Autodesk Inc (ADSK) — Q1 2021 Earnings Call Transcript

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the results of our fiscal year 2021 first quarter results. On the line is Andrew Anagnost, our CEO; and Scott Herren, our CFO. Today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available at autodesk.com/investor. You can find the earnings press release, slide presentation, and transcript of today’s opening commentary on our Investor Relations website following this call. During the course of this conference call, we may make forward-looking statements about our outlook, future results, and related assumptions and strategies. These statements reflect our best judgment based on currently known factors. Actual events or results could differ materially. Please refer to our SEC filings for important risks and other factors, including developments in the COVID-19 pandemic and the resulting impact on our business and operations that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. During the call, we will quote a number of numeric or growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today’s call are reconciled in the press release or the slide presentation on our Investor Relations website. Now I would like to turn the call over to Andrew.

Thank you, Abhey. To open, I want to thank all of the medical professionals and other essential workers who are confronting the impacts of the COVID-19 pandemic on the frontline. Their efforts are not only saving lives, but allowing many other people around the world to protect themselves, their families, and their communities. Their efforts are truly heroic. Thank you for everything you do. Our thoughts are also with everyone affected by the pandemic. Our priorities remain the safety and well-being of our employees, and the continued support of our customers, partners, and communities. Many of us, myself included, are adopting multiple roles as we seek to juggle the demands of our professional and family lives in a world that has suddenly become much more complex and constrained. Personally, I've had to learn how to homeschool my youngest child, and while I've always had a healthy respect for the work teachers do, I have 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. From a business operation standpoint, the transition to working remotely has been smooth. I am proud of how our employees and partners have balanced their personal lives with many commitments during these unprecedented times; many significant product upgrades were successfully released, thanks to our cloud-based operating infrastructure. One of the metrics we've been tracking closely is the weekly active users of our products, and since the pandemic started, usage of our products dipped slightly but overall remained relatively steady. In China, usage dropped rapidly in February but rebounded above pre-COVID levels by the end of March as businesses started reopening in the region. And it's no surprise we saw a major surge in usage of our cloud collaboration products as people work from home and throughout the quarter. During the quarter and into May, renewal rates held relatively steady among our target markets, AEC revenue held up well, while we experienced a slowdown in the manufacturing space. The resiliency of our business is anchored by the diversity of our geographic regions and product offerings, our subscription business model, and our indirect distribution model, which allows us to operate and adapt locally as economic conditions evolve in different geographic regions. During the quarter, we helped our customers accelerate their migration to the cloud and ease their transition to working from home. We also offered extended payment terms to alleviate their liquidity concerns. Please refer to the slide deck on our investor relations website for more details on these actions. I am incredibly proud of not only the way our employees rally to support each other in the company but also how they rally to support our customers, our partners, and the communities they live in. Without their resiliency, the resiliency of our business model wouldn't matter. With that, I'd like to turn it over to Scott now to take you through the details of our performance and guidance before I come back to provide insight into our strategic growth drivers.

