Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Autodesk Incorporated Earnings Conference Call. My name is Regina, and I will be your operator for today. At this time, all lines are muted. Later, we will conduct a question and answer session. I would now like to turn the conference over to Mr.
Dave Generali, Director of Investor Relations. You may proceed, sir.
Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss our Q2 of fiscal 2011. With me today are 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/investor. 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 Q3 of fiscal 2011, remarks about fiscal 2011, our 5 year financial targets, the factors we use to estimate our guidance, our future strategic transactions, business prospects and financial results, our opportunities and strategies and trends 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 2010, our Form 10 Q for the quarter ended April 30, 20 10 and our periodic 8 ks filings, including the Form 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 the 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 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, prepared remarks and on our website. In addition, during the call, we will discuss our 5 year non GAAP operating margin target.
Autodesk is not able to provide a 5 year GAAP operating margin target or reconciliation at this time because of the difficulty of estimating certain items that are excluded from the non GAAP measure that affect operating margin such as charges related to stock based compensation expense and amortization of acquisition related intangibles. And now, I'd like to turn the call over to Carl Bass.
Thank you. Good afternoon, everybody. We're pleased with our 2nd quarter results, which benefited from better than expected revenue and excellent cost control. Year over year comparisons in the 2nd quarter were strong in most categories. Highlights included strong revenue results of $473,000,000 46% growth in revenue from commercial new licenses, significant operating margin improvement, increased EPS and strong cash flow from operations.
Total revenue in the quarter exceeded our expectations and grew 14% year over year. It was nearly flat with the Q1, which is a difficult comparison as the Q1 included a one time benefit of approximately $15,000,000 in upgrade revenue. For the first time in several quarters, we experienced year over year growth in all of our geographies. Both Asia Pacific and EMEA showed strong double digit year over year growth. While we remain somewhat cautious regarding our outlook for EMEA, given the continued negative business headlines, the region performed quite well in the quarter.
We were pleased to see growth return to the Americas, which posted year over year and sequential growth. One notable highlight in the Americas was our government business. During the quarter, we signed a contract with the United States Air Force that has an initial value of approximately $5,000,000 most of which was recognized in the second quarter. We have the opportunity to significantly expand this relationship going forward, and this win illustrates the strong traction we are gaining with government agencies. Customers are more focused than ever on delivering better products.
Our tools provide them the best means to do this with superior technology and the highest levels of interoperability in the industry. Because our solutions provide both innovation and high ROI, we are winning deals with companies of all sizes, often displacing incumbent products that sell for several times more than our solutions. 1 of our significant opportunities going forward is replacing legacy design systems with our more agile, modern and sophisticated products. As an example, one of the 15 categories analyzed. In fact, this probably wasn't a fair comparison.
We should have compared Invenger to their higher priced flagship product CATIA, and again, we would have won hands down. This isn't news to us or to our customers, but it's always nice to have 3rd party validation. We were particularly pleased that we sold over 10,000 seats of Inventor during the quarter, many in swap outs of legacy products. Earlier this week, we revealed the results of a study that showed up to a 44% improvement to a designer's productivity by using AutoCAD 20 11 rather than a version that's just a few years old. Again, that's real ROI for our customers.
Those of you who attended or listened into our Investor Day in June heard us talk in greater detail about delivering more product suites to the market. And this quarter, we unveiled software suites for visual, factory and plant design. The new suites offer increased functionality, interoperability and a superior user experience. Each suite is available in several editions with each edition offering progressively broader and more sophisticated capabilities. Just last month, our media and entertainment group announced a premium edition of our entertainment creation suite, which our modeling and animation technology.
During the quarter, we continued to add to our leading media and entertainment technologies with an acquisition of advanced lighting technology for the game development market. This transaction was immaterial to our financials, but it is representative of our M and A strategy to add valuable new features and functionality to our broad portfolio of market leading design solutions. As we move forward, we will continue to seek advanced design technologies that we believe our customers desire, while advancing our technology leadership. Our year over year increase in profitability was fueled by revenue growth, as well as cost controls. We achieved better than expected revenue growth and margin expansion in the first half of this year and raised our full year margin growth expectations again this quarter.
