Q4 2022 Autodesk Inc Earnings Call

February 24, 2022

[music].

Thank you for standing by bulk up to the Autodesk fourth quarter and full year fiscal 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will.

A question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program may be recorded I would now like to introduce your host for today's propane Simon Mays Smith, Vice President of Investor Relations. Please go ahead Sir.

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the fourth quarter and full year results of our fiscal 'twenty two on the line with me are Andrew and Ecmo.

And Debbie Clifford, our Chief Financial Officer.

Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at <unk> Dot com forward Slash investment.

You can find the earnings press release slide presentation and transcript of today's opening commentary on our Investor Relations website. Following this call.

During this call we may make forward looking statements about our outlook future results and related assumptions acquisitions products and product capabilities and strategies. These statements.

<unk> reflect our best judgment based on currently known factors.

Actual events or results could differ materially.

Please refer to our SEC filings, including our most recent Form 10-K .

Important risks and other factors, including developments and the COVID-19, pandemic and the resulting impacts on our business operation.

May cause our actual results to differ from those in our forward looking statements.

Forward looking statements made during the call are being made as of today. If this call is replay to 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.

Unless otherwise noted each such reference represents a year on year comparison.

All non-GAAP numbers referenced in today's call are reconciled in our press release, <unk> financials, and other supplemental materials available on our Investor Relations website.

Now I will turn the call over to Andrew.

Thank you Simon and welcome everyone to the call.

We reported record fourth quarter and full year revenue non-GAAP operating margins and free cash flow.

Our strong results and competitive performance were underpinned by some perennial factor our ability to deliver greater value to our customers and partners to consistent investment in our technology workforce and business model and customer experience.

Let me talk briefly about each of these is they are just as important to our future growth as they had been to our growth in the past.

All of our technology investments be it in <unk> and beam, enabling workflows in the cloud in general design make in newer verticals like water and construction all of them connect siloed adjacent workflows in the cloud and lead our customers to new more efficient and sustainable ways of working.

At Autodesk University, we announced we were moving from products to platform and capabilities and bringing those capabilities to any device anywhere through the cloud.

Fusion 360 is the leading edge of this transition and our recent acquisitions of pod smart and kimco will enable us to further digitize and connect shop floor processes and manufacturing to help build connected factories, while providing additional on ramp into usage of our manufacturing platform.

Similarly, our acquisitions of <unk> and Luke enable us to connect media and entertainment workflows and data for post production to preproduction.

With media and entertainment signing its largest ever EBITDA in the fourth quarter the ability to connect pre production workflows further expands our addressable Tam.

We're also continuing to invest in our workforce attract and retain the best talent in our industry and cultivate a shared sense of purpose and a diversity and belonging.

We recently received recognition for that work with inclusion on the corporate Knights index of the world's most sustainable companies in the highest possible score on the human rights Foundation's corporate equality index.

We are proud of our purpose and unique culture, one consequence of which is relatively low attrition compared to our technology peers. This is another source of competitive advantage a tight labor market. It also means that when gifted leaders like Scott Reese and Pascal Difonzo decided decline there next mountains, we have a deep bench of internal talent Mike.

Jeff Kinder, and Rebecca peers, and alumni like roofing and keen to step into their shoes.

Finally business model and customer experience optimization.

These include the shift from perpetual licenses with maintenance to tiered subscription the shift from desktop multiuser licenses to named user subscriptions and consumption.

<unk> from indirect to direct the shift from front end to back end payments to channel partners and most recently the shift from upfront to annual billing all of which enable us to better serve more customers and flexible flexible and customized way.

As of February one, we unified our customer and partner facing activities marketing go to market customer success and customer operations under our COO, Steve gone to give us a better end to end view of the customer experience and to drive sustainable competitive advantage and growth.

While the pandemic and its aftershocks. Meanwhile, Paul narrowly short of the financial targets set more than five years ago. We have made tremendous progress through consistent investment in our technology, our workforce and our business model and customer experience, which have added adjacent use cases and usage in our ecosystem grew.

Growing our addressable market and our ability to realize it.

Shortly the pandemic has accelerated the structural growth drivers underpinning our future growth, we have robust momentum as we enter fiscal 'twenty three and over the long term.

Now, let me turn the call over to Debbie to take you through the details of our quarterly financial performance and guidance for the year I will then come back to provide an update on our strategic growth initiatives.

Thanks, Andrew.

In an extraordinary year, we performed strongly across all metrics.

Haps best summarized by the sum of revenue growth and free cash flow margin for the year, which was 49%.

Our fourth quarter results were strong.

Factors contributed to that including robust renewal rate.

<unk> growth in subscriptions and rapidly expanding digital sales.

Total revenue grew 17% or about two percentage points less in constant currency with subscription revenue growing by 18%.

Looking at revenue by product.

<unk> auto CAD LTE revenue grew 20%.

<unk> revenue grew 17%.

And manufacturing revenue grew 4%.

Recall that both became ratable in fiscal 'twenty, two and that manufacturing also benefited in Q4 last year from a strong performance in automotive <unk>, which included significant upfront revenue.

Excluding these impacts.

Factoring revenue grew in double digits in Q4.

And any revenue grew 38%, which included some upfront revenue from its largest ever EBITDA.

Even if you exclude upfront revenue and many grew more than 20% in Q4.

Across the globe revenue grew 18% in the Americas, and 16% in both EMEA and APAC.

Direct revenue increased 27% and represented 38% of total revenue up from 34% last year due to strength from both enterprise and E Commerce.

We had our best ever revenue quarter for digital sales, which helped annual e-commerce sales surpassed $5 billion for the first time.

Our product subscription renewal rates remained at record highs.

And our net revenue retention rate remained strongly within our 100% to 110% target range.

Billings increased 13% to $1 $7 billion, reflecting robust underlying demand, but also a tough EBITDA comparison from last year.

Total deferred revenue grew 13% to $3 8 billion.

Total <unk> of $4 7 billion and current RPI of $3 1 billion grew 12% and 15%, respectively, and as expected, reflecting billings growth and the timing and volume of multiyear contracts, which are typically on a three year cycle.

Turning to the P&L non-GAAP gross margin remained broadly level at 93%, while non-GAAP operating margin increased by five percentage points to approximately 35%, reflecting strong revenue growth and ongoing cost discipline.

GAAP operating margin declined by six percentage points to 12%, primarily due to lease related charges of approximately 100 million.

Which reflects the progress we've made to reduce our real estate footprint and to further our hybrid workforce strategy as we announced on our last call.

We delivered record free cash flow in the quarter and for the full year of $716 million and $1 5 billion respectively.

Having completed our first sustainability bond last quarter at historically attractive rate.

We continued to optimize our capital structure in Q4 by accelerating our share repurchase activity.

Given the recent pullback in our share price.

<unk> repurchased shares at a higher rate than previous quarters.

Which allowed us to offset dilution in fiscal 'twenty, two and to get ahead of a sizable amount of our estimated dilution in fiscal 'twenty three.

The net result was a slight reduction in our weighted average shares outstanding at the end of the year.

During Q4, we purchased two 3 million shares for $613 million at an average price of approximately $267 per share.

For the full year, we repurchased nearly 4 million shares at an average price of approximately $276 per share for a total spend of just over $1 billion.

You'll see us continue to be opportunistic with share buybacks.

But our capital allocation strategy is unchanged, we will invest organically and inorganically to drive growth.

Well as purchase shares to offset dilution from our equity compensation plans over time.

Now, let me finish with guidance.

On our last call, we signaled that we saw FX headwinds and macroeconomic uncertainty due to supply chain challenges labor shortages and the ebb and flow of Covid.

That perspective hasn't changed so the risk we highlighted three months ago is now incorporated into our fiscal 'twenty three outlook.

Beyond that we did see further strengthening of the U S dollar, resulting in a slight incremental FX headwind to our fiscal 'twenty three expectations.

To put it in numerical terms our fiscal 'twenty two revenue growth reflects a two percentage point currency tailwind, which with FX movements in the last quarter becomes a roughly one percentage point headwind to fiscal 'twenty three revenue growth.

Similarly, FX moves during the fourth quarter resulted in an approximately $30 million incremental headwind to fiscal 'twenty three free cash flow.

Beyond FX, we are obviously, keeping a close eye on the geopolitical macroeconomic and policy environment.

But having said all of that our strong momentum and competitive performance in fiscal 'twenty to set us up well for fiscal 'twenty three.

And we've assumed that market conditions in fiscal 'twenty three are consistent with what we experienced in the second half of fiscal 'twenty two.

We expect fiscal 'twenty three revenue to be between five point O two and 512 billion with growth of approximately 16% at the midpoint, which reflects an incremental one percentage point FX headwind as I mentioned earlier.

We expect non-GAAP operating margin to be approximately 37%.

And free cash flow to be between $2, one three and $2 two 1 billion.

The midpoint of that range to $1 7 billion implies 47% growth and reflects the incremental $30 million FX headwind that I mentioned earlier.

The slide deck on our website has more details on modeling assumptions for Q1 and full year fiscal 'twenty three.

The pandemic has reinforced the structural growth drivers underpinning our strategy and we remain confident in our long term growth potential.

We continue to target double digit revenue growth.

non-GAAP operating margins in the 38% to 40% range.

