Q4 2023 Autodesk Inc Earnings Call

February 23, 2023

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

[music].

Thank you for standing by and welcome to Autodesk fourth quarter and full year fiscal 2023 results conference call.

At this time all participants are in a listen only mode. After.

After the speaker's presentation, there will be a question and answer session to.

To ask a question during the session you will need to press star one one on your telephone.

I would now like to hand, the call over to Simon Mays Smith Vice.

This president of Investor Relations. Please go ahead.

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss our fourth quarter and full year fiscal 'twenty three result.

On the line with me, Andrew Annick, Nostos, CEO and Debbie Clifford CFO .

Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at Autodesk Dot Com Ford Flash Investor.

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

During this call we may make forward looking statements about our outlook future results unrelated assumption 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.

Our most recent Form 10-Q, and 10-K and the form 8-K filed with today's press release for important risks and other factors 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.

<unk> disclaims any obligation to update or revise any forward looking statements.

During the call we will create several numeric or 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.

Our strong financial and competitive performance in fiscal 2023, despite macroeconomic policy geopolitical and pandemic headwinds is a testament to three enduring strength resilience opportunity and discipline.

While we fell short of the fiscal 'twenty three goals, we set in 2016, our resilient business model and geographic product and customer diversification enabled us to deliver strong growth and report record fourth quarter and full year revenue GAAP and non-GAAP operating margin and free cash flow with some of our revenue.

Growth in free cash flow margin, a hallmark of the most valuable companies in the world with 55% for the year.

As we deliver next generation technology and services to our customers the transformation within and between the industries, we serve will accelerate generating significant new growth opportunities for autodesk.

We started seeing the shift towards connected digital workflows in the cloud and product design and manufacturing and architecture, followed by building engineering and more recently construction and we are now seeing growing momentum with owners for example in Q4, our partner BLM been launch Alliance.

With selected by a consortium of 20 U S States led by the Iowa Department of transportation to facilitate the migration from legacy to the project delivery processes to data rich beam delivery processes, which are more efficient and sustainable in anticipation of this the department of <unk>.

<unk> involved are also completely re imagining project delivery and developing open standards for all infrastructure projects together.

Together these 20 states encompass more than 60% of the U S population.

Over time, we expect more states and more owners across the globe to connect more workflows in the cloud.

Finally, our strategy is underpinned by disciplined and focused capital deployment through the economic cycle. This enables the autodesk to remain sufficiently well invested to realize significant benefits of our strategy, while mitigating the risk of having to make expensive catch up investments in the future.

Of course discipline and focus me not only consistent investment, but also constant optimization to ensure investment levels remain proportionate and directed at our largest opportunities for example, autodesk Bim collaborate pro for civil <unk>, which enables much more efficient collaboration on civil.

Structure projects saw further significant enhancements in Q4 to support our work with public sector owners in the United States Autodesk for government expects to achieve fed ramp moderate authorization soon.

Meaning that through our partnership with the General services administration customers will be able to start using our industry, leading cloud collaboration and document management tool that meet key security standards for U S government projects.

Also pleased to report that <unk> had a record quarter driven by adoption in a growing proportion of our enterprise accounts, which contributed over $1 million for deal.

Infrastructure is but one part of an expanding opportunity product out there are so many more and we'll tell you about them at our Investor Day on March 20 <unk>.

You can see some of the fruits of that opportunity already we signed our largest ever EPA in the fourth quarter encompassing more personas and connecting more workloads in the cloud to drive efficiency and sustainability.

I'll now turn the call over to Debbie to take you through our quarterly financial performance and guidance for the year.

I'll then come back to provide an update on our strategic growth initiatives.

Thanks, Andrew.

Our fourth quarter and full year results were strong.

<unk>.

The environment in Q4 remained consistent with Q3.

You're approaching transitioning from upfront annual billings for multiyear contracts and a large renewal cohort provided a tailwind to billings and free cash flow.

As Andrew mentioned, we continue to develop broader strategic partnerships with our customers and closed our largest deal to date during the quarter.

The nine digit deal is a multiyear commitment billed annually and did not have a meaningful impact on our financials during the quarter.

Total revenue grew 9% as reported and 12% in constant currency with subscription revenue growing by 11% as reported and 14% in constant currency.

Byproduct Autocad and Autocad LT revenue grew 9% and AUC revenue grew 11%.

Manufacturing revenue grew 4%, but was up mid teens, excluding foreign exchange movements and upfront revenue.

<unk> revenue was down 10%.

Call that in Q4 of last year.

When its largest ever EMEA, which included significant upfront revenue.

Excluding upfront revenue M&A grew 4%.

Across the globe revenue grew 13% in the Americas, 7% in EMEA and 4% in APAC.

Constant exchange rate.

And APAC grew 12 and 10% respectively.

Direct revenue increased 5% and represented 36% of total revenue.

Strong underlying enterprise and E Commerce revenue growth was partly offset by foreign exchange movements and lower upfront revenue.

Our product subscription renewal rates remained strong and our net revenue retention rate remained comfortably within our 100% to 110% target range at constant exchange rates.

Billings increased 28% to $2 1 billion, our first quarter over $2 billion, reflecting continued solid underlying demand and.

Tailwind from both our largest multi year renewal cohort and the pending removal of the discount for multi year contract build upfront.

Total deferred revenue grew 21% to $4 6 billion.

Total rpms of $5 6 billion and current RPI of $3 5 billion grew 19% and 12% respectively.

About two percentage points of that current RPI growth was from early renewals.

Turning to the P&L non-GAAP gross margin remained broadly level at 92%.

non-GAAP operating margin increased by one percentage point to approximately 36% with ongoing cost discipline, partly offset by revenue growth headwinds from foreign exchange movements.

For the fiscal year non-GAAP operating margin increased by four percentage points, reflecting strong revenue growth and ongoing cost discipline.

GAAP operating margin increased by nine percentage points to approximately 21%.

Recall in Q4 of last year, we took a lease related charge of approximately $100 million.

That was part of our effort to reduce our real estate footprint and to further our hybrid workforce strategy.

For the fiscal year GAAP operating margin increased by six percentage points.

We delivered record free cash flow in the quarter and for the full year of more than $900 million and $2 billion, respectively, reflecting our strong billings growth.