Thanks, Andrew. Before I offer more details on the first quarter, I want to echo Andrew's comments thanking our heroes battling the pandemic on the front lines. Our products, partnerships, and expertise help many frontline organizations combat the pandemic, from the quick build and hospitals to manufacturing Personal Protective Equipment or PPE and the philanthropic support of global, national, and local communities. My own daughter has just graduated with her nursing degree and will be on the front line next month. Availability of proper PPE for her and all the other superheroes and frontline workers has been my biggest concern, so I'm particularly proud our desk has played a role in addressing that need. Our keyword performance was strong with total revenue growing by 20%, subscription plan revenue growing by 35%, and operating margin expanding by 10 percentage points. Total remaining performance obligations grew 27% and current remaining performance obligations grew by 18% to $2.4 billion in the quarter. We delivered free cash flow of $307 million and continued to repurchase our shares to offset dilution. Typically, I'll go through our results from the quarter in more detail, but today I'm going to focus on the COVID-19 impacts on our business and guidance. You can find additional details in our Q1 performance on our investor relations website. I do quickly want to mention that we have renamed what we previously called core business to design and what we previously called the cloud to make. The public labels reflect that almost all of our products have cloud-enabled functionality. There is no change in the products that fit into each of these two categories. During the quarter, renewal rates held relatively steady, whereas new business not surprisingly slowed down in the second half of Q1. However, the impact on our business has not been uniform by geography or industry. Our business is not only diverse from a geographic standpoint, but our products and customers are diverse as well. Many of you have asked about our exposure to small businesses; we generate approximately 10% to 15% of our revenues from small businesses, defined as those customers with less than 20 employees and with less than 15 seats. Our net revenue retention rate is within the 110% to 120% range. One of the other metrics we track for customer stickiness is partial renewals, which is a measure of subscription renewals for some, but not all seats in the contract being renewed. Our partial renewal rate remained relatively steady as well. In prior downturns, AutoCAD LT was a leading indicator for demand. However, during the current slowdown, our mix of AutoCAD LT moved higher as some customers apparently chose to optimize their purchases. Lastly, we saw a modest decrease in multi-year deals toward the end of the quarter, although many customers continued to move forward with multi-year commitments even in the current environment. Given the evolving business environment as a result of COVID-19, we are actively managing our spending, reducing travel and entertainment expense, monitoring our hiring rate, shifting to virtual events across the board, and rationalizing our marketing spend. We will continue to invest in critical areas such as R&D, construction, and digitizing the company to ensure our future success as we come out of the pandemic. Now let me turn to our expectations for the remainder of the year; our investment in cloud products and a subscription business model, backed by a strong balance sheet, gives us a robust foundation to successfully navigate the economic challenges. Our full year guidance range is wider than normal due to ongoing uncertainty in the economic environment, which will have a more pronounced impact on our new business. Regarding trends during the year, we expect the second quarter's 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. On the lower end of the range, we are modeling deeper impact on second quarter sales, followed by a slower recovery in the third quarter and further improvement in the fourth with full year new units posting a modest year-over-year decline. On the other hand, the majority of our business is renewals, and we have not experienced meaningful change in our renewal rate, which offers us resilience in an uncertain environment. Still, we are modeling a decline in renewal rates in the second quarter out of an abundance of caution. Our low and high guidance scenarios differ in the extent of the drop in the second quarter and the pace of recovery later in the year. Given our strong renewal rates, we expect our net revenue retention rate to remain above 100% but move below the current range of 110% to 120% for the rest of the year. Due to reduced new product demand, we anticipate our billings will be impacted by a fewer multi-year transactions. The lower end of our billing guidance assumes a steeper decline in multi-year contracts, whereas the upper end is based on a more modest decline. The reduction in billings and the timing of large transactions are impacting our free cash flow expectations. Fiscal 2021 will be a significant and more backend loaded year, which will move some of the free cash flow from this year to next. We expect our full year operating margin to expand by approximately two to four percentage points. Looking at the second quarter forecast, we expect the pandemic to meaningfully impact our billings, which can be sequentially down by low double-digit percent. Additionally, our decision to offer extended payment terms to our customers for sales up through early August, combined with a more backend loaded quarter, will impact our Q2 free cash flow, which could end up being breakeven to slightly negative before accelerating in the second half of the year. Although our fiscal year 2021 results are being impacted by COVID-19, we are confident in our fiscal 2023 free cash flow target of $2.4 billion, assuming the recovery starts by the end of this fiscal year. We built a resilient business model that will allow us to capitalize on multiple tailwinds once we exit the current pandemic. And now I'd like to turn it back to Andrew.

