The CAD Insider

Autodesk Loses Less This Quarter Than Any Quarter in Previous 2 Years

Autodesk was once the world’s biggest CAD company. It was the first to make more than a billion dollars in revenue. That was in 2004. Behind Autodesk were Siemens PLM and Dassault Systèmes. After the addition of CAM and CAE companies galore, Autodesk was positioned to become the biggest CAD, CAM and CAE company. Instead, it has slowed down and been passed by the competition.

Siemens PLM finds itself in the top position with estimated annual revenue of $4.5 billion. In second place, Dassault Systèmes made $3.8 billion. Autodesk is in third place with $2.1 billion.

Not helping Autodesk at all was a fractious board of directors, changes in executives, a bitter battle between contenders for the CEO spot, and 12 consecutive quarters of losses after a business model change (shifting from perpetual to term licensing for all of its products).

After all that, losing only $83 million sounds pretty good. It could have been worse, but Autodesk held back on its hiring needs.

Last Thursday, May 24, Autodesk announced its Q1 FY19 results. Here are a few highlights.

Figure 1.Three full years of losses for Autodesk now, but at least the direction is up. (Image courtesy of TenLinks.)

 

Figure 2. The company’s stock price went down 5% almost immediately following the announcement of a weak earnings outlook for the current quarter. (Image courtesy of Google.)

Autodesk says the new fiscal year is off to a good start and credits the increased ARR, which is defined as the annualized value of its average monthly recurring revenue for the preceding three months. Subscription plan ARR was $1.40 billion, an increase of 103 percent over the same quarter last year. Total ARR was $2.13 billion, an increase of 22 percent over the first quarter last year.

Revenue in Asia-Pacific region (APAC) was $106 million, an increase of 23 percent over the same quarter last year, the biggest increase of all regions. Emerging economies (which may have been previously called the Third World) was even better off, with a growth of 28 percent(from $65 million).

Current assets dropped from $1.878 billion to $1.698 billion, a loss of $180 million. The biggest contributor was accounts receivable, which dropped by $232 million. At this rate, Autodesk would deplete its current assets in less than 2.5 years. Alarm bells continue to be silent on its depleting assets.

AEC revenue growth was higher than Manufacturing. The company seemed to visibly shift toward AEC in last year’s rhetoric at its annual user meeting, Autodesk University. However, CEO Andrew Anagnost still chose to single out Fusion 360 and generative design as its best hopes for the Manufacturing division in his Q&A following the earnings call, an indication that Autodesk is far from done with product design.

Surprisingly, the biggest product uptick (with an increase of 21 percent to $156 million) was AutoCAD and AutoCAD LT, the unsung and oldest workhorses in the company’s stable.

Bombs Drop in San Francisco: Carl Bass Disses Onshape

Carl Bass, who retired from his CEO post at Autodesk early in 2017, was lured away from his Berkeley workshops to speak at TEC Talk. It meant time away from racing his go-cart with an onboard neural network, an electrified Shelby GT, and a host of other projects. He would only do it if he didn’t have to prepare. It helped that Ron Fritz, CEO of Tech Soft 3D, the company that holds the event, was an old friend (Fritz took over the HOOPS Summit after Bass left for Autodesk) and that this year’s TEK Talk was taking place nearby, on the San Francisco waterfront.

Carl Bass, former CEO of Autodesk (left), and Ron Fritz, CEO of Tech Soft 3D, at TEK Talk in San Francisco. The bombs are about to drop.

The event is usually held in Boston because "that's where our customers are," said Fritz. To be sure, East Coast players are largely absent from the West Coast event. TEC Talk is held before the HOOPS Summit. They should have come because not doing so meant that everyone could talk about them. And they did. Onshape, in particular, took it on the chin.

 

And Here’s Carl…

The headline event, Carl Bass’s talk, was well received. Without Hirschtick, Heppelemann, Bernard, Bassi or a Bentley brother, Bass was the only member of CAD royalty in attendance. Retired but still on the Autodesk board of directors, Bass is freer to talk about his time at the company. It was hard to be a CEO of such a big, sprawling organization, he said. People expected you to be omniscient. “My Australia team could not show up for work for two weeks, and I'd never know about it.”

