The CAD Insider

What Happened at Autodesk?

It’s been a wild ride for Autodesk the last couple of months.

In that short time, Autodesk launched an internal probe of its accounting that sent its stock price tumbling. The company concluded the investigation by saying nothing was remiss, but they would be replacing their CFO anyway. Not placated was an activist on its board of directors who sued them, stating their top executives had done a cash grab, plying top customers with discounts if only they would only pay now for future years of software use — something they had vowed never to do again but were doing so now to release a torrent of cash that would flow into FY24 and ensure their annual bonuses.

Let’s look at the chain of events.

On April 1, Autodesk filed for a delay in 10-Q reporting because it found discrepancies in the company’s recent accounting of free cash flow. A 10-Q normally follows the annual report and provides more detail, containing information valuable to analysts such as threats to the company’s business. Also, it carries extra responsibility for corporate officers who have to swear under oath that all information contained is accurate.

Not filing a 10-K on time results is a big deal. The SEC will issue a fine in most cases and a late filing will set off alarms among investors. The day that Autodesk said the 10-Q was late, the share price dropped. It wouldn’t stop dropping for over two weeks, going from $259 on April 1 to $211.

Autodesk valuation dropped over $10 billion in 18 days.

On May 31, Autodesk announced that it had concluded its internal investigation and would now file the 10-Q. The company had indeed found some discrepancies, most having to do with how cash flow was accounted for as the company “engaged in programs designed to incentivize customers to accept multiyear upfront filling, renew early, and/or pay before the end of the year.”

But in 2022, Autodesk had stated that it would shift from multi-year upfront billing to annual billing. Now it was now saying it was reverting to multi-year upfront billing in a big way to make its free cash goals for the year. Also, the “free cash flow was one factor in the company’s executive compensation program,” according to Autodesk’s own press release.

In the aftermath of the 10-Q delay, Autodesk relieved Debbie Clifford of her role of CFO and slid her sideways into a Chief Strategy Officer role, a role that had been vacant for over 20 years. Clifford would seem an unlikely candidate for a Chief Strategy Officer, judging from her LinkedIn profile, having held only roles with strictly financial duties. Carl Bass, last in the CSO role, had considerable knowledge and insight into design and manufacturing.

Is there more than meets the eye with Autodesk’s wrap up of their own investigation? Monica Schnitger, a CAD industry analyst, thinks not. “There is nothing to see here,” she says in her detailed account of the accounting. Autodesk did after all, have a great quarter, she says. As if to say who are we to question who gets billed when and who cares about 10-Qs? Executive compensation does not register.

But not all have been convinced that Autodesk conducted its accounting and investigation properly. We learn of Starboard Ventures having a $500 million investment in Autodesk, a 1% stake, but sufficient for a seat on the board of directors. Starboard filed a lawsuit in the state of Delaware (where Autodesk is incorporated) to delay the company’s annual meeting so new board members can be elected and in a June 17 letter argued that the investigation had uncovered “significant issues and questions about the Company’s accounting and disclosure practices, executive compensation practices, and oversight, or a lack thereof, from the Board of Directors” that ought to be addressed.

Why was Autodesk in such a rush to increase free cash flow? Two reasons, according to the Starboard: Autodesk reports free cash flow as a key operational metric and uses it as one of the primary determinants of executive compensation (emphasis theirs). Starboard goes on to contend that while Autodesk was telling the world one thing (that annual billing was in effect), it began an aggressive campaign to secure free cash by upfront billing, that “substantially exceeded historical levels, helping the company to meet its lowered annual free cash flow target” (Emphasis theirs), offering discounts as an inducement.

Autodesk uses free cash flow targets in its calculations of PSUs (performance stock units) awarded to key executives. The payout from PSUs formed 50-53% of the key executive’s total compensation for the year. A PSU is equal in value to a share of common stock and is taxable. PSUs and RSUs (restricted stock unit, nontaxable, based on stock price, not on free cash flow, and forms 33% to 35% of the total compensation) combine for an annual bonus — and it can be sizable.