And double digit free cash flow growth on a compound annual basis.

These metrics are intended to provide a floor to our revenue growth ambition.

And a ceiling to our spend growth expectation.

Andrew back to you.

Thank you Debbie.

Our strategy is to transform the industries, we serve with end to end cloud based solutions that enable our customers to drive efficiency and sustainability.

<unk> growth drivers underpinning our strategy had been reinforced by the pandemic, including increased workload convergence and platform standardization a growing focus on distributed working in the cloud automation and workforce productivity and also the growing importance of sustainability.

Our model is scalable and extensible into adjacent verticals from architecture and engineering through construction and owners from product engineering through product manufacturing and product data management and as I stated earlier with our consistent investment in our technology, our workforce and our business model and customer experience, we are well positioned to realize.

These opportunities and so by both leading and partnering with our customers on new ways of working we will grow too.

For example go back is one of Europe's largest commercial design and construction companies and a leading practitioner of industrialized construction and they use inventor rabbit cohort in general design on our platform to implement their precast and modular system concept.

By standardizing, the invisible and customizing the visible.

<unk> has been able to design and build highly customized and aesthetically pleasing buildings reliably quickly and efficiently having.

Having unified around Tim go back is now seeking to grow and connect beyond the design process to further improve efficiency and reduced waste through design automation during capital planning.

Which it is trialing space maker and great collaboration across design and build phases of construction using autodesk construction cloud.

With the launch of Argos build the introduction introduction of an account based pricing business model and distribution through our channel partners, we are extending our reach into the construction market.

For example.

Lee with construction.

400 general contractor from Texas has been driving innovation through construction technology for over 45 years in 2021, he began adopting capabilities of the audit of construction cloud beginning with assemble for virtual virtual design and construction with the end goal of a full replacement of their product management software with all of this built.

By having one platform for the full end to end construction workflow Lee Lewis will be able to more efficiently deliver extraordinary results for their clients from concept planning to ribbon cutting.

With strong growth from our <unk> build and the benefit of recently launched AE ACC bundles for pre construction and construction operation.

Autodesk construction cloud reported its best ever quarter, and accelerating growth in the fourth quarter entering FY 'twenty three with strong momentum.

We continue connecting the dots and infrastructure to most recently through the acquisition of <unk>.

Stable water is an area of opportunity for autodesk across the globe.

For example, Thames water owns and operates one of the oldest and most complicated water supply networks in Europe .

Flying 9 million customers in London, and the Thames Valley with.

With <unk> pro and <unk> pro from an adviser and an ongoing recruitment drive to double the size of their internal hydraulic modeling.

It is building a modeling center of excellence with a library of hydraulic models that can be run in near real time.

When connected and compared with telemetry. These dynamic digital twin will become powerful planning tools, enabling terms waters teams to gain near real time insight into system performance, leading to improved outcomes for our customers of today and tomorrow I am very pleased to report that <unk> had its best quarter ever.

Turning to manufacturing.

We sustained strong momentum in our manufacturing portfolio this quarter as we connect more workflows beyond the design studio and develop more on ramps to our manufacturing platform.

Automotive, we continue to grow our footprint beyond the design studio and into manufacturing connected factories.

All remote as Oems seek to breakdown work silos and shorten the handoff in design cycles.

For example, <unk>.

The national automobile company, which designs and jointly manufacturers premium electric cars.

And four countries across the World and is currently in the process of expanding to a further 20.

It's new EMEA signed in the fourth quarter. It is not only adding additional users of alias N V. Red. It is also partnering with our consulting teams and product experts to both extend the in house manufacturing capabilities with Autodesk multiple and working on the rollout of shock grid globally to help seamlessly manage and collaborate across the end to end workflows.

Our platform approach gives new customers multiple on ramps into our cloud ecosystem for.

For example, a European based startup to create smart charging systems for Ebs worldwide use a competitor's product and design, but was also running into collaboration challenges due to the rapid growth of its business.

It shows up chain as its cloud data management system, because it is easy to install is up and running out of the box.

All users anywhere and on any device to collaborate on up to date data in real time.

I mean, it's easy to add new users and scale with the hyper growth of the company.

These are also all attributes of fusion 360, and we hope to earn the right to connect more workflows for Uptrade users in the future.

Fusion 360 commercial subscribers grew steadily ending the quarter with 189000 subscribers.

Early demand for our new extensions, including machining generative design and nesting and fabrication.

And there has been significant interest in our upcoming stimulation and design extension.

While we often think of education users, taking fusion 360 with them into the workforce. Our commercial customers are also taking fusion 360 into education to help train their future workflows.

For example, Laurence equipment as a member of the Pasadena City College Advisory Board showed the college, how fusion 360, and help to innovate and improve its design and manufacturing workflows, resulting in greater operational efficiency improved productivity and higher quality production.

Upon adoption for machine shop program. The college immediately found that students using fusion 360, we're spending less time learning how to use the software and more time on the machine learning important machining skills the.

Students also better understood how their work affected the company.

As a result, Lawrence equipment can hire from a steady pool of highly qualified Pasadena City College graduate.

A win win.

With sustained demand for compelling content and growing pressure to produce that content more efficiently. There is increased demand for content creation tools and cloud enabled production workflows and the media team and industries.

As a result median entertainment finished the year strong as companies emerging from the pandemic sort to connect pilot workflows and remote teams for example, Technicolor worldwide Creative technology leader has renewed its commitment to RF content creation and production management tools, such as Maya and chocolate.

By standardizing on common tools across its global studios Technicolor can unleash the creative potential of its remote and distributed workforce.

By efficiently and securely connecting teams Technicolor can continue to serve the growing demand for compelling content redefining what possible for storytellers and audiences around the globe.

And finally, we continue to enable more users to participate in our ecosystem more productively through business model innovation and our license compliance initiatives.

With single sign on for improved security and user level reporting our premium plan enables our customers to manage their software usage across distributed sites more safely and efficiently.

As we help our customers understand the details of how they use our solutions the better we can ensure the success by efficiently and effectively implementing them.

Example is that a group with 17 subsidiaries worldwide specializes in planning automation digitization and maintenance of customized biopharmaceutical facilities for aseptic process solution.

I was looking for better visibility into its employee software usage and easier administration of subscribers in Q4 with double the number of premium plan subscriptions to gain comprehensive employee level reporting.

Insight and easier administration.

That visibility into employee software usage and easier administration of subscribers also makes premium plans an attractive solution for customers seeking to remain licensed compliant for example, after identifying a multinational consumer product company based in the U S had gaps in its account plan, we worked with the team to run a diagnostic scan tool.

Sure It had access to the latest and safest versions of our software.

This process identified gaps in software availability and license mix.

Our collaborative hopeful approach and people with more users to access the latest versions of our software and upgrading to a premium plan easier to administer and manage asked us in the future.

During the quarter, we closed 16 D hookup of $500000 with or without a license compliance initiatives four of which were over $1 million.

As I said earlier by both leading and partnering with our customers on new ways of working we will grow too.

While there will certainly be twists and turns in the road ahead in many ways. The pandemic has accelerated the future and increased my confidence in our strategy.

Our innovative design and make technology to achieve a new possible also enables them to build a manufacturer efficiently and sustainably we continue to execute well in challenging times and look forward to all of the next 40 years with excitement and optimism.

Operator, we would now like to open the call up for questions.

Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.

First question comes from the line of Phil Winslow from Credit Suisse. Your question. Please.

Great. Thanks for taking my question and congrats on the quarter Andrew.

Question on you referred to you about the supply chain and the labor disruptions, we've talked about on the last call I Wonder if you could just give us an update on that just sort of what were you hearing from customers over the course of the past.

Three months and then it really if you could particularly focused on the AUC vertical but just one of the things you. Obviously you did call out in our slides.

Record construction, maybe some accelerating growth there. Thanks.

Yeah. Thank you Phil good to hear from you.

Yes, So first let me kind of frame it this way.

We saw with the kind of improvement we expected to see when we talked to you about this in Q3. So we saw some nice improvement our customers are saying, they're feeling like they're coming out of some of these supply chain constraints. Our partners are echoing some of these things we didn't see the op too much <expletive> expectations, we had at the bigger.

Joining of the fiscal year, when we expected to see acceleration in the second half, but what we saw was consistent with what we told you in Q3 in terms of the improving climate alright. So.

Pink with regards to AUC in particular, which by the way I highlighted last quarter as being the key place. It was feeling the most supply chain and cost pressure in terms of.

In flight projects, that's where we that's where we saw that improvement and yes. We did we did have a record quarter in construction and we did end the quarter with some nice nice acceleration and momentum heading into next year, but consistent with what we said in Q3 alright.

Got it and then just in terms of the backlog of projects you've been talking about for a couple of a couple of years now.

Any thoughts on what sort of the customers are telling you about that.

Do you think theyre going to get unstuck in sort of taking care of call. It over the next 12 months or how are they thinking about that backlog.

Yeah. So what I can tell you is we monitor bid board activity and we monitor the growth in active projects on construction cloud Bim 360, docs and what we're seeing in bid board is we're seeing consistent growth in bidding activity and we're seeing an increasing.

A number of monthly active projects on our cloud applications around construction cloud and $60. Those are usually leading indicators of project activity.

