Q2 2024 Autodesk Inc Earnings Call

August 23, 2023

[music].

Yeah.

Thank you for standing by and welcome to the Autodesk second quarter 'twenty 'twenty four earnings 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 this session you will need to press star one one on your telephone to remove yourself from the question queue. You May press Star one again.

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 second quarter results supported that fiscal 'twenty fall.

On the line with me are Andrew Agnosterol, CEO , and Debbie Clifford our 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 fourth slash investor you can.

Can find the earnings press release slide presentation and <unk>.

Scripts 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 the related assumptions products and product capabilities business models and strategies.

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

Actual results could differ materially.

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

<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 each such reference represents a year on year comparison.

All non-GAAP numbers referenced in today's call are reconciled in our press release or XL financials, and other supplemental 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.

Julian discipline and opportunity again, underpinned, our strong financial and competitive performance.

<unk> continued macroeconomic policy and geopolitical headwinds.

Resilience provided by our subscription business model, and our product and customer diversification disciplined and focused in executing our strategy in deploying capital through the economic cycle and the opportunity from developing next generation technology and services, which deliver end to end digital transformation of our design and make.

Customers and enable a better world designed and built for all.

Our leading indicators remained consistent with last quarter with growing usage and record bid activity on building connected and cautious optimism from channel partners custom.

Customers remain committed to transformation and to Autodesk leveraging automation more where they are seeing headwinds from the economy labor shortages and supply chain.

That commitment was reflected in our Q2 performance growing adoption and token consumption within enterprise business agreement and strong renewal rates.

Auto desk remains relentlessly curious, where the propensity and desire to evolve and innovate.

We were delighted that Autodesk was recently highlighted as a best workplace for innovators by SaaS company.

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 overall market conditions, and the underlying momentum of the business remained similar to the last few quarters.

Despite a tough macroeconomic backdrop that continues to drag on the overall rate of new subscriber acquisition and the forward momentum of the business and May continue to do so.

Our financial performance in the second quarter was strong.

We said last quarter that we had a strong cohort of ebay's renewing in the second half of the year that last renewed three years ago at the start of the pandemic and subsequent adoption and usage has been strong.

Of that strength came through in the second quarter, which was earlier than we were expecting and which boosted billings and free cash flow and subscription revenue.

Total revenue grew 9% and 12% in constant currency.

Byproduct in constant currency, Autocad, and Autocad LT revenue grew 9% AUC revenue grew 14% manufacturing revenue grew 9% and in double digits, excluding the headwind from variances in upfront revenue in.

<unk> revenue grew 10%.

By region in constant currency revenue grew 15% in the Americas, 11% in EMEA and 6% in APAC.

Direct revenue increased 18% and represented 37% of total revenue up three percentage points from last year benefiting from strong growth in both <unk> and the E store.

Net revenue retention rate remained within the 100% to 110% range at constant exchange rates.

The transition from upfront to annual billings for multiyear contracts is preceding broadly as expected.

We had a full quarter impact in the second quarter, which resulted in billings declining 8%.

Total deferred revenue increased 14% to $4 2 billion.

Total RP O.

$5 2 billion and current <unk> of $3 5 billion grew 11 and 12% respectively.

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

GAAP and non-GAAP operating margin remained broadly level with revenue growth and cost discipline offsetting the impact of exchange rate movements.

Free cash flow was $128 million in the second quarter, which was a bit better than we had been expecting primarily due to the timing of <unk>, but also due to some favorable in quarter linearity.

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

Our strategy is underpinned by disciplined and focused capital deployment through the economic cycle.

We are being vigilant during this period of macroeconomic uncertainty.

During Q2, we purchased approximately 400000 shares for $87 million at an average price of approximately $200 per share.

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

Now, let me finish with guidance.

The headline is that overall the underlying momentum in the business remains consistent with the expectations embedded in our guidance range for the full year.

Our sustained momentum in the second quarter and early expansion of some EMEA is expected to renew later in the year reduce the likelihood of our more cautious forecast scenarios.

Given that we're raising the lower end of our guidance ranges.

Let me summarize some key factors, we highlighted earlier in the year.

We have a strong cohort of EMEA is renewing in the second half of the year, although as I mentioned earlier some of that benefit was build in the second quarter.

Second foreign exchange movements will be a headwind to revenue growth and margins in fiscal 'twenty four.

The revenue headwind will moderate a bit in the second half of the year.

Third.

Switching from upfront to annual billings for most multiyear customers creates a significant headwind to free cash flow in fiscal 'twenty, four and a smaller headwind in fiscal 'twenty five or expectations for the billings transition are unchanged.

Fourth as we thought might happen, we saw some evidence of multiyear customers switching to annual contracts during the second quarter.

It wasn't big enough to be called a trend, but we're keeping an eye on it it's still early days and we will keep you updated as the year progresses.

All else equal if customers switch to annual contracts it would proportionately reduce the unbilled portion of our total remaining performance obligations and negatively impact total RPM growth rates.

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

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

And fifth we expect our cash tax rate will return to a more normalized level of approximately 31% of GAAP profit before tax and fiscal 'twenty four up from 25% in fiscal 'twenty three.

The federal tax payment extension after the winter storms in California means cash tax payments shift from the first half of the year to the third quarter, reducing third quarter free cash flow.

Second half free cash flow generation will therefore be significantly weighted to the fourth quarter.

We still anticipate fiscal 'twenty four it will be the cash flow trough during our transition from upfront to annual billings for multiyear contracts.

Putting that altogether, we now expect fiscal 'twenty for revenue to be between $5, four one and $5 $4 6 billion.

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 $1, one seven and $1 5 billion.

We're increasing the guidance range for non-GAAP earnings per share to be between $7 30 and.

And $7 49.

To reflect higher interest income on our cash balances. In addition to the reduced likelihood of our more cautious forecast scenarios.

The slide deck on our website has more details on modeling assumptions for Q3 and full year fiscal 'twenty four.

We continue to manage our business using a rule of 40 framework with the goal of reaching 45% or more over time.

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.

As we said back in February the path to 45% will not be linear given the macroeconomic drag on revenue growth from the rate of new subscriptions growth.

And the drag to free cash flow as we transition away from multiyear contracts paid upfront.

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

We intend to make meaningful steps over time toward achieving our 45% or more goal regardless of the macroeconomic backdrop Andrew back to you.

Thank you Debbie.

Let me finish by updating you on our progress in the second quarter. Our strategy is to transform the industries. We serve with end to end cloud based solutions that drive efficiency and sustainability for our customer.

We continue to see good growth in AUC fueled by customers consolidating on our solutions to connect and optimize previously siloed workflows through the cloud.

And as we talked about in February digital momentum is also building among asset owners and infrastructure and other areas. This.

