Autodesk - Earnings Call - Q1 2012

Transcript

Speaker 4

Good day, ladies and gentlemen, and welcome to the first quarter 2012 Autodesk earnings conference call. At this time, all participants are in listen-only mode. Later, we will facilitate a question and answer session. If at any time during the call you require operator assistance, please press star followed by zero, and the coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Dave Gennarelli, Director Investor Relations. Please proceed, sir.

Speaker 1

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss our first quarter of fiscal 2012. Joining me today are Carl Bass, our Chief Executive Officer, and Mark Hawkins, our Chief Financial Officer. Today's conference call is being broadcast live via webcast. In addition, a replay of the call will be available at autodesk.com/investor. As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call.

During the course of this conference call, we will make forward-looking statements regarding future events and the future performance of the company, such as our guidance for the second quarter and full-year fiscal 2012, the factors we use to estimate our guidance, new product and suite releases, certain future strategic transactions, business prospects, and financial results, our market opportunities and strategies, the trends in sales initiatives for our products, and trends in various geographies and industries. We caution you that such statements reflect our best judgment based on factors currently known to us and that actual events or results could differ materially. Please refer to the documents we file from time to time with the SEC, specifically our Form 10-K for the fiscal year 2011 and our periodic Form 8-K filings, including the Form 8-K filed with today's press release and prepared remarks.

Those documents contain and identify important risks and other factors that may cause our actual results to differ from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We'll provide guidance on today's call, but we'll 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'll also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Reconciliation of 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 changes as we discuss our financial performance, and unless otherwise noted, each such reference represents a year-on-year comparison. Now, I would like to turn the call over to Carl Bass.

Speaker 0

Thank you, and good afternoon. Our first quarter results reflect a solid start to fiscal 2012. There are several areas of notable growth and achievement. Highlights for the quarter include 11% growth in total revenue, 23% growth in revenue from commercial new licenses, 38% growth in non-GAAP EPS, strong operating margin growth, record deferred revenue, and the launch of our 2012 product line, including our new design and creation suites. Asia-Pacific again led the growth for the quarter from a geographic perspective, and we also experienced strong growth in the Americas. Our EMEA region posted solid growth despite a difficult compare, as it benefited the most from last year's promotion. Our manufacturing business delivered another solid quarter with growth in all geographies and particular strength in the Americas and Asia-Pacific. Within our manufacturing segment, revenue from commercial new licenses grew a strong 32% compared to the first quarter last year.

We experienced strong growth in our data management business through broader penetration across industries and geographies. Enterprise and SMB customers

Speaker 3

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Speaker 0

Enterprise and SMB customers are choosing our data management solution for its state-of-the-art technology, cost-effectiveness, and ease of use. Over the past three years, we've been building our portfolio of broad-based simulation technologies and will continue to democratize these technologies by bringing robust tools to design engineers. For example, during the quarter, we acquired Blue Ridge Numerics.

Speaker 3

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Speaker 0

A leading provider of simulation software specializing in computational fluid dynamics to add to our simulation portfolio. Our AEC business grew 3% during the quarter. We experienced softness in our infrastructure business in Q1, but we are looking forward to the introduction of our new infrastructure design suites, which will launch in Q2. The market demand and acceptance for products based on Building Information Modeling technology is accelerating. While we are disappointed by the tepid growth, when you consider that the majority of our PSEB revenue is sold into the AEC industry, our total sales to AEC customers are better than it may appear. Our strongest growth in the quarter was generated by our PSEB and Media & Entertainment business segments. Growth was driven by customer demand for our horizontal design and animation products, respectively.

We also closed the acquisition of Scaleform, which adds strong UI tools and middleware to our Media & Entertainment group's robust portfolio of tools for game development. The most significant event for us in Q1 was the launch of several new design and creation suites. While we did not ship these suites until very late in the quarter, our customers and partners are very excited about the suites. As you might imagine, the subject of suites was a major portion of the sales kickoff meeting we held during the quarter. We've been doing a lot of education and training with our salespeople and channel partners, and to date, we've had over 1,200 employees and nearly 4,900 channel partner employees trained on the new suites. There are a number of other positives in our Q1 results.

