Autodesk, Inc. (ADSK) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Misty, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Autodesk Fourth Quarter Fiscal Year 2012 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Dave Gennarelli, Director, Investor Relations. You may proceed.

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter of fiscal 2012. Joining 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 first quarter and full year fiscal 2013 and long-term financial model guidance, the factors we use to estimate our guidance, new product and suite releases and expected growth rates, certain future strategic transactions, business prospects and financial results, our market opportunities and strategies and trends in sales initiatives for our products and trends in various geographies and industries. We caution you that such statements reflect our best judgment based on factors currently known to us, and that these actual results could differ materially. Please refer to the documents we file from time to time with the SEC, specifically our Form 10-K for the fiscal year 2011; our forms 10-Q for the periods ending April 30, July 31 and October 31, 2011; and our periodic 8-K filings, including the 8-K 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 this call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the GAAP and non-GAAP results is provided in today's press release, prepared remarks and on the Investor Relations section of the website. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now I'd like to turn the call over to Carl Bass.

Thanks, Dave, and good afternoon, everyone. We started FY '12 with a target of 10% revenue growth and 200 basis point operating margin improvement. Despite some economic turbulence, through consistent execution, we finished FY '12 with 14% revenue growth, 260 basis points of margin improvement and 32% growth in EPS. This is strong growth, particularly on the heels of our FY '11 results of 14% revenue growth, 480 basis point operating margin improvement and 33% growth in EPS, capping the year with a strong performance in the fourth quarter. Fourth quarter revenue was driven by growth across all of our major geographies, with particular strength in Americas. All of our businesses performed well, driven by demand for our suites. We achieved record results in several areas, and we made solid progress in advancing our operating margin and EPS. There were several areas of notable growth and achievement during the quarter, including 12% growth in total revenue; 25% growth in total suites revenue; 18% growth in revenue from commercial new licenses; record revenue levels in AEC, Manufacturing and the Americas; record maintenance billings in deferred revenue; 360 basis point improvement in non-GAAP operating margin; 31% growth in non-GAAP EPS; and solid cash flow from operations. In addition to strong financial performance, we made substantial progress on many of our key initiatives in the fourth quarter. We launched our new design and creation suites almost a full year ago now. We believe the new suites deliver a tremendous amount of value and functionality, and we've been pleased with the customer reception and uptake to date. We're especially pleased with the adoption of our specialty plant and factory design suites and how they're opening up new industry opportunities for us. I've talked to you before about the investments we've made in direct sales to elevate our presence within major accounts around the world. We experienced continued success in this past year, culminating with a record 36 transactions that exceeded $1 million in the fourth quarter. We also had a record number of $1 million transactions for FY '12, increasing 24% over the last year. Much like our overall business, these large transactions extended across all of our business segments and geographies. We also continued to see our investment in the government vertical payoff. We won some high profile contracts with large federal and international agencies. We recently closed deals with the Brazil National Department of Transportation Infrastructure and the New Mexico Department of Transportation. In only 2 short years, we have won 6 state DOTs, and we believe that we can further expand our business in this sector. We also continued to expand our business in Manufacturing. Our digital prototyping and simulation products for Manufacturing are winning accounts that have long been the domain of legacy technology providers. We're seeing particular success with consumer product manufacturers that are using our solutions to conceptualize, design, simulate and visualize their products. We're the only company that can provide the spectrum of interoperable tools, saving them precious time and energy in the development cycle for fast-moving markets. We're excited about our next major release in just a few short weeks. In addition to launching new additions of many of our current products and suites, we'll officially debut our PLM offering. We view the PLM market as a $3 billion opportunity to disrupt and democratize. Our new cloud-based solution is designed to transform how manufacturers manage their entire product life cycle. Being 100% cloud-based, Autodesk PLM 360 marks a new generation of PLM and is affordable, easy-to-use and simple to deploy, bringing the benefits of PLM instantly to anyone within the extended enterprise. Since we announced our plans for PLM 360 at Autodesk University, companies of all sizes have been piloting this next-generation cloud-based alternative, from small companies eager to deploy PLM for the first time to large enterprises that have become disenchanted by existing legacy PLM systems. Customers are currently using PLM 360 to solve a large number of business problems, including project management, RFQ for suppliers, manufacturing time and cost estimating, customer list management, customer service management, billing materials and change management. PLM 360 offers significantly new functionality and deployment options for our customers. To us, it represents a very large pool of potential new users and significantly extends our presence in the manufacturing market. On the other end of the spectrum from large deal and PLM is our budding consumer business. We continue to broaden our consumer offerings in FY '12. And our consumer portfolio now includes dozens of products across multiple platforms, including Windows, Mac, iOS, Android and online. What's really amazing is how the number of users of these products has exploded over the past 18 months to over 50 million. This represents a tremendous branding opportunity in the near-term and long-term revenue potential. Another key initiative to help control costs and improve customer experience is to increase the use of electronic delivery of new licenses in most developed countries. In advance of this action, we reduced the amount of inventory in the channel over the past 2 quarters by approximately $13 million in total. Channel inventory now stands at a historic low of approximately one week. Over time, we expect to phase in electronic download of new licenses in emerging countries as well. In addition to an unwavering focus on improving our products and delivering more value to our customers, we simultaneously look for ways to improve the efficiency of our organization. We've recently realigned some of our internal resources, including organizing our sales teams by industry. We believe this will unlock salespeople from geographical restrictions and leverage their expertise on a global basis. The changes are intended to better serve our customers and drive future growth. We've also made some adjustments to our channel program for FY '13, drawing on best practices from our various geographies. For example, we're making it easier for our partners to sell our full portfolio of products by expanding product access. We've expanded our deal registration program on a global basis to drive both increased service and growth. And we've globally aligned our incentives program, which encourage partner investment and specialization and continuous customer satisfaction improvements. We've received positive feedback on these changes to date, and we're confident these enhancements will positively affect our global channel partners. Overall, we believe our progress in each of these important initiatives positions us better as we enter FY '13. So to wrap things up, the fourth quarter was another strong quarter, capping what was a terrific year of consistency and growth for Autodesk. We're confident in our ability to deliver continued double-digit growth in FY '13 as we focus on our 5-year targets of 12% to 14% revenue CAGR and operating margins of at least 30%. And finally, I want to thank our employees and partners for their outstanding efforts and essential role in delivering these great results. Operator, we'd now like to open the call up for questions.

