Good afternoon. My name is Misty, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Fiscal Year 20 13 Earnings 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 session.
Thank you. Mr. Gaye Giannarelli, Director of Investor Relations, you may begin your conference.
Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss our Q1 of fiscal 2013. Joining me today are Carl Bass, our Chief Executive Officer and Mark Hawkins, 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 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 Q2 and full year fiscal 2013, long term financial model guidance, the factors we use to estimate our guidance, new and suite releases and expected growth rates, certain future strategic transactions, business prospects and financial results, our market opportunities and strategies and 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 we file from time to time with the SEC, specifically our Form 10 ks for the fiscal year 20 12 and our periodic Form 8 ks filings, including the Form 8 ks filed with today's press release and prepared remarks. These 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 and prepared remarks and is on our Investor Relations section of our website. We will quote a number of numeric and 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 Baez.
Thanks, Dave, and good afternoon, everyone. We were pleased with our Q1 results, which were solid, although somewhat uneven. We had strong revenue growth in Asia Pacific and the Americas, strong growth in our manufacturing and AEC business segments, and strong growth in revenue from suites. Offsetting these strong growth areas were mixed results in EMEA and emerging countries as well as the decline in our media and entertainment business segment. We also accomplished a couple of significant structural and organizational changes during the quarter we believe will better position the company for future growth.
There were several areas of highlights in our performance compared to the Q1 of last year. 34% growth in total suites revenue, 19% growth in revenue from commercial new licenses, 18% growth in manufacturing and 16% growth in AEC. Record revenue in Asia Pacific, record deferred revenue balance, a 2 10 basis point improvement in non GAAP operating margin and 18% growth in non GAAP EPS. Much like the past few quarters, our business in EMEA was varied within the region. As you might expect, we experienced weakness in most of Southern Europe and had better results in Central Europe including a record quarter in Germany.
Within EMEA, we had good performance in our manufacturing and AEC business segments, while PSEB and M and E did not do as well. PSEB had a tough compare to Q1 last year, when we ran a successful promotion on AutoCAD LT. The economic picture for EMEA is unpredictable, so there continues to be a degree of uncertainty. But overall, the sales environment in EMEA doesn't feel all that different than it has over the past few quarters. Another area where our results were uneven was our revenue growth in emerging economies.
By nature, these markets are much more volatile and much like EMEA, our results were varied by country. For example, compared to the Q1 of last year, we recorded strong growth in Russia and China, but had weak results in Brazil and India. While currency devaluation played a role in both Brazil and India, we are taking actions to expand our business and improve our performance in these countries. We continue to believe that BRIC countries and other emerging economies around the world hold tremendous growth potential for Autodesk and we are focused on improving our performance there. Our results for M and E were impacted by 2 items.
1 was an intentional
part of our strategy
and the other resulted from poor execution. First, as you know, our new design suites combine the functionality of many of the products necessary to optimize the design workflow. The value of providing all this functionality in a suite helps drive increased ASPs. Several of our animation products include 3ds Max are now available in our design suites. And as a result, many of our customers no longer need to purchase these version of those animation products to decline.
This is not unexpected. And as we've noted in the past, we anticipate and encourage our customers to migrate to our suites, which carry a higher ASP. The value of the suites is highly compelling to our customers and it's the right strategy and from creative finishing declined as we believe customers delay their purchase in anticipation of a new third party hardware platform that is expected to be released this quarter and our Smoke for the Mac product, which will be released in Q3. We achieved strong results in our manufacturing business segment with solid performance in each geography. During the quarter, we unveiled our new manufacturing suites, which offer a complete set of integrated and interoperable suites to simplify design, visualization and simulation workflows.
These suites also provide a broad range of cloud services to help manufacturers more efficiently design, engineer and manufacture better products faster and at reduced costs. At the heart of our manufacturing suites is Inventor, our model based 3 d design tool. Since we launched Inventor in 1999, it has become a significant contributor to our growth over the years and we recently reached a milestone of shipping our 1,000,000 seat. Our growing simulation business also performed well during the quarter. We're excited about the launch of the new Autodesk simulation family of products, which deliver a faster, more accurate and flexible approach predicting, optimizing and validating designs earlier in the design process.
