Autodesk F2Q10 (Qtr End 7/31/09) Earnings Call Transcript

| About: Autodesk, Inc. (ADSK)

Autodesk, Inc. (NASDAQ:ADSK)

F2Q10 Earnings Call

August 13, 2009 5:00 pm ET

Executives

David Gennarelli - Director of Investor Relations

Carl Bass - President, Chief Executive Officer, Director

Mark J. Hawkins - Chief Financial Officer, Executive Vice President

Analysts

Steve Ashley - Robert W. Baird

Keith White - Morgan Stanley

Brendan Barnicle - Pacific Crest Securities

Analyst for Ross MacMillan - Jefferies

Phil Winslow - Credit Suisse

Greg Dunham - Deutsche Bank

Kash Rangan - Merrill Lynch

Israel Hernandez - Barclays Capital

Analyst for Richard Davis - Needham & Company

Sasa Zorovic - Janney Montgomery Scott

Sterling Auty - J.P. Morgan

Blair Abernethy - Thomas Weisel Partners

Michael Olson - Piper Jaffray

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2010 Autodesk Incorporated earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Dave Gennarelli, Director, Investor Relations. Please proceed, sir.

David Gennarelli

Thanks, Operator. Good afternoon. Thank you for joining our conference call to discuss our second quarter of fiscal 2010. 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 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, our guidance for the third quarter 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 2009, our Form 10-Q for the first quarter of fiscal 2010, and our periodic 8-K filings, including the 8-K filed with today’s press release and prepared remarks.

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 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 presented in accordance with generally accepted accounting principles. A reconciliation of GAAP and non-GAAP is provided in today’s press release and prepared remarks on our website.

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

Carl Bass

Thank you. Good afternoon, everybody. We received great feedback on our new process of posting the prepared remarks with our press release, so like last quarter I am just going to say a few quick comments on the quarter and then we’ll jump into Q&A.

Let me start with the economy, because I know that’s the first thing you will want to talk about.

We have all seen the decidedly mixed U.S. economic reports that have been published recently. Some are simply less bad relative to expectations, so I think it’s unclear that a sustainable global recovery is underway. That said, relative to what we experienced late last year and early this year, our business was less volatile as we exited the second quarter. The environment is still challenging but it feels like global demand for our products is showing signs of stabilizing.

Revenue in the quarter was consistent with our expectations at $415 million, which was a decrease of just 3% sequentially. Within total revenue, it was encouraging that we delivered sequential revenue growth in several parts of our business, including emerging economies, manufacturing, Asia-Pacific, model-based 3D design solutions, 3D animation software, and government sales.

We also made strong progress reducing costs. Through our restructuring activities, we have significantly reduced operating expenses. Everyone at Autodesk has really embraced these saving initiatives. Last quarter we said that our goal was to reduce our pretax spend by $250 million year over year. However, based upon the success we’ve had in reducing costs the first half of the fiscal year, we now anticipate reaching nearly $300 million in pretax cost-savings in fiscal 2010 versus fiscal 2009. Of course we’ll continue to examine our business on an ongoing basis for more ways to improve our long-term efficiency.

You should keep in mind that while the vast majority of the anticipated savings or costs that have been eliminated, there is a component we would classify as cost suppression. These costs would naturally come back in fiscal ’11 and beyond, and relate to such things as payroll, employee incentives, travel and entertainment, and mandatory vacations, among other things.

Even with some of these costs coming back in fiscal ’11, we have made substantial reductions in our cost base and improved our efficiency. So it feels like business is regaining some stability and our business visibility has improved. The caveat is that our business has been reset at a lower level, so whether this economic cycle is going to be U-shaped or L-shaped or any letter or number or hieroglyphic, our financial condition is solid with over $1 billion in cash and no debt. We are going into the third quarter confident that Autodesk is well-positioned for the market’s eventual recovery.

Operator, we’d now like to open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Steve Ashley with Robert Baird. Please proceed.

Steve Ashley - Robert W. Baird

My question is about maintenance revenue. I see that deferred maintenance revenue declined a little bit sequentially for the second quarter and I wonder what the prospects are for maintenance revenue. Maybe you can talk about that on a sequential basis. Is it possible we could see that cascade down a little bit in the future quarters? Thanks.

Mark J. Hawkins

As far as the maintenance revenue, Steve, this is Mark -- yeah, that is possible. I think you could potentially see that. I think the driving factor with the maintenance revenue has to do with the number of people in seats, basically. People see a lot of value in our maintenance offering -- it’s just that you have to be in a seat to see that value, so I think that is possible.

