Autodesk, Inc. (ADSK) Q3 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Q3 Fiscal Year 2021 Autodesk Earnings Conference Call. At this time, all participants’ lines are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Simon Mays-Smith, Vice President of Investor Relations. Thank you. Please go ahead, sir.

Thanks, Operator, and good afternoon. Thank you for joining our conference call to discuss the results of our third quarter of fiscal year ‘21. 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 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. And now, I will turn the call over to Andrew.

Thank you, Simon, and welcome everyone to the call. First off, I hope you and your families are remaining safe and healthy. Before jumping into our third quarter results, I would like to thank again our employees and the families and communities that support them, as well as our partners and customers, for their sustained commitment during uncertain times. That commitment was reflected in our execution, and demonstrated the resilience of our business model this past quarter. Together, they enabled us to deliver strong Q3 results - with billings, revenue, earnings and free cash flow coming in above expectations, despite the volatile macro-economic conditions resulting from the pandemic. I am pleased to see the acceleration of our SaaS business model, the secular shift to the cloud underpinning it and the competitive opportunities it brings. We have many miles of opportunity ahead of us. Our enterprise customers are undertaking their own digital transformation and by enabling that transformation, we are becoming a strategic partner rather than a software vendor. These strategic partnerships are broader than in the past, with our customers expanding their Autodesk product portfolios. Our third quarter results reflect this trend, as our enterprise deal activity with large customers accelerated. We closed some of the largest transactions in the company’s history, including a nine-digit deal. I am proud of our team’s execution, which positions us well entering the fourth quarter with a strong pipeline of deals. In the third quarter, we also saw the ebb and flow of the economic impact of the pandemic. As you know, our transition to the cloud means we are able to monitor the usage patterns of our products across the globe and see the positive correlation between increasing usage levels and new business growth in those regions. China, Korea, Japan, and most of Europe saw usage levels rise above pre-COVID levels. While usage trends in the U.S. and U.K. have not yet returned to pre-COVID levels, while they have stabilized in the U.S. and grown sequentially in the U.K. In line with the usage trends, our new business remains impacted by the pandemic, but the diversity of our revenue stream and customer base is helping us deliver strong results. And as you know, Scott has decided to take on the next challenge in his career by accepting the CFO role at Cisco, starting mid-December. Scott has played a huge role in driving the business over the last six years, helping Autodesk successfully navigate the business model transition. We are sad to see him leave, but we are also excited for him. Thank you, Scott, for your many contributions to Autodesk and I wish you continued success in the next chapter of your career. Scott is leaving behind a strong team to ensure smooth operations while we look for his replacement. We have started the search process, and it is my top priority in the near-term. Now, I’d like to turn it over to Scott to take you through the details of our quarterly performance, and guidance for the year. I will then come back to provide insights into our strategic growth drivers.

Thanks, Andrew. I am leaving Autodesk with mixed emotions, as I am excited about what lies ahead for me, but also sad about leaving my colleagues at Autodesk. The last six years have been the most fun and rewarding of my entire career, as we have transformed the company from a traditional license revenue model to a cloud-based recurring revenue model. That transition is now complete and I leave knowing Autodesk is well-positioned for the future with leading positions in attractive markets and accelerating momentum. Looking at the quarter’s results, several factors contributed to our outperformance across all key metrics, including, strong enterprise deal activity, healthy subscription renewal rates, digital sales, a sequential improvement in new business trends, and foreign exchange rates. Total revenue growth came in at 13% as reported, 14% in constant currency, with subscription plan revenue growing by 24% and operating margin expanding by 3 percentage points. We previously told you we extended payment terms for customers impacted by the pandemic. The normalization of payment terms, combined with improving business trends and strong cash collections in Q3, helped drive healthy free cash flow of $340 million. Current RPO, which reflects committed revenue for the next twelve months, was up 16%, a slight improvement on the rate of growth we saw in the second quarter. Total RPO was up 21%. We again benefited from the diversity of our customer base. Business softness in certain areas, like the U.S. and parts of Europe, was offset by strength in other areas. Digital sales continued to drive double-digit billings growth through our online channel, supported by accelerated growth in our cloud-based Fusion offerings. We are developing broader strategic relationships with our enterprise customers with multiyear commitments. As is typical for most enterprise agreements, the nine-digit deal Andrew mentioned is a three-year commitment billed annually and did not have a meaningful impact on our revenue or cash flow during the third quarter. The run-rate business with our partners also continued to perform well. While we are seeing the traction of our transition to the named user business model, it results in a subset of our customers optimizing their installed base by reducing the number of named user seats needed after they take advantage of our 2-for-1 trade-in program. I am pleased to report that these overall trends are in line with our expectations. As we have said in the past, in aggregate, the transition to the named user model is a revenue-neutral event for us, but enables us to offer more value to our customers, in a similar way as other SaaS providers. Our net revenue retention rate remained within the 100% to 110% range we laid out in our guidance. Our product subscription renewal rates remained strong, reinforcing the critical nature of our products to our customers. As in the prior quarter, approximately 40% of the maintenance customers who came up for renewal converted to subscriptions. Our maintenance renewal rate declined sequentially, which was expected as we are nearing the end of our maintenance program. Industry collections remained a stable share of our total business in Q3. As anticipated, multiyear payments were down year-over-year, but we saw modest sequential improvement in the share of multiyear payments across each geography as customers continue to make long-term investments in our products. And finally, during the third quarter we spent $196 million to buy back 800,000 shares at an average price of approximately $231 per share. Year-to-date, we have repurchased 2.12 million shares at an average price of approximately $186 per share, for a total spend of $393 million. Now let me turn to our guidance. We are raising the low end of our full-year revenue guidance to a range of $3.750 billion to $3.765 billion, bringing the mid-point growth rate up to 15% year-over-year. We are also raising our non-GAAP operating margin outlook to the upper end of our prior range, a 4-point improvement from last year. Our fourth quarter performance will benefit from the strength in our third quarter results, but the business environment remains uncertain given the current wave of COVID cases. We expect product subscription renewal rates to continue to be very healthy. Churn on our maintenance offering will likely accelerate as we enter the final stages of ending our maintenance offering. And we expect our net revenue retention rate to remain between 100% and 110% for the quarter. Our pipeline entering the fourth quarter is strong, but we have assumed that new business and multiyear contracts will continue to be under pressure. The narrowing of our billings and free cash flow outlook range is primarily driven by moderating assumptions around multiyear and the uncertainty presented by the current environment. It’s the testament to the strategic value of our products to our customers, and the resiliency of our model, that we are still expecting to report 15% revenue growth despite the current economic headwinds. Looking out to our fiscal year 2022, we expect an improving macro-economic environment as we exit this year will result in accelerating growth in new business over the course of fiscal ‘22. Given our subscription model, revenue growth will lag the improving sales environment. As we have said in the past, the path to fiscal ‘23 will not be linear. We expect our fiscal ‘22 revenue growth to be low- to-mid-teens and free cash flow growth to re-accelerate to approximately 20%. We are confident in our fiscal ‘23 free cash flow target of $2.4 billion, as we will benefit from improving business momentum in fiscal ‘22 that will provide a tailwind to our revenue and free cash flow growth. In fiscal ‘23, we will also benefit from the renewals of our fiscal ‘20 transactions when we restarted multiyear payments for a part of our business. Beyond fiscal ‘23, our continued investment in cloud products and a subscription business model, backed by a strong balance sheet, give us a robust foundation and platform for double-digit growth. And now, I’d like to turn it back to Andrew.

