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Thank you for standing by, and welcome to Autodesk Fourth Quarter and Full Year Fiscal 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Simon Mays-Smith, Vice President, Investor Relations. Please go ahead.

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss Autodesk's fiscal '25 fourth quarter and full year results. Andrew Anagnost, our CEO; and Janesh Moorjani, our CFO, are on the line with me.

During this call, we will make forward-looking statements, including outlook and related assumptions, and on product, go-to-market and strategies. Actual events or results could differ materially. Please refer to our SEC filings, including our most recent Form 10-Q and the Form 8-K filed with today's press release for important risks and other factors that may cause our actual results to differ from those in our forward-looking statements.

Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements.

We will quote several numerical growth changes during this call as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release or Excel financials and other supplemental materials available on our Investor Relations website.

And now I will turn the call over to Andrew.

Thank you, Simon, and welcome, everyone, to the call. Autodesk delivered strong fourth quarter and full year results. Billings and revenue topped the higher end of our expected range despite new foreign exchange headwinds, while margins and free cash flow exceeded our expectations.

You will all have seen our restructuring announcement this afternoon, which has 2 parts. First, we have initiated the optimization phase of our sales and marketing plan. And second, we are reallocating internal resources to accelerate our strategic priorities and strengthen our resilience.

Let me talk about them in turn. Our go-to-market, GTM model, has evolved significantly and purposely from the transition to subscription and multiyear contracts billed annually through self-service enablement, the adoption of direct billing and more. We are now beginning the optimization phase, which positions Autodesk to better meet the evolving needs of its customers and channel partners. This comes from faster and less complex processes and more digital self-service and automation that enable tighter channel partnerships and less duplication of effort. Autodesk will continue to evolve its GTM to increase customer satisfaction and Autodesk productivity.

Our current focus is on marketing, customer success and operations with an emphasis on consolidating teams into centers of excellence and investing in systems and processes that increase sales and marketing, S&M, efficiency at scale. Our future focus will be on tighter channel partner integration which will drive sales productivity and a greater emphasis on value creation for customers and the broad deployment of self-service capabilities to further increase sales and marketing efficiency.

Due to this ongoing optimization, we expect operating profit dollars and pre-new transaction model non-GAAP margin improvement in both fiscal '25 and fiscal '27. And once the optimization phase is complete, we expect to deliver GAAP margins among the best in the industry.

Turning to where we are, reallocating internal resources to focus on the long term. Autodesk is focused on the convergence of design and make in the cloud, enabled by platform, industry cloud and AI. Our investments in cloud, platform and AI are ahead of our peers and will drive growth by providing our customers with increasingly valuable and connected solutions and supporting a much broader customer and developer ecosystem. To maintain and extend this leadership, we're shifting resources across the company to accelerate investments in these high-potential strategic priorities. We are also building the capabilities we will need to enable future optimization and ensuring that we distribute critical expertise globally to remain competitive, resilient and flexible.

As I said last quarter, we are generating strong and sustained momentum in absolute terms and relative to peers. There are 3 main reasons: Attractive long-term secular growth markets, a focused strategy delivering ever-more valuable and connected solutions to our customers and a resilient business. Disciplined execution is driving greater operational velocity and efficiency. We are deploying capital to grow the business, further reduce our share count and enhance value creation over time. We believe these factors will deliver sustainable shareholder value over many years.

Janesh is with me here at our annual sales conference today. We're excited to have him at Autodesk and he's already making an impact. I'd like to welcome him and turn the call over to him so he can take you through our results and guidance for the year ahead. I'll then come back to provide an update on our strategic growth initiatives.

Thanks, Andrew. I'm delighted to be here with all of you. Before I get into our results, I'll touch on 2 areas of potential that I saw that attracted me to Autodesk. First, we are well positioned to deliver growth at scale as we drive the convergence of design and make in the cloud, enabled by platform, industry cloud and AI. And second, we have significant potential to drive expanded profitability as we further optimize the level and effectiveness of investments in the business. Having spent the last few months gaining a deeper understanding of the business, I am confident in our ability to do both.

Let's turn to the results. The fourth quarter and full year fiscal '25 results were strong. Overall, the broader economic environment and the underlying momentum of the business in the fourth quarter were consistent with the last few quarters with continuing strong renewal rates and headwinds to new business growth. Total revenue in the fourth quarter grew 12% as reported and in constant currency. We generated broad-based growth across products and regions.

By product in constant currency, AutoCAD and AutoCAD LT revenue grew 9%. AECO revenue grew 15%, manufacturing revenue grew 10% and in the low teens, excluding upfront revenue, and M&E revenue grew 10%. Our Make products continue to enhance growth driven by ongoing strength in Construction and Fusion.

By region in constant currency, revenue grew 11% in the Americas, 13% in EMEA and 11% in APAC. The contribution from the new transaction model to revenue was $46 million in the fourth quarter and $71 million for the year.

Direct revenue increased 35% in constant currency and represented 47% of total revenue, up 8 percentage points from last year, benefiting from strong growth in the Autodesk Store and also from the tailwind to revenue from the new transaction model.