Thank you, Scott. We expect all secular trends that we have been investing in for years to be accelerated during and beyond this pandemic. 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 ensure they are more resilient. Our investments over the last few years, combined with our ongoing focus on cloud-based offerings, leave us with a competitive advantage and well-positioned to help our customers, not only during this pandemic but also in the new world that they will be working in when it is over. In fact, some of our biggest customers are already altering the mix of our products to lean more heavily into the cloud and digitization. Although AEC spending has held up well and work is continuing, some customers are seeing project delays, cancellations, and in some cases, job sites temporarily shut down. However, despite these realities, we have seen continued adoption of our construction offerings. For example, a general contractor in Southeastern United States selected our products over a competitive construction management solution at their time of renewal. Their business is growing rapidly and price was becoming a concern with their current vendor. They needed a comprehensive solution that was fast and easy to implement. The multiyear deal started with PlanGrid for the field, evolved to include BIM 360 for the office and field connectivity, and ultimately included BuildingConnected for project bidding. Many construction sites were shut down temporarily, impacting our new business for field-focused solutions like PlanGrid. However, our products span the complete construction value chain, and our collaboration products like BIM 360 Design and Docs experienced solid growth. Our extended access program allows customers to try out and experience the value of the cloud collaboration products at no cost for a limited period of time. We're seeing customers who are in the process of adoption accelerate their timelines. We are also seeing customers purchase additional seats directly through our digital store. Since early March, cumulative new commercial projects grew over 200% in BIM 360 Design and over 100% in BIM 360 Docs. This surge in usage has been a great test for our cloud product infrastructure, which has scaled up seamlessly. As you might recall, BIM 360 Design is the cloud collaboration tool that allows our customers to use our Design product anytime, anywhere with data stored in the cloud. Now that customers are experiencing cloud-based solutions that allow them to work efficiently from anywhere, we do not think they will revert to previous ways of working. One of our largest customers, AECOM, significantly increased their adoption of BIM 360 and reached out to us beforehand to ensure that we were set up to support the increased usage. AECOM is the world's premier infrastructure firm. David Felker, CIO, Americas and Construction, recently commented, 'We're shifting rapidly to remote working, which is absolutely essential for the continuity of our business. Our strategic partnership with Autodesk and the BIM 360 Cloud platform, along with substantial investments in digital solutions and technology, have enabled our successful pivot to this new way of working. We forecast that our use of BIM 360 will continue to grow dramatically in the short term and will become our new baseline for projects in the long term.' We are not only helping our customers work remotely, we are also doing so quickly. When New Zealand went into lockdown, we helped an architecture firm successfully mobilize their entire business to work from home in five days. In the process, they doubled their number of BIM 360 Design subscriptions. They told us they would not have been able to successfully continue their business operations while working from home without our support. And they also noted that all projects will be delivered using our platform going forward. We believe the current pandemic will accelerate digitization and automation in the AEC industry, as customers look to make their businesses more resilient. At the end of every downturn, there is an upturn, and businesses will need our products more than ever to stay competitive on the other side of this. One segment that has historically done well, as governments seek to provide stimulus, is infrastructure. During the quarter, we announced an alliance with Aurigo to better serve public and private owners. Capital project owners at Departments of Transportation, cities, counties, and enterprises will benefit from this alliance, and we are already receiving positive feedback from customers. This quarter, we had a top architecture firm and a subsidiary of one the largest state-owned enterprises in China choose our products over Bentley’s. Their typical projects for domestic and international clients include healthcare infrastructure, stadiums, airports, and skyscrapers. Autodesk's streamlined workloads and data compatibility allow them to collaborate across teams and bring digital design down to the construction service phase. Beyond that, they have already taken advantage of our products for generating optimized design schemes and are excited to use Generative Design in Revit, as we recently announced Generative Design is available in Revit 2021. As our customers plan to return to work safely, they need help redesigning space layouts in buildings, and this is one of the things Generative Design enables people to do effectively. Although manufacturing has been impacted by supply chain disruptions and temporary factory shutdowns, our products are enabling customers to operate under evolving conditions. Customers use our solutions to develop new products and R&D continues even when production floors experience disruption. Automation and flexible supply chains will be vital to competitiveness in the future. Our products help customers work remotely in a distributed environment and collaborate among their divisions, customers, and supply chains in the cloud. Fusion 360 is the leading comprehensive multi-tenant cloud CAD/CAM and PLM solution and continues to gain traction during this pandemic, as customers are reassessing their technology portfolios' readiness to cope with the demands of distributed work. In fact, April was the fastest-growing month for new user acquisition. A good example of this is that we closed a large stand-alone Fusion 360 deal with a leading semiconductor company. Currently, they use the electronics design capabilities in Fusion for their printed circuit board design work, and we expect to further expand our presence with them due to the integrated functionality offered by our products at a more competitive price point. In addition, BASF, the largest chemical producer in the world, increased their users of Fusion 360 to 2,000 during the quarter. They look forward to using Fusion 360 as a collaboration platform to improve the efficiency of communication between several teams, starting with equipment design and maintenance at one of their chemical plants. Growth remains strong, relative to our competition across the manufacturing portfolio. Customers of our on-premise solutions report minimal disruption in the move to remote work, which has been supported by cloud features included in our subscription offering. During the quarter, we signed our first enterprise business agreement with an automobile manufacturer in China. The usage-based model was a good fit for the customer who needs flexible access to our expansive portfolio of products. COVID-19 was a catalyst for them to substantially increase their engagement with us. They made the decision to adopt the most efficient solution to ensure they stay competitive in their industry on the other side of this downturn. In addition to growing our presence in the commercial space, we continue to maintain our leadership in the education space, where future engineers are rapidly adopting our products. Our new-user acquisition in the education space, driven by Fusion 360 went up over 70% in April. Moving onto another high-priority area for us, we are still making traction monetizing non-compliant users. In terms of sales-led initiatives, we are being sensitive to customer situations and are often deferring the final outreach, but this does not mean progress has stopped. The first deal we closed after the business reopened was a license compliance transaction that we have been working on for many months prior to the pandemic. We closed an additional license compliance deal and competitive win over Bentley in Central America, and the customer is now piloting BIM 360 Docs. In closing, while all of us are impacted by the current pandemic, we are building a stronger Autodesk for the next year and beyond. We have a head start over our competition in critical capabilities like cloud computing and cloud-based collaboration, and we will continue to invest in our strategic initiatives. There are three key areas that make us confident in our fiscal 2023 targets and our growth after that. One, digitization in AEC is going to accelerate in the coming years as companies seek to adopt not only BIM but a complete design-to-make workflow enabled by the cloud that not only makes current processes more resilient and efficient but supports new industrial paradigms for the construction site. Two, the evolution of manufacturing to a more distributed network and cloud-based workflow is also going to accelerate significantly over the next few years. And we have the industry's leading multi-tenant cloud-based solution to address the emerging customer needs. And three, our business model is more robust, adaptable, and resilient than in the entire history of the company. This will allow us to not only invest aggressively in the future but do so with an eye toward both revenue and margin growth. We look forward to virtually engaging with many of you at Investor Day on June 6th, where we will have more time to share our strategic initiatives. With that, operator, we'd now like to open the call up for questions.