Steve Ashley - Robert W. Baird

Great. And if we look at R&D, it’s 24% of revenue. You’ve talked about the business being reset. Is that a level -- expense level that you are comfortable with going forward?

Mark J. Hawkins

I think from a -- let’s look at this way, Steve -- obviously there was a reset in the marketplace in general from a revenue standpoint. When we look at our R&D, we have a good level of investment today. We are planning for the future and as far as the ratio, we’ll be thinking about it in terms of our long-term model over time.

Carl Bass

I think if you looked at every one of our ratios, I don’t think any of them are acceptable -- I mean, unless we were to believe that long-term operating margins should be in the teens, every one of the ratios is off. So I think R&D is off, I think G&A is off, sales and marketing are way off.

Mark J. Hawkins

So we’ll be driving to a long-term model over time and Carl’s called that out before to get to a higher level of operating margin and the key thing is over time.

Steve Ashley - Robert W. Baird

Thanks.

Operator

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

Keith White - Morgan Stanley

Thank you for taking my question. I was wondering if you could help us perhaps try to quantify those costs that are suppression costs versus what is actually a reduction in the cost base?

Mark J. Hawkins

So Keith, the way I think about this is, as Carl called out, nearly $300 million year-on-year savings. Of that, if you think about it from like an 80-20 approach, the 80% is really structural costs that are gone and kind of figuratively speaking but there is some that will snap back with the release of cost suppression. You know, things like sabbaticals and things of that nature but if you think about the big end of the wedge, the 80% is structurally gone. That 80-20 rule would be a good way to apply [inaudible] at $300 million.

Keith White - Morgan Stanley

Got it, and if I could follow-up -- I mean, you guys had a really nice job at taking expenses out of the business. And your run-rates in R&D and sales and marketing are definitely much lower than they had been -- particularly on the R&D side, can you talk to us about perhaps what are some of the programs that got sidelined or sort of put off to the side in order to achieve those kinds of cost-savings?

Carl Bass

I think one of the things we did when we looked at our portfolio, I think rather than sidelining things, I think there were a number of projects that we decided that we would bring to market more slowly, so I think that -- that was the way we went about it.

I think one of the tendencies during a downturn is to get rid of your new initiatives -- companies sometimes reflexively do that and I think it is the wrong answer. And we carefully worked to make sure that the new initiatives that we thought they were promising were actually funded and some of the things that were more mature products, which we were going at a certain rate -- just imagine slowing those down.

I think along with that, there were a handful of projects that we didn’t think they would actually bear fruit in any reasonable timeframe, and so I think down economies make it easy to make those decisions, so I think there was some projects that we killed but we were very careful to make sure that we had a balanced portfolio coming out of this and that our mature products generate lots of the revenue and lots of the profit, we’re still being funded at good levels, as well as some of the newer initiatives.

Keith White - Morgan Stanley

So when you slow down a project, does that mean you just put less people on it?

Carl Bass

Yeah, so what it means is -- yeah, it means you have less people working on it, is the simplest way to do that.

Keith White - Morgan Stanley

Excellent. Thank you very much, guys.

Operator

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

Brendan Barnicle - Pacific Crest Securities

Thanks so much. Mark, I wanted to just follow-up on a question about the maintenance revenues decline. We saw the year-on-year decline in billings, sequential decline in billings and I think those are about the same numbers that we saw last quarter, so we’ve seen six months of the decline so we haven’t seen any decline in the revenue there yet. How long is that lag? I mean, is that something we should start to expect to see an impact next quarter and then it will roll over the next 12 months or -- can you give us a little more color on how those two correlate?

Mark J. Hawkins

Sure, Brendan. You’re right -- in terms of the maintenance billings, they were down 11% year-on-year compared to 14% in the prior quarter so directionally, a similar dynamic. In terms of the maintenance revenue, as you know, the revenue that we have on maintenance is ratably recognized over a 12 month period for prior billings, if you will, so there is a lag effect.

We don’t give guidance on specific line items, if you will, but you can anticipate there will be a lag effect over time. There’s a 12-month dynamic that goes on there, so --

Carl Bass

The vast majority of our subscription contracts are for 12 months. We have some longer ones but it’s not a material amount.

Mark J. Hawkins

Exactly.

