Autodesk Inc (ADSK) 2012 Q2 法說會逐字稿

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

earnings conference call.

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

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

(Operator Instructions) As a reminder, today's conference is being recorded.

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

Dave Gennarelli, Director, Investor Relations.

Please proceed, sir.

Thanks, operator.

Good afternoon.

Thank you for joining our conference call to discuss our second quarter fiscal 2012.

Joining me today from our Waltham office is Carl Bass, our Chief Executive Officer, and here in San Rafael is 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 and full year fiscal 2012, the factors we use to estimate our guidance, new product and suite releases and expected growth rates, certain future strategic transactions, business prospects and financial results, our market opportunities and strategies, and trends and sales initiatives 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 2011, our form 10-Q for the period ended April 30, 2011, 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 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 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 Investor Relations website.

We will quote a number of numeric changes as we discuss our financial performance and, unless otherwise noted, each such reference represents a year-on-year comparison.

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

Thanks, Dave, and good afternoon, everyone.

Financial markets grow weaker and more volatile by the week.

Today was certainly no exception.

It's a bit surreal announcing our results after the close of today's market, since we have lots of positive news to report.

Across the board, our key financial metrics were strong, with growth across all geographies and business segments, better than expected operating margins and profitability, and continued strong cash flow.

Helping drive our growth was an increase in the demand for our Suites.

There are several areas of notable growth and achievement.

Highlights for the quarter include; 16% growth in total revenue, 45% growth in total Suites revenue, 24% growth in revenue from Asia Pacific, 20% growth and record revenue in Manufacturing, 19% growth in AEC, 37% growth in maintenance billings, 22% growth in non-GAAP EPS, 18% growth in cash flow from operations, strong operating margins and record deferred revenue.

From a geographic perspective, Asia Pacific continues to lead our growth.

We saw strength across most countries, and we signed our largest contract ever in the region.

Our EMEA region posted solid growth, based on strong performance of our manufacturing products and our Suites.

What might be surprising to some is that our business in Europe grew across all regions, including southern Europe.

Our Americas team posted another quarter of double-digit revenue growth, with strength in both our channel business, as well as major accounts.

I mentioned that our Manufacturing business hit an all-time high for revenue, with solid growth in all our geographies, led by EMEA.

We're seeing some great wins with Factory Design Suite, and our Product Design Suite is performing really well.

The strength of our Manufacturing portfolio, anchored by our Inventor product, enables our sales team and channel partners to beat our competition with outstanding solutions for design and simulation.

What's really great to see is that we're getting deeper penetration in certain industries where we historically have had a smaller presence, such as automotive and aerospace.

In fact, last quarter, we signed our largest manufacturing deal ever, with a key global supplier in automotive and aerospace, displacing competitors with legacy technology.

The combination of superior, modern technology and a broad portfolio of products was a key factor in their decision.

After experiencing some softness in the first quarter, our AEC business had a terrific second quarter.

AEC had strong growth across all geographies, led by Asia Pacific.

Our Infrastructure Design Suites began shipping in early July, and sales of Revit-related products had their biggest quarter ever.

Suites was another driver of growth in Q2.

All of our Suites offer a tremendous value to our customers and we couldn't be more pleased with the initial uptake of our newly launched Design and Creation Suites.

We're having success in selling Suites to new customers, and migrating existing customers from point products and older Suites into our new Suites.

At their core, our Suites facilitate the migration to model-based 3-Ddesign tools, and helps eliminating the purchasing and interoperability complexity as stand-alone point products.

They also increase value by improving the customer's work flow.

It's a clear, win-win scenario for our customers and for us.

Helping drive growth across all geographies and business segments is the increasing success we are having with large enterprise customers.

Initiatives and investments that we started last year targeting major accounts are paying off, as we continue to see an increase in large deals and related revenue.

There were a number of other positives in our Q2 results.

Our maintenance billing growth was the strongest we've seen it in the past four years, new customers see real value in signing up for our subscription program, and our tax rate is above pre-recession levels.

We're also having success with programs that get customers on subscription after upgrading from older versions.

Two other positive trends in our subscription business is that our renewal rate is at a record high level and we are seeing an increase in multi-year subscriptions.

We're also evolving our subscription business to provide even more value to our customers through web services.

At our investor day event in June, I spoke to you about Autodesk's initiatives utilizing the cloud.

Later this quarter, we will be introducing a collection of new web-based services, adding unlimited computing power to our offering.

This will transform the way our customers work by helping them design, visualize, simulate and share ideas more rapidly and effectively than they've ever been able to do before.

Stay tuned for the launch and more details in the coming months.

