Please welcome Dave Giannarelli, Autodesk Investor Relations.
All right. Good morning, everybody. Welcome again to the Autodesk Gallery and to the Autodesk Investor Day 2018. So by now you should all have an agenda on your desktop. You'll see that we'll take a short break in the middle of content.
And please hold your questions till the very end and we'll do one long Q and A session at that point. And then I welcome you to stick around, have lunch with our speaking executives and then feel free to look around the gallery and spend some time here. So with that, we have a lot of ground to cover, so we'll get right underway. Thanks.
Ladies and gentlemen, please welcome Autodesk President and CEO, Andrew Anagnost.
Good morning. I'm used to better responses than that. Yes. Good morning, fans, skeptics, everyone in between. How's it going?
Was the breakfast good? Sorry, I wasn't down here chatting. I had a customer call this morning and that's where you want me to be. So it's a good thing for me to be doing. I'm going to spend most of my time talking about what Autodesk looks like in 5 years and the five outcomes we're going to drive to get there.
But I think I'd be a little remiss if I didn't spend a little bit of time just kind of talking about, hey, what's happened over the last year? And what's happened since the last time we all got together at the Investor Day? So first off, let's talk about what's happened over the last year. So last year, we actually booted up a whole new leadership team. We rolled out a whole new set of strategic priorities to the company.
And we use those to increase the executional focus inside the company. That's a lot of change to absorb in a year. And I think one of the exciting things to talk about with regards to all of that change is the outcomes we had as we got to the end of the year. So by the end of the year, we'd grow in the recurring revenue 25% year over year, absolutely above our long term targets, 5% ARPS growth year over year, the much anticipated ARPS inflection and the stock price grew 42% year over year. So a year with a lot of change, but a year with a lot of results as well.
And if we look back at the Investor Day that we last had, there's a few things that actually came true exactly as we said they would. And I want to just kind of review them at a very high level. First off, last time we said that the recurring revenue of the product subscription and some total subscription line was going to exceed the maintenance line and it did. It's now become the majority portion of the recurring revenue of the company, which is a great outcome and it's continuing momentum. We also talked about ARPS inflecting at the end of the year ARPS inflected at the end of the year.
The other thing, although we didn't give exact specifics about what the subscription targets were for FY 2018, but it's important to note that the core subscription based growth, what we've been calling core EBAs, maintenance and processing is exactly on pace to what we expected when we were standing up here at the last IR Day. And remember, and I'll show it and I'll reinforce it, core drives most of what's happening as we go to FY 2020. It's not what's going to drive what happens as we hit to FY 2023. So now let's change gears a little bit and talk about Autodesk 5 years from now, because the Autodesk that we're going to be talking about when we're standing up in this stage 5 years from now is going to be quite a bit different from the Autodesk we're talking about today. So 5 years from now, we're not just going to have a conversation about Autodesk being the leader in desktop design software.
We're going to be having a pretty nuanced conversation about how Autodesk has become the leader in design and make automations. And I specifically use the word automations in there. And I'll talk about what that means and you'll hear a lot more about what that means as we go through the day. But what this is going to result in is that we're going to be very tightly integrated into our customers' processes, not only helping them come up with design solutions, but actually helping them figure out how to turn something into a physical asset. And that's going to be a really exciting transformation.
It's also going to lead to another important transformation. It's going to drive the change of Autodesk into a customer company. Now, we've been well known as being a desktop software provider with a lot of really strong distribution capabilities. But when we're standing up here 5 years from now, people are going to be looking at us as a company that's really focused on the success of our customers and taking a lot of responsibility for the success of our customers. And that's going to be an inevitable outcome of being tightly integrated with their design and make process.
5 years from now, every company in our space that matters is going to be a subscription company. We will not be having this conversation about who went first, who took the arrows, who actually got out in front, everybody that matters is going to be a subscription company. But because we went out there first, as we head into the discussion that we'll be having 5 years from now, Autodesk would have been able to apply machine learning in combination with the data that our customers agreed to share with us to really create push button automations. Push button automations that allow them to automate the process of taking a design into a set of instructions that can either be manufactured or built. And that's going to be a very significant change because even though every company we compete with is going to be a subscription company, Autodesk is still going to be ahead on the business side because we would have become what I'd like to call a consumption company.
And what that means is we're not just subscribing and selling access to solutions, we're actually selling people outcomes. Push the button and turn your design into a set of instructions that can be used on the construction site. So not only will people be paying access to a subscription, they'll be paying for outcomes through consumption. And that is going to be a really significant change. And it's going to be something exciting that we can talk about in 5 years.
It's also going to mean that we're going to empower our customers to make a lot more products, make them better with higher quality and reliability and with less negative impact on the world we live in. And I want to spend just a few minutes on this slide, you'll hear a little bit more, but I want to know why I want to tell you why I think this is so important. First off, this concept of more. More is inevitable. Population is growing, the middle class is growing, developed world,
there's going to be
a huge increase in urbanization in the developing world. People are going to want more, more buildings, more roads, more infrastructure repairs, more products. And they're going to want those products to be very, very customized to what they want and how they want to use them. The problem with more is, it's really difficult to deliver more with the current capacity. In the built world, there is a huge capacity constraint problem.
There is not enough people. So when you think about automation taking away jobs, let me be very clear here. In the built world, there is not enough people to meet the capacity of what we're trying to do. There's not enough money and there is just not enough natural resources to do more. But if you provide the right kind of automations, you're going to let people be able to do that more, do it better, do it with fewer costs, lower cost per project, per product, less energy and less use of resources.
So we believe that this is going to be our new competitive differentiator in the space. We're working really hard on it. So you'll hear a lot more about more better with less negative impact on the world as we move through the next 5 years. So that brings me to the 5 outcomes. What's happened for Autodesk over the next 5 years that's brought us to being a different kind of company?
And here's kind of the things I want to walk you through. And each throughout the day to day, you'll get a little bit more information about each one. But I want to touch on each one just a little bit one at a time. So let's start with, we would have completed the subscription transition in 5 years. And it specifically says completed the subscription transition and not the business model transition or the business model change.
And the reason we use that language is because this isn't just about creating value for ourselves, it's about creating value for our customers and ourselves. Because the customers need to come along with us on this transition. And for them to come along with us, they need to believe we've created a valuable outcome for them. So when you look 5 years from now, people will still be using these traditional desktop products, AutoCAD, Revit, Inventor. They'll be very different.
How the products are delivered, what they're connected with will be different. But the customers will see a value increase that they're really not expecting right now in terms of capability, functionality and value. And that's an important focus of what we're trying to do is ensure that these customers believe that the subscription transition has been good for them as well as good for us. Now when we look at the outcome for ourselves in terms of value creation, when we last talked at IR Day, we rolled out 20 four-three-twenty. Now I think it's and by the way, the $1,400,000,000 in free cash flow, which on a constant share basis translates to 5 dollars -six in free cash flow per share.
Now it wouldn't it won't surprise you at this point, because we've been kind of setting the stage as we've been having discussions in the earnings call that we're actually modifying this paradigm a little bit. So I'm going to show you how we're modifying it. It's moving to a formula of 25, 6, 18. So actually what we're doing is we're talking about a better outcome today, higher growth in recurring revenue at higher ARPS and at a lower subscription CAGR. You're going to get a lot more detail on this as we walk through the rest of the day.
But this is a pretty important change. It's a great change. It actually says we're going to deliver more with less, not to play off that earlier phrase. But what we're not backing away from is the $1,400,000,000 in free cash flow. So there's a bunch of things that we're changing, but reaffirming to and it's an evolution based on the performance we've had to date.
And I think it's a really positive outcome. So now let's look at how we're going to get there. And I'm going to bring back some slides I brought up last time. Some of you probably remember this slide where I broke out the ARR and subscription growth numbers between FY 'sixteen and FY 'twenty. And what you see and what I want you to remember is that the core in terms of getting to FY 'twenty is the big driver and the core being the sum of product, EBAs and maintenance.
Yes, there's contributions up there from the new business that's related to cloud, but it's the core that you're already starting to try to size the he put his glasses on as soon as this came up. So you can see that the core is the big driver. And you can also see how we modified the subscriptions. And you're going to learn a lot more about how we've consolidated the cloud portfolio to a tighter set of subscriptions later on in the day. But you'll get a lot of the logic around how this change.
You can also see how the ARPS have trended up relative to previous statements. Now, if we look out from the gap between FY 2020 2023, this is something I didn't show last time. This gives you a snap on how we continue to drive growth with the new businesses and with the core. And one of the things that might surprise some of you is the core continues to deliver value out to fiscal year 2023. But the cloud and the new businesses and the cloud is really just a proxy for the new businesses becomes a much more important component of the growth that we deliver in FY2023.
And you can see it's up the scale of $500,000,000 I mean the scale is kind of obviously how big some of those numbers are in those little boxes. And you can see the CAGRs from ARR from 20 to 23 and the subscriptions and you can see where the ARPS start to trend out. So that should give you a feel for how we drive to some of the financial outcomes we'll be talking about today. And again, you're going to get a lot more detail. The next thing I want to talk about in terms of the 5 outcomes is digitizing the company.
So 5 years from now, Autodesk will be a fully digitized company. And what does that mean and why is it so important? If you want to be a design make provider in the cloud, you have to enable a high degree of self-service and visibility to the customer that allows them to understand what they're doing with their Autodesk products, how they're using them, and how they can kind of manage their relationship with Autodesk all on their own. And at the same time, you have to be able to provide instantaneously real time insights to everybody inside of Autodesk about what are the customers doing, how are they using the products and how can we help them be more successful. So when we talk about Autodesk being digitized in 5 years, that's what we talk about.
A flexible, scalable environment that not only delivers a great customer experience, but delivers a great ability to provide self-service to our customers and self-service internally so that we can understand our customers a lot better. And we'll be able to do that 5 years from now. We'll be able to do it a lot sooner than that. Now the outcome I'm particularly excited about is this third one. And this is an idea of moving the building information model across the entire construction process from the start to the finish.
Now, what does this mean? What this really means is just like what's already happened in manufacturing today is that the building information model becomes the record of everything that's happening, not just the design decisions, but the decisions that go into how is this particular assembly of building components disaggregated into parts that can be manufactured and then delivered to a construction site and assembled in a particular sequence, which by the way starts to sound a lot like a manufacturing process, which we'll talk about a little bit later. But the key point here is that the building information model is the single source of truth across the entire process. Again, this is another one of these inevitable outcomes, because this is exactly what happened in manufacturing and it's exactly what's going to happen in the AEC world. So stay tuned for that.
When we're standing up here 5 years from now, it would have happened. Now in the manufacturing space, we've got an even more exciting opportunity in terms of impacting what our customers do with their process. And that's this idea of automating the idea, the concept of going from design to manufacturability, always knowing that what you design is manufacturable by a particular technique and being able to make those decisions instantaneously. So if you look out 5 years, and again, we'll get more detail as we go through the day, you'll see that we've automated the process of creating geometry based on what the customer is trying to do and the manufacturing facility they're trying to use. So instead of somebody trying to create the geometry and shove it into something, the geometry is created to adapt to what they're already using.
This is an important fundamental change. We've been talking about it for years. We're way ahead in executing on this. And 5 years from now, we would have made huge progress and we'll be talking about a lot of the exciting automations we've been driving into the customer base, which brings me to the last one of the 5 outcomes. And this is this idea that manufacturing and construction converge.
And this is another one of these inevitable things. And when I talk about them converging, I'm not talking about them converging the same to the same thing that manufacturing is today. No, both of these industries are going to converge to something different. Construction is highly flexible. You could do anything you want in the construction site.
Everything in those drawings, everything in those building information models today is open to interpretation. Manufacturing on the other hand, highly inflexible. Factories optimize to build one thing really well, pump it out in mass quantities at high quality. What's going to happen in the future is construction is going to absorb some of the goodness of manufacturing and become more inflexible in certain processes. And manufacturing is going to absorb some of the goodness of construction and become more flexible, so that a factory that used to build one thing really well can rotate to build many things well at high quality.
This fundamental change of these 2 very seemingly different industries trying to look a lot alike in the way they build things is something only Autodesk can drive. Only Autodesk, right? And I want you to understand why only Autodesk can do this. Not only are we the only company that understands the building information model and the data and the leader in it, but we're also the only company that simultaneously understands manufacturing, manufacturing processes, manufacturing data flow. So this is going to happen.
Construction sites are going to have robots, they're going to have machines, they're going to have the equivalent of manufacturing engineers, and factories are going to be more flexible. And we're going to help the 2 get there together. And that's going to be one of the big exciting changes over the next 5 years. And I'm looking forward to talking about it. And we're going to talk a lot about how we get there today.
So these are the 5 outcomes. And we've tried to set up kind of a narrative today, so you can get at least a good chunk of information about each one of them. How we completed the subscription transition, which is not going to take 5 years, that's a lot shorter. How we digitize the company, driven the BIM model through the entire process, automated design for manufacturability and brought construction and manufacturing together, all over a 5 year period, all ending with Autodesk becoming the leader in design make automations. Now to help you understand the flow, here's what we're going to talk about today.
Got a new management team, you're going to get to meet all of them. The first one you're going to get to meet is Lisa Campbell. She's our Senior Vice President of Business Strategy and Marketing. She is going to talk about the construction and manufacturing opportunities, the TAMs, what we're doing today to address them, how we're going to address it moving forward. Scott Reese, who you haven't met yet, is our Senior Vice President of Manufacturing, Construction and Production Products.
So he's driving the cloud platform and all the cloud products that are focused on construction and manufacturing as well as video production, which we won't talk much about today, but we'll talk about in the future. His job is to help you understand what the next generation of construction and manufacturing solutions are going to look like. And Steve Blum is going to come up, you've met Steve before, so that will be a familiar face. He's going to talk about how we're building machinery to deliver the ARR growth, not only up to FY 'twenty, but into this new world of being a design make company in the future. And then Scott is going to come up and give you a view of how the financials play out over FY 2020 beyond.
And then I'll come up and offer some closing remarks. So with that, I would like to introduce Lisa Campbell.
Hi. Good morning. Today, I'm going to talk to you about the next two big growth opportunities for Autodesk, construction and manufacturing. Now construction really hasn't changed much in the last 50 years, still very complex traditional processes, not much productivity or technology tools. But what we're seeing with population growth and with urbanization is that the number of construction projects are going up.
And that means they need technology and that's going to create that first big growth opportunity for us. Now with manufacturing, we're seeing technology that is completely transforming the way you design products, engineer products and manufacture products. So the old ways of manufacturing products with mass productization where you have the big scale, that's not going to work anymore because what people want is they want to have products that are made to order and that is where you need new manufacturing processes. So what I'm going to do is I'm going to first dive into our construction opportunity. Now, the United Nations has estimated that we are going to have 7,000,000,000 people living in cities by the year 2,050.
So let me just give you a little context about that. Today, we have 3.5. Imagine all of us living in the cities that we have today. It's kind of unimaginable. The other thing that that means is the number of buildings that we have has to go way up.
In fact, estimates are that we have to build 1 1,000 more buildings per day than we're currently building. And imagine doing that with the low productivity that we currently have in construction. Now what's the problem? Again, if you look at this chart, it's pretty staggering. So this is construction.
Look at how much manufacturing. Manufacturing is 3 times more productive than construction and we all know why. They've been investing in IT technology for several years. Construction has not been doing that, but they need to do that. Now the reason for this productivity lag, as you can see, you look at this chart and you say there's complexity.
That's because that's the current construction process. It's fragmented and there's no standardization. And coupled with that, it's all manual. Look at the Post It notes. This is how we're planning complex construction projects.
There's been no technology applied. Now I thought it would be good to actually show you a real construction project. So what you're looking at, if you can't guess, this is actually in Hong Kong, And this is a metro project in Hong Kong. Now what's the first thing you think of when you see that? You think complex, you think messy, you think they need some technology.
Now imagine if leading edge construction firms said, how about if I use some advanced manufacturing construction process. They have 30% waste on construction sites today and imagine what this kind of manufacturing technology would do to that kind of waste. Now the other big challenge, so we said we have population growth, we have urbanization, we have to build 1,000 more buildings a day. Well, those buildings have to be built sustainably. Right now, the estimates are that every building takes up with all the buildings rather in the world, that's about 40% of our global energy supply and about 25% to 35% of CO2 emissions.
And by the way, it's not just new buildings. What about all the existing buildings that we have? Those have to be refreshed. And by the way, we have to build the infrastructure around those buildings. So you take all of this into account and then you might say, why is Autodesk so excited about this construction opportunity and why now?
And I'll tell you why now, because change is happening. 3 weeks ago, the United States put out a jobs report that we have added 313,000 jobs. 1 in 5 of those jobs is in construction. And by the way, those are high quality jobs. These are jobs where they need technology.
Now, if you think that number is impressive, this is from the McKinsey Global Institute. Now, within current investment trends, what they are projecting is that we will add 53,000,000 new building construction jobs and 34,000,000 new infrastructure construction jobs. That's at current investment levels. Now, if we actually built what we needed to build in order to hit this population targets and urbanization, you're talking about over 200,000,000 new construction jobs for both building and infrastructure. All of these high quality jobs that require technology.
Now what's the other big change that we're seeing besides all of these new jobs being created in construction? We're starting to see technology infrastructure be adopted on the construction site. I'm talking about laptops, tablets, smartphones. Daily usage is going up. Now what does that mean?
Because we've all seen this before. When you see technology infrastructure be adopted, we saw it with CAD and we saw it with BIM. Software applications follow. And it's inevitable for construction. This is going to happen in construction as well.
So what I thought I would share with you is what does this mean in terms of a new expansion TAM for Autodesk. We are talking about an incremental $10,000,000,000 in new construction TAM. Now last year, we talked to you about the $12,000,000,000 in design TAM that we already successfully pursue in AEC. In addition to that, we are going to be pursuing this $10,000,000,000 new TAM in construction and we believe this will be the next $1,000,000,000 business for Autodesk. Now by the way, we're not the only ones seeing these trends happen in the marketplace.
There's been over $1,600,000,000 in venture capital funds that are going into new construction software startups. These are startups that are seeing this exact same opportunity and the fact that technology must come to construction site and to digitize construction processes. Now, what is Autodesk doing to secure this opportunity right now? So we're building solutions in 3 areas. And by the way, we're connecting all of these solutions.
