Autodesk Inc (ADSK) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2010 Autodesk, Inc.

earnings conference call.

I will be your operator for today.

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

We will conduct a question-and-answer session toward the end of the conference.

(Operator Instructions).

I would now like to turn our call over to Mr.

David Gennarelli, Director of Investor Relations.

Please proceed, sir.

Thanks, operator, and good afternoon.

Thank you for joining our conference call to discuss our fourth quarter fiscal 2010.

With me today are Carl Bass, our Chief Executive Officer, and Mark Hawkins, our CFO.

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

In addition a replay of the call will be available at Autodesk.com/investors.

As noted in our press release we have publisher our prepared remarks on our website in advance of this call.

Those remarks are intended to serve in place of extended formal comments and we 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 first quarter of fiscal 2011, remarks about fiscal 2011, factors used to estimate our guidance, our future business prospects and financial results, our market opportunities and strategies and trends for our products and trends in various geographies.

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

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

Those documents contain and identify important risk factors that may cause results to differ materially from those contained in the forward-looking statements.

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

If this call is replayed are viewed 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 will 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 will also 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.

I would like to turn the call over to Carl Bass.

Thank you.

Good afternoon, everybody.

I will give a quick overview and then we'll jump right into Q&A.

I think we can all agree that we are happy to have calendar 2009 and our fiscal 2010 behind us.

Navigating our business through the worst economic recession of our time was challenging, to say the least.

Despite the challenges there were a number of notable highlights in the fourth quarter and throughout the year.

For example, our software was a critical component in the success of "Avatar," the highest grossing movie of all time.

The market for 3-D films and now television is getting a lot of attention and we believe this represents an excellent opportunity for our Media and Entertainment business segment over the next few years.

This year we launched Autodesk University Virtual, extending the AU learning experience to Autodesk users world-wise, and we had over 20,000 participants virtually this year.

We also launched SketchBook Mobile, an iPhone app.

This has helped drive awareness of Autodesk and was an instant success in the apps store, surpassing 1 million downloads, only two months after being introduced.

Over the course of FY10, we further strengthened our technology portfolio through a few highly focused M&A transactions.

It was also encouraging to see large deal volume experience a notable uptake in each geography in the fourth quarter.

We closed 22 deals greater than $1 million, doubling the total from the first three quarters of the year.

These large deals were driven in part by pent-up demand and end of year budget spending.

We ended the year with stronger than anticipated fourth quarter results and several encouraging signs as we head into fiscal 2011.

Revenue for the fourth quarter increased 9% sequentially to $456 million.

Highlights in the fourth quarter include a strong sequential increase in revenue from commercial new seat licenses.

We also posted sequential revenue growth in all of our geographies including an 18% sequential increase in EMEA.

Our Asia Pacific geography grew on a sequential basis and posted a small year over year increase, as well.

It was also encouraging to see the Americas grow sequentially for the second consecutive quarter.

Our Manufacturing AEC and PSEB business segments each grew sequentially, led by a robust 20% sequential growth in manufacturing.

For the third consecutive quarter we delivered a sequential increase in profitability.

This quarter, however, the sequential improvement was driven by revenue growth rather than expense reductions.

We are pleased to see this progress but also mindful there is more work to do in FY11 and beyond.

Speaking of expense reductions, our cost control efforts in FY10 yielded excellent results.

We achieved a reduction of $312 million in non-GAAP total spend in fiscal 2010 compared to fiscal 2009, significantly exceeding our initial goal of $250 million.

Our success with expense reductions in fiscal 2010 will help us achieve modest non-GAAP operating margin improvement in fiscal 2011.

Going forward, we will continue to make the essential investments in Autodesk to insure term long-term growth.

At the same time, in the spirit of continuous improvement, we will continue to seek to optimally align our investments to improve our growth, productivity, cost structure and operational excellence.

These actions are focused on increasing productivity across the organization and optimizing our investments.

While we are pleased with the progress we made this quarter, the recession's affect on customer demand can be seen clearly in our full year results.

Despite a decrease in revenue and profitability compared to fiscal 2009, we believe we have improved our efficiency and our channel, and our continued investment in R&D has resulted in a private portfolio that has never been stronger.

As we enter fiscal 2011 the shape of this economic recovery remains unclear.

So we focus on things within our control, investing in growth opportunities to drive revenue and improving our profitability.

