Autodesk Inc (ADSK) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2009 Autodesk Inc.

earnings conference call.

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

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

We will be facilitating a question and answer session towards the end of this call.

(OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Dave Gennarelli, Director of Investor Relations.

Please proceed.

Thanks, operator.

Good afternoon.

Thank you for joining our conference call to discuss our second quarter fiscal 2009.

With me today is Carl Bass, our Chief Executive Officer; and Sue Pirri, Vice President of Finance.

Today's conference call is being broadcast live via webcast.

In addition, a replay of the call will be available by webcast at 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 third and fourth quarters of fiscal 2009, and full year fiscal 2009.

The factors we use to estimate our guidance for those periods, our future business prospects, revenue and earnings growth, our market opportunities, trends for products and trends in various geographies, and the anticipated benefits of acquisitions.

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, specifically our Form 10-K for fiscal year 2008 and our 10-Q for first quarter of fiscal 2009 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 our actual results to differ from those contained in our forward-looking statements.

Forward-looking statements made during the call are being made as of today.

If this call is replayed or reviewed after today, 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.

In adherence with regulation FD, Autodesk will provide quarterly information and forward-looking guidance in its quarterly financial results, press release, and this 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 Principles.

A reconciliation of GAAP and non-GAAP results is provided in today's press release and on our website.

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

Unless otherwise noted, each percentage represents a year over year growth rate, showing the second quarter fiscal 2009 as compared to the second quarter fiscal 2008.

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

Good afternoon everyone, and thank you for joining us.

Today Autodesk reported solid financial results for our second quarter fiscal 2009.

Revenue for the quarter increased 18% over last year to $620 million.

Diluted earnings per share were $0.39 on a GAAP basis and $0.56 non-GAAP.

Both revenue and EPS grew beyond our expectations.

We also managed our operating expenses very well, stemming from initiatives we implemented in the first quarter.

Overall, we're very pleased with our performance in the quarter and I'll get right into some of the highlights.

By geography, our results varied.

The Americas posted 4% growth for the quarter, and there are a number of positive trends.

We were pleased with the rebound we saw with our business in Canada and we posted a record quarter in Latin America.

We also continued to make inroads with our government business in the US, where we posted solid results at federal agencies, state agencies, and city level departments.

We believe our business in the Americas has stabilized, and we are taking actions to drive stronger performance going forward.

Outside of the Americas, our business in EMEA and Asia Pacific continues to underpin our overall revenue growth.

Combined, these regions increase 26% in the second quarter.

Even at constant currency, this growth rate was 13% overall, with pockets of exceptional growth.

Revenue in our emerging markets grew 40% and represented 18% of our total revenue for the quarter.

Looking forward, our international business remains very strong.

We're confident in our ability to maintain the momentum and volume of business we are winning internationally.

Moving on to product performance, our model based 3D design solutions, Inventor, Revit, Civil 3D, NavisWorks, Robobat, and Moldflow posted solid results and increased 36% to $166 million.

3D revenue was 27% of total revenue for the quarter, excluding Moldflow, our 3D solutions grew 31% to $159 million.

We shipped over 36,000 commercial seats of these products.

During this quarter and going forward, we saw less correlation between revenue growth and seat growth due to changes in our mix of geographies and products, proportion of maintenance in the user base, currency exchange rates and average selling prices.

Turning to our 2D products, revenue from 2D vertical products remains strong and increased 16% compared to the second quarter of fiscal 2008.

AutoCAD grew a solid 12% while LT grew 6%.

LT growth was impacted by very strong sales in the first quarter in advance of the price increase instituted with the release of AutoCAD LT 2009.

In addition to delivering strong results for the quarter, we closed four small acquisitions including RealViz, Kynogan, Square One Research and Green Building Studio.

The technologies acquired with these firms advance our base of robust solutions for visualization, simulation, and analysis as well as technology used to create energy efficient buildings.

We also closed the acquisition of Moldflow in the quarter.

This acquisition will augment our presence in the manufacturing industry.

