Autodesk Inc (ADSK) 2009 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the first quarter 2009 Autodesk Incorporated earnings conference call.

My name is Eric, and I will be your coordinator for today.

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

David Gennarelli, Director of Investor Relations.

Please proceed.

Thanks, operator.

Good afternoon, and thank you for joining our conference call to discuss our first quarter fiscal 2009.

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 web cast at autodesk.com/investor.

During the course of this conference call we will make forward-looking statements regarding future events and the future financial performance of the company, our guidance for the second and third quarters of fiscal 2009 and full year fiscal 2009.

Factors we use to estimate our guidance for those periods, our future business prospects and revenue growth, our market opportunities, trends for our products and trends for various geographies and anticipated benefits of acquisitions such as the proposed acquisition of Moldflow Corporation.

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

Please refer to the documents we file from time to time with the SEC, specifically our 10K for fiscal year 2008 and our periodic 8-K filing which includes the 8-K filed with today's press release.

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

Forward-looking statements made during this call are being made as of today's earnings call.

If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information.

Autodesk disclaims any obligation to update or revise any forward-looking statements and in adherence with regulation of fair disclosure, Autodesk will provide quarterly information and forward-looking guidance in its quarterly financial press release and its publicly announced 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 principals.

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 and made available on our website.

In addition, we will quote a number of percentage increases as we discuss our financial performance.

Unless and otherwise noted, each percentage represents the growth rate of the first quarter fiscal 2009 as compared to first quarter of fiscal 2008.

With that, I would like to turn it over to Carl Bass.

Good afternoon, everyone, and thank you for joining us.

Today Autodesk reported another solid quarter of financial results.

Revenue for the quarter increased 18% over the last year to $599 million.

Diluted earnings were $0.41 on a GAAP basis and $0.50 non-GAAP.

Growth in our international geographies continues to underpin our overall revenue growth.

Revenue from outside the United States increased by 24% as reported and 13% in cost in currency.

While favorable currency exchange rates helped fuel this growth, even cost in currency our overall business outside of the United States remains healthy and continues to grow.

As we outlined in our investor day, the booming economies in emerging markets represent significant opportunities for Autodesk.

In total, revenue from emerging economies increased by a robust 41% and represented 17% of our total revenue for the quarter.

As we broaden our presence in these regions, I believe we will be able to further capitalize on this growth opportunity.

Revenue from new commercial seats grew 23% in the quarter which is a good indicator that our products remain in strong demand.

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

Our revenue from 3D solutions increased 37% to $146 million and was 24% of total revenue.

During the quarter we shipped over 35,000 commercial seats of our model based 3D design products, Inventor, Revit, Civil 3D, and NavisWorks.

That represents about a 9% increase and is in line with seasonal patterns.

The 3D market represents a significant growth opportunity for Autodesk and we believe that we will continue to penetrate this market over time.

As important as the 3D market is to our future growth, our core 2D solutions are maintaining very health growth rates led by very strong contribution from autoCAD LT, the large base of Autodesk 2D customers are typically our best prospects to become users of our 3D solutions.

It's important to note that regardless how pervasive 3D solutions become in the future, 2D solutions like autoCAD will continue to be a relevant and essential part of the design world.

Turning to our business in the Americas region, as expected the U.S.

continued to face economic head winds.

This posted 4% growth which I believe is respectable given the current economic environment in the U.S.

As I noted last quarter, over the past 18 months we have put programs in place to help stimulate demand and we are seeing many positive data points stemming from these actions.

For example, in the first quarter of fiscal 2009 in the Americas we experienced nice growth in new commercial seats, a modest rebound in Latin America and strong growth in subscriptions.

What's more, we managed to increase our subscription, attach and renewal rates.

Additionally, we are seeing a strong increase in our business with government agencies in the U.S., especially the federal government.

This is the result of a more focused effort we initiated a few quarters ago and we believe we can further increase our presence in this area.

While we can't control or predict the length of the current economic slow down in the U.S., our experience shows that our products improve the productivity and competitiveness of our customers.

I believe that our results indicate that such a message resonates even more in times of economic weakness.

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

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

All right.

Thanks, Carl.

Net revenue was 599 million, in increase of 18% as reported and 10% at constant currency.

Breaking it down, license revenue increased 13% to 432 million and maintenance revenue increased 33% to 167 million.

Combined, upgrade revenue and maintenance revenue increased 16%.

As expected, upgrade revenue decreased 14%.

Breaking down revenue by geography, revenue in the Americas was 191 million, an increase of 4%.

