Autodesk exceeds revenue and earnings expectations in Q3, boosting full year guidance and highlighting strong demand across key sectors.

Thank you for standing by and welcome to Autodesk third quarter and full year fiscal 2026 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation there will be a question and answer session. To ask a question during the session, you will need to press Star one one on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Simon May Smith, Vice President, Investor Relations. Please go ahead.

Thanks Operator and good afternoon. Thank you for joining our conference call to discuss Autodesk's fiscal third quarter results. Andrew Adagnost, our CEO and Janesh Moorjani, our CFO are on the line with me. During this call we will make forward looking statements including outlook and related assumptions and on products go to market strategies and trends. Actual events or results could differ materially. Please refer to our SEC filings including our Most recent Form 10Q and the Form 8K 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 and 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 delivered strong results today with revenue and non GAAP earnings per share topping the higher end of our guidance ranges. Billings, non GAAP operating margin and free cash flow exceeding our expectations. We are again raising our full year guidance across the board as demonstrated at Autodesk University, shared during our recent investor Day and reflected in our results today. We're well positioned to deliver for Autodesk customers and investors even in an uncertain geopolitical, macroeconomic and technological environment. We are successfully executing on the most far reaching transformations in enterprise software, redefining our business model go to market, products and platform. In doing so, we are making Autodesk more resilient and unlocking new avenues for growth and margin expansion. We're enhancing our products with cloud based platforms and capabilities that seamlessly connect, design and make workflows to deliver more value to our customers and expanding our addressable market opportunity. We're building a platform with a vibrant third party ecosystem that will make our solutions more valuable, enable new monetization opportunities and make Autodesk more efficient. And we're defining the AI revolution for our industries, empowering customers with new task workflow and systems automations and capturing shared value through subscription consumption and outcome based business models that blend human and machine capabilities. Autodesk is building the future and the path to it. Our best days and greatest opportunities lie ahead. I've never been more confident in the long term value we are creating for our customers, the industries that shape the world, and for you, our shareholders. I will now turn the call over to Janesh to discuss our quarterly financial performance and guidance. I'll then come back to update you on our strategic growth initiatives.

Thanks Andrew Q3 was another strong quarter overall. The underlying momentum of the business was similar to prior quarters and better than the assumptions we had built into our guidance range. We again saw strength in AECO where our customers are benefiting from sustained investment in data centers, infrastructure and industrial buildings, which is more than offsetting softness in commercial upfront revenue. The Autodesk Store and billings linearity during the quarter were also stronger than expected. Our go to Market optimization plan remains on track and operational friction from the new transaction model implementation continues to ease. Total revenue in the third quarter grew 18% as reported and in constant currency. The contribution from the new transaction model to revenue was approximately $124 million in the third quarter. Total revenue grew 12% in constant currency and excluding the impact of the new transaction model, please see the tables in our press release, Earnings Deck and XOR Financials for details. By product and region. Billings increased 21% as reported and 20% in constant currency. The contribution from the new transaction model to billings was approximately $135 million in the third quarter. Billings grew 16% in constant currency and excluding the impact of the new transaction model. As a reminder, our billings growth this year is skewed by the new transaction model and by the transition to annual billings for most multi year contracts. These tailwinds will significantly diminish next year. RPO of $7.4 billion and current RPO of $4.8 billion both grew 20%, benefiting from tailwinds from the new transaction model. Turning to margins, third quarter GAAP and non GAAP operating margins were 25% and 38% respectively, reflecting year over year increases of approximately 330 and 120 basis points respectively. This reflected operating leverage and ongoing cost discipline and was partly offset by the margin drag from the new transaction model. Our margin progress this year sets us up well to achieve the long term margin goals we talked about at our Investor Day. We still expect progress towards that goal to be nonlinear given incremental headwinds to reported margins in fiscal 27 from the new transaction model. Third quarter free cash flow was $430 million, which benefited from the earlier timing of billings in the quarter and lower cash tax payments. As a reminder, our free cash flow growth rate this year is also skewed by the transition to annual billings for most multi year contracts. This tailwind will also significantly diminish next year. Moving on to capital allocation, we purchased approximately 1.2 million shares for $361 million at an average price of approximately $306 per share. Year to date, we have repurchased 3.7 million shares for approximately $1.07 billion. Turning to guidance, I will again speak to the numbers excluding the impacts of the new transaction model and in constant currency to give you a clearer view of the underlying dynamics of the business. In the earnings deck, you'll see that we've split the impact of the new transaction model and currency movements for our fiscal 26 guidance. We assume the underlying momentum of the business remains consistent with previous quarters for the remainder of fiscal 26. We have a large pool of Enterprise Business Agreement (EBA) and product subscription renewals to close in the fourth quarter of the year, and we'll also have our toughest new transaction model billings and revenue growth comparisons with last year. The macroeconomic environment seems broadly stable, but macro uncertainty remains elevated and we remain mindful of potential disruption as we continue to execute our sales and marketing optimization plan. So we built some risk into our guidance range for the remainder of fiscal 26 and expect to again reflect these factors in our fiscal 27 outlook in February. We remain disciplined and focused on the controllable factors that drive our revenue operating margin, earnings per share and capital allocation we which are the key building blocks of free cash flow per share. Reflecting all this, we've raised our billings guidance range to between $7.465 billion and $7.525 billion and raised our revenue guidance range to between $7.15 billion and $7.165 billion, which flows through the current momentum of the business through our full year underlying guidance. The bottom end of our full year guidance range reflects some macroeconomic risk for the final quarter of the year. We've also raised our non GAAP operating margin guidance for the year to approximately 37.5% or approximately 40.5% on an underlying basis, which excludes the impact of the new transaction model. We've also raised our free cash flow guidance range to between $2.26 billion and $2.29 billion. As we said last February, utilization of US deferred tax assets will mean we pay little US federal cash tax in fiscal 26. We do not therefore get incremental cash benefit from the one big Beautiful Bill act this year. Further, we now expect to buy back approximately $1.3 billion of stock, which is at the high end of our previous guidance, and a 50% increase compared to fiscal 25. The slide deck on our website has more details on modeling assumptions for the fourth quarter and full year fiscal 26. Andrew, back to you.