Solutions for the office, because that's where pre construction planning happens, that's where costing happens and that's where procurement happens. Solutions for the trailer, because that's where tasks are assigned, that's where safety protocols are defined, and that's where performance is analyzed and in the field, because that's where construction actually happens. That's where they do progress inspections, where we track and log issues and where performance is actually measured. And we are connecting all three of these, the office, the trailer and the field. So I thought what I would do is share a few examples of customers that are already benefiting from our construction solutions today.
Now JE Dunn, for those of you who don't know JE Dunn, they're a top building contractor. This project is the Lenexa Civic Center in Kansas City, Missouri. Now, here's what JE Dunn did. They used BIM 360 in conjunction with 2 internally developed applications. And what they were able to do is they took the BIM model and they were able to provide real time data, pricing data on every element of that BIM model.
And that went to the pre construction team. Now why is that a big deal? Because they were actually able to make decisions quickly and efficiently, structure type, skin type, square footage. That process is usually highly fragmented. It's always interrupted.
There's always delays because people are trying to find data to make these decisions. And they were able to streamline that entire process using BIM 360 with some of their internal applications. And look at what the result was. $11,000,000 shaved off the construction estimate and 3 months shaved off of the schedule estimate. Now let's just pause here for a second.
When's the last time any of you saw a construction project that was coming in under budget and ahead of schedule? Okay. Not many people are nodding. Now here's a second example, Balfour Beatty. Balfour Beatty is in the U.
K. And they're a general contractor. Now what they are doing is they are working on a renovation project for the London Olympic Stadium. They are using BIM 360 to literally digitize their construction processes on the site. And here's what they've been able to accomplish with BIM 360.
Now you do progress inspections, right? When somebody finishes a room, you have to go do a progress inspection. That went from 3 hours to 1 hour. And then you have to log issues. And issues went from 10 minutes to 1 minute.
Now some of you might say, why is that a big deal? Because in a project of this size, there are 100, if not 1000 of issues like this that are logged. So going from 10 minutes to 1 minute is a big savings. And they also have to do weekly quality checks. And they have a lot of staff on-site.
That went from 6 hours to 30 minutes. Now JE sorry, Balfour Beatty is actually using BIM 360 on all 70 of their projects right now. So what does that add up to? That's 14000 hours that they believe they have saved because of BIM 360. I think that's an amazing return on investment.
And by the way, it's not just JE Dunn and Balfour Beatty that are benefiting from BIM 360. Take a look at this chart. Now this is BIM 360 subscriptions over the last 3 years. We've had 10x the growth. So this is showing you how successful BIM 360 is when it's being used on construction sites.
You get the same kind of benefits that JE Dunn got and that Balfour Beatty got. Now what else are we doing? We are trying to simplify the portfolio. Now Andrew talked to you about the fact that we're going to get to a tighter set of applications. So we've done a lot of acquisitions and we've built a lot of tools and you can see that here for our BIM 360 offering.
Our plan is to go from 8 subscriptions to 4 subscriptions. You're going to have BIM 360 Docs for collaboration. You're going to have BIM 360 Design, BIM 360 Plan and BIM 360 Build. And they are all going to be tightly integrated with the building information model. The building information model is going to be the currency of construction in the future.
What else does this mean? This means that you're going to see the number of subscriptions go down, but you're going to see ARPS go up over time for these cloud offerings. Now why is Autodesk positioned to win in construction in the long term? Well, to reiterate, we are the only ones that are building this cloud platform that is the single source of truth for design, plan, build and operate, all anchored to the building information model. The majority of the world's BIM data is created and edited in our tools.
And everybody knows Revit. Revit is a leading BIM design tool. Now we're also building a network of 3rd party application developers that are feeding data to make this building information model more robust. And what is that doing? This is allowing Autodesk to deliver analytics and insights to construction firms.
Now everybody knows that construction firms want to mitigate the risk, and I want to protect my construction margins. Now imagine being able to do predictive analysis on your construction project in the future. Imagine if you knew that you had built in the past on a specific location at the certain time of year and you knew you experienced 48% delays on that project. What would that do for your scheduling? Imagine if you were able to project price increases on materials, what would that do with your costing estimates?
And how about if you had an aggressive schedule and you know that one of your subcontractors is always late? What's that going to do to the schedule that you're proposing? And we're able to do this because look at the amount of data that we have in this platform. And this data is growing every single day. This is the kind of value that we are providing to construction customers.
And by the way, that's not the only unique advantage that Autodesk has. We have 93% of the top engineering news record global contractors using our BIM design tools our design tools. What does that mean? It's a natural evolution for these companies to want to work with us on our new construction platform. Now you heard Andrew talk about industrialized construction.
Here's the way I look at that. Think of a construction site as an open air factory, and you can do prefabrication off-site, you bring components to the site and you assemble them, or you bring new advanced manufacturing techniques like robotics or 3 d printing to the site. Imagine what that's going to do for the construction side of the future. And as Andrew said, Autodesk is an expert in manufacturing processes and technology. So Autodesk is the leader in BIM.
We are the only ones creating that end to end cloud platform for the entire lifecycle anchored to the building information model and we are experts in manufacturing to help the construction organizations move to industrialized construction in the future. And only Autodesk has all three of those things. So I've just a whole process to give you a feel for the CNC machine. Now what are we talking about? A cloud platform that is automating design and manufacturing processes with native generative technology.
And what does that do? You get thousands and thousands of unique products made to order to meet the demands of the new population. And this is what's creating that new opportunity for Autodesk. That's an $11,000,000,000 manufacturing TAM. Now last year, we talked to you about the $16,000,000,000 TAM in product design and engineering.
And now we have this additional TAM of $11,000,000,000 in manufacturing that we'll be pursuing. And by the way, we're not the only ones who are seeing these trends in the marketplace. Over $32,000,000,000 of new funds were announced for hardware startups in 2016 since 2016. And by the way, these startups recognize the need for the scale and for the scope. Now I'd like to introduce you to one of those companies that is a startup that's actually using our technology.
Now, Briggs Automotive Company is based in the U. K. And they're a new hardware startup for automotive. They're bringing a street legal race car to market. 30 people in their company, they're using new generative design and manufacturing solutions to do a few things.
Number 1, they cut the time to market in half of what it takes to get a conventional car to market. In addition, look what they were
able to do. With generative design and manufacturing,
they were able to This has been unheard of. Now in addition to hardware startups, we also have big manufacturing companies that use our technology. Greenheck Fans is based in Wisconsin, and they make industrial fans. Using our solutions, this is what they were able to accomplish. This is pretty remarkable.
They process £1,000,000 of sheet metal products per month. And every one of those products is unique. Every one is unique. Think about that. That is scale and scope, the future of manufacturing processes.
Now, we're not only winning with these commercial companies, we're actually winning the hearts and minds of the next generation of designers and engineers students. And that's creating this flywheel of momentum. So I want to show you how this works. So first of all, we will get a big large enterprise like, say, GKN Aerospace, and they're going to fund a project with students at the University of Warwick. And the project that they funded was he said, let's see if we can build a drone that can help find lost hikers.
And what happens? Well, the students build the drone with Fusion 360 and they fall in love with Fusion. And then what happens? They graduate and they go to work for instance at a job shop. And when they go to that job shop, they bring their love of Fusion to that company.
And in this case, Ben Bingham has brought Fusion 360 to more than 2 employers in his career so far. And then what happens? A job shop like Saunders has this huge community because they work with big vendors like Tormax. And he has the social media following of probably over 800,000. And then what happens?
We have go to the next illustration, please. They're wanting to build up the suspense. Okay. Back up just one, please. And what happens is that you then get job shops that are engineering service providers.
And what do they do? They use generative design and manufacturing to create things like this manifold. By the way, this manifold used to be 15 parts, now it's 1 part. It's 80% lighter and 20% cheaper. And then what happens?
You get an engineering service provider that provides to new hardware startups like ModBot. ModBot is a startup here in San Francisco, and they are revolutionizing the fixed axis robot market. And then what happens? Then you get big companies like Siemens, who buy this new technology because they want to automate and do new things on the manufacturing floor. And big companies like that are the ones that fund student products.
And then what we get is this flywheel of momentum, building the community of the future for manufacturing. And by the way, we know this is happening because if you take a look at the Fusion monthly active users, look at this acceleration. Now our students like to go on winter break, they like to go on summer break. So these dips are the fact that they're actually not using Fusion on the ski slopes. But what you will see is that we have dedicated customers.
We have students and we have commercial customers and startups that are dedicated to using Fusion 360. Now the other thing I want to point out to you is we are accelerating and compressing the timeline to add every new 50,000 MAUs for Fusion 360. We went from 7 months to 5 months to 3 months. Now what else are we doing? We are trying to streamline our Fusion 360 offering for customers to make it easy for them to buy and easy for them to implement.
And again, we're going to go from 9 subscriptions down to 3 subscriptions. And what you're going to see is we'll have Fusion 360, Fusion Lifecycle, Fusion Production and again, all of those built on a cloud platform that is automating design and manufacturing processes with native generative algorithms. So again, what are you going to see? You're going to see less subscriptions, but over time, you're going to see ARPS go up. Now why is Autodesk going to win in manufacturing in the long term?
Because again, let me point out, we are the only ones building the cloud based platform to automate design and manufacturing processes with native generative technology. And what we are doing is we are feeding product models into this platform, and it's coming from our tools as well as other tools in the marketplace. And we have a network of 3rd party developers that are feeding product model data into this platform. And what does that allow us to do? That allows us to provide analytics and insights to our manufacturing customers.
Manufacturing customers can use this to do predictive analysis. They can add new aftermarket services for their customers or they take the performance data of their product from out in the field and they understand how does that change my design process or my manufacturing process. Now Autodesk has a 7 year head start in all of our competition with generative technology. We started on this 7 years ago. Autodesk is the only one that is building that cloud platform for design and make processes with generative technology, and we are winning the hearts and minds of the next generation of designers and engineers students, and they are the ones that are creating that flywheel of opportunity and community building the future community for manufacturing.
And only Autodesk has all three of these things. So I want to thank you for your time. And I'm going to introduce our next speaker, which is Scott Rees, and he's going to go into more detail on the new solutions for construction and manufacturing. So with that, I'll turn it over to
Scott.
Thank you, Lisa. Good morning. Thank you all for coming. So my teams are responsible for building a lot of the products that you see here at Autodesk. And you've already heard a lot about the opportunities that we see in both construction and in manufacturing.
So what I wanted to do is to spend a little bit of time giving you some perspective as to what we're doing from a product perspective to realize those opportunities. And if you think back over our 35 year history, where we've spent a lot of our time is in helping our customers design the world around us, right? But if you get to know our customers, and many of you know them well, that's not where their work stops. They have to bring those designs to become a physical reality. Our opportunity is to converge this notion of designing something with the process of actually making it.
And that's actually how we see this big opportunity ahead of us. So let's talk about the big opportunity in construction, the $10,000,000,000 growth opportunity that Lisa talked about. This is an industry riddled with inefficiencies. It's messy. There's a lot of heroics, but it's also an industry being met with unprecedented levels of urban growth.
There's a lot of opportunity for growth for every one of our customers, but they have to work differently. Before we get too far ahead, let's remind ourselves of the process. What does it take to bring a building into the world? I'll start out with an owner. They have an idea for a project of what it is that they're trying to accomplish.
They sit down with the design team, typically an architecture firm. They flush out the next level of details. From there, they go into what's called the pre construction phase, the planning phase, where they're planning for the cost, getting an idea of the rough schedule. Once they have some level of agreement there, they move into the physical construction of the building out on the job site. Once the building is erected, the owner takes over, they they occupy, they operate the building throughout its useful life.
But when we talk about construction, we kind of use it as a broad sweeping term. We're talking about everything in the middle. And there's a lot packed in there. So we're going to peel that apart a bit and talk to you about what we're doing to realize those opportunities. But the thing that's different about Autodesk, we can do more than just address this piece in the middle.
All of you, you know us as the BIM leader. Indisputable
that we are the leader in building information modeling.
Our customers are creating an enormous amount of BIM data today. We see the opportunity to help We see the opportunity to help those very customers leverage that data to drive the entire construction process, something only Autodesk can do. So we'll talk about that as well. So let's start off by going out to the job site and talking about what we're doing there. Our strategy here is all about digitizing the job site.
And it's a little weird for me to stand up here in the year 2018 and talk about digitizing anything. I mean, just look around the room, everything in our lives is digitized. But remember, the construction industry has had some of the lowest IT investment for decades. So there's a long way to go. But that's changing.
The appetite is growing and for good reason. There's credible data out there that shows that the construction industry stands to save over $1,000,000,000,000 over the coming 10 years by simply digitizing their operations. So the business case for digitizing the construction site is crystal clear, and that's exactly what we're focused on with BIM 360. BIM 360 is where we tackle a lot of the here and now type problems that happen out on any job site that you go to. And a lot of these are kind of the tedious mundane day to day type problems that our customers deal with.
But these are the very problems that are critically important to manage if we're going to get our arms wrapped around efficiency and drive greater productivity gains. So what BIM 360 does is it helps them take the bigger construction project. They break it down into smaller and smaller tasks where they can manage the contractors on the job. They can manage the build schedule. They can track quality issues across the entire project, not just a piece of it.
And ultimately, they can know their costs to complete that project at any step along the way. But it gets even more interesting now that that information is digital, imagine what can happen when we marry that digital information up with machine learning, like the engine that we have in our BIM 360 Insight product. That's exactly what we're doing. We're piloting this product actively with several customers today, including 16 of the companies on the popular ENR 100 list. And by working with these companies, the system has already processed over 225,000,000 individual data points, and 30,000,000 of those alone were problems, real problems that happened out on a job site that caused some kind of disruption.
So by working with these customers and processing all of this information, what are we doing? We're training our machine learning algorithms to understand every step in the construction process, understand which steps lead to problems, understand the steps that remedy those problems. And now fast forward and think about what we're going to be able to do. With BIM 360, we're going to be able to predict and ultimately prevent a lot of those problems from ever occurring. Talk about productivity, that's the type of productivity gain that's going to take to help our customers realize the opportunities they have in construction.
But something that's unique about Autodesk in construction, we're not a point tool solution. We could do so much more. There's no one that has the potential to do the accomplish the breadth of problems that Autodesk does. In fact, we talked about how our customers are creating an enormous amount of BIM data already today. And we're focused on helping them leverage that BIM data to drive the planning process for construction.
So if you look at BIM 360 design, what we're doing is we're connecting that BIM data to the cloud. And by doing that, we're naturally driving the planning process. There's no guessing. They're using the actual BIM data. BIM 360 design starts to bridge workflows, but not just for the architects and the designers that we've historically worked with.
We're bringing in the general contractors, the engineers, the trades workers on the job, all into one common data environment, giving everyone access and control of the critical project data, something they've never had before. Our customers are already today standardizing on our authoring tools. And with BIM 360 design, they now have the common data environment they need to deliver those projects successfully. In this past year, we've added hundreds of new capabilities into BIM 360. It's a big investment for us.
It's getting better and better. But we believe connecting the BIM data to the construction process is only the beginning. If you think about our breadth and our reach into our customer base and into these industries, we believe we have an even bigger opportunity to drive the entire end to end AEC process. In fact, we have work already in flight that's going to show up in BIM 360 later this year that will help the designers, the construction professionals and get this the manufacturing professionals coordinate across all three disciplines. Right now, why is it important to bring the manufacturing professionals into this BIM process, into the construction process?
It's important because we believe that is an essential element of enabling what we see coming next, which is the convergence of construction and manufacturing. If you think of those processes, this is what we talked about earlier with the this is the industrialization of construction. And it makes sense, you visit any construction site that you see and you look at the types of problems, the things that these customers are struggling with, they're the same types of problems that manufacturing companies have perfected over 20 years. The job side of the future is going to become increasingly automated. It's going to be it's starting to resemble more and more of what you see today in a factory.
And this isn't some crazy idea that we just sat around here and dreamt up. Our customers are thinking this way today. They're starting to drive these processes. And we have work underway to help enable these workflows. Let's take a look at a solution that we're working on that takes the building design that our customers are already creating and breaks the building model down into panels.
It looks for unique panels and understands all of the elements that have to go on to that panel. It feeds that information into Autodesk Inventor to create fabrication models and then feeds it into fusion production to manage the fabrication process. Now these panels are manufactured in a factory off-site with a high degree of efficiency, high degree of quality and a high degree of predictability. These are adjectives historically not associated with anything to do with construction. Autodesk is converging construction and manufacturing processes, the industrialization of construction.
So it's clear the construction industry is going through this radical transformation. It's undeniable. And Autodesk is best positioned to continue making that happen. We talked about a few different elements. We talked about what we're doing to help our customers with their here and now type problems out on the job site with
BIM 360,
digitizing the construction site. But we're doing it differently. We're not a point tool solution. We're taking the BIM data that they're creating already today and putting that at the center of the experience. We're not tackling part of the problem.
We're tackling the problem that they have, the end to end AEC workflow. And we are helping them realize the industrialization of construction by converging construction and manufacturing processes, something only Autodesk can do. There's no company on the planet who has our depth of product portfolio and expertise in both manufacturing and AUC. Only Autodesk can make this happen. It's a big opportunity, a big area of investment for us.
Like Andrew said, we have an equally exciting opportunity in this $11,000,000,000 growth opportunity in manufacturing. If you think of manufacturing, it's being disrupted as well, but in slightly different ways. The means of production that manufacturing companies have used for decades, they're all being disrupted, challenged, replaced. You and I as consumers, our expectations, our requirements of manufactured goods, they've all shifted. And the old ways of working for these manufacturing companies are simply inadequate for them to remain competitive.
Autodesk's vision for the future of making things will help these manufacturing companies thrive in this new highly iterative manufacturing economy. And we've built a solution to help them converge the process of designing something with the process of making it. Now if we think back over the past 3 decades, one thing you've seen from us is we've acquired many companies that have given us capabilities that span everything from conceptual design all the way through advanced manufacturing. These acquisitions have given us a deep, deep technology moat that's helped us build a highly differentiated solution to help these manufacturing companies work differently and thrive in the future. And that solution is called Fusion 360.
And as you watch this, what you're going to see is world class conceptual design tools coming together with 3 d parametric modeling, including all of the simulation capabilities, all of the deep manufacturing capabilities that are required to manufacture these products, all in one integrated environment on top of a single data model, the first of its kind only from Autodesk. This is the convergence of designing and manufacturing. And like Lisa talked about, we're seeing rapid adoption. In fact, we're coming up on having a quarter of a 1000000 users who use Fusion 360 to do their work. And when you peel that number back a little bit and look at the demographics inside of there, I find a couple of interesting things.
