Autodesk Inc (ADSK) 2006 Q3 法說會逐字稿

Good morning. My name is Rashita, and I will be your conference operator, today.

At this time, I would like to welcome everyone to the Moldflow’s 3rd Fiscal Quarter 2006 Earnings Release Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press *, then the number 1, on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you.

I would now like to turn the conference over to President and CEO, Mr. Roland Thomas. Mr. Thomas, you may begin your conference.

Welcome and thank you for joining the Moldflow Corporation’s Conference Call, for the reporting of results for the 3rd quarter of our 2006 financial year. Chris and I will make a series of prepared remarks, and then we will take questions.

Before we begin with these remarks, I’ll ask Chris to remind all listeners about the risks and uncertainties surrounding forward-looking statements.

Thank you, Roland. During our conference call today, we will be making certain forward-looking statements, including statements related to our future business prospects and outlook. Please note that any statements contained in this conference call that are not based on historical facts are forward-looking statements, within the meaning of the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include those detailed from time-to-time in reports filed by Moldflow with the Securities and Exchange Commission – including the Company’s Annual Report on Form 10K for the Year Ended June 30th 2005, and our subsequent filings with the SEC.

Our comments today will summarize the financial results of our 3rd fiscal quarter ended March 31st 2006, and our fiscal year through the 3rd quarter. For more complete details on our financial results, please refer to our press release issued earlier this morning, which also includes a description of specific risk factors. In addition, please note that during the course of this call, we will be making reference to certain non-GAAP or pro forma financial results and measures. Reconciliation of these non-GAAP measures to the most-directly comparable GAAP measures for each relevant period is attached to our press release – and also available now in the Investors section of our website, at www.Moldflow.com.

And with that, I will now turn this back over to Roland.

Thanks, Chris.

So I'm here today to report our 3rd quarter of Fiscal 2006 results, which are in line with the estimates we provided on April 13, 2006. For the 3rd quarter, we are reporting worldwide revenue of 16.3 million, total product revenue of 9.5 million – it’s flat, when compared to the 3rd quarter of fiscal 2005, and down 6%, sequentially.

During the 3rd quarter, we recorded a charge of $355,000 net of related tax assessed for compensation expenses required under FAS123R. Excluding the impact of these charges, the non-GAAP income for the 3rd quarter was 1.8 million, or $0.15 per diluted share.

In the 3rd quarter, we experienced execution issues on both sides of our business, that led to lower-than-expected results. While sales activity continued at its normal pace in all regions, this did not translate into deals that closed during the course of the 3rd quarter. The continued softness in both our European – and to a lesser extent, North American markets – combined to result in a revenue number that fell below our expectations.

In North America, we also noted pressure put on our sales activities through the continued troubles being experienced in the United States' automotive industry. In Europe, weakness – in many countries… most notably, Italy and Germany contributed to delays in investments by many of our customers on both sides of our business.

Turning to individual business-unit results. In the 3rd quarter, our design-analysis unit saw revenue of $11.7 million, which represented 72% of total revenue. During the quarter, this business unit was flat on a year-over-year basis, and down 8% sequentially. 5.6 of this revenue was from product sales – representing 59% of product revenues overall for the 3rd quarter, and a 4% decrease on a year-on-year basis.

And our manufacturing solutions business unit’s revenue of $4.6 million represented 28% of the total 3rd-quarter revenues. During the 3rd quarter, revenue from this business unit grew 9% on a year-over-year and 10% sequential. Of this revenue, $3.9 million came from product sales – representing 8% year-over-year growth and 10% sequential growth.

The restructuring of the manufacturing solutions business unit that we reported to you on our April call has been largely completed. We expected the charge or we expect the charge to be between approximately $1 and 1.5 million – which we will take in our 4th fiscal quarter. We expect to see the full effect of this charge in our 1st fiscal quarter of 2007. This restructure will allow us to refocus the product development, manufacturing and trials effort – as well as to direct resources to drive profitability from our manufacturing solutions business unit.

When we acquire American MSI, we acquired a core business standard on the industry-leading Altanium product, and saw an opportunity to develop it globally, in combination with our shop floor products – some of which were developed and some of which were acquired from small acquisitions. In fact, we have seen the Altanium product grow from $2.1 million in the March quarter prior to our acquisition of American MSI to 3.3 million, this quarter.