We continue to see our subscription attach and renewal rates rise and are now at levels at or above pre-recession levels. Our balance sheet remains strong, with deferred revenue experiencing solid double-digit growth. Channel inventory remains at historically low levels, and our cash balance is over $1.5 billion. I also want to take a moment to say that we're very thankful that none of our employees or partners was physically harmed in the earthquake or tsunami in Japan. They have shown incredible courage and resilience in the face of this tragedy. It's clear from the extent of the devastation that it will take some time before the economic situation in Japan returns to normal. We did experience some softness in Japan in the first quarter. Looking ahead, we have factored this into our guidance.

Beyond that, we are looking forward to our tools helping the companies and people of Japan in their rebuilding process. Overall, we're pleased with the solid start to fiscal 2012. The better-than-expected start, coupled with a more positive outlook for the rest of the year, has allowed us to raise our expectations about revenue and margins for the full year. It is clear that we are participating in the general market recovery, but it is also clear the rate of recovery differs by geography and by industry. We're very confident about our market position and strategy and more excited than ever about the opportunities before us. We will continue to focus on executing our strategy and driving growth in revenue, margins, and profitability. Operator, we would now like to open the call up for questions.

Speaker 4

Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your phone. If your question has been answered and you'd like to withdraw your question, press star followed by two. Please press star one to begin. Your first question comes from the line of Dan Cummings from Think Equity. Please proceed.

Speaker 2

Thank you. If we could just go back to the AEC results for a little more detail before you get back into what else you could perhaps tell us about infrastructure. The suites results appeared very, very strong. We're curious what else you're seeing in your business that correlates to a very rapid adoption of model-based IT by the construction verticals. Maybe something on how your data and project management tools are doing. Thanks.

Speaker 0

The first thing I'd say is, you know, we were a little bit late in getting the infrastructure design suites out there for this quarter. It was according to plan, but they will be coming. We're looking forward to the infrastructure tools coming out. I think, generally speaking, what we're seeing in the market is broad-based adoption of Building Information Modeling. You know, just as we started in the Architecture and Engineering part of the market, it is moving over to the construction part of the industry, which is the biggest economic opportunity for us, to the construction market. What we're seeing is broad-based adoption. We're seeing mandates in government. We're seeing lots of agencies requiring the use of Building Information Modeling.

What we're really seeing is the payoff for people using these model-based tools, the payoff being that you can simulate and analyze, estimate things where the greatest benefit is in the construction part of it. We're seeing a lot of good stuff happening there.

Speaker 2

Thank you.

Speaker 0

You're welcome, Dan.

Speaker 4

Again, ladies and gentlemen, to ask a question, please press star one. Please ask one question with one follow-up question. Your next question comes from the line of Brent Sale from UBS. Please proceed.

Speaker 2

Thanks. Good afternoon. Carl, on the suite sales, they were very strong, up 17% year over year. Can you just give us a sense of what you think about in terms of the pipeline, what you're seeing? You mentioned that you've gotten a lot of your employees trained. How much more training do you have left? A quick follow-up for Mark, if you could talk a little bit about how you're bumping up your full-year guidance to 12% growth from over 10% originally. What are you hearing from customers that are giving you this increased confidence?

Speaker 0

Yeah. Brent, just starting with the suites, we were really pleased with the results so far. Like we said, we only had about a month of suites, of the new suites in this quarter. We had some of the existing suites, but what we saw is really the demand was led by our customers. Channel partners are often skeptical when we introduce new things. What we saw in the fall last year when we were piloting some of the suites was some skepticism or some reluctance to go whole hog. I think the value that suites provide was seen clearly by the customers, and that motivated our channel partners to get a lot of their people trained as fast as possible.

We're really encouraged by the small amount of data we have so far, and I'm looking forward to, excuse me, into the second quarter when we'll have a complete quarter of results with suites.

