Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Autodesk Inc (ADSK, Financial) reported a strong Q2 with 13% revenue growth in constant currency.
- The company raised its full-year guidance, reflecting sustained business momentum.
- Investments in cloud platform and AI are ahead of peers, providing valuable and connected solutions.
- The new transaction model is expected to increase sales and marketing efficiency.
- Autodesk Inc (ADSK) is seeing significant benefits from its go-to-market initiatives, supporting growth and margin improvement.
Negative Points
- The Hollywood strike negatively impacted the media and entertainment segment.
- Softness in new business in China and Korea was observed.
- The transition to the new transaction model creates short-term noise in billings and the P&L.
- The new transaction model rollout in Western Europe and Japan adds complexity due to different currencies and regulatory laws.
- There are macroeconomic and geopolitical challenges that could impact future growth.
Q & A Highlights
Q: Andrew, since you last reported, Starboard Value has issued a couple of letters and a slide deck. Do you have any high-level thoughts to share with us?
A: We listen to all our investors, including Starboard, and agree there's more shareholder value to be created. Despite macro impacts and one-off events, our results show strong performance. We've transitioned from multi-year contracts billed upfront to annual billing, which will smooth revenue over time. Our new transaction model aims to improve sales and marketing efficiency, and we're on track to achieve our non-GAAP targets a year ahead of schedule.
Q: Could you talk about the overall construction backdrop and how you feel about Autodesk Construction Cloud (ACC) competitively?
A: We're maintaining momentum in a competitive environment due to a large construction backlog and our strong value proposition. Customers appreciate our design-to-construction solutions and flexible business models. We're seeing growth in the mid-market in the US and strong international growth, which will continue to benefit our construction business.
Q: How do you see the role of your inside and other direct sales capacities versus that of the channel under the new transaction model?
A: The new transaction model allows us to drive efficiencies and productivity in sales and marketing. This will help us achieve margin growth over the next few years. The division of labor between our direct sales and channel partners will be optimized to enhance these efficiencies.
Q: Can you discuss the impact of billings co-terming on your business?
A: Co-terming takes some billings out of the current renewal cycle but creates efficiency in our renewal process. It simplifies contract management, making it easier to handle renewals, cross-sell, and up-sell opportunities. This will drive efficiency both internally and externally.
Q: What gives you the confidence to accelerate the rollout of the new transaction model into Europe and Japan ahead of expectations?
A: We've successfully tested the model in Australia and completed the rollout in the US without major issues. We've learned from these experiences and are confident in our ability to handle the complexities of different currencies and regulatory environments in Europe and Japan.
Q: Are the AEC or manufacturing industries making any changes in their decision-making process ahead of the US elections?
A: The issues affecting our customers, such as infrastructure and manufacturing, are bipartisan. We don't see significant impact from the elections on our customers' decision-making processes.
Q: Did you do anything internally to drive leverage or sources of leverage in the quarter?
A: We saw underlying improvement in margins, which was intentional to offset headwinds from transitions. This was part of our ongoing efforts to drive efficiency and productivity.
Q: Can you talk about the pricing environment and how the new transaction model might impact discounting behavior?
A: The new transaction model benefits our partners by preventing less competent partners from undermining them on price. For us, it's about driving efficiencies and reducing costs. The model enhances strategic relationships with customers and allows partners to sell based on the value they deliver.
Q: Can you unpack the new business trends and how the outlook is changing?
A: We're seeing consistent trends with previous quarters, with some headwinds in new business. AEC and manufacturing continue to perform well, while media and entertainment are still affected by strikes. Geographically, China and Korea were drags, but overall, our business remains resilient.
Q: Can you discuss the confidence behind the free cash flow target for next year and how much margin and cost optimizations are built into that number?
A: We're focused on managing the rollout of the new transaction model and expect a greater tailwind to revenue growth in fiscal '26. The free cash flow target of $2.05 billion at the midpoint is based on the renewal of our largest multi-year cohort, a large EBA cohort, and the transition to annual billing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
