Good day, and thank you for standing by. Welcome to the Q2 Fiscal '25 Autodesk Earnings Conference Call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. I’d now like to hand the conference over to your speaker today, Simon Mays-Smith, Vice President, Investor Relations.

Thanks, operator and good afternoon. Thank you for joining our conference call to discuss the second quarter results of Autodesk's fiscal '25. On the line with me is Andrew Anagnost, our CEO; and Betsy Rafael, our Interim CFO. During this call, we will make forward-looking statements, including outlook and related assumptions, products and strategies. Actual events or results could differ materially. Please refer to our SEC filings, including our most recent Form 10-Q and the Form 8-K filed with today's press release for important risks and other factors that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We will quote several numeric or growth changes during this call, as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release or Excel financials and other supplemental materials, available on our Investor Relations website. And now, I will turn the call over to Andrew.

Thank you, Simon and welcome everyone to the call. We finished the second quarter and first half of the year strongly, delivering 13% revenue growth in constant currency in both periods and have raised guidance for the full year, reflecting the sustained momentum of the business and the smooth launch of the new transaction model in North America in June and expected launch in Western Europe in September. Once again, opportunity, resilience and discipline underpinned our performance. In March last year, we laid out the secular growth trends in our markets from accelerating digital transformation in Architecture, Engineering and Construction or AEC, to the transition to the cloud in manufacturing and media and entertainment. These secular trends are driving customers to break down siloed workflows and seamlessly connect data end-to-end. Real-world experiences from remote collaboration to supply chain disruption and AI are reinforcing these trends. We’re aggressively pursuing our strategy to benefit from these secular trends, including the development of next-generation technology and services, end-to-end digital transformation and unique growth enablers such as business model evolution, customer experience evolution and convergence between industries. Our investments in cloud, platform and AI in pursuit of these growth opportunities and ahead of our peers enable Autodesk to provide its customers with ever more valuable and connected solutions and to support a much broader customer and developer ecosystem and marketplace. While macroeconomic policy, geopolitical and one-off factors like the Hollywood strikes have impacted industry growth, Autodesk subscription model and diversified product and customer portfolio have proven resilient. The underlying momentum of the business and key performance indicators remain consistent with previous quarters, as evidenced by increased product usage, record bid activity on building connected and cautious optimism from our channel partners. We realized the significant benefits of this strategy for shareholders through our disciplined and focused execution and capital deployment throughout the economic cycle. These investments mitigate the risk of expensive catch up investments in the future and support sustained revenue, margin and free cash flow growth. To support our growth initiatives and margin improvement, we have been modernizing our go-to-market approach to create more durable and direct relationships with our customers and to serve them more efficiently. And we are transforming our platform to enable greater engineering velocity and efficiency to support a broader customer and developer ecosystem and marketplace. We’ve already seen significant benefits from initiatives like these and there is more to come. Stripping out the effects of margins from FX and the new transaction model, we expect to be towards the midpoint of our fiscal '26 non-GAAP operating margin target of 38% to 40% in fiscal '25, a year ahead of schedule and representing about 300 basis points of improvement since fiscal '23. We are confident we will make further improvements in fiscal '26 on the same basis. Once complete, we expect the new transaction model and subsequent go-to-market optimization to increase sales and marketing efficiency and deliver GAAP margins among the best in the industry. Non-GAAP operating profit, including stock-based compensation costs, will become a key metric to track as we make this transition. Attractive long-term secular growth market, a focused-strategy delivering ever more valuable and connected solutions to our customers and a resilient business model are generating strong and sustained momentum both in absolute terms and relative to peers. Disciplined execution and capital deployment is driving even further operational velocity and efficiency within Autodesk and will underpin the mechanical build of revenue and free cash flow over the next few years and GAAP margins among the best in the industry. We expect the pace of buybacks to mitigate dilution will pick up into fiscal '26, as our free cash flow builds from the fiscal '24 trough. We expect this to result in a further reduction in shares outstanding over time, continuing the capital return trend of the last few years. In combination, we believe these factors will deliver sustainable shareholder value over many years. I would like to welcome Betsy, and thank her for stepping in as Interim CFO and will now turn the call over to her to take you through the details of our quarterly financial performance and guidance for the year. I will then come back to provide an update on our strategic growth initiatives.