1, nearly half of those users are coming from competitive systems that are simply not keeping up. They're finding a better way to work with Fusion 360. They're seeing the change. We're responding. The other demographic that's interesting is how we're winning the hearts and minds of the next generation of engineers, the students, which brings me back to the story that Lisa started off with.
These students at Warwick University in the UK, they had an idea that they were passionate about building a drone that can help in difficult rescue situations, deliver critical supplies before the emergency responders are able to reach them. But they knew that they had a challenging process. None of the students had the same schedule. They all needed to be able to work at different times of the day and night. They were distributed all over the place.
They're not going to be working from one location. And they had a variety of skill sets. They needed one system that works for all of them. They started out on this project trying to use traditional tools. In this case, they tried to use SOLIDWORKS.
It didn't work the way that they think. They found a better way of working. They found Fusion 360 and they delivered amazing work on this project. These kids are going to change the world and they're going to do it with Autodesk and with Fusion 360. So everything I just showed you, everything in that video, everything I talked about with the Warrick students, that is Fusion today.
But it gets even more exciting when you think about where we're taking fusion next. Now that we have all of those capabilities built into 1 integrated environment, all working on 1 common data model, We're working hard to integrate those with our generative algorithms to drive the entire end to end process in an automated way. What you're seeing in this video is that I'm not using the system to capture an idea that's already in my head. With this next generation of Fusion 360, I'm framing the problem. I'm telling it where I need these points to be connected.
I'm laying out some preferences, maybe I have some material preferences or I have some weight or safety requirements, maybe I have a favorite manufacturing technique. I'm not telling the computer the solution, I'm telling the problem. And then I'm letting the computer compute and come back and suggest to me the actual best answer, not my best guess at what the answer might be. And when I talk about this being the future of making things, we're not talking about years into the future. Everything you're seeing in this video is actively in development as we speak.
This is the convergence of designing and manufacturing. This is the future of making things and it's only Autodesk who's delivering it. Now in the mechanical space, a lot of our users are using Autodesk Inventor. We have a huge install base of highly successful customers And we've built a bridge for them, a bridge called AnyCAD that helps establish an associated relationship between their work and the data that they create in Autodesk Inventor and the future of making things with Fusion 360. So our customers can have the best of both worlds and never miss a beat.
But the best thing, AnyCAD doesn't just work with Inventor, it works with all 3 d parametric modelers. So we've built a bridge for the entire manufacturing industry to find their way to the future of making things, only from Autodesk. So we've talked about the disruption in manufacturing, equally disruptive as what we're seeing in construction, but in a slightly different way. We have the vision for the future of making things. We have a huge technology leadership position, a huge technology moat that gives us a unique opportunity to deliver on it.
We're marrying all of that technology up with real generative algorithms to automate the entire end to end process. And we are converging the process of designing something with the process of manufacturing it, only from Autodesk. Now, equally important to what we're building to help these customers realize their potential is how we're going about building these things. Autodesk Forge is our common cloud platform that brings us 3 distinct competitive advantages for years to come. 1st, this is how we scale our R and D investment.
Autodesk Forge is how we accelerate the development and delivery of these important solutions for construction and manufacturing with BIM 360 and Fusion 360. But the value of the Forge platform goes well beyond our internal uses. The second distinct advantage, it helps us get closer to customers. Our customers have all kinds of gaps in their workflows, in particular between their business systems and their engineering systems. This is a company named Royal BAM Group.
They're using the Forge platform to fill gaps in those workflows. This is a custom configurator that use the Forge APIs to build that gives their designers the ability to select parts to include in their design that can be manufactured in a factory off-site with all those efficiencies and quality gains that we talked about and then delivered onto the job site for final assembly. The Royal BAM Group is realizing the promise of industrialized construction. They're realizing it with Autodesk. They're realizing it with Autodesk Ford.
And the BAM Group is not alone. Last year, 25 of our named accounts, in addition to the applications that they bought from us, they included the Forge platform, because they know the promise that it brings of bridging gaps in their internal business and engineering systems. It's a trend that we're going to see for years to come. In fact, last year we did an 8 figure EBA deal, where the customer came back and said, the reason we bought from you, the deciding factor to go with Autodesk was Autodesk Forge, a big differentiator for us. And then the 3rd distinct advantage that our cloud platform brings to us is something that's not necessarily new, but it brings it in a slightly different way, which is the ability to build a robust third party ecosystem.
If you think about the breadth and depth of our vision for the future of making things both in manufacturing and construction, there's a lot of room for our partners to play a role. And that's exactly what we're doing. Let's look at GTP Services. GTP's expertise
is all
about piping and HVAC systems. It's not software development. GTP was able to use the Forge platform to bring to market an application that bridges design and fabrication for piping and HVAC. They did it in less time than they were able to in the past, and they did it at lower cost, driving down their internal development costs. In the manufacturing space, computational fluid dynamics, some of the most sophisticated simulation capabilities of any.
Company called CCTech used the Forge platform to make this sophisticated technology available to the masses, something historically available only to a few. They use the Forge platform and our application framework to deliver this technology via web and mobile devices, making it available to the masses as well as driving down their internal development costs. So GTP and CCTech, they're not alone. We have over 8,000 developers actively building their applications on top of the Forge platform today. You're going to see so many of these come out.
The Future of Making Things platform is going to be the most robust solution across manufacturing and construction, and our partners will play a big role. So we've covered a lot of ground. If you think about what we're doing in construction, we're helping our customers realize the opportunity they have today, tackle the problems they have in the here and now with BIM 360, but we're doing it in a different way, a way that only Autodesk can. We're putting the BIM data that they're already creating at the center of that experience. In manufacturing, we're delivering on the future of making things, a highly differentiated vision that helps these customers respond to the disruption they're going through.
We're converging the process of designing something and manufacturing it. And we're doing it all in a very different way. We've built forward the cloud platform that is accelerating efforts all across the board. So as you can see, when it comes to construction but we're also poised for growth for years to come. Thanks for coming.
All right. Hope you enjoyed the first half there. So we're going to take about a 20 minute break. We'll come back at 10 o'clock and then we'll get on with Steve Blum and Scott Aaron in the Q and A session. Thanks.
Ladies and gentlemen, please welcome Autodesk Senior Vice President, Worldwide Field Operations, Steve
Blum. Well, thank you. The front row, I love the front row. Welcome back, everybody. Welcome back from your break.
Find your seats, make yourselves comfortable. Today, I'm going to step you through all the things we've been doing to drive ARR growth. As we've been talking with you, ARR is the single most important metric. And we've been doing everything to align ourselves to be prepared to drive the AR growth we need for many years to come. Now since the last time we got together, I wanted to give you an update on how we think about our customers and customer segmentation and specifically about our go to market approaches from both sales as well as customer success.
For those of you who were here before, you'll notice there's a new box here. I've always talked about our named accounts, talked about the territory. I've talked about hub sales, renaming hub sales digital sales. I'm going to go into some details about why that and what's composed there. I've added a new segment called the mid market.
The mid market is where we're taking best practices from our named accounts and we're applying them to the next level of large accounts. And we believe by focusing on them with account based selling and marketing, we can drive growth. So if you think about the way I've got this structured now, named accounts in digital sales is where we're taking a very direct approach. We're engaging directly with those end customers. We're even transacting business directly with those end customers within named accounts in digital sales.
Think about the mid market and territory as where we're working through our partners to drive scale. So even though we'll have direct sellers focusing on accounts in the mid market as an example, transactions will still be indirectly processed through our partners. We've also changed the way we have aligned our sales force, both from an inside perspective as well as our outside sellers. So we've now moved to a position where most of our outside or field based sellers are focused in account based selling practices, either with the named accounts or the mid market. By the way, the mid market has many more accounts in this space than name.
But again, we're focusing on those accounts. And those field reps are not assigned geographies, they're assigned specific accounts. And they spend all of their time working hand in hand with a partner to drive expansion and growth within those accounts. The territory in digital sales are geographically aligned. And the way we go about working with partners in the territory is through inside sales.
Inside sales was something that didn't even exist 4 or 5 years ago and now it's actually one of the biggest parts of our go to market. So think about those ways that we go to market and then I'm going to show you now how we're going to drive growth from existing customers, how we're going to continue to drive growth through new customer acquisition. Of course, in a subscription and consumption model, it's critical to ARR growth to focus on adoption and renewals. And then I'll give you an overall update on our partner strategy. I know that how we work with our partners is always an area of interest, and I'll give you some updates as to what's going on there.
So let's start with existing accounts. And what I want to do first is give you an update on how we're working with our named accounts and how we're continuing to progress in our engagement with named accounts. This is an area I'm really pleased with as far as how we've changed the relationship with our partners with our customers, focusing on developing strategic relationships. And we're leading the way with Enterprise Business Agreements. Now, I wanted to give you a reminder, when I talk about EBAs or Enterprise Business Agreements, what it includes, right?
Because many folks think it just includes a licensing model. It's a consumption based model. We make our portfolio available to a customer who's in an EBA, so they can access anything they want, anytime they want, anywhere around the world for any user that they have within their enterprise. And it's through a tokenized mechanism. But EBAs are much more than that.
We focus a lot of our own direct resources on ensuring that we are helping customers achieve their most important business outcomes. And we do that by assigning customer success managers to these accounts. We have enterprise priority support. We have strategic consulting that's applied to help them actually drive implementations overall. When you combine these things together, that's what we talk about that's what we mean when we say EBAs, right?
So here are some of the results we're continuing to drive through our EBA focus with named accounts. When we move customers from maintenance or our old mFlex model, that was the old EBA we had from years ago, to a tFlex model, the new EBA, On average, we're getting about 2.5 times the number of users. So we're driving enterprise expansion and scale and growth within these accounts by moving them to an enterprise business agreement. Over the last 3 years, we've had 55% compound annual growth in our EBA ARR. That's outpacing the growth of other parts of our business.
And as of the end of FY 'eighteen, the fiscal year we just ended, approximately 45% of our named accounts have moved to EBAs. Now if you remember last time we were together, we were about 25%. So we're making good progress and we have a lot more to go do. There's plenty of opportunity for expansion and growth in this part of the business. Now as I mentioned, strategic relationships and changing the engagement process with our customers is really the ultimate goal.
The EBA from a licensing perspective is one of the ways of accomplishing that. I want to give you a couple an example of how we change the way we work with customers in this space. And I want to give you an example about AECOM. Now you may or may not be familiar with who AECOM is. They're a NASH a global engineering design firm.
They're in the Fortune 500. And both Lisa and Scott talked about the E and R. AECOM is the number one design firm in the E and R. So they're a very, very large global firm. We've been working with them for quite some time.
In fact, they renewed their enterprise business agreement with us back in FY 2018. The relationship has progressed to the point now where we're actually joining together with their pursuit team to help them win new business. We actually work together with them to put together numerous proposals that they actually were able to win. An example of that is with the Naval Facilities Engineering Command, NASDAQ, where AECOM won an $85,000,000 project for environmental remediation and we actually help them put that proposal together. We help them be positioned to win that contract.
That's the kind of strategic relationship we focus on establishing with our named accounts. But we also help our customers implement their projects and to gain the efficiencies that Lisa and Scott were talking about. And I want to give you 2 examples, right? This may be one that some of you from New York are familiar with, the Barclays Center, really beautiful arena in New York City that AECOM was the construction and designer of. We helped by applying adoption specialists.
We helped them implement BIM 360 plan and BIM 360 build to be able to reduce their overall time by 30%, that's for the designers and for their contractors. They also were able to reduce file sharing time by 70%. And with less in less than 8 months, they were able to install over $350,000,000 worth of project work by leveraging the tools. So we help them gain efficiencies, we help them reduce costs, we help them deliver on their project timelines by focusing on the delivery and the outcomes of that project. Another really interesting example is the older fleet building.
This is a renovation and So again, we applied adoption specialists that helped them implement BIM 360 design. And as a result of that, they were able to remove or improve 20% the production time of getting this project done. Now the project required lots of design reviews and they were able to reduce the preparation time for those design reviews by 8 hours per review. Again, we help them achieve their overall business outcomes. And again, these are the types of ways we're engaging with our named accounts to ensure that we're building strategic relationships.
Now, we've had the success continuing to grow over the last several years. And as a result, we are expanding this account based selling approach into the mid market. That was the new segment that I highlighted. So we're actually turning all of those field sellers into account based sellers. They'll work together with the partners like I said.
So a sales rep in the mid market will have an assigned set of accounts and he or she will put together account plans for those accounts. We'll work jointly with partner sales reps to make sure that we're on the same page, that we're executing on a common strategy together. What's critical here though, because there's many more accounts in this part of our space is we're leveraging account based marketing best practices as well in order to drive more opportunities to bring more opportunities into our pipeline. So we're leveraging customized content that's been created by Lisa's team that can then be targeted specifically to particular accounts in particular industries or even industry sub segments. And even it can be segmented down to the persona.
So we're getting the right messages to the right people that matter to them, that focus on the disruptions that they're managing in their business. And then when they respond, we can retarget them, we can bring them to more customized content that will help them ultimately see how we are bringing unique value to help them solve their problems. As I said, this will end up helping us drive many more opportunities into our pipeline. And the way this works really comes in 3 different flavors. We have customized content that's available.
So a sales rep can do a self-service process. If I'm a sales rep on a particular mid market account and I know who the key people are in that account, I can now start sending the right messages to the different folks, the different personas within the account to engage with them and then to reengage with them and retarget them overall to help them understand how we can help them with their business issues. We also can take a programmatic approach. And this is where we actually will look at all of the accounts we have in the mid market. We'll pick the accounts that all have the similar industry segmentation and we start sending them messages specific to their business needs.
And again, persona specific. So someone that's in the design space will get a different message than someone who's in the make space. This, of course, then allows us to retarget, to reengage with them and ultimately it builds more opportunities in the pipeline. And as we've been doing in named accounts and as we always do in account based selling, we can take that high touch approach. And this where we actually engage in large events with a particular customer.
If we put together a joint customer success planning process, focus on a particular project they're going after. So these are the ways we're going to be driving new demand within the mid market, leveraging account based selling. Now we are also driving growth within existing accounts by focusing on collections as well as moving our maintenance customers to subscription. We're having great results. We had great results in FY 'eighteen.
In fact, we grew our collection subscriptions by over 60% through FY 'eighteen. Since we introduced our maintenance to subscription program, the program to move our maintenance customers to subscription, over 30% of the maintenance renewals that came due actually moved from maintenance to subscription, which was a really good result the 1st year out. And what's very interesting about that is of the seats that moved from maintenance to subscription that were eligible to be upgraded or upsold from an individual product on maintenance to a collection, approximately 1 third of those seats moved to collections. Andrew and Scott talked about this on the earnings call. So how you should read this is by moving these customers from maintenance to subscription and having them take a larger percentage of collections, we're driving growth in ARR, our number one goal.
We're driving ARPS up, but we actually end up in many times with fewer subscriptions. So they gave an example about having half the number of subscriptions when a customer moved from maintenance to subscription, but 10% growth in ARR. And these are the types things we're seeing to drive incremental growth in ARR by moving our maintenance customers to subscription. Okay. Now let me talk about our continued focus on new customer acquisition.
And the best places for new customer acquisition come either from our digital sales approach, from focusing on our legacy customers. Legacy customers, as a reminder, are folks that purchase perpetual licenses, but don't have those perpetual licenses on an active maintenance contract. They may never have attached maintenance or they may have attached maintenance at one point in time and then did not renew. That's our legacy base. And then we have non paying users.
These are the folks that use our software but never paid anything for the use of software. Think of this as license compliance. I'm going to go in each one of these sections. But let me start first with digital sales. Now, again, last time we were together, I talked about our hub sales approach.
Digital sales is an expansion of hub sales. It's leveraging our digital processes. Andrew talked about how we're digitizing the company. We've built e stores that are focused around the world. Sorry, I thought that had moved over.
We have e stores around the world now. We've built an online Autodesk knowledge network, millions of items that are digitally available to customers to access when they need it. We have chat capabilities and we have virtual agents overall. We have webinars. We have trial downloads.
All of these things have been digitized to drive scale overall. And we marry them up then with our inside sales approach. And this is where we do have our inside hubs, where we co locate inside sellers, technical specialists, customer support folks, marketing and nurturing folks and even inside customer success people. The combination of these two things is digital sales. Now in FY 'eighteen, we had great results through our e store.
We exited the year with over $140,000,000 of ARR from our e store. And we had 65% growth in ARR from the e store. We had 50% growth in subscriptions from the e store. And here's something that you may find really interesting. We've talked about this in the past.
50% of all the new subscriptions that we get on our e store are from net new customers. This is how we're acquiring new customers and bringing them into the Autodesk ecosystem. All right. Let me move on to the legacy base. Again, these are the folks that purchased perpetual licenses.
They're not on maintenance anymore. We gave you some statistics about the size of this base. I'm going to give you updates on that. So we talked about it 2 different ways. So if you think about the last 5 years back of releases, the last 5 releases, the current base is 2,600,000 licenses.
And of that base, there's 1,200,000 active users. These are folks that are using the software even though it's not on maintenance, all right? So 5 years back, 1,200,000 active users of the software. Now if we go beyond 5 years back, we have 5,000,000 more licenses out there, perpetual licenses not on maintenance. And we estimate that the active users of that base are about 800,000.
So if you add up the active base total from 5 releases back plus the estimated amount from more than 5 releases back, we believe there are about 2,000,000 active users of licenses that are not on maintenance. And this is the target base that we're going after. Now, if you recall last year, Andrew actually showed you the same numbers and we had about 2,200,000 in the base. So we are actually converting legacy customers to become subscribers. Now how we do that and why they decide to go is basically, first, we offer promotions.
We've been offering promotions over the last several years in this space. We're going to continue to do that. We have a promotion actively running here in Q1 focused on that legacy base. Now the value or the discounts associated with those things have been going down and Scott is going to actually talk more about that approach when he comes up next. But why will a customer actually select the move from an old maintenance old perpetual license to subscription?
Well, they want to get customer experience in subscription compared to the older perpetual licenses. They're giving more flexibility in controlling their environment and managing their users, managing their purchases, gaining insights on how the software is being used. And product subscription also includes our basic which is not available to maintenance to perpetual licenses not on maintenance. So these are the reasons that these folks are moving. But there's also one more really important reason.