And backlog getting turned into active projects. So that we considered those good signs alright in terms of in terms of how the environment is moving.

Great. Thanks, guys I appreciate it.

Yes.

Thank you. Our next question comes from the line of <unk> from Barclays. Your question. Please.

Okay, Great, Hey, Andrew Hey, Debbie Thanks for taking my questions here.

Andrew maybe maybe for you.

Big renewal year here in fiscal 'twenty three.

As we start to see maybe some more of those three year product subscriptions come up for renewal this year.

The data is sort of showing the preliminary data maybe.

On sort of customers' willingness to renew.

Same duration and perhaps just as importantly, their willingness to sort of expand their usage from prior levels.

Does that makes sense.

Yes, it does make sense and there is the short answer to this bucket is that.

The willingness to renew is the same or in some cases better than the willingness to renew the shorter duration contracts, so customers, who like long duration contracts, who like the price lock tend to continue to grab the price lock and move on and that's what we've seen.

Yeah, so far now in terms of.

Their willingness to buy more during these things well you know that's that's going to depend on their individual circumstances, and so I'm not going to give you any kind of specific numbers on how we're doing around their willingness to buy more however, the net revenue retention rates for the company are indicative of kind of how the global cohort of a company works with regards to this so Debbie would you like to add.

Anything to that or comment on it.

No I think you covered it Andrew.

Okay.

Got it got it Debbie maybe for my follow up for you.

I mean understanding that we're just starting out fiscal 'twenty three I was wondering if you had any thoughts on on on how we will be phasing out the multiyear product subscriptions in fiscal 'twenty four and maybe just philosophically how you think about the shape.

That impact on cash flow now that we have.

Sort of revised fiscal 'twenty three view again I understand it's early but any thoughts on kind of how you think that works.

And the best way to think about modeling that.

Yeah sure so.

We aren't giving specific guidance today for fiscal 'twenty, four and beyond as you know, but as you can imagine it's a big area of focus for us and we are retaining the framework that we set out at Investor day. So, let's just recap that again it is double digit revenue growth through fiscal 'twenty.

non-GAAP operating margins in the 30% to 40% range and double digit compound annual growth in free cash flow through fiscal 'twenty six now that's after the unexpected decline in fiscal 'twenty four when we institute our transition to annual billings for multiyear contracts.

And as I mentioned in the prepared remarks. These metrics are intended to provide a floor to our revenue growth ambitions and a ceiling to our spend growth expectation it's not.

In terms of the decline for free cash flow specifically in fiscal 'twenty four I know, there's a lot of interest in both the magnitude of it and the slope of it.

And while we're not providing specifics today, here's how I think you should think about it.

With the slope.

Slope of the free cash flow declined and then its recovery is going to depend on the pace at which our customers adopt annual billing right now we intend to offer our customers the choice, but we're still working through the programmatic details.

Our bias is going to be to go as quickly as possible, but we have customer partner and operational constraints that we're working through as we navigate the transition.

And then to give you an order of magnitude I'd say look at long term deferred as a percent of total deferred back in fiscal 'twenty. It wasn't that high Twenty's percent zone, and we should see something similar in fiscal 'twenty three because it's that same cohort that's coming up for renewal.

And so then as we move to annual billings eventually that long term deferred will go away and again, our bias is to move as quickly as possible, but we're still working through the operational details.

We'll give you updates on all of this as we progress through fiscal 'twenty three.

Sounds good.

Oh sorry please.

No no. Please go ahead, Andrew no no. Please.

One thing that excites me about this post annual billings transition. He said the free cash flow starts tracking to the long term strategic drivers.

I really like talking about the digital transformation drivers that we talked about at Investor day, including in the adjacent industries, where we're going in these things are going to be what track and drives the growth and the behavior of the free cash flow going forward as well as labeling all those leveraging all those growth enablers around business models and around not.

Compliance and also don't forget long term, our whole effort to monetize the long tail.

With not only with offerings like flex, but with new types of digital channels that reach deeper into places, where we might not be reaching customers. Today. So that's the exciting thing about getting through this for me is the free cash flow trust with those long term strategic drivers.

It's going to be a really great outcome for us.

Makes a lot of sense, thanks for the color guys.

Thank you. Our next question comes from the line of Jay Z shower from Griffin Securities. Your question. Please.

Got it thanks, good evening Andrew.

Andrew Debbie your slide deck is interesting in disclosing the 6 million subscribers at the end of the fiscal year.

Which indicates an increase of about 700000 from the end of fiscal 'twenty one.

Is it contemplated in your guidance for fiscal 'twenty, three that you might be able to add a similar if not larger number.

To the sub space this year.

Second question your disclosure about the digital sales revenue range is very interesting.

Having grown now parakeets, who will be the plurality of your direct revenue.

Is it your view Andrew that the digital sales could be.

Become perhaps evenly split with the named accounts in EMEA business or do you think named accounts in EMEA.

The majority of the direct business.

Yeah. So first let me address your first question.

As you recall last year.

This was on me, we had those off too much thick assessments of accelerating new business growth into the second half of the year alright.

We're not assuming any of that moving into this year, we're assuming things stay.

Lastly, as they are and as the conditions that we see right now.

The exceptional gives you that is that in our guidance, we did not factor in warm Ukraine.

How that might affect our business is.

Completely unclear I thought probably all of you heard president Biden speech earlier today about some of his positions on that but when it comes to looking at next year.

We're assuming that current things move forward.

The way they are and also just remember that some of those subscriber increases that you saw were result of multiuser trade ins as well I just want to make sure that we go after some of those things but.

Current course and speed is the general assumption here right now with regards to.

Digital sales.

It's a great example.

Fastest growing channel.

Growing at the expense of our partners our partners are growing robustly as well.

Also a great example of what we're doing with digital productivity for ourselves and for our sales force.

The digital channel reaches customers that we believe we have not historically been serving well and they have they are not only finding us and buying our existing offerings. They are also engaging in some of our more forward looking offerings like fusion 360, So that channel is going to continue to become more powerful and as I've said many times before.

Sure.

As we look out to our long term goal of half of our revenue being direct half of that direct revenue was going to come from this digital channel and clearly you can see from what we've disclosed in the growth rates here. There is line of sight to those numbers over multiple years and that channel is going to continue to help us reach deeper into the long tail is going to continue to benefit.

From the digital productivity tools, we're building just can make our general overall salesforce more productive.

And I have high hopes for that channel in the future now Debbie did you want to add anything about for instance, since I mentioned.

The Ukraine situation anything around the specifics about our exposure there.

Or anything related to that or anything about the digital channel.

Yeah sure.

I'll cover our Russia and Ukraine.

Just to be explicit Russia, and Ukraine, they represented a bit less than two percentage points of our total revenue in fiscal 'twenty two.

And we have similar assumptions in our fiscal 'twenty three roll up obviously and then are unfolding lives. This is a very fluid situation and it's a coincidence that our earnings call is today, so we haven't baked anything.

Any potential risks that might occur there into our guidance, we're going to be watching things closely because at this point, we don't know if theres any impact at all we don't know if there is impact if it would be localized to Russia, and Ukraine, specifically or whether or not it becomes a broader impact across Europe and beyond it's just too early for us to tell.

What I would say, though is that as we pointed out at our Investor day, our business is more resilient now after the business model transition. So that's that's one positive in the midst of all this.

But as you can imagine it's obviously a situation.

And that we're watching really closely and we'll continue to update you as we know more.

Thank you very much.

Headline as Jay.

We've assumed that things are going to continue as they are current course and speed. There's no acceleration no no anticipated uplift or anything that we that we were.

Going forward in the coming quarters.

Moving on forward guidance.

Understood. Thank you.

Thank you.

Thank you. Our next question comes from the line of Adam Borg from Stifel. Your question. Please.

Hey, guys. Thanks, so much for taking the question.

Just on the new product subscription growth in the quarter last quarter, you talked about that moderating to the mid twenty's after kind of being in the 30% range in the first half of the year I guess, how does that play out in <unk> and I'm, assuming based on your prior comments Andrew that whatever you saw in the back half of the year you are sitting in that going forward, but I love to hear a little more color. If you can.

Had about how that played out in for Ken.

I'm going to let Debbie just had quick question Adam Yeah sure I'll go ahead and take this so Adam yes, we have been talking quite a bit about new volume and it is a metric that we monitor very closely.

Our new volume growth decelerated, a few points in Q4, and that's because of a tough comp versus Q4 of last year, but the growth was very healthy and it was in line with our expectations.

And so that growth is effectively what we're considering as we build our guidance into next year and to just reiterate what Andrew has been saying.

Assuming that the demand environments, including that new volume growth is built into our guidance and that there's no changes to the upside or the downside as we look ahead.

But the bottom line answer is that it.

Volume growth decelerate or viewpoints, but it was as we expected and so it was very healthy growth.

Great that's really helpful and maybe just as a quick follow up.

Great to see the growing traction with Autodesk construction cloud.

As you look forward a few years, maybe for you Andrew how expansive do you view the ACC opportunity relative to the current portfolio and do you have any interest at all to go deeper into the financials of aspects. Thanks, so much.

Yeah, certainly at some point, yes, but.

Look I've always said that we believe the construction business is Autodesk next billion dollar business.

And.

