive solutions, such as industry 60 rented and inventor to help them maximize efficiencies by digitally transforming and improving processes across the entire construction ecosystem.
We always displays the local competitor at building product manufacturer in France due to our deep connection to begin the convergence of designing Macon manufacturing and happening and our deep connection to Ben will enable us to win.
Moving on to updates on our digital transformation and progress monetizing noncompliant users.
We are confident in our ability to convert the long term opportunity. However in the short term we continue to be mindful of the current environment and importance of working with Noncompliant users and respectful and reasonable ways.
In Q2, we closed through deals of more than $1 million each in the APAC region, where business activity has returned to pre coded level also during the quarter. We closed the deal with the design build architecture firm in China against the local lower cost competitor, a few quarters ago, the customer decided to make that switch away from autocad solely.
Based on cost savings that Theyre engineered continue to use our software due to the necessary functionality, we were able to convert them back to paying users based on the value our solutions provider.
In closing we are building a stronger audit us for the long term, we have a head start over competition in critical capabilities by cloud computing and cloud based collaboration and we will continue to invest in our strategic initiatives. There are multiple drivers that make us confident in our fiscal 2023 targets and beyond.
First digitization and HP is going to accelerate in the coming years as companies seek to not only make current processes more resilience and efficient but to support new industrial paradigms for construction.
Second the evolution of manufacturing to a more distributed network and cloud based workflow is also going to accelerate significantly over the next few years and we have the industry, leading multitenant cloud based solution to address the emerging customer needs that will shape demand and third our business model is more robust adaptable and resilience than in the.
Prior history as a company this will allow us to not only invest in the future but to do so within either both revenue and margin growth with that operator, we'd like to open the call up for questions.
Thank you as a reminder to ask a question your needs to come Star one on your concern.
Good question Keith Please stand by at least the Kuneva.
Our first question comes from Shackett carrier with Barclays. Your line open.
Okay, Great Hey, guys. Thanks for taking my questions here how are you.
Yes, good Scott Goodwin.
Scott maybe maybe for you.
You could just talk about what you're seeing on customer preferences.
For different duration contracts.
You touched on this a little bit in prepared remarks, but can you just talk about what you saw in terms of contract duration this quarter and how you're planning for that the rest of the year as we think about that changed the top end of the billings guide.
Yes, Thanks, I get your you're spot on and we said coming into the quarter. When we gave the previous guide that we felt Q2 would be the toughest quarter the year and in particular, we thought we would see an impact on multi year and we've seen that on the at the very end of Q1.
And we did see that we saw an impact although it did in the rate of customers buying multi year doesn't fall through the floor by any stretch, but it came down earlier in the quarter ended the quarter went on we saw it modestly improving each month throughout the quarter. So the multi years did take a hit and improved throughout the quarter, but with that said remember.
When we rolled out that guidance and we and we describe whats taken quite a bit of detail what would take us to the high end of the range versus the low end and at the high end of the guidance ranges, we've assumed a swift recovery in the second half of the year and that's exactly what we're seeing in some markets, but not in all of our markets. So the adjustment in the Billings guide is really driven by our expert.
Station of less multi year sales at a slightly slower recovery in the us in UK as we talked about on the opening commentary.
Got it that makes a lot of sense.
Maybe for you Andrew for my follow up a little bit a little bit sort of disconnected from the results a little bit, but you posted an interesting blog a couple of weeks ago about autodesk and the industry and I guess I just want to zero one on one part of it which was the idea that architectural customers.
You spent a lot of time by the way on in your prepared remarks may actually be paying less under the subscription model versus the old perpetual maintenance model and so I was just wondering if you can expand on that a little bit and maybe address whether whether audit us because actually potentially leaving money on the table in the in the industry.
Okay.
Right exactly thanks, thanks for proving to be why why just audiences.
Okay to some of those concerns that were expressed as other audiences.
Hi.
So first off let me just acknowledge some things.
About about.
Communications with the industry and the Architected particular, one they are legitimate concerns about the functionality and rabbit and we take those incredibly seriously going beyond. The fact is that that from an architectural specs standpoint rabbit outthink gotten a lot of incremental investment a lot of the investment kind of construction, it's gone to revenue enhancement targeting the.
Engineering component of the workflows structural workloads in particular, so theres some real real legitimate concerns there.
