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Autodesk Inc
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Ladies and gentlemen, thank you for standing by, and welcome to the Autodesk First Quarter Fiscal Year 2021 Earnings 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. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]
I would now like to hand the conference to your speaker today, Abhey Lamba, Vice President, Investor Relations. Please go ahead, sir.
Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the results of our fiscal year 2021 first quarter results. On the line is Andrew Anagnost, our CEO; and Scott Herren, our CFO. Today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available at autodesk.com/investor. You can find the earnings press release, slide presentation, and transcript of today’s opening commentary on our Investor Relations website following this call.
During the course of this conference call, we may make forward-looking statements about our outlook, future results, and related assumptions and strategies. These statements reflect our best judgment based on currently known factors. Actual events or results could differ materially. Please refer to our SEC filings for important risks and other factors, including developments in the COVID-19 pandemic and the resulting impact on our business and operations 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.
During the call, we will quote a number of numeric or growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today’s call are reconciled in the press release or the slide presentation on our Investor Relations website.
Now I would like to turn the call over to Andrew.
Thank you, Abhey. To open, I want to thank all of the medical professionals and other essential workers who are confronting the impacts of the COVID-19 pandemic on the frontline. Their efforts are not only saving lives, but allowing many other people around the world to protect themselves, their families and their communities. Their efforts are truly heroic. Thank you for everything you do. Our thoughts are also with everyone affected by pandemic. And our priorities remain the safety and well-being of our employees, and the continued support of our customers, partners, and communities.
Many of us, myself included are adopting multiple roles as we seek to juggle the demands of our professional and family lives in a world that has suddenly become most more complex, and more constrained. Personally I've had to learn how to home school my youngest child, and while I've always had a healthy respect for the work teachers do, I have developed an even deeper appreciation for the role teacher’s play in our societies. It takes a lot of patience and skill to help a young mind learn what it needs to learn.
From a business operation standpoint, the transition to working remotely has been smooth. I am proud of how our employees and partners have balanced their personal lives with many commitments during these unprecedented times; many significant product upgrades were successfully released, thanks to our cloud-based operating infrastructure.
One of the metrics we've been tracking closely is the weekly active users of our products, and since the pandemic started usage of our products dip slightly, but overall remained relatively steady. In China, usage dropped lot rapidly in February, but rebounded above pre-COVID levels by the end of March as business started reopening in the region. And it's no surprise we saw a major surge in usage of our cloud collaboration project – products, as people work from home and throughout the quarter.
During the quarter and into May, renewal rates held relatively steady among our target markets, AEC revenue held up well, while we experienced a slowdown in the manufacturing space. The resiliency of our business is anchored by the diversity of our geographic regions and product offerings, our subscription -- business model and our indirect distribution model, which allows us to operate and adapt locally as economic conditions evolve in different geographic regions.
During the quarter, we helped our customers accelerate their migration to the cloud and ease their transition to working from home. We also offered extended payment terms to alleviate their liquidity concerns. Please refer to the slide deck on our investor relations website for more details on these actions.
I am incredibly proud of not only the way our employees rally to support each other in the company, but also how they rally to support our customers, our partners in the communities they live in. Without their resiliency, the resiliency of our business model wouldn't matter.
With that, I'd like to turn it over to Scott now to take you through the details of our performance and guidance before I come back to provide insight into our strategic growth drivers.
Thanks Andrew. Before I offer more details on the first quarter, I want to echo Andrew's comments thanking our heroes, battling the pandemic on the front lines. Our products, partnerships and expertise help many frontline organizations combat the pandemic, from the quick build and hospitals to manufacturing Personal Protective Equipment or PPE and the philanthropic support of global, national and local communities.
My own daughter has just graduated with her nursing degree and will be on the front line next month. Availability of proper PPE for her and all the other superheroes and sprouts has been my biggest concern, so I'm particularly proud our desk has played a role in addressing that need.
Our keyword performance was strong with total revenue growing by 20% subscription plan revenue grown by 35% and operating margin expanding by 10 percentage points. Total remaining performance obligations grew 27% and current remaining performance obligations grew by 18% to $2.4 billion in the quarter.
We delivered free cash flow of $307 million and continue to repurchase our shares to offset solution. Typically I'll go through our results from the quarter in more detail, but today I'm going to focus on the COVID-19 impacts on our business and guidance. You can find additional details in our Q1 performance on our investor relations website.
I do quickly want to mention that we have renamed what we previously called core business to design and what we previously called the cloud to make. The private labels cost to compute is almost all of our products have cloud enabled functionality. There is no change in the products that fit into each of these two categories.
During the quarter renewal rate held relatively steady, whereas new business not surprisingly slowed down in the second half of Q1. However, the impact on our business has not been uniform by geography or industry. Our business is not only diverse from a geographic standpoint, but our products and customers are diverse as well.
Many of you have asked about our exposure to small businesses, we generate approximately 10% to 15% of our revenues from small businesses to find those customers with less than 20 employees and with less than 15 students. Our net revenue retention rate is within the 110% to 120% range. One of the other metrics we track for customer stickiness is partial renewals, which is a measure of subscription renewals for some, but not all seats in the contract are renewed. Our partial renewal rate remained relatively steady as well.
In prior downturns, AutoCAD LT was a leading indicator for demand. However, during the current slowdown, our mixed up AutoCAD LT moved higher, as some customers apparently chose to optimize their purchases.
Lastly we saw a modest decrease in multi-year deals toward the end of the quarter, although many customers continued to move forward with multi year commitments, even in the current environment.
Given the evolving business environment as a result of COVID-19, we are actively managing our spending, reducing travel and entertainment expense, monitoring our hiring rate, shifting the virtual events across the board, and rationalizing our marketing spend. We will continue to invest in critical areas such as R&D, construction, and digitizing the company to ensure our future success as we come out from a pandemic.
Now let me turn to our expectations for the remainder of the year, our investment in cloud products and a subscription business model, backed by a strong balance sheet gives us a robust foundation to successfully navigate the economic challenges. Our full year guidance range is wider than normal due to ongoing uncertainty in the economic environment, it will have a more pronounced impact on our new business.
