Autodesk, Inc. (ADSK) Earnings Call Transcript & Summary

Tyler Radke. I cover software here at Citi. Welcome to day 1 of the Silicon Valley Virtual Bus Tour. We are pleased to have Autodesk as our second company here. And joining us from Autodesk, we have Theo Agelopoulos, the Senior Director for Architecture and Engineering Design Strategy; Sid Haksar, the Senior Director for Head of Construction Strategy; and we have Simon Mays-Smith from Investor Relations. So before we get into the discussion, I'm just going to quickly turn it over to Simon, who's going to read a quick disclosure. Simon?

Right. Thank you. The usual. We may make forward-looking statements during the course of this presentation. Please refer to our SEC filings for information on risks and other factors that may cause our actual results to differ materially from these statements. Great. Thank you.

Great. Short and sweet. So I wanted to kick off the discussion. I think, first of all, this is going to be a pretty unique discussion around AEC with both kind of product and business leaders focused here as well as the construction side. Theo, maybe we could start with you just a quick into on your time at Autodesk and kind of what your core responsibilities are?

Yes. Thanks, Tyler. So Theo Agelopoulos, based in Denver, been with Autodesk about 13 years. For the last 7 years, I've led industry strategy around design. Prior to that -- I joined Autodesk when we first kind of set up our early enterprise sales organization. But in my current role, what I'm responsible for is our building infrastructure business and industry strategy, including our digital delivery strategy.

Great. And Sid, can you give us a quick overview of your background and responsibilities?

Sure, Tyler. Thank you for having us. So Sid Haksar. I'm based out of Boston; been with Autodesk about 7 years now. Joined the company really to lead our corporate development activities for our AEC business. So spent the better part of the last 7 years involving the acquisitions in our Construction business, which you may or may not know, but ranging from PlanGrid, BuildingConnected, Assemble systems and Pype and then more recently, the Spacemaker and Innovyze acquisitions on the design side. In March of this year, I took on a role moving into the business where I now lead construction strategy and really a couple of things on that. One, role really involves around ensuring we do have the most complete platform for the construction industry in the here and now but also looking out into the future in anticipation of various trends that may impact the businesses of our customers. And then secondly, always looking at TAM expansion opportunities, be it targeting different persona, segments, business models and geographies. And there's always the inorganic versus organic evaluation that we do so.

Helpful. Great. So maybe, Theo, we could start with you. If you can just kind of give investors a quick 2-minute overview of kind of the overarching strategy that you see for the design group that you look after.

Yes. So yes, thanks, Tyler. So maybe what I'll do is just -- I'll go one step. I think on the AEC side, a big focus for Autodesk has been on really digitizing the complete capital project ecosystem. So this is part of the reason. Obviously, Sid talked about -- he'll talk about Construction. But for us, it's about how do we deliver a platform that enables the industry to optimize the way it delivers capital assets regardless of whether it's building or infrastructure assets, and that starts in planning. Obviously, our core strength historically has been around design and then new expansion opportunities around Construction. And we're also now making investments in operations. So at a high level, I think what we're really focused on is enabling that complete asset life cycle. Over the last 30-plus years, the company has been focused on moving from a computer-aided drafting and really a product focus and from desktop to cloud. We've also been focused on moving from file-based workflows to database workflows. And obviously, we're looking at expanding into other key markets. Specifically on the design side, when we talk about -- the big kind of transformative thing that started about 20 years ago was building information modeling, which is really about delivering a connected design delivery and then ultimately feeding construction. But building information modeling has really transformed, I would say, in the last several years from an industry perspective. And it really now means building information models, right? So from that perspective, that's been what's driving a lot of our investments in cloud, a lot of our investments in platform and a lot of our investments in data. So I would say, at the end of the day, within design, we'll continue to do that. We're also expanding into -- heavily into advancing our -- the markets we service in design. So you saw from the acquisition of Innovyze, transportation and water are now the 2 primary go to markets -- industry segments that we focused on. But we're also expanding in how we serve better service public sector. So you're seeing about 50% of the global construction spend just roughly driven by government. So that's also driving our investments in how do we become more compliant in delivering platforms that are, in the U.S., FedRAMP compliant, how do we address data sovereignty and data localization issues. So a lot of the investments you're hearing and seeing from Autodesk are all driven around that.