Moldflow has already made a meaningful contribution to our business and we believe there are abundant opportunities to provide a fully digital development process for plastic injection parts and mold design.

Before we take a closer look at the financials, I'll give you an update on our CFO transition.

As you may know, Al recently left the company.

Today we have narrowed the search to several highly qualified candidates and we are working our way through the interview and selection process.

We're hopeful we can identify and announce a candidate within the next month or so.

In the meantime, we have a deep bench of highly experienced people in our finance organization to bridge the transition.

I think you all know Sue Pirri.

She is leading our finance efforts, so I'll turn the call over to her for a more detailed discussion of the results.

Thanks, Carl.

Net revenue in the quarter was $620 million, an increase of 18% as reported and 10% constant currency.

License revenue increased 12% to $440 million.

Revenue from new seats grew 8% in the quarter.

Total upgrade revenue, including cross grade, increased 27%.

AutoCAD LT had unusual impact on performance in both of these areas this quarter.

New seat growth was impacted by the very strong sales at LT in the first quarter.

Excluding LT, revenue from new seats grew 13% in the second quarter.

Upgrade revenue was driven by an LT cross grade promotion and incenting customers to migrate from LT to any other Autodesk product.

At an example of the program's effectiveness, over half of the migrating LT seats moved to 3D.

In addition, upgrade revenue was driven by a retirement promotion designed to get customers to upgrade our most current products.

Maintenance revenue increased 36% in the quarter to $180 million.

Combined, upgrade revenue and maintenance revenue increased 34%.

Looking at the geographies, revenue in the Americas was $203 million, an increase of 4%.

EMEA revenue was $267 million, an increase of 31% as reported and 15% constant currency.

Revenue in Asia Pacific was $150 million, an increase of 18% as reported and 11% constant currency.

Breaking down revenue by segment, platform solution and emerging businesses had a good quarter, increasing revenue 12% to $270 million.

Both AutoCAD and AutoCAD Map showed solid growth.

AutoCAD LT revenue increased 6% this quarter.

However, year to date, LT revenue has grown 17%.

Total revenue from our manufacturing solutions division increased 32% to $131 million.

Moldflow, which was acquired during the quarter, contributed almost $7 million, which was higher than our expectations when we closed the transaction.

We are pleased that their sales force was able to achieve these results with minimal disruption and finish the quarter strongly.

Excluding revenue from Moldflow, growth in manufacturing was 25%.

Revenue from our inventor family of products increased 28%.

During the quarter, we shipped more than 10,000 commercial seats of Inventor and Moldflow and approximately 56,000 seats of our manufacturing products in total.

Our AEC segment increased revenue 21% to $144 million.

Revenue from our Revit family of products grew 27%.

We shipped approximately 26,000 commercial seats of Revit, Civil 3D, NavisWorks, and Robobat.

Once again during this quarter and going forward, we saw less correlation between revenue growth and seat growth due to change in our mix of geographies and product, proportions of maintenance and user base, currency exchange rates, and average selling prices.

Revenue from our media and entertainment segment was $69 million, an increase of 12%.

Revenue from advance systems increased 4%.

Animation revenue saw continued strength, increasing 19%, driven by 3ds Max.

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

Operating expenses were $501 million GAAP, $449 million non-GAAP.

Our operating margin was 19% GAAP and 28% non-GAAP.

Our tax rate in the quarter was 28% GAAP and 26% non-GAAP.

GAAP diluted earnings per share increased 3% to $0.39.

Non-GAAP diluted EPS was $0.56, an increase of 27% over the second quarter of last year.

At the end of the quarter, there were 225 million shares outstanding.

Compared to the second quarter of last year, the impact of foreign currency exchange rates was $42 million favorable on revenue and $11 million unfavorable on expenses.

Compared to the first quarter, the foreign currency impact was $7 million favorable on revenue and had an immaterial impact on expenses.

Turning to the balance sheet, cash and investments were $970 million.

During the quarter, we issued 900,000 shares from employee stock plans, generating $15 million in cash.

We did not repurchase any shares this quarter, but as a reminder, we repurchased approximately 8 million shares in the first quarter.