Our new PLM offering went live in the quarter as well. Autodesk PLM 360 is our new cloud based solution designed to transform how customers manage their entire product lifecycle. Autodesk PLM 360 marks a new generation of PLM as affordable, easy to use and simple to deploy, bringing the benefits of PLM instantly to anyone within the extended enterprise. We've only been in market for 3 months, but we're thrilled with the current results. We're seeing everything from large enterprise companies who have legacy PLM systems to deploy pilot projects to SMB companies who never used PLM before deploy our new service.
This truly expands our market opportunity and we're looking forward to watching this business grow over time. Our AEC business segment performed well on a global basis. We refreshed our AEC suites, which had exceptional growth in Q1. We've added enhancements to our AC suites, expanded cloud services and improved collaboration and data management tools aimed at helping design, engineering and construction professionals address today's business challenges with enhanced BIM workflows. The cloud services I referenced are all part of Autodesk 360, a cloud computing platform that helps users dramatically improve the way project teams design, visualize, simulate and share work.
Autodesk 360 offers secure access to project data anytime, anywhere, taking advantage of virtually infinite Autodesk Design Suite customers with additional capabilities and greater capacity available to Design Suite customers who purchase an Autodesk subscription. Since the launch of Autodesk 360 Cloud Services last September, we've had approximately 8,000,000 unique users and among other things have utilized more than 3,000,000 hours of rendering move is 2 fold to improve customer experience and to help us control costs. We are seeing a positive impact on our costs as gross margins improved during the quarter. Additionally, at the end of the Q1, channel inventory weeks was at a record low of approximately 1 week. A decrease in channel inventory and shippable backlog was expected as a result of our transition to increased use of electronic software delivery.
In addition, we The changes are intended to better serve our customers and drive future growth. We also made some adjustments to our channel program for FY 2013 drawing on best practices from our various geographies. So to wrap things up, we got a lot accomplished in the Q1 and posted solid overall results. While the macroeconomic environment continues to keep us somewhat cautious, we remain confident with our FY 'thirteen goal of increasing revenue by at least 10% and increasing non GAAP operating margin by approximately 200 basis points. Operator, we'd now like to open up the call for questions.
Your first
very much for taking the question. I had a question about the business environment and linearity, I guess, particularly for EMEA, the emerging markets in the U. S. Did you notice any change on the part of your customers as you move through the quarter? For example, the budgets get tighter towards the end versus the beginning?
Or did you sense any increase in hesitancy on spend on their part?
No, Perry, we really didn't see any change in linearity during the quarter. Nothing different than usual and nothing despite the varied performance by country, nothing country by country in linearity.
Got you. And then I guess given where you stand today and sort of the conversations you're having with customers. How would you characterize customer demand and I guess the business outlook today versus say back in August of last year, when concerns around Europe were also in the headlines. Are there any noticeable similarities or differences?
If I had to say anything, I think in some ways I'd say it's better. People are more optimistic and I think partially it's that people have gotten a little bit immune in the business community less over the financial community to concerns over Greece, Spain, Portugal, whatever. So I think there's a sense in the business scarier. I think the business environment remains 1 in which people feel like they need to move their business forward. The only thing I'm seeing that is similar particularly in Europe, this is not true in we had a good quarter in the U.
S. And I think if anything the bias there is upwards. In Europe, we're seeing a tightening of credit. And I think it's all understand I mean that shouldn't be news to anybody. If you're reading the newspapers that the banks are experiencing some
amount of trauma.
Your next question comes from the line of Brent Thill with UBS.
Thanks, Carl. Just on Europe, you mentioned that it hasn't really felt any different, but it obviously caught up to you this quarter and you had a fairly easy comp on a year over year basis. I mean from your perspective, how long lasting do you think this If you have any visibility you could share with us, do you think this is a shorter term impact? Or are you a little more concerned about the longer term?
So Brent, one part I agree with you, it certainly caught up with us. The one that's different is I wouldn't say it was a particularly easy compare. We had run a promotion with LT and a number of other things at same time last year. So the compare wasn't we didn't feel it was particularly easy. To the substance of your question, I don't think I have anything really to add that's not already out there.
I'm not sure any of our business results give an indication of anything different than what everybody is talking about. I think if anything we just put a finer point on it and reinforce the strength in Northern and Central Europe and the weakness in
Southern Europe.