Great. Great. And Sid, maybe you could give us kind of the same overview for the construction side of the house.

Sure. So I think just to level set, so the way we think of Construction, it is one of the most collaborative industries out there, but it's also one that is most fragmented. So under that premise, our strategy is really around this notion of connected construction, and that is underpinned by really 3 pillars today. Obviously, the first one that a lot of folks know on this call is the opportunity around digitization. So today, a lot of processes that are conducted out in the field or even in the office are really based on paper or even in Excel. And so the first shift is really moving off of paper, but it's really -- that is the first step. The second area is really about digitizing processes so that you're able to have individuals and teams actually end up collaborating on a particular project and kind of working from that single source of truth, if you will. So that's really the first area that we think of, digitization. I think the second area to enable this connected construction is around workflow integration. And so as Theo indicated, our position in design, I think we are one of the unique or one of the main companies that can really connect the entire project life cycle from design, plan, build and operate. And so to ensure that we have adequate connections between our various solutions is very critical to ensure data fidelity. So I think workflow integration to us is really the second underpinning. And then thirdly, which is really important, is the ability to attract data insights. If you think of this industry, 95% of data is lost during the design and construction phase. It never even makes it back to the contractors and to the owners. And as a result, every project tends to be bespoke and start from scratch. And so our intent here is to ensure that we're able to harness the data and then serve it back to customers so that they can drive meaningful insights and avoid, frankly, issues out in the field and costly rework. So I think those are kind of the 3 pillars that you probably heard Jim Lynch, our General Manager of our Construction business to speak about, and that's what's driving our strategy going forward.

Yes. We had Jim Lynch, I think, on -- a year ago. So we -- investors definitely are familiar with him. So I wanted -- and I don't know if this is a question you both want to answer or one of you. But I think on the last call, earnings call, Andrew, your CEO, mentioned it being almost an inflection point in terms of the digitization that you're seeing in kind of your core markets. And obviously, the construction industry was hard hit during the pandemic. But I think what we're seeing broadly, not just in construction, is folks really investing in digitization as the impacts from the pandemic subside. Maybe if you could just kind of walk us through what you're seeing on the ground level from a customer demand perspective and an activity level. Just how have things kind of evolved over the last 12, 15 months?

So let me start with that, and then I'll sort of pass it over to Sid and Theo. I think specifically on the last call, actually, we talked about a stepping point that was related to our manufacturing business, where we're also seeing that transition. But just to say on the last call, that was related to manufacturing. But we are also seeing it in the AEC business as well. And just to sort of set it up with a couple of data points, and then we'll sort of pass it over, really 2 data points, one from Q3 results and one from Q4 results. In Q3, we said we signed our 2 largest-ever enterprise deals, one of which was a 9-digit deal. And what you're seeing is that our largest customers are going through their own digital transformations and are looking for strategic software partners to help them make that transition. And as they do that, our ability to have much more strategic and larger relationships with them is increasing. And secondly, we said in our Q4 call that the number of new enterprise agreements that we did in Q4 was the same number as we did in the entirety of the previous year. And Tyler, to your question, that really sort of speaks to rate of change probably driven in part by the pandemic is that people are moving along the path to the digital path sort of quicker. So moving quicker and bigger as we get to that digital path, I think, are sort of 2 key points. And then as Theo and Sid sort of intimated is that we're doing more for them. But I'll sort of pass it over to them to give you a bit more detail.

Sure. Maybe I can just add a couple of things there, Simon. And Theo, please jump in. So I think for us on the Construction side, Tyler, as you indicated, the pandemic definitely had a pretty major impact on the business of our customers whether it was with project delays or cancellations. Obviously, with stay-at-home orders, job sites were temporarily shut down. What we saw during that time was actually quite fascinating. We saw an increase in demand for really solutions that facilitated remote collaboration. And I believe that the pandemic, if you can ever draw a silver lining from something as horrific as this is really -- it's really served as a catalyst for construction companies really to rethink their approach to technology and more importantly, cloud-based solutions. And so we are starting to see a lot more interest in our solutions. And historically, what had been even legacy desktop offerings moving more towards the cloud. Theo, is there anything on that, anything else to add there?

