Autodesk Inc (ADSK) 2013 Q1 法說會逐字稿

Good afternoon, my name is Misty and I'll be your conference operator today.

At this time, I would like to welcome everyone to the first quarter fiscal year 2013 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers remarks, there will be a question-and-answer session.

(Operator Instructions) Thank you.

Mr. Dave Gennarelli, Director of Investor Relations, you may begin your conference.

Thanks, operator.

Good afternoon.

Thank you for joining our conference call to discuss the results for our first quarter of fiscal 2013.

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 second quarter and full year fiscal 2013, long-term financial model guidance, the factors we used 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 2012, and our periodic Form 8-K filing, including the Form 8-K filed with today's press release and prepared remarks.

These 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 and prepared remarks and is on our Investor Relations section of our website.

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

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

Thanks, Dave.

Good afternoon, everyone.

We were pleased with our first quarter results, which were solid, although somewhat uneven.

We had strong revenue growth in Asia-Pacific and the Americas, strong growth in our Manufacturing and AEC business segments, and strong growth in revenue from suites.

Offsetting these strong growth areas were mixed results in EMEA and emerging countries, as well as a decline in our Media and Entertainment business segment.

We also accomplished a couple of significant structural and organizational changes during the quarter that we believe will better position the Company for future growth.

There were several areas of highlights in our performance compared to the first quarter of last year, 34% growth in total suites revenue, 19% growth in revenue from commercial new licenses, 18% growth in Manufacturing, and 16% growth in AEC, record revenue in Asia-Pacific, record deferred revenue balance, a 210 basis point improvement in non-GAAP operating margin, and 18% growth in non-GAAP EPS.

Much like the past few quarters, our business in EMEA was varied within the region.

As you might expect, we experienced weakness in most of Southern Europe and had better results in Central Europe, including a record quarter in Germany.

Within EMEA, we had good performance in our Manufacturing and AEC business segments, while PSEB and M&E did not do as well.

PSEB had a tough compare to Q1 last year when we ran a successful promotion on AutoCAD LT.

The economic picture for EMEA is unpredictable, so there continues to be a degree of uncertainty, but overall, the sales environment in EMEA doesn't feel all that different than it has over the past few quarters.

Another area where our results were uneven was our revenue growth in emerging economies.

By nature, these markets are much more volatile and much like EMEA, our results were varied by country.

For example, compared to the first quarter of last year, we recorded strong growth in Russia and China, but had weak results in Brazil and India.

While currency devaluation played a role in both Brazil and India, we are taking actions to expand our business and improve our performance in these countries.

We continue to believe that the BRIC countries and other emerging economies around the world hold tremendous growth potential for Autodesk, and we are focused on improving our performance there.

Our results for M&E were impacted by two items.

One was an intentional part of our strategy and the other resulted from poor execution.

First, as you know, our new design suites combine the functionality of many of the products necessary to optimize the design workflow.

The value of providing all of this functionality in a suite helps drive increased ASPs.

Several of our animation products include 3ds Max, are now available in our design suites.

And as a result, many of our customers no longer need to purchase these products separately.

So as our customers migrate to our new suites, we are starting to see reported revenue for the standalone version of those animation products decline.

This is not unexpected.

And as we've noted in the past, we anticipate and encourage our customers to migrate to our suites which carry a higher ASP.

The value of the suites is highly compelling to our customers and it is the right strategy for Autodesk.

Our results in creative finishing were disappointing.

Separate from what were experienced with animation products, revenue from creative finishing declined as we believe customers delayed their purchase in anticipation of a new third-party hardware platform that is expected to be released this quarter, and our Smoke for the Mac product, which will be released in Q3.

We achieved strong results in our Manufacturing business segment, with solid performance in each geography.

During the quarter, we unveiled our new manufacturing suites, which offer a complete set of integrated and interoperable suites to simplify design, visualization, and simulation work flows.

These suites also provide a broad range of cloud services to help manufacturers more efficiently design, engineer, and manufacture better products, faster, and at reduced costs.

At the heart of our manufacturing suites is Inventor, our model-based 3D design tool.

Since we launched Inventor in 1999, it has become a significant contributor to our growth over the years, and we recently reached a milestone of shipping our 1 millionth seat.

Our growing simulation business also performed well during the quarter.