Okay, great. Hey, thanks guys for taking my questions here. And I hope everyone's doing well. Andrew, maybe just to start with you. Thanks for the commentary just by area. I want to look at it from a different lens, and maybe see if you can talk about what you're seeing from your customers on engineering headcount and hiring. Now clearly, that situation is going to differ between manufacturing and your AEC customers. But I'm wondering if you could give us some high-level observations just about how your customers are approaching headcount during these times?

Yes. Saket, I hope you're doing well as well. Look, there’s – what I’ll do is I’ll give you some indirect measures of what we’re seeing. If our customers were engaging in a lot of headcount reductions, what we would see is a tendency towards more partial renews in our base. We’re not seeing that, all right, as we mentioned in the opening commentary. So we’re not seeing this increase in partial renews which tells us there’s a stable employment base and a stable team environment. The other thing that we pay attention to is the whole notion of what’s happening with weekly active users, okay? That’s the real measure of economic activity happening on top of our applications. This is something we didn’t have during the last downturn. We weren’t able to monitor weekly active use of our desktop products. That weekly active usage, while it declined a little bit as we headed into this, is definitely starting to stabilize. So that’s another indicator that tells us, look, people are hanging on to their R&D and early project development team members. We’re well in front of the process here on multiple factors, so people need to keep the people working on the stuff that uses our products in order to effectively meet the demand as they come out of this. So that’s what we’re seeing Saket.

That's really helpful. Scott, maybe for my follow-up for you, you touched on this a little bit in your prepared remarks, but I'm wondering if we could just flesh it out a little bit more. Can you just talk about what you saw in the quarter on those multiyear paid-up subscriptions? And just talk about how you're thinking about that in the fiscal '21 free cash flow guide?

Yes, thanks, Saket. I hope you and your family are staying safe too. It's such a bizarre time. What we observed is that the multiyear subscriptions remain relatively strong. It was an interesting quarter. The beginning was quite strong, with demand across the board being robust. The multiyear subscriptions performed well, reflecting the continuation of a strong Q4. However, around mid-March, we noticed a slowdown, which was not uniform, as different countries were impacted at varying rates. In the second half of the quarter, there was a slight decrease in multiyear subscriptions, but nothing substantial. This is evident when comparing the total long-term deferred balance with the total deferred revenue balance. While there was a decline, many customers still see value in purchasing multiyear subscriptions, and our partners recognize its value in sales. This arrangement benefits customers, partners, and us, as these are renewals we don't have to pursue, allowing us to optimize our sales capacity. I do anticipate some challenges with multiyear transactions in the second half of the year, which is influencing our updated guidance on billings and free cash flow. It is expected that multiyear trends will decline throughout the year, especially in the second quarter, with some recovery anticipated in the latter half of the year.

That’s very helpful. Thanks guys.

Thanks, Saket.