[Operator Instructions] Your first question comes from the line of Brent Thill with UBS.

Carl, I had to go back in the model quite a ways to look for that type of growth out of the Americas region. I was wondering if you could drill down in terms of what you're seeing and kind of how you view the sustainability of that growth? And the actual question, will that help drag Europe along in a couple of quarters as well? And I had one quick follow-up.

Yes, sure. Yes, it was certainly a pleasure to see the Americas grow at that rate, Brent. And I think what we're seeing has been a slow steady build. I mean, it doesn't feel like it's over-the-top. It just feels like it's been growing. We saw the turnaround kind of start 1.5 years ago, almost 2 years ago, and it's just been building. And I do think we saw a little bit of reflection a bit this quarter of a different mix than certainly what we might have anticipated. And as we went into the planning for next year, I think the mix will be slightly different and I think Americas will continue to do well. I think Asia will do well. I think there are still question marks about what's going on in Europe as you well know.

Okay. And just real quick on the realignment around the industry. In your view, how does disruptive -- is that going to take a while for this to settle in? Or do you view it more of a tweak and we shouldn't anticipate any major big changes in the field?

I think for the industry realignment, which is really about our direct salespeople, which again, first of all, is only a fraction of our business. It's less than 20% of our businesses that way. I think it will improve the effectiveness of that sales force over time. We're giving them more products to sell. We're basically going on saying, go to the manufacturing company. And whether they're looking for tools for product development, looking for PLM tools or looking for tools to build their factory, we can give you all those different tools and service that account more effectively. Probably the bigger change -- and so I don't think it's going to be a big deal. And many of the people who do that job everyday who are doing it, they have to really tweak their offering. They have just a little bit bigger portfolio of products to sell. What I'm more excited about is extending those changes to our channel partners and allowing our channel partners to sell more of the portfolio. For some of them, it's not a big deal. For others, they've had to go to unnatural acts when a customer want something but they haven't been authorized to sell it. And now just having broader access, as well as the tools to manage that, I think are important.

Your next question comes from the line of Sterling Auty with JPMorgan. Sterling P. Auty - JP Morgan Chase & Co, Research Division: So it feels like AEC is really taking a nice step-up on Manufacturing, which seems to be the early improvement area for you. It's doing well but cooled off. I'm just wondering, when we look at Manufacturing and suite adoption as we move forward, should we see some re-acceleration or has it kind of reached a steady-state in terms of what you're thinking out of the growth for Manufacturing?

Like I often find myself saying on these calls, I wouldn't take too much out of one quarter. Manufacturing has held up -- I mean, held up well through the downturn. It's the market for us that held up best. Coming out of it, it's been strong all the way through. I don't see this as a trend. I'm very excited about what we're seeing in the Manufacturing accounts. I think our competitive position has never been stronger. And I think it's really a combination of what we have to offer, including the new PLM offerings, and a little bit stumbling by some of our competitors. And so I think it's a nice thing. I think you'll see good growth in Manufacturing continuing through the next year. Sterling P. Auty - JP Morgan Chase & Co, Research Division: Okay. And one follow-up. When you look at the suites, you have the different flavors, the more expensive, more robust and then more of an entry-level. What's the experience now that you're another quarter in with them in terms of where the customer is gravitating in terms of their buying?