Turning to capital allocation, we continue to actively manage capital within our framework.

As Andrew said, our strategy is underpinned by disciplined and focused capital deployment through the economic cycle.

We will continue to offset dilution from our stock based compensation program and to Opportunistically accelerate repurchases when it makes sense.

During Q4, we purchased one 1 million shares for $210 million at an average price of approximately $193 per share.

For the full year, we purchased five 5 million shares for $1 1 billion at.

At an average price of approximately $198 per share and reduced total shares outstanding by $4 million.

We retired a 350 million bond in December .

Recall that we effectively refinance this bond in October 2021 at historically low rates when we issued our first sustainability bond.

Our average bond duration is now almost seven years.

Now, let me turn to guidance.

Our strong finish to fiscal 'twenty three sets us up well for the year ahead.

Overall end market demand in Q4 fiscal 'twenty three remained broadly consistent with Q3 fiscal 'twenty three.

Channel partners remained cautiously optimistic usage rates grew modestly, excluding Russia, and China and bid activity on building connected remained robust.

As we said last quarter foreign exchange movements will be a headwind to revenue growth and margins in fiscal 'twenty four.

We expect FX to be about a four percentage point drag on reported revenue.

We continue to expect the absence of recognized deferred revenue from Russia will be about a one percentage point drag to revenue growth.

As we've highlighted before most recently on our Q3 earnings call. The switch from upfront annual billings for most most of our customers creates a significant headwind for free cash flow in fiscal 'twenty, four and a smaller headwind in fiscal 'twenty five.

You can see the impact on fiscal 'twenty, four and slide eight of our earnings deck.

Change in deferred revenue increased fiscal 'twenty, three free cash flow by 790 million, but will reduce fiscal 'twenty four free cash flow by approximately $300 million.

The switch to annual billings for multiyear customers and a smaller multiyear renewal cohort are the key drivers of this $1 1 billion swing.

The transition will also affect the linearity of free cash flow during the year with Q1 fiscal 'twenty four free cash flow benefiting from the strong billings in Q4 fiscal 'twenty three.

And our largest billings quarters in the second half of the year proportionately more impacted by the switch to annual billings.

While we expect many customers to switch to multiyear contracts billed annually some may choose annual contracts instead.

All else equal if this were to occur it would proportionately reduce the unbilled portion of our total remaining performance obligations and would negatively impact total RPM growth rates.

Deferred revenue billings current remaining performance obligations revenue margins and free cash flow would remain broadly unchanged in this scenario.

Annual renewals create more opportunities for us to drive adoption and upsell better without the price lock embedded in multiyear contracts.

We will keep you updated on this as the year progresses.

Our cash tax rate will return to a more normalized level of approximately 31% in fiscal 'twenty four up from 25% in fiscal 'twenty three.

We accrued significant tax assets as a result of the operating losses, we generated during our business model transition.

Growing profitability and more recently rising effective tax rates across the globe have accelerated the consumption of those tax attributes.

Absent changes in tax policy, we expect our cash tax rate to remain in a range around 31% for the foreseeable future.

Putting that altogether, we expect fiscal 'twenty for revenue to be between 536, and $5 $4 6 billion up about 8% at the midpoint or about 13% at constant exchange rates and excluding the impact from Russia.

We expect non-GAAP operating margins to be similar to fiscal 'twenty three levels with constant currency margin improvement offset by FX headwinds.

We expect free cash flow to be between 115, and one 5 billion.

The midpoint of that range $1 2 billion implies a 41% reduction in free cash flow compared to fiscal 'twenty three.

As I outlined earlier, the key drivers of that reduction or changes in long term deferred revenue as a result of the shift to annual billings for multiyear customers.

And the smaller multiyear renewal cohort FX and our cash tax rate.

The slide deck and excel financials on our website has more details on fiscal 'twenty three results and modeling assumptions for the full year fiscal 'twenty four.

At Investor Day, we will be looking beyond this year.

As Andrew noted earlier, we remain in the relatively early innings of a transformational shift to the cloud to drive efficiency and sustainability.

This is generating demand for cloud based platforms and services, which breakdown the silos within and between the industries we serve.

Autodesk is uniquely well positioned to seize these opportunities and we will continue to invest with discipline and focus to realize that growth potential.

While our subscription business model and geographic product and customer diversification gives us resilience when compared to many other companies.

We're mindful that generational macroeconomic policy geopolitical climate and health uncertainty make the world more volatile and less predictable than in the past.

Our business will grow somewhat faster and less volatile environments and somewhat slower and more volatile environment.

Finally, we're not just looking to have industry, leading growth, although we often do.

Or are we just looking to have industry, leading margins, although we often do.

On average and overtime, we are looking to have an industry, leading balance between growth and margins and we often do.

We think this balance between compounding growth and strong free cash flow margins captured in the rule of 40 framework is the hallmark of the most valuable companies in the world and we intend to remain one of them.

With all this in mind, our target planning parameters over the next several years will be to grow revenue in the 10% to 15% range and generate free cash flow margins in the 30% to 35% range with a goal of reaching a rule of 40 ratio of 45% or more over time.

The path to that 45% ratio will not be linear given the drag in fiscal 'twenty four 'twenty five to long term deferred revenue and free cash flow from the shift to annual billings of multiyear contracts.

The rate of improvement will obviously also be somewhat determined by the macroeconomic backdrop.

Let me be clear, we're managing the business to this metric and we feel it strikes the right balance between driving topline growth and delivering on disciplined profit and cash flow growth.

We intend to make meaningful steps over time toward achievement of this rule of 45 goal regardless of the macroeconomic backdrop.

While macroeconomic and FX headwinds along with sustained but disciplined investments in our products and platforms will slow the rate of margin improvement. We continue to expect non-GAAP operating margins to be in the 38% to 40% range by fiscal 'twenty six, albeit more likely.

Now in the lower half of that range.

<unk> to see scope for further margin growth thereafter.

GAAP margins will further benefit from stock based compensation as a percent of revenue trending down towards 10% and beyond over time.

Andrew back to you.

Thank you Debbie.

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

I will tell you more about our long term vision and plans at our Investor Day on March 20, but let me finish by updating you on our progress in the fourth quarter.