Not a lot. I mean, I think definitely, Tyler, we saw that early run up. It was a significant multiplier for us on the cloud business, which was great. And we obviously know, we've been investing heavily on the design side around building collaboration. So we were kind of ahead of the curve, but it was really a significant uptick at that point. But also, what we've been very focused on is in the design space is expanding into some of our adjacent design markets like civil engineering and plant design. So now we've been able to kind of benefit from that remote working requirement. I think a lot of the companies that went through that early have somewhat normalized. And during that period, what we saw is a lot of our customers kind of working through backlog, making some cuts, but I would say it was more about optimizing the business. And now what we're starting to see is leading indicators that we're kind of back in most geos to prepandemic levels, which is great. And we're actually starting to see a lot of our customers started to pick up more work. So it hasn't actually -- it's actually forced them to optimize a lot of their work practices and actually drive, in many cases, more adoption from Autodesk from an Autodesk tool perspective. The one other thing I would say from a market indicator is there's also been some studies done by McKinsey that we've been paying attention to. And McKinsey has basically said that just on average globally that the digitization of the engineering and construction marketplace has accelerated by 3 years. So it's actually -- so I think we're well positioned going in -- coming out of the pandemic now because a lot of that customers have adopted a lot more of our enterprise data platforms. They've optimized the way they use our digital tools. And we're also seeing government. I think the one final thing I would say is what's been really exciting is we're seeing the governments, which generally have historically been laggards in adopting digital technologies, actually move faster as well. So I think just across the board as we come out of this, we see a lot of great opportunity.

And Tyler, if I just may add, right, to what Theo said there from a Construction standpoint, if we look at the construction activity on our BuildingConnected network, and if you look at how that has progressed June through actually year-to-date, on a year-over-year comparison, we are seeing continued strength in terms of number of projects that are being published every month, which is talking to the health as the economy reopens.

And just to clarify, that's on kind of the BuildingConnected side?

That is correct. Yes.

It's the number of projects growing nicely year-over-year.

Exactly, exactly.

That's the -- we've put a report out, which you can find. Actually, we have a Autodesk feeds up and running now. It's also on my LinkedIn profile, a report we put out earlier this year looking at bid activity. And we said that, that had continued in our Q1 results, that improvement.

Got you. Okay. Helpful. One thing that I'd be curious if you're seeing just as it relates to construction budgets and potentially pent-up demand. I mean, I think clearly, as you referenced, McKinsey study said that this digitization is accelerating in the industry. Obviously, some companies are still a little bit budget constrained because of the challenges that they saw during the pandemic. Just how much do you think there's kind of some pent-up demand or backlog, if you will, that are limited by budgets? And how do you think that kind of resolves itself now that, obviously, the macro and construction trends are really getting back to favorable levels?

Let me start on that, and then Sid you're probably there, is that you sort of differentiate between sort of new projects and the backlog and sort of the following of the backlog is it essentially the conveyor belts like stopped moving during the pandemic, and what you've had is the conveyor belt start moving, so the backlog beginning to come back online. You can see that, for example, with New York State bringing something billion dollars of business back online. So it's really the conveyor belt, but you've had sort of 12, 18 months or so of new projects coming into the pipeline frozen. And that sort of will take a bit longer to rebuild the new projects coming into the system just because it takes time to get things up and running. Sid, do you want to sort of add to that?

Yes. I mean, I'll just say a couple of things. So yes, business is starting to move along. If you think about just as part of the pandemic when certain sectors, whether it was office buildings or hospitality shut down, you had other areas of really strong activity, whether it was data centers, whether it was distribution centers, warehouses, hospitals. So there was a bit of a balancing for a reorientation around project activity that happened. I think what is also currently an interesting phenomena is as we're coming out of the pandemic levels, we've got 2 issues that are happening. One is there's increased labor shortages that are impacting the industry. And secondly, rising material or input prices that are putting a lot of stress in the system. And so what that is doing or it's making construction companies reassess is how can we do more effectively, like I like the way Andrew says it, doing more with less. So it's about how can we reduce waste and -- on the job site. And so the use and being more productive because now you're looking for more automation, and so customers are looking to invest in their IT budgets. At the same time, what they're trying to avoid is that you'll see a lot of venture activity has happened in construction tech as well. And so there's a lot of solutions that are out there. There is the shift towards more of a platformization, if you will, and then having that being open and integrated so I can talk to other solutions. Otherwise, what has happened currently for a lot of CIOs is they're just overwhelmed with the sheer amount of technology that's being thrown at them. So there is the appetite from a budget standpoint. They're just being very practical and prudent around how they end up disbursing those funds there.