There has obviously been a lot of volatility in the markets over the past few weeks, including today.

Despite that, our Q2 results were solid across the board and we're confident in our ability to deliver on our third quarter and full year guidance.

Of course, we can't completely ignore today's economic headlines, and our guidance considers the recent macro economic news.

We continue to deliver great value to our customers and are gaining market share against all of our major competitors.

Despite the turmoil in the financial markets, the strength of our products, finances, and our team of employees and partners gives me great confidence in our ability to succeed.

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

(Operator Instructions) Heather Bellini, Goldman Sachs.

Hello.

Thank you.

This is actually Perry Huang for Heather.

I just had a general, macro-related question.

Things are still obviously early days in terms of the direction of the economy and its potential impact over the near term.

I was just wondering, from a planning perspective, is there anything the management team is doing differently, if anything, this time around as compared to the end of '08?

And also from the perspective of your customers, are you hearing about them possibly doing anything different this time around?

Thank you.

Yes, you know, the one thing I would say is that I'm not sure it's really the early days.

It's a little bit strange announcing results today, as I said.

It was also strange at Investor Day a couple months ago, where we were out being fairly bullish, yet there was a lot of turmoil in the market.

So, I think it's just a rocky road.

People are uncertain when it comes to the financial markets.

The thing that strikes me the most is the disconnect between what we are seeing in the financial markets and how our customers are behaving.

Most of my recent meetings with customers have entirely been about -- they are seeing business be fairly strong, and it's been evidenced by most of the results that people have been reporting.

And most of them are -- feel like they made a number of adjustments during the recession, and I don't see them yet making big changes in what they are doing.

So, maybe they are somewhat blind to what is going on, and the financial markets have it right; maybe not.

Got it.

Thank you.

Jay Vleeschhouwer, Griffin Securities.

Thanks.

Mark, I'd like to ask about your maintenance business.

You had some comments about the attach and renewals rates, but I noticed that there was a small sequential drop in your active base, notwithstanding the strength of overall billings.

Have you begun to see or does the guidance encompass any adverse effects in terms of attach or renewal rates for the remainder of the year?

And is there any discernible difference in terms of maintenance performance across the verticals?

Then a follow-up.

Thanks.

Okay, so a couple things here, Jay.

One is that, you are correct that if you look at the install base for subscription, it's down slightly sequentially.

What's happened there is our educational installed is down a little bit, the commercial is actually up more, one aspect of the business, but the net net is a slight negative.

That's not a really great indicator for the overall subscription business alone.

What you touched on are some broader indicators that are very important.

One is, that as Carl said, our renewal is at a record level.

And it continues to grow, year-on-year and sequentially.

The attach rate has been up again sequentially.

So we like what we see, we like the value proposition that we are offering and the way our customers are responding to that.

And we see a healthy trend there, based on the data today.

So when we look to the second half, I would just say that we can speak to the trend today, it looks good.

Okay.

With respect to Suites, there, too, you highlighted the momentum sequentially and year-over-year.

Two things.

Could you comment on your maintenance experience with Suites?

Is it similar to or better than stand-alone apps, in terms of attach and renewal?

And I imagine it's driving up your revenues per license.

Are you seeing or might you expect some sort of transition effect for inverse relationship even between stand-alone apps and Suites?

Well, certainly -- let me address the latter part at the beginning, in terms of stand-alone apps versus Suites.

As you see our Suites as a percent of our total business going from 23% in the last period to 29% of our total revenue this period, we're very, very pleased with the Suites growth, as Carl called out.

We're growing 45%, year-on-year.

So I do think, over the long term, Suites will be a bigger and bigger fraction of our total business.

So that part I would certainly address straightaway.

In terms of the revenue per license, over time, and we talked about the uplift that you should expect, again, it will take over time for that transition to come to bear.

For example, some people that have upgraded to our new Suites, when they do the renewal of their subscription we'll see more ASP uplift there, as an example.

And in terms of the specific attach and renewal rates for Suites, we haven't broken that out to disclose separately.

I would fall back to say the trends that we are seeing in renewal and attach are as strong as we've seen for years to come, including multi-year subscription.

We like the fact that that's up.

That's actually quite a nice sign from our customer.

All right, lastly, if the guidance turns out to be a bit optimistic, and what are your contingencies in terms of cost management responses, promotions, selling activities and the like?

Might you, for instance, delay some of the new initiatives or services that you've been planning on the consumer side or the website or simulation side or anything of that kind, albeit temporarily, just to deal with the incremental costs?

You know, Jay, I don't think we would do much right now.

I think a lot remains to be seen, if there really is a big economic slowdown.