I'd like to add just for those of you are looking at these things you're probably using make the make revenue revenue growth as a proxy for what we're doing and I want to make sure that you remember that because we have a diversity of business models and we offer.

Consumption models.

Account based model subscription models that we blend the actual ACC business between our design bucket in our pocket. So if you look at if you. If you if you account for EPA impacts on the mix side of the business that makes a lot of the business grew about 30% alright. So we're looking at good.

Robust growth here.

Expect that growth to continue.

Continue to say that.

Instructions and all of this next $1 billion business that should be the expense expectations of alcohol.

Great. Thanks again.

Thank you. Our next question comes from the line of Matthew Hedberg from RBC capital markets. Your question. Please.

Alright, Thanks, guys, Andrew obviously, it's great to hear the results on the construction cloud side.

Wondering on the manufacturing side of your business, maybe using a baseball analogy, where do you think we are at in sort of the build out of the manufacturing cloud business relative to maybe where you wanted to get to at some point.

Yeah, it's a.

Great question, Matt because we're kind of in this transitional phase now where we built out the technology, we've gotten to the early adopter audiences. We've established a strong strong strong base for the products and a strong kind of early early market for infusion I mean, you heard in the opening commentary about the 180.

9000, plus subscribers, we're now moving into the phase of kind of trying to drive the acceleration of the growth.

In that space I think we're early on.

It's probably.

The third third inning or so in the process right, we're starting off on a good pace.

The threshold that we've got our subscribers here as to those of you know the history of this whole space that is an excellent thresholds to build on that's usually where you start to cross the threshold of getting more and more material to the business and we've had a leadership transition recently with Scott taking a great job off to go work for GE one of them.

Customers by the way, which is always good.

Really happy for him and Jeff Kinder is stepping in as part of the succession planning process there.

And Jeff Kinder cares a lot about scaling and scaling growth and scaling transformation and I think his skill set is going to provide some excellent capabilities. In this next phase, but it's still really early alright, it's still <unk>.

Third inning ish in this game and I think we should expect that to look like that but over the next five years again. This is going to be a significant driver of that.

That growth that we've been talking about beyond fiscal 'twenty four.

That's great and then maybe just as a quick follow up I think it was about a year ago, maybe with some of the supply chain questions first started coming up we've talked to a number of your partners. You suggested that if people were using autodesk.

As a way to reduce waste and just become more efficient with tight supply markets.

As you reflect back on the last year I mean, do you think that actually played out and do you think that that remains a pretty critical driver, especially in the world of deflation or just broad ESG concerns.

Yes.

Absolutely and it's only been kind of become more important so we actually have.

Really compelling stories of of.

Old line industrial companies using fusion 360 for example, it is generative capability to actually light weight and take out math from products and reduce their material usage for things as simple as hydraulic equipment right real world.

Samples and we're seeing more and more of that with regards to construction.

Every redo that you eliminate is is a waste.

A reduction in waste and carbon footprint for that particular project and as you know more and more it's not becoming a choice for construction firms, it's becoming a requirement there are more and more mandates about what the carbon footprint of a particular.

The project has to be both what's embedded.

Carbon footprint and its lifetime carbon footprint. So this capability to reduce energy select the right materials reduce the amount of materials used is going to become a critical differentiator for lots of people and it's really exciting to see some of these companies that you would never expect adopting some of.

Our newest technology simply because it helps them address a key challenge.

So their businesses to be more sustainable and to be greener.

Super exciting thanks, Thanks, Andrew.

Okay.

Thank you. Our next question comes from the line of Joe <unk> from Baird. Your question.

Great Hi, everyone.

First question is just more of a lot of fat check on my part, but I'm I'm wondering is.

If the only change in the formal guidance you are providing today versus the preliminary data you provided last quarter Nuomi friend says just the strengthening of the dollar and the incremental.

One is that correct.

That's correct.

Overall headline is that the numbers are consistent with what we talked about last call. We've just adjusted them for our latest FX assumption and that's.

How to think about a point of headwind to revenue growth and another about $30 million of incremental headwind to free cash flow and that's been baked into the guidance.

Okay. Thank you and then second question, Andrew I know you said that.

Okay.

Maybe isn't the leading indicators that it once was but nevertheless, it did accelerate pretty nicely here at year end.

And it might have been your fastest growing business. After you remove the upfront contribution from media. So I'm just wondering if there's anything to kind of read between the lines there.

I think it's commensurate with an increase in monthly active usage, which I still think is becoming a better proxy. So for instance, our total monthly active usage of all of our products increased over 10% in Q4 year over year. So those two things.

Orally pretty closely and.

That's still the proxy, but youre right I think I think the Autocad performance is a result of that strong monthly active usage performance that we're starting to see.

Heading into the fiscal year.

Great. Thank you very much.

Well. Thank you. Our next question comes from the line of <unk> from S. M. P. C. Your question. Please.

Alright, Hey, great Hey, Thanks for taking my question.

I was wondering.

About your.

The in Q4.

The elimination of toning down the multiyear discounts.

Kind of what was the reaction to that and kind of how do you how do you gauge that.

It will look like going forward and then just just for housekeeping I missed the comment that they're starting to call about what drove the other line did very well and I think there was some upfront revenue there could you just provide you that color again, thanks very much.

Thanks, Steve.

Last one thought there, but let's start at the top on multiyear. So yes, we did see a discount change from 10% to 5% in the past quarter and obviously when we adjust pricing we do see some customers take advantage of the window and buy ahead of that when the price change goes into effect, we saw similar behavior with this price adjustment.

And that's as expected.

We're always going to be looking at ways to optimize our business. This is just one example of that and I would also say that the.

The multiyear renewal rates remained firm even after that discount reduction.

And then in terms of other revenue.

Yes other revenue.

<unk> to be a little bit of a mixed bag, but the other revenue is in part what drove the beat in our Q4 revenue and a piece of that the big piece of that is non cloud enabled products that we sell through our <unk>.

Is that are recognized upfront, we typically see our highest EBITDA volume in Q4 and depending on the composition of those deals that can sometimes drive a slight surge and upfront revenue as a result, and that's what we saw in Q4 and the beach in and what Youre seeing it in other we continue to expect however that upfront and other.

It's going to be a relatively small part of our business over time and that recurring revenues should be 95% or greater.

Terrific great. Thanks, a lot congrats on the quarter.

Thank you. Our next question comes from the line of Sterling Auty from Jpmorgan. Your question. Please.

Yeah. Thanks, Hi, guys, Debbie I wanted to circle back to cash flow you had made mentioned that there's some constraints from customers and partners on shift to annual billings can you give us maybe a quick example, but some of those constraints might be and why you might not just be able to rip off the band aid and move quicker to annual billings now.

Yeah, So as I mentioned back at the Investor Day, we do the first part is operational so we are upgrading our system to be able to handle this volume.

Multiyear contracts with annual billings at scale, our systems provide for that capability today, and it's a major system overhaul that we're working on and it's going to take us some time and we're looking at how fast we can create that capability and over what time period again, I'd say that our biases that we execute on this transition.

Right away when we get to fiscal 'twenty four but it is going to take US time and continued investment in both dollars and people to make sure that our systems are set up for that and so we're looking at that right now the second piece that we talked about at Investor day that.

It is important to us is that our partners are very important to autodesk are very important to our growth very important too in our ability to drive breadth and depth across the globe and engaging with customers and our partners, we want to make sure that we work with them.

As we execute on this transition to make sure that we optimize not only for us and for our customers, but also for those partners that are important to us and so we're going to be looking at the programmatic details of that over the next year with the with an eye towards.

Making sure that we set ourselves up for success in the entire ecosystem as we get to that startup fiscal 'twenty four.

Understood makes sense and then maybe one follow up.

Outside of the $30 million FX headwind on free cash flow for fiscal 'twenty three how else would we kind of think about the bridge from the guidance that you've given to the previous long term target that was there.

Sure.

The previous long term target was $2 4 billion and on the last call. We talked about a couple of hundred million dollars and risks to that that was broken down roughly equally between the macro backdrop in FX.

And then we have an incremental $30 million.

Fax now given the continued strengthening of the dollar in the last 90 days.

So net net it's about 100 million and macro.

Again that you highlighted on the last call and then a total of $130 million risk from FX and that continued strengthening of the dollar and that's why you see the midpoint of the guide right there at that $2 7 billion.

Thank you. Our next question comes from the line of Jason Celaeno from Keybanc capital. Your question. Please.

Great. Thanks for fitting me in maybe just a couple for Andrew I kind of want to go a little deeper on the architecture side of your business and this is obviously youre back to your bread and butter.

Or would you describe kind of the end market environment right now for that segment and then what kind of growth initiatives should we be thinking of for this year and long term.

Yes so.

Architecture is coming out.

The situation is coming out of the pandemic, we've seen that they're there.

The index that drive.

Architecture activity is going up consistently so architects are feeling better about the future and architecture are also investing more in which is a critical part of their transition from two D based practices to truly based practices. So that trend is going to continue that's part of the bigger law.

Long term digitization trend that we're seeing in architecture in particular more and more people are moving to three D processes <unk> been looking to adopt rabbit and tools like rabbit more aggressively so that they can stay competitive in the new world and the market is also a lot of increased labor productivity for them.

So they're going to be looking at some of these new tools that allow them to do more with.

