Autodesk Inc (ADSK) 2014 Q3 法說會逐字稿

Welcome to Autodesk Q3 fiscal year 2014 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.

I will now turn the call over to Mr. Dave Gennarelli, Director Investor Relations.

Please go ahead.

Thanks, operator.

Good afternoon and thank you for joining our conference call to discuss the results of our third quarter.

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 this 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 (inaudible).

During the course of this conference call, we will make forward-looking statements regarding future events and anticipated future performance of the Company, such as our guidance for the fourth-quarter and full-year fiscal 2014, long-term financial model guidance, including billings and recurring revenue growth, factors we use to estimate our guidance, new business model introductions, new products, (inaudible), market adoption and expected growth rates, cost management efforts, hiring plans, business execution, business process and financial results, our market opportunities and strategies, including our rent [elect] offering plans, our transition to cloud and mobile computing, our educational vertical strategy, trends and sales initiatives for our products, and trends in various geographies and industries.

We cation 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 2013, Form 10-Q for the periods ended April 30 and July 31, 2013, and our current reports on Form 8-K, including the 8-K filed with today's press release and prepared remarks.

Those documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements.

Forward-looking statements made during the call are being made as of today.

If this call is replayed or 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 order unless we do so in a public forum.

During the call we will also discuss our non-GAAP financial measures.

These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles.

A reconciliation of our GAAP and non-GAAP results is provided in today's press release, prepared remarks, and on the Investor Relations section of our website.

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

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

Thanks Dave, and good afternoon, everyone.

Our third-quarter results were driven by strength in our core AEC and manufacturing segments, as well as continued strong adoption of our suites.

I am pleased with the results, despite the negative impact on revenue, in currency headwinds, the change we're making in our educational vertical, and the impact from the US government shutdown.

Considering these factors I feel good about how we finished the quarter.

Our AEC business continues to perform well, driven by what looks to be a broad-based recovery in the commercial construction market.

As we highlighted at our investor day last month, the construction vertical represents a significant opportunity and we continue to gain momentum in that market.

We also continue to broaden our BIM portfolio.

Last quarter we closed a couple of small acquisitions, bringing our BIM tools that further support the infrastructure projects.

We are also pleased with the adoption and usage of BIM 360.

The anecdotal feedback we hear from our construction industry customers suggest it is the dawn of a new era in construction technology.

A highlight for the quarter was that we signed our biggest ever BIM 360 enterprise agreement worth over $1.5 million.

This existing customer renewed its agreement with Autodesk for about 20% more in total billings than their previous contract.

They will deploy BIM 360 as part of their strategic goal to transform their business and increase their competitive advantage.

This is exactly the type of transaction that supports our long-term growth assumptions.

We've only scratched the surface of the construction industry and we are well-positioned to tap further into that $7 trillion market.

Our manufacturing business had solid results.

Once again we built on our momentum in the automotive segment and extended that success to the automotive supply chain.

Areas of strength included rapid adoption of our manufacturing suites, as well as our industrial design, visualization, and simulation technologies.

Our 100% cloud-based PLM 360 had its strongest quarter yet as it gained momentum with small and medium-sized businesses in industrial machinery, automotive, and high-tech.

These companies share common process challenges around the supply chain, engineering chains, and quality management.

For instance, PLM 360 was selected over traditional PLM offerings by a mid-Western manufacturer for its functionality and superior ROI.

This customer has grown to represent several $100,000 in PLM 360 billings to date.

While it's early, we're also seeing encouraging usage of Fusion 360, the world's first cloud-based software for industrial and mechanical design.

Since its launch just a few months ago there are now over 20,000 users.

Our Fusion 360 customers are doing some amazing things, from making light-weight drones to 3D printed violins.

For most of Autodesk history, we have been a leader in technology for design and left the work and technical challenge of fabrication and manufacturing to other providers.

While we have collaborated closely and partnered with many of these companies, we have long believed we would provide greater value to manufacturers if we could streamline their workflows.

With this in mind, we entered the CAM market last year with the acquisition of technology and expertise from HSMWorks.