I wouldn't jump to things like the new services and things like that.

That makes more sense to continue to move forward with those things, since we've already invested the lion's share of the money in things like new services or new products.

There are certainly parts of the business and certain initiatives that we would slow down.

But, I think it remains to be seen what actually the shape of it is.

Right now, there's the big boogie man out there that everybody is worried about; but I don't quite know the shape of the boogie man, and I'm reluctant to be very public about plans about this imagined thing.

Thanks, Carl.

You're welcome, Jay.

Brent Thill; UBS.

Thanks.

Good afternoon.

Carl, just on Jay's point, in the last cycle the margins did get cut in half.

And I guess the one thing investors want to hear is that -- I know you don't have a contingency plan in place for now that you are giving us, but is there something different about this cycle versus the last cycle?

And if we did see a downturn, do you think you would put a floor on the operating margin versus last cycle, when there really wasn't a floor?

I'm just curious in terms of how you think about it, and if you think this cycle is any different?

I know you mentioned the boogie man, we don't know what it looks like right now, but --

No, Brent, so I think there's two interesting parts of it.

So the first question, and the thing that we've been wrestling with, is trying to find evidence in our results that are similar to the last time.

So, I'm not going to sit here and say there is not a double dip coming or there's not a big slowdown coming.

What I would say is if it is coming, it doesn't look at all like the last one did.

So none of the metrics that we saw go down last time have we seen evidence of yet.

I don't know if you remember correctly, or precisely, but last time, we saw a slow down in our Americas business about nine months or so before the collapse of Lehman.

So if you want to date it by Lehman as being the official, cataclysmic event, about nine to 12 months before that is where we saw a slow down in our Americas business, and it seemed to go around the world and catch up.

We also saw a number of things like subscription rates went down considerably.

We also saw our run rate business, particularly LT and AutoCAD, go down substantially and differentially than the other things.

We've been looking for evidence in our numbers of things that look like the last downturn, and so far, we haven't found those.

So, I -- as I sit here today, we also have gotten to look at the first couple of weeks of our business in this quarter.

And that famous graph that we like to show of the linearity of the quarter, it's perfectly on track for our expected plans for this quarter.

So far we haven't seen indications of it.

I just want to get that out of the way, because I'm sure there's going to be a lot of questions from people about what if, and when, and what are you seeing?

But so far, we can't find evidence of it.

It doesn't mean that we are deaf and dumb, and we're not listening to the news or looking at the reports and seeing what other people are saying.

To move to the second part of the question is, I would differ a little bit with you, and I would say there was a real floor last time; and while our operating margins got cut in half, I think we did a remarkably good job and, despite having our revenue go down by high 20%-something, decrease in revenue, the operating origins for always positive, they were always double digits, and it rebounded fairly quickly.

I think the question this time is what is the actual situation, how does it differ, what's the most appropriate way to respond?

And I think the other question, I think for many companies, which is what I think someone was getting at before, is how should we respond to it this time?

I worry too much about a lack of investment, through what will be a five-year period, if companies slow down too much and cut too far back on their initiatives.

So, I think we've demonstrated our flexibility and agility in being able to respond, but I'm not committed to getting out of the gate ahead of it, especially since we haven't seen it yet.

Thank you, Carl.

The other thing I would like to add, just to all the points that Carl made, is that in addition to his comment on linearity this quarter, one of the things you will note in the prepared comments is that our linearity in the last quarter finished strong.

And again, that's not what you would typically look for in a -- it's not the typical signal that we would be concerned about.

I also called out the multi-year subscription as one of the first things that comes off the table when customers are starting to get nervous, and that actually increased substantially for us this year -- this quarter.

So, just a couple of extra comments.

Thank you.

Brendan Barnicle; Pacific Crest Securities.

Thanks so much, guys.

I wanted to follow up on the strength you were noting in the Suites business and maybe see if we can quantify that a little bit more.

I know there were promotions during the quarter to get people to upgrade on that.

Did you see or can you quantify the type of ASP lift you were seeing around Suites and where that -- and then quantify how much of that might have impacted what we saw on the performance on the license side?

Actually, I would say it's -- my sense is that the Suites ASP effect, is really just barely begun to take effect and show, relative to the way I think it will over time.

Again, we talked about for people that did a -- an upgrade, basically, through some of the promotions, Brendan, that you're referencing, that was a minor ASP lift, but when they do the renewal, there will be another lift.

And we're just beginning to see the front end of the ASP lift.

So it's too early to give a really good, quantitative figure, other than expect that that will show up more later.

Well, that leads into my follow-up, which is we saw the great improvement in maintenance billings, and you listed out attach and renewal rates and a few other things there.

