Autodesk, Inc. (NASDAQ: ADSK) Q3 2022 earnings call dated Nov. 23, 2021
Corporate Participants:
Simon Mays-Smith — Vice President, Investor Relations
Andrew Anagnost — Chief Executive Officer
Debbie Clifford — Chief Financial Officer
Analysts:
Saket Kalia — Barclays — Analyst
Adam Borg — Stifel — Analyst
Jay Vleeschhouwer — Griffin Securities — Analyst
Gal Munda — Berenberg — Analyst
Matt Hedberg — RBC Capital Markets — Analyst
Phil Winslow — Credit Suisse — Analyst
Joseph Vruwink — Baird — Analyst
Sterling Auty — J.P. Morgan — Analyst
Presentation:
Operator
Thank you for standing by, and welcome to Autodesk Third Quarter Fiscal Year 2022 Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to the VP of Investor Relations, Simon Mays-Smith. Please go ahead.
Simon Mays-Smith — Vice President, Investor Relations
Thanks operator and good afternoon. Thanks for joining our conference call to discuss the results of our third quarter of fiscal year 2022. On the line with me are Andrew Anagnost, our CEO; and Debbie Clifford, our Chief Financial Officer.
Today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available at autodesk.com/investor. You can find the earnings press release, slide presentation and transcript of today’s opening commentary on our Investor Relations website, following this call.
During the course of this call, we may make forward-looking statements about our outlook, future results and related assumptions, acquisitions, products and product capabilities, and strategies. These statements reflect our best judgments, based on currently known factors. Actual events or results could differ materially. Please refer to our SEC filings, including our most recent Form 10-K, for important risks and other factors, including developments in the COVID-19 pandemic and the resulting impacts on our business and operations that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements.
During the call, we will quote a number of numerical growth changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today’s call are reconciled in 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.
Andrew Anagnost — Chief Executive Officer
Thank you, Simon, and welcome everyone to the call. Our third quarter results were strong, driven by one of our best ever quarters for new subscriptions, record subscription renewal rates, a net revenue retention rate toward the high end of our range, and a solid competitive performance. We also grew RPO and billings 18% and 16% respectively, despite a tougher compare versus last year. Relative to the first and second quarters, the rate of improvement decelerated during the third quarter more than we expected.
While demand is robust, we believe supply chain disruption and resulting inflationary pressures, a global labor shortage making it harder for our customers to staff new projects, and the ebb and flow of COVID are contributing to the deceleration, as well as documented country-specific disruption to AEC in China. Our conversations with customers and channel partners reinforce our view. We’re encouraged that embracing digital transformation to drive efficiency and sustainability remains a priority for our customers. Our end-to-end solutions, business model flexibility and platform, position us well competitively and enable more customers to enter and remain in our ecosystem.
As you heard at our recent Investor Day and at Autodesk University, we are rapidly innovating and optimizing our business to increase and realize the opportunity ahead. Notable milestones during the quarter included the launch of our Flex consumption model, and our plans to combine technologies, connect processes, automate workflows, and unlock valuable insights for customers through our Forge platform.
The recent report from the Intergovernmental Panel on Climate Change and the United Nations Climate Change COP26 meeting in Glasgow, both underscore the urgency of reducing carbon in the earth’s atmosphere and the role that everyone, including corporations, needs to play. Sustainability needs to be designed, made, and in many cases, retrofitted in construction and manufacturing. This cannot be achieved efficiently or effectively without end-to-end software like ours to drive the process. This organizing principle affects not just how we deploy capital, for example, through our investments to develop sustainable tools and our recent acquisition of Innovyze, but also how we source capital. Many of our largest equity holders already align to our sustainability goals, and in the third quarter, we began to align our debtholders, by issuing our first sustainability bond, linked to our sustainability goals.
Now, let me turn the call over to Debbie to take you through the details of our quarterly financial performance and guidance for the year. I’ll then come back to provide an update on our strategic growth initiatives.
Debbie Clifford — Chief Financial Officer
Thanks, Andrew. As Andrew said, our third quarter results were strong. Several factors contributed to that, including robust growth in new product subscriptions, rapidly expanding digital sales, and increasing subscription renewal rates.
Total revenue growth in the quarter accelerated to 18%, and 17% in constant currency, with subscription revenue growing by 21%. Looking at revenue by product, the growth we saw was broad-based; AutoCAD and AutoCAD LT revenue grew 14%, AEC revenue grew 22%, and manufacturing revenue grew 16%. M&E revenue grew 17%. Across the globe, revenue grew 18% in the Americas, 19% in EMEA, and 18% in APAC. Direct revenue increased 34% and represented 35% of our total revenue, up from 31% last year, due to strength from both, enterprise and e-commerce.
As you heard at our Investor Day, about three quarters of new customers to Autodesk are now generated through our digital channels, reflecting the strength of our simplified buying experiences. Our product subscription renewal rates reached record highs, and our net revenue retention rate was toward the high end of our 100% to 110% range.
Billings increased 16% to $1.2 billion, reflecting robust underlying demand and a tough comparison versus last year, when we signed two of our largest ever EBAs, including a nine-digit deal. Total deferred revenue grew 14% to $3.3 billion. Total RPO of $4.2 billion and current RPO of $2.9 billion grew 18% and 21%, respectively.
