Autodesk Inc at Berenberg Thematic Software Days Conference Transcript

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

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Awesome. Thank you. So Scott, we've known each other for what, 6, 7 years now and really kind of getting to know you has kind of coincided with Autodesk's efforts with both reemergence of manufacturing and the way Autodesk has reinvested a lot into the platform through Fusion 360, Generative Design that kind of happened combined -- and now combining both of them together. There's a lot of different areas at play, and it's interesting because when investors think about Autodesk, oftentimes, they think about the AEC as being kind of the driving course of everything, kind of, manufacturing for the right or the wrong reasons. They've taken a kind of secondary view from a -- in terms of attention from investors recently and mainly because of the fact that capital allocation and all that stuff. Now manufacturing is coming back big time and you kind of are at the center of it. Can we maybe just kind of start first in kind of laying the land in terms of the way you see the manufacturing opportunity. One, as a market as a whole today, how evolved it is? And then secondly, how does Autodesk today compared to something like 5 or 10 years ago, when you -- when we started talking about some of those changes that are starting to happen?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Exactly. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 15, 2021 / 4:00PM, ADSK.OQ - Autodesk Inc at Berenberg Thematic Software Days Conference

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : That's very, very helpful. And then I think it kind of -- the pandemic happening to you and the industry kind of reiterated the importance of tools like that, right? Because clearly, a lot of the legacy tools suffered from the fact that there was less of the demand and stuff. But just like, I think, Microsoft said, Satya Nadella, the years of digital transformation happened in a matter of weeks. We've seen increased adoption of your cloud tools during the pandemic. And that's probably something that becomes a trend that gets accelerated, but doesn't just kind of reverse it back to the normal old ways, right? Once people try it, it's more of a proof of concept and seeing that actually work. And if it worked there, why wouldn't it work in a normal environment as well.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Absolutely. If I think about platforms and the products that you've invested in, especially Fusion 360 that we touched on it a few times. It is more than just a CAD design tool in the cloud, right? So that's one aspect of it. But then if you go on the kind of the other kind -- if you think about the whole workflow, I think earlier this year, we had a chat with Steve Hooper as well like about the vision, and he elaborated in a way and said, "We should be able to get to the point where you design something and then you press a button, you're confident that that's going to be manufactured at the end of it, almost like as a printer driver is." So to unpack that, there's a lot of technology that needs to go in that. From design to stimulation all the way back to the computer-aided manufacturing aspects of it. How are you approaching that problem from kind of just an engineering perspective and being able to -- and how far away are we from that?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Right. And there's a lot of manual work that kind of still involved today. So the idea is to kind of capture the bigger part of the market by effectively taking away the custom coding at the machine level, right? Which we still call digital factories, but they're not really digital because there's a lot of manual coding going on.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Got you. That's very, very helpful. Earlier today, I had an interesting discussion with the start-ups in the space. We talked to the founder of Shaper, which kind of -- an interesting argument that came out was how every couple of decades CAD evolves in a way that becomes truly deflationary, right? So like it kind of broadens the reach but at the same time, kind of lowers the barrier to adoption, including the price. And if we compare the previous generation tools, which are the SolidWorks of the world and stuff that cost $7,000, $8,000 upfront and then you kind of have the maintenance thing and you compare that with the likes of Fusion at around $500 kind of per year to start with, and then you have out the expansions. But in general, like that's the barrier. How do you think about kind of being able to kind of deliver this huge amount of value on one side and still being able to monetize it and make a good living out of it, if that makes sense in terms of prioritization of monetization of it?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : I did that last year, actually. And it took me about 6 hours to design a pull-up bar, which was pretty exciting. So yes.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Yes, right down my garage. Awesome. Yes. Well, the glitches of -- it happens with the last presentation of the day, at least. I'm sorry for that. We're back now.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Yes. No, absolutely. Yes. So in terms of the overall platform and the way you -- I might have missed the last part of it, which you might have addressed some of it. But in terms of the way I saw the pricing being pretty disruptive is coming from kind of getting the whole shift, let's call it, the shell packaging. The things that kind of enables you to get through the door, get someone to use it, even trial it out, but then when they become productive then you start monetizing some of it, right? And a good example of that is kind of consumption-based model through Generative Design and things like that, which are highly disruptive concepts. Recently, you've effectively reduced the pricing on Generative Design significantly on the [all you can eat] kind of offering, I think it went from $8,000 down to $1,600, which to me, kind of screams as a like your further democratizing that space. What's the idea behind? We've actually got a couple of questions as well from the audience and they touched on that stuff. So just like to kind of hear firsthand from yourself, like how do you think about opening up the market by kind of lowering the barriers to adoption?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : That makes sense. And I guess that's been very successful, especially like we said, both the combination of the proof point during the pandemic where you've had quite a bit of kind of user growth, but you've opened that up a lot into the freemium market to trial that out and even customers that didn't -- there were commercial customers, but they didn't necessarily pay, right? What I've noticed over the last 2, 3 quarters is kind of the significant acceleration in the number of commercial users that you've started seeing growing, right? And you've started disclosing that kind of on a quarterly basis. I'd say Autodesk in the past, when I think about the tools like Inventor, they were an important part of the ecosystem, but they were never 20%, 30% of the market share. And what we're seeing now based on the numbers that you're disclosing as kind of my estimates, you're getting the incremental market shares that are in the area. So do you believe that the market has been now finally embracing that the new platform shift, and we are to where we were in 2000 when we were moving on to the PC and the Windows platforms, and it took 5 years to kind of penetrate that market and then kind of continue to grow in. And this is where we are today in terms of the cloud CAD adoption?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Okay. Perfect. That's helpful. And if I, again, reference the rest of your manufacturing business and the opportunity you've had, how much do you see of -- when you see this Fusion growth, how much is it coming completely net new to the business? On the other side, how much is it coming from kind of replacement? And when are you replacing someone there's always obviously a little bit of risk that you're replacing something that you already had in terms of inventory customers. So they maybe didn't need a full-fledged CAD solution and maybe they'll be happy with CAD -- with Fusion. But then on the other side, there's clearly market leader that's multiple size, big multiple times bigger that is kind of the reward to go after. So that kind of accounts for it. So how do you think about when you -- the risk of disrupting yourself a little bit with a reward at the end to effectively disrupting the market as a whole and knowing the reward is ultimately much, much, much higher. How do you kind of manage that innovator's dilemma? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 15, 2021 / 4:00PM, ADSK.OQ - Autodesk Inc at Berenberg Thematic Software Days Conference

