Autodesk Inc (ADSK) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2012 Autodesk earnings conference call.

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

Later, we will conduct a question and answer session.

(Operator Instructions).

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

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

Dave Gennarelli, Director of Investor Relations.

Please proceed, sir.

Thanks, operator.

Good afternoon.

Thanks for joining our conference call to discuss our third quarter fiscal 2012.

Joining 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 fourth quarter and full-year fiscal 2012, full-year fiscal 2013, and long-term financial model guidance, the factors we use to estimate our guidance, the 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 judgement 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, and Forms 10-Q for the periods ended April 30 and July 31, 2011, and our periodic 8-K filings including the 8-K filed with today's press release and prepared remarks.

Those documents contain and identify important 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 viewed after today, the information presented on 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 both GAAP and non-GAAP results is provided in today's press release, prepared remarks, and on the Investor Relations section of our website.

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

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

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Thanks, Dave, and good afternoon, everyone.

Our strong revenue growth was driven by double-digit growth across all of our major geographies, with particular strength in Asia Pacific.

All of our business segments performed well, driven by revenue from Suites.

When combined with continued cost controls...

(Technical difficulties)

...we achieved solid growth in our non-GAAP operating margin, EPS, and cash flow from operations.

There were several areas of notable growth and achievement during the quarter including 15% growth in total revenue, 36% growth in total Suites revenue, 28% growth in revenue from Asia Pacific, 21% growth in our PSEB segment, double digit growth in both our AEC and manufacturing segments, 18% growth in maintenance billings, 360-basis point improvement in non-GAAP operating margin, 38% growth in non-GAAP EPS, and 20% growth in cash flow from operations.

This was only the second full quarter that our new Design Suites have been in the market, and they're off to a terrific start.

Our customers realize the significant value delivered in the Suites, which is winning us new customers, and motivating existing customers to migrate from Point products and older Suites to our new Suites.

Over the course of the next few years, we expect Suites to become the majority of our revenue mix.

Two weeks from today, at our Autodesk University event, we'll be unveiling our offering for entering the PLM market.

As I've said previously, we'll be addressing the significant market opportunity with a very unique approach, which will enable manufacturers, as well as AEC and M&E companies to achieve the full promise of PLM for the first time.

Our cloud-based approach will be easy to use, implement and deploy.

It will be scalable, configurable and intuitive, which is a sharp contrast to the decades old legacy technology in the market now.

We think that customers are starving for this new kind of solution, and Autodesk succeeds in introducing this kind of disruptive technology.

Speaking of cloud technology, we recently launched Autodesk Cloud, a collection of more than a dozen web-based capabilities.

These services will enable customers to extend their desktops with greater mobility, will offer new viewing and sharing capabilities, and will provide more computing power, helping our users to better design, visualize and simulate their ideas.

Along with our product advances, we continually strive to improve our customers' experience.

Electronic download has benefited our subscription customers for the past 3 years.

We're now aiming to increase the use of electronic delivery in developed countries by making new licenses of most of our products available for electronic delivery.

In advance of this action, we initiated a plan to further reduce our already low inventory in the channel during the third quarter, and we will continue to do so in the fourth quarter.

Channel inventory was reduced by approximately $10 million in the third quarter, in conjunction with this initiative.

Over time, we expect to phase in the electronic download availability of new licenses in emerging countries, as well.

It's worth noting that channel inventory now stands at only 1.5 weeks.

We have a long history of acquiring small businesses and leading-edge technologies, and integrating them into the fabric of Autodesk and our products.

In the third quarter alone, we closed 10 small, but strategically important business and technologies -- and technology acquisitions, totaling close to $90 million, net of cash acquired.

These transactions were across all of our business units.

We believe these purchases are an important component to advancing our products and offerings, and delivering more value to our customers.

Turning towards our view of FY '12 and beyond, plenty of economic uncertainties remain in each geography around the world, not just the Eurozone.

Recall that we started FY '12 with expectations of 10% revenue growth, and 200- basis point improvement in our non-GAAP operating margin.

Despite some choppiness in the market, our businesses performed well, and we believe we are on track to deliver 13% revenue growth, and non-GAAP operating margin improvement of between 210 and 240 basis points in FY '12.

Earnings growth is expected to be approximately 30%.

We're very proud of our accomplishments so far this year.

We've achieved this by continuing to focus on prudent cost containment, while making appropriate investments in the business to fuel future growth.

We also felt it would be helpful to share with you our initial thoughts about FY '13.

We are modeling revenue growth of at least 10%, and non-GAAP operating margin improvement of approximately 200 basis points year-over-year.

Our recent performance, coupled with our revenue outlook for FY '13, reinforces our confidence in achieving our long-term target of growing revenue by 12% to 14% compounded annually, and getting to 30% operating margins by the end of FY '15.

We remain highly confident in our market position.

Our product portfolio is the most compelling it has ever been.

We're very excited about our PLM opportunities, and we remain well-positioned to expand our business, and better serve our customers and attract new ones.

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

(Operator Instructions).

