Good day, ladies and gentlemen, and welcome to the Autodesk First Quarter Fiscal Year 2017 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to hand the meeting over to David Gennarelli, Senior Director, Investor Relations.
Please go ahead.
Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our Q1 of fiscal 2017. Also on the line are Carl Bass, our CEO and Scott Herron, our CFO. Today's conference call is being broadcast live via webcast.
In addition, a replay of the call will be available at autodesk.com/investor. As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call. During the course of this conference call, we will make forward looking statements regarding future events and the anticipated future performance of the company, such as our guidance for the Q2 and full year fiscal 2017, our long term financial model guidance, the factors we use to estimate our guidance, including currency headwinds, expectations regarding our restructuring, the various anticipated benefits, including greater predictability of revenue and reduced cost structure from our transition to new business models, our market opportunities and strategies and trends for various products, geographies and industries. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially.
Please refer to the documents we file from time to time with the SEC, specifically our Form 10 ks for the fiscal year 2016 and our current reports on Form 8 ks, including the Form 8 ks furnished with today's press release and prepared remarks. Those documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward looking statements. Forward looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward looking statements.
We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. During the call, we will also disclose non GAAP financial measures. These non GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of our GAAP and non GAAP results is provided in today's press release, prepared remarks and on the Investor Relations section of our website. We will quote a number of numeric or growth changes as we discuss our financial performance.
And unless otherwise noted, each such reference represents a year on year comparison. And now I'd like to turn the call over to Carl.
Thanks, Dave. We had a terrific start to FY 'seventeen with more proof points that the transition from perpetual licenses to subscription and cloud offerings is going well. We're moving steadily ahead on our 2 big initiatives. First, we are increasing the lifetime customer value. 2nd, we are driving increased adoption of our cloud based solutions to better serve existing customers as well as expand into new segments.
I'll share more details on our Q1 results and then talk more about our view around long term shareholder value creation before getting into our outlook for the rest of the year. As I mentioned last quarter, the primary focus for us through the transition is driving subscriptions and annualized recurring revenue or ARR. In total, we added 132,000 net new subscriptions in the quarter. New model subscription additions more than doubled to 140,000. And while we expected maintenance subscriptions to decline in conjunction with the end of sale of perpetual licenses on individual products at the end of Q4, total maintenance subscriptions declined by only 8,000 as our renewal rate for maintenance continues to increase.
Q1 was the Q1 where customers no longer had the option to buy a perpetual license for individual products such as AutoCAD or AutoCAD LT. As a result, additions from product subscription, formerly known as desktop subscription, jumped dramatically by 125% sequentially and by nearly 3 50% year over year. Helping drive product subscription growth in Q1 was a promotion targeted at converting our legacy non subscriber base to new product subscriptions. This promotion captured legacy non subscribers who are customers that purchased a perpetual license sometime in the past and wanted to trade in their old perpetual license for a product subscription at a discount. It turned out to be one of the most successful promotions we've ever run and contributed over 25,000 net new model subscriptions to the quarter.
As we analyze the data, the really interesting part was that over 50% of those taking advantage of the promotion were using versions from 7 years back or older. We've talked about the opportunity to convert a portion of the estimated 2,800,000 non subscribers, which captures a 5 year look back. We knew there was a meaningful number of active users beyond that 5 year look back and this was a great validation of that point. New model subscriptions also got a strong contribution from our enterprise flexible license or EBA customers. I mentioned on last quarter's call that in Q4 we signed up a record number of enterprise customers for these token based or consumption style EVAs and that because of the way we count those subscriptions, we see the benefits of net new subscriptions in Q1 as we did in the Q1 of last year.
BBVA has contributed more than 25,000 subscription additions in Q1 this year. EDAs with our large enterprise customers have been a very successful component of our transition, leading to both increased subscriptions and account value while creating increased flexibility for our customers. We also had a record quarter for cloud subscription additions in Q1, which increased nearly 50% sequentially. BIM 360 and PLM 360 continue to lead the way, but we're also having success with our other cloud products such as shotgun, A360 and Fusion 360. Our cloud based products continue to bring in new customers to Autodesk.
Our newest cloud product is our IoT platform Fusion Connect, formerly known as cControl, a service that helps manufacturers and system integrators connect, analyze, control and manage things remotely, which is gaining traction. Just as we change the CAD, CAM and PLM markets with cloud based products, we're doing the same with the Internet of Things, enabling our customers to easily incorporate IoT capabilities into their projects. In Q1, we landed a 6 figure IoT deal with an industrial manufacturing company and did so by competing head to head against other well known competitors. This is an exceptional win because the customer is considered a pioneer in OT and has been making connected products as part of their core business strategy for several years. It's important to note that our channel partners are fully engaged with our subscription model.
63% of new model subscription additions came through our channel partners compared to just 27% in Q1 last year. We're also excited about the number of subscriptions coming through our e store, which more than doubled from Q1 last year. Our total direct sales increased to 25% in the Q1. That's up from just 15% 2 years ago and it's still in the early days for our e store. The growth in new model subscriptions fueled a 76% year on year constant currency increase in new ARR.
