Autodesk, Inc. (ADSK)
Q4 2009 Earnings Call Transcript
February 26, 2009 5:00 p.m. ET

Executives

David Gennarelli – Director, Investor Relations
Carl Bass – President and Chief Executive Officer
Sue Pirri – VP, Finance

Analysts

Greg Dunham – Deutsche Bank
Heather Bellini – UBS
Steve Ashley – Robert W. Baird
Brent Thill – Citigroup
Sterling Auty – JP Morgan
Mike Olson – Piper Jaffray
Keith Weiss – Morgan Stanley
Richard Davis – Needham & Co
Steven Koenig – KeyBanc Capital Markets
Ross MacMillan – Jefferies & Co
Dan Cummins – Lime Rock Research
Philip Winslow – Credit Suisse
Kash Rangan – Merrill Lynch
Sunil Dastidar [ph] – Centennial Investments
Blair Abernethy – Thomas Weisel Partners

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Autodesk Inc. earnings conference call. At this time, all participants are in a listen only mode. We will conduct a question-and-answer session at the end of this conference. (Operator instructions) If you require operator assistance at any time please press “*0” and a coordinator will assist you. I will now turn the call over to Mr. David Gennarelli, Director, Investor Relations. Please proceed, sir.

David Gennarelli – Director of Investor Relations

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss our fourth quarter of fiscal 2009. With me today are Carl Bass, our Chief Executive Officer; and Sue Pirri, Vice President of Finance. Today’s conference call is being broadcast live via webcast. In addition, a replay of the call will be available at Autodesk.com/investor.
During the course of this conference call, we will make forward-looking statements regarding future events and the future performance of the company, our guidance for the first quarter of fiscal 2010, the factors we used to estimate our guidance, our future business prospects and financial results, our market opportunities and strategies, trends for our products and trends in various geographies, and the anticipated benefits of acquisitions. 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-K for fiscal year 2008, and our 10-Qs for first three quarters of fiscal 2009, and our periodic 8-K filings, including the 8-K filed with today’s press release. 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 accurate or 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 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 on our website. In addition, we will quote a number of percentage changes as we discuss our financial performance. Unless otherwise noted, each percentage represents a year-over-year percentage change showing the fourth quarter of fiscal 2009 as compared to the fourth quarter of fiscal 2008.

And now I would like to turn the call over to Carl Bass.

Carl Bass – Chief Executive Officer

Good afternoon everyone, and thank you for joining us. The results that Sue and I will outline today are not what we’ve been accustomed to over the past several years and we are disappointed by them. The global economic downturn is now significantly impacting each of our major geographies and all of our business segments. It is evident that the current global economic malaise is unlike any downturn we’ve experienced in the past. Jobs are being lost across all industries; businesses around the world are still finding it difficult to secure credit financing; construction and media and entertainment projects are being delayed or canceled. Manufacturers are slashing spending in response to lower end-user demand.

As a result, total revenue for the fourth quarter was $490 million, a decrease of 18%. License and other revenue decreased 30% due to a 33% decline in new seat license revenue. As we look at our business by geography, revenue performance in the Americas declined 17%. Weakness was seen across the entire region. The Americas has experienced weakness for five quarters now and it’s not yet clear if it has hit bottom. On the positive side, we continue to make strong inroads with our government sales. Our government business has been on the upswing over the past four quarters and we believe we are positioning ourselves well for increased infrastructure spending that may result from the recently signed economic stimulus package.

Turning to our international business, although we started to experience some economic headwinds in international markets in our third quarter, our overall results during that period were relatively strong. Global conditions have worsened since then and the economic downturn significantly impacted our international business during the fourth quarter, particularly the robust business we had been seeing in emerging countries. Revenue from Asia Pacific decreased 25% as reported and 28% at constant currency as a result of economic headwinds in large developed markets like Japan, Korea, and Australia. We also experienced significant year-over-year declines in emerging countries, such as China and India. Most of the APAC countries are now facing a decrease in building and manufacturing production resulting from reduced trade with areas like the U.S. and Western Europe. EMEA revenue decreased 16% as reported and 8% constant currency. Similar to APAC, the growth rates in emerging countries decreased more dramatically than developed economies. We remain confident that emerging economies will be a key growth area for Autodesk once we get past this downturn. In total, revenue from emerging countries declined 31% and represented 16% of our total revenue for the quarter.

Now let’s take a look at performance by product category. Our customers continue to tell us that they need to differentiate their products in order to gain and maintain a competitive advantage. Our design solutions are key to helping them do just that. As a group, our model-based 3D design solutions fared better than our 2D products. Our model-based 3D design solutions decreased 1% to $144 million, and represented 29% of our total revenue for the quarter. We shipped approximately 30,000 commercial seats of these products in the fourth quarter. Our 2D horizontal products, AutoCAD and AutoCAD LT declined 29%. Revenue from 2D vertical products decreased 21%. Clearly, all aspects of our business are being impacted by the slowdown. To address our lower expectations for sales, last month we announced a restructuring plan which will reduce our operating expenses by approximately $130 million annually. Some savings will be generated in the first quarter, but we expect to realize the full quarterly impact of the reductions starting in the second quarter. The savings are being achieved through headcount reduction of approximately 10%, facilities consolidations, a hiring freeze, travel restrictions and a variety of other cost reduction initiatives. In addition, we are making significant adjustments as part of our ongoing effort to size our business correctly.

Before Sue provides a closer look at the financials I’ll give you another update on our CFO search as this remains a top priority. As I mentioned last quarter, the pool of potential candidates has grown considerably. We have narrowed the field to several highly qualified candidates and are actively working through the process. I will not compromise simply to fill the vacancy. In the meantime, I cannot stress enough that we have a deep bench of highly skilled and experienced people in our finance organization who are doing a great job bridging this transition.

Now I’ll turn the call over to Sue for a more detailed discussion of the results.