And our first question comes from the line of Brent Thill of UBS.

Please proceed.

Thanks.

Just Mark, if you could just talk about the guidance for next year, starting at 10%, maybe if you could just start with your visibility?

And for Carl, just on Europe, if you could give us -- just your view of what's happening.

You had decent growth, but obviously Asia Pacific was outpacing by quite a bit.

So, if you could compare and contrast, that would be helpful.

Thank you.

Sure, Brent.

Glad to -- glad to do so.

Our 10% -- at least 10% -- and as we look at FY '13, is based on kind of a normal process.

It is 5 quarters out, but we look very comprehensively with our sales team, with our channel partners, we have a lot of, obviously, data that we get, that we factor into a rigorous plan.

We feel like this is a solid projection.

We feel confident in the guidance.

And it's kind of our normal process that we look at.

And historically in Q3, we typically give our fiscal year projection for the following year.

And Brent, we'll update it as we closer to the beginning of the fiscal year.

On Europe, I don't think our experience is very different than what other companies are seeing and reporting, that I think it's mixed across Europe.

Certainly, Southern Europe is fairly weak.

Northern and central Europe is fairly strong, and I think there's a lot of uncertainty about what's going to go on in the Eurozone and in Brussels.

Asia Pacific was really strong.

It has continued to outpace, both the Americas and Europe for a long time, and I expect to it continue to do so.

Operator?

Our next question comes from the line of Heather Bellini of Goldman Sachs.

Please proceed.

Hi, actually this is Perry Huang for Heather.

Thank you for taking the question.

On your July earnings call, you had talked about various metrics you were monitoring to keep tabs on the business environment.

Could you maybe talk to these indicators again for the October quarter, and whether you noted any changes?

Yes.

Again, what we were trying to do really, if you remember three months ago, the world was fearing going into a double dip.

And what I said at the time was, we had no great insight into whether we were going.

But in looking back at our business, I said if the world does go into a second dip, it looked different than the first one.

And we were trying to monitor all these metrics that we saw, some in front of, and some when we looked retrospectively, of what happened a few years ago.

Some of the indicators that we had seen the first time were decreases in our run rate business.

Those would be products from our PSEB segment.

If you look now, PSEB had a particularly strong quarter.

So, I would stick to the comments I made before that that, as well as a bunch of the other metrics we looked at, subscription renewals, subscription attach, they were strong.

And so like I said before, it's still hard to figure out what's going to go on in Washington, and what's going to go on in Brussels, but just looking at our business, we're certainly not seeing the indicators we saw in 2009.

If anything, we're seeing contra-indicators.

Got it.

Thank you.

Our next question comes from the line of Richard Davis from Canaccord.

Please proceed.

Thanks.

For Carl, as you kind of transition and put out your PLM product, and you presumably put it in the cloud, and those kind of things.

One of the things that some of the early firms in the space were challenged with was just, being able to sell, because PLM is more of a higher level sale than a department sale.

How do you sell higher in the organization, get into the C Suite, because, does that require different salesmen?

Or, how do you think about that, and how do you think about the process, and how should we look at it from the outside?

A good question, Richard.

What I would say is, we already sell fairly high up.

It depends on the account.

We've talked about, repeatedly, how our major account business is doing really well.

We continue to invest in our major account business.

Those are all decisions that are made at the executive suite.

We're typically selling in large companies to the CIO, or the head of engineering, or the head of design.

So, I think for those customers, we already have a sales force in place.

As you get to small, medium-sized business, I think it's incumbent upon our partners.

And many of our partners work at that level, though in smaller companies.

So I think it will be different.

It's a more holistic sale.

It's more of an enterprise sale.

But people often misunderstand our business.

The fact, that I say over and over again, is nearly 30% of our business comes from 1% of our customers.

And in those cases, where you look, people have thousands of licenses in mission critical applications.

So I don't think you should mistake the fact, that a machine shop down the street has a license of our software, with the fact that we're mission critical in large enterprises.

They both exist simultaneously.

Got it.

Thank you very much.

Sure.

Our next question comes from the line of Jay Vleeschhouwer.

Please proceed.

Thanks, good evening.

Carl, I'd like to ask about your Suites and maintenance business, and the connection between them.

Your Suites business declined some sequentially from the second quarter, although it did grow year-over-year, of course.

Your maintenance billings, deducing from your prepared remarks, had a substantially greater decline in absolute terms, from the second quarter than we've seen in previous second to third quarters.

Although again, it was up year-over-year, it was a pretty substantial decline from July.

And on the other hand, you added a pretty considerable number to your active maintenance base, the most in a year.

Could you perhaps talk about some of those moving parts, in terms of Suites and maintenance and the active base?

Yes, I mean, the quarter-over-quarter decline in Suites is to be anticipated.

One, is just the usual seasonality in 2, 3, but the more important thing, is the introduction of most of the Suites in Q2.

So we -- after the big introduction, I would have been very surprised if Q3 was bigger.

In terms of maintenance, all of our subscription rates are doing well, so attach is good.

