Good day, ladies and gentlemen. 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 first quarter of fiscal 2017. Also on the line are Carl Bass, our CEO, and Scott Herren, 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. We will not repeat them on this call.
During the course of this conference call, we will make forward-looking statements regarding future events, the anticipated future performance of the company, such as our guidance for the second quarter 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, reduced cost structure from our transition to new business models, our market opportunities, 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. 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-K for the fiscal year 2016, our current reports on Form 8-K, including the Form 8-K furnished with today's press release and prepared remarks. Those documents contain, 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. We 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. Now I'd like to turn the call over to Carl.
Thanks, Dave. We had a terrific start to FY 2017 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 two big initiatives. First, we are increasing the lifetime customer value. Second, 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.
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 first quarter 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 350% 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 analyzed the data, the really interesting part was that over 50% of those taking advantage of the promotion were using versions from seven years back or older. We've talked about the opportunity to convert a portion of the estimated 2.8 million non-subscribers, which captures a five-year look-back. We knew there was a meaningful number of active users beyond that five-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 EBAs.
That because of the way we count those subscriptions, we'd see the benefit to net new subscriptions in Q1, as we did in the first quarter of last year. EBAs contributed more than 25,000 subscription additions in Q1 this year. EBAs 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. A360 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 SeeControl, a service that helps manufacturers and system integrators connect, analyze, control, and manage things remotely, which is gaining traction. Just as we changed 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 six-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 customers considered a pioneer in IoT and have 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 eStore, which more than doubled from Q1 last year. Our total direct sales increased to 25% in the first quarter. That's up from just 15% two years ago, and it's still in the early days for our eStore. The growth in new model subscriptions fueled a 76% year-on-year constant currency increase in new model 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 three quarters as new model becomes an increasingly large component of total ARR.
We're very comfortable with the growth we experienced here in Q1. Another metric that we've talked about in recent quarters has been unit volume. When comparing our unit volume to the first quarter of 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 action we took early in the quarter, our total spend decreased more than two 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 three collections, one for AEC, one for manufacturing, and one for M&E.
The value for our customers is tremendous and well exceeds a premium suite. We're offering single-user or multi-user access and choices of different term lengths to fit their needs. Suites have been a tremendous success since we launched them over five 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 revisiting this because I feel that what we're ultimately aiming to accomplish, which is position Autodesk to lead the next generation of design, has been somewhat lost in the noise of quarterly financial results. Our transition is really happening on two vectors.
The first is the business model and pricing transition that is happening now, where our customers are moving to term-based subscriptions. Over the next three 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 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 three years ago, have allowed us to get a sizable lead on our current competitors, as well as the many well-funded startups. We've seen the platform shift movie 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.
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, 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 a leadership position in the cloud leads to a long-term, sustainable competitive advantage. Turning to our Q2 and 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, nor will 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 have 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 buying 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 first quarter 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. It's consistent with our expectations for the full year, which are unchanged.
Q4 should begin to show more normal sales trends in our new subscription-only model. We made a slight adjustment to our FY 2017 outlook for EPS based on a revised tax rate assumption for the year. Otherwise, we remain comfortable with our full-year outlook for FY 2017 and our long-term goals of growing our subscription base by a 20% CAGR over the next four 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 2018. When coupled with our top-line projections, we see a path to free cash flow of roughly $6 per share in FY 2020 and $11 per share in FY 2023. 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. 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 predictable, recurring, and profitable business in the years to come. Operator, we'd now like to open the call up for questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star followed by the number 1 key on your telephone keypad. If your question has been answered or if you'd like to remove your line from the queue, you may press the pound key. In the interest of time, we ask that you limit yourself to 1 question and 1 follow-up question. 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 off 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? 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?
Yeah. Let me give you a little bit. 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 lower, Q4 comes out is the usual seasonality pattern. When we go back and look at unit volumes, we're just in line with everything we've seen historically, as well as all of our projections for the quarter.
Yeah. 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. When we look at unit volumes, they dominate that as well. Suites are a higher price, but significantly lower volume.
