Autodesk Inc (ADSK) 2010 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Q3 2010 Autodesk, Inc.

earnings conference call.

At this time, all participants are in a listen only mode but later we will conduct a question and answer session.

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I'd now like to turn the conference over to your host for today's call, Mr.

Dave Gennarelli, Director of Investor Relations.

Please proceed.

Thanks, operator, and we apologize for the delay.

We had some trouble getting our 8-K filed.

Thank you for joining us today to discuss our Third Quarter Fiscal 2010.

Carl Bass, our Chief Executive Officer is dialed in from Beijing, China and here with me today in San Rafael is Mark Hawkins, our CFO.

Today's conference call is being broadcast live via webcast and in addition a replay of the call will be available at autodesk.com/investor.

As noted in our Press Release we have published our prepared remarks on our website in advance of this call.

Those remarks are intended to serve in place of the extended for all comments and will not repeat them on this call.

During the course of this Conference Call we will make forward-looking statements regarding future events and the future performance of the Company such as our guidance for the fourth quarter fiscal 2010, anticipated pre-tax spend for fiscal 2010, remarks about fiscal 2011, the factors we use to estimate our guidance, our future business prospects and financial results, our market opportunities and strategies, and transfer products and trends in various geographies.

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

Please refer to documents we file from time to time with the SEC specifically our Form 10K for Fiscal 2009, our Forms 10-Q four quarters, first and second quarters of Fiscal 2010 and periodic 8-K filings including the 8-K filed with today's press release and prepared remarks.

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 the call may not contain current or accurate information.

Autodesk disclaims any obligation to update or revise any forward-looking statements we'll provide guidance on today's call but 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'll 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, prepared remarks and on our website and now I'd like to turn the call over to Carl Bass.

Operator?

Thank you.

Good morning, everybody.

Consistent with the format we adopted a couple of quarters ago, I'll give a quick overview and then we'll jump right into Q & A.

Over the past three months, global economic data has shown some improvement.

Recent government data indicated that the US is no longer in the recession and last week it was reported that many European countries are no longer in the recession.

I think in some ways our increasingly stable results are of a reflection of this data.

While its encouraging to see more positive economic indicators we would also like to see more positive data on jobs.

Economies may be recovering in terms of GDP but jobs are still being lost and that is a key component to Autodesk recovery.

Revenue was $417 million.

While essentially flat with the second quarter, we were pleased to see it stabilize after four quarters of sequential declines.

Highlights in the third quarter include sequential revenue growth in both the Americas and EMEA, commercial new licenses, 2D horizontal, government sales and 3D animation.

We also delivered a solid sequential increase in profitability.

This was achieved by reducing our operating expenses again as we realized the full benefit of the restructuring activity we implemented earlier this year and our focus on efficiency and cost controls.

Our cost control efforts this year have yielded better than expected results and we believe we will exceed our prior cost savings projection.

We now expect to reduce our pre-tax spend in fiscal 2010 by more than $300 million as compared to fiscal 2009.

These savings will be achieved this quarter, despite a seasonal sequential increase in fourth quarter expenses.

Of course, we will continue to look for ways to increase our efficiencies and profitability while making essential investments for the future.

With the excellent progress we've made on reducing our cost structure, and the increasingly stable business environment, we are now shifting gears to rekindle revenue growth in addition to continuing to look for ways to increase our efficiencies and profitability.

Our revenue forecast for the fourth quarter calls for a sequential revenue increase of between 1% to 6% which is modest but another step towards recovery.

We will look to build on these steps as we finalize our plans over the coming months for Fiscal 2011.

Last week I gathered our top leaders from around the globe to strategize on how we can effectively grow revenue as well as to generate innovative ideas to strengthen the business longer term.

While we were not ready to overlay these ideas in our current forecast we are excited about the potential they represent.

Everyone who attended this meeting left with the spirit of optimism regarding our long term growth prospects.

We have an unmatched product portfolio of design, engineering and entertainment software solutions and with over $1 billion in cash and no debt, we remain very confident in both our financial and our market positions.