However, despite the encouraging pipeline, the results of our overall manufacturing solutions business unit have not met our expectations for growth, and not generated the profitability that we must have in our consolidated business. To address these issues, our plan for this business unit stems around continuing the globalization of the market-leading Altanium product line – with particular sales emphasis on targeted growing markets and existing markets, where we can capture share by providing a superior product coupled with locally based service.

Our remaining manufacturing solutions products will be sold in this quarter in specific markets and geographies where they have a strong local customer base, and where we have existing local language and critical-mass for technical for support. As a consequence of this renewed focus, our R&D spending for this business unit in the coming year will be significantly less than the current and our past fiscal years, and will closely approximate the R&D spending rate that you would expect to see given to a more-mature product in the development cycle.

As you would expect, the selling and marketing and field-engineering expenses are also being reduced in a similar way, recognizing our more-targeted focus to a particular set of customers. We expect that our sales model for this global business will be similar to the sales model used currently in the US – which has a small number of direct salespeople driving a large network of representatives in other indirect channels. Overall, we are structuring this business to be profitable on an operating basis, as we enter Fiscal 2007, and expect to be able to build on that profitability as we move forward.

I'm pleased to announce that we have appointed Fred Humbert as Vice President and General Manager of this business unit. Fred is an experienced leader, and has been with Moldflow – and before that, American MSI – for a total of 16 years. Fred was previously the Vice President of Sales for the manufacturing solutions business unit. Fred was responsible for implementing the current US selling strategy to the Altanium product, and has a great deal of experience in developing and using representative networks.

I would like now to address the design-analysis business unit in a bit more depth. The results of this business unit – while somewhat disappointing in the near-term, do not point to a long-term business issue, but more to short-term in our business constraints.

If we look to the history of this core Moldflow business unit over the past 3 fiscal years, we have increased its total revenue by approximately 50%, as well as increased segment income from operations. The primary reason we expect our revenues for the year to show less growth than in the previous years has to do with the timing of our investments in new markets – and to a lesser extent, the currency impacts.

As we indicated at the end of Fiscal 2005, we have focused new sales resources on many emerging and growing markets around the world. Some of our investments were slightly delayed during this year, and have taken somewhat longer to become fully productive over the course of the fiscal year than were anticipated. We look forward to these investments generating the expected returns over the course of our next fiscal year.

During the quarter, we also took a major step in our design-analysis solutions business-unit strategy of reaching and educating an increasingly larger segment for the under-penetrated general plastics-design market, with the release of Version 1 of our new Moldflow Communicator product.

This new product release democratizes the market with the benefits of analysis being made more accessible to a wider variety of product stakeholders with a range of school levels.

This free product, which we are distributing through our corporate website, allows our users to communicate analysis results and the associated assumptions to anyone in the world – regardless of whether they are Moldflow customers. Companies with dispersed product-development and manufacturing teams or companies that outsource their analysis are now able to visualize analysis results, quantify the quality of the analysis, and compare the results of multiple design iterations.

The benefit of this product is that it allows the knowledge gained through the design analysis to be shared with all members of a product team – ensuring that all team members are working off the same design assumptions. This sharing of knowledge clearly demonstrates the benefits of analysis to all members of the product design through manufactured thing.

We believe that products that provide flexibility, scalability and technological superiority – such as the Moldflow Communicator – help increase the awareness of and demand for in-depth analysis provided by Moldflow’s market-leading products. Our goal is to make the use of analysis a standard procedure in every company, with a plastics-focus manufacturing process.

And with that, I’ll now ask Chris to provide a more-detailed review of the operating results and outlook for the future.

Thank you, Roland.

Total revenue for the 3rd quarter of Fiscal 2006 was $16.3 million – which represented an increase of 2% over the corresponding period of the prior year, and a decrease of 4% sequentially. This fell within our revised-guidance range established in our press release of preliminary results on April 13th.

Revenue in the 9 months of 2006 was $48.4 million – a 5% year-over-year increase. With respect to currency effects on the total quarterly revenue, currency movements had a negative impact of 5% on a year-over-year basis, as revenue in local currencies – particularly the Euro and the Yen – increased approximately 7%.

Sequentially, currency movements had a 1% positive impact on revenue – primarily due to the strengthening of the Yen. Regionally, revenue in Europe represented 29% of total revenue for the 3rd quarter, while the Asia-Pacific and Americas regions represented 34 and 37% of the total revenues, respectively. Over the long-term, Asia continues to represent the growing proportion of business – up from 31 to 33% for the whole year.