Turning to the P&L, non-GAAP gross margin remained broadly level at 92%, while non-GAAP operating margin increased by 2 percentage points to approximately 32%, reflecting strong revenue growth and ongoing cost discipline. We delivered healthy free cash flow of $257 million during the quarter against a tough comparison from last year, which benefited from pandemic-related payment term extensions.
Consistent with our capital allocation strategy, we continued to repurchase shares to offset dilution from our equity plans. During the third quarter, we purchased 980,000 shares for $287 million at an average price of approximately $293 per share. Year-to-date, we’ve repurchased 1.66 million shares, at an average price of approximately $287 per share, for a total spend of $476 million.
Looking forward, as Andrew said, we’re rapidly innovating and optimizing our business, to realize the opportunities ahead. As we discussed last quarter, the shift of multi-year contracts to annual billings as we move into fiscal ’24, will drive more predictable free cash flow and better price realization over time, which will make Autodesk a more valuable company.
This quarter, we took steps to optimize our capital structure, by issuing our first sustainability bond, which aligns our capital strategy with our sustainability goals while also extending our debt maturity profile by almost two years and reducing our weighted average cost of debt by 40 basis points.
As we enter Q4, we intend to take steps to reduce our real-estate footprint, because the pandemic has spurred changes in the way we work and we’ve moved to a hybrid workforce. As a result, we anticipate we will reduce the square footage of our facilities portfolio by approximately 20% worldwide and that we will take a GAAP-only charge of up to approximately $180 million, the bulk of which will be recognized over the next several months as we execute our plans. Optimizing our facilities costs, will allow us to better deploy capital to further our strategy and drive growth.
Now, let me finish with guidance. Demand was robust in Q3 and we expect it to remain so in Q4. However, as Andrew said, macroeconomic headwinds such as supply chain disruption and resulting inflationary pressures, a global labor shortage, the ebb and flow of COVID, and AEC in China are impacting the pace of our recovery. As an example, the growth in new product subscription volume decelerated from approximately 30% in the first half to mid-20s percent in Q3, which is more than normal seasonality and a tougher comparison versus last year would suggest. This dynamic drove strong billings growth in Q3 that, nonetheless, fell short of our expectations.
In light of this macroeconomic uncertainty, as we enter Q4, we’re taking a pragmatic approach and are assuming that the supply chain, labor, COVID and country-specific challenges will persist. As a result, we’re reducing the midpoint of our billings and free cash flow guidance by approximately $150 million and $100 million, respectively, for full-year fiscal ’22.
Given the nature of our subscription business model and the greater degree of near-term visibility it provides to us, and our expectation of continued strong spend discipline, the midpoint of our full-year revenue and margin guidance is broadly unchanged.
We continue to target $2.4 billion of free cash flow in fiscal ’23 in constant currency, because we believe the current macro headwinds we’re seeing are transient. But if the growth deceleration and strengthened dollar continue through next year, we could see potential risk to that target of about $100 million to $200 million, based on what we know today. FX volatility is a big factor. Rate moves in the first half of the year created about $55 million in potential headwind to fiscal ’23 cash flow. Since then and in the last 90 days alone, further rate moves created about another $45 million in potential headwind to cash flow. We’re obviously watching FX rates closely but it’s clear that if the current rates persist through next year, that risk could materialize in free cash flow.
Beyond cash flow, if you further take the risk into account, revenue growth could end up at the low end of the CAGR we talked about at Investor Day and fiscal ’23 margin could be impacted by about a point. We will, of course, update you on our next earnings call, when we expect to have more visibility into any impacts from macro or FX movement on our fiscal ’23 outlook.
We remain optimistic about our growth potential beyond fiscal ’23, continue to target double-digit revenue growth, non-GAAP operating margins in the 38% to 40% range, and double-digit free cash flow growth on a compound annual basis. These metrics are intended to provide a floor to our revenue growth ambitions and a ceiling to our spend growth expectations.
Andrew, back to you.
Andrew Anagnost — Chief Executive Officer
Thank you, Debbie. Now, let me turn to our strategic growth initiatives. Sustained and purposeful innovation to enable digital transformation in the industries we serve has changed our relationship with our customers from software vendor to strategic partner, and that is enabling us to create more value through end-to-end, cloud-based solutions, that connects data and workflows, and through business model evolution. Our model is scalable and extensible into adjacent verticals, from architecture and engineering, through construction and owners; and from product engineering, through product manufacturing and product data and lifecycle management.
By helping our customers grow and navigate their digital transformation, we will grow, too. For example, Bouygues Construction and Colas, are leading construction and infrastructure firms based in France, with over 100,000 construction employees operating in 60 countries across the globe. In the third quarter, they significantly increased their commitment to Autodesk products such as Revit, AutoCAD and Civil 3D following an accelerated move to BIM and digital work flows over the last three years, which significantly increased monthly average users.
Similarly, Obayashi Corporation, one of the largest construction firms in Japan, which operates in 16 countries worldwide, is accelerating its global consolidation around BIM and a unified 3D technology platform, to enable greater efficiency and sustainability. In the third quarter, it expanded its EBA with us. Over the last two years, it has more than doubled the number of Revit users and expanded its usage of Autodesk Construction Cloud, to connect workflows from design to construction.