Got it. For my follow-up, Carl, one of the interesting things that you mentioned was a fair number of the non-subscribers that converted, I guess, this quarter, were on tools that were older than seven years. I think the 2.8 million that we've talked about historically is for non-subscribers that are on tools five years or less. I guess the question is, what would that number look like if you included a couple more years of non-subscribers? And as you built a couple more data points, how do you feel about that 30% conversion that you've talked about within that base?
Yeah. That's a great question, and I know it's got a lot of attention. Let me just back up a little bit and give you a more holistic view of moving people to subscriptions, try to place the 2.8 million into context. As we were looking at building out the new model that would be subscription only, we basically said that there were three pools of people that we could draw from. One were the non-subscribers, the second were the non-payers or the pirates, and the third are, I'll just call, the non-users. Basically, people who are either not using software or using competitive software. From share shift, we would move them over. There were three different distinct pools with different dynamics.
One of the questions came up frequently was, okay, what is the size of the people who have bought products but aren't on subscription? 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 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 five years, and it remained relatively constant, which is why we chose it as a convenient data point, there were 2.8 million people who had bought but hadn't attached subscription. We put a caveat around 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. We wanted to give a size to it. There are clearly people beyond that five years who are still using software, as evidenced by that. It is just an indication. If you look, it's interesting and somewhat obvious in at least retrospect. If you look at the legacy promo results, there are more people that bought that were back six and seven years than in years one, two, and three. The mean is around seven years, and it's a bell-shaped distribution. That should give you an indication of what goes on in that base. It is bigger. What we had said is we thought we could convert 30%.
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 was 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, you 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.
The third one, which I would not rule out as 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 from many of the legacy providers who have frankly, kind of dropped the ball on moving their software to the cloud. Sorry for the really long-winded answer to the question, but I knew the 2.8 would come up, and I just wanted to try to put it in a broader context.
Yeah, absolutely. Very helpful. Thanks a bunch, Carl.
Okay.
Thank you. Our next question comes from the line of Jay Vleeschhouwer from Griffin Securities.
Thanks. Good evening. Carl, I'll start with you and then finish with Scott for the follow-up. I thought it was very useful that you highlighted the technology and product vector of the strategy and not just the model change. 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. 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? 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. 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 at least frequent updates. Products like any of the 360, like Fusion 360, gets updated relatively frequently. If you follow 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 thing that changes in this new model is really the frequency. What I think it changes is also the digestibility. It's like getting one big meal a year versus having dozens of small snacks.
A little bit what this allows us to do with our newer 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. We're going to continue on that 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 frequent connectivity.
Okay. For Scott-
Let me just answer you that, yes, there's a bunch of work going on online stuff for the AEC industry. The first thing we did, 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. There's a huge demand in the market for the less sophisticated users and distribution of plans and stuff like that. We're just in the process of doing an update to BIM 360 Docs that addresses this much broader need. You'll see more of the design and analysis software for AEC coming online during the next year.
Good. Thank you. 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 two kinds of reporting lines?
Yeah, 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. 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&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 built the entitlement engine. As you think about it's a multi-phase process, right?
We 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. Then as those products ramp up, the capacity on the back end gets tested. We haven't had any problems at this point as we've ramped up the new model subscriptions fairly rapidly. I think it's now a question of absorption and adoption of the new models.
Thank you. Our next question comes from the line of Sterling Auty from JP Morgan.
Thanks. Hi, guys. Looking at the maintenance, the decline of 8,000 seats, I'm 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?
Yeah, 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. What we've talked about is driving higher value into the Desktop Subscription offerings that make that something that, besides being required to do it as you buy additional capacity, is attractive even when you've already got the existing perpetual license and maintenance attached to it. The reduction is not driven by conversions. 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, but one that's not 100%, and multiplying it times a very big number of maintenance install base.
Got you. 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?
Yeah, I think that's a fair evaluation.
All right. Thank you.
Thank you. 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, it was a really nice quarter, as you guys have noted in terms of adding those new model subs. One of the things I noticed is that since the growth in sub numbers is so much higher than the ARR number. The ARPS, if you will, the average recurring revenue per subscription is going down for the new model subs, and I think it's down something in the order of about 20% year-on-year. Can you talk to us a little bit about what's driving that down? Is it mix shift? Is it sort of promotional pricing? 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? It's LT and AutoCAD. As those come online, and remember the way we measure ARR is we sum the recurring revenue for the entire quarter, multiply that by four, and that's what becomes the ARR. The linearity in the quarter is one effect, mix is a bigger effect. Actually, you see the same thing in maintenance going the reverse direction as there are fewer AutoCAD LT and AutoCAD maintenance subs. You probably have already done the math. You see the ARPS is actually going up slightly on the maintenance side, coming down on new model. Strictly a matter of mix.
