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Autodesk (NASDAQ:ADSK)
Q4 2021 Earnings Call
Feb 25, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Autodesk fourth quarter and full-year 2021 results conference call. [Operator instructions] I would now like to hand the conference to your speaker today, Simon Mays-Smith, vice president of investor relations. Please go ahead, sir.

Simon Mays-Smith -- Vice President of Investor Relations

Thanks, operator, and good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter of fiscal year 2021. On the line with me is Andrew Anagnost, our CEO; Stephen Hope, vice president and chief accounting officer; and Abhey Lamba, our vice president of Go-to-Market Finance. Today's conference call is being broadcast live via webcast.

In addition, a replay of the call will be available at autodesk.com/investor. You can find the earnings press release, slide presentation and transcript of today's opening commentary on our Investor Relations website following this call. During the course of this call, we may make forward-looking statements about our outlook, future results and related assumptions, acquisitions, and strategies. These statements reflect our best judgment based on our currently known factors.

Actual events or results could differ materially. Please refer to our SEC filings for important risks and other factors including developments in the COVID-19 pandemic and the resulting impact on our business and operations that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information.

Autodesk disclaims any obligation to update or revise any forward-looking statements. During the call, we will quote a number of numerical growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in the press release or the slide presentation on our investor relations website.

And now I will turn the call over to Andrew.

Andrew Anagnost -- Chief Executive Officer

Thank you, Simon, and welcome everyone to the call. I hope you and your families remain safe and healthy. Before jumping into our fourth quarter and full-year results, I would like to again thank our employees and the families and communities that support them as well as our partners and customers, for their continued commitment during uncertain times. That commitment, combined with our resilient subscription business model and the secular shift to the cloud, enabled us to maintain momentum and exceed our goals.

We generated strong growth, with full-year subscription revenue and remaining performance obligations or RPO up 26% and 19%, respectively. We also made significant progress toward digitizing AEC, converging design and make in manufacturing and converting non-compliant and legacy users. We signed a record number of new enterprise business agreements, or EBAs, in the fourth quarter. In fact, they were equal to the number we signed in the entirety of the previous year.

That's a testament both to our execution and growing partnership with our enterprise customers as we enable their digital transformations, demonstrated by enterprise BIM 360 usage nearly doubling year over year. While we made great strides this year, we intend to extend our leadership in the cloud and expand our presence in existing and adjacent industry verticals across the globe. The pending acquisition of Innovyze, which we announced yesterday and is expected to close later this quarter, is a great example of that intent. Innovyze is a global leader in water infrastructure simulation and modeling, serving many of the world's largest utilities, the majority of the top ENR design firms, and other leading environmental and engineering consultancies.

Innovyze enables water distribution networks and drainage systems to be more cost-effectively and sustainably designed and operated. Combined with CIVIL 3D, InfraWorks, Revit and Autodesk Construction Cloud, we would be able to provide end-to-end water and wastewater solutions across planning, design, construction and operations.With our existing capabilities in road and rail, and our partnership with Aurigo in capital planning, we now have end-to-end infrastructure solutions for facility owners and public sector agencies. Autodesk provides Innovyze with multiple opportunities to scale through enterprise, channel sales, and geographic expansion. We also intend to apply our expertise in navigating through a business model transition to drive additional growth in fiscal 2024 and beyond.

I'm excited about the opportunities ahead, and look to the future with optimism. In the near-term, we expect the unwinding of uncertainty from vaccine availability and political stability to drive confidence and investment over the second half of the year. Over the long-term, Autodesk's purpose to drive efficiency and sustainability has never been more relevant or urgent. In partnership with our customers, we have an unmatched capacity to drive efficiency and meet the global challenges of carbon emissions, embedded carbon, water scarcity and waste.

And Autodesk is playing its part. We are on track to meet our commitment to be climate neutral and remain dedicated to being a resilient, diverse, and equitable company. We were most recently recognized by Barron's as number four on their list of the world's 100 most sustainable companies, and the highest-ranked software company. We are proud of our impact at Autodesk, and through our customers the impact we are making in the wider world.

I'm also thrilled to announce two strong additions to my team. Debbie Clifford will be returning to Autodesk as chief financial officer and Raji Arasu will be joining as chief technology officer. Debbie is currently chief financial officer at SurveyMonkey but spent the 13 years prior to that role in various financial leadership roles at Autodesk, including leading the internal business model transition team, engaging with many of you in support of our investor outreach, and as my finance business partner before I became CEO. With her leadership skills, expertise and passion for our mission, Autodesk's finance team will not miss a beat.

Raji joins us from Intuit, where she currently serves as senior vice president of their Platform and Services business. Prior to that, she was CTO for eBay subsidiary StubHub. At Autodesk, she will oversee and be responsible for the Autodesk's technology and platform strategy, as well as being operationally responsible for the on-going development of our platform services. Raji will replace current Autodesk CTO Scott Borduin, who announced his intent to retire last year after more than 21 years of service to the company.

Scott had two tours as Autodesk CEO, the prior one working for Carol Bartz and has not only contributed to the rise of Inventor and Fusion to the products they are today, but also as a passionate evangelist for Autodesk and our vision. Emblematic of his dedication to Autodesk, he moved out his retirement date so that he can help Raji during her transition into Autodesk. I'd like to give Scott a heartfelt thank you for all he's done and is continuing to do. Before I provide insights into our strategic growth drivers, let me take you through the details of our quarterly and full-year performance, and the guidance for the next year.

In an extraordinary year, we performed strongly across all metrics, perhaps best encapsulated by the sum of our revenue growth and free cash flow margin for the year equaling 51%. Several factors contributed to that strength in the fourth quarter, including, record EBAs, robust subscription renewal rates, accelerating digital sales, and continued sequential growth in new business. Total revenue growth in the quarter was 16%, both as reported and in constant currency, with subscription revenue growing by 22% and now representing approximately 91% of total revenue. There was approximately two percentage points of benefit to subscription and maintenance growth from upfront revenue recognition of some products that do not incorporate substantial cloud services.