Earlier this month we embarked on the next step in our path toward a better manufacturing process by making an offer to acquire Delcam, the industry's leading CAM technology and brand.

We see a significant opportunity given Delcam's technological expertise, strong market presence, and sterling brand.

The combination of the Companies is a significant step forward in what we hope will increase productivities for customers of both Companies.

As an added benefit we will be utilizing our foreign-based cash for this transaction.

We currently expect the transaction to close early in our fiscal year 2015, after which we will be able to speak more freely about our integration plans.

Another area to highlight in our third-quarter results, is the continued strength in adoption of our suites, which grew 21% and now represent 36% of total revenue.

Growth was led by exceptional strength in our AEC suites.

As we discussed last month at our investor day, users of our suites have high maintenance subscription attached and renewal -- subscription attached renewal rates, which supports our long-term goal of generating 20% more value with our subscription customers.

Our strength in suites came partly at the expense of our volume channel products; AutoCAD and AutoCAD LT.

While we did see improvement with these products in EMEA, it will likely take a few quarters to rekindle growth in this area.

From a geographic perspective, performance was solid.

EMEA and APAC had solid growth on a constant currency basis.

Our performance in the Americas was better than it appears for the reasons I mentioned earlier.

Essentially in the US where changes we're making in the educational vertical and the US government shutdown had its biggest impact.

Normalizing for these things, revenue in the Americas increased year over year.

It was also great to see revenue from emerging economies return to growth with all of the BRIC countries growing on a constant currency basis.

Just a couple of months ago we announced the availability of most of our core products as rentals.

Our customers wanted more choices and flexibility in how they access our portfolio of design, engineering, and entertainment creation tools.

We expect rental plans to be attractive across all of the industries we serve, especially for freelancers, startups, or businesses that are project-based in nature.

While it's very early, we are encouraged to see that many of the rental customers are new to Autodesk, which, once again, supports our long-term growth and model assumptions.

As we outlined in our investor day last month, the addition of recurring revenue streams coming from rental, cloud, and consumption-based usage will significantly increase, making for a more predictable business over time.

We will begin to see the transition start this quarter as we anticipate approximately $50 million of enterprise license revenue will move to the balance sheet.

We anticipate a larger impact from the model transition of fiscal year 2015, and plan to provide you with more details when we release our fourth-quarter financial results in February.

We are excited to move forward on this business model transition and give our customers even more flexibility to utilize our products.

We will discuss this and more with thousands of our customers at Autodesk University in just a couple of weeks.

Over the past few weeks I've spent time with our customers and partners in both EMEA and APAC.

While the global economic environment remains uneven, it does feel that things are beginning to improve.

We know that our technological leadership and global brand recognition have positioned us well for long-term growth and industry leadership.

It's not just the business model that is changing, we are expanding the markets we address and increasing the ways in which customers can access and use our products.

It's an exciting time for Autodesk and we look forward to reporting on our progress along the way.

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

(Operator Instructions)

Heather Bellini with Goldman Sachs.

Great.

Thanks so much for taking the question.

Carl, I had two.

You mentioned that most of the customers for the new offerings are new to Autodesk, which is great.

I'm wondering if you could share with us what the initial thoughts are from your existing customers about the new offerings.

And then secondly, how do you think the decision to do away with upgrade pricing a little more than a year from now will impact people wanting to buy a boxed product one last time at a discounted rate next year?

Thank you.

Sure Heather.

Two things is we were really encouraged -- we did believe that a lot of the people who would end up wanting to rent software would be new to Autodesk.

That's what we saw.

Obviously there were some of them who were existing customers.

I think it falls into that category of some people are doing it just to meet peak demand loading, which would be existing customers.

Others are doing it as freelancers or on project basis.

But I think they were both usage cases in there.

And so like we said, its pretty early but we didn't see anything that was outside what we predicted happening in the model, from the first results.

What I see happening as a result of us preannouncing the elimination of upgrades, and this has been confirmed by all the resellers I've spoken with.

I think what we expect to see is probably more people moving to subscription rather than buying one last time.

