Autodesk Inc (ADSK) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the fourth quarter 2008 Autodesk Incorporated earnings conference call.

I'll be your coordinator for today.

At this time, all participants are in a listen only mode.

We will facilitate the question an answer session towards the end of the conference.

(OPERATOR INSTRUCTIONS) I would now like to turn your presentation over to your host for today's call, Ms.

Sue Perri, Vice President of Finance and Investor Relations.

Please proceed.

Good afternoon, everyone.

Thank you for joining us as we report results for our fourth quarter and fiscal 2008.

With me today are Carl Bass, our Chief Executive Officer; and Al Castino, our Chief Financial Officer.

Today's conference call is being broadcast live through an audio webcast.

In addition a replay of the call will be available by webcast on our website www.Autodesk.Com/investor.

During the course of this conference call we will make forward-looking statements regarding future events and the future performance of the Company.

Our guidance for the first and second quarters of fiscal year 2009 and the full year of fiscal year 2009, the factors we use to estimate our guidance for those periods, our competitive position, our future business prospects and revenue growth, our market opportunities and trends for our products in various geographies.

We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially.

Please refer to the documents we file from time to time with the SEC and specifically our 10-K for fiscal year 2007, our 10-Q for the quarter ended April 30, 2007, July 31, 2007, and October 31, 2007, and our periodic 8-K filings including the 8-K filed with today's press release.

These documents contain and identify important risks and other factors that may cause the actual results to differ from those contained in our forward-looking statements.

The forward looking statements made during this call are being made as of the time and date of the slide presentation.

If this call is replayed or otherwise reviewed after that time and date of its live presentation, even if it is subsequently made available by Autodesk on its website or otherwise, the information presented during this call may not contain current or accurate information.

Autodesk disclaims any obligation to update or revise any forward-looking statements based on new information, future events, or otherwise.

In adherence to Regulation Fair Disclosure, Autodesk will provide quarterly information and forward-looking guidance in its quarterly financial results press release and this publicly announced financial results conference call.

We will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.

During the call we will discuss non-GAAP financial measures.

These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures will be provided either on this conference call or can be found in today's press release made available on our website at www.Autodesk.Com/investor, in addition we will quote a number of percentage increases as we discuss our financial performance, unless otherwise noted each percentage represents the growth rate of the fourth quarter fiscal 2008 as compared to the fourth quarter of fiscal 2007.

Now I'd like to turn the call over to Carl Bass.

Good afternoon, everyone.

Thank you for joining us.

Today Autodesk reported another strong quarter of revenue results, tapping another record year for the Company.

Quarterly revenue was a record $599 million, a 20% increase over last year.

Diluted earnings per share were $0.40 on a GAAP basis, and $0.52 non-GAAP.

Our overall performance this quarter was strong; however there were some individual metrics that did not meet our expectations and we will discuss those later in the call.

First, let's talk about our areas of strength.

A key growth driver for the Company over the past several quarters has been the increasing revenue generated in emerging economies.

Quarterly revenue from emerging economies increased 25% sequentially and a robust 52% compared to the fourth quarter of last year.

Revenue from emerging economies was 19% of total quarterly revenues, its highest percentage ever.

In addition, our broader international geographies also posted solid performance.

Combined revenue from Europe, Middle East, Africa, and Asia Pacific increased 33%.

Even in constant currency, our business in these regions was quite strong.

Importantly, we believe our growth in these international markets, which represented 66% of our total revenue in the fourth quarter, remains robust and sustainable.

Our solutions create competitive advantage for customers.

Which is important in any economic environment.

Our products enable improvements in design innovation and productivity.

As a result, customers are increasing their spending with Autodesk.

A great illustration of this point is revenue from new commercial seats of our products grew 30% in the quarter.

With this kind of performance it's clear that Autodesk is growing faster than the competition.

Another key driver for our business is the growth of the 3D design market.

Our revenue from 3D solutions achieved record levels despite very difficult compares from strong LT cross-grades in the fourth quarter of fiscal 2007.

Revenue from our 3D products increased 21% to $146 million and was 24% of quarterly revenue.

During the quarter we shipped nearly 46,000 commercial seats of our 3D products, Inventor, Revit, Civil 3D and NavisWorks.

Although we're the leader in 3D, we still believe there's a significant growth opportunity for Autodesk as 3D penetration of our customer base remains under 15%.

While we've experienced very strong growth in the 3D market, it's important to recognize that our core base of 2D solutions continues to post healthy double digit growth, lead by outstanding results for AutoCAD LT, strong growth in 2D creates future opportunity as well, because our 2D solutions provide the easiest migration path to our 3D products and then to digital prototyping.

Now let's look at areas that did not meet our expectations.

Our performance in the Americas did not match our robust international results.

The Americas which grew 2%, were impacted by a number of factors, including increasing economic headwinds, difficult year-over-year comparison for upgrades and cross-grades, as well as execution issues.