The thing that struck me particularly is that we did well in manufacturing and AEC and that Germany had a record quarter. And so I think you really just see the tale of 2 nations. And I think it's Northern and Southern Europe are just going in divergent directions.
Okay.
I guess on the bottom line, we were expecting a little bit more. I don't know if Mark can comment in terms of the expense structure. Were there any one time events at the beginning of the year that maybe you weren't anticipating that came in Q1?
Brent, first of all, I would say no. I mean, I think we are pleased to be able to deliver the plan that we put out there and executed accordingly. So I wouldn't say that there were any things in particular. We don't as you know, we don't guide at a spending level or at an operating margin level for the particular quarter. We focus more on the EPS level.
So I think the answer is there's nothing in particular that I would call out to be special.
Okay.
Your next question comes from the line of Jay Vleeschhouwer Griffin Securities.
Thanks. Returning to the subject of Europe cost, in
terms of
the disparity between Germany and non Germany, first of all, do you do anything differently operationally or on the cost side to respond to these different In addition, so on Europe, do you think that any of the structural changes in the channel over there in the last 6 to 9 months might have had any effect on the ground in terms of tech data or anybody else going through some of the changes over there. Could that have had any effect in addition to the macro effects?
Yes. So let me just take it backwards. I think the major thing we're seeing is macro effects. On the margin, I think there's many things that we do
in our sales execution and channel policies that
affect stuff. But I think As to what we do differently, As to what we do differently, certainly marginally, there are investments that for example, let me give you a concrete example. The PLM sales force that we continue to build out. We're having great success with our PLM sales. In the plan were headcount slated for Southern Europe.
It makes no sense in my mind to go there when there's so much business in the U. S, Germany. As you saw from the results, Japan and Korea did well. So you have other places that are really strong in manufacturing. And so why not go there instead of go to Southern Europe?
So I think when we have incremental decisions to make, the answers are kind of obvious. I think we're taking a more cautious attitude to EMEA as we look to the long term. I really don't know if I'm going to wake up tomorrow and read that the Eurozone is falling apart in Greek. Greek is out of it or whether a bank defaults. So what we're doing is taking a more cautious attitude.
We've moderated spend in EMEA and in very specific examples where it makes much less sense to hire new people in Southern Europe or where we have the opportunity to redeploy people from Southern Europe to Northern or Central Europe, we're taking advantage of all of those.
Okay. My follow-up has to do with maintenance. The year over year billings increase was a bit light. Although if you look at the last 6 months and take into account the upside in Q4, it was still up about 10%. So maybe you could just walk us through the billings performance for maintenance in Q1, what your thoughts are for the balance of the year?
And now that the new suites from last year are in fact a year old, are you beginning to see the renewals for the 2011 sweeps?
Yes. Let me answer a little bit and then I'll ask Mark to jump in. I mean one of the things that we have seen is from some of the channel practices and we did roll out a new channel partner framework is we did see some of the business move into Q4. There are incentives in place for our partners and our customers. So I think we saw some there.
And I think the view you were taking is a better one of blending it over a period of time to better analyze it as I often say rather than look at 1 quarter, it's better to look over time and we're really happy with where our maintenance billings are with that wider lens.
I completely agree. And Jay, I think you're completely on it. When you take a look at the both for the Q1 of 2013 and Q4 of 2012 and you look at the average maintenance billings of around 10% and you look at the exact same kind of reference point a year earlier, it's around 10 percent. We're pleased. It's exactly as Carl described.
It's just a normalization while we have implemented these big changes.
Your next question comes from the line of Brendan Barnickel with Pacific Crest Securities.
Thanks so much. Carr, you touched on it in your comments, but you saw reacceleration in both the AEC business and the manufacturing business on a year over year growth basis. And you mentioned suites. Were there any other factors that were driving that acceleration?
I think the big one is suites. I think that's what's really driving it. I think in each of the industries, manufacturing has held together relatively well. Our customers are continuing to invest. Suites, higher ASPs are all construction environment around the world.
And we're seeing the benefit of that. As I've said, as we walk through this transition from 2 BIM is inevitable now. People are doing it. As they see new projects come on, we're seeing increased mandates from governments around the world for building information modeling as a standard deliverable. So I think we have a lot of secular factors in each of the industries.