Speaker 2

To chip in, also, in terms of the approximately 12% growth rate looking to the entire fiscal year, I think we liked the way the year started in Q1. We felt good about that. I think you're aware, we get a lot of good input from our channel and all the different geos. Our channel partners give us a good view of our funnel, the way the future is looking from that standpoint. I think we factor that in, as well as our view on how manufacturing is proceeding to lead the way, Asia-Pacific is proceeding to lead the way, and I think suites kind of come into, you know, full bloom, if you will. I think that really gives us the confidence to put out the approximately 12%.

Speaker 5

Thank you.

Speaker 2

Bye.

Speaker 4

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

Speaker 2

Hi, guys. Good quarter. Carl, I wonder if you'd just spend another minute looking at the verticals again. Obviously, manufacturing continues to be very strong for you guys, and you've talked a little bit on just the commercial construction front. I wonder if you'd give us a sense just in particular what you're seeing or you are seeing in manufacturing versus the others and just sort of how sustainable this very high growth rate that you have is, and if there's anything by geography that's really driving it, U.S. versus EMEA, etc. Thanks.

Speaker 0

Yeah, sure, Phil. I mean, what I saw is, you know, all through the downturn, the vertical that stayed the strongest was manufacturing, and it continues to be this, you know, continues to be very strong coming out of it. It's more so than the others uniformly strong across the geos. I think one of the reasons is our unique competitive position in the manufacturing market. You know, as we've talked about, I think we sell great technology at great value. It's in the right part of the market, and we are really the disruptor in that market. We continue to win business, both new business, converting some of our customers to new 3D technology, but most often winning share from other competitors. I think it's just, you know, better technology, better value of the product. Manufacturing continues to be strong.

I think when you look at some of the other verticals, I think it's a little bit more varied across the different geographies and across the different sub-segments, if you will. What we saw this time was pretty good growth in AEC in the Americas. The backdrop is there are parts of weakness in AEC or places that still haven't recovered. We had temporary things like the spending freeze in Washington, DC, for a period of time. I mean, there are just these little things. There are parts of Europe that certainly haven't recovered and commercial construction hasn't. What I'm most happy about is able to produce such good results with a still not fully healthy AEC market. Certainly look forward to as the AEC market recovers.

The one thing, you know, we kind of pointed out in my remarks was, I think to really understand AEC, you have to really look at it combined to some degree with PSEB. Some of those products sell primarily into the AEC market. It's not a perfect alignment between the divisions we report on and the end-user customer segments.

Speaker 2

Got it. Thanks, guys.

Speaker 0

Sure, Phil.

Speaker 4

Your next question comes from the line of Steve Ashley from Baird. Please proceed.

Speaker 2

Thanks. I'd actually just like to drill down again on the AEC business. Can you give us any kind of metrics around if we look at the Civil 3D and some of the infrastructure products, how they were year over year, and in contrast, maybe how Revit or some of the Revit suites performed in the period?

Speaker 0

Yeah. I don't want to break down individual products. You know, as we move to suites, it becomes less important. I think what I would look at is, wait for the introduction of our infrastructure suite during this quarter. Generally speaking, we feel really good about our AEC business. We're really pleased by the adoption of the technology. People realizing that this building information modeling is really a game changer. That's what we consistently saw both in talking to customers, talking to our partners. The one thing I've said many times is, a single quarter doesn't make a data point. I think when you look at PSEB and AEC together, it's about the growth rate that I would have expected. It was a little lopsided towards PSEB. If that happens again, we can have a more robust conversation about it.

Speaker 2

Yeah, just building on Carl's comment there, the Revit suites, we've called out in a disclosure of 25% growth. The Revit suites look good to Carl's point. I think, in building on what he said, what I feel really good about is the infrastructure suites are about to come to bloom as well. Probably a good context.

Speaker 1

In EMEA, if you look at it and kind of net out that promotion from a year ago, it was particularly strong. Can you give us any color on kind of where that strength was? Was it products or markets or verticals or anything you could tell us there?

Speaker 0

No, I think you're absolutely right that if you net out the promotion, EMEA performed quite well. I think it was fairly consistent across EMEA, across the subregions, as well as the various disciplines. A little bit spotty, but generally, it was very healthy and very robust across Europe. We were pleased with the results. I think the combination of what we saw there when you factor out the promotion led us to changing our estimates for what we expect this year.

