Companies Want to Go Digital: Autodesk Says It’s Here to Help

Andrew Anagnost led off Autodesk’s recent quarterly earnings call. Another quarter had transpired against the backdrop of momentous history-shaping events. The world was still fighting off COVID-19. Despite glossing over previous quarters with an insistence that business was fine, today was an acknowledgment of “volumes [finally] getting back to what they were before COVID hit.” A trillion-dollar bill was about to put the country’s infrastructure back together and the state of California, where Autodesk is headquartered, was again in a crisis of drought and fire. Autodesk's answer to the last situation was more reservoirs. For those states with the opposite problem—too much water—we can help them, too.

“The flash floods in Tennessee—the speed and severity of floods—are all related to water infrastructure,” said Anagnost. It was a chance for Autodesk to offer tools to help fix the problems, with those it had gained from its acquisition of water management software company Innovyze.

But first, there was the matter of the finances for which the financial analysts had assembled. For that, Anagnost turned to Debbie Clifford, who rejoined Autodesk a little over a year ago as CFO. Not a moment too soon for Anagnost, the rocket scientist (PhD, aerospace and aeronautics, Stanford) who has done an admirable job playing the financial for the last year, who can now return to numbers without dollar units and focus on products and strategy.

Autodesk had another solid quarter financially with revenue of $913 million, up 3 percent from the previous quarter, and it generated a profit of $98 million. Its revamp of licensing was firmly in place (from the perpetual licensing format to subscription). The company was churning out new technology continuously, especially cloud-based products for the architecture and construction market, and had acquired a solid reputation for high tech.

“We anticipate revenue growth to accelerate in Q3,” said Clifford, who added a note of caution for the fiscal year-end. “Strong up-front revenues in Q4 last year create a tougher comparison in Q4 this year, which will reduce revenue growth a bit when compared to the third quarter.”  

Autodesk reaffirmed its focus on architecture, engineering and construction (AEC), which has been consistent for the duration of Anagnost’ s reign. AEC has historically lagged in technology adoption, and Autodesk sees that as a pot of gold it has an excellent chance at finding. The company’s penetration into AEC, with widespread use of AutoCAD and Revit, makes it the most prominent of the software vendors that service—or hope to service—the AEC industry.

AEC revenue growth was the highest at 21 percent, followed by manufacturing, at still a respectable 12 percent. Revenue from AutoCAD and AutoCAD LT grew by 12 percent.

The APAC (Asia Pacific) region led all others in revenue growth, up 21 percent; EMEA (Europe, the Middle East and Africa) was next, up 16 percent; and the Americas was third, up 14 percent.

Autodesk drew attention to Dutch customer Stamhuis, a company that specializes in retail shop construction and renovation, which has been able to “optimize client retail space, reduce design and construction errors by 15 percent, and improve its ROI by 10 percent.” Stamhuis uses generative design extensively, including Dynamo and Project Refinery.

New customers are coming in through digital sales about three-fourths of the time, reported Autodesk, increasing the number of direct sales for the company—a departure from its historic reliance on value-added reseller (VAR) channels.

Billings rose to a billion dollars, a 29 percent increase, resulting in a cash flow of $186 million, despite the economic uncertainty from a worldwide resurgence of COVID-19.

The company spent almost the same amount ($189 million) over the year buying back stock. Autodesk did not give a reason for the stock buyback on this call. Reasons for buying back stock can vary, including having too much cash on hand—which may seem strange to engineers but is apparently viewed as a liability by financial analysts—or a market so saturated with a company’s products that there is little hope of growth.

Indeed, it does seem that everyone who needs AutoCAD or Revit may already have it. And that probably explains why Autodesk has been in acquisition mode. Growth by acquisition is the quickest way to grow.

The $1 billion Innovyze acquisition, Autodesk’s biggest acquisition at the time, may only have whetted Autodesk’s appetite for more. In June, Autodesk failed in its $3.9 billion bid for Altium. It would have been a game changer, altering the landscape of the software industry and shuffling the ranks of the Big Four of design software.^[i] Understandably, Autodesk made no mention of the failed bid during this call. Really, who would want to talk about failed anything.

Like failing to land a superstar quarterback to help get into the Super Bowl and then having to rally the players who weren’t good enough to get there, Anagnost praises the EAGLE-Fusion team for electro-mechanical design. He has to. Mechanical design is getting smarter and more electrical.

“We bought EAGLE several years back and we have now tightly integrated it into the Fusion platform,” said Anagnost while reemphasizing the importance of having electrical and mechanical tools under the same roof.

“An integration between electronic PCB design and the associated mechanical designs that either contain it or actually interact with it makes a smarter product. We’re already attacking the convergence organically with our products. We believe leading-edge customers are going to be driving and using converged processes. Our visions match. We are still going after that market with Fusion and EAGLE and we’re already moving up into the mid-market with some of these tools,” said Anagnost, as if to say, who needs Altium? “This vision is not going away. Look for us to continually increase what we’re doing with EAGLE to make those convergences between mechanical and electrical design more fluid, more integrated and more automated.”