Any way to quantify the Suite impact on that and whether -- how much of that we are starting to see?

Is that the same situation as the licenses, are we starting to see that sooner or later?

I think it's going to -- I think -- I wouldn't really break that out and call that a headliner, per se.

I would say that the drivers for the maintenance billings, which is the highest we've seen in a long, long time, as a function of commercial new licenses, as a function of cross grade, as a function of multi-years.

It was a function of big deal renewals, it was a function of increased attach and renewal rates in aggregate showing up across all of geographies, and to a small degree, FX.

So, it was a really, broad-based response to a nice customer offering that's getting -- the value proposition's getting better.

And along that same line, we saw, it looks like the best maintenance growth in about two and a half years, so should we expect that we see, given what we are seeing in the billings, it would be right to assume that we would see continued acceleration in that growth on the maintenance side?

Yes.

We don't guide in that aspect, but I think your notion that we're putting deferred revenue on the books that's going to show up over time.

I think you want to model that out with algorithms that you guys naturally do.

But I think it is a good sign that these billings are being booked, to your point.

Great.

Thanks a lot, guys.

You bet.

Steve Ashley; Robert W.

Baird.

Yes.

I would like to drill down on some of the promotions and the general point product to Suite migration activity, and can you talk about the success -- or were you having success getting people move from point products onto Suite, and specifically from 2D point products onto Suites?

Yes.

The two things that I noted in my comments, Steve, where we were very successful in moving people from point products to Suites, as well as moving people from some of the older Suites; because remember, we introduced that big bunch of Suites this year and towards the end of last year.

But we had some existing Suites in the market.

So we were both successful in transitioning people from the older Suites to new ones, as well as moving them from point products.

In some ways, if you just step back and think about it, the collection of products that are put together in a Suite are really meant as a collection of tools that work well together.

And as we've always said, moving from 2D to 3D is just the first step.

The real payoff from moving from 2D to 3D comes in that collection of tools that surround it, that allow for analysis and simulation and visualization.

All those things that contribute to a better understanding of your design.

And so, the tools that we put together in a Suite are exactly designed to do that.

And when you look more closely at the Suites, the sweet spot for the Suites -- is the premium level, which is the middle tier.

And what we saw is really good performance of the middle tier as well as the top tier.

And as we pointed out even in the last call, the top tier continues to exceed our expectations.

And then, maybe you could offer a comment on Japan and how that performed in the period?

Yes, sure.

In terms of Japan, we normally don't call out all the real specifics of each of the countries, but Japan was actually -- we were very pleased with it.

We know they've overcome an incredible natural disaster.

We had strong growth in Japan.

Great.

And real quickly, the multi-year subscriptions, I'm assuming those are billed for one year at a time.

Actually, the multi-year subscriptions, they actually are billed up front.

And it can be a mix.

But largely, they are billed up front.

Great.

Thank you.

Yes.

Blair Abernethy; Stifel Nicolaus.

Thank you.

Carl, just wondering maybe you can dig in a little more for us on some of the success you are having in the automotive and the aerospace verticals?

What's changing there?

And are you supplementing what engineers have in these sectors, or are you displacing, or what?

I think, you know I think two things have changed.

By nature, both those industries, for really good reasons, are fairly conservative.

Yet they've both faced a bunch of economic pressure, and they are looking for better tools to get their jobs done.

We've been in the market for a while, but it takes a while to convince people of our seriousness in the market, the capabilities of our tools.

And we've been slowly building credibility, which has really reached the tipping point where we are getting on everybody's consideration list.

In the early days of having our products, many times we didn't even make the consideration list.

Now we are always there, and we are being seriously considered.

Second thing that's going on is we've really broadened our portfolio.

All the way from conceptual design tools, all the way to factory design tools and everything in between.

And particularly as we've entered the market with more and more simulation and analysis tools, people understand that we're very serious about these markets, that in many cases we have much better technology and it's much more accessible.

And so I think for all the reasons we win, we've done that.

Now, I say the other thing that really has helped is, we've gone to market differently, starting during the downturn.

We made a significant investment in our major accounts.

Many of these sales cycles involved in aerospace and automotive take quite a bunch of time, they require a bunch of consulting services and we made those investments.

And so, for probably the last three to five years, we've had products that were more than capable of displacing competitors.

We didn't have the complete offering, we didn't have the right way to go to market.

As we've increased our footprint with major account sales people, as well as our consulting services, we now have what they need to actually choose us.

And I say, in many cases, we're displacing competitors.

Most of these companies have already had stuff.

In some cases, we're expanding the footprint within it, to reach other users who may not have had the tools.