Speaker 2

Okay, thank you.

Speaker 0

Sure.

Speaker 4

Your next question comes from the line of Jay Bhatt from Griffin Securities. Please proceed.

Speaker 2

Got it. Thanks. Carl, I'd like to ask about your maintenance revenues and billings. In terms of the fiscal 2012 outlook for Q1, both revenues and billings were up in the single digits. Should we expect that one or both, particularly billings for maintenance, should grow in the double digits this year? That's a general question about that business. With respect to the suites effect, when you look at maintenance to date, it looks like your average active license receipt for all products is somewhere around $400 or so, give or take, per year. I'm wondering if over the next couple of years, as a result of suites better attached and mixed, you can add potentially a couple of hundreds of dollars per active license under maintenance, all else being equal.

Speaker 0

Jay, on the maintenance and billings, the maintenance billings, we don't really forecast the individual line items there. There is a fair amount of seasonality. If you go back and look at it, there's a fair amount of seasonality in the maintenance billings that you can see. I think what I see is a recovering economy leading to increased attach and renewal rates. Just the nature of the math of it is that builds slowly. I think you'll see it building, but you can kind of model out what happens as that builds. I think the question of perceived revenue, averages are what averages are. On average, people drown in a pool that's three feet deep, but they probably don't drown in the three-foot part of the pool. There's a lot of things that go into those maintenance revenues.

If you just isolate it and you look at it, you would see that the subscription prices for suites are higher than the individual products, as you would imagine. I won't, at this point, say exactly how much I would raise, but how much I would expect that to rise. I do expect that as the attach rate for suites goes up, you will see an increase in this number.

Speaker 2

Okay. For Mark, since you talked about the infrastructure business, would it be fair to infer that that business, which you used to call IAD, is somewhere in the range of $100 million to $200 million a year? Would that be about right?

Speaker 1

We typically, Jay, don't really break that out at that level of granularity. You can kind of see the entire AEC business, but we typically don't break it out to that level of granularity.

Speaker 2

Last, let's sneak one more in. Carl, as you mentioned, data management as a highlight for the quarter. Could you just talk about what the core concerns are in that market that are most relevant for you and your base? It appears that EPC is going to retire their product point offering based on your point addressed more or less towards the SMB market. There are some other older products aimed at SMB that are weakening, let's say. I'm wondering if you could just talk about what's driving your opportunity or the growth that you're now referring to in data management.

Speaker 0

Yeah. By the way, aren't we competing against all older products? That's a polite way of saying what the competition is in data management. I think you have to break our data management activities into two different parts. One is in manufacturing, where we're seeing really good adoption. I'd say if you looked at the part of the market that we're concentrated on, it would be, you know, more the AM out of the SMB part of the market and the work group out of the large enterprise. It's a slightly different take than the competitors, who I think business has been healthy, but they're really directed at a different part of the market. They're looking at enterprise PLM systems. We're trying to increase the efficiency of individual work teams and work groups.

We're involved with large work groups within enterprises and generally medium-sized businesses, and we're seeing really good, really good adoption there. We've talked about this for a while. It just keeps building on itself. With the proliferation of more 3D data, there's a greater need than ever to coordinate and collaborate on your 3D models, and that's working really well. The other place where we've seen a change, certainly over the last year, is the desire to have greater data management capabilities in AEC. We've been talking about new product introduction and rejiggering some of our product line that already exists. We've been doing a lot more work in data management.

Again, I think it's the same underlying root cause, that as people adopt model-based design and they add simulation and other capabilities, the amount of data just goes up exponentially, and the need to both control it and manage it, as well as distribute and collaborate on it, goes up. We have tools in both of those areas. Some places we're using shared technology, other places we're building things from scratch. I'm optimistic about data management in both those markets.

