Autodesk - Q3 2025

Executive Summary

• Q3 FY25 delivered solid top-line growth and raised full-year outlook: revenue rose 11% YoY to $1.57B with non-GAAP EPS of $2.17; Autodesk raised the midpoints for FY25 billings, revenue, margins, EPS, and free cash flow, citing sustained momentum and a smooth launch of its new transaction model in Western Europe.
• Non-GAAP operating margin dipped 3 pts YoY to 36% (GAAP 22%, down 2 pts) primarily due to timing (Autodesk University shifted into Q3) and transaction-model/FX effects; management emphasized underlying margin improvement on an apples-to-apples basis and reiterated efficiency gains ahead.
• Business mix and KPIs were healthy: Design +9% YoY, Make +28% YoY; RPO +17% and cRPO +14%; billings +28% with transaction model and early renewals providing tailwinds; net revenue retention remained 100–110% (cc).
• Stock-relevant catalysts: upward FY25 guidance revision, reiterated FY26 free cash flow target (~$2.05B midpoint), strengthening Construction Cloud momentum, and a new CFO (Janesh Moorjani) to drive optimization and profitability at scale.

What Went Well and What Went Wrong

• What Went Well

  • Broad-based growth across products and regions; Make revenue +28% YoY; Design +9% YoY; management noted strong renewals and steady underlying momentum despite macro headwinds.
  • Construction Cloud strength and accelerating net-new customers (doubling YoY) helped Make revenue; distribution scale and international expansion also contributed; management highlighted wins at Power Construction, Bouygues, and Surbana Jurong.
  • Guidance raised across key metrics; management reiterated FY26 FCF (~$2.05B midpoint), underscoring cash generation visibility; direct revenue rose 23% and reached 42% of revenue, aided by EBAs, Autodesk Store, and the new transaction model.

• What Went Wrong

  • Operating margins contracted YoY (GAAP -2 pts; non-GAAP -3 pts), driven by Autodesk University timing and headwinds from the transaction model and FX; management expects improvement as optimization plays through.
  • New business growth remains slower amid macro/policy/geopolitical challenges; management called out ongoing headwinds and the need for time to rebuild toward the long-term 10–15% growth framework.
  • CRPO headline growth was tempered by declining contribution from large multiyear EBA cohorts ahead of FY26 renewal (a headwind to cRPO but a tailwind to FY26 FCF), adding “noise” into near-term metrics.

Transcript

Operator (participant)

Thank you for standing by, and welcome to Autodesk third quarter and fiscal year 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. I would now like to hand the call over to Simon Mays-Smith, VP, Investor Relations. Please go ahead.

Simon Mays-Smith (VP of Investor Relations)

Thanks, Operator, and good afternoon. Thank you for joining our conference call to discuss the third quarter results of Autodesk fiscal 2025. On the line with me is Andrew Anagnost, our CEO, and Betsy Rafael, our interim CFO. During this call, we will make forward-looking statements, including outlook and related assumptions, and on product and strategies. Actual events or results could differ materially. Please refer to our SEC filings, including our most recent Form 10-Q and the Form 8-K filed with today's press release for important risks and other factors that may cause our actual results to differ from those 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 quote several numeric or growth changes during this call as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release or Excel financials and other supplemental materials available on our Investor Relations website. And now, I will turn the call over to Andrew.

Andrew Anagnost (CEO)

Thank you, Simon, and welcome everyone to the call. We finished the third quarter of the year strongly, delivering 12% revenue growth in constant currency and have again raised full-year guidance. This reflects the sustained momentum of the business and successful execution of our strategy, including a smooth implementation of the new transaction model in Western Europe. Once again, opportunity, resilience, and discipline underpinned our performance. Last month at Autodesk University in San Diego, we hosted 12,000 registered attendees and another 30,000 online. We showed how granular data in the cloud, organized in data models, and connected to everything through APIs can deliver even more valuable and connected solutions for customers and partners and support a much broader ecosystem and marketplace.

Customers and channel partners that I spoke with at AU remained cautiously optimistic, a sentiment consistent with the underlying momentum of our business, our growing product usage, and BuildingConnected bid activity trends over recent quarters. I left AU with a tremendous sense of purpose and optimism in the ingenuity and persistence of our customers and for the future. On our earnings call last quarter, I set out our secular growth opportunities and our strategy to capitalize on them. I concluded that Autodesk's investment in cloud, platform, and AI in pursuit of those opportunities were ahead of its peers. AU was a good demonstration of that. But we're also leading the industry in modernizing our go-to-market motion, starting a few years ago with the subscription transition through consumption and self-service enablement, and more recently to direct billing.

These initiatives enable Autodesk to build larger and more durable direct relationships with its customers and to serve them more efficiently. We have already seen significant benefits from initiatives like these, and there's more to come in the next optimization phase. Taking out the effects on margins from FX and the new transaction model, we still expect to be towards the midpoint of our fiscal 2026 non-GAAP operating margin target of 38%-40% in fiscal 2025, a year ahead of schedule. We are confident we will make further improvement in fiscal 2026 on the same basis. The new transaction model will enable tighter channel partnerships with less duplication of effort and more digital self-service and automation, which increases customer satisfaction and workforce productivity.

It will also create new opportunities for partners and Autodesk to earn more, with less emphasis on transaction revenue sharing and a greater emphasis on value creation for customers. Once complete, we expect the new transaction model and subsequent go-to-market optimization to increase sales and marketing efficiency and deliver GAAP margins among the best in the industry. Attractive, long-term secular growth markets, a focused strategy delivering ever more valuable and connected solutions to our customers, and a resilient business are generating strong and sustained momentum, both in absolute terms and relative to peers. Disciplined execution and capital allocation have driven even greater operational velocity and efficiency within Autodesk and will underpin the methodical build of revenue and free cash flow over the next few years and GAAP margins among the best in the industry.