With the labor pool, they have especially on the tight labor market. So that's that's where we're looking at with construction the ongoing digitization move to them, that's going to accelerate as architects continued to get more optimistic about their project pipeline, but all the data is out there, saying that we're seeing a better pipeline for the architectural segment.

And then when I kind of just think about the architecture job is it unfair to think that maybe that roll in particular, it's been hit harder than some of the other jobs within AUC.

But it certainly was hit harder early on there is no doubt about it alright it was the it.

It was the least prepared for remote work because it was essentially an office type profession. It has adapted.

They have certainly adopted our cloud based tools at a rate significantly higher than prior to the pandemic. So they've gotten onto team collaborate and didn't collaborate pro at higher rates than we ever saw previously so they're adapting but yes early on in this pandemic in the last few years they were hit realm.

<unk> harder.

But there is that they are coming back and they're adapting they still have to build up their book of business.

We'll have to build up their cushion, but that segment is absolutely coming back.

And it is coming back into the cloud too.

Thank you.

All the time, we have for Q&A today, I will now hand, the program back to Simon Mays Smith for any further remarks.

Thanks, everyone for coming along and if you have any further questions. Please do get in touch with me otherwise, we'll look forward to updating you on our Q1 results. So thanks very much.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

[music].

Thank you for standing by and welcomed.

Welcome to the Autodesk fourth quarter and full year fiscal 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone as a reminder, today's program may be recorded I would now like to introduce your host for today's program Simon Mays Smith, Vice President of Investor Relations. Please go ahead Sir.

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the fourth quarter and full year results of our fiscal 'twenty two.

On the line with me are Andrew <unk>, our CEO and Debbie Clifford, our Chief Financial Officer.

Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at <unk> Dot com for slash investor.

Can find the earnings press release slide presentation, and transcript of today's opening commentary on our Investor Relations website. Following this call.

During this call we may make forward looking statements about our outlook future results and related assumptions acquisitions products and product capabilities and strategies.

These statements reflect our best judgment based on currently known factors.

Actual events or results could differ materially.

Please refer to our SEC filings, including our most recent Form 10-K .

Important risks and other factors, including developments and the COVID-19, pandemic and the resulting impacts on our business pricing that may cause our actual results to differ from those in our forward looking statements.

Forward looking statements made during the call are being made as of today. If this call is replayed or reviewed after today. The information presented during the call may not contain current or accurate information.

Autodesk disclaims any obligation to update or revise any forward looking statements.

During the call we were quite a number of numerical growth changes as we discuss our financial performance.

Thats otherwise noted each such reference represents a year on year comparison.

non-GAAP numbers referenced in today's call are reconciled in our press release <unk> financials.

Dental materials available on our Investor Relations website.

And now I will turn the call over to Andrew.

Thank you Simon and welcome everyone to the call.

Today, we reported record fourth quarter and full year revenue non-GAAP operating margins and free cash flow.

Our strong results and competitive performance were underpinned by some perennial factors our ability to deliver greater value to our customers and partners to consistent investment in our technology workforce and business model and customer experience.

Let me talk briefly about each of these is they are just as important to our future growth as they had been to our growth in the past.

All of our technology investments.

<unk> been enabling workflows in the cloud in general design make in newer verticals like water and construction all of them connect siloed adjacent workflows in the cloud and lead our customers to new more efficient and sustainable ways of working.

At Autodesk University, we announced we were moving from products to platforms and capabilities and bringing those capabilities to any device anywhere through the cloud.

Fusion 360 is the leading edge of this transition and our recent acquisitions of pod smart and kimco will enable us to further digitize and connect shop core processes and manufacturing to help build connected factories, while providing additional on ramp into and usage of our manufacturing platform.

Similarly, our acquisitions of <unk> and loop enable us to connect media and entertainment workflows and data for post production to preproduction.

With media and entertainment signing its largest ever EBITDA in the fourth quarter the ability to connect preproduction workloads further expands our addressable Tam.

We're also continuing to invest in our workforce attract and retain the best talent in our industry and cultivate a shared sense of purpose and a diversity of belonging we recently received recognition for that work with inclusion on the corporate Knights index of the world's most sustainable companies in the highest possible score on the human rights Foundation's corporate quality index.

We are proud of our purpose and unique culture, one consequence of which is relatively low attrition compared to our technology peers. This is another source of competitive advantage and tight labor market. It also means that when gifted leaders like Scott and Pascal Difonzo decided decline there next mountain, we have a deep bench of internal.

Mike, Jeff Kinder, and Rebecca peers, and alumni like Ruth Ann keen to step into their shoes.

And finally business model and customer experience optimization.

These include the shift from perpetual licenses with maintenance to tiered subscription.

Shift from desktop multiuser licenses to named user subscriptions and consumption the shoe.

As of February one, we unified our customer and partner facing activities marketing go to market customer success and customer operations under our COO, Steve Bob to give us a better end to end view of the customer experience and to drive sustainable competitive advantage and growth.

While the pandemic and its aftershocks meanly will fall narrowly short of the financial targets set more than five years ago. We have made tremendous progress through consistent investment in our technology, our workforce and our business model and customer experience, which have added adjacent use cases and usage in our ecosystem.

Growing our addressable market and our ability to realize it.

Shortly the pandemic has accelerated the structural growth drivers underpinning our future growth, we have robust momentum as we enter fiscal 'twenty three and over the long term.

Thanks, Andrew.

In an extraordinary year, we performed strongly across all metrics.

Haps best summarized by the sum of revenue growth and free cash flow margin for the year, which was 49%.

Our fourth quarter results were strong.

Factors contributed to that including robust renewal rate.

<unk> growth in subscriptions and rapidly expanding digital sales.

Total revenue grew 17% or about two percentage points less in constant currency with subscription revenue growing by 18%.

Looking at revenue by product.

So CAD and Autocad LT revenue grew 20%.

<unk> revenue grew 17%.

And manufacturing revenue grew 4%.

Recall that both became ratable in fiscal 'twenty, two and that manufacturing also benefited in Q4 last year from a strong performance in automotive <unk>, which included significant upfront revenue.

Excluding these impacts.

Manufacturing revenue grew in double digits in Q4.

And many revenue grew 38%, which included some upfront revenue from its largest ever EMEA.

Even if you exclude upfront revenue <unk> grew more than 20% in Q4.

Across the globe revenue grew 18% in the Americas, and 16% in both EMEA and APAC.

Oh.

Direct revenue increased 27% and represented 38% of total revenue.

From 34% last year due to strength from both enterprise and E Commerce.

We had our best ever revenue quarter for digital sales, which helped annual e-commerce sales surpassed $5 billion for the first time.

Our product subscription renewal rates remained at record highs.

And our net revenue retention rate remained strongly within our 100% to 110% target range.

Billings increased 13% to $1 7 billion, reflecting robust underlying demand, but also a tough comparison from last year.

Total deferred revenue grew 13% to $3 8 billion.

Total RPM of $4 7 billion and current RPI of $3 1 billion grew 12% and 15%, respectively, and as expected, reflecting billings growth and the timing and volume of multiyear contracts, which are typically on a three year cycle.

Turning to the P&L non-GAAP gross margin remained broadly level at 93%, while non-GAAP operating margin increased by five percentage points to approximately 35%.

Selecting strong revenue growth and ongoing cost discipline.

GAAP operating margin declined by six percentage points to 12%, primarily due to lease related charges of approximately 100 million.

Which reflects the progress we've made to reduce our real estate footprint and to further our hybrid workforce strategy as we announced on our last call.

We delivered record free cash flow in the quarter and for the full year of $716 million and $1 5 billion respectively.

Having completed our first sustainability bond last quarter at historically attractive rate.

We continued to optimize our capital structure in Q4 by accelerating our share repurchase activity.

Given the recent pullback in our share price.

<unk> opportunistically repurchase shares at a higher rate than previous quarters.

Which allowed us to offset dilution in fiscal 'twenty, two and to get ahead of a sizable amount of our estimated dilution in fiscal 'twenty three.

The net result was a slight reduction in our weighted average shares outstanding at the end of the year.

During Q4, we purchased two 3 million shares for $613 million at an average price of approximately $267 per share.

For the full year, we repurchased nearly 4 million shares at an average price of approximately $276 per share for a total spend of just over $1 billion.

You'll see us continue to be opportunistic with share buybacks.

But our capital allocation strategy is unchanged, we will invest organically and inorganically to drive growth as well as purchase shares to offset dilution from our equity compensation plans over time.

Now, let me finish with guidance.

On our last call, we signaled that we saw FX headwinds and macroeconomic uncertainty due to supply chain challenges labor shortages and the ebb and flow of Covid.

That perspective hasn't changed so the risk we highlighted three months ago is now incorporated into our fiscal 'twenty three outlook.

Beyond that we did see further strengthening of the U S dollar, resulting in a slight incremental FX headwind to our fiscal 'twenty three expectations.

Similarly, FX moves during the fourth quarter resulted in an approximately $30 million incremental headwind to fiscal 'twenty three free cash flow.

Beyond FX, we are obviously, keeping a close eye on the geopolitical macroeconomic and policy environment.

But having said all that our strong momentum and competitive performance in fiscal 'twenty to set us up well for fiscal 'twenty three.