The programs that we put in place over the last 18 months are having the desired effect, but there are areas where we need to improve performance.

We are taking actions and as a result, we are optimistic about improving the performance in the Americas over the course of fiscal '09.

Non-GAAP EPS came in at the low end of our guidance range due to increased product development and sales and marketing spending.

GAAP EPS came in lower than our guidance range.

On the product front, we accelerated a number of product initiatives including both internal development and acquisitions.

The internal development initiatives, included broader interoperability, accelerated localization efforts, and improvements in visualization, simulation, and analysis.

During the fourth quarter, we completed three acquisitions.

A provider of outsourced product development, as well as two companies with key pieces of technology, and talent, for a 3D offering in the AEC space.

A more favorable job market and the availability of relevant companies at much more reasonable valuation makes this an opportune time to make these investments and distance ourselves from the competition.

Earnings were also impacted by significantly higher than planned commissions, and commission accelerators driven by our strong performance for the year and by the relative mix by individual, territory, and geography.

These accelerated investments in product development and sales and marketing in Q4 will have a moderate impact in Q1 but will have no impact on the rest of the year.

Overall, I am pleased with our results this quarter and the continued momentum in our business.

Now I'd like to turn the call over to Al for a detailed discussion of the financial results.

Thanks, Carl.

Net revenues grew 20% to $599 million.

Breaking it down, license revenue increased 19% to $446 million and maintenance revenue from subscriptions increased 25% to $153 million.

Combined, upgrade revenue and maintenance revenue from subscriptions increased 1%.

This is due to a decrease in total upgrade revenue of 36%.

We have had continued success migrating customers to subscription all year as demonstrated by the significant growth in deferred revenue and we also had a difficult compare to the same period last year.

Our performance by geography was varied.

Revenue in the Americas was 206 million, an increase of 2%.

EMEA revenue was 262 million, an increase of 38% as reported, and 27% constant currency.

Once again, our results in the EMEA emerging economies were particularly strong.

Revenue in Asia Pacific was $131 million, an increase of 24% as reported and 21% constant currency.

Japan had another quarter of strong performance led by healthy growth in AutoCAD LT, AutoCAD, and Inventor.

Looking at the divisions in our design solutions segment, platform solutions and emerging businesses had a great quarter, increasing revenue 19% to $263 million.

AutoCAD posted strong revenue growth of 9% and AutoCAD LT had an outstanding quarter growing 33%.

In total, our horizontal and 2D Vertical products grew 14%.

Total revenue from our manufacturing solutions division increased 26% to $123 million.

Once again, far exceeding the growth of the entire market.

Revenue from new seats of Inventor series increased 50% driving 20% revenue growth for the entire Inventor family.

We shipped more than 17,000 commercial seats of Inventor and more than 56,000 total seats of our manufacturing products in the quarter.

Against tough compares from Q4 of last year, AEC solutions revenue increased 22% to $137 million.

Revenue from our Revit family of products increased 19%.

We shipped approximately 21,000 commercial seats of Revit and NavisWorks.

Civil 3D revenue grew 14% and we shipped more than 7500 commercial seats.

Revenue from our media and entertainment segment was $71 million, an increase of 10%.

However, the trends in our two M&E businesses were very different.

Both 3DS-Max and Maya had outstanding quarters as 3D animation revenue increased 26%.

Revenue from advanced systems declined 5%.

The migration of our Advanced Systems Solutions off of SGI Hardware to mainstream systems continues to have a negative impact on revenues given that the new hardware is less expensive.

On a positive note however, the change has substantially improved the Advanced Systems gross margin which is a better measure of the health of our systems business.

Moving to the rest of the income statement, gross margins were 92% on both a GAAP and non-GAAP basis.

The improvement of 3 percentage points GAAP and 2 percentage points non-GAAP was primarily due to the increased gross margins on Advanced Systems Solutions which I just mentioned.

In addition, strong software license sales and productivity improvements in operations contributed to the increase.

Operating expenses were $424 million GAAP and $392 million non-GAAP.

Our operating margin was 21% GAAP and 27% non-GAAP.

Our tax rate in the quarter was 26% both GAAP and non-GAAP.

GAAP diluted earnings per share was $0.40 and non-GAAP diluted EPS was $0.52.

At the end of the quarter there were 230 million total shares outstanding.

Compared to the fourth quarter of last year, the foreign currency impact of 25 million favorable in revenues and 9 million unfavorable in expenses compared to last quarter the foreign currency impact was 12 million favorable in revenues a and 4 million unfavorable in expenses.

Turning to the balance sheet, cash and investments were $958 million.

During the quarter, we issued 1.7 million shares from employee stock plans generating $27 million in cash.

We used $100 million to buyback 2.1 million shares.

Cash generated from operating activities increased 15% to $219 million.

During the quarter we acquired three companies for $49 million net of cash, Robobat, Hanna Strategies and Carmel Software.