We will continue to deploy capital to offset and buy forward dilution as our free cash flow grows from the fiscal 2024 trough. This practice has reduced our share count over the last three years. We have significantly increased our share repurchase authorization to extend this momentum flexibility over the medium term, with the precise trajectory remaining dependent on our debt repayment schedule and the ebb and flow of M&A. In combination, we believe these factors will deliver sustainable shareholder value over many years. Before I conclude, I'd like to formally welcome Janesh to Autodesk. We're excited to welcome Janesh, who brings a wealth of experience and will be instrumental in sustaining Autodesk's growth and enhanced profitability momentum.

Of equal importance, I'd like to thank Betsy for stepping in as interim CFO at an important time in the company's journey, and I'm looking forward to continuing to work closely with her as an Autodesk board member. I will now turn the call over to Betsy to discuss our quarterly financial performance and guidance for the year. I'll then return to provide an update on our strategic growth initiatives.

Betsy Rafael (Interim CFO)

Thanks, Andrew. Q3 was another strong quarter. We generated broad-based underlying growth across products and regions. In addition, we saw revenue increases from the new transaction model and M&A, which were offset by the absence of enterprise business agreement true-ups from Q3 last year and FX. Our Make products continued to enhance growth driven by our ongoing strength in construction and Fusion. Overall, macroeconomic, policy, and geopolitical challenges and the underlying momentum of the business were consistent with the last few quarters, with continued strong renewal rates and headwinds to our new business growth. Total revenue grew 11% and 12% in constant currency. By product in constant currency, AutoCAD and AutoCAD LT revenue grew 8%. AEC revenue, which was most impacted by the absence of true-up revenues, grew 12%. Manufacturing revenue grew 16% and still comfortably in double digits, excluding upfront revenue.

M&E revenue grew 15%, boosted by the PIX acquisition and associated integration adjustments. By region in constant currency, revenue grew 11% in the Americas, which was most impacted by the absence of true-up revenues, 13% in EMEA, and 14% in APAC. The mechanical contribution from the new transaction model to revenue was $17 million in the third quarter and $25 million on a year-to-date basis. Direct revenue increased 23% and represented 42% of total revenue, up 4 percentage points from last year, benefiting from strong growth in both EBAs and the Autodesk Store and also the natural tailwind to revenue from the new transaction model. Net revenue retention rate remained within the 100%-110% range at constant exchange rates.

Billings increased 28% in the quarter, reflecting a tailwind from the prior year shift to annual billings for most multi-year contracts, early renewals, and the natural tailwind from the transition to the new transaction model. Similar to last quarter, and as expected, co-terming negatively impacted billings ahead of the launch of the new transaction model in Western Europe. The natural contribution from the new transaction model to billings was $72 million in the third quarter and $108 million on a year-to-date basis. Total deferred revenue decreased 9% to $3.7 billion and was again impacted by the transition from upfront to annual billings for multi-year contracts.

Total RPO of $6.1 billion and current RPO of $4.0 billion grew 17% and 14% respectively, which reflects a tailwind from early renewals and the new transaction model and a headwind from the declining contribution of billed and unbilled deferred revenue from large multi-year and EBA cohorts ahead of renewal in Fiscal 26. Excluding these, current RPO growth was broadly consistent with Q2. We do expect the new transaction model and the larger FY 2026 renewal cohorts to have a greater impact on both RPO and current RPO growth in Q4 of fiscal 2025. Turning to margins, GAAP and non-GAAP gross margins were broadly level. With Autodesk University shifting back to Q3 this year from Q4 last year, GAAP and non-GAAP operating margins decreased by 2 and 3 percentage points respectively. The timing effect from AU obviously washes out over the full year.

At current course and speed, the ratio of stock-based compensation as a percentage of revenue peaked in fiscal 2024 will fall by more than a percentage point in fiscal 2025 and will be below 10% over time. Free cash flow for the quarter was $199 million. This benefited from some channel partners in Western Europe booking business earlier in the quarter ahead of the transition to the new transaction model, really to de-risk month one after the transition. This accelerated free cash flow to the third quarter, which was partially offset by the expected negative impact of co-terming in Western Europe. Turning now to capital allocation, we continue to actively manage capital within our framework and deploy it with discipline and focus through the economic cycle to drive long-term shareholder value. As expected, the pace of buybacks picked up in the third quarter.

We purchased approximately 1.2 million shares for $319 million at an average price of approximately $269 per share. We will continue to deploy capital to offset and buy forward dilution as our free cash flow grows from the fiscal 2024 trough. This practice has reduced our share count by about 5 million shares over the last three years, with an average percentage reduction of about 70 basis points per year. We increased the amount authorized under our share repurchase program by $5 billion for a total of approximately $9 billion. This extends our flexibility over the median term, with the precise trajectory remaining dependent on our debt repayment schedule as well as the ebbs and flows of M&A. Now let me finish with guidance.

As we said in February, the pace of the rollout of the new transaction model will create noise in billing and the P&L, so we think free cash flow is the best measure of our performance. Taking out that noise, the underlying momentum in the business remains consistent with the expectations embedded in our guidance range for the full year, with continued strong renewal rates and headwinds to new business growth. Our sustained momentum in the third quarter and smooth launch of the new transaction model in Western Europe reduced the likelihood of our more cautious forecast scenarios. Given that, we're raising the midpoints of our billing, revenue, margins, earnings per share, and free cash flow guidance ranges. So let me give you a little bit more detail. The underlying momentum of billing is in line with our expectations.

