Autodesk Inc (ADSK) 2013 Q2 法說會逐字稿

Good afternoon.

My name is Hope and I will be your conference operator today.

At this time, I would like to welcome everyone to the Q2 fiscal year 2013 Autodesk 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. Gennarelli, you may begin your conference.

Thanks, Operator.

Good afternoon.

Thank you for joining our conference call to discuss the results of our second-quarter 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 future performance of the Company, such as our guidance for the third quarter, and full-year fiscal 2013, long-term financial model guidance, factors we use to estimate our guidance, new product and suite releases and expected growth rates, expected cost savings from our restructuring and other cost management efforts; hiring plans, business execution, certain future strategic transactions, business prospects, and financial results, our market opportunities and strategies, including our transition to cloud in mobile computing; trends in sales initiatives, for our products and trends in various geographies in 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, our Form 10-Q for the period ending April 30, 2012, and our periodic Form 8-K filing, including the Form 8-K filed with today's press release and prepared remarks.

Those documents contain and identify important risks and other factors that may cause 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 the GAAP and non-GAAP results is provided in today's press release, prepared remarks and on the Investor Relations website.

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

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

Thanks, Dave, and good afternoon, everyone.

Our second-quarter results reflect execution issues stemming from our organizational realignment earlier this year, as well as continued unevenness in the economic environment.

There were a few bright spots but the reality is we missed our revenue targets on most fronts.

Recall that last quarter I spoke to you about a reorganization of our go-to-market activities.

We organized our sales teams by industry to better serve our customers and drive future growth.

We also made some adjustments to our channel programs, drawing on best practices from our various geographies.

We can point to a mixed global economy for part of the explanation, but we did not execute as well as we would have liked on a number of fronts.

It's clear that our reorganization and having people in different positions slowed us down in the quarter.

With many employees taking on new roles, new customers, new managers and teams, the amount and level of change has been significant.

And while the reorganization changes are important for the future, some degree of confusion and slower decision-making resulted, which affected the organization overall, and our revenue results in particular.

As we track the progress of the quarter, the shortfall in revenue did not emerge until July, as our demand generation activities did not produce the anticipated effect.

The organizational realignment, combined with an uneven economic environment, limited our ability to both identify the shortfall earlier and respond more quickly.

From a geographic perspective, the weakness we experienced in Southern Europe was not surprising.

However, weakness in Central Europe was unforeseen.

Although there was growth in the US, revenue growth in the Americas was well below what we've been experiencing over the past several quarters, due in large part to our results in Latin America.

On the bright side, Asia-Pacific performed much better than the two other geographies.

In fact, APAC had record revenues due to strong growth in Japan and China.

Similar to last year, results from BRIC countries were mixed as growth in China and Russia was partially offset by weakness in Brazil and India.

From a divisional perspective, PSEB performed the best, driven by 12% growth of combined AutoCAD and AutoCAD LT revenues.

I'm calling this out because our AutoCAD business was hit the hardest during the big downturn a few years ago.

So, we're pleased to see the relative strength in this area.

I was also pleased to see early positive signs from several of our cloud initiatives.

For example, PLM 360 had a nice start in its first full quarter of availability.

We signed a number of PLM deals with companies ranging from small business to well known, large enterprises, and our professional mobile apps continue to experience strong adoption during the quarter.

For example, AutoCAD WS, which allows people to view and edit AutoCAD files via a web browser or and IOS or Android device, has now been downloaded more than 9 million times.

From a high-level perspective, revenue from our Direct Sales business had good growth for the quarter, buoyed by activity from large deals in the US.

Revenue growth was much lower in our indirect channel, which makes up about 85% of our revenue mix.

Now, let me focus on our expenses.

With a backdrop of an uneven macroeconomic environment and our focus on delivering on our operating margin improvement goals, Autodesk has been taking a prudent approach to spending for the fiscal year.

These ongoing cost management measures contributed to the delivery of non-GAAP EPS within our Company's guidance range for the second quarter.

In light of our second-quarter performance, and our reduced revenue outlook for the year, we are further reducing our spend by implementing cost-cutting measures in the second half of this fiscal year, such as restricting non-sales related travel and reducing our number of contractors.

The other news we announced today was a restructuring, as we are accelerating our transition to cloud and mobile computing.

This kind of action, especially one that impacts many of our employees, is always a difficult decision.

The basis behind the restructuring is twofold.