Looking at revenue by product and geography. AutoCAD and LT revenue grew 11% in the fourth quarter, and 16% for the year. AEC grew 18% in Q4, and 20% for the year. Manufacturing rose 17% in Q4, and 10% for the year.

Even excluding the benefit from a strong performance in automotive EBAs, which include non-ratable VRED revenue, manufacturing grew double digits in the quarter. M&E grew 14% in the quarter, boosted by a strong performance from our collaboration platform, Shotgun, and was up 10% for the year. Geographically, revenue growth ticked up in all regions. Revenue grew 14% in the Americas, 13% in EMEA, and 23% in APAC during the quarter.

We also saw strength in direct revenue, which rose 28% versus last year, and represented 34% of our total sales, up three percentage points from the fourth quarter of last year. The strength in our direct business was driven by some non-ratable products included in a few large EBAs and digital sales. During the year, we grew total subscriptions by 8% to 5.3 million. Excluding the multi-user trade-in program, total subscriptions grew 4% to 5.1 million.

Subscription plan subscriptions grew 15%, and by 10% excluding the multi-user trade-in program. We added 130,000 make subscriptions due to the strong adoption of our BIM 360 family and Fusion 360 products. During Q4, our maintenance conversion and renewal rates declined sequentially, which was expected as we are entering the final stages of our maintenance-to-subscription program. With only one quarter left before this program retires, we have approximately 126,000 maintenance subscriptions remaining, accounting for approximately 3% of our revenue in the fourth quarter.

I am proud to share that we have converted over 1.3 million maintenance subscriptions to date. At the end of the fourth quarter, the lion's share of our commercial subscriptions were named users benefiting from easier access, usage data visibility and secure license management. We anticipate many of our remaining multi-user subscribers will make the transition to named users as the pandemic recedes, and we are now extending our 2:1 multi-user trade-in to August 2023 to enable that. As announced last November, we are also exploring consumption-based models to meet the needs of customers requiring flexible license usage.

Our net revenue retention rate remained within the 100 to 110 percentage range we laid out in our guidance. Our product subscription renewal rates remained robust, reinforcing the business-critical nature of our products to our customers. Our billings were broadly level with last year, reflecting fewer multi-year sales, and our long-term deferred revenue was 26% of total deferred revenue in Q4. Our total RPO of $4.2 billion is up 19%, and our current RPO of $2.7 billion grew 16%.

On margins, we continue to realize good operating leverage due to strong revenue growth and diligent expense management. For the full year, non-GAAP gross margins remained very strong at 93%, up one percentage point from last year, our non-GAAP operating margin increased by five percentage points to 29%.As you have seen in our press release, our GAAP results include a $679 million deferred tax asset valuation allowance released in the fourth quarter. This largely reflects the completion of our business model transition and the significant growth in our profitability. Consistent with our capital allocation strategy, we continued to repurchase shares with excess cash to offset dilution from our equity plans.

During the fourth quarter, we purchased 530,000 shares for $157 million at an average price of approximately $295 per share. For the full year, we purchased 2.6 million shares for $549 million at an average price of approximately $208 per share. Now let me turn to our guidance, which does not include Innovyze. We expect an improving macro-economic environment during the year will result in accelerating growth in new business over the course of fiscal 2022.

Usage trends during the fourth quarter remained above pre-COVID levels in most of Asia Pacific and Continental Europe and below pre-COVID levels in the U.S. and UK. We have seen an uptick in interest for multi-year deals, growing optimism in the channel, and gradual recovery in bid activity on BuildingConnected in the U.S. We expect product subscription renewal rates to continue to be very healthy, and our net revenue retention rate to remain between 100% and 110%.

Given our subscription model, revenue growth will lag the improving sales environment. For fiscal 2022, we expect revenue to grow by 13% to 15%, margins to expand to between 31% and 32%, and free cash flow growth to reaccelerate to approximately 20%. When looking at the quarterization of free cash flow for fiscal 2022, we expect about three quarters of our free cash flow to again be generated in the second half of the year due to our macro-economic phasing assumptions and normal seasonality. As we noted last quarter, Vault revenue is becoming ratable for fiscal 2022 with the release of significant new mobile functionality in the first quarter, and this will reduce our revenue growth by about a percentage point over the year with the biggest impact in other revenue on the P&L and in the manufacturing product family.

Looking at our guidance for the first quarter, normal seasonality is compounded by Vault ratability and one fewer calendar day versus Q1 fiscal 2021, which together reduces year-on-year revenue growth in the first quarter by about two percentage points. With improving macro-economic conditions and easing comparables, we expect our revenue growth to accelerate after the first quarter. The slide deck on our website has more details on modeling assumptions for the fiscal first quarter and full-year 2022. We expect Innovyze to be accretive to revenue growth, broadly neutral to free cash flow and a headwind on reported operating margins in fiscal 2022 and 2023.

We will provide additional details after the Innovyze transaction completes. Let me finish by giving you some details on the progress we made executing on our strategy to digitize AEC, converge design and make in manufacturing, and monetize non-compliant and legacy users. Earlier in February, we launched our Autodesk Construction Cloud platform, which unifies our organic and acquired AEC cloud offerings, and the data held within them, to enable a connected project ecosystem across design and construction. Underpinning the Autodesk Construction Cloud is our common data environment, Autodesk Docs; this provides seamless navigation, integrated workflows and project controls, and enables a single source of truth across the project lifecycle.

Autodesk Build brings together the best of PlanGrid and BIM 360 with new functionality which, along with Autodesk Quantify and BIM Collaborate, creates a comprehensive suite of field construction and project management solutions. For our design customers, BIM Collaborate Pro extends the capabilities of BIM 360 Design on the new platform to create a more seamless exchange of project data between design and construction. Our strategy is to combine organic and acquired software in existing and adjacent verticals to create end-to-end, cloud-based solutions for our customers that drive efficiency and sustainability. We have pursued that strategy to create Autodesk Construction Cloud, we are pursuing that strategy in infrastructure with the acquisition of Innovyze, and we will continue to pursue that strategy in manufacturing.

