Autodesk Inc (ADSK) 2021 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Autodesk Fourth Quarter and Full Year 2021 Results Conference Call. (Operator Instructions)

I would now like to hand the conference to your speaker today, Simon Mays-Smith, Vice President, Investor Relations. Please go ahead, sir.

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter of fiscal year 2021. On the line with me is Andrew Anagnost, our CEO; Stephen Hope (sic) [Stephen Hooper] , Vice President and Chief Accounting Officer; and Abhey Lamba, our Vice President of Go-To-Market Finance.

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, acquisitions and strategies. These statements reflect our best judgment based on our 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 numerical 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. I hope you and your families remain safe and healthy.

Before jumping into our fourth quarter and full year results, I would like to again thank our employees and the families and communities that support them as well as our partners and customers for their continued commitment during uncertain times. That commitment, combined with our resilient subscription business model and the secular shift to the cloud, enabled us to maintain momentum and exceed our goals.

We generated strong growth with full year subscription revenue and remaining performance obligations, or RPO, up 26% and 19%, respectively. We also made significant progress towards digitizing AEC, converging design and make in manufacturing and converting noncompliant and legacy users. We signed a record number of new Enterprise Business Agreements, or EBAs, in the fourth quarter. In fact, they were equal to the number we signed in the entirety of the previous year. That's a testament both to our execution and growing partnership with our enterprise customers as we enable their digital transformations, demonstrated by enterprise BIM 360 usage nearly doubling year-over-year. While we made great strides this year, we intend to extend our leadership in the cloud and expand our presence in existing and adjacent industry verticals across the globe.

The pending acquisition of Innovyze, which we announced yesterday and is expected to close later this quarter, is a great example of that intent. Innovyze is a global leader in water infrastructure simulation and modeling, serving many of the world's largest utilities, the majority of the top ENR design firms and other leading environmental and engineering consultancies. Innovyze enables water distribution networks and drainage systems to be more cost effectively and sustainably designed and operated. Combined with CIVIL 3D, InfraWorks, Revit and Autodesk Construction Cloud, we would be able to provide end-to-end water and wastewater solutions across planning, design, construction and operations.

With our existing capabilities in road and rail and our partnership with Aurigo in capital planning, we now have end-to-end infrastructure solutions for facilities owners and public sector agencies. Autodesk provides Innovyze with multiple opportunities to scale through enterprise, channel sales and geographic expansion. We also intend to apply our expertise in navigating through a business model transition to drive additional growth in fiscal 2024 and beyond. I am excited about the opportunities ahead and look forward to the future with optimism.

In the near term, we expect the unwinding of uncertainty from vaccine availability and political stability to drive confidence and investment over the second half of the year. Over the long term, Autodesk's purpose to drive efficiency and sustainability has never been more relevant or urgent.

In partnership with our customers, we have an unmatched capacity to drive efficiency and meet the global challenges of carbon emissions, embedded carbon, water scarcity and waste. And Autodesk is playing its part. We are on track to meet our commitment to be climate neutral and remain dedicated to being a resilient, diverse and equitable company. We were most recently recognized by Barron's as #4 on their list of World's 100 Most Sustainable Companies and the highest ranked software company. We are proud of our impact at Autodesk, and through our customers, the impact we are making in the wider world.

I'm also thrilled to announce 2 strong additions to my team. Debbie Clifford will be returning to Autodesk as Chief Financial Officer; and Raji Arasu will be joining as Chief Technology Officer. Debbie is currently Chief Financial Officer at SurveyMonkey, but spent the 13 years prior to that role in various financial leadership roles at Autodesk, including leading the internal business model transition team, engaging with many of you in support of our investor outreach and as my finance business partner before I became CEO. With her leadership skills, expertise and passion for our mission, Autodesk finance team will not miss a beat.

Raji joins us from Intuit, where she currently serves as Senior Vice President of their Platform and Services business. Prior to that, she was CTO for eBay subsidiary StubHub. At Autodesk, she will oversee and be responsible to the Autodesk technology and platform strategy as well as being operationally responsible for the ongoing development of our platform services. Raji will replace current Autodesk CTO, Scott Borduin, who announced his intent to retire last year after more than 21 years of service to the company. Scott had 2 tours as Autodesk CEO, the prior one working for Carol Bartz, and has not only contributed to the rise of Inventor and Fusion to the products they are today, but also as a passionate evangelist for Autodesk and our vision. Emblematic of his dedication to Autodesk, he moved out his retirement date so that he can help Raji during her transition into Autodesk. I'd like to give Scott a heartfelt thank you for all he's done and is continuing to do.

Before I provide insight into our strategic growth drivers, let me take you through the details of our quarterly and full year performance and the guidance for the next year. In an extraordinary year, we performed strongly across all metrics, perhaps best encapsulated by the sum of our revenue growth and free cash flow margin for the year equaling 51%. Several factors contributed to that strength in the fourth quarter, including record EBAs, robust subscription renewal rates, accelerating digital sales and continued sequential growth in new business.

Total revenue growth in the quarter was 16%, both as reported and in constant currency, with subscription revenue growing by 22% and now representing approximately 91% of total revenue. There was approximately 2 percentage points of benefit to subscription and maintenance growth from upfront revenue recognition of some products that do not incorporate substantial cloud services.

