Good afternoon. My name is Aliyah, and I will be your conference operator today. I would like to welcome everyone to the Autodesk Third Quarter Fiscal 20 13 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you.
I would like to now turn the call over to our host, the Director of Investor Relations, Dave Gennarelli.
Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our Q3 fiscal 2013. Joining me today is 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/investors. As noted in our press release, we 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 will not be repeated 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 Q4 and full year 2013, long term financial model guidance, the factors we use to estimate our guidance, new product and suite releases and expected growth rates expected cost savings from our restructuring and other cost management efforts hiring plans business execution certain future strategic transactions business prospects and financial results our market opportunities and strategies, including our transition to cloud and mobile computing, trends and 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 filed from time to time with the SEC, specifically our Form 10 ks for fiscal year 2012, our Forms 10 Q for the periods ended April 30 July 31, 2012, and our current reports on Form 8 ks, including the 8 ks 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 the GAAP and non GAAP results is provided in today's press release, prepared remarks and on our Investor Relations section of our website. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year on year comparison. And now, I'd like to turn the call over to Carl.
Thanks, Dave, and good afternoon, everyone. Our overall revenue results were disappointing. Revenue was lower than expected and stemmed from a weakening demand environment. The positive news is that our ongoing cost control helped us exceed our EPS goal. It was clear to us that our 2nd quarter's revenue performance was mostly due to our own execution challenges.
With the uneven global economy as a secondary factor. It was almost the inverse during the 3rd quarter, with a weakening economy taking the lead. Our sales execution improved relative to the organizational realignment we implemented earlier this year. There's still some work to do in this area, but we've made a lot of progress with the new organizational structure. When looking at our revenue results for the quarter, recall that we had a onetime $10,000,000 license compliance transaction in Japan in the Q3 last year.
So normalizing for that, Asia Pacific would have been up slightly and we would also be showing better results in our PSEB and flagship categories. Superstorm Sandy hitting the Northeast U. S. In the final days of our quarter also had a negative impact on our 3rd quarter revenue results. While we experienced pockets of relative strength in the U.
S, Northern Europe and Russia, most of the markets around the world slowed during the quarter, most notably in emerging markets. We remain pleased with the overall progress and adoption of suites. Customers are seeing the value in the rich array of design features and improved workflow. And we continue to benefit from higher subscription attach and overall revenue per user. Our AEC suites performed particularly well this quarter with strong growth in our building design suite, infrastructure design suite and plant design suite.
Looking longer term, I'm extremely pleased with our customers' early adoption of our cloud technologies. Autodesk is the leader in cloud based design and engineering software and our customers are tapping into the power of the cloud to do things they couldn't do previously. Autodesk customers have used our cloud platform Autodesk 360 to perform nearly 1,000,000 visualization jobs over the last year, which amounted to more than 3,500,000 hours of rendering. In addition, in October, AutoCAD WS, which is a mobile version of our flagship software, surpassed 10,000,000 downloads. Our BIM 360 cloud platform has seen strong adoption since it launched in June with more than 21,000 users leveraging BIM 360 services.
We're adding more new users of BIM 360 field every day and our customers are very excited about this offering. Autodesk Simulation 360, which debuted in September, is a powerful cloud based simulation solution and has been recognized by industry analysts as changing the simulation market. Customers are responding positively to the productivity gains and cost savings offered by Simulation 360. In its 1st month, the Autodesk Simulation 360 trial registered more than 10,000 simulation jobs. We're especially pleased with the 1st couple of quarters of Autodesk PLM 360, the industry's 1st cloud based PLM solution.
Autodesk is transforming the PLM industry with an affordable, easy to use and simple to deploy PLM solution that makes the benefits of PLM available to anyone, anytime, anywhere. Autodesk PLM 360 is now being used by more than 3 50 companies. Our acquisition strategy is also centered on adding cloud and mobile technologies to our portfolio. During the quarter, we closed 6 transactions for a cumulative investment of $135,000,000 These transactions include context, We continue to repurchase stock under our ongoing buyback program with the goal of reducing our total shares outstanding over time. We had strong cash flow from operations for the quarter.
Our cash and marketable securities balance was approximately $1,700,000,000 Like many tech companies, the vast majority of this cash is offshore. Over the past few years, it's been typical for 80% or more of our cash balance to be offshore in any given quarter. Given the amount of cash used on M and A transactions closing this quarter, coupled with the cash used for our stock buyback program, we elected to utilize our existing line of credit, tapping $110,000,000 Looking forward, we believe that the long term potential of our market opportunity remains intact. We are focused on growth and demand generation, but today's mixed economic environment keeps us cautious on our near term outlook and makes it difficult to provide long term revenue projections at this time. It's clear by our actions that we remain committed to operating margin expansion.