We continue to see strong growth in AUC fueled by customers consolidating on our solutions to connect previously Siloed workflows in the cloud to.

Waco, Europe's leading architecture and engineering consultancy connecting our portfolio products base maker in rabbit to Autodesk construction cloud and in Avaya to streamline everything from transport and energy usage have lighting and water flows to ensure better transparency to the project lifecycle.

<unk> has a thriving sustainability practice.

With new digital service carbon cost Compass, which is built on Autodesk platform services helps its customers model and calculate the carbon footprint and cost different types of buildings.

For our construction customers, we continue to benefit from our complete end to end <unk> solutions, which encompass design preconstruction and field execution in Q4 at mid market General contractor in California specializing in design build projects chose to replace a competitive project management office.

During with Autodesk Bill as it look to improve integrations further and minimize conflict with their design process.

While highlighting both cost management functionality as a differentiator the customer ultimately chose autodesk because of our long standing and trusted partnership and shared vision on the future of construction.

We continue to make excellent progress on our strategic initiatives, which is driving accelerating adoption of autodesk construction cloud we added almost a thousand new logos again drove continued rapid growth in Autodesk builds mall and generated three X quarter on quarter growth in our construction bundles, which.

Multiple autodesk construction cloud solution and enable customers to standardize more rapidly on one platform.

Outside the U S, enabling our international channel partners to sell our construction portfolio continues to drive strong growth.

We still see strong growth potential in construction and autodesk remains uniquely well positioned to capture it.

In manufacturing Tata steel one of the world's leading steel manufacturers has used our solutions to increase efficiency and reduce cost in setting up new operations to optimize effectively between its equipment civil structural and plant infrastructure team taught us steel uses autodesk AUC.

And manufacturing collection and ball.

Through the integration of data from various vendors on a single platform.

<unk> Leverages simulation in class detection in a virtual environment, eliminating potential conflicts that can have a huge impact if they occurred during physical installation.

In automotive, we continue to strengthen and expand our partnerships both within and beyond the design studio as Oems transform and connect factories.

A leading manufacturer in the U S expanded at DBA in Q4, leveraging the cutting edge visualization technology in DRAM CRO to more effectively process executive design reviews and reached final designs more quickly.

<unk> is now partnering with the customer as it renovated factories for a new fleet of electric vehicles, ensuring a controls the construction flow and owned its own data by standardizing on Autodesk construction cloud.

Customers are also beginning to merge their design manufacturing and production management workflows with fusion in <unk> in Q4, a manufacturer based in the UK, which has more than doubled in size in the last 18 months.

Rich from our competitors CAD tool for fusion 360, and extensions for its integrated CAD and Cam capability.

With <unk> as part of its connected platform the customer can instantly generate a bill of materials after creating a design and linked directly to inventories eliminating tedious work and saving time for higher value opportunities.

We ended the quarter with 223000 fusion 360 subscribers, a number which does not include extensions where units increased more than 100% year over year. During the quarter, we launched the signal integrity extension for fusion powered by Anthos, which enables designers to analyze their PCB electromagnetic performed.

Ensure compliant products and power a faster development cycle at lower cost, we continue to see strength in pls, signing our largest ever cloud data management deal and growing more than 30% in the quarter in.

In education, leading universities continue to modernize their courses insurance students will learn the in demand skills of the future at North Pompeia University to procedures designed for industries program students are now choosing to use fusion 360 within their design process and across many of their modules along with real World live projects.

Led by industry partners their switches, primarily down to ease of use and cross platform availability.

Our software remains free for educators and students Tomorrow's design leaders are bringing fusion 360 to new and established manufacturers.

We will continue to evolve our business model offerings to match customer needs and enable users to participate in our ecosystem more productively for example, a European manufacturer with operates in over 100 countries and six R&D facilities worldwide transition to our named user model with premium plan, providing enhanced security.

From single sign on and improved efficiency from $24 seven technical support.

Our partners had mentioned machine supported the transition, which deal with detailed knowledge and analysis of the customer's usage behavior, resulting in an optimized west token package for its occasional users providing them with ongoing software access without requiring a full time prescription.

And finally, we continue to work with Noncompliant users defined flexible and compliant solutions that ensure they have access to the most current and secure software during the quarter. We closed nine deals over $1 million and 23 deals over $500000 with our license compliance initiatives.

Returning to where I started resilience opportunity and discipline were important contributors to our fiscal 'twenty three results and will remain the key drivers of our future success. We're excited to share our plans with you at our Investor Day on March 20.

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

As a reminder to ask a question you will need to press star one one on your telephone again Thats Star one one on your telephone to ask a question. Please standby, while we compile the Q&A roster.

Our first question.

Comes from the line of <unk> Kalia of Barclays.

Question. Please.

Okay, Great Hey, good afternoon, guys. Thanks for taking my questions here.

Debbie maybe maybe for you.

I was wondering if you'd just give us a little bit more context.

How youre thinking about about fiscal 'twenty, four and beyond from a from a guidance perspective.

Sure.

Doing so.

So first the <unk>.

They're all demand environment in Q4 was relatively consistent with what we saw in Q3.

As I drove first into the specifics on the guide for.

For billings of course, we have the.

Multi year to annual billings transition that is creating a headwind as expected the transition doesn't have an impact on revenue. It's just a change in billing frequency.

On revenue as we outlined last quarter, we're seeing a negative impact from FX in the Russia exit together that represents five points of headwind to growth. If we normalize for that the revenue growth range would be in the low teens.

On margin, we're managing to flat margins on an as reported basis year over year, that's consistent with what we said on the last call. We have a strong balance sheet, we have conviction in our strategy. So we want to continue to invest during the cycle. So that we can maintain our momentum but not so much so that we see a detriment.

So our margin outlook.

I want to point out that our margin guide on a constant currency basis represents improvement year on year.

And then finally on cash flow the headwind to billings from the transition to annual billings for the downstream effect on cash flow for us.

As I mentioned in the opening commentary the swing in long term deferred revenue is having a negative impact of around one one to $1 1 billion for fiscal 'twenty for cash flow.

That headwind is driven primarily by that switch to annual billings for most of your customers and if we take that with other factors like a lower multiyear renewal cohort and higher cash taxes to get to that $1 2 billion guidance midpoint.