Hi, thanks for taking my question. I'm glad to hear that you are well and hopefully that extends to your families and your team members. Question first for you Andrew, then a follow-up for Scott. Andrew, you talked about obviously the different phases of the construction lifecycle and different products you have there. When you're talking to your customers, how do you think about sort of reopening, starting to sort of impact, call it the architecture side, your planning, construction, etcetera? And considering the fact that you were on the AEC side, you seem to have a backlog of projects coming into the year, what are they saying to you in terms of restarting and where sort of that backlog is, especially when you think kind of guide go-forward basis? Then just one follow-up for Scott.

Yes. So the backlog comes in two forms. The first backlog is projects that were just put on hold and were about to go into the pipeline. We hear a lot about that from our customers that look, a bunch of projects were just put on hold until people know where they’re at. Those projects are not going away. None of them are in any kind of category that would represent a pullback from the projects. So yes, at the front end in the design and kind of engineering side, there is definitely this queue of projects that were put on hold. The interesting thing on the downstream side and the construction side, what you saw was how in some municipalities, people actually stopped construction. Now those construction sites are coming back on right now. And in some places, construction never stopped, but they’re not coming back on the same way. What you’re seeing is people are working with distancing requirements on the construction site, so there are fewer people on the construction site, and those people are working in more shifts. So what you’re actually seeing is more pickup in the digital tools and an anticipation from our customers that they need more tools to digitally manage their sites as they stand up these construction sites. The same goes in manufacturing. Manufacturing – their biggest problem is that their output side will shut down. Their new product development and all the things that are going on there, none of that was stopping. They just couldn’t push the units out because of various restrictions on them. That’s all starting to open up as well. And that’s what we’re hearing from our customers. Frankly, the one segment of our customer base that still doesn’t know their fate is the people making films, TV, and film. They’re still struggling with when the sets are going to back up. The games, obviously, they never saw a slowdown. So, but the people in the film business are still waiting for when the production is going to restart.

Okay. That was super helpful. And then Scott, just to follow-up. Obviously, we came into the year with a significant number of active users that weren't on subscription or maintenance. I wonder if you could tell us just sort of the trend that you saw in Q1 relative to last year in terms of conversion of those to paying subscribers and just how are you thinking about this year?

Yes. It continues to be an enormous opportunity for us, Phil, and it’s one that we’ll continue to pursue out even beyond fiscal 2023. What we have seen during the quarter is we talked about this on the fourth quarter call as well. We’ve gotten better at the data science at identifying those, passing on higher-quality leads. That’s led to the productivity of those license compliance teams improving. And as productivity improves, we’re investing more headcount there. That trend continued into the first half of the quarter. I will tell you, as the economy got more difficult and as many of our customers face shutdown and very difficult situations, what we did do toward the second half of the quarter is, while we continue to pursue those transactions, we’re not forcing a final transaction, a final outcome of that in many cases. So that pipeline continues to build. We continue to work that and build that up, and that’s an opportunity that’s still ahead of us in the second half of the year.

Great, thanks guys and stay safe.

You too, Phil.

Thank you, Phil.

Thank you very much for addressing my question, and I'm pleased to hear that you, your families, and the Autodesk employees are all well. I have two questions. First, Andrew, you mentioned the license compliance agreement in Wuhan that you completed. I would also like to know how you are observing business trends in other parts of Asia, since those economies have been open for a bit longer? Additionally, could you provide some insights on how the first month of this quarter is performing compared to April? I have a follow-up question after that.

Yes, absolutely. Heather, let me provide some broader context to address your question. As Scott mentioned, we entered the first quarter with strong momentum. We had a brief celebration of our success from fiscal year 2020, but then in March, we began to see a decline in China followed by Korea. This was part of a wider trend in the Asia-Pacific region, and Europe also started to decline before the U.S. began to feel the impact. However, as things progressed, we observed a rebound in China and Korea, with weekly active usage in China surpassing pre-COVID levels. Korea stabilized as well, and Japan remained surprisingly steady throughout the crisis, maintaining consistent business collections and weekly active usage. We are now witnessing a similar recovery in Europe, with increases in weekly active usage and new business. In the U.S., we are seeing signs of stabilization, although not yet in a clear upward trend. This overall pattern is reflected in our weekly active usage numbers and new business figures. Importantly, our renewal rates have remained steady. While we anticipated a slight decline in renewal rates during a downturn, they actually decreased less than expected, holding up remarkably well across all regions throughout the crisis. There hasn't been any sudden drop or inconsistency in renewal rates; they have remained stable.

That's great. Thank you. And then just one quick follow-up for Scott, and I know you mentioned this in response to someone's question, I think, about long-term deferreds. But you had talked about, at one point, most recently, those being maybe as much as 25% of the total deferred revenue balance. I'm just wondering is there a level that you would set up at for this year that you think might be more reasonable?