We are further extending our reach into the construction mid-market with the recent launch of Autodesk Build, introduction of an account-based pricing business model and distribution through our channel partners. For example, this quarter, Jacobsen Construction Company, an ENR 400 general contractor in the United States, was looking for a long-term technology partner and to consolidate around a single project management solution that would increase the efficiency of its field teams, while also seamlessly integrating with its accounting solution. While it had previously used a competitor solution for some projects, Jacobsen ultimately chose Autodesk Construction Cloud, because of Autodesk Build’s robust field and cost management functionality, and the opportunity to integrate it smoothly with existing technology. With new Autodesk Build features and capabilities launched every two months or so, and the recently launched ACC bundles for pre-construction and construction operations, we remain optimistic about the opportunities ahead.
We’re connecting the dots in infrastructure, too. For example, the Administrator of Railway Infrastructures in Spain, or ADIF, selected Autodesk products over competitor offerings to support its digital transformation. Backed by our common data environment, ADIF will leverage the Autodesk Construction Cloud to collaborate on project information, on-site development, and model coordination, to ensure efficient and accurate construction of their railway network. Infrastructure remains an important opportunity for Autodesk across the globe. Our end-to-end solutions, which boosts the efficiency and sustainability of customers like ADIF, as well as our ability to seamlessly integrate vertical and horizontal design and construction, give us a competitive advantage.
Much needed additional investment in infrastructure in the United States and across the globe will restore ageing infrastructure, and increase the productivity of the economy. Perhaps more consequentially in the long term, provisions in the U.S. infrastructure bill, which encourages Department of Transportation to digitize their processes, should accelerate adoption of digital workflows and enable all infrastructure investment to become more efficient and sustainable.
Turning to manufacturing, we sustained strong momentum in our manufacturing portfolio this quarter. In automotive, we continue to grow our footprint, beyond the design studio into manufacturing and connected factories, as automotive OEMs seek to break down work silos and shorten hand-off and design cycles.
Ford, one of the largest automotive OEMs in the world, renewed and expanded its EBA with Autodesk during the third quarter, growing users in Alias and VRED in design and AutoCAD, Inventor and Navisworks in manufacturing, while adding Autodesk Construction Cloud and Autodesk Build in facilities and manufacturing, to enable field access to plant drawings during maintenance and operations and equipment changeover.
Fusion 360 commercial subscribers again grew strongly, without any systematic sales promotions, ending the quarter with 175,000 subscribers. While still early days, our new extensions, including Machining, Generative Design, and Nesting & Fabrication are performing well and there is major interest in our upcoming simulation and design extensions. Fewer promotions and growing demand for Fusion 360’s extensions, are enabling us to capture more of the potential market opportunity and accelerate our growth.
Fast Radius is a leading digital manufacturing and supply chain company. The company’s proprietary Cloud Manufacturing Platform combines software and advanced microfactories that enable its customers to flexibly design, make and move certified products. Fast Radius already uses several Autodesk products. This quarter, it added Fusion 360 with the Machining Extension, to support its in-house CNC operation and integrate it alongside its existing additive manufacturing offering. Fusion 360 enables Fast Radius to program a wide variety of parts more quickly, resulting in faster product cycle times.
Outside of commercial use, there is a large and rapidly growing ecosystem of users that are taking Fusion 360 from education and home into the workplace. These will fuel commercial usage in the future. As one measure of this ecosystem, we ended the third quarter with 1 million monthly active users, up over 50% year-over-year and they are doing some amazing work.
On September 12, the Technical University of Munich’s TUM Boring team beat more than 400 applicants and 12 finalists to win the inaugural Not-a-Boring Competition. As Haokun Zheng, one of five leads responsible for project operations, said; ‘Fusion 360’s cloud-based solution enabled our 60-member team to collaborate remotely during the pandemic and design and build an award-winning 40-foot long, 22-ton tunneling machine. Throughout the year, we were repeatedly told by industry experts that the timeline we were aiming for was borderline impossible. But Fusion 360’s ease of use and integrated CAD, CAM and FEM enabled rapid simulation and improved the speed and efficiency of the design workflow.’
And finally, we continue to enable more users to participate in our ecosystem more productively, through business model innovation and our license compliance initiatives. For example, a sustainable building engineering design solutions consultant in Australia, which has been an Autodesk AEC customer for more than a decade, added our premium offering in the third quarter to enable it to better manage its subscriptions and provide more secure single sign on across multiple offices. Across Autodesk, the number of premium subscribers increased more than 500% year-over-year.
And in the Middle East, a large telecom company undertaking its own digital transformation was seeking to increase efficiency and sustainability by adopting BIM standards and streamlining digital workflows, while also ensuring license compliance across a fragmented employee base. During the process, we became the trusted partner of choice, resulting in a significant investment in AEC Collections, AutoCAD, Revit, and 3DS Max. Year-to-date, license compliance billings across Autodesk as a whole are up 20% when compared to the same period two years ago and almost 50% year-over-year.
In speaking with customers, partners and employees, we are very optimistic about the future. They have demonstrated grit and determination, inspiration, innovation, and agility and transformation during the pandemic. And while there will certainly be twists and turns on the road ahead, in many ways the pandemic has accelerated the future, and increased my confidence that we are on the right path. We are executing well in challenging times and believe we have only significant opportunities ahead of us.
I am reminded again that Autodesk’s purpose has never been more important or urgent. Empowering innovators with design-and-make technology, so that they can achieve the new possible also enables them to build and manufacture efficiently and sustainably. Together, we can meet the challenges posed by carbon, water, and waste while also advancing equity and access to the in-demand skills of the future. Autodesk’s central role in meeting these challenges, underpins my confidence this year, and my confidence in the future.