But a lot of it is displacement of the legacy, the old crusty expensive stuff.

Okay.

That's great.

Thank you.

And just, Mark, I wonder if you would help us on -- your G&A this quarter improved quite nicely, sequentially.

Is that a level we are going to be running at now?

Or could you just explain that a bit?

Yes, some of what happened there, you can appreciate, is when we go into the second quarter, some of the fringe goes down is one thing; the other thing is that we are managing costs very, very tightly.

So as far as going forward, I don't want to guide you in any per se, but we are trying to keep a tight lever on that, while making the investments essential for supporting the infrastructure to grow the company.

Okay.

Thank you.

You bet.

Sterling Auty; JPMorgan.

Carl, you mentioned some of the things in the numbers that were the leading indicator as you went into the slowdown, but what were the customers saying?

What were the body language that kind of gave the leading indicator to the slowdown in their spending habits, as you went into the last recession?

What we saw last time was a real reduction in their pipelines.

Many of them are already working with smaller workloads than they did when they went into the last recession.

Many companies have been much more resourceful in where they're finding work, how they're doing work, the size of their workforce, has been one of the issues behind unemployment in a number of places.

So, I mean, last time what we started to see was delayed deals, smaller deals, non-renewals or smaller renewals.

And I think people were pretty freaked out.

This time, I've been with a lot of customers over the last few weeks, and there's a little bit of a sense of immunity or -- they just have this sense, look, we've seen this movie before, we don't think the world is coming to an end.

Many of them regret having not been more aggressive during the last downturn and being so reactive to the slowdown, but not in a long-term healthy way.

So most of the customers I see right now, they're worried about getting new products out.

But they don't have that same sense of fear that we saw last time.

Okay.

And then the follow-up, on the Suite side can you give us a sense of the order of magnitude which of the Suites is contributing the most now?

And how should that evolve over, let's say the next 12 months?

Yes, I think the big -- the biggest contributor and the biggest surprise to the upside has been in the Building Design Suite.

Particularly because, as we looked at the macro economics factors going on, this would not be a particular time you would have guessed that the Building Design Suite would be leading the charge, given all the economic factors out there.

So, that's pretty much surprised us the most.

But the Product Design Suite has done well.

Some of the other -- and both of those are building off previously existing Suites.

The numbers on the other Suites, like Factory Design Suite, Plant Designs Suite, the basic Design Suite, those all are coming out much smaller bases and the movement from point products.

So while the growth has been -- exceeded our expectations, those numbers are relatively small.

All right, great.

Thank you.

Walter Pritchard; Citi.

Hello.

A couple questions here, mostly financial in nature.

I guess first, trying to understand, we noted the change in the FX methodology that was in the press release.

Can you clarify, relative to the guidance you gave last quarter, did you change it since that guidance, and what impact it had relative to the guidance range you give last quarter?

And then also, any impact that that FX change methodology had on the 13% growth guidance for the year versus prior 12%?

Yes.

First of all, Walter, happy to address that.

Keep in mind, the change in the FX is actually quite straightforward.

The US dollar, no effect, no change, we've given guidance in US dollar.

The only thing that we did for this particular improvement is we just simply took out the gains and losses and hedge, and what that allows you to do is have a better insight on what's happening in the local currency, in terms of revenue.

That's the upside -- the upshot of this.

So, it's really quite straightforward from that standpoint.

In terms of the impact, we even modeled the old methodology, and you can see it in the fact sheet.

Yes, got it.

I saw that.

I saw the 10% versus the 14%.

So it's really -- this is like immaterial.

The only thing that we find that's interesting is when you go to try to understand, for example, how Europe is doing, you can take a look at the constant currency rate and not have to worry about our four quarter layered hedge gains and losses, and you have a better understanding of what's happening on the ground; and yet when you look at the FX impact, you can actually see the full effect, including the gains and losses.

Got it.

Great.

You bet.

That makes us.

And then Carl, on share gain comments, I guess when we talk to other players in this space, everybody claims that they are gaining share and defending their turf or expanding into new turf, and I think it mostly is around manufacturing in the AEC space, that's not so much contended, but curious, is it market industry estimates or is it your own work that -- or is anecdotal that convinces you're gaining share in manufacturing, and a little bit more detail on that would be helpful.

I always find this slightly amusing, that a mathematical fact is the subject of so much argument by anecdote.

It seems much better to go back to the math.

And I think there are only two ways to look at market share.

One is you can look at the number of seats and the others is to look at the amount of revenue.

And, I think if you do the math by those measures, on any apples to apples comparison, I think that's where my comments come from.