Operator?

We would now like to open up the call for questions.

(Operator Instructions).

We have a question from the line of Mike Olson, Piper Jaffray.

Please proceed.

Thanks.

Good afternoon, and good morning, Carl.

You talked about sequential growth in 2D in the script.

What do you attribute the growth in new seats of 2D auto CAD and LT2?

And then I have another quick question.

Well, I mean, a couple things going on.

I think one thing is that the compares are low.

We're operating off of low levels coming out of the trough is just one fact arithmetic fact.

And I think the second is while the US and a few other countries are still struggling in terms of jobs, there are other economies that are starting to see rebounds.

Okay, and then the second question, in an improving environment, will the channel expect increasing levels of marketing dollars from Autodesk and I guess how will you weigh the balance next year if we're seeing revenue growth on a year-over-year basis?

I mean, the way the channels, I mean let me step back a second, Mike.

We will continue to invest marketing dollars to help generate demand.

The marketing dollars that go directly to the channel partners are formulaic, so there's an algorithm based on the sales and stuff in terms of the marketing development funds that they will get.

Okay, understood.

Thanks.

Okay.

We have a question from the line of Heather Bellini, ISI, please proceed.

Good morning, Carl, good afternoon Mark.

I just had a question really about your comments about operating expenses in fiscal Year '11 and I don't think you commented on this in your prepared remarks.

Sorry, I've been going back and forth with another call but I was just wondering back on the July call you talked about $60 million of costs that were suppressed this year that would come back next year.

But to get to the number, the operating margins that you're talking about next year either our revenues are way off or expenses are really going to ramp more than the $60 million you guys talked about and I was just wondering if you could help us think about our models for next year?

Sure, Heather.

By the way what call could be more important than this?

None.

Anyhow, Mark, do you want to walk through the operating expenses?

Yes.

A couple things here, Heather.

One is that we talked about also in the prepared remarks that our operating expenses would be now in excess of $300 million reduction year on year on a non-GAAP basis when you look at the exit of fiscal 10 compared to Fiscal 09.

And that's the news that we reported thus far.

We've also talked about the fact that about 20% of those costs as reflected in FY10 are what we call cost suppression and we're also making the point, Heather, that only a fraction of that will come back in FY11, so we're just trying to size and frame this to a degree, so that's one part of the equation to consider.

The other part of the equation to consider is the normal seasonality for Q1, so there's a seasonality of Q1 plus some fraction of a return of operating expenses and therefore, we try to give you some early view of what could be in Q1.

Again, we're not giving formal targets at this point.

We're just trying to begin to share our thinking and there will be a time we come to formal targets for Q1.

That makes perfect sense, normal seasonality seems to be what the street is looking for if I look back X April of '09 you guys have been flat plus or minus a few points sequentially which is where the street is.

Yet to get to the margin to be below it looks like you have to add about $25 million in operating expenses back.

And then to get to the target where you say modest fiscal '11 operating margin expansion just implies that you're going to put back more than the $60 million in costs you've suppressed unless revenue actually is going to-- unless we're mismodeling revenue going out and it's going to be potentially worse than normal seasonality.

That's what I'm trying to get at.

Those are the calls I'm getting right now and the e-mails I'm seeing in my inbox.

I appreciate your question and understand your question.

We're not prepared to talk about the entire fiscal year '11 if you will.

What we're trying to do is just give you a sense of a few things we think are important to look at but we're certainly not prepared to have a revenue discussion at this point.

What I think is clear, Heather, is theres a fraction of the 20% of the $300 plus million dollars we saved in FY10 that will come back, a fraction of that will come back in FY11.

And that's a statement that's out there and we're also saying that our operating margin, we think will improve year on year, even with some of that return of suppression and so that's the case there.

So it could be two to 300 basis points of operating margin improvement year on year in FY11 and again this is not targets, this is not guidance, it's early days but we're trying to give you a sense of direction and things to think about.