Billings increased 24% in the quarter at constant currency, reflecting the shift to annual billings for most multiyear contracts and the transition to the new transaction model. The contribution from the new transaction model to billings was $155 million in the fourth quarter and $262 million for the full year.

RPO of $6.9 billion and current RPO of $4.5 billion grew 14% and 12%, respectively. As expected, current RPO growth was affected by tailwinds from the new transaction model and headwinds from the declining contribution of billed and unbilled deferred revenue from larger multiyear and EBA cohorts ahead of renewal in fiscal '26.

Turning to margins. Fourth quarter GAAP and non-GAAP operating margins were 22% and 37%, respectively, reflecting year-over-year increases of 90 and 160 basis points. We were pleased that we exceeded our non-GAAP margin expectations demonstrating strong fiscal discipline. For fiscal '25, GAAP and non-GAAP margins increased approximately 220 and 140 basis points year-over-year, respectively, excluding the impact of the new transaction model and currency movements.

Free cash flow for fiscal '25 was $1.57 billion, which was ahead of the high end of our guidance.

In the fourth quarter, we purchased approximately 1.4 million shares for $414 million at an average price of approximately $299 per share. For the full year, we purchased approximately 3.1 million shares for $858 million at an average price of approximately $279 per share.

Turning to guidance. To give you a clearer view on the underlying dynamics of the business, I will speak to the numbers excluding the impact of the new transaction model and in constant currency. You'll also see in today's earnings deck that we split out the impact of the new transaction model and currency movements for our fiscal '26 guidance. For a further review of how the new transaction model works, please see the opening commentary and earnings deck from our Q2 fiscal '25 earnings call.

Let me start by framing how we are thinking about fiscal '26. Our starting position is strong. We hold leadership positions in many of our markets and have a loyal customer base with a high degree of recurring revenue. We are leading in cloud platform and AI as we help our customers realize the benefits of converged workflows and data in the cloud. In building our guidance, we have not seen fundamental changes in the broader geopolitical and macroeconomic environment or in the momentum of our markets. Our business model is resilient, and we are seeing strong momentum in our growth businesses like Construction and Fusion. Our focus through fiscal '26 will be on driving growth from new and existing customers, while maintaining strong renewal rates.

Our approach to building the guidance for fiscal '26 was similar to that of fiscal '25. Our guidance is based on the range of possible outcomes and a bottom-up sales forecast, which is grounded in the momentum of the business. Given our restructuring plans and CRO transition, we believe some disruption is possible. While we have mitigation plans and actions in place for these changes, we believe it is prudent to consider these in our outlook, and our guidance reflects this. This frames how we are thinking about fiscal '26.

There are more financial details in our earnings press release and earnings deck, but let me give you some color. We expect constant currency billings growth of 17% to 19%, excluding the impact of the new transaction model. Billings growth remains elevated this year due to our transition to annual billing for most multiyear contracts. We expect constant currency revenue growth of between 8% and 9%, excluding the impact of the new transaction model. This range reflects the assumptions that I mentioned earlier.

We expect GAAP operating margin to be in the range of 21% to 22%. Excluding the impact of the new transaction model and currency movements, we expect non-GAAP operating margin to be in the range of 39% to 40%, which is at the higher end of the guidance range we gave 3 years ago. We expect to generate between $2.075 billion and $2.175 billion of free cash flow in fiscal '26. This is after absorbing approximately $110 million to $120 million of cash outflows related to the actions we announced earlier today and includes an anticipated discrete cash benefit of $130 million to $150 million from the utilization of U.S. deferred tax assets. We've provided more information on this in the slide deck.

We expect the buyback between approximately $1.1 billion and $1.2 billion of shares in fiscal '26, which is a 30% to 40% increase compared to fiscal '25 and the timing of which will depend on market conditions and other factors like debt refinancing. The slide deck on our website has more details on modeling assumptions for the first quarter and full year fiscal '26.

Finally, I'll share how we are currently thinking about our longer-term future. Since joining Autodesk last December, my conviction in our market opportunity, our ability to meaningfully expand our operating margins and our capacity to deliver sustainable shareholder value over many years has been reaffirmed. That said, our underlying growth has been hovering around the bottom end of the 10% to 15% revenue growth framework we previously provided as you've seen over the past couple of years and in our fiscal '26 guidance.

While we believe our resilient base, the successful execution of our product strategy and the benefits of the new transaction model will catalyze sustainable growth in the future, our 10% to 15% growth framework is no longer appropriate given the consistent momentum of the business to date.

On the other hand, it's clear to me that margins can be higher. We've announced today the first phase of our go-to-market optimization, which is primarily in marketing, customer success and operations and reflects the continued execution of our overall go-to-market evolution of the past few years. We are focused on executing this plan while minimizing potential disruption. Through this phase, we intend to deliver underlying operating margin expansion in fiscal '26 as reflected in our guidance, while also building capabilities we need for future optimization beyond fiscal '26. These capabilities include tighter channel partnerships with less duplication of effort and more digital self-service and automation, which increases customer satisfaction and workforce productivity. Once our overall go-to-market optimization is complete, we expect Autodesk will be able to better service customers and deliver GAAP margins among the best in the industry.