The reasons for, and benefits of this strategy, were clearly demonstrated in our fourth quarter results. Our growing partnership with our enterprise customers, as we enable their digital transformations, resulted both in a record number of new EBAs in the fourth quarter; and also strong expansion and renewal rates with existing EBA customers. We are seeing our new products, typically used by contractors, being increasingly adopted by design firms. For example, we expanded our agreement with Jacobs, the world's largest design firm, to include Pype, PlanGrid, and Assemble to enable greater collaboration and more efficient workflows.Autodesk has been a trusted partner of Jacobs over the last 30 years, aligned with its mission to challenge today and reinvent tomorrow.

Jacobs is also using Autodesk's transformative services to help them deliver innovative solutions to their customers. For example, Autodesk and Jacobs partnered to deliver the world's first generatively designed airport in Australia and, together, we are focused on leveraging generative design to solve other client challenges around the world. Environmental Air Systems, EAS, a full-service mechanical contractor and custom-built HVAC equipment manufacturer which is on the forefront of industrialized construction, increased its investment with Autodesk by replacing its existing project management tool with BIM 360. It is now able to leverage its existing investment in AEC Collections, and provide a comprehensive tool for its teams to collaborate and to connect the office and the field.And Tyréns, a leading sustainable urban development consultancy in Sweden, significantly expanded its strategic platform partnership with Autodesk.

As Per Bjälnes, Tyréns Digital Strategy Manager for Business Area X, said, "Tyréns is at the leading edge of the digital transformation of the construction and maintenance industry. Digitalization enables smart building design, but requires secure data flows and seamless collaboration across a broad ecosystem of stakeholders during the construction and operations process. Autodesk's Revit and BIM 360 Docs empowered us to create true digital representations, and now with Autodesk Forge we can leverage those assets as digital twins to create value for different stakeholders, such as a reduction of energy consumption, the prediction and optimization of maintenance, and new smart seamless end user services." We are also seeing benefits from our strategy in manufacturing. In the automotive sector, we now provide design software through our enterprise agreements to nearly all the largest global Automotive OEMs, and are extending our footprint beyond design into the factory.

For example, our expanded partnership with Rivian, a global provider of electric adventure vehicles, now extends across facilities with Revit, BIM360, and PlanGrid; manufacturing with Inventor and generative design; and in the design studio with Alias, VRED, and Shotgun. We are able to support Rivian as it converts existing facilities to digital twins, optimizes its factory layout using generative design, improves energy efficiency through simulation, and enables collaboration and efficiency using a common data environment. Similarly, we are providing end-to-end support to our long-term customer, Transmashholding, TMH, which is the largest manufacturer of rolling stock and rail equipment in Russia and CIS, to accelerate its digital transformation and converge its design and make processes. TMH now builds trains in concept in Alias, designs and engineers in Inventor, optimizes in Fusion, produces in Powermill, and sells in VRED.

Our market-leading cloud-based platform, Fusion 360, enjoyed another quarter of accelerating subscriptions, growing scale of deployments, and adding competitive displacements, ending the quarter with over 140,000 commercial subscriptions. Conturo Protoptyping, a machine shop based in Pittsburgh, recently expanded its relationship with Autodesk by adding more Fusion seats. Conturo is also adopting our recently launched machining extension, due to its integrated Design and CAM workflows, its advanced manufacturing capability, and the potential of generative design to reduce project timelines and solve design-for-manufacturing issues faster than ever before. In education, we continue to expand our footprint and replace traditional CAD competitors.

With Tinkercad and Fusion 360 alone, Autodesk is now approaching 40 million education users worldwide. For example, all of University College London's Mechanical Engineers switched to Fusion 360 during the fourth quarter. As Professor Tim Baker, MBE, who led the transition, said: "Covid-19 accelerated UCL's transition to the cloud. By enabling collaborative, multi-disciplinary engineering, Fusion 360's next-generation platform equips our graduates to become the world's leading engineers of the future." While all our software remains free for educators and students, graduates continue to bring Fusion 360 with them into the workplace, from start-ups through to the giants of manufacturing.

While we have moderated our license compliance activity during the pandemic, we continue to work with existing and potential customers to ensure they pay for the software they use and comply with our terms of use. Our goal remains to give non-compliant and legacy users access to the benefits of subscription access through flexible models. During the quarter, we closed 23 deals over $500,000 dollars with our license compliance initiatives, three of which were over a $1 million.For example, a European customer became aware during its transition to named users that its employees were accessing licenses in regions outside of the contract scope. Our premium plan provided them with the flexibility to manage all licenses centrally, monitor usage to remain in compliance, and resulted in a $1 million-plus deal.

And a leading supplier of industrial automation solutions based in Europe, who became a legacy customer three years ago, subscribed to our Product Design and Manufacturing Collection when we were able to demonstrate that recent workflow improvements and cloud enabled functionality would allow them to win more business by improving communication with their own customers, and improved efficiency through quicker layout in 2D and handover to 3D and visualization. In closing, we continue to build a stronger Autodesk for the long term. Our early and sustained organic and strategic investment in critical capabilities like cloud computing and cloud-based collaboration, combined with a successful transition to a SaaS business model, give us significant competitive advantages and confidence to grow in the double-digit range in the foreseeable future. We expect to have accelerating momentum during fiscal 2022 and we have multiple drivers that make us confident in our fiscal 2023 free cash flow target of $2.4 billion and double-digit growth thereafter.

With that, operator, we would now like to open the call up for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Saket Kalia from Barclays. You may begin.

Saket Kalia -- Barclays -- Analyst

OK. Great. Thanks, Andrew for taking my questions here and congrats on the new additions to the team.