With an unmatched portfolio of design, engineering and entertainment software solutions, a strong balance sheet, outstanding employees and an unparalleled channel, we believe we are well-positioned for the future.

Operator, we would now like to open up the call for questions.

(Operator Instructions).

While the operator is calling for questions, I want to note that Autodesk will be attending the following investor conferences this quarter.

The Goldman Sachs technology conference in San Francisco this Thursday, the 25th.

And the Morgan Stanley conference in San Francisco on March 4.

I also want to note to save the date for our annual Investor Day which we will be holding at our gallery here in San Francisco on June 24.

Now I will turn the call back over to the operator.

Your first question comes from the line of Brent Thill with UBS.

Please proceed, sir,.

Thank you.

This is actually John Gunn for Brent Thill.

Two questions.

One, on the guidance for Q1, it would seem to imply about a 6% sequential decline which is much lower than the historical averages.

If you could talk about the key factors behind that.

In Europe, if you could maybe go into a little bit more about what drove the outside strength.

Thank you.

Let me take that question, this is Mark Hawkins.

In terms of the Q4 to Q1, obviously looking at the sequential pattern, we've taken a look at everything we can see in the economy, everything we can see about our business.

As you know, visibility is not as clear as it was certainly pre-reset.

With all that comprehended, this is our view of the revenue growth for the particular quarter.

We think this is a solid set of range of guidance for revenue to give you from that standpoint.

So that's the first part of your question.

The second part of your question?

The European region?

I think what we saw was a rebound in EMEA.

We detailed some of the stuff around the effects of currency.

I think currency continues to remain volatile and we watch it both ways.

We are mindful of it for the year going forward, going down.

It helped for much of this year.

Other than that, we are at that stage of the recovery where we have seen a stabilization over the last quarters and now we are starting to see increases, even if small ones, in terms of the business and in terms of demand.

Thank you.

Your next question comes from the line of Jay Vleeschhouwer with Ticonderoga Securities.

Please proceed.

Mark, in light of the Maintenance building strength in the quarter, particular sequentially, would it be fair to say that your renewal rates are now, on average, back into the normal 80% plus kind of a range, and would you expect them to stay there if so?

And any comments you can make on idle capacity being reactivated would be helpful.

Secondly, for Carl, with regard to the channel, at last year's analyst meeting, and in light of today's announcement from CRN, I thought it would be helpful if you could comment on any particular new programs or economics you might be putting in place for the channel for fiscal '11?

Let me jump into this, Jay, the first two parts of it, and then let Carl take the third.

In terms of the renewals, again, we don't speak on specific renewal rates.

What I would say to you is you are correct in that sequentially our renewal rate is up from that standpoint.

That is factual and it's largely flat year on year in terms of the renewal rate.

That was a tick up for sure.

In terms of idle capacity, I think perhaps you are alluding to just to clarify things like shelfware.

Yes.

I just want to call out, again, our view historically is we have seen the thesis that have been put out on the wire and such on that.

That is not something that we've actually experienced a lot.

We look historically and it has not been a factor.

I'm sure technically somewhere there is, quote, shelfware, but our business experience is that it has not been an impact on our business.

Actually, I would go further, Jay.

I actually think there is anti shelfware out there right now.

That I think if you were to net it all out, that there is more pent-up demand than there is excess capacity sitting around.

There are a number of factors that have led people to not upgrade or not renew their subscription over the years.

There have been technology changes as well in terms of computing platform operating systems.

So people are starting to find themselves out of date.

I think when you net it all out, anti shelfware outweighs shelfware.

Then on the channel, I think one of the things we have learned over the years was the wisest way to work together with our channel partners is to give lots of direction about where we are headed, not making sharp changes in direction.

It is a very difficult thing when you are working with thousands of partners around the world.

I would say we are really working on a continuation of trying to tune the business.

As you know, we did a number of things this year, both long-term things as well as many short-term things because of the economic situation.

Going forward, we continually do what I refer to as tweaking the model, and continuing to work with ways that strengthen their business and our business, but I don't see any really dramatic changes.

If I could squeeze one last one in.

For fiscal '11 and beyond, what are your thoughts on the possible upside to Autodesk from redoing your suites offering?

By our calculation, your suites, all of them together, are less than half of what Adobe gets just from Creative Suite alone.

Many products versus one product, in their case.