Renewal is well.

Everything about that business seems particularly healthy.

And in relation to the questioner before, that was another one of the indicators that we saw go down.

We're not seeing that at all.

So, we're really pleased, with where we saw the maintenance business going.

Okay.

A couple quick follow-ups.

Earlier this year in Q1, you pointed to some weakness in your infrastructure business.

And that may have been due just to some product timing, but could you comment on how that's doing now?

And then finally, also earlier this year, you made some changes in terms of your channel segmentation, with some airline-like platinum status and so forth.

Could you talk about how those changes in your channel structure, or certifications may have had any discernable incremental benefits thus far this year?

Yes.

So let me just go -- let me just broaden your infrastructure question to the general AEC question.

Two quarters ago, people were questioning a lot about the health of the AEC business, and trying to extrapolate from there, one thing or another.

I tried to point out at the time, something that remains true, has always been true, is that if you really want to understand how we serve architecture, engineering and construction, you have to look at the combination of what we report as AEC and PSEB.

That one was particularly low in AEC, 2 quarters ago.

The other point I've made repeatedly, is I try not to read too much into any one quarter's number, in one particular area.

And my logic around that, is we have a capacity constraint system with various incentives.

And under that, you see behavior that goes on within a quarter, that's not very controllable.

Over time, when it becomes a trend, then you should take note of it, and we certainly do, and try to do something about it.

So, overall, I'd say our AEC business is doing well.

You can see it in the AEC number alone, as well as the fraction of the PSEB business, along with that infrastructure is doing well.

There were some timing issues also that we brought up two quarters ago, had a lot to do with the introduction of Suites, the introduction of the infrastructure Suite in particular.

Those were all things that came out later in the year in the US, as well as in other geographies and languages.

Okay.

And the channel question?

Oh, the channel question.

I was so busy answering that one, Jay.

Now we continue to make -- incremental changes.

I think if you just try to step back, and not try to dissect too finely any moves in our programs, but look at it more holistically, generally what we're trying to do is reward our partners who put in the most work, and accomplish the most.

And given the regulatory framework in which we operate, the business conditions, there are various ways that we're able to incent people, and make sure that the people who do the most work, who contribute the most, provide the most value to the customers, get paid the most.

And that's what we continue to do.

And you've seen some changes this year.

I think the introduction of a premier status, and I think you'll see some changes coming in the channel framework for next year as well.

But all, keeping in mind, that the goal remains, to reward the people who do the most work.

Thanks, Carl.

You're welcome, Jay.

Our next question comes from the line of Walter Pritchard of Citigroup.

Please proceed.

Hi, thanks.

Two questions.

One on manufacturing, if I look at your two peers in that space that have already reported, Parametric and Dassault, it looks like they grew a little faster.

I thought of you, as potentially being a share gainer there.

And I know we are looking at one quarter of data here, but I'm wondering how you're -- on the competitive front in manufacturing, what you're seeing, and where you think the share battle is being fought, in terms of that market?

Yes.

So first thing, again, the part of PSEB, that is not AEC, is primarily manufacturing.

So, again, when you look at manufacturing, it's not our as-reported number.

You have you to look at both those numbers together.

And if you put the two together, I'd continue to say, that we're growing.

We're growing faster than our competitors.

When you look at things like seat counts, and market share is measured by install base, we're growing much faster than our competitors there, as well.

One other things to remember, is when you look at some of the competitors out there, they're actually growing in areas where we don't even compete, and vice versa.

So, I think when you look at things where we both compete, which is design and engineering software, as well as analysis software, by both the seat count and the revenue count, we're growing much faster.

I love the position we are in, in manufacturing.

We're kind of the underdog.

We're kind of the disrupter.

We democratize technology, we have a broader product portfolio than anybody.

We have a better product portfolio.

I'd hold it up against anybody in the industry.

And if you just look back, last quarter was the biggest quarter ever in manufacturing history, and it grew 20% year-over-year.

So, I'm really happy with where we're going.

And I'm really excited about what we're doing around PLM, because I think that's going to be a big game changer, in terms of how we're able to serve customers, and how we're perceived in the market.

Thanks, Carl.

And just Mark, on the comment around the half of percentage point of reduction in channel inventory, or I guess half a week of reduction in channel inventory and the $10 million impact, should we think about that as having gone straight to revenue?

And I am curious, was that in your guidance or not?

And I just wanted to clarify that.

No, I absolutely want to help you with that, Walter.

First of all, for channel inventory, just step way back from it.

We only recognize revenue, when we sell into the channel.

So, the fact that we did not sell into the channel, basically, and achieve these numbers, if we would of kept -- said differently, if we would have kept the channel inventory flat, we would of had about $10 million more revenue.

Okay?

Just so you understand, from that standpoint.

Does that answer your question?

That does.

That makes sense.

Thanks a lot.

And I assume, were you expecting that in the guidance or not, or is it insignificant?

Yes, in fact, this is comprehended in our guidance in Q3, and also in Q4.