Total deferred revenues increased 19% or $82 million sequentially to $506 million.

Deferred maintenance revenues from subscription increased $68 million sequentially and $111 million over the fourth quarter of last year as we successfully drove strong subscription results.

Unshipped product orders or shippable backlog was down slightly sequentially to $15 million.

Total backlog including deferred revenues and unshipped product orders was $522 million, an increase of $126 million over last year.

Channel inventory remains below three weeks.

DSO was 59 days this quarter, similar to prior years the strong fourth quarter and deferred maintenance revenue caused DSO's to increase.

Excluding the increase in deferred maintenance revenues, DSOs were 52 days.

Looking back at fiscal 2008, we achieved the financial goals we set forth at the beginning of the year.

Revenues increased 18% to $2.172 billion.

Fiscal 2008 operating margins increased 2 percentage points to 21% GAAP and 27% non-GAAP.

Full year diluted earnings per share increased 24% GAAP to $1.47 and 23% non-GAAP to $1.88.

We are pleased with our overall financial results.

As we look forward to fiscal 2009, we are mindful of the concerns about the health of the U.S.

and possibly the worldwide economies.

While we have seen weakness in the Americas, our international business remains strong.

We remain confident in our market position and optimistic about our opportunity for continued growth.

Now let's talk about guidance.

For our fiscal first quarter, we are reiterating our prior revenue forecast of 575 million to $585 million.

As Carl mentioned, the accelerated product investments we made in the fourth quarter will have a moderate impact on Q1 earnings but will have no impact on the remainder of the year.

GAAP earnings per diluted share are now expected to be in the range of $0.35 and $0.37.

Non-GAAP EPS is now expected to be between $0.46 and $0.48.

Consistent with normal seasonal patterns for our fiscal second quarter, we expect revenue to be about $590 million and EPS to be about $0.40 GAAP and $0.50 non-GAAP.

For fiscal year 2009, we are reaffirming our expectations in net revenue in the range of 2.425 billion and 2.475 billion.

Full year GAAP earnings per diluted share are now expected to be in the range of $1.75 and $1.85.

Non-GAAP EPS is now expected to be in the range of $2.15 and $2.25.

A growth rate at the mid point of approximately 17% over fiscal 2008.

We expect our GAAP and non-GAAP tax rate through all of fiscal 2009 to be 26%.

Now I'll turn it back to Carl.

Thanks, Al.

Our results for this quarter and fiscal 2008 demonstrate the strength and stability we enjoy as a result of our diversified business.

For example, while we drove solid results in most of the developed countries, our performance in the emerging economies was superb as we continue to capitalize on the growth trends driving those geographies.

We do not believe that the we are immune from the implements of macro economic conditions; however our geographic balance and our customer and industry diversification help insulate Autodesk from any one particular market trend.

One benefit of the current macro environment is that it creates a fantastic opportunity to distance ourselves from the competition by continuing to add exciting new technology and features to our product portfolio as well as grow and strengthen our channel.

We're continuing our push to develop better interoperability amongst our products and further our lead in digital prototyping.

In addition, as Al mentioned we've recently announced acquisitions which will expand our portfolio to include middleware for games and additional simulation and analysis software.

We will also continue to invest in building the capacity and capability of our channel.

We firmly believe that these -- we firmly believe that the our long term opportunities are significant and we are committed to capitalizing on these opportunities.

With that, I'd like to turn it back over to the Operator so we can take your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Phil Winslow with Credit Suisse.

Please proceed.

Hi, guys.

Just wanted to dig into the Americas a little bit.

Was there one specific vertical, i.e.

construction where you saw most of the weakness and then when you do look at your outlook for fiscal '09, what are your just expectations for geographic growth?

Are you expecting a slowdown in Europe or to remain strong, just sort of how we should think about that as well.

I think what we saw is across the Americas and particularly in the United States it was slow.

No real difference although construction was the slowest amongst the verticals in the Americas.

Going forward, we're not, we just aren't going to project by discipline for next year.

Your next question comes from the line of Jay Vleeschhouwer with Merrill Lynch.

Please proceed.

Thanks.

Carl, I'd like to ask about the last comment you just made in your summary remarks, with respect to investing in capacity and capabilities of the channel.

All of your peers in the group seem to be saying similar things, Desoto, Solid Works, Parametric, and so with all of the peers counting far more it seems on capacity as a driver to revenue and to a lesser extent productivity it seems, how much available capacity the do you think there really is for you and how much of the fiscal '09 or fiscal '10 growth is dependent on your being able to add a requisite amount of capacity, that's question number 1.

And there were seven parts if I counted correctly, but.

No, no, no.

So the first thing I'd say, Jay, is as you know for most of the peer group when you particularly talk about manufacturing vertical, it's a little bit apples and oranges.

Most of them don't have a channel business.