Despite a lower revenue outlook, we believe we can still achieve year over year operating margin expansion of between 80 and 140 basis points for fiscal 2013. We'll come back to you on our Nexstar earnings call in February with our projection for FY 2014. We're also reassessing our long term financial model, but believe we can achieve a 30 plus percent run rate as we exit fiscal 2015. Operator, let's open the call up for questions.
Your first question will come from the line of Brent Thill.
Maybe if you just can compare and contrast the last downturn to what you're seeing now. You mentioned most markets are starting to slow. Maybe if you could just talk to some of the differences that you're seeing? And if you could just also comment on what you're seeing in terms of the renewals that would be helpful? Thank you.
Yes, sure, Brent. I'd characterize this very differently than 2,008. My characterization would be that not nearly as deep, not seeing kind of the level of despair almost or kind of hopelessness that we saw during 2,008 and the complete freezing of pocketbooks. Instead, it looks like people are being far more cautious, deals are getting delayed, but they're not getting canceled. And I would say it's broader.
So I don't think it's nearly as deep, but broader. I think for the first time, what we started to see is, while our results in the Americas were reasonably good or relatively good to the other places, it's no secret about businesses consternation about the fiscal cliff. You saw the news obviously about Europe this morning and we've certainly seen slowing in Europe. With Southern Europe certainly being the worst. And as you move north, the economic conditions improving.
And there is some spillover into Asia and some of the emerging economies. So I think it's broader, but not as deep as what we saw in 2,008.
And just on the renewals, any meaningful change?
No. Actually, just kind of building on Karl's points, the renewals and attach actually were either even or up basically in terms of year on year comparison. They look solid and that's one of the things I think that really reinforces Karl's point that we're just more caution around business and deals and such. But actually once people decide to buy, it's a good attribute that they see a lot of value in our subscription and we like that.
All right. Thank you.
Your next question comes from the line of Jay Vleeschhouwer.
Carl, you alluded in the end of your prepared remarks to reconsidering your long term financial model. By that, did you mean what you talked about at the analyst meeting in June about an evolution to a mostly per user subscription model and usage subscription model and usage metering or usage based model? And if that's what you meant, why not accelerate that process, particularly given current market conditions and the change of your portfolio? And then a follow-up.
Yes. So Jay, what I was really talking about there, I mean, you can follow-up, you can ask about the other thing. But the thing I was really talking about is kind of our long term guidance that we had given for kind of 12% to 14% growth and 30 plus percent operating margin. I think it's clear to us. I don't think the arithmetic works given at least one downturn and one maybe minor downturn in 5 years to achieve that.
I think what we've demonstrated is during kind of normal economic periods, we can certainly grow in the teens. What we've what I think we've demonstrated better over the last two quarters than during 2,008 is a degree of resiliency around our earnings power. And I think we managed to do that. So what we have to really recalibrate, I think if you look now for the period in which we gave the 12% to 14% growth, we'd have to grow at 30% or 40% next year to kind of get there. So it's something that's not reasonable.
So what we were asking, give us some time, we're going to recalibrate, we'll watch as the Q4 proceeds. And I think the thing is we'll give you growth rates for the year. We'll give you growth rates for next year. But despite that, we still think we can maintain our projections around operating margin.
Okay. You said as well that you're getting past some of the sales execution issues from the reorg that you had experienced in the 2nd quarter that got better in the 3rd. Could you talk about other longer term implications of the industry alignment that you've now put in place? For instance, what it means ultimately, not just for sales coverage, but for things like the suites, packaging of products, overall coverage of the marketplace as you build out this industry alignment. And just a clarification for Mark, in the prepared remarks, you talked about increasing revenues per user, I think, in the context of maintenance.
So did you mean by that that you're reversing the declining revenues per maintenance seat that you had in the first half?
Okay. So let me go first and then Mark. Okay. So on the just on the industry alignment, what I think industry alignment is really helping us with is our go to market activities. Where I think it really helps particularly well is in tailoring messages that make sense and resonate with our customers.
It's also very good on kind of 2 parts of our business. 1 is certainly the major accounts and you've seen increasingly large deals not only this year but over the last couple of years and greater penetration into really large accounts. If you recall back to the many times we've shown our curvaceous pyramid where less than 1% of our customers generate about 30% of our revenue. We're continuing to do that. So it works really well for the major accounts than that business that we do directly as well as the ones where we work with our partners on specific named accounts.