And that sort of platform modernization is something we have anticipated and have built ourselves to be ready for.

Exactly.

The one thing I would add just kind of to give you a little more perspective is one of the benefits, I think, we have as a global company is that the markets kind of operate a little bit differently. And what we've been kind of monitoring pretty closely is some of the core markets we go to market in. And in the U.K., for example, we see the forecasts for single-family housing going up, commercial going up, civil going up. In Germany, we see housing and civil up; commercial is down. China, up across the board. Japan, pretty stable. And the U.S., I would say everything is kind of leaning up except for commercial building. And then the -- with the big infrastructure build coming, which is above and beyond the surface transportation budgets, we see a lot of upside there as well. And you probably saw we've actually been winning some additional DOT. So across the board, I would say we feel pretty bullish because we think a lot of the market indicators are definitely favoring us.

Yes. And Theo, you brought up the infrastructure bill, which I definitely want to talk to in a moment. But just kind of zooming out a little bit, I think one of the changes that the pandemic brought forth is just kind of the shift of populations to the suburbs. And maybe one would argue it's temporary now once you move back to the city. But just in terms of new construction demand, suburbanization, how would you kind of adjusted the priorities for Autodesk to capture that trend? And what does that really change from an AEC industry perspective and as we think about the Autodesk portfolio?

Yes. Yes. Great question. So number one, I think suburbanization really started prepandemic, okay? It started like 2012, 2013, and it really started with millennials started having families, right? So I think some people may be overstating what's going on post pandemic. I think it definitely accelerated it. But there's been a shift towards suburbs prepandemic. I think what that's driving is a different type of spend for city and county and regional governments. And I think we have a strong presence there historically, and we've definitely seen an uptake in that part of our business. So I think we've done a good job of servicing those opportunities. But again, like I said, I think it started prepandemic. I think just in generally, regarding infrastructure, I think there's always the -- what I like to call the White House infrastructure road, bridges and highways. But there's a lot of other types of infrastructure. And actually, if you look at the water infrastructure, which is what drove our investment in Innovyze, if you go look at the city of San Diego, there was a recent article that talked about where their biggest capital investments are for the next 5 years. It's all in water, right? So there's -- we're well positioned, we believe, to address water infrastructure, obviously, transportation infrastructure, building infrastructure, a lot of the data centers that Sid talked about. So from our perspective, I think all of that has been a very positive trend, and we feel well positioned to address it in the coming years.

Great. So maybe going into the infrastructure side a little bit deeper. Is there a way to think about how much of the Autodesk portfolio is exposed or tied to a potential U.S. infrastructure bill? Obviously, as you talk through, there's everything from rail to roads to water. But just how should we think about the relative size of Autodesk's infrastructure business? And maybe for the products, obviously, Innovyze was an acquisition, but what have you been doing to kind of position the company in advance of this bill that hopefully will be coming in the near future?

Yes, let me start, and then Theo can give a lot more detail. But I mean, sort of big picture, there's billions of dollars spent every year on infrastructure. So it is intrinsically a good market. The other important thing about it is that it's a long-duration market. So it's stuff that goes on for years. We have different duration businesses within Autodesk, and infrastructure is one of the longer duration ones. So that's another reason we like it is that having the different durations within the business. So in that sort of context, the infrastructure bill and just to put a pin on that, we'll come back to it. Incrementally, does it add to the market? Absolutely, but it's already an interesting opportunity for us even without an infrastructure bill. On the infrastructure -- and the reason I say that is that one of the things I think we've learned in life is to wait and see. The way I've been sort of phrasing it is stay at the bar and order another drink because you might be sitting around without a drink for some time if you leave the bar too early. So let's wait and see what happens and what emerges from Congress. Clearly, incrementally, if something comes, that's great, and God knows there is a need for infrastructure spend. But that's not to say that without infrastructure bill, there isn't spend. There is -- it's already an interesting opportunity. Theo, do you want to sort of add to that?