The question is, do you see much potential for substantially scaling up your suites business?

I am very jealous of both Adobe and Microsoft suite business.

I think they both have done a great job with suites.

I think it is a very effective strategy for the company and I think it's very cost-effective for the customer.

We have talked about it.

We will probably talk a lot more of what we are doing at Analyst Day in June and we will give you more details.

I think there is great potential in suites.

The next question comes from Heather Bellini with ISI Group.

Please proceed, ma'am.

Thank you and congratulations on the quarter.

Carl, I have a question, I don't know if this is for you or Mark.

Two questions.

One, what type of benefit, if any, did you see from people trying to get ahead of the price increase in March?

Going back to the question that someone asked for Brent, is that maybe a reason for the magnitude of the sequential decline given I think we probably all thought you would be at least flat at the midpoint?

The second question would be back on the fiscal 3Q call you mentioned the definition of modest for operating margins was in the 200 to 300 basis point range.

I just wanted to make sure that that definition of modest still holds.

Two things.

One is, I don't believe, it is hard to pinpoint exactly, but I would not anticipate that much of the business we saw was in anticipation of the price increase.

I would say it is a very very small effect, if any at all.

I did not see that.

I think when you look at Q1 guidance, as Mark referred to, I think we are just being cautious.

Visibility is limited, we continue to have concerns about volatility in currency, unemployment still hasn't picked up.

The credit situation hasn't improved dramatically.

I think there is still enough dark clouds on the horizon just in terms of the economy that we are just being cautious about what we see out there.

I would add in, Heather, from that standpoint, when you look at what was happening with billings and such, if you ignore what happened from Q3 to Q4 because of the economy, and you look back further, I think there is a large component of this is just purely seasonal, and you can see it.

As far as the modest range on the operating margin, we continue to view the range we discussed as a reasonable range.

Okay, so that is 200 to 300 bips, right?

That's correct.

Thank you.

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

Please proceed.

You showed a nice sequential uptick in maintenance revenue quarter to quarter in the January quarter.

Are we mostly behind, call it flushing through the tough renewal season there, and going forward do you actually expect this to start growing again quarter to quarter and basically making Q1 the beginning of that trend?

I think what we would like to say is we think it's a good indicator, it's a good data point.

It doesn't make a trend yet.

We will continue to watch.

Truthfully, we were a little bit surprised by it.

We had indicated we might see lower renewal rates in the fourth quarter so we were pleasantly surprised by that.

I wouldn't go too far out on a limb until we see it continue into the first or second quarter, and I certainly wouldn't make projections about what that revenue line is going to do.

I agree and I think you just want to look at the data that Carl talked about and then also factor in the history of the prior three quarters or four quarters and model that into your total view of revenue going forward for maintenance.

Thanks.

Your next question comes from the line of Steven Ashley with Robert Baird.

Please proceed.

My question is around building activity.

We read a lot about commercial construction being very distressed.

Are you seeing any pockets of building activity taking place either by geo or by vertical?

I think that is an interesting question.

If you look in the United States commercial construction, there are a lot of issues with it, and I think there are a lot of questions that remain unanswered going forward about commercial construction.

I think on the other side, what you see is there still continues to be construction in things like institutional and I think there is a move were you will see a lot more renovation.

There are a number of factors that will drive a lot more renovation work than has previously been done including things like energy legislation.

I think when you look more broadly across the world, I think it varies a lot by geography.

One of the things that intrigued us was amongst the large deals I mentioned, were that a number of those large deals were in the AEC space and were in places like the Americas, in places like Northern Europe, which they just wouldn't sound like the places where you would expect these kind of deals at this time.

If I just try to step back from it a little bit, Steve, and go, what I see happening is, just like many other businesses, our customers have readjusted to the current economy and they have all gone from a state of a year ago where people were really in panic about what was going to go on, they were very uncertain about the future.

They've recalibrated their businesses and along with that they're looking to invest in the future.

Once they've stabilized their business they need to invest and they want to move it forward and they want to be more productive and efficient than before.

So we are seeing things that are moving in lockstep with the traditional economic indicators.

Steve, I might add, too, that AEC actually was a leading business segment in Asia Pacific, on top of all the stuff that Carl said, so it gives you a lens.

Thank you.

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

Please proceed, sir.

Tanks, so much.

I had two quick ones.

On the large deals, can you give us the breakdown there between the indirect and the direct channel?