Compared to our modeling at the start of the year, the launch of the new transaction model in Western Europe in Q3 and early renewals have been a tailwind to billing. Whereas more co-terming, more business done under the old buy-sell model before the launch of the new transaction model, and in recent weeks, FX movements have been headwinds to billing. We now estimate that the new transaction model will provide between a 5 and 5.5 percentage point tailwind to billings growth in fiscal 2025. We've raised the midpoint of our fiscal 2025 billings guidance by $10 million to a range of $5.90 billion-$5.98 billion. The underlying momentum of revenue is also in line with our expectations. We estimate the new transaction model will provide around a 1-1.5 percentage point tailwind to revenue growth in Fiscal 2025.

Upfront revenue contributed 2 percentage points to revenue growth in Q4 of fiscal 2024, and therefore this is a headwind in Q4 of fiscal 2025. While not large enough to call out at the start of the year, it was already factored into our Q4 and our full-year model. We've raised the midpoint of our fiscal 2025 revenue guidance range by $18 million to a range of $6.12 billion-$6.13 billion. We're increasing our GAAP and non-GAAP margin guidance midpoint by 25 basis points by raising the bottom end of the ranges by 50 basis points. The GAAP margin guidance range is now 21.5%-22%. The non-GAAP margin guidance range is now 35.5%-36%, which includes a 1 to 1.5 percentage point underlying margin improvement, broadly offset by the margin headwinds from the new transaction model and the related incremental investment in people, processes, and automation.

The underlying momentum of free cash flow is also in line with our expectations. The headwind to billings from co-terming and FX rates that I mentioned earlier is being offset by early renewals, faster collections, and improved underlying margins. We've raised the midpoint of our fiscal 2025 free cash flow guidance by $10 million and tightened the range to $1.47 billion-$1.5 billion. We expect strong free cash flow growth in fiscal 2026 because of the return of our largest multi-year renewal cohort, the natural mechanical stacking of multi-year contracts built annually, and a larger EBA cohort. With our current trajectory, we still estimate free cash flow in fiscal 2026 to be around $2.05 billion at the midpoint. The slide deck on our website has more details on modeling assumptions for Q3 and for the full fiscal year 2025.

And while this may be my last earnings call for Autodesk, I will stick around for a bit to ensure a smooth transition for Janesh. Thank you, Andrew and everyone at Autodesk, for your support while I was here, and to the many investors and analysts with whom I've had lively discussions over the last few quarters. While the transition to annual billings for multi-year contracts and the deployment of the new transaction model has created noise in billings and the P&L, they do provide a natural near-term tailwind to revenue and free cash flow growth. Combined with a resilient business model, sustained competitive momentum, Autodesk has enviable sources of visibility and certainty in a very uncertain world. For all these reasons, I step down from my role as Interim CFO with tremendous optimism for the future. Andrew, back to you.

Andrew Anagnost (CEO)

Thank you, Betsy.

Let me finish by updating you on our strong progress in the third quarter. We continue to see good momentum in AEC, particularly in infrastructure and construction, fueled by customers consolidating onto our solutions to connect and optimize previously siloed workflows through the cloud. The cornerstone of that growing interest is our comprehensive end-to-end solutions encompassing design, pre-construction, field execution, through handover and into operations. This breadth of connected capability enables us to extend our footprint further into infrastructure and construction and also expand our reach into the mid-market. As a sign of our growing momentum as the benefits of our end-to-end solution become more apparent, our construction business continues to perform robustly, with net new customers doubling year over year and existing customers' renewal and expansion rates remaining strong. Let me give you a few examples.

Power Construction is number 79 on the Engineering News-Record, ENR, top 400 U.S. contractor list. It is a Chicago-based general contractor serving residential and non-residential end markets. After completing a competitive RFP to replace its legacy project management tool, Power selected Autodesk for its unified construction platform across pre-construction, construction, and VDC. By standardizing on Autodesk Construction Cloud, Power will have a single source of truth for project data, enhanced collaboration capabilities, and streamlined workflows on a single platform. Power Construction was one of two ENR 400 top 100 U.S. contractors that standardized enterprise-wide on Autodesk Build during the quarter. In Europe, Bouygues, a top 10 ENR 250 international contractor based in France and leader in sustainable building and infrastructure projects, renewed and expanded its EBA in the quarter.

Bouygues is continuing to consolidate on Autodesk solutions across the enterprise, including broader adoption of Autodesk Forma, Carbon Insight, and Informed Design to digitize, decarbonize, and industrialize projects. It also significantly increases commitment to Autodesk Construction Cloud to drive efficiency gains and faster bid response times through better collaboration between design and project teams. Surbana Jurong is number 23 on ENR's top 225 international design firms. Based in Singapore, it is an urban infrastructure and integrated solutions consulting firm. In Q3, it renewed its third EBA, which included increased investment in Autodesk Construction Cloud and Autodesk Water Infrastructure Solutions. ACC is helping to scale its operations through increased automation, integrated design workflows, and enhanced collaboration across time zones. Our Water Infrastructure Solutions will be a core technology supporting its growth ambitions in planning, designing, engineering, and managing water projects for customers worldwide.

Again, these stories have a common theme: managing people, processes, and data across the project lifecycle to increase efficiency and sustainability while decreasing risk. Over time, we expect the majority of all projects to be managed this way, and we remain focused on enabling that transition through our industry clouds. Moving on to manufacturing, we made excellent progress on our strategic initiatives. Customers continue to invest in their digital transformations and consolidate on our Design and Make Platform. Fusion remains one of the fastest-growing products in the manufacturing industry. As customers seek to drive innovation and growth at lower cost, Fusion extension attach rates are increasing, which is helping to drive the average sales price higher. For example, in the quarter, a global manufacturer supplying the semiconductor industry selected Fusion Manage and Vault PLM over competitive solutions to foster greater collaboration across manufacturing sites and improve operating efficiency.