Thank you, Scott. Our strong performance in Q3 once again demonstrates the advantages of our diverse customer base, resiliency of our employees, the power of our SaaS offerings, and the strength of our business model. At Autodesk University last week, we hosted approximately 100,000 customers and partners, and made a series of product and partnership announcements as well as our acquisition of Spacemaker, which closed yesterday and offers industry leading functionality to architects. Spacemaker will enable us to support Design professionals much earlier in their workflow, by harnessing AI to rapidly create and evaluate options for a building or urban development. Through automated data capture, smart design, decision support, and collaboration functionality, Spacemaker enables users to quickly generate, optimize and iterate on design. It also offers a fundamental shift in how we imagine and build cities in the future, and the time needed to evaluate various possible options. I encourage you to check out the demo from last week that is available on our website. We also announced the Autodesk Construction Cloud platform, which unifies our AEC cloud offerings and the data held within them, to enable a connected project ecosystem across design and construction. Underpinning the Autodesk Construction Cloud is our common data environment, Autodesk Docs. This provides seamless navigation, integrated workflows and project controls, and enables a single source of truth across the project lifecycle. Autodesk Build, Quantify, and BIM Collaborate bring together the best of PlanGrid and BIM 360, with new functionality to create a comprehensive field construction and project management solution. For our design customers, BIM Collaborate Pro extends the capabilities of BIM 360 Design on the new platform to create a more seamless exchange of project data between design and construction. During the quarter, Morgan Sindall, a leading construction group in the U.K., committed to Autodesk as their strategic platform partner. As Lee Ramsey, Morgan Sindall’s Digital Design Director, said, quote, as I researched all the marketplace solutions, Autodesk stood out to me. Autodesk Construction Cloud provides greater integration between different roles and functions, allowing data to be shared across projects, silos to be broken, and a vast amount of efficiency to be gained, end quote. The breadth of our AEC business has underpinned its resilient performance, and enabled it to be a net beneficiary from secular and cyclical trends. Despite many construction projects being interrupted, delayed, or navigating new ways of working because of the pandemic, we are still seeing year-on-year growth across all our construction offerings. Our cloud-based products enable our customers to navigate the cycle today, and to be more efficient and sustainable for tomorrow. Our office-based solutions continued to do well while our field-based solutions improved sequentially, boosted by several competitive wins. Customers continue to choose PlanGrid to digitize their processes because it is easy to use and they only pay for what they need. This quarter, our BIM 360 products set records for both worldwide weekly average users and projects. We also continue to see adoption with our larger customers and within the infrastructure industry. During the quarter, one of the world’s leading professional services firms which serves clients in the infrastructure and building sectors increased its investment with Autodesk. We have been partnering together for over 15 years and the renewal of our enterprise business agreement enables this firm to expand its use of BIM 360 and PlanGrid in order to adapt faster to industry changes and create new markets for its services. In another instance, Japan’s largest home builder, Daiwa House Industry Co, Ltd., renewed its enterprise business agreement with us. The company is making key investments in BIM, and has selected Autodesk to be its strategic innovation partner to achieve its goals for digital transformation, design for manufacturing, and industrialized construction. The company is adopting BIM at all levels of the organization, and has made a commitment to adopt additional Autodesk products, including BIM 360 Docs and Design, and PlanGrid. We are thrilled to be working with Daiwa House at the forefront of industrialized construction. Our cloud-based platform is also propelling growth in Manufacturing by enabling the convergence of Design and Make. On the commercial side, our market-leading cloud-based platform, Fusion 360, enjoyed another quarter of accelerating subscriptions, growing scale of deployments, and adding competitive displacements, to end the quarter with over 120,000 subscriptions. At AU, we introduced several extensions to Fusion 360 that further encourage adoption and usage of the platform by adding specialist functionality. As a reminder, extensions offer expanded tools and functionality that can be added on demand to the core Fusion 360 offering. This kind of functional flexibility and cost effectiveness enhances the value of our platform for designers, engineers and manufacturers. We also announced exciting partnerships with Sandvik Coromant and Rockwell Automation. With Sandvik Coromant, a metal cutting tools and services company, we took the first steps to realize a shared, long-term vision of accelerating the automation of manufacturing processes by making tool data and manufacturing recommendations available to users of Fusion 360. With Rockwell Automation, a provider of industrial automation and information technology, we combined factory layout capabilities available in our industry collection with their factory simulation tools. Together, these solutions will help our mutual customers digitally design and commission factories in less time and with greater efficiency. This quarter we also announced the acquisition of CAMplete, a leading provider of post-processing and machine simulation solutions. CAMplete bridges the gap between CAM programming and shop floor machine tool operation. It allows manufacturers to digitally simulate and verify the machine code that drives their production equipment before running it on the shop floor. This will enable our customers to identify potential problems, in a digital environment, at the programming phase that could otherwise scrap work or damage machine tools in production. During the quarter, a large multinational defense, security and aerospace company with an extensive global supply chain chose to increase its investment with Autodesk through an enterprise business agreement. To stay at the forefront of its industry, the company is using innovative manufacturing methods to save time and money and has set a target to 3D print approximately one third of the components in its new jet. As it radically changes the way it designs and builds, the company has selected Autodesk as a key strategic partner. The adoption of our products is also driving change throughout its supply chain, which must adopt new ways of working. With Fusion 360, it now has access to our advanced manufacturing solutions to help it realize its business goals. In education, we continue to expand our footprint. Tinkercad, our fully browser-based product development platform for aspiring designers, now has over 30 million users worldwide. Fusion 360 on Chromebooks is experiencing rapid adoption at high schools and universities and is replacing entry-level, browser-based CAD/CAM with professional-grade, career-accelerating Fusion 360. For instance, the University of Illinois at Urbana-Champaign has now switched to Fusion 360 across multiple departments, including biomedical engineering, systems engineering and mechanical engineering. We are seeing early adoption of our Premium plan, with customers taking advantage of the enhanced subscription offering at renewal. Many of our multi-user customers who are transitioning to the named user model are finding great value in the Premium plan, due to its advanced user analytics, single sign-on capabilities, and enhanced support. For example, Scheuch, a leader in the field of innovative air and environment technology, decided to commit to a long-term investment in Premium this quarter, primarily due to the SSO and user management capabilities. They see Autodesk as a strategic partner as it continues to harmonize its global IT infrastructure. Let me finish by updating you on our progress monetizing non-compliant users. We continue to be sensitive to the short-term economic pressure faced by our customers, but remain optimistic about the long-term opportunity as we demonstrate the value of our cloud-based platform to our customers. For example, in China, a customer which left us to try a lower cost competitor quickly returned due to AutoCAD’s superior functionality and invested further in Autodesk by purchasing collections for the first time to focus on growth. Our efforts to educate our customers about the benefits of staying compliant with our subscriptions are yielding results, as we are able to convert them to paying users in a customer friendly manner. During the quarter, we closed eight deals over $500,000 with our license compliance team. In closing, we continue to build a stronger Autodesk for the long-term. Our early and sustained organic and strategic investment in critical capabilities like cloud computing and cloud-based collaboration, combined with a successful transition to a SaaS business model, give us significant competitive advantages and confidence to grow in the double-digit range in the foreseeable future and we have multiple drivers that make us confident in our fiscal ‘23 free cash flow target of $2.4 billion. With that, Operator, we would now like to open the call up for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Saket Kalia from Barclays Capital. Your line is now open.

