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

We have Amy Bunszel, SVP of AEC from Autodesk. So Amy, before we get started, I have to tell you something. I'm a former mechanical engineer, and my senior project was in Autodesk.

Thank you for your [indiscernible]

I'm embarrassed to admit to you that I was not very good, but we managed to design an automotive gearbox on Autodesk back those days. I won't tell you which year, I graduated from college, but that's how -- that's my first -- even before I knew how to spell software, I had used AutoCAD.

Winning the hearts and minds of students is one of our fundamental...

Yes, yes. So tell us about yourself, your background and then we'll jump into some...

Sure. Well, I'm a recovering electrical engineer by the way. But it's been a while. So Amy Bunszel. I've been with Autodesk for over 20 years. actually came in through an acquisition in 2003, worked in manufacturing. And now I'm responsible for our architecture.

[indiscernible]?

I didn't do, no. I was wire harness design, even more esoteric. So worked in AEC for the last 10-plus years that you see in AutoCAD. So I have our design products for the architecture, engineering and construction field. We focus on building information modeling, which is really our big strategy in AEC. And in addition to those products, I also am fortunate enough to be responsible for AutoCAD.

Right. That's fantastic. You're responsible for AutoCAD as well?

AutoCAD as well. It just keeps on giving, really wonderful.

Yes. That's a product that has been around the longest. Right? I think 40 years exactly, exactly. So in AEC, let's talk about what exactly the most about the AEC opportunity? What are some of the secular tailwinds that you see?

Well, one of the things that excites me the most about the AEC opportunity is just the sheer size of the opportunity. So in our last investor meeting, we talked about $46 billion TAM in AEC and $28 million potential professionals using our products, and that's really exciting. And if I look just at the design side of things, that's $30 billion and 11 million potential professionals using our software. So in terms of having an impact, it's a great place to work. Now what are our customers facing? They have a number of opportunities and challenges ahead of them. One of the opportunities that we talk a lot about is demand. So demand is increasing for them. If you look at the sheer need for housing, the population growth we're expecting in the next 20 to 30 years, we just need more of everything. But the flip side of that is they're having trouble getting enough workers to perform all the work that they have and that they want to bid on. So that's one challenge they have. Another challenge they have is the increase in cost of materials and supply chain problems. So the good news for Autodesk is they need to apply software, software automation, analysis to try to manage through some of those challenges they face in their business.

So Amy, from my understanding, like Revit, which is a product that you're responsible for and then sort of go hand-in-hand. So can you kind of speak to the importance of [ BIM ] mandate globally and kind of how that's impacting kind of usage of Revit?

Yes, absolutely. So for quite some time now, Revit, which is our architecture design product and BIM are kind of synonymous. So when a country institutes a BIM mandate, basically that saying, look, for all of our public sector projects, we want you to use BIM. That largely means people are going to start using Revit in more ways in that country. So then what happens is everybody who works in that supply chain learns Revit, learns BIM. And then as they're doing work for private sector companies, they are now able to kind of deploy that. And now the private sector owners want more BIM and it's sort of a great flywheel.

What type of penetration do we see in terms BIM mandates globally? I know like the U.S. is far ahead of some other countries.

Yes. So the U.K. was first, and they're one of the most mature. But even there, we're still hovering at around plus or minus 50%. So there's still a big opportunity for more projects and more users to kind of get on the BIM bandwagon. And interestingly, just in the last month, both Ireland and Spain introduced new BIM mandates for their public projects. So we're expecting to see even more BIM adoption in those countries going forward.

And then Amy, I think just one interesting thing that came out of Autodesk University 2022 was the three industry clouds. So perhaps just kind of talk about kind of your strategic rationale for introducing the three industry clouds and then specifically for the AEC category?

Absolutely. So Autodesk University, we introduced Fusion, Forma and Flow. So these are our three industry clouds for manufacturing, AEC and media and entertainment. Those are our three primary industries. And the idea with the industry cloud is really to help our customers with kind of with a lot of connected data and connecting design and make. In each of our industries, we expand both, the early design process, all the way through making and developing the undeliverable. So in AEC, what that means is we're going to take BIM to the next level through Forma, and we're going to do an incredible job connecting data across the entire ecosystem by making the data more granular and more accessible to our customers that will also make it more accessible to AI and machine learning. We're also adding workflows that are powered by automation, by simulation, by analysis and really helping our customers focus more on the outcomes they want to deliver, whether it's a cost outcome or schedule outcome, a sustainability outcome, instead of just thinking about like geometry and those kind of things.