Once fully scaled and operational, this customer expects to save 105,000 hours per year by connecting people and data, resulting in reduced product development costs and faster time to market. In the U.K., Playdale Playgrounds has been designing, manufacturing, and installing outdoor playground equipment for over 40 years. This quarter, Playdale added Fusion to its existing portfolio of Autodesk solutions, including Inventor, AutoCAD, and Vault, to streamline and digitize workflows, optimize production to reduce lead times, reduce non-conformities, and replace inefficient Excel-driven operations on the shop floor. A longtime Autodesk customer and global leader in precision engineering solutions renewed and expanded its EBA in the quarter. In addition to Inventor, Vault, and AutoCAD, it is adopting Fusion's generative design capabilities for material waste reduction and fluid flow optimization and Moldflow to reduce manufacturing costs and defects while increasing mold yields.

In education, universities continue to modernize their courses and curriculum to attract and prepare future engineers. For example, from this winter, students at the University of Stuttgart Institute for Medical Device Technology will use Fusion across six courses. Fusion was selected to replace a competitive solution for its modern platform, ease of use, cloud collaboration capabilities, and unique combination of PCB and additive manufacturing workflows in a single team environment. And lastly, we continue to work with our customers to ensure they are using the latest and most secure versions of our software. For example, after a period of rapid scaling and diversification, a large multinational manufacturing company in APAC was looking to align compliance rates across its global employee base.

Working collaboratively, we addressed compliance issues while cementing a long-term partnership and completing one of our largest-ever licensed compliance agreements, which included expanded adoption of Alias and VRED for the design studio and PDMC for mechanical engineering and rail design. Attractive long-term secular growth markets, a focused strategy delivering ever more valuable and connected solutions to our customers, and a resilient business are generating strong and sustained momentum both in absolute terms and relative to peers. Disciplined execution and capital deployment is driving even greater operational velocity and efficiency within Autodesk, and we continue to deploy capital to deliver sustainable shareholder value over many years. I retain a tremendous sense of purpose and optimism in the ingenuity and persistence of our customers and for the future. Operator, we would now like to open the call up for questions. Thank you.

Operator (participant)

As a reminder to ask a question, you will need to press star one one on your telephone. To remove yourself from the queue, you may press star one one again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jason Celino of KeyBanc Capital Markets. Your question, please, Jason.

Jason Celino (Managing Director and Equity Research Analyst)

Hey, thanks for taking my questions. Just two from me. You know the first one, Andrew, you know some of us are unfamiliar with Janesh. Can you just tell us a little bit more about him and what he brings to Autodesk?

Andrew Anagnost (CEO)

I certainly can. Before I do that, let me make sure that I thank Betsy for everything she brought to Autodesk during this interim period. I really appreciate it. The company appreciates it. Thank you, Betsy. Now, we're really excited about Janesh, and let me tell you why we're excited about Janesh.

As you remember, one of the things I was telling you that I was looking for was someone that was going to be able to dispassionately drive optimization at scale inside of Autodesk. And what that really means is someone that's going to be really inwardly focused, looking at every dollar that we invest and making sure that we're getting the most return for the business, that investors are getting the best return from their business. The next kind of criteria we were looking for, which was a nice to have, was time in the seat as a sitting CFO, which was important for us as well. But it was kind of the next nice to have after the optimization at scale. Janesh brings a great balance of both of those things.

All right, he's been in the seat seven years at Elastic, both CFO and COO, driving some fairly turbulent changes inside of Elastic. So he's got battle scars from pushing inside the company to get changes done inside. And we like that. We like that a lot. He's also got very good early experience at companies that we feel have always added value to Autodesk. So he was at VMware in a senior position. He was at Cisco in a senior position. We've had good success bringing people from those kinds of companies. He worked at those companies driving optimization at scale, which is the number one criteria I was looking for when we were driving this work. He also has another nice to have. He's got knowledge of our industry. He spent two years at PTC earlier in his career. He was actually recently on the PTC board.

He understands our industry, and he'll be able to get up to speed pretty quickly. The number one goal here: drive optimization at scale over the next few years, make sure that we're getting everything we need from every dollar we invest, which is a very important theme for Autodesk. And with that, I'm really excited, and I'm looking forward to him joining in December.

Jason Celino (Managing Director and Equity Research Analyst)

Okay, great. Interesting. And then for my second question, now that you do have a CFO, do you have any thoughts on when you might hold the next Investor Day? I think in the past, you usually did it in March. Is that a good time frame, or is that too soon? Thanks.

Andrew Anagnost (CEO)

Yeah, well, Janesh is joining in December.

I think we need to give him time to get his sea legs on, give him time to kind of drive the end of the year and actually get us set up for next fiscal year in good stead. So I would say it's unlikely we'll be doing anything in the spring, but we'll get back to you on that as soon as Janesh is ready to talk about those things.

Operator (participant)

Thank you. Our next question comes from the line of Jay Vleeschhouwer of Griffin Securities. Your question, please, Jay.

Jay Vleeschhouwer (Managing Director of Software Research)

Thank you. Andrew, as of the third quarter, your three-year CAGR for current RPO is about 12%. How are you thinking about the sustainability or perhaps improvement upon that CAGR for CRPO over the next number of years?

When we think about the ingredients of that, it looks like over the last several years, the CAGR for your unit volume for all brands is roughly 6%-7% in the aggregate. So on top of that, you've had price and other ingredients. But perhaps talk about how you think you might be able to improve upon the most recent trajectory for current RPO. That might follow up.

Betsy Rafael (Interim CFO)

Yeah, hi, Jay. This is Betsy. Let me just give you a couple of things. There's a number of things that are going on under the headline of the CRPO number. If you first take away the headwinds and the tailwinds, CRPO was broadly consistent with the second quarter. And as I mentioned in my opening commentary, early renewals and growth and the new transaction model are providing a tailwind.

