Autodesk Inc 2027 Q2 Earnings Call

Please go ahead. Thanks, operator, and good afternoon.

Thank you for joining our conference call to discuss Autodesk fiscal 2027 second quarter results. Andrew Anagnost, our CEO, and Janesh Moorjani, our CFO, are on the line with me. During this call, we will make forward-looking statements, including outlook and related assumptions on products, artificial intelligence, sales and marketing optimization, go-to-market strategies, and trends. Actual events or results could differ materially. Please refer to our SEC filings, including our most recent Form 10-Q and the Form 8-K filed with today's press release for important risks and other factors 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. We will quote several numeric or growth changes during this call as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release and supplemental materials available on our investor relations website. I will now turn the call over to Andrew.

Thank you, Simon, and welcome everyone to the call. We delivered another strong quarter with revenue and earnings per share above the high end of our guidance ranges. We have raised our full-year billings and revenue outlook to reflect the second quarter outperformance and stronger expectations for the second half. Our guidance now also includes MaintainX following completion of the acquisition on August 3rd. Our strategy, strong execution, and the compounding benefits from the business model changes we have made over the years continue to be reflected in the performance of the business. Autodesk strategy is to build project intelligence across the asset life cycle by converging design, make, and operate through a continuous flow of data, context, and experience.

While owners have long invested in better design, manufacturing, and construction, the opportunity lies in extending the value of that information into decades of operations and then bringing real-world performance back to inform the next generation of projects. This project intelligence across the life cycle enables smarter decisions, greater resilience, and continuous optimization. An enterprise deal we signed during the second quarter brings that strategy to life. With a vision of every project becoming a complete data-rich digital twin, one of the world's largest retailers selected Autodesk Forma as the common data environment connecting planning, design, construction, and operations across its portfolio in North America. Rather than optimizing individual phases, it is creating a connected digital thread that carries trusted project information from concept through construction and into operations. This strategy has led the customer to select Autodesk Tandem as its digital twin platform.

While deployment is still in its early stages, the customer is investing in improving the fidelity of its asset data by capturing and validating as-built conditions, ensuring every facility has the trusted digital foundation required to support long-term operational value. Forma helps create the continuous flow of project intelligence between design intent and operational reality. Combining design and construction data in Tandem creates a digital twin that evolves alongside the physical assets it represents. Looking ahead, solutions like MaintainX extend that digital thread from systems of record to systems of action, connecting digital twins with day-to-day operational workflows and real-world performance. This is not an isolated deployment. It's a reflection of a broader shift we're seeing as owners move beyond digitizing projects to generating project intelligence across the entire asset life cycle.

As design, manufacturing, construction, and operations converge around a shared digital foundation, project intelligence doesn't stop at improving today's assets. It creates a continuous feedback loop that informs how the next generation of assets is designed, built, and operated. Before I hand over to Janesh to discuss our quarterly financial performance and guidance, I would like to say a few words about Amy Bunszel, our EVP of Architecture, Engineering, and Construction Solutions, who plans to retire after an extraordinary 23 years with Autodesk. Amy has helped shape Autodesk into the company we are today. Her vision, deep commitment to our customers, and leadership through some of our most important transformations have built a world-class AEC business and an enduring legacy. I have spent much of my career working alongside Amy, and I am going to miss her as a colleague and as a collaborator in solving the built world's capacity challenges.

She will remain with us as we search for her successor and through the transition, and she leaves behind an exceptional team and an AEC business in a position of strength. On behalf of all of us, I wish Amy the very best in her well-earned retirement. Janesh, over to you to discuss our quarterly financial performance and guidance.

Thanks, Andrew. Q2 was another strong quarter. Overall, the underlying momentum of the business was consistent with prior quarters, with strength coming from similar industry segments in AECO, particularly in construction and emerging markets. Overall, the impact from our sales reorganization was in line with the range of outcomes we had expected. The Americas, APAC, Eastern Europe, and the Middle East are normalizing a little earlier than Western Europe. The overall impact in new subscription growth was once again within the range of our expectations, while the linearity of billings during the quarter was better than we expected. Renewal rates remained strong. Total revenue in the second quarter grew 16% as reported and 14% in constant currency. As expected, the new transaction model provided a tailwind of roughly 2 percentage points to revenue growth in the second quarter.

Please see the tables in our press release earnings deck and Excel financials for details by product and region. Billings increased 10% as reported and 12% in constant currency. The impact of the new transaction model on billings growth was not significant in the second quarter. During the second quarter, we sustained our program of reducing multi-year discounts established over the last few years, including winding down multi-year renewals for the maintenance to subscription program. We continue to expect the reduction of discounting for multi-year contracts to benefit price realization over time, while also temporarily weighing on unbilled deferred revenue and RPO growth. Turning to margins, second quarter GAAP and non-GAAP operating margins were 29% and 41% respectively. GAAP operating margin increased approximately 4 percentage points, primarily due to underlying margin improvements and a further reduction in stock-based compensation as a percent of revenue.

Non-GAAP operating margin was up approximately 2 percentage points. This primarily reflected operating leverage and the benefits from our sales optimization. Second quarter free cash flow was $561 million, reflecting the timing of billings and collections during the quarter. Moving on to capital allocation. We repurchased approximately 2.1 million shares during the quarter for $453 million. We continue to expect our share buyback in fiscal 2027 to be similar to fiscal 2026 in total dollars. We expect to maintain a healthy buyback program that continues to apply approximately 50% of free cash flow to further reduce share count over time. Before I turn to guidance, a quick update on a few minor changes we're making to simplify our revenue presentation and reflect the acquisition of MaintainX. There are no changes to our income statement revenue presentation.

We are making some minor changes to our product family revenue presentation to reflect the acquisition of MaintainX, and going forward, we will stop disclosing design and make revenue consistent with our strategy of converging workflows end-to-end and expanding our business and operations. We'll continue to provide regular commentary on construction, Fusion, and operations, and will also disclose MaintainX revenue for 4 quarters to help you track the performance of those businesses. The slide deck on our website summarizes these changes. Let me finish with guidance. Our guidance philosophy is unchanged. Our guidance continues to be based on the range of possible outcomes in our bottom-up sales forecast, which is grounded in the momentum of the business and embeds some prudence against our expectations of sales productivity normalization. We've assumed the macroeconomic environment will remain broadly stable through the year.

Our guidance now includes the billings, revenue, and operating and net financing costs from MaintainX for approximately six months of fiscal 2027. We expect MaintainX to contribute approximately $60 million to second half fiscal 2027 revenue and approximately $70 million to second half fiscal 2027 billings, both weighted slightly towards the fourth quarter, given the growth profile of the business. As we have now largely concluded the new transaction model implementation, we will focus our commentary on as-reported numbers in future earnings calls. As a reminder, the tailwind to revenue growth from the new transaction model in the first half of the year translates to approximately a 1.5 percentage point tailwind to revenue growth for the full year.