Okay. Great. Hey, guys. Thanks for taking my questions here, and Scott, congratulations on the next step. You will certainly be missed.

Thanks, Saket.

Hey, Andrew, maybe first for you, a lot to talk about, but one of the questions that I feel like we got a little bit, especially during the months of October and November, were what potentially higher infrastructure spending spurred by the government could mean for Autodesk? And of course, we don’t know what that looks like yet or frankly even if it will happen, but I was wondering some of what you Autodesk maybe saw during the 2009 Recovery and Reinvestment Act as perhaps a frame of reference. Does that make sense?

Yeah. Saket, that makes sense. First off, let me start the question by being super clear. We don’t have any kind of projections around stimulus or the impact of stimulus on our business in any of our models, right? That stuff that we leave out because one does not want to leave themselves exposed to the vagaries of government. However, if we go back to ‘08 and ‘09, and I think, it’s important to remember this, one of the narratives about Autodesk in ‘08 and ‘09 is, oh, Autodesk is so exposed to the housing market. Oh, my gosh. And the reality was that Autodesk revenue recovered well, significantly faster than the housing market did and that was because of the distributed nature of our work and our customer base and the projects and the sectors that we cover. Infrastructure spending and stimulus spending back then absolutely helped because it created a pipeline of projects that were new, but we were already recovering before some of the stimulus showed up and I think it’s important to recognize that. If you look at what the impact might be if we actually see some of this show up and we actually see some important stimulus, obviously it’s going to increase the project pipelines of our customers and that’s always good for us. And it could see more adoption of our portfolio. It could be really good for the construction portfolio. But again, Saket, I want to make it super clear, we don’t model that kind of stuff in our outlook and we are not expecting it to hit our numbers.

Yeah. Saket, the only other comment that I’d add on top of that is, let’s say, an infrastructure bill does get passed. It will take some time for that bill to turn into real projects and for those projects to get put out to bid and for that then to downstream start to drive our business. So even if that were to happen, let’s say, early in the new administration, I wouldn’t expect it to of have a material impact on fiscal ‘22 anyway.

Got it. That’s super helpful. Scott, maybe for my follow-up for you. Thanks for the early fiscal ‘22 guide. That’s very helpful. I guess with 20% free cash flow growth next year and that target of $2.4 billion fiscal ‘23, it looks like that acceleration of free cash flow that we are seeing here in fiscal ‘21 is -- actually, in fiscal ‘21 and ‘22 is going to continue into ‘23. Can you just talk a little about some of the drivers that might contribute to that? You touched on this a little in the prepared comments, so I am just wondering wonder if you could double click on it once more?