The other the other concerning they have in say the move from from multi user to name users. These these are large multi user clients and they see multiuser prices drift up they really want to pay per use model, we walk in to advocate for use model, which they would prefer to cloud licensing.
It is something that just want to make sure that we acknowledge were on the same page with that said like you said and I always important that I make this clear these customers come from a highly privileged roughly 20% of our subscription base that that moved from maintenance to subscription and have really pretty deep price protection, okay relative to.
The rest of the base and if you look at their expenditures over a five year period frankly, even over it.
Moving out another five years as they add seats. They are actually paying last two autodesk since they would have under the old perpetual model and now with a deliberate part of the transition even even as multiuser prices.
Go up in everything if you add up what they would have paid to for us for adding users over time, they actually end up paying left over a five year period, and frankly as they add users over a 10 year period, we're not concerned about that we went out very early on that we were going to take care and maintenance customers that were we're out in front of US we did that.
Lots of debates with all of you about maybe subscription program. The tenure price lock it wasnt exactly something that all of you were behind alright, but we think it was right. Yes. It has resulted in that now so we're never going to be on the same paid because audience about about particular picnic particular part of the equation, but remember.
This is a shrinking bid of our subscription base there due to the protected 20% now there will be less than that later, but.
Overtime.
They pay less than I get to Neil.
That's true, but we're not worried about that it's not there is no concerns.
Very helpful. Thanks, guys.
Okay.
Thank you.
Our next question comes from Jay very shallow favorite Griffin Securities. Your line is Alan.
Hi, Thank you good evening to Andrew Scott.
Question number one Andrew.
Is about the intersection of what you called three Inevitabilities or eventualities.
And your business.
Number one collections in the cloud.
Into a consumption model and then three a underlying re architecting of your platform.
The product information model or whatever you are going to be calling it now you are doing that undermine we architecting work.
And so in terms of connecting all of those things.
How feasible or desirable lighted fees for you too.
We segment the portfolio.
Not to go back to where you were pre transition in terms of having dozens of skews and so forth that perhaps you.
You have the opportunity to have some additional number of flavors, either standalone or perhaps new.
Collections configurations that you would be able to feasibly bring to market based on the new architecture name to user and so forth.
For the follow up question at the Analyst meeting two months ago, you talked about your.
Customer breakdown as consisting of named account Midmarket strategic territory and.
Plain Vanilla territory.
The question. There is could you talk about the performance in each of those core segments and how you're thinking about those.
For the remainder of the year and whether you're doing anything in terms of sales capacity and or back end margins. Thanks.
Okay, great. So I'm going to take the first part of that I'm going to have the second part of that Scott Alright, So geographic area.
Complicated syndicated question there, but let me, let me kind of summarize its way right.
The model that we're going to is a greater segmentation in some respect, but I want to keep pointing you back to the way fusion is being architecting constructed alright fusion has a subscription entry price. There is a set of functionality that people use frequently and if they're using.
A lot of their day to day work, but then there's a series of modules that they can reach out to an access on a need need based.
Nothing Okay, and you're just noticed we've added more of those recently diffusion through from technology that was previously an adult Cam portfolio. This model of having a what what for the lack of better word a vertical platform. That's for instance, the manufacturing is built on the product information model in the cloud in HCC is going to be built on a building improving.
Sure model in the cloud.
It might be built on media information our model in the cloud and things associated with that they will be able to pull the functionality that need as they need it they'll pay a baseline subscription and they'll pay per use for various things as they need them and as they keep them as advanced capability.
You think of that if that is segmentation of our portfolio and increase the skewed maybe in some respects, but what is designed to do is ensure that.
Occasionally used functionality that high value they can get when they need it without having to get it all at once thats the notion of collections in the cloud it's a collection than the cloud that they can use on it on an as needed basis. So when you look at what we're doing with fusion that really directionally captures where the model going for all of our customers.
Nutley and it's all connected you're right named user necessary to do that because you have to name the user. So if you could track their usage in their needs and provide something that them. Specifically now doesn't mean, the named user can't be a large coordinate gives you that come in occasionally which is something that people want in terms of consumption in April use, but it's also connected right.
Back again to the underlying architecture of the products and that's the future regarding.
Got off to you.
Okay.