We are excited about the launch of the new Autodesk simulation family of products, which deliver a faster, more accurate, and flexible approach to predicting, optimizing, and validating designs earlier in the design process.

Our new PLM offering went live in the quarter as well.

Autodesk PLM 360 is our new cloud-based solution designed to transform how customers manage their entire product lifecycle.

100% cloud based, Autodesk PLM 360 marks a new generation of PLM and is affordable, easy-to-use, and simple to deploy, bringing the benefits of PLM instantly to anyone within the extended enterprise.

We've only been in the market for three months, but we are thrilled with the current results.

We are seeing everything from large enterprise companies who have legacy PLM systems to deployed pilot projects to SMB companies who never used PLM before, deploy our new service.

This truly expands our market opportunity, and we are looking forward to watching this business grow over time.

Our AEC business segment performed well on a global basis.

We refreshed our AEC suites, which had exceptional growth in Q1.

We've added enhancements to our AEC suites, expanded cloud services and improved collaboration and data management tools aimed at helping design, engineering, and construction professionals address today's business challenges with enhanced BIM work flows.

The cloud services I referenced are all part of our Autodesk 360, a cloud-computing platform that helps users dramatically improve the way project teams design, visualize, simulate, and share work.

Autodesk 360 offers secure access to project data anytime, anywhere, taking advantage of virtually infinite computing power through a broad range of cloud-based services.

Autodesk 360 is now available to all Autodesk design suite customers with additional capabilities and greater capacity available to design suite customers who purchase an Autodesk subscription.

Since the launch of Autodesk 360 cloud services last September, we've had approximately 8 million unique users, and among other things, have utilized more than 3 million hours of rendering services.

I mentioned over the past two years that we've been moving to increased usage of electronic software delivery.

The purpose behind this move is two-fold, to improve customer experience and to help us control costs.

We are seeing a positive impact on our costs as gross margins improved during the quarter.

Additionally, at the end of the first quarter, channel inventory weeks was at a record low of approximately one week.

A decrease in channel inventory and shippable backlog was expected as a result of our transition to increased use of electronic software delivery.

In addition, we completed a reorganization of some of our internal resources, including organizing our sales teams by industry.

The changes are intended to better serve our customers and drive future growth.

We also made some adjustments to our channel program for FY '13, drawing on best practices from our various geographies.

So to wrap things up, we got a lot accomplished in the first quarter and posted solid overall results.

While the macroeconomic environment continues to keep us somewhat cautious, we remain confident with our FY '13 goal of increasing revenue by at least 10% and increasing non-GAAP operating margin by approximately 200 basis points.

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

(Operator Instructions) Your first question comes from the line of Heather Bellini with Goldman Sachs.

Hello, this is Terry Wong for Heather.

I had a question about the business environment and linearity, I guess, particularly for EMEA, the emerging markets in the US.

Did you notice any change on the part of your customers as you moved through the quarter?

For example, did budgets get tighter towards the end versus the beginning.

Or did you sense any increase in hesitancy on spend on their part?

No.

Perry, we really didn't see any change in linearity during the quarter.

Nothing different than usual and nothing, despite the varied performance by country, nothing country by country in linearity.

Got you, and then I guess, given where you stand today, and the conversations you're having with customers, how would you characterize customer demand and I guess the business outlook today versus say back in August of last year when concerns around Europe were also in the headlines?

Are there any noticeable similarities or differences?

If I had to say anything -- in some ways, I'd say it is better, people are more optimistic.

And I think partially it is that people have gotten a little bit immune in the business community, less so in the financial community, to concerns over Greece, Spain, Portugal, whatever.

So, I think there is a sense in the business community that people need to drive their businesses forward, and so, while a year ago, it was closer to the downturn in the US and seemed scarier.

I think the business environment remains one in which people feel like they need to move their business forward.

The only thing I'm seeing that is similar, particularly in Europe, we had a good quarter in the US, and I think if anything, the bias there is upwards.

In Europe, we are seeing a tightening of credit.

I think it is all, understand -- this is not news to anybody if you're reading the newspapers.

The banks are experiencing some amount of trauma.

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

Carl, just on Europe, you mentioned that it hasn't really felt any different, but it obviously caught up to you this quarter, and you had a fairly easy comp on a year-over-year basis.

