Q4 2021 Autodesk Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and looking to the Autodesk fourth quarter and full year 2021 years all of its conference call. At this time all participant lines are in a listen only mode. After speaking of presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
On your telephone.
If you require any further assistance please press star zero.
The hand of conference to speak of today.
Simon Mays Smith, Vice President Investor Relations. Please go ahead Sir.
Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter of fiscal year 2021 on the line with me is Andrew addict non op.
Steven <unk>, Vice President and Chief Accounting Officer, Andrew by Lumber Vice President of go to market Finance.
Of course.
And broadcast live via webcast. In addition, a replay of the call will be available at Autodesk Scott column forward Slash Investor you.
You can find the earnings press release slide presentation of transcript of today's opening commentary on our.
Our Investor Relations website following this call.
During the course of this call we may make forward looking statements about our outlook future results and related assumptions acquisition from strategies. These statements reflect our best judgment based on our currently non practice.
Actual events or results could differ materially.
Please refer to our SEC filings for important risks and other factors, including developments and the COVID-19, pandemic and the resulting impact on our business of operation that may cause our actual results to differ from those in our forward looking statements.
Forward looking statements made during the call of being made as of today. If this call is replay of reviewed after today. The information presented during the call may not contain current or accurate information.
<unk> disclaims any obligation to update or revise any forward looking statements.
During the call we will quite a number of numerical growth changes as we discuss our financial performance.
And unless otherwise noted each such reference represents a year on year comparison.
Total non-GAAP numbers referenced in today's call of <unk>.
Reconciled in the press release.
Slide presentation on our Investor Relations website.
And now I will turn the call over to Andrew.
Thank you Simon and welcome everyone to the call I Hope you and your families remain safe and healthy.
Before jumping into our fourth quarter and full year results I would like to again, thank our employees and the families and communities of support them as well as our partners and customers for their continued commitment during uncertain times.
Commitment combined with our resilient subscription business model and the secular shift to the cloud enabled us to maintain momentum and exceed our goals. We generated strong growth with full year of subscription revenue and remaining performance obligations or RP O up 26% and 19% respectively.
We also made significant progress towards digitizing AUC converging design and make in manufacturing and converting Noncompliant and legacy users. We signed a record number of new enterprise business agreements or <unk> in the fourth quarter. In fact, they were equal to the number we signed in the entirety of the previous year.
A testament, both to our execution and growing partnership with our enterprise customers as we enable their digital transformations demonstrated by enterprise Bim 360 usage nearly doubling year over year.
While we made great strides this year, we intend to extend our leadership in the cloud and expand our presence in existing and adjacent industry verticals across the globe.
The pending acquisition of <unk>, which we announced yesterday and is expected to close later this quarter is of Great example of that intent.
Antibodies of the global leader in water infrastructure simulation and modeling serving many of the world's largest utilities. The majority of the top anr design firms and other leading environmental and engineering Consultancies.
Antibodies enables water distribution networks and drainage systems to be more cost effectively of sustainably designed and operated.
Combined with Civil Treaty Emperor works Rabbit, and Autodesk construction cloud, we would be able to provide end to end water and wastewater solutions across planning design construction and operations with our existing capabilities in road and rail and our partnership with Oracle and capital planning, we now have end to end <unk>.
Structure solutions for facilities owners and public sector agencies all.
Autodesk provides <unk> with multiple opportunities to scale to enterprise channel sales and geographic expansion.
We also intend to apply our expertise in navigating through a business model transition to drive additional growth in fiscal 2024 and beyond.
I'm excited about the opportunities ahead and look forward to the future with optimism.
In the near term, we expect the unwinding of certain uncertainty from vaccine availability and political stability to drive confidence and investment over the second half of the year.
Over the long term autodesk purpose to drive efficiency and sustainability has never been more relevant or urgent.
In partnership with our customers, we have an unmatched capacity to drive efficiency and meet the global challenges of carbon emissions embedded carbon water scarcity and waste and.
In Autodesk is playing its part we are on track to meet our commitment to be climate neutral and remain dedicated to being a resilient diverse and equitable company. We were most recently recognized by Barron's as number four on their list of world's 100, most sustainable companies in the highest ranked software company. We are proud of our impacted autodesk.
And through our customers the impact we are making in the wider world.
I'm also thrilled to announce two strong additions to my team Debbie.
Debbie Clifford will be returning to Autodesk as Chief Financial Officer, and Rajiv <unk>, who will be joining as chief Technology Officer Debbie.
Debbie is currently Chief Financial Officer at survey Monkey, but spent of 13 years prior to that role in various financial leadership roles at Autodesk, including leading the internal business model transition team engaging with many of you in support of our Investor outreach and as my finance business partner before I became CEO with her leadership.
<unk> expertise and passion for our mission Autodesk finance team will not Miss a beat.
Rocky joins us from Intuit, where she currently serves as senior Vice president of their platform and services business.
Part of that she was CTO for ebay subsidiary of Stubhub.
Autodesk, she will oversee and be responsible for the audit of technology and platform strategy as well as being operationally responsible for the ongoing development of our platform services.
<unk> will replace current Autodesk CTO, Scott poor died who announced his intent to retire last year after more than 21 years of service of the company Scott had two tours of Autodesk CEO of the prior one working for Carol Bartz and is not only contributed to the rise of adventure infusion to the products. They are today, but also as a passionate evangelists for autodesk.
Our vision and.
Emblematic of his dedication of Autodesk he moved out his retirement date, so that he can help rajiv during her transition into Autodesk I'd like to give Scott a heartfelt. Thank you for all he has done and is continuing to do.
Before I provide insights into our strategic growth drivers, let me take you through the details of our quarterly and full year performance and the guidance for the next year.