Brendan Barnicle - Pacific Crest Securities

I guess another way to ask that is I think you’ve only give us this billings number the last two quarters, so were billings down year over year in quarters prior to this past six months?

Mark J. Hawkins

So prior to the last six months, billings in Q4 were down, yes, that’s correct.

Brendan Barnicle - Pacific Crest Securities

Okay, and Q3 last year?

Mark J. Hawkins

They were not.

Brendan Barnicle - Pacific Crest Securities

Okay, great. That’s helpful.

Operator

Your next question comes from the line of Ross MacMillan with Jefferies & Company.

Analyst for Ross MacMillan - Jefferies

This is Horacio for Ross, thanks. I guess I wanted to focus a bit on the license line, in terms of what we are seeing there, a little bit less of a moderated decline on a quarter over quarter basis. As you guys look to the back half of the year, are you still thinking that you will see some sort of typical seasonality into Q4, which has traditionally been up from Q3?

Carl Bass

You know, I think this year, a lot depends on what the overall economy is doing. I think we are seeing some signs of usual seasonality in all aspects of our business but I do think the greatest influence is going to just be the overall economy. So I think if things keep bumping along as they have been going, I would expect an up-tick but I think that’s all caveated by the fact of whether or not -- you know, where we really are in this economic recovery.

Analyst for Ross MacMillan - Jefferies

Okay, and in terms of linearity, your transactional linearity in the quarter, or month to month, are you still seeing sort of an on and off strength, or is it pretty -- building consistently? And what have you seen in August?

Mark J. Hawkins

Sure, let me just speak to that -- we went and tracked our linearity over the last several years and it’s really I would say normal by month, so there’s really no new there. We looked at that within this quarter by month and no new news there to speak of, very normal.

Analyst for Ross MacMillan - Jefferies

Okay. Thanks, guys.

Operator

Your next question comes from the line of Phil Winslow with Credit Suisse.

Phil Winslow - Credit Suisse

Carl, I was just wondering if you would give us a feel for what you are seeing just by geography? You mentioned sort of an expectation for a lag recovery over in Europe -- do you think it’s bottoming over there and how do you think about the geographies, Asia-Pacific, EMEA, and the Americas?

Carl Bass

I think Americas has just about hit bottom. I think we are bumping along the bottom in the Americas. I think if you look at Asia-Pacific, I think there are several areas of strength and several question marks in my mind. I think Europe is decidedly mixed. I think you see places like the U.K. that seem to be a reflection of what is going on in the U.S., even if there’s a lag built in. Because you know, you guys saw news out of Germany and France was pretty good this morning. And so I think there are parts of Europe that are doing well. I think there are others that look more like the United States.

And I think what you are seeing is a recovery -- excuse me, a recovery in the emerging markets.

Mark J. Hawkins

There’s a recovery in the emerging markets, you know, basically that you are starting to see sequentially with sequential growth from that standpoint. So I think that’s a good sign from that standpoint. But I do think Europe is the spot where it is decidedly mixed. It went into the recession later than some of the other geographies and likely will come out later. That being said in aggregate, I think you are starting to see, and we’re seeing signs of some stabilization.

Carl Bass

Yeah, so I would agree -- my area of concern is Europe. If you were to look at the emerging economies, I think the difference between now and a year ago is there are some of the emerging economies that came out of this fairly quickly at fairly healthy rates, and I’m thinking about China, India, Brazil. I think there are ones that have more structural problems that I’ve talked about before, like Russia, that aren’t improving in the same way. And then there are ones that may have long-term structural problems, places like Dubai I’m not sure will ever recover, ever back to the levels it was at.

Operator

Your next question comes from the line of Greg Dunham with Deutsche Bank.

Greg Dunham - Deutsche Bank

Thank you. On the emerging markets note, part of the growth historically has been compliance initiatives but looking back the past six months, those were not -- countries were not helpful in pushing those, yet you saw a bounce this quarter. Would you characterize the bounce this quarter more as demand driven and yet -- and we’re still not seeing the willingness from countries to implement compliance initiatives?

Carl Bass

I think there’s always an element of compliance that goes on in every country around the world, including developed economies -- clearly more so in emerging markets. But I think governments are still at the stage where they are much more concerned about the economic health of the country than they are agreeing by trade packs or intellectual property agreements that go cross-border. So I didn’t think we got much help from that but obviously there’s a fraction of our business that is driven by license compliance.

Greg Dunham - Deutsche Bank

Okay. Thank you.