Total recurring revenue jumped to 70% of our total reported revenues compared to 53% last quarter. Total ARR growth was 12% at constant currency year on year. Remember, when evaluating total ARR growth relative to our long term targets that this number will build over the next 3 quarters as new model becomes an increasingly large component of total ARR. So we're very comfortable with the growth we experienced here in Q1. Another metric that we've talked about in the recent quarters has been unit volume.
When comparing our unit volume to the Q1 last year, it was in line with our expectations. On the expense side, we are diligently controlling our spending. As a result of the restructuring actions we took early in the quarter, our total spend decreased more than 2 percentage points year on year. We are continuing to make structural changes that allow us to spend less yet focus on our key initiatives. We are carefully balancing the need for financial discipline with the need to invest to drive the long term health of the company.
Overall, we are very pleased with the Q1 results, which are a great start to the year and reinforce our confidence that the transition is working for our customers, our partners and Autodesk. We're eagerly looking forward to the end of Q2 when we stop selling perpetual licenses for suites and become fully immersed in the subscription model. Another exciting factor about Q3 is that we'll begin selling what can be thought of as our next generation of suites called collections. We won't officially launch it with our customers until next week, but I'll give you a little preview. Collections will be the most convenient way for customers to access a wide selection of both our desktop software and our cloud services.
We're significantly reducing complexity by offering just 3 collections, one for AC, one for manufacturing and one for AMU. The value for our customers is tremendous and well exceeds the premium suite. We're offering single user and multi user access and choices of different term links to fit their needs. Suites have been a tremendous success since we launched them over 5 years ago and collections will take it to the next level by giving greater flexibility to our customers and increasing the lifetime value for us. That's a good segue into what I touched on last quarter and that's about what we're doing to create long term value for our shareholders.
I'm using this because I feel that we're ultimately aiming to accomplish, which has positioned Autodesk to lead the next generation design, is being somewhat lost in the noise of quarterly financial results. Our transition is really happening on 2 vectors. The first is the business model and pricing transition that is happening now where our customers are moving to turn based subscriptions. Over the next 3 years, we expect this process to lead to a highly predictable model and a significant increase in the value our customers get from our products. In support of this model change, we are simplifying our entire go to market strategy to align with the concept of being an all subscription company.
The result will be meaningful increases in the business we do directly with our customers at the enterprise and e commerce levels. In turn, these changes ultimately reduce our cost structure our cost structure and increase how effectively we serve our customers. The second vector of our transition is how we are building platforms to exploit the cloud and dramatically expand the size of our market opportunities. Investments we've made in this area, which started over 3 years ago, have allowed us to get a sizable lead on our current competitors as well as the many well funded startups. We have seen the platform shift moving before.
Incumbents will slowly become less relevant while the world changes around them. We're investing to secure the future of Autodesk and our new cloud based products are already the undisputed leaders in their respective categories. It's not just about making browser based design tools, it's about market expansion. Mobile and cloud technologies are opening up significant opportunities in areas of construction and manufacturing that are completely new to Autodesk. Again, our framework for building long term shareholder value is to increase the lifetime value of every customer, change our cost structure and the means by which we reach customers, and finally, to build the best cloud and mobile based products and services in the industry as the underlying platform shifts to the cloud.
While many people are focused on the business model shift, winning the leadership position in the cloud leads to a long term sustainable competitive advantage. Now turning to our Q2 full year outlook. I mentioned on last quarter's call that the current fiscal year is the most unique in the company's history as we complete the transition from perpetual licenses to subscriptions at the end of Q2. None of the traditional seasonality patterns for sales metrics will be applicable. Normal year over year growth rates of traditional financial metrics be helpful in understanding how we are performing through the transition.
Similar to our view on Q1, hitting the low end of our revenue range while exceeding our subscription guidance is a desirable outcome for the year. Our view of the macroeconomic environment's impact on our business hasn't changed since last quarter or for the past several quarters for that matter. The global conditions have been uneven. Most of the emerging markets have been difficult, but most of the mature markets have been relatively good. As we evaluated our strong Q1 results, we didn't see any meaningful change in the demand environment.
For the end of sale of suites here in Q2, we expect the dynamics will resemble what we saw in Q4 with the end of sale for individual products. In other words, we're expecting some surge activity, but not a lot. Remember that our unit volume and revenue contribution from suites is much lower than our individual products and we've already seen a significant shift in suites customers to the new model. While this is good news in terms of moving them to a higher value offering now and not having to convert them later, it tamps down our expectations for a surge in volume at the end of this quarter. Also, while the promo targeting legacy customers was successful in Q1, we will not be running that promo here in Q2.
Q3 will be our Q1 of subscription only sales across the board and will likely experience sequential slowdown. That's when you can expect to see promotions aimed at our legacy customers again. If you're not modeling a sequential decline for Q3 already, you should be. And it's consistent with our expectations for the full year, which are unchanged. And Q4 should begin to show more normal sales trends in our new subscription only model.
We made a slight adjustment to our FY 'seventeen outlook for EPS based on our revised tax rate assumption for the year. Otherwise, we remain comfortable with our full year outlook for FY 'seventeen and our long term goals of growing our subscription base by a 20% CAGR over the next 4 years, which will drive a 24% CAGR in ARR. We remain committed to keeping spend growth roughly flat to slightly down this year and flat in FY 'eighteen. When coupled with our top line projections, we see a path to free cash flow of roughly $6 per share in FY 'twenty and $11 per share in FY 'twenty three. To wrap things up, our business model transition is in full swing now and exceeding expectations.
