Autodesk - Earnings Call - Q2 2012
August 18, 2011
Transcript
Speaker 5
Good day, ladies and gentlemen, and welcome to the second quarter Autodesk Inc. earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. If at any time you require operator assistance, please press star followed by zero, and we will be happy to assist you. As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host for today, Mr. Dave Generali, Director of Investor Relations. Please proceed, sir.
Speaker 1
Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss our second quarter of fiscal 2012. Joining today from our Waltham office is Carl Bass, our Chief Executive Officer, and here in San Rafael is 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 third quarter and full year of fiscal 2012, the factors we use to estimate our guidance, new product and suite releases, and expected growth rates, certain future strategic transactions, business prospects and financial results, our market opportunities and strategies, and trends 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, our Form 10-Q for the period ended April 30, 2011, and our periodic 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 will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum.
During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP results is provided in today's press release, prepared remarks, and on our Investor Relations 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'd like to turn the call over to Carl.
Speaker 0
Thanks, Dave, and good afternoon, everyone. Financial markets grew weaker and more volatile by the week. Today was certainly no exception. It's a bit surreal announcing our results after the close of today's market since we have lots of positive news to report. Across the board, our key financial metrics were strong, with growth across all geographies and business segments, better than expected operating margins and profitability, and continued strong cash flow. Helping drive our growth was an increase in the demand for our suites. There are several areas of notable growth and achievement.
Highlights for the quarter include 16% growth in total revenue, 45% growth in total suites revenue, 24% growth in revenue from Asia-Pacific, 20% growth in record revenue in manufacturing, 19% growth in AEC, 37% growth in maintenance billings, 22% growth in non-GAAP EPS, 18% growth in cash flow from operations, strong operating margins, and record deferred revenue. From a geographic perspective, Asia-Pacific continues to lead our growth. We saw strength across most countries, and we signed our largest contract ever in the region. Our EMEA region posted solid growth based on strong performance of our manufacturing products and our suites. What might be surprising to some is that our business in Europe grew across all regions, including Southern Europe. Our Americas team posted another quarter of double-digit revenue growth, with strength in both our channel business as well as major accounts.
I mentioned that our manufacturing business hit an all-time high for revenue, with solid growth in all our geographies led by EMEA. We're seeing some great wins with the factory design suite, and our Product Design Suite is performing really well. The strength of our manufacturing portfolio, anchored by our Inventor product, enables our sales team and channel partners to beat our competition with outstanding solutions for design and simulation. What's really great to see is that we're getting deeper penetration in certain industries where we historically have had a smaller presence, such as automotive and aerospace. In fact, last quarter, we signed our largest manufacturing deal ever with a key global supplier in automotive and aerospace, displacing competitors with legacy technology. The combination of superior modern technology and a portfolio of products was a key factor in their decision.
After experiencing some softness in the first quarter, our AEC business had a terrific second quarter. AEC had strong growth across all geographies, led by Asia-Pacific. Our infrastructure design suites began shipping in early July, and sales of Revit-related products had their biggest quarter ever. Suites were another driver of growth in Q2. All of our suites offer a tremendous value to our customers, and we couldn't be more pleased with the initial uptake of our newly launched design and creation suites. We're having success in selling suites to new customers and migrating existing customers from point products and older suites into our new suites. At their core, our suites facilitate the migration to model-based 3D design tools and help eliminate the purchasing and interoperability complexity of standalone point products. They also increase value by improving the customer's workflow. It's a clear win-win scenario for our customers and for us.
Helping drive growth across all geographies and business segments is the increasing success we're having with large enterprise customers. Initiatives and investments that we started last year targeting major accounts are paying off as we continue to see an increase in large deals and related revenue. There are a number of other positives in our Q2 results. Our maintenance billing growth was the strongest we've seen it in the past four years. New customers see real value in signing up for our subscription program, and our attach rate is above pre-recession levels. We're also having success with programs that get customers on subscription after upgrading from older versions. Two other positive trends in our subscription business are that our renewal rate is at a record high level, and we are seeing an increase in multi-year subscriptions.
We're also evolving our subscription business to provide even more value to our customers through web services. At our Investor Day event in June, I spoke to you about Autodesk initiatives utilizing the cloud. Later this quarter, we'll be introducing a collection of new web-based services, adding unlimited computing power to our offering. This will transform the way our customers work by helping them design, visualize, simulate, and share ideas more rapidly and effectively than they've ever been able to do before. Stay tuned for the launch and more details in the coming months. There has obviously been a lot of volatility in the markets over the past few weeks, including today. Despite that, our Q2 results were solid across the board, and we're confident in our ability to deliver on our third quarter and full year guidance.