Andrew Anagnost -- Chief Executive Officer

Thank you.

Saket Kalia -- Barclays -- Analyst

Maybe just to start you touched on this a little bit in your prepared remarks, Andrew, but can you just talk a little bit about how you're thinking about new business recovery this year and maybe just broad brush, what verticals or GEOs might be stronger than others?

Andrew Anagnost -- Chief Executive Officer

Yes. Thank you, Saket. I think that's a really appropriate question to open up with. As you know, new business was down last year and that has a disproportionate impact on how we see revenue in Q1, but the way we look at it shaping up this year is Q1 is kind of the trough of the new business recovery.

And we're going to be accelerating our new business growth out through the year into the second half of the year. In fact, we really see a world where most of the new business that didn't show up last year, kind of reemerges as we head through this year. So it's important to see that business that disappeared last year didn't disappear. It just got shifted out.

In fact, you're hearing a lot about the acceleration of digitization in multiple industries, and we're seeing that in our space in spades as well. And I think if we look at particular sectors, it's actually really going to be distributed across all the sectors and kind of similar ways. AEC is already investing really significantly ahead of the market in terms of their digitization efforts. You kind of saw early evidence of that with the EBA business we did.

The record number EBAs we did in Q4 relative to previous years. In manufacturing, you kind of see the same accelerated interest in digitalization and new cloud-based workflows, especially surrounding what we're seeing in fusion. The same goes in media entertainment. The media entertainment business, which was classically a laggard on some of these highly digital, highly cloud integrated workflows is moving to the cloud in a big way.

Now geographically kind of in a broad-brush, I kind of highlighted in the opening remarks that, we saw a broad recovery in Europe and Asia to pre-COVID levels of monthly active usage. And we saw a little bit of a lag in the U.S. and the UK. I think we're going to see that kind of geographic fraternity new business in that cascade.

It's going to be strong in APAC. It's going to get strong in Europe, and then it's going to start to come back in the U.S. and the UK. Q1 will be the trough of this new business growth, and we're going to accelerate right out of that into the rest of the year.

Saket Kalia -- Barclays -- Analyst

Got it. That's really helpful. Maybe for a follow-up, understanding that Innovyze hasn't closed, it isn't included in guidance. Can you just give us some broad brushes on maybe how big that revenue scale there is, and maybe just touch on whether there are any significant differences in the business model versus Autodesk?

Andrew Anagnost -- Chief Executive Officer

Yes. Differences in opportunities, Saket. So first off, let's just kind of just level set on why we did Innovyze. I think we've been super clear that infrastructure is one of these really big growth opportunities for us long-term.

Infrastructure projects take a long time to design and plan, and they last even longer after that. So an investment in infrastructure is an investment in the long-term health of Autodesk. And I think we just have to be super clear about that. Water was one of those areas where it would have taken us all a lot of time to catch up organically, whereas road and rail is an area we've been highlighting to you that we've been investing in organically with our portfolio and really making great strides there.

When you look at the business at a high level, in terms of the differences and where the revenue is going to come from. So look, at a high level, Innovyze is going to be accretive to our revenue growth, roughly to a percentage point, as we head into this year that includes deferred revenue write-offs and the fact that we have a partial year in here, it's probably going to be dilutive this year about a percentage point off of operating margin. But here's the opportunity that I want to make sure you highlight. You actually poked out a little bit between the differences in our business model.

Not only are we going to plug Innovyze into our sales engine, in terms of named accounts, channel sales and international expansion. We're also going to apply our expertise on business model transformation to the Innovyze product portfolio. And I think that's going to be an important transitional element of how we absorb Innovyze into the company. We're good at this.

We know how to do this, and we know how to navigate this. So what you're going to see in FY 2023 is you'll probably see a little bit of a depression of Innovyze's revenue growth in isolation, because we're going to be applying the business model transformation. And as you know, with the business model transformation, there's downward pressure in revenue as a result, but acceleration of revenue as you head out onto the other side of the business model transformation. So if we look at FY 2023, it's probably going to be neutral to the overall revenue growth of the company.

It's not going to touch the free cash flow number $2.4 billion is going to come out Innovyze or no Innovyze. And they'll probably be a little bit more of a headwind operating margin, maybe between 1% and 2% as we go through the business model transformation, but a nice acceleration up to our double-digit growth standards as we head beyond FY 2023 to 2024, 2025 and 2026, which is kind of an extra bonus on top of what we're going to be able to do, just to expand the core Innovyze water business, to capitalize on the increasing investment in infrastructure. So it's a good question to talk about the differences in our business model, because there's actually an opportunity there and a difference.

Saket Kalia -- Barclays -- Analyst

Very helpful, Andrew. Thanks again and congrats on the new additions to the team.

Operator

Our next question comes from line of Phil Winslow from Wells Fargo. You may begin.

Phil Winslow -- Wells Fargo Securities -- Analyst

Great. I thank everyone for taking my question and then congrats on a strong close to the year. And once again, congratulations on the new hires in particular. Great to have Debbie back.

Really want to focus on the mix side of Autodesk. How do you think about it in a reopening scenario and given the fact that we have a lot of backlog of projects, particularly in the construction and infrastructure world you're heading into this year, what is the opportunity for Autodesk to potentially accelerate adoption of some of the main functions, BuildingConnected, PlanGrid to try to help the industry work through this backlog?

Andrew Anagnost -- Chief Executive Officer

Yes. So we actually started to see the early signs of that as we headed into Q4 as new business, starting to strengthen in our construction portfolio in particular. And we also saw it across the Fusion base, as well as people started to look at their manufacturing and the design to manufacturing operations. So we see a pretty significant opportunity here.

Look in many ways, the pandemic gave us an opportunity to catch up and pull ahead a little bit here. Our portfolio is now best-in-class. Our development team did an incredible heavy lift and an amazing job unifying what was the best of PlanGrid, which with the best of what we had in BIM 360, we now have Autodesk Build on this foundation of Autodesk Docs. And there is no one that has a better office to trailer solution than we do.

