Autodesk Inc (ADSK) 2007 Q4 法說會逐字稿

Good morning. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter and Full Fiscal 2007 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. (OPERATOR INSTRUCTIONS)

At this time, I would like to turn the call over to Mr. Roland Thomas, CEO, and Mr. Gregory Magoon, CFO. Please go ahead.

Welcome and thank you for joining the MoldFlow Corporation conference call to report the preliminary results of our fourth quarter and full fiscal 2007 year. Greg and I will make a series of prepared remarks and then we will take questions.

But before we begin with the prepared remarks, I'd like to introduce Greg Magoon. Greg-- well, with the departure of Chris Gorgone in June, we took the opportunity to promote Greg Magoon to the role of Chief Financial Officer. Greg has worked at MoldFlow for the past six years as our Corporate Controller and has earned the respect of his peers in the executive management team over that time.

Greg's prior public accounting experience, coupled with his MoldFlow experience, made him the perfect fit for the job. We believe his background and experience will be an invaluable asset in supporting our continued business process progress.

I will now ask Greg to remind all listeners about the risks and uncertainties surrounding forward-looking statements.

Thank you, Roland. During our conference call today, we'll 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 upon historical facts are forward-looking statements within the meaning of the Safe Harbor provision of the U.S. 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 10-K for the year ended June 30th, 2006, as well as our subsequent filings with the SEC.

Our comments today will summarize the preliminary financial results of our fourth fiscal quarter and fiscal year ended June 30th, 2007. We have chosen to present these results as preliminary as we are in the process of responding to comments made by the SEC concerning certain aspects of the Company's revenue recognition practices. I'll provide more details on the nature of the SEC's comments later on this call.

These preliminary results have been prepared by the Company on a basis consistent with all of its previously filed audited and unaudited financial statements. These results should be considered preliminary until the Company files its Annual Report on Form 10-K for the year ended June 30th, 2007, or is otherwise able to finalize these results. For more complete details on our preliminary financial results, please refer to our press release, issued earlier this morning, which also includes a description of the specific risk factors.

In addition, please note that during the course of this call we'll be making reference to certain preliminary non-GAAP financial results and measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures from 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'll turn it back over to Roland.

Thanks, Greg. I'd like to begin by discussing our operations and preliminary results. As you already know, the fourth quarter and, indeed, all of fiscal 2007 brought about many exciting changes at MoldFlow as we positioned our company as a CAE software-only company.

During the quarter, we delivered results that were in line with the guidance that we gave on May 10th. We sold our Manufacturing Solutions Division and, as I previously stated, we had a change in our executive management team.

In discussing our preliminary financial results, by way of reminder, our continuing operations consists of our Design Analysis Solutions business, which now also includes our MPX software product.

Our fourth quarter financial results were in line with our expectations. We saw year-on-year growth in total revenue of 17%, as well as products and services revenue growing 20% and 13%, respectively.

As we have stated before, our Design Analysis Solutions business is a strong, market-leading, IP-rich core business. We are excited to see that it continues to show growth rates that are in line or better with the CAE industry as a whole.

During fiscal 2007, we focused our products and selling plans on the needs of our existing customer base, in particular our largest multinational customers. These customers have a worldwide footprint that is similar to ours and our focus this year allowed us to obtain a greater percentage of our revenue from our installed base.

We also noted very strong sales performances in both our Asian and North American regions. In fact, North America had its best sales quarter in the history of the Company, beating out its strong third quarter performance. This result was driven largely by sales into the healthcare, electronics and automotive industries.

Once again during the quarter, Asia generated close to half of the total revenue, capping a year where its sales performance has been strong, quarter after quarter. The nice thing about this result is that it has not been driven by any one single country in our Asia-Pacific region. Rather, we have seen contributions from each country in the region and believe that we still have many untapped opportunities in the future.

In Europe, growth was modest, but we did see strength coming out of the United Kingdom, Spain, Portugal and we're beginning to see contributions coming from our investment in Eastern Europe.

During fiscal 2008, you should expect our business will generally show 50% of revenue coming from Asia, 30% from Europe and 20% from North America. As you may recall, our Manufacturing Solutions business was primarily a North-American-focused business, which led to a greater percentage of revenue coming from North America than we expect to see as we move into fiscal 2008.

During the quarter we took further steps to expand the depth of our product offerings with the release of version 6.1 of MoldFlow Plastics Insight software in Chinese and version 8 of our MoldFlow Plastics Advisers software in Japanese. These releases further validated our commitment to regional customer requirements, especially in markets as dynamic as China and Japan.