Thanks, Andrew. Q2 was a strong quarter. We generated broad-based growth across products and regions in AEC and manufacturing, which was partly offset by softness in media and entertainment, primarily due to the lingering effect of the Hollywood strike. Our make business continues to enhance growth, driven by ongoing strength in construction and fusion. Overall, macroeconomic, policy and geopolitical challenges and the underlying momentum of the business were consistent with the last few quarters and included strong renewal rates, but softer business in China and Korea. The new transaction model did not make a material contribution to our second quarter results. In his opening remarks, Andrew discussed the benefits we expect to derive from our go-to-market initiatives, which support our growth and ongoing margin improvement. Before I discuss revenue, billings, deferred revenue, RPO and free cash flow, let me remind you of how these metrics naturally and mechanically evolve during the shift to annual billings for most multi-year contracts, as well as the new transaction model. The shift to annual billings for most multi-year contracts moves billed deferred revenue into unbilled deferred revenue in our financial reporting. Unbilled deferred revenue would then not be included in deferred revenue on our balance sheet but would be included in our remaining performance obligations disclosure. Initially, this reduces billing, deferred revenue and free cash flow as you saw in fiscal 2024, but is gradually becoming a tailwind to billings and free cash flow, as our annually billed multi-year cohorts rebuild. Metrics that include unbilled deferred revenue like RPO provide a better view of performance during our transition to annual billings for most multi-year contracts. As we have said before, we will continue to offer multi-year contracts billed upfront in certain circumstances, such as in emerging countries, where there is increased credit risk if not received upfront. On the Autodesk Store, until we enable system changes to offer annual billing and of course, on an exception basis when it is driven by customer preference such as for our non-cloud enabled offerings. Just to give you some context on scale, multi-year contracts billed upfront incrementally contributed less than 5% of total billings in the second quarter. The new transaction model also has mechanical and timing impacts on billings, deferred revenue, revenue and operating costs. The amount of impact is determined by the pace of the model rollout. In addition, channel partner and customer behavior can also impact the results. The mechanical impact is due to the way channel partner payments are recognized and accounted for in the P&L. Under the old or the buy-sell model, channel-partner payments are deducted from gross billings and revenue. We then report net billings and net revenue. Conversely, in the new transaction model, we record channel partner payments in sales and marketing expense. So as we shift from the old model to the new, there is an increase in billings, deferred revenue, revenue and sales and marketing expense. That increase in revenue and operating costs resulting from the change in the way that channel-partner payments are recognized and accounted for flows ratably through revenue and cost in the P&L over time. And the overall pace of that transition is determined by when we launch the new transaction model into each geography. In the short-term, moving the P&L geography at channel partner payments from contra revenue to sales and marketing expense creates a headwind to the operating margin percentage, but it is really broadly neutral to operating profit and free cash flow dollars. But over the long-term, we expect that this transition to the new transaction model will enable us to further optimize our business, which we anticipate will provide a tailwind to revenue and deliver GAAP margins among the best in the industry on mechanically higher revenue and despite mechanically higher costs. Channel partner and customer behavior during the rollout of the new transaction model are much harder to predict and model. For example, with channel partners better prepared ahead of launch, more customers in North America and Australia co-termed their contract expirations to align the timing of renewals across their business. This had a negative impact on the timing of billings and deferred revenue. As we've seen many times before, co-termed contracts actually create an opportunity for larger contracts on renewal, as we elevate our relationship with customers from subsidiaries to company-wide. Along with more self-service functionality, it also enabled us to reduce administrative costs and serve our customers more efficiently. While activity in the second quarter was probably more tactical in nature, co-terming is one of the expected benefits of the new transaction model and will be one of the drivers of our margin momentum over the coming years. As I'll discuss, this creates timing headwinds but is not a change in the underlying momentum of the business. We will give you much more details about the impact of the new transaction model on fiscal '25 results and the expected impact on fiscal '26 when we report our full year results next February. So now let's move on to the results. Total revenue grew 12% and 13% in constant currency. By product in constant currency, AutoCAD and AutoCAD LT revenue grew 8%, AEC revenue grew 15%, manufacturing revenue grew 17% and in the low-teens, excluding upfront revenue. M&E grew 5%. Revenue grew 13% in all regions on a constant currency basis. Direct revenue increased 21%, and represented 40% of total revenue, up 3 percentage points from last year benefiting from strong growth in both EBAs and the Autodesk Stores. Net revenue retention rate remained within the 100% to 110% range at constant exchange rate. Billings increased 13% in the quarter, reflecting a modest tailwind from the prior year shift to annual billings for most multi-year contracts and a mechanical tailwind of approximately 2% from the transition to the new transaction models. Billings were also negatively impacted by more co-termed. Total deferred revenue decreased 13% to $3.7 billion, and was again impacted by the transition from upfront to annual billings for multi-year contracts. Total RPO of $5.9 billion and current RPO of $3.9 billion grew 12% and 11% respectively. Turning to margins, GAAP and non-GAAP gross margins were