I think our expectation going into this was that we were targeting people to buy the middle tier suite. That was really the intention all along. We've seen a little bit more buying at the high end than we originally planned for. More people are buying that top-tier suite than we had originally imagined.

Your next question comes from the line of Brendan Barnicle with Pacific Crest Securities.

Carl, I wanted to follow-up on that Brazil win that you had on the stateside. Does that -- on the public sector side. Does that then get you into the individual states in Brazil as well, and is there multiplier effect around that like you've seen in North America with the individual states here?

In every one, I think there are 2 effects, one that you mentioned, Brendan, and then the other. I mean, one is, government agencies tend to look to other government agencies for guidance in what tools. There's nothing like a customer reference coming from another DOT or from the state DOTs looking at the federal. That's a really important thing. But probably an even bigger effect is that many of these organizations, while they are large engineering organization, the bulk of their work is done by the private sector. So they -- and in many cases, they either really mandate particular tools or they highly recommend tools, and so you get the ecosystem to use the tool. So the combination of both customer reference, as well as the spill-on effect of the ecosystem adopting the tools, are both really good things. I'll say even in like the New Mexico DOT, each of these agencies certainly evaluates these things for their own needs. But it sure helps when they're able to look at a similar kind of agency and look at their peers and understand what it took to adopt it, what the changes were in bringing in new technology and then, of course, what the benefits in return on investment was.

Great. And then -- and Mark, just following up on that net maintenance billings number up 18%, which is what I had up last quarter as well. It's had nice acceleration. Can that accelerate further from here or is this sort of where it tops at because you're starting to get some tougher comparisons, I think, going forward?

Well, we're certainly pleased with the 18% for sure and I -- we don't guide to billings per se, but we're definitely happy with that. We like the product offering. And probably, I'll just kind of leave it at that, but we were certainly pleased to see that transpire, Brendan.

Your next question comes from the line of Jay Vleeschhouwer with Griffin Securities.

Carl, following up on your comments earlier about managing the inventory down and electronic delivery. Could we foresee that at some point, the company will evolve it's model to sell-through revenue recognition or activation of license-type revenue recognition as one or 2 of your peers have?

Yes. That's exactly the direction we've been headed. We would like -- we've always said we'd like to get to a sell-through model. And we're not there yet. We don't have all the things that we need.

Okay. That's not encompassed in this year's guidance then, just sort of a clarification?

Yes, just -- I mean, just jump in there and say that, that's correct. We -- again, we talked about the channel being down approximately to a week. It's very close. It's very close to that. But right now, we have like emerging markets and LTs that are not -- they're still going to have some channel inventory there. But eventually, as Carl said, we're going right to that, but that's not factored into the guidance for this particular year, that last week. We'll just to continue improve. And over time, you'll see that happen.

Your next question comes from the line of Walter Pritchard with Citigroup.

I'm wondering if you could talk about emerging markets. It looks like it was about 16% of revenue and growing in line with the small companies. And just curious if you could give us a little bit more detail inside that metric and specifically, if you'd expect in your long-term plan that 12% to 14%, if emerging markets needs to grow faster than the overall to hit those ranges long term?

Sure. Let me jump in on this. In terms of the emerging market, one of the things -- to give you a little bit more color, we were pleased with the growth overall. One of the stars -- we don't quote on all the different countries, but Russia, for example, was very strong, both in the quarter and for the year. That would be one example. But we had good broad-based growth in the emerging markets. We believe, although it's choppy by quarter, any particular quarter, it can get to a little bit lumpy from that standpoint. But over time, we always see that as a leader and will lead growth faster than the average growth in the company there, so that's certainly what we would expect in FY '13 and beyond.

Your next question comes from the line of Steve Ashley from Robert W. Baird. Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division: I would just like to drill down on the AEC business. The assumption, I guess, is that the U.S. was probably very strong. But could you comment on how the AEC business was in Asia Pac and EMEA, and what your kind of outlook is for the business in those markets?

Yes, it certainly was strong in the U.S., and we were seeing some form of recovery in the AEC market in the United States. We've really hit the tipping point with BIM or building information modeling. I mean, we've hit the point where there's huge amount of demand from owners. It's being mandated by government agencies. And as we've always talked about, the drivers -- to a large extent, the place where most of the money is spent is in the construction part of AEC. And what we've seen around the world definitely differential rates. But worldwide, we're seeing the adoption of BIM technology. And so for example, historically, Japan has been a laggard with respect to the adoption of technology. They've been primarily doing 2D technology in AEC. And just in the last year, we've seen the leading firms, the genecoms [ph] in Japan all adopt BIM technology. So that's a dramatic change that, again, like I talked about before, has a huge spillover effect for the entire industry. And I've said it before, say it again, it's no longer a question of if, but really of when people will be doing 3D modeling and simulation and visualization in AEC. And so I think we're just in the sweet spot of the adoption. Certainly, the macroeconomics in each of these countries affects it on a quarterly basis. But if you kind of stand back and squint, you can just see broad adoption of a new way of doing business. Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division: Mark, I was wondering could you comment on the outlook for FX, and I understand you guys have a rolling hedge. If currency rates stay about where they are, are we looking at an impact to revenue in the coming first quarter? Any guidance or comment you can make around that?