This momentum is expected to accelerate with infrastructure investment programs like the U S advanced digital construction management system program, which launched during our second quarter.

10, and design is a global design practice encompassing strategy experience architecture engineering and social impact. It is driving forward digital transformation and embracing the cloud to increase operational efficiency enhanced security establish a single point of true and enable more seem.

And the and collaboration.

During the quarter it expanded its investment with autodesk by leveraging our <unk> docks and a common data environment adopting forma and is exploring opportunities to integrate all of them are in asset management capabilities to its design portfolio.

Outside the U S. Our construction platform is benefiting from our strong international presence and established channel partner network during the quarter, our property developer in transit network, operator based in Asia needed to simplify operations across many infrastructure projects with a y.

Mid range of contractors and subcontractors.

To manage this complexity it needed a single source of truth for its project data in a way to streamline workflows on a single platform.

Q2, and leveraged support from our local channel partner and standardize on one platform by adding Autodesk construction cloud to its existing portfolio Autodesk AUC design tool to gain visibility of the contractors and subcontractors workflows and the potential to unlock breakthrough productivity.

Okay.

Sure construction and he and our 400 general contractor based in Ohio made the decision to standardize on August construction cloud to better streamline their operational workflows.

After evaluating many competitive options sure construction chose RF construction cloud.

Great for driving consistent workflows, creating high impact collaboration with their construction partners.

I'm, writing cumbersome manual workflow.

We continue to benefit from our complete end to end solution, which encompass design preconstruction and fueled execution through handover and into operations.

Again these stores have a common theme managing people process and data across the lifecycle to increase efficiency and sustainability, while decreasing risk.

Over time, we expect the majority of all projects to be managed this way and we remain focused on enabling that transition through digital transformation with.

We talked last quarter about the short term disruption from integrating our construction in worldwide sales teams I'm pleased to report that things began to settle in the second quarter. We believe that combining the two teams will allow us to expand the scale and reach of our construction business, particularly in our design customer base and our ability to serve our customers.

Across the complete project lifecycle <unk>.

Encouragingly August construction cloud.

Over 100% in the quarter.

Moving on to manufacturing we.

We made excellent progress on our strategic initiatives customers continue to invest in their digital transformations and consolidate on a design and make platform to grow their business and make it more resilient.

For example, a multinational manufacturer which serve the construction industry as both a building product manufacturer and two tools and construction processes has been leveraging the autodesk portfolio to connect workflows across the AUC and manufacturing industry is.

It has expanded its commitment to bim using rabbit <unk> and construction cloud, which has enabled the customer to adopt a collaborative and data driven approach across design construction and maintenance services, which minimises crashes and rework and culminates in more efficient and successful building project.

In the second quarter, the customer grew with EMEA with Autodesk ahead of its Q4 renewal date to accelerated adoption of Bim and facilitate the design of its products and materials directly within the MLP model.

Fusion continues to provide an easy on ramp into our cloud ecosystem for existing and new customers in Europe and appliance manufacturer was already an existing user of our manufacturing collection and autocad mechanical purchased additional seats of fusion for PCB design.

Heating systems Division will leverage fuses electronic design automation capabilities quickly and seamlessly connect more of its design to manufacturing workflow to drive greater efficiency.

Fusion continues to grow strongly ending the quarter with 236000 subscribers as more customers connect more workflows in the cloud to drive efficiency sustainability and resilience.

At Investor Day, I talked about leveraging our key growth enablers, including business model evolution customer experience evolution and convergence between industries to provide more and better choices for our customers.

Our flex consumption model is a good example of this.

Lets us consumption pricing these existing and new customers can try new products with less friction and enables artists to better serve infrequent users.

Not surprisingly the lion's share of the business has come from new or existing customers expanding their relationship with Autodesk <unk>.

During the quarter, we signed three more million dollar flex deals.

As Steve said at our Investor Day, We've also introduced a new transaction model for flat, which will give autodesk a more direct relationship with our customers and more closely integrate with our channel partners over time we.

We will begin testing, our new transaction model more broadly in Australia later this year.

And finally, we continue to work with Noncompliant users to ensure that they are using the latest and most secure versions of our software.

For example, after identifying and alerting a Chinese based automobile designer about noncompliant usage and despite working through ongoing challenges from the pandemic the customer eventually committed to three year V Red and Elia subscription.

As expected our initiatives to tightened concurrent usage of named user subscription and expand the precision and reach of our in product messaging drove incremental growth during the quarter.

Now, let me finish with a story.

According to the National Oceanic service Coral reefs are some of the most diverse and valuable ecosystems on Earth.

Will they take up less than 1% of the ocean floor. They are extraordinary biodiversity supports about 25% all marine life.

Coral reefs support fisheries as well as jobs and businesses to tourism and recreation.

It also buffers shorelines against 97% of the energy from waste storms and floods helped.

Helping to prevent loss of life property damage and erosion.

It can take 10000 to tens of millions of years for our core reached a floor in just weeks for it to die.

Rising ocean temperatures can cause coral bleach and dye.

Half of living Coral reef have died since the $19 50 without intervention, we're on track to lose 70% to 90% of the remainder of 2015.

That is unless we find a faster way to bring coral reef back from the break.

Support from Autodesk in the Autodesk Foundation, a company called core will maker is using our digital tools artificial intelligence and robotics to deliver core.

Restoration at scale with cloud collaboration to keep the global team connected across oceans and time zone.

As Dr. Karen Foster coral makers founder says.

Partnership with Autodesk is empowered us to develop new technology to restore reefs at a rate unimaginable a few years ago.

Current restoration project is to deploy about Hector portal per year with coral makers technology, it's possible to deploy 100 sectors per year.

From the ocean to the Earth and Sky augmented design powered by audio will enable our customers to go further and faster to design and make a better world for all we've been laying the foundation to build enterprise level AI for years with connected data teams and workflows in industry clouds.

Time and immersive experiences.

Shared extensible and trusted platform services <unk>.

Innovative business model and trusted partnerships.

Autodesk remains relentlessly curious, where the propensity and desire to evolve and innovate we are building the future with focused purpose and optimism operator, we would now like to open the call up for questions.

Yes.

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

Please standby for your first question.

Our first question comes from the line of <unk> Kalia of Barclays.

Please go ahead.

Okay, Great, Hey, Andrew Hey, Debbie how you're guys doing thanks for taking my questions here.

Yeah.

Doing great.

I'm doing all right.

Right.

Debbie maybe for you just just a quick housekeeping question here.

Great to see the revised range on auto order metrics, particularly revenue and so when I think about the midpoint of the revenue guide going up by about $25 million.

First of all great to see the impact of FX start start to lighten, but could you just maybe walk us through a broad brush how much of this year's race on revenue.