Every year that puts by, every release that falls one more release behind is becoming more out of date. And these folks are doing work with other companies and they have ecosystems and they have to share data and they're falling further and further behind the companies they're working with to share data. And sometimes they have to actually move the latest versions just to be able to collaborate with the folks in their supply chain or their ecosystem. All right. Now, let's talk about that 3rd group.
This is the group of non paying users. These are the folks that haven't paid us at all for the use of the licenses. So again, these are where license compliance fits in overall. The size of this base is 12,000,000 users around the world that are using our software, not paying us anything for that use. 4,000,000 of those users are in mature markets, right?
So when we take a look at that 4,000,000 base of users, we have detection capabilities that give us an opportunity to identify which means that actually a little more than 3 quarters of that 4,000,000, which means that actually a little more than 3 quarters of that 4,000,000 we don't have enough information to actually have outreach directly to those customers. So what do we do between the known users and the unknown users? Well, we have numerous ways of approaching this. First and foremost, we are continuing to build out more detection capabilities, so we can actually identify more of that base of unknown users and turning them into known users. When we know who they are, we then can help them run audits.
We can do audits for them. They can run self audits. We provide them tools for software asset management. You're sitting there saying, why would they do that? Many of these customers may not actually be aware that they're non compliant.
They may actually think they purchased even though they haven't. And so they want tools so that they can actually evaluate how they can become compliant or at least evaluate if they're non compliant overall. Now when we know who those folks are, we can have outreaches to them from our inside sales teams. Now we can go through our telesales teams and make offers to them to help them become compliant. Something that I'm very excited about that's new that has just rolled out though and it's going to give us access to the larger base, the full 4,000,000 is in product messaging.
So we've now developed a capability that within the license, it can determine if it's an actual subscription that has been purchased or not. And if it recognizes that it's not, it provides the user with a warning that it's not genuine Autodesk software. And then it gives the option to purchase or subscribe to that software, either by connecting to our e store or contacting a partner or contacting us. This will give us more range and scope into the larger base of users overall. So we've just gotten started with this.
The capability is available in AutoCAD in the United States, but we do have plans to expand it into more of our volume based products as well as expanding it into other regions around the world. So more to come on this, but something I'm very excited about. Okay. Now let's talk about how we focus on driving ARR growth through adoption and driving, of course, renewals as the renewal base becomes a huge component of our ARR. So we put together and now have formed a formalized customer success organization.
And this team is focused on the entire customer success lifecycle. When we land one of those new customers that I was just talking about, we need to make sure that they adopt, that they start using that software effectively right after the purchase. That gives us the opportunity to expand our position. They may want to buy more subscriptions or maybe they bought a subscription for an individual product and they want to move to a higher value collection to get their job done. And if we're doing these things properly, that renewal should actually become more of an automatic task, an administrative task, because the customer is effective in using the software and solving their business problems.
Now, we've been doing this, we've been taking this approach with our named accounts. It's part of the reason why we're having great results with named accounts. We have dedicated resources focused on those named accounts. As I mentioned, we have customer success managers. We have dedicated enterprise priority support folks.
We have strategic consulting folks that work directly with those accounts to ensure that they're driving the outcomes in their projects. We put adoption specialists in that will help them. Now for all other accounts, the focus from our CSO organization is to ensure that we develop repeatable plays that we can scale. We want to scale them through our own inside sales teams, through our partners. We're going to be focusing on putting together repeatable best practices and enablement capabilities, packaged offerings that our partners can take to market to ensure they're focusing on driving customer success through adoption that ultimately leads to renewals.
We continue to enhance our early warning system. This is a system that actually evaluates which customers are most at risk of non renewing. So we can start taking action as early in this lifecycle as possible to ensure they do renew at the very end. And all of this comes together through driving digital efforts. Part of the digitizing the company approach that Andrew talked about is focusing on means of leveraging digital capabilities to truly drive scale that will have huge impacts on customer success and customer experience that will drive great adoption and ultimately the renewals that we want.
I want to give you an example or 2 of what I'm talking about. So, if you actually go out on our website, you can get to our Autodesk Knowledge Network. This is the home screen of the Autodesk Knowledge Network. And there's several areas I just want to highlight for you and show you how we truly drive scale through digitization. So if a customer has a question about either how to use a product, maybe we're actually even looking to find out how do I actually make a part.
They can come to our site and they can click on the support and learning and there they will have access to millions of digitized white papers, best practices and other things that we've solved for customers in the past. And the we is either Autodesk, it's our partners or it's even other customers. And then we create the digital content and make it available to those customers. To give you an idea of scale, we are currently getting about 7,000,000 sessions focused in this part of our Autodesk knowledge network per month, 7,000,000 per month. All right.
Sometimes folks want to actually reach out and ask for specific help. They want to leverage technology, but they actually want to connect with people to ask some questions and find out how they're doing things. We have the community section over here. And the community actually is it takes you to forums, forums that provide customers the ability to help customers. They help each other solve problems.
We also participate on the forums. Our partners participate on the forums. We're getting 4,000,000 sessions per month through the forums. Combined between those two things, 11,000,000 sessions per month are helping customers drive a great experience and ultimately focus on their success through digital capabilities. That's truly scale.
Now, the part that gets very interesting is this part in the middle. It says customer service. Customer service is where we take customers now to our Autodesk virtual agent, which is based upon AI and machine learning. So we've talked about Ava. In fact, that's the image of Ava that people will see if they start chatting with Ava.
So through learning, we can train Ava to resolve numerous repeatable questions or issues that come up. The more we get them, it's easier to train Ava to be able to answer those questions. And we've gotten to the point right now in our training process where AIVA is solving problems for 1,000 customers per day. What's really beneficial though is the resolution time as a result of using AIVA has dropped the time to resolution so much that most of these issues are being resolved in less than 5 minutes. So some of you probably haven't gone out and tried this.
So I'm going to give you an example of how we are using it, one particular example. So what you can't see down below here, but this customers contact us because they need prior release serial numbers. They need to get access to some prior releases, they contact us for that. And the scale, this is a timescale, starts in September 2016 all the way to January of this calendar year. And this is the cases along the side.
And for those who can't see, the cases go up to about 2,000 per month in some situations. Now we only had human agents for a long period of time as we started to train Ava. But you can see as we've trained Ava, Ava now handles most of these cases overall. And the resolution time, the mean resolution time has gone from many hours, sometimes over 12 hours to less than 5 minutes. Now think about the customer experience having to wait 12 hours, but now actually getting these issues resolved in 5 minutes or less.
Think about the scale that we're driving. Think about the costs benefits to us that we no longer need people to handle many of these actions and activities. A really good outcome for our customers and a really good outcome for Autodesk, again, part of digitizing the company. All right. One other area I wanted to focus on in the area of adoption, and this is then going to tie into our partner strategy.
In FY 'nineteen, this new fiscal year, we made a fairly significant change in the partner framework. In the past, in all the years I've been here, we paid partners on landing new customers and renewing customers. For the very first time, we're now paying them not just on landing a customer or renewing the customer, but actually focusing on adoption activities. So in FY 'nineteen, partners can earn money by ensuring that when they sell subscriptions to their customers that those subscriptions do 2 things. They activate the license within the 1st 30 days and they run one adoption play.
And we've established adoption plays based upon the offering that's most appropriate to ensure that the customer is going to have the best experience and ultimately renew. We also know if customers don't activate in the 1st 30 days, they become more of a renewal risk. That's what we're focusing on those areas today. We're going to be on a journey in this area with our partners overall. And I expect that over time, we're
going to move
to more meaningful metrics focused on customer outcomes, true adoption metrics, perhaps even consumption down the road. So more to come, but it's the very first phase. Now one more thing I do want to highlight. We believe that it takes the most amount of effort to land a new customer. We think it takes the 2nd most amount of effort to drive adoption and effective use.
And if we do that, it takes the least amount of effort to renew a customer. So you're going to see us changing the way we pay our partners to reward them on the activities that have the most resource requirement, the most time requirement. So expect that over time, we'll pay the most on new, 2nd most on adoption and the least amount on renew. And when Scott comes up, he's going to give you some more details about that and especially what the impact is to ARR and the renew. All right.
So a few final things on the partner strategy overall. First, for those of you who may want to recheck on, okay, why do we even have partners? I want to give you a few metrics. First of all, we get scale, we get coverage, we get capacity, we have people representing us each and every day in over 170 countries around the world. For each quota carrying sales rep that I have on the Autodesk payroll, we have 15 quota carrying sales reps through our partner ecosystem.
That's the kind of scale and coverage that we need to drive the growth that we know is available to us. Also, I want to give you an update on a number of partners, because we've been seeing partner consolidation, we've been driving consolidation through this business model transition overall. Right now, we're about 13 50 partners worldwide. If you remember last time we were together, it was about 1600. This is tracking to our expectations.
Our best partners are in a better position now than ever before and they're investing in the business going forward. One other big change we're making is we're moving more of the partner dollars from the front end, which is more of an entitlement on the sale to the back end and the back end is tied to performance based measures like the adoption incentive I just talked about. That the single largest back end incentive is tied to growth in annual contract value. So they're giving growth targets that align with our growth targets. We use ACV because it's the best proxy of ARR.
So they're now going to need to ensure they're driving growth in ACV annual contract value, which aligns with our ARR expectations in order to earn that same amount of money. All right. One last piece. I know that it's always interest to see the mix between direct business and indirect business. So I want to give you an update.
The pie chart represents the size of the pie represents the size of our business as it grows over time. FY 2018 is the year we just finished. I'm giving you an estimate for FY 'twenty and then an estimate of where our terminal or future state will be. And you can see that the pie gets much bigger, as you should all be modeling out and as we are. You can also see, you don't have to worry about measuring this.
This is fifty-fifty, right? So you don't have to take out your protractor and worry about that overall. I know some of you are going to try to measure that piece and go right ahead. But here's the key point and here's what we just hold our partners out at 1 Team Conference. The amount of business indirect and indirect, so the direct business and the indirect business, they both grow.
They're both much larger in FY 'twenty and in the future state than they were in FY 'eighteen. So I'm telling our partners, don't focus on the percentages. Focus on the total dollars. They're getting bigger and there's fewer partners. So that means fewer partners are spread are dividing up a larger piece of indirect business overall.
And this is why our partners continue to invest and continue to grow, at least the ones that are aligned with where we're heading as a company. So let me summarize by saying our account based approach to selling and marketing is going to be one of the best stimulants and drivers of growth for us within our existing accounts. Customer success is going to be critical here in a world of subscription and consumption. If we do our job properly, we focus on customer business outcomes and drive adoption. Those renewals overall should become automatic and that positions us to expand.
And that's how we drive the growth like we're getting with our EBAs with named accounts. Customer acquisition will continue. We're continuing to bring new customers into the ecosystem and our digital sales approach should be the best way of doing that. It's leading the way. Our partner relationships are very strong.
They continue to get stronger. And our partners are aligned with our strategy overall. So when I net it all out, we've built an engine to drive ARR growth, not just through the end of FY 2020, but for many years been beyond. So thank you for your time. It is my pleasure now to introduce to all of you, Scott Herren.
Nice job. All right. Thanks, Steve. Steve touched on a lot of the themes that I'm going to touch on as we go through today and talk about the path. 1st of all, how we get to fiscal 2020 and then what things look like beyond fiscal 2020.
So let me jump in.
First thing I just want
to touch on is the outlook. There's no change in the outlook. I actually had a question at one of the breaks that did we change the there's no change in guidance versus what we gave back at the beginning of the month in early March. The one thing I'll just point out on the slide is, if you remember, we gave guidance both ways. We gave it in 605, the old rev rec standard in 606.
605 gave you a chance to compare to how consensus had been laid in, right? Consensus hadn't yet reflected the 606. We do expect you to build your models based on 606. Since we're using modified retro, we'll actually report it both ways all 4 quarters of this year. But I'd like you all to adjust your models to 606.
As we talk about the path to fiscal 2020, then there's kind of 3 key things you need to understand on how we get to fiscal 2020. First is ARPS and what's driving that longer term. The second is the growth in the core business. Andrew showed you the money slide, right, the slide that says how we'll get there. And you saw how big the core was as a percentage of that ARR.
You understand the core business, you understand how we get to fiscal 2020. So I'll talk about the volume drivers. And the third is the $1,400,000,000 of free cash flow. I'll give you a slide that actually builds that up so that you can have some insight into it. 2nd part of the presentation then I'll focus on from fiscal 2021 through fiscal 2023.
And as a part of that, we clearly will be investing to go after some of the exciting new market opportunities that we heard from Lisa earlier. In construction, in manufacturing, that is a part of the growth story between those 2 years. But the core business continues to grow as well. And many of the things that I'll talk about that will grow the core business between here and fiscal 2020 will also grow beyond fiscal 2020. All right.
Andrew gave you this slide earlier, 2025, 2016 and 2018 uptick in our expected compound annual growth rate. And that's not just the to go, right? That's from start to finish from fiscal 2016 end to fiscal 2020 end. So a better result on ARR really driven by a better result in ARR.
And of
course, the $1,400,000,000 and as you know, we're not allowed to quote a non GAAP liquidity metric like free cash flow on a per share basis. But if you were doing the math, here's the way the math would work. The our basic shares outstanding at the end of Q4 was just short of $220,000,000 $2.18 and change. As we flip back to a profit, the diluted shares will come back into the share count, right? So if you divided that number by a share count that's between $220,000,000 $225,000,000 that would get you to the $6 of free cash flow per share.
The money slide, how we'll get there. And what I've done is taken Andrew's slide and actually broken it out by year. The 1st 3 years you already had 2016 through 2018. You have a good sense of 2020. I just wanted to give you a full picture of how this looks.
There's a couple of takeaways. Again, you see how big the core business is as a part of the ARR, which is the most important metric on here. I'll talk about ARPS. I'll do a whole section that dives down into ARPS. The one thing that I think is also important to notice, obviously, the CAGR on subs is a little bit below what it had been historically and we've talked about all the reasons for that on our Q3 and our Q4 earnings call.
But I think the thing to remember is the number of users is not going down. In other words, as we see as we continue to add to the cloud base, we're adding users as we do that. We may not be adding them as fast as we had initially thought, but we're adding cloud users. And when we see the consolidation that we talked about as people go from maintenance to subscription and they buy up to the collection, the example I gave on the call, customer had 40 2 maintenance subs. They converted to 20 collections at the time they moved over 19 collections and 1 AutoCAD license.
The number of subs went down from 42 to 20. The number of users stated it was 20 before, it was 20 after. And the ARR actually went up, right, more than 10% in that case. So just bear in mind, there's not user leakage happening as the subs growth comes down slightly below where we initially expected. Okay.
I talked about the 3 things that I think you need to understand. Let's start with ARPS. There's 4 key drivers to our ARPS going forward that we've already seen have an effect on our ARPS and that's why the ARPS was higher and it will continue to be in effect through fiscal 2020 and frankly even beyond fiscal 2020. And it's important to walk through this because I think there is a misperception in some people that the only reason ARPS is going up is because we have price increases. And so then the bear case that goes behind that is, well, you can't continue to take prices up forever or you'll annualize that price increase, there's no more growth in ARPS.
And actually price increases are not as important as the 4 factors Steve just showed Steve just showed you the pie charts, which by the way was a conceptual representation if you notice the things. So if you're going to start to measure those pies, just remember that's conceptual. The product mix shift to collections, which we talked about a lot on the Q4 earnings call as a driver and lower discount on promotions. So let's take those 1 at a time. What this represents is the base of renewal subs, so both maintenance and product subs and you see how that base grows out through time.
And the important thing is that as that grows, Steve just talked about this as well, what we pay our partners for renewal is about 10 points less than what we pay them for a new sale, right? So as the renewal base grows, the yield to Autodesk grows at the same time. That's a big driver of ARPS for us. 2nd is the direct sales mix. And I think what's important within this, we've talked about this going to kind of a fifty-fifty blend.
You can see where we are today and where we think we'll be in fiscal 'twenty. What's important is a lot of that growth and again, don't measure this because this is conceptual, a lot of the growth in that direct piece is being driven by the digital sales that Steve just talked about, right? So that's the e store and that's our inside sales teams. And the reason that has a big effect on ARPS is most of those sell it very close to SRP. Again, the yield to us is significantly higher when we sell through our inside sales team or we sell through the e store.
That's a lot of what's driving the growth as our direct sales becomes a bigger piece of our business. So that's the second key driver that we've seen already and that we'll continue to see in ARPS. We've talked about the mix shift going to collections. And I think we've done a really nice job of driving collections as a percent of total sales driving it up. We've priced it to be attractive.
We've marketed it. We've put a lot of wood behind that arrow to drive people to collections and it's having great success. And as it does, of course, that brings in on the new product side that brings in a higher ARPS sale than a standalone product would. Other interesting point is as people move from maintenance to subs back to the example we talked about, we see in the 3rd quarter an increasing rate or Q4, an increasing rate of those who are eligible buying up, not trading on a single user license and buying up to a collection, right? That, of course, drives ARPS up as well.
So you see where we are on the product on the total mix of collections. There's more room there. There's more upside in that. We're not yet quite at the level that we were that we ultimately got to on suites as a percent of sales. And finally, lower discounts.
And we've talked about this several times. This is one of the ways we go after that 2,000,000 legacy users, right? It was 2.2, it's down to 2. Price is only one lever. Steve talked about a lot of the reasons that they'll come over as it's higher value.
They're if they're on a perpetual license and it's not tied to maintenance, it's aging. And the people that they're working with in their ecosystem, as they move up, it gets harder and harder for them to trade files. So there's a lot of reasons people will move. Price is only one of them. But you've seen us run this play.
When we hit the end of sale of upgrades, we ran this too where it's a steadily declining discount offered inside the promos. And so the first time we ran this was the Q1 after we withdrew perpetual or we ended sale of perpetual license on standalone products. So we withdrew it in Q4 of 'sixteen. We ran this at a 70% discount. We ran it again in Q3 targeting that same base at a 50% discount.
We ran it twice last year at a 30% discount. It was actually bifurcated in Q3 between Suite or Collections versus standalone and it's running right now at a 25% discount. As we do that, of course, the yield to us on the new sales goes up, right, because we're not discounting as heavily. The other interesting point that drives ARPS up, if you go back here, these were a pretty big percentage. They were outsized percentage of the total product subs base in that Q1 after we stopped selling perpetual licenses.