We will share more on our path to further margin expansion at an Investor Day in the third quarter of this year. It's been invigorating getting to work, finalizing our fiscal '26 plans and preparing for execution, I can already see there's tremendous potential ahead. I look forward to meeting our investors and analysts over the coming weeks.

Andrew, back to you.

Thank you, Janesh. Autodesk is focused on the convergence of design and make in the cloud enabled by platform, industry cloud and AI. Autodesk is at the forefront of convergence because we've been evolving and investing in the business models, products and platforms, and go-to-market that capitalize on it.

With convergence, simulation done in the conceptual design phase can significantly reduce rework and cost during construction. With convergence, the components of a building can be manufactured offsite and assembled on-site at lower cost and higher safety. With convergence, universal AI models can make better and more valuable inferences that power a better world designed for all.

Let me give you a few examples from the quarter. Mott MacDonald, a global engineering, development and management consultancy, known for its work on major projects such as Heathrow Airport Terminal 5 and the Bay Area Rapid Transit, BART, Silicon Valley Phase II extension, renewed its sixth EBA in the quarter. This renewal expands our long-standing partnership to drive better outcomes through digital delivery. In addition to expanding usage of Revit, Civil 3D, Autodesk Build and Autodesk Water, Mott MacDonald plans to leverage additional capabilities to increase project productivity and workflows for optimized design.

Power Design, the #28 ENR 600 specialty contractor selected Autodesk Build as an essential link in their construction technology. This strategic choice enhances coordination between design and construction, ensuring seamless collaboration across teams and systems. By unifying project data from concept to completion, Autodesk helps Power Design protect design integrity, optimize workflows and drive efficiency at scale.

Cleveland Construction, a national commercial GC, is replacing a competitive solution with Autodesk Construction Cloud to support the next phase of its growth and leveraging our end-to-end solution from preconstruction to cost management and payments with GCPay. I talked earlier about flow-through integration with our channel partners and this deal demonstrates that potential. Using its proprietary technology for migrating project data from displaced solutions, an Autodesk's platinum partner produced a comprehensive implementation plan that gave Cleveland Construction, the confidence to make this transition.

These stories have a common theme. Converging people, processes and data across the project life cycle to increase efficiency and sustainability while decreasing risk. Our comprehensive end-to-end industry cloud and platform drive convergence and extend our footprint further into larger growth segments like infrastructure and construction. As a sign of our progress, construction revenue growth accelerated in the fourth quarter, and we added almost 400 net new logos.

Moving on to manufacturing. We made excellent progress on our strategic initiatives. Customers continue to invest in their digital transformations and consolidate on our Design and Make platform to drive growth and increase resilience. For example, a global leader in toys is expanding its usage of Autodesk to all 3 of our industry clouds, Fusion, Forma and Flow, to meet its profitability goals in manufacturing while launching new revenue models into digital entertainment. Autodesk's unique industry expertise across AECO, manufacturing and media bridges data across physical and digital product development and between design and make.

Buhler, a family-owned Swiss multinational plant equipment manufacturer, renewed and expanded its EBA in the quarter. Autodesk will be one of Buhler's key strategic partners in the development and execution of their digital strategy as it moves to optimize for outcomes by connecting data and workflows from product and plant design to project delivery, including installation.

MSC Industrial Supply, one of the largest industrial distributors in North America with the leading position across metalworking product categories, will begin leveraging Autodesk Fusion's connected supply chain capabilities and unique all-in-one cloud CAD, CAM, CAE and PCB platform to enhance its industry-leading application optimization, AP OP program. Through this strategic relationship, MSC's team of metalworking specialists will be able to optimize toolpaths and validating cutting parameters more efficiently through enhanced virtual testing capabilities that further strengthen their best-in-class tooling recommendations for manufacturing customers.

By combining MSC's suite of solutions and services with Autodesk Fusion's advanced capabilities, this partnership creates an unmatched value proposition for manufacturers in North America, resulting in approximately $500 million in savings for MSC's customers in fiscal year 2024.

Converged data opens new opportunities for Autodesk, in this case with the sales team. As customers seek to drive efficient innovation, Fusion extension attach rates are increasing and driving average sales prices up, and we're delivering meaningful productivity gains to customers where we deploy AI. For example, our recently launched AutoConstrain tool in Fusion, which leverages AI to simplify the process of defining sketch geometry, has a roughly 50% acceptance rate on suggested geometry, saving significant time for higher-value work.

In education, universities continue to modernize their courses and curriculum to attract and prepare future engineers. For example, in Q4, Autodesk signed a memorandum of understanding with the Indian Institute of Technology Bombay to integrate our industry-leading solutions into IIT Bombay's innovative education and research programs to equip the next generation of engineers and designers with industry-ready skills.

And lastly, we continue to work with our customers to ensure that they are using the latest and most secure versions of our software. For example, while working with an administrator of European railway infrastructure in the process of adopting BIM to optimize its infrastructure development and sustainability processes, we identified gaps in compliance. Working together, we address compliance while supporting their digital transformation.

