The paragraph introduces the Q2 Fiscal '25 Autodesk Earnings Conference Call and the participants, including the CEO and Interim CFO. It mentions that the call is being recorded and will include forward-looking statements and financial performance comparisons. The non-GAAP numbers will be reconciled and the call is turned over to the CEO.

Autodesk has seen strong growth in the second quarter and first half of the year, with a 13% increase in revenue. This is due to their focus on key growth trends such as digital transformation and cloud adoption in industries like AEC, manufacturing, and media and entertainment. The company is investing in next-generation technology and services, and their subscription model and diversified portfolio have helped them remain resilient despite external factors. Key performance indicators show consistent momentum and optimism from channel partners.

The company has seen significant benefits from their focused execution and capital deployment strategy, which has helped mitigate risk and support revenue, margin, and free cash flow growth. They are also modernizing their go-to-market approach and transforming their platform to further drive growth and efficiency. They expect to reach their fiscal '26 non-GAAP operating margin target a year ahead of schedule and become one of the top-performing companies in the industry. The company is confident in their long-term growth potential and resilient business model.

The disciplined execution and capital deployment at Autodesk is driving operational velocity and efficiency, resulting in strong financial performance. The company expects to see a reduction in shares outstanding and sustainable shareholder value over time. Betsy Rafael, the Interim CFO, will provide details on the quarterly financial performance and guidance. The company saw growth in AEC and manufacturing, but softness in media and entertainment due to the Hollywood strike. The make business continues to enhance growth, and the new transaction model did not make a significant impact. The company remains focused on their go-to-market initiatives to support growth and improve margins.

The shift to annual billings for multi-year contracts and the new transaction model have affected metrics such as revenue, billings, deferred revenue, RPO, and free cash flow. This shift has resulted in a decrease in billing, deferred revenue, and free cash flow initially, but it is gradually becoming a positive factor. Metrics that include unbilled deferred revenue provide a better view of performance during this transition. Multi-year contracts build upfront only contribute to a small percentage of total billings. The new transaction model also has mechanical and timing impacts on various financial metrics, which are affected by the pace of the model rollout and customer behavior.

The shift from the old to the new transaction model results in an increase in billings, deferred revenue, revenue, and sales and marketing expense. This transition may create a short-term headwind to the operating margin, but in the long-term, it is expected to optimize the business and provide a tailwind to revenue. The impact of channel partner and customer behavior during the rollout of the new model is difficult to predict, but co-termed contracts may create opportunities for larger contracts on renewal.

In the second quarter, the new transaction model allowed for more self-service functionality and helped reduce administrative costs. Co-terming, a feature of the new model, will drive margin momentum in the coming years. Total revenue grew 12-13% in constant currency, with strong growth in all regions and direct revenue increasing by 21%. The net revenue retention rate remained within the expected range. Billings increased by 13%, with a modest tailwind from the prior year and a mechanical tailwind from the new transaction model. Total deferred revenue decreased due to the transition to annual billings for multi-year contracts. Gross and operating margins remained stable or increased.

The ratio of stock-based compensation as a percentage of revenue is expected to decrease in fiscal year 2025 and remain below 10% in the long term. Free cash flow for the quarter was $203 million, accelerated by some channel partners booking business earlier in the quarter. The company continues to actively manage capital and plans to increase the pace of buybacks in the second half of the year. They will also use capital to offset dilution and expect a further reduction in shares outstanding over time. The company believes free cash flow is the best measure of performance due to the noise in billings and the P&L caused by the rollout of a new transaction model.

The company's underlying momentum remains consistent with their full year guidance range, and they have raised their midpoint guidance for billings, revenue, earnings per share, and free cash flow. This is due to the smooth launch of the new transaction model in North America and the expected launch in Western Europe in September. This will result in a 5-6% tailwind to billings, with a 3-4% tailwind specifically from North America. The company has raised their billings guidance to a range of $5.88 billion to $5.98 billion. The revenue guidance has also been increased, with $40 million from the launch in Western Europe and acquisitions, and an underlying increase due to reduced cautious forecast scenarios.

