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Thank you for standing by, and welcome to Autodesk Second Quarter and Full Year Fiscal 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Simon Mays-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 '26 second quarter results. Andrew Anagnost, 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 and strategies. Actual events or results could differ materially. Please refer to our SEC filings including our most recent Form 10-Q and the Form 8-K filed with today's press release for important risks and other factors that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We will quote several numeric or growth changes during this call as we discuss our financial performance. Unless otherwise noted, each such reference represents a year-on-year comparison. All non-GAAP numbers referenced in today's call are reconciled in our press release 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. Autodesk delivered strong second quarter results. Revenue and non-GAAP earnings per share topped the higher end of our guidance ranges, billings, non-GAAP operating margin and free cash flow exceeded our expectations. As a result, we are raising our guidance for the full year. In an uncertain geopolitical, macroeconomic and policy environment, 2 things remain clear. First, our strong momentum and performance in the first half of fiscal '26 set us up well to achieve our goals for the year. And second, we continue to make the right decisions to drive long-term shareholder value. We remain focused on executing our established strategic priorities in cloud, platform and AI, optimizing our sales and marketing to drive higher operating margins and allocating capital to organic investments, targeted and tuck-in acquisitions and continuing our share repurchase program as our free cash flow grows. We have laid strong foundations for future revenue and operating margin growth and shareholder value creation. We're excited to tell you more about our plans at Autodesk University in September and at our Investor Day on October 7. 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. Q2 was another strong quarter. Overall, the underlying momentum of the business was similar to prior quarters and better than the assumptions that we had built into our guidance range. We 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. The Autodesk Store, billings linearity during the quarter and upfront revenue 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 second quarter grew 17% as reported and 18% in constant currency. The contribution from the new transaction model to revenue was approximately $105 million in the second quarter. Total revenue grew 11% in constant currency and excluding the impact of the new transaction model. Please see the tables in our press release, earnings deck and Excel financials for details by product and region. In the second quarter of this year, we started to cycle past the anniversary of acquisitions made last year, so I should note that we saw consistent Make revenue growth in Q1 and Q2 if you remove the impact of acquisitions. Billings increased 36% as reported and 34% at constant currency, reflecting the shift to annual billings for most multiyear contracts and the transition to the new transaction model. The contribution from the new transaction model to billings was approximately $129 million in the second quarter. Billings grew 26% at constant currency and excluding the impact of the new transaction model. RPO of $7.3 billion and current RPO of $4.7 billion grew 24% and 20%, respectively, benefiting from tailwinds from the new transaction model. Turning to margins. Second quarter GAAP and non-GAAP operating margins were 25% and 39%, respectively, reflecting year-over-year increases of 240 and 140 basis points, respectively. This reflected operating leverage, ongoing cost discipline and some timing benefits from restructuring partly offset by the margin drag from the new transaction model. Second quarter free cash flow was $451 million, which benefited from the earlier timing of billings in the quarter. Moving on to capital allocation. We purchased approximately 1.2 million shares for $356 million at an average price of approximately $298 per share. Year-to-date, we have repurchased 2.5 million shares for $709 million. Turning to guidance. I will again speak to the numbers excluding the impact 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 have split the impact of the new transaction model and currency movements for our fiscal '26 guidance. The underlying momentum of the business in the second quarter of fiscal '26 was consistent with recent quarters and better than the more cautious assumptions built into the bottom end of our prior guidance range. The macroeconomic environment seems broadly stable, but uncertainty remains elevated. As usual, we have a large pool of EBA renewals to close in the back half of the year. We will also start cycling against tougher new transaction model billings and revenue growth comparisons with last year, particularly in the fourth quarter. We remain disciplined and focused on the controllable factors that drive our revenue, operating margin, earnings per share and capital allocation, which are the key building blocks of free cash flow per share. Reflecting all this, we've raised our billings guidance range to $7.355 billion to $7.445 billion and raised our revenue guidance range to $7.025 billion to $7.075 billion, which flows through the strength of the business in the first half to our full year underlying guidance, along with some additional tailwinds from FX. The bottom end of our full year guidance ranges reflect similar macroeconomic assumptions for the second half of the year, as we had outlined on the prior call. We've also raised our non-GAAP operating margin guidance for the year to approximately 37% or approximately 40% on an underlying basis, which excludes the impact of the new transaction model. As you are aware, we initiated the optimization phase of our sales and marketing efficiency plan in February. We are making good progress and are on track to realize its expected benefits. These efficiency gains, combined with inherent operating leverage set us up well to expand our operating margin over time. Assuming no material change in the external environment, we expect reported non-GAAP operating margin to be 41% in fiscal '29 or about 45% on an underlying basis, which excludes the mechanical impact of the new transaction model as it fully scales next year. This would represent a reported and underlying improvement of approximately 500 basis points and approximately 900 basis points, respectively, since we started to scale the new transaction model at the end of fiscal '24. We will tell you more about our plans at our Investor Day on October 7. We've also raised our free cash flow guidance range for fiscal '26 by $88 million at the midpoint to $2.2 billion to $2.275 billion. As we said in February, utilization of U.S. deferred tax assets will mean we pay little U.S. federal cash tax in fiscal '26. We do not, therefore, get incremental cash benefit from the One Big Beautiful Bill Act this year. And finally, we've also raised our fiscal '26 share buyback targets by $100 million to between approximately $1.2 billion and $1.3 billion, which is a 40% to 50% increase compared to fiscal '25. The slide deck on our website has more details on modeling assumptions for the third quarter and full year fiscal '26. Andrew, back to you.