And I think if you go out there and you talk to customers and you talk to this space and they look at what we've done with Autodesk Build, you're going to hear the same kind of feedback that we really built a great product, and that's the product we're going to be leading with on new business. It's not that we won't be leading on the acquired portfolio products as we continue to sell those, but we're going to lead with Build, and we're going to lead with Build in many places. And that's going to give us a chance to not only drive a successful international expansion, but also continue to lap some of our competitors in the rest of the market, especially in places like the mid-market, but another one pieces of our secret sauce heading into the year, Phil, is the flexibility we offer on business models. We meet our customers wherever they are.

And I think this is super important for you to pay attention to, we sell named user subscriptions. We sell site licenses. We sell project-based licensing when they want it. We sell consumption inside of EBAs, whatever they need for whatever project they're pursuing.

We have a model for them and a product for them. And I think that important convergence between the flexibility, which by the way, costs us complexity in the backend, but it's worth it in terms of meeting the customers where they are. When you combine that with the products, we feel really, really optimistic about how we're going to accelerate in this year and meet some of this demand. And our customers are looking for it.

They want to digitize faster. They're starting to increase their spending. And we think we've got the portfolio of products and the portfolio of purchasing options that makes it work. We're not trying to force people into one kind of business model, and then maybe try to lock them in kind of places that they don't want to be.

So we feel pretty optimistic.

Operator

Thank you. Our next question comes from the line of Jay Vleeschhouwer.

Andrew Anagnost -- Chief Executive Officer

No follow-up from Phil. So we didn't get a follow-up here.

Operator

Not at this time. Our next question comes from the line of Jay Vleeschhouwer from Griffin Securities. You may begin.

Jay Vleeschhouwer -- Griffin Securities -- Analyst

Thank you. Good evening. Andrew, the company has quite a lot on his plate, a very broad agenda. And the question is within the context of your three overarching strategic priorities, obviously making the numbers that you guided to now for fiscal 2022.

Can you talk about some of the other critical programmatic executable that you are aiming for this year? For instance, in terms of a channel in terms of delivering on the platform, going live perhaps with PPU other critical technical milestones that you might care to talk about in terms of new products like Tandem and Spacemaker and so forth. And then secondly, on the last call, you noted that within your peer group, Autodesk is the largest R&D spender, which is the case, but could you talk in a little bit more detail about how you're allocating R&D? Maybe talk about the priorities you've spoken of reinvesting in the AEC? And maybe talk about some of those critical investment priorities views in the R&D?

Andrew Anagnost -- Chief Executive Officer

All right. So there was – it's usually a multi-party question from Jay. All right. So let's talk about some of the programmatic pieces here.

Now I don't want to take any thunder away from this year's AU, which is where we talk a lot about, as you probably noticed with last day, you're going to see more of a product announcement focused AU, as we move forward. So I don't want to take any thunder away from that. But if you look at programmatically where we're going to be leaning into, platform enhancements that bring design and make and industries together and create commonality across many of the industries we serve are going to be a particular lever that we're to be moving with. We just hired a new CTO with a lot of platform strategy chops that we're going to be leveraging to integrate some deeper platform capabilities into the company.

We're also going to be looking programmatically at the named user transition program, as you know, that was kind of a bumpy program last year. The customers really didn't appreciate us introducing that into a pandemic year, and they really want to understand what their options are with regards to flexible usage and occasional use moving forward. For so look for us to explore those kinds of capabilities as we've extended out, what the deadline was in that program, which still makes that program being executed faster than maintenance subscription, but probably more on a timeline that fits with what our customers can absorb. So you'll see us kind of look at those flexible options and explore some of those things with our customers.

Now if you look specifically at how we're allocating investment, I mean – I think you saw what we did around the A in AEC. We acquired Spacemaker. We're integrating that team, building up capabilities around that team, particularly around integrating machine learning and cloud-based platforms into the design process in architecture and engineering. So that investment is clear, we've highlighted it.

You've just seen how we're investing in infrastructure and civil infrastructure. We've already talked organically about road and rail. And now we've also talked about water and all of this kind of builds on top of what we're doing with Construction Cloud. I haven't talked a lot about what we're going to be doing with manufacturing, but here's what I can tell you.

We're very interested in the cloud transformation in manufacturing, and I think you'll see us lean deeply into the cloud transformation around manufacturing more. We've invested pretty heavily there. Our investment is large in that whole portfolio, particularly in the Fusion portfolio. I think you'll continue to see us to invest to that area.

And as we head toward AU, you'll hear exciting things about Fusion. You'll hear exciting things about Tandem. You'll hear exciting things about the platform for the company. And you'll hear exciting things about how the AEC portfolio is starting to come together in a similar way that we brought together some of the construction portfolio acquisitions that we did previously.So look for us to kind of play across all those fields.

Now, in terms of the breadth of what we're doing, I think I might've talked about this last time. We reverticalized the company just recently in October. So now I have someone that's responsible for the AEC execution. Again, that's Amy Bunszel, Scott Reese working on the execution and product design and manufacturing, and Diana Colella working in the media and entertainment space, and they are working closely with me and the rest of the team to execute on these vertical priorities while we've also elevated platform up to a executive staff level, reporting directly to me, which will allow us to synergize the platform efforts more tightly with those things.

So we're doing this from an operational perspective, as well as from a strategic investment perspective.

Jay Vleeschhouwer -- Griffin Securities -- Analyst

OK. Thank you, Andrew.

Andrew Anagnost -- Chief Executive Officer

You're welcome.

Operator

And our next question comes from the line of Gal Munda from Berenberg Capital. You may begin.

Gal Munda -- Berenberg Capital Markets -- Analyst

Hey. Thank you for taking my questions. So the first one, I was just like to ask you, Andrew, when you kind of look at how the year played out in terms of the multi-years there or network licenses, versus what you expected. Is it fair to say that you're kind of ride bang in the middle to that two to one thing that you expected and you've just extended the program to 2023.

