Autodesk Inc at Barclays Global Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. And I'm sure we're going to dig into a lot of components of that against your point raised guide. So Amy, maybe I'll do some more fun stuff with you. I really want to dig into the a, the kind of separately, right, because I think each of them has got some really interesting drivers, maybe starting with the A, right, with architecture with really the industry-leading tool rev app. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 5:50PM, ADSK.OQ - Autodesk Inc at Barclays Global Technology Conference So maybe the question is, as we think about the health of the underlying market here and given all the time that you spend with customers, what are you sort of hearing about the health of the end market in terms of their own businesses, their willingness to hire and therefore, willingness to invest in more seats of Revit?

Question: Saket Kalia - Barclays - Analyst : You're not the first to say that.

Question: Saket Kalia - Barclays - Analyst : That's interesting. I mean, seats is obviously one part of the growth formula, right, that we talked about. But I'm curious, there's always been additional value added to the tool over the years that Revit has been a leader in the space. I mean -- can you just talk about how you've been able to drive more value for Revit customers as well? And how much more room there could be?

Question: Saket Kalia - Barclays - Analyst : Nice cross-selling.

Question: Saket Kalia - Barclays - Analyst : Yes. Interesting. Maybe just to put a bow on the architectural side, Simon, maybe for you. I mean, a lot of the investors here in the audience, and I mean, even me, we look at the US metric that disclose the Architectural Billings Index, or ABI. Curious, I mean, what do you think about that metric in terms of its usefulness as we think about the health of your end markets? Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations I mean, generally, there's no one metric that kind of encapsulates order. So it's one of a bunch of metrics. And remember, we've got a big business outside the US ABI sort of less useful for. But the -- so yes, it's for itself, as you can see from the performance of our business to view map against the ABI doesn't track it very closely. So yes, it's an input and it's sort of really a function. And also the other thing is the subscription business model is that even if things get -- people love subscription business models when things slow down because they slow down slowly. The same thing is true when things speed up, though, which is when things speed up, the subscription business model speed up slightly as well, right? So we have enormous breadth and depth of diversity of the business. Amy just mentioned one, yes, fewer downtown off with blocks, but more infrastructure, more data centers offsetting it. The only thing we really can about is stuff getting built. But yes, ABI is one of a large number of inputs. There's no one thing that will magically tell you how we're doing.

Question: Saket Kalia - Barclays - Analyst : Yes. Yes, absolutely. I think one topic that comes up often when talking about the engineering side of AEC, right, is infrastructure spending from governments. And Simon, please feel free to chime in here because I know you get this question a lot as well. Maybe we could focus on just sort of the US side of that, just given the upcoming change in administration. Can we just talk about how important infrastructure spending is for your AEC business? And how do you feel about that looking forward? Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations Yes. I mean -- so the trick answer is it's tough to precisely measure because if you have a customer say like ACOM, they will do a bunch of stuff across infrastructure, but relatively commercial and so they'll do hospitals and stuff like that. And they don't say, oh, yes, we're using Revit today to do infrastructure and more -- so it's tough to sort of precisely measure is the answer. And in terms of sort of the administration, the structural reasons why more stuff needs to be spent on infrastructure is because it's all falling down. And so most of the stuff that's there was designed to last 50 years, and it's 80 years into a 50-year life span. And that problem is becoming more acute because of climate change because the wind is blowing harder, you're getting dryer, hotter, whatever it is, then it was designed for. So that's the sort of problem, and that's not going to change. Typically, voters tend to be quite happy when the bridge gets repaired and they can stop having delays getting to work every day. So it tends to have a broad sort of bipartisan support for sort of infrastructure spend. And then on the sort of climate change side, I mean, I think you can either spend a very large amount of money, but less to reduce carbon going into the atmosphere today or you're going to have to spend a lot more than that retrofitting the entire estate and the entire estate is much, much bigger than the new estate being built. And so if you don't put less carbon apps per today, you're going to have to rebuild and reinforce the entire infrastructure that currently exists, and that's a far bigger number. So in net present value terms for us, obviously, that's going to be better for us in the long term. I think as a human being, I'd prefer to take the cheaper option under the tax better to take the cheaper option to spend a bit less now.

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. So we talked about A, E, move to the C, which has been a really fun segment to talk about, right, over the last few quarters. And specifically because, Amy, I think it's been a segment that everybody has been impressed to see faster than average growth, right? You're really faster than some of your peers. And so a lot of us remember when Autodesk acquisition of PlanGrid to really double down on this market. Others like Building and Connected as well. Maybe the question for you is how has that construction portfolio sort of evolved over the last couple of years versus the competition?