broadly level, while GAAP and non-GAAP operating margins increased by 4 percentage points and 1 percentage points, respectively. At current course and speed, the ratio of stock-based compensation as a percentage of revenue peaked in fiscal '24, will fall by more than 1 percentage point in fiscal '25 and will be below 10% over time. Free cash flow for the quarter was $203 million. As we said might happen back in February, some channel partners in North America booked business earlier in the quarter ahead of the transition to the new transaction model to de-risk month one after the transition. This accelerated free cash flow to the second quarter, which was partially offset by the negative impact of more co-terming. Turning to capital allocation, we continue to actively manage capital within our framework and deploy it with discipline and focus through the economic cycle to drive long-term shareholder value. During the second quarter, we purchased approximately 471,000 shares for $115 million, which is an average price of approximately $245 per share. We do expect the pace of buybacks to pick up during the second half of the year, as we had very minimal purchases in the first half. We will also continue to deploy capital to offset dilution into fiscal 2026, as our free cash flow grows from the fiscal 2024 trough generated by the transition from upfront to annual billings, again, from most multi-year contracts. We will continue to buy forward dilution, which we expect to result in a further reduction in shares outstanding over time, continuing the capital return trends of the last few years. We have reduced our share count by about 5 million shares over the last three years with an average percentage reduction of about 70 basis points per year. Now let me finish with guidance. As we said in February, the pace of the rollout of the new transaction will create noise in billings and the P&L. So, we think free cash flow is the best measure of our performance. Taking out that noise, the underlying momentum in the business remains consistent with the expectations embedded in our guidance range for the full year. Our sustained momentum in the second quarter and the smooth launch of the new transaction model in North America reduced the likelihood of our more cautious forecast scenarios. Given that, we are raising the midpoint of our billings, revenue, earnings per share and free cash flow guidance ranges. Let me give you a little bit more detail. The underlying momentum of billings is in-line with our expectations, but two of our modeling assumptions have changed. First, the new transaction model is expected to launch in Western Europe in September rather than in early fiscal '26, which was our modeling assumption at the start of fiscal '25. This is a tailwind to our reported billings. Second, more customers have co-termed contracts in North America than we model and we've assumed the same thing will happen in Western Europe. This timing effect is a headwind to reported billings in fiscal 2025. The net effect of these is a 5 percentage point to 6 percentage point tailwind to billings from the new transaction model in fiscal 2025, which includes a 3 percentage point to 4 percentage point tailwind from North America specifically. We have raised our fiscal '25 billings guidance to a range between $5.88 billion and $5.98 billion. The underlying momentum of revenue is also in-line with our expectations. The $40 million increase to the top-end of revenue guidance reflects the expected launch of the new transaction model in Western Europe in September, as well as acquisitions and think about those in roughly equal measures. The $90 million increase to the bottom-end of the guidance range includes that $40 million with the remainder, an underlying increase due to the reduced likelihood of our more cautious forecast scenarios. At the midpoint, we are increasing revenue guidance by $65 million or $25 million excluding the impact of acquisition and the new transaction model. Our fiscal '25 guidance range is now between $6.08 billion and $6.13 billion, translating into revenue growth of around 11% at the midpoint when compared to fiscal '24 and includes 1 percentage point to 1.5 percentage point from the new transaction model. Underlying margins are slightly better than our previous guidance and that enables us to offset higher expected cost from the earlier launch of the new transaction model in Western Europe. While we still expect non-GAAP operating margins between the range of 35% and 36% in fiscal '25, that now includes a 1 point to 1.5 point underlying margin improvement that is broadly offset by the margin headwinds from the new transaction model and the incremental investment in people, processes and automation. The underlying momentum of free cash flow is in-line with our expectations as well. The headwind to billings from co-terming that I mentioned earlier is largely being offset by faster collections and improved underlying margins. We've raised the lower end of our fiscal '25 free cash flow guidance, resulting in a range between $1.45 billion and $1.5 billion. We expect strong free cash flow growth in fiscal '26, because of the return of our largest multi-year renewal cohort, the natural mechanical stacking of multi-year contracts billed annually and a larger overall EBA cohort. With our current trajectory, we still estimate free cash flow in fiscal 2026 to be around $2.05 billion at the midpoint. While the transition to annual billing for multi-year contracts and the deployment of the new transaction model creates noise in billings in the P&L, they do provide a natural tailwind to revenue and free cash flow over the next few years. Combined with a resilient business model and sustained competitive momentum, Autodesk has enviable sources of visibility and certainty, given the context of significant macroeconomic, geopolitical, policy, health and climate uncertainty. We continue to manage our business using a Rule of 40 framework with a goal of reaching 45% or more over time. We are taking significant steps toward our goal this year and next. We think this balance between compounding revenue growth and strong free cash flow margins captured in the Rule of 40 framework is the hallmark of the most valuable companies in the world and we intend to remain one of them. The slide deck on our website has more details on modeling assumptions for both Q3 and full fiscal year '25. Andrew, back to you.

