Good day, ladies and gentlemen, and welcome to the Q1 20 11 Autodesk Incorporated Earnings Conference Call. My name is Derek, and I'll be your operator for today. At this time, all participants are in listen only mode. Later, we will be conducting a question and answer session. As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Mr. Dave Giannarelli, Director of Investor Relations. Please proceed, sir.
Thanks, operator. Good afternoon. Thanks for joining our conference call to discuss our Q1 fiscal 2011. With me today are Carl Bass, our Chief Executive Officer and Mark Hawkins, our CFO. Today's conference call is being broadcast live via webcast.
In addition, a 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 of fiscal 2011, remarks about fiscal 2011, factors we use to estimate our guidance, our future business prospects and financial results, our market opportunities and strategies and trends for our products and trends in various geographies. 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 2010 and our periodic 8 ks filings, including the 8 ks filed in 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 our 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. And now, I'd like to turn the call over to Carl Bass.
Thank you. Good afternoon, everybody. What a difference a year makes. Our fiscal strong subscription revenue and billings, significant operating margin improvement, increased EPS, excellent operating cash flow and a strong balance sheet. 1st quarter revenue included a one time benefit of approximately $15,000,000 in upgrade revenue related to a promotional program that was run-in advance of an increase in upgrade pricing.
From a geographic perspective, our international geographies provided all of the growth this quarter. Asia Pacific grew by double digit sequentially and year over year with particular strength in Japan. EMEA posted strong revenue growth as well with
a
While both the U. S. And the Americas are not recovering as fast, the Americas had tough comparisons due to several large deals in the prior periods. I believe the Americas is making progress and I'm optimistic about the geography returning to growth this year. During the Q1, we launched our 2011 portfolio of design software products.
Autodesk best in class products have been enhanced with powerful new features for 3 d design, visualization and simulation for engineers, architects and other creative professionals. The revised user interface provides a more consistent experience across our key products that make it much easier for our customers to move between multiple Autodesk products. This is our most compelling product release ever and our customers and partners are excited as well. We've been building our brand with end users who have not historically been Autodesk customers. During the quarter, we launched the Sketchbook Pro app for the iPad geared for both occasional doodlers and professional artists.
Sketchbook Pro transforms the iPad into the ultimate digital sketchbook. This app was an immediate hit and similar to our Sketchbook mobile app for the iPhone, it quickly became one of the top apps downloaded. We also launched AutoCAD Freestyle, an easy to use application for drawing and sketching geared towards specialty contractors and do it yourselfers and Autodesk Homestyler free online home design software. These products are making design technology accessible to a new audience for whom our professional products have been out of reach and they're exposing the Autodesk brand to a large group of potential customers. Our solid first quarter results are further illustrated by strong financial
$200,000,000 and no outstanding debt.
Last year, we took significant action to reduce our operating expenses and improve efficiencies. The leverage of those actions is now starting to materialize as we start to experience annual revenue growth again. Going forward, our enthusiasm is tempered somewhat by the de the devaluation of the euro and the general instability in the European economy. We have experienced a solid rebound in the global the slope of the recovery, we're confident about our business, our market position and about executing through the recovery and beyond. We will continue to focus on opportunities to drive growth in revenue, margins and profitability.
At this time, I'd like to acknowledge the great work of our Autodesk employees through this challenging recession. It is through their hard work and contributions we have made the progress to date and are positioned to further improve going forward. Operator, we would now like to open the call up for questions.
While the operator is going for questions, I want to note that Autodesk Investor activity this quarter that will be at the UBS Conference in New York on June 8. And as a reminder, we're hosting our annual Investor Day on June 24 at our gallery in San Francisco and please email me if you've not already signed up. Operator, we're ready for questions.
Your first question comes from the line of Brent Hill with UBS. Please proceed.
Thanks. Good afternoon. Mark, just a quick five years, I think you've been up about 2% sequentially Q1 to Q2. So can you just help us understand how much of that is Europe and how much of that is just general caution on the other side of the business?
Yes, absolutely. Pleased to do so. I think we're all reading a lot of the same documents and materials and the fact is there's a fair amount of uncertainty in Europe. We think that that's pervasive for people that are looking at the business going forward. The single biggest thing that we're looking at.