Thanks, and Jay Let me, let me take your questions from the bottom up we start with territory of strategic territory, which tends to be are smaller accounts was actually quite strong and we actually we touched on this.
Kind of qualitatively in the opening commentary, we saw good strength and Thats small customer set.
And more so if you if you set a slightly by customer size slice. It by Geo you could see the results APAC was quite strong where we've seen dependent that first they went through what they went what they went through.
Those markets reopened we called out China, Korea, and Japan is actually being above pre coated level. So seeing good stray from the smaller accounts and seeing good strength in APAC and then subsequently in Continental Europe.
As you work your way up to mid market and name names doesn't have a big Q2, that's where most of our EPA is systems, that's where all of our previous citizen the name user or I'm, sorry in the named account category and that seems to be heavier in the second half of the year. So we've got a actually got to a very full pipeline of large.
Transactions large accounts EMEA renewals that are coming up and.
Those areas have close to 100% renewal rate so.
Named good fine during the quarter, but its Q2 is not a big quarter for named accounts. The Midmarket was a little bit more tepid and what I'd say there is we have a lot of multiuser usage within the mid market.
And as you you've seen what we've done with the transition some named moving away from multi user and over its a name we didnt actually have that that offer that two for one off offer active until the beginning of Q3, so little bit of a pause in the mid market as many of those midmarket accounts by the way of doing what all of us are doing kind of assessing their business.
I understand their needs, but also had the impact of wanting to get to be transition to name program that we launched the beginning of Q3.
That's the right way to think about abide by customer size.
Thanks very much.
Yes, Yes. Our next question comes from Matt Hedberg with RBC capital markets. Your line is now open.
Oh, great guys. Thanks for taking my questions. Congrats on the results and really good to hear the the strength in the renewal business.
I guess for either of you maybe Scott outside of the trends in multi year that you alluded to in your answer to sockets question earlier I'm wondering if you could talking a little bit more detail about how new business trends progressed through the quarter and maybe how August is trended versus last year I know I know Andrew mentioned strengthen pipeline just just wondering on that new business side. What gives you can.
Confidence there.
Yes, I'll start on that Andrew let you.
Jump in and add some more color what we saw in the new business is really in line with what our expectations, where those markets that have opened up so slice of first by Geo Matt.
When you look at it by Geo APAC, new business rates were the highest.
Middle Europe, I don't think about the wave of the way the pandemic struck continental Europe next and the us and the UK by the way outside of Continental Europe.
Both feeling like they've stabilized there is no further declines and we see modest bump up modest bumped down I'd say, they're more stable than they are coming back out of it yet in those two in those two markets. So new business has kind of follow those trends that we entered talked about their usage rates that and we've been monitoring those.
Usage rates around the world and what we see is as the usage rates come back as the markets reopened.
I see the new business come back at the same time. So that's the that's probably the right overall characterization for it Andrew anything you'd add to that.
But you noted Andrew I think earlier.
Hi.
Sorry about that the correlation between usage rates and then ultimate nearly new business, it's proving out to be fairly tight. So we expect to see that continue we thought we saw it in a pack with Mako up we're seeing it is Europe, we'd like we said earlier, we're seeing stability in the U.S. UK and we expect that or is that moves from.
Stability to rising we're going to see the same kind of uptick business that fit for two or would seem to be correlating quite well.
That's that's great and then.
CAD and Autocad LT I think they grew 18% in the quarter.
I'm wondering if you talked a bit more granularity about autocad LT I know that has actually been fairly strong for you thus far.
I know historically thats been that had been weaker in times of stress just wondering how LP is holding up relatively in this market.
Yes, we used to talk about that is the clearing the coal mine for market dislocation at the low end, but you know subscription changes everything the subscription price point for LP is a very attractive price point and Pete most most of the customer that or are there are buying it or yes, very small businesses smaller or very small medium businesses and it doesn't.
So they continue to they continue to bind the space people buy buy autocad for the three d. and the CPI is and the things the costs associated with that but the price point of LP is actually proven to be very attractive and very resilient. During the during this time and it's just it's just one of the fundamental changes in the subscription model.
Great. Thanks.
Thank you.
Our next question comes from Brad Zelnick with credit Suisse.
Mr. Jonathan.
Great. Thank you so much guys.