Yes. So I think connected data is a really interesting angle, and it ties nicely I think with generative AI and perhaps generative design. So perhaps you could just talk a little bit about kind of the opportunity set there and maybe how far along you guys are in terms of capital.

He's not even a mechanical engineer, but he's asking me such good questions. Just imagine if you're studying mechanical engineering.

So back to data. So data has been -- is really one of the primary, I would say, I don't know, facilitators or accelerants across the AEC industry. If we think just today, when our customers take data from the early stages of design, into detailed design through construction and all the way to operations to create a digital twin, they're really getting the most value out of that BIM life cycle. But now we really want to take that up a notch again. We want to make it more granular because right now it's in these big monolithic files, so that they can go through that workflow faster, but also connect with ERP systems or other systems that run their business. And then what we want to do is leveraging all this cloud structured data, we want to start training AI and doing machine learning for them. Now the good news is for Autodesk, we have already at least a decade or so of experience in doing AI. We have generative design infusion. We have some in Revit. We have in our Construction Cloud, Construction IQ, where we create insights off of data we have from our customers.

What are the things that you do with these clouds were generative AI? I'm just curious.

What are the things we do? So for example, in the Construction Cloud, we can look at -- in the Insights product, we can look at past invoices, history with clients, current situation and anticipate for a contractor when they might be -- predict a problem before it happens. So we might know most likely this is going to be late. You don't know it yet, but the trend is on a trajectory that we've seen before from the vendor and you're likely going to have a problem. And so we can flag that before they even know it. And in Forma, we're using it to do real-time analysis and simulation around things like weather, wind patterns, heat, light, things that impact how you might design or place a building on a site.

Really. And how does that natural language interaction with the system working?

Well, this is not actually using the natural language. So this is more using the kind of AI in terms of driving -- we know all these results, so we can predict the next results. But we have customers using natural language and our APIs. And so they're driving our API through natural language today. There's a couple of them up on YouTube where they're driving Revit and AutoCAD by talking to it using the current capabilities that we have.

[indiscernible] So tell us more. I mean that's like programmability and cogeneration meets your domain. So what else could you be doing for your engineers?

It's an interesting challenge, because we span so many phases all the way from early conceptual design to operations. Right now, we've been focused on my team a little bit more on the early-stage conceptual design. It's certainly an easier problem to follow because you're not dealing with do I have all the supports for the building to stand when I go to build it, but you're dealing more with the facade and some of the external components. So that's an area certainly where we're exploring. And then interestingly, at the other end of the spectrum, on operations, there's so much data coming off of sensors, from IoTs that are showing people how their buildings are running that they can start doing predictive analysis and understanding if the HVAC system might fail before it fails and things like that.

So that seems very digital twin. So maybe we can talk about Autodesk Tandem, and maybe just kind of touch on the adoption rates within digital twins within your customer base, kind of where you see that trending, just your broad take on that.

Yes. So Tandem is our digital twin prototype or pilot. And so we've been working with a lot of our named accounts on digital twins. And so we started with what we would call a functional twin, which is pretty much a digital version of the physical object. And so you can walk around in it, you can kind of experience it, you could arrange furniture in it. But now we're moving up the curve to things that are more like operational twins, where we're bringing in the IoT data, and people are actually able to see performance of the building in the twin. And so in that case, we're finding customers are making energy-saving decisions. They're anticipating where do I need to do maintenance in the building first. So they're driving real cost savings on how they operate the building because about half of the cost of a building is actually the operations of the building, one that's already built. So that's a real material value for our customers. And then the cool thing for Autodesk is with these digital twins, we have one customer, Wind River, who they started building the twin as they were doing construction on these projects and then realize, oh, I can actually monetize this by turning it over to my customer and helping them operate the twin once I build it. So they're building a new line of business. And then for Autodesk, the serial owners, so the huge companies that own lots and lots of buildings, they are also new potential customers for Autodesk. Because they're going to want to build their own digital twins for all of their assets.

[indiscernible] seems like such a huge efficiency unlock. So like from your perspective, like where are we in terms of market adoption, because we hear from a lot of different companies that they're exploring digital twin products and functionality. And it seems like a pretty fragmented space and people are angling into it from a lot of different ways. So I'm curious kind of your overall take...