That will reverse, of course, when we get to the second half and into next year, and we return to a mix that has an equivalent representation of suites as what we've seen historically.
Remember, if you go back to what we did around the long-term model, we've always said that mix was going to drive this over a longer period of time, and 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. I wouldn't say there's anything there that's out of the ordinary or outside the bounds of the model that we have right now.
Got it. Thank you very much.
Thanks, Keith.
Thank you. Our next question comes from the line of Phil Winslow from Credit Suisse.
Hi, thanks, guys, congrats on a great sub-quarter. Carl, just wondering if you'd double just click on the macro comments that you made there, obviously sort of no change. Wondering if you could just comment about what you're seeing by vertical, by geography, sort of anything standing out. As you're kind of putting your forward guidance here, any sort of major assumptions that you'd highlight, that'd be very helpful.
Yeah, sure. I mean, Phil, I gave 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 of developing markets, and pretty robust across the more mature markets. We paid special attention this time, and as you guys have noted as I've been reading your reports, I would say three of our competitors, mostly in the manufacturing space, but also one or two in the construction space, seem to have a little rougher time of it this time. 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 stubbed toes seem to be mostly self-inflicted. 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. They're feeling relatively bullish. 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 a little gold 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 crane count. There are just cities in the world where it's hard to rent a crane right now. There's just so many in use. That, to me, would be a little bit of a bias towards the upside is just strength in AEC. Otherwise, stable, healthy, relatively unchanged.
Yeah. Keith, when you look at it by geo, you see some of this in the results, you really haven't seen a change in the demand environment overall. Continue to have, obviously, the biggest headwind in APAC, and within that, as we pointed out a couple of times, Japan continues to be the biggest challenge for us. Beyond that, Americas looks strong. EMEA is doing well, particularly on a constant currency basis. 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. Our next question comes from the line of Richard Davis from Canaccord.
Hey, thanks. If you fast-forward a year from now, you'll be through your product transition, at least in terms of end-of-lifing, and I've seen this with Kronos, how do you think about— I guess with a mixed model, how do you think about making the cloud version of the software more attractive than the perpetual license maintenance accounts? I presume you would prefer people to move to that side of the subscription docket. How do you 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.
Hey.
We all are very happy here in the Bay Area.
Davis favorite son.
Yes.
In fact.
I know you're the second favorite.
Exactly.
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 would be better for them and more valuable to us. That would be a nice move. The collections going forward will have a fair number of cloud services, including the consumption-based models built into them. That will be a way for our customers to become more familiar, more comfortable, and hopefully more desirous of more cloud functionality. The other thing we're doing 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. If you look at the products BIM 360 and PLM 360, and we're reaching large parts of the enterprise or large parts of an industry that were not otherwise accessible to us. In the fullness of time, in that three-year to five-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. It's just going to become 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, Richard.
Thank you. Our next question comes from the line of Steve Ashley from Robert W. Baird.
Hi. I would just like to ask about this, continuing on this line of thought of product transformation. I'm assuming that part of the game plan or roadmap here would 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. 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. For example, you will be able to either buy consumption plans or pay-as-you-go models in order to tap into the power of the cloud. 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. Sometimes people forget how compute-intensive our apps are.
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. 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. I think that'll continue. The other place where we've seen a fair amount of cloud-based stuff that's really important is the second axis of what's important about the cloud, which is all around collaboration and coordination. 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 the same kinds of communication needs as anyone else trying to build products.
To the point on mobile in particular, Steve, we've got BIM 360 Docs out there. 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 may not have been envisioned during the design phase. We already have apps out there that are leveraging mobility in particular. As we think about the TAM expansion in construction in particular, I think it goes heavily toward that space, toward the mobile space.