First and foremost, the restructuring centers on getting the right employee skills that will help make us successful and allow us to move faster in our transition to increased cloud and mobile computing.

This action allows us to continue to invest in recruiting and hiring people who can bring to Autodesk the skills and experience that are critical for achieving our mid and long-term goals.

As part of the ongoing platform shift, it's clear to us that design and engineering software will move to cloud and mobile platforms.

Cloud and mobile has been a major investment area for Autodesk over the past couple of years, and this restructuring will accelerate our progress as we intend to further invest in employees with expertise and skill sets essential to this transition.

Additionally this restructuring helps us reduce costs and streamline the organization as a continuation of the activities we began earlier this year.

On a combined basis, restructuring and cost savings initiatives, partially offset by planned investments, will result in a pre-tax spend in the second half of fiscal 2003 -- 2013, ranging between a 2% decrease and a 2% increase compared to the second half of fiscal 2012.

As we look at our forecast for this fiscal year, we are adjusting our targets.

We've lowered our revenue targets as we are working through these challenges as quickly as possible.

People are now settling into the new roles and we have identified and addressed a number of areas for improvements to help us regain our momentum and improve our results.

The restructuring and ongoing cost reductions allow us to both invest in our transition and maintain a healthy year-over-year operating margin expansion target of approximately 150 basis points.

Looking at the rest of this year and beyond, although the economic environment is tougher, our market opportunity and prospects remain strong and we remain committed to achieving our long-term growth targets by the end of fiscal 2015.

I'm sure you have many questions, so without further delay, let's open the call up.

Operator?

(Operator Instructions)

Sterling Auty, JPMorgan.

How could you tell the big issue other than macro was sales productivity and people being (technical difficulties) with new responsibilities versus other things such as competitive or some other factor?

I think there are two things we are trying to parse.

What was due to our own execution issues -- sales realignment and all the rest versus macroeconomic.

I look at the competitive -- I don't think that played almost any factor in this.

You look at the first quarter, you look at the first two months, we're on target.

If you look at the shortfall, it really happened in three geographic areas, the vast majority of it comes in three areas that I don't think are particularly sensitive to competitive stuff.

I think the real tricky question is trying to ascertain how much is due to faults of our own making versus what's going on in the global economy.

Okay.

And then the follow-up will be in two parts.

One, is there any trend as you move through August that give you a sense that, productivity wise things are getting more -- people are getting more comfortable?

And the transition or the realignment restructuring you are announcing today, what does that entail?

Is that also people moving into new jobs?

Or is it just simply headcount reduction?

For August and what we've seen -- we're relatively late in August relative to other years -- we're on track for the guidance that we gave you, obviously.

And so really, nothing about that.

What I see is we have 3.5 more weeks under our belt in terms of people moving to their new positions, ironing out some of this.

We've really had 7.5 weeks or something like that.

July, when we started to see the weakness to digest it and try to make accommodations to try to fix this.

So we've been looking for a while.

As it relates to the restructuring, there will be people who are moving out of jobs and there will be people moving into jobs as we continually do.

But it will be nothing on the scale of what we did in the beginning of the year where there was a big game of musical chairs amongst sales and marketing people within the organization.

Walter Pritchard, Citigroup.

This is Ken Wong for Walter.

Just building on what Sterling was asking there, wondering, are you guys starting to see any of the trends that you guys saw during the last downturn in terms of things like attach or some of the earlier indicators that might suggest that you are in for a more bumpy road?

What's interesting -- we called out one in particular -- which was what we saw last time, what was the most striking was our AutoCAD and LT business.

And that was the most resilient this quarter.

So it was totally contraindicated from what we had seen in the last downturn.

We haven't seen anything on the subscription front, so most of it doesn't look anything like it.

I would say actually the renewals we were pleased to see actual sequential improvement there.

It's been a good year-on-year improvement, modest.

So back to the point that Carl's making, these are not the kinds of signs that we would see like we saw in other economic circumstances.

I think it's important while in some ways July was an unmitigated disaster, because the first two months, we were right on target.

And certainly when we went to analyst day, we were feeling very comfortable with our guidance for the quarter.

A lot happened and it particularly happened in three areas.

It was geographically isolated.

It has a very different feel to it and I think we went into the post mortem of the quarter thinking that it was more about macroeconomic weakness.

And I think we emerged from our analysis saying that it was more from flaws in execution on our part.

Okay.