The second thing I would call out that Carl touched on briefly is that we had a in Q1, keep in mind, we had about a $15,000,000 one time benefit if you will from our simplified upgrade pricing and whereby there'll be a little bit of residual benefit for people who did upgrade, who do subscription fundamentally that's kind of a one off that we need to adjust for. The third thing I would call out is the foreign exchange headwinds. Of course, we're hedged to a good proportion, but not 100% and therefore there are some headwinds that we have to look at as well. We think it's prudent with all things considered to take this approach. And obviously time will tell, but this is our best comprehension of all the facts as of today.
Okay. And just a quick follow-up for Carl, just on the Americas business. Can you give us a sense of what you think actually needs to happen for you to return to growth?
Like we try to call out, I think accepting a couple of very unusually large deals a year ago, which we talked about then, Americas would already be back to growth. Those were fairly exceptional. One of them was the largest deal in the company's history. And so it's just really going against those comparisons.
Thank you.
Your next question comes from the line of Mike Olson with Piper Jaffray. Please proceed.
All right, thanks. Did the upgrade Did the upgrade pricing change have kind of the intended effect? I guess, in other words, did most people shore themselves up to the latest version and get on subscription? Or were there users who towards subscription?
Valuable over time and both our renewal rates and our attach rates are demonstration of that. By no stretch of imagination would I say most people got on the latest release that just never happens. But we did also call out, we think upgrades will be down next quarter. But if you just look it a 3 year to 5 year trends, I mean upgrades are becoming an almost inconsequential part of the business, but we will continue to do things like look at the pricing on them. We continue to run legacy promotions.
I mean, we're always looking at ways to make sure that our customers have the latest software and we'll continue to run those kind of promotions.
And if I may add, I do think that in addition to what Karl said that we really are viewing this value as something that's good for the customer. It's good to have an ongoing strategic relationship with them. And also you can just tell by the nature of the simplified upgrade pricing that they are encouraged to stay within subscription. So our renewal rates, I think it's a good thing over the long term.
Yes, that makes sense. And then just one quick housekeeping, Mark, what do you expect interest and other expense to look like over the next few quarters?
It's tough, Mike. We don't typically guide that. There's a lot of puts and takes in that. To be honest with you, it's typically not highly materialized. I'd look back historically and try to use that as a reference.
There's just a lot of puts and takes all the way down to some detail that you wouldn't even care to get into honestly. My best sense for you is honestly look at an average and make a call on that honestly, Mike.
All right. Thanks very much.
The next question comes from the line of Brandon Barnicle with Pacific Crest Securities. Please proceed.
Thanks so much guys. In the prepared comments, you're right in here that you focused on controlling expenses while balancing investment in the business. Can you talk about where you invested in the business during the quarter?
I don't think there were any particularly unusual investments this quarter. I think if you look out over the last few quarters, our biggest investments have been in kind of retooling our sales and marketing efforts. Most of the things and we talked about this all through last as we were cutting expenses was to make sure that we were executing much better on our go to market strategies in places where we thought it would drive revenue more quickly. So most of our investment has been there. I think in other places, it's less a put and take on expenses, but we've rejiggered our portfolio of investments in terms of R and D to the places that we thought they would be more fruitful.
And as you think about the remainder of the year, Karl, are there any new areas you'd see where you'd like to put some more investment, particularly given some of the revenue outperformance you're seeing in this first half of the year?
I think there are a bunch of opportunities that we think are important. We've talked about our simulation and analysis, what we're doing there. We've seen some interesting things in terms of these consumer low end products. But I think a lot of the really in the core business and figuring out which parts are yielding results as we bring on more salespeople, run more programs and really figure out the yields from the investments we've already made. The other thing I'd say is, as we get to Investor Day in June, there's a bunch of things that given more time, we'll lay out more fully about where we think the best opportunities are.
Great. And then just over on the Europe side, you guys hit a little bit on the hedging that you're doing and how you're thinking about that. But obviously that's sort of changing real time on a day to day basis. How do you try and model that given how volatile that environment seems to be right now?