EMEA revenue was 259 million, an increase of 25% as reported and 11% cost in currency.

As we enter the second quarter, we are feeling good about our EMEA business both in the emerging countries and in the core European markets.

Revenue in Asia Pacific was 149 million, an increase of 27% as reported and 18% cost in currency.

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

Before I get in to the results by division, I want to note that we will be making a change to how we report our segments in our SEC filings.

Last year Autodesk had two reportable segments, the design solution segment and the media and entertainment segment.

Effective at the start of our fiscal year 2009 the operating results of our segments will track our four divisions.

Looking at our divisions, platform solutions and emerging businesses had a solid quarter increasing revenue 11% to 278 million.

Growth was led by very robust sales autoCAD LT which grew 28%.

AutoCAD grew 3% in the quarter.

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

Total revenue from our manufacturing solutions division increased 26% to 119 million, once again far exceeding the growth of the entire market.

Revenue from Inventor increased 25%.

During the quarter we shipped more than 11,500 commercial seats of Inventor and approximately 46,000 total seats of manufacturing products.

AEC revenue increased 29% to 129 million.

Revenue from our Revit family of products was very strong with an increase of 61%.

We shipped approximately 24,000 commercial seats of Revit, Civil 3D and NavisWorks.

Revenue from our media and entertainment division was 67 million, an increase of 14%.

Animation revenue increased 23%.

Migration of our advanced system solutions off of SGI hardware to mainstream systems is now largely complete.

The change has substantially improved the advanced system growth margin, but we expect this portion of our M&E business to remain fairly low growth.

Revenue from the advance systems increased 3%.

Moving to the rest of the income statement, gross margins were 90% on a GAAP basis and 91% on a non-GAAP basis.

Operating expenses were 479 million GAAP and 447 million non-GAAP.

As we previously announced, operating expenses include approximately 9 million of cost reduction initiatives, including prioritization of projects and resource reorganization.

We believe these initiatives will aid future growth of the company and strengthen our financial position.

Our operating margin was 20% GAAP and 25% non-GAAP.

Tax rate in the quarter was 25% GAAP and 26% non-GAAP.

GAAP diluted earnings per share were $0.41.

Non-GAAP diluted EPS $0.50.

At the end of the quarter there were 224 million total shares outstanding.

While it's clear that favorable exchange rates aided our revenue growth, it's the strength of the business that allows us to sell our products in local currency in many parts of the world.

We believe this helps to lower the underlying volatility in our business.

Compared to the first quarter of last year, the foreign currency impact was 41 million favorable in revenues and 14 million unfavorable on expenses.

Compared to last quarter, the foreign currency impact was 14 million favorable in revenues and 5 million unfavorable on expenses.

Turning to the balance sheet, cash in investments were 950 million.

During the quarter we issued 1.6 million shares from employee stock plans generating 35 million in cash.

We used 257 million to buy back 8 million shares .

We drew down $40 million on our line of credit primarily to help fund the stock repurchase.

Cash generated from operating activities decreased 4% to 185 million due primarily to the payments of commissions and bonuses during the quarter.

Total deferred revenues increased 9% for 44 million sequentially to 550 million.

Deferred maintenance revenues increased 40 million sequentially and 130 million over the first quarter of last year as we successfully drove strong maintenance results.

Unshipped product orders or shippable backlog were up sequentially to 18 million.

Total backlog, including deferred revenues and unshipped product orders, was 567 million, an increase of 149 million over last year.

Channel inventory remains below three weeks.

Day sales outstanding was 51 days this quarter, an eight day decrease from last quarter, due to smaller increase in the deferred revenue balance as well as improvements in billings linearity.

Let's turn to guidance.

For the second quarter of fiscal 2009 we expect our revenues to be in the range of 600 million to 610 million.

GAAP earnings per diluted share are now expected to be in a range of $0.40 and $0.42 and non-GAAP EPS is expected to be between $0.52 and $0.54 and excludes $0.09 related to stock-based compensation expense and $0.03 amortization of acquisition related intangibles.

For the third quarter of the fiscal year, we expect our revenues to be in range of 605 million to 620 million.

GAAP earnings per diluted share are expected to be in the range of $0.42 and $0.45, and non-GAAP EPS is expected to be between $0.53 and $0.56 and exclude $0.09 related to stock-based compensation expense and $0.02 for the amortization of acquisition related intangibles.

Our guidance by quarter is in line with historical quarterly allocation patterns for both revenue and earnings.

For fiscal year 2009 we are reaffirming our expectations for net revenue in the range of 2.45 and 2.50 billion which represents growth of 13 to 15%.