Cash from operating activities increased 53% to $209 million.

Deferred revenue was up 37% year over year to $563 million.

Unshipped product orders or shippable backlog increased $11 million sequentially to $29 million.

Total backlog, including deferred revenue and unshipped product orders, was $591 million, an increase of $158 million over last year.

Our channel inventory remains below three weeks.

DSOs were 48 days this quarter, decreasing sequentially due to seasonally lower maintenance billings from last quarter.

Now let's talk about the rest of 2009.

In preparing our guidance, we have considered the significant strengthening of the US dollar versus other major currencies in the last few days.

While we can't predict where currency exchange rates will move in the future, we are confident in our currency assumptions for the third quarter, as we have already locked in those rates.

For the fourth quarter, we believe it is prudent for us to be more conservative than usual in our currency assumptions.

As a result, if the dollar does not continue to strengthen, our estimates may prove to be overly conservative.

For the third quarter, we expect our revenue to be in the range of $625 million to $635 million.

GAAP earnings per diluted share are expected to be in the range of $0.40 to $0.42.

Non-GAAP EPS is expected to be between $0.54 and $0.56, excluding $0.07 related to stock based compensation and $0.07 for the amortization of acquisition related intangibles.

For the fourth quarter, we are assuming an increase in the underlying level of business relative to our previous guidance.

We are also assuming that the US dollar will continue to strengthen.

As a result, we are now expecting our revenue to the range of $660 million to $680 million.

GAAP earnings per diluted share are expected to be in the range of $0.52 to $0.56.

Non-GAAP EPS is expected to be between $0.64 and $0.68, excluding $0.08 related to stock based compensation and $0.04 for the amortization of acquisition related intangibles.

For fiscal year 2009, we expect our revenue to be in the range of $2.5 billion and $2.53 billion which represents growth of 15% to 16%.

Full year GAAP earnings per diluted share are now expected to be in the range of $1.72 and $1.78.

Non-GAAP EPS is expected to be in the range of $2.24 and $2.30, excluding $0.29 related to stock based compensation and $0.23 for the amortization of acquisition related intangibles and in process research and development.

Now I'd like to turn the call back to Carl.

Thanks, Sue.

So to wrap things up, we had terrific execution in the second quarter.

We have positioned ourselves well for future growth and for an eventual rebound in the US economy.

The strength of our products and our highly diversified model has allowed us to weather the head winds in the U.S.

and capitalize on the international markets, where we are seeing very strong growth.

We believe there are still untapped opportunities in all of our markets, and we are working hard to realize them.

We have close to $1 billion in cash, excellent cash flow, and very little debt.

The demand for our products remains strong and we are seeing an increase in our underlying business.

We also continue to improve our competitive position by investing in our products, channels and infrastructure.

Our strategy is working well and we are disciplined in its execution.

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

(OPERATOR INSTRUCTIONS)

While the operator is polling for questions I would like to announce that Autodesk plans to attend the following upcoming conferences.

The Citi Tech Conference in New York on September 4th, the Deutsche Bank Tech Conference in San Francisco on September 10th, and the Jefferies Tech Conference in New York on September 11th.

Operator, we're ready for questions.

Our first question comes from the line of Jay Vleeschhouwer from Merrill Lynch.

Please proceed.

Thanks, good afternoon.

Carl, for the second half of the year, would you be able to be a little bit more explicit about expectations for revenues from new seats?

Those numbers have been decelerating the last few quarters from 20% in third quarter of last year -- sorry, in the 20s, down to just 8% or so as you said in Q2.

So what you're thinking about that for the remainder of the year?

And secondly, notwithstanding the improvement in deferred maintenance revenue year over year, are there any signs at all in the Americas or any other GOs of any deterioration in new attached rates or renewal rates, particularly in AC?

So one is, Jay, we don't really break down the revenue from new seats and we certainly don't provide guidance on it as you know.

If you look at the growth rate, the one thing that affected it a lot was LT, so you need to take that into account.

I think you do better if you look at it over maybe a six month period.

It's a fairer representation of what went on because of the anomaly of the price increase.