Sure. Let me take a shot at this. And basically, Brendan, we have we tried to be as transparent as possible in terms of this 4 quarter rolling hedge. And just for everybody on the phone, there's this opportunity to as you get closer in, you should have the majority of your revenues and also your local expenses, you net out that and get a total exposure and you try to hedge that. And then you layer it each quarter in the Q2 out, it has a little bit less coverage and the Q3 out has a little less coverage and the Q4 has a little less coverage.
It's a fairly traditional approach called a 4 quarter rolling hedge. So we take that and do that with the goal of simply muting the variation versus plan, and that's what corporations do. I think in terms of the real time adjustments that are happening to FX, we have to look at that. We comprehend the best data we have. We have some ways to integrate this information and to model it and we make assumptions for the current period as well as the planning for the year.
So there's nothing more in detail I can really share with you. It's a complicated topic, but we certainly try to factor in the hedges that we already have that are layered in that address both revenue and local expenses. And then we also factor in the unhedged portion with the spot rates and everything that we can comprehend there to come up with an assessment.
Yes. If you step back and look, we talked about this probably a year to 1.5 years ago when we had a more simplistic hedging method that was really for most of the quarter in the revenue. And as we recognize the volatility in many of the world's currencies, we talked about introducing a slightly more sophisticated program like Mark just described. In some ways, it's having the effects of well, we watch the euro constantly. The effect is easily calculated and it is less important in the quarters near in and more of that volatility plays out in the long term, but we have less certainty of where it will be.
I was actually asking more about the demand side of it when
So on the demand side, I think we're watching, which is 3 weeks into the quarter. It's obviously a way bigger concern for us is the demand than the actual FX. So far, we haven't seen anything unusual factor that in just knowing that we're 3 out of 12 weeks into the quarter and that's about as far as we can see.
Your next question comes from the line of Derek Bingham with Goldman Sachs. Please proceed.
Hi, gentlemen. First, I was wondering if you could give a little more color beyond kind of the differences in what you're seeing in manufacturing versus AEC. I know we've got the numbers in front of us, but just wondering if there's any color you could add. I mean, generally, I think people are saying, okay, manufacturing is really strong, but this construction is still very worrisome and there's not a lot of activity going on. Wondering what you could add to that?
So, yes, Derek, a couple of things here. One for manufacturing, we continue to see headroom in manufacturing. We've talked about that as being an area that we think we can continue to make progress on and it will be a driver for us in this year and beyond. You can see the nominal growth rates as you called out on a year on year basis, about 15% year on year for manufacturing, about 7% for AEC. We're pleased that both are growing double digit.
This completes the cycle that we talked about of the reset, stabilization, sequential growth and year on year growth and it's really pretty much portraying as we've been talking about for the last year. But I think the manufacturing we see headroom, we continue to win specific deals with specific customers. I'd say, in some cases, CATIA would be a more likely area that we may win an account on. I think we have a strong product set with Inventor. Karl talked about an investment in simulation.
I think that our digital prototyping and simulation, I think more and more people are really looking at the value of that offering and it's really opening doors because we really have a strong offering as Carl talked about in our opening comments. So I just think competitively, we're well positioned. I think the market's kind of listening to our pitch and I think you're seeing some progress.
Yes. I mean, what I would say is, it's slightly counterintuitive. And no doubt, if you look at the worldwide economies, manufacturing recovered more quickly. But the counterintuitive part is that many of the companies in the construction industry are being forced to go to more drastic measures. There's been more consolidation.
There's been more trouble in their business. They're moving into different kinds of some demonstration of that already is that you'll probably see even a greater adoption because they are going through this technology transition information modeling or BIM that we talked about. And it is now taking on the proportions of a worldwide shift in how the industry does its business. So manufacturing is no doubt better. And as we've talked about, sort of our competitive position in each, it's very different, but they were both good this quarter.
It was nice to see Revit growing 13% year on year. I mean, again, a key product to Carl's point. So good results overall in those two areas. Okay.
And the platform strength, I mean, that was what's out of the big sequential jump in there. That was a lot a lot of that was related to the promotion or what else are you seeing there?
Yes. A lot was related to the promotion. The other thing is, in some ways, we're starting to look at the mirror image of this, we went into the downturn. And so what you're seeing is the symmetry as we talked about going into it, we talked about, one is we were able to have large deals. We were customers who were buying 3 d model based products continue to buy as we went into the downturn.