As we talked about in the prepared remarks, we're going to take the channel down further, that's comprehended into our guidance as well.

And you should see a natural correlation with that in backlog.

But this is absolutely correlated, and I think --

-- again, as I say, the plan is not blind.

We went into the quarter, thinking we might do some.

The quarter proved strong, and we decided we could reduce, and do it gracefully, without any impact to our partners or our customers.

And I'd say, the same thing, we contemplated a level of reduction in Q4.

We might be slightly more aggressive, if business is stronger than expected.

Great.

Thanks a lot.

Our next question comes from the line of Sterling Auty of JPMorgan.

Please proceed.

Yes, thanks.

Carl, when Adobe introduced Creative Suite 1, they got a definite benefit from Photoshop users that were not using Illustrator that always kind of wanted to but couldn't afford it, or didn't want to pay the price, and vice versa.

When you look at the Suites that you have available, and the feedback that you've gotten so far, are there natural synergies between one, two or three products that are now bundled together, that are really making the difference on the Suite adoption?

Yes, I think the two products that are coming along in Suites, one is 3ds Max, that many people have always wanted visualization capabilities.

For others, it's AutoCad or some flavor of AutoCad, that's in there as well.

Those are probably the two big ones.

I think industry by industry, it's a little bit different, with different customers latching on to it.

We're really getting our first complete data right now, about not only what they buy, but what customers use.

And we'll have more data, as this goes on.

We're studying it pretty closely, to understand the adjacency.

And if you remember, we also have the three tiers of products.

So it's interesting, not only what people buy, but I'm interested in watching the migration over time, between the various levels in the stack.

Okay.

And one follow-up.

Mark, now that -- the acquisitions you've been doing are small, but they're starting to add up.

When you do the number of acquisitions that you did, like in this last quarter, how should we think about the cumulative impact or contribution to revenue, or cumulative impact to earnings?

Yes, first of all, Sterling, this was factored into our guidance, as we look at Q4.

And obviously, we comprehend this, and as we think about the future.

We did 10 strategic deals.

They're small in nature, as you've noted.

A number of them are intellectual property that will be worked into the overall portfolio over time.

We have a few other ones that we've disclosed publicly, ones like Instructables and Grid and MAP and things of that nature.

But I think the way to think about this, is a lot of these are the core technology that's going into the business.

Some have revenue generation as well.

But each one of those is not material, otherwise we would make a further public disclosure about that.

And all that we see, is comprehended into our view for the future.

Yes, I think if you just want to understand a little bit, directionally, where we're looking.

There are really pretty much two things that we're trying to do, with most of these acquisitions.

And as Mark said, they're mostly -- they're either IP, or they're very small teams and technologies.

What we are generally trying to do, is one expand into adjacent markets.

So, when you see a particular kind of engineering or analysis software, it's adjacent to a market we're in, and we're trying to round out the offering.

And particularly, as we package things into Suites, we want to be able to give our customers a complete workflow that answers their problems.

And the second thing is, we're -- as we've talked about many times, we're undergoing a platform technology transition.

And so there are a bunch of technologies that we're getting, in order to make sure that we're the best provider of engineering tools in the cloud.

All right.

Great.

Thank you.

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

Please proceed.

Thanks so much for taking my questions.

Carl, I wanted to follow up on, I think a question that Jay had been trying to get at a little bit earlier, which is whether you were starting to see any change in maintenance pricing, as a result of the introduction of Suites?

So, the answer to the question is the maintenance pricing is higher on Suites, than stand-alone products, and we're seeing no differential in discounting, or anything around that.

So, as people have Suites or higher value products, our average for maintenance is going up, as well.

And when do you think it gets to be material enough, that you've got enough of the sort of install base on Suites, that way that it starts to have a material impact on that, on the subscription number?

I think you'll start seeing it next year.

Great.

And then following up on the strength in Asia Pac, how much of that was related to sort of the recovery in Japan, or how broad-based was that?

I didn't know there was a recovery in Japan.

But I think -- I think it was -- pretty broadly based.

Japan did well, but everywhere in Asia Pacific did reasonably well.

As we -- what is generally true, is our fastest growing areas, whether Asia Pacific or emerging countries, are also our most volatile.

And we see ups and downs, country by country, discipline by discipline.

As also in emerging countries, between the different ones, quarter to quarter.

They just are more volatile, and we saw a little bit at this time.

It seemed like everything kind of lined up this time, in Asia Pacific.

And then lastly Mark, on gross margins, those have been down year-over-year for the last 2 quarters.

When do you think we might start to see those start to improve year-over-year again?

Well, again, we're looking at -- one of the things that we think about is, Brendan, is the broader operating margin.

And of course, you're seeing that expansion with the projection for the year between 210 and 240 basis points.

Some of the downward pressure on the gross margin, which is kind of the subtext of the broader profitability, has to do with us, as we have penetrated major accounts in enterprise.

In some cases, there's consulting work and such that's required, and that has a little bit of a margin effect.

You can see it's not a big effect on the year-on-year basis, but that is a dynamic that's happening.