And the tendency will be to buy and then protect their investment rather than just to buy and know that that investment -- they need to buy a full new copy.

So just to be clear do you think they'll buy a boxed product and attach maintenance to it or will they just say, you know what, I'm going to skip that and just go to the rental offering?

I think it will be predominantly one and fewer amount number two.

But we will start telling you as we figure it out.

But my instincts and experience in this business would tell you more number one, and I would think 10% to 20% in the number two.

Brent Thill with UBS.

Carl maybe if you could just talk a little bit about your comments about modest improvements in some of the customer behavior and give us a sense of how that is trending.

We have heard, obviously, the opposite from some of the other technology vendors.

So if you could maybe talk about the sustainability of that a couple quarters out.

And then Mark just quick questions on deferred revenue, I believe that the sequential decline is just a seasonal change, there is nothing else to read in there on the DR.

Brent, our customers always behave well.

But what we started to see is that really solid results in AEC, I think we have been as clear as possible that we think it's being more led by C than by A. A lot of what we're seeing is really construction customers retooling their technology base, and that the market for commercial construction is improved on a global basis.

That's what we see in the US and from my travels to both Europe and Asia, kind of confirm that.

Same thing we are seeing in manufacturing.

What we saw in manufacturing, I know there've been some data that has come out that is contrary to this, but what we've seen is an increase in buying from our customers and a prediction about them spending more next year.

So we're pretty optimistic and this is both my interpretation of what we are seeing, combined with what our partners are telling us.

Mark?

That sounds right on, and then also Brent you hit the nail on the head.

While our deferred revenue is up year-on-year 7%, the sequential pattern sits almost perfectly with our five-year sequential history that we look at from a norms standpoint.

So you absolutely are on the right point there.

Thank you.

Gregg Moskowitz with Cowen and Company.

Thank you very much.

Solid job guys this quarter.

I wanted to ask a little more about manufacturing, because this was certainly one of the better performances we have seen in some time.

Was the strength primarily on the automotive side Carl, or was is it more broad-based, and at a higher level do you think we have possibly turned a corner in this segment?

I think it was more broad-based.

What I would say is I saw broad-based improvement economically.

And I think in automotive, I think we have been competitively advantaged.

So, I think that is more of winning business away from our competitors in automotive.

Whereas in consumer products and industrial machinery, I just saw a general improvement and a healthiness in most parts of the world.

We talked about emerging countries, Japan has done well.

The only place where I still see continued weakness is Southern Europe.

Okay, thanks.

Mark, just a quick one for with regard to your Q4 guidance.

Is the education impact on revenues again a couple basis points, a couple hundred basis points as it was in Q3?

I think if you think about that about it, I think 1 to 2 points would be a good number to look at on the whole Company, yes.

Raimo Lenschow with Barclays.

Hey, thanks for taking my question.

Just wanted to stay on that subject, how do you think about if you plan your business about the recovery, Europe looks little bit better, and US is still more in the early stages of recovery.

What are the metrics, the numbers that you are looking at?

Are you looking at PMI or anything, anything to help us to share the confidence that you have.

Thank you.

We always look at external economic factors like PMI.

What has been a better indicator is our actual business and our pipeline of business.

And so I'm more reacting to what I see in terms of business that has come in and then business that we have lined up in the pipeline.

It is always tempered somewhat.

As we have seen, I think, some of the macroeconomic indicators and some of the indices have been really misdirections to what has gone on.

I think if you had gone back three to four months ago, you would've said manufacturing was improving, but you saw many companies results be subpar.

So we are much more interested in what we thought we would do, what we thought the build in our sales pipeline would be, how we were able to close deals, the size of those deals.

So they were more transactional metrics.

Perfect, okay, thanks, that helps.

Matt Hedberg with RBC Capital Markets.

It sounds like the transition is going to start more in earnest next quarter.

I'm curious what sort of new metrics might we get next quarter, perhaps a number of subscribers, and is that something we will get on a quarterly basis?

Yes Matt, one of the things -- you are absolutely right.