Looking at revenue by product and geography. AutoCAD and LT (sic) [AutoCAD LT] revenue grew 11% in the fourth quarter and 16% for the year. AEC grew 18% in Q4 and 20% for the year. Manufacturing rose 17% in Q4 and 10% for the year, even excluding the benefit from a strong performance in automotive EBAs which include nonratable VRED revenue, Manufacturing grew double digits in the quarter. M&E grew 14% in the quarter, boosted by a strong performance from our collaboration platform Shotgun and was up 10% for the year. Geographically, revenue growth ticked up in all regions. Revenue grew 14% in the Americas, 13% in EMEA and 23% in APAC during the quarter.

We also saw strength in direct revenue, which rose 28% versus last year and represented 34% of our total sales, up 3 percentage points from the fourth quarter of last year. The strength in our direct business was driven by some nonratable products included in a few large EBAs and digital sales.

During the year, we grew total subscriptions by 8% to $5.3 million. Excluding the multiuser trade-in program, total subscriptions grew 4% to $5.1 million. Subscription plan subscriptions grew 15% and by 10%, excluding the multi-user trade-in program. We added 130,000 main subscriptions due to the strong adoption of our BIM 360 family and Fusion 360 products.

During Q4, our maintenance, conversion and renewal rates declined sequentially, which was expected as we are entering the final stages of our maintenance to subscription program. With only 1 quarter left before this program retires, we have approximately 126,000 maintenance subscriptions remaining, accounting for approximately 3% of our revenue in the fourth quarter. I am proud to share that we have converted over 1.3 million maintenance subscriptions to date.

At the end of the fourth quarter, the lion's share of our commercial subscriptions were named users benefiting from easier access, usage data visibility and secure license management. We anticipate many of our remaining multi-user subscribers will make the transition to named users as the pandemic recedes. And we are now extending our 2:1 multi-user trade-in to August 2023 to enable that.

As announced last November, we are also exploring consumption-based models to meet the needs of customers requiring flexible license usage. Our net revenue retention rate remained within the 100 to 110 percentage range we laid out in our guidance. Our product subscription renewal rates remain robust, reinforcing the business-critical nature of our products to our customers.

Our billings were broadly level with last year, reflecting fewer multiyear sales, and our long-term deferred revenue was 26% of total deferred revenue in Q4. Our total RPO of $4.2 billion is up 19%, and our current RPO of $2.7 billion grew 16%.

On margins, we continue to realize good operating leverage due to strong revenue growth and diligent expense management. For the full year, non-GAAP gross margins remained very strong at 93%, up 1 percentage point from last year. Our non-GAAP operating margin increased by 5 percentage points to 29%.

As you have seen in our press release, our GAAP results include a $679 million deferred tax asset valuation allowance released in the fourth quarter. This largely reflects the completion of our business model transition and the significant growth in our profitability.

Consistent with our capital allocation strategy, we continue to repurpose shares with excess cash to offset dilution from our equity plans. During the fourth quarter, we purchased 530,000 shares for $157 million at an average price of approximately $295 per share. For the full year, we purchased 2.6 million shares for $549 million at an average price of approximately $208 per share.

Now let me turn to our guidance, which does not include Innovyze. We expect an improving macroeconomic environment during the year will result in accelerating growth in new business over the course of fiscal 2022. Usage trends during the fourth quarter remained above pre-COVID levels in most of Asia Pacific and Continental Europe and below pre-COVID levels in the U.S. and U.K.

We have seen an uptick in interest from multiyear deals, growing optimism in the channel and gradual recovery in bid activity on BuildingConnected in the U.S. We expect product subscription renewal rates to continue to be very healthy, and our net revenue retention rate to remain between 100% and 110%.

Given our subscription model, revenue growth will lag the improving sales environment. For fiscal 2022, we expect revenue to grow by 13% to 15%, margins to expand to between 31% and 32% and free cash flow growth to reaccelerate to approximately 20%. When looking at the quarterization of free cash flow for fiscal 2022, we expect about 3/4 of our free cash flow to again be generated in the second half of the year due to our macroeconomic phasing assumptions and normal seasonality.

As we noted last quarter, Vault revenue is becoming ratable for fiscal 2022 with the release of significant new mobile fee functionality in the first quarter. And this will reduce our revenue growth by about 1 percentage point over the year, with the biggest impact in our revenue on the P&L and in the manufacturing product family.

Looking at our guidance for the first quarter. Normal seasonality is compounded by Vault ratability and one fewer calendar day versus Q1 fiscal 2021, which together reduces year-on-year revenue growth in the first quarter by about 2 percentage points. With improving macroeconomic conditions and easing comparables, we expect our revenue growth to accelerate after the first quarter. The slide deck on our website has more details on modeling assumptions for fiscal first quarter and full year 2022.

We expect Innovyze to be accretive to revenue growth, broadly neutral to free cash flow and a headwind on reported operating margins in fiscal 2022 and 2023. We will provide additional details after the Innovyze transaction completes.

Let me finish by giving you some details on the progress we made executing on our strategy to digitize AEC, converge design and make in manufacturing and monetize noncompliant and legacy users. Early in February, we launched our Autodesk Construction Cloud platform, which unifies our organic and acquired 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 life cycle. Autodesk Build brings together the best of PlanGrid and BIM 360 with new functionality, which along with Autodesk Quantify and BIM Collaborate, creates a comprehensive suite of field construction and project management solutions.