From your perspective, how long-lasting do you think this is if you have any visibility you could share with us?

Do you think this is a short-term impact, or are you a little bit more concerned about the longer-term?

So, Brent, one part I agree with, it certainly caught up with us.

The one that is different is I wouldn't say it was a particularly easy compare.

We had run a promotion with LT in a number of other things at the same time last year, so that compare -- we didn't feel it was particularly easy.

To the substance of your question, I don't think I have anything really to add that is not already out there.

I'm not sure any of our businesses results give an indication of anything different than what everybody is talking about.

I think if anything, we just put a finer point on it and reinforced the strength in Northern and Central Europe and the weakness in Southern Europe.

The thing that struck me, particularly, is that we did well in manufacturing and AEC and that Germany had a record quarter.

And so I think you really just see the tail of two nations.

And I think it is Northern and Southern Europe are just going into divergent directions.

Okay I guess on the bottom line, we were expecting a little bit more -- I don't know if Mark can comment in terms of the expense structure.

Were there any one-time events at the beginning of the year that maybe you weren't anticipating that came in in Q1?

Brent, first of all I would say no.

We were pleased to be able to deliver the plan that we put out there and executed accordingly.

So, I wouldn't say that there were any things in particular.

As you know, we don't guide at a spending level or an operating margin level for the particular quarter.

We focus more on the EPS levels, so I think the answer is there is nothing in particular that I would call out to be special.

(Operator Instructions) Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities.

Returning to the subject of Europe, Carl, in terms of the disparity between Germany and non-Germany, first of all, do you do anything differently operationally or on the cost side to respond to these different performances by region within Europe?

Or do you let things continue as you had planned before for the year?

In addition, still on Europe, do you think that any of the structural changes in the channel over there in the last six to nine months might have had any effect on the ground in terms of tech data or anybody else going through some of the changes over there.

Could that have had any effect in addition to the macro effects?

Yes, so, let me just take it backwards.

I think the major thing we are seeing is macro effects.

On the margin, I think there is many things that we do in our sales execution and channel policies that affect stuff, but I think the major thing, and as we've seen often, we are a pretty good reflection of what is going on in the economy.

As to what we do differently, certainly marginally, there are investments that, for example, and let me give you a concrete example, the PLM sales force that we continue to build out.

We are having great success with our PLM sales.

In the plan, were headcount slated for southern Europe.

It makes no sense in my mind to go there when there is so much business in the US, Germany.

As you saw from the results, Japan and Korea did well.

So you have other places that are really strong in manufacturing, and so why not go there instead of go to southern Europe.

So, I think when we have incremental decisions to make, the answers are obvious.

I think we are taking a more cautious attitude to EMEA as we look to the long-term.

I really don't know if I'm going to wake up tomorrow and read that the Eurozone is falling apart, and Greek is out of it or whether a bank defaults.

So, what we are doing is taking a more cautious attitude.

We've moderated spend in EMEA.

And in very specific examples where it makes much less sense to hire new people in Southern Europe or where we have the opportunity to redeploy people from Southern Europe to Northern or Central Europe, we are taking advantage of all of those.

Okay, my follow-up has to do with maintenance.

The year-over-year billings increase was a bit light.

Although, if you look at the last six months and take into account the upside in Q4, we are still up about 10%.

So, maybe you could just walk us through the billings performance for maintenance in Q1, what your thoughts are for the balance of the year.

And now that the new suites from last year are at in fact a year old, are you beginning to see the renewals for the 2011 sweeps?

Let me answer little bit, and then I'll ask Mark to jump in.

One of the things that we have seen is from some of the channel practices, and we did rollout a new channel partner framework, is we did see some of the business move into Q4.

There are incentives in place for our partners in our customers, so I think we saw some there.

And I think the view you are taking is a better one of lending it over a period of time to better analyze it.

As I often say, rather than look over one quarter, it's better to look like over time.

And we are really happy where our maintenance billings are with that wider lens.

I completely agree, and, Jay, I think you are completely on it.

When you take a look at both Q1 of '13 and Q4 of '12 and you look at the average maintenance billings of around 10% and you look at the exact same reference a year earlier, it is around 10%.

We are pleased.

It is exactly as Carl described.

It is just a normalization while we implemented these big changes.