Thank you, Janesh. 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. Let me give you a few examples from the quarter. AtkinsRéalis is a world-class engineering services and nuclear company. Over the years, it has embedded Autodesk technologies across its global delivery ecosystem to enhance design quality, reduce rework and support data-driven decision-making throughout the project life cycle. Having signed our sixth EBA with them this quarter, I'm excited that there is still so much more we can do through initiatives like automated model validation, enhanced interoperability and immersive XR-based design reviews, Autodesk will help further streamline workflows and improve quality assurance. AI-enabled design strategies, digital twin capabilities and Autodesk Construction Cloud will support its expanded service offerings and reinforce its position as a digitally enabled partner. Kimley-Horn is a premier planning and design consulting firm committed to growth and digital transformation. It renewed and expanded its relationship with Autodesk to accelerate the adoption of BIM solutions and Autodesk Construction Cloud. By fostering collaboration and productivity across the project life cycle, Kimley-Horn anticipates significantly increasing efficiency by the end of 2025. Dynamic Energy is a full-service solar developer offering turnkey services for commercial, industrial, institutional and utility scale solar installations. Faced with workflow and forecasting challenges created by a lack of integration with its ERP, it selected Autodesk Construction Cloud to replace a competitive solution. The lack of integration with its existing ERP created challenges with client billing, inefficient invoice approval workflows and difficulty forecasting. Dynamic Energy will also leverage Autodesk Construction Cloud's mobile app off-line capabilities, multi-user workflows for inspection and KPI progress tracking. These stories have a common theme, converging people, processes and data across the project life cycle to increase efficiency and sustainability while decreasing risk. Our comprehensive end-to-end industry clouds and platform drive convergence and extend our footprint further into larger growth segments like data centers, infrastructure and construction and that is reflected in sustained strong revenue and new customer momentum in construction. Moving on to manufacturing. We made excellent progress on our strategic initiatives. Customers continue to invest in their digital transformations and consolidate our Design and Make platform to drive growth and increase resilience. A leading European research institution for aerospace, energy and transportation was seeking to accelerate innovation and boost sustainability. To achieve these goals, while maintaining high standards of precision and risk control, it adopted Autodesk's Product Design & Manufacturing Collection. These advanced tools streamline data management, optimize workflows and shorten development cycles. By enabling increased virtual testing and simulation, it will significantly reduce its reliance on physical prototypes, supporting both efficiency and sustainability. MotorScrubber is a market leader in innovative floor cleaning machines. It was looking to connect disciplines, data and workflows from design to manufacturing to drive efficiency and accelerate time to market. To do that, it has adopted Fusion with the simulation, design and data management extensions to replace a competitive CAD solution. A leading multinational biopharmaceutical company is adopting Fusion to increase the resiliency of its supply chain to actual and potential disruption and drive operational efficiency. Using Fusion, it can quickly, collaboratively and securely design, make and document critical spare parts when needed. This minimizes downtime and production delays while maintaining documentation in this highly regulated industry. 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 AutoConstrain in Fusion. Since its launch this year, the AI model has delivered over 1.2 million dimensions and has been retrained, and the UX improved along the way. The acceptance rates of AutoConstrain suggestion to commercial users has grown to more than 60%, with 90% of those sketches fully constrained. That is a substantial productivity gain. In education, Anna University, Chennai, signed a strategic engagement with Autodesk to enhance student employability through modern applied engineering education across its 400-plus affiliated colleges. As part of the collaboration, a state-of-the-art Design and Make Innovation Center at the College of Engineering, Guindy, will be equipped with Autodesk's cloud-based platforms to support hands-on training in digital manufacturing, CNC machining and building information modeling. 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, an iconic high-performance automotive manufacturer was looking to enable designers across its ecosystem with unified access to technology while retaining robust user management and scalability. Through a renewed agreement with Autodesk that included a combination of named user subscriptions and Flex consumption tokens, it can serve users enterprise-wide and achieve its goals. This hybrid model provides a blueprint for scalable digital transformation across the automotive and manufacturing sectors. Attractive long-term secular growth markets, 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 our share count and enhance value creation over time. In combination, we believe these factors will deliver sustainable shareholder value over many years. To set the stage for Autodesk University, Investor Day, let me close by talking about Autodesk AI. For more than a decade, Autodesk has been at the forefront of innovation in BIM, SaaS, generative design and now in generative AI. We have been building industry-specific foundation models and products capable of understanding and reasoning about 2D and 3D geometry, design and make data, complex structures and even physical behavior. For example, last year, we introduced Project Bernini, a generative AI model for 3D, as part of a broader initiative to create professional-grade foundation models that will disrupt long-standing technology paradigms and redefine what we mean by software, platforms and products. By combining our own spatial and physical reasoning with deep industry-specific knowledge, Autodesk AI will move beyond traditional, deterministic and rule-based parametric CAD kernels to deliver adaptive and context aware, AI-driven CAD engines. These engines will dramatically expand what's possible across the entire project life cycle, while eliminating much of the repetitive work and rework that slows projects down today. As we integrate these capabilities into our platform, Autodesk customers will be able to build their own AI models trained on their own data and infused with their unique context, unlocking new, differentiated sources of value, efficiency and competitive advantage while remaining confident that they are using AI in a way that is certified to be ethical, transparent and accountable. We're excited about the road ahead, not only because of the industry-leading AI tools and foundation models we are creating, but also because of the go-to-market, industry cloud and platform foundations we've built over the last decade to scale AI successfully. We look forward to sharing more with you at Autodesk University and our Investor Day. Operator, we would now like to open the call up for questions.