And an extraordinary year, we performed strongly across all metrics, perhaps best encapsulated by the sum of our revenue growth and free cash flow margin for the year equaling 51%.
Several factors contributed to that strength in the fourth quarter, including record EBITDA as robust.
Subscription renewal rates accelerating digital sales and continued sequential growth in new business.
Total revenue growth in the quarter was 16% both as reported and in constant currency with subscription revenue growing by 22% and now representing approximately 91% of total revenue.
There was approximately two percentage points of benefit to subscription and maintenance growth from upfront revenue recognition of some products that do not incorporate substantial cloud services.
Looking at revenue by product and geography, Autocad and LT revenue grew 11% in the fourth quarter and 16% for the year.
<unk> grew 18% in Q4 and 20% for the year manufacturing rose, 17% in Q4, and 10% for the year, even excluding the benefit from a strong performance in automotive <unk>, which include non ratable Z Red revenue manufacturing grew double digits in the quarter.
<unk> grew 14% in the quarter boosted by a strong performance from our collaboration platform shotgun and was up 10% for the year.
Geographically revenue growth ticked up in all regions revenue grew 14% in the Americas, 13% in EMEA and 23% in APAC during the quarter.
We also saw strength in direct revenue, which rose 28% versus last year and represented 34% of our total sales up three percentage points from the fourth quarter of last year.
The strength in our direct business was driven by some non ratable products included in a few large E bas and digital sales.
During the year, we grew total subscriptions by 8% to $5 3 million.
Excluding the multi user trading program total subscriptions grew 4% to $5 1 million subscription plan subscriptions grew 15% and by 10% excluding the multi user trade in program.
We added 130000 make subscriptions due to the strong adoption of our Bim 360 family and fusion 360 products.
During Q4, our maintenance conversion and renewal rates declined sequentially, which was expected as we are entering the final stages of our maintenance to subscription program with only one quarter left before this program of tires, we of approximately 126000 maintenance subscriptions remaining accounting for approximately 3% of our revenue in.
The fourth quarter.
I am proud to share that we have converted over one 3 million maintenance subscriptions to date.
At the end of the fourth quarter, the lion's share of our commercial subscriptions were named users benefiting from easier access usage data visibility and secure license management.
We anticipate many of our remaining multi use of subscribers will make the transition to named users as the pandemic recedes.
And we are now and extending our two to one multiuser trade in to August 2023 to enable that.
As announced last November we are also exploring consumption based models to meet the needs of customers requiring flexible license usage.
Our net revenue retention rate remained within the 100 to 110 percentage range, we laid out in our guidance our product subscription renewal rates remained robust reinforcing the business critical nature of our products to our customers.
Our billings were broadly level with last year, reflecting fewer multiyear sales and our long term deferred revenue was 26% of total deferred revenue in Q4.
Our total <unk> of $4 2 billion is up 19% and our current <unk> of $2 7 billion and grew 16%.
On margins, we continue to realize good operating leverage due to strong revenue growth and diligent expense management.
For the full year non-GAAP gross margins remained very strong at 93% up one percentage point from last year, our non-GAAP operating margin increased by five percentage points to 29%.
As you have seen in our press release, our GAAP results include a $679 million deferred tax asset valuation allowance released in the fourth quarter. This largely reflects the completion of our business model transition and the significant growth in our profitability.
Consistent with our capital allocation strategy, we continue to repurpose shares with excess cash to offset dilution from our equity plans during the fourth quarter. We purchased 530000 shares for $157 million, an average price of approximately $295 per share for the full year we.
<unk>, two 6 million shares for $549 million at.
At an average price of approximately $208 per share.
Now, let me turn to our guidance, which does not include in advise.
We expect an improving macroeconomic environment during the year will result in accelerating growth and new business over the course of fiscal 2022 usage trends during the fourth quarter remained above pre COVID-19 levels in most of Asia Pacific in Continental Europe, and below pre COVID-19 levels in the U S and U K, we have seen an uptick.
Interest from multiyear deals growing optimism in the channel and gradual recovery in bid activity on building connected in the U S.
We expect product subscription renewal rates to continue to be very healthy and our net revenue retention rate to remain between 100 and 110%.
Given our subscription model revenue growth will lag the improving sales environment.
For fiscal 2022, we expect revenue to grow by 13% to 15% margins to expand to between 31%, 32% and free cash flow growth to reaccelerate to approximately 20%.
When looking at the quarter relation of free cash flow for fiscal 2022, we expect about three quarters of our free cash flow to again be generated in the second half of the year due to our macroeconomic phasing assumptions and normal seasonality.
As we noted last quarter vault revenue is becoming ratable for fiscal 2022 with the release of significant new mobile functionality in the first quarter and this will reduce our revenue growth by about a percentage point over the year with the biggest impact on our revenue on the P&L and in the manufacturing product family.
Looking at our guidance for the first quarter normal seasonality is compounded by vault rate ability and one fewer calendar day versus Q1 fiscal 2021, which together reduces year on year revenue growth in the first quarter by about two percentage points with improving macroeconomic conditions and easy Comparables, we expect.
Our revenue growth to accelerate after the first quarter the slide deck on our website has more details on modeling assumptions for the part of fiscal first quarter and full year 2022.
We expect in of eyes to be accretive to revenue growth broadly neutral to free cash flow and a headwind on reported operating margins in fiscal 2022 and 2023, we will provide additional details after the end of ice transaction completes.
Let me finish by giving you some details on the progress we've made executing on our strategy to digitize AUC converged design, and making manufacturing and monetize noncompliant and legacy users.