Sure. Let me just speak to it. The first quarter, in a way, you're absolutely right in terms of the rolling hedge. In the first quarter, things are pretty well locked in the way rolling hedge works. As you get closer and closer to the current quarter, you step up the amount of your hedge and it becomes quite firm in the planning. So we pretty well have that locked in. We don't expect to see anything really different there based on the hedges that we have in place. And then as you get further out in the year, we're less hedged. And so for example, by Q4, we have a small fraction of the year hedged, and then we'll just layer it up to nearly complete hedge when you get to the end quarter. So FX has been fully comprehended in our guidance for Q1 for sure. And we've factored in the hedging that we do have, the more limited hedging for the rest of the year into our guidance, plus normal assumptions. Hopefully, that helps.

Your next question comes from the line of Richard Davis with Canaccord.

So Carl, unlike just about every other design software company, you have an enormous installed base into which you can upgrade and sell new modules and things like that. Meanwhile, every public company I hear says they're gaining market share. So that kind of reminds me of the school teacher who says every kid is above average. But in any case, how do you think about the relative contribution of your go-forward growth of sales into installed base versus selling to new customers?

First of all, I'm chuckling a little bit because in many ways, market share is so easy to calculate. I don't know why all of you deal with it as this anecdotal thing of allowing people to say, "I'm gaining market share or I'm not." While certainly there's less information about other parts of people's models, I think there's really only 2 ways to calculate market share. And one would be to look at revenue and another one might be something like seats. But in each case where it's reported, the numerator and the denominator are really straightforward. And whether it goes up or down is actually a fact. It's not a matter of opinion. So I don't -- in some ways, I just don't get it. Why you almost let people get away with -- if Autodesk grows at twice the rate of another company, I don't know how they're gaining share on this, or maybe I just don't understand market share. To the more -- maybe that was just your prelude to your real question rather than my rant about market share. I mean, one of the things that's interesting for us is in almost every case, customers have some of our software. And so we don't have as big a distinction between new -- kind of brand-new customers and existing customers. What we do look at a lot is the place we play in the value to the customer. So there are places we were, front and center, the most important product that they use to do their design and engineering work. There are other places where we play a peripheral role. And a lot of it is moving from those peripheral roles to more central roles. But if you go out there, it's very hard to find any sizable engineering company or somebody in media and entertainment that doesn't use our tools to a small extent. So I guess, the answer would be there. But I would say, at a certain point, when you go from a small niche player within a firm, you're actually changing the quality of the relationship in some material way. It's not just gaining more share within the company, you're changing your relationship with the customer.

Your next question comes from the line of Ross MacMillan with Jefferies. Ross MacMillan - Jefferies & Company, Inc., Research Division: Mark, can you maybe just help us with that maintenance billings number that, I think, is 18% in the quarter. I think the simple average for the year is about 20%. And the question is really when that starts to flow through into your maintenance or subscription revenue line and when we might see that sort of maintenance revenue begin to accelerate?

Sure. I'm happy to give you a framework on that. You hit the number right, 18% for the quarter, about 19% to 20% for the year for the maintenance net billings. That's exactly right. And the way that -- the way I think about this is that the vast, vast majority of those billings of maintenance are single year. And so 12 months ratably, those billings will be broken in and recognized over time. So you can take that, you can see our record deferred revenue. We have about $719 million on the balance sheet. And you could know that the vast, vast majority of that is single year. And so you have to make an assumption around that, Ross, of what that fraction is. But I'm telling you, the absolute vast, vast majority is single year. The second aspect is, you have to make a call on multi-year. When we have multi-year, the biggest part of multi-year is a 3-year deal. So the way I would encourage you to think about this is take the total billings, make a fraction that you think is multi-year and the vast majority that's a single year, and then start using in one hand, divide it by 12, and the other hand, divide it by 36. And you're going to get a good proxy for how that's going to flow into revenue. Okay? Ross MacMillan - Jefferies & Company, Inc., Research Division: That's helpful. Yes, definitely. And then just as a follow-up. When you introduced suites, you guys were obviously promoting the suites to stimulate some early adoption. And I'm curious as to whether you feel now that the suites have been out there for a year and obviously, the adoption is -- has been very good, whether there are some changes you might be making on sort of promotional activity around suites and whether you think you can capture more upfront license revenue from the suites at this point?