[Operator Instructions] Our first question comes from the line of Saket Kalia of Barclays.

Okay. Great. Great to see these results. Andrew, maybe just to start with you. Given some of the headlines out there this quarter, I was wondering if you could just talk to us a little bit about your appetite for transformative M&A.

Yes. I think it's best probably to kind of restate our capital allocation strategy. First and foremost, Saket, we invest organically in the business to drive our strategy around platform, AI and all the things related to our product strategy. The second thing we look to do is we look at M&A as the next option. And we look at it for tech tuck-in reasons, really things that accelerate our existing road map and move us forward. And we look at it through the lens of targeted acquisitions that extend our adjacency strategy, things like construction, operations. These kinds of acquisitions tend to be in the hundreds of thousands to the billions of dollars range, not in the tens of billions of dollars range, right? The other thing, of course, we're doing is, as we have excess capital above and beyond those needs, we are accelerating the deployment of that to shareholders via stock buybacks that move beyond offsetting dilution and accelerate and reduce the share count. So I think that's the best way to look at this moving forward.

That's super helpful. Thanks for knocking that out of the way first here. Janesh, maybe for you, great to hear the 41% margin goal in fiscal '29. Can you just walk us through some of the high-level assumptions and also guidance philosophy around that, if you could?

Saket, I'm happy to do that. So look, as I step back and look at the business overall, we're very pleased with our current momentum. We're excited about the opportunity ahead of us as well. In terms of the assumptions that we made, our absolute level of revenue growth in the future will then part depend on the rate of the underlying market growth and on the external environment as well. And so as we consider the margin targets that we've set, our goal was to make this achievable under various growth scenarios, balancing opportunity and risk. And so we expect that the largest contribution to that margin expansion will come from sales and marketing. We're making good progress on the optimization phase of our sales and marketing efficiency plan that we had initiated back in February, and we're on track to realize the benefits from that. Also, we have inherent operating leverage in the model, and we've demonstrated that this year. And combined with the sales and marketing efficiency gains, I think that sets us up really well to achieve this long-term goal. And maybe the last thing I'll point out is that we do have some incremental margin headwinds from the new transaction model in fiscal '27. So as we think about the annual progress towards this margin target, we do not expect that to be linear.

Our next question comes from the line of Adam Borg of Stifel.

Awesome. Maybe for Andrew, in the script, you talked a lot about success in construction, and it's great to see that continued traction there. So maybe talk about what's leading to this ongoing momentum? How much runway you feel is left on ACC? And any color on what you're seeing both domestically or internationally would be really interesting.

Yes, Adam, happy to comment on that. So look, one of the things I want to make super clear is that the momentum in our construction business is unchanged. We're seeing similar momentum to what we saw in the past. There's no deceleration. It's performing quite well. And it's performing well across a broad swath of the business, performing well in the U.S. We continue to see wins up at the top of the pyramid. And we also continue to see wins in the mid-market. Our international performance is doing quite well, so we're growing well internationally. We're really happy with our payments business. It's performing quite well across the board. And I think that's really important because that brings us into another part of the ecosystem. And I think without saying -- giving away AU items, we're going to be talking about a bunch of things at AU that I think continue to accelerate our position in areas like pre-construction and preconstruction planning and all the things associated with that, even some things that enhance the field experience. So we continue to stay focused on winning. We think we've built the most comprehensive end-to-end platform. We think we have the most modern platform. So we're really happy with where the performance is going and how it continues to maintain its momentum.

That's really helpful. And maybe just as a follow-up for Janesh. You talked about this, I think, in some of your guidance assumptions. But when you think about the EBA renewal opportunity in the back half of the year, just remind for us maybe the relative size of the cohort this year versus last year and next? And how is the pipeline shaking up in terms of renewals and expansion?

Adam, so overall, the first half was a strong first half for us. You've seen the strength from Q1 continue into the momentum that we demonstrated here in Q2 as well. And overall, we feel we are quite well set up for the back half of the year as well. The EBA renewal opportunity, there is a large pool of renewals out there. We have that in every year. And we also have a very large product subscription renewal base to close. So there's a fair amount of business for us to close next year. But we've been executing well so far, and the momentum has continued nicely until now, and we feel very good about the setup for the rest of the year.