Full year GAAP earnings per diluted share are now expected to be in the range of $1.78 and $1.88.

Non-GAAP EPS is expected to be in the range of $2.20 and $2.30 and excludes $0.32 related to stock-based compensation expense and $0.10 for amortization of acquisition related intangibles.

On May 1 we announced our intent to acquire Moldflow Corporation.

We believe Moldflow will contribute approximately 30 million to our net revenues in fiscal year '09 and decrease our GAAP diluted earnings per share by approximately $0.10 per diluted share.

We now believe it will be diluted to fiscal year '09 by up to $0.03 per diluted share on non-GAAP basis.

However, we believe this still fits within our stated non-GAAP guidance of between $2.20 and $2.30 for full-year fiscal 2009.

Assuming the multiple acquisitions completed in the second calendar quarter 2008, I would expect this transaction to be dilutive to our GAAP diluted earnings per share by between $0.07 and $0.08 in the second quarter.

We expect this transaction to be diluted to non-GAAP diluted earnings per share by between $0.01 and $0.02 the second quarter fiscal 2009 excluding 16 million related to the write off of IP R&D and amortization of acquisitions related intangibles.

Let me turn it back over

Thanks, Al.

As Al just mentioned, we announced our intent to acquire Moldflow Corporation, a leading provider of simulation software used to optimize the design of injection molded plastic parts and molds.

We are very excited about this as we believe the plastic market represents am important and complimentary opportunity.

The combination of solutions will enable Autodesk to provide suppliers in the automotive, electronics, health care, and consumer products markets with a fully digital development process for plastic injection part and mold design.

So, to wrap things up, we are tuning our business to meet the current market conditions We will continue to work through the economic head winds in the U.S.

and capitalize on growth markets in our international regions.

We will also continue to work hard to shape the evolution of industry design trends such as digital prototyping and BIM where Autodesk product portfolio is very strong.

Our results this quarter continue to demonstrate the strength and stability we enjoy as a result of our diversified business.

The real beauty of our diversity is that we don't necessarily need every facet of our business or every geography to be hitting on all cylinders in order to meet or exceed our growth objectives.

Lastly, as we announced a couple weeks ago, Al has decided to step down in order to take some time off, spend more time with his family, and pursue his many outside interests.

Al has been a key contributor to our financial success over the course of a six-year tenure and we greatly appreciate his efforts.

We wish him nothing but the best.

We have commenced the search for a successor, but Al will be staying on as we go through this process.

With that, I will turn it back over to the operator so we can take your questions.

(OPERATOR INSTRUCTIONS) Your first question comes from the line of Steve Ashley with Robert W.

Baird.

Please proceed.

Hi, Carl.

In your prepared remarks you talked about implementing some programs domestically to help stimulate demand and that they were bearing fruit.

I was wondering if you might be able to give us more color on that.

A number of things we have been doing.

Some are just accelerating some of the programs we had in place, making sure people were considering our 3D products, talked a little bit about our government initiatives.

So we are just trying to be a little bit more sensitive to the market.

We talked about some things going on in Latin America as well which is an emerging region that we reported in our Americas.

We are looking for the opportunities there while the economy stabilizes and hopefully picks up towards the second half of the year.

Can I ask a quick housekeeping question for Al.

Just what kind of assumptions are you making on currency and maybe euro exchange rates for your full-year guidance, Al?

As we told you before, on the guidance date we always back off like a few cents for the next quarter just to be conservative.

In the second half, as I mention on investor day, I'm still not assuming we get rates that are in the range we are at today, I'm looking at more like a 12-month moving average.

It looks more like that in the second half.

So time will tell.

These are historically high rates and I'm gun shy about assuming that those continue into the second half.

Thank you.

Your next question comes from the lind of [J.D.

Schauer] with Merrill Lynch.

Please proceed.

Thanks.

Carl, in your prepared remarks notwithstanding the overall limited growth in the Americas you were suggesting that subscriptions remained healthy both new and renewals.

Was that true across the business divisions or was AEC an exception?

No.

I think it was true across geographies and across divisions.

Looking out over the rest of the year, what are the upward biases in terms of spending priorities, particularly in sales and marketing either geographically or vertically, where do you think you will accelerate or most increase your spending in any targeted ways?

There are a couple of areas.

One is when you look geographically, we talked a long time about as our businesses continue to grow we need to build out the capability and capacity of our channel.

We do that in many ways.

When you look there, certainly we see a bias towards some of the emerging economies.

We talked about the results from those emerging economies.