Thank you, Dinesh Autodesk is focused on the convergence of design and make in the cloud enabled by platform, industry clouds and AI. We are at the forefront of convergence because we've been evolving and investing in the business models, products and platforms and go to market that capitalize on it. We are at the forefront of neural AI foundation models which we are deeply integrating into our products, not as a surface level add on and have access to decades of digital data enabling us to generate greater value for the next wave of AI. For the physical world, AI will enable inference across tasks, workflows and systems which will supercharge convergence. Let me give you a few examples of our progress in the quarter. Our customers in Architecture, Engineering, Construction, and Operations (AECO) architecture, engineering, construction and operations are demanding convergence to reduce risk, increase quality and optimize costs and resource use during the design and build phase of an asset and to yield enhanced efficiency, resilience and reuse during the operations and maintenance phase of an asset. Autodesk Construction Cloud has growing momentum with owners, designers, GCs and subcontractors seeking to converge design and construction workflows. For example, a leading global food processor and asset owner is migrating over 700 active projects from a competitive solution to address challenges with end to end capital project management infrastructure owners like the South Carolina Department of Transportation will replace legacy tools with Autodesk solutions to execute long term plans to improve state infrastructure and resolve maintenance and resilience challenges. Integrated Design build companies like Daiwa House Industry Co. Ltd. A pioneer of industrialized construction in Japan, is adopting Autodesk Construction Cloud and Autodesk Informed Design to connect its manufacturing and construction processes, placing Autodesk at the center of its common data environment for building systems and general contractors like Flynn Group are migrating to ACC to unify design intent with field execution in a single data environment to improve project coordination and efficiency. These stories have a common theme, converging people, processes and data across the project lifecycle to increase efficiency and resilience while decreasing risk. Our comprehensive end to end industry clouds and platform drive convergence and extend our footprint further into the larger growth segments like infrastructure and construction that we discussed at Investor Day. All this is reflected in our sustained strong revenue and new customer momentum in infrastructure and construction. Our manufacturing customers are also demanding convergence to drive cost and research efficiency during the design and make process by converging product development workflows in the cloud, leveraging centralized and granular data in unified data models, and embracing AI driven automation capable of industry transformation. For example, industrial machinery companies like Micromatic are replacing disconnected competitive solutions with our unified Design and Make platform to connect data and workflows, which increases collaboration and drives efficiency and speed to market through component reuse and fast, reliable iterations. Machinists at an American cosmetics company will save hours per week by using Fusion for manufacturing and simulation to Automate nesting tool paths, 3D printing and programming of multiaxis machines to create spare parts to further strengthen and scale its integrated design and manufacturing processes. Total Environment is leveraging Fusion's advanced capabilities in manufacturing, simulation design and data management by unifying workflows on a single platform. The company will eliminate disconnected tools, enhance collaboration and improve efficiency across its operations. And a French automobile manufacturer is adopting Fusion to produce electric motor prototypes after a benchmarking analysis showed the Fusion platform could complete a machining task in 12 hours, which is 10 and 15 days faster, respectively, than competitive solutions. Converged data opens up new opportunities for Autodesk as customers seek to drive efficient innovation. Fusion is driving strong growth with extension attach rates increasing and driving average sales prices higher, and we're delivering meaningful productivity gains to customers where we deploy AI. We have continued to see success with our AI powered Sketch Auto Constraint in Fusion. Since its launch this year, the AI model has delivered over 2.6 million constraints and has been retrained and the UX improved. All along the way, the acceptance rates for Auto Constraint suggestions to commercial users have grown to more than 60%, with 90% of those sketches fully constrained. In education, Wake Technical Community College, Kimley, Horn and Autodesk have entered a strategic partnership to Prepare more than 6,000 students for high demand careers in design, engineering and construction. This initiative will integrate Fusion Forma Civil 3D and Autodesk Construction Cloud into WTCC's coursework with Kimley Horne's nationally recognized internship program, creating a direct pipeline from classroom to career. And lastly, we continue to find new ways for our customers to consume our products and services in ways that work best for them. For example, a multidisciplinary AEC consultancy firm is using Flex consumption to rapidly scale and manage projects across multidisciplinary teams and distributed supply chains to accelerate project delivery and reduce risk. Attractive long term secular growth markets are our focused strategy of delivering ever more valuable and connected solutions to our customers and a resilient business are generating strong and sustained momentum both in absolute terms and relative to peers. Our disciplined execution is driving greater operational velocity and efficiency. We are deploying capital to grow the business further, reduce share count and enhance value creation over time. In combination, we believe these factors will deliver sustainable shareholder value over many years. Operator, we would now like to open the call up for questions.