Our next question comes from the line of Jay Vleeschhouwer of Griffin Securities.

Janesh, let me start with you and then Andrew, my follow-up will be more a technical nature. So Janesh, with regard to the increased billings guidance for the year, $165 million at the midpoint, can we perhaps parse that in terms of some of the mix dynamics? Could you comment in terms of what you're seeing in terms of customer usage telemetry, mix of collections versus stand-alone? Anything in terms of retention or perhaps gross up for us, if you could, some of those important pieces of the mix that drove the increase in billings guidance?

Jay, I'm happy to do that. Overall, what I'd say is that the areas of strength that we saw in the first half and particularly in Q2, we see those as continuing into the back half of the year as well. AECO continues to perform well, construction. And broadly, I would say, Make continue to be growth drivers for us. We see that playing out nicely in the business. If I think about some of the other metrics like the net revenue retention rates in the business, those are quite strong as well. We see those playing out nicely for the back half of the year. So overall, it's the broader momentum that we are seeing from the product innovation as well as the strength in the go-to-market execution that we developed in the first half of the year that is continuing into the back half of the year.

Okay. Andrew, we're looking forward to some of the usual updates at AU in a couple of weeks. But in the meantime, following up on your comments on technology and customer adoption, one of your most important initiatives the last few years has, of course, been APS and your new data models for AEC and manufacturing. And you've spoken of the concept of data granularity, all of those are differentiators. However, we've often seen in the industry over many years that customer adoption of fundamentally new approaches or plumbing, if you will, can perhaps be very time consuming, and we've seen that, for example, in PLM over the years where adoption can take quite a long time. So you're doing some very interesting technical work and you need to do it. But perhaps you could talk about how you're thinking of the adoption of these fundamentally new methods over the next number of years.

Yes. I think that's an excellent question. First off, let's talk about the granular data. So one of the things we do clearly see and we do track closely is API usage, and we're seeing continuous increases in API usage with some of our largest customers and even further down into the market. So people are starting to use this granular data to connect processes in different and unique ways. And I think that's really important. So they are adopting some of these key technologies. And as you know, a diffusion of adoption into the market varies by industry and pace. So I think when we look at this, we're going to see increasing adoption of the granular data and the APIs because it's solving a really significant problem for the customers. And as we continue to roll out some of these productivity features through AI and through some of our new IP moats that we're creating around new foundation models, I think you're going to see ongoing continuing experimentation and use of many things. Like one of the things I said in the opening commentary was that our AutoConstrain feature in Fusion, it's now at a 60% acceptance rate, and it's doing 90% of the constraints automatically for the customers. And we're continuing to see more usage. That's a pretty high acceptance rate for a new technology. So it's actually really increasing productivity for our customers. These things will take time, but we're already seeing lots of green shoots that there's an appetite for anything that enhances productivity or helps our customers wrangle data across their processes. There'll be more at AU, Jay.

Our next question comes from the line of Jason Celino of KeyBanc Capital Markets.

Really [ impressed by ] growth accelerate to 11%. I know you said the selling environment remains broadly consistent versus prior quarters, but you still accelerated. Help us understand what was the driver here? If there were any subtle improvements? And then I'll have a follow-up.

Yes. Let me kind of comment on that. Like we said, broadly, the businesses are -- is performing similarly to prior quarters. There are always puts and takes, right? And so let me give you a sense for some of those puts and takes. From an industry perspective, AEC stood out with regards to growth in the AEC sector. And we see that driven primarily by secular strength in things like data centers, industrial buildings, [ factories ] and other things like that and in infrastructure. So AEC stood out. The other sectors were strong as well, but AEC stood out as one of the things increasing performance. The next thing, when you look at it from a segment basis, EBAs were strong, primarily driven by upfront revenue, which was great. And we also saw a lot of strength in the Autodesk Store. And this is exactly what we expect as a result of the new transaction model because that strength in the store comes fundamentally from people coming to us who used to go to transaction-based partners lower down in our partner ecosystem. So that's a great result. And if you look at it geographically across the board, the Middle East and India stood out, in particular, for their infrastructure investments and some of the activities there. So those are some of the puts and takes that we saw this quarter that kind of differentiated things from other quarters.

Perfect. And then maybe just my follow-up for Janesh. Thank you for the operating margin framework in 2029. When we think about your comfortability with this, should we think about it with like a high degree of confidence in the sense that a lot of the sales and marketing leverage is in your control, and it's not necessarily reliant on growth, one way or the other. Maybe just that initial question, and I'm sure we'll have more at AU or Analyst Day.

Jason, so on the underlying assumptions, as I mentioned, our goal was to make sure that this is an achievable target under various growth scenarios. So we did balance the opportunity and the risk. And we are set up well to execute against this goal. We've demonstrated great progress on this so far. Our sales and marketing optimization plans are on track, and we've been demonstrating the operating leverage that is inherent in the model. So we feel good about this.

Our next question comes from the line of Elizabeth Porter of Morgan Stanley.

