Despite the Pandemic, Autodesk’s Profit Goes Through the Roof

Autodesk passed $1 billion in revenue for the first time in its history. Most of that ($911 million) was profit, giving the company a ridiculous, unheard-of 88 percent profit margin. Don’t expect that every quarter. Most of the profit was due to a $679 million deferred tax asset valuation allowance released in Q4, explained CEO Andrew Anagnost. Still, that leaves $232 million in profit, more than any other quarter in the chart above.

With such a cork-popping quarter, Anagnost must surely be vindicated for implementing the company’s painful business model conversion. Anagnost was the chief architect of the subscription model, which he championed while still VP under CEO Carl Bass. After convincing the board of directors that Autodesk’s future would lie in having customers subscribe to software, Anagnost emerged victorious from a two-way runoff for the CEO position with Amar Hanspal in 2017.

Critics of the subscription model (users who had bought perpetual licenses and resisted further payment, those who never understood deferred revenue, and grumpy editors) must now be perpetually silenced.

A large part Autodesk’s ongoing profitability has resulted from the shift to a subscription model from the perpetual license that has been around since the beginning of design software.

The company also had a “record number of enterprise agreements in Q4,” according to Anagnost.

“Total revenue growth in the quarter was 16%, both as reported and in constant currency,” said Anagnost. “With subscription revenue growing by 22% and now representing approximately 91% of total revenue [emphasis ours].”

Autodesk expects to encounter a bump ahead in its revenue future. The acquisition of Innovyze (see Autodesk’s acquisition of Innovyze a $1 billion Bet on Wet Infrastructure) will cause revenue to be deferred for years. Innovyze makes civil engineering software for water management systems, giving Autodesk a new customer base and allowing it to address a market that is worth $1.7 billion annually, according to the company’s estimates. Innovyze has launched cloud versions of its applications and was in the early stages of migrating its user base from perpetual licensing to subscription. That process is now in Autodesk’s hands. Have no fear, “we’re good at this,” said CEO Anagnost. He doesn’t expect to see any profit from Innovyze for a couple of years. “We also intend to apply our expertise in navigating through a business model transition to drive additional growth in fiscal 2024 and beyond,” he told the Zoom assembly of financial analysts.

Only 3 percent of Autodesk’s revenue is currently from maintenance agreements associated with perpetually licensed desktop software. Anagnost counts 130,000 users or perpetual software licenses as having switched to subscription this quarter, making a total of 1.3 million conversions to date.

The biggest gains were in the AEC product family, which shot up $271.5 million, up 20 percent from the previous year. At $1.65 billion of annual revenue, it is now over twice the size of the Manufacturing product family, which brought in $799 million in revenue. Again, CAD stalwarts AutoCAD and AutoCAD LT not only refuse to fade away, they also appear invigorated, with a 16 percent increase in revenue to $1.1 billion.

Many AEC products were mentioned: Autodesk Construction Cloud platform, Innovyze, Pype, PlanGrid, BIM 360, Spacemaker [Tandem was not mentioned but it is still in beta] and a single source of truth.

“Our development team did an incredible heavy lift and an amazing job unifying what was the best of PlanGrid, which with the best of what we had in BIM 360, we now have Autodesk Build on this foundation of Autodesk Docs,” said Anagnost.

“We have the best office to trailer solution, said Anagnost, proud of the company’s AEC applications. “Our portfolio is now best class.”

Nevertheless, Fusion 360 is called the company’s “market-leading cloud-based platform.” Fusion 360 enjoys 140,000 commercial subscriptions, according to Anagnost, who also promised that much about Fusion 360 will be announced at Autodesk University. We think Autodesk leads in commercial subscriptions as its main competitor for cloud-based design software (Onshape) keeps its commercial subscriptions a closely guarded secret.

This was the quarter for EBA, said Anagnost, speaking about enterprise business agreements. Autodesk is proudest of Jacobs, a 30-year customer that he called “the world’s biggest design firm.” Jacobs has renewed and expanded its involvement with Autodesk products, in particular Pype, PlanGrid and Assemble.