I hope that helps.

We have a question from Brendan Barnicle, Pacific Crest Securities.

Please proceed.

Great, thanks.

Just to follow-up on that Mark.

In terms of revenue seasonality, which Heather was alluding to, is the environment stabilized enough where we would expect to see typical seasonality or are we still off cycle there?

The way that I'm thinking about this revenue is basically the following, that we first talked about the importance of stabilization and what you're hearing today is this notion of stabilization.

Over time you would expect in any kind of recovery that that will gradually transition into some modest growth and eventually more towards the kind of growth rate you would expect in this marketplace, post-economic reset.

And where we're at right now we're not prepared to get too deep into the revenue topic at this stage but we are trying to give you a general sense of a couple important indicators we think you'll want to think about at the beginning of the year.

Maybe I can follow-up then just on the subscription revenue, because we saw that decline sequentially for the first time, we expected that given what's going on with billings.

We also saw if I have it right 10% decline in billings in the third quarter that's better than an 11% decline in the second quarter and 14% in the first quarter.

So do we now expect we'll see this decline or should model it through the next three quarters, as this rounds the bottom and heads back up and has like a one year lag behind it?

I don't know that I would go that far to be honest with you.

What I would say to you is you certainly got a good read on it though.

I think with billings down minus 10%, billings over time drive subscription revenues over that 12 month ratable period for the majority of it ,so I think you got the right angle there.

I think a couple of the opportunities for us to change the shape of the subscription revenue, one is renewal rate increases as an opportunity to change that vector and that shape over time would be certainly one thing to think about there and also, new seat licenses which we saw a sign that we liked which was the sequential increase quarter on quarter this quarter.

That we thought was an important indicator, so I think you got it right, the way you're thinking about understanding the fact that billings are down and it's going to lead to subscription revenue being down with the other proviso that obviously there are things we're trying to impact to change that over time.

If I could just ask one last question about changing that over time, I understand we'll have new pricing that goes into effect next March.

I started to hear about that for the first time substantially this past quarter.

Did you see that change start to impact or improve renewal rates at all?

I don't know that I would say that at this stage.

I couldn't make that point at this stage.

I think it's too early.

Great.

Thanks for taking my questions.

Absolutely.

Good to talk with you.

We have a question from the line of Brent Thill, UBS.

Please proceed.

Thanks, just to follow-up on Heather's questions on expenses.

If you look at some of your peers have taken some pretty significant action and when you benchmark yourself against other peers in the software industry, it seems like you're running still at a pretty high rate in terms of your fixed costs relative to what you're producing.

So I guess are you comfortable now with the current headcount where you're at or do you anticipate you need to make additional changes to realign to the lower demand that you're seeing?

Well first of all I'd say we've always told you that headcount is really not the good indicator so I think the place to look is more at the operating expenses itself so one just to calibrate you I would stick on the expenses themselves.

And as I said on the last call and I'd say the same thing again, if demand doesn't pick up during this year, we obviously have too much expense in there but if the news coming out of all of the different countries and the change we're seeing in our business materializes, I think we're in the spot to deliver increasing profitability and good revenue growth.

Okay, and Carl just curious if you can just contrast the Americas versus Europe and any common trends that you're seeing across both geographies, that would be great.

Yes, I mean, I think what's happening is I think Europe, I think we were certainly afraid certainly the last time we all talked, we were much more afraid that Europe was headed into the (expletive) and was looking like it was headed down in the same way that the US had gone and possibly was going to be down for so long.

I think none of the economic news out of there really supports that.

Germany and France have managed to do well.

Our business is uneven across Europe but much better than we would have expected.

I say the Americas is stabilized.

It's relatively flat, like we said in the prepared remarks, I think we still need to see some job growth and I think we need to see a loosening of credit, especially for the small and medium companies.

I think we're at a point where the large companies are certainly have access to credit, small and medium business, I still think are capital constrained.

Thank you.

I'd add one thing, Brent.