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Yes, that's helpful. And on that point, If I'm thinking about kind of the ability of someone to adopt 1 platform and the other, you're kind of removing the friction again, right? And recently, you've allocated some capital towards that as well saying, with the acquisition of Upchain effectively, you're enabling that free flow, not just between maybe Inventor and Fusion, but also other tools and Fusion, right?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Got you. And it feels a lot more synergetic with the likes of Fusion life cycle that you had before, right, which is more kind of a below material focus PLM. And Upchain, I guess, is more as a PDM tool. It's a data management that -- this facilitates that.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Right. Speaking about the development of the platform. And you've had a partnership in the past with ANSYS on the electronics side as well, it kind of helped. And I think people often kind of aren't aware of the fact that Fusion already has some sort of electronics components ability, especially design on the PCB level. Clearly, that's become more of a focus over the last week or so with your intention to acquire Altium. Putting aside any financial aspects of the business, but thinking strategically, what kind of made you think that actually you need to double down on ECAD and merge the ECAD to the MCAD kind of portfolio versus continuing to partner versus continuing to kind of source kind of best-of-breed technology and putting it in under some royalty agreement or something?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Right. I did want to touch on Forge a little bit more and maybe we'll go back to that. I just wanted to kind of also understand from a strategic kind of rationale like the customer overlap and the idea around the Altium. Like it just kind of -- it just made sense to you from the size, from the target market, especially what you're building in the manufacturing side?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Sure. Okay. Perfect. Now going back to Forge, it's something that for 5 years, we've been talking about, you and I as well, and it's something that when I speak to your customers, what consistently comes up as key differentiator is something that Autodesk has really kind of opened up the REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 15, 2021 / 4:00PM, ADSK.OQ - Autodesk Inc at Berenberg Thematic Software Days Conference platform to enable to innovate. And I guess you're never going to own all of the end products and tools that your customers are interested in having, maybe developed in-house or competitor tools like you said. How important is Forge or hasn't been in kind of gaining that market share ultimately on the end product like Fusion 360 because of the ability to have the openness of a platform, which is something that's actually, completely, transparently, has not been the case in PLM like software industry over the last 2, 3 decades where you got kind of prior -- it was kind of a by definition a closed ecosystem with lack of interpretability. Why did you decide to kind of open it up and enable that?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Interesting because in construction, you've shown similar thing where people build their applications and like a sample is a good example where you, kind of, it becomes part of the ecosystem built around Forge and then you kind of be able to acquire those companies as you see traction. I guess in manufacturing, it could happen the same way, right? There will be an ecosystem of third-party developers. And if you see someone being extremely successful, that is kind of your preview into a functionality that perhaps was not internally developed, which shouldn't hopefully kind of increase the efficiency of our R&D spend as well and M&A.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Okay. We've touched on simulation directly or indirectly a few times. We touched it through Generative Design, which effect it is. We touched an end through kind of both electronic side for ANSYS partnership, but you also have a number of your own tools that you've acquired in the past. You also have technology license to master on and things like that. Simulation has been a space that's very interesting and kind of evolving and still largely underpenetrated, especially compared to like a CAD tool because people still do physical tests and prototypes and all that. How do you see that environment today from your side? And like is that something you're working on to potentially either organically or maybe in the future allocate some capital to as well, is it an attractive market for you?

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : It's interesting because when people design, they started 1, 2, 3 different design options, right? And then they pick one very early in the process and run with that one because it was potentially the most viable. Then engineer comes and says, no, we cannot manufacture that, go back and they work on that one and come back with the ultimate solution, right? And that's kind of...

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Sorry, are designers actually starting to embrace it? Or do they still feel a little bit of a hesitance to embrace it because they might be protective of their own old ways of doing things and say, "Well, if there's a computer, they design it for me, why am I there?" Which obviously isn't the whole truth because someone still has to choose it and it's never 100% the way it's made. But when I, 4 years ago, talked to some of the early potential adopters, they were like -- there was a little bit of hesitance because of the fact that they were scared that their jobs will go away because of that.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Okay. That's a great story to kind of wrap up. I know we're out of time now. So Scott, thank you so much, and Simon, for attending, continuing to support us, and it's always a great pleasure to learn from you, learn about the new forays that you're making in the market. And I think manufacturing definitely was going to continue to kind of gain traction in the future also from investor community. Thank you.

Question: Gal Munda - Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst : Likewise.