That's where it really has the strongest resonance. As you get into our more horizontal products, it's less effective. So we feel really good about that alignment in terms of tailoring the messaging and the think we'll continue to course correct. I think we'll continue to course correct. I think we found in some places where we made some mistakes or we went a step too far.
And we're figuring those things out and rejiggering it. And we saw that already with improved performance in some places. In other places, some things take longer than a quarter to
get better.
And Jay, just to the second point, in terms of maintenance, proceed basically, one of the things that we're actually pleased to see, we saw it and talked about it at the IR Day and we continue to see that and validate that is that for suites, the actual subscription quotient per seat is actually going up. And so we actually like that trend in macro there. So I think one of the things that we have to be careful of when you look at the seats is excluding education from commercial, which can kind of throw these things a little bit. The other point that I would draw for consideration is that Q3 marks we just did eclipse the anniversary for suites. We're in the I guess the second quarter of anniversary in the suites and you're starting to see this longer term effect of people renewing suites at a slightly higher revenue quotient for the subscription.
So we actually like that trend.
And your next question comes from Brandon Barnacle.
Focusing on 2 areas of strength, but the AEC strength and the Suite strength seems surprising given the overall macro. What specifically you think was accounting for that outlier?
I'm chuckling, Grendan. In some ways, I'm more prepared to talk about the things that went badly than the things that went well. I mean, truthfully, that surprised us a little bit too. If I have to look at the AEC, there has been some improvement in the AEC markets from kind of the depths of the recession. We also talked about things like BIM are reaching the tipping point.
And with the place we're doing particularly well with our AEC products is in the engineering part, the E part and in the C part in construction. And I'd emphasize the construction part. And I think what we saw is that contractors realize that in order to be competitive coming out of the downturn, they need to adopt these new technology platforms. Some of the stuff we're doing, particularly on cloud and mobile, is probably the best suited technology for that part of the AC market than we've had in 30 years. For the first time, we have solutions that people can take to the field and get their work done.
And that makes a huge difference. And so I think it's really the retooling of the construction industry that as long as they're willing to invest they recognize this is a this is just a critical thing.
Yes. I totally agree, Karl. And I think the one of the things we just they resound in response to the building design suites. Nice really nice I think we said 26% growth there was great to see. And it just echoes the kind of comments you're making.
People see the volume. Yes.
I mean we're tracking it across the world. And there are places where it has become the standard. Governments across the world are mandating it. If governments are not mandating it, owners and operators are. So we're at that point in the market where it takes many years to kind of build that demand.
But I feel like we're on the backside of having to build the demand. And we're kind of we're just kind of reaping the benefits of all that effort.
And then Mark on the negative interest income in the quarter, was that related to the line of credit that you mentioned that you used for the stock buyback in the quarter?
Actually, the Brendan, this is a good question. There's the other expense, other income is a combination of dynamics. The biggest thing that really affected us there was foreign exchange. The gains and losses for the part of the hedging that is not cash flow hedging shows up there. And that's what it was as FX fluctuation.
And should we expect that going forward?
I would actually because it's really hard to kind of predict the currency markets. I mean, you'd have to make a call on that, but I think it's tough to expect that one, I would say. It's tough to project that one, let's put it that way.
Okay.
Okay, Brendan. You're welcome.
Your next question comes from Philip Winslow.
Hi, guys. Thanks for the time. Just got a question here on margins. Obviously, you had better than your expected margins this quarter. But in the guidance, you talked about sort of almost a comment of like regardless of the revenue growth over the next couple of years here through 2015, you're still committing to a 30% plus margin exiting fiscal 2015.
How should we think about that getting there? I mean, how much of your business, because I often think of it as somewhat fixed versus variable. So is that wrong versus what I expect? And then also is there just some excess spending that you think that's take does that mean we could actually get above 30%?
Yes. So let me I'll take a shot and then Mark feel free to add any color commentary. What I would say is that the way to think about our business is that there is a strong component of fixed costs. That when you look particularly on the R and D and go to market, at least the marketing side of go to market, those are relatively fixed. Once we get above that, when we get marginally above it, it becomes marginally profitable.
If we kind of hit it out of the park, it gets very profitable. So I don't think it's fair to think of it as purely fixed or purely variable. Once you get past that initial development and bringing products to market and as we even talked about, in areas where we're really successful like BIM, it takes years to become that successful. When we first mentioned those three letters, nobody even knew how to spell it. They had no idea what we were talking about when we talked about BIM.
And now you see it being written into government contracts around the world. So there's a fair degree of investment. When you cross that, you start gaining the rewards from it. Then there's a second component to our business where many of the costs are variable. So some of the fluctuations you see quarter to quarter are more related things like compensation.