Yes. So I mean -- I'll look at it globally first, however then I'll talk about the U.S. one because that one is a little bit in flux. I would say if you look at the stimulus spending that's been happening across the world globally, roughly about 23% of that, we believe, is upside for Autodesk and the tools we build and deliver to market, right? I would say, specifically, when you look at the U.S. infrastructure bill, obviously, we support it. What's interesting about the Biden administration bill, it's above and beyond the surface transportation bill. So it's all upside, right? So regardless of how big or small it is in the end, we see it as a positive upside for our business. The other thing I would say in the current Biden administration bill is they're not just talking about roads and highways and bridges, right? There's a lot of other types of infrastructure, including institutional buildings, residential buildings, water, airports, rail. So we cover all of those primary markets. We think about -- in the current $2 trillion proposal, there's about $800 billion there that's directly addressable by Autodesk. And that's above and beyond, like I said, the current surface transportation bill. So we're pretty bullish. We'll see how it all plays out. If you look at the bill that the Republicans put in place, that is very focused on traditional infrastructure, which we obviously well service as well. So either way, we see it as upside.

But we haven't built that into our plans, Tyler. So we'll see what happens. And the other thing is that these things typically take some time to come into the market. So even if you sort of click your fingers and magically have something happen tomorrow, it will take some time before anything actually happens on the ground. It takes time to sort of break ground and get things done. I think actually, probably, in some ways, more fundamentally important is that if you are going to build back better, build more efficiently and build more sustainably, you cannot do that without end-to-end software. And I think as a company across AEC and across manufacturing, that's actually long term something that we're most optimistic about is that if we are going to reduce the amount of carbon, reduce the amount of waste to improve water scarcity, that requires our customers. And they realize this because most of them are heading in this direction, that requires them to use end-to-end computing, and that's kind of what we do. So I think that's probably the more fundamentally important thing about all of this.

Yes. Actually, I just want to add one more thing. Thanks, Tyler. Because I think the one thing that I think is important for investors also understand is that when you look at the total operating cost of infrastructure regardless whether it's building or civil infrastructure, roughly 80% is in the operations phase, right? And that's where you're seeing a lot of investments around sustainability, but it's also, if you look at our investments in Innovyze, they service the water owners. If you look at the investments we made in our partners, Aurigo, they do capital planning for infrastructure owners. And if you look at some of the other investments we've made in digital twins in Tandem, that's also around -- so better servicing the owner. So to Simon's point, we're really trying to connect the complete capital asset life cycle.

Got you. Got you. I wanted to touch quickly on the Innovyze acquisition on the water infrastructure business. Obviously, in places like San Diego and California, where there's droughts, it makes a lot of sense. That's a huge investment priority. But from an Autodesk perspective, maybe help us understand how it's complementary. Where do you kind of expect to see synergies? And just what are your expectations, maybe a bigger picture on the pace of water-based infrastructure investments?

Sure. Yes. I mean, great question. So I would say, if you look at the 2 primary vertical markets that we service today, it's transportation and water, most of -- the way we service the water market today is a lot of our engineering and construction customers are using tools like Revit, InfraWorks for doing water infrastructure. So designing pipes, designing dams. And there's lots of good examples you can see of customers delivering those types of the Vamma 12 facility in Norway, which they're building a 12th hydro. The 12th plant they're building there basically generates as much electricity as the first 11 that were built in the early 1900s, right? So we've always done that type of work. Now what Innovyze's strength is really around the planning, analysis and simulation, okay? So what that now opens up the door for us is to be able to service a much larger addressable market around -- and not just the types of analysis simulation they do, but the types of people that they service. So roughly 40% to 50% of their primary customers are actually government cities, water, wastewater, regional agencies. So we now open up a whole new market on the public sec side. But what they also do, as I mentioned earlier, is they sell asset management and operational analytics solutions as well. So now as I talked about expanding beyond just design construction and owners in the water space, we now have a complete end-to-end solution that services everything from planning, design of wet infrastructure. With the ACS portfolio, we can service the construction execution. And now with Innovyze portfolio and asset management and operational analytics, we can also service the operations space. The other thing I would say is that when you map out that portfolio, it's completely complementary. So we now become, in my opinion, one of the leading providers of end-to-end water solutions. But what Innovyze has also been working on is building out their next-generation cloud platform, which is also built on AWS, which completely is adjacent to our cloud platform. And they've also been investing heavily in AI machine learning to set a point earlier to allow owner operators to optimize water production, also optimize a lot of the early planning decisions. As you know, the decisions you make up earlier in planning have huge impacts, ultimately, long-term sustainability, operational costs, et cetera. So it's highly complementary, ties well into our design and documentation tools, also opens up owners and new personas for us. So at the end of the day, it's, in my opinion, one of the most exciting acquisitions we've made.