Regarding trends during the year, we expect the second quarters new business activity to be the most impacted by the pandemic. Our pipeline entering the second quarter is strong and growing. But we're cautious about new business close rates. The upper end of our range assumes a swift recovery in new business in the third quarter and continued improvement into the fourth quarter with full year new unit volume growing lastly.
At the lower end of the range, we are modeling deeper impact on second quarter sales, fall by a slower recovery in the third quarter and further improvement in the fourth with full year, new units posting a modest year-over-year decline.
On the other hand, the majority of our business is renewals and we have not experienced the meaningful change in our renewal rate, which offers us resilience in an uncertain environment, still we are modeling a decline in renewal rates in the second quarter, out of an abundance of caution.
Our low end and high end guidance scenarios differ in the extent of the drop in the second quarter and the pace of recovery later in the year. Given our strong renewal rates, we expect our net revenue retention rate to remain above 100%, but move below the current range of 110% to 120% for the rest of the year.
The decision to reduce new product demand, we anticipate our billings will be impacted by a fewer multi-year transactions, the lower end of our billing guidance assumes a steeper decline in multi-year contracts, whereas the upper end is based on a more modest decline.
The reduction in billings and the timing of large transactions are impacting our free cash flow expectations. Fiscal 2021 will be a significant and more backend loaded year, which will move some of the free cash flow from this year to next.
We expect our full year operating margin to expand by approximately two to four percentage points. Looking at the second quarter forecast, we expect the pandemic to meaningfully impact our billings, which can be sequentially down by low double-digit percent.
Additionally, our decision to offer extended payment terms to our customers for sales, up through early August, combined with a more backend loaded quarter will impact our Q2 free cash flow, which could end up being breakeven to slightly negative before accelerating in the second half of the year.
Although our fiscal year 2021 results are being impacted by COVID-19, we are confident in our fiscal 2023 free cash flow target of $2.4 billion. Assuming the recovery starts by the end of this fiscal year. We build a resilient business model that will allow us to capitalize on multiple tailwinds, once we exit the current pandemic.
And now I'd like to turn it back to Andrew.
Thank you, Scott. We expect all secular trends that we have been investing in for years to be accelerated during and beyond this pandemic. People are being forced to change the way they work, and in turn are experiencing the benefits that our cloud and subscription solutions have to offer these companies are not going to go back to how they worked before and digitization will be accelerated as businesses take all steps necessary to sure they are more resilient.
Our investments over the last few years, combined with our ongoing focus on cloud-based offerings, leave us with a competitive advantage and well-positioned to help our customers, not only during this pandemic, but also in the new world that they will be working in when it is over.
In fact, some of our biggest customers are already altering the mix of our products to lean more heavily into the cloud and digitization. Although AEC spending has held up well and work is continuing, some customers are seeing project delays, cancellations, and in some cases, job sites temporarily shut down. However, despite these realities, we have seen continued adoption of our construction offerings.
For example, Media [ph] Construction, a general contractor in Southeastern United States, selected our products over a competitive construction management solution at their time of renewal. Their business is growing rapidly and price was becoming a concern with their current vendor. They needed a comprehensive solution that was fast and easy to implement.
The multiyear deal started with PlanGrid for the field, evolved to include BIM 360 for the office and field connectivity and ultimately, included BuildingConnected for project bidding.
Many construction sites were shut down temporarily, impacting our new business for field-focused solutions like PlanGrid. However, our products span the complete construction value chain and our collaboration products like BIM 360 Design and Docs experienced solid growth.
Our extended access program allows customers to try out and experience the value of the cloud collaboration products at no cost for a limited period of time. We're seeing customers who are in the process of adoption accelerate their timelines. We are also seeing customers purchase additional seats directly through our digital store.
Since early March, cumulative new commercial projects grew over 200% in BIM 360 Design and over 100% in BIM 360 Docs. This surge in usage has been a great test for our cloud product infrastructure, which has scaled up seamlessly.
As you might recall, BIM 360 Design is the cloud collaboration tool that allows our customers to use our Design product anytime, anywhere with data stored in the cloud. Now that customers are experienced cloud-based solutions that allow them to work efficiently from anywhere, we do not think they will revert to previous ways of working.
One of our largest customers, AECOM, significantly increased their adoption of BIM 360 and reached out to us beforehand to ensure that we were set up to support the increased usage. AECOM is the world's premier infrastructure firm.
David Felker, CIO, Americas and Construction, recently commented, 'We're shifting rapidly to remote working, which is absolutely essential for the continuity of our business. Our strategic partnership with Autodesk and the BIM 360 Cloud platform, along with substantial investments in digital solutions and technology, have enabled our successful pivot to this new way of working. We forecast that our use of BIM 360 will continue to grow dramatically in the short-term and will become our new baseline for projects in the long-term.'
We are not only helping our customers work remotely, we are also doing so quickly. When New Zealand went into lockdown overnight, we helped Warren and Mahoney Architects successfully mobilized their entire business to work from home in five days. In the process, they doubled their number of BIM 360 Design subscriptions. They told us they would not have been able to so successfully continue their business operations, while working from home without our support. And they also noted that all projects will be delivered using our platform going forward.
We believe the current pandemic will accelerate digitization and automation in the AEC industry, as customers look to make their businesses more resilient. At the end of every downturn, there is an upturn, and businesses will need our products more than ever to stay competitive on the other side of this.
One segment that has historically done well, as governments seek to provide stimulus, is infrastructure. During the quarter, we announced an alliance with Aurigo to better serve public and private owners. Capital project owners at Departments of Transportation, cities, counties and enterprises will benefit from this alliance, and we are already receiving positive feedback from customers.
This quarter, we had a top architecture firm and a subsidiary of one the largest state owned enterprises in China choose our products over Bentley's. Their typical projects for domestic and international clients include healthcare infrastructure, stadiums, airports and skyscrapers.
Autodesk's streamlined workloads and data compatibility allow them to collaborate across teams and bring digital design down to the construction service phase. Beyond that, they have already taken advantage of our products for generating optimized design schemes and are excited to use Generative Design in Revit, as we recently announced Generative Design is available in Revit 2021. As our customers plan to return to work safely, they need help redesigning space layouts in buildings, and this is one of the things Generative Design enables people to do effectively.
