Autodesk’s FQ1 a “good start”, call all about cloud, construction

So here’s the thing about public companies: they’re stuck in an endless loop of setting targets, having others adjust those expectations to suit their own needs, and then either meeting or not meeting other people’s forecasts. Autodesk last night announced results that were solidly inline with its own targets for the quarter just ended, and set cautious guidance for the next quarter. So? Its stock price dropped 5% on the news (but has started to recover a bit this morning as investors sense a bargain). Honestly, I can see why Bentley decided to forgo being public, at least for now.

Back to Autodesk. For FQ1,

• Revenue was up 15% to $560 million while annualized recurring revenue (ARR) was up 22% to $2.1 billion
• Subscription revenue was $350 million, up 102% as reported and up 100% in constant currencies (cc) basis, as the company phased out sales of perpetual licenses and encouraged customers to switch maintenance to subscriptions
• Maintenance revenue $181 million, down 31% as it worked to migrate maintenance buys to subs
• “Other” revenue includes services and perpetual license sales. This category had revenue of $28 million, down 42% on … yup, stopping sales of perpetual licenses
• Autodesk said it added 101,000 subscriptions in FQ1, to reach a total of 3.82 million at the end of the quarter. Included in that 307K increase are 154K maintenance customers who converted to subscription. Interestingly, Autodesk said that promotions it ran also caused 24K legacy non-subscribers (perpetuals who had let maintenance lapse) to sign up. That’s an important number to keep in mind, as one of Autodesk’s reasons for the whole subs thing was a way to re-engage with those former customers.
• By product family, AEC revenue $222 million, up 19%
• The Manufacturing products reported revenue of $135 million, up 6%
• AutoCAD and AutoCAD LT products generated $156 million, in revenue up 21%
• The Media and Entertainment products reported revenue of $42 million, up 15%
• By geo, revenue from the Americas was $234 million, up 11%. The company said that its program to migrate maintenance customers to subs was ahead of plan in the Americas — which means that more revenue is coming in ratably and there for contributes to slower but longer revenue
• Revenue from EMEA was $221 million, up 16% as reported and cc
• Revenue from APAC was $106 million, up 23% and up 22% cc
• Revenue from emerging economies was $65 million, up 28% (up 27% cc)

CEO Andrew Anagnost said this was, in all, “a good start to our fiscal 2019, with solid execution leading to strong growth in key metrics, such as ARR and ARPS. We also realized strong growth in billings, revenue, total deferred revenue and better than expected EPS resulting from lower spend in the quarter. Overall, these results keep us confident in achieving the financial targets we’ve laid out this year and beyond.”

Mr. Anagnost gave a bit more color on the earnings call about what’s motivating customers to adopt subscriptions, saying that “cloud products are now an integral selling point for our [enterprise] customers, where usage has really taken off. For example, in Q1, just over half of the monthly active users for BIM 360 were in [enterprise] accounts. This validates our relevance at the top of the general contractor market.”

Cloud and construction dominated much of the non-financial parts of the earnings call, with Autodesk saying several times that it intends to help customers use building information models as the “communication vehicle that passes through the various stages of construction”. Mr. Anagnost said that Autodesk intends to “go deep on the entire process. We believe, just like what happened in manufacturing where the model became the record of the entire process, that’s what’s going to happen in the construction space. We intend to touch every piece of that process from pre-construction to field operations. And we’ll do some of that organically with internal development and some of it inorganically.”

CFO Scott Herren also addressed one of the questions I get most often: Why products and subs and suites and collections — it’s too confusing?! Mr. Herren gave this example: “If a company has 42 individual products on maintenance and they move from maintenance to subscription,19 products are in one AutoCAD collection so their sub count went from 42 to 20. In the process, their ARR went up more than 10%.” Let’s unpack: maintenance is a nightmare for IT organizations, especially ones that support 40+ products in design (from just Autodesk — who knows how many more from other vendors) plus office apps plus security plus databases, etc. Simplifying IT management as well as the related billing, contracts and compliance is a huge factor in many companies’ decision processes. Of course, no customer is going to love the last half of Mr. Herren’s comment, that the ARR went up 10% – but let’s assume that’s added value in the sub (say, access to cloud capabilities) that the customer didn’t have access to before. So, why change the product bundling yet again? To make it easier to do business with Autodesk.

There was also a question on leading indicators. In a simpler world, someone using AutoCAD LT could perhaps become and AutoCAD customer and then, perhaps someday, a vertical solution customer. That doesn’t really apply any longer, since a sub to the most advanced Autodesk product set is accessible to even the smallest business. Mr. Anagnost said he’s tracking the behavior of those small customer, to see what they’re looking for — but it’s too early to draw conclusions.

For the second fiscal quarter, ending in July, Autodesk revenue of $585 million to $605 million and adjusted earnings of $0.13 to $0.16 — shy of Wall Street expectation of $0.19. Autodesk now sees total revenue for fiscal 2019 to be between $2.56 billion to $2.66 billion for the year.