Autodesk Inc (ADSK) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2011 Autodesk, Inc.

earnings conference call.

My name is Derick and I'll be your operator for today.

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

Later, we will be conducting a question-and-answer session.

(Operator Instructions).

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

I would now like to turn the conference over to your host for today, Mr.

Dave Gennarelli, Director of Investor Relations.

Please proceed, sir.

Thanks, operator.

Good afternoon.

Thanks for joining our conference call to discuss our first quarter of fiscal 2011.

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

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

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

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 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 second quarter of fiscal 2011; remarks about fiscal 2011; factors we 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 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 2010 and our periodic 8-K filings, including the 8-K filed in today's press release and prepared remarks.

Those 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 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 our 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.

Thank you.

Good afternoon, everybody.

What a difference a year makes.

Our fiscal 2011 is off to a better start than last year.

Financial highlights in the first quarter include strong revenue results of $475 million; revenue from commercial new licenses grew over 20%; strong subscription revenue and billings; significant operating margin improvement; increased EPS; excellent operating cash flow; and a strong balance sheet.

First-quarter revenue included a one-time benefit of approximately $15 million in upgrade revenue related to a promotional program that was run in advance of an increase in upgrade pricing.

From a geographic perspective, our international geographies provided all of the growth this quarter.

Asia-Pacific grew by double digits sequentially and year over year, with particular strength in Japan.

EMEA posted strong revenue growth, as well, with a one-time increase in upgrade revenue supplementing the strong core demand.

Although both the US and the Americas are not recovering as fast, the Americas had tough comparisons due to several large deals in the prior periods.

I believe the Americas is making progress and I'm optimistic about the geography returning to growth this year.

During the first quarter we launched our 2011 portfolio of design software products.

Autodesk best-in-class products have been enhanced with powerful new features for 3D design, visualization and simulation for engineers, architects and other creative professionals.

The revised user interface provides a more consistent experience across our key products that make it much easier for our customers to move between multiple Autodesk products.

This is our most compelling product release ever and our customers and partners are excited, as well.

We have been building our brand with end users who have not historically been Autodesk customers.

During the quarter we launched the SketchBook Pro app for the iPad.

Geared for both occasional doodlers and professional artists SketchBook Pro transforms the iPad into the ultimate digital sketch book.

This app was an immediate hit and similar to our SketchBook mobile app for the iPhone it quickly became one of the top apps downloaded.

We also launched AutoCAD Freestyle, an easy-to-use application for drawing and sketching geared towards specialty contractors and do it yourselfers, and Autodesk Homestyler free on-line home design software.

These products are making design technology accessible to a new audience for whom our professional products have been out of reach and they're exposing the Autodesk brand to a large group of potential customers.

Our solid first-quarter results are further illustrated by strong financial metrics, such as low inventory in the channel; low DSO; a strong cash and investments position over $1.2 billion; and no outstanding debt.

Last year we took significant action to reduce our operating expenses and improve efficiencies.

The leverage of those actions is now starting to materialize, as we start to experience annual revenue growth again.

Going forward our enthusiasm is tempered somewhat by the devaluation of the euro and the general instability of the European economy.

We have experienced a solid rebound in the global demand environment, our businesses gained momentum, and we've improved efficiencies within Autodesk.

While it is difficult to gauge the slope of the recovery, we're confident about our business, our market position, and about executing through the recovery and beyond.

We will continue to focus on opportunities to drive growth in revenue, margins and profitability.

At this time I'd like acknowledge the great work of our Autodesk employees through this challenging recession.

It is through their hardworking contributions we have made the progress to date and our position to further improve going forward.

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

(Operator Instructions).

While the operator's polling for questions I want to note Autodesk investor activity this quarter will be at the UBS conference in New York on June 8.

And as a reminder, we're hosting our annual investor day on June 24th at our gallery in San Francisco.

And please e-mail me if you have not already signed up.

Operator, we're ready for questions.

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

Please proceed.

Thanks, good afternoon.

Mark, just a quick question on the guidance.

I think you're guiding down roughly 6% sequentially in Q2 and if you look at the last five years I think you've been up about 2% sequentially, Q1 to Q2.

So can you just help us understand how much of that is Europe and how much of that is just general caution on the other side of the business?

Absolutely, pleased to do so.

I think we're all reading a lot of the same documents and materials and the fact is there's a fair amount of uncertainty in Europe.

We think that that's pervasive for people that are looking at the business going forward.