Got you.

And then on the restructuring, it sounds like it's more just you are trying to get the right people in the cloud.

If things start to get worse, it sounds like you probably have a little room to cut if you had to pare back costs to maintain profitability if that's the case?

Yes.

We certainly created a bunch of headroom that allows us much more flexibility about costs going forward.

Brendan Barnicle, Pacific Crest Securities.

You said that the execution was an indirect channel, and that's where you had changes in personnel.

So what kind of changes in the indirect channel on your side would have created this sort of shortfall -- if it's something other than the macro?

Let me just be clear.

We had changes on both sides.

I would say relatively speaking, our direct activity was stronger than our indirect.

It wasn't a blowout quarter by any means, but it was definitely stronger.

What we did is, just to put in the highest level terms, we went from a geographically organized sales force to one that was focused around industry.

In some ways, maybe we underestimated because a lot of people still had the same job.

So if you were a manufacturing salesperson for us in Central Europe, you still were after the change.

But your chain of command had changed because you were now in the manufacturing organization, as opposed to being in the European or Central European organization.

So it was a big structural change at the top.

And it was all about organizing around our customer segments.

That was really the big change.

And it involved a fair amount of movement of personnel.

It also probably impacted our ability to get quotas and targets out to our sales force, as well as probably our ability to measure the results as they came in.

So how does that work?

You've got one month left in the quarter and all of a sudden that falls off -- the resellers presumably are selling on their own.

Is it that your guys were not monitoring that closely enough to see that folks were all of sudden falling behind and trying to do things to pull that back in line?

We always work closely with our partners.

I think there's a fair amount of promotional activity, as well as added assists we give in deals.

And that's where I said, I think if we had, had more experience and people in place, we might have been able to pick up on the cues sooner.

But just to repeat myself, there was really three parts of the world -- just to be clear, this is Central Europe, Brazil, and India.

So lots of other places where we shouldn't paint a broad brush of something's broken there.

It may not be optimal.

It probably needs improvement, but the shortfall compared to our forecast happened in three places.

And we had changes in leadership, changes in distribution in places, we had changes in partnership agreements.

And so I think almost if we add three months of the quarter, we would have been better off than finding out in the last month of the quarter.

We would have had more time to respond.

But you're absolutely right that the resellers are out there doing business.

But for example, one part of the world, a bunch of our resellers, where our business was poor, if you were to speak to them, they would say they had good quarters.

Their mix of services and software was decidedly different.

They're walking away saying, I had a good quarter.

It was a bad quarter for us.

We have to understand that while everything I said is broadly applicable about the changes we need to make, and how we're working on it, there were several isolated places that were the major contributors to the shortfall.

Steve Ashley, Robert W. Baird.

I'm just going to follow-up right on Brendan's exact line of questioning.

Were there changes to channel policy in terms of the resellers that impacted their performance?

Not the oversight of the channel people by your people, but rather just changes in the channel, was there anything that disrupted their performance?

There were changes in some of the channel partner agreements that happen every year.

There are always changes.

In some parts of the world, they were probably a little bit larger this year than other years.

And so that was one.

Regardless of the people involved in the administration of it, there were policy changes there.

There were also some program changes and there were actually some offerings that were different.

So pricing changes and what we put together in different suites and stuff like that.

So there were a number of variables involved.

That's why as we started to dig into it and really dug into the three areas where we experienced shortfall, we saw particular issues cropping up in each one of those that are certainly partially responsible for the problems.

And as you move to the cloud, is there anything you can tell us about timeframe, milestones, what phased implementation we can look for over time?

Any color on that would be helpful.

Thanks.

We are believers that cloud, mobile and social are phenomena that are important technology platforms for design and engineering.

And that our offerings in the future will be there.

And we've been very clear about this for a long time.

The way we intend to offer it and the way we are rolling it out, which is already visible, is step one, is to combine our cloud-based offerings to existing products, generally in suites, with subscription.

So it's a bundled offering that comes together.

And we're offering cloud-based web services that are complementary to the existing products that exist within the suite.

We will roll out different pricing models, termed offerings and other ways for people to use them, as well as a la carte ways so they can get access to more services.

And what we hope to see is a switch in which now the desktop products are the primary component of a suite and that packaged offering.

We think over time it will move where the desktop component becomes less important or the Web services becomes more important.

You'll see a change in licensing model, you'll see a change in how we go to market.