The second question, we're not seeing anything except maybe an increase in attach and renewal rates.

So we're not seeing I think what a lot of people surmised, which was somehow a downturn in the economy was going to make people not renew their maintenance or attach maintenance.

No indication whatsoever of that.

With the results thus far for the year and with your comments about an improvement in the underlying business for the remainder of the year, what relationship of that if any to plans for channel capacity?

That's been something you have been increasing for awhile, but does the environment or do your expectations alter in any way capacity plans geographically or vertically?

Yes, I think it alters it somewhat.

You have to think about channel expansion as being a long-term thing anyhow.

I always chuckle a little bit when I hear people thinking about building a channel in a year or here's our quarterly plan for expanding the channel.

Managing the channel as well as managing the sales force is a long-term relationship.

So I think you have to look at it that way.

Having said that, I think there are some things going on in the economies of the world that are making us invest differentially.

So for example, we're looking at emerging countries, seeing great results there.

We can get immediate payback on our returns there.

We're doing more in, putting our own headcount as well as developing channel partners in the emerging economies, in the places where the economies are strong.

I also see some opportunity in that as we look to expand our channel partners, some of the new channel partners come from people who have sold competing products.

As some of our competitors weaken, the opportunity to get people to move over to sell our products increases.

So I think we're a little bit more opportunistic in some of the places where the economy is more challenging.

So I think the overall strategy of increasing channel capability and capacity remains in place.

I think tactically we are going about it slightly differently to reflect what's going on in the world.

Lastly, your Inventor unit count was down sequentially from a good Q1 and down somewhat year over year, which is similar to what PTC saw with Pro/E and -- so with [solid] works being down sequentially.

But it was fairly large decrease nonetheless for Inventor.

Could you comment on that and how you think that might possibly improve as the year plays out?

Well, I hate any comparison to Pro/E.

But having said that, I think what we were trying to indicate in the prepared remarks a little bit is I think the dynamics around our products are changing.

You really have to look at where those products are being sold.

So a copy of Inventor sold in Vietnam is different than a copy of Inventor sold in western Europe or the United States.

We have seen in developed economies we're selling more seats.

We have seen our ASP steady to rising.

We have seen the mix to higher price products.

And so we're less focused on pure unit numbers and more focused on some of the other metrics which we believe drives longer term success.

What's interesting about it, as we move that way, we are seeing others go to things like running promotions and doing two for one and three for one promotions.

We found those to be particularly unsuccessful because the real measure is the adoption of the software.

It's not how many seats you can sell.

There are a lot of ways companies can sell more seats.

The real important measures is what's the adoption.

I think things like attachment renewal rates are really good proxy for adoption.

And I think if you look at some of the competition you mentioned they're getting fonder and fonder of running promotional things, but I don't think the uptake in the customer base is any more than it was before.

Thanks, Carl.

You're welcome Jay.

Our next question comes from Steve Ashley.

Hi.

I just would like to ask a question for some of the upgrade revenue.

Very nice increase year over year, the first increase we have seen in that in maybe almost a couple years.

And I'm wondering how we should look at that going forward?

I understand you did run some promotions that were out of the norm this period, but how should we think about that upgrade revenue as we go forwards?

A couple things, one it was driven a lot by the LT promotion.

So, one of the things we say repeatedly -- I think you need to look at upgrades, cross grades and description as one, because I think that's the only meaningful thing.

When you try to factor it, you run into oddball situations that I don't think is representative of the business.

If you look at it collectively, you have a better understanding of what's going on in the customer base.

I think this actually is a case in point this quarter.

We run the promotion, upgrades go up.

And so I think we have the ability to turn those knobs and dials to do it.

So I would say most of what went on this quarter with the upgrades is really revolving around LT.

But I'd say going forward, continue to measure us by looking at upgrades, cross grades and subscriptions together.

Steve, within that line there's two components that are actually trending differently.

Upgrade revenue is trending down, although the pure upgrade portion of it had a strong quarter this quarter because of the focus on LT with retirement promo.