Although, manufacturing has been impacted by supply chain disruptions and temporary factory shutdowns, our products are enabling customers to operate under evolving conditions. Customers use our solutions to develop new products and R&D continues even when production floors experience disruption.
Automation and flexible supply chains will be vital to competitiveness in the future. Our products help customers work remotely in a distributed environment and collaborate among their divisions, customers and supply chains in the cloud. Fusion 360 is the leading comprehensive multi-tenant cloud CAD/CAM and PLM solution and continue to gain traction during this pandemic, as customers are reassessing their technology portfolios' readiness to cope with the demands of distributed work. In fact, April was the fastest-growing month for new user acquisition.
A good example of this is that we closed a large stand-alone Fusion 360 deal with a big semiconductor company. Currently, they use the electronics design capabilities in Fusion for their printed circuit board design work. And we expect to further expand our presence with them due to the integrated functionality offered by our products at a more attractive price point.
In addition, BASF, the largest chemical producer in the world, increased their EBA users of Fusion 360 to 2,000 during the quarter. They look forward to using Fusion 360 as a collaboration platform to improve the efficiency of communication between several teams, starting with equipment design and maintenance at one of their chemical plants.
Growth remains strong, relative to our competition across manufacturing portfolio. Customers of our on-premise solutions report minimal disruption in the move to remote work, which has been supported by cloud features included in our subscription offering.
During the quarter, we signed our first enterprise business agreement with an automobile manufacturer in China. The usage-based model was a good fit for the customer who needs flexible access to our expansive portfolio of products.
COVID-19 was a catalyst for them to substantially increase their engagement with us. They made the decision to adopt the most efficient solution to ensure they stay competitive in their industry on the other side of this downturn.
In addition to growing our presence in the commercial space, we continue to maintain our leadership in the education space, where future engineers are rapidly adopting our products. Our new-user acquisition in the education space, driven by Fusion 360 went up over 70% in April.
Moving onto another high priority area for us, we are still making traction, monetizing non-compliant users. In terms of sales led initiatives, we are being sensitive to customer situations and are often deferring the final outreach, but this does not mean progress has stopped. The first deal we closed and move on after the business reopen was a license compliance transaction that we have been working on for many months prior to the pandemic. We closed an additional license compliance deal and competitive win over Bentley in Central America, and the customer is now piloting BIM 360 Docs.
In closing, while all of us are impacted by the current pandemic, we are building a stronger Autodesk for the next year and beyond. We have a head start over our competition in critical capabilities like cloud computing and cloud-based collaboration, and we will continue to invest in our strategic initiatives.
There are three key areas that make us confident in our fiscal 2023 targets and our growth after that. One, digitization in AEC is going to accelerate in the coming years as companies seek to adopt not only BIM, but a complete design to make workflows enabled by the cloud that not only make current processes more resilient and efficient but support new industrial paradigms for industrial paradigms for the construction site.
Two, the evolution of manufacturing to a more distributed network and cloud-based workflow is also going to accelerate significantly over the next few years. And we have the industry's leading multi-tenant cloud-based solution to address the emerging customer needs that will -- and three, our business model is more robust, adaptable and resilient than in the entire history of the company. This will allow us to not only invest aggressively in the future, but do so with an eye to both revenue and margin growth.
We look forward to virtually engaging with many of you at Investor Day on June 6th where we will have more time to share our strategic initiatives.
With that, operator, we'd now like to open the call up for questions.
Thank you. [Operator Instructions] Our first question comes from Saket Kalia with Barclays Capital. Your line is now open.
Okay, great. Hey, thanks guys for taking my questions here. And I hope everyone's doing well. Andrew, maybe just to start with you. Thanks for the commentary just by area. I want to look at it from a different lens, and maybe see if you can talk about what you're seeing from your customers on engineering headcount and hiring. Now clearly, that situation is going to differ between manufacturing – between your manufacturing customers and your AEC customers. But I'm wondering, if you could give us some high-level observations just about how your customers are approaching headcount during these times?
Yes. Saket, I hope you're doing well as well. Look, there's – what I'll do is I'll give you some indirect measures of what we're seeing. If our customers were engaging in a lot of headcount reductions, what we would see is a tendency towards more partial renews in our base. We're not seeing that, all right, as we mentioned in the opening commentary. So we're not seeing this increase in partial renews which kind of talks to a stable employment base and a stable team environment.
The other thing that we pay attention to is the whole notion of what's happening with weekly active users, okay? That's the real measure of economic activity happening on top of our applications. This is something we didn't have during the last downturn. We weren't able to monitor weekly active use of our desktop products. That weekly active usage, while it declined a little bit as we headed into this, is definitely starting to stabilize.
So that's another indicator that tells us, look, people are hanging on to their R&D, their R&D and early project development team members. We're well in front of the process here on multiple factors, so people need to keep the people working on the stuff that uses our products in order to effectively meet the demand as they come out of this. So that's what we're seeing Saket.
That's really helpful. Scott, maybe for my follow-up for you, you touched on this a little bit in your prepared remarks, but I'm wondering if we could just flush it out a little bit more. Can you just talk about what you saw in the quarter on those multiyear paid-up subscriptions? And just talk about how you're thinking about that in the fiscal '21 free cash flow guide?
Yes. Thanks, Saket. And I hope you and your family are staying safe too. It's such a bizarre time. What we did see -- the multiyear continues to be relatively strong. It was an interesting quarter. The beginning of the quarter was quite strong. Across the board, demand was strong. Multiyear was strong.
It was really a continuation of a strong Q4. And then right around mid-March, we saw things slow down. And it slowed not evenly, as we talked about in the opening commentary. It slowed down little bit by – as countries were affected in a different rate.
What we saw in multiyear is, we did see it come down a bit in the second half of the quarter, but not substantially. And you see that when you look at the total long-term deferred balance in relationship to the total deferred revenue balance. So while it did come down, a lot of our customers continue to see value in buying the multiyear. Our partners continue to see value in selling that. And of course, we get value because those are renewals that we don't have to chase, and it frees up sales capacity.
So the triumvirate of good for customers, good for partners, good for us continues. I do expect to see some headwind on multiyear transactions through the second half of the year, and that's part of what is influencing the change in our guidance on billings and free cash flow as an expectation that multiyear will trend down through the year, certainly in the second quarter with some recovery towards the second half of the year.
