Autodesk (ADSK) Q3 2012 - Transcript of “Earnings Call”

Although AutoDesk’s business is not limited to the AEC Industry, AutoDesk certainly derives a significant portion of its revenues from firms and agencies involved in the AEC business and industry, and, for that very reason, I follow AutoDesk’s financial results, since “how AutoDesk does” has, in the past, been a good leading indicator for “how the reprographics industry will do.”

AutoDesk released its Q3 2012 results the other day – strong results - and I just finished perusing my way through the Transcript of the “earnings call”, which is published at www.seekingalpha.com. (Date: November 15, 2011 at 5:00 p.m.) Below, I’m going to carve out and re-publish just some of what was said during the earnings call. I urge reprographers to read the entire transcript rather than just the stuff I’ve placed below. See way below for the Internet address of the full earnings call transcript. For those of you who are too lazy to read the entire transcript, I’ve placed, below, some of what was said during the earnings call:

Carl Bass (AutoDesk’s CEO)

Our strong revenue growth was driven by double-digit growth across all of our major geographies, with particular strength in Asia Pacific. All of our business segments performed well, driven by revenue from Suites. When combined with continued cost controls

When combined with continued cost controls, we achieved solid growth in our non-GAAP operating margin, EPS and cash flow from operations. There were several areas of notable growth and achievement during the quarter, including 15% growth in total revenue, 36% growth in total Suites revenue; 28% growth in revenue from Asia Pacific, 21% growth in our PSEB segment, double-digit growth in both our AEC and manufacturing segments, 18% growth in maintenance billings, 360 basis point improvement in non-GAAP operating margin, 38% growth in non-GAAP EPS and 20% growth in cash flow from operations.

This is only the second full quarter that our new design suites have been in the market, and they're off to a terrific start. Our customers realize the significant value delivered in the suites, which is winning us new customers and motivating existing customers to migrate from point products and older suites to our new suites. Over the course of the next few years, we expect Suites to become the majority of our revenue mix.

Two weeks from today, at our Autodesk University event, we'll be unveiling our offering for entering the PLM market. As I said previously, we'll be addressing the significant market opportunity with a very unique approach which will enable manufacturers as well as AEC and M&E companies to achieve the full promise of PLM for the first time.

Our cloud-based approach will be easy-to-use, implement and deploy. It will be scalable, configurable and intuitive, which is a sharp contrast to the decades-old legacy technology in the market now. We think that customers are starving for this new kind of solution, and Autodesk succeeds in introducing this kind of disruptive technology.

Speaking of cloud technology, we recently launched Autodesk Cloud, a collection of more than a dozen web-based capabilities. These services will enable customers to extend their desktops with greater mobility, while offering new viewing and sharing capabilities, and will provide more computing power, helping our users to better design, visualize and simulate their ideas.

We also felt it would be helpful to share with you our initial thoughts about FY '13. We are modeling revenue growth of at least 10% and non-GAAP operating margin improvement of approximately 200 basis points year-over-year. Our recent performance, coupled with our revenue outlook for FY '13, reinforces our confidence in achieving our long-term target of growing revenue by 12% to 14% compounded annually and getting to 30% operating margins by the end of FY '15.

From the Question-and-Answer Session …..

Brent Thill - UBS Investment Bank, Research Division

Mark, if you could just talk about the guidance for next year, starting at 10%. Maybe if you could just start with your visibility. And for Carl, just on Europe, if you could give us just your view of what's happening. You had decent growth, but obviously Asia-Pacific was outpacing it by quite a bit. So if you could compare and contrast that, that would be helpful.

Mark J. Hawkins (AutoDesk’s CFO)

Sure, Brent, glad to do so. Our 10% -- at least 10%, and as we look at FY '13, it's based on a kind of a normal process. It is 5 quarters out, but we look very comprehensively with our sales team, with our channel partners. We have a lot of, obviously, data that we get that we factor into a rigorous plan. We feel like this is a solid projection. We feel confident in the guidance. And it's kind of our normal process that we look at. And historically, in Q3, we typically give our fiscal year projection for the following year.

Carl Bass (AutoDesk’s CEO)

And Brent, we'll update it as we get closer to the beginning of the fiscal year. On Europe, I think -- I don't think our experience is very different than what other companies are seeing and reporting, that I think it's mixed across Europe. Certainly, Southern Europe is fairly weak. Northern and Central Europe is fairly strong, and I think there's a lot of uncertainty about what's going to go on in the Eurozone and in Brussels. Asia Pacific was really strong. It has continued to outpace both the Americas and Europe for a long time, and I expect it to continue to do so.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. Just a couple of quick follow-ups. Earlier this year in Q1, you pointed to some weakness in your infrastructure business, and that may have been due just to some product timing. But could you comment on how that's doing now? And then finally, also earlier this year, you made some changes in terms of your channel segmentation, with some airline-like platinum status and so forth. Could you talk about how those changes in your channel structure or certifications may have had any discernible incremental benefits thus far this year?

Carl Bass

Yes. So let me just go -- let me just broaden your infrastructure question to the general AEC question. Two quarters ago, people were questioning a lot about the health of the AEC business and trying to extrapolate from there one thing or another. I tried to point out at the time something that remains true, has always been true, is that if you really want to understand how we serve architecture, engineering and construction, you have to look at the combination of what we report as AEC and PSEB. That one was particularly low in AEC 2 quarters ago. The other point I've made repeatedly is I try not to read too much into any one quarter's number in one particular area. And my logic around that is we have a capacity constraint system with various incentives. And under that, you see behavior that goes on within a quarter. That's not very controllable. Over time, when it becomes a trend, then you should take note of it, and we certainly do and try to do something about it. So overall, I'd say our AEC business is doing well. You can see it in the AEC number alone, as well as the fraction of the PSEB business. Along with that, infrastructure is doing well. There were some timing issues also that we brought up in 2 quarters ago. Had a lot to do with the introduction of suites, the introduction of the Infrastructure Suite in particular. Those are all things that came out later in the year in the U.S., as well as in other geographies and languages.

Dennis Simson - Crédit Suisse AG, Research Division

This is Dennis Simson for Phil. When you think about the FY '13 revenue guidance, which segments out of federal, construction, manufacturing do you think will grow above or below that 10% average?

Carl Bass

I think if you want -- generally, we don't give any segment-by-segment forecasting. I think if you want to look back at historical trends and try to guess from there, Manufacturing has been the fastest and steadiest grower. I would expect that to continue. I see nothing to disrupt that trend. The big unknown, particularly as we start getting further out, is what happens in the worldwide economy around construction. We're having really great pickup in the construction part of AEC. Business has certainly stabilized, and in parts of the world, it's improving. So a little bit depends on something that my crystal ball is not that clear about, certainly towards the end of next year, what happens with the global AEC market.

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You can access the full Transcript of the earnings call at this Internet address:

http://seekingalpha.com/article/308199-autodesk-s-ceo-discusses-q3-2012-results-earnings-call-transcript