Bass was critical of the CAD industry for not having done much of anything new in 25 years—though he had led the CAD market leader for 11 of those years. He talked about asking a group of designers what CAD software they use and remarked that their CAD applications were "older than they are. "According to Bass, the last interesting thing that happened to CAD was SOLIDWORKS—and that was 25 years ago.

Could Bass have possibly forgotten about Onshape—and Autodesk's own Fusion 360—both of which are more recent cloud-based CAD applications?

"What about Onshape?" I have to ask.

Big mistake. I shouldn’t provoke Bass. To do so is to risk becoming the story rather than reporting on one. A journalistic no-no.

Basss swings without hesitation. Onshape, according to Bass, is a "half-assed imitation of SOLIDWORKS that happens to run on the cloud and is a classic example of the CAD industry worrying about technical problems rather than the needs of their users. It doesn’t solve a single problem for any customer,” he continued "and therefore, they have had no traction in what...five years?"

Bass has a lot of respect for what the founders (including Hirschtick) did with SOLIDWORKS, offering a big chunk of what Pro/ENGINEER could do at the price of AutoCAD, which ran on $3,000 computers. That mattered. This [Onshape] doesn’t matter.

Bass wants to talk about more interesting things, like machine learning,and said, "Onshape is not one of them."

It was another bombshell from the ever-spontaneous Bass. It was not the first time he has taken on the competition publicly. Perhaps most famous was his anti-PLM rap delivered in 2007 (only to announce Autodesk 360 for PLM four years later). His non scripted remarks and avuncular attitude made him popular with the media, which is accustomed to carefully prepared remarks and marketing-heavy messages. No target is too large for Bass. He has even slammed President Trump on Twitter.

 

Comments from the Industry

Although someone jumps in to defends Onshape, outing himself as a paying customer, other attendees will later fall in line with Bass’s assessment of Onshape’s lack of traction. They don’t think it’s catching on—at least not fast enough. Hats off to the great Jon Hirschtick for trying, though.

Reached for comment was Autodesk present CEO, Andrew Anagnost, who, while choosing not to comment specifically on what Bass had said, seemed to agree in principle. SOLIDWORKS CEO Gian Paulo Bassi, ever the gentleman, declined to comment on the competition. It was a chance for Jon Hirschtick to reveal the actual numbers of paid customers, but Hirschtick chose to say only that he had "thousands of customers."

Well, maybe Hirschtick is waiting for a million customers before Onshape makes the announcement.

 

Patience…

Despite competition and the media’s impatience, Hirschtick gives little sign that he is in any hurry. Perhaps he is biding his time, knowing that in time Onshape will gather up paid users and is using that time. No doubt he is using this time to make Onshape more robust, increase the company’s partners, and make Onshape the easy-to-get/easy-to-use CAD program for every engineer unencumbered by—or bogged down by—traditional CAD systems. It's the same let's-change-habits, profit-can-wait approach used with great success by Jeff Bezos of Amazon. Amazon endured losses for many years, but managed to make itself so convenient, so habit-forming that traditional shopping establishments now all seem at risk.

Autodesk Losing $174 Million Not as Bad as it Looks

For those who are keeping track, yesterday’s news about Autodesk’s quarter marked the 11th quarter in a row of losses for the CAD, CAM and CAE software giant. However, this includes a $94 million in restructuring costs. Last quarter, Autodesk announced its biggest layoffs ever (13% of its total work force, or 1,150 people). Most of that $94 million may be severance pay.

While it looks like profit fell off the cliff again, a look at the quarterly report reveals most of the loss was due to a one-time restructuring fee.  (Picture courtesy of TenLinks.com)

Take away the $94 million this quarter and the loss would drop to $80 million. Still nothing to brag about.. but if you squint, you can see the trend (from the last 4 quarters) shows diminishing losses.

On the plus side, revenue grew 7.6%, the biggest gain in the last 4 quarters of increasing revenue. A sign that the long-awaited revenue from term licensing is being realized.

Restructuring costs from the layoffs are expected to continue in the next quarter but should be much less.