Operator

Your next question comes from the line of Kash Rangan with Merrill Lynch. Please proceed.

Kash Rangan - Merrill Lynch

Thank you very much. Carl, I was wondering if you could talk to some of the leading indicators just a little bit more -- I know you mentioned the words stabilizing, visibility improved and you are confident. I was just wondering if you could talk to a little bit more about the pipeline indicators. What are some of the projects you are seeing in different geographies, be it stimulus driven or absent the stimulus that causes you to at least look like you may be [inaudible] than you did the last couple of quarters? And I have a follow-up question as well.

Carl Bass

Sure. I think there’s a couple of things out there. I mean, all the indications of stabilization, I’m really just looking at the numbers. It’s purely numbers driven, you know, less than the anecdotal has been that the declines we’ve experienced over the last few quarters have now been moderated a number of places, I picked out places where we have seen sequential increases.

So that’s what gives me the sense of kind of this bouncing along the bottom is where we are at.

And there are a number of things that I find encouraging. On the one hand, you are seeing some of the stimulus projects but only a fraction of the stimulus money has been spent so we see infrastructure projects on a worldwide basis being invested in, although certainly we know there’s a lot more money to come there.

I think the other dynamic that we have seen that has helped us is generally speaking, we are a lower cost provider of design and engineering tools than anyone else. In really good economic times, we may not be in the consideration set. People are not willing to change. Having gone through this downturn, there’s almost no company that went back and didn’t do the kind of cost examination we did and said what can I do to come out of this structurally different with a lower cost basis, more efficiency and an ability to build better projects or products -- and that favors us.

And so when I look, we haven’t really seen the benefit economically of people selecting new tools but we have seen lots of small wins where we have pilot projects and people who have chosen our software who never were customers before or never would have considered us. And that to me is the most encouraging because I see as they come out of this, as people come up to full speed, they will ramp up with our software.

Mark J. Hawkins

If I may add to, just to complement the points Carl made, you can see in some of our disclosed comments, the sequential growth in a number of different areas -- I won't rehash that but we also are seeing things like sell-through data sequentially growing. We are not going to get into too much detail in the various geographies but that is a data focused item that we take into consideration. Our government vertical is another example that reinforces the point Carl had talked about -- we are seeing growth there.

So I think some of those things are just adders to the points that Carl made.

Carl Bass

Kash, the other thing is, where you started with the indicators, the place I look is we look at overall construction spend, we look at overall manufacturing spend and those are pretty good indicators of what is going on.

You know, we’ve talked about counter-bailing factors recently. I mean, the two things that are important for us are the availability of credit, where I think there’s a decidedly mixed picture out there about the availability of credit for different sized businesses and I think the second one is unemployment. You know, at a certain point, people need to go back to work in order for us to enjoy a full recovery.

Kash Rangan - Merrill Lynch

Got it. That was actually the second part of my question, Carl -- that you’ve talked about the AEC firms have cut back employment. Are you starting to see them resume headcount additions? And even if that’s not happening, when that happens, do you think there’s a chance we might have to wait for your end demand improving? Because there’s still inventory of unused software that these folks still have based on the layoffs that they have done. I’m just wondering if you could talk about any potential lag effects at all, or maybe that’s not the case. I just wanted to get your commentary there. That’s it for me, thanks.

Carl Bass

So the first thing I’d say is I have seen hiring back in manufacturing firms. Some of them made drastic reductions early on. I have seen improvements in manufacturing firms. I have seen less so in AEC firms, although there are some standout companies that have come back to life faster who are reporting really good earnings and the pipelines are pretty full. But I would say I’ve seen more of a recovery in terms of jobs in manufacturing than AEC.

I think when you think about the dynamics of people coming back, I think there are a number of things that play into it. Generally speaking, our sales cycle is short and I would expect as people come back, one of the things you will see, you will see a PC cycle. With the PC cycle, people will be buying new software. I don’t expect people to try to kind of recycle much or take much off the shelf. I think some of the things we’ve already seen in a decline in new seat sales and subscription renewals means that there’s not much sitting on the shelf.

Mark J. Hawkins

The other thing to keep in mind is our channel is down a bit, so that’s -- that’s another way to think about things as well.

Operator

Your next question comes from the line of Israel Hernandez with Barclays Capital.

Israel Hernandez - Barclays Capital

Just a question here on the competitive environment -- are you seeing any change among the major vendors here of your competitors in terms of how they do business as they try to get down and dirty here to compete with fewer deals?