And while they aspire to have a channel business and talk about it every two years or every blue moon, they still don't actually have a channel business.

So I mean, I think if you look at let's say Desoto subsidiary, they have a channel business but that's a small part of their overall business.

Because of that I don't really see channel capacity as a zero game.

When we look to expand channel capacity, it's really our existing resellers continuing to grow, and while certainly this quarter we, as we do many quarters we convert resellers from others, that is not the primary way to grow the capacity of the channel.

It's just the individual businesses, as we've doubled over the last five years, their businesses have doubled as well and they've added that.

When you look forward, I would say -- we've talked about this before, building the capacity and capability of the channels is ongoing work just like you do with your own internal salesforce and your own internal workforce but nothing we're talking about in the forward-looking guidance is contingent upon the growth of the channel.

Okay.

What were the execution issues you mentioned earlier in your prepared remarks in the context of Americas under performing, you mentioned economy, tough comps and then you said something about execution issues, what was that?

Yes, I think there were places where we certainly can perform better.

Not in the general places where everyone would look, the resellers you'd be familiar with and I think there are opportunities for us in other places like Latin America and Canada, things we can do in the government sector, so it's those kind of places where I'd really look for stuff.

And then always as you know, you notice there are things that we do around managing the channel and promotions and things like that, but nothing really extraordinary in that and I'd really stick to more of the peripheral ones where I think with we can perform better.

All right and lastly, for the New Year, would you anticipate any changes, experiments, new programs, et cetera with respect to product packaging and/or pricing, for example, to the extent you can implement interoperability better as you demonstrated at the conference in November, does that imply this year or into next new conjoined products, new packages, new pricing, than we seen before?

So two things, one is we continually look at pricing, and there's always some impact from pricing that we have but it's moderate and I wouldn't expect us to do anything distinctly different in terms of pricing.

As I've spoken about before, I think the potential for having better interoperability opens up a lot for us in terms of the way we package and bring products to market.

I think some of peer companies, not necessarily our competitors have done a really nice job of bundling products together and I think it's an interesting opportunity that we're considering to look at.

At this point we haven't announced anything, but I think it really does depend on making sure the products work well together and so that the experience for the customers from both a licensing and deployment standpoint as well as work flow standpoint really make sense.

Okay, thanks, Carl.

You're welcome, Jay.

Next question comes from the line of Heather Bellini with UBS.

Carl, I was just wondering if you could give us a little more clarity, I know you mentioned investing and product development initiatives for R&D but the big jump in sales and marketing, I mean, you had the same type of year-over-year growth in total revenue last year, yet your marketing expenses didn't go up nearly by this much.

I guess I'm wondering how much of the acquisitions that you bought did those impact the sales and marketing budget?

And how much of that -- what would be another reason because it just seems like you would have had a better, more clarity of this earlier in the quarter?

Yes, I understand Heather.

So first of all the acquisitions negligible impact in terms of sales and marketing line.

Okay.

Most of the M&A as you know is mostly those small deals that the are technology deals and if it hits anywhere it's in the R&D line.

Would it have added much to revenue by the way?

No, we usually, I mean we usually talk about the revenue if they're significant, most of the ones over the last couple quarters have been small.

Okay.

The place where you would have seen it is probably from our sales commissions, and the reason for the sales commissions being higher than we would have planned for or that you might have anticipated is just because the mix was so skewed, there were places where people really got into their accelerators and so that obviously has a compounded effect, where the places where people underperformed it kind of goes down linearly.

By the way our accounting policy is we book these accelerators when they're actually earned.

We don't try to estimate them during the year.

So basically they all go into the fourth quarter and what the can happen is based on the mix of countries and people then you can get some pretty big swings in what these accelerators turn out to be.

That's what the happened in the fourth quarter.

Okay, because the same thing would have been applied last year, right?

Yes.

Well, we always book these accelerators in the fourth quarter, but if the mix is not skewed to like certain countries or certain individuals having big accelerators we may not have as much accelerator expense to book in relation to revenues as we did this past quarter.

If you look back to last year, Heather, you'd see a much more balanced growth across all the geos and even at a sub geo level you would have seen much more balanced growth.

This time it was more skewed so we hit the accelerators in more places.

Well, then can can you given that you're keeping your revenue guidance the same for the year, you're obviously sounds like you still have investments in R&D that you're making but what was the reason then for the reduction in earnings by the magnitude that it was in terms of guidance?

Well, the reduction in earnings for guidance is actually I think modest.

It's down about $0.05 for the year and that's basically all in the the first quarter.

Basically what that is is we accelerated some investments in the product arena that we plan to do later in the year so we just did them earlier and that's the reason it's hitting us in the first quarter, but second quarter onward has no impact so that entire change is from the first quarter.

Okay, thank you.

And if you look at the first quarter you see we did some internal product investments.