We're really excited to be another major step further along in the transition, and by the second half of this year, we will fully be in a subscription only model. Customers and partners are embracing the new model, both subscriptions and the cloud. At the same time, we're driving higher lifetime value, simplifying our offerings and our go to market activities and significantly increasing our market opportunity as we lead the next wave of design and engineering software to the cloud. We have a clear vision and plan for creating a more profitable, recurring and profitable business in the years to come. Operator, we'd now like to open the call up for questions.
Thank Our first question comes from the line of Saket Kalia from Barclays Capital.
Hey guys, thanks for taking my questions here. First, maybe to start out for you Carl, obviously a nice start to the year for subscription additions. Can we just go back to the 650,000 to 800,000 units that we've sold in any given year? And could you just talk about the seasonality of that in a typical year as well as how much of that might be suites versus standalone?
Yes. Let me give you a little bit. I mean, generally speaking, much more Q4. It's always been, as far as I can remember, back end loaded surprisingly heavy in Q4. Q1 is usually up a drop, Q2 and Q3 going to be a little lower and then Q4 comes out as the usual seasonality pattern.
When we go back and look at unit volumes, we're just in line with everything we saw we've seen historically as well as all of our projections for the quarter. Yes.
In fact, in terms of the split between products and suites, I know you know this, but the AutoCAD and AutoCAD LT are by far the highest volume. So when we look at unit volumes, they dominate that as well. Suites are higher priced, but significantly lower volume.
Got it. Got it. And then for my follow-up, Carl, one of the interesting things that you mentioned was a fair number of the non subscribers that converted this I guess this quarter were on tools that were older than 7 years. And I think the $2,800,000 that we've talked about historically is for non subscribers that are on tools 5 years or less. So I guess the question is, what would that number look like if you included a couple more years of sort of 9 subscribers?
And as you've built a couple more data points, how do you feel about that percent conversion that you've talked about within that base?
Yes. So let me that's a great question, and I know it's got a lot of attention. So let me just back up a little bit and give you a more holistic view of moving people to subscriptions and then try to place the $2,800,000 into context. So as we were looking at building out the new model that would be subscription only, we basically said that there were 3 pools of people that we could draw from. 1 were the non subscribers, The second were the non payers, you know, or the pirates.
And the 3rd, I'll just call the non users. Basically, people who are either not using software or using competitive software. And from share shift, we would move them over. So there were 3 different distinct pools with different dynamics. One of the questions came up frequently was, okay, what is the size of the people who bought products but aren't on subscription?
And what we said is our new model, when we built out our model, we were looking to add about 800,000 subscribers to the total from this collection of sources. People wanted to know the size of the 2 they wanted to know the size of each of these relative segments. Here's a way to think about it. On the non subscribers, one data point we gave you, and it was only just one, was that in the last 5 years and it remained relatively constant, which is why we chose it as a convenient data point, There were 2,800,000 people who had bought but had an attached subscription. We put a caveat around that that said some of those people may no longer be users.
They may no longer be actively using it. They may have come back in by buying a new license. They may have joined a different firm. They could have passed away for all we know. But we wanted to give a size to it.
There are clearly people beyond that 5 years who are still using software as evidenced by that. So it is just an indication. And if you look, it's interesting and somewhat obvious in at least retrospect. But if you look at the legacy promo results, there are more people that bought that were back 6 7 years than in years 1, 2 3. I mean the mean is around 7 years and it's a bell shaped distribution.
So that should give you an indication of what goes on in that base. So it is bigger and what we had said is we thought we could convert 30%. So taking into account how many people were no longer active or the new model would not appeal to them, we thought we could convert 30% of the base. And that's what we were indicating. There's our assumption in the model.
The second one is and I think people overlook this and miss out on the dynamics as we move to a more connected experience for our customers, is that, right now, somewhere around half or slightly more than half of the usage of our products in the world is by people who do not pay for it. Once again, we got to put a discount on how many people will actually pay for when they are forced to. But at least as many people don't pay for the software they use as the ones who do. And then the third one, which I would not rule out is an important contribution to the subscription additions are the people who are using competitive products. I think much of what we've done to lead the way in cloud based engineering software is going to be very attractive and will be a source of moving customers for many of the legacy providers who have frankly kind of dropped the ball on moving their software to the cloud.
So sorry for the really long winded answer to the question, but I thought I knew that you could able to come up and I just wanted to try to put it in a broader context.
Yes, absolutely. Very helpful. Thanks a bunch, Carl. Okay.
Thank you. And our next question comes from the line of Jay Vleeschhouwer from Griffin Securities.
Thanks. Good evening. The call is with you and then finish with Scott for the follow-up. I thought it was very useful that you highlighted the technology and product of the strategy and not just the model change. So on that point, could you talk about how you're thinking about the timing of delivery of new technology over time?
In other words, for example, Inventor is being updated seemingly on a quarterly basis. Though back in December at AU, we heard that AutoCAD may go to a more than 12 month cycle for major releases. And could you talk about what you think the relevance is of the schedule of various products is to sustaining the flywheel of the subscriptions model. And one almost obviously missing brand in your portfolio is, let's call it Revit 360. You've got all kinds of other 360s, but you don't have a Revit 360.
Is that something that would make sense for you?