I think the most important thing that I would point to, Brendan, is just looking for the operating margin expansion in total, and knowing that the geography will move a little bit here and there, there should be no sharp turns, but a little bit.

Great.

Thanks a lot.

You're welcome.

Our next question comes from the line of Blair Abernethy of Stifel Nicolaus.

Please proceed.

Thanks.

Mark, just following on that, I'm wondering if you could give us a little more of a view into your margins for next year, your operating margin expansion of 200 plus basis points?

Can you give us a sense of how much of that is just going to come from operating leverage, or versus ongoing productivity improvements?

Yes.

Well, I think -- I think they will be both, Blair, from that standpoint.

We'll get all the leverage we can.

We'll look at each of the different areas.

We've got plans that we're driving efficiencies, really across multiple functions.

And we have concerted efforts and initiatives to do that.

You should expect both.

It will be both, leverage and productivity items.

I wasn't wanting to get into the specific detail of all the initiatives we have.

We have a thing called an operating council, where there's a large queue of activities that we work together on, at the highest level in the Company to really drive scale, basically.

That is a long list of things that we're executing on.

We have a plan, well-thought out, as we go into FY '13, ideas that we'll capitalize on.

But leverage is important too.

Okay.

Great.

Thank you.

And Carl, just I don't know if you're willing to or not, but on the PLM side, what's your strategy, in terms of target verticals you might be going after, or customer size you might be going after, in the early days?

I think we'll see -- right now, we're finding two segments in particular, the large enterprise customers who are frustrated or disappointed with existing PLM offerings, seem to be surprisingly receptive to it.

That's probably the big surprise we've had, as we've gone out in beta, is we originally thought it would be appropriate for small and medium businesses, who understood what PLM could do for them, but couldn't afford it.

So, we thought that was it.

What we're finding is, huge desire on the part of large manufacturers who are just frustrated with previous offering.

I mean, I think, in some ways, you compare this -- this is the same thing as Salesforce is to Seibel, or Workday is to Peoplesoft.

I think, this is exactly the same kind of dynamic, where that was technology that was good in its time, but much of this technology dates back 20 years.

And now there's just a much better way to deploy, and it's much more effective.

And I think we've -- what I underestimated a little bit during the year, as we went through the planning on this, is just how ready large customers are to move to the cloud.

They're doing with all kinds of offerings.

And the question amongst the very large company CIOs is, how do I go about this transformation?

How does it integrate with my existing systems, much more so, than what we had heard a year or two ago, which were lots of concerns about privacy and security and other stuff.

So, I think there's a greater willingness amongst the large customers to move there, than we anticipated.

Okay.

And are you -- is it a recurring revenue model, ratable revenue model, is that the approach you're taking?

Yes, it's a ratable revenue model.

Okay.

Great.

Thank you.

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

Please proceed.

Last question, I thought Jay was going to ask, on the PLM side.

Clearly, this is something that the manufacturing customers have been asking for, so nice job of introducing the product.

Carl, just curious, how long the product has been in beta, or is it still in alpha stage?

What kind of feedback are you getting from customers?

And also secondarily, how much of the PLM revenue is baked into your forecast for fiscal '13?

I have a follow-up.

Thank you.

Okay.

So I'll start with -- there's almost no revenue baked in.

And by the way, our pricing model and the business model doesn't look too dissimilar from some of the SaaS companies I mentioned.

That part of the business, things like bookings, will be a better indicator than revenue, because they will be back-end loaded.

And everything you've learned from following companies like that, you should apply at least, to this part of the business.

So, there's not a lot of it, baked in at all.

The feedback that we're getting so far is that, it's way exceeding our expectations.

We're just surprised, by how warm the reception is, and probably leave it for now at that.

We'll be showing more of it in two weeks at Autodesk University.

So, for people who want to come there, or who will be there already, you can see it in action.

There will be customers there who have used it.

And as we head into the first months of the calendar year, you'll see a more public release of it.

Got it.

So Carl, is it fair to assume that the subscription price of the PLM solution will probably be less than what the customers are paying for the maintenance of their legacy PLM solutions?

Easily.

Okay.

It will easily do that.

I also think in many cases, what's happened with these PLM systems is, they're kind of like the Chernobyl of the enterprise.

They've got encased in concrete, and they are in there.

And really what the CIOs are trying to figure out is, how do I work around the system?

And there are many of the users within the enterprise who are not served, who they've never been able to roll it out for,

The prices are too expensive to reach large parts, and for almost everyone, the behind the firewall approach doesn't work for the current way they're doing business.

Their businesses have moved far along, both their suppliers and their customers -- suppliers, customers and employees are accessing information in new ways, and they want a more modern approach.

Got it.

And one for you, Mark, a final.

The maintenance billings have been growing nicely, but there's been a trend of the maintenance subscription revenue growth rate actually lagging that.

Just curious, what point could we start to see -- and also licensed growth has been far outpacing maintenance revenue, as a secondary observation there.