Attractive long-term secular growth markets, a focused strategy of delivering ever-more valuable and connected solutions to our customers and a resilient business are generating strong and sustained momentum in absolute terms and relative to peers. Disciplined execution is driving greater operational velocity and efficiency. We are deploying capital to grow the business, further reduce our share count and enhance value creation over time. In combination, we believe these factors will deliver sustainable shareholder value over many years.

Throughout Autodesk's history, we have taken decisive actions to drive our business forward, even when they are difficult. This commitment has been paramount to our success over the last 40 years and remains true today. To our team members who departed as a result of our restructuring, I extend my sincere appreciation for your contribution to Autodesk. You will always be a part of Autodesk's story, and I am grateful for everything you have done.

Operator, we would now like to open the call up for questions.

[Operator Instructions] Our first question comes from the line of Saket Kalia of Barclays.

Welcome, Janesh.

Thanks, Saket.

Absolutely. Andrew, maybe to start with you. I want to zoom into the 10% to 15% medium growth rate a little bit. And if I'm understanding your comments correctly, the rate of new business growth is the key reason why that medium-term growth rate maybe is no longer appropriate. And you've been talking about slow new business for a while now. Maybe the question is, what drives that new business growth higher over time?

Yes. Saket, good to talk to you. Thanks for this question. Look, first off, I think you've got the thinking right upfront. Let me just comment a little bit on what's happened in the past and then I'll answer the substance of your question. So first off, if we look back in the past, there's a couple of things that were really impacting new business growth as we were moving to the last couple of years. One is all the things that Autodesk was changing. So we changed a lot of things that has a measurable impact on partner productivity with regards to balancing renewals and new business. The other thing was economic uncertainty, all the things associated with the macro environment. These things impaired some of our customers' willingness to invest in their business. So those things happened latently in the past.

Moving forward, there's some things that we have control of and that we don't have control of that are going to drive us back on to our growth path. The first thing, if we look at the things we don't have control, we don't have control of the macro uncertainty. That's going to continue, and that will definitely impact some of our customers' thinking. But what we do have control of is in 2 key areas, one related to new product subs and one related to our new businesses that primarily show up in the Make category, the emerging and high-growth businesses.

With regard to the former, we are on a journey of go-to-market optimization right now, and that is going to enhance the productivity of our channel. We've been impacting their productivity with all the change. We're on a cycle now where over a period of time, we'll be increasing their productivity. That's going to allow them to focus more on new business growth. That's in our control.

The other thing that's in our control is during this current risk cycle, we actually invested in driving the growth of our emerging and high-growth business on the Make side. And that includes investing in the industry cloud, the core cloud platform and in AI. So these things are going to not only continue the current momentum, but our goal is to enhance the current momentum. And these are high-growth businesses having long-term impacts on our business. So those are the things that are in our control that get us back to a place where we can feel confident in reinforcing the floor of our long-term business growth.

Got it. Got it. And maybe that's a natural segue for you, Janesh. I mean, as you know, margin potential has been one of the key investor debates on Autodesk. And so I mean, I think maybe to start, it's important to flag that margins here for '25 were ahead and the guide for '26 is higher than expected as well. But maybe you could just give us a little bit more color on the margin potential here. And how today's restructuring announcement, to Andrew's point, maybe fits into that debate?

Thanks, Saket. I appreciate this is one of the foremost issues on investors' minds. As I step back and look at fiscal '25 first, we're actually really pleased that we delivered strong outperformance here, thanks to our strong fiscal discipline in the fourth quarter. And I want to thank Betsy for setting us up for a strong Q4 on that front.

Today's announcement does reflect the continuation of our multiyear journey as Andrew was talking about to evolve our go-to-market, and it fits in very nicely with our overall margin expansion goals. It's something that the team had been planning for thoughtfully since the introduction of the new transaction model. It's also allowing us to expand our underlying non-GAAP operating margin quite meaningfully this year when you hold aside the effects of the new transaction model.

So when I look at it, serving customers better through tighter integration and more self-service, it eventually expands our market opportunity and also ultimately lowers the unit cost of serving those customers, which will help driving even more efficient go-to-market motion in the future. So we have conviction in our potential to drive higher margins over time as we execute this plan and as we focus on future opportunities that I touched on in the opening commentary.

Our next question comes from Adam Borg of Stifel.

Awesome. I'd like to extend the welcome to Janesh as well. Maybe for Andrew, just piggyback on a comment you just made to Saket's question around just macro uncertainty and obviously, things that are outside of your control. I'd love to hear a little bit more about kind of what you're hearing with your customer conversations around overall sentiment, how that's playing out overall. And then maybe talk a little bit about the new administration and some potential puts and takes there either shortening regulation being a tailwind or some questions around tariffs, immigration policy and how that ultimately impacts customers and their decision-making over the next 6 to 12 months?

Yes. Okay, Adam. Thanks for that question. So first off, our business is resilient enough. It's diversified enough that it can absorb and react to any kind of policy changes in a sustainable way. The thing I'm hearing from our customers is they want certainty. It's uncertainty that's kind of fueling customer angst. It's not what the output is, what the answer is, it's just the uncertainty. And that's the thing that we want to move fast -- past. We want to move to certainty, policy. Once policy is in place, I have faith in Autodesk's business to navigate whatever the policy is. But uncertainty is not something that our customers want to work through.

