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spk03: Thank you for standing by and welcome to Autodesk Q2 Fiscal Year 2022 Earnings 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 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host. VP of Investor Relations, Simon Mays-Smith.
spk04: Good afternoon. Thank you for joining our conference call to discuss the results of our second quarter of fiscal year 2022. On the line with me are Andrew Anagnost, our CEO, and Debbie Clifford, our Chief Financial Officer. Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at autodesk.com 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 the course of this call, we may make forward-looking statements about our outlook future results, and related assumptions, acquisitions, products and product capabilities, and strategies. These statements reflect our best judgment based on our currently known factors. Actual events or results could differ materially. Please refer to our SC filings, including our most recent form 10-K, for important risk factors and other factors, including developments in the COVID-19 pandemic and the resulting impact on our business and operations. that may cause our actual results to differ from those in our forward looking statements. Forward looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward looking statements. During the call, We will quote a number of numerical growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release or Excel financials and other supplemental materials available on our investor relations website. And now, I will turn the call over to Andrew.
spk09: Thank you, Simon, and welcome everyone to the call. I hope you and your families remain safe and healthy. As we anticipated when we set out our guidance at the beginning of the year, unwinding uncertainty resulted in increased business confidence, investment, and economic growth during our second quarter. This is reflected in strong product usage, which returned to pre-COVID levels across the globe, increasing bid activity on Building Connected, which reached all-time highs, and greater channel partner confidence. When combined with strong execution, a resilient subscription business model, and the continued secular shift to the cloud, Our growth accelerated again in Q2 and generated further momentum. RPO and billings grew 24% and 29% respectively, driven by strong new product subscription growth, renewal rates, and revenue retention. I am proud of what the team has accomplished so far this year. And again, I thank all of our employees, their families, our partners, and customers for their continued dedication, patience, and commitment. I will now turn the call over to Debbie to take you through the details of our quarterly financial performance and guidance for the year. I'll then come back to provide an update on our strategic growth initiatives.
spk01: Thanks, Andrew. As Andrew mentioned, second quarter results were strong. Several factors contributed to that strength, including robust growth in new product subscriptions, accelerating digital sales, and improving subscription renewal rates. In addition, InnoVise and foreign exchange rates provided a modest tailwind of the quarter. Total revenue growth in the quarter accelerated to 16% and 14% in constant currency, with subscription revenue growing by 21%. Looking at revenue by product, AutoCAD and AutoCAD LP revenue grew 12%. AEC revenue grew 21%. and manufacturing revenue grew 12%. Excluding the impact of moving our bulk product to rateable revenue recognition, manufacturing revenue grew in the mid-teens percent. M&E revenue grew 10%. Across the globe, revenue grew 14% in the Americas, 16% in EMEA, and 21% in APAC. Direct revenue increased 31% and represented 34% of our total revenue, up from 30% last year, due to strength from both enterprise and e-commerce. As you'll hear more about at our Investor Day next week, about three-quarters of new customers to Autodesk are now generated through our digital channels, reflecting our efforts to enable a simplified buying experience. Our product subscription renewal rates remain strong, and our net revenue retention rate remains within the 100 to 110 percent range. Billings accelerated 29 percent to 1 billion, reflecting strong underlying demand and an easier comparison versus last year. Total deferred revenue grew 15 percent to 3.3 billion. Total RPO of 4.14 billion and current RPO of $2.85 billion both grew 24%. Current RPO growth was driven by strong new product sales during the quarter and the ongoing benefits from the record number of EVAs signed in the second half of last year. Excluding the contribution from Innovize, current RPO grew approximately 23%. Non-GAAP growth margin remained broadly level at 92%, while operating margin increased more than two percentage points to 31%, reflecting strong revenue growth and ongoing cost discipline. We delivered healthy free cash flow of $186 million during the quarter, primarily driven by strong billings growth. Consistent with our capital allocation strategy, we continued to repurchase shares with excess cash to offset dilution from our equity plan. During the second quarter, we purchased 164,000 shares for 46 million at an average price of approximately $283 per share. Year to date, we have repurchased 679,000 shares at an average price of approximately $278 per share for a total spend of $189 million. Now, I'll turn to guidance. Consistent with previous quarters, we expect that an improving economic environment during the year will result in strong growth in new business over the course of fiscal 22. We expect product subscription volume and renewal rates to continue to be healthy, and our net revenue retention rate to remain between 100 and 110%. With our strong start to the year, we are raising the low end of our full year revenue guidance to a range of 4.345 to 4.385 billion, with a midpoint growth rate of 15% year over year. We are also raising our non-GAAP operating margin outlook to approximately 31%. an almost two-point improvement from last year. Our strong start to the year means we're also shifting more of our EBA customers from multi-year paid upfront to annual billing, which is good for them and good for Autodesk. Our EBA customers retain price certainty with a multi-year contract term, but annual billings give them a more predictable annual cash outlay. For Autodesk, we generate more predictable cash flow and remove the discounts to generate upfront cash collections. While we had already assumed this change in fiscal 23, it has a modest impact on fiscal 22 billings and free cash flow. However, we expect it to drive