That's the single biggest thing that we're looking at.

The second thing I would call out, that Carl touched on briefly, is that we had a -- in Q1, keep in mind, we had about a $15 million one-time benefit, if you will, from our simplified upgrade pricing and whereby there'll be a little bit of residual benefit for people who did upgrade who do subscription and fundamentally that's kind of a one-off that we need to adjust for.

The third thing I would cull out is the foreign exchange headwinds.

Of course, you know we're hedged to a good proportion but not 100% and therefore there are some headwinds we have to look at, as well.

We think it is prudent with all things considered to take this approach.

And obviously time will tell, but this is our best comprehension of all the facts as of today.

Okay, and just a quick follow up for Carl, just on the Americas business.

Can you give us a sense of what you think actually needs to happen for you to return to growth?

Like we try to call out I think excepting a couple of very unusually large deals a year ago, which we talked about then, Americas would already be back to growth.

Those were fairly exceptional.

One of them was the largest deal in the Company's history and so it's just really going against those comparisons.

Thank you.

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

Please proceed.

All right, thanks.

Did the upgrade pricing change have the intended effect?

In other words did most people shore themselves up to the latest version and get on subscription or were there users who decided they'll just wait longer between upgrades?

And are there other actions that you're going to take going forward to continue to push customers towards subscription?

Yes, I think we're -- I think we've demonstrated a good track record of making our subscription program more valuable over time and both our renewal rates and our attach rates are demonstration of that.

By no stretch of the imagination would I say most people got on the latest release, that just never happens.

But we did also call out we think upgrades will be down next quarter, but if you just look at a three-year to five-year trend upgrades are becoming an almost inconsequential part of the business.

But we will continue to do things like look at the pricing on them.

We continue to run legacy promotions.

We're always looking at ways to make sure that our customers have the latest software, and we'll continue to run those kind of promotions.

And if I may add, I do think that, in addition to what Carl said, that we really are viewing this value as something that's good for the customer.

It's good to have that ongoing strategic relationship with them, and also you can just tell by the nature of the simplified upgrade pricing that they are encouraged to stay within subscription.

So our renewal rates I think it's a good thing over the long term.

That makes sense and then just one quick housekeeping.

Mark, what do you expect interest and other expense to look like over the next few quarters?

It's tough, Mike.

We don't typically guide that.

There's a lot of puts and takes on that.

To be honest with you, it's typically not highlight material.

I'd look back historically and try to use that as a reference.

There's just a lot of puts and takes all the way down to some detail that you wouldn't even care to get into, honestly.

My best sense for you is honestly look at an average and make a call on that.

Honestly, Mike.

All right, thanks very much.

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

Please proceed.

Thanks so much, guys.

In the prepared comments you write in here that you focus on controlling expenses while balancing investment in the business.

Can you talk about where you invested in the business during the quarter?

I don't think there were any -- particularly any unusual investments this quarter.

I think if you look out over the last few quarters and our biggest investments has been in retooling our sales and marketing efforts.

Those are the things -- and we talked about this all through last year -- as we were cutting expenses was to make sure that we were executing much better on our go-to-market strategies in places where we thought it would drive revenue more quickly.

So most of our investment has been there.

I think in other places it's less a put-and-take on expenses, but we've rejiggered our portfolio of investments in terms of R&D to the places that we thought they would be more fruitful.

And as you think about it in the remainder of the year, Carl, are there any new areas you'd see where you'd like to put some more investment, particularly given some of the revenue out-performance you're seeing in this first half of the year?

I think there are a bunch of opportunities that we think are important.

We've talked about our simulation and analysis, what we're doing there.

We've seen some interesting things in terms of these consumer low-end products.

But I think a lot will be really in the core business and figuring out which parts are yielding results as we bring on more sales people, run more programs, and really figure out the yields from the investments we've already made.

The other thing I'd say is, as we get to investor day in June there's a bunch of things that, given more time, we'll lay out more fully about where we think the best opportunities are.

Great.

And then just over on the Europe side you got hit a little bit on the hedging that you're doing and how you're thinking about that, but obviously that's sort of changing real-time on a day-to-day basis.

How do you try and model that given how volatile that environment seems to be right now?

Sure, let me take a shot at this.

Basically, Brendan, we have -- we try to be as transparent as possible in terms of this four-quarter rolling hedge.

And just for everybody on the phone there's this opportunity to -- as you get closer in you should have the majority of your revenues and also your local expenses.