Our goal is to set ourselves up for success in fiscal 'twenty, four and for the long term and it's that same sort of thinking that's driving how we're thinking about the longer term financial model.

On revenue our target planning range at 10% to 15% it remains in that double digit territory on margin, we're targeting a margin in the 38% to 40% range in the fiscal 23 to 26 window, but we said that because of the macro and FX headwinds that we're seeing we think it's more likely now that it's going to be in the lower <unk>.

So that range and then on cash flow, we will still work towards double digit CAGR growth through fiscal 'twenty, six but it looks less likely now given the impact of cash taxes, FX volatility and a stronger than expected fiscal 'twenty three finish.

We look ahead, we're focused on managing the business to a rule of 45 ratio or better which after we get through this multi year to annual billings transition, we think strikes the right balance between driving topline growth and delivering on disciplined profit and cash flow.

Got it got it that's very helpful.

Maybe maybe a follow up for <unk>, if I may.

I guess now that now the <unk>.

The fiscal 'twenty four is finally arrive if you will can you just maybe walk through a little bit of detail just on on that impact of switching from upfront to annual billings for those multi year contracts.

Yes. It has finally arrived it's nice to finally be having these conversations.

So the transition to annual billings the rollout it's happening on schedule our systems will be ready.

We're assuming that we sell multiyear upfront through March 27th.

And then at the March 28 go lives that we only sell multi year with annual billing terms in mature countries for platinum and gold partners that represents a significant majority of the eligible population where theres going to be some remaining multiyear upfront in the forecast beyond March 27th that's going to be coming primarily from Easter.

Or in emerging countries, but it's relatively small in comparison to the volume that we saw in fiscal 'twenty three and as we move those populations to annual billings will see a follow on headwind to free cash flow in fiscal 'twenty five.

It's consistent with what I said in the opening commentary that the past is not going to be linear.

We're assuming that the same proportion of our business. That's been multiyear remains multiyear we think that the price lock that you get in a multi year contract will entice our customers to continue to buy multiyear, especially in the inflationary environment that we're in but of course, it's possible that some of our customers choose annual contracts rather.

Other than multiyear contracts with annual billing.

That wouldnt impact billings or most other financial metrics in fiscal 'twenty, four but it would negatively impact the total RPM growth rate at the end of the day, it's a win win for US if our customers choose to go with annual contracts. It gives us an opportunity to engage with them upon renewal to drive adoption in uptown and our renewal rates are.

Our strong. So this is something we will keep you posted on as the year progresses.

Got it very clear looking forward to the analyst day guys. Thank you.

Thank you our next question.

It comes from the line of Jay <unk>.

Griffin Securities Your line is open.

Thank you good evening Andrew.

Andrew Let me start with you.

10-Q for the third quarter had some new and intriguing language with regard to how you foresee the evolution of your <unk>.

Sales model, specifically your relationship with the Vars and beds.

And there's a lot of complexities in the language there. So perhaps you could talk about how you would envision.

The evolution of your business in terms of the operational or fulfillment or license management effects that you foresee over time or the margin.

Effects over time.

And where you think your sales mix ultimately goes over the next number of years in terms of direct versus indirect and.

And then a follow up.

Okay, great. So I like the way you highlighted this is an evolution we've been evolving in a particular direction overtime. Obviously several years back I talked about the 50 50 mix of direct and indirect and we've been driving a lot of growth in direct channels, you've been driving a lot of growth in direct enterprise business and all of these things kind of like.

We've together into a longer term plan and now what Youre seeing is doing is we're driving a lot more direct engagement with some of our value added resellers. So some of the changes that you saw in there are pre staging more and more direct engagements with our value added resellers and less but smaller engagements and fewer engagements between intermediates and our value.

Adequate results, which makes total sense between the systems evolution, we've been executing on and the direction we're going.

Long term, we're still driving towards that same time type of balance that we've been talking about but as our systems improve we're looking for different types of engagement models with our value added reseller channel.

Okay.

Question, the slide deck gives us the annual update on your installed base of subscription.

The net increase was about 600000 for the year.

Net of trade ins.

Looking ahead, how does your long term growth.

Model.

Foresee.

Contribution of volume growth and particularly.

The effect as well of improving the richness of the mix, perhaps more collections and so forth.

Bob perhaps by end market, when we think about manufacturing that volume looks like its maybe a 10% of your of your net new volume per year. So you have a lot of volume that has to come from other segments outside of manufacturing. So perhaps you could talk about that.

Sure I'll take that one Jay.

So.

Let's start at the top yes, subscriptions grew and healthy way I just want to remind however that there is a lot of variability in that metric given that we have such a wide diversity of business models in play things like flat EMEA is account based pricing and so on and so forth. So it does make it less and less of a relevant metric for us to manage business performed.

We're more focused on new and renewal ECB. They both posted solid growth in Q4 as.

As we think about <unk>.

<unk>, that's the proxy for I think the spirit of your question, we generate it across both volume and also stronger unit economics things like price mix and partner margins in general historically, we've seen it come from roughly equally across those sources and it kind of flexes up or down depending on the demand environment.

<unk> that we're in and we could see some puts and takes like when Covid hit we saw more growth from volume because.

Volume versus price, because we were more sensitive to price increases at the time the pandemic hit and then obviously when we're in a situation where we.

Change prices at all we might see more growth coming from from price, but all in all as we think about achieving some of the long term growth parameters that I talked about we're thinking about it as a roughly equal split across volume price mix ASP over.

Overtime.

Andrew do you want to comment on that segment.

Thanks, Jay to your comment on statements Alright.

As you know and I know Youre aware.

Look at the various segments, we do business and we are moving in a situation, where we're getting deeply entrenched in both the design and make side of our customer's business. So we absolutely pay attention to the fact that even within manufacturing and ADC in all these segments.

We're going to be adding a lot more subscribers and some of the downstream processes in other parts of the process, which is which is going to be an important engine even within.

Some of the segments that you discussed and I know youre aware of that I, just wanted to reinforce a little bit.

Very good thank you Bob.

Thank you.

Our next question.

It comes from the line of Adam Borg with Stifel. Your question. Please Adam.