Understandably bullish on Autodesk’s prospects, CEO Anagnost led the call to investors with “We finished the year with better than expected performance on many of the traditional financial metrics, such as revenue, deferred revenue, EPS and cash flow.”

He goes on to emphasize Autodesk is starting to reap revenue long deferred, accounting practices that make sense to accountants, with dropping “ARR” and “ARPS” enough times to indicate  that he knows more about these matters than the typical engineer. ARR, or accounting rate of return, is mentioned 45 times in the transcript. It all seems to play along with the transition from perpetual to term licensing, his plan.

The cloud is pointed at as “having its biggest quarter” “fueled by several large wins.” Could this be a surprise source of profit, similar to Microsoft, riding the cloud with its Azure platform?

While Q4 of FY2018 had a $174 million loss, with one-time restructuring costs, will FY2019  be a whole lot better? Maybe not. Autodesk is moving its European operational center from Neufchatel, Switzerland to Dublin, Ireland, which is expected to cost the company $135 million.

Biggest News at SOLIDWORKS Conference Comes from Autodesk

A blonde in heels will turn heads at any engineering event. Women are rare. But walking the aisles of SOLIDWORKS World, escorted by "user group guy" Richard Doyle, was no ordinary blonde. Here was Lynn Allen, Queen of CAD, entertainer and educator for a whole generation of AutoCAD users. Her Autodesk University classes were standing room only. Her presence on the main stage was cheered. Her columns in CADENCE magazine, then Cadalyst and her personal attention to her fans had made her a celebrity in the CAD world.

Lynn had also become the most recognized face of Autodesk. Carol Bartz, previous CEO, was rumored to have been jealous.

Lynn Allen, formerly of Autodesk, and Richard Doyle, "user group guy" at SOLIDWORKS.

Her latest role as Autodesk evangelist had her travelling all over the world, but her role at Autodesk University, had been reduced over the years. Once the master of ceremonies at CAD’s biggest show, she was left with one class -- though it was the most popular one. Her 60 AutoCAD Tips in 60 Minutes routinely sold out, a crowd of 700 leaving standing room only. 

“My last day was Friday," she says. “I’m a free agent now.”

So 24 years at Autodesk comes to an end. Free agency may mean she goes to the highest bidder, perhaps SOLIDWORKS. Or a career in real estate and property management.

Casualties at Autodesk

While Lynn may have been the most prominent, others include Heidi Hewitt, Joseph Wurcher, Jay Tedeschi, Justin Hoey, Bill Glennie and Noah Cole, as noted by Steven Johnson in CAD Nauseum. This was part of Autodesk's biggest layoff ever in the company’s history, a 13% cut (1,150 people) cut before Christmas.

Facing the Storm as Autodesk Stock Plunges

Autodesk’s stock looks like it fell off the edge. Share prices were down 20% this morning. This after the recent Q3 announcement that the company lost $120 million.

You’ll be feeling bad if you are invested in Autodesk. You’ll be feeling worse if you were one of the 1150 Autodeskers being laid off. They were told last week.

One of them tries to put a brave face. She’s doing fine, she says. She is lifting her spirits with a friend over a salad at a trendy Hayes St. eatery in San Francsico. “But did they have to do it right before Christmas?”

Captain Andrew at the Wheel

The third quarter of FY2018 was like many before it. It was the 10th straight quarter of losses for Autodesk after their dramatic change of business model, from perpetual to term-licensing. But for some reason (was it the layoff?), it triggered the storm.

In the fierceness of a storm, it is hard to keep in mind that calmer waters, a better world, awaits on the other side.

I imagine Carl Bass, CEO of Autodesk until June of this year, hearing Andrew Anagnost’s calls to turn the ship this way or that, finally saying here “You take the wheel’ and stepping aside.

Upon taking the wheel as the new CEO, Andrew has sailed full into the storm. Resolute at the helm, he is clear in his direction. There may be some damage, but the path to take is clear. There is no time to waste, no sugar with the medicine. Users have to wake up and face the storm. Resellers, too. Employees who enjoyed jobs chasing dreams, who forgot their mission, those who grumble on the new direction… over the side they go.