As we build up that base of product subs, these get dampened out and the effect that they have on the overall ARPS. So lower discounting on promotions as we go after, not just as we got for legacy, but lower discounting overall will drive ARPS up as well. So here's the trend on ARPS and the green line is what you've seen. We've reported this. That's the total ARPS and you can sort of see it bounced around pretty flat from Q3 of fiscal 2017 until Q4 the quarter we just announced earlier this month, where we saw a nice uptick in ARPS.
The interesting thing is behind the scenes what you couldn't see is the core business ARPS actually inflected up a year earlier for all the reasons that I just talked about, right? So we've seen a nice uptick in overall ARPS. Even more impressive, we've seen a bigger uptick in the core ARPS because of the combination of these effects. And they don't stop in fiscal 2020. I'm just showing you right now through fiscal 2020, this doesn't suddenly hit an asymptote and stop growing.
We'll continue to yield benefit in ARPS growth beyond fiscal 2020 for these same reasons.
All right. That's the P. Let's talk about
the Q. If you think of P times Q, let's talk about what's driving core subs volume. And again, four things to understand. The organic growth in these core markets, and I'll peel that back for you. You may be surprised it might be a bit bigger than you think.
And then 3 that Steve talked about, This drives volume into our core business, right? The growth of enterprise, the conversion of legacy customers and the conversion of piracy. Design markets, Lisa showed you both of these numbers earlier, the $12,000,000,000 for architecture and engineering, the $16,000,000,000 in manufacturing, It's a $28,000,000,000 TAM just in design that we're chasing today. And that CAD market grows at a compound annual growth rate of about 8%, right? And this is a kombachi and Oxford Economics estimate.
So nice growth, nice growth in the core business. Obviously, we do quite well in that space. That's the first reason that we see the core business continuing to build. I'm not going to spend a lot of time on this. Steve just showed you this exact same slide.
The important thing is we're less than halfway penetrated through the named accounts that we've targeted to sell EBAs to. And as we continue to sell to them, we see about a 2.5 times increase in the usage, right? That drives volume into the core. So a lot of room left to convert these legacy customers. We'll continue to go at them through just price discounts, but that's only one lever.
And you can see we're not that's not going to tick back up, right? That trains the exact wrong behavior if waiting gets you a better price, right? So don't expect to see those discounts as we go after legacy customer pickup. What you should expect to see though is, as those license age more and more and get harder and more difficult for them to use and that we continue to build value into the product sub, you'll see that $2,000,000 come down. And then finally, piracy.
And I thought Steve did a nice job walking through how we're going after piracy. The key tenant to me, so our CIO was on my team and we also get we're a buyer of software. We get companies that come to us and say, hey, we want to do a compliance audit on you. And there's a way to do that, that is where I say, yes, if I'm using your software, I want to pay for it. And there's a way to do that, that is very much a stick in the eye and it's very alienating between the customer and the vendor.
We're not going to do the stick in the eye.
We're going to we are going
to get paid for the software that people are using where we have the opportunity to in this $4,000,000 in mature markets. But we're going to do it in a way that's respectful and that demonstrates that we are actually a customer company, as Andrew said. So lots more to do in that space. The good news is there's still an enormous opportunity. This isn't a static number.
It's not like that's it. No one else is going to pirate the software tomorrow. That number will continue to grow. So there's a lot of opportunity there in piracy conversion. Overall, what that nets is 14% growth in the core business, so maintenance plus product subs plus EBA.
We've seen that growth in subs from 2016 to 2017, 2017 to 2018. We see that continuing at that 14% growth rate out through fiscal 'twenty. And again, this is consistent with what we talked about on the Q4 earnings call, right? So that's P, what's happening on ARPS, what are the core trends that are driving that? And it's Q, what's happening in the core subs.
Let's now talk about the effect that that has and talk about free cash flow build. So one of the most popular slides that I showed when we had this event about a year ago. And so I wanted to give you an updated view of that. This shows you the buildup of how we get to the $1,400,000,000 And visually, I don't care how far back in the room you are, you can tell these two bars matter, right? So if you're way back there, you may not be able to read what those are.
The first one is net income. Net income is a huge driver. The second is the change in deferred. And if you understand those 2, you get there's non cash charges in there. There's some CapEx.
But if you understand those 2, you understand how cash flow builds. So let me peel those back for you. I'll first talk about net income. Simplistically, net income starts with revenue and you subtract out spend. I've just talked about P times Q on where revenue is headed.
On the spend side, I think we've done a nice job. I think we've done a nice job demonstrating that we're disciplined in our spend. All the way out, if you just do the compound annual growth rate from where we ended fiscal 2016 out to our expectations for fiscal 2020, plus than a 1% compound annual growth rate over those 4 years. To do that, we've been very targeted because we do have investments that we have to make. Andrew talked about his priorities and digitize the company and the opportunity in construction and manufacturing.
We need to invest in those spaces. We're going to keep spend flat. We have to be very focused in fewer areas. And so we've made some divestments. We've actually done a lot and by the way, with those divestments, we reallocate the resources that we're working on to be able to invest in the things that we need to invest in.
This mindset also drove the rebalancing that we announced with our Q3 results that I think unsettled a lot of people. But it was for this reason, we need to make investments. We're going to find areas that are not as strategic and reduce our investment there and reallocate those resources. That was not a cost savings focus. That was about maintaining our spend at this level, but investing where we need to invest.
So I think we've done a nice job on spend management and demonstrated kind of the discipline that many of you I know wanted to see. The second piece that drives free cash flow is deferred revenue, the change in deferred revenue year on year. And deferred revenue is driven by billings, right? Billings minus reported revenue gives you deferred revenue. So to understand deferred revenue, you really need to understand billings.
So let me talk about the drivers of billings from 2019 to
2020. Some of these we've touched on,
the organic growth in the core business, I've already touched on, right? As that business continues to grow at this 14% volume rate and ARPS grows at the same time, that obviously grows billings. There's a bleed back of unbilled deferred, and I'll show you what that looks like. The renewal base continues to grow. Talked about that earlier when I was talking about ARPS and what's driven our annualized revenue per subscription up.
That obviously has an effect on billings as well. And then multiyear billings have been depressed, and we see that returning to really the level of around fiscal 2018, the year we just closed. So I'll show you what that looks like too. Talked about core billings. I'm not going to go back to that, but that obviously is a key driver of the billings growth from 2019 to 2020.
Here's how the bleed back of unbilled deferred looks like. So when we closed fiscal 2018, one of the statistics that I gave you on the call is we had unbilled deferred revenue of 326,000,000 dollars right? What that is, is we sold EBAs during fiscal 2018. We build them for year 1. The customer committed 3 years.
We build them for year 1. That was in our fiscal 2018 results. The second 2 years, even though they're committed, we haven't built yet. So that's what builds up the $326,000,000 of unbilled deferred. 3 year commitments, so half of the $326,000,000 will show up as billings in fiscal 'nineteen, the year that we're in.
The other half, the last year of that 3 year commitment gets billed in fiscal 2020. Same thing happens this year. We'll sell a lot more EBAs. We'll bill 1 year. We'll put 2 years in the bank.
So unbilled deferred will grow meaningfully this year. Even as the 100 and $60,000,000 comes out. Unbilled deferred will grow meaningfully again this year, but you see the stacking effect that that has. Now it normalizes in fiscal 2020, because by fiscal 2020 you're taking in effect 2 years out of unbilled deferred and putting 2 years in at the same time, right? But this drives a lot of the year on year growth in billings from 2019 to 2020.
The renewal base continues to expand on the billing side as well. And so what this shows you is the growth in billings, what percent of that growth is driven by renewals versus driven by new sales versus driven by our cloud products. And you can see about 60% of our billings growth is driven by renewals. We've already talked about renewals come to us at a higher yield than a net new sale does. Increasing mix shift to collections actually has an effect in both.
If it's maintenance and sub, that mix shift shows up here. If it's new, it shows up there. And then we will see kind of return to normalcy in multiyear. So let me just talk about that for a minute. What this shows you is the percent of maintenance and product subs that were sold as multi year.
So this is a unit slide. What percent of the units sold were sold as multi year. They spiked a little bit back in fiscal 2016 as we started the end of sale of perpetual licenses and people wanted to make sure they could lock in their maintenance agreement. But we've steadily driven that down. And a lot of the reason we drove it down is as we launched maintenance to subscription program, remember, we gave them insight visibility to 3 years of maintenance price increases, right?
What we didn't want is someone saying, oh, if I renew now, I can get ahead of those 3 years of price increases. So we eliminated the ability for anyone to buy multiyear maintenance. Maintenance was the biggest part of this base, certainly until we got to the end of this year. And so as multiyear maintenance went to 0, the percent of total sales that were multiyear came down pretty markedly. The interesting thing that happened during that time frame is, of course, we're selling product subscriptions at the same time.
As we sell product subs and you look at the percent of those, there's no price incentive on that today. As we sell product subs and you look at the percent of those that are multiyear, it's in that range that it's always been historically in that 20% to 25% range of product subs. So as product subs now become it's bigger than maintenance, product subs are bigger than the maintenance base as of the end of fiscal 2018, as that product sub base becomes the biggest part of the overall base, that will pull the overall average and multiyear billings up. And here is what it
will look like. So the
blue bars are total deferred revenue. What you see is that you can see what the year on year growth looks like. Importantly, what the green line in is how much of that deferred revenue basis is long term, right? And that's, of course, where you'd see year 2 year 3 of a multiyear agreement. We'll hit the bottom on that curve this year in fiscal 2019 and it'll tick back up in fiscal 2020 to about the level as it was in the year we just closed in fiscal 'eighteen, still below where multiyear was in both fiscal 'sixteen and fiscal 'seventeen.
So that's not a that's driven by the product subs, which are already at about that level, just becoming a bigger and bigger part of the base that will drive billings growth this year and next into fiscal 2020. That's how we'll drive the $1,400,000,000 of free cash flow or the $6 of free cash flow per share if you want to do the arithmetic, which I'm probably not allowed to do. All right. 2 other things I want to or a couple of other things I want to touch on quickly before we talk about fiscal 2021 through 2023. First is cap allocation.
And there really hasn't been a change in our overall tenure or our policy on cap allocation. It's 1st and foremost to support the business. But we've done a lot of shareholder returns. So if you look at the cash we've spent certainly over the last 2 years, it has been almost exclusively spent on shareholder return. It's been $1,300,000,000 buying back stock in the last 2 years and reduced the share count, the average the outstanding share count by about 6,000,000 shares, a little more than 3%.
The interesting thing inside there and I've been asked several times, how are you doing that? What's the methodology you're using to buy back the stock? And as the share price rose, we shifted the balance from systematic by X amount every day to, okay, we'll have a small amount of systematic buying, but we'll have a large amount of opportunistic buying based on price grids and some Monte Carlo modeling and a couple of momentum indicators.
And as we've shifted to more opportunistic buying and of course, the market's
average price in the average price that we bought back stock relative to the View app over that time frame. And so if you do the math that says we've saved about $80,000,000 on the buybacks we've executed over the last 2 years. So I think we've done a nice job on cap allocation and on cap return. Another question that's come up several times since the end of the year is tax reform. Hey, Scott, the question kind of goes like this.
When you rolled out the $6 of free cash flow per share, that was before tax reform. So that must be a nice tailwind to you. As you come into fiscal 'twenty, what does the $6 become? And the answer is it really has not much effect on the $6 and I'll explain why. First of all, let's be clear, the tax reform is good for Autodesk, right?
It will take down our blended rate out through time and it will make it much easier for us to move cash freely across borders, which was not the case historically. But as we've come through this transition, we're not driving we're not paying a lot of U. S. Cash tax. The way this saves you money is if you have U.
S. Cash taxes, those U. S. Cash taxes go down because the rate is lower. We're not spending a lot out there.
We don't have a big outflow because we haven't been U. S. Cash sorry, U. S. Tax profitable, right?
And once we do flip to U. S. Tax profitable, we've got about a couple of 100,000,000 dollars a little bit more of tax attributes built up on the balance sheet. So the first thing we'll do as we come back to a point where we actually owe taxes in the U. S.
Is we'll consume our tax attributes. So I don't expect the reduced rate from tax reform to drive an impact to us in cash, certainly through fiscal 2020. Our current modeling shows that somewhere in fiscal 2021 or later that we actually consume all the rest of our tax attributes and then the tax rate would become a benefit. All right. I just want to hit that because I understand the logic behind the question, but it doesn't really it turns out it doesn't really have an effect on us.
So the famous snake slide that we've all seen, 28% op margin now in fiscal 2020, which is below the last time you saw this slide. The last time you saw it, it said 33% for fiscal 2020. And so let me just walk you through what's changed. Annualized recurring revenue, you've seen, it's growing faster than we thought at that time. So I think that's a positive.
But as we've gone through and really focused where we need to focus, and I mentioned that we've done several divestments, some of those divestments had non recurring. It hasn't affected our ARR, but non recurring revenue attached to it. Individually, none of those are big. But when you sum it all up over the last 2 years, those investments added up to about $200,000,000 of revenue that previously had been in our fiscal 2020 revenue line that aren't anymore. So this isn't a change in spend.
Spend you saw the spend slide. Spend is still where it was, but the non recurring piece of our revenue stream in fiscal 2020 is about $200,000,000 lower than what it had been last time we looked at the slide. That's what's driving the change in the overall op margin. It also changes the functional P and L. And I show this because one of the other questions that I get a lot is, it's great that you guys are staying flat in spending, but are you under investing in the changes that you need to make?
Are you under investing in innovation? Well, you saw Scott Reese up here earlier talking about the things we're doing from a product standpoint. I think it's clear we're not under investing in innovation. Are you under investing in the sales transition that you've got to make and the evolution in sales? And you just heard from Steve.
That's not an issue either. But I wanted to show you this, so you get a sense of, of course, the change here is not about spend, the change here is about the denominator, right? But so you can get a sense of how we spend money. That's what gets us then to the goals that we've laid out for fiscal 2020 to the 25% compound annual growth rate of ARR and the $1,400,000,000 of free cash flow, all right? So that's the path to fiscal 2020.
I'm sure you'll have questions. We'll have time for Q and A after Andrew wraps up. Let me shift forward now, right? We're in fiscal 2020. Let's talk about how we go from fiscal 2020 to fiscal 2023.
And again, Andrew showed you this slide earlier. There's a couple of things that I think are interesting. If you look at the growth in ARR, of course, the compound annual growth rate drops from 25% from 16% to 20% to 18% from 20% to 23%. That's just a function of the law of big numbers, right? As the number gets bigger, the compound annual growth rate goes down.
But we're still adding more than $2,000,000,000 of ARR over those 3 years to the top line. And again, still heavily dependent on what's happening in the core business, in the blue bars. However, the green bars are a lot more prominent, The green bars are more prominent in both the subside where it's easy to see, but also on the ARR side. So fair amount of growth in the new opportunities. We call it cloud and the reason we call it cloud is you need a visibility to, okay, let's do the old model.
So remember, we had perpetual license and maintenance. Let's do the new model, which was subscription and then we had cloud as a third. Not selling cloud. No one comes to us and says, hey, can you sell me some cloud? They come to us and say, I've got a construction issue.
Can you help me get more efficient on the job site? Can you help me through construction? Can you help me link my design to the make on the back end? So at some point, cloud is not going to be the right definition for this. But to stay consistent because a lot of the models are built this way, I want to show you what cloud looks like out through time.
And you see the ARPS growth there. That's a compound annual growth rate on ARPS, by
the way.
It's a little bit below 5% through that timeframe. All right. So how do we get there? The first, of course, is the core business. And all the factors that we talked about in the core business will be maintained out through fiscal 'twenty three.
And we will invest and expand in the construction and manufacturing. And I wanted to get this number into the presentation somewhere that combination of the core business growth and the new opportunities in construction and manufacturing will yield about $2,400,000,000 in free cash flow in fiscal 2023. For those of you doing the math at home, divide that by $2.20 to 2.25 dollars That's $11 of free cash flow per share. That's still the goal. But as we think about the focus and what's the most important to us going forward, it's not just free cash flow by itself.
It's not just a single metric. The sum of free cash flow and revenue growth, and most of you know the rule of 40. That's really the way we think about that. So the $11 is unchanged, but our focus will be not just on the $11 but also on revenue growth out through fiscal 'twenty three. All right.
How do we maintain the foundation in the core business? ARPS continues to grow. The growth rate comes down for the same reasons we've talked about, but it's also the same factors that are driving the growth in ARPS between now and fiscal 'twenty. Those same factors continue. The base of renewals stack up at a higher net to us.
Direct sales continues and particularly the digital sales piece in that, which sells it pretty close to SRP and the mix of collections. New subs grow the organic business. We see it growing at about on a subs level at about 14% between here and fiscal 2020. It's going to continue to grow in that double digit rate out through fiscal 2023. EBAs, there's more gas in the tank on EBAs.
We're less than halfway through the accounts that we want to convert and continuing to go after legacy and piracy. At the same time, the new opportunities in construction and manufacturing are pretty compelling, compelling not only from a market opportunity, but these are the TAMs that Lisa showed you earlier, the TAM for the new opportunity in construction, the TAM for the new opportunity in manufacturing, but also because we're pretty uniquely positioned to go after that having a foot in each camp. And as manufacturing huge focus There's been a huge focus both internally and for many of you on the free cash flow metric. And so I just want to run through a couple of quick slides. What this plots is free cash flow margin on the X axis and revenue multiple on the Y axis.
And these are real public companies. You probably can't today read all these down here, but you'll get the slides and you'll be able to read those. These are real data points. And you see it's pretty much a scattergram, right? And you see the R squared of 0.15.
It's not a great predictor of market value. Let's look at the other metric. Let's look at revenue growth now on the X axis and revenue multiple on the Y axis. And again, you have a a pretty much of a scattergram and a pretty low R squared value in terms of the predictability. How does that correlate?
The interesting thing and this is obviously what underpins the rule of 40. When you add those 2 together, you get a much tighter grouping. And we've annotated on here some of the companies, so that you can see them. You get a much tighter grouping and a much higher correlation to really driving shareholder value. So as we think of the longer term, I'm not there's no the $11 is still in play, Focusing on $11 by itself is not sufficient to drive value.
We need to focus on both revenue growth and on the free cash flow margin. And the interesting point is you see where we are out there and that's looking at fiscal 2020 with the goals we've laid out for fiscal 2020 and it's below the line. Key takeaways and then I'll hand off to Andrew. Start with fiscal 2020, the goals are on track. The things that we've talked about are on track.
ARPS is growing for the reasons that we talked about. We actually are growing as a result growing ARR percentage point faster compound annual growth rate of 1 percentage point faster than we previously thought. Core is driving that and the core volume is staying strong. And then the free cash flow is really just the sum of net income. And you've seen us demonstrate now great spending discipline.