As a reminder to ask a question, you will need to press Star 11 on your telephone to remove yourself from the queue. You may press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Saket Kalia of Barclays, please. Go ahead, Sackett.

Okay, great. Hey guys, thanks for taking my questions. Here and great to see the better results. Well done. Thank you. Absolutely. Andrew, maybe to start with you, I'd. Love to pick up on the theme. From Analyst Day a little bit and. See if you could just weigh in. On sort of the seats versus consumption AI monetization debate for Autodesk, but maybe. Also as part of that touching your. Broader ecosystem of partners and customers. Does that make sense?

Yeah, that does make sense. And thanks for that question. It's very apropos. So look, there's three things we want to pay attention to here. The first one is there's still a fundamental capacity challenge in all the industries we serve, AEC and manufacturing. There isn't enough current capacity to meet all the demand for what needs to be built or the supply chain needs that need to be throughput inside of both manufacturing an aec. So we have a capacity challenge the second. So you know, there's a lot of work that just needs to go to kind of create more capacity. So the second thing I think it's really important is in the future there's still going to be projects that require. Intensive human engagement in order to successfully execute. They're going to be more complex, but there's also going to be projects in the future where there's less requirements for human engagement. Machines are going to execute more on these things and there's going to be a balance between these two. And the last thing is something I've been saying over and over again. Our goal is to decrease the number of people that are working on a particular project, but increase the number of projects that our customers and our ecosystem are executing. If you do that, what you're going to see is we're going to be capturing incremental consumption value to the things that we do by monetizing machine based execution, providing outcomes and all things associate that while also still supporting the people based work that's going to go on the ecosystem. This is equally true of our customers. Our customers are going to be seeing their balance shift from sometimes in some cases billable hours to also consumptive execution through machine based execution based on their intellectual property and their IP and their unique knowledge set. So we're all in the same journey together, but it's going to play out over time and you're going to see us actually capturing more value and creating more capacity for the industry we need because the industry desperately needs it.

That makes a ton of sense and super helpful. Janesh, maybe for my follow up for you. Appreciate the detailed guide for this year. I was wondering if you were able. To just give us any color on. Fiscal 27 high level as we think about our models.

Hey Saket, I'm happy to do that. So let me elaborate a little bit on what I said in the prepared remarks. First off, just by way of context, the business is clearly performing very well this year. That said, we've got a lot of business to close, particularly in January. The second thing I'd point out is our sales and marketing optimization plan has gone very well so far, but we are not complete with that. We touched on this a little bit at Investor Day, so I think there's still some risk of disruption next year. And then finally, while the macroeconomic indicators have been broadly stable, uncertainty does remain elevated in the environment. So we just think it's best to maintain a prudent posture on our underlying growth for fiscal 27. We're performing very well this year and we're looking forward to the rest of the year.

Very helpful. Thanks guys. Thank you.

Thank you. Our next question comes from the line of Adam Borg of Stifel. Please go ahead Adam.

Awesome. And thanks so much for taking the. Question just on the Autodesk Construction cloud. It's great to hear the continued traction. And even the customer coming over migrating 700 active projects. When you think about your existing Autodesk. Construction cloud Install base for those existing customers. How penetrated are you in terms of the projects that are already brought over to Autodesk? Any color around that and the ability to continue selling broader parts of your growing ACC portfolio, be it payments or pre construction etc be really helpful. And then I have a follow up.

I really like that question. Okay, so first off, let me just start at the fundamental level, right? The reason why Construction Cloud is doing so well is that we've got this design to pre construction through construction execution solution. It's completely unique in the industry and it's built on a modern platform. This is not an aging platform that's going to kind of age out of what people need in the future. It's a highly connected, AI ready SaaS based platform. That's really a huge selling point for us. And what you just mentioned there Adam, is completely true. As we're acquiring new customers and penetrating new accounts and displacing competitors in lots of accounts. What we're doing is we're starting off with a set of projects so we're not even fully penetrated in all the projects that we've executed with our customers to date. I mean in the accounts where we are with our customers today. So there is actually not only increased penetration that will happen over time within the accounts we have as new projects come and light up and old project sunset, but there is also additional expansion just driven by the power of our value prop.

That's really helpful. And maybe just building on the theme. Of convergence in design and manufacturing. We talked about this a little bit at the investor day, but as you think about convergence and the opportunities infusion over time, how do you think about. The PLM market more broadly for all of that? Thanks so much.