Andrew Anagnost’s PSU and RSU awards combined for over $20 million. Debbie Clifford, in her last year as CFO, got $6 million in PSU and RSU awards.

Starboard maintains that in failing to inform shareholders of the free cash issue, Autodesk deprived them of a chance to nominate incoming board members, an issue it hoped to rectify with a delay in the annual meeting, when presumably new board members would be announced.

However, the State of Delaware denied Starboard’s request, a ruling favorable to Autodesk. The annual meeting and board appointments will take place as Autodesk had planned. 

I don’t think this is the end of the story, though. The meeting date and board appointments may not have gone the way an activist investor intended but the alleged issues of company underperformance, accounting practices and executive compensation will likely be brought up again.

While some may believe that its back to business as usual for Autodesk, I am reminded of Carl Bass, who after leading Autodesk into its golden days was ousted by an activist investor.

OMG, Autodesk DID Discover AI

Like learning of Columbus discovering America in 1492 only to find out Leif Erikson had found it centuries before, we find that Autodesk had AI with its Design Graph technology in 2016, a dog’s life before ChatGPT kicked off the current AI frenzy.

It was in this 2016 post that Autodesk puts forth all the benefits of ML (machine learning) with Design Graph, a shape-based search.

What was Design Graph and How Did it Work?

If you were designing a vehicle, like a motorcycle, and you needed a part, like a gearbox, Design Graph would search through your company’s cloud-based design library (then called A360) for such a gearbox using a search based on name, shape, category and other properties.

While a search based on textual metadata is old hat, a shape-based search would have been a game changer. Many have tried but as of yet, none have come up with a good one.

“We created Design Graph to enable designers to focus more on solving design problems rather than the mechanics of representing their design,” said Mike Haley in 2016, then Sr. Director of Machine Intelligence at Autodesk. “Design Graph can save valuable time, eliminate redundant work and reduce costly errors.”

Clearly, Design Graph was a product ahead of its time, never emerging from the Lab, never to see the light of day. Was it the odd name? Was it ahead of its time? Did it not work as promised? Did Autodesk lose interest? Was CAD just in a geeky niche the rest of the world could ignore? Was it a combination, all of the above?

Whatever it was, Design Graph did not catch on.

In a recent interview on engineering.com, Mike Haley, the Leif Erikson of this story, politely reminds us of our failure to credit Autodesk with AI implementation. Clearly, Autodesk Labs, had landed on the promising technology of the future, but from the nerdy niche of design software, rather than in the mainstream of software (Microsoft and Google, with billions to spend, turning a big light on for all the moths (example: Microsoft’s $13B investment in OpenAI) whereas Autodesk, 8 years ago, had the punch but never got a shot at big time. I picture Mike Haley as Marlon Brando, whose Terry Malloy character in Elia Kazan’s On the Waterfront saying “I coulda been a contender, instead of being locked in a 7-way CAD race.”

Somehow that does not have the same ring to it.

*The seven CAD contenders are Autodesk, Bentley, Nemetschek, Trimble , Dassault Systèmes, PTC and Siemens.

Autodesk Delays Annual Report After Finding Accounting Discrepancies

Autodesk delayed filing its 10-K, an annual report required of publicly traded companies by the SEC, because accounting discrepancies had come to light since the company announced its annual results on February 29. The news was not well received by investors and the share price dropped from $259.44 to $248.71, a 4.14 % decrease, it’s lowest point in almost a month.

An announcement of accounting discrepancies is almost never good news for a company and may have triggered a “too good to be true” response to a the Feb 29th report of record revenue (3 straight quarters of revenue growth) and profit (three straight quarters of growth) as reported here.

Forming an external committee to investigate accounting discrepancies is an unusual move.  Wouldn’t an investigation of accounting normally be conducted by the CFO?  Debbie Clifford has been Autodesk’s CFO for a little over 3 years.

Autodesk has been given a 15-day extension to file the 10-K.