Yes, I believe that's the correct range, Heather. I see it settling in the mid-20s. It was slightly higher before. You may recall during the third and fourth quarter calls, there were concerns that multiyear paid upfront product subscriptions were increasing significantly and could impact free cash flow this year. We anticipated this year would be more stable compared to a pandemic year. I've been monitoring our multiyear offer closely because if it seemed to be growing too much and we couldn't sustain that percentage, I would have made adjustments to the offering. However, we haven't altered the offer, and I don’t think we need to at this time. It remains the same: pay for three years upfront and receive a 10% discount, as it always has been. We noticed a slight decrease in the second half of the year. That aligns with my expectations for the year, which will lead long-term deferred revenue to fall within that mid-20% range of total.

Okay, great. Thank you so much, gentlemen. Stay safe.

You too. Thanks.

You too, Heather.

Thank you. Good evening, Andrew and Scott. I'll ask both questions at once. So first, Andrew, you noted a number of trends and requirements that are being accelerated by the current situation. What are the implications of that, if any, for your sales and distribution model? You've been doing a lot of hiring or planned hiring for direct sales coverage, named accounts, inside sales, the store and so forth, and of course, working with the channel. So maybe you could talk about any implications there? And then secondly, looking past this current valley affecting business, looking to your longer-term roadmap, you've spoken often at AU, at other occasions about your new platform plasma. What are the milestones for that internally that you'd be able to communicate over the next number of years in terms of its progress? And overlaying that at the applications layer, are there any major brands such as Revit or Inventor or anything else that you think would be prudent to rebuild or rewire in some way to take advantage of the new platform, in terms of collaboration, data orchestration, perhaps multi-core and multi-threading and all those good things?

Okay. So let me start with the sales question. So as we've headed into this and looked at the year, as you’ve noticed, we’ve continued to invest. While we’re not going to spend as much as we originally anticipated this year, we’re continuing to invest in R&D and things that we think are core to our future and infrastructure. There are some areas that go-to-market we did continue to invest in, like international expansion for our construction solutions and things related to supporting the Fusion business. But, you’re right, we probably slowed down a little bit on inside sales efforts when your inside sales teams, you don’t want to hire inside sales teams when you’re having trouble getting in touch with customers when they’re working from home. So we slowed down some of those efforts, but there was no across-the-board slowdown in our go-to-market activity. In fact, what we did is, we prioritized those things that we thought were most important and invested there. And I think they all would make sense to you, in terms of what we’re doing there. In terms of the longer-term growth, I think you’re going to continue to see us invest in go-to-market internationally around our construction and cloud solutions. I think you’re going to see us continue to invest in data centers and servers in our international locations that service our customers with some of our cloud solutions because those are going to be in demand, all right? Now with regard to your second question, okay, we don’t call it plasma anymore, by the way. It’s a different name, which you’ll get some view of later, probably around AU timeframe. So I’m going to be careful about what I talk about there. But look, first off, I want to make sure you understand. There’s a lot in our cloud, all right? A lot in our cloud platform, a lot that has been exposed, a lot that hasn’t yet been exposed. Some of those things you’re talking about allowing multidisciplinary collaboration, simultaneous access to a common model that updates based on different disciplines but maintains control with, say, the architects or the engineers, you’re going to hear a lot more about that in the coming months and probably around Autodesk University. So I’m not going to steal the thunder from that. What I will say at this point is, we’ve got a lot going on, and we’re big believers in the app model. And what I mean by that is we believe that relatively modestly sized to big clients with a really robust cloud backend are the future. And we got there in a very informed way. So, for instance, Fusion has a big client. But it has a very, very, very fine-grained multitenant cloud data infrastructure hidden behind it. Fusion’s cloud will get thinner – the client will get thinner over time. You could also see an evolution with Revit that’s similar to that. That’s going to take a little longer. And we made that choice very deliberately, Jay, because we’ve had lots of experience in pure browser-based applications. For instance, you might be aware that Tinkercad has 25 million users. Right now, in any given day, 11,000 people use Tinkercad. It’s the K-12 de facto standard for 3D modeling out there. It’s called Tinkercad, but it's actually an amazing tool. It is a multitenant browser-based solution, as is AutoCAD web, which has 50,000 monthly active users a month, all right, which does edit and the creation of drawings as well as collaboration on drawings. Both of those solutions taught us that thicker clients are better, all right? Not totally thick clients, way thinner than our current desktop clients, but like an app model. We learned this early on from our long years of experience with these pure browser-based tools. So that’s why you see us doing that with Fusion. You’ll see us do something similar in the AEC space over time. And it’s winning because it helps get people to the cloud, but it has that same robust multitenant cloud database structure sitting underneath it.