You net out that and get a total exposure and you try to hedge that.

And then you layer it each quarter and the second quarter out it has a little bit less coverage and the third quarter has less coverage and the fourth quarter has a little less coverage.

It's a fairly traditional approach called the four-quarter rolling hedge.

So we take that and do that as a -- with the goal of simply muting the variation versus plan.

And then that's what corporations do.

I think in terms of the real-time adjustments that are happening to FX, we have to look at that.

We comprehend the best data we have.

We have some ways to integrate this information and model it and we make assumptions for the current period, as well as our planning for the year.

So there's nothing more in detail I can really share with you.

It's a complicated topic but we certainly try to factor in the hedges that we already have that are layered in that address both revenue and local expenses.

And then we also factor in the unhedged portion with the spot rates on everything that we can comprehend there to come up with an assessment.

If you step back and you look, we talked about this probably a year to a year-and-a-half ago when we had a more simplistic hedging method that was really for most of the quarter the revenue.

And as we recognized the volatility in many of the world's currencies we talked about introducing a slightly more sophisticated program like Mark just described.

In some ways it's having the effect.

So while we watch the euro constantly, the effect is easily calculated and is less important in the quarters near in.

And more of that volatility plays out in the long term, but we have less certainty of where it'll be.

I was actually asking more about the demand side of it, when you're trying (multiple speakers).

So on the demand side I think we're watching -- it's three weeks into the quarter.

It's obviously a way bigger concern for us is the demand than the actual FX.

So far we haven't seen anything unusual in terms of the demand in Europe, or even as you read about it spreading around the world, we haven't seen anything different in demand.

We factor that in just knowing that we're three out of 12 weeks into the quarter and that's about as far as we can see.

Great.

Thanks a lot.

Your next question comes from the line of Derek Bingham with Goldman Sachs.

Please proceed.

Hi, gentlemen.

First I was wondering if you could give a little more color beyond the differences in what you're seeing in manufacturing versus AEC.

I know we've got the numbers in front of us, but just wondering if there is any more color you could add.

Generally I think people are saying, okay, manufacturing's really strong but this construction is still very worrisome and there's not a lot of activity going on, I am wondering what you could add to that?

Derek, a couple things here.

One, for manufacturing we continue to see headroom in manufacturing.

We've talked about that as being an area that we think we can continue to make progress on and it'll be a driver for us in this year and beyond.

You can see the nominal growth rates, as you called out, on a year-on-year basis, about 15% year on year for manufacturing and about 7% for AEC.

We're pleased both are growing double digit.

This completes the cycle that we talked about of the reset, stabilization, sequential growth, and year-on-year growth, and it's really pretty much portraying as we've been talking about for the last year.

But I think the manufacturing we see headroom.

We continue to win specific deals for specific customers.

I'd say in some cases CATIA would be more likely area that we may win an account on.

I think we have a strong product set with Inventor.

Carl talked about investment in simulation.

I think that our digital prototyping and simulation I think more and more people are really looking at the value of that offering and it's really opening doors because this -- we really have a strong offering, as Carl talked about in our opening comments.

So I just think competitively we're well positioned, I think the market's kind of listening to our pitch and I think you're seeing some progress.

Carl?

Yes, what I would say is, it's slightly counterintuitive.

No doubt if you look at the worldwide economies manufacturing recovered more quickly, but the counterintuitive part is that many of the companies in the construction industry are being forced to go to more direct measures.

There's been more consolidation, there's been more trouble in their business.

They are moving into different kinds of building types.

And with that comes an adoption of technology to change the cost structure and the efficiency of their business.

So I think at some point, as we start coming through it and we've seen some demonstration of that already, is that you'll probably see even a greater adoption because they are going through this technology transition as people start using this building information modeling, or BIM that we've talked about.

And it is -- it has now taken on the proportions of a worldwide shift in how the industry does its business.

So manufacturing is no doubt better.

And as we've talked about, for our competitive position in each it's very different but they were both good this quarter.

It was nice to see Revit growing 13% year on year.

Again, a key product, to Carl's point, so good results overall in those two areas.

Okay.

And the platform strength, that was what saw the big sequential jump and that -- was a lot of that was related to the promotion, or what else are you seeing there?

Yes, a lot was related to the promotion.

The other thing is, in some ways we're starting to look at the mirror image of this as we went into the downturn and so what you're seeing is the symmetries.

We talked about -- going into it.

We talked about one is we were able to have large deals.

