Autodesk Inc (ADSK) — Q4 2022 Earnings Call Transcript

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the fourth quarter and full year results of our fiscal '22. On the line with me are Andrew Anagnost, our CEO, and Debbie Clifford, our Chief Financial Officer. 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 this call, we may make forward-looking statements about our outlook, future results, and related assumptions, acquisitions, products and product capabilities, 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, including our most recent Form 10-K for important risks and other factors, including developments in the COVID-19 pandemic and the resulting impact on our business 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 numerical growth changes as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release or Excel Financials and other supplemental materials available on our Investor Relations website. And now I will turn the call over to Andrew.

Thank you, Simon, and welcome, everyone, to the call. Today, we reported record fourth quarter and full year revenue, non-GAAP operating margins, and free cash flow. Our strong results and competitive performance were underpinned by some perennial factors: our ability to deliver greater value to our customers and partners through consistent investment in our technology, workforce, and business model, as well as customer experience. Let me talk briefly about each of these as they are just as important to our future growth as they have been to our growth in the past. All of our technology investments—be it in 3D and BIM, enabling workflows in the cloud, in generative design, in make, and in newer verticals like water and construction—connect siloed adjacent workflows in the cloud and lead our customers to new, more efficient, and sustainable ways of working. At Autodesk University, we announced that we were moving from products to platforms and capabilities, and bringing those capabilities to any device anywhere in the cloud. Fusion 360 is the leading edge of this transition, and our recent acquisitions of Prodsmart and CIMCO will enable us to further digitize and connect shop floor processes and manufacturing to help build connected factories while providing additional on-ramps into and usage of our manufacturing platform. Similarly, our acquisitions of Moxion and LoUPE enable us to connect Media and Entertainment workflows and data from post-production to pre-production. With Media and Entertainment signing its largest-ever EBA in the fourth quarter, the ability to connect pre-production workflows further expands our addressable TAM. We're also continuing to invest in our workforce, attract and retain the best talent in our industries, and cultivate a shared sense of purpose and of diversity and belonging. We recently received recognition for that work with inclusion on the Corporate Knights index of the world's most sustainable companies and the highest possible score on the Human Rights Foundation's Corporate Equality Index. We take pride in our purpose and unique culture, one consequence of which is relatively low attrition compared to our technology peers. This is another source of competitive advantage in a tight labor market. It also means that when gifted leaders like Scott Reese and Pascal Di Fronzo decide to climb their next mountains, we have a deep bench of internal talent like Jeff Kinder and Rebecca Pearce, and alumni like Ruth Ann Keene, to step into their shoes. Finally, regarding business model and customer experience optimization—this includes the shift from perpetual licenses with maintenance to tiered subscription, the shift from desktop multi-user licenses to named user subscriptions and consumption, the shift from indirect to direct sales, the shift from front-end to back-end payments to channel partners, and most recently, the shift from upfront to annual billing—all of which enable us to better serve more customers in flexible and customized ways. As of February 1, we unified all customer and partner-facing activities, including marketing, go-to-market, customer success, and customer operations under our COO, Steve Blum, to give us a better end-to-end view of the customer experience and to drive sustainable competitive advantage and growth. While the pandemic and its aftershocks mean we will fall narrowly short of the financial targets set more than five years ago, we have made tremendous progress through consistent investment in our technology, our workforce, and our business model and customer experience, which have added adjacent use cases and usage in our ecosystem, growing our addressable market and our capability to realize it. The pandemic has accelerated the structural growth drivers underpinning our future growth. We have robust momentum as we enter fiscal '23 and over the long term. Now let me turn the call over to Debbie to take you through the details of our quarterly financial performance and guidance for the year. I'll then come back to provide an update on our strategic growth initiatives.