Yeah. Sure, Saket. And by the way, you were one of the ones that got it right, actually, as I recall looking at your preview note for what to expect on fiscal ‘22. And as you know, we have been running multiple scenarios. I have been probably run driving my team crazy, running scenarios over the last nine months and in each case we run it not just for the impact of this fiscal year and next fiscal year out through fiscal ‘23 to even fiscal ‘25 and beyond. So to have a good sense of how the model responds to a variety of different scenarios, that’s part of what underpins our confidence in fiscal ‘23. But if you step back and say, what are the drivers behind that and I will start with the biggest driver. You have seen our renewal rates stay steady through this process and in fact even modestly we saw sequential increase in renewal rates, but given the size of our renewal base, that’s a big driver longer term. And we talked about the net revenue retention rate kind of staying in that 100% to 110% range even during the pandemic. So you take a big renewal base with a high renewal rate and 100% to 110% net revenue retention rate that drives a lot of growth. Add to that what we are seeing in cloud and the cloud products acceleration overall, we still have a pretty significant opportunity to convert nonpaying users of out in front of us and we built the leading portfolio, product portfolio in construction. So there is a -- and we have talked about again today about the success of our manufacturing business and where we are headed there and some of the traction we are beginning to get with Fusion 360 and the way we are monetizing that with some of the extension. So there’s a lot behind that. That’s what drives our confidence not just in this year and some of the early view I gave you of fiscal ‘22 but then how that ramps up out through fiscal ‘23. I think there’s two other quick things I’d like to add to that. We do -- we are seeing a modest improvement in economic activity right now that Andrew talked about. Certain countries are back to pre-COVID levels, but it’s not consistent. Our expectation is that we will see continued economic improvement through next year but that that will -- I doubt it’s going to be a straight line. I think that will be more pronounced in the second half of next year, which means the year will be a bit more back-end loaded. And that linearity affects not just revenue. It also affects when we collect cash. a lot of the sales of that momentum in the second half of the year will turn into fiscal ‘23 free cash flow. And then one other item that I want to get on the call so that you can build it into your model, we do see a cash tax impact year-on-year this year to next year of about $50 million to $60 million as our profitability has improved fairly significantly. So you add all those together, that’s what underpin our confidence, the early view of fiscal ‘22 cash flow and our confidence in $22.4 billion in fiscal ‘23.

Got it. That’s very helpful. Thanks, guys.

Thanks, Saket.

Thank you. Our next question comes from Matt Hedberg from RBC Capital Markets. Your line is now open.

Hey. Great, guys. Thanks for taking my questions and congrats on these numbers in a really difficult situation. I will also offer my congrats to Scott. It’s been great working with you, obviously, we will miss you at Autodesk, but congrats and best of luck. Andrew, I wanted to ask you about the nine-figure three-year renewal deal. That is super exciting. I guess I am wondering can you give us a bit of history on how that customer has grown to this level. And then maybe the opportunity for other enterprise deals of this caliber, given your sort of extended platform these days?

Yeah. So we actually broke records a couple of times during this quarter, so these deals are becoming more the norm than not in our quarters. And I want to tell you what essentially underpins all of these and I think it’s important and it’s the same dynamic in all of them. Our customers look three years out. They look at what they are trying to do internally, transformationally, with digital transformation or with the transition to BIM or with the transition to the cloud with Fusion and other things associated with that. And they ask themselves, okay, what are they going to need in an EBA in order to drive and maintain that expansion without coming back and renegotiating the contract with us again. That’s what’s powering this. A strategic discussion about what are the long-term adoption requirements of these customers. So for instance, a customer might see themselves expanding more into industrialized construction and applying both Inventor and Revit more broadly in their process, and they want to make sure they plan for that or they are going to expansion of Construction Cloud deeper into their processes. So they are planning for that. They are saying, well, I am using this much Construction Cloud this year. I am going to use this much next year, the year after that, the year after that. So this is what is driving these kinds of deals, this discussion about the three-year expansion of usage of our portfolio in these accounts and it’s not just usage across users, it’s usage across breadth of portfolio. Otherwise, you couldn’t see deals of this size coming through. That’s the dynamic that plays out in almost all of these deals that we are seeing. Make sense, Matt?

Got it. Yeah. No. That’s super helpful. And then maybe just a double click on the SaaS side. I mean, Andrew, you talk to executives every day, and I guess, I think, we are all excited about the prospects of the vaccine. On those conversations, though, in a post-COVID world, I mean, do you get a sense that you have obviously had a lot of success with 360 SaaS today, but you think we could see even a bit of a slingshot effect as part of these larger deals, as customers really, effectively raise to embrace SaaS potentially for the next pandemic at some point?

Yeah. I actually think, it has -- it even goes beyond pandemic. It’s like once you have got a taste of it, you want more of it. It’s what’s going on too, okay? Because remember some of these customers, they were not broadly deploying our SaaS solutions prior to pandemic and what they are seeing now is you know what, this stuff is important, I need to get on it and I need to prepare for the future and this is how I am going to drive my digitization. So we are absolutely going to see continued growth in these SaaS platforms. It’s interesting that you mentioned the vaccine and things like that, because what we are seeing when we talk to executives right now is, everybody doesn’t see a change in the timeline of how this pandemic is going to play out. But all of us, what we are seeing is increasing reductions in uncertainty. It starts with vaccine conversations and then more than one vaccine and then it goes into, hey, the U.S. election is getting less uncertain, who is going to be the president is less uncertain. So this is progressive building of uncertainty being removed and customers are getting more and more comfortable about looking at their second half investment scenarios for next year and SaaS is in every one of those conversations, okay? And I think as long as we continue on this trajectory of uncertainty being removed, you are going to see people being increasingly comfortable with how they feel about the second half of next year.

Super helpful. Thanks, guys.

Thanks for the question, Matt.

Thank you. Our next question comes from the line of Philip Winslow from Wells Fargo. Your line is now open.

Hey, guys. Thanks for taking my question and congrats on this great quarter. And Scott, obviously it’s been a great pleasure working with you, not just at Autodesk, but going back to. We will definitely miss you my friend.

Thanks, Phil.

The -- I got a question for you in terms of your the AEC portfolio, obviously, very diversified in terms of the sort of the stages of call it a building from design, planning, actual construction. And so I guess, sort of a two part question here, what are you seeing in sort of that portfolio right now and into Q4, then we are thinking about next fiscal year. How are you spending sort of the ebbs and flows of that portfolio to play out?

