Debbie Clifford
Executive Vice President and Chief Financial Officer at Autodesk
Thanks, Andrew.
Overall market conditions and the underlying momentum of the business remained similar to the last few quarters. Our financial performance in the third quarter was strong, particularly from our EBA cohorts where incremental true-up and upfront revenue from a handful of large customers drove upside. As expected, the co-termed deal we called out in our Q1 results renewed in the third quarter with a significant uplift in deal size.
Total revenue grew 10% and 13% in constant currency. By product in constant currency: AutoCAD and AutoCAD LT revenue grew 7%; AEC revenue grew 20%; manufacturing revenue grew 9%, and in double digits excluding variances in upfront revenue; and M&E revenue was down 4%, and up high-single-digits percent excluding variances in upfront revenue. By region in constant currency: revenue grew 19% in the Americas; 11% in EMEA; and 3% in APAC, which still reflects the impact of last year's COVID lockdown in China. Direct revenue increased 19% and represented 38% of total revenue, up 3 percentage points from last year, benefiting from strong growth in both EBAs and the eStore. Net revenue retention rate remained within the 100% to 110% range at constant exchange rates.
The transition from upfront to annual billings for multiyear contracts is proceeding broadly as expected. We had the second full quarter impact in our third fiscal quarter, which resulted in billings declining 11%. Total deferred revenue increased 6% to $4 billion. Total RPO of $5.2 billion and current RPO of $3.5 billion both grew 12%. Excluding the tailwind from our largest ever EBA, total RPO growth decelerated modestly in Q3, as expected, when compared to Q2, mostly due to the lower mix of multiyear contracts in fiscal '24 when compared to fiscal '23.
Turning to the P&L. Non-GAAP gross margin remained broadly level at 93%. GAAP and non-GAAP operating margin increased, driven by revenue growth and continued cost discipline. I'd also note that costs associated with Autodesk University have shifted from the third quarter last year to the fourth quarter this year due to the timing of the event.
Free cash flow was $13 million in the third quarter, primarily limited by the transition from upfront to annual billings for multiyear contracts and the payment of federal taxes we discussed earlier this year.
Turning to capital allocation. We continue to actively manage capital within our framework. Our strategy is underpinned by disciplined and focused capital deployment through the economic cycle. We remain vigilant during this period of macroeconomic uncertainty. As you heard from Andrew, we continue to invest organically and through acquisitions in our capabilities and services, and the cloud and platform services that underpin them.
We purchased approximately 500,000 shares for $112 million, at an average price of approximately $206 per share. We will continue to offset dilution from our stock-based compensation program to opportunistically accelerate repurchases when it makes sense to do so.
Now let me finish with guidance. The overall headline is that our end markets and competitive performance are at the better end of the range of possible outcomes we modeled at the beginning of the year. This means the business is generally trending towards the higher end of our expectations. Incrementally, FX and co-terming have been slightly more of a headwind to billings than we expected. EBA expansions have been slightly more of a tailwind to revenue. And interest income has been slightly more of a tailwind to earnings per share and free cash flow. Against this backdrop, we are keeping our billings guidance constant while raising our revenue, earnings per share and free cash flow guidance.
I'd like to summarize the key factors we've highlighted so far this year. The comments I've made in previous quarters regarding the fiscal 2024 EBA cohort, foreign exchange movements and the impact of the switch from upfront annual billings for most multiyear customers are still applicable. We again saw some evidence of multiyear customers switching to annual contracts during the third quarter, as you'd expect, given the removal of the upfront discount. We're keeping an eye on it as we enter our significant fourth quarter.
All else equal, if customers switch to annual contracts, it would proportionately reduce the unbilled portion of our total remaining performance obligations and negatively impact total RPO growth rates. Deferred revenue, billings, current remaining performance obligations, revenue, margins and free cash flow would remain broadly unchanged. Annual renewals create more opportunities for us to drive adoption and upsell and are without the price lock embedded in multiyear contracts.