That’s very helpful. Thanks guys.
Thanks Saket.
Thank you. Our next question comes from Phil Winslow with Wells Fargo. Your line is now open.
Hi, thanks for taking my question. I'm glad to hear that you are well and hopefully that extends to your families and your team members. Question first for you Andrew, then a follow-up for Scott. Andrew, you talked about obviously the different phases of the construction life cycle and different products you have there.
When you're talking to your customers, how do you think about sort of reopening, starting to sort of impact, call it the architecture side, your planning, construction etcetera.
And considering the fact that you were on the AEC side, you seem to have a backlog of projects coming into the year, what are they saying to you in terms of restarting and where sort of that backlog is, especially when you think kind of guide go-forward basis? Then just one follow-up for Scott.
Yes. So the backlog comes in 2 forms. The first backlog is projects that were just put on hold and were about to go into the pipe, we hear a lot about that from our customers is that look, a lot bunch of products were just put on hold, until people know where they're at. Those projects are not going away. None of them are in any kind of category that would represent a pullback from the projects. So yes, at the front end in the design and kind of engineering side, there is definitely this queue of projects that were put on hold.
The interesting thing on the downstream side and the construction side, what you saw was how in some municipalities, people actually stopped construction. Now those construction sites are coming back on right now. And in some places, construction never stopped, but they're not coming back on the same, all right?
So what you're seeing is people are working with distancing, listing requirements on the construction site, so there's fewer people on the construction site and these people are working in more shifts, so what you're actually seeing is more pickup in the digital tools and an anticipation from our customers that they need more tools to digitally manage their sites as they stand up these construction sites.
The same goes in manufacturing. Manufacturing, they – their biggest problem is that their output side will shut down. Their new product development and all the things that are going on there, none of that was stopping. They just couldn't push the units out because of various restrictions on them.
That's all starting to open up as well. And that's what we're hearing from our customers. Frankly, the one segment of our customer base that still doesn't know what their – what their fate is is the people making films, TV and film. They're still struggling with when the sets are going to back up. The games, games, obviously, they never – they never saw a slowdown. So – but the people in the film business are still waiting for when the production is going to restart.
Okay. That was super helpful. And then Scott, just to follow-up. Obviously, we came into the year with a significant number of active users that weren't on subscription or maintenance. I wonder if you could tell us just sort of the trend that you saw in Q1 relative to last year in terms of conversion of those to paying subscribers and just how are you thinking about this year?
Yes. It continues to be an enormous opportunity for us, Phil, and it's one that we'll continue to pursue out even beyond fiscal 2023. What we have seen during the quarter is – we talked about this on the fourth quarter call as well. We've gotten better at the data science at identifying those, passing on higher-quality leads. That's led to the productivity of those license compliance teams improving. And as the productivity improves, we're investing more headcount there.
That trend continued into the first half of the quarter. I will tell you, as the economy got more difficult and as many of our customers face shutdown and very difficult situations, what we did do toward the second half of the quarter is, while we'll continue to pursue those transactions, we're not forcing a final transaction, a final outcome of that in many cases. So that pipeline continues to build. We continue to work that and build that up, and that's an opportunity that's still ahead of us in the second half of the year.
Great, thanks guys and stay safe.
You too, Phil.
Thank you, Phil.
Thank you. Our next question comes from Heather Bellini with Goldman Sachs. Your line is now open.
Thank you very much, gentlemen for taking the question and glad to hear you and your families and the Autodesk employees are doing well. I just have two questions. First, Andrew, you mentioned the license compliance deal in Wuhan that you closed. But I also wanted to ask, given your global reach, how are you seeing business trends in parts of Asia, aside from that one, where the economies have maybe been open for a little while longer? And any commentary – I guess, there would be any commentary on how the first month of this quarter overall is tracking versus the month of April? And then I just had a follow-up for -- a follow-up one after that.
Yes. Okay, great. So, Heather, let me give you a little context. I'll kind of answer your question a little broader than you asked just so that you can a full set context. Scott said, we kind of entered Q1 with a roar. We had like a week to celebrate our success from fiscal year 2020. And then what happened is March hit, you saw China start to decline, you saw Korea follow suit. You saw a general decline in APAC, and then kind of Europe came online after that, started to decline, then the U.S.
Here's what we saw, though, as things played out. China and Korea are rebounded, right? Monthly -- weekly, monthly active usage in China is now above the pre-COVID highs in that country.
Korea returned and became stable. Japan was surprisingly steady through the entire crisis, all right, both from a business perspective -- from a business collections and from the weekly active usage numbers that we are tracking. And now what we're seeing is kind of the same kind of cascade happening in Europe. We're starting to see Europe weekly active usage is going up. New business is starting to go up. And you're seeing -- we're seeing a kind of a stabilization in the U.S., not any upward trajectory yet, but it's all cascading like that.
And we saw that in our weekly active usage numbers. We're seeing it in our new business numbers. And another thing that stayed constant and stayed relatively steady was renewal rates. Now, we always told you that we anticipated renewal rates would decline slightly during a downturn. What happened was that renewal rates actually declined less than we expected. So, they've been -- they've held up incredibly well through this downturn, and that was consistent across geographies at all times during the crisis. There hasn't been some kind of sudden dip in renewal rates and some wavering. It's actually stayed like at a fairly consistent rate.
The one thing I want to make sure you understand during the whole entire thing, our cloud products and our make products did incredibly well. Like, for instance, in March, during the heat of all of this, Fusion added 50,000 monthly active users in the month, right, in the heat of all of this, all right? We already told you about what was going on in BIM 360 Design and BIM 360 Docs, those products all did very well even through the downturn.
That's great. Thank you. And then just one quick follow-up for Scott, and I know you mentioned this in response to someone's question, I think, about long-term deferreds. But you had talked about, at one point, most recently, those being maybe as much as 25% of the total deferred revenue balance. I'm just wondering is there a level that you would set up at for this year that you think might be more reasonable.
Yes. No, I think that's the right range, Heather. I think it ends up in the mid-20s. It had been slightly higher than that. You remember on the fourth quarter -- actually, on the third quarter and the fourth quarter call, I think there was concern that multiyear paid upfront product subs was going to run through hot and was going to create a problem for free cash flow this year.