Continue to update this guidance as the year progresses. Balancing cost control with essential investments in the business is a key element achieving our 5 year financial targets of 12% to 14% compounded annual revenue growth and non GAAP operating margins of at least 30%. We are pleased with the strong results this quarter and looking ahead, we are optimistic about growing our business and increasing our profitability. Autodesk is better positioned than ever, and we're excited about the opportunities to expand our business and better serve our customers. Operator, we would now like to open up the call up for questions.
Gentlemen, your first question today comes from the line of Steve Ashley with Robert W. Baird.
Well, congratulations on the quarter.
I guess I would just like
to ask about the guidance for the Q3. On a sequential basis, the midpoint is down a little bit. Is that just conservatism or is there anything in you'd mentioned some caution about Europe, is there anything in the macro economy that you're seeing that relates to that guidance?
Steve, first of all, this is Mark. Thank you for that note. In terms of the sequential, so I think the first thing to say is it's not clear that the normal seasonality patterns are back yet and I think I would call that out 1st and foremost. I think secondly, you touched on this notion of uncertainty in the economy. We're all reading the same papers that all of you are reading.
We continue to keep a certain level of prudence in that in terms of just thinking about the world as it is. But I think the biggest point is that seasonality is not yet where one would think about it. Again, if you look at our between the range of our
guidance, you're seeing growth year on year again, that's I think
a real respectable range as you look at our performance in Q2, you're seeing broad based year on year growth across geographies. This is the first time we've had a chance to talk about all 3 major geos growing year on year. You're also seeing it in some of our other major countries. So, that's it. And I'd add
a slightly more cynical note, Steve, which is we don't give our guidance relative to consensus and people have all kinds of reasons for putting all kinds of numbers out there as you well know. And so this is really our best estimates of what we think our business will look like.
And just to clarify, looking at linearity, you didn't see any change in the business through the end of July. Is that correct?
No. We were the business was strong throughout the quarter and certainly through July and as much of August as we've already seen. Perfect. Thank you.
Your next question comes from
the line of Phil Winslow with Credit Suisse.
Hi, guys. Good quarter. Just wanted to focus in on the verticals for a minute. Obviously, manufacturing, that line item was up nicely quarter to quarter. Just what are you seeing, Carl, between just the AEC vertical and manufacturing?
And also, if you just comment on civil, that would be great. Thanks.
Yes. So I would say generally speaking, this is how we've kind of described the recovery. Manufacturing has been more robust all through and manufacturing continued, media and entertainment behind. I think if you look at the headlines, construction has been the hardest hit part of the economy, and it's certainly reflected in the results. So I don't think there's anything out of the ordinary there.
In some ways, I'm really pleased we're able to post the results we were with worldwide construction economy still under severe pressure.
Your next question comes from the line of Brendon Marnikal with Pacific Crest Securities.
Thanks I had two questions on margins. First, was there any explanation for the cost of maintenance was higher than what we've seen historically. So I was wondering if there's anything exceptional that was pushing that up this quarter. And then second, based on the guidance and the outperformance in margins for the first half of the year, it looks like you're expecting decelerating margins in the back half of the year. Is there some additional investments or something you'll be doing in the back half of the year that we should be factored in that's going to push those margins back down?
Thanks.
Yes. I guess a couple of things here, Brendan. First of all, on the gross margins, I don't think there's anything really specific to call out on the cost of maintenance. I think the broader picture on gross margins looks pretty good. We've it continual operational improvements, some procurement improvements, just some efficiency improvements in a broader sense.
So I don't think there's any major item to really be discussed there. Secondly, as far as half on half margins, you're absolutely correct. We are going to continue to make this balance between expanding our operating margin, which Carl called out, we continue to be committed to year after year and at the same time, make additional investments in revenue generating areas in the sales and marketing area. So that is certainly a priority, maybe a select technology here or there, but generally in the sales and marketing area.