Operator, we would now like to open the call for questions.
Questions and Answers:
Operator
[Operator Instructions] Our first question comes from the line of Saket Kalia of Barclays.
Saket Kalia — Barclays — Analyst
Okay, great. Hey, guys. Thanks for taking my questions here. Debbie, maybe we’ll just start with you, just given some of the moving parts, I’d love to zoom in on the FY ’22 guidance a bit. You touched on this a little bit in your prepared remarks, but can you just talk about, what drove the change to guide in billings and free cash flow specifically? You talked about supply chain and FX. I was wondering if you could just go one level deeper, just help us parse that out a little bit. Does that make sense?
Debbie Clifford — Chief Financial Officer
It does. And I think we’ll start with Andrew here.
Andrew Anagnost — Chief Executive Officer
Yeah. Let me start and then Debbie and I will kind of tag team here on some of this. So first off, Saket, let’s make sure we all kind of level set on — the business is strong. All right. You saw the numbers. We’re seeing tremendous growth. We’re seeing record renewal rates. We’re approaching net revenue retention rates at the high end of our guide, and they’re continuing to go up. That’s super important here and we feel pretty good about where the business is going. So, the business is strong, and we’re seeing a lot of strength there.
If you look at what we’re talking about here, we saw several things happen during the quarter, and we got this reinforced by our customers and by our channel partners. We saw deceleration in what we were seeing around monthly active usage and all things associated with that. And that then translated into, to us kind of looking at our guide and looking at things going forward, and we pragmatically just assumed at this point, that what we saw in the quarter is going to continue into Q4, and that’s what you’re seeing, pragmatic assessment that, hey, there’s kind of supply chain pressure, there is inflationary pressure that’s kind of squeezing the margins with some of our customers, is going to continue into Q4.
If we look forward in terms of the guide, in terms of what’s going on into next year, look, we assume two things. One, this interesting FX environment we’re in, which I want Debbie to kind of comment on again and kind of reinforce some of the things she said in the opening commentary, presents some potential risk. So, we want to flag those risks. In addition, if some of these supply chain issues bleed over into the beginning of next year, we wanted to flag some additional risk there. But there’s certainly a large currency headwind that we’re seeing. I’d like Debbie to just kind of reiterate some of the things she said in the opening commentary, so we can all get on the same page about that.
Debbie Clifford — Chief Financial Officer
Yeah. Let me go back to the fiscal ’22 guide, first, because I think one of the metrics that I talked about in the opening commentary pretty much says it all. And that is that, for our new volume growth, we saw a 30% growth for the first half of fiscal ’22; and then in Q3, it was in the mid-20s. So, it was still very strong growth, it just fell short of our expectations. As we look ahead, we did highlight the potential risks that we see to fiscal ’23 free cash flow, and it’s true that FX, based on what we know today, is a big factor. It has been highly volatile. The rate moves that we saw in the first half of the year, created about $55 million in potential headwind to fiscal ’23 cash flow, and since then, and in the last 90 days alone, further rate moves created about another $45 million in potential headwind to cash flow.
So, as you can imagine, we’re obviously watching FX rates closely. But it’s clear, that if the current rates persist through next year, that risk could materialize in free cash flow. Our goal today was just to highlight the risk, as we look ahead to next year. But it’s important to remind, that overall, the strategy is working, and we have numerous growth levers to capitalize on over the long term.
Saket Kalia — Barclays — Analyst
Got it. Got it.
Andrew Anagnost — Chief Executive Officer
Saket, we still see path — a constant currency path to $2.4 billion next year, but we want to flag these risks, because we think that’s a prudent thing to do at this time, given what we’re seeing today right now. Not a guide. It’s a risk flag.
Saket Kalia — Barclays — Analyst
Understood. And I think that is prudent. Andrew, maybe just for the follow-up for you. Just to may be zoom out from the numbers and some of the moving parts, as we start to think about next year and the years after. One of the things I’d love to just get your view on is, now that we have an infrastructure bill in the U.S., can you just talk about a couple of the components that you feel could be particularly helpful for Autodesk’s business, and maybe when you think we start to see some of the benefit in your customer base?
Andrew Anagnost — Chief Executive Officer
Yeah Saket. So first off, let’s be very clear. We don’t have any infrastructure uplift built in any of our guidance or any things that we’re talking about right now, okay? These things play out over multiple years. This is a great bill. We’re really happy to see it. Included in the bill, is a $100 million fund to accelerate investment in digital tools for Department of Transportation. We feel that that’s a good thing and it’s an important part of this bill from our perspective, because it’s going to change the ecosystem. But these things play out over a long term.
We’re certainly really happy about the fact that we have invested in water, ahead of these critical investments in infrastructure, because water is going to matter a lot. Clean water, water management in terms of flooding or storage of water, wastewater processing, all these things, water is going to be a big deal. So, we’re going to see our engagement in water projects probably increase over the next couple of years. But I want to make sure that we’re all clear, that we don’t build these into our numbers right now, and we want to — we’re going to wait and see how these things play out over the next couple of years, but we will absolutely see some of our investments in road, rail and water pay off over a multiyear period here. And we’re pretty excited about it. This bill was a long time coming, and I think the emphasis on digital transformation inside the infrastructure industry is going to be an important catalyst to modernizing and expanding what’s happening in our infrastructure growth in the United States.
Saket Kalia — Barclays — Analyst
Very helpful. Thanks guys.