In fact, we thought this was going to be a year of stability as opposed to a year of a pandemic. And I have our multiyear offer actually on my watch list, because if I got the impression that it was running to an unstable level, so hot that we couldn't maintain that percent, I wanted to make changes to the offering to kind of tamp it down a bit.
We haven't made any changes to the offer. At this point, I don't think we need to. It's the same, pay for three years upfront; get a 10% discount; that it's always been. We saw it in the second half of the year come down modestly. That's my expectation for the year and that will put long-term deferred in that mid-20% of total range.
Okay, great. Thank you so much gentlemen. Stay safe.
You too. Thanks.
You too Heather.
Thank you. Our next question comes from Jay Vleeschhouwer with Griffin Securities. Your line is now open.
Thank you. Good evening, Andrew and Scott. I'll ask both questions at once. So first, Andrew, you noted a number of trends and requirements that are being accelerated by the current situation. What are the implications of that, if any, for your sales and distribution model? You've been doing a lot of hiring or planned hiring for direct sales coverage, named accounts, inside sales, the store and so forth, and of course, working with the channel. So maybe you could talk about any implications there?
And then secondly, looking past this current valley affecting business, looking to your longer-term road map, you've spoken, of course, often at AU, another occasions about your new platform plasma. What are the milestones for that internally that you'd be able to communicate over the next number of years in terms of its progress?
And overlaying that at the applications layer, are there any major brands such as Revit or Inventor or anything else that you think would be prudent to rebuild or rewire in some way to take advantage of the new platform, in terms of collaboration, data orchestration, perhaps multi-core and multi-threading and all those good things. So a sales question and a technology question.
Okay. So let me start with the sales question. So as we've headed into this and looked at the year, as you've noticed, we've continued to invest. While we're not going to spend as much as we originally anticipated this year, we're continuing to invest in R&D and things that we think are core to our future and infrastructure.
There are some areas that go-to-market we did continue to invest in, like international expansion for our construction solutions and things related to supporting the Fusion business. But, you're right, we probably slowed down a little bit on inside sales efforts when your inside sales teams, you don't want to hire inside sales teams when you're having trouble getting in touch with customers when they're working from home.
So we slowed down some of those efforts, but there was no across-the-board slowdown in our go-to-market activity. In fact, what we did is, we prioritized those things that we thought were most important and invested there. And I think they all would make sense to you, in terms of what we're doing there.
In terms of the longer-term growth, I think you're going to continue to see us invest in go-to-market internationally around our construction and cloud solutions. I think you're going to see us continue to invest in data centers and servers in our international locations that service our customers with some of our cloud solutions, because those are going to be in demand, all right?
Now with regard to your second question, okay, we don't call it plasma anymore, by the way. It's a different name, which you'll get some view of later, probably around AU time frame. So I'm going to be careful about what I talk about there. But look, first off, I want to make sure you understand. There's a lot in our cloud, all right? A lot in our cloud platform, a lot that has been exposed, a lot that hasn't yet been exposed.
Some of those things you're talking about allowing multidisciplinary collaboration, simultaneous access to a common model that updates based on different disciplines, but maintains control with, say, the architects or the engineers, you're going to hear a lot more about that in the coming months and probably around Autodesk University. So I'm not going to steal the thunder from that.
What I will say at this point is, we've got a lot going on, and we're big believers in the app model. And what I mean by that is we believe that relatively modestly sized to big clients with a really robust cloud backend are the future. And we got there in a very informed way.
So, for instance, Fusion has a big client. And – but it has a very, very, very fine-grained multitenant cloud data infrastructure hidden behind it. Fusion's cloud will get thinner – the client will get thinner over time. You could also see an evolution with Revit that's similar to that. That's going to take a little longer. And we made that choice very deliberately, Jay, because we've had lots of experience in pure browser-based applications.
For instance, you might be aware that Tinkercad has 25 million users. Right now, in any given day, 11,000 people use Tinkercad. It's the K-12 de facto standard for 3D modeling out there. It's called Tinkercad, but it's actually an amazing tool. It is a multitenant browser-based solution, as is AutoCAD web, which has 50,000 monthly active users a month, all right, which does edit and the creation of drawings as well as collaboration on drawings.
Both of those solutions taught us that thicker clients are better, all right. Not totally think clients, way thinner than our current desktop clients, way thinner, but like an app model. We learned this early on from our long years of experience with these pure browser-based tools. So that's why you see us doing that with Fusion. You'll see us do something similar in the AEC space over time. And it's winning because it helps get people to the cloud, but it has that same robust multitenant cloud database structure sitting underneath it.
Thank you. I hope you do well.
You too, Jay.
Thanks, Jay.
Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. Your line is now open.
Hey, guys, thanks for taking my questions. I'm glad you guys are well. There's always a lot of questions on construction and all the improvements you made on a product perspective there, but want to talk a little bit more about the momentum in manufacturing. We do hear really good things about Fusion 360. And I know, Andrew, you called it out on the call being a real disruptive offering. Where are we in the momentum of that business? And relative to the investments that we've made in construction, are there many more that still need to happen in this particular part of your business?
In the manufacturing part or the construction part. You – I want to make sure I answer the question…
Yeah, the manufacturing side.
Okay, good. Because – all right. So I'm glad you asked the question. Like I said, we're definitely seeing building momentum in that space. There's no doubt about it. Fusion is on fire. I said in March, it added 50,000 monthly active users. There's over 600,000 monthly active users on the application today, all right. It's in the very early stages of a revenue generation activity.
I am going to save the total commercial subscriber base as a reveal for the Investor Day coming up. Suffice it to say, it's large, all right, and significant. In education, it's by far the leader. And by the way, it has a connectivity flow with Tinkercad. So we've got K-12 locked up with Tinkercad and Fusion's rapidly taking over post-secondary education and becoming more and more of a force in that space.
I think you're going to see a lot of exciting things with Fusion over the next year, especially as we start to reveal the data layers that are hiding underneath the thick client that we use for the application.