Thanks, Andrew. In an extraordinary year, we performed strongly across all metrics, perhaps best summarized by the sum of revenue growth and free cash flow margin for the year, which was 49%. Our fourth quarter results were strong. Several factors contributed to that, including robust renewal rates, strong growth in subscriptions, and rapidly expanding digital sales. Total revenue grew 17%, or about two percentage points less in constant currency, with subscription revenue growing by 18%. Looking at revenue by product: AutoCAD and AutoCAD LT revenue grew 20%, AEC revenue grew 17%, and manufacturing revenue grew 4%. Recall that Vault became ratable in fiscal '22, and that manufacturing also benefited in Q4 last year from a strong performance in automotive EBAs, which included significant upfront revenue. Excluding these impacts, manufacturing revenue grew in double digits in Q4. M&A revenue grew 38%, which included some upfront revenue from its largest-ever EBA. Even if you exclude upfront revenue, M&E grew more than 20% in Q4. Across the globe, revenue grew 18% in the Americas and 16% in both EMEA and APAC. Direct revenue increased 27% and represented 38% of total revenue, up from 34% last year due to strength from both enterprise and e-commerce. We had our best-ever revenue quarter for digital sales, which helped annual e-commerce sales surpass $0.5 billion for the first time. Our product subscription renewal rates remained at record highs, and our net revenue retention rate remained strongly within our 100% to 110% target range. Billings increased 13% to $1.7 billion, reflecting robust underlying demand but also a tough EBA comparison from last year. Total deferred revenue grew 13% to $3.8 billion. Total RPO of $4.7 billion and current RPO of $3.1 billion grew 12% and 15%, respectively, and as expected, it reflects billings growth and the timing and volume of multiyear contracts, which are typically on a three-year cycle. Turning to the P&L, non-GAAP gross margin remained broadly level at 93%, while non-GAAP operating margin increased by five percentage points to approximately 35%, reflecting strong revenue growth and ongoing cost discipline. GAAP operating margins declined by six percentage points to 12%, primarily due to lease-related charges of approximately $100 million, which reflects the progress we've made to reduce our real estate footprint and to further our hybrid workforce strategy, as we announced on our last call. We delivered record free cash flow in the quarter and for the full year of $716 million and $1.5 billion, respectively. Having completed our first sustainability bond last quarter at historically attractive rates, we continued to optimize our capital structure in Q4 by accelerating our share repurchase activity. Given the recent pullback in our share price, we opportunistically repurchased shares at a higher rate than previous quarters, which allowed us to offset dilution in fiscal '22 and to get ahead of a sizable amount of our estimated dilution in fiscal '23. The net result was a slight reduction in our weighted average shares outstanding at the end of the year. During Q4, we purchased 2.3 million shares for $613 million at an average price of approximately $267 per share. For the full year, we repurchased nearly 4 million shares at an average price of approximately $276 per share for a total spend of just over $1 billion. You'll see us continue to be opportunistic with share buybacks, but our capital allocation strategy is unchanged. We'll invest organically and inorganically to drive growth, as well as purchase shares to offset dilution from our equity compensation plans over time. Now let me finish with guidance. On our last call, we signaled that we saw FX headwinds and macroeconomic uncertainty due to supply chain challenges, labor shortages, and the ebb and flow of COVID. That perspective hasn't changed. So the risk we highlighted three months ago is now incorporated into our fiscal '23 outlook. Beyond that, we did see further strengthening of the U.S. dollar, resulting in a slight incremental FX headwind to our fiscal '23 expectations. To put it in numerical terms, our fiscal '22 revenue growth reflects a two-percentage point currency tailwind, which with FX movements in the last quarter, becomes a roughly one-percentage point headwind to fiscal '23 revenue growth. Similarly, FX moves during the fourth quarter resulted in an approximately $30 million incremental headwind to fiscal '23 free cash flow. Beyond FX, we are obviously keeping a close eye on the geopolitical macroeconomic and policy environment. But having said all that, our strong momentum and competitive performance in fiscal '22 set us up well for fiscal '23. We expect fiscal '23 revenue to be between $5.02 billion and $5.12 billion, with growth of approximately 16% at the midpoint, which reflects an incremental one-percentage point FX headwind, as I mentioned earlier. We expect non-GAAP operating margins to be approximately 37%, and free cash flow to be between $2.13 billion and $2.21 billion. The midpoint of that range, $2.17 billion, implies 47% growth and reflects the incremental $30 million FX headwind that I mentioned earlier. The slide deck on our website has more details on modeling assumptions for Q1 and the full year fiscal '23. The pandemic has reinforced the structural growth drivers underpinning our strategy, and we remain confident in our long-term growth potential. We continue to target double-digit revenue growth, non-GAAP operating margins in the 38% to 40% range, and double-digit free cash flow growth on a compound annual basis. These metrics are intended to provide a floor to our revenue growth ambitions and a ceiling to our spend growth expectations. Andrew, back to you.