Interesting. That's a great perspective. We had some questions kind of come in on the competitive landscape in construction. So maybe a question for Sid. Obviously, Procore, a company that I'm sure you heard of, went public recently. And we've -- you've heard from some of the larger players in the space like a Dassault, who you probably more often run into on the manufacturing side, they've kind of talked about investing more aggressively in infrastructure in smart cities. Maybe just at a high level, how are you seeing the competitive environment of all, maybe kind of talk to the newer entrants to the space, such as the Procore versus some of the larger incumbents that are trying to kind of incrementally invest.

Yes. Good question, Tyler. So maybe let me just provide some context. So we, as Autodesk, believes the runway for growth is pretty significant for us. It's a $13 billion TAM, which is the way we've sized it. And part of that is the digitization of the construction industry is really in its early innings. And we believe there's tremendous amount of greenfield opportunity that exists both here in North America, but also internationally. That said, we feel very, very excited about our prospects, and we believe we are very differentiated from our competition for a couple of reasons. One is we believe the Autodesk Construction Cloud is the most comprehensive end-to-end construction management platform that is purpose-built for this industry. So that's kind of the one, and we're continuing to augment and build that over time. I think secondly, I would say is we continue to really leverage our leadership in design and BIM to really provide that true end-to-end solution that spans every phase of the project life cycle. So this notion of starting with Autodesk and staying with Autodesk all the way through couldn't be more -- couldn't resonate more strongly. And we are actually seeing our customers really take us up on that, and it's resonating with them in their business. I think the third part that gives us a lot of comfort and confidence is, we have a really highly -- we have a very flexible model to purchase our software. So maybe unlike competition, there may be time -- a pricing model to one mechanism. We provide a consumption-based model. We provide an account-based model. We provide a model if you want to purchase based on projects. And we also provide an opportunity if you want to buy based on users. So I think those are kind of some of the 3 areas that we think are interesting. And then I would -- I'd be remiss if I didn't highlight the fact that as we think about growth opportunities outside of North America and as we scale internationally, we've got a very robust partner channel ecosystem that we can leverage to really scale the business effectively and efficiently. So that's why we believe that we separate ourselves quite meaningfully from the competition. I'm not sure that answers your question. That's the way we think about this.

Yes. That's great. And maybe double-clicking on that a little bit, Sid, is obviously from the product side, right, you've been involved with some of the acquisitions that have kind of created the Construction Cloud, PlanGrid, BuildingConnected, Assemble, I think Pype was within the last year. So I guess from a product perspective, where are we at in terms of like delivering this end-to-end experience? I mean, my understanding is these are kind of separate teams. And obviously, there's a ton of integrations and things like Forge to kind of help with some of the customer data requirements. So where are we in terms of that product perspective of delivering that end-to-end experience?

Sure. So I think -- yes, so we made quite a significant amount of strides. I think this February, we launched Build. Build was basically the coming together of plan with BIM 360. And so as we think of our unified platform, we launched it. It's commercial. We plan to roll it out to the channel later this year. And we're not stopping there. So we talk about unification 1.0 and then there's unification 2.0. So all these acquisitions that we've made, we will be bringing them into the Autodesk Construction Cloud. So the big lift for us was the plan with BIM 360 merger, if you will, which we were able to undertake. And we've been getting some very good feedback of Build that's out there in the market. I mean, again, it's relatively early days since we launched it in February, but it's been great so far. And we look forward to continuing to add additional functionality as we make it the best of both solutions as when we acquired PlanGrid. And as I said, at the same time, obviously, with BuildingConnected, with Pype and Assemble, those will obviously, over time, move into the unified application. But I think the big win for us was the launch of Build, which brings in both field management and project management workflows into one platform.

