Autodesk Inc (ADSK) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2011 Autodesk, Inc.

earnings conference call.

My name is Regina and I will be your operator for today.

At this time all lines are muted.

Later we will conduct a question-and-answer session.

(Operator Instructions).

I would now like to turn the conference over to Mr.

Dave Gennarelli, Director of Investor Relations.

You may proceed, sir.

Thanks, operator.

Good afternoon.

Thank you for joining our conference call to discuss our second quarter of fiscal 2011.

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

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

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

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

Those remarks are intended to serve in place of 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 third quarter of fiscal 2011; remarks about fiscal 2011; our five-year financial targets; the factors we use to estimate our guidance; our future strategic transactions, business prospects, and financial results; our opportunities and strategies and trends for our products and trends in various geographies and industries.

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

Please refer to the documents we file from time to time with the SEC, specifically our Form 10-K for the fiscal-year 2010, our Form 10-Q for the quarter-ended April 30, 2010, and our periodic 8-K filings, including the Form 8-K filed with 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 the 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 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.

In addition, during the call we will discuss our five-year non-GAAP operating margin target.

Autodesk is not able to provide a five-year GAAP operating margin target or reconciliation at this time because of the difficulty of estimating certain items that are excluded from the non-GAAP measure that affect operating margin, such as charges related to stock-based compensation expense and amortization of acquisition-related intangibles.

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

Thank you.

Good afternoon, everybody.

We're pleased with our second-quarter results, which benefited from better-than-expected revenue and excellent cost control.

Year-over-year comparisons in the second quarter were strong in most categories.

Highlights included strong revenue results of $473 million, 46% growth in revenue from commercial new licenses, significant operating margin improvement, increased EPS and strong cash flow from operations.

Total revenue in the quarter exceeded our expectations and grew 14% year over year.

It was nearly flat with the first quarter, which is a difficult comparison, as the first quarter included a one-time benefit of approximately $15 million in upgrade revenue.

For the first time in several quarters we experienced year-over-year growth in all of our geographies.

Both Asia Pacific and EMEA showed strong double-digit year-over-year growth.

While we remain somewhat cautious regarding our outlook for EMEA, given the continued negative business headlines, the region performed quite well in the quarter.

We were pleased to see growth return to the Americas, which posted year-over-year and sequential growth.

One notable highlight in the Americas was our government business.

During the quarter we signed a contract with the United States Air Force that has an initial value of approximately $5 million, most of which was recognized in the second quarter.

We have the opportunity to significantly expand this relationship going forward, and this win illustrates the strong traction we are gaining with government agencies.

Customers are more focused than ever on delivering better products.

Our tools provide them the best means to do this, with superior technology and the highest levels of interoperability in the industry.

Because our solutions provide both innovation and high ROI, we are winning deals with companies of all sizes, often displacing incumbent products that sell for several times more than our solutions.

One of our significant opportunities going forward is replacing legacy design systems with our more agile, modern, and sophisticated products.

As an example, a recent independent head-to- head comparison of Inventor versus SolidWorks found that Inventor rated higher on every 1 of the 15 categories analyzed.

In fact this probably wasn't a fair comparison.

We should have compared Inventor to their higher-priced flagship product, CATIA, and again, we would have won hands down.

This isn't news to us or to our customers, but it's always nice to have third-party validation.

We were particularly pleased that we sold over 10,000 seats of Inventor during the quarter, many in swap-outs of legacy products.

Earlier this week we revealed the results of a study that showed up to a 44% improvement to a designer's productivity by using AutoCAD 2011 rather than a version that's just a few years old.

Again, that's real ROI for our customers.

Those of you who attended or listened in to our investor day in June heard us talk in greater detail about delivering more product suites to the market, and this quarter we unveiled software suites for Visual, Factory, and Plant Design.

The new suites offer increased functionality, interoperability and a superior user experience.

Each suite is available in several editions, with each edition offering progressively broader and more sophisticated capabilities.

Just last month our media and entertainment group announced a premium edition of our Entertainment Creation suite, which includes our Softimage technology.

This suite provides integration across application, enabling artists to explore creative ideas with advanced modeling and animation technology.