And Carl, last quarter you talked about you are starting to see some benefit from vendor consolidation as some of the larger customers begin to choose fewer vendors. Can you just talk about some of those trends again this quarter?

Carl Bass

Yeah, so I would say not dramatic changes in competition. I think the behavior out there is the same. I don’t think anyone has been particularly opportunistic nor has anyone behaved particularly stupidly. I think people are working their way through the downturn.

I think the one thing I already pointed out was I think there are places where we are advantaged just by where we are in the market -- you know, generally speaking we have newer offerings, lower priced offerings, more complete offerings and I think that’s helped us in a number of cases. So that’s really kind of the big change that I see.

But other than that, I see some competitive swap-outs. I think there’s going to continue to be vendor consolidation as long as there are cost pressures. That’s a natural thing that happens in every downturn and I see it somewhat amongst some of the large players where our big customers are going from three vendors down to two, and I certainly see consolidating on a single vendor in some of our smaller customers. And generally speaking, I think we are winning our fair share of those.

Israel Hernandez - Barclays Capital

Thank you.

Operator

Your next question comes from the line of Richard Davis with Needham & Company.

Analyst for Richard Davis - Needham & Company

It’s actually D.J. for Richard. Carl, I was wondering if you had any commentary around direct versus channel sales -- I know last quarter you were pleased with direct sales performance so any additional color there? And then the second question would be, and you touched on it a little bit earlier about new customers coming and signing on for smaller pilots, so instead of 20 seats, maybe taking on five seats. Have you seen any traction in up-sales there? You know, customers coming back for larger deployments or is it still a little too early on that front?

Carl Bass

So just for variety, last quarter we were thrilled with direct and less thrilled with indirect. This quarter we are thrilled with channel and less thrilled with direct. It may be too short a sample time to know, so overall I don’t see a big shift in our business but these two quarters were decidedly different in that our channel business did much better this quarter relative to last, and our direct business did proportionally worse.

In terms of new customers, no, I think we are still seeing more of those seatings, more of the small deals. People aren’t coming back yet. Like I said, I’m seeing inklings of increased employment of manufacturing. I think it’s too early to take stuff to the bank. And I still think depending on the industry, there’s still a lot of people that don’t have availability of credit or are still anxious out there so I don’t want to be ringing the bells saying the recovery is over here. I think there’s still a lot of hard work to go out there.

What is true is visibility is better, you know, as we saw, we came well within our guidance range. We were able to see that. Six to nine months ago, that just wasn’t the case. We like many other companies didn’t really know where the bottom is and I think this is a very different environment and it just makes running a business and planning for it that much easier.

Analyst for Richard Davis - Needham & Company

Got it. Okay, thanks.

Operator

Your next question comes from the line of Sasa Zorovic with Janney Montgomery.

Sasa Zorovic - Janney Montgomery Scott

Thank you. So my question would be specifically regarding the language you used in your prepared remarks regarding the business being less volatile -- so what do you really mean by that? I mean, specifically I want to refer to that -- to what used to indicate your business as being very linear. Is the business very -- not really linear through the quarter anymore? What specifically do you mean actually with that volatile?

Carl Bass

I think volatile translates to like explosive, and what I would say is what happened in September to me seemed explosive and it was truly non-linear, that if you were to look at our -- you know our famous graphs we’ve shown year after year. That really isn’t linear. Something happened in the middle of September of last year that made it non-linear. It just fell off the cliff.

We are now back to linear at a reduced level. That’s exactly what I mean by it -- that’s why Mark talked about the seasonality there, about the linearity through the quarter. Business is being transacted on a normal basis, albeit right now at a lower level than it was at the same period 12 months ago.

Sasa Zorovic - Janney Montgomery Scott

And then my follow-up would be specifically kind of maybe the continuation of your competitive question previously -- I guess [inaudible] for the downturns I guess that you can sort of -- it’s too good of an opportunity to waste really, so you are obviously doing a great job with costs and cutting those but competitively really, how can you -- what are some of the things that you are taking advantage of so that once the business does start to -- you truly roar to growth better than your competitors?

Carl Bass

I think there’s all kinds of things. It’s across the board. There’s almost every part of the business where there’s something to do. So if you were to start with products, we believe we have the best and most complete product portfolio. We are continuing to develop that. We are continuing to expand that. We have new product offerings, we have new ways of bringing products to market. We are doing that.