Customers who were buying 3D model-based products continued to buy as we went into the downturn.

What we saw was a fall off in the one and two seats, and primarily in the horizontal products like AutoCAD and AutoCAD LT.

Those were the people who were much more hard hit.

As we come out the other side we're starting to see that recover more quickly.

I don't think there was much more to it than that.

Okay, last one, if I could, just on maintenance renewal rates --

I thought there were rules about this.

Oh, I don't know.

You'll have to enforce those on the next caller.

(LAUGHTER) Just real quick, the maintenance renewal rates at this point, have they completely normalized in your view, or are there still some more points to be had on that recovery?

I think the good news is that we have seen improvement, both year on year and sequentially, Derek, and so that's positive.

We're still not at what I would say is the level that we have been at historically, but we're approaching that.

There's still headroom on this area.

We're making real progress toward that but there is still headroom compared to historical rates we've been at.

Okay, thanks a lot.

Congratulations.

We're looking beyond more than just a year back.

Your next question comes from the line of Sterling Auty with JPMorgan.

Please proceed.

Yes, thanks.

Of course, I get to be the one that you enforce the limit rule on.

(LAUGHTER)

(Inaudible).

Exactly.

So one question and one follow up.

The question, Carl, I didn't get a chance to go through the prepared remarks.

You talked about the tough compare on the large deals last year.

Last quarter was a good large deal quarter, can you talk about what large deal environment was like during this quarter?

Yes, large deals were definitely down from last quarter and more in line with historical norms.

As you know, we're not typically a large deal company as you would think about it.

We don't have that linearity in our revenue, proportionate revenue, it doesn't look like that.

We don't have those characteristics.

We just thought it was kind of unusual last quarter and so we called it out but we're kind of back to normal seasonality and normal number of deals.

I think if we see anything different going forward we'll call it out at the time.

Okay.

And then the follow-up question is, we talked about coming into the year the cost cutting you did last year but then the cost suppression, obviously the margins have been much better than expected.

Do you feel like we felt all of the impact of the cost suppression coming back in, whether it be merit increases or the sabbaticals or like that?

So in other words, is this the type of operating leverage that we could expect moving forward?

So let me address that, Sterling.

The way we're thinking about this is, look at our operating margin focus it's all-in, all costs considered, including all the dynamics that we talked about earlier, even including FX.

But I think it's fair to say that we have -- there's been some costs that were suppressed in the prior year that we have seen some impact on in Q1, for example.

I think you'd -- I'd almost shift the topic from cost suppression to say that all-in, when we look at our cost, that's factored into our operating margin expansion.

All right, great.

Thank you, guys.

You bet.

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

Please proceed.

Excellent.

Thanks for taking my call.

You guys saw a very nice increase in the number of net new maintenance customers in your subscriber base, I think it was like 133,000, which I believe is the biggest sequential increase that you guys have ever seen.

Can you talk to us a little bit about the source of all those new net subs, because that's a lot of net new subs compared to the amount of overall net new product businesses that if you look historically.

Is that more people in the base coming over, or how much of it is net new customers coming on to subscription?

I think along with the simplified upgrade pricing is people are -- got the message that the most cost-effective way to buy our software, and the way to get the most value is through the subscription program.

As we've always talked about, these two things are really zero sum.

You can buy through upgrades or you can buy through subscription.

And it's been a long-term trend, more and more people are going to subscription and I think this just continues it.

I think we have simplified upgrade pricing -- and just to be clear about what that was, it was going to one price for upgrades.

You may remember us talking about our 1X and 2X and 3X pricing, which was overly complicated, both for us and our partners.

And so we -- and as we saw less people utilizing the various levels we decided to simplify that.

As you went to one price, people are getting that there are certain places you don't want to be because it's no longer economically advantageous to be there and they recognize that we're really shifting the focus to being a subscriber is really the best way to do business.

Got it.

And as a follow up, could you guys give a subscription or maintenance billings growth number in the quarter because it looks like -- just back of the envelope it looks like it was very high?

And is there -- similar to that $15 million in upgrade revenues, is there a like simplified pricing impact number on that subscription billings number, do you think?

Let me talk about the billings in general grew 26% year on year so I think that's a fair commentary in terms of it was high.

In terms of the -- the second part of your question again was?

Like you guys were able to come up with a number, like the $15 million impact to upgrade revenues from the pricing change, do you have a similar sense of what the impact on subscription billings was from the --?

We really don't because you kind of have to start to get into the mind of the customer when you think about it from that standpoint.