Thank you, Debbie. Our strategy is to transform the industries we serve with end-to-end cloud-based solutions that enable our customers to drive efficiency and sustainability. Structural growth drivers underpinning the strategy have been reinforced by the pandemic, including increased workflow convergence and platform standardization, a growing focus on distributed working in the cloud, automation and workforce productivity, and also the growing importance of sustainability. Our model is scalable and extensible into adjacent verticals, from architecture and engineering through construction and owners, from product engineering through product manufacturing and product data management. As I stated earlier, with our consistent investment in our technology, workforce, and business model and customer experience, we are well positioned to realize these opportunities. By both leading and partnering with our customers on new ways of working, we will grow too. For example, Goldbeck is one of Europe's largest commercial design and construction companies and a leading practitioner of industrialized construction. They use Inventor, Revit, Forge, and generative design on our platform to implement their precast and modular system concept. By standardizing the invisible and customizing the visible, Goldbeck has been able to design and build highly customized and aesthetically pleasing buildings reliably, quickly, and efficiently. Having unified around BIM, Goldbeck is now seeking to grow and connect beyond the design process to further improve efficiency and reduce waste through design automation during capital planning, for which it is trialing Spacemaker and great collaboration across design and build phases of construction using Autodesk Construction Cloud. With the launch of Autodesk Build, the introduction of an account-based pricing business model, and distribution through our channel partners, we are extending our reach into the construction market. Lee Lewis Construction, an ENR 400 general contractor from Texas, has been driving innovation through construction technology for over 45 years. In 2021, it began adopting capabilities of the Autodesk Construction Cloud, beginning with Assemble for Virtual Design & Construction, with the end goal of fully replacing their product management software with Autodesk Build. By having one platform for the full end-to-end construction workflow, Lee Lewis will be able to more efficiently deliver extraordinary results for their clients, from concept planning to ribbon cutting. With strong growth from Autodesk Build and the benefit of recently launched ACC bundles for preconstruction and construction operations, Autodesk Construction Cloud reported its best-ever quarter and accelerating growth in the fourth quarter, entering FY '23 with strong momentum. We continue connecting the dots in infrastructure too, most recently through the acquisition of Innovyze. Sustainable water is an area of opportunity for Autodesk across the globe. For example, Thames Water owns and operates one of the oldest and most complicated water supply networks in Europe, supplying nine million customers in London and the Thames Valley. With InfoWorks WS Pro and IWLive Pro from Innovyze and an ongoing recruitment drive to double the size of their internal hydraulic modeling team, it is building a modeling center of excellence with a library of hydraulic models that can be run in near real-time. When connected and compared with telemetry, these dynamic digital twins will become powerful planning tools, enabling Thames Water's teams to gain near real-time insight into system performance, leading to improved outcomes for the customers of today and tomorrow. I'm very pleased to report that Innovyze had its best quarter ever. Turning to manufacturing; we sustained strong momentum in our manufacturing portfolio this quarter as we connect more workflows beyond the design studio and develop more on-ramps to our manufacturing platform. In automotive, we continue to grow our footprint beyond the design studio and into manufacturing-connected factories as automotive OEMs seek to break down work silos and shorten handoff and design cycles. For example, a multinational automobile company that designs and jointly manufactures premium electric cars operates in four countries across the world and is currently in the process of expanding to a further 20. With its new EBA signed in the fourth quarter, it is not only adding additional users of Alias and VRED but also partnering with our consulting teams and product experts to both extend its in-house manufacturing capabilities with Autodesk Moldflow and working on the rollout of ShotGrid globally to help seamlessly manage and collaborate across its end-to-end workflows. Our platform approach gives new customers multiple on-ramps into our cloud ecosystem. For example, a European-based startup that creates smart charging systems for EVs worldwide uses a competitor's product and design but was also running into collaboration