Autodesk’s Q1 was decent, hints at stable employment at its customers

May 28, 2020 | Hot Topics

Autodesk announced its fiscal first quarter (ended April 30, 2020) last night –and, as others have reported, it was a rollercoaster ride.

The details:

  • Total revenue for FQ1 was $886 million, up 20% as reported (up 22% in constant currencies) and well within the range guided to February
  • Autodesk closely tracks how customers use its products, and CEO Andrew Anagnost told investors during the earnings call that “since the pandemic started [the number of weekly active users] of our products dipped slightly, but overall remained relatively steady. In China, usage dropped rapidly in February but rebounded to above pre-Covid levels by the end of March as businesses started reopening in the region. And we saw a surge in usage of our cloud collaboration products, as people work from home and throughout the quarter”
  • The company reports that, once again, its diverse offerings and go-to-market helped balance things out in the quarter: manufacturing slowed down but AEC “help up well”; its indirect distribution channel allowed it to “operate and adapt locally as economic conditions evolved” at a different pace in each location
  • And, like many others, Autodesk saw a modest decrease in multi-year deals toward the end of the quarter (remember, it ended a month after everyone else’s) even though many specific customers did move forward with multi-year commitments.
  • Mr. Anagnost said that “we entered Q1 with a roar … And then March hit, you saw China start to decline, you saw Korea follow suit. You saw a general decline in APAC, and then kind of Europe came online after that, started to decline, then the U.S.” As every other CEO has said, the effects of shutdowns ripples around the world, and the re-opening is, as well. “Monthly active usage in China is now above the pre-COVID highs in that country. Korea returned and became stable. Japan was surprisingly steady throughout the entire crisis. Now we’re seeing the same kind of cascade in Europe. We’re starting to see Europe’s weekly active usage going up. New business is starting to go up. And we’re seeing a kind of stabilization in the U.S., not any upward trajectory yet, but it’s all cascading like that”.
  • In FQ1, Subscription plan revenue was $803 million, up 35% (up 36% cc)
  • Maintenance plan revenue was $62 million, down 45% (down 44% cc) as Autodesk continues to transition customers to subscriptions
  • Autodesk again changed its naming and classification of product sets. Remember when it was core and cloud? Well, now it’s Design and Make — reflecting the reality that most design products offered by Autodesk have some desktop and some cloud
  • Design revenue was $798 million, up 20% (up 22% cc)
  • Make revenue was $67 million, up 49% (up 50% cc)
  • Luckily, Autodesk does still give the breakdown by product family. Revenue from AEC products was $383 million, up 26%. Mr. Anagnost said that some AEC customers are “leaning more heavily into the cloud and digitization” and that, despite delays and shutdowns “we have seen continued adoption of our construction offerings … [even as it slows] new business for field-focused solutions like PlanGrid”
  • Manufacturing revenue was $183 million, up 9%. Mr. Anagnost said that industrial “R&D continues even when production floors experience disruption” and said that Fusion 360 added 50,000 monthly active users in March and now totals 600,000 — though the product is still “in the very early stages of a revenue generation activity” and promised to reveal commercial subscriber data at the company’s investor event in June
  • From AutoCAD and LT, $262 million, up 23% and from Media & Entertainment, $53 million, up 16%.
  • ;By geo, revenue from the Americas was $362 million, up 22% (up23% CC); from EMEA, $345 million, up 16% (up 20% cc) and from Asia, $143 million, up 25% (up 26% cc).

During the earnings call, Mr. Anagnost said aloud what many others have hinted at: homeschooling is not for sissies (though he phrased it far more elegantly): “I’ve developed an even deeper appreciation for the role teachers play in our societies. It takes a lot of patience and skill to help a young mind learn what it needs to learn”. It was the most human CEO comment about Covid-19 so far, with just all thanking employees, customers, and front-line workers for their service and support. Autodesk already has a massive educational outreach program; I wonder what Mr. Anagnost’s personal experience will lead to …

And CFO Scott Herren added his own personal note, saying his daughter is a newly-minted nurse who will be on the front-line starting next month. “Availability of proper PPE for her and all the other superheroes has been my biggest concern, so I’m particularly proud Autodesk has played a role in addressing that need”. Many Autodeskers (including former CEO Carl Bass) hit the ground running early on, making personal protective equipment (PPE) as quickly as they could for under-resourced hospitals — again, I wonder what this personal connection will ultimately lead to.

Autodesk anticipated investor questions by sharing two metrics that I hadn’t heard before. Mr. Herren said that Autodesk generates 10% to 15% of revenues from small businesses (which he defines as having less than 20 employees and fewer than 15 seats of Autodesk products), so the impact on Autodesk of small, struggling firms is limited. That’s great — but I’m still trying to reconcile the Autodesk I thought I knew that gets 71% of total revenue from its indirect channel and all of those pyramids over the years that showed Autodesk firmly in the SMD space with that revenue proportion. Clearly, the channel has more successful at selling to larger SMBs than I realized.

Another factoid: Autodesk tracks what they call net revenue retention rate (NR3, of course) — the amount of money the company gets from a customer after the first year’s subscription is up. An NR3 of 1 would mean that customer X is paying exactly the same this quarter as they did a year ago. Mr. Herrren said that the FQ1 NR3 was in the range of 110% to 120% — that means customers are buying more (or, perhaps, paying more for the same products). Tied to that is partial renewals, which measures if customers are renewing some, but not all seats in a contract. Mr. Herren said, “Our partial renewal rate remained relatively steady” and Mr. Anagnost later amplified that he sees this as a positive: “If our customers were engaging in a lot of headcount reductions, we would see a tendency towards more partial renews in our base. We’re not seeing that. So we’re not seeing this increase in partial renews which talks to a stable employment base and a stable team environment … People are hanging on to their R&D early project development team members — they need to keep the people working in order to effectively meet the demand as they come out of this“. That’s what I hear, too.

Forecasting the future is tough right now, even when recurring revenue is 98% of total. Mr. Herren expects second quarters “new business activity to be the most impacted by the pandemic. Our pipeline entering the second quarter is strong and growing but we’re cautious about new business close rates. The upper end of our range assumes a swift recovery in new business in the third quarter and continued improvement into the fourth quarter with full-year new unit volume growing. At the lower end of the range, we are modeling a deeper impact on second-quarter sales, followed by a slower recovery in the third quarter and a further improvement in the fourth with full-year, new units posting a modest year-over-year decline”. In numbers, that means FQ2 revenue of $890 million to $905 million, and full-year fiscal 2021 revenue of $3,675 million to $3,775 million, up 12% to 15%. That’s down $200 million or so for F21 from February’s target.

The bottom line: Mr. Anagnost sees the work-from-home-Covid-19-pandemic causing a permanent shift in how his customers and prospects see technology: “People are being forced to change the way they work, and in turn are experiencing the benefits that our cloud and subscription solutions have to offer. These companies are not going to go back to how they worked before and digitization will be accelerated as businesses take all steps necessary to sure they are more resilient.”

I think he’s right — but it’s not across the board. Some companies will be so busy trying to get back to work by any means possible that they won’t try to take any lessons from this forced change. But others will use this as an opportunity to examine what they do, and why they do it that way — and perhaps realize that many of those motivations have changed, and therefor tools and processes must, too.