When compared to the 3rd quarter of last fiscal year, revenue was higher in Asia and the Americas, with growth rates of 9% and 2% respectively, while Europe was down 4%. Sequentially, revenue for the Americas and Asia were up 17% and 1%, respectively – while Europe was down 24%. We saw positive results in the Americas, for sales of MPI and HRPCs, whose product revenue grew sequentially. It was a particularly disappointing quarter in Europe, where both design and manufacturing product sales were down sequentially.

Moving on to the composition of the revenue by type. Product revenue for Q3 was $9.5 million – flat, as compared with the comparable quarter of last year, and down 6% from last quarter. On a constant-currency basis, product revenue was up 4% year-over-year, and down 7% sequentially.

Approximately 42% of our product sales this quarter came from sales to 84 new customers that we added during the quarter. Service revenue for the 3rd quarter was $6.8 million – reflecting growth of 5% over the same period of last year -- a decrease of 1% sequentially from last quarter. On a constant-currency basis, service revenue was up 11% year-over-year, and decreased 2% sequentially.

Viewing the revenue by business unit, our total design analysis solutions revenue represented 11.7 million – or 72% of our total Q3 revenue. Design product license revenue accounted for 5.6 million – or 59% of our total Q3 product revenue. Design product revenue this quarter was down 4% from the previous year, and down 14% sequentially.

During the quarter, we shipped a total of 99 new seats of design-analysis product – bringing us to a total cumulative combined seat count of approximately 8,700 seats for these products.

For our manufacturing solutions business, we had total revenue in the 3rd quarter of $4.6 million – representing 28% of our total Q3 revenue. Of this amount, 3.9 million came from product sales – representing 41% of the Company’s overall total product revenue for this quarter. The manufacturing product revenue grew 8% over the same quarter of last year, and 10% sequentially.

With respect to our sales force, we entered the quarter with 51 quarter-carrying sales reps – 38 in design and 13 in manufacturing – and completed the quarter with 51 total, which was 39 in design analysis and 12 in manufacturing solutions business unit. Sales productivity for the full quarter of the design business was approximately 329,000 or 1.3 million annualized per effective head. In the manufacturing business, the quarter sales productivity was approximately 417,000 – 1.7 million annualized per effective head.

Turning to operations and earnings. Our GAAP results for the quarter produced net income of 1.520, or $0.13 per diluted share. The GAAP results included equity-based compensation expense of 355,000 – net of related taxes. The inclusion of equity-based compensation expense as a result of our adoption of the provisions of FAS123R, and our 1st quarter of Fiscal Year 2006 – which requires that we record compensation expense related to equity instruments granted to our employees and directors.

Our GAAP results compare to $0.17 per diluted share in the same quarter of the prior year, which also excluded equity-based compensation expenses. On a non-GAAP basis, which excludes the effect of equity-based compensation, and the impact of a revision to the tax effect of our Q2 restructuring charge… Our Q3 net income was 1.8 million, or $0.15 per diluted share.

In the 3rd quarter, our overall gross margin… Our total Company-wide revenue was approximately 74%. A 2% decrease over Q2. The gross margin on our design-analysis solutions business for the 3rd quarter was 88% -- down 2% from Q2. This was down from traditional levels for this business unit – which is typically in the low 90s, as a result of increased 3rd-party royalties, and the additional amortization of some capitalized costs.

Our gross margin in the manufacturing business unit increased 6 percentage points sequentially, to 37%, driven by 43% product gross margin – which was a 5% improvement from Q2. This improvement was a result of reductions in shipping costs, direct material costs, and better absorption of labor costs – and a revenue increase generated by an increase in the number of HRPCs sold, and the number of zones sold per HRPC.

Total operating expenses, excluding cost of products and services – was $11 million. A decrease of 16% from last quarter. Primarily a result of the absence of a restructuring charge included in the Q2 operating expenses, and lower G&A expenses. Operating expenses increased 2% from the same period of last year. The year-over-year increase was primarily due to the equity-based compensation expenses under FAS 123R – which accounted for 472,000 of operating expenses.

Breaking the expenses down a bit further, R&D costs for the quarter were 2.5 million. This represents a sequential increase of 12%, and an increase of 14% from the same period of last year. The primary driver of the sequential increase was our capitalization of $370,000 of software-development costs in Q3 of the current year.