And we will certainly see a change in the usage model amongst our customers.

To put a timeframe on it, we've already introduced a bunch of web-based services.

There's more coming out this year.

Beginning of the year, you'll see a lot more.

Right now what I'd say is we have very strong individual offerings.

There are things like the PLM 360 and the Autodesk 360.

And we will continue to enhance them as we go forward.

Brent Thill, UBS.

Carl, you haven't implemented price increases for quite some time.

I would have thought that the price increase going into effect in August would have had a bigger impact in the last quarter.

Can you give us your sense of what you think the dynamic will be going forward?

And I just want to be clear on the indirect side, the deals that didn't come through, you still have visibility and I would assume the details have been delayed versus lost?

As to the pricing increase actually stimulating demand, all I can say is I would have hoped so.

It didn't.

So I lose all credibility, Brent, with actually predicting what the price increase will do going forward, because historically when we look -- announcing a price increase before a quarter generally stimulates demand.

And we really didn't see that this time.

We are not -- we saw it, but not to the degree that we would have expected.

The other part of your question, Brent?

On the deals that did slip on the indirect side, I assume your visibility on the deals, those deals have not been competitively lost, they are still in the queue, it just a question of the timing when they come in.

I talked to our head of sales yesterday.

A bunch of deals that didn't come in have already come in this quarter.

I don't want to be hypocritical here.

I always make fun of companies when they announce that they missed and it was just lack of a deal or two.

Because I think the real explanation is, are you taking up the next quarter to accommodate those deals?

We're not doing that.

So I wouldn't want to sit here and say it's a deal or two, but I did check with our sales leaders.

And we have seen the deals come in.

And also, I think there was an earlier question, it might have been Sterling or Walter, but we haven't seen any real change in the competitive environment out there -- it's not like the deals are being lost.

But we certainly didn't bring in the number of deals that we needed to.

Gregg Moskowitz, Cowen & Company.

Carl, you spoke about some of the weakness in some of the territories.

From a product standpoint, though, it did look like the uptick from manufacturing suites was particularly low this quarter.

Just curious if there was anything that stood out there.

Other than it was terrible, no.

Nothing stood out.

I was just a bad result.

The only other thing I can offer is that our manufacturing products are particularly strong in Europe and Central Europe.

And so it's disproportionately affected.

That's probably the only good insight I can give you.

And I will go back to what I've said repeatedly on these calls, is while the results are really disappointing, even when we have good results, I don't draw too many conclusions from one data point and I'd wait to see another quarter before we go too far in any direction drawing conclusions about the offerings, the pricing, the promotions or programs.

Okay.

Thanks.

And a follow-up for Mark.

You provided some good color around the incremental investments toward cloud and mobile.

Just wondering if there's any more insight you can give us as to the net change in overall staffing levels as a function of the restructuring?

We reduced our heads or are in the process of reducing our heads by about 520 people, roughly speaking.

And that is creating headroom, as Carl said, around investment.

And investment in cloud and mobile.

This is all about transformation and accelerating toward the strategy that we think is so important.

I think you can expect in the period of the fiscal year that we plan to reinvest a good portion of that, perhaps as much as 250 people by the time we exit the fiscal year.

And then as you look beyond that, we'll continue to invest into '14.

And as I think Walter called out, it gives us a little headroom as we're working toward that strategic investment.

Hopefully that helps you, Gregg.

Richard Davis, Canaccord.

One of the things I wonder about is as you start trying to sell more sophisticated software, whether that's suites, whether that's rendering or simulation or PLM, do you feel the channel is sufficiently, educated is not the right word, but trained and so would that possibly explain what happened in this quarter and inasmuch maybe it makes sense to circle back to these folks to say, here's a better way to do it or something like that?

Just trying to figure that out.

Thanks.

I appreciate any hypotheses that anybody has right now, but when we look at it, I think the suites are right down the sweet spot, so to speak, of what our resellers are very capable of selling.

I think the performance over the last two years has demonstrated that.

There is certainly an issue around things like simulation, about whether or not all of our resellers worldwide are capable of supporting things like that.

I think that's slightly different.

PLM, which we've mainly led with the direct sales force, I think those are slightly different, but I would go back to two things.

I think prior results say that our channel partners are quite capable of doing it.

And then the second thing is I think the better insights you can get from this is look at a couple of geographic areas and try to ascertain, we don't think there's one explanation that deals with all three despite having dissected this upside down.

