Autodesk Inc (ADSK) 2002 Q3 法說會逐字稿

Welcome, ladies and gentlemen, to the third quarter of fiscal 2002 year to date financial results conference call. Please welcome tonight's speaker, Mr. Marc Dulude. Please go ahead, Mr. Marc.

Thank you. Good afternoon, and thank you all for dialing in to the Moldflow Corporation conference call reporting our results of the third quarter of 2002. There is myself, Marc Dulude, and Sue Rogers, company CFO here. Sue and I will make a series of prepared remarks and we will then take questions, but before we begin with those remarks, I'll ask to remind the listeners about the risks and uncertainties surrounding forward looking statements. Sue, would you please read the

cover statements?

Good afternoon. During our conference call today, we'll be making certain forward-looking statements, including statements provided to our future business prospects and outlook and for short we'll place

provisions of the U.S. Private Securities Board Litigation Reforms Act of 1995.

Please note that any statements contained in this conference call that are not based on historical facts are forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected.

These risks and uncertainties include those details from time to time in reports filed by Moldflow with the Securities and Exchange Commission, including the company's filing on form 10-K for the year ending June 30, 2001. Specific risk factors are also described in the press release issued by the company today in which we report our third fiscal quarter of 2002 financial results. I'll turn it back to Marc.

Thanks, Sue. Focusing firstly on the financial results, I note that we grew sequentially over the last quarter as we have forecast, although a bit less than we had hoped, and we continued aggressive

. We successfully carried profit in the middle of the guidance range we had provided during our last conference call. It's clear, however, the business recession that has impacted the corporate spending in most sectors including plastics has not yet receded.

Our own sales ports, and application engineer feedback from our customers, tells us this is true, and we recently held a very successful international Moldflow user group meeting on how to give us an opportunity to get firsthand accounts from companies all over the world.

The signs are hopeful, but not yet sufficiently strong to suggest an imminent recovery. Recognizing that we cannot rely on the recovery to take place in this quarter, we have also noted that we will be unable to ensure the company's profitability unless we take more aggressive cost reduction steps.

As a result, I implemented a corporate restructuring plan that included reducing the staffing levels of the company, to reduce the operating expenses by some 12 percent. As you all know, this is not a decision that I have taken lightly, since we have taken steps to avoid such a reduction enforced.

Notwithstanding, the recovery is not proceeding as planned, so this is just -- and so the cost production must now be implemented since we have repeatedly stated that we are committed to profitability.

I'm certain that you see evidence of with action and we remain firmly committed to manage a company for profits, using realistic expectations of the industry's strength and not simply hoping that a recovery will indeed occur. The reductions which again are largely focused in a few geographic areas, most notably, the UK and the U.S.A.

It is in these two regions the sales productivity has been the weakest, and so we'll match the resource allocation with the purchasing capacities of our customers and prospects. We remain wholly convinced that the shortfalls we saw in these two regions are market driven and not related to any change in the competitive landscape or to some diminished sense of the investment returns generated from our products. As we review our own product development strategies, I know good performance in an area we will highlight, notably the shop floor.

Our manufacturing solutions products comprised of MPX, Shotscope, and EZ-Track performed well this quarter accounting for $800,000 of revenue, and approximately flat with last quarter, up a 126 percent year over year. The March quarter is normally down sequentially from December in the shop floor products. But we reversed that trends in this year's March quarter, clearly very good progress.

So, even with the enormous pressures facing our customers, we have dramatically increased revenues over last year in this growth area. We think

mentioning about the future when business community begins to buy more realistic levels again. To that point, the U.S. Trade Commission reported that the producer price index related to the creation of molds and tools for plastics is now at pre-1994 levels.

And this reduction coming through an unparalleled drop in just the last four quarters. Recognizing that the molding industry can be considered a proxy for production volumes, we firmly believe these lower levels are unsustainable.

It is truly the worst economy in recorded history for the injection molding industry and we cannot conceive that the market can remain at these levels. Given that we are successfully growing our many solutions products in the worst environment for more than two decades, we are encouraged of the possibilities when the production of plastic goods returns to grow.

Or generally, the spending on R&D remains aggressive to ensure they were not sacrificing our continued growing future with

directed to new important projects, since we have completed some of the -- or nearing completion of other large scale integration projects. We ended the March quarter with 43 sales reps on board and expect to end this quarter with 37. Sue will describe our expected revenues and profitability with this lower headcount in a few moments.

Across industries we saw more pronounced weakness in the computer industry and the more resilience in the automotive industry, with a

discernible change in the other segments we track. We added 122 new customers during the quarter, consistent with our historical leads. Our upcoming lease of the

, however, remains on track for customer availability this quarter and we have been working closely customers on

sets required for our manufacturing product in the near to long term.