During the quarter we continued to add to our leading median entertainment technologies with an acquisition of Advanced Lighting Technology for the game development market.

This transaction was immaterial to our financials, but it is representative of our M&A strategy to add valuable new features and functionality to our broad portfolio of market-leading design solutions.

As we move forward we will continue to seek advanced design technologies that we believe our customers desire, while advancing our technology leadership.

Our year-over-year increase in profitability was fueled by revenue growth, as well as cost controls.

We achieved better-than-expected revenue growth and margin expansion in the first half of this year, and raised our full-year margin growth expectations again this quarter.

We'll continue to update this guidance as the year progresses.

Balancing cost control with essential investments in the business is a key element to achieving our five-year financial targets of 12% to 14% compounded annual revenue growth and non-GAAP operating margins of at least 30%.

We are pleased with the strong results this quarter and looking ahead we are optimistic about growing our business and increasing our profitability.

Autodesk is better positioned than ever and we're excited about the opportunities to expand our business and better serve our customers.

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

(Operator Instructions).

Your first question comes from the line of Steve Ashley with Robert W.

Baird.

Well, congratulations on the quarter.

I guess I would just like to ask about guidance for the third quarter.

On a sequential basis the midpoint is down a little bit, is that just conservatism, or is there anything in -- you'd mentioned some caution about Europe.

Is there anything in the macro economy that you're seeing that relates to that guidance?

Well, Steve, first of all -- this is Mark, thank you for that note.

In terms of the sequentials, I think the first thing to say is it's not clear that the normal seasonality patterns are back yet and I think I would call that out first and foremost.

Secondly, you touched on this notion of uncertainty in the economy.

We're all reading the same papers that all of you are reading.

We continue to keep a certain level of prudence in that in terms of just thinking about the world as it is.

But I think the biggest point is that seasonality is not yet where one would think about it.

Again, if you look at our -- between the range of our guidance, you're seeing growth year on year again.

That's, I think, a real respectable range of growth, and I think we feel pretty good about it.

The other point that I would say, as you look at our performance, in Q2 you're seeing broad-based year-on-year growth across geographies.

This is the first time we've had a chance to talk about all three major geos growing year on year.

You're also seeing it in some of our other major countries, so that's it.

And I'd add a slightly more cynical note, Steve, which is we don't give our guidance relative to consensus and people have all kinds of reasons for putting all kinds of numbers out there, as you well know.

And so this is really our best estimates of what we think our business will look like.

And just to clarify, looking at linearity you didn't see any change in the business through the end of July, is that correct?

No, we were -- the business was strong throughout the quarter and certainly through July and it is much of August, as we've already seen.

Perfect, thank you.

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

Hi, guys, good quarter.

Just wanted to focus in on the verticals for a minute.

Obviously manufacturing, that line item, was up nicely quarter to quarter.

Just what are you seeing, Carl, between the AZ vertical and manufacturing, and also if you'd just comment on civil that'd be great?

Thanks.

So I would say generally speaking this is how we've kind of described the recovery.

Manufacturing has been more robust all through and manufacturing continued.

Media and entertainment behind.

I think if you look at the headlines construction has been the hardest hit part of the economy and it's certainly reflected in results.

I don't think there's anything out of the ordinary there.

In some ways I'm really pleased we were able to post the results we were, with worldwide construction economy still under severe pressure.

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

Thanks so much, guys.

I had two questions on margin.

First, was there any explanation for -- the cost of maintenance was higher than what we've seen historically.

Just wondering if there's anything exceptional that's pushing that up this quarter?

Second, based on the guidance and the outperformance of margins for the first half of the year it looks like you're expecting decelerating margins in back half of the year and so some additional investment or something you'll be doing in the back half of the year that we should be factoring in that's going to push those margins back down?

Thanks.

Yes, I guess a couple things here, Brendan.

First of all, on gross margins, I don't think there's anything really specific to call out in the cost of maintenance.

I think the broader picture on gross margins looks pretty good.

We've -- it reflects the fact we've made some continual operational improvements, some procurement improvements, just some efficiency improvements in a broader sense, so I don't think there's any major item to really be discussed there.