But we do think in each three places there are things that are going on that are worthy of note.

But I wouldn't go as broad as the assertion that our partners are having trouble selling particular products.

Got it.

Thanks.

Heather Bellini, Goldman Sachs.

This is Perry for Heather.

Just wanted to ask a follow-up question on product revenue.

It looks like results for suites were impacted the most, growing only 5% year-over-year, which is also due to a tough prior-year comp.

But is there any additional color you could provide here?

Did the internal re-org play a role here at all?

Or was it largely due to the channel?

Thank you.

I don't think there's a lot of additional color, to be honest with you, Perry.

I think it was just, again as Carl said, we had three major areas of focus as we deep dived into some of the execution issues, suites were impacted in those three areas as well.

There's no real silver bullet to pull out on that.

Got it.

Thank you.

Jay Vleeschhouwer, Griffin Securities.

Mark, I'd like to follow-up on some of the math surrounding the restructuring.

You mentioned earlier that you're going to have an initial reduction of 520 heads.

In the last large restructuring back in January of '09, you reduced by 750 heads and then targeted $130 million in savings.

So using some proportionality here, would you be looking to save about $100 million in OpEx before you commence the reinvestment you talked about?

Jay, I understand the math you're doing, I would actually point you a little bit different.

The way you can actually map this out pretty straightforwardly is take a look at our half warrant growth rate, which is about 6% in spend.

Take a look at the guidance.

It's implying minus 2% to plus 2% growth rate in spend and half two.

If you look at the differential from going at a 6% run rate to between minus 2% and plus 2%, I think you can get a map number that gives you a really good feel for the net effect of the reduction plus the investment.

And that will map it out I think quite well for you, Jay.

Okay.

Follow-up question on maintenance, which came up earlier.

And if you're seeing any change in revenues from maintenance customers in the following way.

In fiscal ' 12, you grew your average maintenance revenues per active license by a couple of percent, but in Q1 you saw a 4% decline of maintenance revenues per licensee or license.

Are you seeing now in Q2 -- are you expecting for the remainder of the year, any further deterioration in the revenues per license?

Jay, we don't guide on the license -- the maintenance portion of this.

I would say the maintenance growth rate going forward is really a function of the prior four quarters in many ways, just the momentum we have, the attach rate, the renewal rate and such but we don't actually guide in specificity there.

So can't really give you a lot more color there.

(Operator Instructions)

Philip Winslow, Credit Suisse.

This is (inaudible) for Phil Winslow.

So my question is, could you compare verticals by geography?

And which stood out from a strength or weakness perspective during the quarter versus what you have seen previously?

It's more -- probably more detailed than we'd want to get into at this stage.

Yes.

I think we gave a fair amount of color in the prepared remarks.

If you look in there, you can see by geo.

And I think we've added some color about specific areas that might better help explain what specifically is going on.

But we don't want to break down by division, by geo.

Dan Cummins, ThinkEquity.

First, a couple questions about the geos.

You said the US business grew year-over-year.

Was it up -- did it meet with your expectations overall?

No.

It was short of our expectations.

The thing that -- let's be clear.

What we talked about was the Americas.

And that missed our expectations and was primarily because of Latin America and in particular Brazil, just to be as clear as possible.

Right.

I wanted to ask about each of those three weak areas, India, Brazil, and Central Europe.

Have each one of those -- I think you said in isolation each one represents a different case, weakness case, but has each one gone to some level of stability in terms of week over week visibility?

Are you -- obviously, you're giving guidance and are you comfortable with that.

I'm curious if these -- currently are these situations worsening, or have they stabilized?

I would say that when we look at our linearity, for the quarter, thus far in, basically looks on track, at this stage of course.

And there's no big deviations in these particular areas compared to what we would expect for the quarter.

Yes.

We are on track.

What I see is the usual amount of moving parts.

A little bit of strength in one part of the world, a little bit of weakness but nothing dramatic.

It seems very normal, if you will.

Okay.

Steve Koenig, Wedbush Securities.

I'm looking for color here on the changes to your organization and your channel policies.

And in particular, if I can, the things I'm wondering are why did the personnel changes that I believe happened in Q1, why did they affect you more in Q2 and not Q1?

How much of the channel weakness stemmed from the changes to the rebate and registration program?

And why didn't the promotional activity generate the leads you expected?

Yes.

I'd say the best explanation that I have is that -- business was kind of on track through Q1, in the beginning of Q2.