Other big deals quoted:

• Environmental Air Systems, a mechanical contractor and manufacturer of custom HVAC equipment started using BIM 360.
• Tyréns, a leading sustainable urban development consultancy in Sweden, significantly expanded its strategic platform partnership with Autodesk. Tyréns uses Revit, BIM 360, Docs and now uses Forge to leverage those assets as digital twins.
• Rivian, manufacturers of electric pickup trucks and SUVs, has expanded its use of Autodesk from its design studio with Alias, VRED and Shotgun to its facilities with Revit, BIM 360, and PlanGrid.
• Russian train manufacturer Transmashholding now uses Alias for concepts, Inventor for designing, Fusion 360 for optimization, and Powermill for CAM and VRED for its marketing.

This many big company wins for Autodesk is a significant shift for the company long content with all of the little deals, selling to small and medium sized firms, individual architects, and taking pride in “democratizing” software with lower priced software, while big companies, for whom price seemed no object, made their big deals with PTC, Dassault Systèmes and Siemens.

Adding Innovyze, which counts many big companies among its customers, will help Autodesk lift its playing field even higher.

The biggest gains by region were in Asia, with APAC (Asia, Pacific, Australia, China) posting a 23 percent increase in revenue, followed by the Americas (at 14 percent) and 13 percent in EMEA (Europe, Middle East and Africa).

Autodesk continues to sell more directly, bypassing the reseller network (VARs) it once relied on exclusively. The company sells to large accounts (enterprises) directly. Direct sales rose 28 percent, mostly on the strength of enterprise business arrangements, we suspect.

The “named subscription” program had a bumpy ride last year. “Our customers did not appreciate that during the pandemic,” Anagnost admitted and signaled a changed or altogether new program that may be more appreciated by infrequent or low-usage customers.

If you have been paying attention to the one-upmanship as design software companies brag of gains in the education market, be prepared to be blown away. Autodesk has 40 million students using Tinkercad and Fusion 360 alone, according to Anagnost. He provided an example of University College London’s school of mechanical engineering, which switched to Fusion 360 this last quarter.

“Our strategy is to digitize AEC, converge design and make in manufacturing, and monetize non-compliant and legacy users,” said Anagnost, making getting money from users who abuse individual software licenses a stated mission.

Another reason why Autodesk is bullish on SaaS software is that pay-per-use is built in. Autodesk, like every design software loaded from a CD, was widely copied. AutoCAD’s universality is, in large part, due to its wanton piracy.

Autodesk catches users of pirated software by raiding the companies, exposing the pirated software, and forcing the companies to go legit or face fines or jail time. Whatever is the electronic equivalent of bashing down, Autodesk states that it is finding “non-compliant companies and forcing compliance through subscription-based licenses, aiding their goal of full subscription for all.”

This happened with 23 “deals” over $500,000 last quarter, said Anagnost, and with 3 over $1 million. One of the latter was a customer, identified only as European, that “became aware during its transition to named users that its employees were accessing licenses in regions outside of the contract scope.”

Sustainability, the cause everyone faced with the pandemic forgot, did get a mention. Barrons ranked Autodesk as the 4th most sustainable company right now, beating every other software company. Autodesk hired Lynelle Preston Cameron as director almost 10 years ago. Cameron still lists sustainability first, although her responsibilities have grown.

Autodesk announced the retirement of CTO Scott Bourdain with praise. Bourdain, who served as CTO under Carol Bartz and then Anagnost for a total of 21 years of service at Autodesk. Autodesk reached into the financial sector for his replacement, hiring Raji Arasu, formerly SVP for Intuit’s platform and services business.

Acknowledging the pandemic and those who have lost loved ones was a nice touch to start a mind-your-business serious financial call. There was a nod to vaccinations and the light at the end of the tunnel—and only the briefest acknowledgment of an oncoming “political stability.” Previous Autodesk CEOs have not been so civil.

Anagnost now wears the CEO role like a tailored suit. He was remarkably at ease with the language of finance, rattling off numbers so authoritatively that we felt no urge to check them, slinging TLAs that would have pleased any CFO. Anagnost did serve as interim CFO for Autodesk after R. Scott Herren left for Cisco, but he is not built that way. He has a PhD in rocket science from Stanford. No kidding.

If appointing Andrew Anagnost as CEO was a moonshot on June 19, 2017,  now is the time for his ticker tape parade.