As we talked about the cost cutting, some of the cost cutting is merely cutting costs and some of it on a temporary basis as we talked about but some of it is about streamlining operations and making things more efficient and making them more effective. That’s great for when the economy rebounds, our ability to transact business better, more smoothly, provide a better experience to our customers and resellers in doing that, all comes about because we’ve improved both the systems and processes around doing that.

So I think we’ve taken this as an opportunity to say look, we’re going to do the best job we can selling and marketing our products during this downturn but it’s also a great opportunity to clean up the things and improve the areas of the business that were truthfully hard to pay enough attention to while we were growing so quickly.

So we’ve gone about and made a lot of changes to clean up the business, all in preparation for the upturn and in the meantime, we’ve been making sure that we do the best job we can in managing the costs through this.

Mark J. Hawkins

And also keep in mind all the way through this cycle, we are adding to our cash balance to position to fund the business as we continue to go forward into the eventual recovery as well.

Operator

Your next question comes from the line of Sterling Auty with J.P. Morgan.

Sterling Auty - J.P. Morgan

Thanks, guys. Actually first an administrative one -- Mark, can you give us a little color as to what happened in other income? Maybe break it down because it looks like there’s a big change sequentially there.

Mark J. Hawkins

I sure can. We had a couple of things that were going on here, one is we had the gain on the sale of a business for our location-based services, and so think about that more in terms of a penny. We had some investments that were mark-to-market. You don’t want to plan on that every period. We picked up maybe a penny and then there were some other kind of normal activity in there, foreign exchange and what not. So there’s a couple of items in there that were special, as you might imagine.

And Q1 was unusually low too, so if you look at it from a year-on-year compare, you can see a pretty sensible kind of compare and you can understand some of these anomalies.

Sterling Auty - J.P. Morgan

Okay, so what should we be thinking about for the next quarter in terms of where your guidance is?

Mark J. Hawkins

Well again, I think you would not want to plan on [inaudible] one-off kind of things, if you will. I wouldn’t think about it that way, so I would kind of normalize for that and then make your call from that standpoint. We don’t give targets at that level but certainly I would break out those two anomalies.

Operator

Your next question comes from the line of Blair Abernethy with Thomas Weisel Partners.

Blair Abernethy - Thomas Weisel Partners

Thanks very much. Carl, I wonder if you can just expand for a bit for us on the government stimulus opportunity for Autodesk at this point and how are you approaching that and how can we start to see some -- when you are going to start get some benefit there?

Carl Bass

I would say the first thing you have to do, you have to look in the stimulus country by country. We’ve kind of prioritized based on what the -- first of all the size of the program. There are a bunch of countries that have really large stimulus programs. There’s a lot of other ones, so we kind of prioritize just on the magnitude.

Once you get beyond that level, you actually have to look at where they are spending the money. There are certain kinds of projects that we would benefit from stimulus spend. There’s other ones that just have absolutely nothing to do with it. So then trying to pull out which of the ones that we have an ability to play a role in.

And then beyond that, it’s a little bit more tactical in the places where we compete effectively, have the best products, possibly already have a foothold. You know, obviously the U.S. is one of the big markets where we’ve been participating. There’s others like Germany, China, the other places in the world where there are large stimulus packages. And we’ve gone around and looked.

If you look at it slightly differently, most of the money is coming in to -- the relevant part of the budgets and just to break it down, like in the United States where you have a $900 billion package, there’s probably somewhere north of 100 but less than $200 billion that’s applicable for the kind of things we do. Breaking that down, a lot of it is around infrastructure, like things like roads, highways, bridges, and then there’s a fair amount and a little bit less visible around buildings -- you know, government facilities, army bases, and then things like airports and other big projects.

Those are the places that we are looking and we’ve taken an approach that is somewhat different than we have in the past because I think in many of these stimulus packages, the government is not going to directly spend this money. And so a lot of it is how you go about influencing the policy of the government in terms of doing it.

Now our most effective thing in most of these places, and certainly in places like the U.S., is trying to ensure that the government officials feel like they are getting the best for the money they have spent. There’s a lot of public scrutiny about all this, regardless of how you feel politically about it. There’s a tremendous amount of public scrutiny and our whole angle with government officials is making sure that if you want to build 21st century infrastructure that you use 21st century technology to design it. And that’s really the goal, and it’s very effective in trying to convince government officials that they need to put policies and specifications in place that make sure they use the latest and most up to date engineering tools.