more predictable free cash flow growth and better price realization over time. which will make Autodesk a more valuable company. The shift of more of our EBA customers from multi-year paid upfront to annual billing and FX account for the change in our fiscal 22 billings guidance and with a one-time M&A related tax charge, our free cash flow guidance. As we look ahead, we're anticipating revenue growth to accelerate in Q3. Strong upfront revenues in Q4 last year and with Vault now rateable, a smaller pool of non-rateable products create a tougher comparison in Q4 this year, which will reduce revenue growth a bit when compared to the third quarter. Also, our EVA strength in the second half of last year, including two of our largest ever deals in Q3, will impact RPO growth comparisons in the second half of our fiscal 22. The slide deck on our website has more details on modeling assumptions for the third fiscal quarter and full year fiscal 22. As I shared last quarter, my initial focus after rejoining Autodesk was digging into our fiscal 22 budget and fiscal 23 financial goals. The strength we've seen in fiscal 22 combined with a significant cohort of multi-year product subscription contracts that we expect will renew in fiscal 23, set us up nicely to achieve our fiscal 23 revenue growth potential and free cash flow goals. This past quarter, I turned my attention to our long-range financial plan, with a particular focus on fiscal 24 and beyond. You'll hear more at our Investor Day next week, but To set the stage today, our long-term strategic growth drivers and our flexible subscription business model give us confidence we can achieve our goal of sustainable double-digit revenue and free cash flow growth beyond fiscal 24. Now, once we've achieved our fiscal 23 goal, we'll give you more details on our financial ambitions for fiscal 24 and beyond. But on the whole, we believe we have many exciting opportunities to drive growth by further expanding our addressable market into areas like construction and infrastructure, as well as by deepening monetization of our user base. And we look forward to sharing more specifics with you at our Investor Day next week. Andrew, back to you.
spk09: Thank you, Debbie. Now let me turn to our strategic growth initiatives. Sustained and purposeful innovation to enable digital transformation in the industries we serve is changing our relationships with our customers from software vendor to strategic partner. And that is enabling us to create more value through end-to-end cloud-based solutions that connect data and workflows and business model evolution. By helping our customers grow, we will grow too. In AEC, Digitization trends are accelerating the need to connect all phases of design and construction with end-to-end cloud-based solutions. A great example this quarter was with an Asia Pacific semiconductor manufacturer, which is rapidly expanding its manufacturing capacity around the world and looking for help to drive more efficient collaboration across project stakeholders, as well as shorter design and delivery cycles. It invested in AEC collections to accomplish this goal and is now leveraging the power of BIM in our digital AEC workflows to achieve its expansion plan. This is a prime example of how Autodesk is positioned to help our customers as industries converge with this customer being a longtime user of our manufacturing products and now expanding its footprint with us in AEC. In construction, we believe the Autodesk Construction Cloud is the best end-to-end offering across all phases of the construction lifecycle. Starting with our industry-leading pre-construction offerings, we help our customers seamlessly convert data into a construction plan, allowing our customers to condition and coordinate models early to aid in clash detection, easily quantify the materials required for future construction, and leverage our building-connected community to power the bidding process. As we turn to the field, Autodesk Build provides a single integrated solution for project management, field collaboration, quality, safety, and cost control, which is easy to deploy, adopt, and use. We just launched it in February, but we've already seen Autodesk Build in use on more than 11,000 customer projects around the world. By connecting project information and teams in one common data environment, It enables efficient collaboration while providing predictive analytics and insights that increase quality and safety while decreasing risk. As I mentioned earlier, we've transitioned to being a strategic partner to our customers, and in construction, that means evolving our business model. We provide customers more choice in how they buy. We offer both user and account-based pricing, which gives our customers the flexibility to decide how they want to engage with us on their digital journeys. With our account-based pricing model, we're seeing significant benefits from driving as many users as possible to our construction platform. Once Argus Build has been deployed in a project, we've made it frictionless for anyone involved on the project to get access to our platform within minutes. This pattern is not unlike the evolution of Fusion 360 over the last few years. The more users we see on our platform, the more we learn, the better we make our products, and the more value we add to our customers. This quarter, Messer Construction, a top ENR 400 general contractor in the United States, selected Autodesk Build for project management over competitive offerings, Pipe for submittal management, and BIM Collaborate for native class detection. As Andy Berg from Messer Construction said, quote, Autodesk Build's comprehensive unified platform is industry-leading, and by seamlessly connecting design with construction to increase our efficiencies, establishes a strong partnership foundation, and further enables us to build better lives for our customers, communities, and each other, end quote. Autodesk Build's momentum is growing internationally, too. Stamhouse is a leading retail shop construction and renovation company in the Netherlands, which had already used AEC collections and general design to optimize client retail space, reduce design and construction errors by 15%, and improve its ROI by 10%. This quarter, it invested in all of this build to further increase efficiency, reduce waste, and add value for its clients by converging workflows from conceptual design to engineering and fabrication, while seamlessly collaborating with its clients. Our relationship with Stamhouse demonstrates the value that digital construction processes can bring to customers around the world. With