We are -- the transition is going deeper in Q4 as we talked about the $50 million in enterprise license revenue going to deferred revenue as per the discussion we had at IR day.

I think there is a number of metrics that we are looking at as we prepare for discussing the FY 2015 guidance in terms of what we'll guide by and also what we will track externally.

And so certainly we revealed the subscriber information with you just a couple weeks ago.

1.9 million active subscribers, about 4.7 million of subscribers that have potential there, of which 1.9 million are active today.

And we're going to start updating that eventually over time.

So stay tuned for the FY 2015 guidance.

We will get much more granular on both the metrics we're going to guide by and the metrics we're going to disclose.

I hope that helps.

You can imagine some of the metrics we're going to be putting forward.

That's great, that's helpful.

And maybe one last question on this.

I'm curious, you guys are primarily a channel model.

What has the response been thus far from the channel?

So far I'd say, the channel is primarily reacting to business, which I think most of our channel partners had a good quarter.

I think most of our channel partners have a wait and see attitude about many of our programs.

Some form initial opinions.

But right now, I think they see rentals as being additive.

They think the elimination of upgrades in the future is a net positive.

And they were more positive about the cloud offerings than I have ever seen them.

As a matter fact for the first time this quarter I have some of our own sales force start asking me, or complaining to me that we are not doing enough on the cloud.

And so we're starting to get in balance, how far in front of customers we are with some of our cloud offerings, certainly when the sales force brings that up as an issue.

Jay Vleeschhouwer with Griffin Securities.

Thanks good afternoon.

Carl and Mark, I would like to refer back to one of your longer-term objectives that you talked about last month at the analyst meeting, specifically getting 20% more value from new and existing subscribers.

Perhaps to could clarify how you do that, if you look at a five-year period ended fiscal 2013 earlier this year, you had a cumulative increase in your average revenues per maintenance [SKU] of about 25% under the existing model.

And then that was largely due to mix, it seems, plus some better AutoCAD attach and renewal.

So, are you expecting that mix will be the predominant driver to the improving value that you are talking about from subscribers?

And does that 20% build on the already enlarged maintenance revenues that you had over the last few years?

Or is it from a different starting point?

The starting point is when we described it to you.

It is additive over that.

What I think the two biggest drivers that we will see is one is the mix of suites as we just disclosed.

We said (inaudible) of our revenue is in suites now.

So, I think more will come from suites and that mix toward suites from single products is a big driver.

The second one, which we think will add substantially is the addition of services, web-based services to our existing customers or to new subscribers of those services.

Mark, you want to add?

I would absolutely say that with the SaaS offering it's going to add.

I think the rental, we're going to penetrate even more and we're going to have more subscribers, that's going to bring more revenues.

And Carl, I feel good also about the enterprise offerings that we have, and how that is super sizing deals with the enterprise folks, so just to complement your point.

I think the enterprise is definitely one to add.

We try to detail a little bit, as you remember, at IR day.

How customers who use these flexible licensing plans, they get more but they often pay more.

Okay.

I don't know if you're able to speak more about Delcam, given the regulatory limitations, but if you can, can you distinguish it from the manufacturing software investments that two of your larger peers made many years ago?

So, of course what is now Siemens has been in similar sounding areas with their Delmia and Tecnomatix acquisitions.

So, how are you going to be positioned differently from what they have had for many years in the manufacturing area?

I am not as old as you Jay, I can't remember that far.

But what I do know is what we are really interested in is in taking these digital prototypes and these models that we built and actually manufacturing them.

I think if you look at the portfolios, the product portfolios of some of the other companies, they are pretty widespread in what they try to do.

We have built a very successful business in factory design and plant design, and what we are trying to do is complement that, we're very specifically we are looking at the CNC tool market, and being able to do that.

And we think it is taking advantage of the secular trend in what really is the application of microprocessors to manufacturing technology.

I think in some cases it is just timing that we see this big growth because the availability of these high capability, high-performance machines, and we saw it as a limitation in terms of the workflow that people couldn't get all the way to the end, and we felt that that was important.