We've been thrilled with the adoption of suites. We're always kind of looking and will continue to tweak where we do promotions, where we see opportunities. Certainly, taken as a whole, you'll see less promotional activity around the suites than you saw at the introduction but kind of still reserve the right to look, whether it's geographically or on a particular line of business, where we want to incent people to move more quickly.

Your next question comes from the line of Dan Cummins with ThinkEquity.

Let's see. The op margin has peaked in the fiscal 2Q each of the last 2 years. What's the -- what should our expectation be seasonally going forward? And then I had a follow-up on your DSO.

Yes, so a couple of things. One is that we do have certain pattern in terms of spend and in revenue, seasonality wise, in a normal environment. And we're certainly then approaching a more normal environment that we have been historically. During the great financial crisis, it really was not normal, but we're getting into a more normal period. And for example, I think you're familiar that, for example, in Q4, we incur a lot of launch costs. We're getting ready to prepare for the future product release, and we also have annual employee incentives and things of that nature. That's an example in Q4. In Q1, we classically have the actual launch costs additionally and some of the various dynamics that we normally see in Q1. And so I do think we're approaching more normal seasonality. The best advice I have for you is think about our annual guidance. And each quarter, we're going to give a better line of sight to how that breaks out and try to keep dialing that in for you. I think that we've given you a solid guidance for Q1 that reflects some of the seasonality of spend typically there. And in Q2, we'll give you a little bit better refresh. But in the meantime, I think we are approaching normal seasonality.

Yes, I think the Q1 and Q4, the things that go on in these quarters aren't changing. So if I look forward this year and next year, I don't see any changes. Commissions and bonuses will still be in Q4. Taxes and launch costs are in Q1. I mean, it's just going to continue that way. There's no big changes there. Do you want to -- Mark, do you want to answer the DSO question?

Yes. And Dan, do you want to frame the DSO question that you had? I just want to make sure to address that. He may not be able to come back, operator, but I'll -- let me just address DSO, generally. DSO is up about 6 days year-on-year, and that is really driven exclusively by the fact that we had record billings in Q4. And in particular, the billing linearity was later in the quarter. And so what you will see is the benefit of some of those later quarter billings actually showing up in terms of cash flow in Q1, and you'll see a DSO improvement as well. So it's really -- it's almost exclusively driven by that. So hopefully, Dan, that addresses your question.

Your next question comes from the line of Heather Bellini with Goldman Sachs.

This is Perry Huang for Heather. I was hoping to ask a question about the Manufacturing segment performance. In the prepared remarks, I think it was highlighted, the contribution from strong growth in the simulation offerings. I was wondering if you could provide a little more color there? For example, was there particular strength in, say, a particular type of customer? And also, do you see your simulation business as a key selling point for your overall Manufacturing portfolio, sort of along with your upcoming PLM offering?

Yes. So one of the things -- we've talked about simulation for a while. One of the parts of the business, plastic injection molding, our Moldflow business did particularly well. And I've talked about this before, when we talk about digital prototyping, a large payoff for the 3D modeling that we do and that we enable is the ability to do analysis and simulation and optimization. It's becoming increasingly important to manufacturers in a much more competitive environment. They are trying to lower costs and get products to market more quickly. One of the things I highlighted in those opening remarks was what we're seeing in consumer products part of our business. That is typically really short-cycle products. Many of them include things like plastic simulation. Time to market and cost are critical in that arena. And our products are good there. But generally speaking, when I see what we're doing now -- and you got to step back in some ways, Perry, and go back to we were quite the underdog in manufacturing not that many years ago. Certainly, in all the design and engineering tools, we've reached parity if not exceeded the capability and functionality of our competitors. Again, we've done the same thing with simulation, where we now feel very confident in our offering of simulation tools. And we're excited about offering PLM. We talked a lot about companies needing to manage the process around how they manage products. And we think we found and developed the appropriate technology for our customers there. So we now feel like we have a complete offering for manufacturers, all the way from small to the largest in the world. And like I said, I've seen quite a bit of stumbling from our competitors, which -- what we don't root for. It's not the worst thing that happened to us.

Your next question comes from the line of Philip Winslow with Crédit Suisse. Dennis Simson - Crédit Suisse AG, Research Division: This is Dennis in for Phil. G&A was up a bit more than we had sequentially. Was there anything to call out there onetime in nature or was it just seasonality? Or should this be the new run rate that we should be thinking about going forward?

There is, Dennis, something to call out there. About 1/2 of that nominal growth is basically the FX gains and losses for the OpEx hedge that are showing up in G&A and for the total OpEx. So that's -- nominally, it kind of distorts the total number in a small degree. I think the thing to look at even with that being the case, if you look at G&A as a percent of revenue, it's scaled and improved year-on-year as a percent of revenue for the quarter and for the year substantially. It went from like 8.3% last year to, I think, 7.8% to 7.9% this year. So we expect more and more efficiency there, and we're seeing that. But there is a good catch on your point. It is a definite anomaly with the FX hedge gain and loss.