And as we've said, 85% of our business goes through our channel partners.

Everybody saw at least a hiccup in the economy.

We weren't able to respond as quickly.

And I think a bunch of that comes from the people we had in place.

I also think, as always happens, when we change channel programs in effect we're changing incentives.

And I think some of the incentives got out of whack with some of our channel partners.

And as they always do, they try to find a way to maximize their revenue based on that.

And so we've already looked at that and we've addressed it, but as I said in my remarks, we might have been better able to identify it and respond more quickly if we had, had the same people on the ground.

I see.

Just one anecdote that maybe you can help be put into context.

We got feedback that when you extended your promotion into August, some customers were surprised when they went to take advantage of that.

They were surprised to discover, because prices were up, that net discount was 5% less than they expected.

It wasn't as big as they thought it was going to be.

How well was the price increase communicated?

Were there any failures there?

And the promotion was not as effective this time.

Can I assume August is starting out weaker than usual?

I assume just by looking at your guidance that's probably the case?

Yes.

I'm not familiar -- most of the things were targeted to generate revenue in July.

And the programs are there.

I would say they were conceived, managed and executed by pretty much the same team that has done all of them.

So to the extent that they did it well or not, it was an experienced team.

They've done this before.

We have an evolving set of policies with our partners.

We communicated; we're in close contact.

So I don't have any insight that, that was part of the problem.

I agree.

Ross MacMillan, Jefferies.

You talk about this issue around the organizational changes impacting your ability to respond as being somewhat transient and of your own making.

But it certainly does appear from your guidance that you're still modeling a low single-digit growth rate in the second half of this year, which certainly doesn't imply any improvement.

In fact, the margin is slightly worse than that which you saw in Q2.

So I was just trying to understand is that because the baseline run rate of revenue is just lower now?

You're off this July run rate?

And you're not making any assumptions around improvement or are there any other factors that have gone into your thinking on that?

I think there's dozens of factors, Ross.

Your observation is right.

I would say we are being what I consider appropriately cautious.

We're coming off a bad quarter.

At this point, forecasting a big jump in growth rate seems inappropriate to me.

We're conscious of at least the volatile global economy.

I don't think it's worsening, but it's certainly volatile.

There are the other factors of FX headwinds and stuff like that.

And until we've proven otherwise, I don't think we're going to champion a double-digit growth rate.

I'd like to prove it first.

One follow-up on maintenance billings.

I think they grew 7%, but I think there was a comment that most of that was driven by multi-year contracts.

The question is now that we are anniversarying the introduction of the suites last year, why are we not seeing a pick up in the maintenance billings growth rate?

Because I thought we were going to be getting that kicker on higher subscription or higher maintenance prices on the suites?

Thanks.

Let me speak to that, Ross.

First of all, you're correct that in the billings, one of the play book items that did work was our multi-year event when there was a price change was a compelling event.

And that did drive billings.

It didn't show up as revenue, but it did drive the billings in a reasonable way.

And so that is one aspect.

The second thing when you look at maintenance billings beyond that, I think the main driver for that has to do with attach rate and getting enough licenses that are out there so that the more licenses you sell, the more opportunity we have to drive maintenance billings.

I think it's more a function of license growth right now from that standpoint.

I think for ASP's over time, as people do renew with suites, we will see the thing we talked about before.

We're already seeing it.

We've actually seen it.

It's just unfortunately been offset by fewer licenses.

Exactly.

Keith Weiss, Morgan Stanley.

This is Melissa calling for Keith.

Just in terms of guidance for the full year, what are your assumptions around growth in Europe?

Are you assuming that the macro stays relatively stable to how it is today?

And then also, lowering of the growth rate for FY '13, how much is that just from macro versus execution related issues specific to Autodesk?

Thanks.

A couple things.

One is that we are not assuming any major changes to the economy in Europe, number one.

Melissa, secondly, in terms of the macro consideration, as was called out for sure, we're dealing with both the execution issue in the three areas that Carl called out and then also we're mindful of a dynamic economic environment.

So that is coming into our consideration, but I think it leads with the execution of the three main areas is consideration when we think about the guidance.

Okay.

Thanks.

And then just in terms of the PLM product, the commentary was that you're seeing pretty good traction.

Can you give us a little bit more detail on some of the enterprise pilots that you're doing right now?