Yeah. Actually, Phil, you are pushing on an important competitive differentiator for us. The breadth of capability we have across the entire AEC cycle and the way we are integrating that information in the cloud is fairly unique, right? And what we are seeing and this is something that I think you will see progressively, again and again. Right now a lot of people are talking about digital twins and that’s a vocabulary that’s out there, obviously, we haven’t used that vocabulary very often. But what’s going on right now is BIM. 3D BIM is the original digital twin, right? And this whole discussion around digital twins and AEC and things associated with it is accelerating the dialogue around if I want to do digital twins, I have got to do BIM, because there’s no digital twin without a Building Information Model. And you are going to see a continuing ongoing acceleration of the usage of BIM up front in our portfolio. But then what we have layered on top of it is a couple of critical things that make the entire portfolio more valuable. You may have noticed we emphasized this notion in the new Construction Cloud platform around a common data environment and all the things that go along with that common data environment. That common data environment is not just SaaS based. It’s also ultimately going to be ISO compliant and it’s going to allow us to move that building information data all the way through the entire process. So you are going to see more and more adoption of what’s in Autodesk Build, all the way through from the preconstruction planning cycle to the construction site and that’s a pretty powerful differentiator for us. But the one last thing I want to mention to you, and we talked about this at AU and I want to make sure you paid attention to it, was the rollout of Tandem, Autodesk Tandem. And what was Tandem? So Tandem is, if digital twins start with BIM, Tandem is a way to bring BIM data together from multiple places. From our BIM models or our BIM information, from other third parties that are building controller information perhaps, from other BIM based data from other types of applications and bring it into a single aggregated view in the cloud that updates dynamically as the building project progresses. This puts us at the forefront of bringing the power of BIM to create digital twins to the ability to create digital twins in the cloud that actually represents the final state of the project no matter where all that project data comes from. So we are pretty excited about this progression and what it means for the company and I think you are going to see a lot of interest and uptake in the approach we are taking.

That’s awesome. That’s super exciting and an equally as exciting question for Scott, long-term deferred revenue. The -- how are you thinking about that next year, obviously, the guidance for this year is hanging out at the mid-20s? But how are you sort of modeling that when you are thinking about that cash flow for next year and the year after that?

Yeah. I think for next year it stays in that range, Phil. I don’t want to get into too much forecasting of fiscal ‘22 until we get to the Q4 earnings call and obviously we can give you more detail at that point. But what we are seeing this year is kind of moderating assumptions around multiyear, and of course that’s what drives a lot of that long-term deferred. And so you see the sequential trends there are long-term. It hasn’t fallen off the floor. It hasn’t fallen off the desk and onto the floor. The multiyear rates are still there. But they are not as robust as we had seen historically in maintenance. I think ultimately it returns to that level. But frankly I don’t think the moderating multiyear that we see this year, there’s a big negative in the sense that given the strength of our renewal rates we will continue to get that, collect that cash. We will just collect it in the subsequent two years instead of collecting all three years upfront and we will collect it without the 10% discount that we put in as an incentive for those multiyear transactions. So think of it settling in where it is for the foreseeable future. Ultimately, I think there’s a little room for it to run.

Awesome. Thanks, guys, and congrats again on a great quarter.

Thanks, Phil.

Thanks.

Thank you. Our next question comes from the line of Heather Bellini from Goldman Sachs. Your line is now open.

Great. Thank you so much, and Scott, I will echo my congratulations and to you as well, Andrew, for the company’s execution in this challenging macro environment. I wanted to ask two questions. One, if you could share with us kind of, I mean, the competitive positioning in construction, given your pricing model and how you might see some of the competitors responding? So if you could spend some time on that, maybe a little bit more on the differentiation if that’s gotten even wider over the course of the pandemic? And then also, if I look at your growth in Asia-Pac, you can see that was the best region in terms of growth. How far behind do you think the Americas is from the recovery and the solid growth that you are seeing in APAC? Thank you so much.

All right. So let me start with the competitive positioning on the construction. You are absolutely right, Heather, that the pandemic actually gave us an opportunity to lap our competition a bit. The slowdown definitely took the wind out of certain parts of the market. However, we didn’t slow down, we continued to invest and we put quite a bit of money into rolling out the unified platform. So what you see with Autodesk Build, which is what we are going to lead with in every new deal, we are leading with Autodesk Build over and over again, and we are going to lead internationally and we are going to lead in the U.S. with this, is a comprehensive project management and field management application that goes from design all the way through to site management, site execution and layers on the analytics associated with Construction IQ and some of the predictive skills, all built on top of Autodesk Docs. So this is a pretty significant change. That platform is highly competitive. As a matter of fact, it’s differentiated in numerous ways because of its end-to-end capabilities. In terms of pricing models, here’s what’s unique about us, Heather, and I think, it’s very important to remember this. No one in the industry is more flexible with the way we deliver these applications than Autodesk. So if you want to buy named users and deploy named users, we have got named users for you. That’s our primarily deployment model for most of our applications. If you want to pay based on project turnover, you can do that. If you want to play based on usage and consumption, you can do that. This flexibility is heavily coveted by our customers, and in fact, I think, this flexibility has been part and parcel of what’s allowed us to continue to expand the usage of the Construction Cloud even during what’s happened over the last year. So I think technologically we are now competitively differentiated, because we took the pandemic as a time to double down on the platform unification and get it out there and business model-wise we are differentiated. So we are feeling in a pretty strong competitive position as we head into the recovery next year across all the various markets. We love that we have tough competition in this space. We think it’s good for us. We think it’s good for our customers. But we are feeling really good about where we are at. Now, with regard to the Americas versus APAC, right, here’s what I will say. Usage ramped up fairly quickly in Asia-Pacific and like we say earlier, it’s definitely above pre-COVID levels in a lot of places, not everywhere but in a lot of places. The U.S. in particular just seemed to have stalled, all right. Usage hasn’t fallen back. It’s ramped up a little bit as time goes on. But it’s not seeing this kind of surge. I think we should just kind of hold tight for a little while and see what the levering out of the uncertainty does right now for the usage in the U.S., all right. Between the election results, between the good news about vaccines, between the potential that people see about stimulus in their project pipeline. I think we might start to see a change. So it will be interesting what we can talk about on the next earnings call. But I think the unwinding of uncertainty matters a lot in our markets.