Secondly, as for as half-on-half margins, you are absolutely correct.

We are going to continue to make this balance between expanding our operating margin, which Carl called out.

We continue to be committed to year after year, and at the same time making additional investments in revenue-generating areas in the sales and marketing area.

So that is certainly a priority and maybe a select technology here or there, but generally in the sales and marketing area.

Great, just a quick follow up.

On deferred revenue you noted in the press release that it saw a sequential decline, which is typical seasonality.

Can you just review for us how that seasonality pattern works around the maintenance piece?

Well, again, I could go back to seasonality is a little funny right now in the world that we live in.

Here's the thing that catches my attention most, Brendan.

It's up 5% year on year, and when you think about the deferred revenue our maintenance revenue is up and our billings are up 6%.

So I think, thinking about the year on year is probably a better sense of what's going on.

We actually feel pretty good about it.

To get under it a little bit, just to give you a little bit more insight, our renewal rates are up for the fourth quarter in a row, which really reflect the fact that people see the value of our subscriptions, that relationship, that ongoing opportunity to serve them, so I -- that story, I think we're actually pretty pleased with.

Great, thanks a lot.

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

Hi, thank you for taking my questions.

Had a question for you, Mark, about the guidance.

Last quarter you were conservative on your view, you certainly ended up having a great result.

I was wondering if we should think you're using the same level of conservatism when you look out to the October quarter?

What I would say on that one, Heather, I think you look back at Q2 and you think about all the uncertainty in Europe that was going on, and we saw it for what it was and I think gave an appropriate level of prudence.

We're actually pleased to be able to come back in and say we hit the high side of the performance, because our revenue came in.

And what's interesting about, Heather, is it came in across a lot of different parts of the geo and rounded out to be a really nice performance, as well as Carl said, good execution on the cost.

I think you should take our guidance at face value.

That's the guidance that we have and it's our best comprehension of everything that's going on in the world, whether it's foreign exchange or our investments that we're making (inaudible).

And then if you want to put English on it I think you need to do that, but that's our best view of the world.

Okay.

I just wanted to -- because last quarter it did seem like you called out, in particular, that you were being a little conservative because of the macro.

Maybe I'm not remembering it right, but I --

No, no, I think you're covering it right, that we really look at the world of Europe and being uncertain, and I think it's fair to say today, Heather, as well, there's a level of uncertainty that's out there and we're trying to comprehend it all.

But this is really our best view of the world, and yet we're pleased to report -- you can see the trajectory we're on in terms of the operating functions --

Heather, I think if you went and looked back at the transcript you'd see a fair amount of our anxiety over Europe saying it was hard to measure its direct effect on our business, but just like now we're reading the same business headlines that you are, and we were concerned.

If you remember back exactly around three months agao, it was what looked like the beginning of could have been bad and so we were factoring that in and I think we made it pretty clear at the time.

That's great.

Thanks, guys.

You bet.

Sure.

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

Thanks, welcome back to growth in the Americas.

Carl, if you could just give us a sense of where you think the business is in Americas, have we finally turned the corner?

And what changed this quarter in terms of the behavior of the customers that you were talking to in the US, because I think we've had seven quarters of negative growth in that region?

And I have a quick follow up.

I think what you see is a steady improvement.

I think as we all watched the recovery it's not purely linear.

It's full of fits and starts.

I think going forward the recovery's going to continue to do that.

I think I tried to describe probably two quarters ago what I saw was a point of inflection where people were trying to guess where the bottom of this was and some point it looked like, particularly businesses as opposed to Wall Street, had gotten comfortable understanding that their business had been reset to new levels, and despite maybe their discomfort with that level of business, they still needed to make all kinds of investments going forward and they were going to do the best jobs they could running that business.

I think this quarter is really an extrapolation for them.

People are continuing to make investments and once again, I think there is a pretty big -- pretty sizable disconnect between the people I talk to who are running businesses and what you read on Wall Street.

People are continuing to make investments and they realize that even in this economic environment there's plenty of opportunity.