Is it mostly your existing manufacturing customers that you're targeting with that solution or are you seeing growth in the customer base?

And if there's any particular verticals that you are adopting, that would be helpful.

Thanks.

Sure.

I'd say what I'm most pleased about is that it's opening doors in competitive accounts.

And that doesn't always mean that the brand-new customers to Autodesk because we do have a pretty broad footprint.

But in terms of being their preferred supplier, what I'm most pleased about, we're getting to places where we are not the preferred supplier.

And that's very encouraging.

In many places, it's being viewed as complementary to their existing PLM system.

Some people are considering it as a future replacement.

But we have pretty extensive trials going on.

And what I've been most pleased with is getting to those accounts.

There's certainly some in our existing customer base.

And I'd say more than particular verticals, what we're seeing is just parts of -- we're seeing more similar kinds of problems.

So things around new product introduction, things about quality.

There are a number of areas in which customers across different segments are trying to solve similar problems.

And where the solution is particularly well-suited.

Some of the stuff in the supply chain.

So there are a handful of different areas that seem to be forming a stronger pattern than a particular vertical versus another.

Matt Hedberg, RBC Capital Markets.

Carl, obviously there's been others who have come before you that have transitioned from a perpetual to more SaaS or cloud-based revenue stream.

I'm wondering, are there any lessons learned from some of these other prior examples that you are implementing that may make the transition smoother?

We have definitely studied them all.

One is in software, one is outside software.

We've looked at all kinds of transitions.

Right now, most of what we're doing is -- what we're talking a lot about in developing cloud and mobile applications, the major change that is in front of our customers is going from buying point products to buying suites.

And most of that transition came from a perpetual license with upgrades to one with maintenance over the last 6 to 10 years.

I think we've managed that fairly successfully.

What we hope to do is gradually phase in new kinds of offerings that are more annuity based, more based on termed offerings, but we're not seeing any of that effect our revenues today, but I think it's an issue we'll deal with.

And we've extensively studied what others have done.

That's great.

And a question for Mark, obviously the guidance for operating margins comes down for fiscal '13.

Assuming all of the restructuring that's going on here, could we assume more of a normal year-on-year improvement of maybe closer to 200 basis points for fiscal '14?

Matt, first of all, we -- it's probably a little early to talk about FY '14 in terms of targets per se, but one of the things I can get to the spirit of your question, we are absolutely committed to our long-term operating margin goal of 30% plus.

And so we are driving toward that and you can see that, certainly with the first year of our five-year plan at 480, the second at 260 and this year even with a headwind, you can see the approximately 150 basis points.

So we are very serious about that.

We're still driving toward the 30 plus and whereby I'm not going to comment specifically about '14, I think the spirit of the question I think you get is we are very focused on operating margin, in addition to the growth.

Blair Abernethy, Stifel Nicolaus.

Mark, I was going to follow on Matt's question there in terms of the change you are doing now in accelerating your investment on the cloud side on the mobile side, does that slow you down a little bit on that margin accretion?

I think we tried to talk a little bit earlier about trying to give ourselves some room to invest in these critical areas that are absolutely right on point with our long-term strategy as a company.

So, no, I don't think that these slow us down.

I think this whole movement, this whole action, as difficult and delicate as it is, is to accelerate toward our strategy.

So, no, operating margin and growth are our strategic intent and we plan to continue to make progress.

Okay.

Great.

And just follow up, Carl, you haven't talked too much on the AEC side, in particular about BIM traction this quarter.

Obviously we're seeing AVI slow down in the US over the last four, five months now.

And obviously we know what's going on in Europe.

What are you seeing in the AEC vertical?

What we saw in results was not good.

But the more color on it was -- when we saw the same thing, if anything, BIM is becoming more of the fabric of how people do construction projects, extending more to construction beyond architecture and engineering.

What we did this quarter was we extended BIM.

We released our BIM 360 product, as well as we did BIM for the field with an acquisition that we discussed.

So it was bringing been out to the field, which is also good for construction.

So I feel, despite the results in the AEC vertical, I feel good about what's going on in the industry and the adoption of BIM.

We're seeing more and more government mandated BIM projects.

So generally speaking, all the trends we've talked about over the last few quarters are continuing in the customer base.

Great.

Thank you.

Sterling Auty, JPMorgan.

I wanted to circle back to a question earlier.

Mark, you mentioned there's not a silver bullet in terms of the weakness in suite revenue.