So, I always find it amusing when somebody says their CAD business is growing by 3%, but we're gaining share.

I just don't know how that's mathematically possible.

Got it.

And Mark, I have one quick one on the maintenance billings, and you mentioned long-term was driving it, I'm trying to get a sense of if you're doing anything different there to try to incent that type of behavior or if that's truly the customer feeling better about things and going longer to --?

It's actually, Walter, the customer feeling better.

We're seeing that in the channel, we're seeing that where there's no unique incentive that's different than what's been there in the past.

We offer a very small incentive if they want to go multi-year; that's been consistent.

What they're doing is their behavior's just different.

And I think we like that trend.

We like what we see there.

Great.

Thanks a lot.

Yes.

Keith Weiss; Morgan Stanley.

Excellent.

Thank you, guys and nice quarter in what appears to be a difficult environment.

I was wondering, from a high-level perspective, obviously, you guys aren't seeing any impact in your business from the macro, but investors are.

And we've seen a significant pullback in your stock price.

Looking at that versus $1.6 million of cash on your balance sheet, any thoughts about getting more aggressive there or perhaps using that cash to more aggressively buy back shares, considering the big pullback that we've seen?

Yes, I mean, generally speaking, our program is around offsetting dilution.

But certainly, when you see such a dramatic pull back, it's more than crossed our minds.

At this point, we have no commitments to doing it, but we certainly have thought about it a lot.

And we generally don't try to time the market around that, but it's just -- it's staring us in the face.

So we've given a lot of consideration to it.

Got it.

And then, on your hiring plans for the year, have there been any changes given -- you made the remark earlier that you're not blind to what you're seeing in the financial markets and all of the uncertainty out there.

Has there been any impact on your hiring plans throughout the back half of the year, or the expense ramp, or is it just business as usual for Autodesk going forward into the back half?

No, I think we've definitely put up the yellow flag.

I don't want to put up the red flag, because I think that's usually disruptive to the business, and I think if we were to go through another period like that, if it was unwarranted, it unnecessarily is a jerky response to it.

But we have been observant of it.

What I would say is, most of our investment has been moved closer to revenue generating activities.

So the things that we want to preserve are the introduction of new products and services and continued investment in our go-to-market activities, major accounts, our investment in the channel, marketing programs and promotions around Suites and web services.

So where we would continue to invest until it seems unhealthy would be closer to the go-to-market activities.

Where we've pulled back from or are proceeding much more cautiously, are those things with much longer pay back, some of the R&D initiatives and things like that.

In many cases we're doing the work of figuring out which area, how to categorize these things, how to think about it, and we'll see.

But, we want to continue to invest in those go-to-market activities to make it through.

One of the things that we saw is we have a certain number of directions we're headed in as a result of the adjustments we made during the last downturn; our investment in major accounts and consulting is a good one, our relationships with a number of large system integrators.

We would like to continue going that going through it.

I'd hate to pull back on that and come out of this a year from now and not have those in place, when they've been so successful.

And I think in some ways, they speak to what's kind of buoyed our results in certainly a rocky economic time.

Got it.

And if I could sneak one last one in.

Wondering about spending with governments in general, both US federal government, as well as perhaps more particularly in Europe.

In Europe, we're seeing a lot of austerity measures.

In the US, we're seeing crazy budget ceiling fights.

Any impact on your business from all this turmoil going on, in terms of at least what appears like from the outside from governments?

Yes, what we've seen is an uneven release of the money.

So I think there's two things that go on.

One is the policy decisions about how to spend the money, which is the ones that get the big headlines.

In fact, what we've seen to be slightly more important is the back end of the process, where the money actually gets released.

And, as our elected officials in Washington gummed up the works, money got held back; we saw some of that happen early in the quarter.

And so there's no doubt that government officials around the world have the ability to bollix up government spending and it could have an impact, but it's somewhat tied to how they release funds, a little bit more so than how they plan on spending the money.

So the funds might be there, just getting it's more difficult?

The difference might be something like, if you look at something like infrastructure spending.

It's many, many years before the money is first committed to the time that a project is built; that could be five to ten years.

So, what's less important is whether or not they agree to move forward with a big infrastructure project, as compared to whether they're releasing funds for ones they've already committed to.

Okay, got it.

Thank you very much, guys.

Yes, I think one other thing I would think about, I think when you look at a lot of government spending in places like the US and Western Europe, but the other thing to remember is the other governments of the world, particularly the emerging economies, and what the governments are doing there.

There's significant spend in places like China, India, Brazil, Russia, they all performed really well and there's a lot of government spending there.

And it seems to be on a very different track than what's going on in the US and Western Europe.