We released version 1.0 of MoldFlow Structural Alliance or MSA. MSA allows ABAQUS and ANSYS users to significantly improve the quality and accuracy of their structural analysis for plastic parts. MSA maps certain results generated by our MoldFlow Plastics Advisers and MoldFlow Plastics Insight products onto 3D structural analysis, creating a link between the injection molding simulation model and the structural analysis model beyond the conventional interface. The creation of MSA was driven, in large part, by our customer requests, which reflect the continued convergence of Design Analysis Solutions for plastics and CAE for structures.

On a customer level, the information that we provide on the complex behavior of the plastic materials significantly enhances the value of structural analysis. On an industry level, the increased linking of our products to world-leading finite element analysis, CAD and other CAE products serves to further entrench us as the market-leading provider of Design Analysis Solutions for plastics.

Finally, we announced that Husky Injection Molding Systems Ltd. would be the buyer of substantially all of the assets of the Manufacturing Solutions Division. We made a strategic decision to keep the MoldFlow Plastics Xpert software product in the MoldFlow family while the rest of the assets of the Manufacturing Solutions Division transferred to Husky.

We closed the transaction on June 30th and, by all accounts, the transition of people, customers and technology has been a smooth one. We were pleased that Husky was the buyer, as it was our intention to sell the division to a company with a suitable infrastructure to support the manufacturing solutions product globally.

It is clear that both MoldFlow and Husky share a common belief in the importance of providing products and services that bridge the gap between product design and manufacturing processes. We believe that Husky is the right company to provide products that fit that common vision, as well as provide the level of service and support that MoldFlow's customers have come to expect, both now and in the future.

Overall, we were very pleased with the results achieved in the fourth quarter. Each quarter we have seen the Company make strides towards our reaching our target model and this quarter made contributions towards that end.

Now I would like to turn the discussion to our preliminary full fiscal year results. During fiscal 2007 we set out to accomplish many goals and I'm happy to say that we largely did what we set out to do. We focused more resources on emerging markets, including South America, Asia, India and Eastern Europe, all of which are bearing or starting to bear fruit with an increased level of sales and market recognition.

Also during the year we had major releases of both our MPA and MPI products and the level of acceptance we are seeing with these product releases is exciting. We believe that it validates our vision and assumptions as to where the growing worldwide CAE market is going and how best to serve it.

Overall, when looking at our continuing operations, total revenue grew 14% on a year-on-year basis and non-GAAP earnings per share grew by 20% on a year-on-year basis. After a flat fiscal 2006, we expected to and did, in fact, see year-on-year revenue growth that is line with or better than the current norm for the CAE industry, which also lays a solid foundation for us to build off as we head into fiscal 2008.

Moving forward, we're confident in the strength of our core business and believe we are in a strong position to take advantage of the continuing growth of the worldwide CAE market. We believe that the divestiture of our Manufacturing Solutions Division, coupled with focused management and controlled costs, have given us a good start in unlocking the value we've always known was inherent in our core CAE business. We believe that we'll continue to experience growth rates for our business in fiscal 2008 which are in line with the overall CAE industry and we will continue to take steps to expand our margins.

And with that, I would now like to turn it back over to Greg so he can give a more in-depth of the preliminary financial results for the fourth quarter and full fiscal 2007 year, as well as some color on the SEC comment letter process.

Thank you, Roland.

First, a short comment about the timing of this call. As you know, our originally scheduled date for this call was August 7th, which would have been more in line with our tradition year-end reporting schedule. Fiscal 2007 has been an unusually complex accounting year at MoldFlow, taking into account the divestiture and change of management. We chose to move the date of our announcement to allow us more time to complete our year-end closing activities.

As we have disclosed in our press release, part of the complexity of the closing process has been our efforts to work through a series of comments received from the SEC. These comments were raised in the context of the SEC's regular review of our quarterly and annual filings and were not in response to any governmental investigation, whistleblower complaint or pending or threatened litigation. The review was not unexpected, as the Company had not been reviewed by the SEC since the time of our initial public offering and it is the stated policy of the SEC to review all companies on a three-year cycle.

We received our first letter from the SEC in January of this year, which covered various topics, including certain matters related to the Company's revenue recognition practices. Currently, the SEC has requested data concerning the application of an aspect of our revenue recognition practice as it relates to the allocation of revenue between components of our sales transactions that include both product and services.

In a software business such as ours, the most common type of transaction is one in which the customer purchases a bundle of products and services that includes both a perpetual license for software products and a time-based maintenance and support agreement. The Company applies judgment in allocating the revenue from an order of this type between the components, which ultimately impacts the timing of the revenue-- the timing of when the revenue from the transaction is recognized.

We are in the process of providing details supporting this judgment to the SEC. Should the SEC not agree with our conclusions related to these details, it could alter the timing of revenue that we have recognized in prior periods. While an adjustment of this nature could increase or decrease the revenue and net income previously reported for a fiscal period, over the long term, as only the timing of recognition would be impacted, any such adjustment would have no net impact on the cumulative revenue or earnings of the Company.