And if you had it in the press release, I missed what the upgrade revenue was during the quarter.

On the large deals, I don't actually have the breakdown.

Most of our large PO business goes through our channel partners to one degree or another.

We work with our channel partners.

I don't have the specific number on the large deals.

One other thing I would say, Brendan, if you look at this quarter, our proportion of business that went direct and indirect is right in line with historical norms.

There is really no difference.

We have often talked about an 80/20 between the indirect business and the direct, and we are right within that range.

On the upgrades, $37 million.

Thank you.

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

Can you give us some more color on what you saw in the media and entertainment business in the quarter and what we should think about going into the new year as the drivers and maybe the trajectory?

All I saw during the quarter was "Avatar," like everybody else.

It seems to have dominated.

Not only dominated the headlines, it dominated the box office.

But I think it has also dominated the mind share of the industry about that large a blockbuster hit.

I think for many people, it is making them reexamine what their plans are and where they're headed and the viability of 3-D.

I think it was a good injection into the entertainment market for continuing to invest.

And despite the terrible economy, they were still able to break all-time records.

That is what I see there.

We are really proud of the part we played in "Avatar," and what we see is there is a lot more 3-D films coming.

There's a lot of investment in 3-D TV as well as the more traditional gaming segment and the mobile games continue to grow through the downturn.

Thank you.

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

Please proceed.

Apparently after two years of work NVIDIA is going to incorporate mental images into their rendering engine, into the NVIDIA upcoming Fermi GPU.

Is that at all a competitor to you guys, do you think of it that way?

When you listen to them, I don't follow the company specifically, but they talk about being a software company and they're vaguely entering into your space.

How should we think about that, or is it just interesting but not relevant?

The first thing, they are a software company like we are a hardware company.

Our software is really not useful unless you have the piece of hardware to run it on.

One of the things is we use their product Mental Ray, our customers use their product Mental Ray.

For the most part, it is something we collaborate on and our customers choose it.

Many of our customers choose to use Mental Ray as the renderer.

Many of them choose to use other solutions out there.

There is no shortage of rendering solutions out there, and customers choose them for a variety of reasons.

I think it is interesting.

Generally speaking, at any time the hardware or the hardware/software platform increases in capability in ways that benefit our customers, it is a good thing.

So more capable 3-D hardware, best for CPUs, better connectivity, all that is generally good because we are always at the end of the spectrum.

We have compute intensive graphics, intensive applications and anything that is catered to that end of the market rather than to the email end of the market is a good thing for us.

Thank you very much.

Your next question comes from the line of Sasa Zorovic with Janney, please proceed.

Could you tell us about competitive changes in the quarter that maybe would be notable to talk about?

I think one of the things we saw a lot of were a fair number of competitive swap outs, particularly in manufacturing.

Our manufacturing business did particularly well.

We've held the opinion for a long time, and I have been eager to voice it, that a lot of manufacturing customers, particularly large ones, are working on old antiquated systems.

They are running these legacy systems that are complex and expensive and no longer the best tools to do the job.

We were very successful in either wholesale replacements or, in many places, getting pilots in, in order to replace these old expensive systems.

That is one of the dynamics that is changing.

I think in some ways it has been a long-term trend.

We've certainly spoken about it for the last three years.

One of the things that happened during that economic downturn, every company, including large manufacturing companies, examined their cost structure.

And they said, what can I do to be more efficient, more cost-effective, but also more importantly, how do I get my products to market faster and better when I come out of this?

Many of them were just trying to create a different profile as the emerged both from a cost basis and the ability to bring high-quality products to market.

When you look at some of the stuff we have done over the last few years, we believe we have the most complete portfolio for people to bring manufacturing products to market.

So that is the place where I saw the biggest difference.

In manufacturing specifically, then, is there a specific part to it where you would say that you've been particularly gaining share, that you could share with us?

I think it is right in the center.

It is hard core manufacturing.

Things like industrial machinery, automotive, making some inroads into aerospace.

Those are the places.

We have done a fair amount of stuff in consumer products.

I think it is just the heart of manufacturing.

We have done a really good job throughout the supply chain.

I think when you look from small shops up to people tier one, tier two, to the large OEMs, I think we have done as good a job as anybody in covering the broad spectrum.

Given that you've gotten so many large deals this past quarter, would you say that maybe your larger customers have more appetite than smaller ones?