Thank you, Betsy. Let me finish by updating you on our strong progress in the second quarter. We continue to see good momentum in AEC, particularly in infrastructure and construction, fueled by customers consolidating onto our solutions to connect and optimize previously siloed workflows through the cloud. The cornerstone of that growing interest is our comprehensive end-to-end solutions encompassing design, pre-construction, field execution through handover and into operations. This breadth of connected capability enables us to extend our footprint further into infrastructure and construction and also expand our reach into the mid-market. As a sign of that growing momentum, our construction business had another strong net new customer quarter as the benefits of our end-to-end solution became more apparent. Let me give you a few examples. Thornton Tomasetti is an internationally recognized engineering design and analysis firm, which uses Revit and other advanced technologies to deliver projects at all scales and levels of complexity. We have been a proud partner as it has transformed its business to excellence and interoperability in BIM. The transition from BIM 360 to Autodesk Construction Cloud has optimized project workflows and cloud collaboration. Autodesk's virtual reality tools have reimagined its visualization workflows, and Dynamo and generative design have enabled its team to focus on high-value creative work. During the quarter, Thornton Tomasetti renewed its EBA with Autodesk and expanded it by more than 50%. To address the challenges of a fragmented ecosystem and siloed working environments, a European consortium of nine public water operators serving millions of residents across numerous municipalities decided to expand its relationship with Autodesk by adding BIM Collaborate and BIM Collaborate Pro and an upgraded premium plan to its existing AutoCAD, Docs, AEC collections and InfoWorks subscriptions. With these expanded capabilities, it will continue its digital transformation, accelerating its transition from 2D to 3D and its ability to manage all assets in a common data environment across all consortium members. In the quarter, a leading specialty subcontractor based in the Midwest of the United States began looking to replace point solutions that no longer supported custom workflows. With the help of a channel partner after a 45-day evaluation, the subcontractor chose to adopt Autodesk Build, which complements its virtual construction and design capabilities, streamlines communication between design and construction teams, and importantly gives control and ownership of its own data. Again, these stories have a common theme: managing people, processes and data across the project lifecycle to increase efficiency and sustainability while decreasing risk. Over time, we expect the majority of all projects to be managed this way, and we remain focused on enabling that transition through our industry clouds. Moving onto manufacturing, we made excellent progress on our strategic initiatives. Customers continue to invest in their digital transformations and consolidate our design and make platform. In automotive, we continue to strengthen and expand our partnerships, both within and beyond the design studio. In the second quarter, a leading European manufacturer renewed and expanded its EBA to accelerate its time to market and help drive its business transformation initiatives. In addition to Alias for concept design, it will leverage VRED for virtual prototypes and flow production tracking for project management. These solutions democratize visualization across the organization, reducing reliance on physical prototypes, improving design collaboration and speeding up the product development process. Additionally, as the manufacturer moves to build new battery factories, it is exploring the adoption of integrated factory modeling to reduce costs and increase collaboration across suppliers and contractors throughout the project lifecycle. Meissner, a global leader in complex tool and plant construction, is leveraging Autodesk solutions to adapt more quickly to a fast-moving automotive industry. It is driving business growth through improved production cycle times while meeting high-quality reliability standards at reduced costs. To achieve this, Meissner has adopted PowerMill for complex simultaneous five-axis milling, PowerInspect for programming 3D measurement inspection routines and