our significant international experience and resources, we're well positioned to capitalize on this large growth opportunity. And we continue to invest to connect and converge adjacent industries to create value and help our customers achieve greater efficiency. During the quarter, Innovize's Info360 cloud platform launched a beta version of Info360 Asset, a cloud-based tool for the water industry's condition and performance monitoring and risk management processes. We also launched Autodesk Tandem, our digital twin offering focused on harnessing the data from the design and construction process, to create a repeatable and dynamic process with digital handover being the natural output of the project lifecycle. Turning to manufacturing, we continue to see strong momentum with our manufacturing portfolio this quarter, and we also saw the inclusion of UpChain in its first enterprise business agreement, or EBA, with one of our larger enterprise accounts. The convergence of design and make is accelerating, and we are seeing larger companies expand on our platform. For example, After using Fusion 360 and Moldflow to develop accurate digital manufacturing twins for injection molded parts, which is typically a very iterative, time-consuming, and expensive process, one of the largest American multinational medical device and pharmaceutical companies renewed and expanded its EVA with us this quarter. They were able to significantly reduce the time and rework costs because they could anticipate, predict, and correct manufacturing issues before moving in productions. We continue to see subscription growth for Fusion 360 with paying subscriptions now at 165,000, and the Fusion 360 extensions are helping to increase our average revenue per subscriber and capture more potential opportunity. During the quarter, a U.S.-based global leader in design, engineering, and manufacturing of woven wire mesh products transitioned to Fusion 360 as their main design tool and invested in our managed extensions. The combination of Fusion 360 and Manage Extensions has largely automated their design and change workflows and has brought a new level of organization and efficiency from product design all the way through delivery. Our presence in education continues to expand to address the critical shortage in skilled labor. For example, a growing number of large German companies are replacing competitive solutions and are training their apprentices on Fusion 360 to prepare them for the future of work. In the second quarter, Energy Baden-Wuerttemberg, AG, ENBW, one of the biggest utility companies in Germany with 25,000 employees, adopted Fusion 360 to train its 600 apprentices. ENBW and its apprentices will benefit from the Fusion 360 cloud collaboration platform serving all their CAD, CAM, and CAE needs while they are either onsite or remote. Education remains an important market for us, and we continue to broaden our reach with more than 43 million Tinkercad and Fusion 360 education users. We continue to make progress transitioning all of our users to named users, giving customers more visibility into their usage data and allowing us to better serve our paying customers while also making it harder for non-compliant users to access our software. The Level Group is a full-cycle developer which specializes in business class complex. During the quarter, it increased its investment with Autodesk by consolidating all of its single and multi-user subscriptions and permanent licenses to AEC collections with our premium plan and Autodesk Docs to enable more efficient collaboration and license management. And with the help of 24-7 technical support and single sign-on capability, Level Group expects reduced design costs in the future. As our existing paying customers navigate the complexity of digital transitions, We can help them manage that complexity, improve efficiency and sustainability, and remain license compliant. For example, one of the leading construction, civil, industrial, and infrastructure service contractors in Vietnam invested in AEC collections and Autodesk builds to balance project safety, efficiency, and quality, while also reducing environmental impact and waste. Our license compliance team helped them identify licensing gaps and ensure installation of compliance software. We estimate that there are about 2 million non-compliant users within our paying customer base. During the quarter, we closed 11 deals over $500,000 with our license compliance initiatives, six of which were over a million dollars. At the end of September, we will launch a new pay-as-you-go consumption model called Flex. It matches a customer's cost with their usage. Flex is an important new way to purchase from us as we evolve our business models to offer more choice and flexibility. It serves the long tail of customers who want an option for occasional users that do not use subscriptions every day. It also lowers the barrier to entry for existing and new users to explore new products with minimal risk and upfront cost. Now back to where I started. Sustained and purposeful innovation to digitally transform the industries we serve is also transforming our relationship with our customers. From software vendor to strategic partner, and enabling us to create more value for them through end-to-end cloud-based solutions, business model evolution, and connected data and workflows. By helping our customers grow, we will grow too. The pandemic has accelerated these trends, and climate change is increasing the urgency. We will continue to invest to rise to the challenges ahead and seize the opportunities they present. In the meantime, we remain on track to achieve our fiscal 23 goals. Please join us at our Virtual Investor Day next week, where we will have more time to share our strategic initiatives with you. Operator, we would now like to open the call up for questions.
spk03: As a reminder, to ask a question, please press star 1 on your touchtone telephone. Again, that's star 1 on your touchtone telephone to ask a question. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Saki Kalia of Barclays. Your line is open.
spk10: Okay, great. Hey, guys, thanks for taking my questions here. Maybe just to start with you, Debbie, I'd love to dig a little deeper into the changes to billings and free cash flow this year, and maybe specifically perhaps I was wondering if you could just help frame the size and impact of that change to EBA billings. And maybe as part of that, just talk about what sort of gives you the confidence in what's maybe just a little bit of a steeper ramp in cash flow growth now implied for next year. Does that make sense?