So I want to hold off a little bit until Investor Day. But I will tell you, in any given day, 60,000 people are using Fusion to solve real-world problems today. So I think it’s an exciting application. It has really significant potential for the future. We are way ahead of our competition, not only in functionality, but in low cloud power.
So it's a bit of a teaser to get you into the Investor Day next week, Matt.
Yeah, we’re looking forward to that. And then maybe a quick call for Scott, I know renewals were stable this quarter, which is great to hear. I wanted to ask about the [Technical Difficulty]....
Matt, your voice is breaking up pretty badly. You started off fine and then I was guessing what your question is.
Sorry about that. The joys of working from home. Just – the question is how are your customers doing today? And when you look at your '21 guidance, you talked about some expectations on renewal. But what are expectations for VSB renewals in your fiscal '21 guide?
Yes. That's a great question because I think there's an expectation that, that segment, which we call to VSB, Very Small Business but to generalize that, think of that as a single site with 20 employees or less and 15 seats or less. And that segment for us typically drives somewhere between 10% and 15% of our sales. We're not seeing a difference in the renewal rate in that segment versus the segment right above that, up through enterprise. It's a bit surprising, frankly. I would have expected that we would have seen a bigger impact there, but we're not seeing that at this point.
But bear in mind, as you could imagine we are running multiple scenarios constantly on the back end. And one of the things that I've had built into those scenarios is an expectation that we do see renewal rates move from where they are down modestly during the second quarter. And then the difference between the high end and the low end of our guidance range is sort of the rate of recovery of those. But just to be cautious, even though we're not seeing it yet, I am modeling that into the guide.
Thanks a lot.
Thanks Matt.
Thank you. Our next question comes from Steve Koenig with Wedbush Securities. Your line is now open.
Hi gentlemen, thanks for taking my question. I'll just ask two quick ones. I'll put them both out there. First one is, are you guys -- what are you seeing in terms of horizontal construction? Is there any positive impact? Or do you expect any tailwinds from the stimulus -- we'll call it, the stimulus spending. It's really the anti-recession spending the government is doing. So that's question number one?
Question number two, can you give us any color around your assumptions behind new business, kind of looking back at my Autodesk model from the '09 period, your licenses -- if I recall correctly, we're down like mid 30%. It was pretty steep. And I'm wondering how relative to low and high-end of your guidance range, just maybe any color on assumptions you're making? Thanks very much guys.
Okay. Great. All right. So I'll start off and take the horizontal construction question. So we've been anticipating stimulus with regard to infrastructure for some time now and we've been investing in our core products for that, in particular, in road and rail.
What you saw us recently do was engage in a partnership and an investment with Origo, and I mentioned that in the opening commentary. Origo is really, really strong in the early capital planning part of these types of projects, whereas we're really strong in the design and make parts. There's an overlap between our solutions, but they're very, very complementary.
Between the functionality we've been building in our design portfolio and this partnership, it's designed to bring the departments of transportation forward in terms of their solution stacks for these various types infrastructure engagements. Right now, they're basically on really old stacks and fairly old technology, Aurigo is a born in the cloud company, most of our stack is rapidly moving to through the cloud. Obviously, the construction stack is entirely in the cloud. So we've been preparing for tailwinds around infrastructure for quite some time. We believe we're ready.
We believe these partnerships we put in place are absolutely the right kind of thing. We're already seeing some returns from those partnerships in terms of engagements with various departments of transportation. So yes, we do anticipate a tailwind coming from stimulus related to infrastructure, and we've been preparing for it.
And to the second question you had, Steve, I'll point you to – I'll tell you what our expectations are, but I'll also point you to the slide deck that we posted on the website at the same time. I know it's a busy night, and there are other companies reporting at the same time.
We actually moved to today to try and avoid a lot of other company traffic to try to lighten the load on you guys a bit. So there's a slide there, but I'll tell you what our expectations are. At the low end of the guidance range, we expect – well, in both cases, we expect our new business to be most impacted in the second quarter.
And then the divergence between the low end and the high end is the depth of the impact in the second quarter on new business and the rate of recovery, such that in the low end of the range we expect for the full year, we expect a slower recovery from the bottom in Q2, such that for the full year, there is a slight decline in new volume for the year.
At the high end, a slightly less of an impact in Q2, a swifter recovery, such that for the full year, new unit volume actually grows modestly. And that's informed by what we're seeing as markets have reopened by monitoring, as Andrew said, what the weekly active usage rate looks like in each of our core markets and really getting an understanding the usage of our products by our customers.
Things like our partial renewal rate staying strong, says, if I had 10 that came up for renewal and I renewed all 10, that means that I don't have a reduction in workforce. So I think the strength of the renewal base, plus the – our expectation on what new volume looks like is what differentiates the low end from the high end.
One more point, we're not seeing close to the levels of declines in new business we saw during the great financial crisis, okay, just to make sure there's too clear on that.
Got it. Cool. Thanks a lot, guys.
Thank you. Our next question comes from Sterling Auty with JPMorgan. Your line is now open.
Yes, thanks. Hi, guys. I know that some of the hardest industries like transportation are not maybe viewed as heavy design users, but any sense of your exposure to transportation, hospitality, hotels, et cetera, in that group?
Yes. Those segments tend to be users of things like LTE versus facilities planning and facilities layout. So they're – while they’re big companies, they generally tend to be downmarket users of our applications. It's a facilities usage play for us. So we don't have a lot of exposure to the main line of our business from those very hard hit industries in hospitality, transportation and in food services.
That's fair enough. And then one other question. Any thoughts in terms of what you think the impact from a number of companies I've already talked about, post COVID-19, maybe not bringing all the workers back and maybe we'll just see a change in the commercial real estate landscape permanently. Any thoughts in terms of how that might impact your business moving forward?
Yes. It's careful to kind of think about that question in an important way. First off, commercial business building, the commercial buildings and commercial office space, not a huge part of our business. However, I mean, we're living this -- personally, so I can speak to this with some knowledge about how this is working. There's a couple of trends, I think you need to be aware of. One, when people move to more work-from-home type environments, and we will probably have that on the other side as well, they're actually going to have less dense office space.
So, for instance, the current requirements in terms of us getting back in our offices are going to require us to significantly de-densify some of our office space. So, people are not -- in the short-term, certainly, not going to require less office space, they're just going to have fewer people in it, spread out more widely over the next 12 to 18 months, okay?