I think if you look at some of the workflows out there, even in the biggest automotive and aerospace companies, the workflows are not good, they are incomplete, there's data loss and fidelity problems between tools, and we need to change that.

The thing that is really driving this, Jay, at the heart, is we are really interested in our manufacturing customers who are putting a premium on the agility.

It's about their ability to innovatively bring stuff to market more quickly.

They have gotten to the point where quality is assumed, and what they were all interested in is how do I innovate and how do I bring products to market quickly, and one of the ways to do it is all the way from prototyping to final manufacturing, you get from end to end faster.

Steve Ashley with Robert W Baird.

Thanks very much.

I was going to ask about maintenance, attach rates, and renewal rates.

Have you seen any change or improvement in either of those metrics here in this recent quarter?

Steve, this is Mark.

Let me just address that.

In terms of the actual rates we don't disclose that, I know you know that.

We look at the changes period on period, it gets a little bit lumpy, it gets a little influx at times.

They're slightly down, but I think the thing to look at (technical difficulties) the fact that our subscription billings are (technical difficulties).

Hopefully everybody could hear that.

There was a little bit of background noise there but I hope folks got that.

Steve, did that cover it for you?

Walter Pritchard with Citigroup.

I'm wondering if you could talk about you gave the guidance for the $50 million impact from the business model transition during the analyst meeting, and I'm wondering if you could talk about given the conversations Carl, that you have had with customers over the last six weeks or so since that event.

What have you learned about the appetite for those types of arrangements and how should we think about that as we go forward from Q4?

Like we told you back then, we have always been the one that has been the obstacle.

Customers have always wanted this.

We wanted to recognize more revenue upfront.

So, customers have been thrilled with our willingness to offer software on terms that they have always wanted.

The opportunity might grow this quarter, but it's a little bit limited by the renewal cycle.

And so it will come up during the year.

So we think people are enthusiastic about it.

And it will merely be a function of when their renewals are up.

Just on the LT product, I think the talk coming out of the analyst meeting was you're going to drive a bit more promotional activity in the volume channels and so forth, and it sounds like still that business was not as good as maybe you would like it to be.

I'm wondering how far did you turn on the promotional activity in those volume channels and should we expect that to turn on further as we sit here in Q4?

I think we turned it on sufficiently.

I think it takes a while to respond, and we saw patchiness.

I think there are places that responded really well, but there were others that didn't.

So we will report more after the quarter.

Building on Carl's point, I think that exactly describes the LT situation on the AutoCAD side of it, of some of the volume products.

Keep in mind Walter, one of the things that we observed this quarter is part of the real success we had with suites growing at 21% year on year, which we are very pleased on, had a little bit of a trade off with AutoCAD point product going to AutoCAD suites, which grew roughly 50%, so we really like that dynamic.

We would take that dynamic all day long.

I think that just complements the AutoCAD side.

Obviously, the LT is more the marketing led activities that Carl talked about.

Sterling Auty with JPMorgan.

Thanks, hi guys.

Mark, at the Analyst Day there was also some discussion in your prepared remarks about looking at ratable recognition for some of the non-rental and other contracts.

Wondering if there is any update you can share with us since you are waiting until February to give an update on next year's guidance.

I think we are all super curious what the magnitude of the adjustments we are all going to have to make, and I think that is going to have to be a big part of it as to whether that is going to happen right off the bat, or if we're going to have to wait for that.

Sterling I don't have any new news to share with you.

I think you absolutely got it right that at the IR day we talked about a couple things.

One, our recurring revenue, by the time we end this four year plan that we covered from 2014 to 2018 it is going to be 70% or more.

And then we also talked about the intention to drive ratability even separate from recurring in a way to build on the comments that Carl made about customer friendly things that really free people up to have even more flexible terms.

But I don't have anything to share with you at this stage.

But that is an intention that we will be looking at and working on and driving throughout the course of this plan that we described at IR day.

You got the right issue, we just don't have any news to share with you at this stage.

One follow-up.

In terms of the $50 million going into deferred, the sense is that that is a smaller number of enterprise contracts.