Dan Cummins; Think Equity.

Thank you.

A couple questions.

First, I wanted to know, Carl, if you could talk about your direct business.

I guess comparing the results versus expectations this quarter and the prior quarter.

And, perhaps I've never asked before, how much of that extends into emerging markets?

Curious also about Revit adoption by the global geo regions.

And then finally on DOT opportunities in infrastructure.

Do you expect to see approximately the same amount of vendor review opportunity along the lines of what I think you had in California going forward, even as some of the state finances are hobbled, perhaps?

Thanks.

Yes, so let me see if I get this right, there's a Revit adoption question, about DOT and vendor review, and the first part your question?

Your direct business.

How's that been trending over the last couple quarters and the mood of the big customers?

I guess, trying to ask it over the last six to eight weeks, if you sense anything different about their ability to build firewalls around Wall Street and bank nonsense?

So what I would say is our direct business has done really well.

It's exceeded our expectations.

It's partially a function of the customer's behavior, but it's also a function of the fact that we've been adding capacity to our direct sales force; and as they ramp up over time, you have greater capacity.

So, it's a combination of the two of those things.

It's been interesting conversations, I don't want to sound crass about it, but in many of the meetings I've had with major accounts, there's almost a gallows humor about the financial markets.

And I think everyone sees it, everybody hopes it doesn't affect it, but I don't think any of us is naive enough to believe that if it continues that it won't affect our businesses.

I think many of us are behaving in response to the things that we can see and feel every day and running our businesses according to those plans and observations, and many of our major accounts are moving forward.

If it wasn't for the downturn in the financial markets, I'd be sitting here telling you about hiring we're seeing in the construction business, increase in projects that people are gearing up for.

Now, like I said, on one hand I am seeing that; on the other hand, I've been around long enough to know that if the banks go into another really bad period and credit tightens up, you're not going to see financing of those projects.

So, right now it's a little bit schizophrenic and it's hard to balance out those two things.

But what we saw is our direct business is growing, it's doing really well, and in many cases it's enabling us to reach customers that we weren't able to reach before.

And like I talked about in aerospace and automotive, what the direct salespeople really allow us to do is take what I believe to be equal or better products to what already exists in the market and add the other components to it, about how a customer really wants to buy and get service from us.

So, I'm feeling really good, and whether it's aerospace or automotive or what you see at the DOTs, that's a result of our direct business.

Revit adoption has really been strong.

Revit is closely tied in the market to this concept of BIM, or Building Information Modeling.

BIM has been on a roll.

It's way past the tipping point, it's doing incredibly well, people are thinking about BIM not only in terms of buildings, but in terms of civil infrastructure.

So it's been doing really, really well.

It's been doing well across the world, lots of countries, it's doing really well.

We're seeing it strong in the United States, we're seeing it strong in EMEA, particularly Australia and New Zealand.

And the thing that I find most exciting about it is that early on in the rollout of Revit, there was a lot of adoption by the architectural community.

As we've proceeded further, there's a huge take up in what's going on with engineering firms, as well as what's going on in construction with the large, general contractors.

And that's obviously a much bigger portion of this global $4.2 trillion industry.

So, what I'm excited about is the use of BIM all across the value chain.

And if you just look at the numbers from our point of view, Revit revenue was at an all-time high.

On the DOTs.

DOTs have a calendar for their vendor review, and I think they will continue to proceed along that.

A little less sensitive to the economic cycle.

We feel good about the Departments of Transportation.

We've won in the United States and announced.

We feel really good about the pipeline of opportunities, both in the United States, North America and around the world.

And we're doing really well there.

When you look at it right now with government revenues down, the DOTs are feeling real pressure to improve their process, and to be more responsive and to get better projects built and brought to market much sooner.

And that's what our tools do.

So we have something valuable to say and to add to the process of how DOTs go about doing their work, as well as the whole supply chain, the whole value chain that supports them.

It's all about getting things built better and getting them built more quickly.

Great.

Thank you very much.

You're welcome, Dan.

Steve Koenig; Longbow Research.

Hello, guys.

How are you doing?

Good.

Good.

Just a couple questions here.

One is, one is more of a narrow question first.

The growth, particularly in the license and other line, looks like it was led by upgrade in cross grade was really good, the comparison looks pretty easy relative to last year.

Could you break that down a little bit for us or give us some color on what drove the growth there in the upgrade in cross grade?

Well, one of the things that drove that is the fact that as we were introducing the Suites, we gave people opportunities that had point products to actually upgrade to a Suite; and so that's one of the factors that was involved there, Steve.

Okay.

Was that the major factor would you say, Mark?