Is from FX versus maybe some underlying fundamentals in the business.

Yes, so we had a small increase in the midpoint of the guide. The dollar change was immaterial, it's tough really to come up with a mix of assumptions that get us to the low end of our previous guidance range. So the midpoint increase reflects a mix of both organic and FX assumptions overall the bits.

<unk> is tracking generally in line with our expectations.

Okay got it got it Andrew maybe for you.

Yes.

Of an open ended question.

<unk>.

But.

I guess now as you've completed the first quarter of this transition to a new billing model.

Is there anything that's surprising you about maybe how customers or how partners are behaving again open ended.

Yes, no no.

No real big surprises.

Debbie flagged last quarter that we might see some customers reverting back to annual contracts as a result of the change we did see that nothing really out of bounds, though nothing really surprising Debbie do you want to add anything to the detailed <unk>, yeah, and I would say the initial rollout of the new billings model is going well.

Our systems are working customer and partner behavior is pretty much as we expected.

As Andrew mentioned, we are seeing a small proportion of our customers choose annual contracts versus multiyear contracts billed annually, but generally we expected a bit of that in the performance has been in line with our expectations.

Remember if customers choose annual contracts it doesn't impact the P&L it only impacts unbilled in total RPI.

It's still early days, we're monitoring it closely and I think it just continues to be a good example of how we're working to optimize the business.

It's about reducing the volatility of our cash flow, while simultaneously, giving our customers the purchasing pattern that they want them and then finally I'd say that there's no change in time, we expect the transaction to impact our cash flow outlook.

Got it all very clear thanks, guys.

Right.

Thank you.

Please standby for our next question.

Which comes from the line of Jay Blue Shower Griffin Securities.

Got it thank you good evening.

Andrew for you first you made some constructive comments about what youre seeing in the AUC business.

But more broadly and as you are well aware there is quite a bit of a firm and going on in that market right now.

In terms of references to what's come to be called Ben two point, though.

Just a couple of months ago and AUC conference.

A customer group.

Launched a new <unk>.

Customer develop design specification for software.

You yourselves are working on dual track of enhancing debit, but focusing on.

On format, so lots going on in terms of various currency in that industry are part of the industry.

Help us understand how you're thinking about.

Managing through all those different dynamics there.

Going on in the AC industry, and then a follow up.

Yes.

Thanks Jay.

<unk> threat to this all right.

One is one is kind of the core platform threat around data and data flow.

At the root of all of this we need to make sure as much of the data that we have locked inside revit files in Las and other types of files that our customers have gets turned into Apis wherever possible.

This is a lubricant to the workflows that people are worried about and a big part of of.

Really what underpins the whole concept of $2 $2, that's one of the things.

The second piece is you've got to make sure that their ability to do detailed in depth complicated sophisticated bim models gets more performance more productive faster that that that's core to kind of.

Building up and improving rabbit.

Difficult ways, which we're absolutely looking at the third point, which I think is more important is you really need to re imagine how that is being done the paradigm shift and it needs to shift to the world of not only being cloud enabled but also being what we would really like to call augmented design enables our outcome based whatever language we use.

So that you can actually change the way people do that and that's one of the big things that we're focusing on with forma and that's very different than we have certain types of competitors. It's in line with what the spec is from the customers, but when you talk about data revenue improvement and the move to what we call augmented design or outcome.

This design.

Those are the big thrust in terms of what we're trying to do to bring the industry <unk>, a better way of doing that.

Okay.

Second question refers to the comments you made about a new transactional model and our pilots are going to be undertaking.

Australia. So maybe you could elaborate on that when I hear that it sounds to me like there is potentially going to be some.

Further change to channel economics.

You've just completed the move to <unk>.

Back end only margins are you thinking about perhaps taking the the flex Commission model more broadly across the rest of the business or what exactly you are looking to accomplish with that.

So let me, let's talk about the flex experiment and the things you were doing with <unk>.

First off flex because it's a consumption based model.

Both usage of various different products. It really it's really incredibly helpful for the customer for us to be able to have a much more direct relationship with the customer with regards to that offering because that way, we're able to offer a lot more visibility to how they are using the offerings. What they are using when they are using it how much they're consuming it actually helps them get the most out of the offer so what we've done.

Over the last year as we've proved out a new transaction model working with our partners in rolling out across various various regions that is that is supporting flex and that is a much more direct transaction model through that process, we've learned a lot.

And a lot of knowledge.

<unk> addressed a lot of issues, both systems wise and process wise and we are now in a position with flex to start growing and expanding that model at greater and greater volume and that's exactly what's happening with flex the volume reflects increasing increasing and we're doing it reliably repeatedly and in a pretty positive way.

Where we go from here it depends solely on how we how we watch these things evolve and what the benefits of this transaction model and all options are open to us in the future, but that's where we are right now we've protected what we've done with slots.

Okay.

Thank you.

Our next question.

It comes from the line of Adam Borg of Stifel.

Awesome. Thanks, so much for taking the questions.

Maybe just for Andrew on the infrastructure opportunity.

I know you've been calling out increasing traction with state department of transportation and even referenced some grants in the quarter and the scripts. So maybe just talk a little bit more about how you think about the infrastructure opportunity overall in and really what separates us from competitors and going after it.

Yeah, So look at a high level one of the things I'm really excited about.

The thing with the really long name the advanced digital construction management system program that the U S government rolled out that is the program related to the money is designed to help department of transportation.

Look at their infrastructure and look at their processes and start modernizing their digital processes around design and construction of infrastructure. That's an important step in getting a lot of these department of transportation to really start thinking about how they get ready to spend more money on infrastructure and do it better and address the serious capacity challenges we have.

Around materials manpower in dollars with regards to what we have to do so pretty excited about that because that's an open door to having new conversations with these departments about how they do things. Our focus has not changed we are very much focused on water and road and rail and we continue to innovate and drive improvement in those areas.

I think our biggest differentiator is what we bring to market as a modern architectures, we bring to market more cloud based solutions more more owner based solutions for managing the infrastructure. Once you have it really just more technology to stitch together in different ways. So we're looking forward to having that discussion with the department of transportation over the next <unk>.

<unk> and coming years, and I think youre going to start to see real change with some of those organizations.

That's really helpful and maybe just as my follow up just on the earlier than expected EBITDA renewal pool in the quarter. So maybe just talk about just given the softer macro obviously that.

Our checks have been suggesting in you talked about no real change sequentially, but just what is leading customers to choose to renew early and and maybe just as a quick follow up to that as we think about the guidance for the year any way to quantify the type of expansion opportunity embedded from the GBA. Thanks, so much.

I think I got the Adam you were coming in and out of all of that but I think I got the bulk of what you were saying so just stop me, if I'm missing something but in terms of the.

TBA behavior.