Speaker 4

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

Speaker 5

Thanks. We had a couple of questions, Mark, on FX. Just the impact on the quarter, it really surprised to see a headwind on the euro. Also, any comments on FX guidance for the year? That's on FX. Related to emerging markets, prior to the downturn, you guys were seeing emerging markets growing at a nice premium to where you're seeing the developed world, and you're still seeing them grow kind of in the same range. I'm just wondering if you could give us a little more color on that performance and whether or not you're seeing certain markets grow faster than others and so forth.

Speaker 2

Sure. A couple of things here. One is that, yes, you could see a little bit of FX headwind as revealed and broken out there for this particular quarter. I think you're aware for sure that we have a rolling hedge program. It's kind of a classic four-quarter cash flow hedge that we do for the company. Just for everybody's benefit, we try to articulate that in some of the back ends of our disclosures. Basically, to fully understand our FX, you have to understand that we're doing hedging, and it increasingly becomes more hedging as you get closer and closer to the current period. That really kind of explains what's going on there.

As it relates to going forward for the fiscal year, we typically don't give the explicit assumptions, but you should assume that when we give updated projections that we've factored in everything that we can comprehend as of today, including our hedge positions. That's the first part of the question. The second part relates to the emerging markets. We're pleased to see them grow faster than our company average. I think we've called out in the past. They get kind of lumpy, you guys, just by the nature of emerging markets. We really like our presence there. We like, we see, a growing capability in the emerging markets. We think this is a very attractive market for us. We expect that this will outpace our growth as a company for years to come. I hope that gives you a little lens, but the lumpiness is definitely something we've experienced before.

Speaker 0

Yeah. You know, we continue to see it. What we're seeing now is strength in Russia and Brazil as an example. A year ago, I wouldn't have been talking about Russia. Eighteen months ago, I wouldn't have been talking about Brazil. I think it just changes over time. I would just be trying to look at that over a longer period of time in order to really gauge direction.

Speaker 2

That's great. Thanks very much.

Speaker 4

Your next question comes from the line of Derek Bingham from Goldman Sachs. Please proceed.

Speaker 5

Hey, everybody. One thing I just want to make sure I understood or if there's any more color you could give on the platform strength in the quarter. That was up strongly quarter on quarter. The prepared remarks also mentioned LT in particular. Just anything that you noticed there or anything that could explain that?

Speaker 0

No, you know, I don't really have a great explanation for it. What I would say is I think it has something to do with coming out, people who are coming out of the recovery. We noted on the way in that that business fell off. I think less people upgraded their software. They may not have stayed on maintenance during the time period. They still remained good customers. They were still users of our software. The financial situation prevented them from being as, you know, being current. I think given the opportunity with improving economies, people are getting back on the bandwagon, and we're seeing that with the attach rates and the renewal rates and just the increase in revenue. Tools that they may have kind of overlooked upgrading during a period of time, they're now just making current is probably the best explanation I have at this point.

Speaker 2

Okay.

Speaker 0

The other thing that I've said at times, you know, Derek, to watch out for is when we do run promotions and stuff, we can really sway activity. There are a number of promotions out there about it. I think there are also a number of questions that people had about the introduction of suites. They weren't quite ready at the beginning. I think we'll get a more full-featured picture as we go into Q2 with all of the suites available and, you know, a few more months of recovery behind us.

Speaker 5

Okay. My second question is just on Japan. I was wondering if you could just give us any sense for, you know, order of magnitude of the impact, you know, relative to what you would have expected from Japan at the outset of the quarter, and then also what you've seen so far in terms of that ability to improve or continue to impact into Q2.

Speaker 0

Yeah. Like I said, I think we saw remarkable resiliency. We saw Japan be strong even at the worst times of the crisis. I was surprised by both the resiliency and the resourcefulness. I think there was a real determination on the part of the entire country to make sure that business continued. I think you've read some of the things. There are certainly areas that have been devastated, and some of the infrastructure has been damaged. When we talked about numbers going forward for both the quarter and the year, we contemplated what we've seen in Japan. We're comfortable with what we spoke about, given where it is. I think we'll continue to monitor the situation. It wasn't nearly as large. You could have easily imagined business falling off a cliff, having watched the pictures and read the newspaper accounts.

It didn't do that, but there was some drag on the business.

