Autodesk’s FQ2 up by almost all measures

Aug 24, 2018 | Hot Topics

Autodesk last night announced results for the fiscal second quarter that surprised almost everyone: revenue of $612 million was up 22% over last year and handily beat analyst forecasts of around $600 million and the company’s estimate of $585 million. Autodesk itself forecasts revenue of $640 million for the current (FQ3) quarter, up 24% ; let’s see what Wall Street comes up with. Remember that some of this is a game, intended to affect stock prices. Reality plays into it, of course, but isn’t the only factor.

Back to the news:

  • Subscription revenue was up 115% (up 111% at constant currencies, cc) to $421 million, driven by strong growth in subscription plan revenues which, in turn, were boosted by increased demand for product subscriptions
  • As part of it planned switch from maintenance to subs, maintenance revenue fell 36% to $166.4 million, as customers migrate to  subscription plans
  • By geo, revenue from the Americas increased 16% to $248 million. This looks weak in comparison to the other geos but is likely due to the fact that Autodesk rolled out the maintenance to subs migration program first in North America, so that revenue would have been booked in prior quarters [Autodesk gave no real color on geos or vertical performance, so that’s my take on it]
  • Revenue from EMEA grew 25% to $248 million.
  • Revenue from Asia was up 31% to $116 million.
  • By vertical, revenue from the AEC business increased 28% to $243 million
  • The Manufacturing segment reported that revenues was up 10% to $146 million
  • Finally, revenue from the AutoCAD/LT product family was up 30% to $177 million — but don’t go nuts with that 30% number. Autodesk told investors that this growth was due to math: it gave a lower discount to channel partners to drive buyers to collections. A reverse incentive, if you will. It’s impossible to tell from these numbers if it worked to improve collection sales, or if Autodesk will try something else
  • In a sign of how much things are changing in the world of software sales, Autodesk reported that its e-store generated nearly 20% of products subscription revenue and grew more than 70% in the quarter
  • The channel is doing quite well, thankyouverymuch. Doing some math on the numbers released by Autodesk, direct sales were 28% of the total, so direct revenue was roughly $160 million, up 18%, while indirect revenue was about $410 million, up about 25% or so. Why is the channel growing faster that direct? Promotions. Maintenance to subs and products-specific promos designed to move legacy users to collections
  • Speaking of long-time users, Autodesk said that the average age of licenses that are being replaced in these promos is seven years,  which it takes to mean that “there is still a very long tail of legacy customers to convert. There continues to be about 2 million of these legacy users that are actively using an old perpetual license without maintenance plan. We believe that over time we will convert a large number of them utilizing our insides sales team to concentrate on converting this important cohort”.
  • CEO Andrew Anagnost said that his long-term target is that revenue be “half direct, half indirect. That direct piece is going to be half e-store, half major account direct” while CFO Scott Herren said that “the indirect channel is keeping pace at this point. Longer-term, we still believe that settles in closer to a 50-50 blend, but frankly as long as we continue to grow that direct touch space, indirect business keeps pace that that’s a good problem to have.”
  • Mr. Herren also said that new customers represented about 25% of revenue for the quarter and “come from a mix of market expansion, growth in emerging markets, converting unlicensed users and people have been using an alternative design tool.”

And, once again, why Autodesk went through this transition to subs: total deferred revenue was up 20% to $2.2 billion in the quarter. Total recurring revenue was 96% of total, up from the 91% reported in the year-ago quarter. Both of those mean that Autodesk has a lot of cash in the bank and isn’t as susceptible to fluctuations in the broader economy.

For fiscal third-quarter, Autodesk forecasts revenue between $635 million and $645 million and for the year, revenue between $2.485 billion and $2.505 billion, which would be growth of 21% or so.

Of course, the company continues to talk about increases in annualized revenue per subscription (with the awful acronym ARPS) which makes it sound as though Autodesk products are getting ever-more expensive. What’s missing in many of the company’s comments is that many buyers see increased value in what they buy from Autodesk, depending on what they need and want from their engineering IT. The company said that it saw a net increase of 290,000 subscriptions in FQ2, 120,000 of which were for products (the rest were maintenance customers to moved from traditional maintenance to subs). Balance that growth against the 55,000 or so who dropped maintenance for some reason (perhaps a defection to another vendor but just as likely consolidating licenses into a subscription or just seasonal changes in employment). In any case, Autodesk says it now has 3.94 million total subscriptions.

That’s a word/number salad. What I think it means is that customers are finding their way in this new Autodesk world. Some like it, some don’t. Some see benefit from all that a subscription gives, with collections, by the month/year/multiple years, with cloud compute capacity and other features; others don’t. But those who don’t are outnumbered — and as this all shakes out, it’s likely we’ll see the drops level out at some point that’s tied to the economy and cyclicality in end-industries and not to how Autodesk conducts business. But that’s a ways out.

Bottom line: FQ2 was a solid quarter for Autodesk with the anticipated growth in AEC as Autodesk continues to focus on building out its BIM platform and adding ancillary tools to become a one-stop shop for architecture and engineering and on into construction and operations. The relatively poorer performance (though still up 10% year/year) in manufacturing is likely due to the intense pressure from competitors selling hard into that base and Autodesk’s focus on its Fusion cloud platform, perhaps ahead of a market that’s not completely ready for CAD-in-the-cloud.Best news from the call, though: the channel overall is rebounding from the subs transition and, from comments made on the call, it seems that Autodesk is investing in a territory sales approach that’s largely channel-driven, where “they have the lead”.

I’ll be at Autodesk’s Accelerate event next month, where there’s sure to be much discussion of cloud, Forge, Fusion, BIM and (heaven help us) ARPS. Hope to see you there!