Yes. So generally, the frequency of updates is inversely proportional to the maturity of the product. Just broadly speaking that if you were to look and say a very mature product like AutoCAD needs to reach frequent updates, products like any of the 360 like Fusion 360 gets updated relatively frequently. If you follow like Fusion, there's weekly and biweekly small updates and certainly every month there's an update with significant functionality. We'll continue that.
In some ways, it's not the overall quantity of stuff delivered. One of the things that changes in this new model is really the frequency. And what I think it changes is also the digestibility. It's like getting 1 big meal a year versus having dozens of small snacks. And a little bit what this allows us to do with our new products is have not only us deploy the software more effectively, but our customers more easily discover what's in it and put it to use as quickly as possible.
So we're going to kind of continue on that kind of cadence of the newer cloud based products will be frequently updated. The other ones will be a little bit slower. But both the traditional products and the new cloud services really need to be thought of differently as connected experiences, which now allow us to do things in the ongoing use and in the update that were just not possible before. As a matter of fact, even when you look at some of the data I was just reporting on in the answer to Saket's question, a bunch of that comes from the Synchrony connectivity.
Okay.
Let me just think to you guys, yes, there's a bunch of work going on, on online stuff for the ADC industry. The first thing we do and we've talked about being incredibly successful is what we're doing with BIM 360. Where we've gone most recently is we've brought out BIM 360 in the beginning was more enterprise and for the more sophisticated users. But there's a huge demand in the market for the less sophisticated users and distribution of plans and stuff like that. We just did a we're just in the process of being an update to a BIM 360 box that addresses this much broader need.
And you'll see more of the design and analysis software for AEC coming online during the next year.
Good. Thank you. For Scott, could you give us an update on the capacity additions you've put in place for what you've called your entitlement and transactional engines, your back office for the new model? Just a quick clarification, to date you've had the somewhat odd situation of splitting your subs billings between license revenue and subs revenue, could you foresee taking the subs revenue billings rather only into the subs reporting line, so we don't have to mix and match the 2 kinds of reporting
lines? Yes. Let me answer the second part first, Jay. I am working on that. I realize that the way we do it is accurate in terms of accounting standards the way we do it today, but confusing from a modeling standpoint.
So one of the things that we're working on is trying to simplify the way we categorize revenue as it comes out of deferred and hits the P and L, such that we can keep maintenance separate from what I'll call new model subscription, separate from license and other. That's not ready yet, but that's something that is in flight. And I think it will be a very investor friendly move when we can make that. To your first question on capacity, we see the capacity so we built the entitlement engine. We are as you think about it, it's a multi phase process, right?
You have to build the capability on the back end, then each product has to build in the capability to recognize the new back end and use that as a way of turning it on so that they can get access to it. And then as those products ramp up, the capacity on the back end gets tested. So we haven't had any problems at this point as we've ramped up the new model subscriptions fairly rapidly. And I think that it's now a question of absorption and adoption of the new models.
Thank you. And our next question comes from the line of Sterling Auty from JPMorgan.
Thanks. Hi, guys. Looking at the maintenance, the decline of 8,000 seats, I'm kind of curious if you saw any of those maintenance seats actually transition over to subscription. If so, why did they do it and what kind of uplift did you see?
Yes. Sterling, we're not seeing
a lot
of that activity right now. We've talked about the path that we'll head down to make that happen. As you know, it's a higher price to convert. If you're an existing maintenance customer, it's a higher price to convert over to the new model offerings. And so what we've talked about is driving higher value into the desktop subscription offerings that make that something that is attractive even when you've already got the existing perpetual license and maintenance is attractive even when you've already got the existing perpetual license and maintenance attached to it.
So it's not a the reduction is not driven by conversions. And by the way, the reduction of 8,000 subs, the net reduction of 8,000 subs on maintenance was fewer than we had expected. It's more driven by just taking a very high renewal rate, the one that's not 100% and multiplying it times a very big number of maintenance installed base.
Got you. And then as a follow-up, looking at the sequential change in revenue by the areas, it looks like AEC did not get impacted as much as some of the others. Is that just a natural fact of maybe there's more Suite revenue in AEC versus the other two buckets or the other couple of buckets?
Yes, I think that's a fair evaluation.
All right. Thank you.
Thank you. And our next question comes from the line of Heather Bellini from Goldman Sachs. Heather, your line is open. Could you check your mute button, please? She may have stepped away.
We'll move along. Our next question comes from the line of Keith Weiss from Morgan Stanley.
Excellent. Thank you guys for taking the question.
I was looking at the
sort of ARR numbers and the subs numbers in. It was a really nice quarter, as you guys have noted in terms of adding those new model subs. But one of the things I noticed is that the business since the growth in sub numbers is so much higher than the ARR number. The ARRPS, if you will, the average recurring revenue per subscription is going down for the new model subs. I think it's down something in the order of about 20% year on year.
Can talk to us a little bit about what's driving that down? Is it mix shift? Is it sort of promotional pricing? And what should we expect on a going forward basis? Is that going to settle out at some point?
Is that going to turn up once we have the suites go fully to subscription? How should we be thinking about that trend line on ARPS on a go forward basis?