Speaker 5

Okay. Thanks, Paul.

Speaker 2

Operator, next question. Operator.

Speaker 4

The next person to ask a question is Mike Olson from Piper Jaffray. Please proceed.

Speaker 5

All right. Thanks. Good afternoon. Just one quick question. On the BIM and simulation and visualization fronts, do you feel that you have all the technology and product portfolio in place, or are there holes that you still feel that you need to fill? Would that be done more likely through internal development or through a continuation of some of these smaller technology acquisitions?

Speaker 0

I mean, I don't think we have a long way to go before I'd say we have a complete portfolio. Certainly, we've rounded out the portfolio over the last couple of years. I'm proud of the development we were able to do even during the downturn. I feel really good about our position. What we found out is that with each increasing capability we put in the products, we open up our products to more customers who have more demands and push us to go further and further. As long as it makes sense to, we'll continue to look. Once we decide there's a need, we have a process by which we determine whether internal development or acquisitions are the best ways to get there. We'll continue to do it.

In general, we think analysis and simulation is a growing market, and that's true across all of our verticals, not limited to manufacturing. We'll continue to invest in that as it's technology that our customers want.

Speaker 5

All right, thanks very much.

Speaker 0

Sure, Mike.

Speaker 4

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

Speaker 5

Excellent. Thank you for taking my question. A nice quarter. I want to ask a couple of questions on guidance. The first one being, if I'm doing my math right, at the midpoint of your Q2 guidance, it looks like revenue growth is going to accelerate to about 14% off of more difficult compares. That 14% is also ahead of that 12% that you're looking at for the full-year growth. I was wondering, was there anything that shifted out of Q1 into Q2 that's giving you more confidence in the growth rate in Q2 or anything you're seeing in the pipeline? Something to help us sort of understand that sort of shift up in growth for a Q2 but a more sort of flattish with Q1 type growth for the full year?

Speaker 0

I'd say, generally speaking, Keith, our business consists of smaller deals. We don't have those big shifts in which an enormous deal switches from one quarter to the other. To the extent that we have large deals, revenue recognition rules don't allow for it to be taken in a single quarter. That's usually not what's going on. I think we feel very good about the pipeline we're seeing. We're seeing robustness in the economy. I'm encouraged by the suites. The results that we were just talking about now for Q1 only have a partial quarter of suites results in there. We're more seeing that and a continuing improved economy and just a healthy pipeline of business.

Speaker 5

Okay. Conversely, there wasn't any particular impacts in Q1. You mentioned federal government, perhaps any delays in signings. Maybe there's some pent-up demand, maybe some pent-up demand from these new suites coming that perhaps explains some of the upshift in revenue growth?

Speaker 0

Yeah, I think everything's in the usual gives and takes that you see in a given quarter. There's a lot of factors that go into each quarter, but none of them really rise to the level of being worthy of calling out.

Speaker 5

Got it. One for Mark.

Speaker 0

Go ahead.

Speaker 5

Just on the comments you made in the press release about balancing both sort of investment and margin growth, I was wondering if you could give us some detail or talk to us a little bit about what types of investment you guys are looking to make in FY12.

Speaker 2

Yeah, absolutely. I think they really revolve, Keith, around two things. One has to do with just go-to-market activity. We're investing there to continue to drive revenue on the sales and marketing side. I think the other key area that we want to continue to invest in is in the product side. You heard Carl talk about simulation is clearly an area of continued investment for us. We're investing in suites and the full completion of that. We're investing in web services, things of that nature. These are but a few examples. I think you should have the takeaway is really go-to-market revenue generation and product.

Speaker 0

Yeah, I think most of our activities are around the go-to-market. If you look during the downturn, despite some of the big cuts we did, we continued to not only expand the capacity but also the capability of the salesforce and that of our partners. I think we're going to continue to do that. We found more ways to reach more customers, and we want to take advantage of that. We feel really good about the product portfolio we have, feel really good about the suites offering. The idea is to make sure that we're as effective as we possibly can be in bringing those things to market.