Our next question comes from the line of Jay Vleeschhouwer of Griffin Securities.

Andrew, with respect to the 10% to 15% growth range you've previously spoken of, the company at its last analyst meeting gave us multiple elements of that. In other words, a variety of price and volume components for that, most of which have to do with your core business, as you call it, renewal and expansion within the core business, less so with new or adjacent businesses. So maybe break down that thinking about the growth range in those terms, perhaps with regard to how you're thinking about pricing leverage from here and the multiple elements of [ queue ] or volume that you had previously spoken of. Then I have a product question.

Yes. Jay, I'm going to go back to what I said previously and focus on these 2 key elements. Enhancing channel productivity as we move through all these changes, that is a critical thing for us. It's part of our ongoing optimization cycle. It's going to be something that delivers over multiple years. That will create a tailwind within our channel business for some of these core subs issues. And I think that's the more important thing to focus on.

And the emerging businesses have always been a part of our plan. And I think you see very clearly that the Make businesses are growing robustly and we are investing to make sure that those continue to grow at that rate or accelerate beyond that rate. So that's where you want to focus right now in terms of getting the business back to where we want it to be over time.

Okay. Outside of the various go-to-market changes and optimization and so forth, what would you say for this year and beyond are the critical product or technology executables that you are reallocating to or investing in? Maybe talk about how you're thinking about the business impact of platform services, the new data models and so on and so forth, things that we've talked about consistently most recently at AU.

Yes. So what we're doing is we're accelerating some of the road maps associated with our industry cloud. So you're going to see more activity associated with the Construction side and the Forma side of the AEC industry cloud. And you're going to see more energy and activity associated with the Fusion Cloud and some of the things associated to driving that. So there's investments made in that. Within the core platform, it's all about expanding the granular data that's available to our customers, expanding the footprint of APIs that are available to our customers and investing in that so that we can accelerate not only what our customers are accessing but the common services that the industry clouds are accessing. So that's part of the investment.

And of course, we're going to continue to turn the crank on some of the AR features. As you know, Jay, we just introduced our first commercial AI, a generative AI feature into Fusion. It's the AutoConstrain feature. It's out there, getting used by our users. It's got approximately a 50% acceptance rate, which is a really high rate for a generative technology and it just gets smarter as it goes. That's a real productivity tool for our customers that really makes a difference. There's going to be more of those, right? And that's where the investment is going.

Our next question comes from Jason Celino of KeyBanc Capital Markets.

Great. One question on the guide and then the reduction in force. Now I'm cognizant that you've got some business momentum, and I understand why you're making the changes. But does the revenue guide assume any extra conservatism just on potential of disruption? It's just the change is quite a large reduction. So I guess what have you built into the guide relative to that?

This is Janesh. Maybe I'll take that. So as I mentioned in the opening commentary, our approach to building the guidance for fiscal '26 did consider a range of possible outcomes from our overall bottoms-up sales forecast. And then we did factor in some level of risk potential associated with the restructuring plans and the CRO transition. We've put in place good mitigation plans and actions that we have to manage those. But we thought it's prudent to consider these in our outlook. So our guidance does reflect that.

Okay. I appreciate that. And then on prior calls, there were some mentions of a bigger EBA cohort, multiyear customers coming up for renewals, that wasn't really brought up on this call. Is that still an opportunity for you for this year? And any details on how big of a cohort this might be or what's built-in?

It's still an opportunity. We didn't reference it discretely because we have mentioned it before. Nothing has really changed on that front. We've got both the EBA cohort as well as the product subscription multiyear cohorts that will come up for renewal later this year.

Our next question comes from Taylor McGinnis of UBS.

Just on the margin guide. So the underlying 300 basis points of margin improvement is really strong. But can you just break down and quantify the drivers of that expansion? So how much is from cost savings, like scaling back on some of the duplicative costs and streamlining the sales force? How much might be from cost savings associated with the risk? And then maybe just secondly, when we think about the margin potential beyond 2026, I guess, any initial thoughts you can provide there?

Yes, I'm happy to take that. So as we think about the overall impact in fiscal '26 and the underlying operating margin increase that we're guiding to, that demonstrates our overall commitment to expanding profitability this year, obviously, but it's part of our longer-term plans. The reinvestment and our organic hiring plans, all of that is an integrated plan. You mentioned the actions that we've taken in the field organization and the risks, and that's all part of the same plan. We also had our organic hiring plans that we had for fiscal '26. So it's hard to break all of that apart.

But that said, to just give you a sense of how we are thinking about it, if you look at our fiscal '25 total spending, that grew 7% year-over-year, excluding the new transaction model. And our fiscal '26 total spending, that implies growth of only 4% year-over-year on a similar basis in constant currency. So that gives you a sense of the extent of both the optimization and the spend discipline that we are driving in the business overall.

And then as I think a little bit ahead on fiscal '27, we are committed to further margin expansion beyond fiscal '26 on an underlying basis, as we've talked about. And that will continue. And ultimately, when that overall go-to-market optimization is complete, we expect that we have GAAP margins among the best in the industry, and we'll share a little bit more details in terms of what that means when we get to our Investor Day in the third quarter.