That's very true. So for us, I think the key unlock for us is most of the data is in Revit. And so what we feel that makes Autodesk unique in this space is we can help make that Revit model really digestible for a digital twin. So almost create an easy button on the glide path to go from the Revit model directly into the twin and then start getting value quickly. Whereas what we see elsewhere is more of a hodgepodge collection of lots of disparate data trying to create something that might be might be valuable. But since we have the data in our system already, we can make it kind of go on an easy ramp to the twin.

And Amy, maybe just touching on kind of civil infrastructure, right? You guys have the Civil 3D product, which I believe you're responsible for. And there's pure-play competitors in the market that do civil infrastructure. So to get a sense of kind of your competitive differentiation within the civil infrastructure category.

Yes. So not surprisingly, it's -- again, it's [ that ] depth and breadth. So we bring building information modeling to civil infrastructure. So the conceptual design, the detailed design, the construction now and then ultimately, the digital twins. And we have digital twins and water for infrastructure right now. But -- so that's one way we do it. And then also we do it with depth and capability. So for the last 5 or 10 years or so, we've been investing a lot in road and rail, so organically building that on our own. And that's paying off, because we're showing a lot of momentum in the DOTs now in terms of winning competitive swap-outs there. And then in water, we went pretty deep in water with the Enterprise acquisition, and that gave us this end-to-end best-in-class capability when we combined it with our core civil functionality. So that's another great place where we're kind of leaning into infrastructure.

Yes. So you have [ Innovis ], you're going deeper in rodent rail. This all seems to tie back to a lot of like the public infrastructure investments like IIJA, right? So can you talk about maybe kind of how many of those projects you think are kind of shovel-ready today, if you will? And how much momentum you expect from a lot of these and maybe not even just in the U.S. but on a global scale?

So not many of the projects are shovel ready today. So we have yet to really see the growth that we'll probably see from that. But what is happening today is there's requirements on a lot of those projects to digitize the design and operations process. So you're not going to get that funding unless you have built digital processes to make sure we don't get into this aging and crumbling infrastructure problem again, so we can do the maintenance. So that's where we think for Autodesk, the biggest opportunity is everybody is going to be on this path to digitization in order to win much of this new business.

And in the developing markets, like any perspective on kind of how that's shaping up from an infrastructure investment.

The developing markets are interesting. We highlighted in our last earnings call that India is definitely a bright spot for us. And if we look at overall construction spend, the majority of that is happening in infrastructure there. And so we're in a good position there as well.

Started with my senior project I mean. So I had a question for you. The compute demands for digital twins, how much of a role does the cloud play in handling the compute demands as you get into more compute-intensive graphics-intensive projects?

Well, the good news about Autodesk graphics and digital twins is we're really good at making those graphics consumable. So part of what the team is doing in terms of optimizing the Revit data for the digital twin is to make sure that it is lightweight and that you're only bringing what you need to sort of solve the problem you want to solve with that digital twin. So that's definitely working in our favor.

Got it. with digital twins, do you see -- what kind of opportunities do you see in Europe and Asia? Because we hear a lot about these projects in Asia as much as you see them happening in the U.S. But is there any rate of adoption differential between these geographies and what does the pipeline look like?

I haven't seen a rate of adoption challenge there at all. For me, it tends to be about having an owner who understands the benefits of that digital twin. Because at the end of the day, they're the ones who have the long-term sustaining benefit and value from the twin. And if the owner is asking for it, their whole supply chain will line up to make it happen as part of the deliverable.

Yes. And stepping back, what is the -- I know you talked about the demand picture, right, right at the front end. What is the demand picture for commercial construction? So if look at San Francisco, you get a very different view. Like people are -- companies are leaving, people are leaving to state, that sort of thing. But what is it like in the rest of the world with regards to appetite demand for commercial construction?

Yes. If I work right up the street, so I really fully understand what's happening in San Francisco. I was asked today a lot of questions about commercial because it is definitely -- new commercial construction is definitely a soft spot in the market. But what we're seeing is our customers are pretty nimble, and they're able to flex their business and go after the projects that do exist. And so globally now, more than 50% of the new projects are actually renovations. So we're working on what do we need to do to our portfolio to help our customers win and compete on these renovations. So some of that is investing in things like point cloud scanning and existing condition assessment, looking at sustainability calculators, so we can understand what part of -- what happens if I tear down the building versus keep the building. And so there's a lot of work happening there. So people have moved from the renovation from the net new. And then also reimagining, I've read some really cool articles about how to turn high-rise buildings into apartments from offices and...

