Autodesk Earnings Call Insights: Business Model Transition and Pricing Criteria
Autodesk, Inc. (NASDAQ:ADSK) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.
Business Model Transition
Steven Ashley – Robert W. Baird: I guess I would just like to go back to the business model transition. You called it out obviously during your remarks, but also called it out in the press release. You’ve been talking about changes relative to more flexible licensing. But is it also possible that part of the business model transition could include changes to the cost structure or other operational aspects to the business?
Carl Bass – President and CEO: Steve, the way I think about it is mostly in terms of the customer facing choices. What the offerings are and how they are delivered, as a more marginal part of that. Certainly, each one of those involves a difference in margin structure. For the most part, it hasn’t been particularly material and I don’t see that as being – either the driving force behind it or a big byproduct. The more important things that, I think, you really should look at, is the offerings for customers and how we change them as well as we talked about the accounting impacts in terms of ratable revenue.
Steven Ashley – Robert W. Baird: Then your education business, the third quarter is the biggest seasonal quarter – you called out that the impact in this recent quarter was 2%, but in the full year, will be 2%. But in that peak seasonal quarter or the next quarter, how much might the absence of educational revenue be impacting that period?
Carl Bass – President and CEO: I put it in line with the others. It’s again, marginally higher, but not enough to matter. When you look at the buying patterns around the world, it kind of washes out. So, I would think it is 2%.
Jay Vleeschhouwer – Griffin Securities: Carl, on the model change, you mentioned that it was going to occur faster than some, presumably outside of the Company, had anticipated but is it happening faster than you might have thought even just a few months ago? Over the course of the summer, the Company suggested that this was indeed one of the bigger or biggest things that you need to figure out but what changed in your thinking in terms of market conditions or anything else that perhaps induced a somewhat faster change? Related to that, you have a pretty complex product line, over 20 suites for example, some are more complicated than Adobe’s when they began to make their change. So, how do you think about the metrics or pricing criteria in terms of handling a fairly complex product line in terms of moving it towards more flexible terms and licensing?
Carl Bass – President and CEO: So here’s what – and it must have been much harder to fill out in those standardized tests – here is what we’ve been thinking about this is, really, as you know we’ve talked about this for a while. We started looking at some of the rental opportunities. We see those as being important to actually capture parts of the market that currently aren’t paying us for the use of this software; people really in peak demand situations, freelance work. So we got really interested in that. Then we started looking at our enterprise customers. We’ve talked about some of the things with more flexible licensing for our enterprise customers unless there are, in essence, true-ups at the end of the year based on usage as opposed to negotiations upfront. We saw an opportunity and we described at least one or two of these in detail; how we both increased the amount of money the customers pay and increased their satisfaction with the use of those products, a real win-win. And then we looked at the middle part of our market, the place where we sell suites of subscriptions, the main stream part of our business through the majority of our channel partners. And we saw opportunities to deliver things more easily, more flexibly, and all those contributed to say, we saw a way to move the business more quickly. One of the things that happened to us along the way is recognizing the difficulty of both running but forecasting and communicating a mixed model business. And we really began to appreciate that many of the dynamics about this financial model, we’re going to be at odds with each other. And so for everything that went well on one is going to take away from the other, and it was going to be difficult internally to run that way, just provide the right incentives and stuff, as well as communicate externally so people understood what was going on with the business. The other thing that happened is, we’ve been running these probes or science experiments, and the results of what we’ve done have been very positive. The next part I would say because you brought up Adobe, and really with respect to the complexity of the product portfolio, the other thing that we saw is Adobe introduced a business model transition without much of a technology transition, but really just changed the way that people pay for it, and do it rather successfully. And it became more clear to us that the customers were willing to accept and some even wanted this new opportunity. Because we’re starting in a different place than Adobe, we don’t feel the need to force people to degree they did to go to these new license models in perpetual licenses. And so we saw just a really good opportunity to a way that was economically beneficial for us and a benefit for the customers. As regards to the portfolio complexity, while we have 20 or so suites if you look it’s really seven categories by three offerings in each of these. The price points are very similar and have been because it’s a relatively recent offering they have been rationalized and harmonized over time. I think we are going to be able to introduce pricing. That makes a lot of sense and we can deal with it consistently across those products. When we get to the first week in October, when we get together, we’ll detail a lot more of this for you. But, obviously, in order to go out with this kind of message we’ve been thinking a lot about it and have done extensive planning. And we think it makes sense.
Jay Vleeschhouwer – Griffin Securities: Just a quick follow-up. (Indiscernible) start talking about how indirect and direct, but particularly indirect works through this transition in light of the comp changes you made a year and a half ago on 360 you get 85% of your revenue from the channel?
Carl Bass – President and CEO: Yeah, I see our channel partners both the value-added resellers and the value resellers continuing to play an important role. It’s kind of interesting and since I referenced it in my remarks about the business model change we went through about 10 years ago. Just a reminder, not only were people skeptical, many people led that to be something of the death of the channel or us stealing business from the channel. There were a lots of conspiracy theocracies running around at the time. I continue to see partners playing an important role as we go forward. We’re not anticipating a big change in the mix between channels; and I think partners will continue to play the same role they have. Our business, while in many ways similar to Adobe, I think when it comes to channel mix, has always been somewhat different; particularly if you look a little bit under the covers.