Next question comes from Bhavin Shah of Deutsche Bank.

Janesh, just kind of following up on that, what's the timeline you guys are thinking about in terms of kind of seeing some of the benefits from a lot of the adjustments you're making to sales and marketing? And when do you kind of see that sales and marketing efficiencies show up from a revenue perspective?

Yes. Bhavin, clearly, we are seeing a significant benefit here in fiscal '26 itself. As I mentioned, that's a big part of the underlying margin expansion that we are delivering. With respect to what that translates to for fiscal '27 and beyond, as I mentioned, we've got more work to do in terms of the next set of activities that we need to plan for as we think about what it means to drive tighter channel partner integrations and build the capabilities that we need for self-service. We're investing this year to build those capabilities so that we can be set up to lower our overall cost to serve our customers in future years. And again, we will spell some of the details out around that in the Investor Day in the third quarter.

That's super helpful. And just one quick follow-up. I mean it sounds like you guys are going to be pretty aggressive from a shareholders' return perspective in fiscal '26 and kind of given some of the changes you're talking about from the top line perspective and focus on efficiencies, how are you now thinking about M&A? And do these actions change your view at all?

Yes, Bhavin, our view on M&A doesn't change. We've always been an acquisitive company. We're always looking for anything that can accelerate our strategy or take us into adjacencies that we think are relevant to the company. But that's consistent with previous stances on this. If we see something like that, we will act on it.

Our next question comes from Joe Vruwink of Baird.

Great. Sorry, I was on mute. I'll get those right one of these times. I wanted to go back a few questions just on the year-over-year margin assumptions. It looks like if I'm reading Slide 10 correctly, you're assuming that agency change is about a 6-point impact on growth in the upcoming year. So I think that means a 6-point headwind on margins. You're kind of guiding to margins flat to slightly up. So can you bridge the 6 points you're able to layer back on to get to where you're guiding the year?

Joe, I'm happy to take that. A 6-point revenue headwind is the right way to think about the top line, but that doesn't translate to a 6-point margin headwind. You'll see on that same slide that we've actually just spelled out for you exactly what the margin headwind is as well. It's 3 percentage points. So on an as-reported basis our -- we would expect to ultimately have 36% to 37%, and that's the same in constant currency. But once you adjust to the new transaction model as well as currency, that rises to 39% to 40%.

Okay. And that's the underlying you're talking about. Okay. And...

That's right. Keep in mind, you've got partner commissions that we pay as well in that model.

Yes. Okay. Understood. And then going to just -- it makes sense that as you see a slower new subscriber addition that builds over time and kind of compresses the revenue growth rate. I guess the one thing that's a bit surprising is the growth rates in the AEC product segments are still really good, and I think this quarter was 14%. And that seems just as difficult an environment as what manufacturing customers and a lot of we're going through. Do you think you're kind of outperforming there in that segment and maybe there's challenges elsewhere because it would seem like the AEC performance is ultimately standing out in this environment?

Yes. So what you're seeing in AEC is you're seeing our construction performance, all right? Construction is doing quite well. You saw that we added 400 new logos. We've got a building momentum there. We've got a great product. Looking forward, we're very bullish about where we're taking the construction business. The payment business is doing well. We're seeing wonderful growth associated with that. Customers like the product. They have plans to implement it. They're really attracted to the broad end-to-end solution. That's what people are buying for, their future, not for their present needs. They're trying to get in front of where they need to be. That's what you're seeing in AEC.

I also want to make sure that I just address something you said. Remember, with regards to manufacturing growth, you just have to take into account that we had some upfront revenue compared to last year. Those upfront revenue blips kind of have a disproportionate impact on how the manufacturing looks when you account for that, that growth is actually in low double digits. So we're actually performing well there as well relative to peers, especially on a full year basis. So what you're seeing in AEC, that's why you want to see us drive those Make businesses even more because they're really having an impact. Revit's doing great. There's no doubt, but Construction is doing fantastic.

Our next question comes from Elizabeth Porter of Morgan Stanley.

Self-service sounds like a pretty big opportunity to drive the underlying efficiency. And just given Autodesk can be a complex piece of software that does require some higher touch from sales or partners. Just how should we think about the base of business that could be applicable to self-service? Any sort of comments to help us understand kind of where it is today and where it could go over time would be very helpful.

Yes. Self-service can touch just about every aspect of our business from a transactional point of view. So for instance, as a matter of fact, some of our reinvestments are going into improving some of these self-service capabilities right out of the gate. So on a transaction basis, the easier you make it for customers to see what they own, manage what they own, add new seats and all the things and be aware of what their users are using and where they might need more capacity, that drives upsell and cross-sell immediately.

The other aspects of self-service on the support level, look, there's a bunch of things that our customers come in and do that are very low-value transactions that we're getting significantly better at building systems that can automatically address those needs with the customer so that we can focus our human resources on the high-value returns. So every aspect of the business can benefit from an improved and enhanced self-service. And there's lots of low-hanging fruit as we move forward in terms of making the self-service capabilities easier to access, easier to use and more complete in terms of how they work with our customers.