So, we have to be very clear on that, people will be coming into offices that are much less dense. That's where we're going. It's where a lot of our customers are going, and they're going to need to reconfigure those office spaces in unique ways. And we're helping them to do that with some of the general design tools.
But on a bigger standpoint, okay, there's still going to be population growth. We're still going to have workers. There's still going to be a population that needs to come into an office, but how these offices are distributed and where they are may change.
We've always been talking about a trend around urbanization, but we might be future talking about urbanization and suburbanization, where you're seeing this kind of spreading out away from dense urban centers into suburban centers that also have office space and high-rise living spaces. And then they're connected by infrastructure that requires them to have a hub-and-spoke kind of flow. So, there's a lot of ways that this plays out in the future, but in our projections and our view on this, people are going to be building more, not less. Where they build it may change.
Thank you.
Thank you. Our next question comes from Keith Weiss with Morgan Stanley. Your line is now open.
Hi, this is Hamza in for Keith. Most of my questions have been answered, but just a couple of quick ones. For you, Scott, you mentioned -- so the low end of the guidance is implying that new unit volume sees a slight decline. Is there any instance where we could see maybe overall subscription growth -- subscriptions actually decline year-on-year? Or is that just basically net new sub adds?
Yes. With the strength of our renewal rate, Hamza -- and at least I got your name right this time. With the strength of our overall renewal rate and the size of our renewal base, no, I don't see overall subs coming down. I think the new unit volume could see some pressure, and we're seeing that in the second half of Q1, but I don't see the aggregate coming down, no.
Got it. And on the renewal rate, you mentioned it's been pretty stable. Any color you can give us as to how that has sort of trended versus sort of the historical range, I think sort of like mid to high 80%.
Yes, it's stayed in the same range. It really stayed steady, Hamza, throughout the quarter. Even as the new business slowed down -- I talked about the difference between the first half of Q1 and the second half of Q1. Even as the new business slowed down during that timeframe, the renewal rates stayed pretty steady and stayed pretty steady across the board.
Okay. Thank you very much.
Welcome.
Thank you. Our next question comes from Adam Borg with Stifel. Your line is now open.
Hey guys and thanks for taking the question. I'm glad to hear everyone's safe. Just a quick one on M&A philosophy. So, in the past, we've talked about large M&A being done on -- for the most part, on the AEC side and potential focus shifting to manufacturing. Just given the current potential market dislocations, I would love to hear your latest thoughts. And I have a follow-up.
Yes. So, specifically, I've talked about large M&A being done on the construction side, all right? I was very specific that we felt like we got the biggest pieces that we needed on the construction side. Certainly, we are going to continue to look at all our markets.
With the shakeup that will likely be accelerated over the next five years in manufacturing, with supply people rethinking their supply chains and numerous things associated with that, I think, our focus on manufacturing will likely continue. But don't think that we won't look opportunistically at opportunities in AEC as well.
The next 12 months could present themselves with all sorts of opportunities for organic and inorganic growth activity. Fortunately, we've got a good strong balance sheet. We've got a nice recurring revenue model. We're in a good position this year to act on something that we think could be appropriate for us. So we don't see anything immediately in our future.
Got it. Got it. Thanks. And then just as a quick follow-up, multiuser licensing, I know that got pushed back till August. Just curious how conversations are going with customers, and any feedback or color there would be great. Thanks so much.
I got to tell you a story. I'm not going to use specifics. It just came in before -- while we're preparing for today. There was a customer that was desperate to get rid of their multiuser licenses and move to single-user licenses, because they need a two-factor after a malware attack.
So we've had people, customers coming to us now realizing that named users are not a bad thing, all right? As a matter of fact, when you're trying to move from working in an office to distributing your workers all over the place, it's really nice that you can just download the software and log on and it works. And they saw us responding much faster to their work-from-home needs.
So initially, before this crisis, we were getting a lot of noise about multiuser. A lot of that has started to die down. And in some cases, people are starting to realize that multiuser was not the panacea they thought it was for the problems they were having. And, in fact, it exposed them to other things. So I don't know if that will continue. Times could change, as we head out of this.
But, right now, it's been an excellent opportunity for people to understand and for us to have a discussion about what does named user really gets you and what are the benefits. And we're seeing some of that right now. So it's still early days. We've only done a few multiuser conversions at this point, but there's some very interesting conversations around this.
Great. Thanks, again.
You're welcome.
Thanks Adam.
Thanks Adam. Stay safe.
Thank you. Our next question comes from Brad Zelnick with Credit Suisse. Your line is now open.
Great. Thanks so much for fitting me in. And I'll echo all the well wishes all around. My question for you guys. It's good to see the strong usage of BIM 360 Design and Docs. How usage of this is temporary, given everyone working from home? And how much of it do you see as sustainable longer term? I mean, given the extended free trial, how are you thinking about page conversion?
Yes. So we didn't do the extended -- the only access program to drive paid convergence, as you know, we did it to help people work from home. However, our customers are being pretty definitive with us that their -- most of them are not going to go back to their old way of working. Remember, once they started up a project in these environments and found that the fluidity of what they can do and how they can work remotely, they're very unlikely to pull the project out of the system unless they feel like, I didn't really need any of that.
We don't foresee that happening. In fact, one of the things I said in the opening commentary is that, AECOM was very explicit with us that we are moving to a more distributed model. With these things, we’re going to be increasing our usage. Are you ready Autodesk? And we told them, of course, definitively that we were. So, while some customer’s may revert back to their old way of working. We expect a significant number of them to come out of this changed. It's exposed them to something they really weren't aware that they could do previously.
Thanks, Andrew. And maybe just a follow-up regarding the strength in retention relative to expectations. How much is due to a tight labor supply, forcing firms to hold on the talent and Autodesk subscriptions in anticipation of an economic recovery?
Yeah. It's really hard to say, Brad, what the drivers are, if it’s a – I’m going to hang on to people even though I don’t have them put to use. I don’t think that’s the case. I think more and more – if you think about where our products are largely used in the process, it's less on -- at least today on the job site and on the manufacturing floor and more upstream in the design process. And that's had a lot less impact from the shutdown and the shelter-in-place that's taken place in the wake of the coronavirus.
