Autodesk’s FQ1 2018 is a pleasant surprise

May 19, 2017 | Hot Topics

Autodesk last night reported results that surprised on many levels, almost all good. Revenue declined 5% year/year as the transition from perpetuals to subs continues, and deferred revenue (the part of the sub payment that will be recognized in the future) was up 18%, to $1.8 billion, nearly 1 year’s total revenue. A few details, but I’m getting on a plane in a few, so these are my highlights:

  • Total revenue was $486 million, down 5% as reported, and down 4 percent on a constant currency (cc) basis
  • Autodesk signed 186,000 new subscribes in Q1, for a total of 3.29 million
  • A quick look at revenue: subscription revenue was $173 million, more than double the year-ago total; license and other revenue was $49 million, down 66% as the business transitions to subs, maintenance revenue was $264 million, down 7%, as the company transitions maintenance customers to subs
  • On a geo basis, revenue from the Americas was $210 million, down 3% as reported, (down 4% on a constant currency basis). Revenue from EMEA was $190 million, down 6% as reported (down 3% cc). Revenue in APAC was $86 million, down 6% as reported and cc
  • Finally, by product family. revenue from AEC products was $205 million, down 7%; from Manufacturing, $142 million, down 10%; from AutoCAD and AutoCAD LT,  $92 million, down 7%, and M&E revenue was $37 million, up 4%
  • For FQ2, the company forecasts revenue of $488 million to $500 million and, for the full year, it’s forecasting revenue of $2 billion to $2.05 billion

On the earnings call with investors, co-CEOs Amar Hanspal and Andrew Anagnost gave the following color on results:

  • The 186,000 new subscriptions came from all subscription plan types, reflected strong demand for the core designing and engineering products, with “triple digit growth across all geographies and very strong growth in emerging markets”. That’s a pretty broad statement — but it makes sense; if all Autodesk sells is subs, then subs will have a strong quarter. But perhaps more important,
  • New customers were “about a third” of new product subscriptions for the quarter. The co-CEOs said that these new customers are due to new product offerings, growth in emerging markets, bringing onboard former unlicensed users, and competitive displacements
  • The proportion of direct revenue continues to climb and was 30% of total revenue in Q1, up from 25% last year and from 19% two years ago. Two reasons: large enterprise customers want to deal directly with Autodesk, and “growth of over 300%” in revenue from the e-store
  • The channel has been, and continues to be, very important to Autodesk. CFO Scott Herren said Autodesk has “armed our partners all across the world with a tool that lets them sit down with the customers and go through the options [for switching to subs]. Here is what happens if you move now, here is what happened if you move next year. We put a lot of work into educating the channel.” I think the growth in direct revenue shouldn’t be seen as weakness in the channel, but rather as strength in other ways of addressing specific types of customers

There are so many moving parts here that any one factoid, on its own, doesn’t tell much of a story. But the indicators are good: Autodesk is starting to come out of its trough, many customers (though perhaps not all) believe that subs and collections are the right vehicles for their businesses, and Autodesk is starting again to talk about competitive displacements rather than just model transitions. That’s all good.

PS: A word to investors. Asking Autodesk about conversion rates to subs for recent buyers of perpetuals gets at the heart of the customers’ agida over this whole thing. Many customers take very seriously how much they spend on software and consider 5 years far too short a period to amortize (in a totally non-accounting way) their purchase. If something cost $10,000, 5 years ago and the buyer is paying $1,000 maintenance every year, they see themselves as investing $2,000 every year for those five years. Asking them to now pay $3,000 in year 6 is exactly what’s causing so many to react with anger and dismay. Five years isn’t long in the IT world (though it’s, right now, a generation in the world of CAD change).

PPS: A note to Autodesk. When you use words like “Average Revenue per Customer went up in Q1”, your customers hear you say “We’re figuring out how to charge them more without delivering more value”. That’s not what you mean; you honestly believe you’re adding functionality that’s worth paying for. When you tell the customers that they need to pay more for maintenance, even if you think these are reasonable increases, they don’t agree. They still don’t like subs because they can be turned off; you need to use better/different incentives to move them to subs. Think carrot and stick: you’re using sticks. Focus on the carrots of better functionality, free cloud credits (if that’s broadly applicable) in addition to the discount in maintenance for early movers — that price incentive is a very small carrot on what they see as a big stick Pay attention to your language, Autodesk; customers listen to these earnings calls, too.