What we saw was a fall off in the 1 and 2 seats and primarily in the horizontal products like AutoCAD and AutoCAD LT. Those were the people who were much more hard hit. As we come out the other side, we're starting to see that recover more quickly. I don't think there was much more to it than that.
Okay. Last one, if I could, just on maintenance renewal There
are rules about this.
I don't know. You have to enforce those on the next caller. Just real quick, the maintenance renewal rates at this point, have they completely normalized in your view or is there are there still some more points to be had on that recovery?
I think the good news that we have seen improvement both year on year and sequentially, Derek. And so that's positive. We're still not at what I would say is the level that we have been at historically, but we're approaching that. There's still headroom on this area. We're making real progress toward that.
But there is still headroom compared to historical rates that we've been at. Okay. Thanks a
lot, Greg. It looks
beyond more than just a year back.
Your next question comes from the line of Sterling Auty with JPMorgan. Please proceed.
Yes. Thanks. Of course, I get to be the one that you enforced the limit roll on. All right, exactly. So one question, one follow-up.
So the question, Karl, I didn't get a chance to go through the prepared remarks. You talked about the tough compare on the large deals last year. Last quarter was a good large deal quarter. Can you talk about what large deal environment was like during this quarter?
Yes, large deals were definitely down from last quarter and more in line with that linearity in our revenue, proportion of revenue, it doesn't look like that. We don't have those characteristics. We just thought it was kind of unusual last quarter and so we called it out. But we're kind of back to normal seasonality and normal number of deals. I think if we see anything different going forward, we'll call it out at the time.
Okay. And then the follow-up question is, we talked about coming into the year, the cost cutting you did last year, but then the cost suppression. Obviously, the margins have been much better than expected. Do you feel like we felt all the impact of the cost suppression coming back in, whether it be merit increases or the sabbaticals or like that? So in other words, is this the type of leverage that we could expect moving forward?
So let me address that, Sterling. I think the way we're thinking about this is, look at our operating margin focus is all in all costs considered, including all the dynamics that we talked about earlier, even including FX. But I think it's fair to say that we have there's been some costs that were suppressed in the prior year that we have seen some impact on in Q1 for example. I think I'd almost shift the topic from cost suppression to say that all in when we look at our cost, that's factored into our operating margin expansion. All right, great.
Thank you, guys. You bet.
Your next question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.
Excellent. Thanks for taking my call. You guys saw a very nice increase in the number of net new maintenance customers in your subscriber base. I think it was like 133,000, which I believe is the biggest sequential increase that you guys have ever seen.
Can you talk to us
a little bit about the source of all those net new subs because I mean there's a lot of net new subs compared to the amount of overall sort of net new product business that you did if you look historically. Is that more people in the base coming over or how much of it is net new customers coming on to subscription?
I think along with the simplified upgrade pricing is people are got the message that the most cost effective way to buy our software and the way to get the most value is through the subscription program. As we've always talked about, these two things are really zero sum. You can buy through upgrades or you can buy through subscription. And it's been a long term more and more people are going to subscription. I think this just continues it.
I think with simplified upgrade pricing and just to be clear about what that was, it was going to 1 price for upgrades. You may remember us talking about our 1x and 2x and 3x pricing, which was overly complicated both for us and our partners. And so we and as we saw less people utilizing the various levels, we decided to simplify that as you went to one price, people are getting that there are certain places you don't want to be because it's no longer economically advantageous to be there and they recognize that we're really shifting the focus to being a subscriber is really the best way to do business.
Got it. And as a follow-up, did you guys give a subscription or maintenance billings growth number in the quarter? Because it looks like I mean, just back to the envelopes, it looks like it was very high. And is there I mean, similar to that $15,000,000 in upgrade revenues, is there a like simplified pricing impact number on that subscription billings number do you think?
Let me talk about the billings in general grew 26% year on year. So I think that's a fair commentary in terms of it was high. In terms of the second part of your question again was?
I mean, like you guys were able come up with a number like the $15,000,000 impact to upgrade revenues from the pricing change. Do you have a similar sense of what the impact on subscription billings was?