Sure I wanted to dig into manufacturing a bit more the segment only grew 6% this quarter. Despite all the good things happening with the conversions of design and make is there anything in particular that you'd call out as having a more pronounced impact in manufacturing.
Yes.
Actually were growing faster than our biggest competitor in the space. So just want to make sure you get that in.
This this space is doing well, we remember we continued to grow strong last year. So we had good strong growth coming in the last year in next year. So we're comparing 6% to a good year last year, not 6% to a bad year last year or something like that so we're actually happy with the performance. We're seeing right now and I think thats an important metric for us.
Especially which you see going on with regards to fusion and the net add around fusion. So this we view this as a solid result, and it's only going to continue to get better. So I think we're in we're in good position right now.
Actually when you look when comparing to from last year.
Yes, Thanks engine Thats fair and maybe just one follow up can you talk about the strong performance of ecommerce channel are you seeing changes in the types of products customers are purchasing through this channel and does this in any way change how you're thinking about the direct business longer term.
Yes, it doesn't fundamentally change our strategy, we're still trying to get that that digital direct sunlight business up to 25% of our of our total business. So our strategy hasn't fundamentally changed the product mix does change a little bit alright.
They are buying additional products on this channel, but fundamentally our strategy hasn't changed but it has obviously held up incredibly well during that customers have continued to buy but the strategy the fundamental strategy, where we're going and what we're trying to do we want everything we sell available maternal and our goal is still to get it up to 25%.
Awesome. Thanks, so much for taking my questions guys.
Pleasure Brad.
Thank you next question comes from Phil Winslow with Wells Fargo. Your line is now.
Hi, Thanks, guys for taking my question Congrats on another strong quarter, but just want to focus in on a fee again, obviously you mentioned some of the slow starts or possibly you had in projects at the beginning of the quarter, but.
What are your comments, you talked about competitive wins and project management.
And.
Thank you sign uptick what are you talking about just the puts and takes so you're seeing a fever going how are you thinking about those as we go into the second half. Thanks.
Yes, so obviously the total business group grew fairly well right and I think we just want to make sure that we we zero in on the things that are softened and the things that aren't let's talk specifically about construction as I said in the opening commentary the field area is where we see the softness and right now it's stabilizing and we expect to see fuel usage going up.
And that's to be expected given everything that's happened with construction site, where we're seeing strength and this is an important precursor to future business right. Because it's upfront in the process is bim 360 design and gawk, which are which which are part of that the pipeline of loading the project flow. So bim 360 design.
Dock.
Particular has seen robust growth during this entire period. The construction thing obviously read it continues to do well in this segment in terms of Bam in general doing doing well, so I want to make sure that we pay attention to the softness is really in the places where the hammers are hitting that hitting the wood or the or hitting.
The metal depending on what you are building or the concrete being poured and if not in the upfront part of the project in the project management, which is great for us because we're bringing more people into the pipeline and if all if all we were doing with being narrowly focused on the execution part we would certainly be in deeper problems than we are.
Right now in the field execution side, we have a broad portfolio that goes all the way from design to to Preconstruction planning in that part is continuing to see robots action.
Great. Thanks, guys appreciate it.
So.
Thank you Sir our next question comes from Koji Ikeda with Oppenheimer. Your line is now open.
Okay. Thanks for taking my question guys Great quarter had a question on the pipe acquisition. Congrats on that acquisition, we've actually hurt really great things about pipe technology out in the steel and my question is about the technology and the workflows that it will hands in the construction cloud really balanced against any potential overlap with other price within the construction cloud so I guess.
Hi level.
What are the key construction workflow enhancements coming from the pipe acquisition and are there any technology overlaps with existing products. Thank you.
Yes so.
Obviously pipes in the project management area and what are the key things. It add is a machine learning layer to the whole process of setting up and managing changes and.
Requests and were quarters in the process. Okay. So what is doing is it shortening the time to work. These closeouts and these these project activities.
Front in the process. So it's giving us technology that provides for faster turnaround better project management, lower lower risk and and better outcome. That's really what it's doing we certainly have some of these capabilities inside the court portfolio, but nothing as deep as what pipe that pipe when a lot more deep deeply into the workflow and covers a lot more.
Or use cases, and we do you as you know we were partnered with them throughout the process and we have lots of accounts, where we were in their pipe within there and we work really very closely with them to make sure that we were complementing our eyes are up by workflows and not duplicating them. So their whole process takes the RF biosimilar workflows.