Of course, we can't completely ignore today's economic headlines, and our guidance considers the recent macroeconomic news. We continue to deliver great value to our customers and are gaining market share against all of our major competitors. Despite the turmoil in the financial markets, the strength of our products, finances, and our team of employees and partners gives me great confidence in our ability to succeed. Operator, we'd now like to open the call up for questions.
Speaker 5
Ladies and gentlemen, if you have a question, please press star followed by one on your phone. If your question has been answered or you wish to withdraw your question, you may do so by pressing star followed by two. Please press star one to begin. Today's first question comes from a line of Heather Bellini with Goldman Sachs. Please proceed.
Speaker 2
Hi, thank you. This is actually Perri Huang for Heather. I just had a general macro-related question. Things are still obviously early days in terms of the direction of the economy and its potential impact over the near term. I was just wondering, from a planning perspective, is there anything the management team is doing differently, if anything, this time around as compared to the end of 2008? Also, from the perspective of your customers, are you hearing about them possibly doing anything different this time around? Thank you.
Speaker 0
Yeah, the one thing I would say is that I'm not sure it's really the early days. It's a little bit strange announcing results today, as I said. It was also strange at Investor Day a couple of months ago where we were out being fairly bullish, yet there was a lot of turmoil in the market. I think it's just a rocky road. People are uncertain when it comes to the financial markets. The thing that strikes me the most is the disconnect between what we're seeing in the financial markets and how our customers are behaving. Most of my recent meetings with customers have entirely been about they're seeing business be fairly strong. It's been evidenced by most of the results that people have been reporting.
Most of them feel like they made a number of adjustments during the recession, and I don't see them yet making big changes in what they're doing. Maybe they're somewhat blind to what's going on, and the financial markets have it right, maybe not.
Speaker 2
Got it. Thank you.
Speaker 5
Our next question comes from the line of Jay Bhatt with Griffin Securities. Please proceed.
Speaker 3
Okay, thanks. Mark, I'd like to ask about your maintenance business. You had some comments about the attach and renewal rates, but I noticed that there was a small sequential drop in your active states, notwithstanding the strength of overall billing. Have you begun to see, or does the guidance encompass any adverse effects in terms of attach or renewal rates for the remainder of the year? Is there any discernible difference in terms of maintenance performance across the verticals? That's a follow-up. Thanks.
Speaker 1
Okay, so a couple of things, sir. Jay, one is that you're correct that if you look at the install base for subscription, it's down slightly sequentially. What's happened there is our educational installed is down a little bit. The commercial is actually up more in one aspect of the business, but the net net is a slight negative. That's not a really great indicator for the overall subscription business alone. What you touched on are some broader indicators that are very important. One is that, as Carl said, our renewal is at a record level, and it continues to grow year on year and sequentially. The attach rate has been up again sequentially. We like what we see. We like the value proposition that we're offering and the way our customers are responding to that. You know, we see a healthy trend there based on the data today.
When we look to the second half, I would just say that we can speak to the trend today. It looks good.
Speaker 3
Okay, with respect to suites, you highlighted the momentum sequentially in year over year. Two things. Could you comment on your maintenance experience with suites? Is it similar to or better than standalone apps in terms of attach and renewal? I imagine it's driving up your revenues per license. Are you seeing or might you expect some sort of transition effect or inverse relationship even between standalone apps and suites?
Speaker 1
Let me address the latter part at the beginning. In terms of standalone apps versus suites, as you see, our suites as a % of our total business going from 23% in the last period to 29% of our total revenue this period, we're very, very pleased with the suites growth, as Carl called out. We're growing 45% year on year. I do think over the long term, suites will be a bigger and bigger fraction of our total business. That part I would certainly address straight away. In terms of the revenue per license over time, we've talked about the uplift that you should expect. Again, it'll take over time for that transition to come to bear. For example, some people that have upgraded to our new suites when they do the renewal of their subscription will see more ASP uplift there as an example.
In terms of the specific attach and renewal rates for suites, we haven't broken that out to disclose separately. I would fall back to say that the trends that we're seeing in renewal and attach are as strong as we've seen for years to come, including a multi-year subscription. We like the fact that that's up. That's actually quite a nice sign from our customer.
Speaker 3
All right, lastly, if the guidance turns out to be a bit optimistic, what are your contingencies in terms of cost management responses, promotions, selling activities, and the like? Might you, for instance, delay some of the new initiatives or services that you've been planning on the consumer side or the website or simulation side or anything of that kind, or temporarily just to deal with the incremental costs?
Speaker 0
Jay, I don't think we would do much right now. I think a lot remains to be seen if there really is a big economic slowdown. I wouldn't jump to things like the new services and things like that. That makes more sense to continue to move forward with those things since we've already invested the lion's share of the money in things like new services or new products. There are certainly parts of the business and certain initiatives that we would slow down. I think it remains to be seen what actually the shape of it is. Right now there's the big boogeyman out there that everybody's worried about, but I don't quite know the shape of the boogeyman. I'm reluctant to be very public about plans about this imagined thing.