machine parts and PowerShape to produce blow-molded plastic hollow parts, while leveraging Fusion for its collaboration capabilities. Fusion remains one of the fastest-growing products in the manufacturing industry. As customers seek to drive innovation and growth at lower costs, Fusion extension attach rates are increasing, which is helping to drive the average sales price higher. In education, we are preparing future engineers to drive innovation through next-generation design, analysis and manufacturing solutions. Three years ago, Bochum University, a public research university in Germany, evaluated Fusion for its mechanical engineering department but determined the solution didn't fulfill existing requirements. In the second quarter, impressed with Fusion's significantly expanded capabilities in electronics and PCB design, configuration, drawing automation and collaboration, Bochum decided to replace a high-end competitive solution with Fusion for all mechanical engineering courses. With the Fusion platform, Bochum students can now acquire end-to-end workflow skills from simulation in the cloud to data management with just one installation, enabling better collaborative learning and employability for students, while saving time and administration costs for the university. And finally, we continue to leverage unique growth enablers such as business model evolution, customer experience evolution and convergence between industries to grow our market opportunity. For example, Mercury Engineering is a European leader in construction solutions. The company builds and manages complex engineering and construction projects for the world's leading corporations across a range of sectors, including data centers, semiconductor and life sciences to support its digital edge initiatives and the ability to deliver large-scale projects wherever its clients operate. Mercury increased its investment in Flex during the quarter. Using Flex to access solutions such as Navisworks, Revit, ReCap, AutoCAD and Plant 3D, coupled with Account-Based Autodesk Construction Cloud, Mercury enjoys frictionless consumption, limitless cloud access, the ability to rapidly scale up new projects with the right tools and the ability to collaborate across its ecosystem. I know many of you pay close attention to the American Institute of Architects' data, and we do too, but maybe not always to the same data. In 2022, the AIA said that almost half of architecture firms' total billings came from reconstruction and renovation projects, up from about a third 20 years ago, with the rest coming from new builds. In commercial, industrial and institutional subsectors, reconstruction and renovation accounted for more than 60% of billings. From infrastructure exceeding its design life to regulations mandating greater efficiency, and with climate change making action more urgent, renovation and reconstruction are growing trends both in the United States and worldwide. For buildings and infrastructure, Autodesk is a leader in BIM and digital technologies across the project lifecycle that underpin these reconstruction and renovation efforts. That's why we're delighted to be named as the Official Design and Make platform of the LA28 Olympic and Paralympic Games to support LA28's no new permanent venues plan and commitment to build LA28's footprint by adapting existing or building temporary infrastructure. Autodesk will support LA28's more than $1 billion temporary overlay and construction plan, including retrofitting more than 40 venues across the Los Angeles metro area. Over the next four years, LA28 will use Autodesk software and Building Information Modeling (BIM) tools to bring to life an ambitious venue plan, consultative support to help LA28 meet its delivery and sustainability plan, and Autodesk Construction Cloud as a central tool to facilitate better collaboration with thousands of critical stakeholders on the design, development and ultimate delivery of the venues. Autodesk's technology is used every day to design and make a better world, and we are thrilled to be LA28's official design and make platform. Before I open the call for questions, I would like to quickly update you on our CFO search. We have some excellent candidates and are making good progress. Once our new CFO is up to speed and we've launched a new transaction model in all developed markets, we will set out our plans in more detail. We'll update you when we have more to say.