And just to generalize it, I would say, we're being quite vigilant about expenses, G&A particularly. But all the expenses, we're being quite vigilant. Dennis Simson - Crédit Suisse AG, Research Division: Okay. And can you give us an update on Autodesk cloud in general and maybe dig deeper into the pilot program with PLM, if there's anything specific in terms of recurring pain points that you hear from larger customers that you keep on hearing from the traditional PLM products?

Yes. So I'm quite excited about the cloud in general, where a huge amount of our development is directed that way. We think it's a really important component. Just to give you the 2 flavors of it, just to remind everybody. One part is high performance computing, things like doing simulation, visualization. Those high performance computing activities are really well-suited to kind of the scalability of the cloud. The other place that lead us into the PLM part of the discussion. Broadly speaking, the cloud is really good for collaborating. It's helping people manage their projects, their products and the people they work with. The PLM offering is an example of that. We publicly started to talk about it at AU. There have been really 2 groups of customers that we've been working with. One are new customers, who have heard about PLM, of course, but never used it. They always thought it was too expensive, too far out of their reach but certainly have a need to manage the processes around manufacturing. And we're having good success with them. I think the thing that was most surprising to us is the uptake amongst really large customers. Now every one of these very large manufacturers certainly has at least one PLM system of record. Some of them have 2 or 3. Many have had multiple implementations. And what we're finding out is a large degree of dissatisfaction with those installations. In other places -- in some places, they were looking for wholesale replacement. In other places, especially users, they want to Chernobyl their PLM installation. They want to entomb it in concrete and surround it with more modern flexible tools. And they were looking to reach parts of the organization that either because of difficulty or expense, they couldn't build there PLM systems to reach. So we're having a surprising amount of success in the larger customers, which is -- I would have thought we had more to prove there early on, and it would have taken a little bit longer to develop. But in some ways, our best customers are those that know PLM, understand PLM and know where they find it wanting.

Your next question comes from the line of Keith Weiss with Morgan Stanley.

I just wanted to sort of extend on the question that Ross was asking. If you went through that logic on the subscription billings, it would seem to imply that subscription revenue should accelerate into FY '13 off of what we saw in FY '12. And based on that assumption, talking about sort of FY '13 total revenue growth at 10% would seem to imply that your product revenues are going to decelerate to something under 10%. Is that the right way to think about that there is that level of conservatism in the model that your product revenues will be somewhere below 10% for FY '13?

I think -- here's what I would say, Keith. First of all, I think you got my sense of how to take billings into subscription revenue gave kind of the key levers. And obviously, we're always thinking about attachment renewal for the new business as we go through the year as well. But I think people hopefully got a good sense of that model. I think, if we kind of level up and step back, I think the growth rate of, we said, at least 10% we think is really solid, and we're confident in that number. We think it's after -- again, just coming off a strong year, we take a look. We work with our sales teams. We look -- we work with our channel partners. We look at our funnel -- our deal funnel. And we come up, we look at our subscription revenue and all the different factors. And we come up with what we think is a solid guidance. And I think at least 10% falls in that category, and so I think the -- that's what I would do is kind of level it up from that standpoint. And hopefully, that gets a little bit to the spirit of your comments. Carl, I don't know if you have any additional thoughts, but those are mine.

Yes, I mean, I think you outlined it well, Mark. We don't have -- we don't do a lot of detailed guiding around specific parts of it. And as I've said before, I think things over a quarter can vary quite a bit. I think this quarter is a good example of where we saw certain metrics move. They had bigger bearings than we would have imagined. But generally speaking, I feel confidence about the greater than 10% growth. We're watching all the moving pieces. As we go through the year, we'll give you kind of more insight on exactly what we're seeing. Generally speaking, what we're seeing is, geographically, real strength in in the Americas. There's a couple of question marks out there in the global economy. We touched on a couple of the industries where I think our market position is great. I'm thrilled with the deferred revenue. I think that's working. Programmatically, I'm looking and going, love to see the new product revenue this quarter. Happy about what we're doing with the cloud. Happy with suites, simulation. And really, the place where I have my eye a lot is on this new PLM offering.

Excellent. And just as one follow-up, can you potentially give us some kind of color on where the key leverage, that 200 basis points of leverage should -- where we should expect that to come out of the model?

Yes, one, I already talked about, the continuing vigilance around expenses. We're continuing to look at it there. And as we've shown and demonstrated every year, except that one year that I don't like to talk about, that as we increase the volumes, that some of it just naturally falls out of the model. As we can drive volume in any of these product lines, with it more money falls to the bottom line. And so as we do -- we make investments up-front. We made investments in simulation. We've made investments in suites up-front, and then we try to capitalize those over time. And I think as we're able to get those to greater volumes, the benefits accrue to the bottom line. So it's really a question of just scaling.