So the top line with a plus our spending discipline is what drives net income and then the growth in billings. Beyond that, it's the trends that get us to fiscal 2020 don't just stop. It's not like we hit an asymptote and go level at that. The core business continues to grow out through time. We've got some pretty exciting new market opportunities to go after.
So that's both here to fiscal 2020 and fiscal 2020 beyond. With that, what I'd like to do is, 1st of all, thank you all and then bring up our CEO, Andrew Anagnost.
Thank you, sir.
All right. So I hope you are all paying attention because Scott Heron had the defining quote of the entire day. We are not going to be a stick in the eye. So, everyone was paying attention to when he was talking about that. We're not going to be a stick in the eye.
All right. So one of the things we tried to accomplish over the day was talk about the 5 year view of the business and the five outcomes that are going to get us there. So I'm going to summarize some of the things you've been hearing and some of the points that were made and try to bring home some of the key takeaways for you. So let's go back to the 5 outcomes. Completing the subscription transition right up there on the front and center.
What were some of the things that I want you to take away from this and remember? The first thing is completing the subscription transition also means delivering value for all of these people, our customers, the ones that actually make all of this possible. So you're going to see us doing a lot of work to ensure that our customers see the same level of value creation from what we've done moving to subscription and the whole technology portfolio you've got a little bit of an insight into today, they're going to see this build out the strength of the products they use every day. You also heard we're staying on track and affirming our path to the $1,400,000,000 in free cash flow. So we're basically heading in exactly the same direction with actually better results on ARR growth and better growth better results on ARBs growth, which brought us to this slide.
So what's changed? I want to make sure I summarize for you exactly what's changed. What hasn't changed is the number of users we're adding to our ecosystem. It's going up and it's going up a lot. What has changed is that the number of cloud subscriptions we're delivering in that ecosystem is going down, because we're consolidating that portfolio.
We're growing our cloud subscriptions dramatically. You can see the numbers over that year, an 18% CAGR over that timeframe in terms of the total subscription growth, but a much, much larger CAGR for the cloud subscriptions. Same number of users, significant user growth in our base, fewer cloud products being sold to the same users. So dramatic growth in our cloud business, but fewer users. You see the ARR's appreciation, you see the results, higher ARR results, lower subs CAGR, stronger ARR's.
So a better outcome as we're getting closer and closer to the end game for FY 2020. Now in terms of digitizing the company, we talked about a few things you're already seeing right now that kind of create the proof points about what it means to drive digitization. One of the things that Steve talked about was how we're employing new types of agents and machine learning algorithms and AI algorithms into our customer interaction. So low value activities like requesting a license or reactivating some software are being done significantly quicker. And you can see how the time goes down to basically nothing on this scale, but without a human any human intervention involved.
So that's allowing us to drive not only efficiency and scale, but a dramatically improved customer experience at the same time. They get what they need faster. We get more efficiency and scale so that the people who used to be doing these very low value add activities are actually engaged in higher value add activities with our customers. That will continue to increase over time as we digitize more and more back end of the company. The other big thing you're seeing around the digitization efforts is what's happening with the digital sales.
We're building out a whole system that not only allows us to transact digitally, which is nice, and you saw from Scott, the impact that's going to have on our realization over a multiyear period, But we're building out a system that allows us to understand how to help those customers that we're bringing in digitally, help them buy more, help them get more out of the solution and ultimately renew more effectively. So those are some of the things that are already showing up in terms of the digitization efforts of the company. Then we talked about the big my big favorite one, driving the BIM model through the entire process. I hope you've got a real understanding of the fact that we're moving from being a big leader in this $12,000,000,000 TAM to also being a significant leader in the $10,000,000,000 TAM that's ultimately going to be arriving out there in the construction space. And we highlighted a few things both from the market and a technology perspective that were driving our advantage and our long term ability to do this.
First off, we're the leader in BIM. Autodesk is the only leader in BIM. And we're putting BIM at the center of the entire platform that's being driven into the construction market right now. We've built the cloud construction platform and we're targeting an end to end workflow. We're not building out a point solutions, we're building ecosystems with 3rd party partners, with capabilities that we have, with capabilities we're developing on our own to build out the end to end workflow.
More importantly, we are the only company that has both AEC and manufacturing expertise. And that is going to help us do something that our construction customers are very eager to do. And that's industrialize the construction process. So that's why only Autodesk is going to be able to lead in this particular effort. Now the other piece I talked about was this whole notion of automating the process of designing something for manufacturing.
And again, we talked about the TAM. We are vigorous competitors in this $16,000,000,000 product design and engineering TAM. We're starting to become a more significant player in this $11,000,000,000 TAM in the manufacturing processes because of this disruption in the way our customers are working. We are actually going to help these customers get to the new world of robotic hybrid manufacturing where 3 d printing, to subtractive printing work together in highly automated factories. And that's something that we're highly committed to and it's what we're doing with the generative work that we've invested so much in over the last few years.
So if you look at some of the advantages that Autodesk is bringing to this, we've got a 7 year head start. We've been paying attention to this market well ahead of our competitors and actually building a design environment that targets the new way people are going to work. As a result, we've established some pretty clear technology leadership and we intend to keep that technology leadership. The platform is focused at converging design and make together, bringing these two processes together And it's built on these generative algorithms, algorithms that don't just modify geometry that somebody created, but actually automatically create geometry based on specifications of how you're going to build it and what you're trying to accomplish. And finally, we've invested a lot in winning the hearts and minds of the next generation.
Fusion in particular is getting rapid adoption with students. And if you look over a 5 10 year period, when you win the students, you win the market long term. And that's what we've been focused on and it's working fabulously, which is going to allow us to exploit their passion for bringing design and make together inside of companies all over the industries we serve. So a lot of things that only Autodesk can do and we intend to keep doing them. And when we look again out in the 5 year timeframe and the 5 outcomes, this idea of bringing construction and manufacturing together, of turning a construction site into an outdoor factory and employing the techniques that have been learned and hardened and perfected in manufacturing into the construction environment, but also introducing some of that flexibility back into the manufacturing world.
This is something only Autodesk can do. We're the only player that understands these two customers to the depth and degree that needs to be understood in order to drive this transformation. You combine that with our knowledge of the building information model and our leadership there, our knowledge of the product model, and you've got a real combination to transform the way the customers work in this space. And that's how we're going to become the leader in design and make automation over the next 5 years, which is going to have real tangible results for our business. Again, if we look out here, when we get out to FY 'twenty three, you're looking at almost $500,000,000 in those new businesses.
Like I said, it's hard to tell because you're dealing with a scale that actually goes up to $6,000,000,000 So you're we're delivering immense value and that is just on the organic path of building out the solutions we are already developing today. And again, because we're consolidating the portfolio, the CAGR and subscriptions is 12%, but not because we're selling to fewer users, we're just selling fewer types of products to those same users, and again at higher ARPS. So we know how to turn all of this technology, all of this focus on the 5 year outcome into long term value for the company. So now it's time to break into the Q and A session. And I appreciate all of you sticking with us and paying attention to everything we had to say.
So team, come on up. Thank you. Oh, yeah. We've already got the first question. We haven't even got everybody up on stage.
He beat you, Jay. Oh, you did? Okay. Did he? Does anybody see?
I wasn't paying attention. All right. Well, you know, unfortunately, ceremonious ceremony wise, Jay always gets the first one. One.
All
right. And then I'm going straight
to you.
Jay?
One for Andrew, one for my friend, Mr. Blum. Andrew, you spoke of certain eventualities today, eventualities in terms of how AUC and manufacturing would evolve, eventualities in terms of your own business, particularly that you would be a consumption model. And you were even more emphatic about that perhaps today than you were at AU when you spoke about it. And I appreciate what Scott Rees showed today in terms of certain technologies, but it seems for all those eventualities to occur and you spoke of only Autodesk, this and that, which is conceptually very Adobe like, there seem to be some very basic underlying architectural requirements that you have to execute.
This is the famous quantum question, I suppose. And just talk about getting there in terms of tying all this together because the onlyness can only occur, I think, if you have the 10 ks, 31% of your business last year came from Tech Data. And they've always been a big relationship, but it's growing.
By the
time we get to 2022, 2023, if they maintain that percentage or even grow it, that's a more than $1,000,000,000 relationship with one partner. Talk about the infrastructural or margin or efficiency implications or something that immense in terms of relationship.
So I'll start with question 1 and I'm going to let Scott elaborate on question 1. So you're right, everything Scott showed you is based on an architectural framework that serves up building information model data that is specifically tailored to types of workflows and types of consumers. That underlying infrastructure is what we've called Project Quantum in the past. It's basically the way we deliver up information to these individual views. Remember that video that Scott showed where we're actually feeding out the prefabrication information and then stuffing it into Inventor, so that it can actually be pushed into a manufacturing hub.
It's quantum that's pulling that information out of the building information model and moving it over to Inventor. Something that our customers have been asking us to do in a seamless way for a very long time, but the ability to move the data into the cloud, to deconstruct it and feed it up in particular ways is allowing us to get there. So you're right. There has to be a certain technological underpinning to make that happen. Scott, do you want to
add anything?
There's not
a lot to add. It's just a few questions. If you think about the challenges that we had across all of our industries, across anybody who participates, a lot of it is rooted in the way information is passed back and
forth in the form of
a proprietary file that has to be deconstructed and then read in. You always lose information, you lose intelligence every time you pass one of those files back and forth. Quantum, as you are seeing, that is the underlying way that we're going to resolve that and allow data to flow between everything that Autodesk does, but also with anyone who participates in the market, competitors included.
All right.
So he wait, we're going to answer the second part. And you have priority on the next question.
So Steve, okay. So first of all, we really do enjoy the relationship we have with Tech Data. I'm not really wanting to talk about a specific partner at any event or things like that overall. But what I do want to comment, so Tech Data is a distribution partner of ours. Our relationship with our distribution partners has evolved over time.
Where they added value in the past and where they're adding value today is actually different. It continues to change and it continues to evolve, especially as we build out more of our own digital capabilities. So we've
been very open with the folks over
at Tech Data, because we have a very great strong relationship with them saying, continue to innovate, continue to find ways to add more value as we continue to digitize and automate ourselves, so that
as we continue to build out the digital capabilities and the transactional volume and scale that we're focusing on with our priority is digitizing the company. I love the way Steve says this, it's so constructive. I'll tell you every year when I meet with Tech Data, we sit down because every year I meet with my face. All right. So why should I work with you for another year?
And every year they create a reason why we should work with them for another year. Is it going to be worth $1,000,000,000 in the future? Completely unclear. Like every year, I sit down and say, so tell me why we should be working together for another few years. And they bring a new reason in terms of value creation that they've managed to do.
They know as a distribution given the world's where we're going, they have to find new ways to add value. As long as they continue to add value, we'll keep working with them. And they've done a pretty good job of that, this is it. All right, there you go. Mike Demeroff from
Credit Suisse. Thanks for hosting us today. Two questions, one for you, Andrew. At the Autodesk University a couple of months ago, there was a customer panel and the use of BIM from those customers was relatively low. I know it's regulated outside the United States.
And a lot of what you talk about in the future drives BIM throughout the platform. I'm just kind of want to understand, why do you see this massive shift in BIM over the next 5 years? And how confident are you and what gives you the confidence that that's actually going to happen? Because that's where a lot of the strategy goes. And then for Scott on the operating margin guide, just want to understand the reduction.
Is it all from divestitures or is there some increased spending? I just want to clarify where that reduction is coming from specifically. Thanks. All right. Let's start with your
first question. And to frame it, there's actually 2 things that are going to drive this. And nothing's done in 5 years, but it's made significant progress. The first thing is that the AUC space has been progressively following the exact same path as the manufacturing space was following for about 20 years now, just slower, right? It's a more complex ecosystem.
And what inevitably happens when people are trying to increase reliability, predictability and diminish the amount of waste in a process, they start queuing off the model to control the process. So when I say that's inevitable, it's inevitable because it's following the exact same pattern as what's happening in manufacturing. The inevitability is no prediction of when it's all complete time frame wise or what's going to happen. But just queuing off the model to manage predictability, to manage waste, it's going to happen. It's already happening.
Our smartest customers and they come from certain regions are in the construction, they're already doing this and they're coming to saying, hey, how can I do this with the BIN model? How can I do this like what they did with automotive design? And how can I do this? So we're already having pretty significant discussions with some really big design build firms about how they can look more like an automotive company, where they have a design department and an apartment that engineering and how you actually build it. So it's inevitable they're already thinking this way.
The other aspect of this is how you continue to change the ecosystem over time. And the ecosystem just like in the evolution of manufacturing, the large OEMs ultimately drove a pretty significant change in the contractual, the relationship environment and all the things that happened in the ecosystem of manufacturing. The owners and operators of buildings are going to start driving significant changes with regards to how the ecosystem navigates. We participate in that. We encourage owner and operators to specify BIM for all their products.
They get it. They get what the benefit is for them. They get why they want to do it. And they also get that when the process if the process is fully BIM enabled, if it's BIM from start to finish, they actually get back an as built asset that helps them manage and operate the building over time or even something that they can use to retain and enhance the value of the asset over time. So those are the two levers that we're going to be working over time to drive this because we're actively involved in both of them.
Yes. And to your question, Michael, it is I know you haven't had a chance to measure the bars yet on the slide. I'm sure that'll happen. It's been almost exactly where it was historically. And it's really I think the other important point is it is about revenue reduction and that's falling through to the bottom line.
It's non recurring revenue, right? Because you see ARR is actually growing faster than it had before. And so we've done a series of a lot of our consumer products, creative markets,
this is
something that was spun out. The Dolaris
is something we spun out, continue on.
So it's a lot of sort of cats and dogs that we had accumulated over time that we spun out that had small amounts of non recurring revenue. You see the flip side of it though, right? You see where we already are on recurring revenues. In the Q4, we're at 93% recurring. That now goes up into the high 90% range
out through fiscal 'twenty. So
yes, it is non recurring revenue that's fallen out and that's what's changed the margin, not any change on the spin side. You see the flip side of it in a far an even higher percent of recurring revenue.
I think one of the things that's interesting about this whole discussion, right, because we're constrained in fiscal years to have this conversation. When you really look at this, what's really going on is if you just moved out like a month or a quarter further, it's all it all shoots right back up because of the accumulation of recurring revenue we're seeing. So, we're talking about fine gradations of the flow of money here and how it accumulates. In the big macro sense, it's all heading in the right direction.
Hi, it's Greg Moskowitz from Cowen. First question, I guess, for either for Andrew or Scott. So you've talked before about how fiscal 2020 is not steady state, but there have been some who have been really concerned that there was going to be a meaningful drop off post that period. Now you've also today guided to a really healthy 18% ARR CAGR from 20% to 23%. Scott, you talked about 4 main drivers of ARPS and frankly none of them included pricing.
So my question is, is it fair to say because of that, that when you look at that 18% CAGR from 20% to 23% that you're not currently assuming any meaningful price action?
So I'm sorry.
I was going to ask the question. I was
going to do is say, well, I was going to make one comment against the Scott. But you want to be very clear, we are not dependent on any kind of significant price action to hit our numbers. In fact, that's not the way we want to work with our customer base over time. I just want to lay that out as a critical point. Scott?
There is not a whole lot else to add other than I think you will see us get on a more disciplined kind of a regular rhythm of small annual CPI type annual price increases. But no, there's no significant uptick or step up. And I think that's why on the one slide I talked about that as a misperception around ARPS And I know it had been circulating a bit that once you annualize that there's no more increase and it's really price obviously does have an effect even as we go through into us it has an effect on ARPS. But those 4 were listed in order of importance before that I talk through.
Okay, great. And then as a follow-up for you, Andrew. So you provided us with cloud ARPS and core ARPS in fiscal 202023. You're talking to a group of analysts. You had to figure some of us might try to reverse engineer that.
So based on my math, it looks like you have cloud going from 14% of the subs mix in fiscal 2020 to about 21% or so in fiscal 2023. First off, is that correct? And then secondly, how do you envision the ramp occurring over that time period when you look at BIM 360 relative to Fusion 360?
Yes. All right. So you're probably roughly right. I don't have the exact mix memorized off those charts. I should go measure them myself.
But you're probably roughly within the
right ballpark. When you get to
more higher fidelity with your rulers, you'll get it better because the charts are accurate. When I look at the ramp, it's going a lot of the ramp is going to be driven by BIM 360 initially because right now the whole construction opportunity is market ready, it's technology ready, right? The market is ready, they want technology to digitize the construction site, they're hungry for it, they're gobbling it up, right? So that's you're going to see that ramping up faster. The technology that goes into fusion and is related to manufacturing is more technologically complex.
People are still trying to wrestle with the wow. So I have to change my process in the future to adapt to new ways of working. It's going to ramp up slower than the construction opportunity. But the great news about that is as we move past FY 2023, it provides additional fuel even beyond that threshold because we're only looking 5 years out. Do you want to
say anything? No.
Thanks, Greg. This is
Rich Hillacre from Wells Fargo for Phil Winslow. Unfortunately, Phil gets stuck in New York, so I'm here in this place. Just two quick ones. If we take the 2,000,000 active non subscribers and we add the paying subs, we get the 5,700,000 and that's about 10% higher than the last day, I would say in late 2016. So I know you touched on cloud subscriptions helping that, but I'm wondering if you can give us a little bit more color on what's driving that increase in the active user base?
And then my second question is around the 5% CAGR in pricing after 2020. It seems a little bit conservative. So I'm just kind of wondering, given that end to end promotional pricing will end in 2021, can you guys comment a little bit on that?
So who wants to take the first question? I'm not sure I followed
all the math in your first question. You said the active base was up?
Yes. So if we take the 2,000,000 active non subscribers and we have the paying subs, we get the 5,700,000, right? And I was just comparing that to the last Analyst Day from late 2016.
So I was just
saying that that's about 10% higher. And I know that you touched on cloud subscriptions quite a bit, but I was just wondering if you can just give us a little bit color on what's been contributing to the
activity sort of data? Got it. So there is growth in the core business, right, every year and 14% of a big number turns out to be a lot of growth, right? We added net 600,000, 611,000 subs during the quarter. Don't equate each sub with a new user, right?
