Good day, and thank you for standing by. Welcome to the Q2 Fiscal '25 Autodesk Earnings Conference Call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I’d now like to hand the conference over to your speaker today, Simon Mays-Smith, Vice President, Investor Relations.

Thanks, operator and good afternoon. Thank you for joining our conference call to discuss the second quarter results of Autodesk's fiscal '25. On the line with me is Andrew Anagnost, our CEO; and Betsy Rafael, our Interim CFO. During this call, we will make forward-looking statements, including outlook and related assumptions, products and strategies. Actual events or results could differ materially. Please refer to our SEC filings, including our most recent Form 10-Q and the Form 8-K filed with today's press release for important risks and other factors that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We will quote several numeric or growth changes during this call, as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release or Excel financials and other supplemental materials, available on our Investor Relations website. And now, I will turn the call over to Andrew.

Thank you, Simon and welcome everyone to the call. We finished the second quarter and first half of the year strongly, delivering 13% revenue growth in constant currency in both periods and have raised guidance for the full year, reflecting the sustained momentum of the business and the smooth launch of the new transaction model in North America in June and expected launch in Western Europe in September. Once again, opportunity, resilience and discipline underpinned our performance. In March last year, we laid out the secular growth trends in our markets from accelerating digital transformation in Architecture, Engineering and Construction or AEC, to the transition to the cloud in manufacturing and media and entertainment. These secular trends are driving customers to break down siloed workflows and seamlessly connect data end-to-end. Real-world experiences from remote collaboration to supply chain disruption and AI are reinforcing these trends. We’re aggressively pursuing our strategy to benefit from these secular trends, including the development of next-generation technology and services, end-to-end digital transformation and unique growth enablers such as business model evolution, customer experience evolution and convergence between industries. Our investments in cloud, platform and AI in pursuit of these growth opportunities and ahead of our peers enable Autodesk to provide its customers with ever more valuable and connected solutions and to support a much broader customer and developer ecosystem and marketplace. While macroeconomic policy, geopolitical and one-off factors like the Hollywood strikes have impacted industry growth, Autodesk subscription model and diversified product and customer portfolio have proven resilient. The underlying momentum of the business and key performance indicators remain consistent with previous quarters, as evidenced by increased product usage, record bid activity on building connected and cautious optimism from our channel partners. We realized the significant benefits of this strategy for shareholders through our disciplined…

Thanks, Andrew. Q2 was a strong quarter. We generated broad-based growth across products and regions in AEC and manufacturing which was partly offset by softness in media and entertainment, primarily due to the lingering effect of the Hollywood strike. Our make business continues to enhance growth, driven by ongoing strength in construction and fusion. Overall, macroeconomic, policy and geopolitical challenges and the underlying momentum of the business were consistent with the last few quarters and included strong renewal rates, but softer business -- new business in China and Korea. The new transaction model did not make a material contribution to our second quarter results. In his opening remarks, Andrew discussed the benefits we expect to derive from our go-to-market initiatives, which support our growth and ongoing margin improvement. Before I discuss revenue, billings, deferred revenue, RPO and free cash flow, let me remind you of how these metrics naturally and mechanically evolve during the shift to annual billings for most multi-year contracts, as well as the new transaction model. The shift to annual billings for most multi-year contracts moves billed deferred revenue into unbilled deferred revenue in our financial reporting. Unbilled deferred revenue would then not be included in deferred revenue on our balance sheet, but would be included in our remaining performance obligations disclosure. Initially this reduces billing, deferred revenue and free cash flow as you saw in fiscal 2024, but is gradually becoming a tailwind to billings and free cash flow, as our annually billed multi-year cohorts rebuild. Metrics that include unbilled deferred revenue like RPO give a better view of performance during our transition to annual billings for most multi-year contracts. And as we have said before, we will continue to offer multi-year contracts build upfront in certain circumstances, such as in emerging countries, where there is…