spk01: It does. Thanks, Zach. Thanks for the question. We're seeing overall strength in the business, and we continue to demonstrate discipline with our spend, so that's what's driving us to raise our guidance for revenue and margin for the year. For billings and free cash flow, I covered the specifics in the opening commentary. The key point to take away is this. We're focused on making changes that are good for our customers and good for us, and shifting more EBAs to annual billing helps us achieve that goal. Now, it makes sense for customers because they retain price certainty by signing a multi-year contract, but by moving to annual billings, they get a more predictable annual cash outlay. Of course, the change is good for us, too. We generate more predictable annual cash flows, and we remove the discounts we see today to generate cash collections up front. Most DBAs are already on annual billing terms, and also we had already assumed that EBAs would all be on annual billing terms starting next year in our fiscal 23. We're making the change now because with a strong start to fiscal 22, we decided to get moving earlier to execute on the shift. But the overarching driver is that we're focused on optimizing our business, and the change, as we said, is good for both our customers and for us. As a side note, the impact to our billings guidance is also pretty small. It's around one percentage point of impact to the total billings outlook. Now, if I shift attention to the ramp to fiscal 24, we do see accelerating momentum and multiple drivers of growth. Regarding multi-years, I want to break it down a bit. We have two main pools of multi-years, one for our EBAs and one for our base product subscription business. What I've talked about today so far is EBAs and the ongoing shift to annual billings for that cohort. As we look ahead to next year, as I mentioned in the opening commentary, we have a material cohort of multi-year contracts that are coming up for renewal in our base product subscription business. Renewing those contracts is one factor that drives us to $2.4 billion in cash flow next year, and year-to-date this year, the proportion of multi-year renewals that we're seeing in that cohort is in line with our expectations. So that plus the strength in our top-line year-to-date gives us confidence in the path to the $2.4 billion pre-cash flow target next year.
spk10: Okay, got it. That's very helpful. Andrew, maybe for you, just zooming out a little bit, a little bit more broadly, You know, you talked a little bit about in your prepared remarks and the press release, I think, you talked about sort of growing as your customers grow as well. And I think you touched on some examples in your prepared remarks also. But I was just wondering if you can expand on that a little bit and maybe just connect it back to the flexibility of the business model, if you will.
spk09: Yeah. Second, you know, specifically, you know, what I did say was I said as we help our customers grow, we will grow as And the reason I want to highlight that particular point here is a lot of the things that are going on with regards to us growing with our customers is they're increasing investment in digitization. This is here to stay. It's continuing to accelerate. It's going to move forward next year and continue to accelerate. So the digitization engagement with our customers is why we grow as we help them grow, because digitization is going to help them grow. It's going to help them be more responsive. It's going to help them win more business. It's going to help them do a whole bunch of things that they were struggling to do previously, which is great for them and great for us. Now, the other thing I'd add there is we're also responding to the way they want to buy. I mean, I think you've noticed that we introduced Flex. We haven't rolled it out yet. The customers can't yet buy it, but we introduced the concept of Flex. And Flex is something that a lot of our customers have been waiting for as we've been moving away from our old multi-user paradigm to single-user paradigm. They've been waiting to see something that allows them to manage occasional use and maybe dive deeper into some of our more advanced digital technologies and integrate some of those things into the workflow. So we're going to offer them the flexibility they've been looking for, and we're going to mainstream it across a lot of our customer base in the mid-market. But the other piece I want to highlight about Flex in particular is that it's also a tool for reaching the long tail of our customers. Flex is going to allow us to not only help with smaller businesses that use some of our tools only a couple of times a month, but it's also going to help us with smaller customers or departments within larger customers that want to use a particular advanced tool on an occasional basis. It used to be back in the 90s when books like The Long Tail first came out that you'd attack The Long Tail with a set of discrete products, tons. You'd have tons of little products. The 2020s ways of approaching that is having a business model that allows people to get access to a set of capabilities in an ever-growing platform of products, like what we're doing with Fusion. So look for those things long-term to be important tools that we see forward. Things like Flex are not going to be short-term revenue drivers, but they'll be long-term ones there. Digitization is the key underlying thing here. Our business models and the way we're approaching some of our advanced platforms are the enablers that allow our customers to digitize faster.
spk10: Got it. Makes sense.
spk03: Thanks, guys. Thank you. Our next question comes from Adam Borg of Stifel. Your line is open.
spk02: Hey, guys, and thanks so much for taking the questions. Maybe for you, Andrew, so I'm sure we'll talk more on the broader strategy next week, but you've been very clear around this idea of convergence for some time and You know, earlier in the quarter, there was the idea of converging, you know, mechanical CAD and electrical CAD. And how should we think about that going forward? And are we looking to do that more on the organic front with Eagle or, you know, potentially strategic partnerships or acquisitions? How should we think about that?
spk09: Yeah, so excellent question. You know, this convergence piece between mechanical design and electrical design is something we've absolutely had our eye on for quite some time. As you know, we bought Eagle several years back, and we have now tightly integrated it into the Fusion platform. And we're doing some very, very interesting things around automation and integration between electronic PCB design and the associated mechanical designs that either contain it or actually interact with it in a smart product. So we're already attacking that convergence organically with our products. You saw us look externally as well because we saw an opportunity to accelerate the industry change. We believe these processes are going to converge. We believe the leading-edge customers are going to be driving and using converged processes. And we saw a vision match out there, and we engaged in a discussion around accelerating this change in the market. We're still going after that market with Fusion, with Eagle, and the integration we have, and we're already moving up into the mid-market with some of these tools. So this is not going away. This is a continuing and ongoing place for us to focus and look for us to continually increase what we're doing with Eagle to make those convergences between mechanical and electrical design more fluid, more integrated, and frankly, more automated.