We continue to be under represented.

We believe relative to the opportunity that those markets present for us.

We continue to do things like that.

I think in a number of other areas when you look it more from an industry perspective, I think the products that are in our 3D categories, things that serve building information modeling, digital prototyping initiatives, the stuff we are doing with games and film in the media and entertainment markets, those are places more of the cutting edge stuff which seems to be a little bit less susceptible to the economic pressures.

Finally on LT, that had substantial year-over-year increase.

Did you see, however, any adverse affects on unit run rates or was most or all of the increase as a result of the price increase?

The price increase took effect during the quarter so we did not even have an entire quarter of it.

It contributed but it was primarily just organic growth excluding the price increase at this point.

Okay.

Thanks, Al.

Your next question comes from Andrew Matorin with Bear Stearns.

Please proceed.

Thank you very much.

Just a couple of questions on the 3D commercial seat numbers and subscription adoption numbers.

Looks like on the 3D side it looks like the growth in the sales indices has maybe plateaued somewhat.

I'm wondering if you could talk about that to some degree.

On the flip side, it seems like there is acceleration of adoption on subscription over the last couple quarters with over 100,000 ads to your subscription roll this quarter.

What is driving that, if you talk to specific programs that you're running or anything else that you're seeing out there with your customer base that is driving this kind of acceleration of adoption there?

So a couple of things.

On the new seats, as always let me just caution you at the beginning of this, not to make too much out of one data point, but I would say what we saw this time is volume was at a consistent level, our ASPs have been consistent or rising.

The interesting thing is to think about our prices going up, particularly in this economic environment, and still being able to hold steady on the volume.

I wouldn't put too much into it yet until we look out over several quarters and see that that's really true.

It really differs 3D product by country really varies a lot.

There is a lot that goes in to that.

On the subscription side, I think one of the things that is coming true is people are more accustomed to buying software this way from us.

This was a radical change we introduced a number of years ago in the way people bought it.

We certainly got the early adopters to do it.

Now I think it's just becoming a regular way to do it.

It is the more natural way to buy our software as the programs have been moved to support that.

I think one of the other things that we have done is we have become better at the execution of our subscription program.

We looked around the world at the places where we do things particularly well and try to copy those things into other places.

There is still a range of performance across our different countries in terms of our subscription performance when measured by attach and renewal rates.

So we look at countries, see what we do best and then we try to copy that in other places.

Number of things we are doing programmatically and a number of things we are doing unified to bring the best to bear.

Other thing to keep in mind though is growth and commercial new seats for 3D was in the 30s.

Really nothing to apologize for.

If it plateaus at that level for a long time, we will be very happy.

Thanks a lot.

Next question is from the line of [Vick Teronomy] with Lehman Brothers.

Please proceed.

Hi Al, Carl.

Just a question on the Americas.

Should we expect the Americas revenue to steadily accelerate over the next couple of quarters?

Maybe you can give us some color on that and especially given some of the new programs you guys have put in place.

Then lastly, Al, maybe if you can perhaps give us a little bit more color in terms of FX assumptions against the euro in terms of how you are projecting guidance going forward and then I just have one followup.

We're not willing to break out the forecast by geography.

We haven't historically done that.

Also I'm in no better position than any of you to tell you what the economy is going to look like in the U.S.

in the fourth quarter this year.

Having said that, I think there are two interesting things to look at.

One is there seems to be stabilization we saw at this quarter in the performance.

We hear it anecdotally from our customers that they are getting back to doing business, that they think it may have bottomed out.

We hope that's right.

I think the other thing, one of the reasons not to forecast is that is there is some clear link between the weak dollar and weak U.S.

economy, and when things move the other way I think we will see this kind of titrate with our European business seeing less benefit from currency as the dollar strengthens and the U.S.

economy gets better.

What I would add to that, as I mentioned in the past, we never try to predict the economy in doing our guidance.

We are assuming the kind of economy we are see in America is what we're going to see for the time period of our guidance.

That's consistent with our outlook.

It's really no different than what we talked about for the last month, starting with investor day.

On the foreign currency for the euro, as I mentioned earlier, we always take the spot rate on the day guidance we back off several cents, say $0.02 to $0.03 for the current quarter's guidance and mainly just to have a little bit of room in case it moves on us right away.

Then at the beginning of the second half I'm not doing that because I feel like a rate in the mid 150s is historically high.

We back off from that in the second half doing our guidance, and I am assuming it is close to the 12-month moving average.

If you calculate that, you will get something that is below 150.

Great.