Okay, and just to follow up on Brendan's question on the margins.

I believe you did bring headcount down during the downturn in the first half of the year, can you just give us a sense of happened with hiring and your plans for the second half of the year.

Do you need to expand -- plan to expand the hiring in the second half?

Sure, you're absolutely right, Brent, that we did bring our headcount down year on year fairly substantially.

As we look at it from half to half we do expect to see some hiring.

And again, it'll be very pointed and focused in the area of revenue generation from that standpoint.

That will be true, that is part of our plan.

Great, thanks.

Good.

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

Thank you, guys, very nice quarter.

I was wondering if I could expand upon the margin discussion.

If I'm looking at this correctly we saw about a 6% sequential decline in OpEx.

Was there any specific programs that you put into place at the beginning of the quarter to bring down expenses, or could you give us more color of what drove that declining expenses?

Was headcount down similarly quarter on quarter?

I think it's really a combination of a lot of different things quarter on quarter when you look at -- from Q1 to Q2, Keith.

One, keep in mind some seasonality.

Even small things that we don't think a lot about, like payroll seasonality, including things on fringe has an impact.

There was also circumstances where we just drove operational efficiencies that were from a variety of different natures.

Keep in mind, also, there were just basic things, like we took a time of -- a week of rest off and that had an implication, as well.

So there were a few things that it all kind of added up, but I would say it's important for you to know across our Company people are doing a really good job executing and really managing their cost and that's another point I'd say.

One of the points we tried to make over the last year was that while we took out in one year about $300 million to 3010 million in costs -- we thought those were the costs that were manageable in the short term -- we were also looking at longer-term more structural things to take costs out of the business.

We couldn't execute them in time for what was needed during the downturn, but we're continuing to be vigilant about driving costs out of the business.

What you're really seeing is we're reaping some of the benefits of all those efforts that were put into place a while ago.

All right.

And if I could sneak in one more on the subscription business.

It looks like your net new subscribers was one of the strongest net new subscriber numbers that I've seen in quite some time, yet billings was down sequentially and we actually saw revenue decline sequentially in the maintenance business.

Can you help us make sense of all that on how you had such a strong net new billings number -- you had such strong billings growth last quarter, yet the revenues are declining?

Sure.

One of things to keep in mind, Keith, is when you look sequentially at the billings keep in mind we had a simplified upgrade pricing program happening Q1, which was a cross grade upgrade licensing side, but what happened is, that when people upgraded they were -- found it attractive to also get on to additional maintenance.

So we had a nice maintenance billing opportunity there that was kind of a tag-along, if will you.

So the sequential -- again, I think it's a good dialogue, where we're looking at things this year on year.

When I can see my billing growing year on year, I see my deferred revenue growing year on year, I can see my renewal rates up, I like that dynamic.

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

Thank you, gentlemen.

Question on maintenance renewal rates.

You mentioned in the prepared remarks that they were up sequentially and year over year, I just wanted to ask if they are back to pre-downturn levels yet?

In fact they are and one of the things I like, Derek, that's going on.

When we implemented the simple upgrade pricing, one of the more strategic aspects of this was the long-term encouragement of people to have that relationship to participate that in value proposition where we can deliver unspecified upgrades and all of the other value added that comes with that.

So we think that this is just a good dynamic.

They are up to that rate and so we're pleased about that.

is there headroom from here?

Do you expect that to keep creeping up or are we steady state now?

I don't want to give guidance on renewal rates, just even directionally.

All I can say is that our value proposition for subscription is better and better and we're focused on that and we think our customers like it so we're going to keep driving it.

I think the other opportunity is geographically.

I think there's inconsistency across geographies.

And so while I don't know what the actual limit is in a single geography, we're in a relatively steady state that equivalent to pre-downturn there are opportunities in geographies around the world.

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

Thanks a lot and good quarter.

Mark or Carl, you mentioned that you don't know if you're back to normal seasonality for the business.

I was just curious as to when you think about normal seasonality for Q3 what you think the normal seasonal pattern should be, if you will, because your business historically I think showed some years where it was up sequentially, some years when it was down and ultimately be going through a turbulent two years, so I was just curious as to how you think normal seasonality should look for the October quarter?