challenges due to the rapid growth of its business. It chose Upchain as its cloud data management system because it is easy to install, runs out of the box, and enables all users anywhere and on any device to collaborate on up-to-date data in real-time. It is easy to add new users and scale with the hyper-growth of the company. These are also all attributes of Fusion 360, and we hope to earn the right to connect more workflows for Upchain users in the future. Fusion 360's commercial subscribers grew steadily, ending the quarter with 189,000 subscribers. Early demand for our new extensions, including machining, generative design, nesting, and fabrication, has been strong, and there has been significant interest in our upcoming simulation and design extension. While we often think of education users taking Fusion 360 with them into the workforce, our commercial customers are also taking Fusion 360 into education to help train their future workforce. For example, Lawrence Equipment, as a member of the Pasadena City College Advisory Board, showed the college how Fusion 360 had helped innovate and improve its design and manufacturing workflows, resulting in greater operational efficiency, improved productivity, and higher-quality production. Upon adoption for its machine shop program, the college immediately found that students using Fusion 360 spent less time learning how to use the software and more time on the machines, learning important machining skills. The students also better understood how their work affected the company. As a result, Lawrence Equipment can hire from a steady pool of highly qualified Pasadena City College graduates—a win-win. With sustained demand for compelling content and growing pressure to produce that content more efficiently, there is increased demand for content creation tools and cloud-enabled production workflows in the Media and Entertainment industries. As a result, Media and Entertainment finished the year strong as companies emerging from the pandemic sought to connect siloed workflows and remote teams. For example, Technicolor, a worldwide creative technology leader, has renewed its commitment to Autodesk content creation and production management tools, such as Maya and ShotGrid. By standardizing on common tools across its global studios, Technicolor can unleash the creative potential of its remote and distributed workforce. By efficiently and securely connecting teams, Technicolor can continue to serve the growing demand for compelling content, redefining what's possible for storytellers and audiences around the globe. Finally, we continue to enable more users to participate in our ecosystem more productively through business model innovation and our license compliance initiatives. With single sign-on for improved security and user-level reporting, our premium plan enables our customers to manage their software usage across distributed sites more safely and efficiently. As we help our customers understand the details of how they use our solutions, the better we can ensure their success by efficiently and effectively implementing them. For example, the ZETA Group, with 17 subsidiaries worldwide, specializes in planning, automation, digitization, and maintenance of customized biopharmaceutical facilities for aseptic process solutions. ZETA was looking for better visibility into its employee software usage and administration of subscribers. In Q4, it doubled the number of premium plan subscriptions to gain comprehensive employee-level reporting for better insight and easier administration. That visibility into employee software usage and easier administration of subscribers also makes premium plans an attractive solution for customers seeking to remain license compliant. For example, after identifying that a multinational consumer product company based in the U.S. had gaps in its account plan, we worked with its team to run a diagnostic scan to ensure it had access to the latest and safest versions of our software. This process identified gaps in software availability and license mix. Our collaborative, helpful approach enabled more users to access the latest versions of our software, and upgrading to our premium plan made it easier to administer and manage access in the future. During the quarter, we closed 16 deals over $500,000 from our license compliance initiatives, four of which were over $1 million. As I said earlier, by both leading and partnering with our customers on new ways of working, we will grow too. While there will certainly be twists and turns on the road ahead, in many ways, the pandemic has accelerated the future and increased my confidence in our strategy. Empowering innovators of design-and-make technology to achieve the new possible also enables them to build and manufacture efficiently and sustainably. We continue to execute well in challenging times and look forward to Autodesk's next 40 years of excitement and optimism. Operator, we would now like to open the call up for questions.