We really don't because you kind of have to start to get into the mind of the customer when you think about it from that standpoint. So the one time simplified upgrade pricing is what it is. You can see that in the cross grade upgrade data we put on the fact sheet. I think in the actual billings growth for subs, it's just hard to get in the minds of the customer.
But I think it's fair to say
that they see value in this product and I think they are incented to stay close to us and really get the value of those current releases and all that benefit. And it's a good economic thing for them to do so.
Your next question comes from the line of Ross MacMillan with Jefferies. Please proceed.
Thanks a lot. I'm just going to recap a little bit here, but just on the guidance, if I took out the $15,000,000 then obviously it implies flat sequential to hit the high end. You comment that the majority of the euro and the yen has been hedged for Q2. So are the other factors really just demand uncertainty? That's the first question.
And then the second would I be right in thinking that if I took, for example, prevailing rates today and I basically thought about the percentage impact, if you will, that rolls through over the next 4 quarters, that would effectively grow linearly or non linearly? In other words, you might have a 10% of the total impact next quarter and then 25 and then 40 and then or whatever the case may be. Is it like a nonlinear relationship such that that kind of becomes a bigger impact as you go further out the curve? Thanks.
So, 2 things. So, first, in terms of the guidance, it's really demand uncertainty in terms of Europe. I don't think we have any of that uncertainty around the rest of the world, but events are changing day to day. So it's really demand uncertainty in Europe. And I outlined that we haven't seen it yet, but we'll see.
And in order to solve the FX hedging equation, we'd have to give you more information. We really haven't gotten into details about telling you how much we hedge each quarter. Yes.
And then just one quick follow-up,
if I could. Yes, Sheila. Your next question comes from the line of Heather Bellini with ISI Group.
Do you want to go back and give Ross his question?
No. Unfortunately, we're getting strict. Why don't we do this Heather? We'll give Ross right back on.
Okay. All right. I just had a question, if that's what you want to call it? And where do you think we are in kind of satisfying the appetite for that?
I think we're at the beginning of things coming back online. I don't think everyone's back to work yet. I don't think most firms are running at full board. I think to the previous question, it's a little bit better in manufacturing than it is in construction. And it's definitely differentiating.
There's definitely differentials around the world. But I'd say we're still early in it. I think the real difference may be is almost psychological and attitude in which people have started to make investments in their business going forward. They're out of the deep depths of kind of depression, because they were not willing to make any kind of investments and had certainly more pressing issues than upgrading their technology. And we've now really kind of crossed that barrier to where people are making technology investments assuming a level of business they're seeing today.
Was the biggest impact in that this quarter where you saw that inflection where people were feeling comfortable or was that also in the January quarter as well?
I think we talked about it a little bit in the January quarter, small improvement. But I think if you look this quarter, it's a little bit more broad based in terms of product categories, individual products, license type geography. So it's back to a much more broad based kind of diversified revenue stream that used to.
Your next question comes from the line of Kash Rangan with Merrill Lynch. Please proceed.
Hi, thank you very much. It looks like Europe did a little bit better than Americas. I'm just wondering if you could give us a little bit more color. I know that certainly so far this quarter you've not seen any signs of weakness, but what drove the strength in Europe certainly to be surprising? Also if you excel the promotion, the results are relatively flattish with January quarter.
So wondering what gives you the confidence about growing at this level and beyond into the future next few quarters? That's it for me. Thanks.
Well, the one thing that I would add immediately is that in terms of Europe, the broad baseness that Carl touched on was certainly there in Europe. We saw good growth across the variety of countries in Europe. And so that was one thing that was certainly there to give you a little bit more color. This was not driven just by the North or just by the South or one area or the other. We saw a good level of broad baseness from that standpoint.
In terms of other elements of the growth, as we called out there was some benefit from the simplified upgrade pricing that certainly impacted Europe as well. We've talked about the FX in terms of the year on year growth effect. Those are few thoughts to consider. Carl, I don't know if have anything else that would add to that.