Just curious, at what point does the real growth in subscription revenue really start to pick up from this point?

That's it for me.

Thank you.

Well, I think again, the billings, we were certainly pleased with at 18% growth year-on-year for the subscription.

And I think over time, as we've talked a little bit before, Kash, there's a few moving parts, but over time that will show up in our revenue.

We don't give forward-looking guidance for subscription revenue, but growth of 18% year-on-year is a good dynamic, and over time, we'll see that, and will fuel it.

You know how it works, that it's ratably recognized, divided by 12, most of it, some is multi-year, but hopefully that will give you a sense.

You're right, on the track, that you'll see the growth come out in revenue over time.

Got it.

Thank you so much.

Our next question comes from Gregg Moskowitz of Cowen.

Please proceed.

Okay, excuse me, thanks and good afternoon.

First question, I guess for Mark, just in terms of the shift to electronic delivery going forward.

Does that have an effect on margins in fiscal '13, or will it take a little longer to have an impact on the model?

Gregg, it will take a little bit of time.

Partly is, just we have to have the customers adopt that.

But over time, we've factored in all that will happen with the electronic delivery, in terms of efficiencies.

But it will be a process that will evolve over the course of the year.

Okay.

Perfect.

And then just for Carl, just curious to get your latest thoughts on hiring over the next several months?

And from a go-to-market perspective, where you think you stand in terms of selling your PLM going forward?

Thanks.

Yes, I don't see drastic changes in our hiring pattern.

We've -- most of the hiring we've done, absent the acquisitions has been for more salespeople.

We will continue to hire more direct salespeople.

On the other hand, our percentage of business through our major accounts has remained fairly constant.

So, I like the mix that we have right now.

But most of the efforts, and most of the investment will go to go-to-market activities and sales and marketing.

There will be a particular emphasis on the PLM, because as some of the people have already pointed out, it's somewhat different nature of a sale.

And we want to go as broad as we possibly can, and be successful with it.

Great.

Thank you.

Our next question comes from the line of Philip Winslow of Credit Suisse.

Please proceed.

Hi.

This is Dennis Simson for Phil Winslow.

When you think about the FY '13 revenue guidance, which segments out of civil, construction, manufacturing, do you think will grow above or below that 10% average?

Thanks.

I think if you want -- generally, we don't give any segment by segment forecasting.

I think if you want to look back at historical trends, and try to guess from there.

Now manufacturing has been the fastest and steadiest grower.

I would expect that to continue.

I see nothing to disrupt that trend.

The big unknown, particularly as we start getting further out, is what happens in the world-wide economy around construction.

We're having really great pick-up in the construction part of AEC.

Business has certainly stabilized, and in parts of the world it's improving.

So, a little bit depends on something, that my crystal ball is not that clear about, certainly towards the end of next year, what happens with the global AEC market.

All right.

Thanks.

I would certainly add, just -- we talked on the product side and such, it's certainly geographically, Asia will help.

As Carl said, if you look backward, we would certainly expect that trend to continue as well.

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

Please proceed.

Hi, gentlemen.

Just two kind of qualitative questions here for you.

The first one, just wondering about changes to the channel, and how you manage them.

We understand some of the resellers have expressed concern about opening them up to more competition, as you've open up the certification process.

So my understanding is, it won't be as rigorous product-specific certification required.

I'm guessing, that's -- that goes hand in hand with the adoption of your Suites.

I'm wondering, how do we think about that impact on your revenues on the channel, and on the street pricing of your products?

So, I think the way to look at it is, while we've taken the authorization scheme, and made it more open, at the same time, we've introduced a whole host of programs that are pay for value.

As I said earlier on the call, our goal is to reward the people who do the most work, and are the most successful.

So, the only way, it's made sense to open up, on the authorization side, is because we have these other programs in place.

And so what you're seeing is a combination of a number of programs coming together, that we think can even better than we've been able to, rewards the people who are the most successful.

So, I think that's what you're seeing.

And if you hear griping out there, I would just say historically, almost every change we've made in the channel is met with some amount of griping.

Probably the loudest I've heard in my career was the introduction of subscription, which has turned out to be, I think a major benefit for both Autodesk and our channel partners.

So, I think typically, our channel partners have incomplete information, as they hear about new programs.

The only thing I would say is, we've worked hand-in-hand with our partners for over 25 years.

Our partners have gotten stronger during that time.

And we continue to want to reward the best partners, and they are an integral part of our plan going forward.

So, when you see these changes, you have to know how important our channel partners are to us, and all the plans we're putting in place to make sure that they're successful, along with us.

Okay.

Thanks for that.

And I'll have just one follow-up here, which is really in regards to your Suites.

You've talked a little about how the maintenance pricing on the combined suite, ends up being better than one individual product, you should expect to see that somewhat in revenues next year.

I'm just wondering, given that customers can upgrade, but they can't really downgrade, how do you -- how will you go about maintaining the customer value that you're delivering in those Suite subscriptions, as those subscriptions come up for renewals, and the customers may be using a large part of their Suite, but maybe not all of it yet.