Andrew, just a question to you about the supply chain and the labor disruptions you talked about on the last call. I wonder if you could just give us an update on that. Just sort of what were you hearing from customers over the course of the past three months? And then really, if you could particularly focus on the AEC vertical because one of the things you obviously did call out in the slides was record construction property news and accelerating growth there.

Yes. Thank you, Philip. Good to hear from you. So yes, let me frame it this way. What we saw was the kind of improvement we expected to see when we talked to you about this in Q3. We saw some nice improvement. Our customers are saying they're feeling like they're coming out of some of these supply chain constraints. Our partners are echoing some of these things. We didn't see too much stick expectations we had at the beginning of the fiscal year when we expected to see acceleration in the second half, but what we saw was consistent with what we told you in Q3 in terms of the improving climate. With regards to AEC, in particular, which, by the way, I highlighted last quarter as being the key place that was feeling the most supply chain and cost pressure in terms of in-flight projects, that's where we saw the improvement. Yes, we did have a record quarter in construction, and we did end the quarter with some nice acceleration and momentum heading into next year. But consistent with what we said in Q3.

Got it. And then, just in terms of the backlog of projects you've been talking about for a couple of years now. Any thoughts on what sort of the customers are telling you about that? Do you think they're going to get unstick and sort of taken care of, call it, over the next 12 months? Or how are they thinking about that backlog?

Yes. What I can tell you is that we monitor bid board activity and we monitor the growth in active projects on Construction Cloud and BIM 360 Docs. What we're seeing in bid board is consistent growth in bidding activity, and we're seeing an increasing number of monthly active projects on our cloud applications around Construction Cloud and BIM 360 Docs. Those are usually leading indicators of project activity and backlog getting turned into active projects. So we consider those good signs in terms of how the environment is moving.

Andrew, maybe for you, a big renewal year here in fiscal '23. As we start to see maybe some more of those three-year product subscriptions come up for renewal this year, what's the data sort of showing, the preliminary data maybe, on sort of customers' willingness to renew at that same duration? And perhaps just as importantly, their willingness to sort of expand their usage from prior levels. Does that make sense?

Yes, it does make sense. The short answer to this, Saket, is that the willingness to renew is the same, or in some cases, better than the willingness to renew the shorter duration contracts. Customers who like long-duration contracts, who like the price lock, tend to continue to grab the price lock and move on—that's what we've seen so far. Now, in terms of their willingness to buy more during these things, that's going to depend on their individual circumstances. So I'm not going to give you any specific numbers on how we're doing around their willingness to buy more. However, the net revenue retention rates for the company are indicative of how the global cohort of the company works with regard to this. Debbie, would you like to add anything to that or comment on it?

No, I think you covered it, Andrew.

Got it. Got it. Debbie, maybe for my follow-up for you. I mean, understanding that we're just starting out fiscal '23, I was wondering if you have any thoughts on how we'll be phasing out the multiyear product subscriptions in fiscal '24? And maybe just philosophically, how you think about the shape of that impact on cash flow now that we have sort of a revised fiscal '23 view. And again, I understand it's early but any thoughts on kind of how you think that works? And the best way to think about modeling that?

Yes, sure. So we aren't giving specific guidance today for fiscal '24 and beyond, as you know. But as you can imagine, it's a big area of focus for us. We are retaining the framework that we set out at Investor Day, so let's just recap that again. It is double-digit revenue growth through fiscal '26, non-GAAP operating margins in the 38% to 40% range, and double-digit compound annual growth in free cash flow through fiscal '26. That's after the expected decline in fiscal '24 when we institute our transition to annual billings for multiyear contracts. As I mentioned in the prepared remarks, these metrics are intended to provide a floor for our revenue growth ambitions and a ceiling to our spend growth expectations. In terms of the decline for free cash flow specifically in fiscal '24, I know there's a lot of interest in both the magnitude of it and the slope of it. While we're not providing specifics today, here's how I think you should think about it. If I start with the slope, the slope of the free cash flow decline and then its recovery is going to depend on the pace at which our customers adopt annual billings. Right now, we intend to offer our customers a choice, but we're still working through the programmatic details. Our bias is going to be to go as quickly as possible, but we have customer, partner, and operational constraints that we're working through as we navigate the transition.

Saket, one thing that—oh sorry, Saket.

No, no, no. Please go ahead, Andrew.

One thing that excites me about this post-annual billings transition is that the free cash flow starts tracking to the long-term strategic drivers that I really like talking about. The digital transformation drivers that we talked about at Investor Day, including adjacent industries we were going into, are going to drive the growth and behavior of the free cash flow going forward. That's going to be a really great outcome for us.