We still intend to release the next phase of our shop floor integration efforts before the calendar year end. This phase will be first release, combining into one environment the applications and data structures for all of MPX, Shotscope and EZ-Track.

This single integrated database will allow artisans to capture both digital and analog data from any of their supported data acquisition units, and tabulate the resulting information into cohesive framework. The benefit to the customer is the ability to have one consistent view of this entire shop floor operational status accounting for all of the process monitoring, process control and production monitoring.

We have customers considering full scale system implementation that will do this very positively. And it demonstrates as continuing down the strategic path I've laid out several times over the last two years. I am well known in the company for several expressions. One of my most famous is clearly in evidence here.

I routinely say that we get to manage things as they are, not as we wish they could be. We were out ahead of cost reductions when the downturn began to take hold and this tentative

allowed us to remain comfortable throughout and continue generating cash. We have taken this

move as we maintain that commitment to shareholder value though earnings growth.

We believe our return to corporate spending in the plastics industry is inevitable. Our fundamental value of the proposition remains unchanged. Our products allow companies to reduce costs and time to market, and that creates value. The actions we are taking now, allow us to maximize our operating leverage when that occurs. I'd now turn over the microphone to Sue for a more detailed review of the operating results and guidance for the future.

Thank you, Marc.

My comments now will summarize the financial result for the third fiscal quarter ending March 30, 2002. For a more complete detail of the result, I would refer you to the press release that we been made over the wire today 4 o'clock, which is also now available on our Web site at moldflow.com.

And so our reported revenues for the quarter ended March 30, 2002 at $9.4 million. This is up three percent sequentially from the second quarter of this fiscal year, down 15 percent from the same quarter of the prior fiscal year. On a

current basis, revenues were down 13 percent year over year.

Operator license revenues into the quarter were $5 million and these revenues were sequentially up two percent from

, down 31 percent from the comparable quarter of last year. Service revenues in this quarter were $4.4 million and these revenues were up sequentially five percent, increased by 15 percent over the same period the last year.

On a regional basis during the quarter, we earned 34 percent of our revenues in Europe and 33 percent of our revenues in each of the Asia and North America regions. Revenues from the third quarter in the U.S. and Asia were up seven percent and 16 percent sequentially, respectively, while European revenues were 10 percent lower.

Revenues by private sellings for the quarter were as follows. Designed solution product MPI and MPA, $4.2 million for 84 percent of our software revenue. During the quarter, we shifted a total of 191

MPA and MPI bringing up to

combined feet count for these products of approximately 6,700 feet.

For our

solutions products, which are MPX, Shotscope and EZ-Track, we did $800,000 in revenues or 16 percent of our overall software revenue. This compares to 354,000 shipped in the same quarter a year ago, which represent a 126 percent increase in these revenues in the year over year basis.

We shipped a 103

of the shop floor products this quarter, bringing up to a cumulative

count of under 1,350 seats of the product turning after earnings in the third fiscal quarter, we

at our eighteenth sequential profitable quarter. The earnings results were in line with the public estimates for this quarter

, were as follows.

net incomes for the quarter was $502,000 and on per share basis ProForma earnings were six percent diluted share in the March quarter. This compared to three cents in the prior quarter and 17 cents per diluted share in the same quarter a year ago.

On the next Performa net income includes non-cash amortization charges related to all acquired intangible assets in the prior quarter, again related to the sale of certain assets. With respective to operating profits, our ProForma income from operations began an exclusive effect of non-cash amortization worth $448,000 or 4.7 percent of revenues, and was consistent with our expectations.

A favorable spending variances offset lower than expected revenues in the quarter. Savings were primarily employee related costs, including sales commission, incentive compensation plan, and employee

costs. (Inaudible) that we capitalized no software development cuts in the quarter.

We have another quarter of positive cash flow with cash flow from operations of $1.4 million for this quarter and pre-cash flow of $1 million. Cash and marketable securities increased overall in the quarter by $1.8 million to a total of $49.3 million. We have no long term debt.

Accounts receivable at $6.9 million represented 66 days sale outstanding at the end of the quarter, which was eight days lower than in the same quarter of last year. We're quite pleased, as this was our best Q3 results ever, it was something in the

to our efforts to improve our collection process more than off with the impact of a seasonal

to that arises in our March quarter from annual maintenance contracts

.