Or could one not say that given the quarter?

I wouldn't draw too many conclusions from it yet about the large deals.

It was certainly a good indicator compared to the beginning of the year.

I said this quarter the large deals outnumbered all of the other quarters combined.

I would wait to see more about any trajectory.

I think there are a number of factors.

Like I said, pent-up demand, end of year spending.

I don't have a lot of certainty around that yet, Sasa.

Thank you, I appreciate it, Carl.

Your next question comes from Derek Bingham from Goldman Sachs, please proceed.

Congratulations.

Carl, you talked a little bit about pent-up demand and I was wondering what you thought about the new product releases coming out in the early part of this year?

Could they have more of an impact than usual given some of that pent-up demand?

I think the products that are coming out in the beginning of the year are fantastic products.

We have just gone through that last stage of releasing products, and I think we have this awesome collection of products.

One of the things we did was we worked really hard to preserve our investment in technology through the downturn.

And so I think the products are great.

On the other hand, I'd say commercially we have tried to mute the impact of any particular release through the changes in business model.

And so I don't expect a lot.

I think more business will be driven by what goes on overall with the economy than specific to any particular release of software.

Okay.

Mark, on the maintenance renewal rate, I wonder if you could characterize just with a little more granularity, when you saw that renewal rate bump up, was this just a very modest bump up or was it more significant than that?

I would put it as a decent bump up.

That is probably the way I would characterize it.

Again, it is up sequentially and is pretty much in line year on year, so that's maybe the way to triangulate on that.

I don't want to overstate it or understate it.

It is a middle of the road bump up in renewals.

But we are pleased to see it, for sure.

And I think what it does, Derek, is it just reinforces the value that people see in our offering.

It is a good offering.

(Operator Instructions).

Your next question comes from the line of Kash Rangan with Bank of America Merrill Lynch.

Please proceed.

Thank you very much and I hope you can hear me.

Looking at the regional breakout, Carl, it looks like America seems to be still within a range, somewhat close to what you did in Q1 start of the year.

It looks like the improvements really come in Europe.

And also when I look at the product breakout of the Company, it looks like the improvement has been relatively significant on the manufacturing side rather than on the core AEC side, although you're certainly up relative to what you did in Q1.

Any thoughts there, I think you used the expression bumping along the range here and there, it looks like America's AEC, the two biggest constituents still seem to bumping with mid range.

Any thoughts there?

Maybe I'm mis-interpreting that but I just wanted to get your thoughts on the trajectory of these two significant pieces of your business.

I think you have a charitable memory.

I talked about bouncing along the bottom, I think was more like it.

What I would say is all through this we have seen manufacturing be stronger.

I think we continue to see manufacturing be stronger.

I was pleased with the change in direction we saw in the Americas business, just more fine grain detail than we report on.

I was very pleased.

I think we have gotten to that place where we've not only stabilized by we're starting to see sequential increases.

Barring anything unforeseen, I think the trajectory is good there.

Overall, I think the AEC business is doing well.

We will have, no doubt, a drag from commercial construction in the US.

But I think there are many other factors going on.

That is commercial new construction, whereas I think there will continue to be lots of commercial construction.

And many people are adjusting to the new levels that we see in the economy.

Overall, I was really pleased with it.

Also, one follow-up thought or question on shelfware (I don't know if my voice can still get through at this point).

But if one were to subscribe to the view that if the AEC firms that laid off people started to hire these, or at some point started to hire these folks back in, and therefore they're going to be using that old shelfware, even if you believe that for a second (I know you don't really believe that), but even if someone were to take that position, what kind of impact can the new release on the horizon have?

Do you think, in other words, a new release might spur people to pass up on the option to use that unused shelfware and instead go for the new license just because there's so much new incremental functionality in the upcoming version?

Yes, that is my thesis of the anti shelfware, is really that.

If you're sitting two releases back, there or business reasons that you want to be on the latest, there are technical reasons, and a technical reason could be anything like compatibility with your suppliers or your vendors, it could be something like running on the latest operating systems like Windows 7, it could be running on the latest hardware like 64 bit.

So there are technological reasons, there are business and commercial reasons that you would not stay there.

Also I talked about.

even during some of the darker quarters, I talked about what we saw were many companies doing pilots or other kinds of small test trials in smaller amounts than we were used to seeing.