And we've assumed that market conditions in fiscal 'twenty three are consistent with what we experienced in the second half of fiscal 'twenty two.

We expect fiscal 'twenty three revenue to be between five point O two and 512 billion with growth of approximately 16% at the midpoint.

Which reflects an incremental one percentage point FX headwind as I mentioned earlier.

We expect non-GAAP operating margin to be approximately 37%.

And free cash flow to be between $2, one three and $2 two 1 billion.

The midpoint of that range to $1 7 billion implies 47% growth and reflects the incremental $30 million FX headwind that I mentioned earlier.

The slide deck on our website has more details on modeling assumptions for Q1 and full year fiscal 'twenty three.

The pandemic has reinforced the structural growth drivers underpinning our strategy and we remain confident in our long term growth potential.

We continue to target double digit revenue growth.

non-GAAP operating margins in the 38% to 40% range.

And double digit free cash flow growth on a compounded annual basis.

These metrics are intended to provide a floor to our revenue growth ambitions.

A ceiling to our spend growth expectations.

Andrew back to you.

Thank you Debbie.

Our strategy is to transform the industries, we serve with end to end cloud based solutions that enable our customers to drive efficiency and sustainability.

Structural growth drivers underpinning our strategy have been reinforced by the pandemic, including increased workload convergence and platform standardization.

<unk> focus on distributed working in the cloud automation and workforce productivity and also the growing importance of sustainability.

And as I stated earlier with our consistent investment in our technology, our workforce and our business model and customer experience, we are well positioned to realize these opportunities and so by both leading and partnering with our customers on new ways of working we will grow too.

For example.

<unk> is one of Europe's largest commercial design and construction companies and a leading practitioner of industrialized construction and they use inventor rabbit forge and general design on our platform to implement their precast and modular system concept.

By standardizing the invisible and customizing the visible go back has been able to design and build highly customized and aesthetically pleasing buildings reliably quickly and efficiently.

Having unified around Tim go back is now seeking to grow and connects beyond the design process to further improve efficiency and reduced waste through design automation during capital planning.

Which it is trialing space maker and great collaboration across design and build phases of construction using autodesk construction cloud.

With the launch of Argos build the introduction introduction of an account based pricing business model and distribution through our channel partners.

We are extending our reach into the construction market.

For example.

Lee with construction.

With strong growth from artist build and the benefit of recently launched AAC ACC bundles for pre construction and construction operation.

Autodesk construction cloud reported its best ever quarter, and accelerating growth in the fourth quarter entering FY 'twenty three with strong momentum.

We continue connecting the dots and infrastructure to most recently through the acquisition of antiviral.

Sustainable water is an area of opportunity for autodesk across the globe.

For example, Thames water owns and operates one of the oldest and most complicated water supply networks in Europe .

Flying 9 million customers in London, and the Thames Valley.

With <unk> pro and <unk> pro from an adviser and an ongoing recruitment drive to double the size of their internal hydraulic modeling team.

It is building a modeling center of excellence with a library of hydraulic models that can be run in near real time.

When connected and compared with telemetry. These dynamic digital twin will become powerful planning tools, enabling terms waters teams to gain near real time insight into system performance, leading to improved outcomes for our customers of today and tomorrow I'm very pleased to report that <unk> had its best quarter ever.

Turning to manufacturing.

We sustained strong momentum in our manufacturing portfolio this quarter as we connect more workflows beyond the design studio and develop more on ramps to our manufacturing platform.

In automotive, we continue to grow our footprint beyond the design studio in India manufacturing connected factories.

The automotive Oems seek to breakdown work silos and shorten the handoff in design cycles.

For example, <unk>.

The National Automobile company, which designs and jointly manufacturers premium electric cars operates in four countries across the world and is currently in the process of expanding to a further 20.

It's new EMEA signed in the fourth quarter. It is not only adding additional users of alias N V. Red. It is also partnering with our consulting teams and product experts to both extend that the in house manufacturing capabilities with Autodesk multiple and working on the rollout of shock grid globally to help seamlessly manage and collaborate across the end to end workflows.

Our platform approach gives new customers multiple on ramps into our cloud ecosystem for.

For example, a European based startup that create smart charging systems for Evs worldwide use a competitor's product and design, but was also running into collaboration challenges due to the rapid growth of its business.

It shows up chain as its cloud data management system, because it is easy to install is up and running out of the box enables all users anywhere and on any device to collaborate on up to date data in real time.

And it is easy to add new users and scale with the hyper growth of the company.

These are also all attributes of fusion 360, and we hope to earn the right to connect more workflows for Akshay and users in the future.

Fusion 360 is commercial subscribers grew steadily ending the quarter with 189000 subscribers.

Early demand for our new extensions, including machining generative design in nursing and fabrication has been strong and there's been significant interest in our upcoming simulation and design extension.

While we often think of education users, taking fusion 360 with them into the workforce. Our commercial customers are also taking fusion 360 into education to help train their future workforce.

Upon adoption per machine shop program. The college immediately found that students using fusion 360, we're spending less time learning how to use the software and more time on the machine learning important machining skills.

It's also a better understood how their work affected the company as a result, Lawrence equipment can hire from a steady pool of highly qualified Pasadena City College graduate a win win.

As a result media entertainment finished the year strong as companies emerging from the pandemic sort to connect pilot workflows and remote teams for example, Technicolor worldwide Creative technology leader has renewed its commitment to RF content creation and production management tools, such as Maya and chocolate.

By standardizing on common tools across its global studios.

Any color can unleash the creative potential of its remote and distributed workforce.

Efficiently and securely connecting teams Technicolor can continue to serve the growing demand for compelling content redefining what is possible for storytellers and audiences around the globe.

And finally, we continue to enable more users to participate in our ecosystem more productively through business model innovation and our license compliance initiatives.

With single sign on for improved security and user level reporting our premium plant enables our customers to manage their software usage across distributed sites more safely and efficiently.

As we help our customers understand the details of how they use our solutions the better we can ensure the success by efficiently and effectively implementing them.

For example, does that a group with 17 subsidiaries worldwide specializes in planning automation digitization and maintenance of customized biopharmaceutical facilities for a septic process solution.

Is that I was looking for better visibility into its employee software usage and easier administration of subscribers in Q4 with double the number of premium plan subscriptions to gain comprehensive employee level reporting premiere insight and easier administration.

That visibility into employee software usage and easier administration of subscribers also makes premium plans an attractive solution for customers seeking to remain license compliance for example, after identifying a multinational consumer product company based in the U S had gaps in this account plan, we worked with the team to run a diagnostic scan to ensure.

Is it access to the latest and safest versions of our software.

This process identified gaps in software availability and license mix.

Our collaborative hope who approach and people with more users to access the latest versions of our software and upgrading to our premium plan easier to administer and manage asked us in the future.

During the quarter, we closed 16 deals over $500000 of the restart license compliance initiatives four of which were over $1 million.

As I said earlier by both leading and partnering with our customers on new ways of working we will grow too.

While there will certainly be twists and turns on the road ahead in many ways. The pandemic has accelerated the future and increase my confidence in our strategy.

Following the innovators of design and make technology to achieve a new possible also enables them to build a manufacturer efficiently and sustainably we continue to execute well in challenging times and look forward to all of the next 40 years of excitement and optimism.

Operator, we would now like to open the call up for questions.

Certainly ladies and gentlemen, if you have any questions. At this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.

First question comes from the line of Phil Winslow from Credit Suisse. Your question. Please.

Great. Thanks for taking my quick question on and congrats on the quarter Andrew.

Question on you referred to you about the supply chain and the labor disruptions, we've talked about on the last call I Wonder. If you can just give us an update on that sort of what were you hearing from customers over the course of the past.

Three months and then it really if you could particularly focus on the AUC vertical but just one of the things you. Obviously you did call out in the slides.

Record construction robbery.

Accelerated growth there thanks.

Yes. Thank you Phil good to hear from you.

Yes, So first let me kind of frame it this way.

What we saw was the kind of improvement we expected to see when we talk to you about this in Q3. So we saw some nice improvement our customers are saying, they're feeling like they are coming out of some of these supply chain constraints. Our partners are echoing some of these things we didn't see the op too much <expletive> expectations, we had at the bigger.

Getting of the fiscal year, when we expected to see acceleration in the second half, but what we saw was consistent with what we told you in Q3 in terms of the improving climate alright. So.

Zinc with regards to AUC in particular, which by the way I highlighted last quarter as being the key place. It was feeling the most supply chain and cost pressure in terms of in flight projects, that's where we that's where we saw that improvement and yes. We did we did have a record quarter in construction and we did end the quarter with some nice <unk>.

Nice acceleration and momentum heading into next year, but consistent with what we said in Q3 alright.

Got it and then just in terms of the backlog of projects you've been talking about for a couple of couple of years now.

Any thoughts on what sort of the customers are telling you about that.

Do you think theyre going to get unstuck in sort of taking care of call. It over the next 12 months or how are they thinking about that backlog.

Yes, so what I can tell you is we monitor bid board activity and we monitor the growth in active projects on construction cloud Bim 360, docs and what we're seeing in bid board is we're seeing consistent growth in bidding activity and we're seeing an increasing.

A number of monthly active projects on our our cloud applications around construction cloud and $60. Those are usually leading indicators of project activity.