There's no sign of a recession in China.

Operator ?

Operator, are you there?

Hello,

We have a question from the line of Steven Ashley, Robert W.

Baird.

Please proceed.

Hi, I just want to talk about that revenue seasonality in Q1.

I guess we looked back over the last several years, the sequential trend in revenue has been flattish during normal times.

Last year it was under normal times.

Is that what you're inferring that we would go back to normal times and we would see normal flattish revenue seasonality in Q1?

Steve, you know what I would say?

I think if there are two big effects which are normal seasonality and there's the economic recovery.

I would say that the economic recovery is probably a stronger force, where we would expect to see flatter revenue in the beginning of the year and a pick up towards the second half of the year and so I think it would break the trend somewhat of traditional seasonality.

And then in terms of deferred maintenance revenue, has been trending down here.

When might you expect that to level off?

Mark, do you want to take that?

Sure.

In terms of the maintenance revenue, I think the key thing obviously, Steven, is to really understand the billings and how the billings are going to be changing over time, because the billings are a precursor to that.

So we're not giving necessarily forward-looking guidance on the subs revenue at this stage but I think as I was trying to cover before, the billings will be a precursor largely it's ratable over 12 months but not 100%, Steve.

And any other factors are will our renewal rate go up and we are pleased to see that stabilize as well by the way.

That was an important indicator in addition to the fact that new licenses went up sequentially, so those two factors could impact once projection of subs revenue in addition to the billing indicator.

Those are the three things that we're looking at as we model it.

I just, we are not at a stage where we want to give forward-looking guidance on that.

Thank you.

I want to give you the dynamics as best as possible.

We have a question from the line of Keith Weiss, Morgan Stanley.

Please proceed.

Thank you, guys.

Sorry to beat a dead horse here a little bit, but when you look at the guidance if we look at the mid point of guidance for your fourth quarter both on the revenue side and the EPS side it seems to imply a pretty nice ramp in total expense.

So if I take the mid point of both of those and work backwards I'm getting to expenses somewhere around the $360 million range.

A) Does that sound right to you?

and B) What would those ramp in expenses be due to and is that something that we should expect to sort of continue to grow sequentially like we seen in prior years into Q1?

And is that the kind of seasonality you're talking about that's going to lead to flat year on year operating margins?

So, let me take the first part and Mark can jump in.

What we often see is seasonal increase in expenses in the fourth quarter that's tied to things like sales commissions.

So and if you look back historically you'll see last year, well of course we'll be a little bit off but if you go back years before that you could see that, so there's--we usually see a little ramp up there.

The confusion is what we see in Q4 and Q1 are often different things and when we get to Q1 in normal times we see ramp ups from salary increases as well as some other compensation payments.

And so one set of payments goes down and the other goes up and that's what you usually see from Q4 to Q1.

And is that what's in that guidance for the call like flattish operating margins into Q1, 2010?

Is those salary increases and the like starting to ramp back in?

Maybe I can add--

Go ahead Mark.

Okay, so just in addition to everything that Carl said, Keith, a couple other things.

We do some localization and [countrification] that seasonally kicks in Q4 every year.

Those are things that are there and there's even smaller things not to get too precise, Keith, we're for example, certain people cap out with FICA and things like that and there's matching expenses that can show up even in different times after the beginning of a new year and such, in terms of the calendar year.

But there's a lot of little bits and pieces that contribute to the seasonality that we've seen historically from that standpoint, so that's just to kind of cap off on your question regarding Q4.

Now going into Q1, Carl, sorry I interrupted you on that.

No, so the only thing I was going to say is we gave you guidance this year about taking up $300 million.

We talked about $60 million coming back.

I think you can do the math from there about our thoughts for next year.

We have a question from the line of Heather Bellini, ISI.

Please proceed.

Yes, hi, Carl.

I just had a follow-up in terms of how should we think about the customers that have deployed in a server based model that might be on multi-year contracts with you guys?