Great. Thanks, so much for taking the questions, maybe Andrew or on annualized it was interesting to hear and great to hear about the record quarter, we picked up some growing traction in our check.

Love to hear a little bit more about what's driving this and where we are in the migration my broadly to subscription given it's more legacy business model and then I have a follow up.

Yes, so it's very early in the migration, but in general in advice.

We had a record quarter, alright, and the biggest thing that was driving some of that record growth is that now antibodies can be incorporated into a lot of our enterprise business agreements and then some of our engagement with our largest accounts and guess what there's a hunger for the solution. So there is there is a lot more direct engagement with customers around in Avaya, that's really propelling the <unk>.

Right now.

Very much in the early stages of activating our channel. So we've activated our major accounts team and we're still working to activate our channel and our subscription transition Super early stages, just just starting.

And that will give you updates on that as time goes on.

Maybe just a quick follow up on the macro you guys are clear that things seem to be consistent quarter over quarter I'd love to maybe just drive go down one step deeper any observations around <unk>.

Switching more to quite solutions from collections or anything around <unk> or perhaps even more interest in flex.

Given the macro thanks, so much.

So actually.

Theres pretty consistent customer behavior across segments and sizes of customers. So there is not any kind of switching behavior or downgrading behavior and flex tends to be to a large measure in its very early days with flex tends to be incremental to our business rather than rather than.

Detrimental to our business.

So in general we're not seeing any kind of changes in mix as things go on I will say from a segment perspective, while all of the segments grew our largest our larger customers grew faster than our smaller ones, but everybody was growing.

Great. Thanks again.

Thank you.

Our next question.

It comes from the line of Joe Rock of RW Baird.

Your line is open Joe.

Great either one I wanted to go back and get more detail on what youre doing with public sector around project delivery.

I guess I'm curious how this compares to the evolution of the commercial side of your business.

The analogy I would use.

I think Bim 360 launch than 2012, then we got construction cloud in 2019 and here. We are today is what you are.

Announcing now are kind of the conversations youre having.

Our public space with partners.

Closer to 2012 or is that kind of farther along and has the potential to progress more quickly.

Yes, Joe I think that's a very astute question, alright, and I think youre pointing to some of the important things about what we're doing with public sector. In general you probably noticed in the opening commentary our comments about fed ramp and things associated with that all of these things fed ramp our engagement with the with the infrastructure partner and.

That I talked about in the opening commentary all of these are part and parcel of laying the groundwork for more and more modernization inside of these department of transportation and larger owners in terms of infrastructure federal owners European owners as well all of that will continue to build out.

Very similar to what you described in terms of entering into construction, it's a longer term play right.

It'll take time, so it's still early innings in all of these things, but you can see increasing activity famous specifications coming out.

More and more within the department of transportation community and a desire to modernize the stacks and Thats a big push right now a lot of these duties are stuck in a different era of software and solution and Theyre looking to modernize and this isn't just true in the U S. It's also true in Europe , we're engaging in more and more discussions with <unk>.

Countries in the European Union about some of the <unk> standards Theyre trying to drive into their infrastructure project and Thats going to have a compounding effect on how people want to engage with different kinds of solutions in the infrastructure space, but still early journey.

Okay.

Okay, great that helps.

Paul and then.

Just on the 10% to 15% growth parameter.

I guess as I think about the back half in fiscal 2024.

To label it as easy and yet the guidance I think calls for something closer to about 12% organic. So I guess the question is what happens incrementally a kind of a planning scenario relative to a challenging backdrop in 2024 hour 10% type.

Growth becomes a plausible outcome.

Yes, so the first the first off let's comment about how resilient our business is and how we demonstrated that resilience over the last few years.

We believe we've put everything in the right kind of scope and we've aligned things pretty pretty carefully if we saw an environment, where where we saw downward pressure on our margin expectations for the year, we have levers within the company that we can pull that has nothing to do with layoffs or any any of the things youre seeing in the rest of the tech.

Sector that we could pull to ensure that we hit those targets. So we feel pretty confident about what we've laid out and how it could hit it even if there were changes in the economic environment. Debbie do you want to add some commentary.

Yes sure.

A couple of things I would say first.

Overall, I mean, we're watching the macro backdrop closely and I said that it was broadly unchanged.

Europe was a bit better U S a bit worse Asia about the same so overall on the whole the demand environment was broadly similar we've reflected all of that into our guidance are the leading indicators remain strong.

And another way to think about it would be but if you look at revenue.

<unk> growth rate in Q4 of our fiscal 'twenty three at 9% if you extend that into fiscal 'twenty form at another point of currency headwind, you're squarely at the guidance midpoint purposeful 24, so we're kind of already at that rate we.

We feel comfortable with the guidance that we've set.

Yeah.

Great. Thank you very much.

Thank you.

Our next question.

Comes from the line of Michael Funk of Bank of America. Your question. Please Michael.

Yes. Thank you for the questions today, a couple if I could so firstly other dark, but noncompliant transition during the quarter with greater than we expected a very strong rate.

Just curious to kind of change in post versus pull strategy. There and then how are you a tepid growth that might be in fiscal 'twenty four and beyond.

Yes. So there is no change in our approach to noncompliance alright.

As I've said, many times and I want to keep reinforcing we continued to develop efficiencies we continue to be able to identify to higher precision who is actually noncompliant and who actually isn't and we're building up a steady base of business as we move forward, but we're not looking to accelerate it or push it harder or driving in any particular direction.

We're just allowing it to be kind of a steady incremental growth engine within our business and kind of continued to deliver year. After year after year and that will continue to be our strategy. When we think it's the right thing to do for the company. The right thing to do for our customers that gives our customers time to get themselves compliant because just the fact that we are out there engaged in.

Compliance activity encourages people to ask themselves if they should be compliant. So there's other business levers here and the more carefully we do this and the more incrementally we do this better and better the outcome is for the entire ecosystem. So no real change in how we're approaching that.

And then Debbie you mentioned that.

The inflationary environment might affect how customers think about the shift from multi year to annual just curious with the rising rate environment.

How you think about that that shift from upfront payments for multiyear two annual Bill does it change the math for you.

It doesn't in any meaningful way as I said, it's really a win win for us because the annual contracts, we get an opportunity to engage with our customers upon renewal to drive upsell and.