And I was really pleased to see both those business do well.
Great. And then focusing on something other than Europe, the emerging markets. Any changes? I mean, you mentioned that you thought you could do better there. Any personnel changes or channel changes that are going on in that market or in that for that matter in the medium product line as well to kind of address some of the execution issues you saw there?
Yes. So a number of things. Of all, let me just give you the backdrop. And we've I think I say this every 90 days is that the emerging markets are always more volatile. And so we just have to remember that.
Having said that, I was definitely disappointed. We have made personnel changes already. We have some other structural changes in place. There's also an effect of our overall sales reorganization. We're working hard on but in some ways we'll watch it as it develops this quarter.
I think we've made a substantial number of changes and understand what we're doing, but we're going to watch it closely. I don't see anything systemic. I think this is more of an acute issue.
Anything on the media side, same question?
On the media, the media and entertainment business was a little bit more one of we got a bunch of bad bounces in some ways. 1 of our hardware vendors pushed out the release of their product, selling our creative finishing products on that is once there's a new product announced, nobody wants to buy our product on their old products. Because of the way the industry works, we went to market with smoke for the Mac. It's getting rave reviews. People are highly anticipating it, but it is certainly frozen sales to some degree.
And then the third thing I mentioned a little bit is we do expect our reported revenue in M and E to go down somewhat as some of that functionality is incorporated into the design suites. So there are a number of things there. We've made a number of changes. We're on top of what's going on. In some ways, it's an interesting quarter.
And if I told you the Americas and Japan were going to do well, manufacturing agency were going to do well. I would have never imagined that there was a conspiracy amongst these other smaller parts of our business to make the results less than perfect.
Great. Thank you.
Your next question comes from the line of Gregg Moskowitz with Cowen.
Okay. Thank you and good afternoon guys. Carl, I was wondering if you could just comment on the large deal activity that you saw in the quarter both on a broad basis as well as by a major geo?
Yes. The large deals continue to be up. We made an investment in our major account sales force a couple of years ago. We continue to invest in that. We see really good returns from it.
And large deal activity was about double, I think. That's exactly right.
So double digit growth is what
we saw the year before.
Got it. Okay. Thanks for that, Karl. And then just as a follow-up, how are hiring trends over the past 90 days or the past quarter rather? And how are you thinking about net adds over the balance of fiscal 2013 at this point?
Yes. I mean as we've seen the turmoil in Europe, we've slowed down our hiring. What we've really limited to, I mean we don't want to compromise future growth. So there are key places. For example, I already mentioned our PLM sales force in places like the U.
S. And Germany, we want to continue to expand that. Our sales efforts in simulation and BIM that are paying good rewards we want to continue. We've definitely slowed down hiring and I feel like we're tapping on the brakes or it's 1 foot on the gas, 1 foot on the brakes is maybe the appropriate driving metaphor. But we're definitely being more cautious not only with hiring, but spending in general.
And that's why we were able to sit here and kind of reiterate guidance for the year, but it's definitely with some adjustments to the spending plan.
Okay. Thanks very much.
Your next question comes from the line of Phil Winslow with Credit Suisse.
This is actually Dan Morrison in for Phil. Can you just give a little bit more detail on how business has been trending in the commercial construction vertical? And then whether you've seen any major changes with your customers?
Like I said, I think the bias in commercial construction is up. Certainly in the U. S. And Japan, there are definitely more construction starts, more projects being funded. Some of the things that were going on in the United States around financing that seems to have lifted.
So I don't think any of our construction customers would say it's a booming economy. But they've certainly all adjusted their business and the business is expanding
Ashley with Robert W. Baird.
I'd like to ask on EMEA, what your expectations are for the second half of the year? Are you expecting that that business improves?
Our guidance for the year contemplates not knowing what's going on in Europe. So I would say it a little bit more clearly as we assume it's not going to be much different than what we've seen so far and kind of the trend we've been under. Should it worsen, we'll take appropriate measures, should it improve, there'll be upside to what we're doing now. But we're not really expecting any difference. And I certainly don't I don't have any crystal ball that I think any of you don't have, but I'm certainly not expecting it in the next 90 days.