I'd say probably is one of the major factors.

The most significant was cross grades hadn't been as big a part of it over the last few quarters.

And this was a good upgrade, cross grade opportunity for many of the customers.

I think to simplify it, upgrade just continues to, in the past, continues to have a favorable effect on this now, today.

Okay.

Great.

And then, one other, a little broader question here, is I've been tracking your revenue growth both in manufacturing and AEC versus employment levels, and you consistently have demonstrated an ability to grow significantly faster than staffing levels for instance, in architecture and general services or manufacturing, even when employment is relatively flat, but you certainly have been very levered to change in employment, especially in the last downturn.

I'm wondering, is that kind of leverage to the employment level the kind of relationship we could should continue to expect, or do you think things like BIM and the growth of your direct business and the Suites, do they provide you -- how do they affect that relationship?

Yes, you know I think it's really -- look, the overall macroeconomic environment clearly affects our business.

We saw during the last downturn, when spending turns off, it certainly affects our business.

But I don't think there is great causal relationship between the number of people out there, the number of people employed.

As a matter of fact, what we see during slowing economic times, or low growth times like now, is this need for huge process improvement in efficiency.

And I think during these times, that's where we make it up, is that people need to find ways to get the same amount of work done with smaller work forces, and they are looking for tools that drive efficiency.

So I think the correlation's not there.

I would also say there are places in the world, that we sometimes tend to forget about, that have big shortages in skilled labor.

So I recently heard that in Brazil they have 100,000 too few architects and engineers for the projects that they want to build, and almost 2 million people, there is a deficit of 2 million skilled construction laborers.

So there are parts of the world in which there is a need for more employment, even if in the US and EU, you see other things.

We found, over time, difficult to correlate some of the simple numbers to our actual performance.

But, we certainly know we're not immune to overall macro economic stuff.

Okay, great.

Thanks for the commentary.

Sure.

Philip Winslow; Credit Suisse.

Hello.

This is Dennis Simpson for Phil Winslow.

Could you guys comment about what you're seeing in the manufacturing vertical across regions?

Some of the ISN and PMI indicators are rolling over, and we're just curious about what the feedback from customers has been.

Thank you.

Yes, sure.

I mean, Manufacturing was really strong for us.

It demonstrated strong growth.

It was our biggest Manufacturing quarter ever.

So, we're really pleased with what we saw.

When you try to break it down geographically, I would say relative strength across the world, the US was strong, central Europe was strong, northern Europe was strong, parts of Asia were strong.

It seems like the PMI moves much more quickly than the manufacturers do.

I think if you saw a continued downward trend, it would become more worrisome.

But right now, what we saw is a fair amount of strength.

And like I said, it was our strongest quarter ever in Manufacturing.

With, when you look at the sub text of it, lots of nice factors inside those numbers, when we look at individual products and Suites and product adoption, renewal rates around subscription.

A lot of the stuff underlying that number was really positive as well.

Final question comes from the line of Matt Hedberg with RBC Capital Markets.

Hello, guys.

Thanks for squeezing me in.

I guess, Carl, broadly speaking within a sort of large swap, your enterprise, SMB and professional markets, where did you see the most upside versus your internal expectations?

We've talked about this in a couple different slices, but I guess I'm wondering in that slice?

Yes, this time, nothing stuck out particularly.

I think we continue to be pleased by how well we are doing in the enterprise accounts.

But I would also say that I was really pleased by the resiliency of what we saw in the small and medium, as well as the small -- Like I said, that was one of the places where we look to because of what we had seen the last time going into the downturn.

We found that a much more difficult environment to control than the ones in which you have direct relationships with your customers.

And so we were very mindful of what was going on with our channel partners, as well as what was going on with the volume channels and people buying in really small numbers.

And the run rate business continued to be strong.

So I would say those numbers were resilient, and our Suites business was primarily driven by our channel partners.

I've talked about this before, that while Suites is applicable across the broad range of our customers, the most appropriate place for it is through the small and medium customers that buy through our channel partners.

The smaller customers may not be willing to invest in such a big portfolio of products, and our enterprise customers have other flexible licensing options to get the same functionality.

So it was really pretty solid across the various channels.

Great, thanks a lot, and congratulations on the quarter.

Thanks very much.

Thanks.

That does conclude our question-and-answer session for today.

I would like to give it back to Dave Gennarelli for closing remarks.

Thanks, operator.

That concludes our call today.

Just as a note, we will be at the Citi conference in New York City on September 8, and we will also be hosting our AEC webinar on September 14, and stay tuned for more details on that.

Otherwise, 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 so much for your participation.

You may now disconnect, and have a great day.