That's the
math you're trying to do in your head. Even as subs go up or down, that doesn't necessarily mean you can scale at the same rate, right? So but that's the yes, it's growing as we continue to sell more licenses into the market. In fact, it's really the core that grew the active user base because what I actually said was
that the amount I was calculating of active users from that base actually is down compared to where it was
the year before, but it was the growth in the
core use that actually is accounting for that overall.
And then just on the second part, it's about the 5% CAGR after 2020 down here. It just seemed a little conservative given that MTS promotional ends in 2021. I was just wondering if you can comment a little bit
on that.
No, there's no there's nothing hidden deep in the bowels of the spreadsheet that I'm trying to protect you from. As we ripple that out through time, we're not expecting so let's be clear on M2S, when someone gets to the end of their grandfather, their 3 year period, right, their grandfather from the time they convert, keep the same price for 3 years and they don't pay upfront, they pay annually. But at that point, we've said they just go back to the terminal price. They don't go all the way up to the SRP at that point. So there's not this mountain that they're suddenly going to that we're going to get and that our customers are going to face as that 3 year lock in period comes back.
So it's just doing the math out through time.
Expectation for fiscal 2020 is about $200,000,000 lower than your previous expectations, but your free cash flow number is unchanged. So there might be there must be some positive surprise from your previous expectations. Could you walk through what are these? Scott, why don't
you go ahead and take it?
Yes. Monica, it's the things that I tried to walk through on the key times queue. Remember, ARR is actually up from the previous guide. So non recurring revenue has come down as we've divested some of the former consumer product groups and some small products that we had that actually were driving revenue. Anyone individually was not significant, but when you sum them all up, it's about $200,000,000 of non recurring revenue that's going.
What's driving the overall billings growth, which is driving the deferred revenue, is the trend that we talked about around ARPS and around the growth in the core business. So it's actually all the same trends that we just talked about.
So as a follow-up, for renewals, you talked about channel getting almost 10% lower discount. Maybe do you think you could get some kind of backlash from your channel just given that 70% of your revenue is still from channel? Yes, Hugh, why don't you take
it? Yes.
So, it
depends on what you determine backlash to be. Do partners like having less dollars paid to them on a particular activity? No, they don't like that at all. But they actually can make more on selling new and other the way we compensate the way we compensate them for that to ensure that where their biggest investments occur, they have the opportunity to make the most. If they're doing their job properly, the renewal should not require a lot of effort.
It should not require a lot of investment of time and resource. That's the methodology we're focusing them on. So you ask a partner, are they happy that we're paying them less for renewals this year than the year before, I assure you, you will get a we're not happy about it at all. But they understand what's going on and how the economics should align with where we want them to. And He
Steve
and his He Steve and his team and working with my team have done a great job modeling out the economics of a channel partner and having them understand there's a message under here. We want you to drive renewals, but actually you're going to make more money if you allocate resources to selling new and to driving adoption. That's the if they do that effectively, they're actually our biggest we just came out of our sales kickoff meeting earlier this month and our biggest resellers actually understand that quite well. And the other piece that goes along with that is drive more of your profits as a reseller out of the services business and not out of just straight product markup. If all you're doing is product markup, it's going to be a tough business long term.
The interesting part is by focusing on the services part of the business, which is a way for them to actually earn incremental dollars, the renewal even becomes more likely because the service business actually drives the effective use that drives the renewal. So by doing that, they bring more income in, they get more gross profit and they have to spend less time on the renewal. And we're just aligning with all that.
Thanks, Monica.
Hey, thanks. Saket Kalia from Barclays. So two questions for me. First, maybe strategically for you, Andrew or you, Lisa, on construction. How do you segment the competitive landscape in that market just as you attack even more aggressively?
Right, so that's the first question. And then secondly, maybe for you Scott, you gave us and thank you for the specifics on ARR for the model into fiscal 2023. Can you give us some broad brushes on what margin and maybe billings looks like in that model as well? Okay.
So Lisa, why don't you take the competitive question?
Yes. So the way we look at the construction market is you would actually say that we look at competitors across so there's design, there's pre construction, you saw Scott walk you through that whole thing, then there's the construction site and then there's operate and manage. So when we do analysis of the competitive landscape, there's players in each one of those areas, but we don't have anybody that's doing what we're doing, which is across the entire lifecycle. So that's how we monitor the competitive landscape. Who's in design?
Who's in pre construction? Who's doing the site automation? And then who's in operate and manage? And all of our charts they show that and then we kind of understand what's happening there. But so far to date we have not seen one that's doing what we said we're doing, which is everything based on that BIM model for the entire lifecycle and it's the one source of truth.
And on the margin question and billings growth out from 21 to 23, don't want to get pinned down to a number on that. Margins obviously expand, right, as we work our way out through time. Billings growth continues to grow strongly for all the same reasons that I laid out here. We've given you a lot of the bread crumbs to be able to back into what that looks like by telling you what ARR looks like and what the free cash flow is that yields. So you can probably model it pretty closely.
I just I think way we're thinking about it longer term is shifting away from just the free cash flow metric as an individual hit this and nothing else matters number to that's not enough. We've got to focus on both the free cash flow margin and revenue growth in the top line. I'm not saying free cash flow margin is not important. It's very important. And we'll continue to drive that.
But you can drive it with 0 revenue growth or you can drive it with high revenue growth. And we're
on the second half. You want us to optimize the sum of those two numbers, not any one of them individually.
Excellent. This is Keith Weiss from Morgan Stanley back here in the bleacher seats.
One strategic question.
You got
to get here early, Keith, if you want to see it upfront.
Jay was here
at 7:05 this quarter.
One more strategic question, one more tactical. On the strategic side, again relating to construction, really good job of laying out a really big opportunity and a compelling value proposition in automating what's going on in the construction market. But frankly, that's existed for quite time. I mean, we've heard about the 25%, 30% wastage in construction for a while. The underinvestment in technology has persisted for a long time.
So the question is why now? What do you guys see in the near term that's actually going to inflect that? Is it going to get those construction companies to start spending on technology? And then from your perspective in getting the right products into the field, you mentioned the VC investment in the going on in this industry. How much of it comes from internal investment?
How much of it is going to be M and A? And you guys getting back into the market for M and A and sort of picking up those technologies. That was the strategic one. The tactical one is on cloud and specifically cloud ARPS. If I'm not mistaken the FY 2020 targets for cloud ARPS remain relatively the same.
But I
thought a lot of
what we talked about in the last quarter, in the last two quarters was fewer subscriptions, higher value subscriptions. So why doesn't that cloud ARPS number move higher?
All right. So let me take the first one and then I'll give Scott the second one, all right? So on the first one, so let's talk about what's changed. Right? In some ways, nothing's changed.
In some ways, almost everything's changed, right? The nothing that's changed is that the rate at which some of these companies are taking up technology hasn't really changed that much. It's actually been pretty rapid already, at least in terms of construction site automation and bringing mobility to construction site. So we're just piling on top of that with better data, more timely connected to the building information model. So that's kind of stayed the same and we're going to ride that wave.
What's changed is that everybody is starting to wake up and say, hey, it seems like there's something going on in construction. It looks like it's starting to be real. Maybe I should start to participate in that as well. So what you see is in the environment, you actually see the beginnings of consolidation activities with other portfolios going on. That actually has the effect of accelerating the seeding of more and more technology into different spaces, because as companies consolidate smaller companies in their portfolio, they start seeding that technology into other parts of their processes.
So the climate we're competing in, in terms of people starting to consolidate, the smaller companies starting to suddenly show growth that they weren't showing, that's absolutely changed. But this kind of early market part that we've been chasing in terms of site execution, that's just humming along at where it was. You combine those two things together, now is the time to start really going hard on that opportunity, because it's you can already see that over a 5 year period, it's going to start to take off, right? Nothing changes dramatically in some of these technology areas. But because some of the problems are not technologically complex, you're going to see that amplification start to happen pretty rapidly.
So that's changed. Now when you look at the strategic question, look, historically, we've been a very acquisitive company. So it's actually the last year and a half or so that has been an exception, not the norm. And when you look at the size and scope of this opportunity, and when you look at what's happening in the market already and the number of venture funded companies that are out there, you can certainly expect us to be acquisitive again moving forward.
And Keith on the cloud sorry.
Yes, go ahead. I'm sorry.
On the cloud ARPS question, certainly some of the things that we're talking about stopping the seating programs helps. Some of the packaging that Lisa walked through kind of packaging at higher levels that are greater value helps push cloud ARPS up. What's pushing it and to kind of keep it at equilibrium where it was is we've had great success selling user packs and especially within BIM. And the importance of user packs, obviously, if you buy 10, you get one price per user. If you buy 100, you get a lower price per user.
If you buy 500, it's less still.
And if
you think about the way BIM gets adopted, it's probably going to get adopted on kind of a bowling pin strategy, where you get the big company at the top and initially they're going to buy the users they want and they're going to mandate that you use BIM 360 on the job site. And so user packs have been quite popular. And as they are that puts downward pressure on the cloud ARP. So those are the 2 offsetting factors.
Alex Town from Deutsche Bank. Just a couple for me. So the first one, still quite early days with subscription churn rates. But what are you seeing there? You talked historically about maintenance churn being in the sort of mid teens range, probably best in class for mid market software, could be more towards the 10% range.
And obviously, you're trying to go up more into the enterprise as well. So what trends have you seen over the last few quarters around the churn rates in subscriptions? And where do you think that can evolve to in the coming years? That's the first one. And the second one, Andrew, you talked in the vision about machine learning and automation increasingly in construction and manufacturing.
I think anyone who talks about machine learning talks also about needing lots of data. And I think they also talk about needing to get that data from a cloud platform. Now in the FY 'twenty three vision, cloud is still a minority of the subscriptions, quite a significant minority, and it's mainly talked about as a net new opportunity. How are you going to migrate the existing customer base into cloud platforms manufacturing and AEC to drive that vision of machine learning.
So let me answer the second question first. You're absolutely wrong, all right? The amount of data we have in our cloud platform right now relative to our customers' construction and design products is massive, right? We've had cloud infrastructure out there for over 7 years and customers have been moving data into that environment for quite a while, right? In addition to some of the field data we have with BIM 360 Field, BIM 360 Glue, we already have massive amounts of data.
And some of those things you saw from Scott with regards to BIM 360 Insights and some of the capability we were seeing there, that's all based on some of the information that we've been accumulating. So we're already well ahead in terms of accumulating data. And you're right, there's 2 things that are required for machine learning. You have to understand the damn space you're trying to drive machine learning into, because you can't teach a machine to do things you don't understand, believe it or not. And you got to have lots of data.
So we're already well on our way to getting down that path. So don't confuse the size of the revenue opportunity with the footprint in terms of user and data that we've already got. Just applications like BIM 360 design, previously collaboration for Revit, huge amounts of information in the cloud about how our customers are using and sharing information. BIM 360 glue, clash detection, tons of workflow information about what works and what doesn't, okay? So we're already there.
Now when you and Scott, do you have anything you want to add about the That's absolutely right. It's probably got some great staff that I don't have
in my head. Yes.
It's a few petabytes of data actually that are in the cloud. And it's because if you look at our footprint in the design space, a lot of those users have been using our cloud to store and collaborate around their data for years. So when we talk about BIM 360B and that's not really represented there because it's more associated with our design products. So yes, we have several petabytes of data in our cloud that we're able to learn from and frame these algorithms.
And I'm going to turn the renewal rate question over to Scott.
Sure. And you said 2 different things, Alex. I want to make sure that I answer your question. On the maintenance side, the churn rates so we actually quote it the other way, right? We talked about what the renewal rate is.
And our renewal rates have stayed steady. Even in an environment that where we've announced maintenance to subscription plan and raised price 5% on maintenance in the 1st year and given visibility that maintenance price mid year this year goes up 10%, mid year next year goes up 20%. And we've seen a huge uptick of people converting. And as they convert, you get the example like when we talked about in the earnings call, right? Those that example, those 20 look like maintenance churn, right?
And even in that environment, we're still showing pretty steady renewal rates. And those renewal rates, just to be clear, are not dollar renewal rates. They're unit renewal rates, right?
And of
course, we have the highest non renew on our lowest value products. So if we did that on a dollar basis, you'd see those renewal rates be a little
bit higher. Obviously,
more about subscription renewal rates
that you're seeing at this point.
I was talking more about the subscription renewal rates, I. E, are they going up in a subscription world where if you don't renew, you can't use the product, which is what you would expect?
Yes. Of course, they are. Yes. So they are going up. They're in line with our expectations by the way.
We expected them to go up, but they are going up and it's in line with what we thought.
You're getting a lot
of questions about the construction side, which I think what caught me by surprise was the size of the opportunity. In 2020, I think you put a $10,000,000,000 TAM. So when you use the word construction, one, it's not a homogeneous word. So and it's not a monolithic sector. I'm wondering a few things at a granular level.
What vertical? What's the activity? What's your entree point into construction? And who's the buyer? Is it the GC?
Is it someone else? Where is it in the food chain? So vertical activity and who's the buyer? Because that's a big opportunity for something you're talking about 2 years out. So let's talk
it's kind of a combination of things from both what Scott and Lisa said, all right. 1st, in terms of the vertical, it's commercial buildings right now, what we like to call vertical construction, right? This is where the hotbed of activities is. It's not residential. Residential is not adopted residential is adopting digital, but in a different kind of domain.
It's commercial buildings. That's the key vertical that we're engaged in right now. You're not seeing as broad adoption in what we call horizontal construction or infrastructure yet, but that's the next wave. So commercial buildings first, okay? And what was the other aspect of your questions you asked
for the vertical?
Who's the buyer and
what's the activity that gets
you that? So to get you to understand that, you got to go back to what Scott Rees showed, where he showed the breakdown of the various modes. And what you're seeing is 2 anchor activities that are going on right now. 1 is in field automation. So the buyer there is actually the GC and the subs.
So the subcontracting the GC are buying these tools for field automation, quality check, field issue management and the things associated with that. So the buyer over there is there. When you look more towards the other side, where we're talking about pre construction, clash detection, layout and plan, the buyer is on the design side, but that's still into the construction TAM. So that's where you see people start to ramp up on BIM 360 design, where they're trying to share monolithic model data across multiple players. So you you see a little bit more of the purchasing on the design side.
But what you're going to see as time goes on is, it's going to bleed deeper, deeper into the contractor and it comes from the contractor from field execution in towards the center. And then you're going to see it bleed from the design side over deeper into project management and project planning. But right now, you got the design side, the owner, the owner and the architectdesign build firm, and then you've got the GC and the subs over here on the field execution side. Makes sense?
It does. So if you're pitching me, if I'm the GC and you're in my office wanting me to use to take you on, What do you tell me? And what's the 3 sentence pitch on this is what I can do for you right now?
I can deliver you 2 tenths of an increase in your margin percentage, 2 tenths right there. How would you like that? Would you like another 2.2 in your margin increase? Most of them will say, yes, Since usually the margin on a project what's the average margin on
a project?
3% 5%.
We usually don't believe you can even
do that at first, but
it opens the door.
Well, you also remove the risk of that 3% to 5% margin, because that's what they're trying to do. They're always trying to do the risk mitigation and how do I protect that margin, right, because of the predictability problems. I'd add one other thing too to what Andrew said. From a go to market perspective, you can actually go this way and this way. So you get your software into all the project sites.
I'm talking where the cranes are and you get the project folks to start using it. And then what happens is you get the attention of the GC and the home office because they're saying, wait a minute, you're being used on 50 of my sites. I want to talk to you about something bigger and you come in from the top as well because they've been building BIM design models with our tools for years. And they're saying how do I get more value out of that into the downstream processes.
Hi. Ken Talanian from Evercore ISI. It's a bigger picture question. If we were to hit a recession between now and fiscal '20, fiscal 'twenty three, what kind of impact do we see to your growth metrics? And then what consideration have
you given to your cloud forecast relative to that possibility?
What consideration have you given in
your cloud forecast relative to the possibility? So why don't you start?
Yes. So will
give you the answer to the first part. We are we have a lot more resiliency to a downturn than we have had in the past. Obviously, when you're selling perpetual licenses, so go back and look at the impact of the great financial crisis had on Autodesk and our perpetual license revenue fell 40% in 2,009. What's happening behind the scenes is someone says I've got fewer employees, I don't need to buy new licenses from Autodesk this year. In fact, when you put those licenses on the shelf and as I hire people back, I still don't have to buy new from Autodesk until I've consumed what I already had.
In the subscription world, obviously, that doesn't happen. The first thing is, if you had if you took a 10% cut in your workforce, you don't have to pay for the 90%, right? So that annual subscription keeps going. And even in the financial crisis, we saw our recurring revenue, maintenance revenue actually grew through that. So we are a lot more resilient to the next downturn.
It's not that we'd be immune, of course, as the workforce shrinks, the number of subscriptions you need shrink. We'd be a lot more resilient. I think there's this there's a lot of scar tissue from the way we our revenue contracted in the last economic downturn that I think is still out there. And I read some of the reports where people say it's a very cyclical stock.
It's like
it's not that cycles won't affect us. It will have a lot lower effect than it had historically. And then in terms of what and we've run different scenarios on that. You could probably run them as well based on your own model. What's built into the model is no assumption of a recession.
I didn't try to predict the recession will start in at this point and have this down end at that point. So that's we expected the current economic environment to kind of be where it is.
Zane Crane with Bernstein Research.
Really great presentation today. Appreciate all the
helpful detail. Question on your thinking behind
on top of that, it looks
like there are maybe a
little bit of negative surprises at the very low end of the cloud solutions this last year, particularly with Team, but the higher end is doing well. Gives you confidence that the new strategy is the right way to go to market and you'll have optimal uptake of the new offerings?
Thank you.
Let me answer the end part of that and then I'm going to turn it over to Lisa to talk about the repackaging. So at the low end, team, that was a problem we created on our own. What we were doing is we were seeding the market with team as a way to attract people to use some of the higher end offerings in the BIM360 portfolio. It turns out this is a bad way to do things, all right? It's better actually to go in and start selling the value of BIM 360 and then bleed down into the so that seeding strategy just wasn't a good way to build up interest in the business at the low end.
We just stopped doing it. So and people are still buying BIM 360 Team when you need it, But because it's such a low end application, it makes a lot more sense to consolidate it into something else, which I'll leave to Lisa in terms of what we're consolidating into what and why.
Right. So let me start off with BIM 360. So you saw that chart, right? We have all these different acquisitions. And a lot of that consolidation actually was driven from conversations with our customers, because what we're looking at is what are the top business problems and workflows that they're trying to solve.