Early in February we launched our Autodesk construction cloud platform, which unifies, our organic and acquired AUC cloud offerings and the data held within them to enable of connected project ecosystem across design and construction.
Underpinning the Autodesk construction cloud is our common data environment Autodesk Docs. This provides seamless navigation integrated workflows and project controls and enables a single source of truth across the project lifecycle Autodesk build brings together the best of planned grid and Bim 360, with new functionality, which along with all of this.
Quantifying and Bim collaborate create a comprehensive suite of field construction and project management solutions.
Of our design customers then collaborate pro extends the capabilities of Bim 360 design on the new platform to create a more seamless exchange of project data between design and construction.
Our strategy is to combine organic and acquired software in existing and adjacent verticals to create end to end cloud based solutions for our customers that drive efficiency and sustainability, we have pursued that strategy to create autodesk construction cloud.
Pursuing that strategy and infrastructure with the acquisition of <unk>, and we will continue to pursue that strategy and manufacturing.
The reasons for and the benefits of this strategy. We are clearly demonstrated in our fourth quarter results, our growing partnership with our enterprise customers as we enable their digital transformations resulted both in record number of <unk> in the fourth quarter and also strong expansion and renewal rates with existing EBITDA customers.
We are seeing our new products typically used by contractors being increasingly adopted by design firms. For example, we expanded our expanded our agreement with Jacobs the world's largest design firm to include pipe planned grid and assemble to enable greater collaboration and more efficient workflows.
Aldo desk has been a trusted partner of Jacobs over the last 30 years aligned with admission to challenge day today and reinvent Tomorrow. Jacobs is also using autodesk transformative services to help them deliver innovative solutions to their customers for example, autodesk and Jacobs partner to deliver the world's first generally really designed.
Airport in Australia, and together, we are focused on leveraging generally designed to solve the other client challenges around the world.
Environmental Air Systems Eas are full service mechanical track contractor and custom built HVAC equipment manufacturer, which is on the forefront of industrialized construction increased its investment with autodesk by replacing its existing project management tool with Bim 360. It is now able to leverages existing <unk>.
<unk> and AUC collections and provide a comprehensive tool for its teams to collaborate and to connect the office and the field.
And Kieran a leading sustainable urban development of consultancy in Sweden significantly expanded of strategic platform partnership with Autodesk as per be Orange Tiryns digital strategy manager for business area said quote <unk> is at the leading edge of the digital transformation of the construction and maintenance industry Digitization.
<unk> enabled smart buildings design, but requires secure data flows and seamless collaboration across a broad ecosystem of stakeholders during the construction and operations process.
Aldo deaths Rabbit, and Bim 360, docs empowered us to create true digital represent patients and now with Autodesk Forge, we can leverage those assets as digital twins to create value for different stakeholders, such as a reduction of energy consumption, the prediction and optimization of maintenance and new smart seamless end user services.
And quote.
We're also seeing benefits from our strategy and manufacturing in the automotive sector. We provide design software through our enterprise business agreements to nearly all of the largest automotive Oems and are extending our footprint beyond design into the factory. For example, our expanded kind of partnership with <unk>, a global provider of electric adventure vehicles now.
Extends across facilities with Rabbit, Bim 360, and planned grid manufacturing with inventor in generative design and in the design studio with alias V Red and shotgun, we are able to support Libyan as of converts existing facilities to digital twins Optimizes its factory layout using generative design improves energy.
The efficiency through simulation and enables collaboration efficiency using a common data environment.
Similarly, we are providing end to end support to our long term customer trans mash holding P. M H, which is the largest manufacturing of rolling stock and rail equipment in Russia, and CIS to accelerate its digital transformation and convergence design and make processes TMA now builds trains and concept and alias.
The signs of engineers and inventor Optimizes infusion produces empower mill and cells in V Red.
Our market, leading cloud based platform fusion 360 enjoyed another quarter of accelerating subscriptions growing scale of deployment and adding competitive displacements ending the quarter with over 140000 commercial subscriptions.
Total prototyping of machine shop based in Pittsburgh recently expanded its relationship with Autodesk by adding more fusion seats.
<unk> is also adopting our recently launched machining extension due to its integrated design and Cam workflows, it's advanced manufacturing capability and the potential of generative design to reduce project timeline and solve design for manufacturing issues faster than ever before.
In education, we continue to expand our footprint and replace traditional CAD competitors with Tinker Cat infusion alone Autodesk is now approaching $40 million of education users worldwide. For example, all of University College, London Mechanical engineers switch to fusion 360 during the fourth quarter as professor.
Tim Baker MBE Who's led the transition said.
COVID-19 accelerated ucl's transition to the cloud by enabling collaborative multi disciplinary engineering fusion 360, <unk> next generation platform equips, our graduates to become the world's leading engineers of the future.
All of our software remains free for educators and students graduate to continue to bring fusion 360 with them into the workplace from startups through to the Giants of manufacturing.
While we have moderated our license compliance activity during the pandemic, we continue to work with existing and potential customers to ensure they pay for the software they use and comply with our terms of use.
Our goal remains to give noncompliant and legacy users access to the benefits of subscription access to flexible models. During the quarter. We closed 23 deals over $500000 with our license compliance initiatives three of which were over $1 billion for.
For example of European customer became aware during this transition to named users. It is employees were accessing licenses in regions outside of the contract scope. Our premium plan provided them with the flexibility to manage all license of centrally monitor usage to remain in compliance and resulted in a $1 million plus deal.
And a leading supplier of industrial automation solutions based in Europe, who became of legacy customer three years ago subscribed to our product design and manufacturing collection. When we were able to demonstrate that recent workflow improvements and cloud enabled functionality would allow them to win more business by improving communication with their own customers and improved efficiency through.