Great to hear the operating margin targets and looking to hear more at the Analyst Day. So for my first question, it sounds like you continue to embed a more cautious outlook from the tariff impact into the low end of guidance. Just given we're further through the initial tariff headlines, how have your customer conversations evolved? And how should we think about the potential for disruption risk to still play out in the back half of the year, the potential of that disruption may be coming in a little bit better than feared?

Yes. So this is an excellent question, Elizabeth. So first off, just to comment on the guidance for the second half of the year. We maintained the same assumptions we had coming into the year for the second half of the year, which we think is prudent given this environment. When we talk to our customers about tariffs, obviously, we're not directly impacted by tariffs as a software company. But some of our customers still are struggling with the same things that you're hearing about pricing pressures and some of the things that are associated with higher cost of goods for some of their products. But they're all coping, and they're all coping quite well at this point. So we don't have customers raising additional red flags related to tariffs. And you can kind of get a sense for the guide strength from what I said previously, but I'd like Janesh to comment on that a little bit, too.

Yes, I think it's what you said, Andrew, you summarized it quite nicely. And Elizabeth, maybe just to tack on a couple of more tactical items to that. In terms of the underlying guidance assumptions on the macro, the bottom end does assume similarly cautious approach like we had or a similarly cautious set of assumptions like we had on the last call, so no change there. And in terms of other call-outs. I'd just point out that as you compare the underlying guidance for the second half to the underlying performance in the first half, just recall that we had some acquisitions last year, which contributed to about a 1% point of growth for the full year. But most of that revenue contribution had come in the second half of last year. So that creates tough comps. And then earlier, I called out that the new transaction model also contributed more meaningfully both to billings and revenue in the second half of last year. So that does create tougher comps on an as-reported basis as well, particularly in Q4.

Great. And then just as my follow-up, our conversations with partners, we've heard about how spending time with existing customers on the transaction model rollout has just limited some of the ability to drive new customer demand. Just given we're further through the model rollout, you've had some commission changes to incentivize that new business side. How are you seeing channel productivity and execution, particularly on that new business side of the business trend? And what are you assuming for the remainder of the year and the outlook for that new business side?

Yes. So obviously, one of the things we track very closely is the buildup of new business from our partners. We also track the renewal rates, of course. And what we've seen is a steady increase in new business coming from our partners, and this has continued on a steady basis. So we're seeing nice increases in new business through our partners. We expect that to continue because we're lapping the rollouts, customers are getting much more comfortable with the renewal motions. They're working on their internal efficiencies. So we've already seen a nice stair like pattern on new business, and we expect that to continue as we move through the year.

Our next question comes from the line of Taylor McGinnis of UBS.

Congrats on the quarter. Maybe just on the operating income margin guide for the full year. So if I look at the adjusted numbers for the model change, it looks like it wasn't raised as much as the revenue guide. So could you just maybe walk us through how your expectations for expense growth for the year have changed or are evolving? And where the incremental investments are going? And anything to comment, I guess, in terms of timing of expenses, just given 2Q looked pretty strong.

Taylor, I'll take that one. So if you look at the business on an underlying basis once you pull out the effects of the new transaction model, the increase that we saw in the guidance for the full year does result in an incremental margin flow through about 2/3 of the incremental revenue. So we think that's a strong demonstration of the operating leverage. So I think it's just some of those modeling pieces that need to be factored in. There are some timing issues always that creep into this, and that's why we manage primarily from a full year perspective. But overall, we've demonstrated great cost discipline so far. The restructuring plan that we had started at the beginning of this year has been implemented quite nicely, and we're staying on plan for our overall spending for the year as we drive the business forward.

Our next question comes from the line of Joe Vruwink of Baird.

I wanted to ask about AI in the manufacturing setting. And just to tee this up a bit, Autodesk made a strategic investment. I think this week in an AI CAM offering, and this an example of a company you are already working with through Fusion already available in the App Store. And so I was wondering, how does Autodesk ultimately think about the role it needs to play in AI? Is ensuring Fusion as a central part of the mix and customers' development efforts, is that the key focus and particularly knowing that start-ups will probably seek you out for exposure to the manufacturing data model over time? I guess, what informs decisions to buy or partner or further invest in the plumbing to the earlier question?

Yes. So I think that's a great question, Joe. Look, first off, we see a lot of value creation in AI moving forward, both in retaining revenue and retaining value and creating whole new value. And our strategy is very much focused on creating a new IP layer, a new IP moat around our own kind of custom foundation models that will not only be useful to us, but be useful to third parties as well who want to extend and use some of our capabilities. So while we're actually working on making tasks more productive like what we're doing with AutoConstrain and some of the things we'll do with Autodesk Assistant. We're also moving into workflows and ultimately into systems level type automation. So look for us to continue to build this portfolio of custom foundation models that are accessible to us and partners. Of course, we always like to look at promising start-ups out in the ecosystem that are doing things. We know a lot about what that particular CAM vendor is doing. We like what they're doing. They're doing unique things and exposed to unique customers. And we're going to watch what they're doing and partner closely with them. We think they're a good extension to what we're doing already. But look for us to also organically develop these core foundation models. We already have. Obviously, some of those things are featured in Fusion. Fusion is not the only place these will show up. Obviously, Fusion is the core place that we will develop these AI features for the manufacturing segment. But you're going to also see a lot more interesting stuff in AEC at AU, and we're looking forward to talking about some of that work as well.