Operator
Thank you. Our next question comes from Adam Borg of Stifel. Your line is open.
Adam Borg — Stifel — Analyst
Hey guys, thanks so much for taking the question. Andrew, I’d love to kind of just go maybe another step deeper on what Saket was talking about. For much of the year, we’ve talked about this unwinding of uncertainty, and we talked about several factors today, of where it sounds like certainty has — uncertainty has kind of gotten higher again. Could you just talk maybe a little bit more about like an example or two of how supply chain issues or even pricing is impacting or inflation is having a direct impact on the ability to close deals? Just kind of help give an example, like what’s happening from that. That would be really great.
Andrew Anagnost — Chief Executive Officer
Yeah. Adam, it’s an excellent question. So let’s look kind of like back up to three months ago and set some of the context too, so that we kind of get a sense for this. Three months ago, we were heading into the quarter, seeing strong renewal rates, projecting strong renewal rates heading in, we saw those strong renewal rates. We’re at record renewal rates. We’re continuing to see those things. We also saw monthly active usage increasing robustly, heading into the quarter. As the quarter progressed, that increase in monthly active usage decelerated a little bit. It continued to grow. It’s just the second derivative kind of went negative on us, and it didn’t continue to accelerate at the pace we expected to see.
So, what’s driving that? All right. For a lot of our customers, the book of business they’re seeing is robust. They have more demand than they’re actually able to fulfill on right now, and you can see it in all the indices and all the indicators. What you also saw during the quarter, these supply chain backlogs and these inflationary pressures peaked in the quarter and continued persistently throughout the quarter. So while they have this big book of business, or they have existing ongoing projects, if you’re on the AEC side and say you’re on a fixed bid contract, you’re going to see margin pressure, because your cost of goods to deliver the project that you’re working on is going up, as is your cost of labor, and actually your labor pool is tight and constrained. So you’re seeing all these factors increase — pinching your margins, and it’s affecting your buying behavior at some time. So, even in this environment, where we saw all of these forces, including the labor shortages and things associated with that, we actually continued to grow robustly, just not where we expected to.
Now, if you’re on the manufacturing side, which you noticed we did very well and especially relative to our competitors. Even there, they’re not able to fulfill on all of the demand they have heading into their businesses. So, they’re not collecting cash as fast, because they’re not shipping the products that they’re getting ordered from their customers. So, all of these things are playing out. It didn’t stop people from buying technology, but it certainly slowed down some of the activity, relative to our expectations around people buying and investing in their technology portfolio. Does that make sense?
Adam Borg — Stifel — Analyst
Yeah, that was really helpful. And maybe just as a quick follow-up. Obviously, at Analyst Day, we talked about some changes around billing terms, and you referenced it a little bit earlier in the call. Just curious how kind of early receptivity has been with customers, as you kind of explain to them the changes that are coming? Thanks again.
Andrew Anagnost — Chief Executive Officer
Yeah. So look, our moves with regards to changing billing terms and smoothing out our free cash flow trajectory over multiple years are unchanged by any of this. We believe those are right for the business. We believe it’s right for our customers. Customers are generally positive around these things because they prefer annual billings or in most cases, they don’t want to have to pay upfront if they don’t have to. Also, a lot of these things we’ve been talking about, with regards to supply chain pressures, are viewed as pretty transient by us. These are not going to be persistent types of things. So, customers view these fairly well. Our partners are getting themselves around some of these activities right now. But those plans are completely unchanged relative to anything we’re seeing right now, and it’s all full steam ahead on that transition.
Adam Borg — Stifel — Analyst
Great. Thanks again for the color. I appreciate it.
Operator
Thank you. Our next question comes from Jay Vleeschhouwer of Griffin Securities. Please go ahead.
Jay Vleeschhouwer — Griffin Securities — Analyst
Yeah. Thank you. Good evening. Andrew, let me start with the circumstantial question. And that is, are there any operational changes that you foresee having to make? You just said that the circumstances are perhaps transitory. But in terms of, let’s say, what you call your early warning system, your usage telemetry, anything along those lines that you feel need to be updated, modified, amended in some way, to at least take account of the current circumstances? And then, the point you made with regard to customers having a robust pipeline themselves, do you expect to be able to recoup at some point or over time, the delta in the billings guidance that you’ve given now for fiscal ’22? Do you think that amount of billings can come back to Autodesk? And I have a follow on for you?
Andrew Anagnost — Chief Executive Officer
Yeah. So first off, let me comment on the tracking. So, we believe our tracking is good, because it actually showed us the outcome, as the quarter progressed. We saw the kneeing over of the growth in monthly active usage and the associated impact there. So, it wasn’t lifting the way we expected it to in the second half. In fact, like I said, the second derivative change, and eat over it a little bit. All right. So, these predictors, these tracking mechanisms we have, I think are still valid. They’re powerful. They actually gave us indications of things that were going on. I think we’re also, frankly, tracking the inflationary environment a bit more right now, trying to make sure what’s happening with the goods and labor pool that our customers are engaging with. We’re going to be paying attention to that. There’s hopeful signs out there that some of this is loosening up in some respects, but we’re going to be watching that.