Why wouldn't the overall number be bigger since these programs are fully available to users?

It's the size of the enterprise base and then the number of contracts that come up for renewal in that quarter.

So for example if an enterprise customer, even if their renewal came up in the fourth quarter, but it was a two-year term or a three-year term, it might not be this year.

So we haven't gone back to customers who -- their renewal -- we haven't gone back to customers whose renewal would be next year or the year after and opened it up to them yet.

That is what would drive a much higher number.

Richard Davis with Canaccord Genuity.

Thanks.

Two quick questions.

One, you talked about people new to Autodesk.

Do you have any sense that those are switches from other vendors, or are these people that were living in a cage using carbon paper and things like that, and they finally decided to use this thing called a computer?

And then secondly, we didn't talk a lot about it, but the media and entertainment business remains kind of choppy.

Do you have any sense as to what gets that thing back on track, or if there's anything you can do on that side of the house?

I think that they were probably using computers, I'm not sure they were paying for the software they were using on those computers, is probably a more reasonable explanation of what was going on.

On the M&E side, most of the software part of the business continues to do well.

A large part of the money coming out of that business continues to be hardware, which we are happy to see.

If it bleeds out over time, it's absolutely fine, we are much more interested in the software components of that business.

Got it, that is helpful, thanks.

Phil Winslow with Credit Suisse.

Hi guys, congratulations on a good quarter.

Thanks for taking the question.

This is actually Harry for Phil.

I was just wondering if you could give a little bit more color on the performance across segments.

With regard to certain geographies, I know you have given a little bit, but could you talk a little bit about Southern Europe and maybe how you think about a turnaround there, and obviously if you have just given some color on the Media and Entertainment segments.

But any other segments that you think are poised for some strong growth in the coming quarters?

A couple of opinions and Mark please join in.

First one is we are not doing any planning about Southern Europe getting better.

We will leave that to the ECB and others.

We just don't see any reason to be particularly optimistic about Southern Europe.

And none of our plans contemplate an improving economy in Southern Europe.

That being said, we continue to see strength in Central and Northern Europe, the UK in particular.

And that's across segments, so happy to see that.

We are happy to see solid stuff amongst the emerging economies, and we like the results that we saw in Japan.

I would just add Canada was great to see also nice strong growth in that respect.

Great, thank you.

Brendan Barnicle with Pacific Crest Securities.

Thanks so much.

Carl I want to just follow-up on that emerging markets commentary, because a lot of enterprise companies this past quarter saw weakness there, obviously you saw some nice strength there.

What do you think accounted for the recovery that you saw versus maybe some of the other folks more broadly?

I think truthfully we had easy compares.

Last year we found it more challenging in some of the emerging economies.

And in a number of places we did some things around pricing changes and promotional stuff that I think helped.

A number of places we raised the prices and we saw that demand remained the same despite an increase in prices.

Great.

And then Mark I could not hear your full response to Steve Ashley's question.

Maybe some other folks couldn't either.

The first part came out about -- but you broke up on the billings part, so could you just repeat that commentary on the maintenance billing?

For attach and renewal, just to be clear, two things I would say here Brendan.

One is that we don't typically give out -- we don't give out the rates at all.

Number one, we give directional view, directionally it's always a bit lumpy, they were down a bit in terms of the quarter-on-quarter period.

I think the more interesting point that I was trying to make was that our subscription billings were up 11% year on year.

So that to us is important, and that is driven by the fact that we had good subscription performance year on year both in single year and multiyear.

We also had our SaaS offerings, although smaller contributed to that.

And so for us -- we also saw the benefit of suites and the fact that more suites have better subscription and the actual ASP content of that was attractive, so we like that.

The rest of it fluxes around a little bit, but that's probably the more salient point Brendan to share with you.

Can you hear that okay?

Ross MacMillan with Jefferies.

Thanks.

Mark, I had a question on maintenance.

It's less about the specifics around attach and renewal, but more about the variability and growth.

So if I look at your maintenance billings, I think last quarter -- this year you have gone 16% growth, negative 17%, and this quarter up 11%.