Really what we saw was driven by that.

Our customers are managing their own budgets and cash flow and so their desire to get early billings for frankly higher usage of their tokens was driven by their own Brexit behavior, which we see as a real positive sign for us and engaging with those enterprise customers, they're seeing strong usage of our portfolio.

We're continuing to invest in their relationship with US and then billings boosted our total billings revenue and free cash flow during the quarter. So overall I think it's a win win.

There was a second part I think to your question, Yes I'm.

Just curious so thanks for that I was just curious any way to quantify kind of the type of expansion opportunity from the biggie H E. B a renewal pool in the back half of the year as you think about full year guidance.

So that's something we can quantify for you Adam but I would just reiterate the fact that we do see it as a real positive for the first two quarters of the year to date that we're seeing strong usage in alright, thats already leading to early billings.

A positive from our standpoint overall.

Awesome. Thanks, so much.

Thank you.

Our next question.

It comes from the line of Joe <unk> of Baird.

All right, Great Hey, everyone maybe.

Maybe I wanted to revisit your AUC exposure I know you've discussed this in the past I'm just there's offsets.

Commercial markets see pressure institutional or infrastructure fared better. So you have diversification there I guess when you think about the current business composition and how the different sub sectors are fairing.

Things in nature of Autodesk, and AUC is any better or worse than would've been the case in past cycles, and I'm asking less about autodesk just as a subscription model now versus a license model in the past and more about autodesk in things like rather adoption our reliance on the cloud.

Which might create a different dynamic for the business this down cycle versus past down cycles.

I think one of the things that you said and I want to reinforce it is that.

We are we are diverse support fight across all sectors of making things everything that gets made were involved and it's not just AUC is buildings it's bridges.

It's a car or is it.

<unk> electronics and of course, its film and games. So just remember we're diversified across all of those segments, what's different now and I think it's important to different to recognize this is that the AUC industry as a whole is chain.

Chasing productivity and Digitization gains the entire industry from construction all the way through to any design in every part of the process in between engineering and all the things associated with that so that fundamental change is creating long term pull for what we're doing and what were doing is were.

Connecting the design and make processes across that industry together in the cloud and unique and highly integrated way. So that people can do things faster and more sustainably and with greater with lower risk and better outcomes.

That fundamental shift is very different than what we've seen before.

We're going to be riding that fundamental shift FERC quite a few years.

Okay great.

Helpful and then.

Second question wondering if you can comment on how you see that.

Writers and actors strikes potentially impacting business and media and entertainment, particularly.

If this goes on for a while and your customers are finishing Watson post production with I suppose a lack of new things coming in what.

What that might mean towards the end of the year.

Yeah. So you hit one thing right there right people are still in post production right now for the existing book that that post production Postproduction overhang will continue for a little while.

If the strike continues for months on and we will likely see.

An increased impact on our media and entertainment business is still growing now it definitely slowed down in Q2, but it's still growing so as we look forward. Your guess is as good as mine about house, how long. This strike will go on but I do remind you meet our exposure to media entertainment is relatively small compared to the other parts of our business, but theres no doubt.

<unk> extended the strike could have an impact on that at this point.

Yes.

Okay. Thank you very much.

Thank you.

Our next question comes from the line of Tyler Radke of Citi.

Yes, thanks for taking the question. So I wanted to just go back to the.

The commentary on kind of the puts and takes in the quarter. So you talked about seeing some early expansions on some of the the multiyear <unk> and I. Just wanted to clarify was that also stronger expansion or was it more of a timing factor.

And then.

Debbie this might be a bit of a nitpicky question, but just as I look at the constant currency.

Revenue guidance I think.

The high end of the guide says, 12% plus versus 13 last quarter I just wasn't sure.

If there was a change there if you could just kind of comment on the puts and takes on that too. Thank you.

Sure Tyler.

So the EMEA usage was strong and we've been tracking it for the year to date, it wasn't necessarily stronger than our expectations. However, so to clarify it really more than anything at the timing difference we were expecting that the revenue would hit in Q4 and it hit in Q2.

But the fact that our customers are using more than they had anticipated at the onset of the contracts.

Good thing, it's just that we've been tracking that we've known about it for the year to date and we just thought the invoices in Q2 versus Q4.

In terms of the constant currency guide the range. It was impacted really by rounding the dollar change was immaterial and overall the business is tracking generally in line with our expectations.

Okay great.

A follow up for Andrew So you talked about some encouraging signs on the autodesk construction side.

Given given the re or talked about it.

Settling in.

Maybe just remind us kind of what were the big changes what are you, hoping to accomplish and should we start to see the make revenue begin to accelerate.

Throughout the rest of the year. Thank you.

Yeah, Tyler I'd be happy to clarify that so look what we did in Q1 as we merged the Autodesk construction solutions sales force with the mainline Salesforce. This was with the objective of long term accelerating business growth in that area, particularly in our design centric accounts. So we wanted to keep.

The sub.

The contractor and subcontractor power of the Acs team and combine it with the with the teams that are focused on some of our design or design accounts as well.

We expected some bumps in doing that because you have to realize account assignments you have to realign players and who is in charge of what we've seen a lot of those bumps get smoothed out into Q2. So we're seeing we're seeing a return to expected pattern. We've lost no business during the process as I've told you as I as I told you earlier in the opening commentary when we talked.

When I talked about things like shocked.

The contract the general contractor in Ohio.

Winning are continuing to win these contractors, primarily one of the things we hear a lot is the pricing predictability associated with our offerings and the ability to show them a path not only to a stable pricing model, which customers really like an increasingly see a viable and strong alternative to project management and what Acs offers but.

So in terms of the integration between design and mix I expect the consolidation of the sales forces to continue to further accelerate the construction business moving forward as we as we continue to work this through so our progress in the <unk>.

Right direction, and we can expect to see more progress.

It's great to hear thank you.

Thank you.

Our next question comes from the line of Jason Celaeno of Keybanc capital markets.

Great. Thanks for taking my question.

This is a spin on sockets very first question, but it relates to the quarter and not necessarily the guidance.

But when we look at the outperformance in the quarter.

The biggest beat on a percentage and an absolute basis, we've seen in many quarters.

Can you just help us unpack, maybe what the magnitude of the EPA strength wise or are the FX kind of bent.

Benefits if there were any.

The biggest driver of the beat came from the east.

Okay, Perfect and then Andrew.

I'm curious on updates on <unk> at the beginning of the year I think there was this view that funding for sewer projects in water projects, having quite starting to flow.

Intended yet.

But that maybe we would see.

Start to open up in the second half of next year.

Is that still the case I guess what are you seeing.

Yeah, I mean look.

Hi.

You look at the news right.

All you get is increasing evidence that most regions and municipalities need to reevaluate their water management program.