And backlog getting turned into active projects. So that we considered those good signs alright in terms of in terms of how the environment is moving.

Great. Thanks, guys I appreciate it.

Yes.

Thank you. Our next question comes from the line of <unk> from Barclays. Your question. Please.

Okay, Great, Hey, Andrew Hey, Debbie Thanks for taking my questions here.

Andrew maybe maybe for you.

Big renewal year here in fiscal 'twenty three.

As we start to see maybe some more of those three year product subscriptions come up for renewal this year.

The data is sort of showing the preliminary data maybe.

Sort of customers' willingness to renew.

Same duration and perhaps just as importantly, their willingness to sort of expand their usage from prior levels does that makes sense.

Yes, it does make sense in the short answer to this bucket is that.

The willingness to renew is the same or in some cases better than the willingness to renew the shorter duration contracts, so customers, who like long duration contracts, who liked the price lock tend to continue to grab the price lock and move on and that's what we've seen.

So far now in terms of.

Their willingness to buy more.

That's going to depend on their individual circumstances, so I'm not going to give you any kind of specific numbers on how we're doing around their willingness to buy more however, the net revenue retention rates for the company are indicative of kind of how the global cohort or the company works with regards to this so Debbie would you like to add anything to that or comment on it.

No I think you've covered it Andrew.

Okay.

Got it got it Debbie maybe for my follow up for you.

That impact on cash flow now that we have.

Sort of revised fiscal 'twenty three view again I understand it's early but any thoughts on kind of how you think that works.

And the best way to think about modeling that.

Yeah sure so.

We aren't giving specific guidance today for fiscal 'twenty, four and beyond as you know that as you can imagine it's a big area of focus for us and we are retaining the framework that we set out at Investor day. So, let's just recap that again it is double digit revenue growth through fiscal 'twenty.

non-GAAP operating margins in the 38% to 40% range and double digit compound annual growth in free cash flow through fiscal 'twenty effect now that after that expected decline in fiscal 'twenty four when we institute our transition to annual billings for multiyear contracts.

And as I mentioned in the prepared remarks. These metrics are intended to provide a floor to our revenue growth ambitions and a ceiling to our spend growth expectation.

In terms of the decline for free cash flow specifically in fiscal 'twenty four I know, there's a lot of interest in both the magnitude of it and the slope of it.

And while we're not providing specifics today here is how I think you should think about it.

Let me start with the slope.

Most of the free cash flow decline and then its recovery is going to depend on the pace at which our customers adopt annual billing right now and are we in.

Tend to offer our customers a choice, but we're still working through the programmatic details.

Our bias is going to be to go as quickly as possible, but we have customer partner and operational constraints that we're working through as we navigate the transition.

And then to give you an order of magnitude I'd say looked at long term deferred as a percent of total deferred back in fiscal 'twenty. It was in that high Twenty's percent zone, and we should see something similar in fiscal 'twenty three because it's that same cohort that's coming up for renewal.

We will give you updates on all of this as we progress through fiscal 'twenty three.

Got it.

Oh sorry please.

No no. Please go ahead, Andrew no no. Please.

One thing that excites me about this post annual billings transition is that the free cash flow starts tracking to the long term strategic drivers that I really like talking about the <unk>.

Digital transformation drivers that we talked about at Investor day, including in the adjacent industries, where we're going in these things are going to be what track and drives the growth and the behavior of the free cash flow going forward as well as labeling all those leveraging all those growth enablers around business models and around noncompliance and also don't forget.

Long term, our whole effort to monetize the long tail.

It's going to be a really great outcome for us.

Makes a lot of sense, thanks for the color guys.

Thank you. Our next question comes from the line of Jay <unk> from Griffin Securities. Your question. Please.

Got it thanks, good evening Andrew.

Andrew Debbie in your slide deck is interesting in disclosing the 6 million subscribers at the end of the fiscal year.

Which indicates an increase of about 700000 from the end of fiscal 'twenty one.

Is it contemplated in your guidance for fiscal 'twenty, three that you might be able to add a similar if not larger number.

To the sub space this year.

Second question your disclosure about the digital sales revenue range is very interesting.

Having grown now apparently this will be the plurality of your direct revenue.

Is it your view Andrew that the digital sales could be.

Become perhaps evenly split with the named accounts in EMEA business or do you think named accounts in EMEA.

The majority of the direct business.

Yeah. So first let me address your first question.

As you recall last year.

And this was on me we had those op too much thick assessments of accelerating new business growth into the second half of the year, we're not assuming any of that moving into this year, we're assuming things stay.

Lastly, as they are and as the conditions that we see right now.

The exception I'll give you that is that in our guidance, we did not factor in warm Ukraine.

That might affect our business is.

Clearly unclear I thought probably all of you heard president <unk> speech earlier today about where it is.

Good positions on that but when it comes to looking at next year.

We're assuming that current things move forward.

They are alright, and also just remember that some of those subscriber increases that you saw were a result of multiuser trade ins as well I just want to make sure that we go after some of those things, but current course and speed is the general assumption here.

Now with regards to.

Digital sales.

It's a great example.

Fastest growing channel.

Not growing at the expense of our partners our partners are growing robustly as well.

Also a great example of what we're doing with digital productivity for ourselves and for our sales force.

Digital channel reach of customers that we believe we have not historically been serving well and they have they are not only finding us and buying our existing offerings. They are also engaging in some of our more forward looking offerings like fusion 360, So that channel is going to continue to become more powerful and as I've said many times before.

Sure.

As we look out to our long term goal of half of our revenue being direct half of that direct revenue was going to come from this digital channel and clearly you can see from what we've disclosed in the growth rates here. There is line of sight those numbers over multiple years and that channel is going to continue to help us reach deeper into the long tail is going to continue to benefit.

From the digital productivity tools, we're building just can make our general overall salesforce more productive.

And I have high hopes for that channel in the future now Debbie did you want to add anything about for instance, since I mentioned.

The Ukraine situation anything around the specifics about our exposure there.

Or anything related to that or anything about the digital channel.

Yes sure.

I'll cover our Russia and Ukraine.

Just to be explicit Russia, and Ukraine, they represented a bit less than two percentage points of our total revenue in fiscal 'twenty two.

And we have similar assumptions in our fiscal 'twenty three rollout obviously and then are unfolding lives. This is a very fluid situation. It's a coincidence that our earnings call is today. So we haven't baked anything any potential risks that might occur there into our guidance, we're going to be watching things closely bit.

At this point, we don't know if theres any impact at all we don't know if there is impact if it would be localized to Russia, and Ukraine, specifically or whether or not it becomes a broader impact across Europe and beyond it's just too early for us to tell.

What I would say, though is that as we pointed out at our Investor day, our business is more resilient now after the business model transition. So that's that's one positive in the midst of all this.

But as you can imagine it's obviously a situation.

We're watching really closely and we'll continue to update you mean Omar.

Thank you very much the net the net headline as Jay.

We've assumed that things are going to continue as they are current course and speed. There is no acceleration no no anticipated uplifts or anything that we do.

We were looking.

Looking forward in the coming in guidance.

The government on forward guidance.

Understood. Thank you.

Thank you.

Thank you. Our next question comes from the line of Adam Borg from Stifel. Your question. Please.

Hey, guys. Thanks, so much for taking the question.

Maybe just on the new product prescription growth in the quarter last quarter, you talked about that moderating to the mid twenty's after kind of being in the 30% range in the first half of the year I guess, how does that play out in <unk> and I'm, assuming based on your prior comments Andrew that whatever you saw in the back half of the year Youre, assuming that going forward, but I love to hear a little bit more color.

You can about how that played out and forecast.

I'm going to let Debbie.

Yeah sure I'll go ahead and take this so Adam yes, we have been talking quite a bit about new volume and it is a metric that we monitor very closely.

Our new volume growth decelerated, a few points in Q4, and that's because of a tough comp versus Q4 of last year, but the growth was very healthy and it wasn't in line with our expectations.

So that growth is effectively what we're considering as we build our guidance into next year and to just reiterate what Andrew has been saying.

We're assuming that the demand environment, including that new volume growth.

Built into our guidance and that there's no changes to the upside or the downside as we look ahead.

But the bottom line answer is that big.

Volume growth decelerate or viewpoints, but it was as we expected and so was very healthy growth.

Great that's really helpful and maybe just as a quick follow up.

Great to see the growing traction with Autodesk construction cloud and kind.

As you look at our forward a few years, maybe for you Andrew how expansive do you view the ACC opportunity relative to the current portfolio and do you have any interest at all to go deeper into the financials of aspects. Thanks, so much.

Yeah, certainly at some point, yes, but.

Look I've always said that we believe the construction business is Autodesk next billion dollar business.

And.

I'd like to add just for those of you are looking at these things you're probably using make the make revenue growth as a proxy for what we're doing and I want to make sure that you remember that because we have a diversity of business models and we offer.

Consumption models.

Account based model of subscription models that we blend the actual ACC business between our design bucket in our make bucket. So if you look at if you. If you if you account for EPA impacts on the <unk> side of the business that makes side of the business grew about 30% alright. So we're looking at good.

Robust growth here.

Expect that growth to continue and I continue to say that construction is not enough next $1 billion business that should be the expense expectations of alcohol.

Great. Thanks again.