Through the ship is being battered, it hasn’t sprung a leak. The user base is still the biggest paying CAD userbase in the world. Some of the users may be grumbling (they always do) but there is no indication of becoming a mass migration. Autodesk applications are still gold, the currency of the industries they serve, tried and true. User data is safe. The applications keep getting better and no other CAD company has been shown more ability to keep up with fast moving technology. Users understand that Autodesk will be there for them, supplying current needs and needs they have yet to realize. Try as they might, no company has been able to erode Autodesk’s market dominance in a significant way. The foreign firms that have long claimed they can do the same for less are plucking the few users who have jumped off the ship, mad they no longer had a cabin in perpetuity. Bigger CAD firms that have had to realize they can’t lure away Autodesk users, and can only, at best, grow their business alongside.

 

Autodesk Layoffs May Be Its Biggest Ever

Laid off office workers. Two on the end have received a good severance package. (Stock photo).

Autodesk just announced that it will reduce its workforce by 1,150, or around 13%.

The bomb was dropped in the company’s quarterly financial call, when we also found out it had lost $120 million.

While not specific about what divisions, programs or locations will suffer, new CEO Andrew Anagnost announced the restructuring from “a position of strength,” defending upcoming strategic cuts against “peanut butter cuts,” which are cuts applied evenly across the whole company.

The restructuring plan is expected to cost anywhere from $135 to $145 million in the next quarter. How much of that will be severance pay is not known.

The last big layoff at Autodesk was in February of 2016 when the company, under Carl Bass, announced a 10% workforce reduction and let go 925 people.

Sales people will be affected, an expected result of more online sales. Term licensing and automatic renewals, more common in software sales and now in CAD, lessen the need for human intervention.

Autodesk’s army of resellers will also be feeling a pinch. This should be no surprise, says Andrew. Our resellers have been told there to expect change. Everyone knows we are going for a 50-50 mix. [50% direct sales, 50% reseller sales.]

The $120 million loss in the last 3 months makes 10 straight quarters in the red. Financial analysts have been forgiving of Autodesk, even optimistic, cutting the company a lot of slack, figuring it will one day catch up to the big pot of deferred revenue created in the shift from perpetual to term licensing. But is their patience running out? In today's Q&A, one analyst finally asked when the company expects finally expects to be coming back to profitability.

“We see FY 2018 as the trough,” was the response.

Autodesk is predicting a rise from the trough the following year. They didn’t mention Adobe this time, but the need to be like Adobe is obvious. Adobe dropped perpetual for term licensing and it took 11 quarters before revenue caught up. However, unlike Autodesk, Adobe managed to stay profitable every quarter.

Autodesk took a 12% plunge immediately after the announcement.

Revenue was $515 million, an increase of 5% over the same period last year.

While revenue was flat in the US and the rest of the Western Hemisphere, but Asia Pacific (APAC) region increased by 8%. Another increase like that will put APAC in the lead, passing the Americas.

Everyone have a great day, concluded the moderator.

What Are We…Bastards?

Autodesk users who bought for keeps find themselves in a new class of customer.
(Characters from Game of Thrones, picture from Overpowered Entertainment, meme created on ImgFlip.com)

Users come to Autodesk University to sharpen their skills, learn from instructors and each other. Many are already power users, having used Autodesk software for decades. In a time when few users get to go anywhere, much less Las Vegas, those that have attended multiple AU wear their badges proudly, many decorated with ribbons attesting to their skills and associations. This year, it cost $2,175 for the full conference pass. They are used to some gratitude from Autodesk for their attendance and years in service.

At AU2017, things were going to be different. There was a new sheriff in town. Andrew Anagnost had risen to the top, replacing the avuncular Carl Bass. Andrew was the architect of Autodesk’s total switch to term licensing. Many of those in the audience have paid up front for their software and expect to not keep paying. They were about to feel less welcome.

“Someone who is not paying us is not a customer,” said Andrew.

Not a happy customer. Autodesk critic, Steve Johnson, reacts to Autodesk CEO definition of customer as one who keeps paying.