Sure, Keith. It really is mix driven. As you know, with the end of sale of perpetual licenses at the end of Q4, a lot of the new model subs that we added this quarter, of course, are the low end models, right? So it's LTE and AutoCAD. And so as those come online, and remember the way we measure ARR is we sum the recurring revenue for the entire quarter, multiply that by 4 and that's what becomes the ARR.
So the linearity in the quarter is one effect, but mix is a bigger effect. We actually you see the same thing in maintenance going the reverse direction as there are fewer AutoCAD LT and AutoCAD maintenance subs and you probably have already done the math. You see the ARCS is actually going up slightly on the maintenance side, but coming down on new model, strictly a matter of mix. That will reverse. Of course, when we get to the second half and in the next year and we return to a mix that has an equivalent representation of suites as what we've seen historically.
And remember, if you just look at it, if you go back to what we did around the long term model, we've always said that the kind of mix was going to drive this over a longer period of time, particularly as we add the cloud subscriptions. We've always kind of suggested that low to mid single digits was the increase that you'd see in ARPS along a longer period of time. And so I wouldn't say there's anything there that's out of the ordinary or outside
the balance of the model that we have right now.
Got it. Thank you very much.
Thanks, Keith.
Thank you. And our next question comes from the line of Phil Winslow from Credit Suisse.
Hi, thanks guys and congrats on a great subquarter. Carl, just hoping if you could double just click on the macro comments that you made there and obviously sort of no change. But wondering if you could just comment about what sort of what you're seeing by vertical, by geography, sort of anything standing out. And as you're kind of putting your forward guidance here, just sort of any sort of major assumptions that you'd highlight, that would be very helpful.
Yes, sure. I mean, I'll give you the general outlook, which I would broadly characterize as unchanged. It's probably the headline is that it's unchanged and it continues to be soft in a handful, mostly developing markets and pretty robust across the more mature markets. We paid special attention this time. And as you guys have noted in the years, I've been reading your reports.
I would say 3 of our competitors, mostly in the manufacturing space, but also 1 or 2 in the construction space, seem to have a little rougher time of it this time. And what we were trying to do is just parse how much was self induced versus macroeconomically driven. I think at the end, I think most of the kind of shortfalls or stub toes seem to be mostly self inflicted. And so we're pretty comfortable. I just talked to our sales leaders the other day, yesterday.
I met with some of our channel partners who represent a huge percentage of our revenue that goes through the channel. And they're feeling relatively bullish. So there's nothing in our guidance or the forecast that would suggest any big change one way or another. Also across industry segments, relatively healthy across the board, if I wanted to put like a little bird star next to anything, I would say AEC seems to be just a little bit stronger on a worldwide basis. Once again, maybe better than the ABI index is that informal cream count.
There are just cities in the world where it's hard to rent a cream right now. There's just so many in use. And so that to me would be a little bit of a bias towards the upside. It's just strengthening. But otherwise, stable, healthy, relatively unchanged.
Keith, when you look at it by geo and you see some of this in the results, you really haven't seen a change in the demand environment overall. We continue to have obviously the biggest headwind in APAC and within that as we pointed out a couple times, Japan continues to be the biggest challenge for us. But beyond that, Americas look strong, EMEA is doing well, particularly on a constant currency basis And the place that we see the biggest headwind right now, as we've seen for the past several quarters, has been APAC and in particular in Japan.
Got it. Thanks guys.
Thank you. And our next question comes from the line of Richard Davis from Canaccord.
Hey, thanks. If you kind
of fast forward a year from now and you'll have you'll be through your product transition at least in terms of end of lifing, And I've seen this kind of with Kronos. How do you think about I guess with a mixed model, how do you think about kind of making the cloud version of the software more attractive than the perpetual license maintenance accounts? I presume you would prefer people to kind of move to that side of the subscription docket. And how do you kind of think about comparatively making those things better? And at what pace do you want to try to do that?
Thanks.
Sure. First of all, Richard, I need to congratulate anybody from Davidson. We are very happy here in the Bay Area after Here's the way I think about it. First of all, as I've said before, customers who are on maintenance are historically our best customers. They can stay there as long as they want to stay there.
It's okay. Secondly, I would prefer to move them to one of the new product subscriptions, hopefully one of the industry collections as what will be better for them and more valuable to us. That would be a nice move. The collections going forward, we don't have a fair number of cloud services, including the consumption based models built into them. So that will be a way for customers to become more familiar, more comfortable and hopefully, more desirous of more cloud functionality.
The only thing we're dealing with a lot of the cloud stuff is we're really reaching new segments. It's this cloud mobile combination, for example, that's allowing us to do and if you look at the products BIM 360 and POM 360, I mean, reaching large parts of the enterprise or large parts of the industry that were not otherwise accessible to us. In the fullness of time in that 3 year to 5 year period, I think almost all the software will run online And we'll really just have different versions and people will be able to run it in a browser, on a mobile device or as an installed application on their desktop. That's just going to be done par for the course that they will get their tool of choice on their device of choice.
Got it. That's helpful. Thank you so much.
Sure. Thanks, Rich.
Thank you. And our next question comes from the line of Steve Ashley from Robert W. Baird.
Hi. I would just like to ask about this continue on this line of thought of product transformation. I'm assuming that the part of the game plan or roadmap here will be to introduce some mobile applications to some of your desktop subscribers. When might we start to see timing wise some of that incremental functionality being offered from the cloud to desktop subscribers? Thanks.