I think given the usual things that go on in Europe during the summer, given the results of 2 elections and the upcoming negotiations, I don't think we're going to see much change in the business environment.
So if we look at the manufacturing business and the AEC business growing 16% 18%, yet the sweet growth within those one was an AEC up 51% and in the manufacturing business up 16%. I just wondered what is the strength in suites and AEC? What is the color
direct shift from individual products to suites and that's the biggest effect that you're seeing. So the majority of what you're seeing going on is that.
And just real quickly on the Platform Solutions business, was that slower at all in the United States for Asia Pac?
On the manufacturing basis?
I'm talking about the platform solution and emerging businesses market. Was there any weakness or slowing in the United States, let's say, in that business?
Nothing dramatic.
Okay. Thanks.
Sure.
Your next question comes from the line of Keith Weiss with Morgan Stanley.
Excellent. Thank you guys. Thank you for taking my question. So my question is actually, I guess, following on Steve and looking at a 2Q guide that if you look at the midpoint of the guidance range, I believe it calls for about 8% total revenue growth. But you guys are still confident in growth for 10% for the year, which would seem to imply something of a reacceleration into the back half of the year.
So I guess the more pointed question is what gives you confidence in that ability to basically reaccelerate off of 2Q into the back half of the year? Is there anything in the pipeline or kind of what you're seeing from a product perspective that gives you confidence of that boost?
Yes. I mean, what I'm
assuming for the back half of the
year is some of the changes that we certain places. Like I said, a couple of things bounced the wrong way in the quarter. But generally speaking, the most important countries and our most important markets are growing well and we see the bias on them upwards. And so that's why I feel confident about it. Maybe Mark wants to add something?
I agree with Karl's comments. And keep in mind, we did grow 11% in Q1. And also the thing I think about that Karl underscored at the onset is we just got some major changes implemented that we actually feel really position us well for the long term. So that's a good thing to have behind us as well.
Got it. So 2Q slowing down from the 11% to the 8% of the midpoint year guidance. Does that mean that there's still transitions taking place as some of these changes take effect?
I think what you should think about is just we're looking at the year and the commitment for the year at 10% plus in revenue growth and approximately 200 basis points in operating margin. And we always talk about Keith, it's not going to be a perfectly linear kind of spreadsheet effect. We've looked at a number of different facts and circumstances and we think there's a range of guidance we put on. We feel like that.
Yes. I mean, if you put Q1 and Q2 together and then you look at Q3 and Q4, it's not very far off linear growth.
And we also And
I wish with thousands of transactions we could be more predictable, but that's pretty good.
Got it. And if I could sneak one last one in. You talked about really good growth in your large deals. And there's one in particular that you guys called out in a press release with Balfour Beatty, which was a large transaction, I think 3 years, dollars 12,000,000 dollars But in the press release, you noted it was a first of its kind.
I was wondering if you
could give us a little bit more color of what made this a first of its kind type transaction in the quarter?
I think you read the press release more closely than I did. Seriously, I mean, I would actually take a slightly different point of view. I mean, Balfour Beatty is a great customer, but it looks like many of the other deals that we've been doing with large construction firms. It looks very similar to a number of the big deals we've done in the last couple of years. Large firms consolidating their positions, growing their market share outside their core markets, We being able to service them globally.
It has lots of the characteristics that we see from our large construction companies as well as large E and C firms all around the world. So I wouldn't have thought of it as a particularly atypical deal.
Got it. Thank you very much guys. Your next question
comes from the line
of Richard Davis with Canaccord. Good morning.
Product, does that offer kind of a product, does that offer kind of a high level of product data management functionality or possibly kind of a derivative question off of that is if I were a potential customer, could I buy your cloud PLM as a project management layer and maybe link that into other firms that did the frankly more gnarly back end data management efforts. So not to diminish what you have, but maybe that would be a quick way
to So let me just remind you one of the things we've done is with our cloud PLM, we've done in the cloud the parts of PLM, the business process, the workflow that has been historically the promise of PLM. On the PDM side, we actually have a very capable product called Autodesk Vault. If I was to guess, there's probably more data stored in Autodesk Vault than in any of the other PDM systems around. We have more customers with more data in it than almost anything else on the market. So we have that.