Speaker 3
Thanks, Carl.
Speaker 0
You're welcome, Jay.
Speaker 5
Our next question comes from the line of Brent Thill with UBS. Please proceed.
Speaker 4
Thanks. Good afternoon. Carl, just on Jay's point, in the last cycle, the margins did get cut in half. I guess the one thing investors want to hear is that, I know you don't have a contingency plan in place for now that you're giving us, but is there something different about this cycle versus the last cycle? If we did see a downturn, do you think you would put a floor on the operating margin versus last cycle when there really wasn't a floor? I'm just curious in terms of how you think about it and if you think this cycle is any different. I know you mentioned the boogeyman, we don't know what it looks like right now.
Speaker 0
No, Brent, I think there's two interesting parts of it. The first question and the thing that we've been wrestling with is trying to find evidence in our results that are similar to the last time. I'm not going to sit here and say there's not a double dip coming or there's not a big slowdown coming. What I would say is if it's coming, it doesn't look at all like the last one did. None of the metrics that we saw go down last time have we seen evidence of yet. I don't know if you remember correctly or precisely, but last time we saw a slowdown in our Americas business about nine months or so before the collapse of Lehman.
If you want to date it by Lehman as being the official cataclysmic event, about nine to twelve months before that is where we saw a slowdown in our Americas business, and it seemed to go around the world and catch up. We also saw a number of things like subscription rates went down considerably. We also saw our run-rate business, particularly LT and AutoCAD, go down substantially and differentially than the other things. We've been looking for evidence in our numbers of things that look like the last downturn, and so far we haven't found those. I sit here today, we also have gotten to look at the first couple of weeks of our business in this quarter, and that famous graph that we like to show of the linearity of the quarter, it's perfectly on track for our expected plans for this quarter.
So far we haven't seen indications of it. I just want to get that out of the way because I'm sure there's going to be a lot of questions from people about what if and when and what are you seeing, but so far we can't find evidence of it. It doesn't mean that we're deaf and dumb and we're not listening to the news or looking at the reports and seeing what other people are saying. To move to the second part of the question, I would differ a little bit with you, and I'd say there was a real floor last time, and while our operating margins got cut in half, I think we did a remarkably good job. Despite having our revenue go down by high 20-something % decrease in revenue, the operating margins were always positive. They were always double digits, and it rebounded fairly quickly.
I think the question this time is, what is the actual situation? How does it differ? What's the most appropriate way to respond? I think the other question, for many companies, which is what I think someone was getting at before, is how should we respond to it this time? I worry too much about a lack of investment through what will be a five-year period if companies slow down too much and cut too far back on their initiatives. I think we've demonstrated our flexibility and agility in being able to respond, but I'm not committed to getting out of the gate ahead of it, especially since we haven't seen it yet.
Speaker 3
Thank you, Carl.
Speaker 1
The other thing I'd like to add just to all the points that Carl made is that in addition to his comment on linearity this quarter, one of the things you'll note in the prepared comments is that our linearity in the last quarter finished strong. That's not what you would typically look for in a, it's not the typical signal that we would be concerned about. I also called out the multi-year subscription as one of the first things that comes off the table when customers are starting to get nervous, and that actually increased substantially for us this year, or this quarter. Just a couple of extra comments.
Speaker 3
Thank you.
Speaker 5
Our next question comes from the line of Brendan Barnacle with Pacific Crest Securities. Please proceed.
Speaker 4
Thanks so much, guys. I wanted to follow up on the strength you were noting in the suites business and maybe see if we can quantify that a little bit more. I know there were promotions during the quarter to get people to upgrade on that. Did you see or can you quantify the type of maybe ASP lift you were seeing around suites and where that, and then we would quantify how much of that might have impacted what we saw in the outperformance on the license side?
Speaker 1
I would say it's, you know, my sense is that the suites ASP effect has really just barely begun to take effect and show relative to the way I think it will over time. We talked about, you know, for people that did an upgrade basically through some of the promotions, Brendan, that you're referencing, that was a minor ASP lift, but when they do the renewal, there'll be another lift. We're just beginning to see the front end of the ASP lift. It's too early to give a really good quantitative figure other than expect, you know, that that will show up more later.
Speaker 4
That leads into my follow-up, which is on, you know, we saw the great improvement in maintenance billings, and you listed out attach or renewal rates and a few other things there. Any way to quantify sort of the suite impact on that and whether, you know, how much of that we're starting to see? Is that the same situation as the licenses? Are we starting to see that sooner or later?