No, I mean not much to add. I think there may have been some slightly better execution when it came to the upgrade pricing, probably contributed to it to a small degree. But as you know with our business, we do so many small transactions
that kind of it becomes statistical in
nature and I've always said, don't go extrapolate from one data point too far. As we start seeing more of what goes on over the next few quarters, I think we'll have a more evolved sense of what happened tonight. And I think that same question I often ask of you, I'd say of us is we don't know enough from just looking at the one quarter to say it. But what we can say is there was that diversity.
Karl, as you talk to customers, what is the employment cycle looking like? Are people done retrenching or are they actually a little bit more advanced in that they are looking to hire or are they actually started hiring. If you could just comment on that and Mark for you, inventory should roughly stay at this low level or should we expect it to build back up to normal levels? That's it for me.
Thanks. Yes. So, I would say hiring we're on the beginning of the slope up. There are clearly people who are hiring for the first time talking to customers. I've heard people say, I can't hire or I can't hire fast enough.
So I mean, we're in a very different place than 6 or 9 months ago in terms of that. I don't think we're up at all to the staffing levels and you can look at the worldwide employment data to see that. So I don't think we're up to levels of 2 years ago, but I think we've definitely hit the inflection point where employment is recovering in the industries we serve.
And so, Kash, to hit the second question, in terms of the inventory channel, it is to be clear at the low end of what we've seen and it's a little bit lower than we historically have had in terms of the channel inventory. So we've typically thought about it in big factor and but that is factually where we're at.
Yes. And it's probably I would just say a drop more. It's probably just a drop lower than we're comfortable with. At a certain point, we've talked about this before, it becomes hard to service our customers well and we're probably at that point. So I wouldn't be surprised to see a small build during the quarter.
Exactly.
Your next question comes from the line of Steve Koenig with Longbow Research. Please proceed.
Hi, congratulations on the quarter.
I wonder if you all could comment on, I guess, adjusting for the outperformance this quarter, Mark, do you still see the possibility that 200 to 300 points if margin expansion is the right way to think about this year or should could we even expect better than that? I would say that given what's happened in the Q1 and the way we're thinking about the Q2, I think you should think about it more approximately 300 basis points. So more at the high end of that range based on what we're seeing, factoring everything we can see in as of today. So I think that would be where I would encourage you to think about. Okay.
And then my follow-up is kind of related to that, which is, if we see revenue upside like we did this quarter, I mean, it looks like most of the revenue upside this quarter fell straight to the bottom line once you tax it. Do you would you expect that if you had upside surprise on revenue, would you accelerate hiring as the year progressed or accelerate investment in channel or would most of that fall to the bottom line? How should we think about that? I think we will I think you can see the benefits of leverage. I mean, we experienced the pain of deleverage, right, the economy and the companies in it, but you're now seeing the benefit of leverage.
So I think it's fair to say that revenue over performance is something that will generate good bottom line performance. I do though want to underscore that we're making select strategic investments and we're going to constantly be walking that balance to both continue on our progression towards our long term operating margin of north of 30% over our long term plan and at the same time, sow the seeds of investment that are going to propel growth over the long term. So, Karl, I don't know any additional commentary, but
Your next question
wondered, I may have missed this in your remarks earlier. I apologize if you talked at all about the sluggish American business. Have you adjusted your expectations up or down recently? And if so, why? If you could give us an update on your opinion on credit access in your channel and also sales headcount in your channel?
And then I just had a quick question about Revit as well.
No, I don't think we've seen difference in our American business. It's kind of going right according to plan. And I don't think we've seen any real differences in terms of access to credit. I think business in the Americas is tracking just according to plan. I think as reported, as we pointed out a couple of times, it's just hard because of the comparisons or because of those abnormally large deals last time this year.
One thing you can see in our particular DSO certainly have to adjust it for billings linearity and such. But in general, we talked about it last quarter, we're not having channel partners who are asking for extended terms. We're seeing some level of normalization there. And so from that standpoint, I think we're really more in terms of back to normal in terms of what they're asking for in terms of credit terms. So that's another maybe micro bit of data for you to think about.
Okay. And then on Revit, I thought last year was a good year, I guess, incrementally speaking for the state level mandates around building info modeling. Do you think this year we're apt to see anything significant on the commercial side with
in that really nice position of where you're starting to see national standards and professional organizations recommending them. In some places, they stop short of naming actual products, not being allowed to do so. But in many cases, really the only product on the market that fits the bill is Revit. We've continued to invest in Revit. It's moved far ahead.