Yeah, so another, another great question. All right, And I really appreciate it. So first off, you know, remember we're targeted at the mid market and that's where there's a lot of growth in supply chain activity. These customers need convergence because they need this end to end digital productivity. And I just want to make it super clear to everybody, most of those customers have nothing with regards to plm. They don't have anything. All right, they may have a data management solution, they may not. Most of their work is actually done through spreadsheets and ad hoc connectivity with some of their ERP systems. They don't have any kind of strong data management or lifecycle solution. We're building a solution for those customers and we're going to go in there and say you can get what the big boys have and you can get the kind of control and the cloud visibility and the cloud data flow that was reserved only to a few. And they need a modern platform, they need a SaaS based platform, they need what we're bringing with Fusion. So that's how I look at the market. We built these capabilities in the fusion, we're going to continue to enhance them. And we're already starting to see success with small accounts of two to three users expanding to larger accounts because we have these tools that are really hard for a lot of people in the mid market to get and deploy.

Incredibly helpful. Thanks again.

Thanks for the questions. Thank you. Our next question comes from the line of Jay Bleischauer of Griffin Securities. Please go ahead, Jay.

Thank you. Good evening, Andrew. My first question for you is a corollary to the question I asked you a quarter ago about the pace of new technology adoption. And, and the question has to do with something interesting you said at au. I think it might have been on. Main stage where you said as far as your customer base is concerned that, quote, no one gets left behind, end quote, which is an important general commitment. But what are the practicalities of that in terms of customer migration, packaging, promotions, all those sorts of things that you've done or will need to do with regard to migrating your customers in the way that you implied?

Yeah, look, we're attacking this from multiple vectors. First off, packaging is the first one. As you know, if you're a collections customer or Revit customer, you get the form of design application shipped with your bundle. So you're already getting something that you're paying for the future and the present. So you're capturing the value right there and you're part of the ecosystem. The other thing that we're doing is we're also making sure that we have the CDE available to as many customers as possible. That's Forma data management and we'll talk more about that in the future, which is a really important piece of the puzzle as well. The other thing that's really important and it needs to get airtime because you're going to see something similar evolve in the fusion world as well, is we talked about Revit as rolling out as the first forma connected client next year. What that means is what we're doing is we're tightly connecting the workflows between the feature deep desktop product that customers use today and the evolving emerging product they'll be using tomorrow. So that they can seamlessly move between these two products in such a way that they can get the benefit of one While also harnessing simply and easily the benefit of the other. And that's a really important part of this strategy as we move forward, because the adoption does take time. It takes time for people to change these things. And we're also hyper focused, especially in the AI side, on rolling out features that may not look sexy at the headline level, but are real productivity enhancers for our customers that get real adoption. What you're seeing with Auto Constrained Infusion is a great example of that. It's a highly adopted feature. Now, explaining it to everybody. Exactly what it does usually requires a video. But to a customer, they get it and they love it. They accept these things at like 60% acceptance rates. Some of these sketches are 90% constrained. It's the kind of stuff that you're going to see us continue to roll out that really makes a difference in.

How our customers work. Thank you for that. Janesh, for you. Given the revenue upside across each of the segments, could you comment on any new or incremental trends you're seeing in usage, telemetry, either by vertical or geo or standalone product versus collections, anything of that kind in terms of the usage component that helped drive some of that growth in AEC manufacturing and so forth?

Jay, thanks. What I'd say is the momentum in Q3 continued from the first half and the trends we saw in Q3 were similar to what we saw in Q2 as well. And you see that strength reflected in the different product lines and the different areas of the business. I touched on some of the areas within aeco, for example, around data centers, infrastructure and industrial, that were all bright spots again, and you see that reflected in products as well. Similarly, when you look at the Autodesk store and some of our emerging geographies that did well, you'll see the trends reflected in those, the products that get sold in those through those routes as well. So overall, I'd say it was very consistent with what we had seen in Q2. Nothing new that I would highlight as an emerging trend.

Thank you.

Thank you. Our next question comes from the line of Jason Salino of KeyBanc Capital Markets. Your line is open. Jason.

Hey, great. Thanks for taking my question. I wanted to ask about the normalized growth you saw this quarter, the 12%, you know, again, similar to last quarter, a slight acceleration. But was there, like, what was the inorganic contribution to that normalized number? I'm just trying to understand, you know, if there was, you know, some modest acceleration and if there was, you know, what do you think drove that?

Yeah, I'm happy To touch on that, there was nothing unusual with respect to M and a activity in Q3 that affected those underlying growth rates. And say what we saw there was just the continuing momentum that we've seen in the business, as I mentioned just a moment ago, the sources of where that outperformance came from in terms of the upfront revenue, the Autodesk store and stronger billings linearity during the quarter. I think all of those played a role in helping us get to the ultimate outcome that we delivered over here. So overall, it was a strong quarter across the board. The team executed really well, and I think that's what you're seeing reflected in the numbers.

Okay, great. No, that's helpful. And then when we think about the commentary around the EBA cohorts that you have for Q4, I'm just curious what type of behavior you've seen so far from like a renewal standpoint or if. Customers are willing to engage earlier. Just curious if you have any tidbits that will be helpful there.