The company is increasing its revenue guidance by $65 million at the midpoint, with expected revenue growth of 11% in fiscal '25. Margins are slightly better than previous guidance, but there are still headwinds from the new transaction model and investment in people, processes, and automation. Free cash flow is in-line with expectations and the company expects strong growth in fiscal '26. The transition to annual billing for multi-year contracts and the new transaction model will create noise in the P&L, but will also provide a natural tailwind for revenue and free cash flow in the next few years.

Autodesk's strong business model and competitive momentum provide visibility and certainty despite external uncertainties. The company aims to reach a 45% Rule of 40 framework and remains focused on compounding revenue growth and strong free cash flow margins. In the second quarter, AEC saw good momentum, particularly in infrastructure and construction, driven by customers consolidating onto their cloud-based solutions. The company's comprehensive end-to-end solutions and growing customer base, such as Thornton Tomasetti, demonstrate the benefits of their technology in transforming businesses.

Autodesk's transition from BIM 360 to Autodesk Construction Cloud has improved project workflows and collaboration. The company has also expanded its relationship with Thornton Tomasetti and a European consortium to include additional BIM tools. In the manufacturing sector, Autodesk has made significant progress on its strategic initiatives.

Customers in the automotive industry are investing in digital transformations and consolidating their design and make platform. A leading European manufacturer has renewed and expanded their agreement with Autodesk to accelerate their time to market and drive business transformation. They will use Alias, VRED, and flow production tracking to democratize visualization, reduce reliance on physical prototypes, and improve design collaboration. Meissner, a global leader in tool and plant construction, is using Autodesk solutions to adapt to the fast-moving automotive industry and drive business growth. They have adopted various Autodesk products for complex milling, programming, and producing plastic parts, while also leveraging Fusion for collaboration. Fusion is one of the fastest-growing products in the manufacturing industry, with increasing attach rates and higher average sales prices. In education, Autodesk is preparing future engineers with next-generation design, analysis, and manufacturing solutions.

Bochum University in Germany initially evaluated Fusion for its mechanical engineering department but found it lacking. However, impressed with its expanded capabilities in electronics and PCB design, the university has now replaced a high-end solution with Fusion for all mechanical engineering courses. This allows students to learn end-to-end workflow skills and saves time and costs for the university. Additionally, European company Mercury Engineering has increased its investment in Flex to access solutions for their digital edge initiatives and collaborate with their ecosystem. They also pay attention to the American Institute of Architects' data.

The AIA reported that reconstruction and renovation projects accounted for almost half of architecture firms' billings in 2022, with the majority in commercial, industrial, and institutional sectors. Autodesk, a leader in BIM and digital technologies, has been named the Official Design and Make platform of the LA28 Olympic and Paralympic Games to support their commitment to using existing or temporary infrastructure. Over the next four years, Autodesk will provide software and BIM tools to help bring LA28's ambitious venue plan to life and facilitate collaboration with stakeholders. The company is also making good progress in their search for a new CFO.

The speaker, Andrew Anagnost, responds to a question regarding recent letters and presentations from investor Starboard Value. He mentions that they are aligned in their goal to create more shareholder value for Autodesk. Despite challenges in the market, Autodesk has delivered strong results with increased revenues and free cash flows. Anagnost highlights the company's decision to shift to annual billing for multi-year contracts, which may have caused uncertainty in the past but has ultimately led to positive results.

Andrew Anagnost, CEO of Autodesk, discusses the company's recent earnings and the progress they have made in their new transaction model. He emphasizes the positive impact of this model on their sales and marketing costs and how it will lead to margin growth. He also mentions the ongoing value that Autodesk provides and their success in meeting non-GAAP targets ahead of schedule. He agrees with Starboard's belief in the company's potential for value creation. Saket Kalia asks about Autodesk Construction Cloud and the competitive landscape in the construction industry.