The Shape of Things to Come

Stephen Hooper, Vice President & General Manager, Design & Manufacturing Cloud Solutions at Autodesk, is about to reveal what is coming up in generative design. He is at a Q&A session at Accelerate 2022 conference. He is not making an official announcement as the technology is still in R&D. If it were up to the PR watchdogs in the room, he would go no further. But Hooper’s enthusiasm is not to be bridled.

“We’re going to use ML [machine language] to look for similar shapes,” he says about the next generation of Autodesk’s generative design, which will, no doubt, be manifest itself in Fusion 360, the company’s do-all design and manufacturing platform.

We will be able to create a 3D map of your shape and match it with another existing shape, he states. Engineers reinvent the wheel all the time, he implies.

We asked if the generative design of this future could not only look for similar parts, but look for similar elemental or primitive shapes, such as I-beams or round tubes, the shapes engineers rely on.

Yes, says Hooper. It certainly will.

Hooper, whose youthful figure belies decades of CAD experience, tells of his initial introduction to CAD with Unigraphics. His conversion to Autodesk came when he realized that, despite Unigraphics superiority in CAD, its expense was a hindrance.

“For what we paid for a few UG seats, we could outfit a hundred engineers with Fusion 360 today,” says Hooper.

He invokes a Moneyball reference, the movie with Billy Beane (played by Brad Pitt) creates a pennant winning major league franchise (the Oakland A’s) by recruiting underrated (and therefore underpaid) players and creating an overall better team when tradition was to win with one or two (very expensive) superstars. While this could be considered an admission of PC-based AutoCAD’s inferiority to the workstation-based CAD, the point Hooper is making is consistent with Autodesk’s humble approach to democratizing design, simulation and manufacturing software.

Only 3% of Us Want to Work from Home? Can this be Right?

Only 3% of employees want to work from home 100% of the time, says Kim Dabbs, Global VP, ESG + Social Innovation at Steelcase, citing her company’s survey at Autodesk’s Accelerate 2022 conference currently taking place in New Orleans. Can this be right? Most employees we hear from are fine where they are, mostly working from home except for going to the office “as needed.” That’s code for “as little as possible.”

Consider the source. Steelcase exists to make office furniture and fixtures and a permanent and complete change to a work at home status for workers in their markets is an existential problem. Steelcase is asking the question and presenting the result in a manner that is to their advantage. The same question to a US market increases the figure of employees wanting to work from home 100% of the time by 40% (5%). Asking the same demographic whether they want to work at home most of the time may yield a result much higher, more in keeping with the common perception – and less advantageous to a manufacturer of office furniture.

Autodesk CIO Drives Forward On Digital Transformation

All about Autodesk. Autodesk CIO Prakash Kota attends Autodesk University in style.

The 38-year-old native of Madras, India, shows up at Autodesk University in a very modern patterned jacket, expected more for a nicely-dressed American rocker than for a chief information officer (CIO).

A CIO’s Progression

Prakash started at Autodesk with a consulting gig. After a succession of promotions, he now heads all things IT at Autodesk, responsible for Autodesk’s technology infrastructure, including providing a highly available, resilient environment for customers, as well as computers, mobile devices, and at-work digital tools for more than 9,000 employees.

While some CIOs may reminisce about the days when mainframes filled the room, in Prakash’s world, mainframe power fills pockets and supercomputers live on the cloud.

Prakash moved to the Bay Area for love to be with his then fiancée, now wife, after getting an advanced electrical engineering degree from Oklahoma State and working in Texas and Florida.

Hired on the strength of his Java certification, Autodesk was quick to recognize his talent, and his career shot upward. The consulting gig turned into a permanent job, and then it was one promotion after another, all in IT-related operations, eventually leading Prakash to the top of the IT ladder.

So, why can’t you hold down a job?

A joke is always a risk at any interview, but Prakash cracks up.

A software company could use the cobblers-children-go-barefoot excuse for having less than optimal software for its own use. That’s not happening at Autodesk under Prakash’s watch.