So the first thing I'd say is I don't think we're back to normal seasonality and the reason I would say that is generally speaking I think there is still enough catalytic events in the economy out there.

You just look at the news on a given week, there's enough to send things into turmoil and you are seeing that consistently.

We've seen it for the last two years.

I think there's a lot about that.

I think some of the dynamics that do contribute to the normal seasonality are there.

I still think Q4 will be our strongest quarter.

The end of our fiscal year combined with the end of calendar year for most of our customers ends up meaning that'll be true.

So I think some of things in which there's a really strong force acting will do it.

I think in the places in these kind of quarters where over the years we'd be up 1% or 2% or down 1% or 2%, I think the error bar there is too small to give a lot of indication what's going on and I think there are other forces at work that when you look back over a longer time period [more are in place].

Great, and then just one for Mark on the costs.

Obviously a very good job on OpEx sequentially down and you mentioned the furlough week, or the one week off, can you quantify that because when we all look at guidance it implies we're going to get back up to that 330-ish run rate on OpEx, despite this be sequential decline in July quarter.

Could you maybe quantify the factor the week of rest?

Yes, we don't actually quantify that.

You guys see our macro headcount.

People can do some math on that, but we don't actually provide something that specific.

But again, keep in mind, we tried to factor all that into our guidance, as well.

And just to remind people, we took it last year, as well, so when you look at the year-over-year comparison there was actually more time off last year and there will be this year.

Yes, and so -- yes.

That's helpful.

Thanks a lot, guys..

You bet.

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

Thank you.

So obviously had a great quarter here and I'm going to ask couldn't it been better than that?

Obviously I'm never being super pleased unfortunately, right?

I'm just joking here.

But look, so putting that aside, look at your emerging economies.

You were showing, actually, in the past emerging economies growing faster than other regions, this time around it didn't happen.

Is it an issue of maybe of a bounce back, maybe developed economies, or could you provide more color about that?

Yes.

First of all, Sasa, I'm shocked, too.

Not getting to 45% operating margins this quarter is very disappointing.

Right, right.

I -- when you look at the difference between the developed and the emerging countries one of the things I've often pointed out is I wouldn't take one quarter's date point to strongly,Particularly what we've pointed out is the linearity or the consistency of our results in the developed economies are much more normalized.

The emerging countries always have some amount of variability in it and so I would not extrapolate this.

If anything I would go back to what I think is the long-term trend, and which I do think the emerging economies continue to grow at twice the rate of developed economies.

I don't think there's anything that we've seen that would differ there.

I think there's things quarter by quarter you would see, but if you want to look back over a longer period I think that would give you better accuracy if you were looking forward.

I would look for that same kind of pattern to emerge.

And then if you look at those emerging economies is there a specific segment where they're growing faster versus slower, or is basically pretty much across products?

There are no difference among the geographies being Asia, Latin America, Russia, Eastern Europe.

Is it all pretty much even across the board?

What I'd say is, over a reasonable period of time they're not that different.

Quarter by quarter there's high variability amongst them.

What I'd say is, the ver -- the real difference that appears to be persistent is in most of the developed -- developing economies, you see a greater tendency for buildout of things like infrastructure, you see more construction-related dollars being spend.

Probably manufacturing comes second but not in all of those.

A big difference there would be manufacturing in China versus less so in Russia.

More manufacturing in Brazil, less so in the Middle East.

So there's the mix amongst the different emerging economies in terms of industries is highly variable.

The overall growth rates are not that much, and think partially is a big available pool and lot just has to do with the limiting rate of how fast we can scale our business to take advantage of the opportunity, more than being limited by the opportunity itself.

Got it, thank you.

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

Good afternoon.

Just one question and one follow up.

Maybe I'll start with your -- wondering about your guidance.

It looks like the guidance is pretty appropriate at comprehending the uncertainty out there, as you all have alluded to, and you've done that without trying to make any pronouncements on the macro situation, which is also appropriate.

But I'm wondering, what kind of economic assumptions are embedded in the range of your guidance?