So I don't -- we're not sensing a significant change in headcount and we look at weekly active users. We look at, I think, one of the most compelling statistics is that partial renews had 10 seats only renewed nine, has held steady as well. And so I'm not -- we're not picking up that there's a change in the workforce or changing the work that needs to be done underneath the products.
Great. Thanks.
The only thing -- remember, weekly active usage is starting to trend up in some of the places that were first hit by the pandemic. So we're seeing the opposite where people are actually starting to use more as they come to their side of this.
Thank you.
Thanks for the question, Brad.
Thank you. Our next question comes from Jason Celino with KeyBanc. Your line is now open.
Hey guys. Thank you for fitting me in and it's nice to hear from everyone. One quick one for Scott. As we think about the different ranges for the guidance, it looks like on the spend side, its coming down to about mid to high single-digit spend growth. How do you think about the low to mid – high end of the guide for toggling maybe some of the spend you might do?
The spend -- so first of all, Jason, I hope you're keeping well as well. It's such a strange time. The areas of investment don't vary between the low end and high end of our range. We'll continue to invest in R&D, given the lead that we've got and the fact that as our customers are being forced to digitize more quickly as a result of the distributed workforce plays right to our strong suit, it plays right into some of the longer-term R&D investments we've been making over the last four or five years.
So now is not the time to take the foot off the gas on R&D investments. We're also going to continue to invest in construction. I think that's proven to be a market that is dramatically underpenetrated by technology. And so there will be secular growth in that space. We'll continue to invest there. And we'll continue to invest in digitizing our own comp to provide some of the value-add that we can provide to your customers.
There's no change in the core focus areas. We are continuing to be diligent about spend management, as you'd expect, and there are savings. You can back into the savings that are built into our spend stream based on the range of our guidance and get a sense, there's obviously P&E spending that's going away.
And by the way, I don't think it ever returns to the levels it had been historically. If the last 3 months have shown us anything, it's that you don't have to be sitting across the table face-to-face with someone to conduct business, whether it's a sales transaction or a brainstorming session.
So I don't expect that to fully come back. We've gotten some savings through rationalization of our marketing spend. We've moved many of our events to online. I think many of those will stay online. So there's -- there are some savings built into that and I think many of those will continue longer term.
But the core areas that we're investing in, we're going to continue to invest in. And we're in a privileged position. So even with the level of disruption that is happening in the marketplace to be able to show double-digit revenue growth and market expansion through high end of our guidance. So I feel good about the decision that we're in.
Yes. That's factoring, that we are growing revenue and same time puts us in a fairly elite category. Given the acceleration of digitization we expect from the other side of this, this is the time you want us to be investing in R&D and the infrastructure that supports getting that R&D to the customers. And that's what we're going to do.
Okay, great. Thank you. I appreciate the color and thanks again.
Thanks for the question, Jason.
Our next question comes from Zane Chrane with Bernstein Research. Your line is now open.
Hey guys, thanks for filling me in there and I appreciate it. I was impressed with the renewal rate, the net dollar renewal rate staying at 110% to 120% range. So I was wondering regarding the partial renewals holding study, do you have any idea of what portion of your customer base is maybe benefiting from the PPP loans?
I'm wondering if churn could maybe tick up once the deadline for the employee retention passes and you have a little bit more layoffs from those customers with the PPP loans at some point in the future?
And then secondly, you had pretty impressive bookings, especially when looking at current RPO, I'm just trying to reconcile that with the roughly flat billings growth for the full year.
So I'm wondering, if you could what the average time deals tend to be in the pipeline before closing? And if you do have a weakening in the pipeline or the entry part of the pipeline, how many quarters does that take to show up, is it 2, 3, 4 quarters? Or is there any way to know that? Thank you.
All right. That's a lot to cover there, Zane. I'll take the first one, and I'll let Andrew handle the pipeline sales cycle question. On the first one, of course, there's no way for us to know, but I think that you look at the benefit of that program, it was targeting smaller businesses.
And those -- one of the stats that we gave earlier is small businesses and I'll define that as single-site, 20 employees or less and 15 seats or less, that small business segment has typically driven 10% to 15% of our total sales. So it's a smaller piece of our overall revenue stream.
It's hard to know how many of them have benefited from kind of the short-term loan programs that have been rolled out and whether you call them stimulus or as Steve said earlier, avoidance of recession. What we do monitor though and Andrew talked about this earlier is, the active users -- the weekly active users of our product.
And of course, we saw a strong dip as across the globe countries went into shelter request, but then we also see them come back, and I think that’s also shown sign that we are not seeing stimulus and by all across the board, of course the renewals it stayed inside and we have had another good time. So its hard to know, because its hard to give you a direct answer, but certainly, indicators that we’ll do. We we're not seeing that.
So with regards to the pipeline question, in terms of how things are going -- all right on general pipeline, so from a cascading, what we've seen in – in terms of new business is Asia is already starting to turn up, all right. So we’re already seeing the pipeline grow in APAC. We are starting to see signs of that in Europe. We haven't yet seen signs of it in the U.S. but given the cadence that we've seen around the pipeline from each region and by a country-by-country basis, watching not only the new business trends, but the weekly active user trends, which, by the way, presages the pipeline, we see building pipeline strength as you get further and further away from the start of the pandemic, which I think is a pretty positive sign for our business in terms of where we think we’re going. And it's why we feel the way we do about the potential for the year.
Yes. I think the other bit of color that I'd add there is when you look at the change in our billings guide, multiyear clearly is having an effect on that. We've seen it slow a bit in the second half of the first quarter. And what I've built into the scenarios that we've modeled out is that it continues to pace low or to modestly come down, a couple of points from where it had been throughout the year. And that does create a headwind on the billings guide.
Got it. That's very helpful. Well, I wishing you guys have a strong and rapid recovery. Thanks very much.
Thank you.
Thank you. We are now at the end of the time for the call. I would now like to turn the call back over to Abhey Lamba for closing remarks.
Yes. Thanks, Joelle, and thanks, everybody, for joining us today. We look forward to seeing many of you at our Analyst Day next week on June 3. In the meantime, please reach out if you have any questions. Thanks for joining us today.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.