Quicker lay out in <unk> and hand over to <unk> and visualization.
In closing, we continue to build a stronger autodesk sort of long term or early and sustained organic and strategic investments in critical capabilities like cloud computing and cloud based and collaboration combined with our successful transition to a SaaS business model give us significant competitive advantages that confidence to grow in the double digit range in the fourth.
Seeable future.
We expect to have accelerating momentum during fiscal 2022, and we have multiple drivers that make us confident in our fiscal 2023 of free cash flow target of $2 4 billion and double digit growth thereafter.
With that operator, we would like to now open the call up for questions.
Thank you as a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone and to withdraw your question, especially of pound key.
Please send violently compile the Q&A roster.
Our first question will come from the line of second calling from Barclays maybe.
Okay, Great Hey, Thanks, Andrew for taking my questions here and congrats on the new additions to the team.
Thank you.
Maybe maybe just to start.
You touched on this a little bit in your prepared remarks, Andrew but can you just talk a little bit about how you're thinking about new business recovery. This year, and maybe just broad brush, what verticals or geos might be stronger than others.
Yeah. Thank you pack it I think that's a really appropriate question to open up with you know as you know new business was down last year and that has a disproportionate impact on how we see revenue in Q1, but the way we look at it shaping up this year as Q1 is kind of the trough of the new business recovery and we're gonna be accelerating our new.
Business growth.
Through the year into the second half of the year in fact, we really see a world where.
Most of the new business that didn't show up last year kind of re emerges as we head through this year. So it is important to see that that business that disappeared last year Didnt disappear. It just got shifted out in fact, youre hearing a lot about the acceleration of Digitization in multiple industries, and we're seeing that in our space in spades.
Well and I think if we look at particular sectors.
It's actually really going to be distributed across all the sectors and kind of similar ways. AUC is already investing really are significantly ahead of the market in terms of their digitization efforts you kind of thought early evidence of that with the EBITDA business. We did a record number of EBITDA as we did in Q4 relative to previous years and.
Factoring of kind of see the same accelerated interest in digitization of new cloud based workflows, especially surrounding what we're seeing in fusion. The same goes in media Entertainment and the media Entertainment business, which was classically a laggard on some of these highly digital highly cloud integrated workflows.
Moving to the cloud in a big way now geographically kind of in a broad brush I kind of highlighted in the opening remarks that we saw a broad recovery in Europe, and Asia to pre COVID-19 levels of monthly active usage and we saw a little bit of a lag in the U S and the U K.
I think we're going to see that kind of geographic return of new business in that Cascade is going to be strong in APAC, it's going to get strong in in Europe, and then it's going to it's going to start to come back in the U S and the UK.
Q1 will be the trough of this new business growth and we're going to accelerate right out of that into the rest of the year.
Got it that's really helpful.
Maybe maybe for a follow up.
Understanding that the in advise of Hasnt closed is it included in guidance can you just give us some broad brushes on maybe how big that revenue scale. There is and maybe just touch on whether there any significant differences in the business model versus Autodesk.
Yes differences and opportunity of socket.
First off let's just kind of just level set on why we didn't buy as you know I think we've been super clear that infrastructure is one of these really big growth opportunities for us long term infrastructure projects take a long time of design and plan and they last even longer after that so in an investment in infrastructure is an investment in the long term health.
Of Autodesk, one I think we just have to be super clear about that water was one of those areas, where it would have taken us a lot of time to catch up organically, whereas mode and rail is an area. We've been highlighting to you that we've been investing inorganically with our portfolio and really making great strides there.
When you look at the business at a high level in terms of of.
The differences in where the revenue is going to come from so look at a high level.
<unk> is going to be.
Accretive to our revenue growth roughly two percentage point as.
As we head into this year that includes deferred revenue write offs and the fact that we have a partially a partial year in here, it's probably going to be dilutive. This year about a percentage point off of operating margin, but here is the opportunity that I wanted to make sure you highlight you actually poked out a little bit between the differences in our business model not only are we going to.
Plug in of buys into our sales engine.
In terms of named accounts.
Channel sales and international expansion, we're also going to apply our expertise on business model transformation to the <unk> product portfolio and I think that's going to be an important transitional element of how we absorb and advise into the company. We're good at this we know how to do this and we know how to navigate this.
So what's your kind of see in FY 'twenty three is you'll probably see a little bit of of depression of of advisors of revenue growth in <unk>.
Salacious, because we're gonna be applying the business model transformation and as you know with the business model transformation. There is downward pressure in revenue as a result, but acceleration of revenue as you head out onto the other side of the business model transformation. So if we look at FY 'twenty three is probably going to be neutral to the overall revenue growth of the company.
It's not going to touch the free cash flow number two 4 billion is going to come out in advisor knowing of ice and there'll probably be a little bit more of a headwind to operating margin maybe between 1% and 2% as we go through the business model transformation, but a nice acceleration up to our double digit growth standards as we head beyond FY 'twenty, 3% to 24%.
25, and 26, which is kind of an extra bonus on top of what we're going to be able to do just to expand the core innovate advise water water business to capitalize on the increasing investment in infrastructure. So it's a good question to talk about the differences in our business model, because there's actually an opportunity there and you know.
A difference.
Very helpful. Andrew Thanks, again, and congrats on the new additions from the team.
Exactly.
Our next question will come from the line of Phil Winslow from Wells Fargo, you may begin.
Great. Thanks, guys for taking my question and congrats on a strong close to the year and once again, congratulations on the new hires and particularly a great to have Debbie back.
I really want to focus on the mix side of of.