Thank you, Jason. In terms of what we saw in Q3 was very strong engagement from many of those customers. We closed all the business that we were expecting to close. And if I think about some of the typical metrics that we have around attach rates and so forth, those all played out as we expected they would. Q4 is our largest quarter for EBA renewals and we also have a very large product subscriptions renewal cohort to close here in this quarter. Q4 is heavily weighted towards January, so there's still a lot that we need to get done. But again, the team did well here in Q3 and that momentum has continued nicely.

Okay, wonderful.

Thank you. Thank you. Our next question comes from the line of Taylor McGinnis of UBS. Please go ahead, Taylor.

Yeah, hi. Thanks so much for taking my questions, Andrew. First one for you. Just you mentioned earlier about, you know, still some elevated uncertainty out there, but it sounds like you guys are seeing some strength in areas like data centers, industrials and whatnot when you speak with customers regarding their spending plans across AEC manufacturing and M&E for calendar 2026 or fiscal year 2027, I guess. Any early insights that you could share, you know, with the group in terms of what you guys are expecting to see? Yeah, you know, customers aren't flagging any differences in their spending pattern. All right.

I think one of the things that's really, really important to note is one, the current momentum is going to continue a little bit and also what the customers are looking for is they're preparing for future productivity enhancements. So everyone's investing in their digital infrastructure, trying ready for any changes in the demand patterns, what sector might be more important as we move forward? So most of our customers are flagging a continuation of their investment. Some areas are flagging a little bit more investment because they've been kind of maybe slow on the investment in the past, but we don't see anything changing. In terms of the consistency level right there.

Perfect, thank you. And then Janesh, maybe just one for you. On billings growth. You made several comments in the prepared remarks just about how growth has been elevated this year because the new transaction model and also because of the larger base of multi year billings customers. And we're going to start to lap that going into next year and see some moderation in growth. So can you just help us unpack the mechanics there a little bit more? So as we look into 2027, could we start to see if we adjust for FX in the new transaction model, Revenue growth and billings growth start to align with one another or is it possible that we could actually see some tougher comps and maybe there's a divergence between the two? Any additional color you can give there I think would be helpful.

Taylor, I'll break that into two parts. One is around the underlying business performance that you mentioned and the second is just the mechanical aspect of modeling the growth for fiscal 27. So first, in terms of just the underlying growth that we see in the business, we feel very good about this year. And if you look back at the last couple of years, we've demonstrated consistent growth and that trend has continued in this year. We've also talked before about the diversification of our business across industries, across geographies and customer sizes. That's a strength for us. And again, we saw that play out here in Q3 as well. If I look ahead, we're excited by the growth potential of businesses like Construction and Fusion Infrastructure and some of the others that we outlined at Investor Day. So overall I think we're executing really well, including on the AI strategy and roadmap and we feel very well positioned in that regard. So if I think about the growth for the future, I think all of those things give me confidence. But also when I guide for next year we will consider, as I mentioned, the go to market optimization and the macro risks that I touched on at the start start of this call and then in terms of some of the underlying mechanics. Thank you for the question. I think it's actually helpful to spell out what we expect to see next year so to break that apart, if I think about the billings and free cash flow growth rates this year have been inflated because of the transition to annual billings for most multi year contracts. That's a business model transition that we expect to complete during Q1 of next year. And so we expect that reported billings and free cash flow growth will start to normalize during next year. Billings and revenue growth rates have also been inflated this year from the new transaction model for which we provide the details separately on an underlying basis. And on that transition we expect a smaller impact from that in 27 than we had in 26. We'll also have incremental headwinds to reported operating margins from the new transaction model next year. But ultimately, as you know, these are just near term accounting effects and the underlying business has been performing consistently well. Our goal is to try and get to as reported numbers as soon as we can. So that will be our focus in the future.

Great. Thanks for all the color. Of course.

Thank you. Our next question comes from the line of Elizabeth Porter, Morgan Stanley. Please go ahead, Elizabeth. Great.

Thanks so much for the question. I wanted to follow up regarding some of the new AI capabilities like auto constraints, which appear to have the high accepted rates and measurable productivity gains. So the question is, are these product improvements translating into observable changes in retention, multi product adoption or expansion activity? And just as the platform overall delivers more value with AI, how are you thinking about the pricing power, any sort of larger, more periodic price increases or a steadier cadence tied to just incremental AI driven capabilities? Is that an opportunity that you look forward to? Thank you.

Yeah, so thank you for the question, Elizabeth. So first off, let's be very clear, this is a multi year journey here that we're on. All right. And I want to be clear that there's. We're going to be kind of moving along with our customers here and focusing on key areas of adoption and finding levers of productivity that make a real impact on them. We're starting with tasks. Auto constraints is a classic example of a task within the modeling. We're going to do a lot of that. That task automation is highly protective of our existing business. What the customers love is they see large incremental productivity increases that are not classically easy to replicate in a traditional kind of development model and feature creation model. So task automation is highly protective of the existing business, is highly retentive and we see some of that with some of the satisfaction ratings we get with. Some of this technology. Move forward, we're going to be Moving more and more into workflow automations as you see us move next year. We talked about some of this at au. We showed some pretty compelling workflows between various products and across various products from design to pre construction planning and things like that. Those workflow automations are going to ultimately. Offer. Additional monetization opportunities because some of it will be included with the subscription, but some of it will not will be charged for incrementally as the customers adopt those and as we find the right workflow levers, you're going to see us start to capture some of that value. Now, as we move down the curve into systems level optimization, those are going to capture the most value. They're further down in the pipeline, but they're also the kind of things that have huge impacts on our customers and huge value delivery. And we're going to capture some of that value, we're going to share some of it with our customers, but we're going to capture that value. So based automations are highly retentive. They have retentive effects. You can see that with the way. The customers are satisfied with the product. And what they see in the product. The workflow automations are going to be also highly retentive, but they're also going to offer incremental monetization opportunities and system. Level optimizations will offer more monetization opportunities. But this is going to take time.