Great. And just a quick follow-up on deferred revenue, you noted in the press release that it saw it's a sequential decline, which is typical seasonality. Can you just review for us that how that seasonality pattern works around the maintenance piece?
Well, again, I'd go back to seasonality is a little funny right now in kind of the world that we live in. Here's the thing that catches my attention the most, Brendan, it's up 5% year on year. And the when you think about the deferred revenue, our maintenance revenue is up and our billings are up 6%. So, I think thinking about the year on year is probably a better sense of what's going on. We actually feel pretty good about it.
To get under it a little bit, just to give you a little bit more insight, our renewal rates are up for the Q4 in a row, which really reflect the fact that people the value of our subscriptions, that relationship, that ongoing opportunity to serve them. So that story, I think we're actually pretty pleased with.
Great. Thanks a lot.
Your next question comes from
the line of Heather Bellini with ISI Group.
Hi. Hi. Thank you for taking my question. I had a question for you, Mark, about the guidance. Last quarter,
you were conservative on Europe. You certainly ended up having a great result. I was
say is you look out for the October quarter?
What I would say on that one is, Heather, is that I think you look back at Q2 and you think about all the uncertainty in Europe that was going on and we saw it for what it was and I think gave an appropriate level of prudence. We're actually pleased to be able to come back in and say we hit the high side of the performance because our
Carl said, good execution
on the cost. I think you should take our guidance, as Carl said, good execution on the cost. I think you should take our guidance at face value. That's the guidance that we have and it's our best comprehension of everything that's going on in the world, whether it's foreign exchange or our investments that we're making in such. And then if you want to put English on it, I think you need to do that, but that's
our best view of the world. Okay. Yes, I just wanted to
because last quarter, it did view of the world.
Okay. Yes, I just wanted to because last quarter, it did seem like you called out in particular that you were being a little conservative because of the macro. I maybe I'm not remembering it right, but I'm
not going to be talking about that. No, no, I think you are covering it right that we really looked at the world of Europe and being uncertain. And I think it's to say today, Heather, as well, there's a level of uncertainty that's out there and we're trying to comprehend it all. But this is really kind of our best view of the world and yet we're pleased to report, you can see the trajectory we're on in terms of the operating margins. Heather,
I think if you went and look back at the transcript, you'd see a fair amount of our anxiety over Europe saying, it was hard to measure its direct effect on our business. But just like now, we're reading the same business headlines that you are and we were concerned. And if you remember back exactly around 3 months ago, it was what looked like the beginning of what could have been bad. And so we were factoring that in. Yes.
And I think we made it pretty clear at the time.
Yes, great. Thanks, guys.
You bet. Sure.
Your next question comes from the
line of Brent Thill with UBS.
Thanks. Welcome back to growth in the Americas. I guess, Carl, if you could just give us a sense of where you think the business is in the Americas? We finally turned the corner. And what changed this quarter, I guess, in terms of the behavior of the customers that you were talking to in the U.
S, because I think we've had 7 quarters of negative growth in that region? And I have a quick follow-up.
I think what you see is a steady improvement. I think as we all watch the recovery, it's not purely linear. It's full of fits and starts. I think going forward, the recovery is going to continue to be that. I think I tried to describe probably 2 quarters ago, what I saw was a point of inflection, where people were trying to kind of guess where the bottom of this was.
And at some point, it looked like particularly businesses as opposed to Wall Street had discomfort with that level of business, they still needed to make all kinds of investments going forward, and they were going to do the best jobs they could running that business. I think this quarter is really an extrapolation from there that says people are continuing to make investments. And once again, I think there is a pretty sizable disconnect between the people I talk to who are running businesses and what you read on Wall Street. And people are continuing to make investments and they realize that even in this economic environment, there's plenty of opportunity.
Okay. And just to follow-up on Brendan's question on the margins. I believe you did bring headcount down during the downturn. I guess, in the first half of the year, can you just give us a sense of what happened with hiring and your plans for the second half of the year? Do you plan to expand the hiring in the second half?