So sales compensation varies with it. COGS varies. COGS didn't vary that much this quarter, but it was actually the result of 3 or 4 different effects being mushed together in a way that showed no net movement. But there's actually quite a bunch of movement there. So there are variable aspects to our business that are volume related, but there is a large fixed component.
And then the other part we talked about just to try to give you the whole dynamics around the business is that in any short period of time, our biggest expenses are people related. So our ability to change that in the short term is very limited. But over any period of time, we can adjust to that. I think on your question about 30%, we're comfortable and we're comfortable with the guidance we've given for a number of years. And we're comfortable with it going forward and that's why we really reiterated it.
Yes. I just I think it's spot on. I think we're there's not a lot to add to that, Karl. I think that gives us the full picture really. Great.
Thanks, guys.
And your next question comes from the line of Steve Ashley.
Great. Carl, you alluded to the
fact that execution got a little bit better. I wonder if you could specifically speak to Central Europe and Brazil, which were 2 markets that were challenged in the Q2.
Yes. So I would say we saw a much we saw a reasonable improvement in Central Europe. Central Europe is one of our biggest markets. I was really pleased to see that. Brazil started to turn around.
I think that's one of the areas we still have work to do. Some of the things we saw, we have a number of big deals that pushed out of the quarter in Brazil. I just heard today that one closed yesterday and other one is being worked. So I mean we're making our way through that. But I would say Central Europe is really back on track.
I think there's more work to do in the Americas outside the United States.
And then I'd just like to ask about the share buyback. You spent, I think it was $130,000,000 you put $110,000,000 of line of credit on your balance sheet. What is your just appetite and willingness to continue to add debt to your balance sheet to more aggressively be buying your stock in the future?
So, Steve, I think we're constantly looking at our capital structure and we're constantly trying to look at the overall opportunity with share buyback obviously and trying to do the right thing for the shareholder long term. So I think it's a given that we're going to take whatever actions we think are in the best interest of the shareholder. You're absolutely factually correct in that we have raised the level of share buyback as we said we would do. At the IR Day, we're starting to take shares out as you can see, for the last couple of quarters since we said we would. And I think I'm not going to extrapolate or forecast exactly how we're going to shape the capital structure, but I think there's a reason to believe that we're constantly looking at it and we've never ruled out the notion taking on debt for example.
Yes. I mean I would just reiterate it. I mean we were very clear that we said we would do share buybacks that exceeded dilution. We specifically did it. We've been doing that since we announced it to you.
And I would reiterate, we have been considering our capital structure and we certainly have been contemplating things like that to continue being able to maintain that level of buyback that would continue to offset the dilution from employee stock programs. Absolutely.
Thank you.
The other part of it really to remember and we try to address a little bit in the room certainly in my remarks is if you look at our cash positions and how geographically kind of off balance they are, It's one of the things that also drives us. So not only the need to do buybacks, our need for cash for acquisitions, but also just rejiggering geographically to get money in the places where we actually need it. All of those are conspiring for us to be spending a lot of time looking at capital structure options. Exactly.
Your next question comes from Steve Koenig.
Hi, gentlemen. Thanks for taking my questions. I want to see, Carlos, can you comment at all on the potential impact of promotional activity in Q4? And in particular, any thoughts on your upgrade pricing going forward and the potential for increasing that and that potentially having a positive impact on promotional activity?
Yes. I mean, we have definitely I mean, first of all, we're not happy with Q2 or Q3 results. So you can imagine we've spent a lot of time trying to figure out what to do. We are willing and able to do more promotional activity in Q4 as long as it's consistent with the long term health of the business. And we've looked at it.
There are certainly things that we're going to do. There are things that we've already announced, programs we've put in place in the channel. We're taking a more centralized hand in running promotions probably than we had before. It used to be a little bit more left to the various geographical areas, the sales regions to do it. And we've been much more centralized in our control over that.
But it is certainly one of the knobs and dials that we can turn.
And Carl, how would you mitigate any impact on pulling forward revenue from capping your base in a bigger way than you've maybe tapped it in the past?
Yes. So I mean when that's what I said. I mean everything we do around promotional activity is contemplated in the context of a longer term. So if you look historically, we haven't run stupid promotions. We give promotions.
We adjust to competitive activity around the world. We react to pricing changes due to currency fluctuations. We also sometimes can stimulate demand by upcoming pricing changes or we can include more things in a particular offering. So we try to do things that are really consistent with the long term health and the direction we want our customers to move as opposed to taking turns. And as I said before, our business is primarily a channel business.