Of the Autodesk, how do you think about it of reopening scenario given the fact that we have a lot of backlog of projects, particularly in the construction of infrastructure world heading into this year, what is the opportunity for autodesk potentially accelerate adoption of some of them make functions building connected plan grid to try to help the industry work through this backlog.
Yes, so we actually started to see the early signs of that as we headed into Q4 as new business started to strengthen in our construction portfolio in particular and we also saw it across the fusion base as well as people started to look at their manufacturing and the design to manufacturing operations. So we see a pretty significant opportunity.
Here and you know I.
And look in many ways.
Pandemic gave us an opportunity to catch up and pull ahead, a little bit here our portfolio is now best in class.
Our development team did an incredible heavy lift and an amazing job unifying what was the best of plan grid, which was the best of what we had in Bim 360, we now have all of this build on this foundation of Autodesk docks and there is no one that has a better office to trailer solution than we do.
And I think if you go out there and you talk to customers and you talk to the space and they look of what we've done with Autodesk build youre going to hear the same kind of feedback that we've really built a great product and that's the product we're gonna be leading with on new business. It's not that we won't be leaving on the acquired portfolio of products as we continue to sell those but we're going to lead with.
And we're going to lead with built in many places and that's going to give us a chance to not only drive a successful international expansion, but also continue to lap some of our competitors in the rest of the market, especially in places like the mid market, but another one of the pieces of our secret sauce heading into the year. So is the flexibility we offer on business model.
We meet our customers wherever they are and I think this is super important for you to pay attention to.
We sell named user subscriptions, we sell site licenses, we sell project based licensing when they want it we saw consumption inside of EBITDA, whatever they need for what ever project Theyre pursuing we have a model for them and a product for them and I think that important convergence between the flexibility, which by the way it cost us <unk>.
In the backend, but it's worth it in terms of meeting the customers where they are when you combine that with the products, we feel really really optimistic about how we're going to accelerate in this year and meet some of this demand and our customers are looking for it they want to digitize faster, they're starting to increase their spending and we think we've got the.
<unk> of products in the portfolio of purchasing options that makes it work, we're not trying to force people into one kind of business business model and then maybe try to lock them in kind of places that they don't want to be so we feel pretty optimistic.
Thank you. Our next question will come from the line of Jay.
No follow up from Phil who doesn't have a form of us.
Not at this time.
Our next question of coming from the line of James Richard from Griffin Securities You May begin.
Thank you good evening.
Andrew The company has quite a lot on his plate.
You have a very broad agenda and the question is within the context of your three overarching strategic priorities, obviously, making the numbers that you're guiding to now for fiscal 'twenty. Two can you talk about some of the other critical programmatic executable that you are aiming for for this year for instance in terms of.
Of the channel in terms of delivering on the platform.
Going live perhaps with TPU other critical technical milestones that you might care to talk about in terms of new products like tandem and space maker and so forth.
And then secondly on the last call you noted that within your peer group Autodesk is the largest R&D spender, which is the case.
But could you talk a little bit board of detail about.
How youre allocating R&D, maybe talk about the priorities you've spoken of re.
Investing in the a of AUC.
You talked about some of those critical industrial priorities views of the R&D.
Yeah, Alright, so there that was.
It was more of its usual a multipart question from Jay Alright, So let's talk about some of the programmatic pieces here now.
Don't want to take any thunder away from this year as a new which is where we talk a lot about as you've probably noticed with last day of you you're going to see more of a.
Product announcement focused day, you as we move forward. So don't want to take any thunder away from that but if you look at programmatically, where we're going to be leaning into platform enhancements that bring design and make and industries together and create commonality across many of the industries. We serve are going to be of particular lever that we're gonna be moving with it.
Just hired a new new CTO with a lot of platform platform strategy chops that we're gonna be.
Leveraging to integrate some deeper platform capabilities into the company.
We're also going to be looking programmatically at the named user transition program. As you know that was kind of a bumpy program last year, you know of customers really didn't appreciate us introducing that into a pandemic year and they really want to understand what their options are with regards to flexible usage in the case of occasional use moving forward.
So look for us to.
Explore those kind of capabilities as we've extended out.
With the deadline wasn't that program, which still make that program being executed faster than maintenance systems scripture, but probably more on a timeline that that fits with what our customers can absorb so you'll see us kind of.
We look at those flexible options and explore some of those things with our customers now if you look specifically at how we're allocating investment I mean, I think you saw what we did around the a and AUC. We acquired space maker were integrating that team building up capabilities around that team, particularly around integrating machine learning and cloud based platforms.
Into the design process in architecture and engineering, so that investments clear we've highlighted it you've just seen how we're investing in infrastructure in civil infrastructure, we've already talked organically about road and rail and now we've also talked about.
Water and all of this kind of builds on top of what we're doing with construction cloud.
Haven't talked a lot about what we're gonna be doing with manufacturing, but here's what I can tell you.
We're very interested in the cloud transformation of manufacturing and I think you'll see us lean deeply into the cloud transformation around manufacturing more we've invested pretty heavily there are investment is large and that whole portfolio, particularly in the fusion portfolio I think you'll continue to see us to invest in that area and as we head towards day you Johan.
Exciting things about fusion, you'll hear exciting things about tandem you'll hear exciting things about the platform for the company and you'll hear exciting things about how the AUC portfolio of starting to come together in a similar way that we brought together some of the construction portfolio acquisitions that we did previously so look for us to kind.
Of play across all of those fields now in terms of the breadth of what we're doing I think I might have talked about this last time, we re verticalizing. The company just recently in October. So now I have someone that's responsible for the AUC execution again that Amy Bunzl, Scott Reese working on the execution and product product design and.
