The operator introduces the earnings conference call for Autodesk's third quarter fiscal year 2024, and hands the call over to VP of Investor Relations Simon Mays-Smith. He is joined by CEO Andrew Anagnost and CFO Debbie Clifford. They will be discussing the company's outlook, future results, and business strategies. Forward-looking statements may be made, and any numerical or growth changes will be compared to the previous year.

Autodesk has performed well despite economic challenges, thanks to its subscription business model and product diversification. The company's strategic execution and capital deployment have allowed it to stay ahead of the curve and avoid costly investments in the future. A new transaction model for Flex is being tested in Australia and is expected to be implemented globally in fiscal years 2025 and 2026.

The new transaction model at Autodesk allows for closer integration with customers' workflows and enables the development of valuable, data-driven products and services. While there may be some initial impact on operating margins, the long-term benefits include increased revenue, operating income, and free cash flow. Additionally, Autodesk is investing in next-generation technologies, such as AI and platform services, to further enhance the design and make process for customers.

Autodesk Platform Services offers various capabilities, but data services are the most impactful. These services are powered by the Autodesk data model, which allows customers to access design, make, and project data in small chunks. This model enables automation, analysis, and augmentation for customers and partners. Autodesk has successfully transformed from desktop to cloud and from perpetual license to subscription, leading to growth and strong partnerships. The company's focus on automation is helping customers navigate ongoing challenges in the market. The company's financial performance and guidance remain steady.

Autodesk's financial performance in the third quarter was strong, with a 10-13% increase in revenue driven by incremental true-up and upfront revenue from large customers. AutoCAD, AEC, and manufacturing revenue all saw growth, while M&E revenue was down. Revenue also grew in all regions, with direct revenue increasing by 19%. The transition from upfront to annual billings for multiyear contracts is going as expected, and total deferred revenue and RPO both increased. Non-GAAP gross margin remained steady, while operating margin increased due to revenue growth and cost discipline. Costs associated with Autodesk University were shifted to the fourth quarter this year.

In the third quarter, the company's free cash flow was limited due to the transition to annual billings for multiyear contracts and the payment of federal taxes. They continue to actively manage capital and invest in their capabilities and services. They have also been offsetting dilution from their stock-based compensation program through share repurchases. The company's end markets and competitive performance are at the better end of their expectations, but FX and co-terming have been slightly more of a headwind to billings. They are keeping their billings guidance constant, but raising their revenue, earnings per share, and free cash flow guidance. Their previous comments on the fiscal 2024 EBA cohort, foreign exchange movements, and the switch to annual billings are still relevant.

In the third quarter, some customers switched to annual contracts, which may negatively impact RPO growth rates. However, this also creates opportunities for upselling and driving adoption. The company expects fiscal 2024 revenue to be between $5.45 billion and $5.47 billion, with similar non-GAAP operating margins as fiscal 2023. Free cash flow is expected to be between $1.2 billion and $1.26 billion, and the non-GAAP earnings per share guidance has been increased. The company continues to manage its business using a Rule of 40 framework and aims to reach 45% or more over time. However, the path to this goal will not be linear.

The factors affecting revenue and free cash flow growth in fiscal 2025 have been discussed in previous quarters, including macroeconomic drag, smaller EBA renewal cohort, and transition to annual billings. The new transaction model is expected to be a tailwind to revenue growth, but will result in a reduction of reported free cash flow growth. Adjusting for this, there will still be significant free cash flow growth in fiscal 2025 and 2026. The progression from fiscal 2024 to 2025 will be more linear, but fiscal 2026 is expected to have faster free cash flow growth. Investors should pay attention to the company's statements throughout fiscal 2024 regarding the new transaction model, which is expected to have a positive impact on revenue growth, be neutral to operating profit and free cash flow, and have a negative impact on operating margin percentage.

Autodesk is expecting operating margin improvement in fiscal 2025, with more normal first half and second half free cash flow linearity compared to fiscal 2024. They anticipate fiscal 2024 to be the free cash flow trough during their transition to annual billings for multiyear contracts. The company acknowledges the uncertainty in the macroeconomic environment and the impact it may have on their business and customers. However, they remain focused on achieving their goal of 45% or more operating margin, regardless of the challenges. The progress made in the third quarter will be shared in the update.