I thought it might be related to multiyear, but when I look at maintenance revenues plus change in short-term deferred, you see a similar pattern with a big decline in your fiscal second quarter and then a rebound this quarter.

Why are we seeing such variability in maintenance billings?

A couple things here that I would say.

First of all, there are seasonality factors that are strong in that respect, Ross.

And so one of the things I look at just to get a sense of how things are going is my five-year historical average quarter to quarter, and when you look at that, you can see patterns of strong seasonality in any given period, I think, is one of the dynamics.

Secondly, I would say don't forget there's some special things that have happened, if you look at the trailing 12 months that you are referring to.

We had activities a year ago Q2 where effectively we changed the pricing in terms of what would have an impact on multi-year subscription.

So that has a certain effect in terms of pull in of subscription.

So there's been both pricing changes, there's been activities of that nature, plus you overlay historical seasonality, and that is the dynamic that you can net out.

But I think when you look at seasonality in aggregate, I think it's a lumpy business, so to speak, and it's not off the market in that respect, let alone if you do the overlay with some of the special events that happened in the last 12 months.

Ross, I hope that helps.

That is helpful, especially on the pricing piece.

Maybe one follow-up.

As you talked about the ASP uplift you said two things.

Mix and attach of the SaaS products, the 360 products.

What's your plan in terms of giving us disclosure around 360 product attach, or how should we think about you helping us understand that evolution, if you will?

Absolutely.

Two things.

One is, as soon as this becomes material you can be sure that we are going to be breaking that out to try to give granularity.

We try to give a lot of granularity of what is going on, but anything that is mature we are really wanting to be out front on that, number one.

And one of the things also Ross and I think it's important to reiterate is that as we look to FY 2015 and the guidance, one of the things that we look forward to talking to you about is things that we will disclose, it's a fresh point to talk about what we will disclose, and also frankly what we will guide.

And so if you look at, and you are extremely well versed, and people that are going through like transformations, you can see the metrics that they guide by, the metrics that they disclose.

Ours won't be terribly different from that, and especially once things become material, and so I think those two things ought to frame it nicely for you.

One thing we do know is that SaaS is going to be an important ingredient for us to hit 70% recurring revenue in FY 2018.

And obviously over time that is going to definitely be material, and so we look forward to furthering this discussion at the February guidance discussion.

Does that help Ross?

That is helpful.

Congratulations on a good quarter, thanks.

Thank you Ross.

Matt Williams with Evercore.

Just wanted to ask a little bit more about the 360 offerings and your comments that they're going to play a big role in the moving to the 70% on the recurring and the subscription basis going forward.

You touched on the first $1 million plus deal in 360 in the quarter, and I know you've talked about PLM 360 adoption and Sim 360 being strong.

But how close are we to $1 million deals in some of these other 360 offerings, and then how receptive is the base to layering on these 360 offerings going forward?

We saw the first over $1 million deal in BIM 360.

We've seen deals of nearly that size and there are certainly deals in the pipeline for much larger numbers than that.

The PLM one.

I don't expect to see $1 million deals in Sim 360 in the short term.

Some of that is consumption-based and that will take place over time rather than upfront.

I think the big variable is around Autodesk 360 because it's a much more broad-based one.

And in two weeks when we are at Autodesk University we will be disclosing a lot more about Autodesk 360 and make it clear what that is.

We will also talk a little bit more about AutoCAD 360 at that point, as well.

Okay, great, thanks for taking my question.

Keith Weiss with Morgan Stanley.

Thanks for taking my question guys.

Nice quarter.

I wanted to ask a more strategic question.

When we talk to your channel partners and guys in the field, one of the feedbacks that we got was what they thought would be even more effective to getting non-maintenance paying customers to pay maintenance would rather than just not doing upgrades, would be attaching more functionality that you only get with maintenance.

Is that part of the program?

Is that something you guys are thinking about putting in, perhaps, more carrots with the sticks out there for moving people on to maintenance?

Yes, one of the variables we have to figure out is as we offer these new web-based services, there are two things we can do.

We can offer it in subscription, just bundle it in to increase the attach rate.