It requires a coordination of us with thousands of partners. And in order to do that, we need a steady hand on the rudder. It's not a business where we it's not let's make a deal. And we get up one morning and do something kind of radical. It requires kind of a steady hand and consistent communication about what we're trying to do in order for these things even to be effective.
Okay, great. And then one more question if I can for really either Karl or Mark. I'm wondering if you can talk a little bit more than during the prepared remarks about linearity in the quarter. Your comments on DSO sounded like
you may have seen a bit of an
uptick in October. Can you tell us more about that?
Sure. Yes. I think one of the things that we saw in the linearity for the quarter is it got more difficult as time went on. And so it was one of more of a gradual stiffening of the headwinds, if you will. And so that's one of the dynamics that was signaling to us that something broader was happening.
And so that would be one of the things, Steve, that I would say. And then in terms of DSO, I was actually pleased to see the sequential improvement in the DSO and you could see us bringing it into the in the 40s range, 49 ish. And so from that standpoint, I think we've made improvement. There's still more improvement to make. Obviously, in the cash conversion cycle, we try to run it tight.
But as you could see with this quarter, the cash flow from operations was solid. So I think that's those are the two dynamics that were going on, Steve. Got it. Okay. Yes.
Thanks for getting me straightened out on that. Thanks, Ken.
You bet.
And your next question comes from Keith Weiss.
Excellent. Thank you guys for taking the question. I wanted to ask Mark a question about expenses. 2nd quarter in a row you did a remarkably good job of sustaining margins with revenues coming in below your expectations. I was wondering if you could help us figure out really 2 things.
1, place the reduction in expenses that we saw this quarter in context to the restructuring that you talked about last quarter. And 2, give us a sense of how much dry powder do you have left there? Is there still more expenses that you can take out to the same degree if macro gets worse per se?
Well, Keith, a couple of things here. One is that I really credit our whole company. I think people really instill a really sensible way to spend money. I think people our whole Autodesk team has done a good job and I think you're seeing that in the numbers today. And people really get it.
They spend it like it's their own money. It's one of the things I love about our culture. In terms of the restructuring, you're absolutely right. We created some room, if you will, to invest and really critical things like cloud, social and mobile. And I think what's interesting is as Carl opened up today, you saw with context on the social, we did some mobile video, we did in Forbix.
We're doing things that actually we're investing in just like we said we would. And at the same time, we're trying to scale everywhere we can. And so I think what's your just to give you context, A, I think people have a good sense of spend management B, we're investing where we said we would C, we still have had some headroom and we obviously manage on the fly to be responsible. We're very committed as Carl said to the margin. We've been we've come up from the trough.
Just to be clear, this quarter is over 1300 basis points up from the trough in the the cycle. Hopefully, that's evidenced over multi years that we're serious about this and we've made progress. In terms of the dry powder, I hope I never tell you a day where there's not room for improvement. We certainly expect that from ourselves. We're always looking for ways to scale.
And at the same time, Keith, we know how important it is to invest in our long term future, so we make those balances. So those would be my comments. I think there's room for the long term. Karl, I don't know if you'd add something there.
Yes. I mean, first of all, I would second what Mark said. I mean, this was a team effort. Everybody understood the need to do it. Pleased about is we were able to control spending without any without really impacting anything for the future.
People were able to continue to invest and move their initiatives forward regardless of where they worked in the company. And I think that is a testament to really everybody at Autodesk. The second thing I'd say, well, it's not necessarily a muscle I was looking to develop. We have developed a pretty good muscle at looking for the opportunities on Spend Management. And we have done a really good job at finding things.
And going forward, I'd say, I think there's plenty of opportunity. There's Mark has championed an effort within the company for doing that and there are things in place for next year. And to Mark's point, I think many of the things that we're doing to improve our expense management is going to be done regardless of what the revenue environment is. So regardless of the demand, we have a number of things there. And will either take them or drop them to the bottom line or invest as appropriate.
But we feel there's a lot of areas of opportunity to continue to improve how we spend our money.
Got it. And just to clarify, I think last quarter we were talking about reducing heads by about 500 and potentially hiring back 250. To what degree was that executed on this quarter? Did we go down 500 and hire back some or all that 2
50? Well, we don't give out headcount by quarter, we do it annually. But let me directionally address that, Keith. We did go down by a little more than 500. You got that accurately corrected.
And we have done some hiring that tipped up the number up from that decrease of 500. So we're somewhere in the middle there. I don't want to get more precise than that because we're not trying to establish quarterly headcount reporting. But the reality is we're pretty much executing what we said we would execute.