Great. And then just as a follow up, I wanted to ask on the margins where it was really impressive to see the underlying margin expansion kind of move up in the full year guidelines. So the question is, where are you seeing the most outsized success that's driving up the full year view? And what are the levers that are having more of an impact near term versus what can be more of a driver next year for the underlying margin trajectory?

Elizabeth, maybe I'll take that one. I think the underlying levers are the same near term as well as longer term. The biggest lever in terms of achieving our margin targets over the long term will be our go to market optimization. And on that we've already made great progress so far and that will ultimately further reduce our sales and marketing as a percentage of revenue. We also have inherent operating leverage, which is something that we've demonstrated for a few quarters now. And so that shows up in the near term numbers and that will also be a driver for us longer term. And embedded in that operating leverage. There are a few puts and takes to start with. On the gross margin front. We expect that cloud and AI workloads will ultimately be accretive to gross profit dollars, but they will pose a headwind to gross margin as they scale. We think that's actually a sign of success if that happens. In terms of our strategy for adoption working quite nicely on the R and D side, as we've shared before, we'll continue to prioritize investments in innovation and AI driven initiatives, but at the same time drive efficiency through common components in the platform. And on the GNA side, we will just scale efficiently as we continue to grow the business. So those are some of the things that I see. And in terms of the rate of progress of getting to the 41% margin target that we outlined, as I'd mentioned earlier, the path to getting there will be nonlinear just given the additional margin headwinds we expect from the new transaction model this year. But overall we feel we are well on our way to achieving the target. And we've already raised the current year outlook here by 50 basis points. So we feel pretty good about that.

Thank you.

Thank you. Our next question comes from the line of Josh Tilton of Wolf Research. Your line is open, Josh.

Hey guys, thanks for sneaking me in and congrats on another great quarter. Two for me. One more near term, one maybe long term. Just in the near term. I think if I look back, this is probably one of the biggest increases to the billings growth guide going into a Q4 that we've seen maybe ever. And I'm just trying to understand, or. Maybe you could help me unpack what. Exactly is driving that near term performance. And then my follow up to that is just more longer term. The agency transition seems to be going well. I wouldn't say well underway, but I feel like it's hit maybe critical mass to some extent. Can you maybe talk to some of the levers that you have to incentivize this newly formed channel to drive better new business growth for you guys going forward. Thanks, Josh.

Maybe I'll start in terms of the outperformance that we had here in the third quarter, there's a couple of sources. One is, as I mentioned, just consistent strong execution from the team, which is something that we were all very proud about. But the second is also just in terms of the guidance philosophy that we had and the approach that we took entering the quarter where, as you know, against the low end of our billings guidance, we had assumed a pretty severe macroeconomic scenario which we had been quite transparent about, and that didn't play out. The broader macroeconomic environment was relatively stable. So I think you saw some of the benefits of that here as well. And as if I think about the, the Q4 view on that and the extent of risk that we've got baked in, there is a little bit of risk baked in at the lower end of the guidance range, particularly on billings. But given that we've got basically just a little over two months here left to go in the year, we didn't feel like we needed to take as dim a view of the macro for Q4 as we had previously taken.

And to the second part, Jason, Josh, sorry, I'll weigh in on that a little bit. Okay, so there's a couple of things that we're enabling with the new transaction. One, we have better customer intelligence, which is going to allow us to be. More efficient with our partner engagements. The other one is we're working really hard to automate more of the things that are associated with renewals. So if you look at the way we want to move forward, you're going to see us incenting the channel more on new business than on renewals, which is going to align the channel with kind of our long term objectives. Objectives. It's easier to make renewals now, so we should be paying less on renewals and we should be paying more on new business so that the channel can build the right kind of capacity for the new business and hunt a bit more and renew in a more automated way. So look for us to continue to push that as we head into next year. Tighter intelligence going into the channel, more efficiency, more automation, more self service tied to renewals and a stronger emphasis on new business generation.

Love to hear it. Thank you so much.

Thank you. Our next question comes from the line of Joe Vrunk up Baird. Your line is open. Joe, hi.

Great. Thanks for taking my questions. I wanted to go back to the FY27 outlook and I guess what I really want to ask is do you need the same level of prudence when you frame the forward outlook like you have been using? And I just sit here and appreciate that this year you started 8 to 9, it looks like it'll end closer to 11. There's something to be said about prudence, but also nothing wrong with communicating strength when it's evident. And I think you're not only seeing strength, but it would seem like next year definitely end of stages and some transitional elements, early stages on things like consumption or cloud adoption that can contribute more. I'm just wondering if some of that factors into a different approach, approach to the outlook.