Great. And then just given we're just now entering this optimization phase for sales and marketing, and it is going to be a multiyear journey, it sounds like. At a high level, could you just help us understand a bit more what are some of the near-term versus longer-term key milestones we should look towards as we're going through this optimization phase?

Yes. So first off, let me just remind everybody, this optimization phase is a deliberately planned activity connected to the last 2 years of changes. When we began the move to the new transaction model is when we began the planning of this optimization phase. So this is a purposeful, deliberate planned-out effort. The high-level main focuses for this are on optimizing certain processes, enhancing self-service like I talked about earlier, and also improving efficiency and tightening the relationships with our partners so that we just generally reduce duplication and get more efficiency from the whole system overall.

The initial phases were focused primarily on some of our marketing efficiency and some of the marketing-related go-to-market aspects of our efficiency. As we move forward, you're going to see us drill a little bit more into making sure that we're creating tighter relationships with our partners and ensuring that there's more optimization in terms of productivity associated with partner relationships, and you're going to see self-service have a bigger impact on the business moving forward.

So considering a continuum from starting with the marketing optimization, moving through a continuum to enhancing partner engagement and getting more efficient there all the way through maximizing returns on self-service. All of that is going to deliver long-term margin improvement for the -- operating income improvement for the company.

Our next question comes from Matt Hedberg of RBC.

Congrats again, Janesh. Really look forward to working with you again here at Autodesk. And starting out the year with a really strong free cash flow guide is really great to see as well. Maybe, Andrew, you talked a little bit earlier about Fusion, Gen AI, the product launch there. I guess I'm just wondering more philosophically, could you talk about sort of how we should think about additional generative AI rollouts across the product portfolio, how we should think about pricing? And just kind of the sensitivity around some of these data models given, obviously, a lot of it's customer specific.

Yes. Look, we're very much focused on enhancing customer productivity with these tools. As the tools get more and more productive, obviously, there's opportunity to charge additional money for really high-productivity AI features so that we capture some of the productivity we bring to the customers. We share some of the productivity with them, and we capture some of the value back to us.

What you're seeing with some of these early features is essentially things that help the customer build 3D models more quickly, more rapidly with a lot less labor. So that's really hitting them right in their productivity and it also makes our products much more competitive in situations, especially in Fusion land, where we're dealing with a very large ecosystem of products that we compete with and this essentially sets up Fusion to be much more competitive as we move forward.

If you look forward at some of the things we're doing in AEC, Forma is really dedicated to servicing AI capabilities that allow people to be much more productive creating, building information models in a completely different way. We've already rolled out early conceptual features around analysis, around tools that help people make initial sizing, set up kind of doors and windows and initial frameworks. This has a huge possibility to bring BIM to the masses, meaning bring building information modeling down to smaller and smaller companies that have found Revit out of reach for both their capabilities and their budgets. Forma has an opportunity to really expand the footprint of who can do building information modeling. And that's one of the things we're targeting with those long term.

So look for AI to provide not only new productivity, better competitive value and long-term potentially higher monetization for some of these highly productive features, but also look for it to expand our market footprint.

Got it. That's super helpful. And then Janesh, one for you, it sounds like we're going to get maybe a bit more color on kind of a midterm model perhaps on the Q3 Analyst Day. And so maybe just as a follow-up question to kind of thinking about the lower end of that 10% to 15% guidance range. I guess, how should we think about like maybe a floor of growth? We're getting that from a couple of investors today. Is there kind of a way to think about like -- is it kind of like high single digits? Is it 10%? Just any way to kind of think about how you think about kind of the lower end of kind of a growth outcome.

Matt, great to be reconnected and looking forward to working with you, actually. So in terms of that growth range of the bottom end of that framework of around 10%, if you look back over the last couple of years, that's where we fundamentally have been. And in fiscal '26, we are guiding to the 8% to 9% in constant currency, excluding the new transaction model effect. And actually, that's consistent with the underlying growth that we delivered in fiscal '25. So overall, we think that the business is resilient, and we've had consistent performance over a period of time, and our focus fundamentally is actually on driving sustainable growth as we continue to focus on new business growth and driving our Make business, especially through construction and manufacturing and the overall platform strategy like Andrew was saying.

Thanks, guys. Congrats.

Thank you.

Our next question comes from Joshua Tilton of Wolfe Research.

Guys, can you hear me?

Yes, we can.

I have two quick ones. The first question is, is there any sense you can give -- you can just help us understand maybe where the NRR finished for the year relative to what you're guiding to for revenue for next year? So for example, you're guiding to about 8.5% core growth ex-transition for next year. Like where relative to that are existing customers growing finishing this year? And then my second question is just a little more simple. How much of the recent restructuring or risk announcement benefit is factored into the current operating margin guidance for this year?

Yes. Maybe I'll just address both of those. So in terms of the net retention rate, you'll see that we've -- in the modeling guidelines, we've provided a view on how we're thinking about fiscal '26, which is basically the same as it was in fiscal '25. It's a range of 100% to 110%. And I realize that's a wide range, and we are essentially guiding to 8% to 9% growth on the underlying. But the way I think about that is that the net retention rate essentially hovers around the middle of the range. It can bounce around by a few points in any particular quarter. That's why we put a reasonably wide range to it. And so that's how we are thinking about that piece. And I'm sorry, would you mind repeating the second question, please?