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. Our strategy is to combine organic and acquired software in existing and adjacent verticals to create end-to-end cloud-based solutions for our customers that drive efficiency and sustainability. We have pursued that strategy to create Autodesk Construction Cloud, we are pursuing that strategy and infrastructure with the acquisition of Innovyze and we will continue to pursue that strategy in manufacturing.

The reasons for and the benefits of this strategy were clearly demonstrated in our fourth quarter results. Our growing partnership with our enterprise customers, as we enable their digital transformations, resulted both in record number of EBAs in the fourth quarter and also strong expansion in renewal rates with existing EBA customers.

We are seeing our new products, typically used by contractors, being increasingly adopted by design firms. For example, we expanded our agreement with Jacobs, the world's largest design firm to include Pipe, PlanGrid and Assemble to enable greater collaboration and more efficient workflows. Autodesk has been a trusted partner of Jacobs over the last 30 years, aligned with its mission to challenge today and reinvent tomorrow. Jacobs is also using Autodesk's transformative services to help them deliver innovative solutions to their customers. For example, Autodesk and Jacobs partnered to deliver the world's first generatively designed airport in Australia. And together, we are focused on leveraging Generative Design to solve their other client challenges around the world.

Environmental Air Systems, EAS, a full-service mechanical contractor and custom-built HVAC equipment manufacturer, which is on the forefront of industrialized construction, increased its investment with Autodesk by replacing its existing project management tool with BIM 360. It is now able to leverage its existing investment in AEC collections and provide a comprehensive tool for its teams to collaborate and to connect the office and the field.

And Tyréns, a leading sustainable urban development consultancy in Sweden, significantly expanded its strategic platform partnership with Autodesk. As Per Bjälnes, Tyréns' Digital Strategy Manager for Business Area X said, "Tyréns is at the leading edge of the digital transformation of the construction and maintenance industry. Digitization enables smart buildings design that requires secure data flows and seamless collaboration across a broad ecosystem of stakeholders during the construction and operations process. Autodesk's Revit and BIM 360 Docs empowered us to create true digital representations. And now with Autodesk Forge, we can leverage those assets as digital twins to create value for different stakeholders such as a reduction of energy consumption, the prediction and optimization of maintenance and new smart, seamless end user services."

We are also seeing benefits from our strategy in manufacturing. In the automotive sector, we provide design software through our enterprise business agreements to nearly all of the largest automotive OEMs and are extending our footprint beyond design into the factory. For example, our expanded partnership with Rivian, a global provider of electric adventure vehicles, now extends across facilities with Revit, BIM 360 and PlanGrid, manufacturing with Inventor and Generative Design and in the design studio with Alias, VRED and Shotgun. We are able to support Rivian as it converts existing facilities to digital twins, optimizes its factory layout using Generative Design, improves energy efficiency through simulation and enables collaboration and efficiency using a common data environment.

Similarly, we are providing end-to-end support to our long-term customer, Transmashholding, TMH, which is the largest manufacturing of rolling stock and rail equipment in Russia and CIS, to accelerate its digital transformation and converge its design and make processes. TMH now builds trains in concept in Alias, designs and engineers in Inventor, optimizes in Fusion, produces and PowerMill and sells in VRED.

Our market-leading cloud-based platform, Fusion 360, enjoyed another quarter of accelerating subscriptions, growing scale of deployments and adding competitive displacements, ending the quarter with over 140,000 commercial subscriptions. Conturo Prototyping, a machine shop based in Pittsburgh, recently expanded its relationship with Autodesk by adding more Fusion seats. Conturo is also adopting our recently launched machining extension due to its integrated design and CAM work flows, its advanced manufacturing capability and the potential of Generative Design to reduce project time lines and solve design for manufacturing issues faster than ever before.

In education, we continue to expand our footprint and replace traditional CAD competitors. With Tinkercad and Fusion alone, Autodesk is now approaching 40 million education users worldwide. For example, all of University College London's mechanical engineers switched to Fusion 360 during the fourth quarter. As Professor Tim Baker, MBE, who led the transition said, "COVID-19 accelerated UCL's transition to the cloud. By enabling collaborative, multidisciplinary engineering, Fusion 360's next-generation platform equips our graduates to become the world's leading engineers of the future. While all our software remains free for educators and students, graduates continue to bring Fusion 360 with them into the workplace, from startups through to the giants of manufacturing."

While we have moderated our license compliance activity during the pandemic, we continue to work with existing and potential customers to ensure they pay for the software they use and comply with our terms of use. Our goal remains to give noncompliant and legacy users access to the benefits of subscription access through flexible models. During the quarter, we closed 23 deals over $500,000 with our license compliance initiatives, 3 of which were over $1 million.

For example, our European customer became aware during its transition to named users that its employees were accessing licenses in regions outside of the contract scope. Our premium plan provided them with the flexibility to manage all licenses centrally, monitor usage to remaining compliance and resulted in $1 million-plus deal. And a leading supplier of industrial automation solutions based in Europe, who became a legacy customer 3 years ago, subscribed to our product design and manufacturing collection when we were able to demonstrate that recent workflow improvements and cloud-enabled functionality would allow them to win more business by improving communication with their own customers and improve efficiency through quicker layout in 2D and hand over to 3D in visualization.