Is the entire range predicated on an economy that's sequentially like it is today, or is there some range of variability that your guidance comprehends?

I think it comprehends some range of variability, but I think it's kind of centered around the world being like it is now.

Ups and downs every day, geography by geography, industry by industry.

Jobless claims go up here, you see manufacturing index going down there.

It really contemplates the economy I think we're living in, which is fairly variable across geographies, across individual countries, across industries.

I don't think it contemplates a catastrophic meltdown (inaudible) nor kind of V-shaped recovery.

If I could just add to Carl's point.

All that plus the fact we don't anticipate any crazy movements in foreign exchange.

All a normal range of bubbling around to compliment his points.

Okay, great.

Great, thank you.

Then one follow up, as well.

You've given some -- enough commentary on renewal rates and on building patterns.

Let me try to ask you to (inaudible) that for us.

Does the sequential downtick in billings we shaw this quarter, driven primarily by the upgrade pricing last quarter, does that suggest that maintenance revenue will decline next quarter sequentially, or how should we think about the maintenance revenue trajectory?

So first of all, happy to kind of break that down for you.

There's several moving parts when you go to maintenance revenue, First of all, we don't guide maintenance revenue per se, but I think the dynamics are actually very useful to talk about.

One of the dynamics would have been the billings, right?

That's one aspect historically.

One of the aspects is how much do renewal rates change going forward, right?

The other aspect is even the mix of one-year versus three-year subscriptions.

So these are some of the moving parts that you need to look at, and if you go back, Steve, these are some of the moving parts we've been looking at over the whole year and you can kind of see the dynamics.

So you're just going to have to call the ball on those variables, but that's where I'd leave it with you.

And I think, generally speaking, if you look at one quarter's billings, it doesn't have a big enough effect on overall -- on deferred revenue.

You just do -- if you the math it just doesn't work out to be -- it doesn't move the needle enough.

Exactly.

Yes.

Okay, great.

Thanks so much for the help.

Absolutely.

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

Maybe, maybe not.

Your next question comes from the line of Blair Abernathy with Stifel Nicolaus.

Thank you.

Nice quarter, guys.

Thanks.

Just a couple things here.

Mark, on the expense side again.

Outside of the week furlough, any other cost suppression or return of last year's costs suppression to speak of for this fiscal year?

For Q2 or going forward?

Just going forward.

Going forward.

I think -- again, we like to think that a lot of the cost suppression we had to deal with in the past is largely behind us and that's the reality of it.

We basically -- we don't have plans for weeks of rest and that type of thing, so I think it's largely behind us.

I think if you look at just the overall OpEx picture there's lots of moving pieces and none of them really large to call out in any sizeable way.

But there are puts and takes in both directions, but I think generally speaking Mark hit the nail right.

We've gotten rid of -- or we brought back most of the things that were cost suppressed.

You'll continue to see some investments that we believe we need to make in the future.

And on the other hand, as you saw this time, we're starting to reap some of the long-term benefits from some of the things we put in place that were different than what we talked about as cost suppression.

This was really cost elimination.

Okay, great.

And Carl, I'm wondering if you can just provide some more color on traction of the suites that you have out there now and what are your expectations for what they can contribute to you this year?

Yes.

So I -- a couple things about it.

First thing is, we've been selling suites for a number of years.

We've had a fair amount of success and I'm sure you know that, but I just want to remind everyone listening that we have been selling suites, and we have been successful doing it.

This is really intensifying our effort around selling suites.

And what we put out there this year is we have a handful of suites, we think it will contribute very modestly this year.

And as we talked about at our investor day, I think where you'll the biggest bang is next year as we launch the complete range of suites in that same spring timeframe.

So far the reception to it has been great.

It's immaterial financially, but this is a well-understood technique in the software industry.

We're not really breaking any ground here.

People understand it, we've done it ourselves.

Other companies bigger than ourselves have profited from it.

And so I think we're just following that and I anticipate it to be successful, but I think most of the financial benefit will be seen next year and in the following years.

Oh, great, thanks very much.

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

Thank you.

I wanted to follow up on Carl's earlier comment about the potential to tweak geographically the maintenance incentives.