spk02: That's really helpful. And maybe just a quick follow-up. So just staying on the Fusion 360 and the manufacturing front, you've talked about in the past a lot of success with Fusion 360. even in the CAM space, replacing vendors like Mastercam. And just curious if today's announcement of that getting acquired can help accelerate the opportunity or change the dynamics competitively in some way. Thanks again.
spk09: Yeah, and I think one of the things you also saw is that got acquired, there was a lot of visibility into the Mastercam business. And I think you can kind of see that the business was not growing as robustly as, say, Fusion is growing, both from a user and billing standpoint. So we're pretty confident that in the manufacturing side and the camp side, we're doing a great job with Fusion, but we're also reaching deeper and deeper into people's entire process. A lot of the customers we're talking about publicly now are people that have rolled out Fusion across the entire process. And one of the things that's also exciting, you're seeing these large subscription counts, you know, 11,000 again, you know, breaking 11,000 again this quarter. But one of the other exciting aspects here is, is that our billings growth is actually growing faster than our subs growth, which is a result of the new extension strategy, which is continually adding more and more advanced capability that people can buy on a pay-per-use basis or on a subscription basis to one of these extensions. So we're continuing to see really good traction with Fusion. We're continuing to roll out new extensions. You'll see more extensions coming out this year and into next year. And you'll also see us start to do some interesting new things from a platform's perspective with Fusion as well. So we're pretty bullish on Fusion. We feel pretty good about our position right here, and we're continuing to see growth. And you're right. I think the acquisition of Mastercam just shined a light on where the action is right now in this space.
spk02: Excellent. Thanks so much for the call.
spk03: Thank you. Our next question comes from Jay Vlischauer of Griffin Securities. Your line is open. Thank you.
spk11: Good evening.
spk09: Andrew, you mentioned – Got to get my pen ready for the three-part question. Okay. Yes, please do.
spk11: Okay. So you mentioned that usage is now at pre-pandemic levels, and the question has to do with new product subs volume. It's an easy compare year over year versus last year, but would it be reasonable to say that new product subs volume, the core of the business, X EBA, X Cloudy Products, XM2S, is above levels of two years ago, and that your expectations for the remainder of this year, I assume it's the next year, is that that will remain the case, that you're now well above where you were two years ago in terms of that core product volume. And then similarly, for many years, LT was considered to be a good leading indicator or barometer of the business. Given the change in the profile of your product mix, your portfolio, plus the fact that Autodesk seems to be encouraging full AutoCAD adoption in lieu of LT, you're clearly not encouraging LT. Is there some change in the barometers or indicators that you look to for the business?
spk09: Yeah, okay. Great question. So let me address the first part. There's only a two-part question, Jay. You're disappointed. I can give you a third. So new product subs. New product subs is up significantly, okay? You know, I'm not going to give you specifics. I'm not going to tell you if it's exactly back up to two years, but let's just say it's up significantly, okay? We couldn't be delivering the kind of performance we're delivering if it wasn't. It's significantly higher than the overall growth of the business in terms of new product subs, and it's continued to robustly grow. moving forward, and we expect it to continue. So you can imagine that our volumes are getting back up to the places we would have expected them to be before COVID ever hit, which is a good sign and a good outcome. And more and more, as you can see in this quarter, we generated a lot of that new volume through digital direct channels and channels that were direct to us, which is another interesting factor here. You are absolutely right. It used to be that LT, because of the price point and because of its exposure to small businesses, it was a barometer of the health of our business. But the move to the subscription model has kind of scrambled that a little bit because people that may have been buying LT exclusively for something are buying different products and other things like that. So that's why... we began tracking in a deep way the monthly active, daily active usage of our products in various countries, which has become, frankly, our core barometer. And I think you can agree that that is a much more robust indicator of the health of our business than, for instance, looking at LT sales and LT transactions. And it's also interesting to note, as commercial – As commercial usage surges forward, so does noncompliant usage, almost faster sometimes.
spk11: So as not to disappoint you, let me just ask you this.
spk09: Here comes part three.
spk11: Exactly. You made a very interesting reference to a semiconductor facility in Asia that has become an AEC customer. And so the question there looking ahead is, When you think about what Intel is going to be doing with fab construction and others in the semi-industry, when you look at data center build-out and electric vehicle build-out, those are all mega commercial facilities. So what's your pipeline looking like for any or all of those?