The sewage level and a treatment level of infrastructure. So that that has fundamentally not changed and we haven't yet seen the increase in project actually starting projects in that area, but what we are seeing is people buying ahead of demand. So we actually saw a lot of strength with <unk> in our <unk> and <unk>.

Our large accounts, which is an important precursor to some of the some of the larger larger efforts that might go on moving forward, but no flood gates have opened up yet no pun intended from my side, but but.

But we still see the exact same pattern we've talked about.

Okay, Great I appreciate it.

I'd like to ponds.

Yeah.

Okay.

Thank you.

Our next question comes from the line of Michael Funk Bank of America.

Yes. Thank you all for the questions Tonight couple of Black card so on ebay renewal comments.

You made earlier can you give us a sense of the like for like change, there whether or not customers on balance we're upsizing.

Increasing the duration of the contract what that looked like.

So to clarify these contracts they were not contracts that were renewed and we're expecting that these contracts will be renewed in Q4 for our normal cycles. What happened is that these customers have been using ahead of the usage that was built into our original contracts and so what we saw in Q2.

Billings for the overuse versus their original contracts, but we still expect the renewals will occur in Q4.

On understand my fifth year over year earlier.

<unk> spend do you expect that trend to continue for the remainder of the year and what do you think is driving that better over years.

Well I'm certainly hopeful that that trend continues we see it as a very positive sign that our customers are asking for early billings because they are using our products more than they anticipated and they are using the broad breadth of the portfolio.

The other thing I would say is that the usage that was built into these contracts. When they were originally signed remember this was three years ago at the onset of the pandemic and so the usage in those contracts might have been a bit lower.

Just given the environment in which those contracts were renewed and so as we start to come out of the pandemic. We are seeing more and more usage, we've talked about usage being broadly speaking for autodesk, but also for our EMEA as being a good leading indicator and that usage continues to increase I don't have a crystal ball Michael I wish I did I can tell you for sure that the usage will continue.

New to go up in the back half of the year, but we're certainly hopeful and all signs are leaning in that direction.

So that's how I interpret that to mean the trends so far this quarter to date are consistent with Tokyo.

Alright, I didn't hear it.

The last comment background.

<unk> continuing.

Your interpretation there that the.

That trend has continued in <unk> from <unk> in the next quarter.

Of increased usage.

We're not commenting on Q3 at this point overall the performance that we saw from our EMEA is in Q2, and that's really strong and we're hopeful that it will continue.

Great. Thank you Debbie.

Okay.

Thank you.

Our next question comes from the line of Matt Hedberg of RBC capital markets.

Great guys. Thanks for taking my questions. Congrats on the stability here really really good to see maybe.

Maybe Debbie for you, maybe I missed it but the cash flow with free cash flow was significantly better than we thought this quarter I know you don't guide quarterly.

So maybe just maybe again, maybe I missed it but a little bit more on sort of why free capsules. So strongest quarter. Because if you think about Q3 Q4 kind of the linearity. There you took the low end of the full year up a little bit how should we kind of think about that split in sort of between 32 and <unk>.

Yeah. So Q2 was strong primarily because of the timing of billings that I've been talking about as well as some favorable end quarter linearity.

Linearity that we saw was better than we had expected.

Then when we look at the back half of the year circa.

Second half free cash flow will be significantly weighted to the fourth quarter I've called out federal tax payment extension that positively impacted the first half free cash flow and it will negatively impact Q3.

We still anticipate that fiscal 'twenty four is going to be the free cash flow trough. During this transition from upfront annual billings.

Great. Thanks, and then Andrew for you following up on earlier questions kind of on the split of your business, obviously, an extremely diversified model.

But I guess regarding commercial real estate exposure I know, it's difficult to give an exact percentage of your exposure there, but just broadly speaking we get asked all the time, what's autodesk exposure to the category how should we think about kind of autodesk in the CRE market.

Yes.

To be honest you shouldn't okay.

This is this is similar to the current phase III during the housing crisis like how should we think about autodesk grow through the housing.

And the question is yes.

You Shouldnt alright.

The amount of things that need to be built and rebuilt in our customer base is drawing enormous alright. They don't have current capacity either people wise dollar wise or capability wise to actually work through all of the things that are going on so.

The momentum of the industry pivots to other areas now even if you look at commercial real estate people are still reconfiguring commercial real estate within the segments in order either to make it more and more attractive to a shrinking pool of renters or to repurpose that space to other uses but in terms of.

In terms of exposure to audit if you got to be careful about over blowing that because the money always goes somewhere else.

A lot of work to be done in other sectors that just means that people that were traditionally bidding on commercial real estate projects are now bidding and engaging on other types of projects.

Super helpful. Thank you for that.

Thank you.

Our next question.

Comes from the line of.

Bob <unk> Shah.

What's your bank.

Great. Thanks for taking my questions. Andrew we continue to hear good things from your customers and partners regarding your ability to innovate and enhance many of the acquired assets, whether it's been advised land grant et cetera can you just remind us of your view that Gulfport M&A in your M&A philosophy, and maybe what kind of what are some of the lessons learned from prior deals.

Yeah. So we are an acquisitive company, we will continue to be an acquisitive company, we always like when the environment gets more attractive for acquisitions, but we are always looking to make sure that.

<unk> acquisition is strategically aligned with our priorities that means that it's either accelerating an effort that we're currently working on or bringing us into an adjacency that we were working on but that we see as an attractive place timing matters as well in terms of what timing is right for us to do these things that we keep the business reasonably focused on.

Things that are important and don't try to juggle 18 balls at once right, but we will continue to be acquisitive and we have the cash flow and balance sheet ability here to to do whatever we need to do in terms of strategic fit and <unk>.

Expansion that we're interested in moving forward. So don't don't expect any change in terms of learning what you always learn you can integrate some of the back office faster Alright, that's a key learning in all of these things that integrate integrate sales and back office infrastructure quicker.

Go faster.

Super helpful. There just on another topic can you just talk about what youre seeing with any customers as it relates to hiring I know many of these customers and that will talent shortages in over the past few years are you seeing any easing here or any kind of other general commentary in terms of hiring within A&D customers. Thanks, So much for taking my question.

Yeah, it depends on the sector, but honestly in construction and manufacturing that youre still seeing theres still seeing challenges with hiring alright, and it's one of the big things we hear from them is their ability to not only find but retain talent, especially qualified talent. So hiring continues to be an issue on the execution side.

Of our of our customers primarily towards that makes side.

Thank you.

Our next question comes from the line of Ken Wong of Oppenheimer and company.

Great. Thank you for taking my question just a quick one for me.

As we think about I think Devin you mentioned, new customer softness kind of consistent with what you guys are seeing but.