And instead of saying, well, here's 13 things that you could pick from, we actually started consolidating around those workflows. So the BIM 360 went from 8 different offerings that could have been even more offerings and we said, listen, people either want to collaborate on the site, they're focused on BIM 360 design. So they're trying to either do design, they're trying to do planning, right? With planning, what am I doing? It's all the clash detection that's going on, right?
And then when I'm out in the field, that's the construction site. So that's where we really came up with those offerings. And quite frankly, it's a lot of it's driven from what we've learned from our customers, the way that they want to buy and the way that they want to implement. So that's why we actually feel very, very confident about what this pricing and packaging looks like. And I would say the same thing with Fusion 360.
We've done a lot of acquisitions. And on the break somebody asked me, I thought it was a great question, what about simulation? And one of the things that we have learned in this new way of generative design and manufacturing, this stuff is all embedded in design. It's not a separate step anymore. So what we're doing is we're embedding all of that capability, lifecycle management, simulation, that's all a part of the design and manufacturing process.
So instead of making those separate offerings, which in my mind is the old way. That is not about the new way. You actually have to integrate all of that technology, because that's how you design and manufacture in the future. So we're really packaging based on what has to happen in the future.
And there's one more thing I'll add too. When you're out there competing in the market and you're competing against various startup companies, you start to look at their strategies and their portfolios. And you find we're going in with 8 SKUs and they're going in with 2. So it's like, okay, well, I guess we don't need 8 SKUs. And it just makes life a lot easier to have the conversation with the customer.
That was what
I was going to add. It's a lot easier to go to market with a fewer number of things than a lot of things overall. And when you're selling both direct and through partners, we add a lot of complexity into the business when we offer many different little things that all are composition of a solution. So actually from a going to market perspective, it's much simpler for us, for our partners and for our customers to be able to deal with these consolidating approaches.
And
it takes just as much effort to sell a team seat to a customer for the first time as it does to sell a more robust solution that goes a lot deeper into their process. It's just a better ROI.
I think it makes adoption to renewal easier too, because I have more value now in this offering, which makes it stickier. And it's in more of my processes. Therefore, I'm going to use it and I'm going to renew on it.
Great. Thanks for hosting.
It's Karl Munda from Berenberg. I have one question. I'm trying to bridge the sub number for between FY 'twenty and FY '23 going from 4,900,000 to 7,000,000. So that 2,100,000 extra subs, we know that you told us around 800,000,000 of that is going to be cloud. But can you conceptually talk about the rest of it, 1,300,000?
How much have you built in active non subscribers still coming in at that stage? And how much of that is Pirates potentially coming and potentially the growth of the legacy business coming up.
Yes. Gal, where are you?
He's right there. Yes.
Looking around like, I know Gal. I don't
see him. So the rest of
the growth, by the way, comes from the factors that I talked about that are growing the core business at 14%, right? The overall market continues to expand. We will make inroads into the 3 further into the 45% of the target accounts for EBAs. We'll continue to grow there. And then of course into the 2 you talked about legacy and piracy.
I'm reluctant to give you specific numbers for each of those 3. But all of those is what's contributed to pretty steady state growth rate of the core business, 14% growth in subs from 'sixteen to 'seventeen, 'fourteen again from 'seventeen to 2018. So it's a pretty consistent market at this point. All those trends that are driving it today will continue to drive it out through fiscal
'23. And to give you some context, by the time we enter fiscal year 'twenty one, we would have been 4 years. Anybody who didn't come along with us during the end of perpetual be in their 4th year of being it's very difficult to operate in an ecosystem when you're 4 years behind the rest of the ecosystem you operate with. So you're going to see those effects putting pressure on the users where they're actually trying to get more current. We're also what you saw is that in products capability that Steve just rolled out, that's completely new to the new to our infrastructure as of this year.
And if you look at some of the other players in the space that have gone through similar transitions, they've actually started to see increased effectiveness from programs that are exactly like that. We're not beneath copying what other people did successfully. And in some of the things we're doing with piracy conversion and things associated with that, we're really just taking best in class capabilities from other people. And we expect to see the same kind of increase in efficiency from those activities as we move out beyond FY '20. And just as a
follow-up on the BIM market, majority of design today happened started to convert from 2 d to 3d, but there's still a bunch of people who can still design in 2 dimensions. If you want to do BIM properly, you obviously need them to move as well. So how far along are you, especially when you talk about not commercial, maybe residential? How much of that should happen? And is that a tailwind for your ARPS because people will have to upgrade to Rabbit as well?
Well, look, it's always good to have more of a market to grow into. And you're absolutely right. There's still a lot of 2 d in the AEC space. That's changing significantly because of BIM mandates. We have a long runway in terms of growth of BIM data in the market, especially in the residential space, which is highly dominated by 2 d processes.
So we've definitely got a long way to go. The good news is, is it's growing rapidly right now and it's continuing to grow rapidly inside a particular geography and geographic expansion wise as more and more BIM mandates are put out there in the market and more and more companies are driving BIM, more owners are mandating BIM. So we've got years of growth with the building information model. The good news is that what we're doing with construction, remember, we have a long view that the model is going to be the currency. But our long view is complemented by a pragmatic view where the tools we're rolling into constructions construction take advantage of the 2 d information as well.
So we're we got a long view about, well, you know what, inevitably everything is going to be model based. That will take quite a while to get there. And it's great to be the purveyor of the model in that situation. But short term, we still respect the drawings and the process where they need to be respected. But we got lots of
room to
grow. Did you want to add something to that, Lisa, because I've got a comment I would I'll tag on to it.
Yes. I mean just to emphasize what
Andrew said, I'll just specific example when I was out visiting some customers. So a lot of these contractors, right, they're global. So they're competing globally. And what some of them have told me is they actually can't compete and win on these bids, because if they're competing with a 2 d process and there's a BIM mandate like the U. K.
Has a BIM mandate, you actually can't compete. So it's impacting their business. So I'm starting to see some of those customers are saying, look, we have no choice. We have to move or else we're going to miss out on all of these projects that are being funded because there's these BIM mandates that are being driven by national governments.
What I was going to
add is, at the end side is a tailwind to Revit perhaps.
And I
do think as we look at the opportunity here, it's not just in cloud, right? But as BIM as Andrew said, BIM runs through the entire process that will drive more Revit as well or AUC collection on the front end. So I do think it's a tailwind across the board. And that's why I kind of made the comment that I'm not sure how much longer we keep saying, well, here's maintenance, here's subscription plan and here's cloud because no one buys cloud, right? They buy I have got a construction issue.
I've got a I need to use the BIM model. I need to so at some point, we're going to need to re vector that. We'll change the numbers, but just change the way we talk about it and the way we think about it, because the growth rate is pretty substantial in that market.
Well, revenue sales is a key element, which is driving our core growth in the hubs. And to Lisa's point, these mandates, they take a long time to get substantiated into the system. And then there's years of growth of everybody adopting it overall. So there's a long runway of opportunity still here.
One question right before lunch. Where do you guys feel like you stand, it's Richard Davis at Canaccord,
with regard to kind of
tying in the cost and the you build something energy or build something, but how do you tie that into the cost? And that's important both in manufacturing and in construction. In fact, that's kind of been one of the Holy Grails. Can you link back into the general ledger? And if you could complete that last chunk, that would be pretty slick.
So where
are you now? Where do you think Scott comment on that?
Yes. So
yes, Scott's finance team actually has done a really good job of partnering with our engineering teams to understand exactly what the types of capabilities we're building, what they cost. Because some of these things frankly are compute intense, some are storage
No, they're not talking about that. His question is their costs.
The customer
cost estimation. The cost estimation.
Quantity takeoff, that kind of stuff.
Yes. Yes.
I see. Our solution. I see. Yes. So sorry for misinterpreting the question.
Yes. So cost, that's another place where the BIM model plays directly into that planning process, right? So that's where we've seen BIM 360 design, what we previously called C4R Collaboration for Revit, play a big, big role in helping make that BIM information accessible to more and more people. So I think that plays a big role in driving the pre construction or the planning process, which cost is a big piece of that.
And then
from there, obviously, it parlays into, okay, what are the actual costs out on the job site? And that's why it's so critical to have the BIM information or the design intent drive that entire process. Because as soon as that becomes disconnected, you don't even have the design playing a role in what's going out on the job site itself. So that's why we believe taking a different approach than just a point tool, tackling cost alone or any one of these pieces by itself just won't work. And that's why we think the BIM model has to play a role across the entire AC process.
And I'll add one more thing. Don't underestimate the power of forge here. So what we've done with forge is we've already got 3rd parties on the construction ERP side that integrate into our APIs and start extracting information. We've got a company that we work with that's doing a lot of work around quantity takeoff then connecting it to the construction ERP system to drive cost estimation into the construction companies see it as a competitive advantage to tie model data closer to their cost estimation tools, right? So we absolutely are seeing partners integrating through our APIs doing some of this.
I think it's a little bit more complicated in manufacturing, but I'll tell you what we're able to do with manufacturing and you've only gotten a slight flavor of it, but you'll get more flavor of it, is that because our generative algorithms are being connected to a particular method of making, so we can generate geometry now that ties to a specific subtractive machine or a specific additive machine. You're actually able to estimate the quantity of material you need to subtract from or the amount of material you're going to add from and the time it's going to take to do that. So you can actually get very, very accurate costing information on a part level from some of these generative algorithms. And that's going to make a big difference because it's intimately connected right back to the machine that's doing it. So when the geometry is done, you actually know exactly what you're going to cut into metal.
And that is one of the most lubricating things we can do for the manufacturing customers in terms of giving them accurate costing information to feed into their processes.
Yes. And that's where generative plays a big role in manufacturing is that if you say, I have to say, I'm going to sell this thing for less than $10 then you better know what that thing is going to cost you. And that will impact which manufacturing technique that you are going to use. So as you define the problem, you define kind of your cost envelope and then that factors in and simulates and predicts what things are going to
cost. Steve Cain with Wedbush. Thanks for the presentation today. Very crisp, good layout of all the information. I want to ask one question in the weeds and then maybe elevate it with a follow-up question.
So just kind of more in the weeds here. So you guys, you've been surprised a little bit on pricing and subscriber additions last several quarters. Your ARR has been very rock solid, however. Is there I mean, generalizing from the different things that have happened in the last few quarters, what has allowed you to keep that ARR steady despite surprises in your model on those other lines? And then looking forward, where could you be surprised?
And in particular, I'm I guess one little concern I would have would be on the you're about to raise maintenance pricing 10% and then 20%. And I'm not hearing that you've assumed a lot more attrition. And so I guess that would worry me a little bit. So maybe Scott, if you could address that. And then I do want to ask one follow-up on the product side, if
you don't mind. Okay.
Scott, why
don't you go ahead?
Yes. On the sorry, you
got around me the first part of your question.
So ARR has been pretty rock solid.
So yes, I got it now.
Steve talked about this. Actually, Steve as he was going through his presentation, it's something you've heard me say on the call, the machine, right? If I think of Steve's team as a machine that drives sales, that machine is built to deliver ACV, right, as a proxy for ARR. The P times Q underneath that is yes, they forecast that and obviously we use that to put into our guidance as we looked at it historically. But that machine is built to deliver ACV and ARR.
And so that's why we've been able to continue to deliver what I think is the most important metric in terms of ARR growth, even though some of the P times Q underneath the covers has not been what we expected. By the way, as we look at this year, some of that same I'll harken back to something else Steve said. Some of that's built into the way we pay our channel partners now. ACV will start to get built into some of their back end incentives. So you start to see that that's how we continue to deliver on the top line.
That's what's built into the entire management system of Steve and the rest of the way down. Ethan, do you want to
add to that? No, other than I mean, I think some of the changes we're referring to are also in the cloud part of the business that has a much lesser impact on overall ARR at this point in
time anyway. That's a good point.
But I mean, we do have everybody thinking about driving ARR, 1st by delivering value to the customer, but then how it actually impacts ARR or annual contract value. We tell our folks ARR is basically annual contract value and timing, right? Close a deal with the highest annual contract value and close it as early in the year as possible, and then we get the most ARR out of it. So that's what our partners are now doing and that's what our sales teams have been doing.
So I want to comment real quick on this surprise notion. Actually there's really only been 2 surprises in the system and they've all been positive surprises, all right? And so I want to be very clear on this. One was, hey, these low end cloud applications, seeding them is just not a productive effort. We're going to move away from that, okay, which by the way affected our ability to forecast what our cloud numbers, because we didn't know how many of those would have trade out post the seeding program.
That was one. The other one was M2S has moved a lot faster than we expected, which by the way is a good thing. We're excited about it because the faster we move that base, the less we have to worry about churn in the maintenance base. And because of that, it's moved quicker than expected, a phenomenon we always expected has become more material than we expected it to be at this point, which by the way was the collections upsell effect and what happened as a result when people would maintain the same number of users, but have fewer subscriptions, which I illustrated on the call. So these are good things, right?
Moving away from
these low value seating programs that
distract us from selling the higher value force is much more of a valuable activity. And accelerating M2S is absolutely a valuable activity. So these are the when we say surprises, they're not they were positive surprises that accelerated effects we knew we were going to have, right? So that's I want to be very clear about that, so that we get that into place. And by the way, just so we get ahead of your comment and so you know what we are assuming, we do assume that there will be some additional maintenance churn associated with the price increases than we always have.
Yes. What I'd just add
to that, because that's what I was to come
back to, is we've got years of experience on price elasticity really, which is what would drive that kind of behavior. And we know with certain price increases with a pretty high degree of fidelity what that what impact it's going to have in terms of the Q and the P times Q equation. So we and we have built that into our expectations both for this year and for next on the maintenance side. What's been surprising is what I talked about, I just want to go back to it quickly, the example on the earnings call, right? 42 subs that went down to 20%, ARR went up 10%.
That looks like 42 maintenance subs that were not renewed. Yes. Right.
Thank you very much. So one quick follow-up then on the product side. As you're getting forwards out into the market, can you give us some color on what you might expect in terms of ability to monetize that through partners, any thinking of how you would maybe go to market with partners on applications, etcetera? How can that evolve over time?
Yes. So kind of what we're doing today is we sell a forged subscription, which gives a partner access to the platform. And then we partner with them closely to understand their usage patterns. But we see our relationship is really with the partner. So the more that they sell, the more that they pay, right?
So it will be a consumption business in the future. And there are some really good models out there and we're paying attention to those models. We're understanding kind of the linkage to value. You would assume that the more that the partner sells, the more they use and the more value they're delivering. So we're just following those models.
And right now, I would say we're in learning mode to get to the end state of that model.
One thing we sorry, go ahead.
This is an add. We talked about earlier that we're pushed we're telling our partners there's a huge opportunity for them in services and service delivery, adding value on top. Forge is absolutely one of the keys to them building out service value. So I see we just talked a lot about this at OTC. We're guiding our partners on how to take forge and how to start layering app value on top of that to solve specific customer problems and differentiate themselves in the market overall.
So, Forge is going to and by the way, some of the biggest developers on Forge are also our customers who are solving their own problems. So, Forge opens up a huge brand new ecosystem for us overall. And I think you're going to see our best partners who you talk with, if they're not starting to talk about FORGE, you ought to be asking them why they aren't, because that's something they absolutely need to be tapping into. Anyway, sorry, I just wanted to add
And I think this is clear, but let's just be even more clear about what Forge is. You think about our 35 year history, we've accumulated a lot of intellectual property. In the past, the only way for you to interact with and glean value from that was through one of our applications. So what Forge gives us the ability to do is to take that intellectual property and make it available as a service to anyone to do things that they were just simply never able to do in the past. So we're really just unlocking a way for all of our customers and our partners to get at our intellectual property in ways that just simply weren't possible in the past.
It's a big opportunity for our customers and partners as well.
Okay. We have time for one more question. Jay goes first,
cash goes last. So, hey, guys, thank
you so much.
Anything but Jay, my good friend. You just want the last word, cash. When you look at the makeup of your subs, you've been predominantly pivoted towards A versus C, architecture, construction, manufacturing, more towards design versus manufacturing. So So as I look at your long term goal of 7,000,000 subs, are you pivoting away and more towards the construction side and on the manufacturing side? And if so, what ASPs or ARPS do these two new products represent versus your average that you quoted?
And secondly and finally, if it's okay, the people that are not renewing maintenance and not buying the subscription, who are these people? Why? Thank you.
Can I take a crack at the first part?
And then
if you want to talk about strategy. As we talk about going after these new opportunities in construction and in manufacturing, we're not leaving the design market behind, right? The design space is what's driving that core. If you remember the money slide, the how we get there slide, remember blue was still a big chunk of that bar and blue was a big chunk of the growth from 2020 to 2023. That is largely driven by the design market.
So it's not an either or, either do this or do that. We're going to continue to do what we're doing in the design markets, but then tap into these new opportunities for growth.
Now to answer your last question, right, first off, this is not a large percentage of the maintenance base that behaves this way or does this, okay? So we should be very clear about it. And we have a pretty good sense for how large it is. And typically what happens with these customers, they're either doing 1 of 2 things. They're either taking a gamble or they know how long they have to coast through their job.
So for instance, in some cases, they're just saying, look, you know what, I need this perpetual license for another 5 years. I'm just and then after that, I'm either retired or I'm going to be going on to something else where that project's gone and I'm not going to need it anymore. So they just say, I'm just going to zero out for that. Or they're taking a gamble, which I would highly recommend they don't take, where they're saying, hey, I'll just drop off a maintenance now because that M2S price, they're just going to ratchet that up the regular subscription price anyway, and they'll have a promo for me in 3 years and I'll be fine, okay? Those customers and that's a very, very small minority of customers, they've made a mistake.
So we try to talk to those customers and tell them don't make that mistake, but sometimes they do and that's a choice they make.
Or actually make them say, I know I'm giving up the opportunity.
We've done that too. Are you aware? Because what we know is 3 years from now, it's not going to be their mistake. It's going to be ours. It's something we Because they're going
to come
back and say, well, what? I can't believe you don't have an offer for me. Well, we did. It was called maintenance and subscription. And by the way, those people are still paying a lot less than normal subscription because it was an advantage path.
So people make those kind of gambles because they just anticipate something that happened in the past might happen again in the future.
And Kashyad, the other kind of color I'd give you on that when you say who are these people. If you look at the demographic by customer size, how big are these guys, that's exactly what you'd expect. You see a higher either renewal or conversion rate with the biggest customers and lower with the smallest customers. Good. That
concludes our formal presentation and Q
and A.
And again, welcome you to join us for lunch. Thanks.