How do we think about the headwind for top line growth and I guess how long do you think it is before you get to your normalized comps where we've worked through some of that?

So I would say for the most part, most of our sales are by the seat, if anything I think there's been some chatter about unused licenses, if anything I see a pent-up demand for licenses but it really is tied directly to the number of people sitting there doing design engineering work.

And I don't see much of a headwind in terms of absorbing what's out there already.

Many people have adjusted their licenses.

You can see it in terms of the subscription revenue, so I think for the most part it moves along with employment numbers in the various firms.

And we have a question from the line Ross MacMillan from Jefferies and as a reminder all participants you're limited one question.

Please proceed.

Thanks, Mark just going back on the costs I'm curious as you think about next year, aside from a part of the $60 million that's going to roll back, is part of what we're missing that you have other expenses that you plan to put back into the P & L, whether that be lead generation, marketing spend, things to stimulate demand.

Or is it really just that all we should think about is part of that $60 million rolling back into the Income Statement?

Thanks.

Yes, I think certainly an important part as you think about Q1 is the fact that a fraction of that $60 million is rolling back the cost suppression is coming back and again we control that, Ross, and we reinforced how much we will control to come back but that's certainly a factor.

Beyond that, in terms of any other OpEx that we may make investments on, of course we'll continue to make selective investments to drive growth for the year and for the long term, so very select ones.

We have a question from the line of Greg Dunham, Deutsche Bank.

Please proceed.

Yes, thank you.

I wanted to follow-up on the maintenance opportunity in terms of improving renewal rates.

Can you give us a sense of where are we in terms of the magnitude below the normal renewal rates we are at?

(Inaudible).

So Greg, just to be clear, in terms of your question on maintenance you're trying to get at a sense of the magnitude, frame that just a little bit better for me?

Well obviously, renewal rates have stabilized but my sense would be that they're stable at a much lower level than they're typically at.

And I want to get a sense of where your renewal rates are now versus where they can go and how that can affect the maintenance business (inaudible) going forward.

Well, and it's fair that the renewal rate is lower.

We don't describe or disclose the exact renewal rates and that's a historical point of order as you will but you're absolutely right.

The renewal rates are lower and we see some opportunity to take those up.

It's not like they're massively lower but they are lower and an additional uptick on that has significant good implications if we can drive that higher.

Yes, I think the way to look at a subscription revenue is a function of two things.

It is the attach and renewal rate but the attach rate is really highly dependent on the volume of new licenses and that's been the biggest driver of the reduction.

The secondary effect is people reducing their renewals and the renewals for the most part are tied to reduced headcount employed rather than a change in their perception in the value of the subscription program.

Just people, for example, if they have 10 seats on subscription and they now only have seven employees, many firms are just making the choice to just renew seven of them.

That makes sense.

We have a question from the line of Jay Vleeschhouwer with Ticonderoga Securities.

Thanks, Hi, Carl.

During the call you've made pretty clear you've out performed on reducing your expenses and you said as well, however, that you're now shifting gears towards rekindling growth.

Apart from the cyclical effect I'd like to ask about the committment you have for your expectations of the various new and incremental initiatives you've spoken of in this past year.

For instance, expanding the line of pre configured suites, design On Demand, simulation, Autodesk products on the Mac, so on and so fourth, so to what extent did the cost cuts affect any oral of those newer initiatives?

And how committed are you to following through on all of those for incremental growth?

Jay, what I'd say is a number of things you talked about, things like suites, doing things like web-based services, all those initiatives we're able to continue, some of them we had a slowdown but funding for all of them will not be incremental.

We're doing it out of our existing cost bases and so we've redeployed resources to make sure that happens.

So we moved people from these projects to other projects in order to make sure we can see those things through.

And so what I'd say is really the focus was in order to get the $300 million out of expense, took a fair amount of just the bandwidth of the management team and it was a big initiative and now the focus is turned to the other thing, turned to the other initiatives but I wouldn't infer from that that there's more money coming behind that.

It's really out of existing spend.