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

Carl, you touched on in your comments that you saw a reacceleration of both the AEC business and the manufacturing business on a year-over-year growth basis.

And you mentioned suites.

Were there any other factors that were driving that acceleration?

I think the big one is suites.

I think that was what was really driving it.

I think in each of the industries, manufacturing has held together relatively well.

Our customers are continuing to invest.

Suites, higher ASPs are all contributing in there.

There is certainly a moderately improved construction environment around the world, and we are seeing the benefit of that.

As I have said, as we have walked through this transition from 2D modeling all the way to BIM, the adoption of the BIM is inevitable now.

People are doing it.

As they see new projects come on, we are seeing increased mandates from governments around the world for building information modeling as a standard deliverable.

So I think we have a lot of secular factors in each of the industries, and I was really pleased to see both those businesses do well.

Great.

And then looking at something other than Europe, the emerging markets, any changes?

You mentioned that you thought you could do better there.

Any personal changes or channel changes that are going on in that market or in that -- for that matter in the medium product line as well to address some of the execution issues you saw there?

Yes, so, a numbers thing.

First of all, let me just give you the backdrop, and I think I say this every 90 days, is that the emerging markets are always more volatile.

And so, we just have to remember that.

Having said that, I was definitely disappointed.

We have made personnel changes already; we have some other structural changes in place.

There is also an effective -- our overall sales reorganization.

We are working hard on it, but in some ways, we will watch it as it develops this quarter.

I think we've made a substantial number of changes and understand what we are doing, but we are going to watch it closely.

I don't see anything systemic.

I think this is more an acute issue.

Anything on the media side, same question?

On the media?

The media and entertainment business was a little bit more one of -- we had a bunch of bad bounces in some ways.

One of our hardware vendors pushed out the release of their product [sewing] in our creative finishing products on that is-- Once there is a new product announced, nobody wants to buy our product on their old products.

Because of the way the industry works, we went to market with Smoke for the Mac.

It is getting rave reviews.

People are highly anticipating it, but it has certainly frozen sales to some degree.

And then the third thing I mentioned a little bit is we do expect our reported revenue in M&A to go down somewhat as some of that functionality is incorporated into the design suites.

So there are a number of things there.

We made a number of changes.

We are on top of what is going on.

In some ways, it is an interesting quarter.

And if I told you the Americas and Japan, we're going to do well, manufacturing and AEC, we're going to do well, I would've never imagined that there was a conspiracy a month these other -- these smaller parts of our business to make the results less than perfect.

Your next question comes from the line of Gregg Moskowitz with Cowen.

Carl, I was wondering if you could just comment on the large deal activity that you saw in the quarter, both on a broad basis as well as by major geo?

Yes, the large deals continue to be up.

We made an investment in our major accounts sales force a couple of years ago.

We continue to invest in that.

We see really good returns from it, and large deal activity was about double I think.

That is exactly right.

So double what we saw the year before.

Got it, thanks for that, Carl.

And just as a follow-up, how are hiring trends over the past 90 days or the past quarter rather, and how are you thinking about net adds over the balance of fiscal '13 at this point?

Yes, as we've seen the turmoil in Europe, we've slowed down our hiring.

What we've really limited too, we don't want to compromise future growth.

So there are key places, for example I already mentioned, our PLM sales force in places like the US and Germany, we want to continue to expand that, our sales efforts and simulation in BIM that are paying good rewards we want to continue.

We've definitely slowed down hiring and I feel like we are tapping on the brakes.

Or it's one foot on the gas, one foot on the brakes is maybe the appropriate driving metaphor, but we are definitely being more cautious not only with hiring, but spending in general.

That is why we were able to sit here and reiterate guidance for the year, but it is definitely with some adjustments to the spending plan.

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

This is actually Dan Morrison in for Phil.

Can you give a little bit more detail on how business has been trending in the commercial construction vertical, and then whether you've seen any major changes with your customers?

Like I said, I think the bias in commercial construction is up certainly in the US and Japan.

There are definitely more construction starts, more projects being funded.

Some of the things that were going on in the United States around financing that seems to have lifted.

So, I don't think any of our construction customers would say it is a booming economy.

But they've certainly all adjusted their businesses, and the business is expanding and they are investing.

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

I would like to ask on EMEA what your expectations are for the second half of the year?

Are you expecting that that business improves?