Make sure that there is adoption.

Obviously with a price lock.

And our customers signing under multiyear contracts, we have a 100% renewal rates in any given period, but theres lots of that opportunity to engage so from our standpoint, it's a win win.

Great. Thank you both.

Yes.

Thank you.

Our next question comes from the line of Matt Hedberg of RBC capital markets. Please go ahead, Matt.

Great. Thanks for taking my questions, Andrew kind of a high level. One for you you guys have been focused on generative design for a while now and with all the news on AI recently.

I'm wondering if you can kind of give us your perspective on how autodesk plans to leverage AI sort of its impact on design.

Yeah. So Jack GPT is obviously, given a massive amount of validation to the potential of AI. It is a particular horizontal solution and we intend to leverage that horizontal solutions in some of our solutions in fact, you're probably aware that Microsoft insertion of dollar and.

Himself demo.

Mitch a natural language processing.

Tool for generating biased scripts for both direct and <unk> provides bypass and it works fabulously right. These are things that provide real leverage to our customers. However, one of the things I really want you to be aware of that is that the real vertical value come when we start training on data. It is directly used by our customers.

To do particular things or design or build something and that comes at the user productivity level. The company productivity level in the ecosystem productivity level and that's going to unlock a lot of potential as we develop things that cut across all of what our customers can do like general design by the way but.

Probably heading even other directions.

And that's going to take time to develop.

Take a opportunities for us to engage with customers in terms of using some of their data, but I want you to pay attention to that long term horizon on doing real training on customer data, which will be where the revolution customer.

Got it got it thanks, Thanks for that and then Debbie.

The question that I think a lot of us are getting from folks is the levels of conservatism in the guide and I'm sure. It's based on what you see today.

Is how youre sort of building the forecast, but maybe just a little bit more granularity on how you're thinking about sales productivity pipeline discount rates anything that sort of like quite a little bit more color there.

Thanks, Matt look I would say that but I don't have much to add versus what I've said already.

The macros broadly unchanged those leading indicators remain strong.

Our business is going to grow faster and better environment and somewhat lower than worse environment.

Our goal is to set ourselves up for success in fiscal 'twenty, four and for the long term.

Thank you.

Our next question.

Comes from the line of Jason Celaeno of Keybanc capital. Please go ahead Jason.

Great. Thanks can you hear me.

Yes, Sir.

Oh perfect.

So actually one question on the quarter.

So it sounds like there.

Well I guess, what did you see strength in the business at the end of January I'm, just trying to understand how business was after that multi year discount went away at the beginning of the month.

Yeah, the linearity of our business was not dissimilar to what we've seen in previous periods.

Okay, perfect and then on the free cash flow commentary, you gave the 30% to 35% margin.

That was for 2026 period.

The period of 23 to 26 and does that include the headwinds you talked about including the FX the cash taxes et cetera.

So what I said was we're testing.

Target planning parameters of 10% to 15% revenue growth and 30% to 35% free cash flow margin all in pursuit of our goal of achieving a rule of 45 plus ratio overtime. Its not time specific if you look at our guidance for fiscal 'twenty four.

Trough of the transition from multiyear with annual billings, we'd be in the low thirties, and what we're saying is that we're going to go from the low 30, if we normalize over time towards our goal of achieving that 45% plus and that we intend to make meaningful progress against achieving that goal regardless of the.

Quick backdrop.

Perfect No that's very helpful and I guess, we'll learn more at analyst day in a couple of weeks. Thanks.

Thank you.

Our next question.

It comes from the line of Steve Tusa.

J P Morgan.

Your line is open.

Okay.

Hi, Sam Yellen on for Steve Tusa.

The free cash flow French for next year, I know you guys dance that deferred revenue and cash taxes, but is there anything else moving around maybe in working capital that ratio considering perhaps thank you.

If you look at yes, if you look at slide eight.

The deck that we put on our website at sea.

Move from multi year upfront annual billing the lower cohort b of a lower cohort of multiyear contracts that come up for renewal and just cyclically in fiscal 'twenty four.

Capex movement and its cash taxes those are the four drivers of the decline.

Got it thanks, and then in terms of that high single digit revenue guidance and I'm sure I'll Miss about is driven by price.

Yeah.

Oh, okay.

We're not going to get into that level of specificity I would say.

As I mentioned when Jay was asking the question earlier, we kind of look at it as our goal will be to drive the mix of volume and price mix.

Partner margin types.

Contributions to growth and so you can loosely consider that that would be how we're thinking about it as we look across next year too.

Alright, thank you.

Thank you.

Our next question.

It comes from the line of Sterling Auty of SCB Moffett Nathanson.

Question. Please sterling.

Yeah. Thanks, Hi, guys. Just one question from my side can you guys help help me understand which end market segments manufacturing versus architecture et cetera are you seeing the biggest cyclical impact today and what did you factor in on those trends into the guidance. Thank you.

Yeah.

Look it's a hard question to answer because all of those segments are growing alright, and the new business is growing in all those segments. So it is.

A nuance question one thing I will say is there is a different character of pushback from each one of those segments in terms of what they're seeing.

What we're seeing in manufacturing is my cost of going out and the costs are going up and our cost are going up and that is impacting their ability to deliver frankly on some impacted demand because they can't pass it all through the customers. They have trouble kind of fulfilling the demand with the with <unk>.

With the cost factor, so I would say right now the inflationary environment.

Is putting more pressure on our manufacturing customers than it is on our ADC customers.

One piece of color in the ADC space.

Obviously, the material costs are a big issue for them, but they are continuing to struggle with labor shortages capacity problems the ability to kind of clear out the book of business, which is great. Because there is an overhang. There is an overhang of business for them right now and there still is and Thats true in manufacturing to Theres still an overhang of delivery that they have.

To happen I'm.

I'm still waiting for a part from my prepared card.

My current bus it's been months can't get to park.

Alright.

There's plenty of capacity challenges, there as well, but in AUC generally there's still a backlog of poker business labor shortages.

Capacity within some of these institutes companies and construction firms architecture firms is getting in the way. So I hear capacity problems much more in the AAC segment, which by the way is going to continue into time eventually that capacity will clear out and I hear I hear inflationary pressures much more from our manufacturing.

