Autodesk's Vice President of Investor Relations, Simon Mays-Smith, welcomed listeners to the Second Quarter 2024 Earnings Call and introduced CEO Andrew Anagnost and CFO Debbie Clifford. He also noted that the call was being broadcast live and that a replay would be available on the company's website. He cautioned listeners that forward-looking statements made during the call may differ from actual results due to various factors, and that the information presented may not be accurate if the call is replayed or reviewed after today. All numeric or growth changes discussed will be year-on-year comparisons unless otherwise noted.

Autodesk had strong financial and competitive performance in Q2 despite macroeconomic and geopolitical headwinds, due to their subscription business model, product and customer diversification, and their focus on developing next-generation technology and services. They saw growing adoption and token consumption within Enterprise Business Agreement and strong renewal rates, and were recently highlighted as a Best Workplace for Innovators by Fast Company. Debbie Clifford then discussed the overall market conditions and the underlying momentum of the business.

In the second quarter of 2021, Autodesk had strong financial performance despite a difficult macroeconomic environment. Total revenue grew 9-15% depending on the region, and direct revenue increased 18%. Billings declined 8%, but deferred revenue increased 14%. Both GAAP and non-GAAP operating margin remained level due to revenue growth and cost discipline.

In the second quarter, free cash flow was $128 million, which was better than expected due to the timing of EBAs and favorable in-quarter linearity. The company is being vigilant with capital allocation and purchased 400,000 shares for $87 million in the quarter. Guidance for the full year is being raised due to strong cohort of EBAs renewing in the second half of the year, however, foreign exchange movements will be a headwind to revenue growth and margins. Additionally, switching from upfront to annual billings for most multiyear customers will create a headwind to free cash flow in fiscal '24 and a smaller headwind in fiscal '25, and some customers have already switched to annual contracts.

In fiscal '24, revenue is expected to be between $5.41 billion and $5.46 billion, non-GAAP operating margins will be similar to fiscal '23 levels with constant currency margin improvement, and free cash flow is expected to be between $1.17 billion and $1.25 billion. Additionally, non-GAAP earnings per share will be between $7.30 and $7.49 due to higher interest income on cash balances and reduced likelihood of more cautious forecast scenarios.

Autodesk is continuing to manage its business using a rule of 40 framework with the goal of reaching 45% or more over time. This balance between revenue growth and free cash flow is the hallmark of successful companies and Autodesk intends to remain one. In the second quarter, Autodesk saw good growth in AEC, driven by customers consolidating their workflows in the cloud, and digital momentum is building with asset owners. Cannon Design is also embracing the cloud to increase efficiency, security, and collaboration.

Autodesk Construction Cloud is being adopted by various companies to simplify operations, streamline workflows, increase efficiency and decrease risk. Shook Construction chose Autodesk Construction Cloud for its ability to create high-impact collaboration with their construction partners and eliminate manual workflows. Autodesk Construction Cloud is expected to become the majority of all projects in the future as a way to enable digital transformation.

Autodesk Construction Cloud MAUs saw a 100% increase in the second quarter, showing the success of the integration of the construction and worldwide sales teams. Additionally, a multinational manufacturer has been using Autodesk's portfolio to connect workflows across AEC and manufacturing industries. An appliance manufacturer in Europe also purchased additional seats of Fusion for PCB design.

Autodesk is leveraging its Fusion electronic design automation capabilities to quickly and seamlessly connect more of its design to manufacturing workflow to drive efficiency. Autodesk is also introducing a new Flex consumption pricing model and a new transaction model for Flex in order to better serve customers. Additionally, Autodesk is working with noncompliant users to ensure they are using the latest and most secure versions of its software, and is expanding the precision and reach of its in-product messaging to drive incremental growth.

Coral reefs are incredibly diverse and valuable ecosystems that support 25% of marine life and provide protection from storms and floods. However, rising ocean temperatures have caused half of living coral reefs to die since the 1950s. Autodesk and the Autodesk Foundation are partnering with Coral Maker to use digital tools, AI, and robotics to restore coral reefs faster. This technology can deploy 100 sectors per year, compared to the current rate of one hectare per year. Autodesk's augmented design and industry cloud will enable customers to design and make a better world.

Autodesk executives Andrew Anagnost and Debbie Clifford opened the call for questions from analyst Saket Kalia of Barclays. Kalia asked Clifford about the increase in the midpoint of the revenue guide, which she attributed to a mix of organic and FX assumptions. Anagnost added that there were no major surprises in regards to customer or partner behavior as a result of the transition to a new billing model.

Andrew Anagnost is discussing the dynamics of the AEC industry, noting that there are three threats to the industry. He mentions the initial rollout of the new billings model which has been going well, and that customers are choosing annual contracts. He also mentions the ferment going on in the AEC market with the launch of a customer-developed design specification for software and the dual track of enhancing revenue and focusing on format.