Thank you. Our first question comes from Saket Kalia with Barclays. You may proceed.

Okay, great. Hey, Andrew. Hey, Betsy. Thanks for taking my questions here. Andrew, since you last reported, Starboard Value has issued a couple of letters and a slide deck. Just maybe for the benefit of the group, I was wondering if you had any high-level thoughts that you wanted to share with us.

Thank you, Saket. First, I want to emphasize that we listen to all of our investors attentively. We've had multiple meetings with Starboard, and they presented to our Board. One key point we agree on is that there is significant shareholder value yet to be realized from Autodesk for our investors. It's important to highlight what we should be optimistic about. Despite challenging conditions, we delivered strong results this quarter. We faced macroeconomic impacts and specific issues related to Russia, China, and strikes involving writers and actors, yet our revenues and free cash flow increased, and our guidance improved by 1% at the midpoint. These achievements stem from diligent work. Two years ago, we began shifting from multi-year contracts billed upfront to annual billing for multi-year contracts. I know this transition created uncertainty regarding Autodesk's outlook, but the results speak for themselves. Previously, multi-year contracts billed upfront were measured in billions; now, as Betsy noted, that number has become negligible. The benefit of this is that previous billions will yield returns gradually over time. It’s straightforward math, which I appreciate. Additionally, last year we initiated a new transaction model aimed at gaining better control and visibility over our sales and marketing expenses. This approach is central to our future plans, as we aim to enhance productivity and reduce costs per deal, positioning us for margin growth. Now, why should you believe in our progress? This year, we will meet our non-GAAP targets on a like-for-like basis one year ahead of schedule. This underscores our commitment to delivering results. We share Starboard's view that Autodesk has substantial value creation ahead, and I am excited about our future. The results from this quarter are just the beginning of that journey.

Yeah, absolutely. That was super helpful, Andrew. Maybe for my follow-up for you as well, maybe just moving to the business. You gave some nice examples of construction wins in the quarter. Could we just go one level deeper into Autodesk Construction Cloud? Maybe talk about sort of the overall construction backdrop that you are seeing and how you feel about ACC competitively?

Yeah. That's a great question, right? And look, first off, the thing I'm really excited about with our construction business is that we are maintaining momentum in a really tough competitive environment where others are having challenges maintaining momentum, but we are maintaining momentum. And there are a couple of key reasons why we are maintaining momentum. One, there is still a large backlog in construction. Backlog matters, alright and that backlog is still there and kind of construction professionals are still interested in digitization. That in addition to our value proposition becoming more resonant with customers. One, the portfolio of Construction Cloud is competitive, people like it. They like our value proposition of going from design to construction. They like the flexibility of the business models we bring to them. They are looking to either move to Construction Cloud net new or they are looking to move from older solutions, competitive solutions to our solutions. The other thing is in the mid-market, in the US, we see our competition more and we win more and that's because of the strengthening of this value proposition. And the last bit I think is worth talking about is the international growth for Autodesk. This is a place where Autodesk has a superpower and we are going to continue to grow internationally. We saw strong growth internationally. We are going to continue to see strong growth internationally. Long term, that is going to continue to kind of be accretive to our construction business. So a lot going on there, but I do want people to remember there is a backlog and we are definitely maintaining momentum.

Very helpful, guys. Thank you.

Thank you. Our next question comes from Jay Vleeschhouwer with Griffin Securities. You may proceed.

Thank you. Good evening. Andrew, with regard to the new engagement or transactional model, the new channel compensation arithmetic is very readily understandable, but I would like to ask more about the division of labor under the new model, which is to say your inside sales, your customer success investments and the like versus the channel. So how do you see the role of your inside and other direct sales capacities versus that of the channel, particularly when it comes to renewals and/or upselling, how do you see the role of the e-Store versus the channel under the new model? Then my follow-up.