Does that mean that you're kind of very comfortable with the way that this program is kind of converting and you think that it's going to remain at that level where it's not a significant headwind to the model?

Andrew Anagnost -- Chief Executive Officer

Yes. So look, our original statements about this being neutral to the model, continue to hold. So there's no change in that expectation. I think what you saw last year, and I think this is a natural thing, like there's two sides of the bell curve, right? There is the size of the bell curve for which two for one is like, hey, that's a no brainer for me.

I'm going to take the two for one. And there's a size of the bell curve for which two for one requires some more thought by the customer. More thought about – OK, wait a second. My usage is greater than two for one, Autodesk, what are you going to do to allow me to be flex a little bit more an EBA is too big for me.

So what you saw early on is a lot of those people on the left side of the bell curve, the 50% of people that were up for renewal last year that said, hey, this is good for me. They moved quite rapidly through that, right? The extension is for the people that require more thought about how this is going to impact their business and how they're going to adapt if their usage is greater than the two for one that the program had. So that's one of the reasons why we're working on the extension also to ensure that we have the new flexible models out there for them to explore. So there's no change in our expectations, which regards to the impact on our business.

It's going to be over in the whole period of the program neutral in terms of impact to our business. Positive long-term in terms of experience for the customers.

Gal Munda -- Berenberg Capital Markets -- Analyst

Yes. Absolutely. And then just the second as this follow-up. You mentioned that for this year, you, again, expecting kind of mid-20s long-term deferred revenue in terms of the, you said, no material contribution to free cash flow.

When we look into more toward FY 2023 and then maybe even beyond that, we're hearing this, multi-year licenses is still been very, very strong even during the pandemic. So what would be the normal rate that you kind of think about if you think maybe more longer term, not just next year and maybe the year after?

Andrew Anagnost -- Chief Executive Officer

Yes. So Simon, remind me what we're reverting. So one of the things we're doing, and I want to make sure we're super clear on this with regards to multi-year. With multi-year our expectations that are revert solely back to the mean here.

All right and not try to exceed what we've done historically, OK? And I just want to make sure that we understand that and we can get ourselves grounded in that simple fact. We're reverting back to the mean behavior and yes, as we ended last fiscal year, right, we saw quite an interesting pickup in multi-year, frankly, more than we expected, all right, given that we were still in the pandemic year, but if we look at where we want to be, it's just a reversion back to the mean. And remember that the multi-year business is attractive to both our channel partners and our customers, because our channel partners liked to collect the cash up front. And our customers like to lock in the price protection for multiple years.

And if you recall, reversion to the mean historically for our maintenance business was about 30% of the business, roughly speaking. We want to stay right within that domain and we will probably stay within that domain for the foreseeable future. And that was adjusted peak, not the mean, OK, a piece to 30%, not in the middle. The mean was probably somewhere in the mid-20's.

Gal Munda -- Berenberg Capital Markets -- Analyst

Got you. Thank you, Andrew.

Operator

Our next question will come from the line of Adam Borg from Stifel. You may begin.

Adam Borg -- Stifel Financial Corp. -- Analyst

Great. Thanks for taking the question, and also welcoming the new folks coming in. Maybe just a question on the net revenue retention rate. Obviously, the pandemic and speed of recovery will be the key input in the near-term.

I was just curious, Andrew, if there's any kind of initiatives you're working on internally that can help drive net retention revenue rates back to the historical range. Thanks so much.

Andrew Anagnost -- Chief Executive Officer

Yes. So we're hitting the ranges that we've set for net revenue retention. And frankly, obviously there's two things that drive net revenue retention, renewal rates and AOV renewal, and the ability to expand into accounts, right? And so we're working both of those sides in terms of increasing renewal rates and increasing our ability to expand in accounts with the make solutions. So when we look at net revenue retention, remember, one of the things that we saw and I think we highlighted this a lot over the last year was how strong the renewal rates lasted throughout the – through the last year and how we continued to move forward.

So we actually overperformed based on our expectations on renewal rates of the business. We continue to see – we continue to expect that to accelerate. But more importantly, the net revenue retention is going to be driven by more and more people incorporating our digital portfolios, Construction Cloud, Fusion, other types of products like that and also moving to BIM in the AEC space. So look for a lot of the increases in net revenue retention to be programmatically driven by the move to BIM, the move to digitize in the cloud – in Construction Cloud and the move to transform their manufacturing processes with Fusion 360 and other solutions like that.

Adam Borg -- Stifel Financial Corp. -- Analyst

Great. Thanks again.

Operator

And our next question will come from the line of Sterling Auty from JP Morgan. You may begin.

Sterling Auty -- J.P. Morgan -- Analyst

Yes. Thanks. Hi, guys. Just one question from my side.

In the context of the improving economy, I'm wondering what if anything you contemplated in that improvement in the business coming from the possibility of further stimulus spending from the government and in particular [Audio gap].

Andrew Anagnost -- Chief Executive Officer

We do not factor that in, OK. Governments move slowly, the money trickles down slowly. So we have not factored any of that into our plans and into our guides. That said, we do expect it to be an investment.

You probably have heard that the American Society of Civil Engineers in the U.S. rated U.S. Infrastructure a D+. Other countries aren't doing particularly well either.

This is an area for investment and focus. And we expect to see some of that investment focus, but we haven't factored this in.

Sterling Auty -- J.P. Morgan -- Analyst

Thank you.

Operator

Our next question will come from line of Joe Vruwink from Baird. You may begin.

Joe Vruwink -- Baird -- Analyst

Great. Hi, everyone. One modeling question first and then one on the business. Just when looking at the first quarter guide, I think the revenue variance in terms of variance to consensus estimates that seems explained by the couple 100 basis points you talked about.