Sure. You're absolutely right, Brent, that we did bring our headcount down year on year fairly substantially. As we look at it from half to half, we do expect to see some hiring. And again, it will be very pointed and focused in the area of revenue generation from that standpoint. That will be true.
That is part of
our plan. Great. Thanks.
Your next question comes from
the line of Keith Weiss with Morgan Stanley.
Thank you guys. Very nice quarter. I just wonder if I could expand upon the margin discussion. And if I'm looking at this correctly, you saw about a 6% sequential decline in OpEx. Was there any specific programs that you put into place at the beginning of the quarter to bring down expense?
Could you give us a little bit more color of sort of what drove that declining expense? I mean, was headcount down similarly quarter on quarter?
I think it's really a combination of a lot of different things quarter on quarter when you look at from Q1 to Q2. Keith, one, keep in mind some seasonality, even small things that we don't think a lot about like payroll seasonality, including things on fringe has an impact. There was also circumstances where we just drove operational efficiencies that were from a variety of different natures. Keep in mind also there were just basic things like we took a week of time or a week of rust off and that had an implication as well. So there are a few things that it all kind of added up, but I would say it's important for you to know across our company, people are doing a really good job
we took out in 1 year about $300,000,000 to $310,000,000 in costs, we thought those were the costs that were manageable in the short term. We were also looking at longer term, more structural things to take costs out of the business. We couldn't execute them in time for what was needed during the downturn, but we're continuing to be vigilant about driving costs out of the business. And what you're really seeing is we're reaping some of the benefits of all those efforts that were put into place a while ago.
Got it.
And if I could sneak in one more on the subscription business. It looks like your net new subscribers was one of the strongest net new subscriber numbers that I've seen in quite some time. Yet billings was down sequentially and we actually saw revenue decline sequentially in the maintenance business. Can you
help us make sense of all that
and how such a strong net new billings number, you had such strong billings growth last quarter, yet revenues are declining expense?
Sure. One of the things to keep in mind, Keith, is when you look sequentially at the billings, keep in mind, we had a simplified upgrade pricing program that happened in Q1, which was a cross grade upgrade licensing side. But what happened is people upgraded, they were found it attractive to also get on to additional maintenance. So we had a nice maintenance billing opportunity there that was kind of a tag along, if you will. So the sequential, again, I think it's a good dialogue where we're looking at things is year on year.
When I can see my billings growing year on year, I can see my deferred revenue growing year on year. I can see my renewal rates up. I like that dynamic.
Your next question comes from the line of Derek Bingham with Goldman Sachs.
Hey, gentlemen. Question on maintenance renewal rates. You mentioned in the prepared remarks that they were up sequentially and year over year. I just wanted to ask if they are back to pre downturn levels yet?
In fact, they are. And one of the things I like, Derek, that's going on when we implemented the simplified upgrade pricing, one of the more strategic aspects of this was the long term encouragement of people to have that relationship to participate in that value proposition where we can deliver unspecified upgrades and all the other value added that comes with that. So, we think that this is just a good dynamic. They are up to that rate and so we're pleased about that.
Is there headroom from here from do you expect that to keep creeping up or are we steady state now?
I don't want to give guidance on renewal rates, just even directionally. All I can say is that our value proposition for subscription is better and better and we're focused on that. And we think our customers like it, so we're going to keep driving it, but
I think the other opportunity is geographically. I think there's inconsistency across geographies. And so, I don't know what the actual limit is in a single geography. We're at a relatively steady state that's equivalent to pre downturn. There are opportunities in geographies around the world.
Your next question comes from the line of Ross MacMillan with Jefferies.
Thanks a lot and good quarter. Mark or Karl, you mentioned that you don't know if you're going to back to normal seasonality for the business. And I was just curious curious as to when you think about normal seasonality for Q3, kind of what you think the normal seasonal pattern should be, if you will, because your business historically, I think, showed some years where it was up sequentially, some years when it was down and obviously we've gone through a turbulent 2 years. So just curious as to kind of how you think normal seasonality should look for the October quarter?