We continued to expect the

in mid high '60s on average a year in line with our prior guidance. Now I could provide you with a view of our business outlook for the future and in so doing I will remind you

that this summary will include forward-looking statements which do involve risks and uncertainties that could cause actual results to differ materially from those subjected. So I'll ask you to refer to our form 10-K relating to our fiscal year ended June 30, 2001 and today's press release for description of those risks and uncertainties.

And for fiscal Q4, with current visibility we expected our total revenues in Q4 would be approximately $9 million, we expect that after taking the risk structuring action to which Marc referred, we will achieve operating profit for the quarter in the range of $400,000 to $600,000, excluding amortization expense. With respect to the impact of the restructuring, we have taken action for reducing our

expense by $4 million on an annual basis.

We have reduced positions in all functional areas of spending with approximately 50 percent of the savings coming from sales and marketing, with the remainder roughly split between R&D and V&A. We think that financial income from investments and foreign exchange will be in the range of $300,000 to $350,000 dollars on the quarter and instead of which continued to remain low. With respect to income taxes, we expect our annual expected income tax rate of the current to be 33 percent.

And so these factors came together with

and expectation of a range of ProForma EPS for the fourth fiscal quarter of this year, including amortization in the range of 4 to 5 cents per diluted share. And with respect to restructuring charge which shall be taken in fiscal Q4 we anticipate

payment facility closure and related costs to be up to approximately $1.4 million.

And finally looking to fiscal 2003, our current plans for fiscal 2003 assume revenues of $40 million, representing growth of some 12 percent over fiscal '02, with operating margins of five percent. We estimate full year ProForma cash EPS to grow more than 30 percent to approximately 20 cents per diluted share. And with that summary, I'll turn the

Dr. Marc

.

Thanks, Sue. Now Pamela, the operator, will prepare to take questions.

Thank you, sir. For those of you who have a question, please press star one on your touch-tone phone and your questions will be answered in the order that they are received. Please keep in mind that if you are using a speaker phone, you must pick up your handset while pressing star one to register

. If at any time your question has been answered please press star two on your touch-tone phone to remove yourself from the question-and-answer line.

One moment to deactivate the question-answer feature. Our first question comes from Mr.

. Please proceed with your question, sir.

Good afternoon, Marc and Sue.

Hi, Bill.

Hi, Bill.

Regarding, I guess -- let's kind of look at the outlook and kind of how do you see things playing out, I guess questions would be, you know, the year was down in the quarter, is there any geographic bent, are you seeing any weaknesses in particular to geography or anticipating continued weakness in Europe?

And along the same lines, any field designed or manufacturing, the one that you expect to come back maybe faster than the other, and then finally, what are some of the

you guys are looking for from the marketplace to indicate that things are things are starting to turn around finally out there?

Okay, so I think the question was on the

particular geography that is weak or strong on the product side, any particular one that we think is more likely to come back quicker than the others and, finally, what are the signposts

, right?

On geographic basis, it doesn't show up as readily, simply because the numbers of the sales reps isn't as apparent as well , but the U.S. from a activity prospective was weaker than

indications of -- and we think that -- we think that the U.S. is probably going to be continuing with some weakness.

Europe, even though you see that it was down sequentially, Europe's performance was -- the poor performance was largely focused around the UK, and so the rest follow-up of Europe was noteworthy by being particularly weak, with strong Asia.

You may recall in the last conference call that we had said that we expected to see some weakness in Asia, and it did turn out that Asia came in just about exactly where we thought they were so, I think noteworthy to be

. On the geography side I do think the worst hit right now and the one that gives us the biggest concern is in the U.S. in terms of the ability to starting to picking back up again more readily.

On the product side all I do have to say is that we have seen growth in the manufacturing area even as we pointed out even in this very difficult times and so I would suggest that we are going to end up seeing both design and manufacturing growing from these levels, but probably manufacturing having the greater growth potentials.

There are a fair number of deals out there that we are looking at and that we are involved in, and on the manufacturing side you know we were

, even been able to get in to the last quarter , but certainly have a lot of stuff is going on.

So I think probably I'd say that the manufacturing side is going to be the one that's grow more quickly as we -- as we go forward, and there certainly is a great deal of activity going on there, the signposts, and I look at the same data that you look at, I'm sure, Bill, that the trade commission data I think was really extraordinary when it was showing just what a clip the producer price indices had just dropped off the face of the earth.

I hadn't seen something like that before, but there's also Injection Molding magazine, for instance, reports on U.S. molding for pasture utilization and

. If you look at that data and injection molding you've seen is a very well respected magazine in our industry, certainly one that's read by a large percentage of people involved in the plastic space.

What it does is that though company is with U.S. molders employing more than 80 percent of their capacity, so greater than 80 percent capacity utilization has dropped by more than 50 percent in just the last five quarters. This is, if you look at trend overall, at one period of time there's never been anything like this.