So the one-time simplified upgrade pricing is what it is.

You can see that in our cross-grade upgrade data we put on the fact sheet.

And I think the actually billings growth for subs it's just hard to get into the minds of the customer.

But I think it's fair to say that they see value in this product and I think they are incented to stay close to us and really get the value of those current releases and all that benefit and it's a good economic thing for them to do so.

Your next question is from Ross MacMillan from Jefferies.

Please proceed.

Thanks a lot.

I'm just going to recap a little bit here.

But just on the guidance, if I took out the $15 million then obviously it implies flat sequential hit the high end.

You comment that the majority of the euro and the yen is being hedged for Q2, so are the other factors just really demand uncertainty?

That is the first question.

And then the second question just on the mechanics of the hedge, because I understand that it's a rolling four quarters, but would I be right in thinking that if I took, for example, prevailing rates today and I basically thought about the percentage impact, if you will, that rolls through over the next four quarters, that would effectively grow linearly or non-linearly?

In other words, you might have 10% of the total impact next quarter, and then 25%, and then 40%, and then -- or whatever the case may be.

Is it like a non-linear relationship such that that becomes a bigger impact as you go further out the curve?

Thanks.

So two things.

So first, in terms of the guidance, it's really demand uncertainty in terms of Europe.

I don't think we have any of that uncertainty around the rest of the world but events are changing day to day, so it's really demand uncertainty in Europe.

I outlined that we haven't seen it yet, but we'll see.

And in order to solve that -- in order to solve the FX hedging equation we'd have to give you more information.

We really haven't gotten into details about telling you how much we hedge each quarter.

Yes.

And then just one quick follow-up, if I could.

Yes, sure, go ahead.

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

You lost it now, Ross.

Please proceed.

Do you want to go back and give Ross his question?

No, people are fortunate we're getting strict.

Why don't we do this, Heather --

We'll get Ross right back on.

Okay, all right.

I just had a question -- Carl, nice quarter -- how much of a benefit do you think you're seeing from projects that were put on hold last year or pent-up demand, if that's what you want to call it, and where do you think we are in satisfying the appetite for that?

I think we're at the beginning of things coming back on line.

I don't think everyone's back to work yet.

I don't think most firms are running at full bore.

I think to the previous question it's a little bit better in manufacturing than it is in construction and it's different -- there's definitely differentials around the world.

But I think we're still early in it.

I think the real difference maybe is almost psychological and attitude in which people have started to make investments in their business going forward.

They're out of the deep depths of kind of depression because they were not willing to make any kind of investments and had certainly more pressing issues than upgrading their technology.

And we've now really crossed that barrier where people are making technology investments assuming a level of business they're seeing today.

Was the biggest impact in that this quarter where you saw that inflection where people were feeling comfortable or was that also in the January quarter, as well?

I think we talked about it a little bit in the January quarter, small improvement, but I think if you look this quarter it's a little bit more broad based in terms of product categories, individual products, license-tied geography.

So it's back to a much more broad-based diversified revenue stream that we're used to.

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

Please proceed.

Hi, thank you very much.

It looks like Europe did a little bit better than Americas.

I'm just wondering if you can give us more color?

I know that certainly so far this quarter you've not seen any signs of weakness, but what drove the strength in Europe?

It looks certainly to be surprising?

Also, if you X out the promotion results relatively flattish for January quarter, so I'm wondering how -- what gives you the confidence about growing at this level and beyond into the future the next few quarters?

That's it for me, thanks.

Well, the one thing I would add immediately is that in terms of Europe the broad-basedness that Carl touched on was certainly there in Europe.

We saw good growth across the variety of countries in Europe and so that was one thing that was certainly there.

To give you a little bit more color, this was not just driven by just the north or just by south or one area or the other.

We saw a good level of broad basedness from that standpoint.

In terms of other elements of the growth, as we called out there was some benefit from the simplified upgrade pricing that certainly impacted Europe, as well.

We've talked about the FX in terms on the year-on-year growth effect.

Those are a few thoughts to consider.

Carl, I don't know if you have anything else that would add to that?

No, not much to add.

I think there may have been some slightly better execution when it came to the upgrade pricing, probably contributed to it to a small degree.

But as you know with our business, we do so many small transactions it kind of becomes statistical in nature and I've always said don't go extrapolate from one data point too far.

As we start seeing more of what goes on over the next few quarters I think we'll have a more evolved sense of what happened.

