Autodesk’s FQ1 was led by AEC, up 37%

May 31, 2019 | Hot Topics

Autodesk last Thursday announced results for its fiscal first quarter. Were they trying to go under the news radar just before the Memorial Day holiday? (Am I really that cynical?) I dunno but the share price fell 9% at one point, and was down 5% before the stock market opened on Friday. It recovered a bit but has been hovering at 4% lower ever since the announcement. The question is, why? The results themselves were darned good.

Let’s take a look:

  • Total revenue was up 31% to $735 million (up 30% in constant currencies (cc)), at the low end of the company’s guidance. Organic revenue was up 28% (remember that Autodesk has been acquiring heavily in AEC; more on that below)
  • Subscription revenue was $596 million, up 70%, while revenue from Maintenance was $112 million, down 38%. License and Other revenue was $28 million, basically flat. Remember that Autodesk is still moving customers from maintenance to subscriptions, so expect the maintenance revenue to keep declining. CFO Scott Herren said that Autodesk at this point has fewer than 700,000 maintenance customers, down from over 2 million when this whole thing started
  • Speaking of customer retention: One of the stated reasons for Autodesk’s shift to subscriptions was to tackle the huge set of “customers” who pirate Autodesk solutions, using them without paying the company. Autodesk says it continues to work hard to engage with these people, by the company’s count around “14 million non­paying users”. CEO Andrew Anagnost said that Autodesk can track where they go “after a [discussion about going legit], whether or not they continue to pirate, or if they pursue some kind of other path. Every year, we convert more non­-paying users into users than we did the previous year.” Fourteen million is massive, given that the company has maybe 3.5 million paying subscribers
  • Back to the revenue data. By geo, revenue from the Americas was $296 million, up 27%. Revenue from EMEA was $297 million, up 35% as reported and up 31% cc, and revenue from APAC was $143 million, up 35% (up 36% cc)
  • By product family, revenue from AEC products was $304 million, up 37%. FQ1 was the first full quarter that includes the PlanGrid and BuildingConnected acquisitions. Mr. Anagnost said that “both acquired companies showed impressive growth” with accelerating momentum at a time when many acquired companies pause as they are integrated into the new whole. He said that, “post-close, Autodesk won 15 head-to-head bids against competitors in this space”
  • Revenue from Manufacturing products was $168 million, up 24%. Mr. Anagnost said that Inventor, CAM and the factory design solutions displace competing products “due to our simplicity and short implementation cycles”. It’s the first time we’ve heard about Inventor in a while, as the company places more emphasis on Fusion 360. The lesson: Just because they talk more about Fusion than Inventor, Delcam et al, don’t think these products aren’t valuable
  • That said, Fusion 360 has seen a 100% year/year increase in commercial monthly users –no revenue data was given– as customers sought to simplify their installations onto one platform
  • Revenue from Media & Entertainment was $46 million, up 9% on a tough comparable a year ago and due to the retirement of some non-revenue products. I didn’t realize, and perhaps you didn’t either: Sketchbook is an M&E product and, Mr. Anagnost says, “We don’t charge for Sketchbook anymore. It’s out there, it’s completely free, it’s available to people to anybody who wants to use it.” [Go get it; we’ll be here when you get back.]
  • Revenue from AutoCAD and AutoCAD LT was $213 million, up 37%
  • Organic Cloud ARR was up 43% to $98 million; acquisitions added another $83 million for a total of $181 million. Organic growth was driven by the BIM 360 portfolio. (Recall that ARR is the annualized value of the average monthly recurring revenue for a quarter — Autodesk’s way of smoothing out quarterly fluctuations.) This number matters because it’s one way to gauge cloud adoption, where AEC is leading the charge
  • By channel, direct revenue was up 36% and again made up 30% of total revenue. Within direct, revenue from the eStore was 45%. No comments on channel performance or anything like that on the call — but remember that Mensch und Maschine had a strong Q1, in part due to its Autodesk reseller business.

Mr. Herren, the CFO, gave a bit more color on whyFQ1 might have appeared a bit weaker than expected, saying said that some deals closed later in the quarter than had been anticipated. It was consistent with last year’s FQ1 but not with last FQ3 and FQ4, so surprised the company a bit. This means that less (ratable revenue could be recognized in FQ1, and is one of the risks of the whole subs model.

While in the financial details, Mr. Herren updated investors on a new metric, Net Revenue Retention Rate, that aims to capture the average value of customers to Autodesk. It seems customers are paying Autodesk more than they had been, around 10% to 20% either because they’re buying more product or because of price increases. If it’s price increases that are absent of value, it’ll make customers unhappy so, before spending a lot more time on it, I’m going to try to parse the details. But know it’s a new metric a lot of investors are focusing in on.

Back to products. Mr. Anagnost has invested heavily in AEC and took pains to point out why the amounts Autodesk has spent are going to be worth it in the long run. During FQ1, he said, Autodesk “accelerated the product roadmap” for PlanGrid and launched PlanGrid BIM, which integrates Revit and PlanGrid to give customers access to BIM data from within PlanGrid on their mobile devices. And it sounds like BuildingConnected is doing well, too, expanding their user base from 700,000 at time of acquisition to over 800,000 today.

One question I get a lot is about duplication between legacy Autodesk and acquired products. Mr. Anagnost cleared that up when he said that “PlanGrid will be focused on field execution and the BIM 360 team on closing the gaps related to project management.” He said that the ultimate intention is to­ connect project management to the PlanGrid environment so that customers have a seamless information flow. And that’s important. First, because Autodesk had invested heavily even before Mr. Anagnost’s tenure in AEC acquisitions — Vela was the genesis of BIM 360, and it wasn’t cheap, either. Second, because AEC customers don’t necessarily have the IT expertise in-house to do these types of integrations, even with the Forge layer; they need Autodesk to do it for them. Finally, because Autodesk wants to capture the entire wallet at its customers; they don’t want to leave holes to be filled by a third party. It’s very early days, but the strategy seems to be working.

Autodesk’s guidance for FQ2 was for total revenue between $782 million and $792 million. For the full fiscal 2020, revenue of $3.25 billion to $3.30 billion, up 26% to 28%.

That all sounds pretty good, so why did the share price drop? A couple of possibilities: Autodesk didn’t disclose (for the first time) how many net new subscribers it signed up in the quarter — absent that, perhaps investors are worried about attrition rates as maintenance prices increase. But that’s a tiny proportion of the total user base, so shouldn’t have a big impact on revenue, though it does create an opportunity for competitors. Or the total revenue number wasn’t what investors expected (even though it was within the company’s own range) — it’s a pet peeve of mine, that a stock is punished because of estimates they don’t make. Or that Autodesk amped up its R&D spend on acquisitions, rather than focusing only on cost synergies. But that’s what it takes to ultimately grow revenue, and Autodesk is in this for the long haul.

And that, I think, is the bottom line: nothing Autodesk has done in the last couple of years has been for the short-term. Getting rid of underperforming products makes some customers unhappy but lets the company focus its limited resources on bigger opportunities. Investing in R&D is always good for customers. Autodesk generated over $200 million in cash in FQ1 — money that it can invest in more acquisitions or stock repurchases or R&D. All good.