We did see a number of companies come available for M&A that we took advantage of, we think that these are really attractive prices, and I think particularly, with an uncertain economic environment certain places we want to make sure we continue to invest in the channel.

The other thing to be focused on is our margin numbers, our margin goals for the second quarter onward haven't changed, they're the same so again the entire change in earnings is just for the first quarter.

Okay.

Thank you.

Your next question comes from the line of Andrew Matorin with Bear Stearns.

Please proceed.

Thank you, if you could perhaps provide a little more insight onto this expense issue that Heather brought up.

I mean, you said that the you're bringing some investments forward into Q1 that perhaps would have been spread out further along into the year.

If that's the case, if you're just bringing forward expenses, I'm not the sure I follow on why your full year EPS guidance is reduced?

Well, because for example, if they were only going to be on -- let's say it's hiring of people, and they were only going to be on our books for three quarters, they are now on it for four quarters.

So it's increased hiring, not--?

Yes, it's generally hiring.

Some of it is a result of M&A, some of it is organic hiring and some is deciding to make some investments in the channel, earlier in the year.

Okay.

With respect to the commercial 3D seat numbers, I mean, clearly, those numbers, the growth year-over-year is actually down for the first time on all three products, core products.

Could you comment a little bit more about what's kind of driving demand there and if you have seen any shifts in kind of that migration path to 3D and how that's--?

Yes, I think if you do the algebra on it, you'll figure out that it's all in the Americas and that the Americas were a anticipated levels, they would actually be higher.

Okay.

I mean, it's just pretty simple math in that most of those products would have grown considerably faster if the Americas had performed at expected levels.

Okay, and the fact that the Americas has slowed apparently so dramatically since your last guidance doesn't gives you pause for your full year guidance for 09?

No, I mean, I think one thing is you got the to look at in a quarter in which the Americas slowed considerably, I mean, we still had $599 million of revenue, the highest in 25 years, and it still shows a good growth rate.

I think in some ways, if you just reflect on it, it speaks to the thing that we've talked about a number of times which is the diversity of our business.

And while we always insist that we're not immune from macro-economics, and we're no keener students than you are of macro-economics, at the end of the day being in multiple business lines, spread out geographically benefits in which a downturn in one particular market doesn't have as big an impact on us as it might otherwise have.

Okay, thanks.

Next question comes from the line of Sasa Zorovic with Goldman Sachs.

Please proceed.

Thank you.

So, continuing on this here though, I mean, the question that begs to be asked is, and I guess even a clarification on an earlier question answer, okay, so if there was a slowdown in the Americas, what have you then anticipated then happens, what underlies this number that you have now reiterated in terms of what happens in Europe and then in Asia?

So I think while the premise of your question is a slowdown, I think what you have to combine it with is there was obviously an unanticipated acceleration in Europe and Asia Pacific.

Otherwise, we wouldn't have come in so far above our guidance in revenue.

So, obviously, EMEA is performing beyond our expectations and Asia Pacific is, as we try to ponder all of the things that the we know about our particular business as well as what we see in the world economy, we're very comfortable with reiterating our guidance for the year.

So then does it mean that if this has been the case in the fourth quarter, your anticipation is that the strength continues in the respective three geographies as it's been in essence in the fourth quarter?

Well, what I would say without getting into detail about projecting revenues by geography, by quarter, is that we are not expecting dramatic upturn in the next quarter in the Americas and we think there's a balance in our business that will accommodate us meeting both our revenue and our EPS targets.

Okay, thank you.

Next question comes from the line of Steve Ashley with Robert W.

Baird.

Hi, my first question is just on the general level of profitability, maybe if we just looked at the EBIT line, if we look at the United States versus maybe Europe and outside the United States, are they just qualitatively, is the profitability level there about the same or does the U.S.

carry a little bit higher margin due to scale?

We don't talk much about profitability by geo.

I'll tell you though it looks pretty similar across the globe.

We're very profitable in all of our sales operations.

If I look at it on some kind of legal basis, of course we have R&D people in different spots so it's not a real meaningful number to be showing people.

Just maybe a follow-up on the simulation you talked about as part of the accelerated R&D spend.

Can we get a little more color maybe on what you're doing there?

Could we see a standalone product or are you going to bake more feature functionality into Inventor Pro, or anything you might be able to tell us there?

Yes, I think what you'll see in the number of our product lines, one of the things we try to do that I think is different than our competitors is we try to package our offerings in a very simple way, in a digestible way for customers, and what the I think you've seen over the last year or two is more simulation and more analysis in both the Inventor product and it will continue as well as I think you'll see more simulation analysis, you've seen it in Revit, Civil 3D, so all of our 3D products are really the foundation for this next level of visualization, simulation, and analysis, and I think while we reserve judgment on each product offering, a more likely thing for us is to bundle these things in ways that simplify the packaging for both our customers as well as for our channel to sell them.

Great, thank you.

Your next question comes from the line of Brent Thill with Citi.