Yes, I think -- it's a great insight.

I mean we're spending a lot of time watching, not only the purchase, but the adoption and usage of the Suites.

We think once people are using more than one product, it becomes a value to them.

And if you look at the prices, it makes sense.

So, we're very cognizant of how widely it's adopted, and how broadly it's used, in order to do that.

Along with it, we made several introductions this year, of various other technologies, most of the cloud offerings are tied to our subscription.

So, we're continuing to increase the value of subscription, as being more than just the annual delivery of new functionality in package software.

We're also making sure that there's constant engagement with web services that provide ongoing value.

Great.

Thank you very much.

You're welcome.

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

Please proceed.

Excellent.

Thank you guys for taking my question.

I wanted to ask about -- it seems like in the press release, there was more language about cost control, from both Carl and Mark than we've seen in prior quarters.

I just wanted to check to see, are there any new initiatives in there, or any kind of new programs that you have embarked on?

Or, is this sort of the traditional cost control, and perhaps just more of a focus on it, given the uncertain macro environment?

No, I think if anything, our cost controls have been balanced with investment for the future.

And so, we're always looking for places where there's slop or kind of gunk in the system, try to eliminate as much of that.

And particularly, when we see new opportunities, would I rather spend $2 million too much on travel, or get $2 million worth of sales capacity to sell PLM?

So, I think along, with Mark and his team's help, we've been looking really carefully at all the costs.

But it really is in balance, with making sure that we're positioned for the future, and being able to make the investments that we think are necessary for the future.

More than so, if you saw anything that's dramatically different, it wasn't intentional.

And it's not really reflective of anything going on.

I think having said that, I think everybody in the middle of this year, inside Autodesk and outside, took pause as there was that moment of panic, and just wanted to make sure that none of the sloppiness was seeping back into the system, after the big purge of two years ago.

Got it.

I totally agree with Carl's point.

And just, we understand the duality, Keith, of investing as Carl said, and then also in chasing out the efficiencies that we should get, only in areas that make sense, in the back office, areas of that nature.

Yes, in many cases, this is kind of like a win, win, win.

If you look at something like electronic software delivery, over time it's going to lower the cost, but it provides a much better experience for our customers.

So, it also gets our resellers out of a bunch of non-value-added work.

And so you look at the combination.

And you say, first of all, that it's good for customers, it's good for partners, it's good for us, and those are the kinds of initiatives I really like to see.

Excellent.

And if I could sneak in one follow-up.

Just on use of cash, and seeing trends this quarter in use of cash with 10 acquisitions, but you also saw a nice pick up in your repurchase activity, 3.5 million shares this quarter.

To what extent, do you expect those to continue, both those trends?

One, is 10 deals in one quarter, is that an anomaly, is that something unusual, or is that going to really pick up on a go forward basis, in terms of picking up smaller technology deals.

And as far as repurchase, how much of that was related just to the fact that the share price got really low, and you took advantage of it, or how much is a bigger commitment to repurchasing shares?

Yes, well, let me answer the question about the acquisitions, and Mark can handle the one about stock repurchase.

I think the acquisitions is somewhat anomalous, if you go back over any period of time.

Right.

It just so happened a whole bunch of stuff, just lined up this quarter.

It wasn't particularly intentional.

But -- and it is, and as you say, $90 million in aggregate for 10 acquisitions.

And there are a couple that were large enough to talk about, which means the others were really small.

But I wouldn't read too much into it.

I would be surprised -- 10 acquisitions is generally about what we've been averaging per year, not per quarter.

Okay.

And I don't see really any change in the historical rate.

And Keith, on the share buyback, you're absolutely correct, in that we did step up a bit, in this particular quarter.

But what I would say to you, is our philosophy hasn't changed, in terms of covering our dilution.

It just, again, will be a little bit lumpy at times.

We'll look at the market and facts and circumstances, but the broader picture on the policy, hasn't changed.

But we'll look at the market, and look at the situation.

Excellent.

Thank you.

Our next question comes from the line of Steve Ashley of Robert Baird.

Please proceed.

Hi, this is Chaitanya Yaramada for Steve Ashley.

Thanks for taking my question.

Just quickly, you noted a large $11 million deal in Asia Pacific in the prepared comments.

Was this deal included in the guidance that you gave last quarter?

Not specifically, this deal.

All our deals are factored -- are kind of factored in, with a probability of closing in a particular quarter.

So, we had been working on that particular deal for a long time, as well as others.

Some deals fell in this quarter, some deals fell out this quarter.

Big deal activity for us, is not that important.

We've often talked about the linearity of the quarters, all through.

And so what we saw this time, was this one happened to close.

There are at least a few deals that we anticipated in our guidance closing.

They're now closed, but didn't close by the end of the quarter.

Okay.

Great.

And then a follow-up.

If you can just give us some color on the education vertical, given it was their year-end during the quarter?

If you can comment on how did that vertical do, versus your expectations.

Yes.

Our education revenue is not really substantial.

No big plus or minuses there.