Yes. And the other thing is just to put a finer point on it. I mean one of the things that companies do I think during periods in which they're being super vigilant about their expense management is there are things that you move inside and outside the company. You go to outside providers and you use less of it or more of it. So there are a number of those things.
So while headcount is a good indication, there are also a lot of other things that you really need to get a complete picture. And so in some ways the best thing to do is just to look at the overall number, because there are a fair number of moving pieces that underlie those results.
Excellent. Thank you very much guys.
You bet.
And your next question comes from Walter Pritchard.
Thanks. Mark, I think two questions for you here. First on the I think you said 30% or a goal of 30%, believe you can get to 30% margins by fiscal 2015, which is more than 200 basis points a year and it's more aggressive than you committed to when you had higher revenue growth, which I would assume with higher revenue growth make it easier to do the margins. I'm just wondering how we should think about the path to get to that kind of margin expansion in what seems here to be kind of a new normal that probably has a lower growth rate than you were thinking about when you came out of the last downturn?
Sure. A couple of things, Walter. One of the things we tried to be really explicit on is that we you're absolutely right. The revenue growth is mitigating the ability to go even faster with our revenue or our operating margin expansion as you would expect. And at same time, what we said is that we're reiterating 30% as the exit rate.
So in Q4 of 2015, that's what we're driving to as is called out. So that is a little different than saying for the entire FY 2015 that we're at 30% plus and we try to be very explicit on that. And so that takes a little bit gives us a little bit of additional runway in the face of a little bit of stiffening in the environment in terms of revenue growth opportunity. So that's the first point I think is really important to clarify, Walter. I think the second thing is, as Carl was calling out and I'm touching on, we have a number of initiatives to just drive and scale the company that are just good things.
And I really like what Carl said, we'll do those if whatever reason the economy got on fire hot, we still want to do these things to help ourselves fully create the fuel that we can for the company's long term well-being. So, I'm not going to articulate all the different pathway there, which you can imagine we've been thinking about it and you can see the real progress we've made. So, we're not going to say it's not hard work, Walter. We're not going to say that there could be challenges and such, but we try to be clear that we're not wavering from the intention to keep driving this thing up. Karl, any
No, I agree.
And then, great. And then, Mark, I think just another for you. On the upgrade revenue stream, there's been some talk of promotions and so forth there. And you've typically had a quite a strong even though upgrade is becoming a smaller part of your business and it's declining pretty meaningfully year over year. I'm wondering if we should expect that the upgrade in crossgrade stream within Q4 here shows a typical sequential increase that we've been accustomed to seeing with that business.
Well, I think the tricky thing about that one, Walter, is that we don't kind of pre signal like our promotional plans. And you're hitting a really good question, which is cross grade upgrades are a function of promotional plans. So that one, I wouldn't want to guide to specifically. I'm sure you can appreciate why we wouldn't want to do that right now. But I would say here's what I would tell you is that we certainly wouldn't take appropriate promotional plans off the table for driving the well-being of the business.
So Karl, I don't know any other comments.
I agree.
Okay. Great. Thanks a lot.
Your next question will come from the line of Sterling Auty.
Thanks. Carl, I wondered if you could give us a little bit more detail about you said you saw some improvement in Central Europe. I think there were some questions over the structure of the product design suite in this iteration. How did resellers react this quarter? And what else helped drive that improvement?
Yes. So your recall is perfect, Sterling. We spent a bunch of time working with reseller with our partners in Central Europe just cooperating on account management and interacting with customers. We've done a number of things to work on the offerings, particularly around product design suite for both Q4 and what's coming next year. And like I said at the time, our partners realize that they can do well in the short term by just driving subscription and services.
But over any medium period of time, new license growth is actually as important to them as it is to us. And so I think they felt like they weren't being heard about the changes. And remember there was an odd thing here in which we essentially lowered the prices and our partners were upset because they wanted the prices higher. It's a little bit of an inverse of what you usually expect and they were upset with us for giving away more value for less money. We had a number of reasons to do this.
We put our heads together. We've come up with a plan and we've started working on it. I think they feel better about the future and they understand what the plan is. And so better communication and we actually took a bunch of input from them and we rejiggered our plans.
And at what point do you think would you be able to communicate some more details around the plan? And how does that affect the other geographies?
It's a global plan. We've been working on the standardization of the global plan. Like Mark said, it's particularly ineffective for us to talk about promotions and packaging ahead of when we otherwise want to release it. I mean, I can assure you right now that we've done a bunch of work on it and worked with them on it. And I've met with several of our Central European partners over the last few weeks and they feel good about it.