Thank you so much.

Thank you. Our next question comes from the line of Jay Vleeschhouwer from Griffin Securities. Your line is now open.

Thank you. Andrew, starting with the nine-figure deal and returning to that subject, it’s especially interesting when we consider that once upon a time $100,000 deal was a big deal for Autodesk, so you are obviously now many orders of magnitude beyond that. But the question is, to the extent that there are now as we understand additional eight-figure deals in the pipeline. How are you thinking about your license management and customer success requirements and capacities that you need to invest in and ramp up to support what is obviously going to be a larger propensity for these kinds of deployments? And then returning to AU for a moment, you made some interesting remarks last week, having to do with some additional new possible opportunities for the company in manufacturing software, supply chain, even smart products you alluded to. Maybe talk about how seriously you mean to pursue those new things? And then for Scott, first, thank you for the last 25 quarters, and as you are going away question or a multi-part question, Andrew, earlier parsed the usage data by Geo. Could you do the same thing by perhaps standalone versus collections and perhaps even by vertical in terms of what you are seeing in the usage telemetry there?

Right. So it’s a classic Jay multipart question. All right. So, Jay, let me start with the license management piece. This is something we take particularly seriously and I am really glad you asked about it, because licensed management, the ability to manage these licenses is actually a value-add to our customers. They want to manage this investment in Autodesk assets as an enterprise asset, all right. And it’s super important in this space that we do this. One of the reasons we have been moving so quickly to retire legacy models in our user base is because that actually holds us back from delivering best-in-class license management for our customers. Every customer, every maintenance license that’s still out there, every multiuser license that’s still based on the old desktop paradigm versus what we want to do in the cloud paradigm is holding us back from deploying the systems in a way that help our customers manage these things holistically. The good news is that our EBA customers get a totally different dashboard on how they use our software and they are able to get more per user usage analytics and more data in terms of understanding their customer base. But this investment in the sheet of glass that our customers look through in terms of managing their relationship with Autodesk is something we have been doing ongoing for years and look for it to accelerate as we retire the last of these legacy business models and start unifying everything on a stack that really provides a high level of control to our customers and a high level of fidelity about what their actual usage is. We believe this is a value add of the portfolio and you will see us continue to invest in this. Now with manufacturing investments, I think, you want to just pay attention to what we are doing with Fusion and the areas we are targeting, because we think these are important areas that we want to pay attention to. We have integrated certain types of technology into Fusion. We want to augment and supplement and extend those so that Fusion is a professional grade solution surrounded by other professional grade solution that tackles significant growth markets inside the manufacturing vertical. Our first angle of attack was in the convergence of design and make and merging advanced manufacturing methods with advanced modeling methods. I think you are going to see us attack the convergence of mechanical engineering and electrical components inside designs. We have already started doing some of that things and we are going to do it in uniquely cloud way. We are going to do it with uniquely underpinnings of cloud compute and we are going to do it in highly differentiated ways, but also in ways that respect some of the tools our customers are using today.

And Jay, I will jump in on the second part and I guess. Thank you for the congratulations on my 25th Autodesk earnings call. If I get this right, it’s your 125th Autodesk earnings call, a little bit of a difference there. History with the company. I would like to congratulate you as well. It’s interesting…

Thank you.

… if you look at the rates, we are seeing less of a differential by vertical and more of a differential by country. So in other words, if country acts is seeing nice robust growth, we see that in both the AEC and in the manufacturing side. If it’s continuing to be somewhat flat and stable, we see that again by vertical. So it’s, I’d say the better differentiator in usage is more, how is the region performing, how is the country performing, then it is within that country is it AEC or manufacturing. The industry collections versus standalone, I will just reiterate what I said in the opening commentary that industry collections continues to be a stable share of our overall business. So we are not seeing a significant mix shift there. Early on, we had seen a mix shift of the new sales more toward LTE and we talked about last quarter that that reverted back to the mean where it had been historically. So we are not seeing a significant mix shift at this point either way. The last thing that I’d add, because I know the detail of your spreadsheets and you probably already got everything laid out here, but to give you a sense on our new business growth and in particular, our product subscription new business growth, from a unit standpoint, no question, we have been impacted by the pandemic, more so in new business unit than in other places. That new business grew sequentially from Q2 to Q3 and that’s our expectation those units will grow again from Q3 to Q4. So just to give you a sense of how things are performing.

Okay. Thanks very much both of you.

Thanks, Jay.

Thanks.

Thank you. Our next question comes from the line of Brad Zelnick from Credit Suisse. Your line is now open.

Great. Thanks so much. So, congrats all around, guys, particularly for Scott. Best of everything especially in your next chapter. And the topic for both of you, I wanted to ask you about innovation. The sheer amount of innovation on display at Autodesk University this year was -- I guess, I’d just say overflowing. So, Andrew, for you, the easy question. What excites you the most? And my parting gift for you, Scott, maybe a little more complex. How should we think about the pace of innovation going forward, because you’ve always talked about high-single, low double-digit spend growth, but we are below 7% year-to-date. So should we think about spend growth accelerating meaningfully to the high end of your range to recapture the tremendous opportunity ahead? Thanks.

All right. So Brad, I love this question. Innovation is absolutely hyper critical to everything we do. We believe we are powering lot of transformation and a lot of dialog in the industry right now. We are delighted to see our competitors start to talk like we have been talking for years and I think that’s a sign of the kind of innovation we are putting into the market. Here’s what I will tell you I am really excited about. I am excited about the merger of SaaS, cloud compute and machine learning and this transformational power for our industry, right? This is what gets me up every morning right now in terms of what we are going to be able to deliver for our customers. When we get more and more of their processes in the cloud, when we are computing more and more with their data -- with ever-decreasing compute costs in the cloud and layering on machine learning, we are going to be able to provide our customers with insights and productivity enhancements that are simply beyond anything they have imagined right now. And it gets me extremely excited to be part of driving that change into the industry and what it means. Now, I can talk about the individual technologies that play into all that, there’s lots. But if you talk at a high level about what gets me excited, it’s that. And one thing I think is before -- as a segue to Scott answering his questions, I think, it’s important for you to know that next year we are probably the largest R&D spender in our segment, all right, and I just want you to think about that. After all the discussions we had going through the business model transformation, to all of a sudden be talking about a world where nobody, probably nobody is spending as much in this space on R&D as Autodesk is. I think that is a fundamental change and a lot of innovation comes from that much spend. Scott?