Autodesk Accomplishments

“We help automate the design process for our customers, and automate technology for employees much in the same way,” said Prakash. Autodesk IT is transforming, and embracing a value-mindset to enhance the employee experience. Prakash’s digital transformation strategy introduced frictionless, mobile self-service tools for employees.

After inheriting a help system that issued tickets for employees’ IT and HR requests, Autodesk modernized it to integrate with Slack, the popular corporate chat app. Employees can simply ask Slack a question—forgot my password, need an app installed, how many vacation days do I have left, etc.—and an artificial intelligence-based  chatbot, called HelpBot, returns an answer in less than one minute.

Autodesk IT also built a productivity portal, Help Hub, for employees. Both tools were rolled out to employees worldwide.

“Help Hub lets employees learn about and use any enterprise IT service,” said Prakash. “The idea is a seamless, intuitive experience. Automating interactions and putting workers at the center of process simplifies how things get done.”

I caught up with Prakash at AU Las Vegas during the CIO Exchange Breakfast he put on for Autodesk customer CIOs. An article about him was featured in CIO magazine just six months into his CIO position at Autodesk, and he’s boldly and freely sharing what he has done with other Fortune 500s at Autodesk events and beyond.

Prakash’s objective? Help drive Autodesk’s transformation as a digital innovator and customer-centric company.

“We will continue to work to provide value first, and a simplified experience for employees and customers that is available anytime, anywhere,” said Prakash.

Autodesk Pops Into Profitability. Does Anyone Care?

Last Thursday, at the end of the trading day, came the announcement of Autodesk's FY2019 Q4 earnings. Late in the day is when you announce things you don't want people to notice. Or during a distraction. If President Trump would admit to global warming or collusion, it would be announced during the Super Bowl.

Finally. Autodesk posts a $65m profit in Q4 of  FY2019. (Picture courtesy of TenLinks)

We had been anticipation the Autodesk news. Autodesk had been approaching a breakthrough. For almost two years, it's revenue had been increasing. Last quarter, it almost made a profit. Then Thursday, the big news came. For the last quarter in FY2018, Autodesk posts a $65 million profit. It finished the year with record revenue of $2.6 billion. It is still in the red for the year, but only by about $85 million or so.

Five  years after radically changing their business model, from software ownership (perpetual licensing) to rental (term-licensing), you would think Andrew Anagnost would be doing cartwheels up and down executive row. After all, he was the architect of the term licensing model, its vocal champion and maybe the main reason the board of directors appointed him CEO.

Yet, Andrew was rather subdued, even a bit gloomy. In the Q&A that followed, profit is mentioned twice. Net income, as financial types call it, a couple more. Both are late in the conversation. The financial analysts don’t dwell on it. It's like "Yeah, we knew it was going to happen. What's the big deal?"

In a CNBC interview, more time is spent discussing the upcoming recession. The consensus among economists is every boom (we're in one) is followed with a bust. Andrew contends that Autodesk is immune and may benefit from a recession.

I have the numbers to prove it, he says. In the last recession, Autodesk business grew. Companies invested in their digital infrastructure to they could be profitable.

But for someone who has taken Accounting 101 and run their own company, the ways of finances of big companies are an enduring mystery. How can it not be about the bottom line? About cash in the bank?

It's complicated, I hear. They try to explain it, as if to child. About ARR, deferred revenue…

Maybe they're right. I think I'll stick to subjects I have hope of understanding.

I’m already looking forward to my next book about quantum mechanics.

Conferences in Las Vegas. Let’s Stop the Madness.

Every year, hundreds of Autodeskers leave San Francisco, the most beautiful city in America, for a big party in Las Vegas, the urban sprawl in the middle of the desert. They are joined by over 10,000 users and hundreds of vendors, making Autodesk University the largest CAD gathering in the world. AU has been held in Las Vegas every year since 2000.

Outside The Venetian hotel and casino in Las Vegas. The Las Vegas rendition of Venice may be drier, cleaner than the real thing, but it’s still fugazzi.