Just wanted to make sure relative to last quarter. I think you guys had called out a bit of an air pocket that normalize how should we think about the way that played out this quarter in terms of adding adding new subs.

Yes.

The overall market conditions, new subs momentum in the business was similar to last quarter.

We talked about leading indicators being consistent with last quarter and growing usage record bid activity on building connected cautious optimism from our channel partners.

Beyond that I would just.

Add that our regional performance was broadly similar to what we've seen for several quarters, the direct business, including enterprise any star as well as India actually were bright spots for us, but they were offset by some tougher patches like China as well as the softer performance that we talked about in M&A.

Got it and then I realized maybe.

A very small nuance.

I think I think last quarter, you guys saw a little bit of a dip and then it recovered in terms of new sub adds I guess when you. When you are saying, it's consistent with last quarter would it be more consistent with that exit or kind of full full quarter dynamic where you know averaged out maybe a little a little lighter than anticipated.

Well, so remember what we said last quarter was that we saw a slight dip after we stopped selling the multiyear contracts upfront, but then it recovered as we exited the quarter.

We got into early Q2, and we saw that consistently throughout Q2.

Okay perfect. Thank you Debbie.

Okay.

Thank you.

Please standby. Our next question comes from the line of Matt So name of bearing Berg.

Hi, Thank you for squeezing me in just a quick question for me.

Coming back to the early votes.

Better than expected or earlier than they expected EPA munoz.

I was wondering if we were to exclude that impact in the quarter.

The performance in AEP would we have seen an inflection in terms of the growth levels, because what we've seen in the video.

The past couple of quarters is the gradual.

Decline in growth rates and so on.

Was wondering if we didn't have this early renewals and Epa's, which.

E C segment would have seen.

A further deceleration in growth rates or would we see a bit of an uptick compared to Q1. Thank you.

It'll be early billing that we talked about for <unk> or what drove the revenue beat versus our guide, but when you think about that each.

All our basis in comparison to the totality of our ADC business. The AUC business is vastly vastly larger so it's not a big driver of the overall trend that we're seeing in <unk>, but it was the driver of the beat.

Thank you.

Our next question.

It comes from the line of Patrick Baumann of Jpmorgan. Please go ahead Patrick.

Thank you.

This is Pat on for Steve Tusa.

A couple of probably for Debbie you touched on sales in terms of the moving parts of the guide raise there I guess in terms of the free cash flow midpoint.

What was I know it was only just.

Small number but what was the driver of the raise there and then on the EPS the adjusted EPS guidance range.

<unk>.

There was like $25 million of other income.

Is that simply the benefit from the interest on cash that you mentioned in the in the preamble.

Yes, so starting with cash.

Due to the performance that we saw in Q2.

I talked a little bit earlier in the Q&A session about the EMEA billings that we saw in Q2 as well as the favorable end quarter linearity. So those were drivers of the difference that you saw in our cash flow guidance and then in terms of EPS. The other income is due to higher interest income from our cash balances.

Does that flow through to cash flow.

In part well, yes, yes.

Oh, Okay, and then sorry, one more on cash flow.

For my second question.

Is the do you think is the third quarter going to be negative or positive free cash flow you said.

Significantly weighted to the fourth quarter in the second half, which I think is similar to your prior commentary from last quarter.

But I think you also thought at that time that maybe second quarter and third quarter could be negative is your view their free cash flow will be negative in the third quarter given the impact of this cash item that was pushed from the first half to the third quarter.

We're not going to guide on a quarterly basis for free cash flow.

<unk> be helpful. I, just wanted to reiterate some of the comments remember that second half free cash flow is going to be significantly weighted into the fourth quarter and the biggest driver of that is the extension of our federal tax payments.

On a positive impact on the first half that are going to negatively impact Q3, So think about that as you put your model together.

Okay. Thanks, so much best of luck.

Yes.

Okay.

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.

Thank you Steve and thank you everyone for joining today, we'll look forward to updating you on our progress in November on our Q3 earnings call look forward to speaking to you bet.

Thanks, so much.

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

Goodbye.

Okay.

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Thank you for standing by and welcome to Autodesk second quarter 2024 earnings 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 to remove yourself from the question queue. You May Press Star one one again.

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 second quarter results support fiscal 'twenty fall.

On the line with me are Andrew Agnosterol, CEO , and Debbie Clifford our CFO .

Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at Autodesk dotcom forward Slash investor.

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 the related assumptions products and product capabilities business models and strategies.

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

Actual events or results could differ materially.

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 quote 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 or XL financials, and other supplemental 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 resilience discipline and opportunity again underpinned our strong financial and competitive performance. Despite continued macroeconomic policy and geopolitical headwinds.

Resilience provided by our subscription business model, and our product and customer diversification disciplined and focused in executing our strategy in deploying capital through the economic cycle and opportunity from developing next generation technology and services, which deliver end to end digital transformation of our design and make.

Customers and enable a better world designed and built for all.

Our leading indicators remained consistent with last quarter with growing usage and record bid activity on building connected and cautious optimism from channel partners customer.

Customers remain committed to transformation and to Autodesk leveraging automation more where they are seeing headwinds from the economy labor shortages and supply chain.

That commitment was reflected in our Q2 performance growing adoption and token consumption within enterprise business agreement and strong renewal rates.

Autodesk remains relentlessly curious, where the propensity and desire to evolve and innovate.

We were delighted that Autodesk was recently highlighted as a best workplace for innovators by SaaS company.

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.

Overall market conditions and the underlying momentum of the business remain similar to the last few quarters.

Despite a tough macroeconomic backdrop that continues to drag on the overall rate of new subscriber acquisition and the forward momentum of the business and May continue to do so.

Our financial performance in the second quarter was strong.

Some of that strength came through in the second quarter, which was earlier than we were expecting and which boosted billings and free cash flow and subscription revenue.

Total revenue grew 9% and 12% in constant currency.

Byproduct in constant currency, Autocad, and Autocad LT revenue grew 9% AUC revenue grew 14% manufacturing revenue grew 9% and then double digits, excluding the headwind from variances in upfront revenue in.

And M&A revenue grew 10%.

By region in constant currency revenue grew 15% in the Americas, 11% in EMEA and 6% in APAC.

Direct revenue increased 18% and represented 37% of total revenue up three percentage points from last year benefiting from strong growth in both <unk> and the E store.

Net revenue retention rate remained within the 100% to 110% range at constant exchange rates.

The transition from upfront to annual billings for multiyear contracts is preceding broadly as expected.

We had a full quarter impact in the second quarter, which resulted in billings declining 8%.

Total deferred revenue increased 14% to $4 2 billion.

Total <unk> of $5 2 billion and current RPI of $3 5 billion grew 11 and 12% respectively.

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

GAAP and non-GAAP operating margin remained broadly level with revenue growth and cost discipline offsetting the impact of exchange rate movements.