The other thing is when the services are really value added is charge customers, who are either not on maintenance or who already are maintenance, but are getting much more value.

So we try to separate it into those two categories.

Of the convenient things that are nice and should really be bundled for all our customers, and those would be a big incentive to move more people onto maintenance.

But when we look at some of the offerings, these are substantial value over what we offer today.

And we think if customers want to avail themselves of those services, they should pay for them.

Got it, and just a more tactical question, on the impacts that you saw from Federal.

Is that something hat you expect to be a one quarter blip, or is the general dysfunction in DC likely to drag on for some time?

I personally -- you're trying to just get me going, I know Keith.

Exactly.

My prediction is the general dysfunction continues.

I don't think it will affect our business.

I am more worried about continued episodic breakouts.

I think there is still much more opportunity, and even after today it doesn't look like even the Senate is becoming a more bipartisan congenial place to work.

So when the debt ceiling comes up again, there's plenty of opportunities for these knuckleheads to get off the railroad tracks, and I am more worried about that than I am -- ongoing dysfunction and our dissatisfaction with Congress is fine, as long as the government spends money.

It is when they put a halt to the spending abruptly like they did.

In that case we very specifically saw deals that we thought were in the pipeline just freeze up.

There was no one to call to write the check.

To build on to Carl's point that probably cost the Americas a couple points of growth.

The shutdown itself, which is -- add that to the -- some of the other headwinds including we even had a 1 point of FX in the Americas, which is unusual headwind.

And then the educational strategic change, and you can start to see the where the Americas is actually performing in a bit of a better mode than meets the eye.

And as always we hope these deals haven't gone away.

And as people get -- have gone back to work, we have started to see some of these deals come through.

But we continue worry.

I think through the next two years you're going to see episodic dysfunctions in addition to the chronic form.

(Operator Instructions)

Steve Koenig with Wedbush.

Hi guys, thanks for taking my question.

You guys have been pretty transparent about --

I said as long as it is not about the government we are happy to answer your questions.

I will stay away from that can of worms.

I wanted to dig into your model change.

You all have been very clear and transparent on all the different pieces of it.

I think the one piece of it that I feel a little bit in the dark about is how quickly and more qualitatively, how to think about how you're going to make that change from perpetuals to some of that revenue being ratable.

What is your thinking on what will drive that and how quickly will that get driven?

There are two aspects to it.

Let me speak to the first.

There is perpetual being driven to recurring, which I think is largely driven by programmatic stuff we do.

I think we have outlined a lot of it.

There's another aspect of it of driving it to ratable, which is really more around accounting.

And I think Mark tried to answer that, we're working through a lot of these issues right now.

As soon as we have answers we will communicate them, but maybe Mark you want to add some color to that.

I think that's exactly right, Carl.

We have the natural things that are going to drive a recurring from a product and services basis that are straight up SaaS, the rental, the subscription maintenance out of the pool of opportunity we have with our core business, including the activities that are happening with suites and all that.

And I think there is the other aspect of it, in terms of what we can do as we reconfigure our offerings with perpetuals and what would that -- what kind of possibilities does that create to further move that to ratability because of the nature of what is being configured that's based on the offering itself that would clearly cause a different kind of accounting?

That is something that we are exploring.

And I think that what we're trying to share with you is the intention to fully and robustly explore that throughout the course of this business plan that we shared with you from FY 2014 to FY 2018.

Obviously as soon as we have news that we can share with you we will share with you.

But at this stage we don't have news on that front, but that is certainly our intention is to continue to work that topic.

Okay, I will leave it at that guys, thanks.

You are welcome.

There are no additional questions at this time.

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

Thanks operator, and thanks everyone for joining us.

We do have Autodesk University, as Carl mentioned, coming up in about a week and a half on December 3 in Las Vegas.

If you haven't received that invitation, please call or e-mail me.

We will also be at the Credit Suisse conference the following day, on December 4. If there's anything else, you can reach me at 415-507-6033.

Thanks.

Thank you.

This does conclude today's conference call.

You may now disconnect.