And I think that same caution I often ask of you I'd say of us, because we don't know enough from just looking at the one quarter to say it.

But what we can say is there was that diversity.

Carl, as you talk to customers, what is the employment cycle looking like?

Are people done retrenching or are they actually a little bit more advanced in that they looking to hire, or are they actually started hiring?

If you could just comment on that.

And Mark, for you, inventory should roughly stay at this low level, or should we expect it to build back up to normal levels?

That's it for me.

Thanks.

So I would say hiring we're on the beginning of the slope up.

There are clearly people who are hiring for the first time.

Talking to customers I've heard people say I can't hire, or I can't hire fast enough, so we're in a different place than six or nine months ago in terms of that.

I don't think we're up at all to the staffing levels and you can look at the worldwide employment data to see that, so I don't think we're up to levels of two years ago, but I think we've definitely hit the inflection point where employment's recovering in the industries we serve.

And so, Kash, to hit the second question in terms of the inventory channel, it is, to be clear, at the low end of what we've seen and it's a little bit lower than we historically have had in terms of the channel inventory, so we have typically thought about it in terms of the two- to four-week range.

It's really at kind of the -- more of the bottom of the low end of the range.

So I don't think it's a big factor, but that is factually where we're at.

Yes, and it's probably -- I would just say it dropped more.

It's probably just a drop lower than we're comfortable with.

At a certain point, and we've talked about this before, it becomes hard to service our customers well, and we're probably at that point.

So I wouldn't be surprised to see a small build during the quarter.

Exactly.

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

Please proceed.

Hi, congratulations on the quarter.

I wonder if you all could comment on -- I guess adjusting for the outperformance this quarter, Mark, do you still see the possibility that 200, 300 points of margin expansion is the right way to think about this year, or should -- could we even expect better than that?

I would say that given what's happened in the first quarter and the way we're thinking about the second quarter, I think you should think about it more approximately 300 basis points, so more at the high end of that range based on what we're seeing, factoring everything we can see in as of today.

So I think that would be the -- that would be where I would encourage to you think about.

Okay.

And then my follow up is kind of related to that, which is if we see revenue up-side like we did this quarter, it looks like most of the revenue up-side this quarter fell straight to the bottom line once you tax it.

Would you expect that -- if you had up-side surprise on revenue, would you accelerate hiring as the year progressed or accelerate investment in channel or would most of that fall to the bottom line?

How should we think about that?

I think we will -- I think you can see the benefits of leverage.

We experienced the pain of deleveraging, right, the economy and the companies in it, but you're now seeing the benefit of leverage.

So I think it's fair to say that revenue over performance is something that will generate good bottom-line performance.

I do, though, want to underscore that we're making select strategic investments and we're going to constantly be walking that balance to both continue on our progression towards our long-term operating margin of north of 30% over our long-term plan and at the same time sow the seeds of investment that are going to propel growth over the long term.

So, Carl, I don't know if any additional commentary?

No, I think that's fine.

Okay.

Your next question comes from the line of Dan Cummins with ThinkEquity.

Please proceed.

Thank you, I had two quick questions.

I wondered -- I may have missed this in your remarks earlier -- I apologize if you talked at all about the sluggish American business -- have you adjusted your expectations up or down recently, and if so why?

If you could give us an update on your opinion on credit access in your channel and also sales headcount in your channel?

And then I just had a quick question about Revit, as well.

I don't think we've seen much difference in our American business.

It's kind of going right according to plan.

I don't think we've seen any real differences in terms of access to credit.

I think business in the Americas is tracking just according to plan.

I think as reported -- as we pointed out a couple times, it's just hard because of the comparisons and because of those abnormally-large deals last time this year.

One thing you can see in our particular DSO -- certainly have to adjust it for billings, linearity and such -- but in general -- and we talked about it last quarter -- we're not having channel partners who are asking for extended terms.

We're seeing some level of normalization there and so from that standpoint I think we're really more in terms of -- back to normal in terms of what they're asking for in terms of credit terms.

So that's another maybe micro bit of data for you to think about.

Okay.

And then on Revit, I thought last year was a good year incrementally speaking for the state level mandates around building info modeling.

Do you think this year we're apt to see anything significant on the commercial side with respect to BIM and the possibility of exclusively Revit in some cases?

Yes, I would say we're in that really nice position of where you're starting to see national standards and professional organizations recommending BIM.

In some places they stop short of naming actual products, not being allowed to do so, but in many cases really the only product on the market that fits the bill is Revit.