Now, with regards with some of the business coming back, it is absolutely possible that that’s the case. All right. Our customers are definitely looking at a backlog of projects and a backlog of orders and all the things associated with that. I think it’s prudent at this point for us to kind of — with the information we have right now, assume that we’re just going to see kind of an ongoing kind of impact for these things until something changes. But it is possible that some of this could come back, as a result of releasing pressure. But it’s not — I don’t think it’s prudent right now to declare that. I think we should watch this, because we were all kind of surprised by the pace at which these supply chain pressures put pressure on our customers.
Jay Vleeschhouwer — Griffin Securities — Analyst
Right, understood. Now, for the longer term, looking past these circumstances, I’d like to ask you about something you said in your remarks at AU last month. You said ‘Autodesk will fundamentally shift how the company delivers value.’ And my question for that is, was that another way simply of referring to subscriptions and consumption and flex, or were you referring to something else besides just the licensing model, in terms of how you’re thinking about delivering that fundamental value over time?
Andrew Anagnost — Chief Executive Officer
Yeah. Actually Jay, that statement was not related to the business model as well. The business models will help facilitate delivering some of that value. What we were really talking about, was how the platform and the tools are going to become these co-designers with our customers, how we’re going to be driving much more facilitated action with our customers through our products. There’s going to be a lot more real-time data visibility, real-time option visibility, real-time collaboration between the system and the designer or the engineer. That’s the major value driver change that we’re talking about. It’s not the business model changes per se. Those are enablers. They allow us to get some of this capability more effectively to a broader set of customers, which we’re actually pretty happy about. But it has fundamental relationship with the product, this notion of co-designing with a computer and with a system that’s really going to change the way we deliver value.
Jay Vleeschhouwer — Griffin Securities — Analyst
Understood. Thank you very much.
Andrew Anagnost — Chief Executive Officer
Thank you.
Operator
Thank you. Our next question comes from Gal Munda of Berenberg. Please go ahead.
Gal Munda — Berenberg — Analyst
Hey, thank you for taking my questions. The first one, I’d just like to kind of focus on the reduced free cash flow outlook in ’22, and then how that potentially translates in ’23. The way I read or listened to your remarks was that, FY ’23 risk, not the change in outlook, so the risk, has kind of all to do with the FX rates, rather than the impact that you’re seeing on the lower billings for FY ’22? Is that correct to understand it that way, or do you think there is a carry-on momentum from lower billings of FY ’22 based on supply chain shortage and all that stuff into free cash flow for ’23?
Debbie Clifford — Chief Financial Officer
Yeah. So Gal, the answer is — it’s a bit of a mix. Go ahead, Andrew. Okay. The answer is that, it’s a bit of a mix. So, the way to think about it, I highlighted risk of approximately $100 million to $200 million, based on what we know today. And part of it relates to the subscription basis of our business model. So, given that billings are falling short of our expectations — for this year, we’re flowing through that risk into the free cash flow that we’re talking about next year and the other part of it is FX. So, it’s roughly half and half.
Gal Munda — Berenberg — Analyst
That’s really helpful and very clear. Thank you. And then, I just want to really focus on the different drivers of that kind of changed outlook, especially for this year. The long-term deferred revenues, or a portion of total deferred revenues falling kind of just below that mid — whatever we say, mid-20s in terms of like, let’s say, 23% is kind of towards the lower end of that. Is that something you’d expect in Q4 to kind of pick up towards the 25%, or do you think that the acceleration of the transition away from multiyear billings is also something that is really driving the outlook for the billings itself, because the revenue numbers seem to be strong?
Debbie Clifford — Chief Financial Officer
Yeah. So, the way that we think about deferred revenue and the long-term contribution to deferred revenue, being in roughly about mid-20s is not going to change. So what we’re seeing here, is an impact from macro on our billings outlook for this year, that we’re then highlighting risk as we get into next year. But the proportion of our business from multiyear contracts built up front for this year and into next year, is in line with our expectations. We’ve been monitoring the multiyear cohort this year, and even in Q3, it was quite strong. And so, that’s not something that’s changing and so, the follow-on impact of deferred revenue, is that that wouldn’t change as well. We still would see roughly 20%, being that long-term deferred revenue.
Gal Munda — Berenberg — Analyst
Okay. So, it doesn’t — so the multiyear billings contribution change didn’t have any impact on the billings outlook change that you have?
Debbie Clifford — Chief Financial Officer
That’s correct. Yes.
Gal Munda — Berenberg — Analyst
Okay, okay. Thank you so much.
Operator
Thank you. Our next question comes from Matt Hedberg of RBC Capital Markets. Your question, please?
Matt Hedberg — RBC Capital Markets — Analyst
Thanks for taking my questions. Debbie, maybe just a clarification for you. I think you noted in your script, that you believe the fiscal ’20 to fiscal ’23 revenue CAGR will be at the lower end of that 16% to 18% guide. If I do some quick math, does that imply fiscal ’23 revenue will grow about 17%, per your comment?
Debbie Clifford — Chief Financial Officer
Well, you are interpreting correctly that I said that, if the risk materializes that we’re seeing today, in our numbers, yes, next year, we would be at the low end of the revenue CAGR of 16% to 18%, that we talked about at our Investor Day. And while we’re not providing specific guidance on revenue for next year, directionally, your math computes.
Matt Hedberg — RBC Capital Markets — Analyst
Got it. Okay. And then, maybe just one other. I think we’re all kind of looking at cRPO as a helpful metric, kind of judge the business as well. And I know you don’t guide to cRPO, but any sort of commentary on how that might trend into 4Q?