In 2 weeks, I'll see a lot more of the partners at Autodesk University in Las Vegas. But I think we're on track there. And as it comes out, we'll talk about it and I'd be happy to explain what we did looking retrospectively. It don't make plenty of sense. Not trying to obscure it, but it really undercuts the work of our partners out there every day if we preannounce things like promotions and packaging.
Understood. Maybe one last question. When you did the restructuring, you had the reduction in headcount. How should we think about when you said you would hire back, how does acquisition headcount fill that need? Meaning, would you hire back some portion of that 500 just direct?
Or are you including heads that come into acquisition as part of that net asset?
We even include the heads that come from acquisition. We think when people join Autodesk, it really doesn't matter if they're joined through acquisition or we hire them off the street.
Okay. Thank you.
Operator, next question.
Operator?
I think we lost our operator.
Well, operator?
Mr. McMillan, your line is open.
Stop Ross, stop typing. I'm creating some problems in the system. You are. Exactly.
Thanks a lot for taking my questions. So maybe the first one just I'm just going back to this question on rehiring. Obviously, you've hired back some of the planned rehiring post the restructuring you did. I'm just curious as to whether now that you're sort of resetting the revenue run rate again, whether that's actually leading you to a different conclusion on your hiring plans that you had 90 days ago? In other words, is the current plan to hire back less than you were going to?
And I had one follow-up.
Yes. It's definitely less. I mean, it would be disingenuous to say otherwise. I mean, I think there are 2 things that add into it. We did a reduction in force, plus there's a natural attrition.
What I would say is what we've done so far is we've probably filled the jobs that were made available by attrition and we've added some through M and A, but we've clearly slowed down our overall hiring plan. And we will continue to kind of titrate as we watch revenue in the coming quarters.
And I was curious, obviously, your fiscal Q4 is normally the quarter where you have a seasonally strong direct business. Have you recalibrated your thoughts around the direct business just given the environment?
Yeah. You know what, we have certainly thought about it a lot. We've spent a lot over the last 2 weeks probing on this. Despite the overall weak results, our major account business did particularly well. It was particularly strong.
Forecast continue to be strong. The pipeline is strong. I think we've probably applied some management judgment to more conservatively guide and to build ourselves a buffer should the economy worsen. But I just wanted to leave you with 2 things. Yes, we think there will be a strong Q4 in our named account business and the fact that even during Q3, our named account business did particularly well.
Great. And then maybe one very last one, slightly different topic. But obviously, if we look at maintenance billings, those were down. But we're comping, I think, the challenge of the multiyear promotion, if you will, last year or the incentive, if you will, to sign early, Is it possible to adjust for that and give us a sense for what the true kind of like for like maintenance billings growth was?
Well, so you know what we were able to do and I'll let Mark jump in. I mean one of the things we were able to tell you is that attaching renewal rates were even to slightly higher. So that was the good thing. It was less than we expected, but in line with usual seasonality. Q3 is odd, mainly because of when we started this program.
There was a seasonality to when we introduced the program. I think it would actually be better to I'll let Mark answer, but it will certainly be better when we finish the Q4, probably to look at the year in total and certainly the last three quarters. And one of them will have a better handle on exactly what went on. But the individual rates did go up.
Yes, I agree. The attach and the renewals went up and that was a good sign for us, especially as we look at the nature of the economy and such. I think Carl is right, the preponderance of our maintenance opportunity in terms of new maintenance opportunities comes in the Q4, I think it would be interesting for you to look at that and have a complete triangulation on that versus the prior year. That will give you a better feel. I think it's a great way to do it.
Okay, great. Thank you.
You're welcome.
Your next question comes from Heather Bellini.
Thank you so much. I had a couple of questions. One, I was just wondering if you could give us some sense of how much Sandy impacted your business in the quarter given that your business has always been fairly linear? And then I also going back to 2 things that you mentioned before, the named account business you said did well in the Q3. So can you give us a sense of where you saw weakness be more pronounced?
And then I had 2 more follow ups if that's okay.
Sure. Sure, Heather. Yes, so the first thing is Sandy is a little bit hard. I mean, we can directly attribute a few $1,000,000 We can look and say $2,000,000 or $3,000,000 There's a direct deal that didn't close before the quarter that would have. There are a number of deals in which the paperwork was not completed and we couldn't recognize the revenue.
So we'd probably get to $3,000,000 there. I'd probably add a couple more $1,000,000 in business that just doesn't happen. As you know tragically both our customers and our partners were greatly affected by it. I wouldn't want to make too much I wouldn't make too big a deal about the weather. That would be a whole new area of exploration for us in our business.
But it was particularly poorly timed for our quarter.