Autodesk is looking to make data more accessible through APIs, creating a more performant and productive BIM model, and shifting the paradigm to cloud-enabled and augmented design-enabled or outcome-based design. They are also piloting a new transactional model in Australia, which may lead to changes in channel economics.

Andrew Anagnost explains that the Flex model allows for greater visibility and a more direct relationship with customers. Over the last year, they have been able to prove out a new transaction model and have learned a lot in the process. The volume of Flex is increasing and they are in a position to start growing and expanding the model. All options are open to them in the future for the model.

Andrew Anagnost discusses the U.S. government's Advanced Digital Construction Management System Program, which is designed to help Department of Transportation modernize their digital processes in order to spend more money on infrastructure. He states that Autodesk's focus has not changed, and they are still focused on water, road, and rail. Autodesk's differentiator is their modern architecture, which includes cloud-based and owner-based solutions for managing infrastructure. Anagnost looks forward to having discussions with the Department of Transportation in the coming months and years.

Debbie Clifford explains that customers chose to renew their tokens early due to their own budget and cash flow management, which is a positive sign for the company. She further states that this behavior has boosted billings, revenue, and free cash flow during the quarter. She is unable to quantify the expansion opportunity from the EBA renewal pool for the back half of the year, but notes that the strong usage is leading to early billings, which is a positive.

Andrew Anagnost discussed the diversification of Autodesk across different sectors of making things, and how the AEC industry is chasing productivity and digitization gains. Autodesk is connecting design and make processes in the cloud in a unique and highly integrated way to help people do things faster, more sustainably, and with lower risk and better outcomes. This shift is different than what has been seen before and will be riding this shift for a few years.

Andrew Anagnost and Debbie Clifford both comment on the potential impact of the writers and actors strike on Autodesk's media and entertainment business. Anagnost notes that the exposure to media and entertainment is relatively small compared to the other parts of the business, but that an extended strike could have an impact. Clifford adds that EBA usage has been strong and they have been tracking it year-to-date. She also notes that the high end of the constant currency revenue guidance is 12% plus, which is lower than the 13% from the previous quarter.

In Q1, Autodesk merged their Construction Solutions sales force with the mainline sales force in order to accelerate business growth in design-centric accounts. This caused some bumps in the process, such as realigning account assignments and players, but these have been smoothed out in Q2 with no loss of business. An example of this is the general contractor in Ohio, Shook.

The outperformance in the quarter was driven primarily by EBAs, and Andrew Anagnost noted that there is increasing evidence that municipalities need to reevaluate their water management infrastructure, which is expected to open up funding for sewer and water projects in the second half of the year or next year.

Debbie Clifford clarified that the contracts were not renewed in the second quarter, but customers were using more of the products than anticipated, leading to billings for the overuse. The trend is expected to continue for the remainder of the year, as customers are using a broader range of products than initially anticipated.

Debbie Clifford discussed the usage increase seen in Autodesk's EBAs in Q2, and expressed hope that the trend will continue. When asked about the strong free cash flow in the quarter, she said that while she could not provide guidance for Q3, the full year free cash flow guidance was raised to the low end of the range.

Andrew Anagnost explains that Autodesk's exposure to commercial real estate should not be overly emphasized, as the money always goes elsewhere. He further explains that the demand for Autodesk's products and services is still strong, as there is a need to reconfigure commercial real estate in order to make it more attractive to a shrinking pool of renters or to repurpose the space for other uses.

Andrew Anagnost of Autodesk stated that the company will continue to be acquisitive and make strategic acquisitions. He noted that timing and strategic alignment are important factors in determining which acquisitions to make, and that Autodesk has the cash flow and balance sheet ability to do so. He also mentioned that they have learned to integrate sales and back office infrastructure quicker to move faster.

Andrew Anagnost mentioned that the talent shortage is still an issue for construction and manufacturing customers, and Debbie Clifford noted that the overall market conditions for new subscribers were similar to the previous quarter, with usage and bid activity on BuildingConnected increasing and cautious optimism from channel partners. Regional performance was broadly similar to previous quarters, with direct business, enterprise and eStore, and India being bright spots, while China and M&A had a softer performance.

Debbie Clifford answers a question from Nay Soe Naing about the impact of early renewals on the AEC segment. She explains that the early renewals drove the revenue beat versus their guide, but it is not a big driver of the overall trend in AEC.

Debbie Clifford explains that the free cash flow midpoint increase in the guide is due to the performance seen in Q2, including EBA billings and favorable linearity. She also notes that the adjusted EPS guidance raise is due to higher interest income from cash balances. Finally, she reiterates that free cash flow will be significantly weighted into the fourth quarter, due to the extension of federal tax payments which had a positive impact on the first half but will have a negative impact on Q3.

The operator thanked everyone for joining the conference call and concluded the call by inviting Simon Mays-Smith to make closing remarks. Mays-Smith thanked everyone for joining and mentioned that they would update everyone on their progress in November on their Q3 earnings call. He then thanked everyone again before the operator concluded the call.

This summary was generated with AI and may contain some inaccuracies.