And I'm really happy with the progress that we've made on the development. And I'd say even happier with the adoption around the world. You now see it just being used on projects of every size and every geography. And there's no doubt that these government mandates certainly help.
Your next question comes from the line of Israel Hernandez with Barclays Capital. Please proceed.
Good afternoon, guys. Can you guys talk about as we move into kind of global recovery assuming Europe doesn't melt down here, how do you think the pace of 3 d adoption will be in some of your products? Do you think some of your customers are now using this pause over the last couple of years to rethink their technology platforms? And think you're well positioned coming out of the recession? And Carl also I'd like to get a comment on the anti shelfware issue.
Thanks.
So I would say on the technology adoption, I mean, we've talked about this a lot. I think many, many of our customers have done more than just rethink. I talked about a lot of pilots being run. There's usually this period of checking out software and then they pilot it before putting it into production. What I think happened that during this extended downturn, you saw a lot of piloting going on.
And in some ways that leads into the anti shelfware is that what we would have seen before is maybe a firm buying 100 seats of software. During the downturn, they might have only bought 10 or whatever was sufficient in order to run their pilot project, but now have figured out their work processes and integration with their systems, so that when they adopt it, they're still looking to purchase those 90 other seats. So I think that's really where some of the
releases. I talked about this a
little and people are sitting back on old releases. I talked about this a little last quarter. I mean, one of the things is, if you just saw a side by side demonstration of our products running on Windows 7 on today's kind of commodity desktop computer with typical graphics hardware and you went and saw the same thing on some older version of Windows on a 32 bit operating system with old graphics, it's a night and day experience. And so even without changing the technology platform, just moving to the latest hardware and software gives people unbelievable productivity benefits. And so, I think some people are just going through that upgrade and as you see a PC refresh
cycle, we're kind of tied to that
in some ways. Okay.
Your next question comes from
the line of Sasha Zevorick with Janney. Please proceed.
Yes, thank you. If you could comment a bit on what kind of a competitive changes, if any, you have seen through the quarter here?
Could you repeat the question, please?
Yes. Can you hear me?
Yes.
What kind of competitive changes, if any, you have seen in the quarter?
I don't think there was anything I don't think there's anything notable. I think competition continues to remain the same throughout the markets and geographies that we've historically talked about. Nothing special to call out.
So specifically that kind of the such a strong performance that you've had in the quarter here was basically that kind of the markets were coming back, the demand was coming but not that there were really meaningful share gains that you have been able to point to for that?
I wouldn't get too excited about share gains in a single quarter. Fair enough.
And then also if you could comment on the linearity. Quarters have tended always to be very linear. Has it also been the case here? Or did you see any kind of an acceleration as the sort of through April or was it again fairly linear throughout?
Let me address that, Sascha. I think two points. One is that I think it's quite linear again. That's a pattern that we've seen and we would even say as Carl touched on earlier, even for the 1st couple of weeks of this quarter, it's been reasonably linear thus far.
Great. Your next question comes from the
line of Ross with Jefferies. Please proceed.
Thanks a lot for getting me back. It was just a real simple one on the €15,000,000 benefit from the promotion. Is that something which you've been able to kind of pin down accurately? Or is that just kind of a good estimate of what you think the impact was? I'm just curious.
Thanks.
Yes, we just pulled it out of the year.
No, it's we've spent a bit of time on this one, Ross, for sure trying to make sure we validate the data. I think it's like anything, it's an estimate with our judgment around it, but I think there's some good fact underpinning on this one.
Yes. I mean, as Mark talked about, some of it involves trying to determine buying behavior, but there are some historical patterns and I think we at least triangulated it. We came at it from many different directions and that's our best guess. For some of you asked about it last quarter and some of you had maybe even seen some early signs at the end of last quarter or certainly when we reported and we hadn't. This time we were absolutely able to say that there was some substantial amount and $15,000,000 centers around our best guess.
That's great. And maybe just one other one. Obviously, the AEC business you're seeing right now is less driven by architects and more by different players within the AEC segment, whether it be contracting engineers or building owners or facilities online more meaningfully?