Okay. That's great color. I wanted to circle back to what's implied in the second half guidance. And I appreciate kind of the tough comps on an as-reported basis. I guess I was looking at what's implied by the ex currency and ex transaction model. And it does look like the growth rate steps down in 4Q. Just wondering if that's pragmatism or you're sensitive to the big transaction so you make a close assumption or an ACV assumption and that's baked in? Or is there anything more discrete you would point to for kind of the 4Q exit rate and growth?

It's just a function of the guidance assumptions that we've used. We were prudent when we set the guidance entering the quarter that served us well. We're maintaining the same posture as we look at the back half of the year.

Our next question comes from the line of Ken Wong of Oppenheimer & Company.

Fantastic. Janesh, just a quick kind of clarification on Elizabeth's question. Just making sure that, that low end of the new guidance does -- is insulated from, I think, the prior comments being COVID like kind of conditions, like is that a fair way to think about the downside protection to the newly revised low end?

Yes, absolutely, it is. No change in the underlying approach. We still assume similar kinds of impacts as we did last quarter. The only difference, of course, is that we only have 6 months to go in the year versus 9 months to go in the year.

Got it. Understood. And Andrew, it sounds like lots of AI announcements potentially on the come at AU. I mean I would love to get a sense for what you feel the appetite for some of these technologies are from this end market. Again, Autodesk has been at the forefront in terms of cloud. And I think you guys have a good sense of the pace at which this end market moves. How would you say they're thinking about AI and the willingness to adopt?

Yes. Look, as you said, Ken, we tend to be out in front of these things, and we're out in front. We were out in front with a lot of 3D advancements. We're out in front with a lot of cloud advancements. We very much intend to be out in front with the AI advancements. All of our customers are looking for capacity and productivity. They are hungry for trying to figure out what real-world AI can do for some of their workflows and some of the kind of productivity gaps they have. So we are heavily invested in making the task of creating these sophisticated complex 3D models a lot easier, a lot faster and a lot more intuitive, and I think that's going to be very, very valuable to our customers. And like I said, over the course of time, we're starting with tasks, we're moving to workflows, and we'll be moving to systems, and we'll monetize these things through a combination of subscription, consumption and outcomes, also business models that we are well ahead of the industry on with regards to making them mainstream in our offerings. So the customers have an appetite. We have to make it easy for them. And I think when we get to AU, you're going to see some pretty compelling things that we're bringing to various products, primarily Forma and Fusion that I think our customers are going to find incredibly attractive and incredibly useful.

Our next question comes from the line of Josh Tilton of Wolfe Research.

My first question is I totally understand that you guys continue to bake in the conservatism in the guidance at the low end given the environment is still very uncertain. But it also kind of sounds like you're not seeing any of this uncertainty play out. You said the momentum this quarter was similar to last quarter. And what I'm trying to understand is when you look at your fancy dashboards and your widgets and whatever you guys track to indicate the momentum of the business, if none of this uncertainty does actually end up panning out, like what's going to be the tail of the Autodesk story come Q4? Like are we still going to hear the momentum of the business was the same with prior quarters? Or are we going to hear like you exited the year with things getting better, stronger execution? Like how do we think about the direction of the business this year if none of this uncertainty ends up panning out?

Josh, maybe to start with, I'll just say that Andrew's dashboard looks fancier than mine. But look, in all seriousness, the low end of the guidance assumes a more conservative outlook. And if the world stays the way it is right now, then you should expect us to come in ahead of the low end of that range. And at the middle and high end of the ranges, we've assumed that the world stays as it is. And beyond that, we'll focus on execution and work hard to try and outperform.

Makes sense. But maybe just to dive one step deeper on there. I guess, like are you guys going to outperform just because the guidance is prudent? Or do you guys see the underlying momentum improving? I think those are 2 different things if you kind of understand what I'm trying to ask.

I would expect the underlying momentum in the business to continue the way it has been in the first half of the year. We've been executing really well. There are things that we can control and we focus on those, and we've done well against that so far.

And remember, that underlying momentum includes improvement in partner-driven new business. Like I said, we saw -- we've already seen improvements in partner new business. We expect to continue to see improvements in partner new business.

Makes sense. And just to clarify, I would expect you guys to have the most state-of-the-art fancy dashboards. That wasn't anything negative.

We do have fancy dashboards.

But maybe just a quick follow-up, Autodesk University, you guys kind of gave away, I think, the thing everybody was expecting the long-term target on margins. So obviously, there's going to be a big talk around AI. Andrew, maybe from your perspective, like if you were a betting man, you guys have lots of products, lots of things you can embed AI into. Like what are you most excited about across the entire product set from an AI perspective and maybe which piece do you see being the most impactful in the most near-term manner, if that makes sense?