It is my second Las Vegas conference in two weeks, having just come back from Trimble’s Dimensions conference. It was also on the Strip, as Las Vegas Boulevard is called—also in the Sands Convention Center, in fact. It’s the third time in Las Vegas this year. I realize I may have visited Las Vegas a hundred times and always for business.

Outside of the conventions, the businesses of Las Vegas are ones that are illegal, banned or controlled everywhere else. The city is best known for vice. Gambling is pervasive. Slot machines greet you as you get off the plane. The convention center where AU is held sits between the Palazzo and Venetian, both massive casino hotels. The half-mile walk between my room and the conference is through an acre of black jack tables, craps, bars and slot machines. In the early morning, most of the tables have only a croupier, but some of the slots have some action—if you can call it that. Almost lifeless old people, dejected as if their machines haven’t paid out all night but hopeful that morning brings the jackpot, still wearily push the button. Slot machines haven’t had handles for years, an energy saving move, no doubt.

Their cigarettes burn unattended in ash trays. The smoke reminds me of the fires back home. It seems like all of California is on fire. One fire has burned down the town of Paradise, and the smoke has engulfed the San Francisco bay area. Stores have run out of masks, but my family was lucky enough to get some. Is Las Vegas the last place in the U.S. you can smoke indoors?

The seedy and snazz, the shoeboys and the satins,

like a throne made of gilt that too many johns have sat in.

-Alice by Mott the Hoople
(about Manhattan, but in my head going down the Strip in Las Vegas)

I escape later and get outside. I see other conventioneers, some still wearing their AU badges. Some are posing with close-to-naked show girls who seem to have popped up on every corner of the Strip this year. In between are gauntlets of card snappers, men and women try to get you to accept cards with a picture of a naked girl who will come to your room.

Drinking in Las Vegas may be the law. By evening, most everyone seems to have a drink in hand. Some have glasses as long as their arms. I’m feeling out of place.

On one end of the Strip is the last big casino, the Mandalay Bay. A year ago, a gunman using bump-stocks opened rapid fire on a country music concert across the street. There were 58 dead and over 500 wounded. It was the most destruction by guns in America ever, unless you include the Civil War. The city held a candle light vigil Oct. 1.

Why Las Vegas?

They say it’s cheap. The city has indeed made it appealing for conventioneers and travelers with low upfront costs. Airfare from San Francisco can be under a hundred dollars. Five-star hotels are under $200, a third of the cost of rooms in San Francisco and New York. My rooms at the Palazzo and the Venetian were suites with a sunken living rooms. I hear the conference booking costs are also low. Casinos may be giving convention away in the hopes of emptying the pockets of conventioneers at the gaming tables, restaurants and shops. Every other shop in the Grand Canal of Shops seems to be a restaurant. The Strip may have more high-end steakhouses than anywhere else. A steak can cost over $70. Don’t even think of opening the wine menu.

View from the top. The High Roller, Las Vegas' answer to the London Eye, includes an open bar in some of the gondolas.

“Could you just keep AU in San Francisco?” I ask one and all. It’s a selfish request, I admit. It’s my home. I could drive over. It is also home for Autodesk. The company would save a million dollars in airfare and hotels by holding the conference on its home turf. Before it was branded Autodesk University, the annual user meeting was called CAD Camp and held next to the company’s headquarters on the grounds of the Marin Civic Center in San Rafael. An early AU was held in the Moscone Center in downtown San Francisco.

Many Autodeskers live in San Francisco or its environs. Many of them are young. Who could blame them for the chance to get out and away to Las Vegas, the quintessential party city? It may be their one fling a year. This year AU’s party may have the biggest and best. It included free rides on the High Roller, a 550-foot tall Ferris wheel with “passenger cabins” and open bars.

May I Suggest San Francisco?

Sitting on the dock of the Bay. San Francisco, the No.1 draw for tourists in the United States, a natural venue for future Autodesk Universities.