Speaker 5

Excellent. Thank you, Steve. One last one. Carl, you got us all very excited the last quarter when you mentioned seeing new hiring going on in a lot of your industries. Has that trend continued into your fiscal first quarter?

Speaker 0

Yeah, absolutely. Certainly, we've seen the bottom for I no longer hear about any customer who's continuing to reduce their workforce. Everyone's hit bottom at a minimum, and most customers are hiring back. I think the real challenge in some places like the United States is in cases there are places where they don't intend to hire back to the same levels, which I think has some long-term structural implications for the economy. Most of the customers that I'm in contact with are hiring. Particularly some of the hardest-hit segments, like Architecture and parts of construction, there's new projects in the works, and hiring is happening there.

Speaker 5

Excellent. Good to hear.

Speaker 0

Yeah.

Speaker 4

The next question comes from the line of Steve Konik from Longbow Research. Please proceed.

Speaker 2

Hi, guys. Thanks for taking my question. I noticed the upgrade cross-trade line was pretty strong this quarter, just like Q1 a year ago. We did pick up some promotions in the quarter. Were those responsible for the bulk of the upgrade cross-trade revenue, or at least the bump in the revenue? Related to that, were the legacy promotions, did those help the new license line for versions that were over three years old being upgraded?

Speaker 1

I think probably the biggest thing that would contribute to that is just the suites. As suites continue to evolve, people look at their opportunity to do a cross-grade from that standpoint, Steve.

Speaker 0

Yeah. The movement from single products to suites is classified as a cross-grade. With that, it's a cross-grade upgrade in cases. People take various paths to get there. That's probably what we're measuring there.

Speaker 2

Okay. For my follow-up, I'd be curious to know the suites promotion. Will that continue on into Q2 on the same basis as Q1, same geographies, etc.? Are you looking to modify that promotion?

Speaker 0

Yeah. We're always tweaking the promotion slightly. As I said, we kind of rolled out the suites. They're not all ready in all languages at the same time, and we also look and evaluate which of the ones have been most successful. We'll continue to do that. I expect some of them to come to an end, and you'll see new promotions introduced. As you may note, some of the promotions come from us directly. Some of them are managed by our channel partners, so some of the things you may pick up may have no root cause back at headquarters.

Speaker 2

Okay. Great. The question about the legacy, if you could just wrap that up, did that help you on the new license line, the legacy promotion?

Speaker 0

Yeah, I mean, it always does. I don't think it was a huge effect. I think it goes more to the question I was answering before of where you see people who now have the means to get back to get current and want to get back on. I think that's an opportunity where we've reached out to customers who may have been damaged during the downturn and now want to get current. That's some of what you're seeing there.

Speaker 2

Got it. Terrific. Thank you very much.

Speaker 0

Awesome.

Speaker 4

Again, ladies and gentlemen, to ask a question, please press star one. Your next question comes from the line of Sterling Auty from JPMorgan. Please proceed.

Speaker 2

Yeah. Thanks. Hi, guys. Carl, I was just wondering, the comments on the little sluggishness in infrastructure, do you think you froze the market a little bit with the timing of the introduction of the next round of products? You know, how much bounce-back can be kind of factored into that for the good guidance here for the second quarter?

Speaker 0

I think there's always a possibility. It's hard to perfectly know what information is out in the market in terms of people making purchasing decisions. Certainly, we've been very transparent about an infrastructure design suite coming. That was known. I think when we do projections going forward, when we give guidance like for the second quarter, we generally don't do it at a product level. We've not found that to be very effective in understanding our business. We have a bunch of other ways, the kind of metric ways of looking at it. We do pipeline analysis. We have a number of techniques. Forecasting by product, given all the variables, has not turned out to be our most effective tool.

Speaker 2

Okay. Just to follow up for Mark, as you think about the hiring through the year, trying to get a sense of the shape of the operating expenses, you know, the profile through the year, how should we think about that investment? You talked about some of the sales and marketing. Is it more front-loaded and we've already seen a bunch of it, or is it really smooth through the year?

Speaker 1

Sterling, I'd say you've seen some of it. We've done some modest hiring, and I think there'll be some continued modest hiring, but it'll be on the modest basis for sure. I'd say in that respect, I think you've seen part of it and some to come.