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. We expect to have accelerating momentum during fiscal 2022, and we have multiple drivers that make us confident in our fiscal 2023 free cash flow target of $2.4 billion and double-digit growth thereafter.

With that, operator, we would like to now open the call up for questions.

(Operator Instructions) Our first question will come from the line of Saket Kalia from Barclays.

Okay. Great. Congrats on the new additions to the team. Maybe just to start, you touched on this a little bit in your prepared remarks, Andrew, but can you just talk a little bit about how you're thinking about new business recovery this year? And maybe just broad brush, what verticals or geos might be stronger than others?

Yes. Thank you, Saket. I think that's a really appropriate question to open up with. As you know, new business was down last year. And that has a disproportionate impact on how we see revenue in Q1. But the way we look at it shaping up this year is Q1 is kind of the trough of the new business recovery, and we're going to be accelerating our new business growth out through the year into the second half of the year. In fact, we really see a world where most of the new business that didn't show up last year kind of reemerges as we head through this year. So it's important to see that, that business that disappeared last year didn't disappear. It just got shifted out. In fact, you're hearing a lot about the acceleration of digitization in multiple industries, and we're seeing that in our space in spades as well.

And I think if we look at particular sectors, it's actually really going to be distributed across all the sectors in kind of similar ways. AEC is already investing really significantly ahead of the market in terms of their digitization efforts. You kind of saw early evidence of that with the EBA business we did, the record number of EBAs we did in Q4 relative to previous years. In manufacturing, you kind of see the same accelerated interest in digitization and new cloud-based workflows, especially surrounding what we're seeing in Fusion. The same goes in media and entertainment. The media and entertainment business, which was classically a laggard on some of these highly digital, highly cloud integrated workflows, is moving to the cloud in a big way.

Now geographically, kind of in a broad brush, I kind of highlighted in the opening remarks that we saw a broad recovery in Europe and Asia to pre-COVID levels of monthly active usage. And we saw a little bit of a lag in the U.S. and the U.K. I think we're going to see that kind of geographic return of new business in that cascade. It's going to be strong in APAC, it's going to get strong in Europe and then it's going to start to come back in the U.S. and the U.K. Q1 will be the trough of this new business growth, and we're going to accelerate right out of that into the rest of the year.

Got it. That's really helpful. Maybe for a follow-up. Understanding that Innovyze hasn't closed, it isn't included in guidance, can you just give us some broad brushes on maybe how big that revenue scale there is? And maybe just touch on whether there are any significant differences in the business model versus Autodesk.

Yes. Difference is an opportunity, Saket. So first off, let's just kind of just level set on why we did Innovyze. I think we've been super clear that infrastructure is one of these really big growth opportunities for us long term. Infrastructure projects take a long time to design and plan, and they last even longer after that. So an investment in infrastructure is an investment in the long-term health of Autodesk. And I think we just have to be super clear about that.

Water was one of those areas where it would have taken us a lot of time to catch up organically. Whereas road and rail is an area we've been highlighting to you that we've been investing in organically with our portfolio and really making great strides there.

When you look at the business at a high level in terms of the differences and where the revenue is going to come from. So look, at a high level, Innovyze is going to be accretive to our revenue growth, roughly to 1 percentage point as we head into this year. And that includes deferred revenue write-offs and the fact that we have a partial year in here. It's probably going to be dilutive this year, about 1 percentage point off of operating margin.

But here's the opportunity that I want to make sure you highlight, and you actually poked on a little bit between the differences in our business model. Not only are we going to plug Innovyze into our sales engines in terms of named accounts, channel sales and international expansion, we're also going to apply our expertise on business model transformation to the Innovyze product portfolio. And I think that's going to be an important transitional element of how we absorb Innovyze into the company. We're good at this, we know how to do this and we know how to navigate this. So what you're going to see in FY '23 is you'll probably see a little bit of a depression of Innovyze's revenue growth in isolation because we're going to be applying the business model transformation. And as you know, with the business model transformation, there's downward pressure in revenue as a result, but acceleration of revenue as you head out onto the other side of the business model transformation.

So if we look at FY '23, it's probably going to be neutral to the overall revenue growth of the company. It's not going to touch the free cash flow number, $2.4 billion is going to come out, Innovyze or no Innovyze. And there'll probably be a little bit more of a headwind to operating margin, maybe between 1% and 2% as we go through the business model transformation, but a nice acceleration up to our double-digit growth standards as we head beyond FY '23 to '24, '25 and '26, which is kind of an extra bonus on top of what we're going to be able to do just to expand the core Innovyze water business to capitalize on the increasing investment in infrastructure. So it's a good question to talk about the differences in our business model because there's actually an opportunity there and a difference.

Very helpful, Andrew. And congrats on the additions to the team.

Our next question will come from the line of Phil Winslow from Wells Fargo.

Great. And congrats on a strong close to the year. And once again, congratulations on the new hires, in particular, great to have Debbie back. Really want to focus on the make side of Autodesk. How do you think about, in a reopening scenario and given the fact that we have a lot of backlog of projects, particularly in the construction and infrastructure world heading into this year, what is the opportunity for Autodesk to potentially accelerate adoption of some of the make functions, BuildingConnected, PlanGrid to try to help the industry work through this backlog?