Putting that all together, we now expect fiscal '24 revenue to be between $5.45 billion and $5.47 billion. We expect non-GAAP operating margins to be similar to fiscal '23 levels, with constant currency margin improvement, offset by FX headwinds. We expect free cash flow to be between $1.2 billion and $1.26 billion. To reflect higher revenue guidance, we're increasing the guidance range for non-GAAP earnings per share to be between $7.43 and $7.49. Our billings guidance remains unchanged given incremental foreign exchange headwinds and the potential for further EBA co-terming in the fourth quarter.
The slide deck on our website has more details on modeling assumptions for Q4 and full year fiscal '24. We continue to manage our business using a Rule of 40 framework with a goal of reaching 45% or more over time. We think this balance between compounding growth and strong free cash flow margins captured in the Rule of 40 framework is the hallmark of the most valuable companies in the world, and we intend to remain one of them. As we've been saying all year, the path to 45% will not be linear. We've talked about all of the factors behind that over the last three quarters, and I think it's useful to put them all in one place here particularly as we look into fiscal '25 and '26.
First, the macroeconomic drag on new subscriber growth, a smaller EBA renewal cohort with less upfront revenue mix and the absence of EBA true-up payments are headwinds to revenue growth in fiscal '25. Slightly offsetting that, we expect our new transaction model, which Andrew discussed earlier, to be a tailwind to revenue growth in fiscal '25 and beyond. Assuming no material change in the macroeconomic, geopolitical or policy environment, we'd expect fiscal '25 revenue growth to be about 9% or more. In other words, at least around the same or more growth as we are now expecting in fiscal '24.
And second, the transition to annual billings means that about $200 million of free cash flow in Q1 fiscal '24 that came from multiyear contracts built upfront will not recur in fiscal '25. This will reduce reported free cash flow growth in fiscal '25 and make underlying comparisons between the two years harder. If you adjust fiscal '24 free cash flow down by $200 million to make it more comparable with fiscal '25 and fiscal '26 on an underlying basis, the stacking of multiyear contracts build annually will mechanically generate significant free cash flow growth in fiscal '25 and fiscal '26. The progression from the adjusted fiscal '24 free cash flow base will be a bit more linear, although fiscal '26 free cash flow growth is expected to be faster than fiscal '25 as our largest renewal cohort converts to annual billings in that year.
As you build your fiscal '25 quarterly and full year estimates, please pay attention to what we've said each quarter during fiscal '24. As Andrew said, our new transaction model will likely provide a tailwind to revenue growth be broadly neutral to operating profit and free cash flow dollars and be a headwind to operating margin percent. The magnitude of each will be dependent on the speed of deployment. Excluding any impact from the new transaction model, we are planning for operating margin improvement in fiscal '25. Overall, we expect first half, second half free cash flow linearity in fiscal '25 to be more normal than in fiscal '24. And we still anticipate fiscal '24 will be the free cash flow trough during our transition from upfront to annual billings for multiyear contracts. Per usual, we'll give fiscal '25 guidance when we report fiscal '24 results, so I don't intend to parse these comments before then.
As I said at our Investor Day last March, the new normal is that there is no normal. Macroeconomic uncertainty is being compounded by geopolitical, policy, health and climate uncertainty. I'm thinking here of generational movements in monetary policy, fiscal policy, inflation, exchange rates, politics, geopolitical tension, supply chains, extreme weather events and, of course, the pandemic. These increased the number of factors outside of our control and the range of possible outcomes, which makes the operating environment harder to navigate both for Autodesk and its customers.
In this context, the mechanical rebuilding of our free cash flow as we transition to annual billings for multiyear contracts gives Autodesk an enviable source of visibility and certainty. I hope this gives you a better understanding of why we've consistently said that the path to 45% will not be linear. But let me also reiterate this: We're managing the business to this metric and feel it strikes the right balance between driving top line growth and delivering disciplined profit and cash flow growth. We intend to make meaningful steps over time toward achieving our 45% or more goal regardless of the macroeconomic backdrop.
Andrew, back to you.