There's also a headwind to CRPO growth from the declining contribution of billed and unbilled deferred revenue from the large multi-year EBA cohort coming up for renewal in fiscal 2026. Just as a reminder, these are the same larger cohorts we are calling out as tailwinds to free cash flow for next year. If you look back to fiscal 2022, we saw the same dynamic ahead of the fiscal 2023 renewals as well.

Jay Vleeschhouwer (Managing Director of Software Research)

Okay. Since new management is part of the news this evening, could you talk about how you're thinking about the Chief Revenue Officer position? Would it make sense perhaps to continue to have a separate CRO, or do you think it might make more sense perhaps to combine CRO and COO?

Andrew Anagnost (CEO)

Yeah, so we're going to continue to have a separate CRO because we have various functions that work together there under the COO organization, including our IT organization, all our infrastructure, and all the things associated with this. What we're looking for in our CRO is someone that understands how to continue to drive a business when you have direct engagement with the customer. So that means someone that really understands what it takes to analyze self-service patterns, actually understand the data that comes in from the customers to help drive cross-sell and upsell, while also transforming a channel from a transactionally focused extension of Autodesk to kind of a solutions partner that's driving lifecycle solutions for our customers. So that's the kind of role we're looking for here. And yeah, it's going to continue to be a standalone CRO role within the COO organization.

Jay Vleeschhouwer (Managing Director of Software Research)

Thank you very much.

Operator (participant)

Comes from the line of Adam Borg of Stifel. Your line is open, Adam.

Adam Borg (Managing Director of Enterprise Software)

Awesome. Thanks so much for taking the questions and congrats to Betsy and Janesh. Maybe on the new transaction model, I know it's still early, but I was just curious, are there any learnings from those customers that are on the new model that you're seeing in terms of the adoption of Autodesk technology and the ability to find white space to better upsell and cross-sell different solutions now that you have a more direct relationship?

Andrew Anagnost (CEO)

Yeah, Adam, it's really early on to be able to make any kind of conclusions about that. What I can tell you is that we definitely see some shift to some of the direct channels at Autodesk for customers that were probably just served on a very kind of arm's length kind of transactional level.

But in terms of driving cross-sell and upsell, early days, early days. But if you want to get a sense for how that might evolve, we've got experience with our EBAs and our enterprise business agreements. And we've learned over the years that having that kind of relationship with the customer where we really understand their usage patterns, who they are, and what they're doing, we are much more effective at driving cross-sell and upsell, even when partnering with our channel partners. So I think those kind of stand as a testament of what's possible as we move forward with completion of the new transaction model.

Adam Borg (Managing Director of Enterprise Software)

Great. And maybe just as a quick follow-up, just as we think about the new administration coming in, you talked about the macro being broadly consistent.

Any change in tone in your conversations with the end markets in terms of optimism or their ability or willingness to expand new projects ahead of the administration? Any pause or just full steam ahead? I'm just curious. Any commentary you have there from a macro perspective would be really, really helpful. Thanks so much.

Andrew Anagnost (CEO)

You know what I'll say is the things that matter to our customers are bipartisan things. All right? Our customers care about infrastructure buildouts. Both parties care about infrastructure buildouts. Our customers care about domestic manufacturing, be it in Europe, be it in the United States. Both parties agree that domestic manufacturing buildouts are important. Supply chain independence, supply chain stability, all of these things are bipartisan issues that really affect our customers. So regardless of the administration, I suspect the things that are important to our customers are continuing to be a focus.

Adam Borg (Managing Director of Enterprise Software)

Thanks again.

Operator (participant)

Thank you. Our next question comes from the line of Joe Vruwink of Baird. Please go ahead, Joe.

Joe Vruwink (Senior Research Analyst)

Great. Thank you. On the outlook for next year, $2.05 billion in free cash flow, I think, has been the expectation for the past year now. Within the last year, you've also seen more co-terming of contracts. And I think that leads to better billings in FY 2026. So my question is, does that actually create the potential that things are better, and that's why you're qualifying now the $2.05 billion as the midpoint of possibilities?

Betsy Rafael (Interim CFO)

There's no change to how we've talked about the free cash flow upside for fiscal 2026. It continues to be $2.05 billion at the midpoint.

Joe Vruwink (Senior Research Analyst)

Okay. Fair enough. And then just on the M&A environment, over recent history, Autodesk has been more in a mode of, I would say, strategic tuck-ins.

I think there was actually an asset in the CFD simulation space that was announced during AU in the quarter. Is that the right approach for Autodesk, just given this point in time, all the work you've done to build out the cloud platform, the data model, and so these tuck-ins make the most sense, and if that's true, how would you maybe compare and contrast some of the larger scale M&A that's happening with your peers in the space?

Andrew Anagnost (CEO)

Yeah. So look, consolidation in our space is inevitable. I'm not going to comment on any specific deals, but here's what I'll say. Autodesk has always been an acquisitive company, and we will be an acquisitive company when that makes both strategic and financial sense for the company.

Joe Vruwink (Senior Research Analyst)

Okay. Thank you.

Andrew Anagnost (CEO)

Thank you, Joe.

Operator (participant)

Thank you. Our next question comes from the line of Elizabeth Porter of Morgan Stanley.

Please go ahead, Elizabeth.

Elizabeth Porter (Executive Director of Equity Research)

Great. Thanks so much for the question. As partners are getting customers just up and running on the new transaction model, we picked up that they're spending a little bit more time than usual of time and resources with those existing customers. So I was curious if that had any impact on new business demand kind of more recently. And then just more broadly, any change in new business trends that you think you should call out from versus last quarter?

Betsy Rafael (Interim CFO)

Yeah. Hi, Elizabeth. It's Betsy. And so just broadly speaking, we continue to see growth, but at a slower pace due to a number of factors really over the last several years: macro, COVID, exiting Russia, elections. And while a drag on the forward momentum of the business, all of that's really factored into our guidance.