I am not sure what to add to that, Andrew. I think you said it exactly right. We are at a fortunate position, Brad. And thanks for your kind words, by the way. But we are at a fortunate position in the model where we can both grow spending and increase margins year-on-year. And so if you look at the midpoint of the updated guide for this year, for fiscal 2021, it implies just short of an 8% growth in total spend. So the cost of goods sold plus OpEx. Looking ahead, on top of that, we have invested pretty significantly and grown our investment in R&D, headcount for R&D for sales capacity this year in some of the areas that Andrew just touched on earlier in Jay’s question about building out our internal systems and our internal infrastructure. So we have invested quite a bit in innovation already this year that will obviously carry on into next year and we have made a handful of not large but strategic acquisitions to continue to fuel that innovation. So we -- I think long-term targeting double-digit revenue growth is somewhat dependent on us continuing to invest on the R&D side of things and I feel really good about the position we are in to be able to both drive that investment and an increase margins out through fiscal ‘23.

Okay. Thanks very much. Happy holidays and we look forward to hosting you next week.

Thanks, Brad.

Thank you. Our next question comes from the line of Keith Weiss from Morgan Stanley. Your line is now open.

Excellent. Thank you guys for taking the question. Scott, would it be out of line to try to convince you to stay at Autodesk? I mean, it’s a lot more interesting than like a networking company.

I am not. I think the first…

Scott, enough like hard work, Keith, keep him.

Exactly. He’s a good one. You should have tried harder to keep him. And so, thank you, guys, for taking the question. On the quarter, again, two things I want to just get a little more color on. One is kind of like the pace of recovery that you guys are seeing and expecting. It seemed like earlier this year you might have thought it was going to come a little faster, given what you are seeing in Asia-Pac, maybe that’s spreading out a little bit. But with the turn in like the current RPO for this quarter, it looks like you guys are really actually the whole business is turning a corner here. So one, can you give us kind of your latest thinking on the shape of the recovery and kind of what’s assumed as we look into FY ‘22? And then carrying on that total spend commentary, a lot of companies that we talk to saw expense savings this year due to COVID and lower T&E spending and just were able to garner efficiencies in their overall business, some of which they need to give back in the year ahead as we get into a more normalized environment. Is there a big component of that in the Autodesk business that we should be thinking about when we are modeling margins into FY ‘22?

Yeah. So, Keith, I will start and Andrew, you can add color to it. In terms of what we are seeing, we are seeing recovery. Andrew alluded to it and gave some of the specific countries where we are seeing recovery already and where we are at a level of activity that’s above pre-COVID rates. I think someone earlier highlighted APAC. APAC has been quite strong for us from that standpoint. We are seeing Continental Europe recover nicely as well. The -- our expectations for Q4 is that we will continue to see a modestly improving economic environment and as we look out at next year, I think, we will continue to see improvement. I am not sure it’s going to be a straight line improvement or especially given the current wave, but we will continue to see improvement and I expect by the second half of the year that we will see some pretty good recovery and economic activity that clearly will benefit us. So think of next year as being a little more back-end loaded and I think that’s part of what you see with the early look that we have given you on what revenue growth looks like this year. Q4, again, midpoint of the guide has revenue growth at about 12% and op margin for Q4 will be about in line with the full year at about 29%. I think looking out at next year you will see both of those grow. Revenue growth will increase from there and op margin will increase from there. On the specific COVID spend savings, I think, we have had the same savings that everyone has had. Obviously T&E travel expense has been a big savings for us. But as we look at -- events have gone more virtual, I think, that will continue. We have had modest amount of savings from the operations of our facilities, our offices. As we look at next year, I don’t expect that to be a significant year-on-year headwind. Travel of course will return. But we are going to build the budget such that I don’t expect it to come back anywhere near to where it was in, let’s say, calendar 2019 or in our fiscal ‘20. I think if nothing else we have learned, you don’t have to be face-to-face with a customer to get that final agreement. You don’t have to be face-to-face internally to get things done the way we need to get them done internally. So I think we will continue to see ongoing savings in T&E. It will step up from this year certainly but it’s not going to be a significant headwind for us on spend.

Got it. Super helpful. Thanks, guys.

Thanks, Keith.

Thank you. Our next question comes from the line of Adam Borg from Stifel. Your line is now open.

Hey, guys, and thanks for taking the question, and Scott, of course, congrats on the new role. Just on some announcements coming out of AU and talking a little more about Autodesk Build. You mentioned how you are leading with that going forward but you do have the big installed base on BIM 360 and PlanGrid. So I was just curious kind of what the migration path looks like for those assets to Autodesk Build? And maybe quickly as a follow-up on the Spacemaker acquisition, any commentary, Scott, on expectations for revenue growth? Thanks so much.

Yeah. All right. So let me start with the migration path. So for PlanGrid, for those customers that migrated from PlanGrid and ultimately migrated on Build. It’s actually not a heavy lift because of the way we built the application. PlanGrid’s huge innovation and huge value-add to the whole stack is a mobile experience. They are really good at it. So what we did is we basically used the PlanGrid experience and the PlanGrid team as the mobile experience for Build. So the move from PlanGrid to build is as a progression is not a heavy lift. Now you are right, we have a long tail of customers that are on BIM 360 Field, BIM 360 next-gen Field. Those customers over time are going to be migrating to Build at a pace that makes sense for them. But what we have done is we have created an environment that allowed them to shift as projects sunset and they go onto new projects. We have got a whole master plan with our customers success organization and construction on how you they move over time. We are not going to force anybody to move ahead of their time, but we have got a well-crafted plan for how we move these people. It’s more of a heavy lift for people that are on BIM 360 Field, less of a heavy lift for people who are on BIM 360 next gen which is where Docs -- Autodesk Docs was built off of and it’s a much smaller lift for PlanGrid customers.