Yes. So we actually started to see the early signs of that as we headed into Q4 as new business started to strengthen in our construction portfolio in particular. And we also saw it across the Fusion base as well as people started to look at their manufacturing and the design-to-manufacturing operations. So we see a pretty significant opportunity here. And look, in many ways, the pandemic gave us an opportunity to catch up and pull ahead a little bit here. Our portfolio is now best-in-class. Our development team did an incredible heavy lift and an amazing job unifying what was the best of PlanGrid, which was the best of what we had in BIM 360. We now have Autodesk Build on this foundation of Autodesk Docs. And there is no one that has a better office-to-trailer solution than we do.

And I think if you go out there and you talk to customers and you talk to the space and they look at what we've done with Autodesk Build, you're going to hear the same kind of feedback that we really built a great product. And that's the product we're going to be leading with on new business. It's not that we won't be leading on the acquired portfolio products as we continue to sell those. But we're going to lead with Build, and we're going to lead with Build in many places. And that's going to give us a chance to not only drive a successful international expansion, but also continue to lap some of our competitors in the rest of the market, especially in places like the mid-market.

But another one of the pieces of our secret sauce heading into the year, Phil, is the flexibility we offer on business models. We meet our customers wherever they are. And I think this is super important for you to pay attention to. We sell named user subscription. We sell site licenses. We sell project-based licensing when they want it. We sell consumption inside of EBAs. Whatever they need for whatever project they're pursuing, we have a model for them and a product for them. And I think that important convergence between the flexibility, which, by the way, costs us complexity in the back end, but it's worth it in terms of meeting the customers where they are.

When you combine that with the products, we feel really, really optimistic about how we're going to accelerate in this year and meet some of this demand. And our customers are looking for it. They want to digitize faster. They're starting to increase their spending. And we think we've got the portfolio of products and the portfolio of purchasing options that makes it work. We're not trying to force people into one kind of business model and then maybe try to lock them in, in kind of places that they don't want to be. So we feel pretty optimistic.

Our next question will come from the line of Jay Vleeschhouwer from Griffin Securities.

Andrew, the company has quite a lot on its plate. You have very broad agenda. And the question is, within the context of your 3 overarching strategic priorities and obviously, making the numbers that you guided to now for fiscal '22. Can you talk about some of the other critical programmatic executables that you are aiming for, for this year? For instance, in terms of channel, in terms of delivering on the platform, going live perhaps with PPU, other critical technical milestones that you might care to talk about in terms of new products like Tandem and Spacemaker and so forth.

And then secondly, on the last call, you noted that within your peer group, Autodesk is the largest R&D spender, which is the case. But could you talk in a little bit more detail about how you're allocating R&D? Maybe talk about the priorities. You've spoken of reinvesting in the A of AEC. And maybe talk about some of those critical investment priorities vis-à-vis R&D.

Yes. All right. So there -- that was a -- it's usually a multipart question from Jay. All right. So let's talk about some of the programmatic pieces here. Now I don't want to take any thunder away from this year's AU, which is where we talk a lot about. As you probably noticed with last AU, you're going to see more of a product announcement focused AU as we move forward. So I don't want to take any thunder away from that.

But if you look at programmatically where we're going to be leaning into, platform enhancements that bring design and make in the industries together and create commonality across many of the industries we serve are going to be a particular lever that we're going to be moving with. We just hired a new CTO with a lot of platform strategy chops that we're going to be leveraging to integrate some deeper platform capabilities into the company.

We're also going to be looking programmatically at the named user transition program. As you know, that was kind of a bumpy program last year. Customers really didn't appreciate us introducing that into a pandemic year. And they really want to understand what their options are with regards to flexible usage and occasional use moving forward. So look for us to explore those kind of capabilities as we've extended out what the deadline was in that program, which still makes that program being executed faster than maintenance and subscription, but probably more on a time line that fits with what our customers can absorb. So you'll see us kind of look at those flexible options and explore some of those things with our customers.

Now if you look specifically at how we're allocating investment. I mean I think you saw what we did around the A in AEC. We acquired Spacemaker. We're integrating that team, building up capabilities around that team, particularly around integrating machine learning and cloud-based platforms into the design process in architecture and engineering. So that investment is clear. We've highlighted it. You've just seen how we're investing in infrastructure and civil infrastructure. We already talked organically about road and rail, and now we've also talked about water. And all of this kind of builds on top of what we're doing with Construction Cloud.

I haven't talked a lot about what we're going to be doing with manufacturing, but here's what I can tell you. We're very interested in the cloud transformation in manufacturing. And I think you'll see us lean deeply into the cloud transformation around manufacturing more. We've invested pretty heavily there. Our investment is large in that whole portfolio, particularly in the Fusion portfolio. I think you'll continue to see us to invest in that area. And as we head towards AU, you'll hear exciting things about Fusion. You'll hear exciting things about Tandem. You'll hear exciting things about the platform for the company. And you'll hear exciting things about how the AEC portfolio is starting to come together in a similar way that we brought together some of the construction portfolio acquisitions that we did previously. So look for us to kind of play across all those fields.