I kind of just would leave it at that.

Elizabeth Porter (Executive Director of Equity Research)

Great. And then a follow-up just on billings, understanding there's a lot of volatility around the change from multi-year and the transaction model. But it looks like guidance implies a bigger step down in growth in Q4, just despite an easier year-ago compare. So it'd be helpful if you could help us unpack the balance of those headwinds and tailwinds that would drive kind of a greater downtick in growth in Q4.

Betsy Rafael (Interim CFO)

Well, again, let me start out with just from a fiscal 2025 perspective. Our billing tailwinds are going to be from the final shift to annual billing, the new transaction model, and early renewals. And we're going to get headwinds from co-terming and business booked ahead of the new transaction model launch and in recent weeks, some FX.

So again, I think that we've continued to perform well as we've executed through Q3. And so I think we feel very strongly about our expectations for Q4.

Elizabeth Porter (Executive Director of Equity Research)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Bhavin Shah of Deutsche Bank. Your question, please, Bhavin.

Bhavin Shah (Director of Software Equity Research)

Great. Thanks for taking my question in the quarter. Andrew, at University, there appeared to be a noticeable uptick in attendance and sessions geared towards owners and operators. What's been driving the recent interest from this segment? How much of it is enhancements that you guys have made versus really more focusing and emphasizing from a go-to-market perspective? And how long before this segment of buyers kind of becomes more meaningful to the financials?

Andrew Anagnost (CEO)

Yeah. Well, that's an excellent question. All right.

We're very interested in tackling the whole entire life cycle from design through make, construction, manufacturing, all the way into operations. You're probably aware we have a product called Tandem, and a lot of those sessions were driven by increasing interest and increasing adoption of Tandem, which is a digital twin solution tightly coupled to our solutions that also has a toolkit that allows people to easily connect sensor data to the digital twin solution, so you're seeing that uptick because we're directly releasing products and capabilities that are of interest to the owner's space. You can expect to see that trend continue over time, and you can expect to see us continue to talk about the owner's space, continue to deliver solutions for the owner's space, and even APIs for the owner's space.

It's an area of great interest, especially when it comes not only to vertical buildings, but factories and other things that are related to that, as well as infrastructure, like what we were doing with some of our water infrastructure solutions. So yes, owners matter. We're building software for them, and you're going to see more of that.

Bhavin Shah (Director of Software Equity Research)

Super helpful there. And then, Betsy, one for you. Just in terms of the underlying improvement that we've been seeing in the margins, and I know you've called out FX and the transaction model. I know it's very early, but as we think about next year, how do we think about the impact of FX and the transaction model to kind of the headline operating margins?

Betsy Rafael (Interim CFO)

Well, I wish I could give you that answer, but I think that the new CFO would probably have a little bit of a problem with that. So we'll wait till the end of February to give you more specifics on that.

Bhavin Shah (Director of Software Equity Research)

Fair enough. Thanks for taking my questions.

Andrew Anagnost (CEO)

Good try.

Operator (participant)

Thank you. Our next question comes from the line of Tyler Radke of Citi. Please go ahead, Tyler.

Tyler Radke (Managing Director and Senior Equity Research Analyst)

Yeah. Good afternoon. Thanks for taking the question. I was going to ask you about a placeholder for next year's guidance. I don't want to waste a question on that, but feel free to answer. But Andrew, I wanted to kind of ask you about some of your comments you made around efficiency, especially as it relates to hiring Janesh, who you pointed out has a lot of experience at larger companies, VMware, Cisco, etc.

Now that you're a few quarters into this transaction model rollout, you have kind of visibility better on some of the prior channel relationships, having that direct billing with the customer. What are some of the areas that you've identified as having that efficiency potential? And then as we think about that efficiency unlock, should we think about that as incremental to the free cash flow number you have out for next year, or is that embedded in that already? Thank you.

Andrew Anagnost (CEO)

So many layers to that question. All right. So first, let me kind of answer the question in broad strokes, and then dodge other ones. Okay? So first off, optimization is kind of a mindset at Autodesk. It's not something that suddenly happens.

I want to reemphasize that because if you look right now, this year, for example, when you look at the apples-apples comparison, which will be in the slide decks or in our disclosed materials, you can see that our non-GAAP margins are already hitting the targets we set for next year this year. Okay? So optimization is a mentality. You've also heard me say over and over again, as the new transaction model starts to roll out, optimization of our go-to-market efforts is going to be a critical step for us and part of the optimization journey that we're on that's going to deliver margin growth for the company for a couple of years to come. Okay? And I think that's important. It's a long-term driver.

Now, with getting into the specifics, okay, I think the specifics are probably for another time, but let me just kind of give you a sense for some of the things that are important. All right? One is the drive to self-service. All right? Self-service has a huge impact on how our customers will engage with us and where those customers come from. And that is a value accredited to Autodesk, both on an efficiency side from renewals and other things, but also on a revenue growth side through capturing the customers directly. The other thing I talked about is understanding the customer better, so the upsell and cross-sell. So we're going to be able to do a lot more automation and understanding about where the opportunities are, and that's going to drive some efficiencies.

We're moving the channel partners away from this model of being the transactional players to being the solution providers and the IP providers to our customers. That's going to have all sorts of opportunities to eliminate duplication of effort and drive real cost efficiencies for the company moving forward. So there's both top-line efficiencies here in revenue growth, but there's bottom-line efficiencies as well through removing the redundancies and steps that just aren't necessary for the customer. You'll get a lot more clarity on that as you see us continue to move forward with this go-to-market optimization in next year and beyond that.

Tyler Radke (Managing Director and Senior Equity Research Analyst)

Great. Thanks for the detail. Then my follow-up question, Andrew, you talked about some really strong net new customer additions within the Construction Cloud, I think doubling year-over-year. We also saw the Make revenue accelerate to 28% constant currency.