Your next question comes from the line of Steve Koenig with Longbow Research.

I don't know if you have a chance to let me in for a follow-up, but let me ask about business combinations. The prepared remarks said you spent $40 million on them. I'm actually calculating from the cash flow statement. There is additional $79 million in the quarter on business acquisitions. I'm wondering if you can reconcile that and give us a little color on what are they? And I guess, there are 5. And what are your expectations collectively? Could they generate a point in revenue? Any thoughts there would be helpful.

So let me talk to generally. Mark is doing some research over there on the exact numbers. I mean, generally speaking, this year, we were a little bit more active in M&A activity. It was mostly small deals. The number you said doesn't quite fit for the fourth quarter and the third quarter there. There was a fair amount of M&A activity. We're continuing to look for both small acquisitions that round out our offerings. And they'll tend to be in places like cloud-based stuff, some of the simulation, some of the PLM stuff is where we'll be looking for more things. And we're continuing to look for those medium-sized companies that will contribute to the top line. As it sits right now, the acquisitions that we've done today, they're fully contemplated in the guidance we gave you. And I think if there's anything different, we'll let you know.

And just a couple of things to just make sure to call out here from that standpoint. One is, I want to make sure that we're comparing one with net of cash, one of gross cash would be one item to look at. The second item is that when we talk about M&A, there's M&A, and then there's also just pure intellectual property that we're buying and minority investments that we're making. So we can take this off-line and give you even more breakdown on that. But I just want to be really precise on that, but it all ties out from at that standpoint. Okay? Steve, we'll have Dave tie out with you right after.

Okay, great. If I can't follow-up, I'd like to ask Carl a little bit more on this hot button from Richard's question earlier. I think it's related. Just asking to hear about the long-term conversion of your base from 2D to 3D. I agree, Carl, that with your calculation, and it looks like you are growing faster than the 3D market. But in Manufacturing, you don't own that market like you do in 2D. Is it just slow and steady progress here or is there any silver bullet? I mean, what's the winning ticket here to get ahead?

I mean, I think if you look, it's been true for years, in the portions of the Manufacturing market in which we participate, we've been growing at 2x, 3x, 4x the rate of our competitors. A bunch who asked me last time about one competitor in particular, when I insinuated that they were obfuscating financial results by way of not disclosing what was going on with acquisitions, I think time is proving me to be right. They just talked about growth for next year, total for the company in the 6% to 8% range. So anything that was in the middle teens was really a result of that acquisition, and that's why I go back to you really have to look at the numbers and just parse them slightly to take out the effects of either currency or those kind of acquisitions. If you -- so the portions of the market in which we participate in generally have been CAD. That's been the design and engineering software. And we've had growth rates in the teens to 20% range when our competitors have been growing at a maximum of 1/2 that rate. That, to me, is market share gain. I think when you go and you look at the other places where we're entering, we're doing really well in simulation even though it's on a tiny number. And I think compared to some of the big companies there, we're a tiny fraction of what's going on. So while we're growing really quickly, it's still relatively small. PLM is a nascent business. We're just entering it. I'm incredibly optimistic about what we've heard from customers so far. But I think in many ways, we'll be able to show really large growth rates. And so I'm very confident about our position there. The other thing is, I think for the first time we have a complete offering that covers really all the bases in terms of what a manufacturer would need. And in most respects, it's a much broader portfolio we get to offer the manufacturing companies than any of our competitors.

Your next question comes from Matt Hedberg with RBC Capital.

I know you guys don't guide to cash flow. In 2012, it lagged revenue growth a little bit. I guess I'm wondering, for fiscal '13, given the revenue growth and margin and inherent leverage in the model, is there anything that we should be aware of from a cash flow perspective that would change that, I mean, to ultimately having cash flow grow more in line with revenue? And then as a quick follow-up, I'm wondering if you could comment on ASPs in the quarter.

So a couple of things on the cash flow. Matt, well, we don't typically guide on that, as you talked about. We did call out a little bit of an anomaly due to billing non-linearity, if you will, in Q4. So one of the benefits of that is that, that will show up in Q1. And so in the same way it took a way a little bit from cash flow in Q4, it will have a little bit of an adder in Q1. And I think you should assume that our cash conversion cycle is going to be pretty stable. From that standpoint, our CapEx, which is important when you're looking at free cash flow, you'll continue to guide it between 2% to 3% of revenue. We've historically fell in that zone. I think just last year, we had, what, 2.8%. We've been a little lower, a little higher. But I think if you pick somewhere in the middle there, you're probably going to be in a pretty good zone to think about the free cash flow from that standpoint. And I think if you look at even this year, even with a little bit of the dampening with the non-linearity in Q4, when you look at cash flow, it's something around the $570-plus million, $574 million range. And you look at our operating margins at $533 million. And you're seeing the quality of our income in the sense that our cash flow is growing faster than our revenue -- or excuse me, faster our operating margin. So those are couple of relationships that I'd have you consider, Matt, as you think about modeling for the future. Now on the ASP, Carl?