But I'm wondering in terms of the EPS variance as a bit wider. Are there some discrete investments that take place in 1Q? Is this a function of the extra day thrown into the mix? Or I guess, the question is how do you see margins progressing throughout the year and as 1Q kind of different than just the normal cadence?

Andrew Anagnost -- Chief Executive Officer

Yes. So this is a really important question. So let's talk about Q1 and the shape of the curve and what actually drives revenue in Q1. So I think I said earlier, Q1 is actually at the trough of where we expect things to be.

We're going to accelerate quite rapidly out of Q1. But what actually drives the revenue guiding Q1? The most important thing is the revenue recognition. So let's look at last year. Last year, we did not grow a new business to the degree, we expected to.

In fact, we saw declines year over year in our new business. The impact of those declines in new business bookings in the previous year have a disproportionately large effect on Q1, but they worked themselves out relatively quickly as you move into Q2, Q3, Q4 and beyond. So we absolutely do have a somewhat more backend loaded year than we would in a classic Autodesk year, but not extremely disagreed simply because of the hole that was created. And I think I said earlier, the new business that we lost in last year, it didn't disappear.

It's coming back and it's coming back with a vengeance as we head into the next year. But there's a couple of other little factors that affect Q1 disproportionally. And I think it's really important that we all get grounded on some of these things. So the first one is, we have a set of products that because they are not yet cloud enabled to a certain degree are recognized upfront in the revenue – in the accounting rules.

They have to be. We have been working hard to ensure that all of those products are cloud enabled and that will actually force them to be recognized ratably. One of the products that is moving from upfront recognition to ratable recognition is the Vault product family. And that Vault product family was providing quite a bit of upfront revenue recognition previously.

And now, as we enter Q1, it's all going to be recognized, ratably because Vault now has a mobile client, it now has other cloud enabled features in it. So that was all of a sudden a headwind to revenue recognition in Q1, but it works itself out as the year progresses, as the relatability progresses and the buildup progresses. And this is just the way a subscription business model works. So there's some unusual sort of one-time headwinds to Q1 that unwind themselves fairly quickly.

And Q1 is the trough and we will accelerate out of there, but it's definitely related to the buildup of recognized revenue as we progress. So that – I hope that helps you understand a little bit more how Q1 works. Yes, there are some additional little details like Q1 is one day shorter this year, year over year. So it's actually one less day of revenue in the quarter and it's three days shorter than quarter over quarter.

But those other things I talked about are much more important for understanding the Q1 guide and how it unwind as the year progresses. Make sense.

Joe Vruwink -- Baird -- Analyst

It does. It does. Thank you. And if I can squeeze in one more.

Just as you engage with your customers and they come back and you're booking new business. But as they talked to you about the composition of what they see going forward and their view on how a non-res construction cycle might develop. What are you hearing in terms of similarities? The cycle is going to be like, out of 2008, 2009, out of 2001, 2002 or what are some of the differences that you're hearing? And how did those similarities or differences impact Autodesk just given how your product portfolio has changed?

Andrew Anagnost -- Chief Executive Officer

Yes. So remember, first off that we are distributed across almost all facets of the industry, and it's important to realize that when one wobbles, another one pops up. And we're absolutely seeing that pattern. So for instance, you see in commercial real estate development, you see a slowing of projects.

You actually do see a rebooting of project that had been put on hold by the pandemic, but you see a slowing of new projects. But you see other new projects coming in the pipeline in terms of urban multi-family housing, suburban multi-family housing, other types of commercial real estate outside of dense urban areas. So we're hearing a lot from customers about a shift in where their portfolios are moving to. One thing we are getting consistently though, is an ongoing focus on adopting certain aspects of our cloud portfolio, particularly, what we do with Autodesk Build collaborations.

The collaboration tools for Revit models. We're seeing a lot of increased adoption in that, we saw a lot of strength last year. We're seeing some of that strength heading in. I think that's going to be an important part of our portfolio moving forward, because not only does it allow for a seamless remote work, but it also allows for better downstream integration to the rest of the build process.

So we're seeing a lot of those tools being adopted, and we're also seeing a lot more adoption of some of the cloud-based tools that we're seeing in manufacturing. So the cloud is definitely front and center in terms of some of the growth areas in our portfolio, but do not underestimate BIM and the role of Revit in the digitization of AEC, it will continue to be a strong driver in the new world order, but it's uneven. It cuts very across geographies, across segments. You definitely see differences in terms of where people are going to seeing things booting up and where they see things slowing down.

But like every cycle we've ever seen, the money just shifts to somewhere else.

Joe Vruwink -- Baird -- Analyst

Thank you.

Operator

Our next question comes from the line of Matt Hedberg from RBC Capital Markets. You may begin.

Matt Hedberg -- RBC Capital Markets -- Analyst

Hi, guys. Thanks for taking my questions, and that was really good color on Q1. I think that makes a ton of sense. And also my congrats to Debbie, it's really good to see you back at Autodesk.

I guess, Andrew now that we're sort of unwinding uncertainty, I think that's a term you've used before. When we think of the trajectory to 2023, I mean, I just would kind of like to get me to some high level thoughts there. And I guess even more so, beyond 2023, what's the right way to think about that as we enter this new fiscal year.

Andrew Anagnost -- Chief Executive Officer

Yes. So thank you for this question, right. And it's an important question. So first off, I want to make sure that I just reiterate something I've said many times before.

We model our business with super high fidelity, OK. And within those models, we never put forward our best case, right. We always had a buffer in there at some degree, buffers are great for like pandemic years. You love it when you have a buffer.

Now of course, as you get closer to events like FY 2023 and things associated with that. The buffer gets smaller, but the accuracy of your model also gets better as well? So we have super – we have a lot of confidence in the buildup to FY 2023, the $2.4 billion in free cash flow, the organic metrics surrounding our business and we also have a lot of confidence in the double-digit growth as we had beyond fiscal 2023. Fiscal 2023, isn't some event, it's just another milepost like fiscal 2020 was fiscal 2023 is. It's another milepost on a journey, but there is ongoing growth in the double digit range out beyond fiscal 2023.