Andrew, Debbie, your slide deck is interesting in disclosing the 6 million subscribers at the end of the fiscal year, which indicates an increase of about 700,000 from the end of fiscal '21. Is it contemplated in your guidance for fiscal '23 that you might be able to add a similar, if not larger number to the sub space this year? Second question, your disclosure about the digital sales revenue rate is very interesting. Having grown now apparently to be the plurality of your direct revenue, is it your view, Andrew, that the digital sales could become perhaps evenly split with the named accounts and EBA business? Or do you think named accounts and EBA remains the majority of the direct business?

Yes. All right. So first, let me address your first question. As you recall last year, and this was on me, we had those up too much stick assessments of accelerating new business growth into the second half of the year. We're not assuming any of that moves into this year. We assume things stay exactly as they are. The exception is that we did not factor in war in Ukraine, how that might affect our business is completely unclear. I thought you probably all heard President Biden's speech earlier today about some of his positions on this. When it comes to looking at next year, we're assuming that current things move forward the way they are. Just remember, some of those subscriber increases that you saw were a result of multi-user trade-ins as well, okay? I want to make sure we factor some of those things. Current course and speed is the general assumption here. Now with regard to digital sales. Digital sales—it's a great example. It's our fastest-growing channel. It's not growing at the expense of our partners. Our partners are growing robustly as well. It's also a great example of what we're doing with digital productivity for ourselves and for our sales force. The digital channel reaches customers that we believe we have not historically been serving well. They are not only finding us and buying our existing offerings, but they're also engaging on some of our more forward-looking offerings like Fusion 360. That channel is going to continue to become more powerful. As we look out to our long-term goal of half of our revenue being direct, half of that direct revenue is going to come from this digital channel. You can see from what we've disclosed and the growth rates here, there is line of sight to those numbers over multiple years. This channel is going to continue to help us reach deeper into the long tail. It will continue to benefit from the digital productivity tools we're building to make our overall sales force more productive. I have high hopes for that channel in the future. Now Debbie, did you want to add anything about, for instance, since I mentioned the Ukraine situation, anything around the specifics about our exposure there or anything related to that or anything about the digital channel?

Yes, sure. I'll cover Russia and the Ukraine. Just to be explicit, Russia and the Ukraine represented a bit less than 2 percentage points of our total revenue in fiscal '22. We have similar assumptions in our fiscal '23 roll-up. Obviously, events are unfolding live. It's a very fluid situation. It's a coincidence that our earnings call is today. We haven't baked anything, any potential risk that might occur there into our guidance. We're going to be watching things closely. We don't know if there's any impact at all. We don't know if there is impact if it would be localized to Russia and Ukraine specifically or if it becomes a broader impact across Europe and beyond. It's just too early for us to tell. Our business is more resilient now after the business model transition, so that's one positive in the midst of all this. But as you can imagine, it's obviously a situation that we're watching really closely, and we'll continue to update you as we know more.

The net headline is, Jay, we've assumed that things are going to continue as they are—current course and speed. There's no accelerations, no anticipated uplift or anything that we were looking for in the coming guidance or moving forward guidance.

Maybe just on the new product subscription growth in the quarter. Last quarter, you talked about that moderating to the mid-20s after kind of being in the 30% range in the first half of the year. I guess, how did that play out in Q4? And I'm assuming, based on your prior comments, Andrew, that whatever you saw in the back half of the year, you're assuming that going forward. But I'd love to hear a little bit more color, if you can, about how that played out in Q4?

I'm going to let Debbie take that question, Adam.

Yes, sure. I've been talking quite a bit about new volume, and it is a metric that we monitor very closely. Our new volume growth decelerated a few points in Q4. That's because of a tough comp versus Q4 last year, but the growth was very healthy and it was in line with our expectations. That growth is effectively what we're considering as we build our guidance into next year and to just reiterate what Andrew has been saying, we're assuming that the demand environment, including that new volume growth, is built into our guidance, and that there are no changes to the upside or downside as we look ahead. The bottom line answer is that the volume growth decelerated a few points, but it was as we expected and still with very healthy growth.

Great. That's really helpful. And maybe just as a quick follow-up. It's great to see the growing traction with Autodesk Construction Cloud. As you look forward a few years, maybe for you, Andrew, how expansive do you view the ACC opportunity relative to the current portfolio? Do you have any interest at all to go deeper into the financial aspects?