Question: Saket Kalia - Barclays - Analyst : That's great. There are some great wins and I mean the way that I read that is we've got a rising tide of market, but we've also got better execution, right, in that Autodesk Construction Cloud or ACC. Maybe just a follow-on to that line of questioning. I mean a lot of folks have again noticed that difference in growth of ACC versus other players in the space. And I speculated -- we've speculated that it's because of Autodesk's global reach, right? I mean we're over a 40-year-old company. We've been kind of working internationally for the better part of those 40 years. Also maybe there's some flexibility in pricing there as well compared to competitors. How do you think about some of the factors that are setting Autodesk apart from your competitors? Do those kind of play into that mix at all in your view? Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations Yes, so our construction momentum has been very good and very consistent all year. We haven't seen deceleration in the revenues of our business. And as we also said is that in terms of new logos, we doubled in Q3, it was doubled year-over-year. So just in terms of relative momentum compared to certain other peers, obviously, the wind -- we have the wind at our back. I don't think we feel it's kind of -- the reasons why we're making momentum is not new news. It just may be showing up away from us is that the business has been growing and continues to grow for the reason that Amy said is that we've been investing, consolidating into a unified stack, we build and then doing what we intended to do, which was starting with our largest integrated design build customers, extending our relationship, REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 5:50PM, ADSK.OQ - Autodesk Inc at Barclays Global Technology Conference building out our preconstruction portfolio, which is the connected tissue between design and construction and then using our channel partners, which we lit up about two years ago to start moving into the low end of the market. And what that allows us to do is then to squeeze into the mid bit of the market where certain of our peers are. And so what you're seeing us now is seeing the success of us beginning, which we weren't really able to do before the launch of Build two years ago. And so the interesting thing about those two wins that Amy said is that three years ago, we wouldn't be able to win them. And so -- but now we can. So the fact that the two

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. I want to pivot a little bit to the reseller to agency model shift, right, which I think is very topical right now, certainly from a financial perspective. And Simon, I know we're going to talk about the mechanics of that here in a second. But Amy, maybe for you, I mean, just as a business leader, how important is that ability to have a more direct connection with your end customer as opposed to kind of through the reseller, right? Because that's really the fundamental reason why we're doing this shift, right? So I'm curious how you think about that before we talk about some of the mechanics.

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. Maybe the follow-on for that for you, Simon, is -- can you just maybe -- I mean we started in the Americas, it's been a very phased approach geographically. We started in the Americas, then we've gone to Europe. I think relatively recently, we started in Japan. You correct me there if I'm wrong. But I guess maybe how those transitions going from your perspective? And should this transition be largely done from an income statement perspective by this time next year? Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations The short answer is no with an asteric but the -- that last question but the -- essentially, what we've done is we have sales and marketing and efficiency. We know that. And -- but we -- and we're going after it in a way, as Amy was just talking about, in a way that grows revenue. So by lighting up our customers in two-thirds of our business, where we have no visibility we can serve them better, i.e., improve renewal rates, and we can sell them more stuff because there's going to be pockets of stuff where we can -- where we're not servicing them. So we will have bigger, deeper, broader, more strategic relationships with our customers. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 5:50PM, ADSK.OQ - Autodesk Inc at Barclays Global Technology Conference And then on the sort of cost side, at the same time, because we can walk in to you go at the same time, we can service that revenue with lower unit costs. And there's really sort of but you have to do that in a structured way. So firstly, you have a build phase, which ought be known for the last 3 years, which is we've been building our own bidding platform. You then have an implementation phase, which is what we've been doing, talking about for the last year, where you're transitioning to the customers of that bidding platform. And then you have what we call the sort of optimization phase where you then start realizing those benefits in terms of -- and some of those things is sort of stock and flow. Some of these things happen at a given point, and some of those things happen naturally over time. On the sort of on the cost side, we sort of talked about sort of two sort of buckets of things, and we talked about this in our Q3 opening commentary. One is around the sort of number of human touch points to get shipped done basically. So we talk about things like self-serve and co-terming and using automation to enable stuff to happen more quickly. The benefit of that is you have happier customers because they get to where they want benefit for us is -- sorry, is that we have fewer human touch points to get to that point. And then the other side is around able to take -- remove some of the and sort of insurance that we put in place during transitions. So we've done a bunch of transitions to subscription to annual billing to now direct billing -- sorry, annual payments from annual payments. all of which individually could have sunk the company if we got them wrong. If we tripped up, we would have had a massive business continuity issue. And so we put in processes to make sure that we didn't screw it up. And to be honest, it's gone pretty well. Now that we have direct size at the end of the customer, we can start removing some of those insurance policies because we can see what's going on with the end customer, and we can remove it with less risk, some of those insurance policies. So really, those are the sort of two buckets of opportunities that we see ahead of us.