To only level and it's a it's a pretty powerful combination for us.
And like you said that our customers, we're pretty bullish on the technology as well, which is one of the reasons why we were booking.
Thanks, Andrew and just maybe one follow up on the big deals in Asia. Congrats again on the three big license compliant deals them over a million.
Great News there I guess could you tell us maybe what the average contract duration was for those deals and could you remind us.
How does that deals like volume compared to prior periods of Threed license deals and I guess really big picture perspective, how many of these 1 million plus like compliant deals are are out there in the world today. Thanks again for taking my questions.
Sure Koji I'll I'll take that when the reason for calling out those deals is not that they were particularly.
Notable in terms of duration et cetera, it's more to give you a sense, we've talked about out of deference to our customers and the position that many are put in in this economic environment.
Turing to work the the backend and drive the demand for our license compliance business, but to go a little bit more slowly at a time when markets are at our customers are under a particular levels of stress as we're seeing those markets open back up the reason that to call out those is not only are they large but they're also end markets that have recovered and then we are seeing some.
Back in as they do we're getting right back on the ensuring that we can monetize those noncompliant users. So that was the purpose of calling them out much more so than saying they were particularly lumping in duration.
Thanks, guys for taking my questions appreciate it.
Thanks coding.
Thank you next question comes from Adam Blessed with Stifel. Your line is open.
Hey, guys and thanks for taking the questions I just had two quick ones I guess first just building off matts question earlier around Autocad LT.
Obviously, you mentioned the strengthen autocad LT given the price points I just wanted to drill in are you seeing any customers optimize purchases you talked about that last quarter. So any trade downs from either autocad or industry collections any commentary there would be great and just as a quick follow up just want to talk about partial renewal rates I know you've talked about renewal rates being in line.
So just any commentary around the partial newell activity would be great. Thanks again.
Yes, so I'll take the Arctic Cat question I'll hand, the renewal rate question over to Scott. So actually we're not seeing that kind of behavior. What we're seeing growth in all of these segment independent of each other so we're seeing customers sticking with collections were seeing customers buying autocad for the first time see customers buying LP for the first time.
We're not seeing a lot of cross flow between between the two but remember you know it's time as time goes on Autocad does get squeezed between collections and Ltd over the long period, and we expect that Thats something that we plan for that we expect we model.
Point the on the Autocad as it is today get squeezed between those two types of offerings, but right now we're not seeing trade up or trade down we're seeing people staying within that the offerings. They have buying more of the offering they have and adding up in that respect.
So Scott to the.
Yes, and wanted to add just to put a finer point on what you're just said Andrew if you look at our product mix in terms of pursuit of sales that are LT versus autocad versus collections and other that's kind of reverted to its historical made so we're not seeing a big shifts between and product mix.
To your question of partial renewals, we continue to obviously to monitor that closely because it's a good indicator of how are the at west employment health of our customers spread so a partial renewals I had said subscriptions. They all came to us say employed but instead of renewing can only removed 908 right. It gives us a sense of changes and they're in their head count.
Okay.
There's always a certain amount of that that happens at any given quarter and what we talked about last quarter is we've monitored the rate of those as they come up what percent of them are doing a partial renewing it really haven't moved last quarter and it's really materially the same again this quarter. So we're not seeing a big change either up or down I would expect it to go down from the base rate but were.
Not see it increase from that base rate.
Great. Thanks again.
We will.
Thank you. Our next question comes from Keith Weiss with Morgan Stanley. Your line is now open.
Hi, guys. This is hamza fodderwala and virtually flat. Thank you for taking my question.
I was hoping if you could give like an updated breakdown of.
The business.
Between infrastructure commercial.
Industrial construction, you talked a lot of our industrial.
Clearly the macro seems to be rebounding, but we're still hearing a lot of uncertainty around the commercial segment I think.
In the path people thought that autodesk.
It's quite tied to the commercial side, but clearly there is good growth in the other segment. So was wondering if you could give any view on your exposure through those three verticals and how you're seeing the macro.
In each of those.
Yes, so we're not seeing any any slowdown in our APC business due to commercial dislocations that might might be going on in various places right. Now so we talked about that a lot because it was this assumption that somehow commercial, especially good commercial office buildings in urban areas for like a big part of our business, they're not all right and we're still could continue to strengthen the fee business outside.