Please proceed.

Thanks, Carl.

Can you just elaborate on the U.S.

weakness?

Did you feel that throughout the quarter or was it more pronounced as you got the later in the quarter?

I think there were signs of it all throughout the quarter.

It's never quite clear until the very end.

I think it becomes crystal clear at the end, so I think we saw it throughout, got clearer as we got to the end, and without, I don't want to make any excuses about deals moving and all of the usual mumbo jumbo.

I think we recognize the weakness.

It is hard within the course of a quarter to change a lot and effect the outcome too much just because of the nature of the business and that built-in delay, but I think we recognize it and I think what we're able to do is drive revenue in the other geographies.

Yes.

And just as it relates to Europe, the European growth rate was better than the many quarters historically in 2007, I think you grew in the low 20s in Europe and you put up a 38% year-over-year number, was there something special that happened in Europe that caused that big a growth?

I mean, I think one thing, so I think overall, our business in Germany is doing well and one of the things we've talked about is in order for these businesses to overperform whether we're talking about relative to our guidance for the quarter or for the year, when all of the parts are working well, we overperform and we certainly don't give guidance assuming everything is working perfectly.

Europe happened to have one of those quarters in which all of of the pieces were really working well.

I think the accelerator to that is the emerging economies which people tend to forget about in Europe actually played a big part as well.

So I think the combination of all of the developed countries just operating at or above expected levels plus the kicker that we really got from the emerging economies did well, drove the really high performance.

If there's one thing that stands out there was a currency benefit so that 38% is 27% constant currency but that's still fabulous and all I'll tell you is that we feel really good about the European business at this point in the quarter and the year, so we don't see it as a one stop thing.

It's a strong business.

Thanks.

Your next question comes from the line of Brendan Barnicle with Pacific Crest Securities.

Thanks so much.

Carl, when I was at (inaudible) University talking to customers, some of the ones who have big businesses like construction firms, engineering firms here in the U.S.

You're talking about a lot of the work they were doing in emerging markets and having a lot of their new seats come on there.

Do you guys have any sense of what portion of that emerging market business is sort of derivative North America or European business?

And I'm asking to see if that's maybe an area that we need to watch to see sort of an after effect of the slowdown that you see in North America?

Well, so the first thing is is it is really hard to get at that data and we really don't have any great insight into it.

The one thing I could say to you qualitatively after the downturn in 2001, many of the U.S.

based architecture, engineering, construction firms made a concerted effort to diversify their businesses.

I'd say secondarily really, the world markets have reached a place where when you look at building in the Middle East or in China, they want international firms to be working on those projects.

So the dynamic that set that up is there.

To track it down, it's not very easy, and guessing whether it's a leading or a lagging indicator is even harder.

Okay, fair enough, and then with the execution issues that you face, were there any sort of structural reorg.

changes that went in place in terms of personnel or organizationally?

No major changes.

Okay, great.

Thank you.

Your next question comes from the line of Richard Davis with Needham and Company.

Please proceed.

Hi, thanks.

With regard to acquisitions, I know most of the ones you've been making have been more technology oriented.

Do you have a kind of upside limit in terms of how large you would go or is it just kind of depend on the situation, in other words would you consider making larger acquisitions because as you know these are -- the ones you have been doing have been fairly small.

Richard thanks for joining us.

Let's see.

Generally speaking what the we're interested in is the smaller technology acquisitions and those are small price points, you know all of the characteristics of the small tuck-in ones.

I mean, we look at the other ones but really the universe of possibilities is really small and you could sit there and list on the fingers of one or two hands figure out all the ones there.

There are a number of them that the are not possible for all kinds of reasons that you can imagine to so we don't spend a lot of time contemplating these large ones and what I would say is less so than the limit on the amount we would have to pay for it, it would much more be a strategic thing about how healthy is the business, can we run it and blend it with our business, do the financials make sense rather than an absolute dollar limit, but I think people need to recognize in this business the number of large M&A possibilities.

It's a very small universe.

And when we talk about it being a great point in time to do M&A, basically what we're looking at is if you look at private company space, all of that credit that was feeding the private equity firms is really dried up and it's just a much less competitive situation for getting some really useful companies, some really good people at a good price.

So that's a big opportunity right now.

Got it, okay.

Thanks a lot.

Operator?

Your next question comes from the line of Michael Long with ThinkEquity.

Please proceed.

Thanks very much.

A couple questions.

First, your platform division actually had a very strong quarter.

Does this reflect any decisions by end customers to slow their spending on more expensive vertical products?

And then what percentage of this platform division comes from emerging regions and were there any special one-time promotions that drove this performance?

Thanks.

Okay, so working backwards no real special promotions and we don't really give the break down of platform by geography.

I think the hypothesis is an interesting one.

We haven't really seen that.

I think there may be a small aspect in which if it's really tough economic times, people may just choose to upgrade or keep their subscription and not look for a change, but we haven't seen any broad evidence of that at all.