Finally, I'd emphasize that there's no question as to the validity of the sales orders themselves, nor any question as to the collectability of any unpaid amounts related to such orders.

I'll now turn back to the operating results of the business itself. We are pleased to report strong results from our continuing operations that were in line with the guidance that we provided on our May 10th earnings conference call.

Of significant note during the quarter was the previously announced June sale of our Manufacturing Solutions Division to Husky Injection Molding Systems. The sales price for the net assets of the division was $7.1 million, after taking into account certain purchase price adjustments and transaction costs. $1 million of these proceeds were placed into an escrow account and recorded as a non-current asset on our balance sheet as of June 30th, 2007. Due to the timing of the closing, the remaining purchase price was not paid until after the balance sheet date and was, therefore, recorded as an other current asset on our June 30th balance sheet.

In conjunction with the sale, $4 million of net tangible assets were transferred to Husky and we wrote off the remaining $2.9 million of intangible assets related to this division, resulting in a book gain on the sale of the division of $171,000 before taxes. However, the intangible assets written off had no tax basis and, therefore, the taxable gain on the transaction was much higher than the book gain, resulting in tax expense of $1 million. Taking all of this into account, on a net basis we recognized a loss on the sale of the division of $869,000.

As you may recall, beginning in our third fiscal quarter, we began to report the results from the Manufacturing Solutions Division as a discontinued operation. Accordingly, my comments from this point forward are solely related to our continuing operations, which is essentially our historical Design Analysis Solutions Division and our MPX software product.

In addition, the preliminary results, which I'm about to discuss, exclude the impact of our non-cash, share-based compensation charges and the related tax effects. Therefore, the following preliminary financial data should be considered non-GAAP financial measures. A reconciliation of these measures to the most closely associated GAAP financial measures has been included in our press release issued earlier this morning.

Total preliminary fourth quarter revenue of $15 million represented a 2% sequential increase and a 17% increase over the corresponding period of the previous fiscal year. The modest sequential increase was expected, as we experienced an acceleration of the timing of certain customer purchases that drew orders into our third fiscal quarter from our fourth quarter.

Preliminary product revenue for the fourth quarter was $7.5 million, which represented a 7% sequential decrease and a 20% year-over-year increase. The sequential change again reflects the draw of fourth quarter orders into the preceding quarter. The 20% increase from the previous year reflects the continuation of several previously noted trends, including strong sales coming from Japan and Korea, driven by significant follow-on orders from large customers in the electronics and automotive sectors and sales into the U.S. medical supplies industry.

Preliminary service revenue for the fourth quarter was also $7.5 million, which represented a 12% sequential increase and a 13% year-over-year increase. The increase in both periods was primarily from the sale of maintenance and support contracts, which typically represent 85% of service revenue in a given fiscal year. The growth is a reflection of long-term growth in the installed customer base arising from software license sales made during the current and previous reporting periods.

Preliminary total revenue for the full year was $55.9 million, representing 14% growth from that of fiscal 2006, which was in line with our full-year revenue guidance. Product revenue for the full year was $28.4 million, which represented 16% growth from 2006 while services revenue of $27.4 million represented a 12% increase from 2006.

We view this faster rate of growth in product revenue compared to service revenue as a sign of health in our business, as we have a good history of new customers purchasing repeat maintenance contracts each year. By continuing to grow product revenues during fiscal 2007, we can expect a steady and growing stream of renewal maintenance revenue in future periods.

For regional splits of our revenue for both the fourth quarter and full fiscal year, I refer you back to the financial charts attached to our press release issued earlier today.

Total cost of revenue was $1.6 million in the fourth quarter, representing an increase of 9% sequentially and a 5% increase from the same period in the prior year. Total cost of revenue was $6 million in fiscal 2007, compared to $5.7 million in fiscal 2006. The change in cost of revenue for all periods was primarily due to increased royalties paid to third parties and increased amortization expenses.

Preliminary total gross margins were 89% for both the quarter and full fiscal year, both of which represented a 1 point increase from comparable periods in the prior fiscal year.

For the quarter, total operating expenses were $10.8 million, representing a 5% sequential increase and an 18% year-over-year increase. The sequential change was primarily due to increased marketing expenses, which was a reflection of the timing of some of our more significant annual events, including our international user group meeting held in May. The change from the prior year was primarily due to increased salary and wages paid to our development and sales teams and an increase in marketing program spending.

For the full year, total operating expenses were $40.6 million, representing a $5.4 million or 15% increase from fiscal 2006. The main components of the change included a $2.7 million increase in sales and marketing expenses and a $2.1 million increase in G&A costs. The increase in sales and marketing expenses is a reflection of investments made to grow our direct sales force, which added a total of 12 new sales reps over the course of fiscal 2007. The increase in G&A costs included expenses related to the buildout of our worldwide accounting system and increased audit expenses, which were a function of the timing of when our annual audits are performed.