<unk> and Diana Colella, working in the media and entertainment space and they they are working closely with me and the rest of the team to execute on these vertical priorities. While we've also elevated platform up to a executive staff level.
40 directly to me, which will allow us to synergize the platform efforts more tightly with those things. So we're doing this from an operational perspective as well as from a strategic investment perspective.
Okay.
Thank you Andrew.
Youre welcome.
And our next question comes from the line of Gal Munda from Barrington Capital you may begin.
Hey, Thank you for taking my question so.
The first one I would just like to ask Andrew when you kind of look at how the year played out in terms of the multi years on net.
And that's worked licenses versus what you expected is it price to say that you're kind of right Bang in the middle of two three to one thing that you expected in <unk>.
You've just.
<unk> extended the program to 23 does that mean that youre kind of comfortable with the way that this program is kind of converging anything that it's going to remain at that level, but it's not a significant headwind to the model.
Oh, yeah, it looks so look.
Our original statements about this being neutral to the model continue to hold on.
There is no change in that expectation I think what you saw last year and I think this is a natural thing like there's two sides of the bell curve right.
The size of the Bell curve for which two for one is like Hey, that's a no brainer from me I'm Gonna takes a two for one and there is a side of the bell curve of which two per one requires some more spot by the customer more and more thought about okay. Wait a second my usage is greater than two for one Autodesk. What are you going to do to allow me to be to flex a little bit more of it.
It's too Big for me. So what you saw early on is a lot of those people on the left side of the Bell curve.
50% of people that were up for renewal last year that said Hey. This is this is good for me they moved quite rapidly through that alright. The extension is for the people that require more thought about how this is going to.
To impact their business and how theyre going to adapt.
Adapt if their usage is greater than the two for one that the program had so that's that's one of the reasons why we're working on the extension also to making sure that we have the new flexible models out there for them to explore so there's there's no change in our expectations with regards to the impact on our business, it's going to be over the whole peer.
Of the program neutral in terms of impact to our business.
Positives were long term in terms of experience of the customers.
Yes.
Absolutely and then just the second follow.
Follow up you mentioned that for this year, you again expecting kind of mid Twenty's long term deferred revenue in terms of the country. So not a material contribution to free cash flow.
When we look into more of.
Towards FY 'twenty three.
And then maybe even beyond that.
Hearing that.
Multiyear licenses as still being very very strong even during the pandemic. So what would be the normal rate that you kind of think about if you think maybe more longer term not just not just next year and maybe the year after.
Yeah.
So Simon.
Simon remind me what we're reverting so one of the things, we're doing and I want to make sure. We're super clear on this with regards to multi year with multi year, our expectations of a revert solely back to the mean here alright, and not not try to ex.
Exceed what we've done historically, okay, and I just want to make sure that we understand that and we get ourselves grounded in that simple fact, we're reverting back of the mean behavior and yet as we ended as we ended last fiscal year right.
We saw quite of an interesting pickup in multi year frankly more than we expected alright, given that we were talking at some of the Pemex content demick here, but if we if we look at where we want to be it's just a reversion back to the mean and remember that the multiyear business is attractive to both of them.
Both of our channel partners and our customers because of our channel partners like to collect the cash upfront and our customers like to lock in.
In the.
The price the price protection for multiple years, and if you if you recall reversion to the mean historically for our maintenance business was about 30% of the business alright, roughly speaking right.
We want to stay right within that domain, and we will probably stay within that domain for.
For the foreseeable future.
And that was such a level of he cannot the mean kind of peaks.
Peaks of 30% not not in the mid of the mean was probably somewhere in the mid twenties.
Okay. Thank you Andrew.
Our next question comes from the line of Adam Borg from Stifel. You may begin.
Great. Thanks for taking the question and also welcoming the new folks coming in maybe just a quick question on the net revenue retention rate.
Obviously, the pandemic and speed of recovery will be the key point in the near term, but I was just curious Andrew if there's any kind of initiatives you're working on internally that can help drive net.
Richard King revenue rates back to the historical range. Thanks, so much.
Yeah. So so we've we're hitting the ranges that we've set for net revenue retention and frankly, you know theres, obviously theres two things that drive net revenue retention renewal rates and the <unk> renewal and the ability to expand into accounts.
Alright, and so we're working both of those sides in terms of increasing renewal rates and increasing our ability to expand and accounts with b make solutions. So when we look at net revenue retention, we used to remember one of the things we saw and I think I think we highlighted this a lot over the over the last year with how strong the <unk>.
New rates lasted throughout the through the last year and how we continue to move move forward. So we actually over performed based on our expectations on renewal rates of the business. We continue to see we continue to expect that to accelerate but more importantly, the net revenue retention is going to be driven by more and more people.
<unk>, our digital portfolios construction cloud fusion other types of products like that and also moving to bim and the AUC space. So look for a lot of the increases in net revenue retention to be programmatically driven by the move to Ben.
The move to digitizing the cloud, adding construction cloud and the move to transform their manufacturing processes with with fusion 360, and other solutions like that.
Great. Thanks again.
And our next question will come from the line of Sterling Auty from Jpmorgan you may begin.
Yeah. Thanks, Hi, guys. Just one question from my side in the context.
Moving economy Im wondering what if anything you contemplated in that improvement in the business coming from the possibility of further stimulus spending from the government and in particular on the truck.
We do not factor that in.
Hey.
Governments moves slowly the money trickles down slowly.
So we have not factored any of that into our plans and into our guidance right.
That said, we do expect it to be an investment you probably have heard that the American society of Civil engineers in the U S rated U S infrastructure a day plus.
The other the other countries are doing particularly well either this is an area for investment and focus and.
We expect to see some of that investment of focus where we haven't factored it.