spk09: Yeah, that's a very excellent point, Jay, all right? So we're already big in the data center pipeline, all right? BIM is super critical to some of these workflows. I have personally engaged with some customers that I will not name and see some amazing things they're doing with our tools on the data center front and on the factory front. So we are actively engaged with deepening the penetration of BIM in all of those areas where people are standing up new factories. And people are building new capacity. And you're right to talk about fab capacity for Intel and other places like that. BIM has matured to a point where people, when you combine it, especially not only with the capabilities of design and build, but ultimately you'll see Tandem play a role in that space as well, because Tandem as a digital twin allows us to do a handover long-term, not yet, you know, Tandem is relatively new to market, but a digital handover to the owner for doing the lifetime management of the asset as well. So that pipeline is robust and strong. We're already a big player in data center development. and new style factory stand-ups in several sectors.
spk11: Great. Thank you very much.
spk03: Thank you. Our next question comes from Gaumunda of Barenburg. Your line is open.
spk07: Hello. Thank you for taking my question. The first one is just around kind of the way you're thinking of multi-year offerings going forward. We're hearing that towards the end of the year, even on the product side, you're thinking about decreasing the discounts potentially. Is that something that could have an implication beyond the EVA, also going into product subscriptions to have a lower multi-year going forward? Or is it just something that you're kind of managing cash flow as we head into FY23, which is a big cohort of renewals, like you said?
spk01: Thanks, Gal. So I'll say again, our goal is to do what's best for our customers and what's best for us. You're right that we recently announced that we're reducing the discount on product subscription multi-year contracts from 10% down to 5%. And we're doing it because we don't feel that the higher discount is necessary. The value proposition of a multi-year contract to our customers is the price certainty, not the discount. Of course, we benefit from the lower discount because we get higher price realization, but at the end of the day, the multi-year contracts reflect strategic longer-term partnerships with our customers. Now, we make small price changes like that all the time in order to optimize our business and to maximize the value for both our customers and for us, and this is just one example of that.
spk07: Got you. That's really helpful. And then just the – The second question, we haven't heard much about the network licenses and how the kind of the transition is going. What we've said in the past over the last year that obviously the first ones to hand them over were the ones that had entitlement that basically gave them maybe more, you know, under the two for one or one for two effectively. They gave them more licenses that they needed and the others will kind of come later. Are you starting to see that tip of the iceberg effectively when it kind of goes to the other way where people that are handing in their network licenses now are at that two-for-one exactly or even they need to take extra entitlement in order to be in compliance?
spk09: So, Gal, we are absolutely starting to see the tip of the iceberg on that part of the transition. And also, Flex, which is something that a lot of those customers were waiting for because Those customers were heavy users of our network license model. Flex in one of its forms replaces that old model. So as Flex starts to reach the channel and reach the customers more directly, you're absolutely going to see a greater acceleration of that because they do have to ultimately transfer and name every user to use Flex. But we're seeing the tip of the iceberg on that right now. Flex's availability, broader availability as we move to the end of this year and into early next year, we'll also accelerate that trend as well, which will help us retire that old business model and get our customers on the more advanced management systems that underpin Plex.
spk07: Gotcha. That's really helpful. Thank you so much. Appreciate it. Thank you.
spk03: Thank you. Our next question comes from Matt Hedberg of RBC Capital Markets. Your question, please.
spk08: Great. Thanks, guys. Andrew, I want to start with you. Given the U.S. federal infrastructure spending bill, one of the most often asked questions I get is really, you know, your exposure to infrastructure spending. I'm wondering if there's any way that you can help just roughly frame up the magnitude of that business or even perhaps, you know, how fast is it growing relative to your overall sort of portfolio of businesses?
spk09: Yeah, so we don't break out infrastructure as a business. So I can't give you specifics, but Here's what I can tell you, and here's the philosophical statements I can make on this. One, we do not have any impact from a federal infrastructure bill built into our financial models. So the numbers we've given you, they're all business as usual based on our normal course and speed. So I want to be super clear about that so we're all on the same page. However, we are big proponents of, of infrastructure spending and the need for infrastructure spending. And I think you're getting a sense just over the last few weeks and the last month of some of the critical drivers around how serious it is when you have decaying infrastructure. I mean, look at California, right? California built water infrastructure for slow snow melts to catch water and have it dribble down from the melting snow and run off to the coast and everybody was happy. That world is likely gone. And what people need to focus on is more reservoirs, different types of infrastructure to capture rainwater rather than rely on snow melt. These were things that in some cases were predictable 10 years ago, but we haven't made progress on. Also look what's happening in Tennessee just last week. These horrible tragedies with these flash floods in the middle of Tennessee, unprecedented levels of speed and severity of floods, all related to water infrastructure. All of these things are related to climate changes. Some of them were predictable. Some of them not. All of them are our 10-year backlog now in many places. We have to build better across the board. And we believe that our tools, our capabilities, the digital platforms we're deploying are going to help people build better. And when you look at how we're positioned to capitalize on this, which I can talk to you about, look, we have got the solution that goes beyond from end to end with the capital planning engagement all the way to the use engagement with the vertical and horizontal components of construction and BIM in between. And I want to point to you some of our recent partnerships and acquisitions. On road and rail, we partner with Origo to go after departments of transportation to help with the capital planning. We bought Innovize, which has a capital planning tool up front in the water infrastructure process. And we also have Spacemaker, which we haven't talked a lot about, which helps in the real estate development side from the capital planning and allocation there. So we're actually building out capabilities in the upfront through partnership and through technology. And then we have all this capability that we've integrated into the construction cloud as well to help with vertical and horizontal construction. So we're ready. So we've invested in the places that we think are critical, and we think people need to invest in digital technology to not only build what needs to be built, but build it back better and build it back cheaper so that we can start closing out the backlog because there's a big backlog. So there will be opportunity here. It will be long-term opportunity for the company. It won't be short-term, but there will absolutely be opportunity as people start to spin up these infrastructure projects.