Autodesk CEO Andrew Anagnost discusses the company's strong momentum in the construction business, attributing it to factors such as a large backlog, a competitive portfolio, and international growth. He also mentions the company's success in winning over mid-market customers in the US.

Andrew Anagnost is discussing the new engagement or transactional model and how it will impact the division of labor between inside sales, customer success, and the channel. He mentions the potential for increased efficiencies and productivity, leading to margin growth in the next couple of years. He also addresses the effects of co-terming on billings and how it moves them forward in the renewal cycle.

The new transactional model has been successful in North America, leading to the decision to accelerate its rollout in Europe and Japan. The system was first tested in Australia and then fully implemented in the US without any major issues. Quality of life issues may arise, but overall the process has been smooth.

The company is addressing a backlog of issues related to customer demand for more functionality and capability. They have given themselves extra time to clear this backlog and have learned from previous test runs in Europe. The only difference in Europe is the use of different currencies and legal regulations. The company is confident in their plan for the fiscal year. The upcoming US elections are not expected to have a significant impact on customer demand as the issues that affect their end-markets are bipartisan.

Jason Celino from KeyBanc Capital Markets asks a question about the company's performance for the quarter. He notes that they beat expectations and maintained their margin framework despite facing headwinds from transitions. The company did not do anything unusual to drive leverage, and Betsy Rafael explains that they saw underlying improvement in margins. Jason also asks about the increase in free cash flow, and Betsy explains that it is mainly due to timing as customers signed earlier than expected. Elizabeth Porter from Morgan Stanley then asks about the pricing environment.

The move to a transactional model is expected to provide more control over discounting behavior and narrow price differentials. This will benefit partners by allowing them to sell at the value they deliver, while also providing cost efficiencies for the company. The overall demand environment remains challenging, but there are some headwinds in new business with different factors at play.

Autodesk's monthly active usage and bids on building connected show positive momentum, with AEC and manufacturing doing well while media and entertainment struggles. Geographically, most of the world is strong except for China and Korea. The company's resilience is highlighted by its diverse business and ability to offset declines in one area with growth in others. In the manufacturing segment, growth in the upper or low teens is driven by both mid-market and enterprise customers, potentially indicating share movement in the industry.

The company is seeing a shift in market share and has been successful in driving up ASPs for Fusion. They are investing in new technologies, which may cause a delay in returns, but they are focused on improving net sales and marketing productivity to drive margin growth. A question was asked about the amount of latent investment being absorbed in the current margin, but the CEO did not provide a specific number, instead emphasizing the natural delay in returns on R&D investment. The company is focused on net sales and marketing productivity to drive margin growth in the future.

Autodesk's CEO, Andrew Anagnost, is confident that the company can continue to improve its margin profile in fiscal 2026. He acknowledges that it is still early to give specific guidance for next year, but assures investors that the company is paying close attention to this and has line of sight on productivity improvements in sales and marketing. The P&L may be noisy as the company transitions to a new transaction model, but the company is still on track to reach its FY'26 free cash flow target of $2.05 billion. Investors should expect more details in the future.

The company's CEO and CFO were asked about the potential economic and partner activity on the new transaction model. They stated that for most customers, the change is a non-event, but some are using it as an opportunity to clean up their relationship with the company. They also mentioned that they will provide more details on the impact of the new model on fiscal years 2025 and 2026 at the end of the fiscal year.

Autodesk is currently focused on the rollout of its products in North America and Western Europe in September. The company expects a greater tailwind to revenue growth in fiscal year 2026, which may result in a headwind to margins. However, they are still focused on managing margins and expect them to be better than they are currently. The company also anticipates a significant increase in free cash flow and mentions the acquisition of Payapps as a contributing factor to strong revenue growth in the make business. There is no specific quantification of the impact of Payapps on the quarter.

Simon Mays-Smith is thanking everyone for attending the call and looks forward to seeing them on the road and at AU in October. He encourages them to reach out with any questions and mentions the next call will be in November. The operator then thanks everyone and ends the call.

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