Thank you. I hope you do well.

You too, Jay.

Thanks, Jay.

Hey, guys, thanks for taking my questions. I'm glad you guys are well. There's always a lot of questions on construction and all the improvements you made on a product perspective there, but want to talk a little bit more about the momentum in manufacturing. We do hear really good things about Fusion 360. And I know, Andrew, you called it out on the call being a real disruptive offering. Where are we in the momentum of that business? And relative to the investments that we've made in construction, are there many more that still need to happen in this particular part of your business?

In the manufacturing part. You – I want to make sure I answer the question… Okay, good. Because – all right. So I’m glad you asked the question. Like I said, we’re definitely seeing building momentum in that space. There’s no doubt about it. Fusion is on fire. I said in March, it added 50,000 monthly active users. There are over 600,000 monthly active users on the application today, all right. It's in the very early stages of a revenue generation activity. I am going to save the total commercial subscriber base as a reveal for the Investor Day coming up. Suffice it to say, it’s large, all right, and significant. In education, it's by far the leader. And by the way, it has a connectivity flow with Tinkercad. So we've got K-12 locked up with Tinkercad and Fusion’s rapidly taking over post-secondary education and becoming more and more of a force in that space. I think you’re going to see a lot of exciting things with Fusion over the next year, especially as we start to reveal the data layers that are hiding underneath the thick client that we use for the application. So I want to hold off a little bit until Investor Day. But I will tell you, in any given day, 60,000 people are using Fusion to solve real-world problems today. So I think it's an exciting application. It has really significant potential for the future. We are way ahead of our competition, not only in functionality but in low cloud power.

So it's a bit of a teaser to get you into the Investor Day next week, Matt.

Yeah, we’re looking forward to that. And then maybe a quick call for Scott, I know renewals were stable this quarter, which is great to hear. I wanted to ask about the...

Matt, your voice is breaking up pretty badly. You started off fine, and then I was guessing what your question is.

Sorry about that. The joys of working from home. Just – the question is how are your customers doing today? And when you look at your '21 guidance, you talked about some expectations on renewal. But what are expectations for VSB renewals in your fiscal '21 guide?

Yes. That's a great question because I think there’s an expectation that, that segment, which we call VSB, Very Small Business but to generalize that, think of that as a single site with 20 employees or less and 15 seats or less. And that segment for us typically drives somewhere between 10% and 15% of our sales. We're not seeing a difference in the renewal rate in that segment versus the segment right above that, up through enterprise. It's a bit surprising, frankly. I would have expected that we would have seen a bigger impact there, but we're not seeing that at this point. But bear in mind, as you could imagine we are running multiple scenarios constantly on the back end. And one of the things that I've had built into those scenarios is an expectation that we do see renewal rates move from where they are down modestly during the second quarter. And then the difference between the high end and the low end of our guidance range is sort of the rate of recovery of those. But just to be cautious, even though we're not seeing it yet, I am modeling that into the guide.

Thanks a lot.

Thanks, Matt.

Hi gentlemen, thank you for taking my question. I have two quick inquiries. First, what are you observing in terms of horizontal construction? Do you anticipate any positive effects or tailwinds from the government's stimulus spending aimed at counteracting recession? That's my first question. For my second question, could you provide some insights into the assumptions behind your new business projections? Reflecting on my Autodesk model from 2009, I remember your licenses were down around mid-30%, which was quite significant. How do your current assumptions relate to the lower and upper ends of your guidance range? Thank you very much, guys.

Okay. Great. All right. So I'll start off and take the horizontal construction question. So we’ve been anticipating stimulus with regard to infrastructure for some time now and we’ve been investing in our core products for that, in particular, in road and rail. What you saw us recently do was engage in a partnership and an investment with Aurigo, and I mentioned that in the opening commentary. Aurigo is really, really strong in the early capital planning part of these types of projects, whereas we’re really strong in the design and make parts. There’s an overlap between our solutions, but they’re very, very complementary. Between the functionality we’ve been building in our design portfolio and this partnership, it’s designed to bring the departments of transportation forward in terms of their solution stacks for these various types of infrastructure engagements. Right now, they’re basically on really old stacks and fairly old technology. Aurigo is a born-in-the-cloud company; most of our stack is rapidly moving to through the cloud. Obviously, the construction stack is entirely in the cloud. So we’ve been preparing for tailwinds around infrastructure for quite some time. We believe we’re ready. We believe these partnerships we put in place are absolutely the right kind of thing. We’re already seeing some returns from those partnerships in terms of engagements with various departments of transportation. So yes, we do anticipate a tailwind coming from stimulus related to infrastructure, and we’ve been preparing for it.