Yes. I mean, I think you will certainly see I mean, the architecture one, the easiest way to look at it is probably through the employment numbers. That's one of the big macro drivers. I think you can look at some smaller elements like we talked about with technology refresh that will play a part regardless of the overall growth of the industry. In addition, I do think there are a fair number of trends going on in the industry integrated project delivery, which are just new mechanisms for delivering projects.
And when you think about those, some of the financial and legal relationships change and then some of the buyers. So that's certainly going on. And so we've historically had a big architecture business, a smaller engineering and a really small construction business. I think we can see those disciplines get to parity and may even reverse themselves. Certainly, when you're talking about a long term trends and we think one of the really big opportunities is in the construction part of the market.
That's great. Thanks again. Congratulations. Thanks.
A follow-up question coming from the line of Sasol Zorro with Janney. Please proceed.
Yes. If you could comment please on the business in Japan specifically that has been sort of one of the areas that has been sort of difficult in the past and what you're sort of seeing there, the extent of a turnaround, if you could comment on that please?
I would say less than the problem, I would say. Japan has been more volatile than other large countries for us. It's been less consistent, but we certainly, if you look back over the last few years, we have good quarters and we have bad quarters and then just caution again, let's just see as the year continues to play out how it goes. But we've actually had a very good quarter this time.
Thank you.
I'm showing a follow-up question from the line of Kash Rangan with Merrill Lynch. Please proceed.
Yes, certainly easy on us. I appreciate that today. What an easy call. Carl, question for you. I'm going to re ask my question in a slightly different way.
If you look at the last quarter to this quarter, if you exclude the promotion stuff, it looks to have been sequentially flat. I know that is entirely within the norms of seasonality. However, you also have an easy comparison against your earlier. So you're obviously putting up good growth against the depths of the depression. So question for you is, what absent of your distortion, which certainly is a big factor on everybody's mind, what are the second derivatives or things that you're watching in your industry that gives you the confidence that you can actually grow your business on top of the base that you actually delivered in this quarter, which certainly was growth against easy comparisons.
But from this point onwards, what are the drivers that can help you your business fundamentally and gain share? If you can also talk about any advantage you have on the pricing standpoint, margin standpoint that will be good? Thanks. Very simple question there.
So I'll just re answer it differently. What I would say is kind of a summary of what we've said all day is, I think the thing that gives us the greatest lines and against license types. So almost everywhere we looked, the numbers were good and the results were very good. I think if you look at what you call the second derivatives, even some of the things as we talked about channel inventory and backlog and DSOs and even down to some of the small detail about interactions with the partners, they all suggest good things. And that is that combination of good top line.
I think we have our cost structure in line right now from all the hard work that we've done over the last 18 months. And one of the points that I made all along is that despite a lot of the hard work and cost cutting, we continue to invest in our product portfolio because at the end of the day what customers get from us is our products. And that's what enables them to drive their business. And I feel really good about the products we've been releasing. We just had a fantastic release of software.
I can't think of a year in which we've gotten better reviews from both the customers and the press. And nowadays, with kind of blogging and tweeting, the feedback is instantaneous. And so I feel really good about our products. I think our channel came through it. While it was certainly a difficult time for our channel partners and our employees, I think people came through it.
And I think we're just in a better position. And I think this was the Q1 in which we got a broad indication of the improvement.
Got it. That's good answer, Karl. And also the new release, what can it do for your business, new seats or getting higher penetration with an existing customers, quicker upgrades, what are the vectors that can go right for you with the new release?
I think it's all those things Allen. I think it's all the things you about, you'll start seeing return to normalized rates in subscription, certainly see deeper penetration into an existing accounts and we continue to win new business all the time. And so, I answered the question before, I don't think there's a great change in the competitive strategy. But I think if you look at the vectors over time, they've been favoring us and we continue to win share from all of our major competitors. And that's particularly true in manufacturing where I think we just have a much better product and a much better position than kind of gravity is on our side in that market.
At this time, I'm showing no further questions in queue. I would like to turn the call back over to Mr. Dave Gennarelli for any closing remarks.
That concludes our call today. If you have any further questions, you can reach me at 4 155076033. Thanks.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.