AU has grown, they say. “There’s no place big enough to hold a conference this size,” is Autodesk’s pat answer when asked, “Las Vegas?” It is a good answer and speaks well of the public relations staff who have to hear me whining year about coming to Las Vegas year after year. PR is all about putting a positive spin on unfortunate circumstances. Las Vegas is a test for them, but the answer needs fact checking.

Many other cities hold much larger conventions than AU. Over 20,000 architects convene for AIA conventions in New York, Orlando and Philadelphia. A 175,000 sales people came to San Francisco for the SalesForce.com convention. IMTS is attended by 130,000 in Chicago. The biggest industrial fair of all in Hannover, Germany, and draws over 200,000 people.

The word around AU is Las Vegas had a 10-year contract, and we are nearing its end. One can only hope that is true.

If Autodesk is Not Careful, It Could Make a Profit Next Quarter

Following quickly on the heels of an interview with Autodesk CEO (soon to appear in engineering.com), we read about Autodesk most recent quarter. Though Andrew Anagnost and I spoke for an hour, he did reveal any mention of what may be the company’s most hopeful result in recent memory. The company lost even less than usual, only $39 million, the least loss in over 2 years. While the profit is still negative, in the last two quarters, the company has lopped $135 million off its losses. The trajectory is clearly shooting towards positive!

Come to think of it, Andrew was in a pretty good mood.

(Picture courtesy of TenLinks)

Like peace, profits are always good. But the revenue curve looks even more consistent in its climb, now with 6 straight quarters of revenue growth.

 (Picture courtesy of TenLinks)

Maybe the new CEO, with his new math and talk of ARR*, all meant to convince us that it was just a matter of time before deferred revenues would make up for what used to be collected at the onset of a software sale, like it did with old, perpetual license model… maybe there was something to all that.

From where we sit, there’s been no exodus of users away from Autodesk. So we should not be surprised. Maybe it is working exactly as promised, that the profit would again be come. It all depended on the users staying in the flock, all remaining would eventually see the light of term licensing and sign up, then we'd wait until that revenue, though coming in smaller chunks, would be realized.

A few did leave the flock but it was too few to matter. Many more have been vocal about their loss of perpetual license, the heart rending cries of users who thought their relationship would last forever, and then found out they had to pay forever, instead. But most of the flock has stayed intact.

How do we know the flock stayed intact? Any competition (all other CAD companies) would have touted those that joined. That never happened. No trumpet blowing, no doubling of user bases, no big architecture or construction firm announcing they were done with Autodesk and moving to another software platform. Even when other design software vendors held out perpetual license as a lure, an option they still had for their software. Their users still had a choice, they said, not like big, bad Autodesk. The lure was not taken. Not often enough. Certainly nothing to crow about.

You can’t blame them for trying.

_________________

*Accelerated annualized recurring revenue, if you must know.

Déjà Vu - Scott Borduin Back as CTO of Autodesk, Filling Vacancy Left by Jeff Kowalski

Scott Borduin, CTO of Autodesk once again. (Picture courtesy of Autodesk)

Scott Borduin, acting CTO of Autodesk, after the departure of Jeff Kowalski, was told yesterday (August 21, 2018) that the position is his for keeps. Scott was previously CTO of Autodesk until 2005, under Carol Bartz. Jeff took over the role of CTO in 2006, according to his corporate bio.

Scott is based in Autodesk’s Portland office. More to come about Scott in his new old position after our interview (soon).

From Autodesk:

Scott has an MS in mechanical engineering and has worked in the CAD/CAM industry since 1984. Scott joined Autodesk in 1993 as part of the Woodbourne, Inc acquisition, and was subsequently chief architect on Inventor. Scott became Autodesk CTO in 1999 and held that position until 2005 when he left to join the non-profit world. He returned to Autodesk in 2012 and has held several senior technology leadership positions since then.

Jeff Kowalski, CTO of Autodesk, 2006 to 2018. (Picture courtesy of Autodesk)