Autodesk reports bumpy FQ3

As you probably know by now, Autodesk missed its fiscal third quarter targets, citing a weakening global economy as undoing any gains made by its improved execution over FQ2. There were pockets of good and not so good — a lot like a bumpy flight across the US.

Before we get to the details, Autodesk’s announcement highlights a couple of things that are going to stress engineering software vendors in the months to come:

  1. Macroeconomic concerns about the US fiscal cliff, Eurozone debt and the success or lack thereof of the holiday shopping season will cause buyers to be cautious. That, in turn, will lengthen sales cycles and perhaps cancel deals outright.
  2. A broad product offering helps but can’t make economic concerns go away. Autodesk had a decent quarter in some parts of the business, but was unable to save the quarter as a whole.
  3. Sales execution counts — in both direct and indirect channels.
  4. Managing the bottom line goes a long way towards making investors happy. Four of the four highlights Autodesk CFO Mark Hawkins used in his prepared remarks were about cost management and cash flow.

Autodesk entered FQ3 in some disarray, as its sales reorganization earlier in the year caused it to miss its FQ2 targets. According to CEO Carl Bass, those issues are close to being resolved but broader economic weakness led to a miss on revenue targets for FQ3. In all, not a pretty picture as sales in Europe declined and, surprisingly, revenue from Asia Pacific declined year/year for the first time in three years. In an interesting note, Autodesk says that Superstorm Sandy had a negative impact of $2 million to $3 million on results from North America — we’ll have to wait until January to see if other companies in our universe were similarly affected.

The details:

  • For the quarter ended October 31, 2012, Autodesk reported total revenue of $548 million, basically flat with a year ago and well below the midpoint of the company’s guidance of $560 million.
  • License revenue was $317 million, down 4% year over year (y/y).
  • Subscription (aka maintenance) revenue was $231 million, up 6% y/y.
  • Revenue from suites was up 10% y/y but flat sequentially at $166 million. Suites revenue was up sharply a year ago (36% on an admittedly small number), so the comparables are tough — but, given that this is a central component of Autodesk’s strategy, an 10% increase is good but a sequential flatness, not so much.
  • Revenue from AEC suites was up a stunning 26% y/y, even as revenue from the AEC segment overall was up only 7%. Revenue from Manufacturing suites were up 4% y/y while the overall unit reported a revenue decline of 1%.
  • Revenue from the AEC business was $163 million, up 7% y/y, and up 1% sequentially. This is a bit of a surprise, as the other BIM players (Nemetshek and Trimble’s Tekla) appear to see softening — but that may be due to their larger European exposure. Autodesk cited continued BIM adoption and greater awareness of the applicability of design data and processes in construction (that 4D/5D thing I’ve written about before).
  • Revenue from the Manufacturing business was $132 million, down 1% y/y and down 7% sequentially.
  • Revenue from the Platform business was $205 million, down 2% y/y even as revenue from AutoCAD and AutoCAD LT was up 6% to $180 million.
  • Revenue from the Flagship products was $298 million, down 4% y/y, while revenue from “New and Adjacent” products was down 3% y/y to $84 million. It’s hard to know what to make of these factoids, especially when Autodesk says the Flagship category comparisons are affected by a $10 million one-time license transaction last year and that both categories are negatively affected by the migration of customers to suites and away from standalone products like AutoCAD Mechanical. On the one hand, Autodesk is right to diversify its offerings and use its market power to bring new technologies to its legion of customers — that should make New and Adjacent do better than Flagship, as more people are exposed to these new solutions. On the other, maybe its sales programs aren’t yet to the point where it can actually execute on the offer for standalone new products and the higher-priced suites. I wonder if Autodesk’s sales bobble in H1 will have longer-term consequences?
  • By geo, revenue from the Americas was $209 million, up 4% y/y and up 5% sequentially.
  • Revenue from EMEA was down 3% y/y as reported (but up 3% y/y in constant currencies) to $196 million. The company reports that Northern Europe did well, but that this “was more than offset by weakness in southern Europe”.
  • Revenue from Asia Pacific was down 3% y/y as reported and in constant currencies to $142 million. Autodesk reports “continued weakness in China and Japan”.
  • In general, the weakness that Autodesk had reported in FQ2 in Europe, Brazil and India continued and expanded to China. On the plus side, Mr. Bass said that he saw a “reasonable improvement” in Central Europe, and the start of a turnaround in Brazil, with one large deal that got pushed out of FQ3 already closing in FQ4.
  • Revenue from emerging economies was $80 million, down 9% as reported and down 5% in constant currency year/year. [Don't try to add "emerging economies" to Americas + Europe + AsiaPac -- these countries are also included in their regions.]
  • Autodesk doesn’t give specifics on channels, but Mr. Bass said that the direct business performed well even though some deals “leaked into another quarter” as economic concerns led customers to reevaluate purchases. The indirect business, especially in the emerging economies in Southern Europe and in the Americas (outside the US) “slowed down”.

Mr. Bass said that the current economic slowdown is unlike what he saw in 2008. He said that he’s not seeing the “despair and hopelessness” that he saw then and that it looks like people are being cautious but not cancelling deals. He characterizes it as “not nearly as deep – but it is broader”. As a result, the company is reassessing its growth targets and declined to give a long-term forecast. For the reset of fiscal 2013, the company now sees FQ4 revenue of between $570 million and $600 million, which means fiscal 2013 revenue of between $2,275 million and $2,305 million. For FQ4, that equates to growth of between -4% and +1%; for the year. +2% to +4%. We’re clearly slowing down.

Mr. Bass shared a couple of interesting factoids to highlight the success of his plan to take Autodesk to the cloud. BIM 360 has more than 21,000 users while Sim 360 did over 10,000 jobs in its first month and PLM 360 is in use at over 350 companies. Ignoring the fact that these are unrelated, unverifiable data points, let’s try to figure how many human beings could be using Autodesk’s cloud products. BIM 360? Easy — he told us. The SIM 360 entry product comes with 120 jobs/year — let’s call it 10 jobs/month/user. That’s at least 1,000 simulation users in the first month the product was available and likely more since people are unlikely to max out their available jobs so early. PLM 360 is targeted at the SMB market (for now), so let’s say that’s 5 to 10 users/installation or company — go low, since it’s so new. That means 350 companies x 5 users = 1,750 PLM 360 users (at least; I know there are some bigger installations out there already). In total, then, Autodesk has at least 25,000 users of its high-end cloud-based offerings. That’s an impressive total for something so new. [Mr. Bass also said that over 1 million visualization jobs have been rendered in Autodesk 360, but I don't know how to turn that into a number of users.]

I’ll be at Autodesk University next week and plan to chat about cloud offerings with a lot of Autodesk’s customers. Almost all of the ones I’ve already spoken with think the cloud has great potential — they like subscriptions, no hardware commitment, don’t worry about security since that becomes Autodesk’s problem. But when it comes to laying down cold, hard cash, how many will actually buy?

Follow my tweets (@monica_schnitge) for live updates from AU and look for a blog post later in the week about all I learn. A hint: tune in to Twitter or the online AU feed during the keynote on Tuesday morning, 8AM Las Vegas time. I believe it’s going to be very interesting.

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One Response to Autodesk reports bumpy FQ3

  1. Monica Schnitger says:

    I’m at Autodesk’s media day — SVP Industry Strategy & Marketing is throwing down a LOT more cloud stats. There are about 8K PLM 360 users, which means about 20 users/company. He’s also making clear that the cloud is an offer in addition to the traditional desktop and NOT a replacement. Look for lots of news this week.