We may not have landed Altium, Anagnost is saying, but the point is we are going to move ahead with EAGLE. And the hope is that we will be as successful with electrical design as we were with manufacturing. EAGLE is not Altium, but we have it. We can offer it to all those who already know us, trust us—those who increasingly need to incorporate electrical components.

Indeed, the race is not always won by the most deserving or the most robust. We offer as evidence Sony Betamax, which lost the videotape war to VHS. Excel won over Lotus, which had a better spreadsheet, by providing a deal no one could refuse—a spreadsheet and a word processor in the Office bundle at a price less than the sum of the parts. Autodesk is not only familiar with Microsoft’s tactic, it has also used it. Putting Inventor in the box along with AutoCAD gave millions of users a mechanical solid modeler that was not the most robust, but it was within easy reach and involved little extra cost.

As Autodesk catches its breath from the failed Altium bid, the fast-growth strategy gives way to organic growth. Autodesk can paint the picture of organic growth and gave guidance for $4.3 to $4.4 billion in revenue for the year, up 15 percent year over year.

The company’s focus on AEC rolls out “end-to-end cloud-based solutions that connect data and workflows and business model evolution” by exploiting “digitalization trends are accelerating the need to connect all phases of design and construction.”

So heavy is the emphasis on construction that the company’s design products are referred to as “pre-construction software.”

Anagnost mentions a “large semiconductor firm,” previously a customer of its mechanical design software, that recently adopted AEC software.

A new product, Autodesk Build, which was introduced in February for construction project management, field collaboration, quality, safety and cost control, already manages “11,000 projects, according to Autodesk.

Beta versions of Info360 Asset, a cloud-based graphical database for the water industry, fruit from the Innovyze acquisition, was released this quarter, as was Tandem digital twin that we covered back in March.

There is much said about costs and cost management. We understand that construction projects are some of the costliest. It is not uncommon for billions of dollars to be spent on a big project. Autodesk must ache to see big money just out of reach. Going after new territory can be a stretch. Most of the time, the territory is already occupied.

Autodesk may believe that financial and project management software companies who know the construction industry know little about construction, and a construction-familiar building design software vendor has an advantage. Indeed, Autodesk may have a point. One well financed ($1.4 billion) construction management software company, Katerra, closed its doors in June.

Anagnost calls Autodesk’s advantage a “full wrap of software around construction” and talks of becoming a “strategic partner” to these firms.

Anagnost drops a change to Autodesk’s business model.

Too soon? Was it only 4 years ago, with Anagnost taking the reins at Autodesk, that the business model completely changed from perpetual licensing to subscription?  This year’s business model change may be account-based licensing. As opposed to—or in addition to—licensing to individual users, account-based licensing gives licenses to everyone in the company, and at its most extreme, licenses for all a vendor’s applications.

Autodesk is still trying to make honest users of the estimated 2 million pirates, or those it refers to as (“noncompliant users”) running copied versions of its software. Autodesk counts as a win a Vietnamese[ii] firm that has converted to legitimate use. Autodesk found 11 companies that were noncompliant and each are now paying over $500,000, six of them over $1 million.

To address software piracy, the answer may be another type of licensing. Earlier this month, the company rolled out its Flex program that offers a pay-as-you-go scheme for the infrequent or occasional user—presumably with lower pricing for regions where the current cost of a software license is out of reach for the typical user.

“Back in the ’90s, we attacked the ‘long tail’ of customers with a set of discrete products, tons of little products,” said Anagnost. The new way is to open up licensing, accommodating those that have an occasional need for platform products.

As the financial call was winding down and Autodesk’s mechanical design (manufacturing) would get no love from Anagnost, Fusion 360 was mentioned multiple times.

Fusion 360, Autodesk’s mechanical, electrical, simulation and manufacturing tool of the future, a veritable Swiss Army knife, makes an appearance as an accidental hero.

There were 600 apprentices using Fusion 360 for training at Germany’s Energie Baden-Wurttemberg AG, EnBW to the 43 million users[iii] of Tinkercad and Fusion 360 in schools worldwide.

And the “Fusion 360 Extensions are helping to increase our average revenue per subscriber and capture more potential opportunities,” said Anagnost.

Autodesk revealed that its Fusion 360 has a most respectable 165,000 paying users. It’s main rival will not reveal its number of paid subscribers. We think Onshape is waiting until such time that it can announce a higher number of paid subscribers, and unless it can do so, it will remain silent on the subject.

The multidiscipline approach of Fusion 360, spanning design and manufacture, is the reason why an unnamed “American multinational medical devices and pharmaceutical company” used Fusion 360 and Moldflow in back-and-forth iterations, optimizing design with simulation of a new injection molded product.

Indeed, the ability of Fusion 360 to tick off so many parts of the product design and manufacturing process has made many big firm CIOs with a mission to affect a “digital transition” wonder why they are spending more on enterprise design and manufacturing software.

Anagnost closes the quarterly call with the idea that Autodesk can assist leading big companies in their digital transformation. Autodesk, which more than any of the Big Four, can be considered the people’s choice—its name more familiar, its products more accessible, and of late, its applications, specifically in AEC, more modern and cutting edge than those offered by other companies.

“Sustained and purposeful innovation to digitally transform the industries we serve is transforming our relationship with our customers,” summed up Anagnost. “As we help our customers grow, we will grow.”