Free cash flow was $128 million in the second quarter, which was a bit better than we'd been expecting primarily due to the timing of <unk>, but also due to some favorable in quarter linearity.

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

Our strategy is underpinned by disciplined and focused capital deployment through the economic cycle.

We're being vigilant during this period of macroeconomic uncertainty.

During Q2, we purchased approximately 400000 shares for $87 million at an average price of approximately $200 per share.

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

Now, let me finish with guidance.

The headline is that overall the underlying momentum in the business remains consistent with the expectations embedded in our guidance range for the full year.

Our sustained momentum in the second quarter and early expansion of some EMEA is expected to renew later in the year reduced the likelihood of our more cautious forecast scenarios.

Given that we're raising the lower end of our guidance ranges.

Let me summarize some key factors, we highlighted earlier in the year.

We have a strong cohort of EMEA is renewing in the second half of the year, although as I mentioned earlier some of that benefit was built in the second quarter.

Second foreign exchange movements will be a headwind to revenue growth and margins in fiscal 'twenty four.

The revenue headwind will moderate a bit in the second half of the year.

Third switching from upfront to annual billings for most multiyear customers creates a significant headwind to free cash flow.

24, and a smaller headwind in fiscal 'twenty, five or expectations for the billings transition are unchanged.

Fourth as we thought might happen, we saw some evidence of multiyear customers switching to annual contracts during the second quarter.

It wasn't big enough to be called the trend, but we're keeping an eye on it it's still early days and we'll keep you updated as the year progresses.

All else equal if customers switch to annual contracts it would proportionately reduce the unbilled portion of our total remaining performance obligations and.

And negatively impact total RPM growth rates.

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

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

And fifth we expect our cash tax rate will return to a more normalized level of approximately 31% of GAAP profit before tax and fiscal 'twenty four up from 25% in fiscal 'twenty three.

The federal tax payment extension after the winter storms in California means cash tax payments shift from the first half of the year to the third quarter, reducing third quarter free cash flow.

Second half free cash flow generation will therefore be significantly weighted to the fourth quarter.

We still anticipate fiscal 'twenty four it will be the cash flow trough during our transition from upfront to annual billings for multi year contracts.

Putting that altogether, we now expect fiscal 'twenty for revenue to be between 541 and 546 billion.

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 one and $1 712 5 billion.

We're increasing the guidance range for non-GAAP earnings per share to be between $7 30.

And $7 49.

To reflect higher interest income on our cash balances. In addition to the reduced likelihood of our more cautious forecast scenarios.

The slide deck on our website has more details on modeling assumptions for Q3 and full year fiscal 'twenty four.

We continue to manage our business using a rule of 40 framework with the goal of reaching 45% or more over time.

As we said back in February the path to 45% will not be linear given the macroeconomic drag on revenue growth from the rate of new subscriptions growth.

And the drag to free cash flow as we transition away from multiyear contracts paid upfront.

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

We intend to make meaningful steps over time toward achieving our 45% or more goal regardless of the macroeconomic backdrop.

Andrew back to you.

Thank you Debbie.

We continue to see good growth in AUC fueled by customers consolidating on our solutions to connect and optimize previously siloed workflows through the cloud.

And as we talked about in February digital momentum is also building among asset owners and infrastructure and other areas. This.

This momentum is expected to accelerate with infrastructure investment programs like the U S advanced digital construction management system program, which launched during our second quarter.

Canon design is a global design practice encompassing strategy experienced architecture engineering and social impact. It is driving forward in digital transformation and embracing the cloud to increase operational efficiency enhanced security establish a single point of true and enables a more seamless.

And the and collaboration.

Many infrastructure projects with a wide range of contractors and subcontractors.

To manage this complexity it needed a single source of truth for its project data in a way to streamline workflows on a single platform.

Q2, and leverage support from our local channel partner and standardize on one platform by adding Autodesk construction cloud to its existing portfolio Autodesk AUC design tool to gain visibility of the contractors and subcontractors workflows and the potential to unlock breakthrough productivity.

Okay.

Sure construction and Ian are 400 general contractor based in Ohio made the decision to standardize on August construction cloud to better streamline their operational workflows.

After evaluating many competitive options ship construction shows August construction cloud.

Fifth we're driving consistent workflows, creating high impact collaboration with their construction partners, eliminating cumbersome manual workflow.

We continue to benefit from our complete end to end solution, which encompass design preconstruction and field execution through handover and into operations.

Again these stores have a common theme managing people process and data across the lifecycle to increase efficiency and sustainability, while decreasing risk.

Over time, we expect the majority of all projects to be managed this way and we remained focused on enabling that transition through digital transformation with.

Across the complete project lifecycle.

Currently August construction cloud.

Up over 100% in the quarter.

Moving on to manufacturing.

Made excellent progress on our strategic initiatives customers continue to invest in their digital transformation and consolidate our on a design and make platform to grow their business and make it more resilient.

For example, a multinational manufacturer which serve the construction industry as both a building product manufacturer into tools and construction processes has been leveraging the autodesk portfolio to connect workflows across the AUC and manufacturing industry.

It has expanded its commitment to them using rabbit novice works and construction cloud, which has enabled the customer to adopt a collaborative and data driven approach across design construction and maintenance services, which minimizes the clashes in rework and culminates in more efficient and successful building project.

Heating systems Division will leverage fusions electronic design automation capabilities.

And seamlessly connect more of its design to manufacturing workflow to drive greater efficiency.

Fusion continues to grow strongly ending the quarter with 236000 subscribers as more customers connect more workflows in the cloud to drive efficiency sustainability and resilience.

Our flex consumption model is a good example of this.

Flexes consumption pricing means existing and new customers and try new products with less friction and enables artists to better serve infrequent users.

Not surprisingly the lion's share of the business has come from new or existing customers expanding their relationship with Autodesk <unk>.

During the quarter, we signed three more million dollar flex deals.

As Steve said at our Investor Day, We've also introduced a new transaction model for flat, which will give <unk> a more direct relationship with our customers and more closely integrate with our channel partners over time we.

We will begin testing, our new transaction model more broadly in Australia later this year.

And finally, we continue to work with Noncompliant users to ensure that they are using the latest and most secure versions of our software.

As expected our initiatives tightened concurrent usage of named user subscription and expand the precision and reach of our in product messaging drove incremental growth during the quarter.

Now, let me finish with the story.

According to the National Oceanic service Coral reefs are some of the most diverse and valuable ecosystems on Earth.

Will they take up less than 1% of the ocean floor their extraordinary biodiversity supports about 25% all marine life.

Healthy coral reefs support fisheries as well as jobs and businesses to tourism and recreation.

It also buffers shorelines against 97% of the energy from waste storms and floods.

