Autodesk’s FQ1 overshadowed by accounting – but it was actually really good

Before we get into it: I titled my last blog about Autodesk’s earnings “Nothing to see here” — meaning, literally, nothing to see here, since Autodesk said its accounting review led them to conclude that nothing needed to be restated in any financial statements it had already issued. Someone on LinkedIn pointed out that some people mean a snarky, “I’m hiding something” when they say “nothing to see here” — not what I meant. Sorry if I caused any confusion with that headline.

Now for the actual news: Autodesk held an earnings call last night to discuss the accounting non-restatement, the annual report (10-K) for fiscal 2024, and results for Q1 2025 that were released on Monday. Investors were eagerly anticipating the call because (1) they wanted to know more about this investigation –what, why, who, and so on; and (2) the forecasts for fiscal 2026 and beyond that Autodesk had previously given were not mentioned in the preannouncement — why? The second one was quickly answered in the FQ1 press release: Autodesk reiterated its fiscal 2026 free cash flow target of $2,050M, which also addressed part of the concern about the investigation: there will be no future impact to the business from a review of cash flow accounting methods. On to FQ1.

For the quarter ended on April 30, 2024:

• Total revenue was $1,417 million, up 12% as reported and up 13% in constant currency (cc)
• Subscription revenue was $1,330 million, up 12% as reported
• Maintenance revenue was down 21% (which is just $3 million) to $11 million
• Revenue from AEC products was $674 million, up 15% (up 16% cc), due in part, said CEO Andrew Anagnost, to “good momentum in infrastructure and construction.” The 10-Q filing called out success with sales of AEC Collections, Revit and Build products, and EBAs (Enterprise Business Agreements, where Autodesk gives customers token-based access to a pool of Autodesk products, typically over several years)
• From Manufacturing, revenue was $268 million, up 9% (up 9% cc); the 10Q highlighted Collections, Fusion, EBAs, and Inventor as contributing to this growth
• From Media and Entertainment, revenue was $71 million, flat year/year
• And from AutoCAD and AutoCAD LT, revenue was $376 million, up 8%
• By geo, revenue from the Americas was up 12% to $619 million
• From EMEA, revenue was $534 million, up 13% (up 14% cc)
• From Asia, revenue was $264 million, up 9% (up 14% cc) — where “strength in Australia and Japan was offset by weakness in China and Korea”
• Since Autodesk also offers revenue by product type, Design revenue was $1,196 million, up 10%
• Make revenue was $145 million, up 20%
• Finally, by channel, direct revenue was up 20% to $537 million, representing 38% of total revenue. Indirect (meaning VAR) revenue was $880 million, up 7%, representing 62% of total revenue.

Frequently mentioned on the earnings call was Autodesk’s changing transaction scheme. Recall that Autodesk is rolling out a change that will see it issue invoices to and receive payment directly from buyers; that’s something its reseller partners had been doing. Mr. Anagnost said, “This is a fundamental shift in how we have visibility and connection to our customers. Not only are we going to have full visibility to fully loaded sales and marketing costs incurred [by Autodesk], which will allow us to optimize these costs over time, but it’s going to enable our customers to engage with us in self-service models [that will] give us more visibility and insight into our customers”.

This all started in Australia last year and rolled out in the Americas on June 10th; dates for Europe and Asia still need to be set. A couple of you contacted me to ask how this would work, given that you rely on resellers for services. Autodesk told you in the email about this “New Autodesk Buying Experience” that [Autodesk Partners] “will continue to play a vital role in configuring quotes, support, and training [while] your transaction and payment for purchases and renewals will now take place directly with Autodesk … This will reduce purchasing steps, offer new self-service capabilities, and provide predictable pricing to streamline and enhance your buying experience.” In essence, Autodesk sees buyers approaching their VAR for a quote; the VAR helps design the solution for the buyer and asks Autodesk to create a quote. Autodesk sends the quote to the customer, and the customer accepts the quote and pays Autodesk. Autodesk then pays the VAR. It doesn’t sound simple to me, but perhaps it is.