Now I think one of the things people anchor on right now is what about this buildup from 2022 to 2023? One of the things I want to remind you is about the nature of how momentum is going to be exiting 2022. Remember, we're going to be slightly more backend loaded in terms of the accumulation of revenue in new business heading into fiscal 2023, not dramatically backend loaded, but more backend loaded than we were traditionally be. We're going to exit 2023 with quite a bit more momentum than the full-year targets would indicate, all right, relatively speaking in terms of those outcomes. So we feel pretty confident with the momentum we'll exit FY 2023 with, and that we have the book of business from the renewal base, from the continuing digitization of AEC, from the continuing convergence of design and make and manufacturing, and to the conversion of non-compliant users to hit the numbers that we have in FY 2023 and beyond.

And we were confident in our models, we're confident in the margin of error. We're confident in the levers we can pull if we had to pull any. So we see line of sight to some of the organic goals that we've been talking about, and we continue to be confident even with what seems to be a big buildup from 2022 to 2023, you just have to pay attention to the momentum we have as we exit the full-year 2022 into 2023.

Matt Hedberg -- RBC Capital Markets -- Analyst

Super helpful. Very clear. Thanks, Andrew.

Andrew Anagnost -- Chief Executive Officer

No different than that 2019 to 2020 discussion that we had. I think like yesterday, but it was three years ago.

Matt Hedberg -- RBC Capital Markets -- Analyst

It does. Thank you.

Operator

Our next question will come from the line of Keith Weiss from Morgan Stanley. You may begin.

Keith Weiss -- Morgan Stanley -- Analyst

I wanted to dig into the recovery. So our survey work shows expectations are getting a little bit pushed out from the kind of first half of 2022 to the next quarter end. We've heard from you and your peers on a slow recovery. So kind of what are you hearing from customers and what do they need to see in order to pick up the pace of recovery? And also where are the areas that you see there could be some risks that it could get further delayed.

Thank you.

Andrew Anagnost -- Chief Executive Officer

Yes. So first off, our customers have to invest ahead of their project load in order to be successful. Remember our tools show up not only in the execution phase and the make phase, but also very early in the early conceptual design phases. And one of the big areas of strength that we saw in Q4 was that large increase in enterprise business agreements.

We see the record number of EBAs we saw is kind of an emblematic of customers investing in future digitalization capacity. So we expect to see that regardless of the situation in the markets right now. But our view continues to be Q1 the trough, the acceleration starts to come out of Q1, as we head out of the spring and into the summer. Right now there's lots of uncertainty and you hear lots of buzz around variants and vaccine distributions.

But I think all of us are smart enough to know that just like when we have these discussions about testing infrastructure and testing rollout and testing capacity, all these things work themselves out over a multi-month period in terms of distribution of vaccines, distribution of assignment of capacity and all the things associated with that. Now if all of that stuff starts to crumble and fumble, of course, you end up in a new situation, but that is highly unlikely in this situation. And there's much more alignment on trying to get the right things done. And that's what we're hearing from our customers more and more is they're trying to invest ahead of the growth they see coming forward.

So we're pretty bullish as we head into the second half of the year and we're pretty optimistic as we head into the summer. There's always something that can derail this, a wobble in the vaccine distribution or something associated with that or some kind of rise of political uncertainty. But you know what, we can't predict those things. And we don't see those things.

And what we see mostly are tailwinds right now, as we head out of Q1 and into Q2 and beyond.

Keith Weiss -- Morgan Stanley -- Analyst

Great. That's super helpful. And then just to sneak one more in, your comments on the areas investment were certainly helpful. But just taking a step back, the Innovyze deal was one of the largest acquisitions to date.

I believe it was above PlanGrid. So how should we just think about the kind of higher level framework for investing organically in R&D versus kind of the acquisitions as a source of innovation? Thank you.

Andrew Anagnost -- Chief Executive Officer

Yes. So we tend to invest organically in innovations that either we've been invested – that we've been working on for a period of time, that it represents net new business opportunities that we will acquire to net new business opportunities where there's like, no mature market yet. But we will tend to acquire in areas where we're seeing long-term opportunities or opportunities for enhanced digitization or enhanced cloud capability in verticals where we might not have established vertical – businesses or sub verticals where we might not have established businesses. But make no bones about it.

Our organic investment is very much driven on this convergence of design and make in both AEC and manufacturing. And on this convergence of manufacturing and construction across our industries, we've got a lot of organic focus and the innovation in those areas. We will acquire inorganically for innovation in certain cloud-based areas, but more likely, we'll acquire for vertical specialization in areas where established businesses have created a presence.

Keith Weiss -- Morgan Stanley -- Analyst

Great. Thank you so much.

Operator

Thank you.

Andrew Anagnost -- Chief Executive Officer

And I think Innovyze is indicative to that.

Operator

Unfortunately, that's all the time we have for questions today. I'd like to turn the call back over to the speakers for any closing remarks.Simon Mays-SmithThank you everyone for joining us. I know it's a busy night for many of you. Look forward to catching up with you next quarter's results.

If you have any questions in the meantime, please contact us, simon.mays-smith@autodesk.com, look forward to chatting soon.

[Operator signoff]

Duration: 63 minutes

Call participants:

Simon Mays-Smith -- Vice President of Investor Relations

Andrew Anagnost -- Chief Executive Officer

Saket Kalia -- Barclays -- Analyst

Phil Winslow -- Wells Fargo Securities -- Analyst

Jay Vleeschhouwer -- Griffin Securities -- Analyst

Gal Munda -- Berenberg Capital Markets -- Analyst

Adam Borg -- Stifel Financial Corp. -- Analyst

Sterling Auty -- J.P. Morgan -- Analyst

Joe Vruwink -- Baird -- Analyst

Matt Hedberg -- RBC Capital Markets -- Analyst

Keith Weiss -- Morgan Stanley -- Analyst

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