Our guidance for the year contemplates not knowing what is going on in Europe.

I would say it a little bit more clearly is we assume it's not going to be much different than what we have seen so far in the trend we have been under.

Should it worsen, we will take appropriate measures.

Should it improve, there will be upside to what we are doing now, but we are not really expecting any difference.

I certainly don't -- I don't have any crystal ball that I think any of you don't have, but I'm certainly not expecting it in the next 90 days.

I think given the usual things that go on in Europe during the summer, given the results of two elections and the upcoming negotiations, I don't think we're going to see much change in the business environment.

If we look at the manufacturing business and the AEC business growing 16% and 18%, yet the suite growth within those was an AEC up 51%, and in the manufacturing business up 16%.

I just wondered what is the strength in suites and AEC?

What is the color going on there?

One of the things you have is that when -- some of it is a direct shift from individual products to suites, and that is the biggest effect that you are seeing.

So, the majority of what you're seeing going on is that.

And just real quickly, on the platform solutions business, was that slower at all in the United States or AsiaPac?

On the manufacturing basis?

I'm talking about the platform solution in emerging business and markets, was there any weakness or slowing in the United States in that business?

Nothing dramatic.

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

My question is actually following on Steve's and looking at 2Q guide, that if you look at the midpoint of the guidance range, I believe it calls for about 8% total revenue growth.

Are you guys still confident in growth for 10% for the year, which would seem to imply something of a reacceleration into the back half of the year.

So I guess the more pointed question is what gives you confidence in that ability to basically reaccelerate off of 2Q into the back half of the year?

Is there anything in the pipeline or what you are seeing from a product perspective that gives you confidence of that boost?

Yes, what I am assuming for the back half of the year is some of the changes that we made will actually have an impact.

Certainly, we slow down our businesses in certain places.

And like I said, a couple of things bounced the runway in the quarter.

But generally speaking, the most important countries and our most important markets are growing well, and we see the bias on them upwards, and so that is why I feel confident about it.

Maybe Mark wants to add something?

I agree with Carl's comments, and keep in mind we did grow 11% in Q1.

And also, the thing I think about that Carl underscored at the onset is we just got some major changes implemented that we actually feel really position us well for long-term.

So, that is a good thing to have behind us as well.

Got it, so Q2 is slowing down from the 11% to the 8% at the midpoint of your guidance.

Does that mean that there is still transitions taking place as some of these changes take effect?

I think what you should think about is just we are looking at the year and the commitment for the year at 10% plus in revenue growth and approximately 200 basis points in operating margin.

And we always talk about Keith, it is not going to be a perfectly linear spreadsheet effect.

We've looked at a number of different facts and circumstances, and we think there is a range of guidance we put out and we feel like that --.

If you put Q1 and Q2 together and then you look at Q3 and Q4, it is not very far off linear growth.

And I wish with thousands of transactions we could be more predictable, but that's pretty good.

Got it.

And if I could sneak one last one in, you talked about really good growth in your large deals.

And there is one in particular that you guys called out in a press release with (inaudible) which was a large transaction, three years, $12 million.

But in the press release, you noted it was a first of its kind.

I was wondering if you could give us a little bit more color of what made this a first-of-its-kind type of transaction in the quarter?

I think you read the press release more closely than I did.

Seriously, I would actually take a slightly different point of view.

[Belfort Bay] is a great customer, but it looks like many of the other deals that we've been doing with large construction firms, it looks very similar to a number of the big deals we've done in the last couple of years.

Large firms, consolidating their positions, growing their market share outside their core markets, we being able to service them globally.

It has lots of the characteristics that we see from our large construction companies as well as large ENC forms all around the world.

So I would've thought of it as a particularly atypical deal.

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

On the cloud PLM product, is that offer a high level of product data management functionality?

Or possibly a derivative question off of that is if I were a potential customer, could I buy your cloud PLM as a project management layer, and maybe link that into other firms that did frankly more gnarly, backend data management efforts?

Not to diminish what you have, but maybe that would be a quick way --

Let me just remind you, one of the things we've done is with our cloud PLM, we've done in the cloud, the parts of PLM, the business process, the workflow, that has been historically the promise of PLM.

On the PDM side, we actually have a very capable product called Autodesk Vault.