We still believe the product data management thing is probably more appropriate for almost all of our customers behind the firewall, because it's for work in process with engineering teams. So we actually have a capable one. Having said that, the PLM thing, we believe that the right deployment for PLM, the truly named PLM is on the cloud. And our PLM system will work whether the data is stored in Autodesk Vault, whether it's stored in another so called PLM system or anywhere else. One of the interesting things as we brought this to market and talked to many of the analysts, in some ways there's been a little bit of people who follow the industry having been hoodwinked by the PLM vendors.
The vast majority of PLM that's been sold and successfully deployed is really a PDM system. The PLM was a name that they put on top of it to make it sound more important, more enterprise wide. But really what was being sold was PDM. And so I feel really good about our capabilities in PDM and I'm even more excited about what we're going to do with PLM, because I think it's really the first time ever that there's a solution out there that answers the question of managing manufacturing processes.
Got it. That makes sense. We just need to rename your vault to big data and then that's Exactly.
If I could rename our vault to big data and valuation like Pinterest on something else, Autodesk would be worth like
$1,000 You're off to the races at that point.
Your next question comes from the line of Svegirling Auty with JPMorgan.
Yes, thanks. Hi, guys. With the strength in the AEC suites up 51%, was there something in particular in this version that is accelerating the switch to the suite and is the growth, how do you look at the sustainability or maybe was there some pent up demand there?
No, we move customers over this time just like we had done with Inventor last year. So but there's real traction in this. It is by far the most attractive offering for our customers. It will not stay at 51% at all. That's not where it's in.
That's not a reasonable terminal run rate, but we were really pleased. I think also what we finally did is we brought together some of the things that we've been working on for a while. So not to get too down into the weeds, but as an example, our Revit products used to be separate. So whether you're doing mechanical, electrical, plumbing or structural, we brought that together into a single product and put that in the suites. We've put in some of the other products that surround it and make for a more complete workflow.
And we worked on making sure that the products really met the interoperability needs of our customers. So by doing all of that, it's really a very attractive offering. And as I've said before, I think the
couple of factors that was heading it. How should we think about the longer term as you get past those couple of near term items? How should we think about the media and entertainment segment in terms of growth?
I think you should see a return to historic levels. I fully expect our hardware partner to ship their hardware next quarter. You may see a little impact until smoke for the MAC comes out in Q3. I'm hoping to see a little bump there. We have huge pent up demand for smoke on the MAC.
I mean we really kind of changed the offering and changed the price point. It was kind of extreme, but highly attractive to the market. So we'll see how that plays out in Q3. But certainly by then any unevenness should have been moderated.
All right. Sounds good. Thank you.
Your next question comes from the line of Walter Pritchard with Citigroup.
Hi. Carl, wondering if you could talk about some of the pricing changes that you've made. We've seen some of the promotional materials out to the channel and to your customers about some of the deadlines coming up here. And just wondering how we should expect that to roll through the business as we move into the July quarter and beyond?
I think you'll continue to see some pricing changes. I don't think there's anything extreme. I don't think you'll see anything radical. In some ways, the 2 things to look at and it sounds like Walter you were doing both. There are 2 important things to look at.
1 is what the pricing changes are and not on a per unit price, but on the overall channel framework. I think that certainly influences our partners' behavior. And then secondarily, what we do for these kind of point promotions, what goes on. I don't see any unusual activity around promotions. I think you'll see the usual promotions and you'll probably see the usual, but not consistent across the portfolio price increases this year as well.
Got it. And then just a question on margins. Your guidance for year is clear with 200 basis points. And I guess as we think beyond this year, not specifically looking for a number here, but if I compare your business model to some of your peers in software, your R and D spending that's creeping into the mid-20s seems to be high relative to the group. And I'm wondering as you get beyond this year, do you start to have to bring that number down to be able to continue to expand your margins?
We probably have to at least cap it where it is in order to do it. But let me remind you of a couple of things and then tell you a little bit about some of the factors that go
into the R and
D spend. We spend a lot of time looking at this number and actually we've dug deep with some of our peers. We spent a lot of time benchmarking. And one of the things to do is, it's very interesting to compare us to people who sell primarily through a channel versus those who sell direct. Because if you look and if you take our percentage of R and D over our total revenue as compared to our R and D over end user spend.