One thing about this that matters very much to investors is how Autodesk accounts for VAR commissions. Last month, US buyers bought through VARs. Back then, Autodesk sold $100 of product and paid $10 to a reseller, realizing net revenue of $90. This month, Autodesk sees $100 in revenue and pays the same $10 to the reseller but recognizes that cost way down in the income statement, in the marketing and sales section of operating expenses. The net (bottom line) result and cash flow are the same, but Autodesk will have a net revenue of $100, whereas before, it had $90. This change also means its gross profit and gross margin are higher, but its operating margin is lower. (See page 11 of https://investors.autodesk.com/static-files/ebd44cff-caa2-403a-8f3d-7fe9b615e103 for their walkthrough.)

This isn’t nothing: in fiscal 2024, Autodesk says these commissions amounted to about $600 million, which will all now move down the income statement to the operating expenses line. This will make Autodesk look like it’s remarkably less efficient in marketing and sales, which it really won’t be. To give you a sense of scale, that $600 million is about a quarter of the $1,823 million Autodesk reported spending (under the old scheme) on sales and marketing for fiscal 2024.

Since this new method seems complicated to me and will undoubtedly lead to more accounting questions, why do it? To give Autodesk a closer connection to its buyers. Not that long ago (maybe five years?), we were talking about Autodesk and AU in a shared ride from Las Vegas airport to the venue for Autodesk University. Several people in the car didn’t know that Autodesk makes more than AutoCAD; they had no idea there were targeted products for AEC, CAE, mechanical design, CAM, etc. By inserting itself more directly into the buying process, it can see where its messages aren’t getting through (believe me, they’re trying) and form closer relationships with customers that previously went only to their partners. Autodesk says it will also lead to greater pricing predictability, which for users means cost predictability — a good thing.

Now, about the delayed filings. Mr Anagnost said that everything he can say about it is in the press releases that have already been issued. He added on the earnings call that the important takeaway is that nothing needed to be restated: “The results that happened historically in the company are the results that the business delivered. I also want to highlight that the company did not obfuscate the underlying strength of the business. Now, you take those two things together, and you can trust the integrity of Autodesk’s financials.” He sounded pretty happy to be able to say that …

One last thing: In the filings, we learned that Autodesk paid $387 million for Payapps, $266 million for PIX, and $131 million for Aether but didn’t have any other financial information about Payapps or PIX since both are immaterial to Autodesk’s financials (other than to say that they have a combined deferred revenue of $6 million — not even rounding error for Autodesk). As a reminder, “Autodesk expects [Payapps] to deepen Autodesk Construction Cloud’s footprint and provide a robust payment management offering to serve the needs of general contractors and trade contractors … [while PIX] is expected to foster broader collaboration and communication, as well as help drive greater efficiencies, in the [media] production process.” Aether was acquired on May 20, 2024, (so after the end of FQ1); it is expected to “enhance artificial intelligence capabilities for Autodesk’s VFX creation tools and democratize high end VFX work on Autodesk’s Flow platform.”

Looking ahead, Autodesk sees FQ2 revenue between $1.475 billion and $1.490 billion and FY 2025 revenue of $5.990 billion to $6.090 billion, which would be growth of 9% to 11%. Mr. Anagnost said that the business climate has been remarkably consistent over the quarters and that “the long-range plan for our business is completely unchanged. We’re looking at 10% to 15% [annual] revenue growth as long-term targets for the business. The large cohort of product subscriptions have year, plus the large renewal cohort of EBAs we have next year, with what we’ll get from multiyear subscriptions recognized order this year, will lead to a nice buildup in the business.”

TL;DR: Autodesk’s “new buying experience” and cash flow examinations are distractions; this business is doing well. Most buyers don’t care who sends out the invoice; they care about the product they use to design the building or widget, how that’s being moved forward, and who will answer the questions they have about it. Investors should take heart that nothing was restated and that, as Mr. Anagnost said, the company was not using accounting to hide any aspect of the business operations.