Thank you Betsy. Let me finish by updating you on our strong progress in the second quarter. We continue to see good momentum in AEC, particularly in infrastructure and construction, fueled by customers consolidating onto our solutions to connect and optimize, previously siloed workflows through the cloud. The cornerstone of that growing interest is our comprehensive end-to-end solutions encompassing design, pre-construction, field execution through handover and into operations. This breadth of connected capability enables us to extend our footprint further into infrastructure and construction and also expand our reach into the mid-market. As a sign of that growing momentum, our construction business had another strong net new customer quarter as the benefits of our end-to-end solution became more apparent. Let me give you a few examples. Thornton Tomasetti is an internationally recognized engineering design and analysis firm, which uses Revit and other advanced technologies to enable us to deliver projects at all scales and levels of complexity. We have been a proud partner as it has transformed its business to excellence and interoperability in BIM. The transition from BIM 360 to Autodesk Construction Cloud has optimized project workflows and cloud collaboration. Autodesk's virtual reality tools have reimagined its visualization workflows and Dynamo and generative design have enabled its team to focus on high value creative work. During the quarter, Thornton Tomasetti renewed its EBA with Autodesk and expanded it by more than 50%. To address challenges of a fragmented ecosystem and siloed working environments, a European consortium of nine public water operators serving millions of residents across numerous municipalities decided to expand its relationship with Autodesk by adding BIM Collaborate and BIM Collaborate Pro and an upgraded premium plan to its existing AutoCAD, Docs, AEC collections and InfoWorks subscriptions. With these expanded capabilities, it will continue its digital transformation, accelerating…

Thank you. [Operator Instructions] Our first question comes from Saket Kalia with Barclays. You may proceed.

Okay, great. Hey, Andrew. Hey, Betsy. Thanks for taking my questions here. Andrew, since you last reported Starboard Value has issued a couple of letters and a slide deck. Just maybe for the benefit of the Group, I was wondering if you had any high level thoughts that you wanted to share with us.

Right to it, Saket. All right. Look, first-off we listen to all of our investors and we listen carefully. We've met with Starboard several times. They came and presented to our Board. And I'll tell you one thing we are very much aligned with them on is there is a lot more shareholder value to be created from Autodesk for our investors, okay? And I think it is important to kind of talk about, okay, what should we be excited about. Today's results, we delivered in a pretty tough environment. We've seen macro impacts. We have had one-off impacts from Russia, from China, from writers and actors strikes and still you're seeing the kind of results that we delivered this quarter. Revenues up, free cash flows up, the guide's up 1% at the midpoint. Those things come from work and discipline. And how did we get here? There is a couple of things I want to make sure we remember and highlight, okay? About two years ago, we began this journey to move away from multi-year contracts billed upfront to multi-year contracts billed annually. I know that created some clouds for all of you on the outlook of Autodesk for 18 months. But look -- look at the results, okay. Two years ago the number of multi-year contracts billed upfront was measured in the billions. Today, you heard from Betsy, it's immaterial, right? Now the great thing about that is that billions from the past comes back to you, but it comes back to you in a nice smooth build up over time. It is math. I love math. More than that, it's simple math and we all love simple math. That money is coming and it is building up. So one, that's something to be excited about ongoing value…

Yeah, absolutely. That was super helpful, Andrew. Maybe for my follow-up for you as well, maybe just moving to the business. You gave some nice examples of construction wins in the quarter. Could we just go one level deeper into Autodesk Construction Cloud? Maybe talk about sort of the overall construction backdrop that you are seeing and how you feel about ACC competitively?