So the first thing I'd say is, I don't think we're back to normal seasonality. And the reason I would say that is, generally speaking, I think there are still enough catalytic events in the economy out there. You just look at the news on a given week, there's enough to send things into turmoil and you're seeing that consistently. We've seen it for the last two years. I think there's a lot about that.
I think some of the dynamics that do contribute to the normal seasonality are there. I still think Q4 will be our strongest quarter. The end of our fiscal year combined with the end of calendar year for most of our customers ends up meaning that will be true. So, I think some of the things in there's a really strong force acting will do it. I think in the places in these kind of quarters where over the years, we'd be up 1% or 2% or down 1% or 2%.
I think the error bar there is actually too small to give a lot of indication what's going on. And I think there are other forces at work that when you look back over a longer time period, weren't in place.
Great. And then just one for Mark on the costs. Obviously, a very good job on OpEx sequentially down. And you mentioned the furlough week or the 1 week off. Can you quantify that?
Because I guess when we all look at guidance implies we're going to get back up to that ish run rate on OpEx despite this big sequential decline in the July quarter. Could you maybe quantify the factor of the week of rest?
Yes, we don't actually quantify that. I mean, you guys kind of see our macro headcount. I mean, people can kind do some math on that, but we don't actually provide something that specific. But again, keep in mind, we tried to factor all that into our guidance as well. Yes.
And just
to remind people, we took it last year as well. Yes. So when you look at the year over year comparison, there was actually more time off last year than there will be this year.
Yes. And so, yes. Your
question comes from the line of Sasha Zorovich with Janney.
Thank you. So obviously you
had a great quarter here and I'm going to ask, couldn't it have been better than that obviously never being super pleased unfortunately right, I'm just joking here. But look, so putting that aside, so look at your emerging economies, right? So you were showing actually in the past emerging economies kind of growing faster than other regions. This time around, it didn't happen. Is it an issue maybe of a bounce back in the sort of developed economies?
Or could you provide more color about that?
Yes. First of all, Sasha, I'm shocked Not getting to kind of 45% operating margins this quarter is very disappointing. Right, right. When you look at the difference between the developed and the emerging countries, one of the things I've often pointed out is I wouldn't take 1 quarter's as data point too strongly, particularly what we've pointed out is the linearity or the consistency of our results in the developed economies are much more normalized. The emerging countries always have some amount of variability in it.
And so I would not extrapolate this. If anything, I would go back to what I think is the long term trend, which I think the emerging economies continue to grow kind of at twice the rate of developed economies. I don't think there's anything that we've seen that would differ there. I think there's things quarter by quarter you would see. But if you want to look back over a longer period, I think that would give you better accuracy.
If you were looking forward, I would look for that same kind of pattern to emerge.
And then if you look at those emerging economies, is there a specific segment where they're growing faster versus slower or is it basically pretty much across products? There are no difference among the geographies being Asia, Latin America, Russia, Eastern Europe. Is it all pretty much kind of even across the board?
What I'd say is over a reasonable period of time, they're not that different. Quarter by quarter, there's high variability amongst them. What I'd say is the real difference that appears to be persistent is in most of the developed tendency for build out of things like infrastructure. You see more construction related dollars being spent. Probably, manufacturing comes second, but not in all of those.
A big difference there would be manufacturing in China versus less so in Russia, more manufacturing in Brazil, less so in the Middle East. So there's the mix amongst the different emerging economies in terms of industries is highly variable. The overall growth rates are not that much. And I think partially, it's a big available pool and a lot just has to do with the limiting rate of how fast we can scale our business to take advantage of the opportunity more than being limited by the opportunity itself.
Got it. Thank you.
Your next question comes from the line of Steve Koenig with Longbow Research.
Hi, good afternoon. Just one question and one follow-up. Maybe I'll start with your wondering about your guidance. It looks like the guidance is pretty appropriate at comprehending the uncertainty out there as you all have alluded to. And you've done that without trying to make any pronouncements on the macro situation, which is also appropriate.
But I'm wondering what kind of economic assumptions are embedded in the range of your guidance? Is the entire range predicated on an economy that's kind of sequentially like it is today or is there some range of variability that your guidance comprehends?