But the cross grade part of it over time should continue to grow.

What we're seeing is two types of sales that we aggregate for financial reporting purposes that are actually trending in different directions.

They really represent different phenomenon in the customer base.

Great.

Then also, Carl, you mentioned you continue to have confidence in your international business.

I was just wondering if you could give us any color on what kind of things could be giving you confidence looking out, thank you.

As you guys know and we have shown you this a bunch, our business is fairly linear.

One of the best indicators of our business is what the business was the day before, week before, month before.

One of the best indicators of the strength of our business going forward has been the strength over the last quarter and certainly over the last month we saw strength there.

So some of it is really derived from looking inward at the results we're producing.

And then I looked this week, there was a French construction company that reported their public earnings -- their construction sector had high teens kind of growth, 16% to 17% growth.

Anecdotally talking to customers, the pipelines remain full.

And so we're seeing strong business.

And I think people have gotten a little bit too spooked, particularly when it gets to emerging economies.

I think particularly in the emerging economies, the idea that China is going to shut down after the Olympics or things like that, I don't think there's any basis in fact for that.

Thank you.

(OPERATOR INSTRUCTIONS) We are limiting to one question at this time.

Our next question comes from Mike Olson from Piper Jaffrey, please proceed.

Hi, good afternoon, just a question on Europe, and the checks that we did really suggested the UK was maybe seeing challenges, but the rest of western Europe was doing pretty well.

Can you just talk about more specifically which portions of Europe may be doing better than others, thanks?

We usually don't break down Europe by country.

And I would say just generally speaking month to month what's going on in a particular country is not a really good indicator of what's going on.

Generally speaking we have seen strength across Europe, strength across the emerging economies of Europe.

So all in all we have seen we have spent as much time scratching our head trying to correlate it with what we read in the newspapers.

From what we're seeing in our business it's strong in Europe.

Okay, maybe you will let me squeeze one in on the LT cross grade promo.

I know you guys have done this for a few years now.

This year you raised prices on the promo, I believe, and it seemed to actually be more successful.

Is that right?

Why was the promo more successful this year?

I don't have, honestly I don't have a great reason why.

I do believe that during more challenging times customers are looking for a bargain, so they're trying to take advantage of the assets they have.

And so the LT cross grade is a great way to take advantage of something you have already put a down payment on.

Particularly what I thought was most interesting, what we're trying to point out -- more than half the people moved to 3D.

That was the real future they were trying to get to, they were using this as they had already made an installment payment.

I think in less challenging times, people are a little more carefree with their budget money and spend it a little bit more loosely.

Mike, I think there's another thing we have talked about a lot -- in periods where people are not running full capacity, they have time to make the transition in a way they don't when they're at 100% efficiency or 110% efficiency or something like that.

For those of our customers who are slower, this is the time where they're thinking I can make this transition I've been waiting to do for awhile.

Got it, thanks.

At this time I just want to remind everyone we're only taking one question.

Our next question comes from Sasa Zorovic from Goldman Sachs, please proceed.

Thank you, this is Sasa Zorovic from Goldman Sachs.

My question would be you mentioned 4% growth in the Americas, but then you highlighted that Canada was strong and Latin America was particularly strong.

I guess that leaves one to wonder about the US specifically.

So could you sort of tell us really specifically what you're seeing in the United States and what gives you this confidence that this business is turning around?

What we really said is we think the business in the US is stabilized.

I don't think we're seeing a recovery yet.

I think we see a stabilized business and I think we see pockets of good things happening.

So we pointed out some of the things going in our government business we thought were good.

I think we have had other successes.

I think we saw manufacturing remains stronger than we might have imagined in this kind of downturn.

But we're not predicting nor is our guidance going forward predicated on improving economy in the US.

But we do think our business is stabilized.

Sasa, you have to remember, the US is the lion's share of the Americas revenue.

So despite strong quarters in the other areas, they're still very small relatively speaking.

Thank you.

Our next question comes from the line of Michael Huang from ThinkPanmure, please proceed.

Thanks very much.

You didn't mention this on the call, but could you talk about how the anti piracy efforts are going including in the US?