Are there big relative differences by the major markets or by the major country markets?

Yes.

Generally speaking, yes, the difference is -- the biggest color I'd give to you is that developed economies versus emerging economies is the biggest break.

And we don't want to break down country by country, but if you just use that as the lens to look at it, and then cast yourself to looking at it in countries like Brazil, India, China, where we're still fighting piracy problems and stuff, the idea of people signing up for multi-year maintenance contracts isn't part of normal way of doing business.

And in that kind of environment are both our -- certainly renewals rates but even our attach rates are obviously going to be much lower.

And I think what we have seen, as market mature, as you see the institution of regimes that protect intellectual property, you start seeing greater buying patterns that lead to kinds of things like subscription.

Okay, thanks, if I could ask one more.

With respect to your comments about Inventor's high-end capabilities and potential traction, does that imply a bigger role for your direct sales organization, either sooner or later?

Yes, I think it does.

We were really quite pleased with how Inventor's doing.

Like I said, we've always been fully cognizant of its capabilities.

We're glad to see some outside confirmation.

We're seeing more market confirmation of it.

We do think it is the best product out there.

And so, yes, we expect there's a bunch more that we can do with Inventor.

And the way -- what we think distinguishes the products in many degrees is the way it's brought to market, so what distinguishes us from products that cost many times as much is not the functionality.

In many ways we've exceeded the capability of the older, high-cost products.

What differs is the way we bring that to market, and one of the ways we remedy that is through more direct sales, more consulting services, some provided by us, some provided by our partners.

But certainly for the large accounts, a more direct relationship is what required for people to base their entire engineering process on our products.

You're not ready to put a number on the type of investment over the next, say, one to two years on the direct sales?

No, I -- so first, I don't want to give you a specific number, but if you look back it's one of the things we talked about.

As a matter of fact, if you go back almost a year ago, when we made many cuts, we said, even in those cuts, we were going to continue to make an investment.

And all the illusions you hear about things close to the markets or sales and marketing, a lot of it is around things like direct sales and consulting to support those efforts.

So we've already made a bunch of those investments.

We're contemplating them in the second half of the year, continuing it because we're seeing such success there.

And so whether it's what we're seeing in manufacturing with direct sales people or, for example, we called out some of the work with governments that's done with direct sales people, we think it's a fruitful area for us.

And the really nice thing for us is that we don't believe it to be a zero sum game.

When we win with direct accounts, not only do we do well but our partners do well, also.

And when we go into a big account it's more business for our partners, and generally it's coming at the expense of competitors.

So we will continue to invest in it, all the guidance we're giving contemplates it and we're happy with the progress we've made to date.

(Operator Instructions).

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

Thanks.

Good afternoon, just a quick one regarding excess capacity.

As we speak to some of the resellers we're hearing from them that they are seeing selective upticks in hiring among some of the customers but not necessarily an uptick in new seats because still some people are being hired back, sitting in a seat that already has a maintenance-paying license.

Is that the resellers just being frustrated with the pace of rebound in new seat sales, or is there any truth to that?

Is there anything you guys have done to try to quantify how much slack might still be out there?

Mike, thanks for the question.

The first thing is, when I look at new license sales, an increase of 46%, it's hard to go with the assumption behind the question.

I've often said the resellers think there's some unique circuitous route that goes through you guys to deliver messages to us.

A lot of times I think what you hear from having bought them off a bottle of wine or a $100 check is not exactly what they're seeing in their business.

The 46% sales increase in new licenses is the thing I'd be looking at instead of trying to track down the anecdotal information about how resellers -- what they're seeing.

So I think in many ways we're really pleased.

We've often talked about the new license sales as probably one of the best indicators of the future health of the business.

And if I was to look at this quarter in totality, it's one of the things that's most pleasing about it.

So I'm overall really pleased with what we're seeing.

In terms of the assumption, I've told you that I actually believe, particularly as this downturn has continued, for the most part what we saw was the people who didn't have people working didn't renew already.

There was not enough financial incentive for someone to keep a seat on maintenance when they didn't have a person utilizing it.