Yeah. That's a great question, right? And look, first-off, the thing I'm really excited about with our construction business is that we are maintaining momentum in a really tough competitive environment where others are having challenges maintaining momentum, but we are maintaining momentum. And there is a couple of key reasons why we are maintaining momentum. One, there is still a large backlog in construction. Backlog matters, all right and that backlog is still there and kind of construction professionals are still interested in digitization. That in addition to our value proposition becoming more resonant with customers. One, the portfolio of Construction Cloud is competitive, people like it. They like our value proposition of going from design to construction. They like the flexibility of the business models we bring to them. They are looking to either move to Construction Cloud net new or they are looking to move from older solutions, competitive solutions to our solutions. The other thing is in the mid-market, in the US, we see our competition more and we win more and that's because of the strengthening of this value proposition. And the last bit I think is worth talking about is the international growth for Autodesk. This is a place where Autodesk has a superpower and we are going to continue to grow internationally. We saw strong growth internationally. We are going to continue to see strong growth internationally. And long term, that is going to continue to kind of be accretive to our construction business. So a lot going on there, but I do want people to remember there is a backlog and we are definitely maintaining momentum.

Very helpful, guys. Thank you.

Thank you. Our next question comes from Jay Vleeschhouwer with Griffin Securities. You may proceed.

Thank you. Good evening. Andrew, with regard to the new engagement or transactional model, the new channel compensation arithmetic is very readily understandable, but I would like to ask more about the division of labor under the new model, which is to say your inside sales, your customer success investments and the like versus the channel. So how do you see the role of your inside and other direct sales capacities versus that of the channel, particularly when it comes to renewals and/or upselling, how do you see the role of the e-Store versus the channel under the new model? Then my follow-up.

Jay, you are asking some very specific questions. Let me kind of answer it in a very general way. Look, with this new transaction model, with the ability to drive clear divisions of labor, there are opportunities to drive efficiencies and productivity moving forward in sales and marketing, right? So absolutely, you are highlighting some things with regards to our partners and with regards to us that we are going to continue to perfect over time. And that is where some of this margin growth is going to come from -- most of this margin growth is going to come from over the next couple of years. So you are definitely talking around some of the areas that are important to discuss.

Okay. Second question with regard to the billings co-terming effects, the model effects and the like, perhaps we can parse that to get at the organic effects of the business, which is to say, how are you thinking about your license volume and mix expectations? In other words, how are you thinking near-term and long-term with regard to the volume assumptions that you've previously spoken about in your overall P times Q framework?

So look, let me just start here for -- if Betsy, you want to add anything. I think the important thing to get about the co-terming is that what it does is it takes some billings out of the current renewal cycle and moves them forward. And more importantly, it creates efficiency in our renewal process. All right. So, we are going to get much more efficiency in our renewal process. A co-term contract is much more easy to wrangle at renewal time than another contract. It's also much more easy to do cross-sell, up-sell and expansion at renewal time. So, you are going to get some efficiencies from this. So co-terming is good, even though it has some puts and takes on where the billings show up. So I think that's kind of the important piece to take away from that. The rest of that detail is a little harder to address directly.

The only thing I would add is with fewer contracts to manage, you also drive efficiency from the inside the company.

All right. Thank you.

Thank you. Our next question comes from Adam Borg with Stifel. You may proceed.

Awesome, and thanks so much for taking the questions. Just maybe for Andrew, just going back to the new transactional model, it is great to hear that things are going smoothly so far in North America. I was hoping you could maybe go a step deeper on what that exactly means. And importantly, what's given the confidence to rollout accelerate the rollout into Europe and Japan ahead of expectations, especially given the additional complexities you've talked about pulling out internationally.

Yeah. It's a good question. So remember – let us just recount the incremental journey we've taken here, right? We started with Australia, really stressed and tested the system in that environment. We always like to stress and test things in smaller markets, on smaller -- on smaller pools. And we have essentially completed the entire rollout in the US. And during that time, we've had no major issues, no major issues came up with regards to disruption to the business as we did this. Now, of course, there is all sorts of quality of life issues. There has been a backlog of issues that people want more functionality, they want more capability to do X, Y and Z. And what we are doing is we are working that backlog and we gave ourselves a little bit of extra time to clear that backlog. Some of that backlog is specific to test runs that we've done in Europe as well. So given what we learned in Australia, given how the US went even smoother than Australia and we had a much shorter recovery time as we rolled out in Australia, given that we are probably going to see the same kind of pull forward in Europe that we saw in the US, which buffers things as we move forward, we are very confident about the cascade here and how this is going to roll out.