It's something you're actually seeing in your business?

No, I'm just sort of [ fast ] companies are running articles about these things. But I think what's important is there are -- there will be opportunities to transform what already exists because that's -- I mean, we usually talk about it, the greenest building is the one that's already built. And so thinking about ways to leverage that is better for the planet, but it should be cheaper and faster than some...

Amy, the 50% of buildings or projects of renovation projects, is there a way to contextualize and compared to, say, a few years back, how much to that percentage was?

Yes, I don't know. My guess would be prior to [indiscernible], we were running around building a lot of new things.

Yes. And now that it's turned more towards renovation.

Yes. Well, the other thing that's happening is there's some legislation in the EU around renovating the older building stock in Europe. Like if you just think about any of those beautiful old cities in Europe, like those buildings are horrible when it comes to heating and cooling and they all -- but they're historic, and they're going to be there. So how do they preserve the building but make them more energy efficient. And that was accelerated, I think, partially by the energy crisis that happened when the war broke out.

In Europe, when you go stay there during the fall, just opened the window. That's air conditioning.

Amy, I know this doesn't fall directly under your purview, but I wanted to ask a little bit about Autodesk Construction Cloud. And maybe from the perspective that, look, you clearly have relationships with a lot of the largest construction design firms, right? So it seems like a pretty low-hanging fruit opportunity, if you will, to kind of cross-sell construction management software to your existing base. So can you kind of speak to that opportunity, what you're seeing, what's net new from a customer perspective versus penetration with the installed base, et cetera?

Yes. So absolutely. And one of the things we did in the beginning of this year was combine our sales teams from the Construction Cloud and the mainline Autodesk sales team so that we could better take advantage of that opportunity, because we really felt that our -- one of our superpowers in construction is the fact that we also have the design data. And so taking that design data and deconstructing it so that it can feed the construction life cycle process is something that is sort of unique to Autodesk to be able to do that. So that's been a big focus area for us. When it comes to my team, in AEC, there is this notion of a common data environment. So this is sort of a data backbone that all of the -- all the many stakeholders would participate in, and that's out of the dock for us, which is part of the Construction Cloud. So we already have our design customers populating that backbone with the design data, and it was kind of a natural process to sort of incorporate some of the downstream construction processes to there.

And do you think that's a distinct competitive advantage relative to maybe some of pure...

Absolutely. Absolutely. And we're also seeing a lot of strength, as you guessed in our named accounts of the very large companies that, quite frankly, were already design customers, but now they have an even bigger reason to invest across the board in Autodesk.

And when you take advantage of the synergies from a product development standpoint, how do you also recon with the buyer being very different. So construction buyer, a construction project is done very differently than the design project there. How do you get these folks to align with each other and they agree that the same design provider should be the one that in the construction project...

Well, one good thing is that our business model is really flexible, and it's not one size fits all. In fact, in construction, we have a couple of extra business models that we don't necessarily have in design, because we know that in some cases, the construction companies want to buy software differently versus in design, we're much more pure subscription and kind of named account play. So that's one thing. The other aspect is we have this new Flex program where customers can buy like a small amount of tokens and then use them for whatever they would like. So this allows existing customers to go and try new things with a very low barrier to entry. And so we're seeing that as another way where we can kind of cross the cross the differences between those two types of users.

Are you seeing that Flex program like service sort of a conversion funnel to more significant agreements, if you will, once you capture that long tail...

We hope so. It's very early days on Flex. But basically, if you use the software more than a certain number of days a month, you're going to want to switch over to a subscription. So it's definitely priced so that there's a point by which it makes more sense economically for you to go to a subscription.

Understood Yes. I just want to understand a little bit about the hiring environment in your AEC end market. You did hinted labor shortage, that sort of thing. Where are -- how are your customers able to find talent in this constrained market and the role of automation otherwise in a labor-constrained market?

I think it's like many of us, they're looking -- in some countries, they are importing workers from other countries. And I think many of our customers are leaning into -- this is a longer-term play, but educational programs. Autodesk leads into education and retraining programs and trying to help people learn new skills, so they can participate in that. But you're right, part of it is not going to be followed by more people. It's going to be solved by better deployment of software and better automation.

So in design, not in construction?

It's been kind of in both. I mean it's absolutely in both. There's -- I mean, there's -- even the architecture firms are finding that they're struggling to find enough.