The overall end user spend by our customers is probably about twice of what our revenue is. So if a company does everything direct, those numbers are way off. As I indicated, it could be off by as much as a factor of 2. If you limit the group more to the peer companies that sell through the channel, then I still think we're at the high end of the range, but it's much more normal. The reason that I think it's important, we're going through a fairly important transition where we think there's a bunch of opportunity.
And this is primarily around social, mobile and cloud. And while I think we can continue to invest in R and D and make steady progress to our promised goal of 30% operating margins. We don't want to forego the opportunity and kind of be left on the desktop as the entire world moves to social mobile in the cloud. So we know it's a constant balancing act. Those are some of the factors that weigh into it.
And maybe that gives a little bit more clarity in how we're thinking about
this. But comparison to like Adobe is probably valid. Adobe
is very fair, unfortunately. Okay, great.
Thanks a lot.
Your next question comes from the line of Ross MacMillan with Jefferies.
Thanks a lot. I wanted to go back to the maintenance billings again. And I think you mentioned that it makes sense for us to look on a blended basis rather than at the 1 percent growth in the quarter. But the question I have to that is, given the strength in maintenance billings growth last year in the high teens almost 20% level and now thinking about it blended more at 10%. How would you have us think about kind of how this may play out this year?
Is a 10% number more accurate than the closer to 20%? How would you have us think about that maintenance billings growth this year? And then I have a follow-up.
I mean, so we would this is Ross, sorry. Ross, I mean, we don't usually guide at that level. But if I indications I'd be on the high side of 10. I'd be close to the high side of 10 and the low side of 20.
Okay.
And then related to that then, obviously, you saw maintenance billing strength last year, especially as you're selling suites and you're going to capture more of that revenue this year through the tail on maintenance on the suites. Is there anything that's changing around either renewal rates or attach rates? And I guess I'm just curious to whether you because you made notice something along those lines in the prepared remarks. Anything that we should be thinking about in terms of how you envisage customers reacting to what are clearly higher maintenance rates if they move to suites? Thanks.
So one of the things I would say to you, Ross, is that if you look at our attach rates and you compare them on a year on year basis, really no change to speak of. We're pleased with what we're seeing with the attach rates. In terms of our renewals as well, I think we've got a really solid performance in the renewals. And I would call out to you that again they're higher than pre recession levels. I mean we're getting good traction on that long term.
So and as far as anything in particular with suites, we're doing the anniversarying of a lot of our suite introductions. So we're going to continue to see the renewal rates. But thus far I think things look solid. Thanks.
Your next question comes from the line of Steve Koenig with Longbow Research.
Hi. Thanks for taking my questions. I've got one for Mark and then one for Carl. Mark, starting with you, I was surprised at the amount of year on year currency tailwind you got quarter, I think it was maybe 2 points or so to get to that 11% revenue growth. Could you give us any help with what your assumptions are regarding the currencyhedging impact in Q2 built into your guidance?
Yes. One of the things that we don't get into particulars on is the actual FX rates and such that we locked down on. But the one thing I can give you color on and just to kind of reiterate is that we do a 4 quarter layered hedge and we hedge our exposures not only for revenue, but also deferred revenue and such. And so we look at the full equation and the closer you are, for example, in the current quarter, like for example, when we give guidance, we're mostly hedged. And as you go out 4 quarters out it's less hedged.
So that's the more the kind of the dynamic process that we use. But in terms of particular rates, we don't typically share that. But I think you called out the tailwind for Q1 appropriately.
Okay. All right. Thanks, Mark. And then Carl for you, maybe what I'd like to do here is just drill down a little bit on the changes in terms of the sales organization internally and in the channel program. Could you maybe give us drill down and give us a little color on how the verticalization in the sales organization might help you going forward?
What the timing of that might be? Where will it show up? And secondly, in terms of the channel, what kind of impact do you expect from the new global rebate program, positive or negative, short term, long term? And were there any other major changes that aspects to that program that you changed in Q1?
Yes. So what we really changed with the sales organization is as opposed to the primary way of organizing has been historically geographical. We moved to 1 based on industry. What we were seeing is that a manufacturing customer in Germany and one in Japan had more in common than a construction company and the media and entertainment company in Germany did. And it only makes sense given the size of our business to move there.