Yes, certainly, at some point. But look, I've always said that we believe the construction business is Autodesk's next billion-dollar business. I'd like to add for those of you who are looking at these things; you're probably using make revenue growth as a proxy for what we're doing. I want to ensure that you remember that since we have a diversity of business models, we offer consumption models, account-based models, and subscription models, blending the actual ACC business between our design bucket and our make bucket. If you account for EBA impact on the make side of the business, the make side of the business grew about 30%. We're looking at good robust growth here. I expect that growth to continue, and I continue to say that construction is Autodesk's next billion-dollar business, and that should be the expectation in our group.

Andrew, obviously, it's great to hear the results on the Construction Cloud side. I'm wondering on the manufacturing side of your business—maybe using a baseball analogy, where do you think we are at in sort of the build-out of the manufacturing cloud business relative to maybe where you wanted to get to at some point?

Yes, it's a great question, Matt, because we're in this transitional phase now. We've built out the technology, we've gotten to the early adopter audiences, and we've established a strong base for the product—a strong early market for Fusion. You heard in the opening commentary about the 189,000-plus subscribers. We're now moving into the phase of trying to drive the acceleration of the growth in that space. I think we're early on; it's probably the third inning-ish in this game. We're starting off on a good base—the threshold we have with subscribers is, for those of you who know the history of this space, an excellent threshold to build on. That's usually where you start to cross the threshold of getting more and more material to the business. We've had a leadership transition recently with Scott Reese taking a great job off to work for GE, one of our customers, by the way, which is always good—I'm really happy for him. Jeff Kinder is stepping in as part of the succession planning process there. Jeff Kinder cares a lot about scaling and scaling growth and scaling transformation. I think his skill set is going to provide some excellent capabilities in this next phase, but it's still really early. It's still third inning-ish in this game, and I think we should expect that to look like that. But over the next five years, again, this is going to be a significant driver of the growth we've been talking about beyond fiscal '24.

That's great. And then maybe just as a quick follow-up. I think it was about a year ago when some of the supply chain questions first started coming up. We talked to a number of your partners who suggested that people were using Autodesk as a way to reduce waste and become more efficient with tight supply markets. As you reflect back on the last year, do you think that actually played out? Do you think that remains a critical driver, especially in the world of supply chain or just broad ESG concerns?

Yes, absolutely. This is only going to become more important. We have compelling stories of old line industrial companies using Fusion 360, for example, at its generative capability to lighten and take out mass from products and reduce their material usage for things as simple as hydraulic equipment. Real-world examples demonstrate that we're seeing more and more of that. With regards to construction, every redo that you eliminate is a waste reduction in carbon footprint for that project. More and more, it's not becoming a choice for construction firms; it's becoming a requirement. There are more mandates about what the carbon footprint of a project has to be, both this embedded carbon footprint and its lifetime carbon footprint. This capability to reduce energy, select the right materials, and minimize the amount of materials used is going to become a critical differentiator for many. It's exciting to see some companies adopting our newest technology simply because it helps them address that key challenge to be more sustainable and greener.

First question was just more of a fact check on my part. I'm wondering if the only change in the formal guidance you're providing today versus the preliminary view you provided last quarter, the only difference is just the strengthening in the dollar and the incremental FX headwind— is that correct?

That's correct. The overall headline is that the numbers are consistent with what we talked about last call. We've adjusted them for our latest FX assumptions, causing about a one-point headwind to revenue growth and about $30 million in incremental headwind to free cash flow. That has been baked into the guidance.

Okay. And then second question, Andrew, I know you've said that AutoCAD maybe isn't the leading indicator that it once was, but nevertheless, it did accelerate pretty nicely here at year-end. It might have been your fastest-growing business if you've removed the upfront contribution from Media, so I'm just wondering if there's anything to kind of read between the lines there?

I think it's commensurate with an increase in monthly active usage, which I still think is becoming a better proxy. Our total monthly active usage of all our products increased over 10% in Q4 year-over-year. Those two things correlate closely. I think that the AutoCAD performance is a result of that strong monthly active usage performance that we're starting to see heading into the fiscal year.