I think it comprehends some range variability, but I think it's kind of centered around the world being like it is now, kind of ups and downs every day geography by geography, industry by industry, jobless claims go up here, you see manufacturing index going down there. It really kind of contemplates the economy I think we're living in, which is fairly variable across geographies, across individual countries, across industries. I don't think it contemplates a catastrophic meltdown nor kind of a V shaped recovery.
And if I could just add to Karl's point, all that plus the fact we don't anticipate any crazy movements in foreign exchange, all a normal range of bubbling around and complement these points.
Okay, great. Great. Thank you. And then one follow-up as well. You've given some helpful commentary on renewal rates and on billings patterns.
Let me try to ask you to instill that for us. Does Does the sequential downtick in billings that we saw this quarter driven primarily by the upgrade pricing last quarter, does that suggest that maintenance revenue will decline next quarter sequentially or how should we think about the maintenance revenue trajectory?
So, first of all, happy to kind of break that down for you. There's several moving parts when you go to maintenance revenue. First of all, we don't guide maintenance revenue per se. But I think the dynamics are actually very useful to talk about. One of the dynamics or what have been the billings, right?
That's one aspect historically. One of the aspects is how much do renewal rates change going forward, right? The other aspect is even the mix of 1 year versus 3 year subscriptions. So, these are some of the moving parts that you need to look at. And if you go back, Steve, these are some of the moving parts we've been looking at over the whole year and you can kind of see the dynamics.
So, you're just going to have
to call the ball on
those variables, but that's where I'll
leave it with you. And I think generally speaking, if you look at 1 quarter's billings, it doesn't have a big enough effect on overall deferred revenue. You just if you work the math, it just doesn't work out to be it doesn't move the needle enough. Exactly.
Yes. Okay, great. Thanks so much for the help. Absolutely.
Your next question comes from
the line of Sterling Auty with JPMorgan.
Maybe, maybe not.
Your next question comes from the line of Blair Abernathy with Stifel Nicolaus.
Thank you. Nice quarter guys.
Thanks.
Just a couple of things here. Just Mark on the expense side again, suppression to speak of for this fiscal year? No, suppression to speak of for this fiscal year?
For Q2 or going forward?
Going forward.
Going forward, I think, again, we like to think that a lot of the cost suppression we had to deal with in the past is largely behind us. And that's the reality of it. I mean, we basically and I mean, we don't have plans for weeks of rest and that type of thing. So, I think it's largely behind us. And I think if
you look at just the overall OpEx picture, there's lots of moving pieces. None of them really large to call out in any sizable way, but there are puts and takes in both directions. But I think generally speaking, market is now right. We've gotten rid of or we brought back most of the things that were cost suppressed. You'll continue to see some investments that we believe we need to make in the future.
And on the other hand, as you saw this time, we're starting to reap some of the long term benefits from some of the things we put in place that were different than what we talked about as cost suppression. This was really cost elimination.
Okay, great. And Carl, just I wonder if you can just provide some more color on traction of the suites that you have out there now and sort of what are your expectations for what they can contribute to you this year?
Yes. So a couple of things about it. First thing is, we've been selling suites for a number of years. We've had a fair amount of success. And I'm sure you know that, but I just want to remind everyone listening that we have been selling suites and we have been successful doing it.
This is really kind of intensifying our effort around selling sweets. And what we put out there this year is we have a handful of sweets. We think it will contribute very modestly this year. And as we talked about at our Investor Day, I think where you'll see the biggest bang is next year as we launch the complete range of suites in that same spring timeframe. So far, the reception to it has been great.
It's immaterial financially. But understood technique in the software industry. We're not really breaking any ground here. People understand it. We've done it ourselves.
Other companies bigger than ourselves have profited from it. And so I think we're just following that. And I anticipate it to be successful, but I think most of the financial benefit will be seen next year and into the following years.
Okay, great. Thanks very much.
Your next question comes from
the line of Dan Cummings with ThinkEquity.