Got you. Got you. So we have had a number of questions come in on the news last night. I know this -- we didn't want to focus the discussion too much on the acquisition news for the EDA Company in Australia. But maybe Simon or whoever wants to comment, I know you're rather limited on what you could say, but just so investors know that you're addressing it, and you can kind of put out...

I mean, we -- and I know this is frustrating for everybody. There are takeover rules in Australia. So we just have to abide by them. So apologies, everyone, if we can't answer specific questions. But probably worth just sort of starting at the beginning, we've been talking for many years now around a couple of sort of key strategic themes in manufacturing. The first one is that products are becoming smarter. Increasingly, you're embedding a brain in pretty much everything. And the brain, the core of the brain in a device is the PCB board. And secondly, that manufacturers are looking to converge the design and make process in a very similar way that actually we've just been talking about with AEC to improve efficiency and sustainability. And so Altium really is at the crosshairs of both of those 2 things is that today, you have a process where MCAD and ECAD -- sorry, mechanical computer-assisted design and electronic computer-assisted design are 2 processes which run in parallel without a lot of overlap, which creates dysfunction and dyssynergy. And essentially, what we are trying to do over time is to improve the flow of data through the supply chain. And so really, that's the strategic rationale behind it and not just sort of the design and make elements of it, but also the data elements of it. So you will have seen us about a month ago acquire Upchain. And that's a piece of connective tissue that can carry data not just from the MCAD side, but could equally carry it from other sectors, parts of the manufacturing supply chain, including ECAD. So I hope you can see that we're being sort of quite mindful in this process. And really, the sort of the benefit is that if you can combine those 2 processes, you can significantly improve the efficiency of the manufacturing process for combined customers. So really, that's sort of the rationale behind it. It's an area that we've already been taking sort of steps into, and this would sort of take us further steps. Clearly, having a debate with sort of Altium and their sort of shareholders about that. But that's sort of why we're doing it.

That's helpful. That's helpful. Thanks for all the detail there. So moving back on to the Construction side, maybe we can go to Theo here. Just as we think bigger picture around digitization, I think you did reference a McKinsey study. But I think a few years ago, they had construction as one of the least digitized industries in the world. I think everyone kind of calls that survey they did or study they did. As we think about just the broader digitization trends in construction, like where do you see the biggest opportunity for digitizing processes? I mean, clearly, the design side, right, I mean, you have millions of paid CAD users on your platform already, multiples of that which you may not be monetizing. One could argue the design side is pretty well digitized. But what are some of the biggest opportunities that you see to drive that digitization higher?

I mean, I'll flick that to Sid maybe, and then I can fill in.

Sure. So Tyler, I think the way we see the opportunity is, today, the majority of construction service providers, the majority of them globally represent our installed base already. And they're using some part of our design package, whether it is AutoCAD, Revit, Civil 3D or even Navisworks for clash detection model coordination. Not all of them are obviously using the Autodesk Construction Cloud for downstream construction workflows. And the predominant choice there, as I had indicated, as you talked about the lack of digitization is it's really Excel- and paper-based. So we see a tremendous opportunity to monetize that existing installed base. I think one area, again, which we find attractive to us, as I said, start Autodesk, stay Autodesk. We have that base already. So we -- it represents for us a tremendous opportunity to both cross-sell as well as upsell. And when I say upsell, I'm talking about within existing Construction Cloud customers that, again, may not have had access to all the solutions that we have -- we pulled together as part of the various acquisitions we've done. So -- but if you think about it, I look at it twofold. One is our installed base, which is comprised of construction services companies not using any sort of Autodesk Construction Cloud componentry today, which represents an immediate cross-sell opportunity, and then is obviously our core base, which we look to cross-sell.

And a great example of that, actually, in our Q1 results, Burns & McDonnell, a long time A&E customer who renewed their EBA with us in Q1 and added Autodesk Construction Cloud. Again, unifying on a single platform. So a very good proof point there, and there's lots of others we could point you to.

