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Autodesk (ADSK) has had its ups and downs today after missing Q1 (Apr) earnings expectations but still raising its FY24 (Jan) EPS outlook and reiterating its revenue and billings forecasts. The CAD software developer used across the industrial sector delivered a decent Q1 report. Still, given that it was primarily a continuation of last quarter's trends, investors are not expressing much enthusiasm, keeping shares within their lengthy sideways pattern.

• ADSK posted adjusted EPS of $1.55, hitting the higher end of its $1.50-1.56 forecast but falling just short of analyst expectations. Similarly, revenue growth of 8.5% yr/yr to $1.27 bln landed at the high end of ADSK's $1.260-1.275 projection and met analysts' target.
• As ADSK flagged last quarter, its transition from upfront to annual billings for multi-year contracts, which began March 28, adversely impacted its billings growth in Q1. Total billings still increased 4% to $1.2 bln, reflecting solid renewal rates and early renewals, but were partly offset by the roughly one month of the ongoing transition.
• The macroeconomic environment remains challenging primarily because of FX headwinds and exiting Russia, which will go away toward the year's second half. Consistent with many other SaaS firms lately, deals are under higher scrutiny, which caused quarterly timing differences for contract renewals in Q1. As a result, revenue that would have been realized in Q1 is being pushed further out.
• However, on the bright side, product usage continued to climb modestly in the quarter, with bid activity on BuildingConnected (ADSK's SaaS construction network) sustaining at record levels. ADSK also mentioned that it continued to witness cautious optimism from channel partners. Additionally, consistent with yr/yr momentum, subscription growth decelerated in North America while accelerating in EMEA.
  • Management was also encouraged by customers not swaying from their digital transformation paths, utilizing automation as supply chains and the general economy remain challenging, presenting solid tailwinds for ADSK. This favorable trend was reflected in improving renewal rates, consistent net revenue retention, and expanding adoption, pushing remaining performance obligations (RPO), which provides insight into future revenue, 15% higher yr/yr to $5.39 bln.
• Looking ahead, ADSK's downbeat Q2 (Jul) guidance underscores a continuation of current patterns, while its mostly reiterated FY24 outlook calls for a minor recovery in the second half of the year, bolstered by a strong cohort of enterprise business agreements. ADSK raised its adjusted earnings forecast to $7.07-7.41 from $6.98-7.32 while reaffirming its sales target of $5.355-5.455 bln and billings of $5.025-5.175 bln.

The main takeaway from ADSK's Q1 report is that market dynamics remain unchanged from last quarter. Margin headwinds from FX impacts will persist throughout the year, and switching to annual billings puts a drag on free cash flow in FY24 and, to a lesser degree, in FY25. Also worth noting is that the switch could reduce the unbilled portion of ADSK's RPO if customers choose annual contracts, negatively affecting growth rates.