Yes. Look, I'm very excited about the convergence that we're driving between Design and Make and how we're bringing together these disciplines and kind of streamlining workflows across what our products are doing. There's lots of really fancy deep AI we'll be talking about, built off of our foundation models that will become increasingly smarter. But one of the things that's going to be really exciting at AU is just talking about the nuts and bolts capabilities of the Autodesk Assistant and how our customers are just going to be able to do things through a series of prompt driven workflows or different types of UIs that just simply make their jobs a lot easier. I think people are going to find these things to be very attractive, very understandable and relevant to what they do today. So while we're building out the future, and I guarantee you we are building out the future, AI may eat software, but it's not going to eat Autodesk. We are very much interested in making sure people see real productivity gains today as they see kind of fantastic productivity gains in the future. And those productivity gains that we provide for them will create value for Autodesk.

And again, congrats on a really strong quarter.

Our next question comes from the line of Siti Panigrahi of Mizuho.

Perfect. Congrats on a really strong quarter. I wanted to ask about this channel activity. It's been a year since the new transaction model and also you talked about some of the channel consolidation. So what kind of impact are you seeing from the new transaction model? Mainly you talked about some partners probably might have gone through the first renewal in June. So I would love to hear any kind of productivity improvement you're seeing there.

Yes. So look, there's a couple of things that are important. They're playing out exactly as we thought they would. So first off, the lower level channel ecosystem, what we call non-contracted partners and silver partners and even the low end of gold. A lot of that business is starting to come directly to Autodesk, which is a massive efficiency improvement in terms of our ability to engage with customers and understand those customers and engage in price realization with those customers. That's working as we expected it to, and we expect that to continue moving forward. The other thing with the partners is it's really just them getting comfortable with renewing their business and looking at their new business as they would lap when we rolled out the new transaction model, and they come to the second renewal cycle on some of these customer deals. They've already got the customers in the system. They're already able to renew the customer and move on to focusing to expanding the customers and new business. We're seeing all of those things happening. And as those things happen, we're seeing the new business generated by the partners increasing month over month over month. So all of this is as expected. We haven't seen any kind of movement in the channel that is outside of the bounds of what we were expecting, and we're really comfortable and actually pretty happy with what we're seeing.

And Siti, maybe just to add...

That's good to hear. Yes. Go ahead, Janesh.

Siti, just to add [ about ] renewals that you mentioned. So we did see the Americas partners get their first renewals on the new model in June. That went as expected as Andrew said, and we've got the EMEA partners coming up for their first renewals in the new model in September.

Okay. That's great. And as a follow-up to Autodesk Construction Cloud, we continue to hear some kind of positive feedback in terms of the feature set. So what competitive displacement trends are you seeing? Is it fair to say that with this new direct model transition, you'll see further acceleration on the ACC side, your direct sales guys can try to cross-sell.

Here's what I'll say, right? Our momentum continues to be consistent in construction. So we continue to do well every quarter, right? We continue to build out functionalities on a modern stack. This is a modern, sophisticated stack. It's not an old collection of software from 20 years ago or so. We've built something modern, and we've built something that's heavily connected. We have the best-in-class design to make solution. And we also have the best-in-class preconstruction planning tools. Customers notice this. So if they're not on our system today, a lot of them are already talking about being on our systems tomorrow. And this is just a matter of us continuing to execute, deliver on the commitments we've made to our customers and keep moving this very modern, very connected, I think, very powerful stack forward and bringing more customers on. I see nothing out there right now that's going to slow our momentum. Only new types of offerings that we'll be talking about that should increase our momentum moving forward.

Our next question comes from the line of Tyler Radke of Citi.

One of the areas you highlighted was the strength in the online store and the direct business, and I guess a couple of questions there. Is there any new PLG motions or marketing initiatives you're doing? And then secondly, how have you sort of seen the evolution of the transaction model? Have you been able to capture a bit more of that business directly just given the changes? Obviously, you're getting a lot more data in terms of the end customer.

Yes. So look, with regards to the store, this was an area of investment and focus for us. We want the store to be highly efficient. We want the store to capture those customers that are no longer going to be working with transactional-based partners. We want our best partners to serve their customers and grow their customers, but we want to make sure the store captures those customers. And yes, we have invested in PLG motions that drive new business to the store with relation to construction and Fusion and products like that, that are well suited to those motions. All right. So that is an investment area. That's the direction we continue to work in. In terms of understanding our customers better and automating the cross-sell, upsell and the self-service capabilities, that's still going to take time. We are continuing to evolve our self-service capabilities, and we are now learning more about the customers through the direct relationship we have. But monetizing that and turning that into a repeatable motion is going to take time. So that's something that's coming in the future. But the store -- that's a great area of investment and a significant area of focus for us.

And Tyler, this was part of the thesis that we laid out at the start of the year when we said we need to reinvest some of the dollars back into building out additional self-serve capabilities. So that's on track for us.

Great. And Janesh, just on the margins, the Analyst Day is coming up here in a little over a month. Why give that FY '29 outlook now? And like was there some sort of process you went through to get there? And how should we think about free cash flow margins in that same time frame?