Now in terms of the breadth of what we're doing, I think I might have talked about this last time. We reverticalized the company just recently in October. So now I have someone that's responsible for the AEC execution again. That's Amy Bunszel. Scott Reese working on the execution in product design and manufacturing. And Diana Colella working in the media and entertainment space. And they are working closely with me and the rest of the team to execute on these vertical priorities, while we've also elevated platform up to an executive staff level, reporting directly to me, which will allow us to synergize the platform efforts more tightly with those things. So we're doing this from an operational perspective as well as from a strategic investment perspective.

And our next question comes from the line of Gal Munda from Berenberg Capital.

So the first one, I'd just like to ask you, Andrew, when you kind of looked at how the year played out in terms of the multi-users or network licenses versus what you expected, is it fair to say that you're kind of right back in the middle to that [3:1] thing that you expected? And you've just extended the program to '23, does that mean that you're kind of very comfortable with the way that this program is kind of converting, and you think that it's going to remain at that level where it's not a significant headwind to the model?

Yes. Look, so look, our original statements about this being neutral to the model continue to hold. So there's no change in that expectation. I think what you saw last year, and I think this is a natural thing, like there's 2 sides of the bell curve, right? There's the size of the bell curve for which 2:1 is like, hey, that's a no-brainer for me, I'm going to take the 2:1. And there's a side of the bell curve for which 2:1 requires some more thought by the customer, more thought about, "Okay, wait a second, my usage is greater than 2:1. Autodesk, what are you going to do to allow me to flex a little bit more? And EBA is too big for me."

So what you saw early on is a lot of those people on the left side of the bell curve, the 50% of people that were up for renewal last year that said, "Hey, this is good for me." They moved quite rapidly through that, all right? The extension is for the people that require more thought about how this is going to impact their business and how they're going to adapt if their usage is greater than the 2:1 that the program had.

So that's one of the reasons why we're working on the extension. Also to making sure that we have the new flexible models out there for them to explore. So there's no change in our expectations with regards to the impact on our business. It's going to be over, the whole period of the program, neutral in terms of impact to our business. Positive long-term in terms of experience to the customers.

Yes. Absolutely. And then just the second as a follow-up, you mentioned that for this year, you're again expecting kind of mid-20s long-term deferred revenue in terms of the -- so not a material contribution to free cash flow. When we look into more towards FY '23, and then maybe even beyond that, we're hearing this multiyear licenses as still been very, very strong even during the pandemic. So what would be the normal rate that you kind of think about if you think maybe more longer term, not just next year and maybe the year after?

Yes. So Simon remind me what we're reverting. So one of the things we're doing, I want to make sure we're super clear on this with regards to multiyear. With multiyear, our expectations are going to revert solely back to the mean here, right? And not try to exceed what we've done historically, okay? And I just want to make sure that we understand that and we get ourselves grounded in that simple fact. We're reverting back to the mean behavior.

And yes, as we ended last fiscal year, right, we saw quite an interesting pickup in multiyear, frankly, more than we expected, all right, given that we were still in the pandemic year. But if we look at where we want to be, it's just a reversion back to the mean. And remember that the multiyear business is attractive to both our channel partners and our customers because our channel partners like to collect the cash upfront. And our customers like to lock in the price protection for multiple years. And if you recall, reversion to the mean historically for our maintenance business was about 30% of the business, all right, roughly speaking, right?

We want to stay right within that domain, and we will probably stay within that domain for the foreseeable future. And that was the peak, not the mean, okay? It peaked to 30%, not in the mid. The mean was probably somewhere in the mid-20s.

Our next question will come from the line of Adam Borg from Stifel.

Great. And also welcoming the new folks coming in. Maybe just a quick question on the net revenue retention rate. Obviously, the pandemic and speed of recovery will be the key input in the near term. But I was just curious, Andrew, if there's any kind of initiatives you're working on internally that can help drive net retention revenue rates back to the historical range?

Yes. So we've -- we're hitting the ranges that we've set for net revenue retention. And frankly, there's -- obviously, there's 2 things that drive net revenue retention, renewal rates and -- the AOB renewal and the ability to expand into accounts, right? And so we're working both of those sides in terms of increasing renewal rates and increasing our ability to expand in accounts with the make solutions. So when we look at net revenue retention, we -- so remember, one of the things we saw, and I think we highlighted this a lot over the last year, was how strong the renewal rates lasted throughout the -- through the last year, and how we continue to move forward. So we actually overperformed based on our expectations on renewal rates of the business. We continue to see -- we continue to expect that to accelerate.

But more importantly, the net revenue retention is going to be driven by more and more people incorporating our digital portfolios, Construction Cloud, Fusion, other types of products like that, and also moving to BIM in the AEC space. So look for a lot of the increases in net revenue retention to be programmatically driven by the move to BIM, the move to digitizing the cloud -- in Construction Cloud and the move to transform their manufacturing processes with Fusion 360 and other solutions like that.

And our next question will come from the line of Sterling Auty from JPMorgan.

Just one question from my side. In the context of an improving economy, I'm wondering what, if anything, you contemplated in that improvement in the business coming from the possibility of further stimulus spending from the government and in particular, on the [construction]?

We do not factor that in, okay? Governments move slowly. The money trickles down slowly. But -- so we have not factored any of that into our plans and into our guidance, all right? That said, we do expect it to be an investment. You probably have heard that the American Society of Civil Engineers in the U.S. rated U.S. infrastructure a D+. Other countries aren't doing particularly well either. This is an area for investment and focus, and we expect to see some of that investment and focus, but we haven't factored this in.