No surprises.

Great.

Thank you.

Our next question comes from the line of Fatima Boolani of Jefferies.

Please proceed.

Hi.

This is in Fatima in for Ross MacMillan.

Quick question on your direct sales force investment.

You had mentioned that this is an area of priority, in terms of investments at your Analyst Day.

And you've reiterated that again.

But just in terms of where these feet on the street are, is it sort of a regional thing?

Or, the focus is just on bolstering the US-based direct sales force?

The effort has been broad.

It's in some of the areas we're looking at.

So first of all, if you just look at geographically, it's been broad, it's not just the US.

It's certainly been in Europe.

It's certainly been in Asia, as well as the emerging countries in all three geos.

Generally speaking, it's been for those areas that we've called out as being new, and those in which there are large entities that kind of dominate it.

So, one is in the area of construction.

Certainly, there's some in the area of manufacturing.

Those are the kind of places where we're looking.

So, it's kind of the cross product, of looking at the geography, and then the economic structure of the industry.

And so as we've gone into construction, as opposed to broad based AEC, that's something where it makes more sense to go to market with the direct sales force.

The same thing is absolutely true, as we look at PLM for a certain class of enterprise customer, it's a direct sale.

Okay.

And just another question regarding Suites.

Now that Suites are kind of in the year, year and-a-half end stage for a lot of the newer ones, what are your plans around promotional campaigns?

Are they going to be scaled back a bit, or are they going to become more aggressive as the new fiscal year begins?

Yes, so we're really half a year into having Suites.

We had introduced some at the end of last year, more as tests and pilots, to better understand what's going on.

The spring and going into the summer, was the first introduction.

So, I'd say we're still early in it.

We're adjusting the knobs and dials.

A bunch of those questions that have already come up on the call, we're analyzing the data, what are people buying, where are they finding value, which things are they using?

So, we're going to continue to monitor closely, the activity around Suites.

And we will definitely adjust prices, packaging, as well as promotions, as we look to maximize our investment there.

Okay.

That's it from me.

Thank you.

You're welcome.

Our last question comes from the line of Dan Cummins of ThinkEquity.

Please proceed.

Thanks.

Okay, a final blast of AEC questions.

With regard to published comments about record AEC business in public agencies -- just looking for color.

Is that largely a comment about US Federal?

Is there anything meaningful from other geographies?

Was this good performance the result of longer lead time project business, or more short-term in nature?

And just quick follow-ups.

Thank you.

Yes, I would just say, general overall improvement, world-wide in AEC.

So, I think when you look, for a while construction had dramatically slowed down world-wide.

I think you've seen a stabilizing, and in fact, growth in certain areas.

I think the government deals are more one-off, but aren't the major determinants of growth overall in the sector.

Okay.

Yes, there's some optimism there, in terms of going forward.

I guess curiosity around, are you talking about stuff that's identifiable in the current sales funnel?

But I hear what you're saying about, short-term opportunities.

If I could just move on to --

And -- I was just going to say one thing, Dan.

I mean, if you really want to look at it, what I think is driving it, is the stabilization in the overall market, coupled with the retooling efforts that we've talked about, where people want to get tools that make them more productive.

So, generally speaking, as people were going into the downturn, they were less interested in retooling.

Now as they start to see job prospects on the future, starts for buildings increasing, they want to make sure they're in the best position to compete for those.

And when they win them, that they can perform them as effectively as possible.

The big shift in our business has been from a business that originally served primarily the architects, and somewhat the engineers, our engineering capabilities have gone up dramatically.

And we have invested quite a bunch to make sure that we serve the builders, or the construction part of AEC.

So, I think there's some overall secular trends going on there, in terms of the adoption of technology in the industry, that's being bolstered or supported by a general improvement in the overall economy.

Well, thanks.

I guess, just last thing was, just you mentioned penetrating utilities.

Is that notable breakthrough -- you have been talking about this as kind of a multi-year objective, just some more color on that too?

Thanks.

Yes, I think if you look, we -- in addition to the things that we're doing with broad-based industry, you can look at things like utilities, what we're doing in transportation with departments of transportation, those are long sales cycles.

And we've continued to invest in it.

We think we have great products to serve those needs, but it's not a decision any of those entities takes lightly.

They don't do it particularly quickly.

It takes us a long time, and we're in it for the long-term, and we've continued to make those investments.

And both in utilities, as well as in transportation agencies, we're starting to see the payoff.

With no further questions, I would like to turn the call back over to Dave Gennarelli for closing remarks.

Thanks.

Well, first of all, I want to apologize for the technical quality at the beginning of the call, and the interruptions.

Secondly, want to mention that, in a couple weeks, as Carl mentioned, that we have our Autodesk University event.

We'll be hosting an Investor Relations event there on the 29th, and most of you are going to be there.

We're also going to be at the Credit Suisse conference in Scottsdale on November 30, and the NASDAQ London conference in -- on December 6 in London.

And with that, we'll conclude the call, and thanks for joining us.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may disconnect at this time.

Have a great day.