If I was to guess, there's probably more data stored in Autodesk Vault than in any of the other PDM systems around.

We have more customers with more data in it than almost anything else on the market.

So, we have that.

We still believe the product data management thing is probably more appropriate for almost all of our customers behind the firewall, because it is for work in process with engineering teams.

So, we actually have a capable one.

Having said that, the PLM thing we believe that the right deployment planet for PLM, the truly named PLM is on the cloud.

And our PLM system will work whether the data is stored in Autodesk Vault, whether it is stored in another so-called PLM system, or anywhere else.

One of the interesting things as we brought this to market and talk to many of the analysts, in some ways, there has been a little bit of -- people who follow the industry having been hoodwinked by the PLM vendors.

The vast majority of PLM that has been sold and successfully deployed is really a PDM system.

The PLM was a name that they put on top of it to make it sound more important, more enterprise-wide, but really what was being sold was PDM.

So I feel really good about our capabilities in PDM, and I'm even more excited about what we are going to do with PLM.

Because I think it is really the first time ever that there is a solution out there that answers the question of managing manufacturing processes.

Got it, that makes sense, you just rename your Vault to Big Data.

Exactly.

If I could rename our vault to Big Data and I could get a valuation like Pinterest on something else, Autodesk would be worth like $1 billion dollars.

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

With the strength in the AEC suites up 51%, was there something in particular in this version that is accelerating the switch to the suite?

And is the growth -- how do you look at the sustainability or maybe was there some pent up demand there?

No, we moved customers over this time, just like we had done with Inventor last year, but there is real traction in the suites.

It is by far the most attractive offering for our customers.

It will not stay at 51% at all.

That is not a reasonable terminal run rate, but we were really pleased.

I think also what we finally did is we brought together some of the things that we had been working on for a while.

So, not to get too down into the weeds, but as an example, our Revit products used to be separate.

So whether you are doing mechanical or electrical plumbing or structural, we brought that together into a single product and put that in the suites.

We've put in some of the other products that surround it and make for a more complete workflow.

And we worked on making sure that the products really met the interoperability needs of our customers.

So, by doing all of that, it is really a very attractive offering.

And as I've said before, I think the majority if in not vast majority, our AEC customers will move to suites.

One follow-up, on the medium entertainment, you mentioned a couple of factors that was heading it.

How should we think about the longer term?

As you get past those couple of near-term items, how should we think about the media and entertainment segment in terms of growth?

I think you should see a return to historic levels.

I fully expect our hardware partner to ship their hardware next quarter.

You may see a little impact until Smoke for the Mac is out in Q3.

I'm hoping to see a little bump there.

We have huge pent up demand for Smoke on the Mac.

We really changed the offering and changed the price point.

It was extreme, but highly attractive to the market.

So, we'll see how that plays out in Q3, but certainly by the end, any unevenness will -- should have been moderated.

Your next question comes from the line of Walter Pritchard with Citigroup.

Carl, wondering if you could talk about some of the pricing changes that you've made.

We've seen some of the promotional materials out to the channel and to your customers about some of the deadlines coming up here.

Just wondering how we should expect that to roll through to the business as we move into the July and quarter and beyond?

I think you will continue to see some pricing changes.

I don't think there is anything extreme.

I don't think you'll see anything radical.

In some ways, the two things to look at, and it sounds like, Walter, you were doing both, there are two important things to look at.

One is what the pricing changes are, and not on a per unit price, but on the overall channel framework.

I think that certainly influences our partner's behavior.

And then secondarily, what we do for these point promotions, what goes on.

I don't see any unusual activity around promotions.

I think you will see the usual promotions, and you'll probably see the usual, but not consistent across the portfolio price increases this year as well.

Got it, and then just a question on margins.

Your guidance for the year is clear with 200 basis points.

And I guess as we think beyond this year, not specifically looking for a number here, but if I compare your business model to some of your peers and software, your R&D spending that is creeping into the mid- 20s seems to be high relative to the group.

And I'm wondering as you get beyond this year, do you start to have to bring that number down to be able to continue to expand your margins?

We probably have to at least cap it where it is in order to do it.

But let me remind you of a couple of things and then tell you a little bit about some of the factors that go into the R&D spend.

We spent a lot of time looking at this number, and actually we've dug deep with some of our peers.

