Financial Report: Autodesk Q3 2005

reprinted by permission of Ralph Grabowski, editor

November 29, 2004

We listen to quarterly financial reports to hear what is said; sometimes, though, it can be more interesting to listen to what isn't said. For example, during Autodesk's call last week, Architectural Desktop was praised several times, but Revit went unmentioned.

Or, take DWF numbers. CEO Carol Bartz proudly announced that 4.5 million copies of the free DWF Viewer software had been downloaded. This is a remarkable number. Ms. Bartz then noted that DWF Composer sells for $200 and has met sales expectations. The actual sales figures were left unstated; that's a clue to low sales. And, its list price may be $200, but it continues to be priced at $99 at Autodesk's Web site.

Autodesk likes customers to whom they can "upsell" (getting customers to buy more expensive software). One customer was using AutoCAD, which gave Autodesk $400/year seat revenue. They upgraded to Inventor ($1,100/yr), then upgraded to Inventor Pro ($1,500/yr), and recently added ProductStream ($1,800/yr). This customer increased its payments to Autodesk from $400 to $3,300 per year per seat.

It's stories like that one that help explain Autodesk's tremendous quarter, which drove its stock price to peak at a new all-time high of $66.45. That's causing Autodesk to split its stock 2-for-1 on December 20, but then to halt dividend payments after Q4. Why? "The company believes that shareholder interests will be better served by eliminating the payment." Okay. The move is a surprise, considering the pressure placed by shareholders on Microsoft to finally start paying dividends. Our guess is that Autodesk wants to build up a war chest for buying more companies for their technology.

Autodesk had Q3 net revenues of $300 million, up 28% over the same quarter a year ago. Net income was $74 million, up 228%. Other stats:

• "3D products continue to gain traction in the market" - means that 15% of sales are in 3D products, like Inventor, ADT, and Civil 3D.
• New seats revenue is up 36%; the increase in seats was not reported.
• Over 500,000 customers are on subscription, but AutoCAD users are the least likely to pay that annual fee.
• Buzzsaw now has over 100,000 users; the number of customers was not reported.
• Despite last week's warning from Microsoft CEO Steve Ballmer that "Someone" could sue corporations using Linux, Autodesk will continue providing its Discreet software for Linux systems.

Q&A (Paraphrased)

Q: About the Dassault Systemes and Microsoft agreement: how substantial is Microsoft working with other CAD vendors?
A: I'm glad Dassault is talking about democratizing 3D - those are our words. They don't have the technology to approach the market - technology we've had all along. I call it the Barney relationship. [CEO sings:] "We love you, you love me." I don't know that there is going to be a whole lot of business out there, so we'll just go along our way.

Q: About DWF versus PDF v7?
A: I don't have a song for Adobe. DWF is better for engineering drawings; PDF is better for 8-1/2 x 11 documents. PDF is an important format, but so is DWF.

Q: What percentage of customers are on 3D? How many customers are you losing to competitors?
A: Ten-fifteen percent of customers have converted to 3D. The competition is getting some 2D seats.

Q: How many upgrades are you expecting from the new obits? [AutoCAD 2002 is next to lose its upgradeability.]
A: We'll tell you at the analysts' meeting in March.

Q: Your dollar sales are flat in the Asia market for the third quarter in a row.
A: We consider the numbers up. Flat we consider up, because it normally falls at this time of year. We're adding more sales people in India and China. We're not gloomy about Asia.

Q: Any plans to sell Discreet?
A: It's business as usual for us.

Q: If productivity for customers has increased, doesn't that call for prices to increase? [A recent productivity study claims AutoCAD 2005 users gain 14 hours a week.]
A: Sure, but there is a lot of dollars from upselling. Our ASPs [average selling price] have risen slowly and steadily over the years.

Q: What are you doing in China to protect software from copying?
A: It's a matter of education and enforcement.

Q: Which products and geographies have the most strength in new seat growth?
A: Pretty consistent in all verticals and geographies. Nothing unusual.

For fiscal year 2006, Autodesk hopes revenues will reach $1.33-$1.38 billion.

About the Author

Ralph Grabowski is an editor at upFront.eZine Publishing, Ltd. (previously known as XYZ Publishing, Ltd.). Ralph is the author of 60 books and several hundred articles for dozens magazines and newsletters about CAD, graphics, and the Internet.

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