Yes, not much change in ASPs this quarter. The usual variation, nothing exceptional to call out, no big trends that we're forecasting for next year.

Your next question comes from the line of Blair Abernethy with Stifel, Nicolaus. Blair Abernethy - Stifel, Nicolaus & Co., Inc., Research Division: Carl, just one more on the PLM side of things. Can you just give us a bit of a little more detail on your go-to-market strategy at this point, in particular, sort of direct versus -- direct sales versus the channel preparation? Where are they at now? And also, can you shed a little more light on what your pricing is looking like for the PLM?

Yes, sure. In our general introduction of new products, our approach to go-to-market when we're bringing new products to market tends to be a little bit more heavily weighted towards direct. And the reason for that is we want to make the feedback loop between what our customers are saying and what we're developing and how we're tuning our approach to marketing be as short as possible. This is no exception. We're doing the same thing. You'll see a disproportionate amount of the early business that we do will go through our direct channel. But I would say, our PLM business is being fully contemplated as a channel business. In the limit, I don't think you'll see any difference in our PLM business in terms of the mix between direct and channel over time. But we really do like to go out there with customers early on, understand what their pain points are, try to understand where people are being most receptive to the extent that there are things that -- objections or needs that they see unmet in the product. We want to understand that as quickly as possible. The other thing that we often talk about is that it's difficult for some of our channel partners to make big investments in new products. And so what we try to do is in some ways kind of soften the ground, try to understand as much as possible and direct them to what we think are really the best candidates. So rather than having 1,000 independent experiments, we rather take the brunt of that on ourselves, coordinate the activity. So in the first 3 to 6 months, you'll see a little bit more preponderance of direct deals. I would suspect by the end of the year and certainly moving into the next year, this is a business that looks identical to our other businesses.

Your last question comes from the line of Jay Vleeschhouwer with Griffin Securities.

Just 2 quick follow-ups. I got cut off earlier. First, is there an appreciable difference in mix or adoption of suites by GM or do you see that being configurations and the maintenance attached, for example, of suites is pretty much consistent across the regions? And then secondly, on the PLM pilot that you talked about earlier, Carl, could you talk about the role, if any, that you're seeing from your existing Vault product either with the new customers or existing -- or legacy customers? Is Vault at all playing a part in the piloting or are the customers predominantly using just the pre-configured apps that you showed at AU?

Yes. So the first question there, Jay, was around the suites. Yes, I mean, we generally don't break it out. But for you, Jay, I'd tell you there's not much difference. It's pretty consistent. There's always a little bit of a bias towards developed countries over emerging economies. There's usually a little bit bigger pickup in the Americas rather than Asia Pacific. But within those kind of norms, not much difference. And almost every programmatic change we've made over the years shows that exact same dynamic of adoption. So when you look back on subscription, direct sales, almost everything we've done kind of follows that same pattern, and it's very consistent with that. Around the PLM pilots, I mean, one of the things that's interesting about it, and here's where we get a little bit too much in the weeds of terminology, our Vault product, what it really does is data and document management. It's been hugely successful. There's millions of people who are using it. It's a wildly successful, easy-to-deploy solution, and all of them are deployed behind the firewall. What we chose for PLM for us was really managing customers processes. And what we said we were going to do is do that in the cloud. Now what's interesting is when you go and you look at most of the current PLM vendors out there, a big proportion of the sales that fall under the rubric of PLM are really data management. That people have been more successful with data document management than they've ever been about managing the process. So while they've been sold on the managing process, it hasn't worked. And that's really kind of tilled the ground for us because people understand that they want to manage these work processes. Our product works with document management, whether it's in our Vault or whether it's in any of the other document management or so-called PLM systems. We're really agnostic about where people choose to store the documents. What we're giving them is tools to manage the workflow and the processes around it. It works well with Vault. We've certainly seen adoption amongst Vault customers. But there's no particular tie there as many of the big accounts that I've talked about, as well as the small accounts, have been non-Autodesk data management customers. Hopefully, that helps.

At this time, I would like to hand the call back to Dave Gennarelli, Director, Investor Relations, for closing remarks.

Okay. Well, thanks, everybody, for joining us today. Next week, we'll be at the Morgan Stanley Technology Conference in San Francisco. And then later in March, on March 29, we'll have another webinar on our PLM business so tune in for that. Thanks.

This concludes today's conference call. You may now disconnect.