But I want to make sure we understand what what's really happening in commercial right now all right Big Big urban projects are probably either either probably going to slow down or not be as frequent. However, what is happening in urban locations are still going to be a lot of reconfiguring work in commercial space, but also one of the things.
There were going to be seeing and you can see this in some of some of the political political discussions as well as some of the.
Isn't discussions we're having is that you're going to see more and more of these commercial type operations moving away from the urban centers to suburban centers and along transportation corridors, which we see not only is driving additional building activity, but additional infrastructure improvements as well and these conversations are already going ongoing in all sorts of.
Legislatures at all sorts of places about building out along transportation corridors, certainly a big topic of conversation in California, and we expect to see more of that so no. We're not seeing softness in our business and we don't we don't see any future softness in our business as a result of what's happening with commercial activities right.
Thank you for the go that's helpful.
Got it just to follow up question for you.
Yes.
Stronger than expected Q2.
Andrew spoke should improve in pipeline in the back half.
Just wondering the reason for the high end of the revenue guide.
Declining a bit versus last quarter was that the explanation there similar to what you mentioned for billings earlier I'm not sure I fully understood.
No it is slightly different although except to say root cause so let's start by saying.
Really pleased with our results and proud of our execution in the second quarter.
And then an incredibly uncertain environment to be able to produce results that we just put up or something that I think we all think a lot of frightened.
And as a result of that as you saw we raised the midpoint of our full year revenue guide by 15 million. So that's the that's kind of the high level view when you look at how we did that we pulled up the low as slightly reduce the high end of that guidance range.
And say I think your question is just about the slight reduction on the high end as we narrowed the range from what had been $100 million range with only six months left we narrowed it down to 60 million. We're seeing good trends in the markets that have moved into reopening we talked about China Korea and Japan.
Products subs renewal rates are trending in the right direction, we mentioned the pipeline the pipelines very strong there's there's still a fair amount of uncertainty, particularly in the us and in the UK and so as we as we weigh all that together the combination of those factors that give us confidence to raise our overall revenue guide by 50.
10 million at the midpoint.
But we have said the high end to that guidance range and this is this is the point I talked about earlier hamzah. The mid at the high end of our guidance range previously we were expecting a swift recovery.
And while we've seen that in some markets, we havent seen that in all markets and so thats why narrowly just slightly from the high end of the revenue arrangements as well.
Okay. Thank you.
Who.
Thank you.
And our next question comes from Joe.
Dan Your line is now open.
Okay.
Great Hello, everyone.
My question is on product road map and Andrew I thought the blog posts yellow grease somebody was interesting because that kind of shows us mindful notice of striking a balance investing in certain functionality and anything that maybe it gets a pass any given year you circle back to which I think was the case with.
An architecture.
Yes. My question is more on the go forward, there's going to be this interplay now not that it's new but it's going to increase where you have your core rather than mansour users that are increasingly tapping into cloud functionality and it's only going to go up now do you have to be mindful about certain things with the audio.
Shifting to the cloud of where maybe you shipped your investment priorities are or different things on the product portfolio receive greater investment any meaningful changes do you foresee because of those kind of new or structurally higher dynamic that that's in place.
Yes.
Shift is not correct not necessarily the right word it might it what it really will be it where we put your dollar. So for instance at the beginning of this year. This whole concern around our budget architecture and articulate this something we we saw coming because this has been a five plus you're kind of tension around with the architecture, we actually.
Increased investment in Autocad architecture at the beginning of this year. So we actually use incremental R&D dollars to increase investment in that space. What it will mean moving forward is how we deliberately choose where we add incremental investments and we didnt very rich and forthright with the construction space in terms of incremental investment.
We're not going to shift money away from that but as we add incremental investment into next year and year. After that we'll probably add more incremental investment into other places overtime, so rather than thinking about it as a shift Joe I think of it as as we continue to add incremental investment which were in the enviable position to be able to do we're spending more and ours.
He than we ever had in our history and we have still room to invest more we're just going to choose deliberately to add incremental investment in certain spaces like we get at the beginning of this year for architecture.
Great I'll leave it there yes, it does I'll leave it there. Thank you.
Thanks, Joe income.