Jay, you are asking some very specific questions. Let me respond in a general manner. With this new transaction model and the ability to establish clear divisions of labor, there are opportunities to enhance efficiency and productivity in sales and marketing. You are indeed pointing out aspects related to our partners and ourselves that we will continue to refine over time. This is where a significant portion of our margin growth will originate in the next couple of years. You are certainly addressing important areas for discussion.

Okay. Second question with regard to the billings co-terming effects, the model effects and the like, perhaps we can parse that to get at the organic effects of the business, which is to say, how are you thinking about your license volume and mix expectations? In other words, how are you thinking near-term and long-term with regard to the volume assumptions that you've previously spoken about in your overall P times Q framework?

Let me start by saying that co-terming takes some billings out of the current renewal cycle and moves them forward. It creates efficiency in our renewal process. We will see much greater efficiency in our renewals, as co-term contracts are easier to manage at that time compared to other contracts. Additionally, they facilitate cross-selling, up-selling, and expansion during renewals. Thus, while co-terming might affect when the billings appear, it provides significant efficiencies, which is the key takeaway. The rest of the details are more complex to address directly.

The only thing I would add is with fewer contracts to manage, you also drive efficiency from inside the company.

All right. Thank you.

Thank you. Our next question comes from Adam Borg with Stifel. You may proceed.

Awesome, and thanks so much for taking the questions. Just maybe for Andrew, just going back to the new transactional model, it is great to hear that things are going smoothly so far in North America. I was hoping you could maybe go a step deeper on what that exactly means. And importantly, what's given the confidence to rollout accelerate the rollout into Europe and Japan ahead of expectations, especially given the additional complexities you've talked about pulling out internationally.

Yeah. It's a good question. So remember – let us just recount the incremental journey we've taken here, right? We started with Australia, really stressed and tested the system in that environment. We always like to stress and test things in smaller markets, on smaller pools. And we have essentially completed the entire rollout in the US. During that time, we've had no major issues, no major issues came up with regards to disruption to the business as we did this. Now, of course, there are all sorts of quality of life issues. There has been a backlog of issues that people want more functionality, they want more capability to do X, Y and Z. What we are doing is we are working that backlog and we gave ourselves a little bit of extra time to clear that backlog. Some of that backlog is specific to test runs that we've done in Europe as well. So, given what we learned in Australia, given how the US went even smoother than Australia and we had a much shorter recovery time as we rolled out in Australia, given that we are probably going to see the same kind of pull forward in Europe that we saw in the US, which buffers things as we move forward, we are very confident about the cascade here and how this is going to roll out.

The only thing that's different in Western Europe from North America is really that it is different currencies and there are different legal regulatory laws in place. But I think that we've learned from each step along the way and so are very, very comfortable with the plan for the full fiscal year.

That's super helpful. And maybe just as a quick follow-up, Andrew, obviously, US elections coming up in a few months. I hope you could talk a little bit more about what you are seeing in the end-market demand environment. Are the AEC or manufacturing industries making any changes in their decision-making process, either accelerating or slowing down decision-making ahead of the election in a few months? Thanks again.

Yeah. The good thing here is that the issues that affect our customers are bipartisan issues, alright? Infrastructure, manufacturing, Go-USA, everything across the world, they are bipartisan issues. So, I think whoever wins, there may be all sorts of other puts and takes. But with regards to the things that affect our customers' end-markets, I see little impact and we are not hearing a lot of trepidation from our customers on that.

Incredibly helpful. Thanks, again.

Thank you. Our next question comes from Jason Celino with KeyBanc Capital Markets. You may proceed.

Great. Thanks for taking my questions. I kind of wanted to dig into just the performance of the quarter. Obviously, you beat nicely, you beat margins nicely. You are keeping kind of the margin framework the same for the year, even though you are absorbing some of these incremental headwinds from the transition. So internally, did you do anything to drive leverage or sources of leverage with that?

No, we did nothing unusual to do this, alright? This is all the rate and pace of the business. Betsy, do you want to comment a little bit more?

I think that we did see underlying improvement in the margin and that was intentional knowing that we were going to get some headwinds from some of these transitions.