Just a quick follow-up. It's early days on 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. 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 of maintenance, you can't get back on. 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. We're seeing both attach rates and renewal rates on maintenance improve.
The one thing you'll see going forward, and we'll report on it as more data comes in, is on the new product subscriptions. I think you will see, this is my best guess at the time, you will see differential rates between the differing term lengths that we have. I think some people choose the term length based on a desire of how they want to pay. I think we will see differential rates, for example, between annual and quarterly. As we get data that makes it statistically significant, we'll report out on that.
Thank you. Our next question comes from the line of Heather Bellini from Goldman Sachs.
Hi, this is [Shatil Alam] filling in for Heather. Thanks for taking my question. You had your biggest increase in new model ARR this quarter at over $50 million. 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 Carl, 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. We talked about unit volume being right in line with their expectations to the extent that those customers were looking for AutoCAD or AutoCAD LT, that drove a huge amount of the increase of 140,000 new model sub adds. I'd say the other piece that Carl's already talked about, but 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 two biggest drivers of the new model subs for the quarter.
Pretty good.
I had one, Scott, for you on your balance sheet. You have over $2 billion in cash, just bought back $100 million in stock. What's keeping you from buying more stock, and how should we think about you balancing share repurchases versus doing acquisitions?
Sure. Yeah, I'm sure we called out in the prepared remarks, around about 80% of that cash, of course, is offshore. Given our tax structure, it would be quite expensive to get our hands on that and bring it back home, or 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'll have an impact on tax structure. As we stand today with that cash trapped offshore, and the current tax structure that we've got, it would be a very expensive proposition to bring it home.
Got it. Thank you.
Thank you. Our next question comes from the line of Anil Doradla from William Blair.
Hey, guys. Thanks for taking my question, and congrats on the new subs during the quarter. Carl, I had a couple questions. I think you said something like a 50% sequential increase in the 360 products. Was that spread around all the products, or was it more BIM-focused or more Fusion 360-focused?
They're in slightly different stages of maturity, we saw good growth in all of the products. We're in the really early stages, by comparison, it's explosive growth. Each one of these is taking off. To look at it a little bit more fine grain, a handful of 360 products are targeted at collaboration. Those, we add users in clumps as company or a company in its ecosystem come on, where some of the design and engineering products are more small teams get added at a time. Across the board, we're seeing good adoption of the cloud products, and a great response from customers.
If anyone wants to do 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.
Yeah. Anil, what I'd say is it's the usual suspects, right? It's BIM, it's PLM, it's Shotgun, it's A360, as we pointed out in the opening commentary.
As a follow-up, Carl, you talked about BIM 360. You are talking about some of the addressable markets, which are significantly above the non-subscriber base and all that kind of stuff. If I fast-forward and look at BIM 360, say, three years or four years from now, first of all, when do you think you will hit the sweet spot or inflection point on BIM 360? How big could this be, say, in five years?
Yeah. What you can look at out there, look, it is very hard when a market does not exist to size it. You can already see startups out there that are trying to serve some of the markets as well as some of the other incumbents. In total, there is probably $couple hundred million already being sold in the area of collaboration and coordination software. I think that market is going to grow tremendously, and that is what is available to us. It was really critical that we get out the BIM 360 Docs, 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 is where it really gets the scale.
These are opportunities that are certainly in the hundreds of thousands of potential users, and in some cases, possibly in the millions. 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. It is a very different use profile. It is also why we have said, just tying it back to some of the other comments, when you look at some of these cloud subscriptions, when you include these will be lower priced products, and that is what dampens the ops growth.
Jay, just trying to tie that together, these are really new users that have not been available, whereas before I talked about those three pools of users who could come and use the desktop or the new cloud-based design products.
Thank you. 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. 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 transitions. Trying to get your view on that. Also from a product perspective, it would seem that PSEB is going through the sharpest decline, hence, therefore the model transition is more prevalent there. But again, that would not make sense.
I'm trying to get some sense in your perspective as to what to make of the disparity in the growth rates of these geographic and product cuts. Thank you.
Right. 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. 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. The compare point for our APAC revenues for the quarter compares back to a quarter that had very little new model mix inside there. It's more impacted in terms of the year-on-year growth rates.