Can you just help us understand? Do you think that re-acceleration is durable? And how are you sort of thinking about just your position there, what's been driving that strength in the new customer additions?

Andrew Anagnost (CEO)

So first, let me comment on the Make revenue, then I'm going to go into construction. So the Make revenue also includes some revenue from PIX and things associated with that. However, let's talk about the facts around our construction business because I think this is important. Number one factor is that we continue to drive consistent high growth in our construction solutions. You're seeing it. It's built into the Make numbers, and it's the lion's share of those Make numbers. You're really seeing some consistent growth there. That's organically. Inorganically, we're actually executing incredibly well on things like Payapps, and that's driving acceleration of our growth.

So we are not decelerating as a business. Okay? We are actually performing solidly. Inorganically, we're accelerating. All right? And I just want to be really clear about that. And yes, we said year over year, we drove a 2x increase in our new customers. And I'll talk about where some of that's coming from in just a minute. But I also want to highlight the other thing that's going on. We are strengthening an already strong position in the ENR 400. So you heard about the story about Power Construction, which was a great example of someone taking out a competitive RFP and saying, "Look, I need a forward-looking cloud-based solution on new technology that goes end-to-end from design to construction all the way to operations." And they chose us. And that was just one example that we gave in the opening commentary.

Already a strengthening position in the ENR 400. Now, the other qualitative things that are driving some of that new customer growth is we already have our distribution channel operating at scale. In the U.S., this is helping us go down market more effectively, which is allowing us to capture more customers more effectively, be places where we weren't before and where others aren't, which is part of driving that. But also, we're already at scale operating internationally with our distribution channel. So that's driving international growth for us. And that's a really important driver as well of some of those net new accounts that you're seeing there. And the last thing I'll add, and then I'm done with construction, is that, look, I heard this over and over again at AU. I'm hearing it over and over again from customers in lots of different places.

They want the end-to-end solution. They want the license in the cloud. They're placing bets for the next 10 years. They want to go from design to construction to operations. And that's just making our solution more attractive to the market.

Operator (participant)

Thank you. Our next question comes from the line of Michael Turrin of Wells Fargo. Your question, please, Michael.

Michael Turrin (Managing Director and Equity Research Analyst)

Hey, thanks very much. Appreciate you taking the questions. The commentary on the call sounded consistent, but wondering if there are any added details you can provide for us on just the overall macro spend environment and how that's maybe progressing across either key product segments or geos, whatever split you think is more useful. I think what we're trying to get a sense for is if there are any shades of improvement anywhere or if you'd characterize as mainly just consistent over the past couple of quarters. Thanks.

Andrew Anagnost (CEO)

Michael, I think the core answer here is consistency. Okay? We're seeing consistent trends that we've seen in all the other quarters. There's always puts and takes in a large business like ours, especially ones as diverse as ours. But the general tone is it's consistent with prior quarters.

Betsy Rafael (Interim CFO)

And I would just add that there's also been a lot of noise this year from the new transaction model and then, obviously, the elections and leading up to that. And so it's hard to parse out kind of that particular behavior. So I think, as Andrew said, we call it consistent.

Michael Turrin (Managing Director and Equity Research Analyst)

Yeah. Tough for us too. That's why we keep asking. Betsy, congrats on the transition back.

Given you're also on the board, I think it'd be useful to hear you chime in on the hiring of Janesh and maybe just also comment on how you ensure you're able to hand over the reins and keep progress going on the key transitions the company's working through. Thanks.

Betsy Rafael (Interim CFO)

First, I was involved in the process, which was quite extensive in the company and the recruiting of Janesh, and so we're certainly very excited to have him on board. What I would also say is, obviously, with my experience of being on the board for 11 years, as well as my deep dive into the business over the last six months, one of the reasons I'm staying around until the end of the fiscal year is I think I can be really helpful in that transition for Janesh. And so I'm very much looking forward.

And I think that we have a great finance team, and I think that he's going to fit very well, and I'm looking forward to making that happen as fast as we can.

Michael Turrin (Managing Director and Equity Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Matthew Hedberg of RBC Capital Markets. Your question, please, Matthew.

Mike Richards (Assistant VP of Equity Research)

Hey, guys. This is Mike Richards, on for Matt. Thanks for taking the question. I was wondering if you could provide an update on Project Bernini and maybe how customer reception has been and where we are in developing other foundational models or just the monetization opportunity there. Thanks.

Andrew Anagnost (CEO)

Yeah. So first off, before I comment on Bernini, AI is, you might have heard from AU, AI is embedded in everything we're doing from a bottom-up and a top-down perspective.

And you also heard us talk at AU about new types of foundation models we're building that understand how certain things are done in our applications. You heard about a foundation model that's driving automated drawing creation. You heard about a foundation model that's driving automated sketch generation and sketch constraints. That kind of stuff is bottom-up innovation. Bernini is more of a top-down type innovation where you're actually specifying things and trying to generate a preliminary outcome from those specifications. And what we've been doing with Bernini is we've been trying to engage with certain targeted customers to get them to participate with us in making Bernini smarter and more intelligent. It's not available commercially right now, but it's getting more intelligent.

We've actually been successful in getting some customers to stand up and say, "Look, yeah, I'd like to work with you to make this more intelligent because we need something that actually understands 3D geometry as geometry, not just as a picture of something." Okay? So that's what's going on with Bernini right now, and you should continue to see refinements and extensions of that moving forward. Now, with regard to monetization, monetizations, nobody knows exactly how all this is going to be monetized. But there's a few vectors here that come into play. One, we are ahead of our competitors in this space. We intend to be ahead. We're investing to stay ahead. That increases one's competitive position in the marketplace, and that's really important. Also, you get to be able to charge for some of these incremental features in the future.