We spent a lot of time benchmarking, and one of the things to do is, it is very interesting to compare us to people who sell primarily through a channel versus those who sell direct.

Because if you look, and if you take our percentage of R&D over our total revenue as compared to our R&D over end-user spend, the overall end-user spend by our customers is probably about twice of what our revenue is.

So, if a Company does everything direct, those numbers are way off.

As I indicated, it could be a off as much as a factor of two.

If you limit the group more to the peer companies that sell through the channel, then I still think we are at the high end of the range, but it is much more normal.

The reason that I think it is important, we are going through a fairly important transition where we think there is a bunch of opportunity, and this is primarily around social, mobile, and cloud.

And while I think we can continue to invest in R&D and make steady progress to our promised goal of 30% operating margins, we don't want to forgo the opportunity and be left on the desktop as the entire world moves to social, mobile, and the cloud.

So, it is a constant balancing act.

Those are some of the factors that weigh into it.

And maybe that gives a little bit more clarity in how we are thinking about this.

A comparison to an Adobe is probably valid?

Adobe is very fair, unfortunately.

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

I wanted to go back to the maintenance billings again.

And I think you mentioned it makes sense for us to look on a blended basis rather than at the 1% growth in the quarter.

The question I have to that is, given the strength in maintenance billings growth last year in the high teens almost 20% level, and now thinking about it blended more at 10%, how would you have us think about how this may play out this year?

Is a 10% number more accurate than the closer to 20%?

How would you have us think about that maintenance billings growth this year, and then I have a follow-up?

We don't usually guide at that level, but if indications, I'd be on the high side of 10%.

I'd be closer to the high side of 10% than the low side 20%.

Okay, and then related to that, then, obviously, you saw maintenance billing strength last year, especially as you are selling suites and you're going to capture more of that revenue this year through the tail on maintenance on the suites.

Is there anything that is changing around either renewal rates or attach rates?

And I guess I'm just curious as to whether you, because you made note of something along those lines in the prepared remarks.

Anything that we should be thinking about in terms of how you envision customers reacting to what are clearly higher maintenance rates if they move to suites?

Thanks.

So one of the things I would say to you, Ross, is that if you look at our attach rates and you compare them on a year-on-year basis, really no change to speak of.

We are pleased with what we are seeing with the attach rates in terms of our renewals as well.

I think we've got a really solid performance in the renewals, and I would call out to you that again, they are higher than prerecession levels.

We are getting good traction on that long-term.

So, and as far as anything in particular with suites, we are doing the anniversarying of a lot of our suite introductions, so we are going to continue to see the renewal rates, but thus far, I think things look solid.

(Operator Instructions) Your next question comes from the line of Steve Koenig with Longbow Research.

I've got one for Mark and then one for Carl.

Mark, starting with you, I was surprised at the amount of year-on-year currency tailwind you got this quarter.

I think it was maybe 2 points or so to get to that 11% revenue growth.

Could you give us any help with what your assumptions are regarding the currency/hedging impact in Q2 built into your guidance?

Yes, one of the things that we don't get into particulars on is the actual FX rates and such that we lock down on.

The one thing I can give you color on and just to reiterate is that we do a four quarter layered hedge, and we had our exposures, not only for revenue, but also deferred revenue and such.

And so we look at the full equation, and the closer you are for example in the current quarter like for example when we give guidance, were mostly hedged.

And as you go out four quarters out, it is less hedged.

So that is the -- more the dynamic process that we use.

But in terms of particular rates, we don't typically share that.

But I think you called out the tailwind for Q1 appropriately.

Okay, all right, thanks, Mark.

And then, Carl for you, maybe what I'd like to do here is just drill down a little bit on the changes in some of the sales organization internally and the channel program.

Could you maybe just give us -- drill down and give us a little color on how the verticalization in the sales organization might help you going forward, what the timing of that might be, where will it show up.

And secondly, in terms of channel, what impact do you expect from the new global rebate program, positive or negative, short-term, long-term?

And were there any other major changes that -- aspects to that program that you changed in Q1?

Yes, so, what we really changed with the sales organization as opposed to the primary way of organizing has been historically geographical.

We moved to one based on industry.

And what we were seeing is that a manufacturing customer in Germany and one in Japan had more in common than a construction company and the media and entertainment company in Germany did.