In the third quarter, Autodesk saw strong growth in the AEC industry, particularly in transportation, water infrastructure, and construction. WSP, a professional services firm, closed its sixth EBA with Autodesk, showcasing their strong partnership and the impact of Autodesk's solutions. TCE, a global engineering and consulting firm, is utilizing Autodesk solutions to support their sustainable development goals. Autodesk's end-to-end construction solutions are also gaining traction, with a significant increase in MAUs for Autodesk Construction Cloud. LFD, Inc., a top general contractor, selected Autodesk Construction Cloud as their preferred platform.

The company has chosen Autodesk as their preferred partner due to their preconstruction and cost capabilities. They are focused on managing people, processes, and data to increase efficiency and sustainability. In the manufacturing sector, customers are investing in digital transformation and consolidating on Autodesk's design and make platform. A global industrial company has renewed its EBA with Autodesk and plans to expand its use of up chain, vault infusion, and Fusion for process management and digital thread initiatives. Fusion is also providing an easy on-ramp into the company's cloud ecosystem for existing and new customers, such as a leading manufacturer in the agriculture industry.

Autodesk is digitizing its factories and using Flex to explore advanced technology for Fusion and CAM tool path automation. The company is seeing growth in its automotive sector, with a leading manufacturer renewing and expanding its usage of alias and Red for lighting simulation. In education, Autodesk is partnering with PanState to prepare future engineers with its design, analysis, and manufacturing solutions, such as Fusion. Students have already collaborated with NASA on a generative design project, showcasing the real-world application of Autodesk's tools.

The company is focused on ensuring its customers are using the latest and most secure versions of their software. They recently helped a construction company in Japan streamline their software management processes and maintain compliance by identifying instances of noncompliant usage and recommending appropriate subscriptions. The company is also laying the foundation for enterprise-level AI and is continuously evolving and innovating. The new transaction model is seen as consequential and the company's resilience has shown in their recent results.

The company is on a journey to modernize and move all customers to cloud-based life cycle solutions powered by AI. This new transaction model is an important step in this modernization process, allowing for direct engagement with customers at the account level. It will also help partners transition from transaction-focused to solution-focused, making them crucial in helping customers integrate new design to make solutions in the cloud.

Debbie Clifford, during an analyst call, discussed the company's plans for modernization and its significance. Saket Kalia asked for more information about fiscal 2025, but Debbie did not provide specific details. She did mention some factors that will impact revenue growth next year, such as the non-recurrence of EBA upfront and true-up revenue, FX and macro drag on new subscriber growth, and the impact of a new transaction model. She emphasized that the company is focused on long-term success. Another analyst, Jay Vleeschhouwer, asked about the company's sustainable double-digit growth plans. Debbie did not provide specific details, but she did mention a chart from an earlier analyst meeting that showed a mix of price and volume sources for growth. It is unclear if the company's thinking on this has changed.

Debbie Clifford and Jay Vleeschhouwer discuss the company's growth targets and plans for the upcoming year. They mention the uncertain market conditions and predict a 9% or more revenue growth. They also emphasize the importance of setting themselves up for long-term success. Andrew Anagnost discusses the role of granular data in the company's product plans and the timeline for implementing new technology features, particularly for AC. He mentions that the product will become more similar to the fusion environment and different from the current mainstream usage.

The transition to multiyear to annual billings is going well, with the systems working and customers and partners behaving as expected. It is still early in the journey, which is expected to take three years.

The company is expecting to see an increase in free cash flow in fiscal years 2025 and 2026 due to a mechanical rebuild. The CEO mentioned some comments made on the call about normalizing cash flow in fiscal 2024. The company will also have larger cohorts coming up for renewal in fiscal 2026, which will drive faster growth in free cash flow. The CEO also mentioned interesting AI announcements and potential pricing uplift, but it is too early to discuss actual monetization. The company will continue to integrate AI functionality into existing products.