Interest income for the fourth quarter and full fiscal year 2007 was $893,000 and $3.3 million, respectively, which compared to $715,000 and $2.6 million in fiscal 2006. The increases were basically a reflection of increasing levels of cash on hand.

In our fourth quarter, we recorded a tax provision of $923,000 on income before tax of $3.7 million, resulting in an effective income tax rate of 25% for the quarter. For the full year, we recorded a tax provision of $2.1 million on income before tax of $12.7 million, resulting in an effective tax rate of 17% for the full year.

For the quarter, we are reporting preliminary non-GAAP net income from continuing operations of $2.8 million, which represents 38% year-over-year growth and $0.23 per diluted share. For the full year, we're reporting preliminary non-GAAP net income from continuing operations of $10.6 million, which represents 20% year-over-year growth and income of $0.89 per diluted share, which was in line with our previously issued guidance.

We incurred depreciation and amortization expenses of $525,000 in our fourth quarter and $2 million in our full fiscal year. Preliminary EBITDA, excluding non-cash share-based compensation expenses, was $3.3 million in our fourth fiscal quarter and $11.4 million for the full fiscal year. These measures grew by 23% and 20%, respectively, for the same periods in the prior fiscal year.

Now looking at the balance sheet and cash flows, total cash and investments were $72.6 million at the end of the quarter, an increase of $7.1 million from the previous quarter. I would remind you that these amounts do not include $6 million of proceeds from the sale of our MS Division that was received just after the balance sheet date.

Our operations generated $12.2 million in net cash during fiscal 2007. Our investing activities consumed $6.6 million of cash during the year, which primarily related to investments made in marketable securities. Financing activities generated $1.3 million of cash in 2007 as the proceeds received from stock option exercises of $6.2 million was partially offset by repurchases of common stock.

During the fiscal year under our stock buyback program, we repurchased just under 404,000 shares of common stock at an average price of $13.45 per share, using $5.4 million of cash in the process. In total under the 2006 stock buyback program, we repurchased 600,000 shares of our common stock, completing the authorized buyback amount under that program.

During the fourth quarter our capital expenditures on fixed assets were $148,000. DSOs for the fourth quarter were 72 days and, lastly, I remind you that we continue to have no long-term outstanding debt.

With that, I'll close with some comments on our 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 that you should refer to our SEC filings and to our earnings press release for a description of those risks and uncertainties.

This guidance has been prepared on the same basis as that of the Company's preliminary 2007 financial results and is subject to the conclusion of the ongoing SEC comment letter process described earlier on this call. The current business outlook is based upon information as of today, August 23rd, 2007, and is current as of today only.

For our full fiscal 2008 year, we expect revenue to grow in a range of 10% to 13% when compared to fiscal 2007. We expect EBITDA to grow in the range of 13% to 20% in fiscal 2008 when compared to fiscal 2007.

We expect non-GAAP net income per diluted share of approximately $0.94 to $1.00 per share, based upon an estimated 12.1 million diluted shares. Non-GAAP net income per diluted share excludes charges for share-based compensation expenses, which are expected to be approximately $1.8 million, net of related tax effects, and assumes an effective tax rate of approximately 21%.

GAAP net income per diluted share in fiscal 2008 is expected to be between $0.78 and $0.84, based upon an estimated 12.1 million diluted shares. The GAAP estimate assumes an annual effective tax rate of approximately 25%.

And with that, I'll turn it back over to Roland.

Thanks, Greg. Before turning to questions, I'd like to quickly summarize our goals for fiscal 2008. As a design-focused company, we now seek to further unlock the benefits of MoldFlow's CAE offerings.

In addition to expanding our customer base, we seek to increase the penetration of our existing customer base in order to have more users use our products to design more plastic parts more often. This goal is driving our product and channel development strategy over the next 12 months as we plan for further product offerings that will maintain MoldFlow's leadership in the plastic CAE marketplace.

In addition, we continue to seek out strategic partnerships and acquisition targets and strengthen our sales and product leadership position and focus the development of our business model in such a way as to unlock more of the leverage inherent in our business.

And with that, I'll be happy to take any questions.

(OPERATOR INSTRUCTIONS) There are no questions at this time.

Okay. There being-- there being no questions at this stage, we'd like to thank all of you for joining us today and for your support over the fiscal-- the 2007 year. We look forward to speaking with all of you to discuss our progress towards our fiscal 2008 goals and the results of our first quarter. Thank you and goodbye.

This concludes today's Fourth Quarter and Full Fiscal 2007 Earnings Release Conference Call. You may now disconnect.