Just a quick followup on Japan.

You mentioned Japan was strong on LT and autoCAD and Inventor.

Do you expect in Japan that we should get more traction from some of the other 3D products that have historically been more LT and autoCAD centric arena?

It certainly has been historically more autoCAD and LT centric.

We think we will see more business in the Revit, Civil 3D.

They had a good inventor quarter, so we are getting some traction in Japan.

Thank you.

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

Please proceed.

Thanks a lot.

Carl, I was wondering if you had any way of breaking out the contribution you were starting to get from what I will call the 3D add-on products, things like BIM, visualization, newer initiatives, any just ballpark sense on what kind of percentage contribution those products produce?

No.

We have a number of ways that we add to the capabilities of our products.

Some comes through our organic development and some comes through M&A.

When we do that development or we acquire technology, some of it we build into existing products, some we build as add-on products, some we sell as new and complimentary products.

Really hard to look at it that way.

What we hope to encourage by this is seeing customers buying groups of our products, and we talked a little bit at investor day about in the future offering bundles that allow people to do this more conveniently.

What we are interested in people using more of our solutions, improving the work flow and data flow between those products to make sure that a user of one product is more inclined to buy one of our other products.

It's tough to separate.

Max had another great quarter.

And it's turning to pretty good strength.

We know from data we collect that a lot of design customers doing visualization.

That trend is continuing and strong, but it's pretty tough for us us to separate impacts like this.

I guess another way of looking at it is give you animation numbers on that part we can roll that through.

But when we think about BIM and some of the other pieces are those included when you give us 3D revenue as part of that 3D revenue item and would that be attributing to some of the ASP increase?

You would see BIM in our 3D products.

When you think about BIM, you should certainly think about the Revit family and things like NavisWorks would be in there.

Recent acquisition of Robobat.

That would be something that would be part of our BIM things.

When you look at digital prototyping, it's a slightly wider cast of products.

You look out there it's not only the Inventor family, it's things like autoCAD Mechanical, products like Elias] Studio and Showcase.

That's a little bit of a larger family of products to support digital prototyping.

As Al pointed out correctly, we have products that are used all across our markets like Max that's used extensively in visualization as well as in the creation of contents for game and film.

Different users using the same product.

Same thing would be true for Maya and some of our other visualization products.

I think if you want to think of it going forward, visualization will always be harder to break out as being slightly more horizontal technology.

The analysis and simulation products on a going-forward basis will be a little bit clearer because they are better aligned with specific industries.

Great.

Thanks.

Carl, just quickly on the Moldflow guidance, you mentioned the impact EPS, can you give us any ballpark figures on what it may do in terms of revenue?

I actually provided that.

Just to be clear, when I gave you the guidance by quarter, that was without Moldflow.

At the very end of my prepared remarks I talked about Moldflow in terms of estimate how it would impact our numbers and that can change by when we close the transaction.

Assuming we close late this quarter, it would contribute about $30 million of revenue for the year and that's after deferred revenue write down which shifts heavily in the first six months of an acquisition.

That's why I talked about it.

That 30 million coming from Moldflow, that's not in that revenue range I gave you of 2.45 and 2.5.

Same range we had investor day, it would be in addition to that but it can vary according to when we close the deal.

Right.

Right.

I understand that.

You mentioned Q2 and you have given us where you thought the EPS dilution would come from.

Can you give us any more kind of -- and I understand it depends on when it closes, but there must be some sort of revenue assumptions around that $0.01 to $0.02 dilution in Q2.

It would not produce much revenue in Q2.

Deferred revenue write down hits pretty heavy in that first quarter of the transaction.

We are not going to break it.

Again, it changes dramatically according to what day we actually close the transaction, especially the revenue number.

It changes dramatically.

We are not ready to do that.

Okay.Thank you.

Your next question is from the line of Sasa Zorovic with Goldman Sachs.

Please proceed.

Thank you.

I actually wanted to ask specifically about sort of growth within North Americas the region, so if you could tell us specifically about the U.S.

I remember the last quarter there were a couple of little issues regarding Canada and Mexico that that they were declining, has that sort of turned around, but really more specifically about the United States per se.

We reported results for the U.S.

I don't see any big difference between what is going on in Canada and what is going on in the United States.

We see more similarity than differences there.

I think in both cases business improved marginally.

It grew 5% in that range, so it's an improvement over the prior quarter in terms of growth rate.

Still not back to historical levels of growth.

I don't see a big discrepancy between any of the conditions that exist in Canada and the U.S.

for the most part.