And it's not really consistent with that big new seat growth and the large 3D growth.

So there's a little bit of conflicting data just when you look over this three-month period but I don't see anything that's a trend or anything that makes me nervous about this looking forward.

Got you, and so when you look at this years product release, what are the most notable new products or features that we should be paying attention to and which one is the most likely to drive upside if you actually had to bet on one?

I think there's a handful of products, they would all be in the 3D space.

Inventor and Revit are clearly the leaders and those are the ones that continue to outperform expectations, so Inventor and Revit are there.

I think there's a lot more being done with Maya and Max which have also performed well.

We often don't think of it -- we don't combine it in our official 3D revenue but they're clearly 3D products and with the growth of media and entertainment in markets around the world, they're performing well.

So I would look at that and as I already mentioned I think it was in Jay's question, I'd look at some of the new bundling things that the we might do that could also drive additional growth.

Thank you.

Next question comes from the line of Sterling Auty with JPMorgan.

Thank you, Al, can you quantify for us out of the accelerated investment in the first quarter, towards the R&D side versus the sales and marketing meaning since you had the big commissions in the fourth quarter should we see a fall off in the sales and marketing spend in the first quarter?

Well, I don't want to forecast line item level.

I will tell you though that the Q4 has a bigger impact from commissions than we see in Q1 because that's when we book the Accelerators again, so you'll see less impact on the sales and marketing arena in the first quarter than you saw in the fourth quarter but that's as detailed I want to get about that.

Okay, and then can you just describe, Carl, the rationale behind it both on the R&D and the sales market?

So you mentioned accelerating in terms of the R&D side but what the do you think that's going to give you for the year?

What's the strategy behind getting the interoperability a little bit quicker and on the sales and marketing is that spend going to be targeted towards some of the execution issues here in North America?

So, a couple things, so the interoperability allows us to do product bundling, it allows us to make products available in markets in which they previously haven't been sold, so that's what the we do there.

Some of the M&A opportunities are really just opportunistic.

They come along just as you guys are pondering the worldwide economics so are venture capital firms and investors in these small companies and so they're looking for exit opportunities so when something comes along, we do that.

I think the other thing is just generally speaking, we're seeing some of our competitors perform badly.

There are people available for hire.

There are people to help staff up our channel partners, and then when we see good people come on the market, we want to bring them into our universe and so we have been doing that and so really, the rationale is to, if you prioritize it, clearly the marketing will have the first effect, more spent on marketing has the most dramatic effect short-term, sales comes next and R&D is later.

So the R&D stuff, you often don't think of even having an effect in the same year whereas much of the sales and marketing really can.

Okay, so is one way to look at it, in light of the questionable economy especially in North America, that you want to accelerate some of the sales and marketing to prop up demand?

Sure.

And I think -- but I think it's equally true where we see emerging economies growing quickly, where you could hardly ever keep up with that rate of growth in terms of the number of people there, the number of channel partners, the geographic reach, those are places where we want to expand too and we're doing both.

I will look at the additional sales and marketing spend as purely being a response to Americas economy.

Okay, thank you.

Your next question comes from the line of Brian Essex with Morgan Stanley.

Please proceed.

Hi, good afternoon, gentlemen.

I was just wondering if I could revisit the sales and marketing issue just one more time, maybe a different way.

If I look at the kind of rate as a percentage of revenue over the past -- over the first nine months of the year, I get to about a $14 million overage over what we would have expected given the current period sales level.

Is that, I guess can you offer any color into maybe one is that kind of the right math to look at for the accelerators and two, can you offer any color into maybe the proportion of that that was due to accelerators versus maybe some channel incentives to help the U.S.

along?

I don't want to fine tune the sales and marketing line like that but I'll tell you the accelerators are a big chunk of that because again keep in mind they're all booked in the fourth quarter for the year, almost nobody hitting the accelerator in the third quarter.

We book them as they're earned so that's how that thing came out.

We didn't have any special programs or anything like that going on in the fourth quarter if that's what you mean, so it was business as usual.

The normal promotions that we announced were there, but nothing special.

One of the things whether you look at the ASPs or special deals, I mean one of the things we absolutely are not willing to do is make special end of quarter deals which result in lower prices and all of the risk that follows through that, and so this was normal run rate business as expected.

Nothing special about it.

So all indications are so far through the quarter that you wouldn't expect the same type of environment to continue into Q1?

I'm not sure what you mean by same time of environment.

Well, I guess where you hit the accelerators to that degree.

No.

Keep in mind, let me explain again how the the accelerators work, so people have annual plans, they have commission plans or annual plans and at some point late in the year they get to a level where they earn these accelerators because they hit an annual milestone that puts them in a higher commission rate.

No one is going to get there in the first quarter.

We're not a big deal oriented kind of a Company so almost everybody who is going to get an accelerator will earn it in the fourth quarter.