I was wondering about your—in Q4, the kind of the elimination toning down of the multiyear discounts. What was the reaction to that? How do you gauge what that will look like going forward? And for housekeeping, I missed the comment at the very start of the call about what drove—the other line did very well. I think there was some upfront revenue there. Could you just provide me that color again?

Thanks, Steve. Lots to unpack there, but let's start at the top on multiyear. Yes, we did see a discount change from 10% to 5% in the past quarter. When we adjust pricing, we see some customers take advantage of the window and buy ahead of that when the price change goes into effect. We saw a similar behavior with this price adjustment, and that's as expected. We're always going to look for ways to optimize our business. This is just one example of that. The multiyear renewal rates remained firm even after that discount reduction. Regarding other revenue, yes. Other revenue tends to be a mixed bag, but it's partly what drove the beat in our Q4 revenue. A piece of that—the big piece of that is non-cloud-enabled products that we sell through our EBAs recognized upfront. We typically see our highest EBA volume in Q4, and depending on the composition of those deals, this can sometimes drive a slight surge in upfront revenue and that’s what we saw in Q4 in the beat in other. We expect, however, that upfront and other will be a relatively small part of our business over time and that recurring revenue should be 95% or greater.

Debbie, I want to circle back to cash flow. You mentioned that there are constraints from customers and partners on shifting to annual billings. Can you give us maybe a quick example of what some of those constraints might be? And why you might not just be able to rip off the Band-Aid and move quicker to annual billings now?

Yes. As I mentioned back at Investor Day, the first part is operational. We are upgrading our systems to handle the volume of multiyear contracts with annual billings at scale. Our systems do not currently support that capability today, and it's a major overhaul that we're working on and it's going to take time. We're looking at how fast we can create that capability and over what time period. Our bias is to execute on this transition right away when we get to fiscal '24, but it is going to take continued investment. The second piece that we talked about at Investor Day that remains important to us is that our partners are very important to Autodesk, very important to our growth, and engaging with customers. We want to ensure that we work with them as we execute this transition to optimize for us, for our customers, and for our partners. We're going to be looking at the programmatic details of that over the next year.

Understood. Makes sense. And then maybe one follow-up. Outside of the $30 million FX headwind on free cash flow for fiscal '23, how else would we think about the bridge from the guidance that you've given to the previous long-term target?

Sure. The previous long-term target was $2.4 billion. On the last call, we talked about a couple hundred million in risk to that—broken down roughly equally between the macro backdrop and FX. We now have an incremental $30 million in FX due to the continued strengthening of the dollar over the last 90 days. Net-net, it's about $100 million in macro or business risk, again highlighted on the last call, and a total of $130 million risk from FX, hence the midpoint of the guide at $2.17 billion.

Maybe just a couple for Andrew. I want to go a little deeper on the architecture side of your business, and this is obviously your bread and butter. How would you describe the end market environment right now for that segment? What kind of growth initiatives should we be thinking of for this year and long term?

Yes. Architecture is coming out of this situation with the pandemic. The index that drives our architecture activity is going up consistently. Architects are feeling better about the future, and they are investing more in BIM. This is a critical part of their transition from 2D practices to 3D-based practices. That trend will continue as part of the bigger long-term digitization trend we're seeing in architecture. More and more people are moving to 3D processes, looking to adopt tools like Revit more aggressively to stay competitive in the new market. Also, there is increased labor productivity for them. They are looking at new tools that allow them to do more with the labor pool they have, especially in this tight labor market. That ongoing digitization to BIM is going to accelerate as architects become more optimistic about their project pipeline.

And when I think about the architecture job, is it unfair to think that maybe that role has been hit harder than some of the other jobs within AEC?

It certainly was hit harder early on. There's no doubt about it. It was the least prepared for remote work because it was essentially an office-type profession. It has adapted and adopted cloud-based tools at a significantly higher rate than prior to the pandemic. They're getting onto BIM Collaborate and BIM Collaborate Pro. Yes, early on in this, the pandemic and in the last few years, they were hit relatively harder. But they're coming back, adapting, and still building up their book of business, their cushion, but that segment is absolutely coming back and it's coming back in the cloud too.

Thanks, everyone, for coming along. If you have any further questions, please do get in touch with me. Otherwise, we'll look forward to updating you on our Q1 results call. Thanks so much.