Speaker 1
I think it's going to, I think they wouldn't really break that out and call that a headliner per se. I would say that the drivers for the maintenance billings, which is the highest we've seen in a long, long time, as a function of commercial new licenses, as a function of cross-grades, as a function of multi-years, as a function of big deal renewals, as a function of increased attach and renewal rates in aggregate showing up across all the geographies and to a small degree FX. It was a really broad-based response to a nice customer offering that's getting the value proposition's getting better.
Speaker 4
Along that same line, we saw it looks like the best maintenance growth in about two and a half years. Should we expect that we see, given what we're seeing in the billings, it'd be right to assume that we would see continued sort of acceleration in that growth on the maintenance side?
Speaker 1
We don't guide in that aspect, but I think your notion that we're putting deferred revenue on the books that's going to show up over time, I think you want to model that out with all the algorithms that you guys naturally do. I think it's a good sign that these billings are being booked to your point.
Speaker 4
Great. Thanks a lot, guys.
Speaker 1
You bet.
Speaker 5
Our next question comes from the line of Steve Ashley with Robert W. Baird. Please proceed.
Speaker 3
I would just like to drill down on some of the promotions and just the general point product to suite migration activity. Can you talk about the success or were you having success getting people moving from point products onto suites, and specifically from 2D point products onto suites?
Speaker 0
Yeah, I mean, the two things though that I noted in my comments, Steve, were we were very successful in moving people from point products to suites, as well as moving people from some of the older suites, because remember we introduced that big bunch of suites this year and towards the end of last year.
Speaker 3
Yeah.
Speaker 0
We had some existing suites in the market. We were both successful in transitioning people from the older suites to new ones, as well as moving them from point products. You know, in some ways, if you just step back and think about it, the collection of products that are put together in a suite are really meant as a collection of tools that work well together. As we've always said, moving from 2D to 3D is just the first step. The real payoff for moving from 2D to 3D comes in that collection of tools that surround it that allow for analysis and simulation and visualization. You know, all those things that contribute to a better understanding of your design. The tools that we put together in a pack in a suite are exactly designed to do that.
You know, and when you look more closely at the suites, the sweet spot for the suites is the premium level, which is the middle tier. What we saw is really good performance of the middle tier as well as the top tier. As we pointed out even in the last call, the top tier continues to exceed our expectations.
Speaker 3
Could you offer a comment on Japan and how that performed in the period?
Speaker 1
Yeah, sure. In terms of Japan, you know, we normally don't call out all the real specifics of each of the countries, but Japan was actually, we were very pleased with it. You know, we know they've overcome an incredible natural disaster. We had strong growth in Japan.
Speaker 3
Great. Just real quickly, the multi-year subscriptions, I'm assuming those are billed for just one year at a time.
Speaker 1
Actually, the multi-year subscriptions are billed upfront.
Speaker 3
Thank you.
Speaker 1
It can be mixed, but largely they're billed upfront.
Speaker 3
Thank you.
Speaker 1
Yep.
Speaker 5
Our next question comes from the line of Blair Abernethy with Stephen Hooper. Please proceed.
Speaker 3
Thank you. Carl, I'm just wondering, maybe you can dig in a little more for us on some of the success you're having in the automotive and the aerospace verticals. What's changing there, and are you supplementing what engineers have in these sectors, or are you displacing, or what?
Speaker 0
I think two things have changed. By nature, both those industries for really good reasons are fairly conservative. They both faced a bunch of economic pressure and they're looking for better tools to get their jobs done. We've been in the market for a while, but it takes a while to convince people of our seriousness in the market, the capabilities of our tools. We've been slowly building credibility, which has really reached kind of the tipping point where we are on everybody's consideration list. In the early days of having our products, many times we didn't even really make the consideration list. Now we're always there and we're being seriously considered. The second thing that's going on is we've really broadened our portfolio, all the way from conceptual design tools all the way to factory design tools and everything in between.
Particularly as we've entered the market with more and more simulation and analysis tools, people understand that we're very serious about these markets, that in many cases we have much better technology and it's much more accessible. For all the reasons we win, we've done that. The other thing that really has helped is we've gone to market differently. Starting during the downturn, we made a significant investment in our major accounts. Many of these sales cycles involved in aerospace and automotive take quite a bunch of time, they require a bunch of consulting services, and we made those investments. While for probably the last three to five years, we've had products that were more than capable of displacing competitors, we didn't have the complete offering. We didn't have the right way to go to market.
As we've increased our footprint with major account salespeople as well as our consulting services, we now have what they need to actually choose us. In many cases we're displacing competitors. Most of these companies have already had stuff. In some cases, we're expanding the footprint within it to reach other users who may not have had the tools, but a lot of it is displacement of the legacy, the old, the old crufty, expensive stuff.
Speaker 3
Okay, that's great. Thank you. Mark, I wonder if you could just help us on your G&A. This quarter improved quite nicely sequentially. Is that sort of a level we're going to be running at now, or can you just explain that a bit?