But just wondering, given the three geos that you mentioned, Brazil, India and Central Europe, are they particularly strong in terms of suite sales?

Were they adopting suites at a faster rate than others so maybe there was some correlation?

Sterling, I would say that certainly if you look at areas like Central Europe, let's just take it as an example, is an important area for suites and the achievement of our goals in suites.

That would be a good example where there was a direct correlation.

That would be one example.

Generally speaking, what I'd say is heavily developed industrialized countries are the leading adopters of suites.

And generally, the emerging economies are less so.

Just a broad brush.

In this case, one out of three, but given the magnitude and importance of Central Europe, it far outweighs the others.

Okay.

Typically in software, when you make major changes to go to market in sales, it takes three quarters for things to settle out.

If that's the case here, how far along in that transition are we?

And the restructuring that you announced today, could that actually exacerbate things and make things a little bit worse before they get better and restart that three-quarter clock?

Or do you think the nature of the changes are different so maybe you're further along?

I would say couple things here, Sterling.

One is that part of the restructuring is, as we called out, the primary overlay is to accelerate our cloud mobile development and the headroom for that.

The other thing is really -- the secondary part of that is to clear the way.

It's almost a second aspect of moving through the industry change.

And so what we found as we got through this, there's a little -- some overlap, some things that we needed to clear up and streamline as we've gone through this.

So I think this actually should help, not hinder as it relates to that particular point.

Would be my thoughts.

I would totally agree with what you said.

(Operator Instructions)

Jay Vleeschhouwer, Griffin Securities.

Carl, as part of the changes you're talking about, related to cloud and the like, how are you thinking about the long-term structure of the distribution channel in terms of scale and concentration?

Your largest distributor, Tech Data, which is not [off our bar] but a distributor, is now over fifth of your revenues.

Is that something that you think has advantages to grow proportionately over time to give you some distribution scale benefits?

Or how are you thinking about that structure?

We've spent a lot of time talking to our partners about it.

I think the role of resellers will remain largely unchanged as we move more to online services and offerings.

Obviously, certain ones will adapt themselves more quickly and move more easily, but in general, I think the opportunities are the same.

I think for the various distributors, it's a different question because the role they play in terms of financing, logistics, et cetera, changes dramatically in an online world.

I don't want to get too in the weeds here, but I've talked to many of our biggest distributors about plans that they have for their business.

And I think all of them are aware of these changes and making plans about it.

And probably best to talk to them about how they're going to deal with it.

But I do think there is a changed role for the distributor in order to make it through this transition.

Where I feel like for the resellers, it's a much simpler one.

They still are the primary contact with the customer.

Customers still need integration and training and other services.

So I think their primary function remains intact and the opportunity does as well.

All right.

A follow-up about the manufacturing market.

I understand that your issue cropped up largely in July.

But now that everyone in the mechanical and manufacturing space has reported, you seem to be the only one that didn't grow either sequentially or year-over-year.

And I'm just wondering if you think there's been some change in competitive situation, or is this something that you saw in July that they haven't yet seen?

At this point I'm putting more emphasis on our own shortcomings than I am on something that somebody else would see who's not going through a similar transition.

So what I see -- I don't expect them to necessarily see the same things.

I think in 90 days, we'll talk and we'll see if we've seen it.

Generally speaking, we've really outgrown all of our competitors in the manufacturing space over the last half a dozen years.

I see no change, really, there.

If anything, I see more opportunities for us.

At this point I see this quarter as an anomaly in terms of gaining market share, but kudos to others who made it through some of the same transitions and macroeconomic weakness that we seemed to stumble upon.

Brendan Barnicle, Pacific Crest Securities.

Already asked, but the media and entertainment business didn't really recover this quarter.

I think you had expected that it would on the release of the Caesary Servers that had been delayed.

What happened there?

I think a number of things.

Let me give you a few points and Mark has a few things.

One is one of our big markets for M&E is India.

That was a weak area.

So that definitely affected it.

We also had products that didn't ship in this quarter, which also affected it, that we'll see towards the end of the year.

That's exactly what I would add is I think there was a combination of product and then also the touch points of these particular geos that added to the issue.

It was more in the hardware side -- was the biggest impact, by the way, between that and the animation.

Thanks a lot.

I would now like to turn the call back over to Dave Gennarelli for any closing remarks.

That concludes our call this afternoon.

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

Thank you.

This concludes today's conference call.

You may now disconnect.