Are these efforts trending better than you would have expected, and can you give us some sense for how much benefit you saw in Q2 from this program?

I mean, I think our antipiracy is a long-term program.

It's been going on for a long time.

We continue to invest in it, we continue to expand it, but -- and one of the things I say is particularly in the license compliance work we do, really hard to place it in a particular quarter.

A lot of that stuff that can be nine months or 12 months worth of work.

And so we look at it more as a run rate part of our business that's continuing.

And we're continuing to invest in it because we think it makes sense.

Still overall if you look at the worldwide piracy rates they're not changing.

Our business is benefiting greatly, but we're not making a big dent in it.

Our next question comes from the line of Brendan Barnicle from Pacific Crest Securities, please proceed.

Thanks guys.

I just wanted to follow up on Moldflow and the acquisitions, the $7 million was a lot more than I expected it to contribute.

You briefly mentioned that this was executed better than you expected.

Does that change your outlook on what Moldflow might contribute for the remainder of the year as [effect of that]?

Also what should we expect in contribution out of these four additional acquisitions that were done in the quarter?

Do they symbolize more of a move to a vertical solution type strategy on you guys part?

What I would say is, first of all -- Moldflow is more than we thought it would contribute.

Moldflow is not a significant contributor to the guidance for the rest of the year.

I think the sales force finished strong -- it was the end of their fiscal year.

There was a change over to a new company, so I think people brought in the business they could.

We actually didn't change our assumptions about the rest of the year for Moldflow.

What about the new acquisitions?

The other acquisitions are really small acquisitions.

None of them contribute any material amount of revenue at all.

These are really, really small acquisitions -- almost entirely we did it to acquire certain technology.

These things will come to fruition a year or two years from now.

Is this trying to get you more verticalization, more specialization like Moldflow, and we should continue to watch for this type of strategy.

I mean, I think we've been -- for a number of years we've really cleared out the markets we're in.

It's manufacturing, architectural engineering, structural [business], and media and entertainment.

We continue to be real focused on that.

In each of those we want to provide our customers a more complete workflow.

That generally involves creation and design and engineering tools as well as simulation analysis and visualization.

A bunch of these are more down the simulation analysis and visualization.

In almost every case, it's really completing a workflow that our customers want.

Great, thank you.

Our next question comes from the line of Brent Thill from Citi, please proceed.

Thanks.

Carl, your comment on -- everyone is too spooked about the international markets, that's just going to fall, go into a free fall.

I guess when you look at the international markets, where do you still see the largest untapped opportunities that are easy to describe from this point?

Okay.

Brent, I think so first of all the emerging economies continue to grow fantastically well.

We had another great quarter, but that's quarter after quarter, year after year of good performance in the emerging economies.

That clearly remains a big opportunity.

Like the question a little bit ago, anti piracy continues to be a big deal and has more opportunity.

I think there are places in the world in some of the even less emerging economies that still present a lot of opportunity for us.

But it's not only there.

If you just look at international markets in general, our European business was very strong, Germany grew more than 50%, and I would -- these single data points are a little bit hard to rationalize when you hold it up against the newspaper.

If you look at it over a period of time, I mean one of the things we talk about a lot is the diversification of our business.

And I think it's just important for people to remember that across industry, across geography, what diversification does, it doesn't mean everything's going to perform well, but it also doesn't mean anything going to perform all badly.

It's really that mix we see.

We continue to see pocket here, pockets there.

But I still see the opportunity in western Europe, other parts of Asia.

I think as the US economy rebounds, I think there's plenty of opportunity for us there.

I mean the other thing we don't spend a lot of time talking about, but you've got to remember our market position.

We continue to be the upstarts in most of our markets -- providing more value, lower cost than any of the competitors.

And we do that in a broad based volume way, easier to use product, all the kinds of attributes that good times and bad times makes gravity on our side.

People are moving to these solutions because they fit their needs better.

And at different times I think it's different drivers of our business, but our market position remains strong and we have proven over time.