Yes. Just how much of the recent risk announcement or layoff announcement benefit is baked into the current operating margin guidance for this year?

Yes. So as we built the operating margin guidance for the year, obviously, any savings from the action of is baked into the guidance already. But as I talked about earlier, the reinvestment and our organic hiring plan that we had built for fiscal '26 is really an integrated plan. And so if I think about the overall spending growth that we've baked into the model, which might be a different way to look at it, that spending growth overall for fiscal '26, again, holding aside the effect of the new transaction model is slowing from 7% last year to 4% this year in constant currency.

Our next question comes from Michael Turrin of Wells Fargo Securities.

I know there have been a few different angles on this. But Janesh, just on the commentary around the long-term target, just any perspective you can add given it's early in your tenure, so decision process that went into this? And maybe help us parse how much is using a different set of assumptions there or just any more context you can add because that's where we're getting the most questions initially.

Yes, I'm happy to talk about that. And look, fundamentally, my view on the business is very similar to what we've experienced in the past. And coming into the business, recognizing that for the past couple of years, we've been hovering around the low end of that range and fiscal '26 on an apples-to-apples basis is very similar. The reality is we've just not been in the middle to high end of that range. And that's -- as I looked at the ranges, it felt inappropriate to have a range out there if we have not delivered against that in the last couple of years, at least being towards the middle or high end of that. And that was really the core principle behind this.

But fundamentally, when I look at the business, as I said, we delivered consistently, and it's a resilient business. You've seen us deliver over the last couple of years when there's been a lot of external factors that have been outside of our control. You've seen us do that through the business model transitions we've been driving. We've got a strong and loyal customer base. Our products are in market-leading positions. We feel very good about our position overall.

Yes, that's helpful color. And then, Andrew, just on the headcount reduction. I know these are tough decisions. Maybe just speak to how you ensure you're making the right level of change there, balancing efficiency with preserving the continuity and business momentum you're seeing?

Yes. So we look at these things definitely over a long time frame, and we're definitely trying to balance the risk short term with the reward long term in terms of what we did. And we feel like we've taken a really balanced approach here. You can see we've reinvested some of the money into future systems and capabilities that will allow us to do additional optimizations in the future. So we're trying to make sure that we cut the right kind of balance here so that we keep the business moving in the right direction, and we factored a lot of that risk into the way we're guiding. So I think we've done it right. And I think the ongoing optimizations are going to continue to deliver increasing profits as we move forward into next year.

Our next question comes from Ken Wong of Oppenheimer & Company.

Great. Maybe the last one on just that 10% to 15% range. I realize inappropriate to kind of keep that out there given the conditions and the performance. But with all the improvements that you guys are putting through with the go-to-market changes, the work with the channel, I mean, should we think about the other side of this when macro is fine, when you guys have delivered on the go-to-market changes that, that 10% to 15% is back in play? Is it arguably maybe even a better number? Help us think through what the end goal with some of these changes would be in respect to what were the prior 10% to 15% goals.

So Ken, where we're at right now [indiscernible] acknowledgment of where the business is right now. What you're not hearing is a reduction in face of the long-term growth potential for the company, all right? The areas we're talking about are the areas that really need to improve to drive the kind of behavior we want long term. It's all about getting the channel more productive. That's going to be a result of some of the changes that we're doing right now in some of the optimizations. The more productive the channel is, the more energy it has to spend on new business, the more the new business starts to build up over time and actually show up as revenue growth over time.

The other thing is we're really excited about moving the Design and Make solution in a lot of our customers. So watch that Make bucket because that's a clear sign that we're being successful penetrating the end-to-end solution. That is real long-term new growth for Autodesk. And by investing in that, we're essentially front-loading the capability to keep building up that book of business, which then shows up in the top line over time. So that's the way to look at it. It's not a retreat from confidence in the long-term growth structure of the business, quite the contrary, but it is an acknowledgment of where we are at today.

Got it. Okay. Perfect. And then just a quick follow-up on, like, look, you guys have rolled out across all 3 regions now as far as the agency transition. Any update on how kind of those 3 areas are tracking? Obviously, we have the Americas, which were kind of a little further along, but you just rolled out APAC. Would just love a sense of kind of how those are mapping relative to internal plans.

Yes. So for the most part, things are going as we planned. There's an initial kind of pull forward of the business, then there's some production in new business as people go through getting their systems set up and renewing. We did see a few more productivity problems as we were hitting the end of all these rollouts than was originally expected, but we're now working through all of that. But for the most part, this is perceived as we expected, with a little bit more kind of, okay, we have some work to do to help the partners manage these systems effectively moving forward.

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

Thank you, everyone, for joining us today. We'll look forward to seeing many of you over the coming weeks. If you have any questions, please just e-mail me, simon@autodesk.com. And we look forward to catching up on our Q1 earnings call. Thanks so much, Latif. And goodbye, everyone.

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