Our next question will come the line of Joe Vruwink from Baird.

One modeling question first and then one on the business. Just when looking at the first quarter guide, I think the revenue variance in terms of variance to consensus estimates, that seems explained by the couple of hundred basis points you talked about. But I'm wondering, in terms of the EPS variance it's a bit wider. Are there some discrete investments that take place in 1Q? Is this a function of the extra day thrown into the mix? Or I guess the question is, how do you see margins progressing throughout the year? And is 1Q kind of different than just the normal cadence?

Yes. So this is a really important question. So let's talk about Q1 and the shape of the curve and what actually drives revenue in Q1. So I think I said earlier, Q1 is actually the trough of where we expect things to be. We're going to accelerate quite rapidly out of Q1, but what actually drives the revenue guide in Q1? The most important thing is the revenue recognition.

So let's look at last year. Last year, we did not grow new business to the degree we expected to. In fact, we saw a decline year-over-year in our new business. The impact of those declines in new business bookings in the previous year have a disproportionately large effect on Q1. But they work themselves out relatively quickly as you move into Q2, Q3, Q4 and beyond. So we absolutely do have a somewhat more back-end loaded year than we would in a classic Autodesk year. But not extremely to the degree, simply because of the hole that was created.

And I think I said earlier, the new business that we lost last year didn't disappear. It's coming back. And it's coming back with a vengeance as we head into next year. But there's a couple of other little factors that affect Q1 disproportionately. And I think it's really important that we all get grounded on some of these things.

So the first one is we have a set of products that, because they are not yet cloud-enabled to a certain degree, are recognized upfront in the revenue in the accounting rules. They have to be. We have been working hard to ensure that all of those products are cloud-enabled, and that will actually force them to be recognized ratably.

One of the products that is moving from upfront recognition to ratable recognition is the Vault product family. And that Vault product family was providing quite a bit of upfront revenue recognition previously. And now as we enter Q1, it's all going to be recognized ratably because Vault now has a mobile client, it now has other cloud-enabled features in it. So that was all of a sudden, a headwind to revenue recognition in Q1, but it works itself out as the year progresses, as the ratability progresses and the buildup progresses. And this is just the way a subscription business model works. So there's some unusual sort of onetime headwinds to Q1 that unwind themselves fairly quickly. And Q1 is the trough, and we will accelerate out of there. But it's definitely related to the buildup of recognized revenue as we progress. So that -- I hope that helps you understand a little bit more how Q1 works.

And yes, there are some additional little details like Q1 is 1 day shorter this year, year-over-year. So it's actually one less day of revenue in the quarter. And it's 3 days shorter than quarter-over-quarter. But those other things I talked about are much more important for understanding the Q1 guide and how it unwinds as the year progresses. Makes sense?

It does. It does. And if I can squeeze in one more. Just as you engage with your customers and they come back and you're booking new business. But have they talked to you about the composition of what they see going forward and their view on how a nonres construction cycle might develop. What are you hearing in terms of similarities? The cycle is going to be like out of '08, '09? Out of '01, '02? Or what are some of the differences that you're hearing? And how do those similarities or differences impact Autodesk, just given how your product portfolio has changed?

Yes. So remember, first off that we are distributed across almost all facets of the industry, and it's important to realize that when one wobbles, another one pops up. So -- and we're absolutely seeing that pattern. So for instance, you see in commercial real estate development, you see a slowing of projects. You actually do see a rebooting of projects that have been put on hold by the pandemic. But you see a slowing of new projects, but you see other new projects coming in the pipeline in terms of urban multifamily housing, suburban multifamily housing, other types of commercial real estate outside of dense urban areas, right? So we're hearing a lot from customers about a shift in where their portfolios are moving to.

One thing we are getting consistently though is an ongoing focus on adopting certain aspects of our cloud portfolio, particularly what we do with Autodesk Build collaboration, the collaboration tools for Revit models. We're seeing a lot of increased adoption in that. We saw a lot of strength last year. We're seeing some of that strength heading in. I think that's going to be an important part of our portfolio moving forward because not only does it allow for seamless remote work, but it also allows for better downstream integration to the rest of the build process. So we're seeing a lot of those tools being adopted, and we're also seeing a lot more adoption of some of the cloud-based tools that we're seeing in manufacturing.

So the cloud is definitely front and center in terms of some of the growth areas in our portfolio. But do not underestimate BIM and the role of Revit in the digitization of AEC. It will continue to be a strong driver in the new world order. But it's uneven. It cuts very -- across geographies, across segments. You definitely see differences in terms of where people are going seeing things booting up and where they see things slowing down. But like every cycle we've ever seen, the money just shifts to somewhere else.

Our next question will come from the line of Matt Hedberg from RBC Capital Markets.

Andrew, I thought that was really good color on Q1. I think that makes a ton of sense. And also I'll offer my congrats to Debbie. It's really good to see you back at Autodesk. I guess, Andrew, now that we're sort of unwinding uncertainty, I think that's the term you've used before, when we think of the trajectory to '23, I mean, I think I just would kind of like to get maybe some high-level thoughts there. And I guess even more so beyond '23, what's the right way to think about that as we enter this new fiscal year?