Also increasingly our customers are larger. They're more global. They want to be serviced by us in a way that makes sense and it was starting to strain some of the organizational boundaries. So I think we'll do a better job servicing our customers by being organized this way, better job of bringing our products to market. That actually funnels down to our channel partners in generally just keeping up with the trends that we've talked about for a long time, which is giving more access to more of our products to more of our channel partners.
We always a manufacturing customer for example could be someone who buys our manufacturing products, our AC products, our media and entertainment products. And we felt increasingly it didn't make sense for them to have to go to multiple channel partners to do that. So we've been on a process to open up access to more of our channel partners. Other changes we made internally are important for us. I don't think they mean a whole lot to the rest of the world.
But suffice to say it's a fair amount of work reorganizing internally and getting everything lined up both from the getting everything lined up both from the finances, the quotas everything like that. So there have been a lot of people who have worked awfully hard to get this all lined up and do it in a short timeframe of both closing out the year and getting us lined up for Q1.
Your next question comes from the line of Matt Hedberg with RBC Capital.
Thanks guys. Appreciate the color on some of the early cloud PLM success and realizing it is early. Wondering if you can give us a few more details on some of the enterprise pilots, I guess in particular maybe Wish Verticals early feedback? And then I guess is there any indication that any of these guys would potentially reduce their spend on traditional PLM?
Yes. There are definitely 2 classes of customers. The patterns are starting to emerge. We've been in beta for a while. But just to remind everyone the product released on February 29.
So we're barely 2.5 into selling it. The 2 categories that are emerging and I gave a little bit of indication of this is the high end of small to medium sized businesses that have wanted PLM, may not be able to afford PLM or really couldn't get it implemented well enough under their budgets. It was too complex. It was it just didn't fit what they needed. So that's one class.
The second one is the enterprise ones, which in some ways are much more interesting and that the customer already understands PLM. They understand the are know what they want to do. And what I would say is we have not replaced a single one yet. Almost all of the work inside of the enterprise at this point are pilot projects. They're pilots where one of 2 things.
They have a critical area where they want to see if this is a way that a new kind of deployment will fit their needs or the other one is probably slightly more typical. They do not want to extend their use of the traditional PLM systems. They don't know how to remove them, but they don't want to spend more and then how to extend their use within the enterprise. And they want to find another way to do And so we're seeing lots of places, departments, functions, processes where PLM, the traditional PLM was never implemented or more likely it failed 1 or multiple times. And they see the advantage to do this.
The very interesting part of the color commentary is I just met with our sales team around PLM this morning and the customers are very clear about what they want to
pilot it on.
And so we're helping them do that. And 3 months from now, we'll be able to give you a lot more info.
Thanks. That's very helpful. And then maybe
a quick follow-up for Mark. And Mark, I know you guys don't guide the individual components of revenue license and maintenance. But given the Q2 guide, which I assume would imply license revenue flat to down slightly sequentially, have your assumptions for sort of the full year 10% or better revenue growth changed from when you initially offered it? Or is it still progressing sort of as you expected based off the initial guidance?
I think it's pretty much as we expected. I think there's always little moderation here or there, but by and large, I think the plan has been the plan and we're driving to it.
Yes. The plan is I agree, Mark. The plan is the plan. On the other hand, I would have never expected the particular mix of business and geography we saw in In Q4, you could talk to me all day long and I never would have guessed so strong in certain places, so strong in Japan that didn't seem so likely, so strong in both manufacturing and AEC. So I wouldn't have expected the exact mix that we got.
And if anything surprised us that this quarter, it was really that.
Great. Thanks, guys.
At this time, there are no further questions. I would like to turn the call back over to Dave Gennarelli, Director of Investor Relations.
Thanks. And as a reminder, we're going to be holding our Investor Day at the NASDAQ Market Site on June 19. Please e mail me if you're interested in attending that. We'll also be at the NASDAQ Conference in London on June 26. If you have any follow-up questions, you can reach me at 4155076033.
Thanks for joining us. Bye.
This concludes today's Q1 fiscal year 2013 earnings conference call. You may now disconnect.