Debbie Clifford — Chief Financial Officer
Yeah. So, let’s start with Q3. The cRPO growth decelerated, mainly because of declining contribution from multiyear EBA deals, that closed in fiscal ’20, which are entering the final year of their term. That growth deceleration was in line with our expectations, and it’s something that we signaled on our last earnings call. We anticipate over time that the growth rates for cRPO and revenue will gradually converge over time. But also that that RPO growth rate is going to continue to be influenced by the timing and volume of EBAs. And so, given that Q4 is a big EBA quarter for us, that’s going to have a big impact on the growth rate next quarter.
Matt Hedberg — RBC Capital Markets — Analyst
Got it. Thanks very much.
Operator
Thank you. Our next question comes from Phil Winslow of Credit Suisse. Please go ahead.
Phil Winslow — Credit Suisse — Analyst
Hey guys, thanks for taking my questions. Andrew, just wanted to dig in a little bit on where you’re seeing those changes in the second derivative, particularly in the AEC side of the house. One of the things you talk about a lot is that — is that Autodesk has solutions in different parts of the life cycle in the AEC world, planning, actually putting the nail on the wood, etc. When you look at those second derivatives, where do you see that in the life cycle, and how are you thinking about that in Q4?
Andrew Anagnost — Chief Executive Officer
Yeah. So again, I want to make sure that we’re clear on some of these things. The business was very strong, and that second derivative was a slowing down of the acceleration that we were expecting to see coming into the second half of the year. So it’s a slowing down, it’s not a decline. I just want to be super clear on that, so that we can get all positioned on that.
Now, in terms of where we think this is going to head out, we continue to think that these monthly active usage rates are going to continue to grow and that we’re going to continue to see increases associated with these things. We’re just prudently assuming that what we saw in Q3 continues into Q4, because based on what we wanted to see was like this uplift in monthly active usage at a higher rate than what we saw, it’s probably a safe bet to just assume this is going to coast into Q4. If something changes, if these pressures start to relieve and start to relax, we could absolutely see an improving environment. But the business is strong. The renewal rates are strong. The underlying fundamentals of the business are strong. The net retention revenue rates are strong. The slowdown was rather broad brush, except for the country-specific issues that we highlighted in China. So there was no one product area that saw a slowing. But I want you to note something pretty important here, look at the competitive position that we came out of this year, particularly in manufacturing and other places. We’re growing much more robustly than any of our competition in the space. It’s just, we have high expectations and we wanted to see some of those high expectations fulfilled. So, that’s how we view this right now, and that’s how we’re viewing it heading into the rest of the year.
Does that answer your question, or did you want to clarify something?
Phil Winslow — Credit Suisse — Analyst
No, no. That’s helpful. Thank you. And then also, just maybe drilling just in the markets by geography. I mean, obviously, we have the reported numbers, but anything you’d sort of call out within that, whether it be by vertical, by geography, or how you’re thinking about Q4? And then, I’ll go back in the queue. Thanks.
Andrew Anagnost — Chief Executive Officer
The one thing I’ll just highlight, [Indecipherable], we talked about the softness in China that was specifically in AEC. We actually did well in manufacturing in China. So softness was not uniform in China across all of our businesses. But in general, what we saw was a kind of a broad-brush impact. So I couldn’t point to onesie, twosies, in any particular country that was kind of different or offset from anything else we were seeing. It was kind of a broader impact in kind of the slowing down of the acceleration that we saw.
Phil Winslow — Credit Suisse — Analyst
Great. Thanks a lot. I will get back in queue.
Operator
Thank you. Our next question comes from Joe Vruwink of Baird. Your question, please?
Joseph Vruwink — Baird — Analyst
Great. Hi everyone. I’m curious, is the persona of customer that you think about as being kind of key to Autodesk new business growth, is that customer more susceptible to some of the macro issues you’re calling out? If I’m understanding all the detail right, the established base is growing nicely. There is moderation on the incremental growth. So I suppose, a question might be, are there risks of the latter starting to impact the former, and starting to maybe trickle into the installed base at the same time?
Andrew Anagnost — Chief Executive Officer
That’s not what we’re seeing. If that’s what we were seeing, the net revenue retention rate trend that we saw during the quarter would have been different. Okay. So, I want to focus you back on — remember, we came at the high end of our range on net revenue retention, and what that does, is it shows a strong — kind of a strong affinity and willingness to keep upping their game with regards to our products and offering. And that did not soften, okay, if anything, that’s continuing to strengthen. So that feels really good. So, there’s really — it really was affecting the new book of business, which kind of bleeds into the long tail of our business at some point and to some levels, which is to be expected in environments like this. Those who are most cash flow constrained, tend to slow their buying down the most. So, I don’t see any bleed over potential. In fact, in a lot of our newer businesses, we saw robust growth associated with some of these things. So, I do not see a crossover or a bleed over between these things. In fact, we continue to expect continued strengthening of net revenue retention rates in the base.
Joseph Vruwink — Baird — Analyst
Okay. That’s helpful. And then, on the supply chain topic, this was addressed at the Investor Day as maybe being a risk area, but also an opportunity perhaps for technology adoption. Even recently, it seems like engineering firms are acknowledging, that hiring support bigger backlogs might be tough, but technology, again, could be an opportunity. So, I guess, the question is, how do you think about the new seat contribution for your growth algorithm, in the context of double digits being sustainable? Would you expect a bigger contribution from the application and content side of the growth model, and how to think about seats, given the current macro backdrop?