And we've continued to invest in Revit.

It's moved far ahead and I'm really happy with the progress that we've made on the development and I'd say even happier with the adoption around the world.

You now see it just being used on projects of every size in every geography and there's no doubt that these government mandates certainly help.

Your next question --

Go ahead, operator.

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

Please proceed.

Good afternoon, guys.

Can you guys talk about as we move into a global recovery, assuming Europe doesn't melt down here, how do you think the pace of 3D adoption will be on some of your products?

Do you think some of your customers are now using this pause over the past couple of years to rethink their technology platform?

[Do you think that you're] well positioned coming up out of the recession?

And Carl, also I'd also like to get a comment on the anti-shelfware issue?

Thanks.

So I would say on the technology adoption, we've talked about this a lot, I think many, many of our customers have done more than just rethink.

I talked about a lot of pilots being run.

There's -- usually there's a period of checking out software and then they pilot it before putting it into production.

What I think happened that during this extended downturn you saw a lot of piloting going on and in some ways that leads into the anti-shelfware is that what we would have seen before is maybe a firm buying a 100 seats of software.

During the downturn they might have only bought ten or whatever was sufficient in order to run their pilot project, but now have figured out that work processes and integration with their systems so that when they adopt it they're still looking to purchase those 90 other seats.

So I think that's really where some of the pent-up demand comes from, from the being on the older technology.

And some of it just comes from being time has passed and people are sitting back on old releases.

I talked about this a little last quarter.

One of the things is, if you just saw a side-by-side demonstration of our products running on Windows 7 on today's commodity desktop computer with typical graphics hardware, and you went and saw the same thing on some older version of Windows on a 32-bit operating system with old graphics, it's a night-and-day experience.

And so even without changing the technology platform, just moving to the latest hardware and software, gives people unbelievable productivity benefits.

And so I think some people are just going through that upgrade and as you see a PC refresh cycle, we're kind of tied to that in some ways.

Thank you.

Sure.

(Operator Instructions).

Your next question comes from the line of Sasa Zorovich with Janney.

Please proceed.

Yes, thank you.

If you could comment a bit on what kind of competitive changes, if any, you have seen through the quarter here?

Could you repeat the question, please?

Yes, can you hear me?

Yes.

If you -- what kind of competitive changes, if any, you have seen in the quarter?

I don't think there was anything -- I don't think there's anything notable.

I think competition continues to remain the same throughout the markets and geographies that we've historically talked about.

Nothing special to call out.

So specifically that -- the strong performance that you've had in the quarter here was basically that the markets were coming back, the demand was coming back, but not that there were really meaningful share gains that you have been able to point to for that?

I wouldn't get too excited about share gains in a single quarter.

Fair enough.

And then also if you could comment on the linearity.

Your quarters have tended always to be very linear, has it also been the case here or did you see any kind of an acceleration through April or was it, again, fairly linear throughout?

Let me address that, Sasa.

I think two points.

One is that I think it's quite linear, again.

That's a pattern that we've seen and we would even say, as Carl touched on earlier, even for the first couple weeks of this quarter it's been reasonably linear thus far.

Great.

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

Please proceed.

Thanks a lot for getting me back.

It was just a real simple one on the $15 million benefit from the promotion.

Is that something which you've been able to pin down accurately, or is that just a good estimate of what you think the impact was?

I'm just curious.

Thanks.

Yes, we just pulled it out of the air.

(LAUGHTER).

No, it's -- we've spent a bit of time on this one, Ross, for sure trying to make sure we validate the data.

I think it's like anything, it's an estimate with our judgment around it, but I think there's some good fact underpinning on this one.

And as Mark talked about, some of it involves trying to determine buying behavior but there are some historical patterns and I think we at least triangulated it.

We came at it from many different directions and that's our best guess.

Some of you asked about it last quarter and some of you had maybe even seen some early signs at the end of the last quarter, or certainly when we reported, and we hadn't.

This time we were absolutely able to say that there was some substantial amount and $15 million centers around our best guess.

That's great.

And maybe just one other one.

Obviously the AEC business you're seeing right now is less driven by architects and more by different players within the AEC segment, whether it be contracting engineers, or building owners, or facilities managers.

What's your view as to when -- however far down the line it is -- do you envisage a refresh within the architectural segment when -- whatever it is in the future we start to see construction projects coming back on line more meaningfully?