Speaker 1
Some of the, what happened there, you can appreciate is when we go into the second quarter, some of the fringe goes down, is one thing. The other thing is that we are managing costs very, very tightly. As far as going forward, you know, I don't want to guide G&A per se, but we are trying to keep a tight lever on that while making the investments essential for supporting, you know, the infrastructure to grow the company.
Speaker 3
Okay, thank you.
Speaker 1
You bet.
Speaker 5
Our next question comes from the line of Sterling Auty with JP Morgan. Please proceed.
Speaker 4
Carl, you mentioned some of the things in the numbers that were the leading indicator as you went into the slowdown. What were the customers saying? What were the body language that kind of gave the leading indicator to the slowdown in their spending habits as you went into the last recession?
Speaker 0
Yeah, what we saw last time was a real reduction in their pipelines. Many of them are already working with smaller workloads than they did when they went into the last recession. Many companies have been much more resourceful in where they're finding work, how they're doing work, the size of their workforce. It's been one of the issues behind unemployment in a number of places. Last time what we started to see was delayed deals, smaller deals, non-renewals or smaller renewals. I think people were pretty freaked out. This time, I've been with a lot of customers over the last few weeks, and there's a little bit of sense of immunity or they just have the sense, look, we've seen this movie before. We don't think the world's coming to an end.
Many of them regret having not been more aggressive during the last downturn and being so reactive to the slowdown, but not in a long-term healthy way. Most of the customers I see right now, they're worried about getting new products out, but they don't have that same sense of fear that we saw last time.
Speaker 3
Okay, and then the follow-up on the suite side, can you give us a sense of the order of magnitude which of the suites is contributing the most now, and how should that evolve over, let's say, the next 12 months?
Speaker 0
Yeah, I think the big, you know, the biggest contributor and the biggest surprise to the upside has been in the Building Design Suite. Particularly because as we looked at the macroeconomic factors going on, this would not be a particular time you would have guessed that the Building Design Suite would be leading the charge given all the economic factors out there. That's pretty much surprised us the most, but the Product Design Suite's done well. Some of the other, and both of those are building off previously existing suites. The numbers on the other suites, like the Factory Design Suite, Plant Design Suite, you know, the Basic Design Suite, those all are coming off much smaller bases and are moving from point products. While the growth has exceeded our expectations, those numbers are relatively small.
Speaker 3
All right, great. Thank you.
Speaker 5
Our next question comes from the line of Walter Pritchett with Citi. Please proceed.
Speaker 4
Hi, just a couple of questions here, mostly financial in nature. I guess first just trying to understand on this, we noted the change in the FX methodology that was in the press release. Can you just clarify relative to the guidance you gave last quarter? Did you change it since that guidance, and what impact it had relative to the guidance range you gave last quarter? Also, any impact that that FX change methodology had on the 13% growth guidance for the year versus prior 12%?
Speaker 1
First of all, Walter, happy to address that. Keep in mind the change in the FX was actually quite straightforward. The U.S. dollar, no effect, no change. We've given guidance in the U.S. dollar. The only thing that we did for this particular improvement is we just simply took out the gains and losses and hedged. What that allows you to do is just have a better insight on what's happening in the local currency in terms of revenue. That's the upshot of this. It's really quite straightforward from that standpoint. In terms of the impact, we even modeled the old methodology and you can see it in the fact sheet.
Speaker 3
Yeah, got it. I saw the 10% versus the 14%.
Speaker 1
Yeah, it's really, this is like really immaterial. The only thing that we find that's interesting is when you go to try to understand, for example, how Europe's doing, you can take a look at the constant currency rate and not have to worry about our four-quarter layered hedge gains and losses, and you have a better understanding of what's happening on the ground. Yet when you look at the FX impact, you can actually see the full effect, including the gains and losses.
Speaker 4
Got it. Great. That makes sense. Carl, just on share gain comments, I guess, you know, when we talk to other players in this space, I mean, everybody sort of claims that, you know, they're gaining share and defending their turf or expanding it into new turf. I think it mostly is around manufacturing. I think in the AEC space, you know, that's not so much contended. I'm just curious, is it market industry estimates or is it your own work, or is it anecdotal that convinces you you're gaining share in manufacturing? Maybe a little bit more detail on that would be helpful.
Speaker 0
I always find this slightly amusing that a mathematical fact is the subject of so much argument by anecdote. It seems much better to go back to the math. I think there are only two ways to look at market share. One is you can look at the number of seats and the other is to look at the amount of revenue. I think if you do the math by those measures on any apples-to-apples comparison, that's where my comments come from. I always find it amusing when somebody says, you know, their CAD business is growing by 3%, but we're gaining share. I just don't know how that's mathematically possible.