One of the encouraging signs we saw this quarter was the proportion in APAC of new model subscriptions for the suites. There are portions of Asia that are moving. It's not uniform, we were very surprised and pleasantly so to see such a large percentage, and it exceeded the other geos in terms of new model subscriptions. We're seeing some traction there. Also, a lot of it, just so you understand it and maybe 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, sometimes that carries over into geographic distinctions that are actually big enough to be called out.
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.
Yeah.
To your point on PSEB, Kash, what you're seeing there is just the continuation of what we've seen all along as suites, what's in PSEB is it's dominated by AutoCAD and AutoCAD LT. Those products are included in the suite. As the suites continue to grow and gain traction, fewer people are buying just the standalone version. A lot of what's happening in that PSEB segment is simply mix of customers getting all they can, getting LT, but getting it inside their suite instead.
I think as you see the Collections roll out, you'll see the same phenomenon. It's going to continue because it's down the same lines.
Got it. Thanks, gentlemen. 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 two separate wings?
I think as soon as you start seeing the Collections, it'll become clear. I think that will begin to have an impact in Q3. Collections are one of the vehicles to move our customers from maintenance to product subscription. 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 and consider the new offerings.
Thank you. Our next question comes from the line of Kenneth Wong from Citi.
Hey, guys. Carl, I wanted to touch a little bit on what you just mentioned about Collections. Is that something you feel that you guys have kind of circled up with some of your larger customers and partners in terms of talking about the value of Collections, and you get a better sense that's a product that could potentially pivot them over to buying kind of a higher value rental from you guys?
Ken, you sound a little bit like you're underwater. I'm not sure I was able to. Were you able to?
Yeah.
Scott understands you much more clearly than I do.
Yeah, 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. As we do, think of it as sort of the follow-on to Suites, as the next iteration of what Suites look like. It'll 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 out the cloud product.
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.
Got it.
Let me just add one thing as soon as our urban environment quiets 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. 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 make less sense, and have much more discipline around the R&D expense. We're really excited about concentrating the offerings for the different industries with only these three Collections.
Got it. 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? Does that get closer to the 80% that you guys
I'm sorry, Ken, 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, 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 Byun for Brent Thill. Can you hear me okay?
Yes, we can.
Okay, great. Just two questions. One, with the Q2 revenue outlook being a little bit lower than consensus, but the year the same, should we think of that, would it be that just you were seeing the street just mismodeling the seasonality? Or was there any change in your expected path or as you go through the end of perpetual and Suites through the rest of the year? What would be the best way to think about that?
Yeah, John, I recognize that the guide we gave for the quarter is not where consensus was. Of course, we hadn't guided Q2 before. What we're seeing in our guidance is in sync with what our expectations were. 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 decided that 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. Not waiting for it to hit end of sale. There's been a lot of interest in Suites customers buying the new model. If you add those two together, we're expecting a small amount of buy-ahead activity in Q2 on Suites, 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 would be a good thing, because those are customers we don't have to convert off of perpetual in the future. If it's less than we think, then we'll be at the low end of the range.
Yeah. I would just outline two things about it. One is just generally, we're seeing greater support amongst customers and our partners in the new model. That is running ahead of plan. It was interesting, 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 was 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.
Whether we're at the low end of the range and we're happy, or it's the high end of 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 only selling the new model. That greatly simplifies so much stuff. I will be thrilled when we're here three months from now.
Great. That's helpful. Just one more question on the new Industry Collections, I guess we'll get details pretty soon, but what's the philosophy around setting the pricing for those versus, let's say, the old suites or the individual product subscription or Desktop Subscription? Maybe also you think of in terms of LTV for those versus the other choices. That's it for me. Thanks.
Yeah. Over the next couple of weeks, we'll be rolling out the prices and what's included in the Industry Collections. Probably best to do it there then look at it holistically, information's not far behind, so you'll all get to see it soon. 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. Probably more best digested with a full collection of information.
Thank you. 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 24th, we'll be at the JP Morgan Conference in Boston. On June 2nd, we'll be at the BAML Conference in San Francisco, June 14th at the Berenberg Design Software Conference in London, and also that same week on June 16th, the Nasdaq Conference in London. In the meantime, you can reach me, Dave Gennarelli, 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.