Okay. Great. And then maybe just a little more pointed on the free cash flow side. So it is a $10 million raise, nice to see. Obviously, the transition timelines have no impact to free cash flow. So, I know you said some customers signed earlier in 2Q. So is the raise on free cash flow just a function of timing or more a function like the core business? Thank you.

No, I think a lot of it is a timing issue because we originally estimated that we didn't anticipate the significance of people buying ahead of the launch in North America. And so our original assumption for free cash flow for FY’25 was that roughly two-thirds of it would take place in the back half of the year. Our current modeling assumption is one half of that will take place in the back half of the year.

Excellent. Thank you.

Thank you. Our next question comes from Elizabeth Porter with Morgan Stanley. You may proceed.

Great. Thank you so much for the question. I wanted to ask a bit on the pricing environment. I believe one of the things we picked up was the move to the transactional model should allow you to have some more control on discounting behavior and help narrow some of the price differentials you've seen. So I wanted to ask, is this a lever you expect to use? And is it something you are doing today or a future opportunity and how we could think about that going forward?

Yeah. So the place where that has the biggest impact is with our partners, quite frankly. What our best partners really like about the new transaction model is it prevents a less competent, less value-added partner coming in and undermining them on price on a big deal where they are trying to really add value. So for our partners, this is definitely going to allow them to sell to the value they are delivering. For us, moving forward, it is all about the efficiencies of the process. So for us, it is not so much about the price. The partners are definitely going to benefit from that. What we are going to benefit is the ability to get the efficiencies and the costs out of the environment as we move forward. And I think that is where you want to look at for us. So the partners, definitely a price advantage for our best partners. For us, a cost advantage as we drive productivity.

And enhance the strategic relationships directly with customers.

Great. And then just as a follow-up, I appreciate the comments on the overall demand environment. I was hoping you could unpack a little bit more around the new business trends. I understand the macro remains challenging. Anything you are picking up from a new business standpoint in the quarter or how that outlook is changing?

Let me discuss that for a moment. Overall, we are experiencing similar trends to what we've seen in previous quarters. While there are some challenges in new business, there are various factors to consider for this quarter. Our forward-looking metrics, such as monthly active usage and bids on connected building projects, indicate positive momentum similar to what we've observed before. The AEC sector continues to perform well, largely due to construction growth and other factors contributing to Revit and its associated backlog. The manufacturing sector also performed admirably, surpassing many competitors. However, the media and entertainment sector is still recovering from the impacts of recent strikes, which will take additional time. From a geographical perspective, there are a few mixed results. Most regions are strong, but China and Korea pose challenges for our business. This gives you a sense of the current landscape. Importantly, Autodesk remains a highly resilient business. While one area may face difficulties, another segment or region may thrive. This is the unique strength of Autodesk—our ability to adapt and succeed across various projects and markets, and that resilience is evident in our current performance.

Great. Thank you very much.

Thank you. Our next question comes from Joe Vruwink with Baird. You may proceed.

Hi. Great. Hi, everyone. Going back, Andrew to your manufacturing comments, so growth in the upper teens there or low teens for just the ratable business. Those numbers definitely stand out relative to what we've been hearing throughout the summer. I think particularly at the high end where there has been some commentary about more deal lumpiness at enterprise. I mean, you have exposure to mid-market and enterprise. You gave anecdotes about both segments. I'm wondering if you are ultimately seeing maybe more share movement and that's ultimately explaining the strength there.

We are definitely seeing share movement. But look, we feel like we're out in front on a lot of things. Fusion did well in the quarter. Its e-comm growth was consistent with previous quarters. More importantly, we continue to drive ASPs up for Fusion with attach rates of extensions and other options in the Fusion base. So you are absolutely seeing a share shift.

Thank you. That is all the time we have for Q&A today. I would now like to turn the call back over to Simon Mays-Smith for any closing remarks.

Thanks everyone for attending. We look forward to seeing many of you on the road over the coming weeks and towards AU at the end of October. Please just ping me if you have any questions in the meantime. Otherwise, we'll catch up on next quarter's call towards the end of November. Thanks so much.

Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.