The only thing that's different in Western Europe from North America is really that it is different currencies and there is different legal regulatory laws in place. But I think that we've learned from each step along the way and so are very, very comfortable with the plan for the full fiscal year.

That's super helpful. And maybe just as a quick follow-up, Andrew, obviously, US elections coming up in a few months. I hope you could talk a little bit more about what you are seeing in the end-market demand environment. Are the AEC or manufacturing industry is making any changes in their decision making process, either accelerating or slowing down decision making ahead of the election in a few months? Thanks again.

Yeah. The good thing here is that the issues that affect our customers are bipartisan issues, all right? Infrastructure, manufacturing, Go-USA, everything across the world, they are bipartisan issues. So, I think whoever wins, there may be all sorts of other puts and takes. But with regards to the things that affect our customers' end-markets, I see little impact and we are not hearing a lot of trepidation from our customers on that.

Incredibly helpful. Thanks, again.

Thank you. Our next question comes from Jason Celino with KeyBanc Capital Markets. You may proceed.

Great. Thanks for taking my questions. I kind of wanted to kind of dig into just the performance of the quarter. Obviously, you beat nicely, you beat margins nicely. You are keeping kind of the margin framework the same for the year, even though you are absorbing some of these incremental headwinds from the transition. So internally, did you do anything to drive leverage or sources of leverage with that?

No, we did nothing unusual to do this, all right? This is all the rate and pace of the business. Betsy, do you want to comment a little bit more?

I think that we did see underlying improvement in the margin and that was intentional knowing that we were going to get some headwinds from some of these transitions.

Okay. Great. And then maybe just a little more pointed on the free cash flow side. So it is a $10 million raise, nice to see. Obviously, the transition timelines have no impact to free cash flow. So, I know you said some customers signed earlier in 2Q. So is the raise on free cash flow just a function of timing or more a function like the core business? Thank you.

No, I think a lot of it is a timing issue because we originally estimated that -- we didn't anticipate the significance of people buying ahead of the launch in North America. And so our original assumption for free cash flow for FY’25, was that roughly two-thirds of it would take place in the back half of the year. Our current modeling assumption is one half of that will take place in the back half of the year.

Excellent. Thank you.

Thank you. Our next question comes from Elizabeth Porter with Morgan Stanley. You may proceed.

Great. Thank you so much for the question. I wanted to ask a bit on the pricing environment. I believe one of the things we picked up was the move to the transactional model should allow you to have some more control on discounting behavior and help narrow some of the price differentials you've seen. So I wanted to ask, is this a lever you expect to use? And is it something you are doing today or a future opportunity and how we could think about that going forward?

Yeah. So the place where that has the biggest impact is with our partners, quite frankly. What our best partners really like about the new transaction model is it prevents a less competent, less value-added partner coming in and undermining them on price on a big deal where they are trying to really add value. So for our partners, this is definitely going to allow them to sell to the value they are delivering. For us, moving forward, it is all about the efficiencies of the process. So for us, it is not so much about the price. The partners are definitely going to benefit from that. What we are going to benefit is the ability to get the efficiencies and the costs out of the environment as we move forward. And I think that is where you want to look at for us. So the partners, definitely a price advantage for our best partners. For us, a cost advantage as we drive productivity.

And enhance the strategic relationships directly with customers.

Great. And then just as a follow-up, I appreciate the comments on the overall demand environment. I was hoping you could unpack a little bit more around the new business trends. I understand the macro remains challenging. Anything you are picking up from a new business standpoint in the quarter or how that outlook is changing?