Thank you. Our next question comes from the line of Matthew Hedberg from RBC capital markets. Your question. Please.

Alright, Thanks, guys, Andrew obviously, it's great to hear the results on the construction cloud side.

On the manufacturing side of your business, maybe using a baseball analogy, where do you think we are at in sort of the build out of the manufacturing cloud business relative to maybe where you wanted to get to at some point.

Yes, it's a great question, Matt because we're kind of in this transitional phase now where we built out the technology, we've gotten to the early adopter audiences. We've established a strong strong hold a strong base for the product a strong kind of early early market for infusion I mean, you heard.

The opening commentary about the 189000 plus subscribers, we're now moving into the phase of kind of trying to drive the acceleration of growth in.

That space I think we're early on.

It's probably.

The third third inning or so in the process right, we're starting off on a good pace.

That's the threshold that we've got as subscribers here.

The history of this whole space that is an excellent threshold to build on that's usually where you start to cross the threshold of getting more and more material to the business and we've had a leadership transition recently with Scott Reese, taking a great job off too to go work for GE, one of our customers by the way, which is always good it really.

Happy for him and Jeff Kinder is stepping in as part of the succession planning process, there and Jeff Kinder cares a lot about scaling and scaling growth and scaling transformation and I think his skill set is going to provide some excellent capabilities. In this next phase, but it's still really early alright, its still third third.

Any ish in this game and I think we should expect that to look like that but over the next five years again. This is going to be a significant driver of that growth that we've been talking about beyond fiscal 'twenty four.

That's great and then maybe just as a quick follow up I think it was about a year ago, maybe with some of the supply chain questions first started coming up when you talked to a number of your partners who suggested that if people were using autodesk.

As a way to reduce waste and just become more efficient with tight supply markets.

Yes.

Absolutely it would only be kind of become more important so we actually have.

Really compelling stories of.

Old line industrial companies using fusion 360 for example, it is generative capability to actually light weight and takeout math from products and reduce their material usage for things that simple as hydraulic equipment right real world Examples and we're seeing more and more of that with regard.

The construction every redo that you eliminate is.

As a waste.

Reduction in waste and carbon footprint for that particular project and as you know more and more it's not becoming a choice for construction firms.

Becoming a requirement there are more and more mandates about what the carbon footprint of a particular.

The project has to be both it's embedded.

Our newest technology simply because it helps them address that key challenge.

So their businesses to be more sustainable and to be greener.

Super exciting thanks, Thanks, Andrew.

Okay.

Thank you. Our next question comes from the line of Joe <unk> from Baird. Your question.

Great Hi, everyone.

First question I was just more of a fact check on my part, but I'm I'm wondering is.

If the only change in the formal guidance you are providing today versus the preliminary data you provided last quarter Nuomi difference is just the strengthening of the dollar and the incremental.

One is that correct.

That's correct.

Overall headline is that the numbers are consistent with what we talked about last call. We've just adjusted them for our latest FX assumption and Thats.

Causing about a point of headwind to revenue growth and another about $30 million, an incremental headwind to free cash flow and thats been baked into the guidance.

Okay. Thank you and then second question, Andrew I know you said that.

Okay.

Maybe isn't the leading indicators that it once was but nevertheless, it did accelerate pretty nicely here at year end.

And it might have been your fastest growing because since you removed the upfront contribution from media. So I'm just wondering if there's anything to kind of read between the lines there.

I think it is commensurate with an increase in monthly active usage, which I still think is becoming a better proxy. So for instance, our total monthly active usage of all of our products increased over 10% in Q4 year over year. So those two things.

Orally pretty closely and I.

That's still the proxy, but youre right I think I think the Autocad performance is a result of that strong monthly active usage performance that we're starting to see.

Heading into the fiscal year.

Great. Thank you very much.

Thank you. Our next question comes from the line of <unk> from <unk>. Your question. Please.

Alright, Hey, great Hey, Thanks for taking my question.

I was wondering.

About your.

In Q4.

The elimination of toning down the multiyear discounts.

Kind of what was the reaction to that and kind of how do you how do you gauge that.

It will look like going forward and then just just for housekeeping.

I missed the comment that very started the call about what drove the other line did very well and I think there were some upfront revenue. There could you just provide you that color again, thanks very much.

Thanks, Steve.

Last one factor, but let's start at the top are on multiyear. So yes, we did see a discount change from 10% to 5% with last quarter and obviously when we adjust pricing we do see some customers take advantage of the window and buy ahead of that when the price change goes into effect, we saw similar behavior with this price.

And that's as expected.

We're always going to be looking at ways to optimize our business. This is just one example of that and I also say that.

The multiyear renewal rates remained firm even after that discount reduction.

And then in terms of other revenue.

Yes other revenue.

<unk> to be a little bit of a mixed bag, but the other revenue is in part what drove the beat in our Q4 revenue.

Piece of that the big piece of that is non cloud enabled products that we sell through our <unk>.

That are recognized upfront, we typically see our highest EBITDA volume in Q4 and depending on the composition of those deals that can sometimes drive a slight serge.

Front revenue as a result, and that's what we saw in Q4 and the beach in and what Youre seeing it in other.

To expect however that upfront and other is going to be a relatively small part of our business over time and that recurring revenues should be 95% or greater.

Terrific great. Thanks, a lot congrats on the quarter.

Thank you. Our next question comes from the line of Sterling Auty from Jpmorgan. Your question. Please.

Yeah. Thanks, Hi, guys, Debbie I wanted to circle back to cash flow you had made mentioned that there's some constraints from customers and partners on the shift to annual billings can you give us maybe a quick example, but some of those constraints might be and why you might not just be able to rip off the band aid and move quicker to annual billings now.

Yeah, So as I mentioned back at the Investor Day.

We do the first part is operational so.

We are upgrading our system to be able to handle this volume.

Multiyear contracts with annual billings at scale, our systems provide so that capability today and it's a major system overhaul that we're working on and it's going to take us some time and we're looking at how fast we can create that capability and over what time period again, I'd say that our biases that we execute on this transition.

And right away when we get to fiscal 'twenty four but it is going to take US time and continued investment in both dollars and people to make sure that our systems are set up for that and so we're looking at that right now the second piece that we talked about at Investor day that.

It is important to us is that our partners are very important to autodesk very important to our growth very important too in our ability to drive breadth and depth across the globe and engaging with customers and our partners, we want to make sure that we work with them.

Making sure that we've set ourselves up for success in the entire ecosystem as we get to that startup fiscal 'twenty four.

Understood makes sense and then maybe one follow up.

Outside of the $30 million FX headwind on free cash flow for fiscal 'twenty three.

Would we kind of think about the bridge from the guidance that you've given to the previous long term charter that was there.

Sure.

And then we have an incremental $30 million.

<unk> now given the continued strengthening of the dollar in the last 90 days.

So net net it's about 100 million and macro.

Well again that we highlighted on the last call and then a total of $130 million risk from FX and that continued strengthening of the dollar and that's why you see the midpoint of the guide right there at that $2 $1 7 billion.

Thank you. Our next question comes from the line of Jason <unk> from Keybanc capital. Your question. Please.

Great. Thanks for fitting me in maybe just a couple for Andrew I kind of want to go a little deeper.

On the architecture side of your business and this is obviously youre your bread and butter.

Would you describe kind of the end market environment right now for that segment and then what kind of growth initiatives should we be thinking of for this year and long term.

Yes so.

Architecture is coming out of there.

The situation coming out of the pandemic, we've seen that they're there.

The index that drive.

Architecture activity is going up consistently so architects are feeling better about the future and architecture are also investing more in that.

As a critical part of their transition from two D based practices to truly based practices. So that trend is going to continue that's part of the bigger long term digitization trend that we're seeing in architecture in particular more and more people are moving into <unk> processes <unk> been looking to adopt <unk>.

And tools like rabbit more aggressively so that they can stay competitive in the new world markets. It's also a lot of increased labor productivity for them. So they're going to be looking at some of these new tools that allow them to do more with with the with the labor pool, they have especially on the tight labor market. So that's that's where we're looking at with construction the ongoing.

Digitization move to Ben that's going to accelerate as architects continuing to get more optimistic about their project pipeline, but all the data is out there, saying that we're seeing a better pipeline for the architectural segment.

And then when I kind of just think about the architecture job.

Is it unfair to think that maybe that roll in particular, it's been hit harder than some of the debt.

Other jobs within AUC.

But it certainly was hit harder early on there is no doubt about it alright it was.

It was the least prepared for remote work because it was essentially an office type profession. It has adapted.

They are certainly adopted our cloud based tools at a rate significantly higher than prior to the pandemic. So they've gotten onto team collaborate and didn't collaborate pro at higher rates than we ever saw previously so they are adapting but yes early on in this pandemic in the last few years they were hit.

Relatively harder.

But they are coming back and they are adapting they still have to build up their book of business. They still have to build up their cushion, but that segment is absolutely coming back.

And it's coming back in the cloud too.

Thank you that's all the time, we have for Q&A today, I will now hand, the program back to Simon Mays Smith for any further remarks.

Thanks, everyone for coming along if you have any further questions. Please do get in touch with me otherwise, we'll look forward to updating you on our Q1 results. So thanks so much.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.

Q4 2022 Autodesk Inc Earnings Call

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