Andrew Anagnost — Chief Executive Officer
Yeah. So, we absolutely think that we continue to see digitization tailwinds here. Okay? Customers are absolutely turning to technology to wrestle with some of these problems, and solve some of these things. And if you look at the strategy around double-digit growth and where we’re going, you see a lot of things working. First off, let’s just pause, and I don’t want to say this too many times, but the business is doing strong, and that’s setting a floor on some of our growth. Also, I wanted you to notice, some of the things that happened with noncompliant revenue. We grew 50% year-over-year, reflecting the compare to kind of the slowdown we did in the COVID — in the 2020 and around the pandemic, and we normalized the kind of like a 20-year — 20% growth over the two-year period, which shows nice steady growth in some of these things. So, if you look at the business, you see a lot of things working really well.
Now, if you look at the long-term trends that are going to contribute and be additive in terms of driving the double-digit growth, the digitization is there, the tailwinds continue, customers are telling us more and more, they want to go deeper, deeper, deeper in digitization, and we’re seeing strong adoption like — for instance, in construction with our largest EBA customers and some of our largest GCs. We’re seeing strong adoption of Construction Cloud or integrating Construction Cloud more deeply into some of these relationships. If you look at some of the incremental drivers we were talking about, with regards to business model, capabilities and some of the things associated, we’re continuing to see strong growth there, in terms of new types of subscription models, noncompliant users.
And then, when we talk about the long tail, while it’s really early days with the Flex model, and I want to make sure that we always say it’s early days with the Flex model. One of the things we’re seeing with Flex is exactly what we expected to see. We’re seeing a large percent of Flex business coming in this net new. Another chunk of Flex business coming in as these occasional usage buyers, people that classically bought network licenses previously, and another chunk of business, with people trying and using more advanced products, products they weren’t going to use previously. Those trends are exactly the kind of trends we want to see with offerings like this, and as time goes on and we get more experience with Flex, we expect those trends to continue.
So, all of the things that we’re pursuing to drive double-digit growth are working right now, and that’s what gives us confidence, as we move forward into the FY ’23, ’24 and ’25 and beyond, is that everything we’re doing right now is working. If something was showing softness or not working, then I wouldn’t have the confidence I have right now, but everything is working in terms of the things we’re pursuing. These transient impacts that we’re seeing right now, they’re obvious. They’re systemic. Everybody is seeing them. You can measure them systematically in terms of what’s going on out there. These will pass. The question is, when will they pass.
Joseph Vruwink — Baird — Analyst
Great. Thank you very much.
Operator
Thank you. Our next question comes from Sterling Auty of J.P. Morgan. Your question please.
Sterling Auty — J.P. Morgan — Analyst
Yeah. Thanks. Hi guys. Andrew, if you put yourself in the seat of the investor, we’re all seeing the headlines of the supply chain constraints, etc. But what, if you were an investor, would you be looking at to help us monitor to possibly get a handle on when some of these pressures are alleviating, and your business is starting to inflect upward again?
Andrew Anagnost — Chief Executive Officer
Yeah. Okay. So, you’re asking me to kind of be the predictor of when some of these supply chain pressures are going to unwind? Look, I’ll tell you what we’re…
Sterling Auty — J.P. Morgan — Analyst
No. I’m not asking for a time, I’m asking for what are some of the data points that would signal that it’s getting better?
Andrew Anagnost — Chief Executive Officer
Yeah. Okay. So look, one of the data points we look at, is the cost of freight. Okay? So, for instance, people are — the cost of freight has been going up and up and up, as you’ve been seeing this capacity compaction with regards to moving things. So that’s one metric you just sit there and look at and say, hey, if the cost of freight goes down, that’s a sign that flow-through and throughput is starting to soften up. That’s one thing that’s out there. Another thing is, some of the costs of the core commodities that are [Indecipherable]. I mean, let’s face it, wood. I mean, I know that sounds true, but the cost of wood in some of our AECs, it’s a big deal, right? If your cost of wood or wood-based materials goes up 20%, 30%, 40% on a fixed bid contract, what is that doing to your ability to execute? So, you look at cost of freight, you look at cost of wood and the things associated with that, and those have direct impact. The cost of any commodity going into manufacturing, is going to have impacts.
The last thing that I think is really interesting with regards to manufacturing, is some of these chip shipments starting to loosen up, and allowing people to kind of finish their machines and make sure that the electronics are actually assembled and together. So these are some of the things that all of us can look at, to see how things are going. The cost of freight being right up there, the cost of wood and commodities associated with building things being out in front. We’re going to continue to look at the monthly active usage, because for us, that’s a predictor of people doing more with the products, and that will probably follow some of these other indicators changing. Does that make sense, Sterling?
Sterling Auty — J.P. Morgan — Analyst
It does. Thank you.
Andrew Anagnost — Chief Executive Officer
You’re welcome.
Operator
Thank you. At this time, I’d like to turn the call back over to Simon Mays-Smith, for closing remarks. Sir?
Simon Mays-Smith — Vice President, Investor Relations
I am going to close in a minute, as soon as this mute button works properly here. Sorry. I was muted. I apologize. I’ll repeat myself. Thank you, Lateef. Thanks everyone for attending. We’ll look forward to catching up with you next quarter. If you have any follow-up questions, please do ping the IR team. In the meantime, have a very happy Thanksgiving and happy holidays. Thanks very much, everyone.
Operator
[Operator Closing Remarks]