Yeah. So let me talk about that a little bit. Generally broadly, okay, we are seeing the same kind of trends that we've seen in previous quarters. There are absolutely some headwinds in new business, but there is different puts and takes here as we look at this quarter now. Our moving forward metrics like monthly active usage and build -- bids on building connected, those show the same kind of positive forward momentum that we've seen in the past. But if you look at the market, obviously AEC continued to do well. This has a lot to do with construction growth helping in there, as well as other things driving Revit, and the backlog associated with that. Manufacturing did well. It beat a lot of our competitors in the market. The drag was media and entertainment, still coming out of the effects of those strikes, okay, and that will continue to take time. Geographically, a few puts and takes here, okay? Most of the world was strong, but China and Korea were drags on our business geographically, right? And that gives you kind of a lay for -- lay of the land for what we see. But one of the things that you got to take away from this is -- Autodesk is an incredibly resilient business. There is puts and takes in one part of the business. There -- you might be off on certain types of projects, but you are up on other types of projects, one geography is down and other geography is up. This is the magic of Autodesk and our very distributed and resilient business, and that's what you are seeing as a result here.

Great. Thank you very much.

Thank you. Our next question comes from Joe Vruwink with Baird. You may proceed.

Hi. Great. Hi, everyone. Going back, Andrew to your manufacturing comments, so growth in the upper teens there or low teens for just the ratable business. Those numbers definitely stand out relative to what we've been hearing throughout the summer, I think particularly at the high-end where there is been some commentary about more deal lumpiness at enterprise. I mean, you have exposure to mid-market and enterprise. You gave anecdotes about both segments. I'm wondering if you are ultimately seeing maybe more share movement and that's ultimately explaining the strength there.

We are definitely seeing share movement. But look, we feel like we're out in front on a lot of things. Fusion did well in the quarter. Its e-comm growth was consistent with previous quarters. More importantly, we continue to drive ASPs up for Fusion with attach rates of extensions and other options in the Fusion base. So you are absolutely seeing a share shift.

Okay. And then on the slide showing underlying margin improvement that's taken place since FY ‘23, how much latent investment is still being absorbed in that normalized 39%? So you talked about making investment in cloud platform AI. Those investments are -- so you're ahead of peers and not needing to make up some future catch-up investment. I mean, another way to say is you are spending some amount and you haven't matched it against revenues yet. So just wondering if it is possible to quantify what that is because that would seem to be an area of future improvement in addition to what you are doing with the transaction model?

No, there is always a delay in R&D investment and return on R&D investment, okay? So there is always a shift. We are definitely in a time of great technological advancements here. We're definitely in an environment where share shift is starting to happen. So, there's always a shift in those areas, okay? And I think, we should expect that there is this delay between the actual value creation and the investment. That's very natural in technology like this. That's why I want you to understand that we are very focused on net sales and marketing productivity moving forward because that's how we are going to drive the margin growth over the next couple of years as the investments in these new and emerging technologies start to really pick up.

Okay. Thank you.

Thank you. Our next question comes from Ken Wong with Oppenheimer & Co. You may proceed.

Fantastic. I wanted to maybe dig into the margins a little bit. You mentioned being ahead of schedule on the margin profile, also confident you can make further improvements in fiscal 2026. I guess, how should we think about where that could go? We are at a point where you haven't even optimized for sales and marketing. What's the right way to think about that trajectory?

So, it is a little early for me to say, I'm not going to be giving the guide for next year. So there is a couple of things that are gating here, okay? One, we want to complete the rollout of the new transaction model. We want to hire a new CFO and get their fingers on this. And then what we'll do is we will start giving you more color on the specifics for next year. But suffice it to say, what I'm trying to do is give you confidence that, one, we're not only paying attention to this, but we've got line of sight, just like we did in the move to annualized billings, look at the results that we are delivering now as a result of that, okay? That was two years ago, look at the results we're delivering. Now I'm telling you we have line of sight on other productivity improvements associated with sales and marketing in the new transaction model. So, I want you to know, we see it and you need to believe in it.