So if they did have 100 employees and they were going to swap something out, in the past they might have bought more, maybe this time they just did a trial with five licenses.

So that's why I believe, when you net it all out, there is more demand either because new releases, new technology, economic motivation to get up on the latest release.

As well as when you look out there in terms of people who have already made the decision to switch, they may not have had the budget or the projects in place yet and now they are getting ready to do that.

When you look at some of the large deals we saw, many of those deals didn't just get created in this quarter.

They have been worked on for a while.

What happened is the budget money became available, they saw enough light at the end of the tunnel for their business to decide to make those kind of investments.

It is hard to get me in the place of believing in the shelfware argument, although I know it's one some people believe in.

Thank you very much.

Your next question comes from the line of Keith Weiss with Morgan Stanley.

Please proceed.

Thank you.

Very nice quarter.

I wanted to ask you, in terms of the new commercial seat growth that you're seeing, perhaps you could help us characterize where those new seats are going.

You said in your earlier comments that employment really hasn't turned around so it's not an employment driver.

Can you give us some sense of where you are seeing new seats being created in the most recent quarter?

I would say I don't think it has changed substantially from historic places.

A number of things to think about.

Just because in aggregate employment is not changing does not mean there is not a lot of flux in the work force.

Firms are growing, others are shrinking, people are moving, M&A is happening.

So there is still a lot of movement.

And remember, there is not a liquid market in licenses.

So just movement in and of itself means people go out and buy seats.

One of the things that I think is also true during a downturn is there are two things that go on.

One is customers tend to consolidate around their preferred vendors.

We often operate in heterogeneous environments.

During good times, the heterogeneity tends to get larger.

People have three, four or five vendors.

When times get tough they get down to one or two.

I think in many cases we have been beneficiaries of them narrowing their selection of vendors.

The other thing is tough economic times make people make tough business decisions and one of the things we've always tried to stress is that the value of our software was much greater.

And I talked about how in manufacturing there is no reason to be buying a $25,000 CAD system when a $7,000 CAD system is a better tool.

People are coming to that awareness, particularly as you look at other companies, and they've gone through this thing of, I'm paying $1 million or $2 million in maintenance.

So it's not just the initial purchases.

People are looking at this ongoing pricing and they're going, "This doesn't make any sense for my business." And they are saying, "I have a better tool over her, I have trusted relationship with this vendor, I've already used it in portions of my facility and now I am going to switch over." That's one thing that goes on.

We've also talked about emerging markets.

One of the things we did see was a rebound in our emerging markets where there were certainly people entering the workforce.

I think some of the dynamics have changed, maybe the motivation of why people bought new commercial licenses.

This quarter may be different than if we had talked about this two years ago, but the places you would find them are very similar.

If I could squeeze one last one in.

Maintenance billings, I understand being very positively impacted by renewal rates.

In terms of the actual maintenance revenues, were there any one time items in there that caused the sequential growth, or perhaps any catch-up maintenance revenues in that figure that were out of the ordinary catch-up?

I would say no, none at all.

Just the basic business.

Renewals were really the driver.

Your next question comes from the line of Steve Koenig with Longbow Research.

Please proceed, sir.

Thanks for taking my question.

Just one tactical question and one longer term oriented follow-up.

The tactical question, so the unshipped orders, it looks like they have built pretty well in the quarter.

What caused that and where should would expect that to trend in Q1?

Should it stay the same, go down, et cetera?

I would call it, our backlog was $26 million.

You can see historically how we've disclosed that.

It's a little bit on the high side of the range but not completely out of the norm.

But on the high side, for sure.

I think you'd really look at that and the channel inventory together.

The channel inventory is, as we said, below three weeks and I think those two play hand-in-hand.

I don't think there is any real special story there other than that.

Okay.

Let me move to the follow-up question.

I've heard from channel partners concern around that they love the increased functionality of the products, the products are just getting better and better all they time, they deliver a lot more productivity to customers.

But I have also heard the concern that down the road customers are going to be able to do a lot more with, in fact, fewer people, the concern being there could be an adverse revenue impact.

Is that factor for real or is that something that shouldn't be a concern at all?

It kind of reminds me of the conversations around the paperless office.

We're 25 years past the idea of the paperless office.

I'm sitting at a table with more paper than it would've had 25 years ago.

I think there is always this idea that you will do more with less employees.