Hey Joe, so you know, look on fiscal 27, it'll make sense to talk about the specifics when we are actually guiding to fiscal 27 in February. What I wanted to do today is just share our overall enthusiasm for how we're executing here in Q3. I talked about some of the momentum that we're seeing and some of the factors that continue to excite me about the business in the long run and just be transparent about some of the factors I'll consider when I set guidance in terms of the specific levels of those. We'll talk about those on the next call.

Okay, now that's fair enough. At au, there are some good sessions from your large customers on how they've set up kind of centralized Autodesk development teams, and you have different regional teams that are now building around platform services in a coordinated way. A lot more talk about how agents are factoring into what these teams are now starting to do. I guess there's this idea still percolating out there that AI is going to make it easier for your large EMC customers, you know, these same entities, to maybe just do more internally. And I guess wanted to ask what you're seeing on this topic and really, you know, when we see a large E and C account talk about data scientists on staff and what they're doing, should we really think, well, Autodesk is ultimately having a role here.

Yeah, you should absolutely think that, Joe. Okay. Our goal is to make it easier for them to apply their IP with their data scientists to the workflows that make the most impact on their business. But our platform is going to be everywhere in there, and the services and agents we build associated with our platform are going to be core to how they create that value from their IP incrementally above some of the models that we build ourselves and that we deploy into their environment. We want to coordinate and work with agents. They may build internally with the agents that we have, and one should be augmenting the other. Look for our platform to be everywhere that these customers actually execute and incrementally build capabilities on.

Great, thank you.

Question comes from the line of Bhavan Shah of Deutsche Bank. Your line is open, Bhavan.

Great. Thanks for taking my questions. I congratulate the strong results. Dinesh, I know you spoke about this briefly in your prepared remarks, but in terms of channel productivity, how much time is still spent on operational elements and when do you think the channel gets back to full productivity and is there. Any kind of impact also with all. The MA activity happening with the resellers?

Yeah, we continue to address some of the operational friction that partners faced on the new transaction model. Andrew referenced that as well. I think we've made very good progress and I think much of that is behind us at this point in time. There's a bit more to be done, but we are well on our way. We saw the EMEA partners get their first renewals here in September on the new transaction model and that generally went as we expected it would. And I think at this point we've lapped all of the first annual renewals. So in terms of the future, we continue to focus on how we and our partners can deliver more valuable and data driven and connected products and services to our customers. We have seen the strategy working quite nicely, particularly at the low end where many of the customers that previously used to buy from the non contracted partners or the silver partners are now buying from us directly on the store. And some of our larger partners are focused on continuing to build out value added services. That allows them to build more connectivity and offer better solutions to customers, which then works quite nicely for us in the long term as well.

That's helpful there. And as a follow up for Andrew, maybe just for you, there's been some recent headlines about agents turning 2D sketches into 3D models via CAD software. As innovation continues to evolve here, what role can Autodesk play and how are you thinking about evolving the product capabilities as agentic and copilots to turn sketches into models continuously?

Yeah, I think you should assume that the level of data that Autodesk has in this particular area and the level of focus will certainly excel above anything else you see out there.

We just focus where the biggest returns are right now. Makes sense to me. Thanks for taking my questions. Thank you.

Thank you. Our next question comes from the line of Tyler Radke of Citi. Please go ahead, Tyler.

Yeah, thank you for taking the question. So the direct revenue has grown significantly. I think it was up 85% this quarter. You called out strength in the online store, the Autodesk store. Just wondering, is this strength? Is this coming in well above your expectations? And how should we just think about the mechanics of taking more business direct and potentially that being a tailwind to the reported revenue that we're seeing.

Tyler, I'd say in Q3 things worked as we expected they would. We were expecting to see an increase in the mix of direct revenue as the new transaction model continues to scale. So that generally played out the way we expected it would. And in terms of the impact of that on the model, it does affect the as reported numbers, as you know, which is why we also provide the views on an underlying basis. I'd say the store strength has continued for some time. A portion of that might be channel shift, but a lot of it is also just general strength. We've seen particularly in a number of the countries around the world that we've talked where we haven't rolled out the new transaction model. We've been seeing strength in those countries as well. So I think it is a bit broader based on that.

Great, helpful. And then Janesh, just on the underlying growth, I know you got some questions on this specifically as we think about FY27 guidance, but you know you started off the year in sort of the high single digit ballpark and I think we look at the Q4 guide, Normalized Growth is closer to kind of the low teens. Is that a fair characteristic of where the underlying growth of the business is today? Maybe there's some one up or one time revenue in that Q4 number as it relates to EVAs. Just help us understand like where is that underlying growth of the business in your view now? And I assume that's maybe a few points higher than it was at the beginning of the year.