And I've asserted all along -- I think the data is beginning to support my point of view -- that there is more under capacity than over capacity, meaning there are more people who have a pent-up demand for new seats than there are people there because two or three -- once someone gets two or three years behind, as demonstrated in the productivity studies and the other stuff we've done, there's a real compelling reason to go out and get in a new license, and I think we saw some evidence of that.

I'd still be cautious.

On the flip side it's one quarter.

One quarter doesn't make a trend, but I think you should continue to look over a period of time at our new license growth.

All right, understood.

We'll let the numbers speak for themselves and chock it up to reseller frustration, but thanks very much.

You're welcome.

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

Yes, thanks.

Hi, guys, sorry about that before.

Two questions.

One, you got a lot of leverage out of the sales and marketing this quarter, was that more on the sales or the marketing side?

Was there perhaps maybe less spending on marketing programs or something specific in the quarter that helped generate a little bit of extra leverage in that line?

I think we got -- honestly, Sterling, we got leverage across the board.

We got leverage in sales and marketing, really up and down the organization.

One of the things that Carl talked about, it's hard to underscore it enough, is that we've been challenged to structurally think about our Company different, drive efficiencies, not just episodically but continuing on an ongoing basis and you are seeing those benefits.

So we absolutely did -- our sales team got some leverage, our marketing team got some leverage with things like global campaigns as opposed to not leveraging those marketing assets as effectively.

Like with local campaigns there was a lot of areas, but it's a lot more broad-based than one particular area.

Carl, any --?

No.

And the other thing I'd -- it wasn't a concerted effort to reduce costs.

I think we were able to drive good business, good revenue growth, good new license growth, all spending that amount of money.

So kudos to the entire organization for being able to drive the business while at the same time being vigilant about cost control.

We've been trying to -- Sterling, last point.

We've just been trying to walk this duality of making investments where we must and being productive where we can and this is a continuation.

And then the follow-up question is just, if the maintenance renewal rates stayed at or above what you just experienced in this quarter, given the number of seats under maintenance now, having a nice pick up, should we see the maintenance revenue bump up next quarter sequentially?

I would say generally speaking that's the right thing to look at.

We're not going to predict for quarter by quarter.

There are a number of variables, when you look at the average.

The difference of prod -- you have product mix, you have geographic mix, there's a whole number of factors.

So getting into the specifics of predicting the one line item quarter to quarter is certainly beyond my calculating ability.

Got it, thanks, guys.

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

Hi, guys, just a question around M&A.

Pre-recession Autodesk was known to do a number of tuck-in acquisitions.

Now that we're -- at least your business seems to have (inaudible) the bottom and it appears to be accelerating can you talk about, your M&A strategy going forward?

Should we look for more of the same in terms of tuck-ins, and do you see opportunity here to do some more industry consolidation given some of the trends that you guys are seeing out there?

Yes, so -- first of all, even during the downturn we continued to do small tuck-in acquisitions.

To be fair, I think they got smaller.

They were easier to tuck in, given the size of the ones we did.

I think we've tended to be, when you look at the small to mid-size acquisitions, a little more opportunistic, really trying to fill out parts of our portfolio, and I think we've been successful at doing that.

We always will look, and we don't seem to bite all that often at big industry transforming transactions.

That's just not the history of has we do.

We feel much more comfortable running the business, we think we can do that in a successful way.

I won't rule out that it ever happens, but we don't spend a lot of time sitting around the table trying to plan those kind of events.

Great, thank you.

Ladies and gentlemen, this concludes the question-and-answer portion of the call.

I'd like to hand the call back over to management for closing remarks.

Thanks, operator.

Just wanted to note our investor activity this quarter.

We're going to be at the Citi technology conference on December 8th in New York City, the BofA Merrill conference in San Francisco on September 14th and the Deutsche Bank technology conference in San Francisco on September 15th.

And if you have any follow-up questions you can reach me, Dave Gennarelli, at 415-507-6033.

Thanks.

Ladies and gentlemen, thank you so much for your participation in today's conference.

This concludes the presentation and you may now disconnect.

Have a wonderful day.