Thank you.
Yes.
Our next question I'm kind of in line.
Ruling from Baird you may begin.
Great Hi, everyone.
One modeling question first and then one on the business just.
When looking at the first quarter of guide.
Thanks.
Revenue variance in terms of variance the consensus estimates that seems explained by a couple of hundred basis points, you talked about but I'm wondering in terms of the day EPS, Mary and because of that wide or are there some discrete.
Investments that take place in <unk> is this a function of the extra day thrown into the mix or I guess the question is how do you see margins progressing throughout the year and is why EQ.
Of different than just the normal cadence.
Yeah. So this is of this is a really important question. So, let's let's talk about Q1 and the shape of of the curve and what what actually drives revenue in Q1. So I think I said earlier Q1 is actually of the trough of where we expect things to be we're going to accelerate quite rapidly out of Q1, but what actually drives the revenue.
New guide in Q1, the most important thing is is the revenue recognition. So let's look at last year last year. We did not we did not grow new business to the degree we would expect it to in fact, we saw declines year over year, and our new business the impact of those declines in new business and new business bookings in the previous year had a.
Disproportionately large effect on Q1.
But they work themselves out relatively quickly as you move into Q2, Q3, Q4 and beyond so we absolutely do have a somewhat more backend loaded year than we would in a classic.
Autodesk year, but not extremely because of degrees simply because of the hole that was created and I think I said earlier, the new business that we lost in last year it didn't disappear.
Coming back and it's coming back with of engines as we head into next year, but there's a couple of other little factors that affect Q1 disproportionately and I think it's really important that we all get grounded on some of these things. So the first one is we have a set of products because.
Because they are not yet cloud enabled to a certain degree are recognized upfront and the revenue and the accounting rules. They have to be we have been working hard to ensure that all of those products are cloud enabled and that will actually force them to be recognized ratably. One of the products that is moving from upfront recognition.
To ratable recognition as the vault product family and that vault product family.
With providing quite a bit of upfront revenue recognition previously and now as we entered Q1, it's all going to be recognized route of Blue because vault now has a mobile client now as other cloud enabled features in it. So that is all of a sudden a headwind to revenue recognition in Q1, but it works itself out as the year progresses as the rate.
Ability progresses, and the buildup progressive and this is just the way you know of subscription business model works. So there is some unusual sort of one time headwinds to Q1 that unwind themselves fairly quickly and Q1 is the trough and we will accelerate out of there, but it's it's.
It's definitely related to the buildup of recognized revenue revenue as we progress so that I hope that helps you understand a little bit more how Q1 works and yes. There are some additional little details like Q1 is is one day shorter this year year over year.
One less day of revenue in the quarter end of three days shorter than quarter over quarter.
But.
Those of other things I talked about are much more important for understanding the Q1 guide and how it unwind as the year progresses makes sense.
It does it does thank you and then if I can squeeze in one more.
Just as you engage with your customers.
And then they come back and in your book of New business, but as they talk to you about the composition of what they see going forward and their view on how.
Non res construction cycle might develop what are you hearing in terms of similarities the cycle is going to be like out of non.
Nine out of one of two or what are some of the differences that you're hearing and how did those similarities or differences impact Autodesk just given how your product portfolio has changed.
Yeah, So remember.
First off that we are distributed across almost all facets of the industry and it's important to realize that when one wobbles another one pops up.
And we're absolutely seeing that pattern. So for instance, you see in commercial real estate development, you see a slowing of projects you actually do see a rebooting of projects that had been put on hold by the pandemic, but you see a slowing of new projects, but you see other new projects coming in the pipeline in terms of urban multifamily housing.
Suburban multifamily housing other types of of.
Commercial real estate outside of dense urban areas alright. So we were hearing a lot from customers about a shift in where their portfolios are moving to one thing we are getting consistently though is an ongoing.
On adopting certain aspects of our cloud portfolio, particularly what we do with Autodesk.
Autodesk build collaborations the clear of the the collaboration tools for Rabbit models, we're seeing a lot of increased adoption in that we saw a lot of strength last year, where we're seeing some of that strength heading in I think that's going to be an important part of our portfolio moving forward because not only does it allow for seamless remote work, but it also allows for better downs.
Dream of integrations of the rest of the build process. So we're seeing a lot of those tools being adopted and we're also seeing a lot more adoption of some of the cloud based tools that were seeing in manufacturing. So the cloud is definitely front and center in terms of some of the growth areas of our portfolio portfolio, but do not underestimate bim and the role of them forever.
But in the end rather than the Digitization of AUC will continue to be a strong a strong driver in the new world order, but it's uneven it cuts vary across geographies across segments you definitely see.
Differences in terms of where people are going to seeing things booting up in worth of where they see things slowing down but like every cycle, we've ever seen the money just shifts to somewhere else.
Yeah.
Thank you.
Our next question will come from the line of Matt Hedberg from RBC capital markets you may begin.
Oh, Hey, guys. Thanks for taking my questions and Andrew I thought that was that was really good color on Q1 of it that makes a ton of sense and and also.
From my congrats to Debbie it's Glenn it's really good to see you back it back at Autodesk.
You know I guess, Andrew now that we're sort of unwinding uncertainty I think of the term you have used before when we think of of the trajectory to 23.
I think.
What kind of like to get maybe some high level thoughts there and I guess, even more so beyond 'twenty three.
What's the right way to pay of about that as we enter this new fiscal year.
Yeah. So thank you for this question Alright, and it's an important question so first off.
I want to make sure that I.
Just reiterate something I've said, many times before we model our business with Super High Fidelity.
Hey.
And within those models, we never we never put forward our best case alright.