Question: Saket Kalia - Barclays - Analyst : That's interesting. That's really interesting. I thought you had some really interesting points there just on sort of the some of the costs that you've built up, right, as you've gone through these multiple transitions and some of the efficiency that you can see going forward. So I think that's just a natural segue into the discussion on margins. I think that Andrew talked about a couple of quarters ago, really reaching that 30% to 40% target operating margin, I think a year earlier than expected, if we sort of adjust for some of the impacts of the agency transition. And I think, again, you touched on this, but I just want to make sure the question is asked. Is there anything that you want us to think about when we model margins next year as you have potentially more efficient cross-sell, right, which we talked about, but also a bigger impact from that model shift. Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations Yes. And it's really -- and by the way, the reason we haven't given -- well, we've given cash flow guidance, obviously, but we didn't give revenue. So we can't give part revenue guidance without giving it all because if we've given you just the tailwind for the new transaction model to revenue, then it was likely that people would apply the wrong margin percent of that and profit dollar estimates would end up the right placement we back down to rabbit hole. So we either give all of it all one of it. And because I've been doing this for some time, typically, you don't give entire guidance for the previous year for the next year. So the -- but we will give you more, obviously, in February what we're expecting the year to look like. But the sort of math is on the sort of margins is the way I'd like to think about it is sort of old money and new money. So old money is essentially the view that we put on Slide 6 in our deck, which shows you what's going on, excluding the impact of FX and the new transaction model. So the underlying margin improvement that we're driving in the business. And you can see that we've made good progress on that, as you said, hitting our fiscal '26 targets a year early this year. And on that basis, we've said that margins would improve on that basis at constant FX on well, '23 FX rates and excluding the new transaction model. So that's what's going under the hood and in real -- in the real economy, should we say, to margin and profit dollars. And then you have to overlay that on top of that a model for the new transaction model because the new transaction model shifts an accounting change, where pre-revenue cost to call contra revenue is shifting it's about $600 million of in total is shifting from pre-revenue cost into sales and marketing. And so as that cost shift down, that has an effect. So you get higher revenue, higher cost, all else being equal before you optimize profit dollars are the same and cash flow dollars are the same, but it obviously has an impact on the margin percent. So you need to -- when you're thinking about the margin percent, you need to overlay so you haven't need to have an underlying thought of what's going on underlying and then overlay that modeling effect of just geography effect of where that cost is being recognized. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 5:50PM, ADSK.OQ - Autodesk Inc at Barclays Global Technology Conference

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. Absolutely. We've got about 5 minutes left, and I think this is an important topic. So just before I move on to the last couple of questions, any questions here from the audience? From a -- I mean, a very big player in sort of the future financials of the business, of course, will be the CFO. And congrats, we hired as Autodesk's next CFO and certainly look forward to having him here at this conference next time -- this time next year. And I think that based on everything that both of you have said, right, I mean, operational rigor and profitability, I think, are very much top of mind for Autodesk right now. Maybe talk to us about what brings to the table to help further those. I mean, both as a member of the finance organization and maybe as a member of the business. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 11, 2024 / 5:50PM, ADSK.OQ - Autodesk Inc at Barclays Global Technology Conference Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations Yes. I mean, so I haven't met him. So I can't give you any sort of personal outlays. But what I can tell you is this is that as Andrew said right at the start of this process is that we're hiring, looking for somebody who has experience of driving efficiency at scale. And so if you look at -- and this is something we dug into during the interview process. If you look at his experience, improving margins at Elastic and also driving efficiency at some of his previous roles, he just has a lot of experience doing that. So that was kind of the sort of key thing we're looking for. What he also has is I would say, sort of side order benefits is he has worked out and has sat on the board of PTC. So he kind of knows our industry. So it's not going to be completely unfamiliar territory for Tim. And he also has and has the skills to prove it, experiences of consumption models. And I think we sit there looking at Elastic and going from 10% to 50% consumption is really f***ing hard operating because consumption is all to predict. And so -- but the truth is that with AI workloads, particularly high compute AI workloads, if you try and put those through a subscription price point, you're going to blow a hole on your margins. So you're going to have to do more consumption as you have more workloads. So we're hoping that some of those scars and learning points that had and that experience will prove a useful sort of guide point for us into the future.

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. Maybe last couple of questions here, Amy, maybe just to go back to you, just again, knowing that you spend a lot of time with customers. We talked about ABI before, we're talking about rates. I mean there's just so much sort of debate about what the macro will be like in 2025, what do you hear from the ground with customers, how are they feeling about their willingness to invest, to hire, just putting aside everything that we talked about in terms of the model, what is the underlying sort of feeling on the ground that you sense? .

Question: Saket Kalia - Barclays - Analyst : Yes, absolutely. So maybe the last question for you and I'll last 30 seconds is the question I always like to ask on our callbacks, which is anything that we didn't ask that we should have. Any other last message is that you want to make sure this audience walks away with. Simon Mays-Smith - Autodesk Inc - Vice President - Investor Relations So depending on how long I've got, I mean, a couple of things. One is just -- in an uncertain world, there are a bunch of things either mechanical or in our control that Autodesk is working on. So you've got a mechanical tailwind from the new transaction model to revenue that's going to turn up, whether we like it or not. You've got a mechanical rebuild in the free cash flow from the transition from multiroom multiyear build annual which is happening and it's going to tell out whether we like it or not.