Okay, so just to be clear, everything you've previously talked about will occur at some point or be expanded beyond what we've seen so far?

Yes, you'll see On Demand applications, you'll see new applications on the Mac.

All that will happen this year.

We have a question from the line of Dan Cummings, Soleil Group.

Thank you.

I wanted to try to get to in real simple terms the difference between Autodesk today as a $1.7 billion company and what you were a few years ago as a $1.7 billion company.

The disparity in margins is really striking and I'm asking really with respect to the guidance, are you giving us worst case worst case with respect to revenue and cost such that you're probably talking about a very high incremental margin relative to this guidance once you do see growth?

Thanks.

So I guess in the simplest terms, the difference is this $1.7 billion is a smaller $1.7 billion and not to be too facetious about it, I think the difference is this is $1.7 billion where the direction was heading down and the other was $1.7 billion where the direction was heading up, and what you would see as we've always said is we can return to mid 20% to 30% operating margin at almost any revenue level.

What we've done is we've made a decision that we think this is the appropriate level of expenses right now.

As revenues grow as we've seen in the past, a large amount of that ends up dropping to the bottom line and so I think you'd see the same thing as you see economies recover and as our business picks up you'll see a large incremental amount drop to the bottom line.

We have a question from--

Do you want to add anything Mark?

No, I agree.

I think the issue is just trying to take a measured approach, Dan, from that standpoint of how to post reset basically to take the margin back to where we want it and yet lay the ground work for the franchise and opportunity we have over the long term with this Company, which is a really exciting long term opportunity.

We're just trying to be very thoughtful and measured in terms of how we take this thing forward.

And the only thing I'd add is I think we can do some stupid things right now.

I think we could cut expenses to the point where we're unable to really participate in the upside that comes with the recovery, and so we try to get ahead of the downturn by making cuts early but I think we also want to be deliberate in our attempts here to make sure that we have the appropriate structure in place, the appropriate resources as we go forward to make sure we can really take advantage of this.

One of the things we've seen in the downturn is the ability to displace many of our competitors and so right now while the displacements we're seeing are relatively small these are laying the ground work for much future displacements, much larger displacements with much greater revenue potential and so we're very excited about the market position we have and we don't want to miss out on that when the recovery comes.

We have a question from the line of Steve [Conon], Longbow Research.

Please proceed.

If your line is muted please unmute your line.

Hi, can you hear me now?

We sure can.

Okay, thanks.

Looks like the AEC segment did better sequentially than manufacturing this quarter.

Was that due to strength in government or other factors and I'm also just wondering what's your view now given what you're seeing on what segments could grow faster first in a recovery?

So I'd say generally speaking during the downturn we've seen manufacturing holdup better than AEC.

One of the things that we've seen episodically through the downturn are some very large sized deals from AEC firms from the largest AEC firms.

A lot of it's coming from consolidation around one vendor where they've had a heterogeneous multi-CAD environment and now have decided to go with a single vendor.

There's also the downturn has created a fair amount of M & A activity so there's a fair amount of consolidation amongst our customers and in many cases we're being the beneficiary as they bring those companies together and they're trying to standardize again on one CAD platform.

I think what we've seen in manufacturing has been slightly different as I talked about and was talking about the competitive swap outs we've been winning many smaller deals in manufacturing and that's buoyed us through the downturn but we haven't seen the large deals yet that we expect to see when we come out of this.

So Carl, but the sequential decline in manufacturing being a little bigger that was perhaps an anomaly this quarter?

Yes, I wouldn't read much into it as a one quarter thing yet.

I agree and the one thing I would add Steve is that we have talked about our government in general, the government business is up, you had alluded to that, it is up sequentially and even year on year albeit not a huge segment and it's something to address as well.

Yes.

One of the things that is interesting that we've seen this time is we're seeing some of these larger deals, we're seeing some good business in the government much better than we've historically seen.

We still haven't seen, it's really hard to trace a lot of benefit to stimulus dollars, particularly in the United States.