Speaker 4
Got it. Mark, I just had one quick one on the maintenance billings, and you mentioned long-term was driving it. I'm just trying to get a sense of if you're doing anything different there to try to incent that type of behavior, if that's just truly the customer feeling better about things and going to a longer distance.
Speaker 1
Yeah, it's actually, Walter, the customer feeling better. We're seeing that in the channel. We're seeing that where there's no unique incentive that's different than what's been there in the past. We offer a very small incentive. If they want to go multi-year, that's been consistent. What they're doing is their behavior is just different. I think we like that trend and we like what we see there.
Speaker 4
Great, thanks a lot.
Speaker 5
Our next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
Speaker 4
Excellent. Thank you, guys. Nice quarter in what appears to be a difficult environment. I was wondering, just from a high-level perspective, obviously you guys aren't seeing any impact in your business from the macro, but investors are. We've seen a significant pullback in your stock price. Looking at that versus $1.6 billion of cash on your balance sheet, any thoughts about getting more aggressive there or perhaps using that cash to more aggressively buy back shares considering the big pullback that we've seen?
Speaker 0
Generally speaking, our program is around offsetting dilution. Certainly, when you see such a dramatic pullback, it's more than crossed our minds. At this point we have no commitments to doing it, but we certainly have thought about it a lot. We generally don't try to time the market around that, but it's just, you know, it's staring us in the face. We've given a lot of consideration to it.
Speaker 4
Got it. On your hiring plan for the year, have there been any changes given you made the remark earlier that you're not blind to what you're seeing in the financial markets and all the uncertainty out there? Has there been any impact on your hiring plans throughout the back half of the year or the expense ramp, or is it just business as usual for Autodesk going forward into the back half?
Speaker 0
No, I think we've definitely kind of put up the yellow flag. I don't want to put up the red flag because I think that's hugely disruptive to the business. I think if we were to go through another period like that, if it was unwarranted, it unnecessarily is a jerky response to it. We have been observant of it. What I would say is most of our investment has been moved closer to revenue-generating activities. The things that we want to preserve are the introduction of new products and services and continued investment in our go-to-market activities, major accounts, our investment in the channel, marketing programs, and promotions around suites and web-based services. Where we would continue to invest until it seems unhealthy would be closer to the go-to-market activities.
Where we've pulled back from or are proceeding much more cautiously is those things with much longer payback, some of the R&D initiatives and things like that. In many cases, we're just doing the work of figuring out which area, how to categorize these things, how to think about it. We'll see, but we want to continue to invest in those go-to-market activities to make it through. One of the things that we saw is we have a number of directions we're headed in as a result of the adjustments we made during the last downturn. Our investment in major accounts and consulting is a good one. Our relationships with a number of large system integrators, we'd like to continue that going through it.
I'd hate to pull back on that and come out of this a year from now and not have those in place when they've been so successful. I think in some ways they speak to what's kind of buoyed our results in certainly a rocky economic time.
Speaker 4
Got it. If I could sneak one last one in, just wondering about spending with governments in general, both sort of U.S. federal government as well as perhaps most particularly in Europe. In Europe, we're seeing a lot of austerity measures. In the U.S., we're seeing crazy budget ceiling bites. Any impact on your business from all this turmoil going on in terms of at least what it appears like from the outside from governments?
Speaker 0
Yeah, what we've seen is an uneven release of the money. I think there's two things that go on. One is the policy decisions about how to spend the money, which are the ones that get the big headlines. In fact, what we've seen to be slightly more important is kind of the back end of the process where the money actually gets released. As our elected officials in Washington kind of gummed up the works, money got held back. We saw some of that happen early in the quarter. There is no doubt that government officials around the world have the ability to balance up government spending and it could have an impact. It's somewhat tied to how they release funds a little bit more so than how they plan on spending the money.
Speaker 4
The funds might be there, just getting it, getting the sort of procurement more difficult.
Speaker 0
Yeah, the difference is the key. The difference might be something like, if you look at something like infrastructure spending, it's many, many years before the money is first committed to the time that a project is built. That could be five to ten years. What's less important is whether or not they agree to move forward with a big infrastructure project as compared to whether they're releasing funds for ones they've already committed to.
Speaker 4
Got it. Thank you very much, guys.
Speaker 0
Yeah, I think one other thing I would just think about, I think we look a lot at government spending in places like the U.S. and Western Europe. The other thing to remember is the other governments of the world, particularly the emerging economies and what the governments are doing there. There's significant spend in places like China, India, Brazil, Russia. They all performed really well and there's a lot of government spending there. It seems to be on a very different track than what's going on in the U.S. and Western Europe.
Speaker 5
Our next question comes from the line of Dan Cummins with RBC Capital Markets. Please proceed.