We always had a buffer in there at some degree of buffers are great for like pandemic years. He got you love. It when you have of buffer now of course as you get closer to events like FY, 'twenty, three and and and things like associate with the buffer get smaller, but so does but the accuracy of your model also gets better as well right. So we are super we have a law.
Sort of confidence in the buildup to FY 'twenty three of $2 4 billion in free cash flow the organic.
Metrics surrounding our business and we also have a lot of confidence in the double digit growth as we had beyond fiscal 'twenty three and fiscal 'twenty three isn't some event. It's just another mileposts like fiscal 'twenty was fiscal 'twenty. Three is it's another milepost on a journey, but there is ongoing growth in the in the in the <unk>.
Digits of double digit range out beyond fiscal 'twenty three now I think one of the things people anchor on right now is what about this buildup from 22 to 23, one of the things I want to remind you is about the nature of how momentum is going to be exiting 'twenty. Two member were slight we're gonna be slightly more back end loaded in.
Of the accumulation of revenue and new business heading into fiscal 'twenty, three not dramatically back end loaded, but more backend loaded than we would traditionally be we're going to exit.
'twenty three with quite a bit more momentum than the full year targets would indicate alright relatively speaking in terms of those outcomes. So we feel pretty confident with the momentum we will exit FY 'twenty three with and that we have the book of business from the renewal base from the continuing digitization of AUC from the continuing convergence.
Of design, and making manufacturing and to.
The conversion of Noncompliant users to to hit the numbers that we have in FY 'twenty, three and beyond and weak we're confident of our models. We're confident in the margin of error, where we're confident in the levers we can pull if we had to pull any so we see line of sight to some of the organic goals that we have.
Been talking about and we continue to be confident even with what seems to be of big buildup from 22 to 23, you just have to pay attention to the momentum we have as we exit the full year 'twenty two into 'twenty three.
Super helpful very clear thank you Andrew.
No no different in that 19 to 20 discussion that we had.
It seems like yesterday, but it was three years ago.
It does it does thank.
Thank you.
Our next question I'll kind of come from the line of key waste from Morgan Stanley May begin.
Question that I wanted to.
Dig into what the.
Net recovery.
So our survey work shows that expectations are getting all of that pushed out from.
The kind of.
First half of them first of all of the 2000 <unk> in the next quarter and we've heard from you and your peer of yours on a slow recovery so kind.
Kind of what are you hearing from from customers and what do they need to see in order to pick up the pace of recovery and also aware of the areas that you see there could be some risk that it could get kind of delayed. Thank you yeah.
So first off you know our customers have to invest ahead of of their project load in order to be successful remember our tools show up not only in the execution phase of that make safe, but also very early in the early conceptual design phases and one of the big areas of strength that we saw in Q4.
Or was that large increase in enterprise business agreements, we see the record number of <unk>. We saw is kind of a.
Sure.
<unk> of customers investing in future digital digitization capacity. So we expect to see that regardless of the situation in the markets right now, but our view continues to be Q ones. The trough the acceleration starts to come out of Q1.
We head out of the spring and into the summer now right now Theres lots of uncertainty and you hear lots of buzz around variance in vaccine distributions, but I think all of US are smart enough to know that just like when we have these discussions about testing infrastructure and testing rollout and testing capacity all of these things work themselves out over a multi month period in terms of.
Abuse of vaccine distribution of of.
Assignment of capacity in all of the things associated with that now if all of that stuff starts to crumble and fumble of course, you end up in of new situations, but you know what that is highly unlikely in this situation and theres much more alignment on trying to get the right things done and that's what we're hearing from our customers more and more is they're trying to invest ahead of the growth they see coming.
Coming coming forward, so we're pretty bullish as we head into the second half of the year and we're pretty optimistic as we head into the summer there is always something that could derail this of wobble in.
The vaccine distribution or something associated with that or some kind of rise of political uncertainty, but you know what.
We can't predict those things and we don't see those things of what we see mostly of tailwind right now as we head out of Q1 and into Q2 and beyond.
That's super helpful. And then just to sneak one more in there.
Comment on the areas of investment were certainly helpful, but just to.
Taking a step back.
At the end of the scale was one of the largest acquisition to date I believe is of blogs about the planned grid I'm sort.
How should we think about the kind of higher level of framework for investing organically for Ah and R&D versus kind of acquisitions as a source of innovation. Thank you.
So we tend to we tend to invest.
Organically and innovations that that either we've been investing we've been working on for a period of time that it represents net new business opportunities that we will acquire new net new business opportunities, where there's like no no mature market, yet alright, but we will tend to acquire in areas, where we're seeing long term opportunities are opportunities.
For enhanced Digitization.
Enhanced cloud capability in verticals, where we might not have established vertical of businesses or sub verticals, where he might not have established businesses, but make no make no bones about it our organic investment is very much driven on this convergence of design and make in both.
AUC of manufacturing and on this conversion this convergence of manufacturing and construction across our industries. We've got a lot of organic focus and the innovation in those areas, we will acquire inorganically for innovation and in certain cloud based areas, but more likely than not we will acquire for.
Nickel specialization in areas, where <unk> established.
Established businesses of created a presence.
Great. Thank you so much.
Thank you.
And advisors indicative of that I'm sorry.
Unfortunately, that's all of the time, we have from our questions today I'd like to turn the call back over to the speakers for any closing remarks.
Thank you everyone for joining us I know, it's a busy from any of you look forward to catching up with you.
Next quarters results. If you have any questions in the meantime, please contact us.
May five from Smith will do that.
I still call one of the chatting soon.
Ladies and gentlemen, this concludes today's conference call. Thank you participating you may now disconnect.
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