Other parts of the world you can see it but not in the United States.

We have a question from the line of Sterling Auty, JPMorgan.

Please proceed.

Yes, thanks.

Sorry to be knit picking but Mark in answering one of the very first questions I think it was off the cuff but you actually said that you're looking for modest margin improvement for 2011 and then made the comment 200 to 300 basis points.

I would consider that more than modest.

Is that really in the range of what you consider modest?

Well, if you look, Sterling at where we've been, I think that's the way we could couch it and that's a comment that we're putting out there.

Again I'm telling you it's not, these are not targets but we're trying to give you a sense of our thinking and that is our thinking, so Carl I don't know if you want to add anything more to that?

I just think Mark is being modest.

Yes.

Sterling does that cover it?

Sterling, the only thing I'd say is I think Mark's characterized it correctly that if you were to look at 200 or 300 basis points while that would be significant improvement, I think given how the margins have fallen, it's still not bringing us back to historical levels or as someone previously had asked, it doesn't get us to the same operating margins we had when we were a $1.7 billion company a few years ago.

And so I think we're appropriately aware of the fact that it doesn't get us to the same place and we're not, we don't think it's appropriate to try to do that in one fell swoop.

And so this measured and balanced approach to making sure that we continue to improve operating margins while making sure we have enough investment in order to continue to grow revenue.

The last question will come from the line of Sasa Zorovic, Janney Montgomery.

Please proceed.

Thank you.

So specifically, you referred to (inaudible) as cash in your comments and then you did buy some stock back during the quarter, so now going into the stabilization and potential growth ahead, would you then assume that cash is even more deployed in buying stock back more aggressively or would it be more for making acquisitions?

Because in an improving environment, that much cash is not going to be needed on the balance sheet.

So Sasa, it was really hard to understand you but I'll do my best to try to interpret what I think your question was.

We continue to have a program where we will offset dilution from employee stock programs, we'll continue to do that.

Other thing I remind everyone again is that a large majority of our cash is offshore and so I don't see any big changes in our capital program.

I don't see any big changes in our stock buyback program.

Right now, we had made a number of decisions about what to do with our cash heading into the downturn.

I'm pleased with the decisions we made heading into the downturn and how we've been able to grow cash even through this downturn.

And I think now is the time for us to reevaluate it and we're going to look at it but that's really no hint of any necessary change in direction.

Anything you want to add Mark?

I agree wholeheartedly.

That's exactly where we're at here.

Sasa, go ahead.

Yes, so what I wanted to ask was specifically regarding seeing business stabilizing, specifically wanted to see if the quarter has indeed returned to the linearity that it used to have with one each week being the 13th of the quarter roughly, have you seen that within the October quarter?

So I don't think that it ever really was perfectly 13th but we've always shown those charts, we'll show them to you again and I think the linearity is much more similar to how it has been in the past albeit at reduced levels.

One of the things that we thought important was not to do anything unusual at the end of the quarters.

It's a discipline we put into place probably four or five years ago and we want to maintain that discipline and so given the nature of our business, we can influence the shape of that curve particularly at the end of the quarter, we've chosen not to do that.

We will continue not to do that and so I think you'll see linearity that's very similar.

And to reinforce Carl's point in addition to that even our weeks of inventory in the channel is down sequentially and is below three weeks so we're just reinforces Carls point, I think it's a healthy sign.

This concludes the question and answer session of today's conference.

I'd like to turn the call back to Mr.

Dave Gennarelli for closing comments.

Thanks for joining us today.

As a reminder, we'll be at three conferences this quarter, the NASDAQ OMX investor program in and on, the Credit Suisse Technology Conference in Phoenix on December 3rd and Barclays Capital Global Tech conference in San Francisco on December eighth and we're hosting our annual users event Autodesk University in Las Vegas December 1-3.

So thanks for joining us today and if you have follow-up questions you can reach me at 415-507-6733.

Thanks.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may disconnect and have a great day.

Thank you, operator.

Thank you.