Mexico is clearly a very different kind of country in which to do business, whether you look at it from a standard of living and the cost we charge for our software, if you look at license compliancy rates in Mexico versus North America and Canada.

Mexico looks more like the rest of Central and South America, while Canada and U.S.

are very similar with small differences where Canada is more resource rich and you see more of our business going to things like natural resources where as in the U.S.

still a stronger manufacturing environment.

Secondly, regarding the strong emerging markets growth, I know that it is probably difficult to quantify, but have you seen sort of a similar benefit from improved compliance rates?

This is the case of the past several quarters.

I think when you look at emerging economies a substantial amount of improving the business comes from better license compliance.

It's really, really hard to figure out because people typically don't come forward and volunteer that I'm buying your software and I used to steal it.

It's really hard for us to know, but we certainly see a correlation between as we increase our efforts at license compliance we see more revenue in those places.

So it will continue to be a part of it, but the thing to remember is while license compliance is really a very important part of how we think about emerging markets, I mean these economies really are on fire.

There is a tremendous amount of development of new industry.

There is a build out of infrastructure, new buildings, and we also have to recognize that there are opportunities for us to get our software to people who never used it before.

That may mean people who are new to the market because in those places the job pool is growing dramatically and in many places it also means winning share from our competitors, so we will continue to do that as well as the license compliance.

These economies really are red hot.

There is a lot of economic development.

We want to take advantage of it in all facets.

Thank you.

Your next question comes from the line of Heather Bellini with UBS.

Great.

Thank you.

I had two questions for you, Carl.

The first one is you mentioned programs that you're putting in place in the U.S.

to spur demand.

I was wondering if you're doing something similar in Europe to get in front of any potential slowdown that could emerge in that region, and then I just had a followup?

Right now we have got a number of things in the U.S.

I would say, one, we haven't been concerned about Europe.

We actually felt good about the business that's going on in Europe.

I think it's an ongoing part of running our business.

We are constantly looking for programmatic things we can do, systematic things we can do.

So there was smaller improvements.

In the U.S.

it was more dramatic.

We talked a little bit even at investor day about our three-to-one initiatives which is really taking the best programs from the Americas to Europe and vice versa as well as blending in Asia.

So we are really taking the things we do best.

One of the things that we find is while there is significant cultural and language differences around the world, the behavior of our customers is, in the end, very, very similar.

Most of the programs that work in one place work well in the other.

More of the effort has been in taking the best whether that's around the subscription program as we saw or how we approach governments and taking that, or how we work with educational institutions, and having a unified approach across the world.

There is one thing I would point out in Europe is that our hottest geos by far are the emerging markets in Europe.

So we are definitely investing more heavily there.

We're opening more offices.

We're putting more channel support there.

So we see that as an area that is relatively unaffected by the economy.

It is just an area where we are under invested, we're under covered and we get great pay back if we put money there.

We are investing more heavily there right now.

Okay.

Great.

Then I just had one followup.

Obviously you guys had better performance this quarter in a tough macroenvironment.

I guess, Carl, back to what you have been saying past analyst days about the long-term growth target of the 15%, you're obviously on track to achieve that after this quarter for the year.

I was wondering when you refer to this, a question I have been getting a lot from investors is are you assuming it on a constant currency basis?

So when you think of 15% is that just kind of what the company's going to report year in year out on a reported basis or do you kind of think exiting out currency movements that the business can grow at kind of a 15% take as well?

Thank you.

Well the honest answer here, Heather, is three years ago probably when we first started talking about this there wasn't as nearly a fine a point on as report --

Right.

Very fair.

When we first started talking about this, we were thinking as reported it's become more important to draw the distinction.

The one thing I would say is for all of those who look at this as just currency, I do think there is an inverse relationship between positive currency affects to us and the health of the U.S.

economy.

When one moves one way, the other is going to move in the opposite direction and I think the timing of that is uncertain.

It would be hard to imagine a big rebound in the U.S.

economy without the dollar getting stronger.

So we really thought about this as reported.

If this continues to be a multi-year thing we can rethink it.

We were really thinking when we first gave this, this was just our results.

By the way, as you will remember, remind people who are asking you, nobody ever seems particularly sympathetic when the dollar is moving in the other direction.

No.

No.

Exactly.

That's why people keep asking.

Thank you very much.

Your next question comes from the line of Gene Munster with Piper Jaffray.

Please proceed.

Good afternoon.

Regarding I guess the international side, Carl, you said a minute ago it's red hot.

Now you kind of mention some of the things you're doing to capitalize on that.