Thank you. I wanted to follow-up on Karl's earlier comment about the potential to tweak geographically the maintenance incentives. Are there big relative differences by the major markets or by the major country markets?
Yes. I mean, generally speaking, economies versus emerging economies is the biggest break. And we don't want to break down country by country, but if you just use that as the lens to look at it and then kind of cast yourself to looking at it in countries like Brazil, India, China, where we're still fighting piracy problems and stuff. The idea of people signing up for multi year maintenance contracts isn't part of the normal way of doing business. And in that kind of environment are both our certainly renewal rates, but even our attach rates are obviously going to be much lower.
And I think what we have seen as markets mature, as you see the institution of regimes that protect intellectual property, you start seeing greater buying patterns that lead to kinds of things like subscription.
Okay, thanks. If I could ask one more, with respect to your comments about Inventor's high end capabilities and potential traction, does that imply a bigger role for your direct sales organization either sooner or later?
Yes, I think it does. I mean, we were really quite pleased with how Inventor is doing. Like I said, we've always been fully cognizant
of its capabilities. We're glad
to see some cognizant of its capabilities. We're glad to see some outside confirmation. We're seeing more market confirmation of it. We do think it is the best product out there. And so, yes, we expect there's a bunch more that we can do with Inventor.
And the way what we think distinguishes the products in many degrees is the way it's brought to market. So what distinguishes us from products that cost many times as much is not the functionality. In many ways, we've exceeded the capability of the older high cost products. What differs is the way we bring that to market. And one of the ways we remedy that is through more direct sales, more consulting services, some provided by us, some provided by our partners.
But certainly for the large accounts, a more direct relationship is what required for people to base their entire engineering process on our products.
You're not ready to put a number on the type of investment though over the next, say, 1 to 2 years on the direct sales?
So firstly, I won't give you a specific number, but if you look back, it's one of the things we talked about. As a matter of fact, if you go back almost a year ago, when we made many cuts, we said even in those cuts, we were going to continue to make investments. And all the illusions you hear about things closer to the market or sales and marketing, a lot of it is around things like direct sales and consulting to support those efforts. So we've already made a bunch of those investments. We're contemplating them in the second half of the year, continuing it because we're seeing such success there.
And so whether it's we're seeing in manufacturing with direct sales people or for example, we called out some of the work with governments that's done with direct sales people. We think it's a fruitful area for us. And the really nice thing for us is that we don't believe it to be a 0 sum game. When we win with direct accounts, not only do we do well, but our partners do well also. And when we grow in a big account, it's more business for our partners and generally it's coming at the expense of competitors.
So we will continue to invest in it. All the guidance we're giving contemplates it and we're happy with the progress we've made today.
Your next question comes from the line of Mike Olson with Piper Jaffray.
Thanks. Good afternoon. Just a quick one regarding excess capacity. As we speak to some of the resellers, we're hearing from them that they are seeing selective upticks in hiring among some of the customers, but not necessarily an uptick in new seats because still some people are being hired back sitting in a seat that already has a maintenance paying license. Is that the resellers just being frustrated with the pace of kind of rebound in new seat sales or is there any truth to that?
Is there anything you guys have done to try to quantify how much slack might still be out there?
So, Mike, thanks for the question. I mean, first thing is, I mean, when I look at like new license sales of an increase of 46%, it's hard to go with the assumption behind the question. I've often said the resellers think there's some unique circuitous route that goes through you guys to deliver messages to us. A lot of times, I think what you hear for having bought them off with a bottle of wine or $100 check is not exactly what they're seeing in their business. The 40% to 46% sales increase in new licenses is the thing I'd be looking at instead of kind of try to track down the anecdotal information about how resellers what they're seeing.
So, I think in many ways, we're really pleased. We've often talked about the new license sales. It's probably one of the best indicators of the future health of the business. And if I was to look at this quarter in totality, it's one of the things that's most pleasing about it. So, I'm overall really pleased with what we're seeing.