And as we've said before, the P&L is going to be noisy, as we continue to transition to the new transaction model. And that's why we anchored you on the FY’26 free cash flow target to give you a sense of what to expect. And with our current trajectory, we still estimate that the free cash flow in fiscal '26 to be around $2.05 billion at the midpoint. And as I said earlier, we have our largest multi-year cohort renewing. We have a large EBA cohort and we have kind of the natural transition to annual billings from upfront billings.

Okay. Perfect. We will await anxiously for these details. Maybe second, just thinking about the -- we've talked a lot about the potential economics and kind of the partner activity on the transaction model. Like what are you guys hearing from customers and do they even care, do they even notice like is there some sort of a benefit on their side that they might be seeing that we're maybe on the analyst world not quite as cognizant of?

Yeah. So look, for most customers, it is a non-event, all right, because they're just finding themselves buying differently. Some are happier, some would prefer to go through a third-party. Notice that some are taking the opportunity to true up contracts, all right? That -- what they're doing right there is a thing, oh, I have a chance to clean up my relationship with Autodesk, that's going to give me more power come the renewal cycle. So they actually see advantages with cleaning up their relationship with us and making sure that they have visibility in their company. So that's good for them. But for the most part, it's not a big customer issue, both positive or negative.

Okay, perfect. Thank you for the insights, guys.

Thank you. Our next question comes from Tyler Radke with Citi. You may proceed.

Yes. Thank you for taking the question. I guess just to start off on the free cash flow number for next year, I guess that's one piece of guidance or at least a target that you've given. Can you just talk about the confidence behind that? And as you think about being ahead of plan in terms of some of these margin optimizations, like how much margin and cost optimizations is built into that number?

Well, again, we are obviously not going to be giving you detailed guidance for fiscal 2026 at this point. But what we will do at the end of the fiscal year is we'll give you a lot more details about the impact of the new transaction model, both on fiscal '25, as well as what we expected -- how we expect it to impact fiscal '26. And right now, we are focused on the rollout in North America, as well as Western Europe in September. What I can say is the tailwind to revenue growth will be greater in fiscal '26 than in '25. And all else being equal, the greater the tailwind to revenue in '26, the greater the headwind to margins. And again -- but we’re very focused on managing that. Again, based upon this change in the geography on the balance sheet and the P&L, we are still largely focused on being able to manage to margins that are better than they are today. And again, going back to the free cash flow number of the $2.05 billion at the midpoint, obviously that's up significantly from where it is this year. And I mentioned earlier, the largest multi-year cohort is renewing next year. We have a large EBA cohort. And again this natural transition from annual billing -- from the upfront to the annual billings will also help us from a cash flow perspective.

Great. And for Andrew the make revenue in the quarter was particularly strong, I think the strongest sequential growth in a number of years despite sort of having the leap year last quarter. Was there any one-time factors there, or is that sort of a function of share gains and some of the re-org that you've done in that organization to sort of accelerate growth?

Yes. So first off, the core underlying momentum of the make businesses have been tact. There was one one-time factor, the acquisition of Payapps is in there as well, all right, which is an important piece of it. But the underlying momentum in the Construction and Fusion business, that is solid and consistent with previous quarters with a little kick from the Payapps business, okay? Makes sense?

Yeah. Yeah, any way to quantify the Payapps in the quarter?

No.

Okay. Thank you. Thought I'd try.

No. Always we’re trying, always ask.

Thank you. That is all the time we have for Q&A today. I would now like to turn the call back over to Simon Mays-Smith for any closing remarks.

Thanks everyone for attending. We look forward to seeing many of you on the road over the coming weeks and towards AU at the end of October. Please just ping me if you have any questions in the meantime. Otherwise, we'll catch up on next quarter's call towards the end of November. Thanks so much.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.