Yes. So by the way, it's starting right now. I would say through Q2 through the end of the year, you will increasingly see cloud services that are available to all of our subscribers. They'll be packaged differently. Many of them will be done on a consumption basis.
So for example, you will be able to either buy consumption plans or pay as you go models in order to tap in the power of the cloud. So for example, visualization, analysis, being able to run many of these compute intensive jobs on the cloud side is going to be a part of the rest of the year. And we'll continue to roll it out. We've already seen really good pickup in this. People are hugely appreciating this going up.
And sometimes people forget how computer intensive our apps are. And so instead of setting off a job and going for a cup of coffee, people are now able to set off a job on our cloud and then continue working. And so this has been a big productivity boost. Customers have really liked it. We're already doing a fair amount of visualization, and we're really starting to see a pickup in analysis and simulation.
And I think that will continue. The other place where we've seen a fair amount of cloud based stuff that's really important is the second axis that's important about the cloud, which is all around collaboration and coordination. And those are services that are not only available for just the new cloud based products, they're actually available for the desktop products as those people have kind of the same kinds of communication needs as anyone else trying to build products.
And to the point on mobile in particular, Steve, we've got BIM 360 docs out there. And so if you think of a job site, what you don't see anymore is the guys walking around with a big bundle of blueprints under their arm. They're using ruggedized mobile devices on the site to do both view capabilities, to look at the logistics programs to understand what needs to get done when, to do workflow around conflicts that come up in the field that been envisioned during the design phase. So we already have apps out there that are leveraging mobility in particular. And as we think about the TAM expansion and construction in particular, I think it goes heavily toward that space, toward the mobile space.
Just a quick follow-up. It's early days of subscription renewals. Are the renewal rates on the subscriptions running higher than what you've historically seen with maintenance?
They are. We actually see subscription both attach rate for where we still have remaining perpetual license sales going up and the renewal of those going up. And it makes sense given that if you have decided you want a perpetual license and you want to stay on a perpetual license, if you fall off a maintenance, you can't get back on. And so you know you'll need to update that. You know you'll want to make it compatible with the latest peripherals with newer versions of companion software that you're working with.
So we're seeing both attach rates and renewal rates on maintenance improve.
Yes. And one thing you'll see going forward and we report on it as more data comes in is on the new product subscriptions. I think you will see, I mean this is my best guess at the time, you will see differential rates between the different term lengths that we have because I think some people choose the term lengths based on a desire of how they want to pay, but maybe it's because of a spiking demand. And so I think we will see differential rates, for example, between annual and quarterly. And as we get data that makes it statistically significant, we'll report out on that.
Thank you. And our next question comes from the line of Heather Bellini from Goldman Sachs.
Hi, this is Shatil Lam filling in for Heather. Thanks for taking my question. So you had your biggest increase in new model ARR this quarter at over 50,000,000 dollars Mentioned a few things that helped, like the channel contribution. Just wondering what clicked in the channel this quarter? And overall, what would you call the top drivers of new model ARR this quarter that may have not been helping in the past?
Well, Shatil, I'll start and Karl, you can jump in. Obviously, the first biggest driver of new model ARR for the quarter was the end of sale of perpetual at the end of the prior quarter. So we talked about unit volume being right in line with our expectations to the extent that they that those customers were looking for AutoCAD or AutoCAD LP that drove a huge amount of the increase of 140,000 new sub ads. I'd say the other piece that Carl has already talked about that also factored in, in particular, on desktop is the success of the promo that we had that targeted legacy users of the software that didn't have a subscription attached. Those would be the 2 biggest drivers of the new model subs for the quarter.
Okay. And then I had one, Scott, for you on your balance sheet. You have over $2,000,000,000 in cash, just bought back $100,000,000 in stock. What's keeping you from buying more stock? And how should we think about you balancing share repurchases versus doing acquisitions?
Sure. Yes. And as I
think we called out in the I'm sure we called out in the prepared remarks, around about 80% of that cash, of course, is offshore. And given our tax structure, it would be quite expensive to get our hands on that and bring it back home, but we'd have to get it to do a share repurchase.
I think we mentioned
in the past that as our business model changes and as tax legislation around the world is somewhat in flight, we are looking at our overall operating structure and that will have an impact on tax structure. But as we stand today with that cash trapped off shore and the current tax structure that we've got, it would be a very extensive proposition to bring it home.
Got it. Thank you.
Thank you. And our next question comes from the line of Anil Dorolda from William Blair.
Hey guys, thanks for taking my question and congrats on the new subs during the quarter. Carla, I had a couple of questions. I think you said something like a 50% sequential increase in the 360 products. Now was that kind of spread around all the products or was it more BIM focused or more Fusion 360 focused? In?
They are in slightly different stages of maturity, but we saw good growth in all of the products. We're in the really early stages and it's by comparison, it's explosive growth. I mean each one of these is taking off. We but to look at it a little bit more fine grain, a handful of 360 products are targeted at collaboration and those we add users in kind of clumps as company or a company and a teacher system come on, where some of the design and engineering products are more small teams get added at a time. But across the board, we're seeing good adoption of the cloud products and a great response from customers.
If anyone wants to do kind of the equivalent of channel checks on the product side, there's a huge amount of information out there on social media about the acceptance and how people are just becoming aware that there's a whole new generation of products out there.