Yes. So thank you for this question, all right? And it's an important question. So first off, I want to make sure that I just reiterate something I've said many times before. We model our business with super high fidelity, okay? And within those models, we never put forward our best case, all right? We always had a buffer in there at some degree. Buffers are great for like pandemic years. You got -- you love it when you have a buffer.

Now of course, as you get closer to events like FY '23 and things like associated with that, the buffer gets smaller, but so does -- but the accuracy of your model also gets better as well, right? So we have super -- we have a lot of confidence in the buildup to FY '23, the $2.4 billion in free cash flow, the organic metrics surrounding our business. And we also have a lot of confidence in the double-digit growth as we head beyond fiscal '23. Fiscal '23 isn't some event. It's just another milepost like fiscal '20 was, fiscal '23 is. It's another milepost on a journey but there is ongoing growth in the double-digit range out beyond fiscal '23.

Now I think one of the things people anchor on right now is what about this buildup from '22 to '23? One of the things I want to remind you is about the nature of how momentum is going to be exiting '22. Remember, we're slight -- we're going to be slightly more back-end loaded in terms of the accumulation of revenue and new business heading into fiscal '23, not dramatically back-end loaded, but more back-end loaded than we would traditionally be. We're going to exit '23 with quite a bit more momentum than the full year targets would indicate, all right, relatively speaking, in terms of those outcomes.

So we feel pretty confident with the momentum we'll exit FY '23 with and that we have the book of business from the renewal base, from the continuing digitization of AEC, from the continuing convergence of design and make in manufacturing and to the conversion of noncompliant users to hit the numbers that we have in FY '23 and beyond. And we're confident in our models. We're confident in the margin of error. We're confident in the levers we can pull, if we had to pull any. So we see line of sight to some of the organic goals that we've been talking about. And we continue to be confident even with what seems to be a big buildup from '22 to '23. You just have to pay attention to the momentum we have as we exit the full year '22 into '23. No different than that '19 to '20 discussion that we had. It seems like yesterday, but it was 3 years ago.

Our next question comes from line of Keith Weiss from Morgan Stanley.

I wanted to dig into the recovery. So our survey work shows expectations are getting a little bit pushed out from the kind of first half of 2022 to the next quarter. And we've heard from you and your peers on a slow recovery. So kind of what are you hearing from customers? And what do they need to see in order to pick up the pace of recovery? And also where are the areas that you see there could be some risk that it could get further delayed?

Yes. So first off, our customers have to invest ahead of their project load in order to be successful. Remember, our tools show up not only in the execution phase and the make phase, but also very early in the early conceptual design phases. And one of the big areas of strength that we saw in Q4 was that large increase in enterprise business agreements we see. The record number of EBAs we saw is kind of emblematic of customers investing in future digitization capacity. So we expect to see that regardless of the situation in the markets right now.

But our view continues to be Q1 is the trough. The acceleration starts to come out of Q1 as we head out of the spring and into the summer. Now right now, there's lots of uncertainty, and you hear lots of buzz around variants and vaccine distributions. But I think all of us are smart enough to know that just like when we had these discussions about testing infrastructure and testing rollout and testing capacity, all these things work themselves out over a multi-month period in terms of distribution of vaccines, distribution of assignment of capacity and all the things associated with that.

Now if all of that stuff starts to crumble and fumble, of course, you end up in a new situation. But you know what, that is highly unlikely in this situation. And there's much more alignment on trying to get the right things done. And that's what we're hearing from our customers more and more is they're trying to invest ahead of the growth they see coming forward. So we're pretty bullish as we head into the second half of the year. And we're pretty optimistic as we head into the summer. There's always something that can derail this, a wobble in the vaccine distribution or something associated with that or some kind of rise of political uncertainty. But you know what, we can't predict those things, and we don't see those things. What we see mostly are tailwinds right now as we head out of Q1 and into Q2 and beyond.

Great. That's super helpful. And then just to sneak one more in. Your comments on the areas investment were certainly helpful. But just taking a step back, the Innovyze deal was one of the largest acquisitions to date. I believe it was above PlanGrid. So how should we just think about the kind of higher level framework for investing organically for -- in R&D versus kind of the acquisitions as a source of innovation?

Yes. So we tend to invest organically in innovations that either we've been investing -- that we've been working on for a period of time that represent net new business opportunities, that we will acquire into net new business opportunities where there's like no mature market yet, all right? But we will tend to acquire in areas where we're seeing long-term opportunities or opportunities for enhanced digitization or enhanced cloud capability in verticals where we might not have established vertical -- businesses or sub-verticals where we might not have established businesses.

But make no bones about it, our organic investment is very much driven on this convergence of design and make in both AEC and manufacturing and on this conversion -- this convergence of manufacturing and construction across our industries. We've got a lot of organic focus in the innovation in those areas. We will acquire inorganically for innovation in certain cloud-based areas. But more likely than not, we'll acquire for vertical specialization in areas where established businesses have created a presence. I think Innovyze is indicative of that. Sorry.

Unfortunately, that's all the time we have for questions today. I'd like to turn the call back over to the speakers for any closing remarks.

Thank you, everyone, for joining us. I know it's a busy night for many of you. I look forward to catching up with you at next quarter's results. If you have any questions in the meantime, please contact us at simon.mays-smith@autodesk.com. Look forward to chatting soon.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.