And Adam to your question on Spacemaker, I am super excited by the technology, and I don’t know if you had a chance to see it demoed at AU, but if you didn’t I’d highly recommend it, you have got to take a look at it. This is a — it’s obviously a tremendously exciting technology and some super talented people that we picked up with the Spacemaker acquisition. Impact financially is going to be nominal. It will actually be slightly dilutive and that’s built into our expectations for next year. There’s another effect that I probably should have mentioned earlier and I want to make sure I get it out on the call, though. The one thing that will change next year and it’s a slight headwind to us in terms of revenue growth year-on-year, we have almost all of our products are already ratable, right? But there’s a couple of really small products, one, Vault, that we talked about in the past, that did not get over the hurdle to get away from upfront revenue recognition. We have continued to work on that product. We have continued to do things that incorporate much more cloud based functionality and I think in the first part of next year Vault will flip from upfront rev rec to full ratable rev rec and that looks like it’s about a point of growth. Again, already built into kind of the early view that I gave you of the low-double, low- to mid-teens revenue growth for next year but the impact of Vault is built into that, obviously, it normalizes in fiscal 2023 because once it bucks ratable, the compare points are equivalent. But that’s one if you are building your model on that level of detail, I think of that being a bit of a headwind that’s already built into the early view of ‘22.

Yeah. Great.

I will make some…

Thanks again guys.

I will make one more comment on Spacemaker just because I kind of forgot to segue to you on that. But Spacemaker represents that perfect convergence of SaaS, cloud compute and machine learning into solving real world problems for our customers. I think you are going to see the impact on our business accumulate over time as the technology expands and as it connects itself deeper with Revit and other parts of the process. One of the things I love about the Spacemaker team is they have this philosophy of making multiple constituents more successful with their objectives and that’s the building owner, the developer making their investment more profitable. That’s the city making sure the impact on infrastructure is managed and controlled. And they also have a big customer or big stakeholder in this, is the environment and helping architects and city planners make more sustainable decisions in real time for how things are built. It’s the perfect example of how all these things come together to change the way people make design decisions and ultimately build decisions. So look for its impact to expand over time as that team starts hooking into other parts of our process, builds out their existing products and inevitably starts moving into other parts of the organization, which we always see with acquisitions like this.

Yeah. There’s absolutely a lot of synergies that we see with Spacemaker coming in.

Great. Thanks again.

Thank you. Our next question comes from the line of Steve Koenig from SMBC Nikko. Your line is now open.

Hey. Terrific. Thanks for squeezing me in, guys. I appreciate it. And Scott, best of luck to you and thanks for all the hard work you have done for us over the years. Definitely appreciate it.

Yeah. Thanks. Thank you.

Cool. So I will just ask one question. Andrew, had you had some pretty open, transparent communications with customers this last quarter in terms of the letter that was written? And just in terms of looking at what those customers were asking for? They were very clearly asking for accelerating the roadmap in architecture and engineering design, which doesn’t seem like we talked a lot about on the call today, hasn’t been a focus. And if I read between the lines in that communication, the customers also seemed a bit frustrated with the transitions they have been going through from maintenance to subscriptions to collections and now to named users. And it just seems like there’s a little bit of dissonance between what they are asking for and what I am hearing from you on the call today and I’d love to get your thoughts on how -- why is that there may be misperception gap and what are you guys doing about it? And thanks very much.

Steve, there’s absolutely no dissidents. All right. One of the things I think I said consistently in the communication and I will take you back in communication is, we started investing in the road map for Revit well ahead of these communications, all right, from these customers, because we made a deliberate choice to invest in construction and not in Revit functionality for architects. So are these customers are going to thoroughly quickly start to see changes and additions to Revit from the investment we made actually at the end of last year. And I think you are missing something, we just spent several $100 million on the architecture segment of our space, all right. Spacemaker is squarely targeted at design and architecture and the founders of Spacemaker are architects, all right.

Okay.

This technology is right on the edge, and like I said, we just spent a lot of money to do this and this is right in the act. It’s something we have been looking at for a while. So no there’s no dissonance here in terms of where we are focused and where we are. With regard to the migration, look, you have got to -- when we started this migration with two -- something under 2 million maintenance customers. Most of those have come along with us. We never expected that all of them were going to come along with us happily. And what we are done is we have reached the end of the tale with some maintenance customers that are more frustrated with the changes than not. But at the same time we have added millions of other customers that weren’t able to afford some of our solutions before, because of the upfront cost of these solutions. So, yeah, maintenance customers that have been with us have seen lots of transition. They are not done yet. We haven’t retired all those models yet. But remember we started with less than 2 million of those. We are over 5 million subscribers right now. A fraction of those are from that maintenance base. We have to remember, let’s look at the big picture here as well as the small picture. I understand and I empathize the frustration of those customers who started on maintenance and journeyed with us. But we have reached so many more customers, so many more architecture firms, so many individual architects, so many people that couldn’t afford Revit, so many people that couldn’t afford that extra seed of AutoCAD, so many high growth companies, that if they add seats, they are actually spending less over five years than they would have with us adding seats in the perpetual model. That’s a big story and it’s transformative to the industry in terms of how much value people are able to get now. So let’s make sure we stay focused on the big picture here.

Cool. Well, I appreciate your thoughts and thanks again for the open communication. Good luck to you, Scott.

Thanks, Steve.

This is all the time we have for Q&A today. I would like to turn the call back over to Simon Smith for closing remarks.

Thank you, Gigi, and thanks, everyone, for joining us today. We are looking forward to seeing many of you at conferences over the next few weeks. Please do reach out to us if you have any follow ups on anything from this call. This concludes our call today. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thanks for participating. You may now disconnect.