Speaker 2

All right, thank you.

Speaker 4

Again, ladies and gentlemen, to ask a question, please press star one. Your next question comes from the line of Blair Abernethy from Griffin Securities. Please proceed.

Speaker 5

Thank you. A nice quarter, guys.

Speaker 2

Thanks.

Speaker 5

Carl, just on the platform business one more time, you're tracking now at this level still a good $100 million below sort of pre-recession levels. I'm wondering, is there still an opportunity to drive back up to that level as the business exists? Are we seeing the suites and the shift to 3D really shifting some of that old revenue, that old customer revenue into AEC and manufacturing?

Speaker 0

I think what you will see as we continue to go forward is there's plenty of opportunity in our horizontal design products. They continue to evolve. When you compare today's releases against those of three years ago, there are lots of advantages for customers. I do think some of them become more aware of vertical answers. Some of those are just vertical solutions, and some of them are 3D model-based solutions, and customers choose that. I have gone out and said that I do think that you will see a pronounced shift to people purchasing through suites. Included in the suites are some of our classic products like AutoCAD, and the AutoCAD verticals are included in the suites. I don't think it shows any lack of desire to purchase those products.

I think customers are realizing the value in the suites, and you'll see a shift to the way they purchase the products, not in the usage of products.

Speaker 5

Okay. Great. Just one more quick one. On the media segment, strong recovery this quarter, up 18% year over year. Is that, and markets getting better? Did you do some extra promotion in that segment?

Speaker 0

It wasn't from extra promotion. It was just a good solid quarter and solid execution. If you look over the history over the last 5 years, 10 years, the media business is smaller and tends to be a little bit more uneven than our other businesses. It is a little bit carried by larger deals, and it's very sensitive to economic conditions. I think what we were seeing is just a general recovery there.

Speaker 5

Okay. Great. Thank you.

Speaker 4

Your next question comes from the line of Dan Cummings from Think Equity. Please proceed.

Speaker 5

Thanks. I had two follow-ups. On the gross margin on the maintenance side, if I've got that right, I think it's rounding to about 94%. I think that's somewhat less than we've seen recently. Is that the way we should perhaps model going forward? A comment, please, on the large deal environment at the major account level. Thanks.

Speaker 2

Sure. Dan, basically, I think you're right to pick up the difference there. One of the things that you're going to notice is as we shift in our fulfillment, we're in some of our suites, in fact, for ease of customer installation, we have kind of an advanced thumb drive as a way to think about it. It's a nice technology that allows people to have an easier install, and that's factored into the cost of goods sold. You can see everything's factored into the total gross margin. It just has a shaping between the maintenance when you're doing the renewal versus the other part of the gross margin. Q1 is always low as well.

Speaker 5

Okay.

Speaker 2

The second part has to do with large deals, whereby each quarter we don't comment on those all per se. There's not a lot to say about that, Carl. I don't know if you have any additional commentary, but it's.

Speaker 0

Yeah. I mean, I'd say, generally speaking, we've been very successful in our major account program. When we talk about future investment, one of the areas that we will continue to invest is in major accounts. We see it as being something very synergistic with our mainstream channel business. It's not a zero-sum game. What we found is as we win larger and larger deals at large accounts, the rest of our business does well. It's kind of a great entry point. Sometimes we enter markets and we do it through the small customers buying one and two seats and work our way up. In other parts of the market, it's better to enter the market with large accounts. We found our major accounts to be very effective for winning the lighthouse deals. Our channel partners are incredibly effective at the rest of the ecosystem and serving them well.

Speaker 5

Okay, thank you.

Speaker 4

There are no further questions at this time. We will now turn the call over to Mr. Dan Gennarelli for closing remarks.

Speaker 5

Thank you. First of all, we apologize for the audio difficulties on the call. Secondly, just a reminder, we'll be at the B of A conference on June 2 in New York City. Also, on June 29 in New York City, we'll have the meeting with Autodesk Management, and we hope to see you there. Thank you.

Speaker 4

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.