To some degree, efficiencies, productivity measures by traditional economic measures do go up, but what you find is that in a competitive environment, people still need to produce the best projects or the best products.

And more often than not they reinvest the time and savings into producing the best product.

I still need a cell phone that out-competes the other guy.

I need a more fuel-efficient car than my competitors or I need a better, more aesthetic, energy efficient building than somebody else.

What we see over time is there's always -- this thought underlies lots of people when they look at long-term trends.

It is never played out and I don't really see it playing out in the future.

Thank you very much.

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

Please proceed.

Thanks a lot and congratulations on the quarter.

Mark, you mentioned 22 deals over $1 million.

Can you put that into reference relative to last year in your fiscal fourth quarter?

Let me give it to you in the context of the entire year.

We were pleased with the sequential tracking of the big deals within FY10, as we talked to you about.

Compared to last year, of course, reset, is probably down about 50% year on year.

Trajectory is obviously the key point that we were calling out in terms of Q4.

Absolutely.

Just a quick one on the maintenance from my side as well.

You've seen maintenance building, but I think now on average for the last four quarters be around flat or just modestly down.

Is that a good starting point for us to work from when we think about how we should think about maintenance growth maybe in the fiscal first quarter of 2011?

From that standpoint, Ross, I look at a couple of things.

One is the buildings that we had this period that we talked quite a bit about.

As Carl said, certainly seasonally you would normally see a seasonal uptick, but better than we expected a bit, and that was driven by the renewal rates.

So the way I think about this is take a look at the prior three quarters in terms of the data we've shared with you, look at what is going on in this quarter and the data we've shared with you, and then make a deal on the renewal rates, and that will be the key drivers to get you to Q1 and beyond.

Our renewal rates, as you can see, is a fairly important dynamic here.

Ross, let me just try to step back for a second.

I think what happened to our business, as with many, is we were most greatly affected by the overall economy.

In response to it, we changed the way we go about doing our business.

Hopefully we made some smart decisions doing that, focused our energy on things that mattered, got rid of some of the things that didn't matter.

Right now we're sitting here, we're very pleased with the quarter.

It is one data point, but there is more work that needs to be done.

We hope that many of the things we laid in that were of our own doing turn out to be successful going forward, and of course we hope the economy continues to improve.

This time we think we got a little bit of benefit from both.

As we go forward and we see more quarters hopefully the same, we will have a greater ability to identify how much comes from things of our own doing and how much comes from just the rising tide of an improving economy.

Your next question comes from the line of Mike Olson with Piper Jaffray.

Please proceed.

Good afternoon, just a real quick one here.

With this whole upgrade pricing change towards putting anyone behind the current version in a position where they need to pay 50% of a new seat price, what do you expect the impact will be on subscription attach rates, and what do you think subscription will be as a percentage of the user base over the next couple of years?

I think, in some way, if you look historically, we've talked about this for a long time since this program has been in place, upgrades have become a smaller and smaller portion of our business.

Right now they are a fairly small portion of the business.

I think there is a small amount of the people involved in that that would choose to go on subscription.

My guess is, certainly our hope for both attach and renewal rates, they will go higher, but I think it is as much driven by the value we are putting in the program by any of the economic motivation.

On the other hand, it is more likely than not that the change in pricing will move people toward subscription.

Generally speaking, what we looked at is it became a small enough portion of our business that what we were really interested in was in the business model simplification that came from doing that and not needing to manage all that complexity.

Both from our point of view and the point of view of our partners, and certainly on behalf of our customers.

Thanks a lot.

Your next question comes from the line of Blair Abernethy with Thomas Weisel Partners.

Please proceed.

Thanks very much.

Nice quarter, guys.

Carl, I wonder if you can just expand a bit on Autodesk Vault and how you're positioning that in the market and what you see for that over the next couple of years?

We are tremendously excited about what w'ere doing with our vault which is our data management product.

We've rolled it out to a broader audience.

It's a product that started in Manufacturing.

We are using it in broader ways right now.

It is one of the untold stories in the business.

People often see us in this very kind of heavy iron, expensive enterprise PLM market, and we're not, and we are happy not to be there.

But when it comes to data management, we think it is a real issue for our customers and we have had amazing success with the product.

One of the things I was going to do in June is detail more about it, tell people what is going on with the business.

I think it has been a great success story and we've given it enough time to gestate.