Yes. Tyler, we are well aware that the question of the long-term margins has been a question of high interest to many of our stockholders. And so what we wanted to do when I first came into the job is we wanted to take the time to update our internal long-term view even as we began optimizing our go-to-market efforts already. And now we're almost complete with our long-term planning cycle. So we're in a position where we could share our views, and that's why we are doing that today. In terms of thinking about the evolution of free cash flow over that time frame, there'll be some puts and takes next year as we navigate some of the unique factors around the taxes and so forth. But fundamentally, as the overall business model settles and the new transaction model takes hold, the free cash flow and operating income should move generally with a very high degree of correlation to each other.

Our next question comes from the line of Koji Ikeda of Bank of America.

Great to be back on these Autodesk calls, looking forward to it. Specifically -- a question here specifically within the construction industry. I wanted to hear some of your thoughts on what sort of triggers in the industry could drive even more budget unlock for your largest global general contractor customers? I mean more projects is the simple answer. So digging a layer beyond that, what can help drive more projects? Is there something from a regulatory standpoint or maybe a project financing standpoint? I mean, any sort of color there on more budget unlock?

Yes. Look, our customers suffer from a capacity problem, right? They actually already have a backlog, and they're not really executing on the backlog as fast as they'd like. So productivity does matter here. Now of course, there are things that can be done. The regulatory environment in some places is far too complex to building things. Even states like California have taken actions to look at what kind of regulations we're getting in the way of building things. And they've stepped back from some of those regulations to allow buildings. These things matter. They're important. They are big factors in the ecosystem. None of them are going to be huge unlocks because we already have a backlog in the industry, and they need the productivity now in order to execute. I think one of the things we see being really important long term is industrialized construction. And as the only company that's both in manufacturing and AEC in the Construction segment, we really want to help some of our customers capitalize on things like prefabrication and other types of methods that increase their predictability and their project throughput and in some cases, their profitability and also make the delivery times more certain for the projects. That's going to be a technological or process unlock in the future. But of course, there's always things we can look at from a regulatory perspective that would unlock things and people are already looking at them.

Got it. And maybe just a quick follow-up for Janesh. When I look at the NRR language in the deck, I saw that the language slightly changed to above from slightly above last quarter. And so wondering if you could talk a little bit about NRR trends, ex new transaction model. Is there any change this quarter versus last quarter? And how much of that language improvement was driven by the transaction model?

Koji, it's great to have you on the Autodesk story again, by the way, as well. So looking forward to working together. In terms of the NR3 trends, I'd say it's really hard to disaggregate the specific percentage between the underlying performance and the new transaction model on that. But it is safe to say that excluding the impact of the new transaction model, it would have been consistent with where it previously was. So it's within that range of 100% to 110% that we've talked about in the past. It can bounce around a little bit every quarter. But overall, it reflected just the strength of our Q2 performance here that we've passed along to the full year. But overall, it was consistent with our general expectations.

Our next question comes from the line of Michael Turrin of Wells Fargo Securities.

And apologies if it's somewhat similar, but all the color you've been adding throughout the call is useful. So I'm wondering on the commentary on AEC strength and we look at lot of the top line metrics look pretty consistently solid here. The CAD growth improvement we're seeing. I'm just wondering if you can help us at all parse whether any of that could be tied to macro settling a bit from where things sat 3 months ago, and this is very amplified in terms of the uncertainty around April and just having to react to that. So just maybe compare and contrast just the tone of conversation and how you know that it's not some modest line of improvement relative to what you were hearing a few months ago. And then just more color on the signals you're watching is always useful.

Look, Michael, what you're seeing here is the power of the diversification of Autodesk. Autodesk touches every aspect of the built world and the rebuilt world, touches everything from the civil infrastructure space to vertical construction, all types of buildings. And remember, we've had discussions over multiple years, '07 and '08, oh my gosh, the housing market is going down, Autodesk is in trouble. But guess what? Money shifted over to the other things because there's such a backlog of things that need to be built. Right now, we're seeing strength in those 3 areas I talked about, data centers, industrial buildings and infrastructure. As we move forward, there's going to be strength in other segments. So the need to build is not going away. And I think what you're seeing is a strong stabilization in certain areas. And also as we move through the cycle, there'll be other areas that come up. So I think you want to really anchor yourself on the diversification of Autodesk's business here because that's really what's powering our performance right now.

I said good color with each question. So I appreciate the diversification response. Janesh, just on free cash flow, the majority of that back half weighted now in Q4. Is that a bit more pronounced to Q4 than what you were previously expecting? And just anything additional you can add as we're tuning our models for the rest of the year there?

It will be a little bit more weighted towards Q4. I think you'll see that reflected in the modeling guidelines as well. And I think that just reflects the timing of when we expect EBAs and some of our larger product subscription renewals to be able to be available for collections.

That is all the time we have for Q&A today. I would now like to turn the conference back to Simon Mays-Smith for closing remarks. Sir?

Thanks, Latif, and thanks, everyone, for coming along. Sorry, we couldn't get to all of the questions, but we're going to be seeing a bunch of you on the road over the coming weeks, which we'll look forward to. If you have any follow-up questions, please just ping me an e-mail, and we'll get back to you as soon as we can. I look forward to catching up with you on the road or on our Q3 earnings call. Thank you.