Yes. No, definitely. And then the named account business, so if that was strong, where was the weakness more pronounced? Weakness was much more pronounced than
the channel business. The named account business, I mean what we saw and this is what's led us to believe I mean let me step back a second Heather. I think if you look more broadly, I mean, we certainly looked at the results of our competitors. We looked at the financial results of peer companies as well as we looked at the kinds of companies that are typically our customers and many of them reported weaker results and most of them are on a calendar schedule that's a month ahead of us. So the first thing we saw was that.
Our major accounting business did relatively well, But what concerned us a little bit for the first time we probably had more big deals leaking over into another quarter in which we couldn't close and that's independent of the storm. There were just more big deals that didn't get closed in the quarter and when we dug down into them a lot, we can't identify ones that have gone away, but we've certainly ones where management of the companies of our customers. And we in which they've said, let's reevaluate, let's look at the ROI on this, has to go through another round of approval. So we saw some slowdown there. So we're really happy with our performance relative to that, but we did see some slowing.
When you look at the places slowed down, it's the indirect business. And particularly, we called out several geographies. And most importantly, it was the emerging countries, places like Southern Europe and parts of the Americas outside the U. S. Okay.
And then just two follow ups. Can you comment on kind of federal and local spending that you saw given you have an October quarter end and then obviously federal spends on the September cycle? And then kind of how are you feeling about that for next year?
So
I've got a follow-up to that.
Sure, Heather. So just this is Mark. Just to give you a sense, you know that our government business is not a big business per se. Yes. At the same time, we were pleased we set a record for the quarter.
It was up. We saw real growth. It was good to see. I mean, the team works it well. It's not a big part of our business at all, but it absolutely grew.
Yes.
One of the things just to know about our government business, well, and I'm really pleased with the results of the government per se, most of our business in civil infrastructure is related to the private sector that's tied to government spending. And so it's a little bit more interesting to look at the broader results around it. Oftentimes, even when a Department of Transportation decides to make a purchase, it ends up being spent in the private sector. So we tend to look at it by industry, but our government results per se were good.
Okay. And then the last question I have is it goes back to a lot of the other questions were around the 30% margin goal for fiscal 2015. And I just want to make sure I'm thinking about it the right way. Given your uncertainty about revenue growth and given the fact that in the past you were forecasting higher top line growth levels, is what you're trying to say that is regardless of the top line environment, we'll make this a 30% margin company even if we have to cut to get there regardless of the top line? Yes.
I think well, pretty
But are you solving for margins? Because hard to know margins if you don't know revenue unless you tell me that come hell or high water you're going to get to that margin number regardless of what the revenue number is.
I think if you look over certainly the last couple of years and specifically the last two quarters, we demonstrated in an environment in which revenue was far below our expectations that we were still able to drive margins. And while I won't go so far as to say we're trying to do we're solving for margins, because I think that might indicate too short term a view of what we think the opportunity in our business is. We think there's plenty of opportunity to invest and to drop more to the bottom line and maintain that commitment about margins.
Okay. So when we think about the progression of margins, it's not like I think Walter asked the question before that basically to get there you'd have to be doing more than the type of margin bump you've been seeing the last few years. It doesn't necessarily have to be a linear progression meaning 2 50 bps etcetera per year that it could be more of a hockey stick. Is that fair?
I mean, I think it will be a little bit more steady than that. We won't be looking out to hoping some magic happens at the end of FY twenty fifteen. I don't think that's a realistic way to run the business. But we do think there is opportunity to expand margins along the way even in a lower growth environment. Having said that, our goal is to drive to higher revenue growth.
We're doing lots of things to do that and it would certainly make the job much easier to do that. But I think we've demonstrated even without that we're capable of expanding margins.
Okay, great. Thank you very much.
Welcome, Heather.
And your final question is a follow-up question from Brendan Barnickel.
Thanks so much guys. Just quickly following up, we did see subscription revenue grow sort of in a typical seasonal pattern. Any reason that that would change going into the Q4?
Well, Brendan, I think I agree with you that it was a typical pattern. I think you can I think we would confirm that? It's in that range. In terms of going forward with the projection of it, we don't guide that one per se. But I think you got the right read on where we're at today.
And just to be a little bit more specific, we don't see any reason that that wouldn't be true.
Perfect. Thanks for that clarity.
Okay.
There are no further questions. I'll now turn the conference call over to the host.
Thanks, operator. So lastly, we're going to be we have 2 things going on this quarter. On November 27, we have our Autodesk University event. I know many of you have already signed up for it. If you'd still like to, please e mail me or call me at 415-699-0143.
We'll also be at the Credit Suisse conference on the 28th of the following day. And that concludes our call. Thank you.
Thank you. This