Let’s do a little math, shall we? If we buy software at Staples for $5,000, Staples gets $5,000 and the creator of the software gets maybe $3,000 of that. Assuming we don’t buy any more, in 5 years, the vendor will have gotten just $3,000 from us. If we buy that same license from the vendor’s online store, the vendor gets all $5,000. If they can upsell us on maintenance, they get $5,000 in year one and then something like $1,000 every year thereafter. In return, they owe us updates, support and other benefits under the maintenance program. If we stick with it, the vendor might see $9,000 from us over 5 years.
So far, it works out best for the vendor if we buy perpetual plus maintenance. It may work out best for the user, too, if the maintenance is worthwhile and product updates are meaningful. But that initial, upfront payment is still pretty steep. Autodesk is betting that more people will want to buy more software if each bite costs less, say at a flat $2,000 per year for 5 years. Over the long-term, Autodesk believes that its ability to provide more value to customers will attract subscribers to its platforms, whether desktop, cloud, mobile or social; and to its products, which might be standalone solutions, suites or apps. That may be right in the long run, but it’s proving painful in the short term, as more and more buyers choose the “less out of pocket in year one” option.
In prepared remarks, CEO Carl Bass said “[w]e are at the very beginning of a platform and model transition that will propel Autodesk to the future. We are focused on driving our subscription base, annual subscription value, and billings over the next four years and beyond. As anticipated, our transformation will start gradually and we expect will gain momentum as we go forward.”
Going bigger picture, Mr. Bass said told investors that “the demand environment’s growing stronger and doing so on a fairly consistent basis worldwide [except Southern Europe]. Demand in the US and Japan is strong. By industry, we’re seeing a real pickup in AEC, a real effort around tools and people buying new tools. BIM 360 is close to our fastest growing product ever. Generally speaking, I see good stuff out there right now.”
- Revenue in Q4 (ended January 31, 2014) was $587 million, down 3% year/year (y/y). Full year revenue was $2.3 billion, down 1.6% y/y
- License and other revenue was $321 million, down 12% or $44 million
- Subscription revenue was $266 million, up 10% or $24 million
- The company estimates that customer choices favoring new license options decreased reported license revenue by $30 million, especially in the Americas and in the AEC business, while adding that to the deferred revenue on the balance sheet. The weighting towards the Americas makes sense, since Autodesk typically rolls out new programs here, first. Flagship revenue was down 13% in total, something like 10% more than the planned decline as customers move from standalone Flagship products –AutoCAD and LT, Civil 3D and Plant 3D, Inventor and Revit, etc.– to their Suites counterparts. I suppose this also makes sense, as new suites buyers opt for subscriptions and enterprise licensing agreements
- Autodesk said that, absent the effects of the business model transition, Q4 results would have shown top line revenue growth of 2% and “reflect solid demand in our AEC business segment and in the Americas”.
- CFO Mark Hawkins said that 45% of fiscal 2014 revenue is recurring, up from 41% a year ago. He said that ultimate goal is 70% recurring revenue but that “it’s early days. It’s at the beginning of the beginning.”
- By region, revenue from the Americas was down 6% to $207 million. Without the license model changes, revenue would have been up 6% y/y, with “particular strength in the US.”
- Revenue from EMEA was $229 million, down 4% y/y as reported and down 6% in constant currencies (cc). Mr. Bass said that Europe, in general, has been strong, with building momentum. There is still weakness, “particularly in Spain, France, Italy, Greece. I don’t see the momentum there.”
- Asia Pacific revenue was up 2% (up 10% in cc) to $150 million. Mr. Bass told investors that “Japan has been particularly strong and Korea continues to do well. The data out of China doesn’t always reflect what we see from our business. We’re seeing is a strong China, not overheated. I don’t think it’s at that torrid pace as before, but it doesn’t seem to be weakening either.”
- Revenue from emerging economies held at 15% of total and was $88 million for the quarter, up 5% y/y. Once again, growth in the BRIC countries was led by India
- By business segment, revenue from the Platform Solutions and Emerging Business was down 1% to $196 million as customers continue to migrate to Suites
- AEC revenue was down 5% to $196 million but still came in at the highest point of fiscal 2014. Without the license model change, revenue from AEC would have been up 8% y/y. AEC suites revenue was up 32% y/y. Mr. Bass was a bit giddy about AEC, telling investors that it “had a spectacular quarter to close out a record year. We booked a significant number of $1 million-plus transactions, including the largest transaction in Autodesk history, worth more than $20 million”, a small portion of which was recognized in Q4, and that the company booked more than 20 BIM 360 transactions worth over $100,000, including two new transactions worth over $1 million each
- Manufacturing revenue was flatfish at $154 million, also the highest total for fiscal 2014, with Suites revenue up 4% y/y
- PLM 360 was also highlighted on the call, with Mr. Bass saying that “we had our best [PLM 360] quarter ever, including our largest PLM 360 transaction to date, worth almost $700,000. Almost 25% of [Q4] PLM 360 customers are new to Autodesk and, to date, nearly 1,000 companies have deployed PLM 360.”
- Finally, revenue from the Media and Entertainment business segment was down 12% to $41 million
- Suites revenue was up 15% y/y to $216 million.
I put in the “if the license model transition hadn’t happened” data because Autodesk reported it. But it does lead me to wonder: if the customer bought an Autodesk product because they could get it at a lower cost subscription, they wouldn’t have bought it otherwise. So to treat it as if it had happened some other way makes no sense. But companies do this sort of stuff all the time … and it does allow Autodesk to tell a more positive top line revenue story.
For fiscal 2015, Autodesk expects total revenue to be up 3% to 5%, or $2.234 billion to $2.388 billion. That forecast is based on adding 150,000 to 200,000 new subscriptions (though it’s not clear what type or to what products), which will add to the 2015 top line and create billings growth of between 5% and 8% for future periods. Autodesk says it has grown its subscriber base by 26% to 1.9 million since FY09, or over 5 years; adding 10% in just one year seems aggressive. [On the other hand, one analyst on the earnings call said that he had data showing that Autodesk had added 250,000 subscribers from 2012 to 2013, which would make the fiscal 2015 goal a bit cautious. CFO Mark Hawkins sees his guidance as “prudent”.]
For Q1, Autodesk expects total revenue of $560 million to $575 million, which would be more or less flat with a year earlier. This forecast does include a contribution from Delcam, but the company says this “will be muted, especially in Q1, in part due to the typical write down of deferred revenue the first year”.
One interesting thing that I just now caught (forgive me; I think it’s been there for a while). In a world of long-winded lists of brands and attributes, Autodesk positions itself this way:
Autodesk helps people imagine, design and create a better world. Everyone–from design professionals, engineers and architects to digital artists, students and hobbyists–uses Autodesk software to unlock their creativity and solve important challenges. For more information visit autodesk.com or follow @autodesk.
I like it. Simple. Elegant. And, as Autodesk leans further into subscriptions and apps, the lower cost of entry might make Autodesk’s products affordable to almost “everyone”.