Estimates M&A.

<unk> they don't care at all it's all digital anyway people are watching more and Theyre happy.

Understood. Thank you.

Thank you.

Our next question.

It comes from the line of Steve <unk> of SMB Nikko America. Your question. Please Steve.

Alright, great. Thank you, Hey, Andrew Hey, Debbie Thanks for taking my question.

I want to build just a little bit more on sterling.

Okay.

I'm wondering can you remind us in AUC.

If you look across upstream and downstream.

Onstream, what's what's your.

The complexion.

Related to commercial versus industrial versus residential.

<unk> and construction.

And then.

Really curious given those interesting comments you just had Andrew about how youre seeing.

Demand and capacity problems in that segment.

What did you see in the <unk> eight.

When when when kind of the AUC activity slowed down.

Was it more intense in one of those kind of sub segments and how do you think about how that could unfold over time as that.

So its capacity is just clear out in interest rates could begin to effect.

That sector broadly thank you very much yeah.

So that was that was a multi layered question and now I have to remember the first part of the question, which was related to remind me about what youre, what youre part anyway, because yeah yeah.

Yes, sorry, it was a little long winded the complexion of your AUC of your yes, yes, okay. Yes. Okay. So this is the this is the always the question about about which parts of the of the AUC ecosystem are we sensitive to and here. The thing I always answer the question. This way the dollars always go somewhere our ico people were <unk>.

Very concerned about a year and a half ago out of getting lots of questions about what's your exposure to commercial real estate commercial real estate in a slowdown and what happened in commercial real estate and move to retrofit and reconfigure alright, and a lot of commercial real estate has been going on in retrofit and reconfigure a lot of architecture firms are completely involved in.

And also it's moved to multifamily residential and things associated with that due to other pressures inside the inside the economy and inside municipalities. So the money shifts around all the time right and in terms of which segment is getting is getting bid up. So we're not we're not seeing any particular exposure.

In terms of slow down to any particular segment because of the way this activity shifts alright.

It's just one of them.

It's one of the interesting things about the ecosystem. There is always something that wasn't getting built or worked on that starts to get built are worked on with something else is out of the way it's out of the queue alright.

First of all from an opex basis somewhat out of the queue and other things are moving into the queue and getting more attention now with regards to OE OE. It was a very different type of situations. If you recall, what we saw in OA with a massive slow down at the low end of our business and in a matter of matter of factor was a precipitous slowdown.

The low end of our business with smaller firms not being able to get enough work, we don't see anything on the horizon that looks like that because of the backlog of business. That's out there right now there's just more people wanting to get things done and there is capacity to get the things done in the ecosystem. So it is a very different situation, where there was a kind of like the valve just.

Cut off there was no backlog, which to which to bleed through now we're in a world where we've got a lot of project backlog a lot of pent up demand and.

It's just not the same situation that you saw it was very very different world than we were a very different company.

Yes, yes for sure.

Fascinating I really appreciate the color. Thanks, so much.

Thank you that is all the time, we have for Q&A today I would now like to turn the conference back to Simon Mays Smith for closing remarks, Sir.

Okay.

Sorry.

Thanks, everyone thought about having trouble finding.

But I'm looking for some new ordering patterns of a ramp up time.

You have any questions. Please email me at Simon all the best outcome.

Catching up against that.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Thank you for standing by and welcome to Autodesk fourth quarter and full year fiscal 2023 results conference call. At this time, all participants are in a listen only mode.

After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

I would now like to hand, the call over to Simon Mays Smith, Vice President Investor Relations. Please go ahead.

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

On the line with me are Andrew Amick, Nostos, CEO and Debbie Clifford CFO .

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

You can find the earnings press release slide presentation, and transcript of today's opening commentary on <unk>.

After relations website following this call.

During this call we may make forward looking statements about our outlook future results unrelated assumption acquisitions products and product capabilities and strategy. These.

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

Actual events or results could differ materially.

Refer to our SEC filings, including our most recent Form 10-Q and 10-K.

8-K filed with today's press release for important risks and other factors that may cause our actual results to differ from those in our forward looking statements.

<unk> disclaims any obligation to update or revise any forward looking statements.

During the call we will quote several numeric or growth changes as we discuss our financial performance.

Unless otherwise noted.

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 Autodesk strong financial and competitive performance in fiscal 2023, despite macroeconomic policy geopolitical and pandemic headwinds is a testament to three enduring strength resilience opportunity and discipline.

Our revenue growth and free cash flow margin, a hallmark of the most valuable companies in the world with 55% for the year.

We started seeing the shift towards connected digital workflows in the cloud and product design and manufacturing than an architecture, followed by building engineering and more recently construction and we are now seeing growing momentum with owners for example in Q4, our partner BLM been launch Alliance.

Transportation involved are also completely re imagining project delivery and developing open standards for all infrastructure projects.

Together these 20 states encompass more than 60% of the U S population.

Over time, we expect more states and more owners across the globe to connect more workflows in the cloud.

Finally, our strategy is underpinned by disciplined and focused capital deployment through the economic cycle. This enabled the auditors to remain sufficiently well invested to realize significant benefits of our strategy, while mitigating the risk of having to make expensive catch up investments in the future.

Of course discipline and focus me not only consistent investment, but also constant optimization to ensure investment levels remained proportionate and directed at our largest opportunities for example, autodesk Bim collaborate pro for civil <unk>, which enables much more efficient collaboration on civil.

Structured projects saw further significant enhancements in Q4 to support our work with public sector owners in the United States Autodesk for government expects to achieve fed ramp moderate authorization soon.

Also pleased to report that <unk> had a record quarter driven by adoption in a growing proportion of our enterprise accounts, which contributed over $1 million and four.

For deal.

Infrastructure is but one part of an expanding opportunity for Autodesk. There are so many more and we will tell you about them at our Investor Day on March 20 <unk>.

But you can see some of the fruits of that opportunity already we signed our largest ever EBITDA in the fourth quarter encompassing more personas and connecting more workflows in the cloud to drive efficiency and sustainability I.

I will now turn the call over to Debbie to take you through 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.

Our fourth quarter and full year results were strong.

Overall, the demand environment in Q4 remained consistent with Q3.