There is meaningful success in it and we really understand the pain points it solves for our customers.

Two more quick things.

Again, on the large deals, can you give us a break out or give us some sense of how many of the 22 deals feel into Manufacturing versus AEC or other areas?

Two things.

One is I don't really want to break it out.

And number two, some of the deals are not that easy when we get to our larger deals.

There is a lot of cross pollination between the two.

We have a lot of those.

Fair enough.

One last one if I can.

Mark, your tax rate, 27% for Q1 next year.

What should we be thinking about for the full year?

From that standpoint, Blair, the 27% you get winds up a bit because basically the R&D tax credit has not been renewed.

At this stage, that is our best view of the world.

We are not giving guidance for the full year.

As that tax law changes or potentially changes, we will obviously update our projection each quarter, but that is our current view right now.

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

Please proceed, sir.

Just one quick question.

Was the linearity in the quarter in line with historical Q4 patterns?

There was no major change in the linearity from that standpoint, Greg.

No big story to tell there.

Okay, thanks.

Your next question comes from the line of Israel Hernandez from Barclays Capital.

Please proceed.

Good afternoon, guys.

In some of our checks we are finding that the business information modeling, BIM requirements are becoming more pronounced in the competitive bid process, particularly in some of the federal government initiatives that are coming out of the stimulus.

Can you comment on these BIM requirements?

Do you see that as a driver of some of the 3-D products like Revit?

That is actually a good pickup.

We certainly see it.

One of the things I was referring to, slightly obtusely, before about some of the things we put in place during the downturn, we worked really hard with governments around the world, particularly in the Americas with the stimulus money, to help make sure that when the stimulus money was spent people were getting the most for their money, and we believe the way to do that is through BIM modeling.

I think it has made its way into many of the programs that are being launched by the federal government and it's going on in some of the state and local governments, and we are seeing more of a trend internationally around it.

I think the other thing that is really important is, on one hand it's being driven just by mandate by being part of the legislation, and the other place is I think many people are under-estimating the magnitude of change that is coming with legislation around energy.

It is a much bigger deal than many people have really accounted for.

I think some of the ways that building information modeling is getting built into the standards and the codes is in order for people to really understand carbon footprints of the buildings that they are making going forward.

So I think both of those factors play into it.

Both of them play to our strength in that we believe Revit is the strongest BIM product in the market.

Your next question comes from the line of Ben Rose with Battle Rose Research.

A question for Carl.

I was curious to know a little bit more about the performance of the mechanical simulation products during the quarter.

I know that over the last couple of years you have made a number of acquisitions there, and I was curious how those products are playing out.

A follow-up question would be to what extent are you seeing synergy between those products and the inventor product?

We worked hard to make sure our simulation products work really well with our inventor product.

What I would say at this point is I am really pleased with how far we have gotten with our simulation products.

There is both mold flow and the stuff we did with Al Gore.

I think they've had great success in terms of -- what I would really look at is those early stage pilots.

I think we have been able to get it into a lot of places, seeded, tested.

I don't think it had a big impact on revenue this quarter.

This is another one of those areas where I think we would be wise to detail a little bit more for you in June.

We will have a little bit more traction then with what we're actually doing.

In terms of people want to lower the cost of production, they want to simplify the process and the time it takes to bring products to market, and there is no doubt that the integration of design and engineering tools with simulation tools is the way to do it.

What's interesting for us, it is certainly true in manufacturing where it's a long established technique, but we are also seeing it in some of the things I referred to in the AEC markets where those same kind of needs are there.

As people understand that regardless of what you're building, if you model it rather than just draw it, so if you have a 3-D model based design you're able to do analysis and simulation.

One of the places we've seen it really clearly is in road design, in an area where people don't really think of analysis and simulation, but it is equally important there.

We really think it is the next step and it really fulfills the promise of what model based design tools are about so that you can really understand the thing you're building in a more complete way than you were otherwise capable of.

Thank you.

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

Please proceed.

Thanks, I was just checking on the tax rate, that has been answered.

Thank you.

With no further questions in the queue, I would now like to turn the call back over to David Gennarelli for closing remarks.

You may proceed, sir.

That concludes our formal remarks today.

If you have further questions you can reach Investor Relations at 415-507-6033.

Thank you.

Thank you for your participation in today's conference.

This concludes the presentation and you may now disconnect.

Have a great day.