I mean if you look at any of these markets -- take the manufacturing market, if you look at the design engineering business of our competitors, they grow in low single digit.

We're talking about growth rates in the mid to high 20s.

I mean it's really a completely different dynamic that's going on there.

While the macroeconomic factors are really important to consider, I also think you need to consider the market position and our offerings.

Then against the backdrop of our portfolio, which is really broad based and diversified.

Our next question comes from the line of Greg Dunham from Deutsche Bank, please proceed.

Yes, thanks for taking my question.

You did mention before the strong July, and I just wanted to get around the really the delta in terms of the guidance provided on the closure of Moldflow and the performance in July.

I know that Moldflow exceeded expectations, but how about the core business?

What kind of linearity was there?

And if that was really an acceleration in business momentum, how much of that are you factoring in going forward, looking forward, given as you mentioned in your guidance that that embeds continued strengthening in the dollar for Q4?

All of our comments are really accepting -- leaving Moldflow out of the equation.

I think our linearity didn't change much through the quarter, although I would say we felt real strength in the business towards the end of the quarter.

And when we look at the beginning of this quarter and the forecast and what the people in the field are saying, we feel good about this quarter going forward.

But we did see strength at the end of the quarter.

And then I guess I don't recall you guys ever being as conservative now or putting the language in on the foreign exchange, typically you don't guide.

What's the difference today and why did you feel that you needed to cite that on the call?

I mean that's a great question.

I mean we almost never talk about currency.

It never is a big factor in us preparing our guidance or thinking about it.

We generally try to be kind of conservative and we have talked about the methodology of looking at the spot rate and building in a little bit of buffer, to make sure.

I think what got to us is seeing that kind of precipitous drop in a single day.

A lot of the markets, whether it's in commodities or in currency, you can -- there are just things going on out there where I think the movement could be more than ever before.

We don't have a hedging strategy in place that accounts for things more than three months out.

We just thought it could affect the outcome more than ever before.

So given that, we wanted to make sure we were conservative about it, and particularly in this environment, we felt it was really very little upside in going any further than that.

Makes sense, thanks.

Our next question comes from the line of Ross MacMillan from Jefferies, please proceed.

Thanks.

Two if I could.

Just a quick one first, did you see any disruption in China due to the earthquake?

No.

I mean, first of all most of our business is in the other part of China.

It's much more along the eastern seaboard.

And I think, it was disruptive to our employees there, but I think overall there was no disruption in business because of the earthquake.

And then just on the currency point, I think in the first half of this year you've had about 3 percentage point benefit to margin, operating margin, because of FX.

And I can understand you taking that into account as we look through later this year.

How are you thinking about on the assumption that the dollar stays where it is or even strengthening a bit -- what do you think about doing the cost side, as clearly that benefit will unwind really more next year than this year.

How are you thinking about that as you're thinking about next year?

We're not doing anything about next year right now.

We're obviously looking at it and thinking about it, but I think the guidance we have given for our long-term business is in place.

I'd say what we have been doing around, talking about long-term CAGRs of 15%, decreasing operating margins 100 basis points a year -- all of that remains in place.

We will manage that as we have so far around whatever fluctuations in currency there are.

Okay, thank you.

Our next question comes from the line of Phil Winslow from Credit Suisse.

Please proceed.

Hi guys, most of my questions have been answered, but just two quick ones.

First, what are your assumptions for Q3 and Q4 as far as the headwind to revenue growth there?

Are we shaving 1 to 2 points off year over year or just more details there would be great?

Also if you could comment just in Europe what you're seeing by vertical over there, if there's any difference between manufacturing, architectural, et cetera?

In Q3 and Q4, like I said, we continue to think our business is strong.

If you look at our overall guidance, there are two things affecting our outlook on the world.

I mean, one is what's going on with currency, which we spend plenty of time talking about what we think about currency and it clearly affects us a considerable amount.

I think the other thing is if we assume that the US continues at the rate it's grown at, an Americas growth rate of 4%, just algebraically that has a huge impact, way beyond 1% or 2% of growth points on both currency and the underlying business.

Those are the two things that are weighing on our mind.