You're approaching transitioning from upfront to annual billings for multiyear contracts and a large renewal cohort provided a tailwind to billings and free cash flow.

As Andrew mentioned, we continue to develop broader strategic partnerships with our customers and closed our largest deal to date during the quarter.

The nine digit deal is a multiyear commitment billed annually and did not have a meaningful impact on our financials during the quarter.

Total revenue grew 9% as reported and 12% in constant currency with subscription revenue growing by 11% as reported and 14% in constant currency.

Byproduct Autocad and Autocad LT revenue grew 9% and AUC revenue grew 11%.

Manufacturing revenue grew 4%, but was up mid teens, excluding foreign exchange movements and upfront revenue.

<unk> revenue was down 10%.

Call that in Q4 of last year <unk> won its largest ever EMEA, which included significant upfront revenue.

Excluding upfront revenue M&A grew 4%.

Across the globe revenue grew 13% in the Americas, 7% in EMEA and 4% in APAC.

Constant exchange rate.

And APAC grew 12% and 10% respectively.

Direct revenue increased 5% and represented 36% of total revenue.

Strong underlying enterprise and E Commerce revenue growth was partly offset by foreign exchange movements and lower upfront revenue.

Our product subscription renewal rates remained strong and our net revenue retention rate remained comfortably within our 100% to 110% target range at constant exchange rates.

Billings increased 28% to $2 1 billion, our first quarter over 2 billion, reflecting continued solid underlying demand and a tailwind from both our largest multiyear renewal cohort and the pending removal of the discount for multi year contract build upfront.

Total deferred revenue grew 21% to $4 6 billion.

Total <unk> of $5 6 billion and current RPI of $3 5 billion grew 19% and 12% respectively.

About two percentage points of that current RPI growth was from early renewals.

Turning to the P&L non-GAAP gross margin remained broadly level at 92%.

non-GAAP operating margin increased by one percentage point to approximately 36% with ongoing cost discipline, partly offset by revenue growth headwinds from foreign exchange movements.

For the fiscal year non-GAAP operating margin increased by four percentage points, reflecting strong revenue growth and ongoing cost discipline.

GAAP operating margin increased by nine percentage points to approximately 21%.

Recall in Q4 last year, we took a lease related charge of approximately $100 million.

That was part of our effort to reduce our real estate footprint and to further our hybrid workforce strategy.

For the fiscal year GAAP operating margin increased by six percentage points.

We delivered record free cash flow in the quarter and for the full year of more than $900 million and $2 billion, respectively, reflecting our strong billings growth.

Turning to capital allocation, we continue to actively manage capital within our framework.

As Andrew said, our strategy is underpinned by disciplined and focused capital deployment through the economic cycle.

We will continue to offset dilution from our stock based compensation program and to Opportunistically accelerate repurchases when it makes sense.

During Q4, we purchased one 1 million shares for $210 million at an average.

<unk> price of approximately $193 per share.

For the full year, we purchased five 5 million shares for $1 1 billion at.

At an average price of approximately $198 per share and reduced total shares outstanding by $4 million.

We retired a 350 million bond in December .

Recall that we effectively refinance this bond in October 2021 at historically low rates when we issued our first sustainability bond.

Our average bond duration is now almost seven years.

Now, let me turn to guidance.

Our strong finish to fiscal 'twenty three sets us up well for the year ahead.

Overall end market demand in Q4 fiscal 'twenty three remained broadly consistent with Q3 fiscal 'twenty three.

Channel partners remained cautiously optimistic usage rates grew modestly, excluding Russia, and China and bid activity on building connected remained robust.

As we said last quarter foreign exchange movements will be a headwind to revenue growth and margins in fiscal 'twenty four.

We expect FX to be about a four percentage point drag on reported revenue.

We continue to expect the absence of recognized deferred revenue from Russia will be about a one percentage point drag to revenue growth.

As we've highlighted before most recently on our Q3 earnings call. The switch from upfront to annual billings for most multiyear customers creates a significant headwind for free cash flow in fiscal 'twenty, four and a smaller headwind in fiscal 'twenty five.

You can see the impact on fiscal 'twenty, four and slide eight of our earnings deck.

Change in deferred revenue increased fiscal 'twenty, three free cash flow by $790 million, but will reduce fiscal 'twenty four free cash flow by approximately $300 million.

The switch to annual billings for multiyear customers and a smaller multiyear renewal cohort are the key drivers of this $1 1 billion swing.

The transition will also affect the linearity of free cash flow during the year with Q1 fiscal 'twenty four free cash flow benefiting from the strong billings in Q4 fiscal 'twenty three.

And our largest billings quarters in the second half of the year proportionately more impacted by the switch to annual billings.

While we expect many customers to switch to multiyear contracts billed annually some may choose annual contracts instead.

All else equal if this were to occur it would proportionately reduce the unbilled portion of our total remaining performance obligations and would negatively impact total RPM growth rates.

Deferred revenue billings current remaining performance obligations revenue margins and free cash flow would remain broadly unchanged in this scenario.

Annual renewals create more opportunities for us to drive adoption and upsell better without the price loss embedded in multiyear contracts.

We will keep you updated on this as the year progresses.

Our cash tax rate will return to a more normalized level of approximately 31% in fiscal 'twenty four.

25% in fiscal 'twenty three.

We accrued significant tax assets as a result of the operating losses, we generated during our business model transition.

Growing profitability and more recently rising effective tax rates across the globe have accelerated the consumption of those tax attributes.

Absent changes in tax policy, we expect our cash tax rate to remain in a range around 31% for the foreseeable future.

We expect non-GAAP operating margins to be similar to fiscal 'twenty three levels with constant currency margin improvement offset by FX headwinds.

We expect free cash flow to be between 115, and one 5 billion.

The midpoint of that range $1 2 billion implies a 41% reduction in free cash flow compared to fiscal 'twenty three.

As I outlined earlier, the key drivers of that reduction or changes in long term deferred revenue as a result of the shift to annual billings for multiyear customers.

And a smaller multiyear renewal cohort FX and our cash tax rate.

The slide deck and <unk> financials on our website has more details on fiscal 'twenty, three result, and modeling assumptions for the full year fiscal 'twenty four.

At Investor Day, we'll be looking beyond this year.