In terms of the assumption, I've told you that I actually believe, particularly as this downturn has continued, for the most part, what we saw was the people who didn't have people working didn't renew already. There was not enough financial incentive for someone to keep a seat on maintenance when they didn't have a person utilizing it. And I've asserted all along, I think the data is beginning to support my point of view that there is more under capacity than over capacity, meaning there are more people who have a pent up demand for new seats than there are people there because 2 or 3 once someone gets 2 or 3 years behind, as demonstrated in the productivity studies and the other stuff we've done, there's a real compelling reason to go out and get a new license. And I think we saw some evidence of that. I'd still be cautious on the flip side, it's 1 quarter.
1 quarter doesn't make a trend, but I think you should continue to look over a period of time at our new license group.
All right. Understood. We'll let the numbers speak for themselves and chalk it up to reseller frustration, but thanks very much.
You're welcome.
Your next question comes from the line of Sterling Auty with JP Morgan.
Yes, thanks. Hi, guys. Sorry about that before. Two questions. 1, you got a lot of leverage out of the sales and marketing this quarter.
Was that more on the sales or the marketing side? Was there perhaps maybe less spending on marketing programs or something specific in the quarter that helped generate a little bit extra leverage in that line?
I think we got honestly, Sterling, we got leverage across the board. We got leverage in sales and marketing and we really up and down challenged to kind of structurally think about our company different, drive efficiencies not just episodically, but continuing on an ongoing basis and you are seeing some of those benefits. And so we absolutely did. Our sales team got some leverage. Our marketing team got some leverage with things like global campaigns as opposed to not leveraging those marketing assets as effectively like with local campaigns.
There was a lot of areas, but it's a lot more broad based than one particular area. Karl, any?
No. The other thing, it wasn't a concerted effort to reduce costs. I think we were able to drive good business, good revenue growth, good new license growth while spending that amount of money. And so, I think kudos to the entire organization for being able to drive the business, while at the same time being vigilant about cost control.
Yes. We've been trying to Sterling last point, we've just been trying to walk this duality of making investments where we must and being productive where we can and this is a continuation.
And then the follow-up question is if the maintenance renewal rates stay at or above what you just experienced in this quarter, given the number of seats under maintenance now have a nice
tick up, should we see
the maintenance revenue pump up next quarter sequentially? Yes.
I would say generally speaking that's the right thing to look at. We're not going to predict for quarter by quarter. I mean, there are a number of variables when you look at the average. You have the difference of you have product mix, you have geographic mix. There's a whole number of factors.
And so getting into the specifics of predicting the one line item quarter to quarter is certainly beyond my calculating ability.
Got it. Thanks guys.
Your next question comes from
the line of Israel Hernandez with Barclays Capital.
Hi guys. Just a question around M and A. Pre recession Autodesk was noted to a number of tuck in acquisitions. Now that we're at least your business seems to have put in the bottom and appears to be accelerated. Can you just talk talk about you've got your M and A strategy going forward?
Should we look to more of the same in terms of tuck ins? And do you see opportunity here to do some more industry consolidation given some of the transition you guys are seeing out there?
Yes. So, I mean, first of all, even during the downturn, we continued to do small tuck in acquisitions. Tended to be, when you look at the small to midsize acquisitions, a little more opportunistic, really trying to fill out parts of our portfolio and I think we've been successful at doing that. We always look and we don't seem to bite all that often at big industry transforming transactions. That's just not the history of what we do.
We feel much more comfortable running the business.
We think we can
do that in a successful way. Don't spend a lot of time sitting around the table trying to plan those kind of events.
Great. Thank you.
Ladies and gentlemen, this concludes the question and answer portion of the call. I'd like to hand the call back over to management for closing remarks.
Thanks, operator. Just want to note our investor activity this quarter, we're going to be at the Citi Technology Conference on September 8 in New York City, the BofA Merrill Conference in San Francisco on September 14 and the Deutsche Bank Technology Conference in San Francisco on September 15. And if you have any follow-up questions, you can reach me, Dave Giannarelli at 415-507-6033.
Thanks. Ladies and gentlemen, thank you
so much for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a wonderful day.