Yes. And, Anil, what I'd say is it's the usual suspects, right? It's BIM, it's PLM, it's Shopgon, it's A360, as we pointed out in the opening commentary.
And as a follow-up, Carl, you talked about BIM 360. You're talking about some of the addressable markets which are significantly above the non subscriber base and all that kind of stuff. So if I fast forward and look at BIM 360, say, 3 years or 4 years from now, First of all, when do you think you'll hit the sweet spot or inflection point on BIM 360? And how big could this be, say, in 5 years?
Yes. I mean, this is I mean, what you can look at out there and look, it's very hard when a market doesn't exist to size it. But you can already see startups out there that are trying to serve some of the markets as well as some of the other incumbents. And in total, there is probably a couple of $100,000,000 already being sold in the area of collaboration and coordination software, I think that market is going to grow tremendously. And that's what's available to us.
It was really critical that we get out the BIM 360 docks, like I said. We had had incredible success with our enterprise architecture, engineering, construction customers, but we were missing out on the smaller parts of the market. And that's where it really gets the scale. But I mean, these are opportunities that are certainly in the hundreds of thousands of potential users and in some cases, possibly in the millions. But if you want to just look more specifically, for example, many of the people on the construction site who will use BIM 360 were not a user of our design or engineering products.
If you look at PLM 360, it broadens the use of our manufacturing products throughout the whole enterprise as opposed to just the people that are involved in design and engineering. So it's a very different use profile. It's also why we've said, just tying it back to some of the other comments, when you look at some of these cloud subscriptions, when you include these, these will be lower priced products and that's what kind of dampens the ARPS growth. So just trying to tie that together, but these are really new users that haven't been available. Whereas before I talked about there's 3 pools of users who could come and use the desktop or the new cloud based design products.
Thank you. And our next question comes from the line of Kash Rangan from Bank of America Merrill Lynch.
Hey guys, thanks for taking my question. One thought is that I would assume that the geographies, the products that are going through the model transition would show the steepest revenue decline. I'm just trying to get your analysis into what to make of the fact that Asia Pac decreased faster than EMEA and Americas. I mean, that would seem to suggest that if you didn't know a whole lot that that's the region that's going through the model transition, but clearly that has historically not been the case with model transition. So trying to get your view on that.
And also from a product perspective, it would seem that PSEB is going through the sharpest decline in terms. Therefore, the model transition is more prevalent there. But again, that would not make sense. So I'm trying to get some sense and your perspective as to what to make of the disparity in the growth rates of these geographic and product cuts? Thank you.
Right. Greg, Kash, I think you're thinking about it in the right way, but let me put a little bit of a different distinction on it. The places where the year on year growth is less impacted by the model transition are the places where they were earlier to adopt the new model. So the compare point a year ago already had a reasonable mix or a growing mix of new model subs built into it. That was not the case in APAC, right?
APAC has been the slowest to adopt the new models. So the compare point for our APAC revenues for the quarter compares back to a quarter that had very little new model mix inside there. So it's more impacted in terms of the year on year growth rates.
Yes. One of the encouraging signs we saw this quarter was the proportion in APAC of new model subscriptions for the suites. So there are portions of Asia that are moving. It's not uniform, but we were very surprised and pleasantly so to see such a large percentage and exceeded the other geos in terms of new model subscription. So we're seeing some traction there.
Also a lot of it, just so you understand it and maybe you can reconcile it with some of you who are doing things like channel checks, one of the biggest factors affecting the uptake is actually the sentiment of the reseller. Resellers have a huge impact in what they present to our customers. Our best resellers are all on board with the new model. Some of the ones that are staying behind are influencing it. And sometimes that carries over into geographic distinctions that are actually big enough to be called out.
Right. But as Carl said, we did see an encouraging uptick despite the fact that APAC had the biggest year on year impact from the transition. We saw a really encouraging uptick toward the end of the quarter in the new model subs there. Yes. To your point on PSEB cash, what you're seeing there is just the continuation of what we've seen all along as suites, because what's in PSEB is it's dominated by AutoCAD and AutoCAD LP and those products are included in the suite.
So as the suites continue to grow and gain traction, fewer people are buying just the standalone version. So a lot of what's happening in that PSEB segment is simply mix of customers getting all they can and getting LP, but getting it inside their suite instead.
And I think as you see the collections rollout, you'll see the same phenomena. It's going to continue because it's down the same lines.
Got it. Thanks, Jim. And also philosophically, when are we going to see the clear distinction in the product roadmap between the licenses and the desktop versions that somebody that is inclined to stay on maintenance actually says, you know what, I'm not going to pay maintenance, let me just jump over to the subscription. When is the product roadmap going to be clearly delineated into 2 separate wings?
I think as soon as you start seeing the collections, it will become clear. And I think that will begin to have an impact in Q3. So collections are one of the vehicles to move our customers from maintenance to product subscription. It is more valuable. It is more valuable.
It's way more flexible than anything they've had. It gives them broader access to a wider set of products. That will be one of the tools that we use to encourage our customers to look in to look and consider the new offerings.
Thank you. And our next question comes from the line of Kenneth Wong from Citi.
Hey, guys. Paul, I wanted to touch a little bit on what you just mentioned about collection. You get a better sense that that's a product that could potentially pivot them over to buying kind of a higher value rental from you guys?