Speaker 3
Thank you. A couple of questions. First, I wanted to note, Carl, if you could talk about your direct business, I guess maybe comparing the results versus expectations this quarter and the prior quarter. I guess I'm perhaps I've never asked before how much of that extends into emerging markets. Curious also about Revit adoption by the global georegions. Finally, on DOT opportunities and infrastructure, do you expect to see approximately the same amount of vendor review opportunity along the lines of I think what you had in California going forward, even as some of the state finances are hobbled perhaps? Thanks.
Speaker 0
Yeah, let me see if I got this right. There's a Revit adoption question about DOT and vendor review. The first part of your question?
Speaker 3
Yeah, your direct business, kind of how's that been trending over the last couple of quarters, and the mood of the big customers? I guess to ask it over the last six to eight weeks, if you sense anything different about their ability to build firewalls around, you know, Wall Street and bank nonsense.
Speaker 0
Yeah, you know, what I'd say is our direct business has done really well. It's exceeded our expectations. It's partially a function of the customer's behavior, but it's also a function of the fact that we've been adding capacity to our direct sales force. As they ramp up over time, you have greater capacity. It's a combination of the two of those things. It's been interesting conversations. I don't want to sound crass about it, but in many of the meetings I've had with major accounts, there's almost a gallows humor about the financial markets. I think everyone sees it. Everybody hopes it doesn't affect it, but I don't think any of us is naive enough to believe that if it continues, that it won't affect our businesses.
I think many of us are behaving in response to the things that we can see and feel every day and running our businesses according to those plans and observations. Many of our major accounts are moving forward. If it wasn't for the downturn in the financial markets, I'd be sitting here telling you about hiring we're seeing in the construction business, increase in projects that people were gearing up for. Now, like I said, on one hand, I'm seeing that. On the other hand, I've been around long enough to know that if the banks go into another really bad period and credit tightens up, you're not going to see financing of those projects. Right now it's a little bit schizophrenic and it's hard to balance out those two things. What we saw is our direct business is growing. It's doing really well.
In many cases, it's enabling us to reach customers that we weren't able to reach before. Like I talked about in aerospace and automotive, what the direct sales people really allow us to do is take what I believe to be equal or better products to what already exists in the market and add the other components to it about how a customer really wants to buy and get service from us. I'm feeling really good. Whether it's aerospace or automotive or what you see at the DOTs, that's a result of our direct business. Revit adoption has really been strong. Revit is closely tied in the market to this concept of BIM or Building Information Modeling. BIM has been on a roll. It's been getting, it's way past the tipping point. It's doing incredibly well.
People are thinking about BIM not only in terms of buildings, but in terms of civil infrastructure. It's been doing really, really well. It's been doing well across the world. In lots of countries, it's doing really, really well. We're seeing it strong in the United States. We're seeing it strong in EMEA, particularly Australia and New Zealand. The thing that I find most exciting about it is that early on in the rollout of Revit, there was a lot of adoption by the architectural community. As we proceeded further, there's a huge take-up in what's going on with engineering firms, as well as what's going on in construction with the large general contractors. That's obviously a much bigger portion of this global $4.2 trillion industry. What I'm excited about is the use of BIM all across the value chain.
If you just look at the numbers from our point of view, Revit revenue was at an all-time high. On the DOTs, DOTs have a calendar for their vendor review. I think they will continue to proceed along that, a little less sensitive to the economic cycle. We feel good about the Departments of Transportation. We've won in the United States and announced. We feel really good about the pipeline of opportunities, both in the United States, North America, and around the world. We're doing really well there. When you look at it right now with government revenues down, the DOTs are feeling real pressure to improve their process and to be more responsive and to get better projects built and brought to market much sooner. That's what our tools do.
We have something valuable to say and to add to the process of how DOTs go about doing their work, as well as the whole supply chain, the whole value chain that supports them. It's all about getting things built better and getting them built more quickly.
Speaker 3
Great, thank you very much.
Speaker 0
Oh, you're welcome, Dan.
Speaker 5
Our next question comes from the line of Steve Klein with Longbow Research. Please proceed.
Speaker 4
Hi, guys. How are you doing?
Speaker 0
Good. Good.
Speaker 4
Just a couple of questions here. One is more of a narrow question first. The growth, seeing the license and other line, looks like it was led by upgrade and cross-grade. It was really good. The comparison looks pretty easy relative to last year. Could you maybe break that down a little bit for us or give us some color on what drove the growth there in the upgrade and cross-grade?
Speaker 1
One of the things that drove that is the fact that as we were introducing the suites, we gave people opportunities that had point products to actually upgrade to a suite. That's one of the factors that was involved there.
Speaker 4
Okay, we've got the major factor. What do you say, Mark?
Speaker 1
I'd say probably just one of the major factors.