Our next question comes from David Hynes with Canaccord. Your line is helping.
Hey, Thanks, guys.
So two questions from me I'll start with you Scott.
Curious what the lag time was between the uptick in active use and then the resumption of demand that you saw on APAC and I guess the question is.
If the same held true in the Americas based on what you saw in July when would you expect to see an uptick in demand here.
Yes, I don't really want to get into parsing. It thats quite that finally for you David what we did see is as the usage picked up and if there was a bit of a lead time, but not not measured in months, but there was a bit of at least on but we just picks up and when the actual new product sales pick up.
Our expectation not only have we seen that at a APAC now, but we seem to say phenomenon as the markets of reopened in Continental Europe. So our expectation is as we get more into a reopening in the United States that we'll see that same that same base here.
UK dealing with a slightly separate issue.
And then just the normal recovered from the fed them.
Yes, yes, okay.
And then into one for you.
Here's what the education channel I know, it's not a revenue driver for auto doesn't but.
Obviously its training for users so I'd be curious what you're seeing there just given the uncertainty around back to school processes and enrollment numbers.
Any color would be helpful.
Yes cases.
For us right and I think.
Frankly, the remote remote nature of work is is kind of playing nicely into our strategy in certain areas, especially with regards to the cloud and how to cloud interacts with certain parts of the parts of the curriculum certainly on the University side fusion fusion is doing well because because of its cloud foundation and remember we.
We have tinker CAD in K through 12, so tinker CAD getting more visibility and a lot of.
Curriculums right now as well so education done really well for us during the pandemic in terms of does not do we havent seen declines and usage, we absolutely have but its rebounded back to usage levels that we had in pre cobot days, which is a positive sign and we're seeing gains and educational usage in places where the crowd is.
The priority for the usage fair enough.
Yes, yes makes sense, okay awesome. Thanks for the color guys.
Thanks Keith.
And our last question comes from Jason screen with Keybanc capital markets. Your line is now open.
Hi, guys. Thanks for fitting in.
Maybe one quick one for Scott more of a forward looking question I think there have been a lot of questions on what you're seeing in churn today, but I guess what are you building in the guidance because I think last quarter. You mentioned that you are filling in some conservatism around that for the second.
Yes, our expectation so we're quite pleased actually with the.
The way the renewal rates on product subscriptions, which is by far the biggest piece of our subscription base.
Has progressed throughout the quarter and it's our expectation that we will continue to see slight improvements on that through the end of the year I think it. That's that's kind of now looking across all countries. Obviously it varies a bit by region as different regions are recovering from the economic impact of the shutdown differently, but I think in aggregate, what's the expectation should be.
The continued slight improvements in those renewal rates on product subs.
And this is quite small it's not surprising to see churn rate increase on maintenance as we've now formally announce the end of life of maintenance.
It's kind of the last chance to either renew convert or churn.
And so we're seeing an increase in both renewed im sorry, we're seeing an increase in both.
Convert and churn at the same time, which was in line with our expectations and of course, maybe this is that there's a quite a small element of our overall subscription based on a revenue base at this point, so not surprising on that front and I would expect to see that maintenance churn rate continue at a higher than normal level through the end of the year.
Okay, and one for Andrew really quick on fusion 360.
Net addition for you mentioned.
The way to think about where those came from where they existing users or completely new users and.
Where they've using cloud before.
Yes, it's kind of all of them alright their existing users. It added more so we had we not expansion, we're getting bigger and bigger fusion installations, which is a good sign there also new users at the low end of the market. We see a lot of users consolidating their cam and design solutions at the low end to the market into into fusion and moving forward with fuel.
So it's kind of a combination of all those things we saw some users converting from some of our our hobbies.
Versions to commercial version so it's across the whole spectrum, but really the big drivers are we're selling more into accounts, where where we had it and we're selling more down market into accounts that are that are basically unifying their portfolios inside of their inside of their operations.
Okay, Great I appreciate the color I'll leave it there.
Thank you.
And this is on a timely happy today I would now like to turn the call back over to Thailand for closing remarks.
Thank you girl and thanks, everyone for joining us today, please reach out to US if you want to follow up on anything this concludes up call for Tonight. Thanks.
Hi, Thanks.
This concludes today's conference call. Thank you for participating you may now disconnect.
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