And to the second question you had, Steve, I’ll point you to – I’ll tell you what our expectations are, but I’ll also point you to the slide deck that we posted on the website at the same time. I know it’s a busy night, and there are other companies reporting at the same time. We actually moved to today to try and avoid a lot of other company traffic to try to lighten the load on you guys a bit. So there’s a slide there, but I’ll tell you what our expectations are. At the low end of the guidance range, we expect – well, in both cases, we expect our new business to be most impacted in the second quarter. And then the divergence between the low end and the high end is the depth of the impact in the second quarter on new business and the rate of recovery, such that in the low end of the range we expect for the full year, we expect a slower recovery from the bottom in Q2, such that for the full year, new unit volume actually grows modestly. At the high end, a slightly less of an impact in Q2, a swifter recovery, such that for the full year, new unit volume actually grows modestly. And that's informed by what we're seeing as markets have reopened by monitoring, as Andrew said, what the weekly active usage rate looks like in each of our core markets and really getting an understanding of the usage of our products by our customers. Things like our partial renewal rate staying strong, says, if I had 10 that came up for renewal and I renewed all 10, that means that I don’t have a reduction in workforce. So I think the strength of the renewal base, plus our expectation on what new volume looks like is what differentiates the low end from the high end.

Got it. Cool. Thanks a lot, guys.

Thanks for the question, Brad.

Hey guys, thanks for filling me in there and I appreciate it. I was impressed with the renewal rate, the net dollar renewal rate staying at 110% to 120% range. So I was wondering regarding the partial renewals holding steady, do you have any idea of what portion of your customer base is maybe benefiting from the PPP loans? I'm wondering if churn could maybe tick up once the deadline for the employee retention passes and you have a little bit more layoffs from those customers with the PPP loans at some point in the future? And then secondly, you had pretty impressive bookings, especially when looking at current RPO. I'm just trying to reconcile that with the roughly flat billings growth for the full year. So I'm wondering, if you could what the average time deals tend to be in the pipeline before closing? And if you do have a weakening in the pipeline or the entry part of the pipeline, how many quarters does that take to show up, is it 2, 3, 4 quarters? Or is there any way to know that? Thank you.

That's a lot to discuss, Zane. I'll address the first question, and then Andrew will cover the pipeline sales cycle. Regarding the first question, we can't predict outcomes, but the program was aimed at smaller businesses. Historically, small businesses, defined as those with a single location, 20 employees or fewer, and 15 seats or less, have contributed 10% to 15% of our total sales, which is a relatively small portion of our overall revenue. It's difficult to determine how many of these businesses have benefited from the short-term loan programs that were introduced as stimulus measures or to mitigate recession impacts. However, we do track active users, specifically weekly active users of our product. We noted a significant decrease when countries implemented shelter-in-place orders, but we observed a rebound thereafter, suggesting resilience. Renewals remained solid during this period as well. While it's challenging to provide a definitive answer, we are seeing indicators that are encouraging.

Regarding the pipeline question, everything is going well overall. In terms of new business, we are already seeing growth in the pipeline in Asia. We are beginning to notice similar trends in Europe, while the U.S. has not yet shown signs of growth. However, based on the pipeline progression in each region and country, along with the trends in new business and weekly active users, which tend to indicate future pipeline performance, we anticipate strengthening in the pipeline as we move further away from the start of the pandemic. This is a positive signal for our business outlook for the year.

Yes. I think the other bit of color that I’d add there is when you look at the change in our billings guide, multiyear clearly is having an effect on that. We’ve seen it slow a bit in the second half of the first quarter. And what I’ve built into the scenarios that we’ve modeled out is that it continues to pace low or to modestly come down, a couple of points from where it had been throughout the year. And that does create a headwind on the billings guide.

Got it. That's very helpful. Well, I wishing you guys have a strong and rapid recovery. Thanks very much.

Thank you.

Yes. Thanks, Joelle, and thanks, everybody, for joining us today. We look forward to seeing many of you at our Analyst Day next week on June 3. In the meantime, please reach out if you have any questions. Thanks for joining us today.

Thank you.