When you're delivering value or a high-quality outcome as a result, you're going to charge for that outcome. How we charge for those things, let's let this play out. Okay? It's still early days. But there's also monetization opportunities through licensing certain technologies for specific maturation for a specific customer's needs. All right? And that will be another avenue. So how these avenues play out, which one weighs more, let's let this play out. But what you need to know about Autodesk is we're ahead. We've been ahead for a while. We were the first out there with an AI research lab that's been out there for over six years. It's published 70 papers. We're right on the cutting edge of 3D design technology and AI, and we intend to stay there.

Operator (participant)

Thank you. Our next question comes from the line of Steve Tusa of JPMorgan.

Your question, please, Steve.

Steve Tusa (Managing Director)

Hey. Good evening or afternoon. Lots of good questions asked. Just a detailed one. What's the change in the billings contribution from the transaction model change, the 5%-6%, the 5%-5.5%?

Simon Mays-Smith (VP of Investor Relations)

Hello? Yeah. Yeah. So it's basically because we did more buy-sell business ahead of the European launch. It's a short answer. So remember, we said 5%-6% when we launched Europe, and it was the, we did more buy-sell business, which means there's less tailwind from the new transaction model. The flip side of that means that the underlying increase in our billings guidance is greater than it looks on a headline basis.

Steve Tusa (Managing Director)

Okay. Great. Thanks a lot.

Operator (participant)

Thank you. Our next question comes from the line of Joshua Tilton of Wolfe Research. Your line is open, Joshua.

Joshua Tilton (Director)

Hey, guys.

Can you hear me?

Andrew Anagnost (CEO)

Yep.

Joshua Tilton (Director)

Great.

I have a kind of a high-level one on the incoming CFO. If I heard correctly, we didn't exactly get an initial outlook for revenue growth for next year. And I'm just trying to understand, in the context of the new CFO coming in, is there anything that could change the calculus of how you guys think about that 10%-15% growth for the underlying business outside of the channel transition that's ongoing today?

Andrew Anagnost (CEO)

Well, first, let's talk about that framework a little bit, and then I'll comment a little bit on the incoming CFO. So look, the 10%-15% growth, right now, we're pretty much right at the bottom end of that range. And if we look back over the last two years, there's been a series of things that created headwinds to new business.

It started off with things like the pandemic, the inflation, the exiting of the Russian business, the writers' strike, the whole trade wars within particular geographies. All of these things were accumulated headwinds that built slowly into the business and have pushed us down to the low end of the range. It takes time in a subscription model for those things to build out of the business. Okay? So it's going to take time for us to build out of that. That's to be expected with a subscription model. The revenue goes down slowly. It goes back up slowly as headwinds turn into tailwinds. So expect us to be near the bottom of that range in the short term, just as a general kind of guideline for the core business to be at the bottom of the range. Okay?

As a long-term framework, the 10%-15% still makes sense as a long-term guide for the company. But of course, as new eyes come in, we'll look at these things and we'll evaluate them. But right now, this all still makes sense.

Joshua Tilton (Director)

Super helpful. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Siti Panigrahi of Mizuho. Your question, please, Siti.

Siti Panigrahi (Managing Director)

Thanks for taking my question. I understand the new business model has some kind of noise on your expense and margin side. But if you exclude that, where do you see some of the operating leverages that you can drive in next year or so?

Betsy Rafael (Interim CFO)

Well, I think we've actually provided kind of historically what we've done over the last three years pretty clearly.

And I think we said that we're continued to be focused on expansion, but nothing further to add as far as next year.

Andrew Anagnost (CEO)

We did provide data on that. So you can see what the underlying thing is. And we expect to see continued improvement in that same vector.

Simon Mays-Smith (VP of Investor Relations)

On the same basis.

Andrew Anagnost (CEO)

On the same basis. On the same apples-to-apples basis. Okay.

Siti Panigrahi (Managing Director)

Okay. Great. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Michael Funk of Bank of America. Your question, please, Michael.

Michael Funk (Senior VP)

Hey, guys. Thank you for the questions tonight. Two if I could. You've mentioned a few times in the last calls about the largest multi-year cohort renewing next year, and then also a large EBA cohort.

Just wondering if you can give us kind of the range of potential outcomes among the renewals there, whether potential to upsell, risk of downsell, and what that variance might look like around those renewals.

Betsy Rafael (Interim CFO)

No, I mean, I think what we have said is that it's the largest cohort. And we saw that performance in 2023, and so we expect a strong renewal year. But we're not giving any specific guidance on what that looks like for 2026 at this point, and we'll wait until we report earnings in February.

Michael Funk (Senior VP)

Okay. Great. And then, Betsy, one more. You've mentioned a few times also the investment in new transaction model, people, processes, and automation, presumably more fixed cost versus variable-like commission. Can you quantify that for us to help us with modeling as we try to forecast margin?

I know you're not going to give us guidance, but a better understanding of what that cost might actually be on an absolute basis would help us to think about our modeling.

Simon Mays-Smith (VP of Investor Relations)

Mike, we've got a slide in the earnings deck to help you think about modeling, and I'll just point you to that.

Michael Funk (Senior VP)

Okay. Great. Thank you, Simon.

Operator (participant)

Thank you. And ladies and gentlemen, that is all the time we have for Q&A today. I would now like to turn the conference back to Simon Mays-Smith for closing remarks. Sir?

Simon Mays-Smith (VP of Investor Relations)

Great. Thanks, Latif. And thank you, everyone, for joining us today. Looking forward to seeing many of you on the road over the next few weeks. If you have any questions in the meantime, please email me or call me. And in the meantime, for those of you in North America, wishing you a very happy Thanksgiving.

Thanks, Latif.

Operator (participant)

Thank you, Simon. This concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.