spk08: That is super comprehensive, and as a sidebar, yeah, it does feel like your acquisition of Innovize, given the wording of the bill on water, was certainly timely. I wanted to go back to manufacturing just with another question. You noted in prior calls that Fusion 360 is near a tipping point, and there was an earlier question on MCAT and ECAT. I'm just curious, though, from a philosophical perspective, you know, what's left for you to do within your manufacturing portfolio? In other words, is there much more white space left beyond what you've got? Just sort of kind of getting a sense for where we're at in that sort of platform maturation.
spk09: Yeah, so there's always a little white space, okay? I think one of the things that's really important in terms of things we have to do, we have to finish integrating all the end-to-end capabilities, all right? So we have to make sure that we've gotten all the capabilities completely integrated in a way that makes sense. We have to continue to dial down on things like general design and cloud-based and machine learning-based automations that automate workflows between some of these things. So even less sophisticated companies can take full advantage of highly sophisticated capabilities, which is a goal for us. Now, there's going to be other white spaces we move down with regards to connecting to production planning on the shop floor, not just moving geometry directly to the machine through general design, but actually managing production flow and some of the things associated with that in highly automated facilities. So we'll probably explore some of those areas as we start building out the platform. But really, in terms of what things have to happen to continue to accelerate Fusion's growth, It's all about building out the core design capabilities because we've got a lot of touch points in there. We've got ECAD. We've got some really great partnerships around simulation, which will deepen over time. And we've also got excellent manufacturing capabilities. As we deepen and professionalize the design capabilities, you'll start to see more and more purchasing of sophisticated extensions on top of Fusion. So look for Fusion to become a more significant revenue driver as we move beyond FY23. Right now we're focused on making sure the platform is best in class, that its cloud interpinnings are strong, that we build off the strong foundation we have right now, and that we build out some of these core design capabilities. But there are little bits of white space in there around production management, around some of the integrations with other types of capabilities, around costing and estimating that are going to be interesting as well in the future.
spk08: Super helpful. Thanks, guys.
spk03: Thank you. Our next question comes from Joe Ruink of Baird. Your line is open.
spk12: Great. Hi, everyone. I wanted to start with the performance and the direct channel efforts. Obviously, you've had a goal to achieve 50% revenue share. But it seems like in the last several quarters just the movement to that level has accelerated a bit. Are there specific things you would maybe point to recently that help explain some of the acceleration? You brought up enterprise and the e-store is maybe one responsible more than the other. And, you know, how much is this factoring into kind of the confidence you speak to entering the second half of this year?
spk09: Yeah, so I think Debbie and I will both tag-team this a little bit, okay? So let me just talk about this at a high level. Some of these things are cyclical, by the way, okay? So, you know, there will be quarter-to-quarter variations here. The fastest-growing channel we have in our business is the digital channel, all right? And more and more of our products, especially new products, especially from small businesses, are being bought through that channel. And it's a big driver, right? and we've seen some acceleration there, and we continue to see acceleration there. It's a very healthy channel, and it's what we've expected. We're certainly also being successful in our EBA business, which is driving up the percentage in certain quarters, all right? But don't look for that to be a linear transition, okay? We're going to get to the 50. It's going to take time, but there will be some quarters where we're trending up, other quarters where we're trending a little bit down, but overall, as you fit the line through over multiple years, it's going to be heading up into the right direction. There's some countries where we're getting very close to 50-50 and other places where we're very far away from it. So you have to look at the business a little bit more discreetly as we get there, but don't look for this to be a straight line. Debbie, did you want to add anything?
spk01: Yeah, I mean, I think you've captured it well, Andrew. As he said, there's there's two main parts. There's the enterprise or EBA business, and there is our e-commerce channel. Now the enterprise business, it's a seasonal low in Q2, but we do have a strong pipeline. Andrew mentioned that it was the first quarter that we saw up chain included in an EBA. So we're building momentum and we anticipate that the bulk of our EBA selling will be in the back half of this year, like previous years. So things are looking good there on the e-commerce side. Lots of growth there. We've been investing heavily. Last quarter, we talked about different things that we added, like more out-of-seat capabilities, more calls to action across the site. We continue to invest this quarter. Some examples of the changes that we made were one-step resubscribe capabilities so that expired customers can easily resubscribe. We have even more places for out-of-seat capabilities throughout the site. We launched a new Middle East site in June, so a bunch of things, and you'll just see us incrementally add more functionality, more ways to engage with Autodesk so that it's easier to do business with us and that's going to be part of our success to drive growth through that channel.