Tyler, at the start of the year when we laid out our guidance again, we had been prudent for a variety of reasons. It was also, you know, my first guidance for the full year as cfo. We had just done a restructuring. There were a number of other factors as well that played into that. And at that point I had mentioned that I viewed the business as being a consistent and resilient business. And I think that played out quite nicely if you look at the growth we've seen over the last couple of years. And then if I look at this year, we've had very consistent growth across the 3/4 of this year. And that that same consistency is implied in the guide for Q4 as well. So we feel very good about the way we've executed and all the irons we have in the fire to continue to sustain our momentum in the future. But again we will consider our overall risks around go to market execution as well as the macro when we guide.

Thank you.

Thank you. Our next question comes from the line of Ken Wong of Oppenheimer and Company. Please go ahead.

Ken, thank you for taking my question. Andrew. I wanted to circle back on a comment that you made about the incentive structure to partners. I realize that you guys are taking it down on renewal to incentivize some hunting any early feedback from partners. And I realize it doesn't take effect usually until February, but any early behavioral changes that you guys are noticing from the channel?

Yeah, nothing. Nothing pronounced. Okay. No early changes. You know, obviously partners, partners always have lots of questions when we change their incentive structure. But generally speaking, they get what we're trying to do and they understand what's, what's going on here. We're not trying to take money out of the channel ecosystem. We're trying to shift how it gets paid out. Makes total sense to them. We haven't seen any initial kind of changes in their behavior right now at all.

Okay, perfect. And then on the OBBA side, Janesh, I realize you're not expecting any tailwinds on the free cash side. Are you guys seeing any early impact on the top line in terms of customer spending behavior or any customer project activity?

Nothing that I would directly attribute to the one big beautiful burl act yet. Okay, great. Thank you guys.

Thank you.

Thank you. Our next question comes from the line of Koji Akita of Bank of America. Your question please, Koji. Yeah, hey guys, thanks for taking the questions. I wanted to follow up on a. Previous question on free cash flow. And Jeanette, I think you mentioned there's. About two more quarters left before free cash flow normalization. Did I hear that right? And then beyond that, what should quarterly free cash flow seasonality look like? Is there a fiscal year example from. The past that we could look at. That would be a good representation of. What it would look like going forward?

Yeah, Koji, the comment earlier was around the growth rates that we would expect will come down. If I think about the absolute dollars of billings that we have at this point in time associated with the change in the multi year to annual billing transition, I think that piece is done. But in terms of thinking about cash flow and providing maybe a general rule of thumb, I would say holding aside any significant discrete items, we generally would expect free cash flow growth to be correlated with our underlying non GAAP net income growth. And of course we will call out any large discrete items when we provide guidance.

Got it, thank you. And then maybe a follow up here. Question for Andrew and thinking about the. AI strategy and the data access strategy. For AI through MCP and API calls. How has customer usage trends been around there? And any update on how we should. Be thinking about any timing of the. Monetization opportunity with the data access strategy? Thank you.

Yeah, so there's actually fairly robust use of some of our APIs by the customers and also monetizing some of that access as well. And a lot of customers are expecting that most customers won't be impacted that, but by those customers that are most heavily using machine based kind of applications associated with our APIs will probably see impacts in terms of billings associated with their usage. Again, the AI monetization will play out over time. The API monetization will play out over time, but MCPs and APIs are definitely another source of monetization that you'll see us pulling the lever for as we move forward. Thank you. Thank you, Koji.

Thank you. Our next question comes from the line. Michael Turin of Wells Fargo Securities. Please go ahead. Michael.

Hey, thanks for squeezing me. And I'll give you a chance to summarize some of the prior comments. I think high level, the question is. You'Re raising numbers across the board for fiscal 26. It's not something we're seeing a whole lot of across software these days. So maybe just expand on your perspective around what's driving that and how much of that is beyond the scope of just macro and business model changes. And then on CAD specifically, it's another quarter of standout growth, 15%. So maybe touch on that segment and if there are any specific dynamics to be mindful of there as well. Thank you.

Yeah, I'm happy to touch on both of those. If I had to summarize Q3, I would say it reflects the consistent momentum we've seen from sustained execution this year against the backdrop of a stable macro. While in the guide at the lower end we had assumed that the macro would worsen. So I think it's both our execution as well as the more prudent guidance assumptions that didn't play out in terms of the growth of the AutoCAD business. There's a few factors there that growth is partly affected by just the mechanical accounting on the new transaction model as well. So I think that's part of what you're seeing. But also we talked about strength in the Autodesk store and strength in emerging countries like India and Latam and the Middle East. And some of the autocad strengths that we've seen comes from those countries and from the Autodesk store as well.

Michael, I'll just add one more thing. To this because I have to. We have been making some serious and important strategic decisions over the last three years about how our business is structured. And how we move forward. You're seeing the results. All right. These are the results that we ultimately said we were going to deliver as a result of those investments and those changes. They were hard changes, difficult lifts. Now you're, now you're seeing the performance associated with those lifts. Thanks very much.

Thank you. And that is all the time we have for Q and A today. I would now like to turn the conference back to Simon May Smith for closing remarks. Sir.

Thank you, Latif. And thank you, everyone, for joining us. Looking forward to seeing many of you on the road over the coming weeks. Wishing my fellow Brits happy Budget Day tomorrow. And my fellow Americans, happy Thanksgiving on Thursday. Thanks very much, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.