Yes, I think you will certainly see -- the architecture one, the easiest way to look at it is probably through the employment numbers.

That's one of the big macro drivers.

I think you can look at some smaller elements like we talked about with technology refresh that will play a part regardless of the overall growth of the industry.

In addition, I do think there are a fair number of trends going on in the industry that are causing an economic disruption.

So you're seeing things that we talked about like design build and integrated project delivery, which is just new mechanisms for delivering projects.

And when you think about those, some of the financial and legal relationships change and then some of the buyers, so that's certainly going on.

And so we've historically had a big architecture business, smaller engineering and a really small construction business, I think we can see those disciplines get to parity and may even reverse themselves, certainly when you're talking about long-term trends.

And we think one of the really big opportunities is really in the construction part of the market.

That's great.

Thanks again.

Congratulations.

Thank you.

(Operator Instructions).

I have a follow-up question coming from the line of Sasa Zorovich with Janney.

Please proceed.

Yes, if you could comment, please, on the business in Japan, specifically.

That has been one of the areas that has been difficult in the past and what you are seeing there, the extent of a turnaround, if you could comment on that, please?

I would say less than a problem.

I would say Japan has been more volatile than other large countries for us and it's been less consistent.

But we certainly -- if you look back over the last few years we have good quarters and we have bad quarters.

And I just caution again, let's just see how as the year continues play out how it goes.

But they'd actually had a very good quarter this time.

Thank you.

I'm showing a follow-up question from the line of Kash Rangan with Merrill Lynch.

Please proceed.

You're certainly easy on us, I appreciate that.

Today what an easy call.

Carl, a question for you.

I'm going to re-ask my question in a slightly different way.

If you look at the last quarter to this quarter, if you exclude the promotion stuff, it would have still been sequentially flat.

And I know that is entirely within the norms of seasonality.

However, you also have an easy comparison against year earlier, so you are obviously putting good growth against the depths of the depression.

So question for you is, what -- absent of Europe distortion, which certainly is a big factor on everybody's mind, what are the second derivatives or things that you're watching in your industry that gives you the confidence that you can actually grow your business on top of the base that you actually delivered in this quarter, which certainly was growth against easy comparisons, but from this point onwards what are the drivers that can help you grow your business fundamentally and gain share?

If you can also talk about any advantage you have on the pricing standpoint, margin standpoint that'll be good?

Thanks.

A very simple question.

So I'll just re-answer a different way.

What I would say is -- kind of a summary of what we've said all day is I think the thing that gives us the greatest confidence is the broad-based nature of the improvement that we saw.

And it's not just sequential improvement, it's year-over-year improvement, across geographies, across product lines, and against license types, so almost everywhere we looked the numbers were good and the results were very good.

I think if you look at what you call second derivatives, even some of the things, as we talked about channel inventory and backlog and DSOs and even down to some of the small detail about interactions with the partners, they all suggest good things.

And it's that combination of good top line.

I think we have our cost structure in line right now from all of the hard work that we've done over the last 18 months.

And one of the points that I made all along is that despite a lot of the hard work and cost cutting we continue to invest in our product portfolio.

Because at the end of the day what customers get from us is our products and that's what enables them to drive their business.

And I feel really good about the products we've been releasing.

We just had a fantastic release of software.

I can't think of a year in which we've gotten better reviews from both the customers and the press.

And nowadays with blogging and tweeting, the feedback is instantaneous.

And so I feel really good about our products.

I think our channel came through it.

While it was certainly a difficult time for our channel partners and our employees I think people came through it.

And I think we're just in a better position and I think this was the first quarter in which we got a broad indication of the improvement.

Got it, that's a good answer, Carl.

And also the new release, what can it do for your business?

New seats or getting higher penetration within existing customers, quicker upgrades, what are the vectors that can go right for you with the new release?

I think it's all of those things and as -- I think it's all of the things you [touched] -- so maybe you will start seeing return to normalized rates in subscription.

Soon we see deeper penetration into existing accounts.

And we continue to win new business all the time.

And so I answered the question before, I don't think there's a great change in the competitive strategy, but I think if you look at the vectors over time they've been favoring us.

And we continue to win share from all of our major competitors, and that's particularly true in manufacturing where I think we just have a much better product and a much better position and gravity is on our side in that market.

At this time, I'm showing no further questions in queue.

I would like to turn the call back over to Mr.

Dave Gennarelli for any closing remarks.

That concludes our call today.

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

Thanks.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation, you may now disconnect.

Have a great day.