As you get to the second question, we're not seeing any dramatic difference in the business in Europe that I would consider a trend yet.

Like I said, we see -- particular country with a particular vertical in one quarter, but nothing special long term, nothing worthy of calling out at this point.

Just underlying strength in the business.

Great, thanks guys.

Sure.

Our next question comes from the line of Richard Davis from Needham and Company, please proceed.

Thanks.

So when you guys made your acquisition of Moldflow, you've to some degree increased the complexity of the product line that you're selling, and historically you've gone through channel partners and stuff like that.

How do you think about the fact that -- I mean this is a good thing to make the product a suite oriented product and you talked about business flows and things like that.

But how do you think about managing the channel, managing the multiple sales force that you have at least for awhile and those things?

I think it's the evolution -- the progression we have to go through as our businesses get more vertical.

The first thing is people forget that 15% to 17% of our business goes through a direct sales force all the time.

So it's a fairly large software business being run through a direct sales force, just in and of itself.

But what we see is when we bring in new vertical products, as we have talked about the reason we generally acquire them is we see that they have more mainstream appeal and we want to put them into more broad products, incorporate them through suites or other means incorporate the technology in there.

So over a short period of time, we will continue to manage them on a standalone basis, but over time we blend the products into more complete solutions.

And it's all with an eye toward what we would think of getting towards volume.

You have seen us do similar things with the Alias acquisition where we tried to improve upon the business as is.

But then we try to bring what's unique about Autodesk to it and add the reach that we have in our channel, the ability to combine it with other products, to add what I would consider real synergy, positive synergy rather than the kind of things people talk about when they bring two companies together.

Got it, thanks very much.

You're welcome, Richard.

Our next question comes from the line of Sanil Daptardar from Sentinel Asset Management, please proceed.

Yes, thanks.

Carl, about the new seat growth -- is it possible to get geographically where the seat growth was weak?

And second question was [real estate] market in emerging economies, you see a lot of reports that the real estate market is cooling off.

Are you seeing any effect on your business in those markets?

So we don't break down the new seat growth, but once again I just point out, remember about the LT number.

If you take LT out or look at this over two quarters, you will see strong new seat growth, and I think that's a healthier way of looking at it.

When you look to the emerging economies in AC, it's funny, people talk about slowdown in some of the economies.

But that may mean a GDP that's growing at 9% going to a GDP that's growing 7%.

And along with that, there's still a need for the buildout of infrastructure.

So in an economy growing at 5% to 7% with massive moves towards urbanizing the population so people moving, moving to the cities, you continue to see a large market for AEC both on the building side and on the infrastructure side.

Okay.

Thanks.

Our next question comes from the line of Sterling Auty from JPMorgan, please proceed.

Hi guys.

It's Saket here for Sterling.

Just two questions if I can.

First, it feels like the operating margin for next quarter at the mid-point of the EPS guidance is flat to maybe even down slightly.

I was wondering if you could explain that?

Secondly, Sue, last quarter Al had talked about embedding a 12 month rolling average for FX rates in the second half, being more conservative.

I want to know if your new assumptions are more conservative or roughly the same?

Thank you.

With regard to FX, our new assumptions are more conservative.

We have actually, our previous process was to look at the spot rates, look forward, justify them against the numbers we had seen in the past.

As we look forward, especially after seeing a 7 point drop one day last week, a little uptick, and it's down more this week, we felt like we needed to be more conservative than that looking forward, particularly with regard to the fourth quarter.

With regard to the operating margin we did see revenue outperforming this quarter, which drove our margins higher than we expected.

Our margin for the third quarter is in line with the numbers that we have given.

Typically our biggest margin quarter is the fourth quarter, as you see this quarter.

What you need to remember is that the business this year, the core business is in line for the 28% margin.

Clearly we layered on top some dilution for Moldflow which impacts that as we did the integration this year.

Got you, thank you.

Operator?

At this time there are no more questions.

All right.

Well, thanks for joining us this afternoon.

If you have any further questions you can reach me or Dave Gennarelli at 415-507-6033.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.