Really? All these jobs that are going to be displaced by generative AI. I mean, we should retain them to be your customers, right?

Well, we have a slightly less harsh perspective on generative AI. Well, we really think for our customers in particular, that AI will be more of a copilot like it is for coders being described. But like an AI on your shoulder, something that -- again, we want to get rid of all the mundane non-value add work and then free people to do the creative work, but then help them do that faster, because our customers can only generate so many different sort of conceptual designs or different concepts to a stage where they can show them to their customers. If they can do 10x more of that, they can get a better relationship with their customer and more value. In fact, one of our former early success stories the same one for getting at the moment. What is the name? Cube 3, they piloted Forma in early-stage conceptual design, couple of projects. And they found that in half the time, they were able to deliver more creative and more valuable solutions to their end customer. And so both parties were winning there. So there was value generated on all sides. So definitely, it's something they want to deploy in their mainline workflow going forward.

And what does that like pricing uplift look like? I mean if you're getting 50% productivity yield on something like that, is that ASP accretive? How do you guys...

Well, right now, in this early conceptual design piece that we're doing, Forma is $1,000 a year. It's included in the AEC collection because we thought it was really important that our Revit customers got access to Forma. And this is not -- this particular operation is not expensive. So I think as things evolve and we will make sure that we're getting properly compensated for the value and the expense of what the capabilities cost.

And you touched a little bit about on simulation earlier. Can you just expand on kind of Autodesk role in the simulation world. Is that a place that you've historically played or increasingly moving into?

In a few different ways. So in manufacturing, we've always had a bunch of different simulation and analysis capabilities. We have a very strong partnership with ANSYS in manufacturing. In AEC, similarly, we have a lot of different capabilities and some partnerships. But I think in AEC, where we're really strong is structural -- kind of the things you'd expect, structural steel and more recently, a lot of sustainability analysis. So carbon, all our customers are trying to understand the impacts of their choices on the carbon footprint of their buildings. And then the early sustainability questions about if I position the building in a certain way, we can window in a certain way, like what happens to the heating of that building or the cooling of that building? And so we have tons and tons of different analysis and simulation capabilities at AEC. And those things tied up to degenerative AI start to add value in combination as we haven't even thought about yet.

Should open up to anybody who has a question? If you have a question, just raise your hand. And as you think through your question, I had a question on your channel partners and the direct versus channel maybe to expand on the dynamics there? Is there -- the company is becoming more and more direct, right? How does that play -- what does that allow the company to benefit from as you go direct? Can you talk about the benefits; the deal sizes, ASPs, retention, set the benefits of the company?

So I'll start, and maybe Dan can add. So for us, broadly, we -- most of our business still comes through the channel. And the channel is a huge partner for us and our customers in global reach and global scale. However, we do have a portion of our business that's fairly transactional. And so we've been growing quite nicely with our eStore and how we do business over there. And then we have the named accounts, which are a very high-touch, very strategic and very valuable part of the Autodesk business. So the channel fills this gap in the middle, where we're never going to be able to get to all those customers. And they do serve as trusted advisers for these customers, just at a different scale than we can. Do you want to add anything, Dan? I did okay?

Amy, maybe just a higher level one. You oversee a lot of different design products within the AEC portfolio. Like what is the most exciting opportunity from your perspective if we were to stack rank all these different part, road, rail and advise across the spectrum? What gets you excited?

Okay. So one personal one and one Autodesk one. So we were involved in the coolest historic preservation and reconstruction projects ever. So the Notre Dame project is just really -- it was a horrible tragedy, but inspiring should be able to be involved in rebuilding that. Fixing the whole restoration of the Plaza with [ life ] tower is very cool. But for me, when it comes to the growth, the infrastructure is pretty fascinating to me. And in the last 2.5 years, I've learned a ton about water. And I think the -- every project in infrastructure has water associated with it, even if it's just trying to figure out drainage off of a road, right. And so water is everywhere. It's doing it well is -- when you do it great, it's great when you do it poorly, it's a disaster, right? There's too much of it in many places, not enough in others. So I think the amount of innovation that we can bring to our customers working in water and the projects that are going to happen in water is necessary and really inspiring and is going to drive growth for Autodesk.

We'll give you 56, 55 seconds of your day back unless there are any questions. Yes. Thank you so much. We'll see you all at cocktails, I believe, shortly after 5:00. There's a reception. Thank you once again. Amy, thank you.

Thank you.