Can you go through in terms of priority as far as hiring more people, piracy control measures, how what are you doing to keep this red hot growth going?

So one of the things going on is more people, Gene.

But it comes in two different ways, it's more people in our channel management and infrastructure to support it, so if you were to take an economy that's growing quickly, we need to put more people there.

We also often are under covered and under represented geographically.

So in places we may need to open a second, third, or fourth or fifth office which I think is also something.

Primarily we look to develop the channel.

In some places that's helping our channel partners expand their business from one location to multiple.

In other cases, in some of these newer more emerging economies, it's finding brand new channel partners where we don't have enough resellers there.

We are out looking for channel partners, that's the first thing.

I think we back that up with license compliance work that we do.

I think we do a fair amount around education.

We certainly continue to invest in marketing to make sure there is an awareness and preference for our products over those of our competitors, but it's a combination of things that we deal with holistically because work, if you think about our products in most places in the emerging countries our products are known, particularly our 2D products, and most of those are not paid for.

So the base we are working from is lots of autoCAD in the market.

The vast majority did not pay for.

We are very systematic of how we bring up the awareness and the preference for all of our other products and how do we reach places in which we historically had very little geographic coverage.

As you were adding all those people last quarter we had a little bit of a surprise with the comp and some emerging markets.

I guess what's the likelihood of this kind of growth continues that there could be a spike in comp at the end of the year from these emerging markets?

I don't think -- I don't think there will be a surprise about comp at the end of this year.

Okay.

Great, thank you.

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

Please proceed.

Thanks.

Carl, on the M&A side your absolute number of deals already this year is almost double what you did last year.

Can you just speak to I think you mentioned historically there are going to be smaller transactions, but can you just walk through how you think about the rest of the year now post Moldflow?

The number of deals this year has been high but a lot of them have been small and very small by our standards.

The deals for a million or two million dollars, there are companies that they cross the wire in the same way but you got to recognize some of these deals are one or two million dollars in acquisition costs with two to ten employees, so they really are very, very small deals.

But it is kind of emblematic of us reaching out more to do more analysis simulation and visualization, and what we often find with the very small deals is what we are looking for is a way to inject knowledge or some technology into the company very quickly to take advantage of an opportunity.

I think, Brent, if you think about it going forward, I don't think anything is really changing about our approach to M&A.

We will continue to do the small deals in a way where we continue to consider buy versus build for a way to get that expertise.

I think some of the medium sized deals, you may see a couple a year and the larger deals are really opportunistic, as we talked about.

There is only a handful of companies in the markets in which we participate that would make sense.

Each one is very unique given the individual nature of those.

Those happen to be very opportunistic and it's not been our historical bend to chase the really big deals.

I think you will continue to see us look at the market in the same way for M&A.

The one thing that I do think about some is as the markets change, the M&A market changes with it.

One of the things we have seen, when we look at the number of deals we have done this year, a number of the people in small private companies have seen the exit opportunities as being fairly limited and much more interested in getting their technology to market.

So we have been able to do transactions in a much, much more reasonable price.

Just a quick clarification for Al.

Is this right that roughly 16 million shares are left on the share buy back plan at the current level with 8 million?

I think that's about right.

As I mentioned, the people before, that's not an extremely important fact that if I ever run low we go to the board and get more.

We are committed long-term to hold these shares outstanding flat and we have been doing this for like a decade.

There is something around that amount still open.

Your next question comes from the line of Ross MacMillan with Jefferies.

Please proceed.

Thank you.

I think I got the number right.

Was it 3% growth on autoCAD but obviously a much, much higher growth on autoCAD LT.

Can you explain what is going on there to drive that significant growth disparity.

Is it LT's success in emerging markets or is there something else that you're structurally doing that would explain that?

Then a further clarification on the buy back.

Can you say if you bought back more stock since the quarter end?

Thanks.

Ross, the best way to look at this is the way to look at the autoCAD number, and we gave a little bit of it in our prepared remarks, is to look at the autoCAD base products.

We have moved people to vertical products, and so the way to look at autoCAD is to include products like autoCAD Architectural, autoCAD Mechanical, autoCAD Electric which would take the growth rate and nearly double it.

Having said that, I think what is going on with LT is that it's a great product, great value.

When people look to legalize in places, it's a cheaper way to become compliant and there is enough differentiation from the products that we don't think we are seeing cannibalization rates any different than we have historically experienced.

We think we are bringing more people into the pool and we are going to continue to invest in the development of LT as well as increased marketing for LT.