Yes. The one thing I would just -- maybe just to add on to what Sid was saying is, Tyler, one of the emerging opportunities in construction is around industrialized construction. And we talked about one of the benefits from Autodesk perspective is we are in the manufacturing industry, talked about Altium. But obviously, we have a lot of experience around manufacturing processes. So bringing those manufactured processes to the construction execution market is a huge upside and new opportunity that we're investing in. But that also requires curated models from design to be designed in a way to be constructible. And that's also the benefit of having a design and construction, but also a construction and manufacturing practice. So we are able -- and a lot of the innovation that happens is bringing best practices from other adjacent markets. And I think we're well positioned to do that, and that's why you're seeing Autodesk make investments in that area as well.

Maybe, Tyler, if I may just add one other thing. It may sound a little bit provocative, but that's the way at least I look at construction. Construction at the end of the day, RFIs, submittals, project management, those are all, frankly, commoditized workflows. That's just -- that's moving files back and forth. Maybe you do it a little bit better than I do it a little bit better. I mean, that's not really what the end goal is. The end goal really is the ability to drive actionable insights for our customers because what they really care about is the dollars and cents. Construction companies run at very slim margins. And what they're looking for is insights, enabling them to do preconstruction really well, how they scope a project so that they can effectively deliver it in the field, how they're able to get insights and get predictability versus being caught flat footed. So I think I'll say project management is there. But I think if you really want to make a difference in this industry, you got to go significantly beyond it. And I think, again, coming back to Autodesk, we have a very strong pre-construction portfolio, which then, obviously, when combined with our site execution, provides that end-to-end capability.

Got you. And the last question I wanted to ask you was just kind of bigger picture. As you think longer term around, obviously, more integrated AI machine learning space and being able to drive kind of actionable insights with all the robust data sets you have between BIM and construction data. I think some of the acquisitions you've made, Spacemaker and Pype kind of had some flavors there. But maybe just talk high level how you kind of think about building in more of these kind of automated predictions and intelligence into the core suite of Autodesk products and perhaps how you would monetize those over time?

Yes. I mean, do you want me to go, Sid, first?

Why don't you start and then...

Yes. Okay. So the number one thing I think people need to be cognizant of is to use AI and machine learning means you got to have good data. And that's the exact reason why we're building our platforms and data, right? So we're transitioning from discrete workflows with files, aggregating, normalizing those files into data platforms on top of our cloud platform that Sid talked about and then overlaying that with AI machine learning, technology to provide better insights, to do better design, to do all the things that we talked about. So -- and I would say we're on this journey. And right now, some of the acquisitions we've made, for example, Spacemaker uses AI machine learning to allow real estate developers to better plan and ultimately deliver real estate projects. You've seen in our current technologies like Revit and Civil 3D, where we've included AI machine learning algorithms to allow people to do better space planning for return to office or better land terrain optimization for -- every project we do has land. I think you're also seeing some of the work on -- Sid can talk about some of the stuff we're doing in construction. So just to preface that, I think that's why we are doing -- in moving from desktop to cloud, files to data, it's all about enabling that exactly what you just talked about, Tyler. Sid, maybe I'll let you talk a little bit on the construction side.

I know we're out of time here, but I'll just quickly say that on the construction side, we have been pressing the envelope around analytics, machine learning for quite some time. We've got a product called Construction IQ that really uses field data to highlight and flag issues before they actually become a big problem, and prioritizing which issues to look at is obviously very important. And then obviously, we will continue to find those technologies such as the Pype acquisition, which really brought some really advanced automation technology to extract really the type of project data, which is really a time-consuming, error-prone and manual process, which inevitably would lead to project risk. And as you know, rework in this industry is that -- it runs north of about $280 billion a year globally. So anything that we can do to reduce that is, obviously, going to go towards -- to hit the bottom line of our customers. So that's an area. There's one takeaway, we're going to continue to press the envelope around machine learning and artificial intelligence in our platform.

Got you. Got you. Well, with that, I know we're a couple of minutes over. It's been a great discussion. Thank you, Theo, Sid and Simon, for participating. And thanks, everyone, for the great questions. And we have about 13 minutes before Drew Foster will be on with Qualtrics. So thanks, everyone, for joining us. Thank you to the Autodesk team.

Thanks for having us. And thank you, everyone, for coming along.

Thank you very much.

Thank you. Bye.