The year-over-year increase for the quarter was primarily due to the reallocation of product-line management personnel from our marketing department to our R&D, which resulted in a $292,000 quarterly shift in where the spending is recorded – and costs associated with equity-based compensation, of approximately $89,000.

Sales and marketing expenses were 5.8 million in the quarter – down 1% from last quarter and up 2% from the same period of the prior year. The year-over-year increase was a result of equity-based compensation under FAS123R for the quarter, of 130,000, additional salespeople, and annual salary increases. Offset by the reallocation of our product-line management staff, reduced commission expense, and the beneficial effect of Q2 restructuring.

G&A costs were $2.7 million for the 3rd quarter. Down 23% sequentially, and down 6% from the same period of the prior year. The sequential and year-over-year decreases were primarily due to cost-savings measures – including reductions to our professional fees incurred in conjunction with our financial statement and Section 404 audits. Year-over-year savings from these measures were partially offset by equity-based compensation expense under FAS123R for the quarter, of $253,000. Sequentially, net currency fluctuations during the quarter had no impact on spending.

Finally for the quarter, we are reporting a tax revision of 172,000 on profit-before-tax of 1.692 million, for an effective tax rate of approximately 10%. This apparent anomaly is a result of the application of FAS Interpretation Number 18, which covers the calculation of tax revisions in an interim period. FIN 18 requires the Company to exclude from ordinary income base the non-benefiting losses generated in some entities, when calculating the interim tax revision. This will be worked out over the course of the year.

Our current estimated annual effective income tax for Fiscal 2006 is approximately 36%. This estimate does not take into account any further discreet items, and is subject to change.

Now, looking at the balance sheet and cash flows. Total cash and investments of 61.3 million at the end f the quarter were up $1.9 million from the previous quarter, as operations generated $2 million of cash in the quarter. Combining the 2 million of cash generated by operations with capital expenditures of $259,000 resulted in positive free cash flow of $1.7 million.

We have no outstanding long-term debt. Our EBITDA for the quarter, calculated on a GAAP basis, was 1.7 million – and on a non-GAAP basis was 2.2 million.

DSOs for the 2nd quarter was 79 days. This is a sequential increase of 16 days, and an increase of 11 days year-over-year. The increase is primarily attributable to increased open credit sales from China, elongated terms granted in Taiwan, and uncollected maintenance renewals in Europe. The aging of accounts receivable is similar to Q2, with approximately 92% of trade receivables less than 90 days old.

I'd now like to turn to our outlook, and provide you with some view of our business prospects for the future. And in doing so, I will note this summary will include forward-looking statements, which do involve risks and uncertainties that could cause actual results to differ materially from those projected. Again, I note you should refer to our SEC filings and to today’s press release for a description of those risks and uncertainties.

For the 4th fiscal quarter of 2006, we are projecting earnings-per-diluted-share, reported on a non-GAAP basis, to be approximately comparable to that of our 2nd and 3rd fiscal quarters. For our full Fiscal 2006, we are projecting year-over-year revenue to be essentially flat when compared to Fiscal Year 2005.

Please note that effective July 1st 2005, Moldflow was required to include equity-based compensation expenses in our financial statements, in accordance with SEC requirements. Our EPS guidance today exclude the impact of any net equity-based compensation expenses or any restructuring charges taken in the 2nd and 4th quarters. And we have, for ease of comparison, provided EPS guidance on a non-GAAP basis.

And with that, I will now turn this back to Roland.

Thank you, Chris. So in summary, while we are not satisfied with the results we've experienced over the past few quarters, we believe we have taken the steps to address the issues that have kept us from executing on our plan. A shift towards a more-focused and tightly-controlled manufacturing solutions business, along with the new markets we are addressing with our world-leading design analysis solutions products, should move us back toward that target business model. The Moldflow management team is committed to driving bottom-line growth, and the steps we have taken this quarter are evidence of that.

So with that, I will be quite happy to take any questions.

At this time, I would like to remind everyone – in order to ask a question, press *1 on your telephone keypad. We’ll pause for just a moment to compile the q-and-a roster.

Sir, you have no questions at this time.

Okay. Well, there being no further questions, I'd like to take the opportunity to thank all of you for joining us today. Chris and I look forward to speaking with you at the conclusion of the Fiscal 2006 Year, and reporting on our 4th Quarter and overall progress toward our business goals, as we head into our Fiscal 2007 Year.

Thank you and goodbye.

This concludes today’s Moldflow conference call. You may now disconnect.