The autoCAD number is really in line with where we expected it to be, even by historical standards and not taking into account macroeconomic conditions when you look at the autoCAD family of products opposed to just vanilla Autodesk.

On the stock buy backs, I want to remind you I have never done forecasts for stock buy backs, you actually found out about the 8 million after I finished it.

I don't signal what we do.

One fact you might note from my prepared remarks is that we had $40 million outstanding under the credit line at the end of last quarter which indicates there was not a lot of U.S.

cash given the amount of buy backs we did last quarter.

But that's about all I will say about that.

Thank you.

Your next question comes from the line of Bob Becker with Argus Research.

Please proceed.

Good afternoon.

Carl, Moldflow recently adopted a task based floating license system to improve the adoption of digital prototyping software.

I am wondering, is there an opportunity to adopt this new model to other Autodesk products?

We haven't looked a lot at the licensing models.

We have a significant number of models.

One of the things to look at for us is when we do these acquisitions, making sure we can can take the new businesses and integrate them successfully with our back office.

We are always on the lookout for clever and more innovative licensing models and if this is one of them, we will take a look at it.

In the context that we need to make this work for $2.5 [million] enterprise and not necessarily what is possible for a $75 million enterprise.

Got it.

Congrats on a very good quarter.

Thanks very much.

Next question comes from the line of Greg Dunham with Deutsche Bank.

Please proceed.

Most of my questions have been answered.

I did want to clarify the compliance issue that whether that is something abnormal that has changed here this year in the quarter or just a steady thing you guys have been doing for a while now that is (low audio).

I mean the license compliance is something that we have 10, 15 years certainly of doing it.

Hopefully we become better at it and systematic about it.

It's always been a part of our business and something we try to control.

We talked about it a lot.

There are limitations to what we can do.

But we hope over time we continue to eat away at the piracy.

When you look at it, piracy rates correlate pretty well with the development of economies, and in economies as they become more successful, generally speaking, you see greater protection of intellectual property.

We're seeing this in places like China that want to develop their own industries based on intellectual property that they made great advances in the last couple of years, and we think that will happen over time.

It's nothing new in what we're doing.

We just try to be more systematic about it, a little bit more organized.

As I said, just like in the other things we are doing, we have a concerted effort to drive efficiency and productivity by taking the best practices that we learned in one part of the world and applying it in other parts of the world.

Do you think it's a bigger part of your growth this year than last year?

No, I'm not sure that's, I mean I think in absolute dollars it's growing, I'm not sure it's growing faster than the rest of the business.

Thank you.

Operator, we have time for one more question.

Okay.

Your final question comes from the line of [Atol Bago] with [Think Penmore].

Please proceed.

Thanks for taking my question.

Seems like with 3D products, ASPs are going up in Q1.

I was wondering if you can give some color.

What is the source of this rising ASP?

It is mostly the price increase or is it about customers moving higher up in the chain?

How should we think about ASPs going forward?

I also have a followup question on that.

Generally speaking, the way I think about ASPs is you should assume they are steady.

If we see dramatic changes, we will tell you.

We don't forecast a lot of ASPs.

Generally, better ASPs come from better channel management practices, better sales practices by our channel partners.

But it really comes from less promotions, less discounting is really what we see it coming from.

The way we do it on the positive side is by driving preference for our products.

As we talked about a lot, one of the things to remember about this business is that the cost of our software is relatively low for the return on investment that people get.

People really understand that when you're talking about this, you're talking about numbers that are relatively small, looking comparative to the people that were winning market share away from it may be a third or may be a fifth of the cost they paid for their prior software.

And so there is a huge ROI here.

The significance of $100 or $200 in that purchasing decision is not really that great.

Yet through better channel management practices we can take advantage of that.

Makes sense.

Carl, you also talked in your remarks about subscription business.

That's doing very well for you guys.

I was wondering if you could give some color on what your tax rate and renewal rate was in Q1, how does it compare from previous quarters and internally what are you guys targeting for these rates say over a year?

Thank you.

Generally speaking we don't break out or attached renewal rates in the prepared remarks.

We talked about attaching renewal rates in the Americas getting better which they indeed did.

We haven't forecasted anything that we shared publically about the attach and renewal rates.

What I can say historically is over the last three to five years both rates not on a quarter to quarter basis where there is volatility but year-over-year those rates have gone up.

Do you expect these rates to continue to go up?

Yes.

Thank you.

Ladies and gentlemen this concludes our Q&A session.

I would like the turn the call over for closing remarks.

That concludes our conference call, if you have additional questions call investor relations at 415-507-6033.

Thank you.

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect.

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