For many, it was like children who learn they are adopted. Do Mommy and Daddy still love them? If they weren’t customers, what were they? Bastards?

On Twitter, Autodesk critic Steve Johnson (also in attendance) felt the burn. Having spent thousands of dollars on Autodesk software, was it only the newborn of noble blood who remained in Autodesk’s good graces?

 

You Won't Like What the New Autodesk CEO is Saying – But You Need to Hear It

Good morning, America… or is it? CEO Andrew Anagnost kicks off Autodesk University with thoughts of an overcrowded earth and the impending loss of jobs. Not yours, though --  if you pay attention. (Picture from Autodesk video of AU2017)

Autodesk University, named for the classes it offers, is where 10,500 of Autodesk’s faithful have converged, crowded into the Sands convention center in Las Vegas, waiting for the show to begin. It may be record attendance. Strange when you consider the city’s biggest attractions seem to be gambling, drinking and prostitution. Only a few weeks ago, a shooter in the Mandalay Bay hotel rained bullets from on high, like the angel of death, over a music concert across the street -- the worst mass shooting in US history.

We're here in spite of that. The show must go on. It’s 10AM Tuesday morning and it is about to go down. A deejay charges the atmosphere with electronic music. The crowd is pumped. The new CEO, Andrew Anagnost, addresses the crowd.

“Good morning,” says Andrew. But immediately he questions himself. “Or is it?”

Andrew won’t mention the massacre specifically – but he will take the take the gloom that hangs over Las Vegas and apply it to the world at large. It is a world of robots taking your jobs, of a crumbling infrastructure, an unrestrained population. We’re projected to have 10 billion people by 2050 (it has 7.5 billion now). Infrastructure is crumbling.

“While we are having parties, were we dangling our feet over the chasm of job destruction?” He is talking about the upcoming robot revolution.

The new CEO is obviously not afraid of shocking a crowd to its senses. This is not like previous Autodesk Universities. The crowd is hushed.

It was Andrew’s wake up call to the Autodesk faithful. He was going to build on that, deliver his view of the world, provide solutions, build hope…

But we’re going to need to recover. The message just delivered weighs heavy. It is a reminder of our anxieties. Users all feel the pressure of trying to keep up and a fear of falling behind. AU is their chance to reenergize, to jump ahead into the lead, once again. Take a bunch of classes, taught by the best instructors, get certified, fill up with the latest software and technology, and emerge once again: top dog.

Too Many People? We Can Help with That

Not a cause for alarm -- an opportunity. Autodesk, the design, simulation and manufacturing software vendor that refers to itself as an "automation company,” suggests its products can help house, move and improve the lives of the billions we will be adding to the Earth over the next couple of decades.

After the crowd is properly subdued comes the message of hope. To house the billions yet to come, we’re going to have to build a thousand buildings a day. Software applications can be automated the design process. The current AEC process is flawed, full of one-off designs, painstakingly and wastefully built on site, outdoors. Why can’t they learn from what manufacturing has known for years? Bring it inside, use robots, automate the sh*t out of it.

We see an architect using generative design, able to make customized living arrangements, using pre-built walls.

The Dutch firm Van Wijnen hunkered down during the recession, armed themselves with the latest tools and technology, then jumped back in with digital workflow. It serves as an example of what companies can do when they make the jump, catching the next wave of technology.

The waves that are coming with increasing frequency. You might be afraid the wave will take you under…and it might. But let’s look that the bigger picture, Autodesk is telling us.

ATMs Make for More Tellers

The ATM machine, first introduced in 1967, was going to get rid of bank tellers. It didn’t. In the 20 years after 1995, when ATM machines quadrupled to 400,000, the number of bank tellers actually increased. Why? Automation let banks do more with less, the banks thrived, opened more branches. So, more tellers.

Publishing: Andrew acknowledges many journalists are wondering about their future. Everybody can publish now, The amount of written material online has skyrocketed. The technology has actually made more of us into content creators.

Movies, instead of a few movies at a $100 million each, there are countless movies and video by independents. There has never been more to watch. And more of us are watching. The market has expanded.