There's virtually nothing in Q1, nothing in Q2, almost nothing in Q3.

It's all in Q4.

Got you and then on the acquisition front, Carl I think you noted that the contribution wasn't meaningful to revenue.

With respect to guidance in 2009, is there a threshold that you would use for that kind of reasonable comment?

No, but I would say first of all the guidance we're giving at this point doesn't anticipate any acquisitions.

So we're not sitting here, knowing about any acquisitions or planning on any meaningful amount.

We use the usual standards for disclosure, when we acquire a Company, but truthfully many of the acquisitions we do are really single digit, low single digit in revenue, some have been smaller than that the, single digit millions, so they're really relatively small and many of them are not even acquired for the revenue.

I guess I'm just looking for maybe an organic contribution versus contribution from acquisitions you've made over the past two and a half, three months?

We did that when we bought Alias two years ago, it was significant enough to be worth doing.

The stuff we've been buying is lost in the rounding, if we tried that, it wouldn't move the needle, so if we did decide to do one that moved the needle, we would split it for you and tell you organic and non-organic.

We did it three years ago with Alias.

Again I'd say none of the forecast is predicated on any M&A activity.

Thank you very much.

Sure.

Question comes from the line of Greg Dunham with Deutsche Bank.

Yes, one more commission one but forward-looking basis here.

Given that the accelerators were hit in the international region this year, were you guys more aggressive in adjusting your comp plans going forward in those international regions and are there any risks associated with that the potentially?

No.

I mean, we certainly revisit the commission plans every year and when you look at some of the issues around execution, it's about better forecasting and better planning around commissions.

We certainly don't want to set up our commission plans such that we react to people earning good money, we don't want them to do it again.

We want them to make these numbers.

We set them up to motivate behavior achievement that we want and when they get there, that's good news, so we're not interested in trying to pull a rug out from under people so they can't earn a good accelerator.

We want them to make those numbers.

So no major change this year going forward?

No.

Thank you.

Next question comes from the line of Ross MacMillan with Jefferies.

Please proceed.

Just one more on that to the same thing if I can.

Just want to be clear, so if a dollar of business is sold in EMEA or a dollar of business is sold in Asia Pac, is it effectively -- if you take the total blended rate on sales and marketing is it the same cost of sale or if we see more growth out of those territories, are we going to see sales and marketing higher, costs higher within M&A?

What I would say is our model doesn't figure a dollar for those geographies differently and I would suggest the same to you.

Okay.

It's lost in the rounding the difference in the cost of sales across geographies.

That's fair.

Just one on Revit.

So it's been a big unit driver over the last 18 months compared to all your other 3D products, it's now been flat for three quarters and obviously it is exposed to building and architecture.

We -- have we got to a point now that that kind of run rate, 21,000 seats a quarter is going to be tough to break out of or do you not really view it like that and think that it's all about capacity in the channel and that could easily grow off that 21K a quarter type run rate on units?

So I think there's capacity in the channel which you pointed out correctly.

I think there's broader geographic distribution that could happen.

I think if you see an improved economy in the Americas, all of those things would drive it.

As well as when we look at Revit, there's a lot of product capability that has expanded.

We generally talk about Revit as the entire family but there's things around specific disciplines like structural engineering or mechanical engineering within the building and we've continued to build that out.

So those are parts of the business that could grow faster.

They're in an earlier stage of adoption.

And then there's the question that gets asked all the time, is there a way to accelerate 3D adoption in general, and I think there are times at which you hit those tipping points at which there is an acceleration.

We've just not been willing to venture when that is.

By the way, I think the revenue growth is probably the more important metric anyway and Revit is not flat so it grew 19% last quarter with a weak Americas.

Revit had a really strong international quarter, so it's not flat.

Thank you.

Your next question comes from the line of Brad Manuilow with American Technology Research.

Please proceed.

Thanks for taking my question.

Just two quick ones.

When you exclude the FX impact from Canada and Latin America just wondering if the U.S.

was actually down on the year-over-year basis?

And second--?

No.

I'm sorry?

The answer is no.

Very small FX impact, in Latin America we almost sell everything in dollars and the Canada impact was tiny.

Okay, and then second how much do you guys have left on your buyback authorization right now?

It's quite a bit--.

The Board just increased the authorization in December, Brad.

I think it's on the order of 20 million shares.

It's large and our goal continues to be that we offset the employee stock program dilution.

We have plenty of shares to do that over the coming year.

Great, thank you.

This concludes our Q&A session.

I'd now like to turn the over the call for closing remarks.

Thanks, Operator.

Before we conclude the call I'd like to remind all of you that Dave Genereli has recently joined our Investor Relations team from Symantec.

We're pleased to have Dave on the team.

He's here with us today.

Dave and Katie Blanchard and I will be available to handle any questions you have later and that concludes the call, Operator?

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect and have a good day.