Speaker 0
Yeah, it's probably the most significant was, you know, cross-grades hadn't been as big a part of it over the last few quarters. This was a good upgrade cross-grade opportunity for many of the customers.
Speaker 1
I think the simplified upgrade continues to have a favorable effect on this now today.
Speaker 4
Okay, great. One other, maybe a little broader question here is, I've been tracking your revenue growth both in manufacturing and AEC versus employment levels. You consistently have demonstrated an ability to grow significantly faster than staffing levels, for instance, in architecture, engineering services, or manufacturing, even when employment's relatively flat. You certainly have been very levered to change the employment, especially in the last downturn. I'm wondering, is that kind of leverage to the employment level the kind of relationship we should continue to expect, or do you think things like BIM and the growth of your direct business and the suites, how do they affect that relationship?
Speaker 0
Yeah, you know, I think it's really, look, the overall macroeconomic environment clearly affects our business. We saw during the last downturn, you know, when spending turns off, it certainly affects our business. I don't think there's a great causal relationship between the number of people out there, you know, the number of people employed. As a matter of fact, what we see during slowing economic times or low growth times like now is this need for huge process improvement and efficiency. I think during these times, that's where we make it up, is that people need to find ways to get the same amount of work done with smaller workforces. They're looking for tools that drive efficiency. I think the correlation's not there. I would also say there are places in the world, you know, that we sometimes tend to forget about that have big shortages in skilled labor.
I recently heard that in Brazil, they have 102 few architects and engineers for the projects that they want to build. Almost 2 million people, there's a deficit of 2 million skilled construction laborers. There are parts of the world in which there is a need for more employment, even if in the U.S. and, you know, the EU, you see other things. We found over time difficult to correlate some of the simple numbers to our actual performance. We certainly know we're not immune to overall macroeconomic stuff.
Speaker 4
Okay, great. Thanks for the commentary.
Speaker 0
Sure.
Speaker 5
Our next question comes from the line of Philip Winslow with Credit Suisse. Please proceed.
Speaker 4
Hello, this is Dan Simpson for Full Info. Could you guys comment about what you're seeing in the manufacturing vertical across regions? Some of the ISM and PMI indicators are rolling over, and we're just curious what the feedback from customers has been. Thank you.
Speaker 0
Yeah, sure. I mean, manufacturing was really strong for us. It demonstrated strong growth. It was our biggest manufacturing quarter ever. We're really pleased with what we saw. When you try to break it down geographically, I would say relative strength across the world, the U.S. was strong, Central Europe was strong, Northern Europe was strong, parts of Asia were strong. It seems like the PMI moves much more quickly than the manufacturers do. I think if you saw a continued downward trend, it would become more worrisome. Right now, what we saw is a fair amount of strength. Like I said, it was our strongest quarter ever in manufacturing. When you look at the subtext of it, lots of nice factors inside those numbers.
When we looked at individual products and suites and product adoption, renewal rates around subscription, a lot of the stuff underlying that number was really positive as well.
Speaker 5
Today's final question comes from a line of Matt Hedberg with RBC Capital Markets. Please proceed.
Speaker 4
Hey guys, thanks for squeezing me in. I guess, Carl, broadly speaking, within sort of, you know, large swaths here, enterprise, SMB, and professional markets, where did you see the most upside versus your internal expectations? We've kind of talked about this in a couple of different slices, but I guess I'm wondering that slice.
Speaker 0
Yeah, I mean, this time, nothing stuck out particularly. I think we continue to be pleased by how well we're doing in the enterprise accounts. I would also say that I was really pleased by the resiliency of what we saw in the small and medium as well as the small thing. Like I said, that was one of the places where we looked to because of what we had seen last time going into the downturn. We found that a much more difficult environment to control than the ones in which you have direct relationships with your customers. We were very mindful of what was going on with our channel partners, as well as what was going on with volume channels and people buying in really small numbers. The run-rate business continued to be strong. I would say those numbers were resilient.
Our suites business was primarily driven by our channel partners. I've talked about this before that while suites is applicable across the broad range of our customers, the most appropriate place for it is through the small and medium customers that buy through our channel partners. The smaller customers may not be willing to invest in such a big portfolio of products. Our enterprise customers have other flexible licensing options to get the same functionality. It was really pretty solid across the various channels.
Speaker 4
Great, thanks a lot. Congratulations on the quarter.
Speaker 0
Thanks very much.
Speaker 1
Thanks.
Speaker 5
That does conclude our question and answer session for today. I would like to give it back to Dave Generali for closing remarks.
Speaker 3
Thanks, operator. That concludes our call today. Just as a note, we will be at the Citi Conference in New York City on September 8th. We'll also be hosting our AEC webinar on September 14th. Stay tuned for more details on that. Otherwise, if you have any further questions, you can reach me at 415-507-6033. Thanks.
Speaker 5
Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect and have a great day.