And then I add to that in the same set of data that those U.S. molders employing less than 50 percent of their capacity, all exactly in the other end of the spectrum that has been at its highest level for five quarters in a row now.

Again, if you look at the historical data, there's never been anything like this over any period of time to contract, so looking at some of the signposts that we look at, of course alongside of our own forecast and the discussions that we have with customers -- I get all those answered up?

Yeah, Marc. I guess that's kind of a follow up on some of the data that you're referencing over there over the last five quarters

.You know, clearly things have been and remained ugly, I guess part of the question comes from if the

and injection molding and some of those -- I was getting an impression to think that people felt like things were going to maybe get better here in the second half, in particular, and even, you know, possibly in the next quarter or so.

From the outlook you guys are giving I get the impression you are either discounting that or you're seeing other data that says that's probably not going to happen that fast. Is there anything kind of forward-looking that you are using beyond just your own for self forecasting?

We've also seen that data but, you know, our pessimistic view there is that we have been seeing similar data to that for the last two to three quarters , it does seem like it's always, as you know, next quarter, next quarter, and you know the traditional, the summer quarter,

the September quarter has been the one of low utilization in the plastics area and for the purchase of our products, and so you know I could take a look at that and say what are the chances of being dramatic or even a pronounced recovery in the June time frame that then gets seat a little bit better in the summer then starts up again.

It just seems like a little too much soft toothing for an industry. So although it is possible that what is actually going to happen is going to surprise us to the positive, we wanted to make sure in size, our expenses for the possibility that maybe it's not going to recover as quickly as the pundits are noting.

So that's really the case for us. I'm not sure you could say we were discounting what any of the reports that we are seeing, that maybe finally it's happening, but I'm not sure we are discounting it , but certainly we are insuring the fact that we will remain profitable even if it doesn't happen, as it has not over the last two to three quarters that people have had these very similar projections.

Fair enough. I'll get the

, thanks.

Thanks, Bill.

Thank you, sir. Our next question comes from Mr.

, please proceed with your question.

Good evening, Marc, and this is

. I am sitting in for

for this call. (Inaudible). I guess in falling on the strength of the

solutions and products, do you know -- do you have sense of that sort of product or what pricing point your sweet spot was for that decision?

I think you can -- I think we have given the revenue numbers as well as the number of seat on it as well, so you if you do the math, you'd probably find that it ends up being an ASP of just $80,000, which is pretty much where we're expected that things are for you. You may recall that

is a refresher, our highest price point product on the shop floor is our MPX product, roughly the average selling price has been in about $15,000.

OK.

The Shotscope product in the middle has averaged selling prices in between $75,000 and $80,000, and the lowest price product, EZ-Track, the average selling prices has been about $3,500 to $3,000 to $4,000, somewhere there. So the sweet spot certainly seems to be where we constructed to be and that is around the middle of the Shotscope product.

The

was quiet, good, though, across those area products, but it was rather like, you know, it's centralized exclusive under

. We are selling all those products, it's just as expected that's where the price went ascending across the board.

Okay, and then

, is -- can you compare the pressure customers are placing on your discount prices after this quarter

.

You know, if you take a look at even at some of the numbers that we have prepared in the past quarters too, I think that you'll find that the ASPs really not moving around very much, and so of course there is always pressure for additional discounts, but for us we think that the value of proposition is there on the products and that the price point should not be the real make or break decision.

Said in another way, what we'd like to try and do is make sure that the customer buys into the value proposition before we start trying to get into any kind of price negotiations, because then you really open up to significant pressures on the discounting side, so we are seeing them but we are not anymore pronounced than in the past, and we are certainly not dropping our drawers to go and sell the

.

Okay, I guess it's a long question, I'll get back in line, is the -- how is the MSC software mechanical dynamics merger -- does that have an impact on you?

Well, I don't think that it impacts us at all. MSC has focused on the different spaces than us, most notably they do quite a bit in the linear and non-linear stress and thermal analyses.

Mechanical dynamics tends to focus in yet another area

that we don't compete in at all, and that is for accelerometers and dynamics and kinematics. So the two of them together doesn't really impact us at all.

OK.

OK?

OK.

Yeah. Thanks, Chris.

Thank you.

Thank you. Just to refresh you, for those of you who have a question please press star one on your touch-tone phone. Mr. Dulude, there appears to be no further questions. We'd like to turn the call back over to you with the closing statement.

Very well. Thank you very much, Pamela, and thanks to everybody that listened in, and I think that that's it for my comments. Have a good night.