Going to prevent loss of life property damage and erosion.

It can take 10000 to tens of millions of years for our core reached a floor in just weeks for it to die.

Rising ocean temperatures can cause coral to bleach and dye.

Half of living Coral reef have died since the $19 50 without intervention, we're on track to lose 70% to 90% of the remainder by 2050.

That is unless we find a faster way to bring coral reef back from the break.

With support from Autodesk in the Autodesk Foundation, a company called core will maker is using our digital tools artificial intelligence and robotics to deliver core restoration at scale with cloud collaboration to keep the global team connected across oceans and time zone.

As Dr. Karen Foster coral makers founder says <unk>.

Partnership with Autodesk is empowered us to develop new technology to restore reefs at a rate unimaginable a few years ago.

Current restoration project can deploy about Hector portal per year with coral makers technology, it's possible to deploy 100 sectors per year.

Time, and immersive experiences shared extensible and trusted platform services.

Innovative business model and trusted partnerships.

<unk> remains relentlessly curious, where the propensity and desire to evolve and innovate we are building the future with focused purpose and optimism.

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

Please standby for your first question.

Our first question comes from the line of <unk> Kalia Barclays.

Please go ahead.

Okay, Great Hey, Andrew Hey, Debbie how are you guys doing thanks for taking my questions here.

Yeah.

Doing great how are you.

I'm doing all right.

Right.

Debbie maybe for you just just a quick housekeeping question here.

Great to see the revised range on although a lot of metrics, particularly revenue and so when I think about the midpoint of the revenue guide going up by about $25 million.

First of all great to see the impact of FX start to start to lighten, but could you just maybe walk us through a broad brush how much of this year's race on revenue.

Is from FX versus maybe some underlying fundamentals in the business.

<unk> is tracking generally in line with our expectations.

Okay got it got it Andrew maybe for you.

Okay.

Of an open ended question.

But.

I guess now as you've completed the first quarter of this transition to a new billing model.

Is there anything that's surprising you about maybe how customers or how partners are behaving again open ended.

No no no.

No real big surprises second.

Debbie flagged last quarter that we might see some customers reverting back to annual contracts as a result of the change we did see that nothing really out of bounds, though nothing really surprising Debbie do you want to add anything to the detailed there and I would say the initial rollout of the new billings model is going well.

Systems are working customer and partner behavior is pretty much as we expected.

Remember if customers choose annual contracts it doesn't impact the P&L it only impacts unbilled and total RPM.

It's still early days, we're monitoring it closely and I think it just continues to be a good example of how we're working to optimize the business.

It's about reducing the volatility of our cash flow, while simultaneously, giving our customers the purchasing pattern nothing what and then finally I'd say that there's no change in how we expect the transaction to impact our cash flow outlook.

Got it all very clear thanks, guys.

Right.

Thank you.

Please standby for our next question.

Which comes from the line of Jay Blue Shower Griffin Securities.

Got it thank you good evening.

Andrew for you first you made some constructive comments about what youre seeing in the AUC business.

More broadly and as Youre, well aware there is quite a bit of a firm and going on in that market right now.

In terms of reference as to what's come to be called been too no.

Just a couple of months ago and AUC conference.

A customer group.

Launched a new <unk>.

Customer developed design specification for software.

You yourselves are working on dual track of enhancing it but focusing on.

On form up so lots going on in terms of various currency in that industry are part of the industry.

Help us understand how you're thinking about.

Managing through all those different dynamics that are <unk>.

On India, the AUC industry, and then a follow up.

Yes.

Thanks Jay.

<unk> threat to this alright.

One is one is kind of the core platform threat around data and data flow.

At the root of all of this we need to make sure as much of the data that we have locked inside revit files on loss and other types of files that our customers have gets turned into Apis wherever possible.

This is a lubricant to the workflows that people are worried about and a big part of of really what underpins the whole concept of <unk>.

So that's one of the things.

Building up and Extruding rabbit.

Significant ways, which we're absolutely looking at but the third point, which I think is more important that you really need to re imagine how that is being done the paradigm means a shift and it needs to shift to the world of not only being cloud enabled but also being what we would really like to call augmented design enables our outcome based whatever language we use.

So that you can actually change the way people do bid and Thats one of the big things that we're focusing on with forma and that's very different than we have certain types of competitors. It's in line with what the spec is from the customers, but when you're talking about data revenue improvement and the move to what we call augmented design or outcome.

Based volumes.

Those are the big thrust in terms of what we're trying to do to bring the industry in Q, a better way of doing that.

Okay.

Second question refers to the comments you made about a new transactional model and our pilots are going to be undertaking.

Australia. So maybe you could elaborate on that when I hear that it sounds to me like there is potentially going to be some.

Further change to channel economics.

You've just completed the move to <unk>.

Backend only margins are you thinking about perhaps taking the the flex Commission model more broadly across the rest of the business or what exactly you are looking to accomplish with that.

So let me, let's talk about the flex experiment and the things you were doing with <unk>.

First off flex because it's a consumption based model.

<unk> usage of various different products. It really it's really incredibly helpful for the customer for us to be able to have a much more direct relationship with the customer with regards to that offering because that way, we're able to offer a lot more visibility to how they are using the offerings. What they are using when they are using it how much they're consuming it actually helps them get the most out of the offer so what we've done.

Over the last year as we've proved out and do a transaction model working with our partners in rolling out across various various regions that is that is supporting flex and that is a much more direct transaction model through that process. We've learned a lot we've gained a lot of knowledge.

Addressed a lot of issues, both systems wise and process wise and we are now in a position with flex to start growing and expanding that model at greater and greater volume and that's exactly what's happening with the volume of flex is increasing increasing and we're doing it reliably repeatedly and in a pretty positive way.

Where we go from here it depend solely on how we how we watch these things evolve and what the benefits of this transaction model, but all options are open to us in the future, but that's where we are right now we've protected what we've done with swaps.

Okay.

Thank you.

Our next question.

Comes from the line of Adam Borg with Stifel.

Awesome. Thanks, so much for taking the questions.

Maybe just for Andrew on the infrastructure opportunity.

Yeah, So look at a high level one of the things I'm.

Really excited about.

Look at their infrastructure and look at their processes and start modernizing their digital processes around design and construction of infrastructure that is an important step in getting a lot of these department of transportation to really start thinking about how they get ready to spend more money on infrastructure and do it better and address the serious capacity challenges we have.

Around materials manpower in dollars with regards to what we have to do so pretty excited about that because that has an open door to having new conversations with these departments about how they do things. Our focus has not changed we are very much focused on water and road and rail and we continue to innovate and drive improvements in those areas.

<unk> in coming years, and I think youre going to start to see real change and some of those organizations.

That's really helpful and maybe.

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