The question is about how customers are responding to Autodesk's approach to AI and automation, specifically in regards to their cloud data strategy and how they are aggregating industry information. The CEO, Andrew Anagnost, responds by stating that they have a strong stance on ethical and trustworthy use of data and will work with customers to use it appropriately and preserve their IP. He also mentions that many customers recognize the trade-off between productivity and maintaining trust, and that Autodesk will handle this in a responsible manner. In regards to the question about FY 2025, the CFO, Debbie Clifford, clarifies that there will be a known headwind to free cash flow next year due to deferreds, but this is normal seasonality.

During the earnings call, the company discussed their revenue growth and the impact of currency on their numbers. They also mentioned that they are seeing record contributions from the construction side of their business, particularly within the Autodesk Construction Cloud. The CEO highlighted strong performance in the top end of their business, with growth both internationally and in the U.S. despite some sectors slowing down.

Autodesk's construction business is experiencing strong dynamics in various industries, such as manufacturing, data centers, and healthcare. Bid board activity is at record highs and backlog remains high, although general contractors are struggling to hire enough workers. The company is also seeing success in winning deals in more competitive markets, potentially slowing down competitors. Analysts are asking about the company's 9% growth forecast for FY 2025 and the potential bridge to the 10-15% growth framework, to which the company responds that the non-recurrence of EBA upfront and true-up revenue must be taken into consideration.

The speaker discusses the factors that are driving the estimated 9% or more revenue growth for next year. These include foreign exchange, macroeconomic conditions, and the performance of the EBA cohort, which has been stronger than expected due to higher usage of their contracts. The company has been monitoring this cohort and has factored in their performance in their latest estimates, which led to a top line upgrade.

The speaker, Andrew Anagnost, is discussing the impact of the infrastructure bill on the company's competitors and their relationships with various departments of transportation. He mentions that some of the money from the bill is starting to flow to projects, which is exciting and shows potential for future opportunities. The speaker also mentions changes in the company's partner relationships, including a new transaction model and a shift in commission structure, and notes that there has been positive feedback from partners about these changes.

The speaker explains that they invest a lot in bringing their partners along with changes, although not all partners may be happy. They have a deliberate and incremental approach to implementing changes and have built trust with their partners. The speaker also addresses a question about the accounting for EBA revenue and mentions that it will not have a significant impact in fiscal 2025.

The move from contra revenue to the Flex model will result in accelerated revenue growth, but the pace at which it will accelerate is dependent on the rollout process. Flex was launched last year and is currently being implemented in Australia, with the company learning from this experience.

Autodesk plans to go global with their new transaction model next year, but they are closely monitoring the launch in Australia to ensure success. They expect the new model to accelerate revenue growth. The company continues to see good conversions from non-compliant users and is implementing different strategies to drive compliance. They expect this to be a steady contributor to revenue growth. Analysts are curious about any disruptions or learnings that may come from the Australian launch before it is rolled out globally.

Autodesk CEO Andrew Anagnost discusses the company's efforts to ensure that its partners are able to enter deals into the system and line up their pipeline with the new way of doing things. They are confident due to the Flex experience, but want to stress test the system and ensure that it works for all product offerings. Anagnost also mentions pricing adjustments for Fusion 360, which are aimed at delivering more value to customers and treating long-time customers fairly.

Autodesk's value in base Fusion has increased significantly, leading to a closer look at pricing. The company expects the value to continue to rise and some extensions may see better adoption. They are balancing the overall cost of ownership for customers. On the subscriber growth, the company is built for resilience and the AEC sector grew 20% in the quarter, offsetting headwinds from media and entertainment. Regionally, India and Canada offset the U.S. and U.K. The company remains on track for long-term cash growth.

The speaker discusses how EBAs and small businesses offset the mid-market in terms of market segments. They mention a new transaction model that has been implemented and state that nothing has changed outside of it. They believe that this decision will benefit the company in the long term and lead to greater revenue growth and free cash flow. They also mention that they are not focusing on fiscal 2026 and are instead making decisions for long-term success. The speaker thanks everyone for joining the call and wishes those who celebrate a happy Thanksgiving.

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