So, Ken, if you sound a little bit like you're underwater, I'm not sure I was able to were you able to Yes. So Todd understands you much more clearly. Yes. The sound quality wasn't great, Ken, but
I think I got your question on collections. It is
a case
where we have, as Carl said in the opening commentary, we haven't formally rolled this out worldwide. But as we do, think of it as sort of the follow on to suites, as the next iteration of what suites look like. It will be greatly simplified. The pricing model will be greatly simplified. It will bring along with it substantial additional value in terms of the number of products that are included.
It also will begin to form the on ramp from desktop execution software to cloud software. We'll incorporate a lot of our cloud properties inside there to make it something that's not a separate buying decision to go out and have our customers test out and try the cloud products. So we look at it as not just the next step in adding value and driving our customers to see the higher value of the new subscription models, but also as an on ramp to the cloud.
Yes. Got it.
Yes. Let me just add one thing as soon as our urban environment quiet down. The other thing I'd add, because we've been slightly oblique about this, is one of the other things to remember is our ability to consolidate the product portfolio, shrink the product portfolio. This is the first step towards doing it. So people have asked about the product portfolio.
Collections are the vehicle that allow us to simplify the product portfolio, focus on the important ones, trim the parts of it that make less sense and much more discipline around the R and D expense. And so we're really excited about concentrating the offerings for the different industries with only these 3 collections.
Yes, got it. And then in terms of the channel, I mean, clearly, you guys are getting more buy in there. How should we think the contribution from the channel trends over time? And does that get closer to the 80% that you guys have I'm sorry.
Can you repeat the question? We're having trouble picking you up here. You're coming through very softly.
Sure. I guess simply, does the channel contribution trend closer to your 80% as this process moves forward?
Ken, are you there?
This time you're even softer.
Operator, we're going to have
to go to the next question.
Thank you. Our next question comes from the line of Brent Thill from UBS.
Hi, this is John on for Brent Thill. Can you hear me okay?
Yes, we can.
Okay, great, great. So just two questions. 1, with the Q2 revenue outlook being a little bit lower than consensus, I mean, but the year is the same. Should we think of that? I mean, would it be just you were seeing the street just miss modeling the seasonality?
Or was there any change in your expected path for as you go through the end of perpetual and suites through the rest of the year? What will be the best way to think about that?
Yes, John, I recognize that the guide we gave for the quarter is not where consensus was, but of course, we hadn't guided Q2 before. And what we're seeing in our guidance is in sync with what our expectations were. So it's not a question of a change in seasonality pattern versus what had been expected previously. If you just look at coming to the end of sale of suites during Q2, we talked about earlier, we're expecting really a bit of a muted buy ahead versus what we saw on individual products. On the standalone products, remember we sized it at the end of Q4, there was only about a 10% increase in volume that came through.
Suites to begin with are a much lower volume product than standalone products are. We're also seeing and have seen a really steady increase in the uptake of customers already buying the new model on suites. So not waiting for it to hit end of sale. There's been a lot of interest in Suite's customers buying the new model. So you add those 2 together, we're expecting a small amount of buy ahead activity in Q2 on Suite, but not a huge amount.
If it's bigger than we think, we'll be toward the high end of the range. And if it's less than we think, which is which would be a good thing because those are customers who don't have to convert off of perpetual in the future. If it's less than we think, they will be at the low end of the range.
Yes. One of the things that I would just outline 2 things about it. One is just generally, we're seeing greatest of more than most customers and our partners in the new model. So that is running ahead of plan. But it was like I said, I was yesterday with our largest North American resellers or many of our largest North American resellers.
And just going around the room, there is some good betting going on about how much buy ahead there would be of suites at the end of the quarter. Like we said, the best we can say about this is we've never experienced this before. It's different. And this is really just our best estimate of what's going to go on. The more important news for us is that whatever happens, we're done with it at the end of this quarter.
And so whether we're at the low end of the range and we're happy or it's the high end the range, it doesn't matter because we move on to a world that we've been waiting for and talking about for a while in which we're really selling only one we're only selling the new model. And that greatly simplifies so much stuff. So I will be thrilled we're here 3 months from now.
Great, great. That's helpful. Just one more I'd say, the old suites or the individual product subscription or let's say, the old suites or the individual product subscription or desktop subscription? And maybe also you think of in terms of LTV for those versus the other choices? And that's it for me.
Thanks.
Yes. Over the next couple of weeks, we'll be rolling out the prices and what's included in the collections. Probably best to do it there and look at it holistically, but information is not far behind. And so you'll all get to see it soon. We felt we just felt like we wanted to share it because it seemed like if we're announcing it in 10 days, it was best to just give you guys a preview, but probably more best digested with a full collection of information.
Thank you. And that concludes our question and answer session for today. I would like to turn the conference back over to David Gennarelli for any closing comments.
That concludes our call today. This quarter, we'll be
at several conferences. Next week on May 24, we'll be at the JPMorgan Conference in Boston. On June 2, we'll be at the BAML Conference in San Francisco. June 14 at the Berenberg Design Software Conference in London, and also that same week on June 16, the NASDAQ Conference in London. In the meantime, you can reach me, Dave Gianarelli, at 415-507-6033.
Thanks.
Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have
a good day.