Autodesk grew 4% in FQ2, accelerating to the cloud

First things first, everybody: Breathe. Now do it again. Yes, Autodesk’s FQ2 results weren’t full of awesome goodness, but they weren’t horrible. Like PTC’s “pothole” earlier this year, yesterday’s announcement serves as a wakeup call. In Autodesk’s case, we learned again that business is mostly about being consistent. Changing the go-to-market plan from regional to vertical and introducing a new reseller incentive program and moving people around in a reorg is going to have unintended consequences. CEO Carl Bass learned this the hard way, saying that “while the reorganization changes are important for the future, some degree of confusion and slower decision-making resulted, which affected the organization overall and our revenue results in particular.” The economy didn’t help, as Mr. Bass implied that global unevenness made it hard to identify and diagnose problems as the quarter progressed. Autodesk’s revenue for FQ2 was $569 million, up 4% over last year but about $24 million below expectations. Still, as @ScottMoyse pointed out on Twitter last night, Autodesk’s revenue increased more than the GDP of most countries. So even though Wall Street is disappointed, things could be a lot worse. The details of Q2:

• Revenue for the quarter was $569 million, up 4% from a year ago and down 4% from last quarter.
• By type of revenue: License and other revenue was $341 million, up 2%.
• Revenue from new commercial licenses grew 8%, faster than overall license revenue but half of the Q1 growth.
• Maintenance revenue was $228 million, up 7% year/year.

• By generic group of product: Revenue from Flagship products was up 3% to $318 million, driven by sales of AutoCAD and LT which, combined, were up 12%. Revenue from Suites was up 5% to $166 million, led by sales of AEC suites — Manufacturing suites declined “slightly”. The catchall “New and Adjacent products” category reported revenue of $85 million, up 5%, again driven by growth in simulation products and Autodesk consulting services.

• By business unit: Platform Solutions and Emerging Business (PSEB) revenue was $218 million, up 10%. The AEC business segment reported revenue of $161 million, up 2%, driven by adoption of suites and strength in the Americas. The Manufacturing business segment revenue was $141 million, up 4%. Manufacturing suite sales declined 2%.
• Mr. Bass again highlighted the new PLM 360 offering on the earnings call, saying that “PLM 360 had a nice start in its first full quarter of availability. We signed a number of PLM deals with companies ranging from small business to well-known large enterprises.” He also said that PLM 360 is “opening doors in competitive accounts — not necessarily new accounts but where Autodesk is not the preferred supplier”.

• Revenue from the Media and Entertainment (M&E) business segment was down 10% from last year, to $49 million.

• By geography, revenue from EMEA was $210 million, down 1% as reported but up 1% in constant currencies. Mr. Bass said performance in EMEA was uneven, with Northern Europe “solid”, and Southern and Central Europe “weak”. Revenue from the Americas was $199 million, up 4%, on strength in the US. Revenue from Asia Pacific hit another record at $161 million, up 12% as reported (up 10% in a constant currencies) driven by strength in Japan and China. India was characterized as “weak”.
• Revenue from “emerging” countries was $88 million, flat with FQ@ 2012 but up 7% sequentially. Results from Russia and China continue to be strong, offsetting by weaker results in Brazil and India.

• Mr. Bass also gave a bit of color on channel performance, which he doesn’t usually do. He told investors that the direct sales channel had “good growth” in FQ2, buoyed by large deals in the U.S.  The indirect channel, however, saw “much lower” growth.

The second quarter results have led Autodesk to restructure to bring down costs, including a layoff of about 520 people. While there is a near-term reduction in staff, Mr. Bass plans to use the “headroom” this creates to hire as many as 250 people this year who can help the company accelerate its shift to cloud and mobile computing platforms. Mr. Bass didn’t offer much in the way of details, other than to say that “step one is to combine our cloud-based offerings to existing products, generally in-suites by subscription” and, over time, to de-emphasize the desktop element of its offerings. The Q2 results also caused Autodesk to lower its outlook for the rest of fiscal 2013. At the start of FQ2, Autodesk guided to revenue growth of about 10% for the year. Yesterday, the company revised its forecast to growth of 4% to 6% with FQ3 targeted at $550 million to $570 million. Mr. Bass said that these targets are reachable, as “people are settling into their new roles and we have identified and addressed a number of areas for improvements to help us regain our momentum.” In fact, he said that August is so far “on track” — a positive trend given that he characterized July as “an unmitigated disaster”. Mr. Bass also briefly touched on what, to me, is the most important issue Autodesk faces now. He told investors that in one region where Autodesk’s results were poor, “a bunch of our resellers [said] they had a good quarter. Their mix of services and software was decidedly different. And so they’re walking away saying, “I had a good quarter.” It was a bad quarter for us.” That shift, which connects the reseller more tightly to its customers via services offerings and lets the reseller grow its business with less dependence to Autodesk’s products, presents a big risk for Autodesk. Too, as Autodesk moves more into cloud offerings, its partners worry about how they will be compensated for sales they initiate but that the buyer conducts online. For the first time, Autodesk and its VARs don’t have exactly aligned goals. Autodesk will figure out its vertical vs geographic go-to-market and reorg issues; this is just its “pothole”. Longer-term, the Mr. Bass will have to work out how Autodesk and its channel partners fit into a cloud- and services-oriented world.