spk12: Okay, that's helpful. And then I wanted to maybe reconcile what sounds like a lot of strong trends and higher confidence in the second half and still having the same high end of the revenue guide and 16% growth intact for fiscal 2022. Are there certain areas of the business where you look and it's still a bit held back, so it could be an opportunity for improvement over coming quarters, but maybe still not the full contributor that it could be?
spk01: I'll start, Andrew, and then you can chime in. I would say that, overall, we had a strong Q2 and we exited the quarter with strong momentum. And we raised our revenue guidance on the year to reflect that ongoing strength and what we've seen in the business for the year to date. Andrew mentioned all the leading indicators were strong, usage returned to pre-COVID levels, the construction backlog is back online. So all we're seeing at this point is accelerating momentum. The only kind of nit piece that I would highlight in the back half of this year is that typically in our Q4, we do see a bit more upfront revenue recognition for some of the products that we typically sell cyclically in that period, and that's a little bit of what you see in both Q3 and Q4 as we get to the back half of the year. But overall, just broad strength that we're seeing in the business, and that led to the increase in the revenue guidance on the year.
spk09: Okay, great. Thank you. I think Debbie said it all.
spk03: Thank you. Our next question comes from Keith Weiss of Morgan Stanley. Your line is open.
spk05: Hi, this is Elizabeth Elliott on for Keith Weiss. Thank you so much. I just had a quick question on the current RPO-based bookings growth. It looked like year-over-year growth slowed a bit from last quarter, so wondering if you could just highlight what could be driving that and some of the trends that you're just seeing in new business demand versus what you saw maybe in the prior quarter. Thank you.
spk01: Thanks, Elizabeth. Our RPO growth was strong at 24% year-over-year, and we really do see that as the leading indicator of what's happening in our overall business. Now, typically we see RPO, or what we see right now is that RPO growth shot up in Q4 because we had a very strong enterprise business agreement quarter. And so gradually we're seeing that taper down over time. But overall, 24% growth is really solid performance in RPO, and you'll start to see that bleed into revenue on the back half of the year.
spk05: Got it. And then just one more. The ABI data for June noted some firms just weren't able to find enough workers and that as a challenge. I think they talked about 60% of firms not being able to fill openings in the architectural stuff. So I was wondering if any issues in employment, is that a headwind for Autodesk seats or is that a tailwind for you guys as firms just need to digitalize faster and improve productivity?
spk09: Sorry, can you repeat that question?
spk05: Oh, yep. So the architectural billings index data for June highlighted that some of the architectural staff was just having problems kind of filling seats, and that being a headwind, just employment being a headwind to fill from the demand capacity that they were seeing. So I was just wondering if employment headwinds in the overall kind of macro market is driving a, is that a headwind for Autodesk at all or is that actually a tailwind as firms need to digitalize faster, improve productivity by adopting Autodesk software tools?
spk09: Yeah, okay, thank you. It's actually more of a tailwind because what our customers are struggling with is they're trying to do more with smaller staff and the more digital firms are able to do that, the less digital firms are struggling This scarcity of labor is pervasive across multiple industries and multiple sectors, but we believe this is just another driver with regards to people adopting deeper digitization and digital technologies. And as you can see from the fact of some of our results and some of our new seat volume, while you're hearing some of that in the ABI pressure with regards to their book of business, you're not seeing any kind of depressive impact in our new seat volume. So we expect long-term this is going to be a tailwind around digitization and not any kind of headwind for us.
spk08: Thank you.
spk03: Thank you. Our next question comes from Jason Salino of KeyBank. Your line is open.
spk06: Hey, thanks for taking my questions. Nice acceleration on the make segment this quarter, and you mentioned that it was an all-time high for bid activity with Building Connected. Since building connected is kind of at the tip of the spear in terms of where they see visibility into the construction cycle, how should investors think about this engagement activity flowing through to revenues?
spk09: Yeah, I think you should think about it exactly the way you said it. It is a leading indicator of future on-site construction activity. All right, so not all of that activity will convert to people buying our construction tools. because not all of the activity is a good fit, but it is absolutely a leading indicator to shovels hitting the ground. And I think that's the way you should be interpreting it, and that's the way you should look at it, and that's the way we use it. And as we get deeper and deeper into building connected and deeper and deeper into how bid board works, we'll be creating more internal indices to track and watch some of these things. But what you said is how you should view this. It is a leading indicator of shovels in the dirt, and future activities, which some of that will translate into future purchases of on-site construction software and tools.
spk06: Okay. Well, maybe to double-click on that a little bit, when we think about it from like a timing perspective, is most of any help you can share on, you know, the types and, you know, timing of projects?
spk09: No, I can't. I can't give you a lag indicator between, you know, increased bid activity on bid board and the starts of new projects. Okay. And what that impact is on our business.
spk06: No worries, Bud. Thank you.
spk03: Thank you. And that is all the time we have for Q&A. I'd now like to hand the call back to Simon May Smith for closing remarks.
spk04: Thank you, Lateef, and thank you, everyone, for joining our Q2 fiscal 22 conference call. If you have any follow-up questions, please do contact the investor relations team, and we look forward to seeing you all at our investor day on Wednesday next week. Thanks very much. Goodbye.
spk03: This concludes today's conference call. Thank you for participating. You may now disconnect.
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