Autodesk’s FQ3: 4M subscribers, double prior max users

Nov 28, 2018 | Hot Topics

Last week’s announcements by Autodesk can be divided into two parts: the acquisition of PlanGrid, which I’ve written about here, and the earnings themselves, which we’ll cover below. PlanGrid isn’t yet part of Autodesk, so doesn’t fit into the earnings themselves, but it’s such a big part of Autodesk’s forward-looking strategy that it creeps in anyway — but let’s cover the just-ended quarter first.

The details, using the ASC 606 accounting standard:

  • Total revenue for FQ3 was $661 million, up 28%
  • Subscription revenue was $481 million, up 108%
  • Maintenance revenue was $150 million, down 43% as the planned transition from traditional maintenance to subscriptions continues
  • Autodesk reports Annualized Recurring Revenue (ARR) for its various subscriptions, meaning the yearly value of each sub type, if it were multiplied by 12 to get from monthly to annual. The company does this to show its trajectory — getting steeper (upwards) is good. Subscription ARR was up 108% in FQ3, to $1.925 billion. Maintenance was down 39% to $601 million, again reflecting the move from maintenance to product subscriptions. Subs ARR has now doubled year/year for 7 of the last 8 quarters
  • The company also gave a Cloud business ARR of $88 million, up 36% year/year and up 17% sequentially. This bears watching, as Autodesk has been pushing hard on cloud for several years now, with varying levels of adoption across is broad customers base
  • The point of subs, again, is to create recurring revenue, and that was up nicely as well. In FQ3, recurring revenue was up 33% to $631 million, 96% of total revenue
  • Autodesk uses ARPS, annualized revenue per subscription, to show how much the average subscriber pays –it’s just annualized revenue divided by number of subscribers– which is also supposed to be an upward trajectory. This metric makes investors happy but customers cringe: “I’m expected to pay MORE!”. Nonetheless, Autodesk says the subscription ARPS was $618, up $131 from a year ago; maintenance ARPS was $624, up $47 over last year. The increases are likely due to subscribers moving from an individual product to a collection of some sort — offset by the pricing adjustments Autodesk makes for multi-user subs
  • Interestingly, Cloud ARPS was $165, a decrease of $2 when compared to Q3 last year, but an increase of $8 sequentially. One interpretation is that customers and Autodesk are still feeling their way when it comes to cloud pricing and bundling
  • But it’s not all revenue. Autodesk says that at the end of FQ3 it had 4.08 million subscribers, a net increase of 489,000, or 14%, over last year and up by143,000, or 4%, over FQ2. 72,000 of the increase is due to the maintenance to subscription promotions so can’t really be counted as new new; the company reports that new new subscriptions are led by product subscriptions.
  • CFO Scott Herren said that the 4 million mark is “nearly twice” the number of maintenance seats the company had at the height of the old business model. That means that customers are stepping up and buying individual subs for people who used to share, for seats that had fallen out of maintenance — and, of course, that Autodesk attracted new customers, too
  • Mr. Herren also discussed Autodesk’s estore, saying that its revenue grew 65% year-on-year, and “for the past five quarters, our estore has generated over 20% of the product subscriptions”. Personally, I buy a lot of stuff online — but the important things I buy from a human being so that I establish a relationship with someone who can help me when things (inevitably) go awry. Just saying: Support your local VAR.
  • Speaking of VARs, Autodesk said that its direct business “accelerated even from the record levels in Q2” but that channel sales grew “even faster”. Over time, though, the company still sees a more even split between direct and indirect — though, as Mr. Anagnost likes to point out, “of an even bigger pie”.
  • By geo, revenue from the Americas was $269 million, up 25% as reported and in constant currencies (cc)
  • Revenue from EMEA was $267 million, up 30% (up 26% cc)
  • Finally. revenue from Asia was $126 million, up 32% (31% cc)
  • By product family, revenue from the AEC products was $264 million, up 35%. The company doesn’t give details but CEO Andrew Anagnost told investors that the BIM 360 portfolio had a “strong showing … which helped us posted 36% growth in cloud ARR in the quarter”.
  • The manufacturing products generated $159 million in revenue, up 20%
  • AutoCAD is very much alive, generating revenue of $191 million, up 34%
  • Lastly, the Media & Entertainment business chugs along, with revenue of $44 million, up 16%

What does this all tell us? Autodesk is betting, a lot, on its ability to digitize the AEC world and has reason to be optimistic on that score. AEC is its fastest-growing vertical (and I bet a lot of the AutoCAD and LT customers are AEC, too, just not yet at the level of needing a verticalized products) and seems to be leading in many business areas, too. Mr. Anagnost spoke about an enterprise business agreement (EBA in Autodesk speak, a mechanism to transact with its largest accounts) that was recently signed with a large prefabricated home builder in Japan, that increased the “account value by 16 fold”.  We could be going from $1 to $16, but I don’t think so — I think this is a big deal, across a lot of Autodesk’s AEC and manufacturing design portfolio — and, with the addition of PlanGrid, probably tied into installation projects all over Japan. Yes, PlanGrid is expensive, but it boots Autodesk’s offering across the AEC operational chain.

Too, a lot of the financial upside Autodesk saw in Q3 was because customers chose collections over individual products. Why would they do that? Because Autodesk has (perhaps) finally hit on the right combo for each. Remember that Autodesk used to market seven suites, each with a low/medium/high offering . That’s now down to 3 collections, with each having a lot of functionality plus a possible cloud adjunct. As Mr. Herren said, that’s “easier to sell, easier to buy and easier to pay for and consume”.  Mr. Anagnost added that “in each collection [the user gets] a mobile version, a web version and everything is integrated with a common data platform in the cloud so people can share their data. It’s a very different offering than what we had during the suite days”.

Finally, price increases. Yup. Autodesk said on the earnings call with investors that they haven’t decided on anything for 2019, but that “over the long-term, expect to see us have annual price increases that are in the low-single digit –kind of “cost of living”– range.” FYI, the US Social Security Administration said benefits would increase by 2.8% in 2019, its annual Cost-of-Living Adjustment.

Because of PlanGrid, a lot of the questions on the earnings call focused on AEC. But not exclusively: Mr, Anagnost was asked about Autodesk’s ability to compete in discrete and said “in three to five years you’re absolutely going to see us chipping away at competitors in the manufacturing space. There’s a change in the manufacturing market that favors the cognitive, where we’ve invested. We’ve been patient. When you look out two to three, to five-year horizon you’re going to see some share shift coming into the mix.” Interesting, no?

Finally, outlook. Autodesk now sees Q4 revenue of $700 million to $710 million, which would be an increase of about 27%. And that means a fiscal 2019 with total revenue of $2,533 million to $2,543 million, up 23% – 24% over fiscal 2018.