And it only makes sense, given the size of our business, to move there.

Also increasingly, our customers are larger; they are more global; they want to be serviced by us in a way that makes sense, and it was starting to strain some of the organizational boundaries.

So I think we will do a better job servicing our customers by being organized this way, better job of bringing our products to market.

That actually funnels down to our channel partners and generally just keeping up with the trends that we've talked about for a long time, which is giving more access to more of our products to more of our channel partners.

We always -- a manufacturing customer, for example, could be someone who buys our manufacturing products our AEC products, or our media and entertainment products, and we felt increasingly it didn't make sense for them to have to go to multiple channel partners to do that.

So we've been on a process to open up access to more of our channel partners.

Other changes we made internally are important for us.

I don't think they mean a whole lot to the rest of the world, but suffice to say it's a fair amount of work reorganizing internally and getting everything lined up both from the finances, the quotas, everything like that.

So there have been a lot of people who have worked awfully hard to get this all lined up, and do it in a short timeframe of both closing out the year and getting us lined up for Q1.

Your next question comes from the line of Matt Hedberg with RBC Capital.

Appreciate the color on some of the early cloud PLM success, and realizing it is early, wonder if you could give us a few more details on some of the enterprise pilots.

In particular, which verticals, early feedback.

And then I guess, is there any indication that any of these guys would potentially reduce their spend on traditional PLM?

Yes, there are definitely two classes of customers.

The patterns are starting to emerge.

We've been in beta for a while, but just to remind everyone, the product released on February 29, so we are barely two-and-a-half months into selling it.

The two categories that are emerging, and I give a little bit of indication of this, is the high-end of small to medium-size businesses that have wanted PLM may not be able to afford PLM or really couldn't get it implemented well enough under their budgets.

It was too complex.

It just didn't fit what they needed.

So that is one class.

The second one is the enterprise ones, which in some ways are much more interesting in that the customer already understands PLM; they understand the limitations of the traditional big iron systems and know what they want to do.

And what I would say is we have not replaced a single one yet.

Almost all of the work inside of the enterprise at this point are pilot projects.

They are pilots where one of two things, they have a critical area where they want to see if this is a way that a new deployment will fit their needs, or the other one is probably slightly more typical.

They do not want to extend their use of the traditional PLM systems.

They don't now how to remove them, but they don't want to spend more and they are not going to extend their use within the enterprise and they want to find another way to do that.

And so we are seeing lots of places, departments, functions, processes, where PLM, the traditional PLM was never implemented.

Or more than likely it failed one or multiple times and they see the advantage to do this.

They're very interesting part of the color commentary is I just met with our sales team around PLM this morning, and the customers are very clear about what they want to deploy it for.

When we go in and talk to them, they're very clear about a very specific problem in which the traditional systems have proved inadequate, and they know exactly what they want to pilot it on and so we are helping them do that.

Three months from now, we will be able to give you a lot more info.

That's very helpful.

Maybe a quick follow-up for Mark, and, Mark, I know you guys don't guide individual components of revenue license and maintenance, but given the Q2 guide, which I assume would imply license revenue flat to down slightly sequentially, have your assumptions for the full year 10% or better revenue growth changed from when you initially offered it, or is it still progressing as you expected based off the initial guidance?

I think it is pretty much as we expected.

There is always little moderations here or there, but by and large, I think the plan has been the plan and we are driving to it.

The plan -- I agree with Mark.

The plan is the plan.

On the other hand, I would've never expected the particular mix of business and geography we saw in Q1.

In Q4 you could talk to me all day long, and I never would've guessed so strong in certain places -- so strong in Japan, that didn't seem so likely, so strong in both manufacturing and AEC.

S I wouldn't have expected the exact mix that we got.

If anything surprised us this quarter, it was really that.

(Operator Instructions) At this time, there are no further questions.

I would like to turn the call back over to Dave Gennarelli, Director of Investor Relations.

Thanks, and as a reminder, we are going to be holding our investor day at the NASDAQ market site on June 19.

Please e-mail me if you are interested in attending that.

We will also be at the NASDAQ conference in London on June 26.

If you have any follow-up questions, you can reach me at (415) 507-6033.

Thanks for joining us.

Goodbye.

This concludes today's first-quarter fiscal year 2013 earnings conference call.

You may now disconnect.