Manufacturing, if you think robots are going to cost jobs, you’re wrong. Technology makes more jobs. Robots need people to take care of them. “China will have a shortage of 3 million skilled robot operators.”

“Autodesk is not only going to help you survive it, we’re going to help you thrive in it.”

 

Autodesk Makes New Math to Explain Why It Had A Good Quarter

In the first quarter under new leadership, you might have expected to see a turnaround in Autodesk’s predicament. Andrew Anagnost has been sole CEO since June. What is he waiting for?

Seriously, Andrew has taken control of a rather large ship and turning a large ship around –without capsizing it – it going to take time.

And that presumes a turnaround is in order. Those who know more about financial matters (many at Autodesk and in the financial community) have stated the company is on the right tack and sailing towards eventual riches. It's just a matter of time before everyone converts from perpetual to term licensing.

 

Revenue curve is showing an upward arc with last 3 quarters of increases. Chart based on Autodesk data, created by TenLinks.

9 straight quarters in the red. The profit curve is oscillating and appears to be leveling off below $100 million in net loss (last 6 quarters average loss of $143 million). Chart based on Autodesk data, created by TenLinks.

For the 2nd quarter of FY 2018, the company barely upticked in revenue (up 3%) and continued losing money, this time $144 million, even more that of the previous quarter ($130 million).

Autodesk lists $2.1 billion in assets, $1.2 billion in cash or “cash equivalents,: a burn rate of $140 million per quarter puts the company’s life expectancy at 2.1 years. Last year at this time, Autodesk listed $2.5B in cash or its equivalent.

To explain Autodesk’s continued optimism, a new financial mathematics has been developed by Autodesk, called New Metrics, uses  terms like M2S (maintenance to subscription) and ARR (annualized recurring revenue) to prove Autodesk is on the right course. One industry observer struggling to attempts to reconcile general accounting practices to Autodesk math here. Worrisome to another industry observer is the decline in bastions of Autodesk: manufacturing (down 17%) and AEC (down 18%) while low cost AutoCAD LT was up 32%.

While the new math has industry observers -- and engineers -- scratching their heads, financial analysts admit to no such confusion.

Go figure. Autodesk stock surges to record high on the day $144 million loss was announced. Chart from Google Finance.

“Good quarter,” says a financial analyst on the call, buoyed by losses not as much as expected. Investors raised stock price to a record high of $119.73 in midday trading the day of the Q2 announcement, though it fell back as by as much as $6 the following business day.

Urban Planning – Autodesk Leaving Marin Is Unofficial

On my first visit to Autodesk, I look out the glassed-in lobby to see deer on the foggy hills of San Rafael. I immediately fell in love with Marin County, California’s little gem on the other side of Golden Gate bridge. It’s 20 miles north of Sausalito, where Autodesk was founded. So enchanted were Autodeskers of Marin, they forced CEO Carol Bartz to make a 120 mile round trip from her home in Atherton.

Autodesk official headquarters on McInnes Parkway, San Rafael, CA, but most of its executives can be found at the One Market Street offices in San Francisco. Picture courtesy of TheRegistry.com.

But Carl Bass set up shop in the city with BuzzSaw. He was reeled back to San Rafael to rejoin Autodesk. I’m not sure he ever loved Marin. He kept an office in San Francisco. Autodesk hired more and more people at the One Market St office in the city. It was a ferry ride from Berkeley, where Carl lived – and a damn sight closer to the talent the company needed. Developers, marketers, and other tech workers… anyone new that arrived at Autodesk would end up at the One Market office. Over the years, San Rafael offices has reduced their floor space. Autodesk headquarters are officially in San Rafael for tax purposes, someone whispered to me.

In the move to the city, Autodesk is not alone. According to an article in the Washington post, Caterpillar, MacDonald’s, Kraft Heinz, Motorola and more, are pulling out of suburban offices and heading downtown. As more companies are getting into tech, and experiences shortages among tach workers, it makes sense to be nearer the talent pool.

Every little perk helps, like being able to get take out from a hundred restaurants and trucks, take a break in a coffee shop, meet friends after work and take a Lyft back home. The view of San Francisco Bay may not have deer and turkeys in it, but it’s not bad.