Blair Abernethy - Thomas Weisel Partners

Okay, great, thank you and just Mark, a question for you -- on the maintenance renewals, do you have a -- can you give us a little more granularity in terms of what sort of patterns you’ve been seeing and sort of what product lines or what verticals might be fairing better than others?

Mark J. Hawkins

I don’t know that I would distinguish from that standpoint, Blair, between the ones that are doing better than others. I think the bigger, broader pattern really for the maintenance activity has to do with where the seats are. If there’s a person in a seat, people like the offering, it’s a good, high value offering, we have to have a seat in there to get the renewal. Our renewal rates are pretty stable across most of the geographies, pretty stable across most of the businesses and I think the bigger sound byte is seats, basically people in the seat. Hopefully that helps.

Operator

(Operator Instructions) Your next question comes from the line of Michael Olson with Piper Jaffray.

Michael Olson - Piper Jaffray

Thanks. Sorry about the background noise here. So again, just beating a dead horse on the OpEx, you know, with [certain expenses] kind of being in the category of out of the business more permanently and others likely to come back with demand rebound, if we see revenue growth in fiscal ’11, will we also see OpEx growth year over year next year? How should we interpret the comments you made that we can see some expenses coming back into the model with the rebound? Thanks.

Mark J. Hawkins

First of all, Mike, we’re not giving guidance for next year and so -- I totally understand your line of questions but I just want to be clear on that.

I really think the best way to think about this is that if you think about $300 million year-on-year, you’ve got a clean view of our view of the finish for FY10 compared to FY09. If you think about applying the 80-20 principal, you know that 80% of that -- I’m just talking directionally as a concept, is structural costs that’s gone, right? And then there’s some suppression cost pressures that we’ll deal with. Again, we’re not at that stage -- we’ll approach that stage at some point but we are not at that stage where we are going to get projections.

One thing you should keep in mind though is we are going to make the strategic investments we need to grow the business long-term but we are going to be relentless on costs that are discretionary and not related to driving the channel, the sales, and new product generation.

So Carl, I don’t know if there’s further --

Carl Bass

No, I mean, maybe Mike, one way to think about is there’s some suppressed costs, so for example, asking people to take salary cuts -- as soon as we feel it’s prudent, we’d like to restore salaries to the prior levels. That’s a cost that will come back in the business. We haven’t said when we will do that. It could be later this year, it could be next year but that cost will come back in the business and that’s the costs that were there.

There’s a second cost that if you were to model in the out years, there’s some amount of costs that come back with increased revenue -- things like commissions and bonuses. And then there’s a third category that you think about which is places where we would make investments. We haven’t talked about any of that because like we said at the very beginning of the call, we still think a bunch of the ratios are out of whack, so you won't be seeing us doing any of that for a while.

And finally, there’s a bunch of costs that are just gone and hopefully forever.

Michael Olson - Piper Jaffray

All right. Thanks a lot.

Carl Bass

Maybe that categorization helps.

Operator

Your next question comes from the line of Sterling Auty with J.P. Morgan.

Sterling Auty - J.P. Morgan

I thought I would reload -- Carl, you answered this but I wanted to ask it this way -- again, looking at a lot of the language that you talked about in terms of the business feels better than it did at the end of last year, beginning of this year -- and some of the other terms that you used, if that’s the case, why is the midpoint of the guidance range for next quarter actually showing a sequential decline?

Carl Bass

I think we just looked at a number of factors and we said given all the factors out there, that’s where we felt comfortable.

Sterling Auty - J.P. Morgan

Okay, and then the follow-up question is actually for Mark -- in terms of the expense savings, the extra expense savings would get you to $300 million lower than where you were last year. How should we think about that savings being split between the third and the fourth quarter, because I could make a case for the $0.18 to $0.23 looking actually a little low, unless more of the expense savings was actually back-end loaded to the fourth quarter?

Mark J. Hawkins

Sterling, it’s a good question -- I don’t want to -- first of all, we don’t usually give OpEx guidance per se. We’re just kind of doing the year-on-year to kind of give you guys a refresh, an update.

I think the one thing that might help you a little bit is to think about that historically there is some seasonality in Q4 naturally of having spending being a bit higher than Q3 and that’s a natural progression in our business. And so that is something that you should at least keep in mind and be aware of. But hopefully that gives you a little bit of color there.

Operator

With no further questions in the queue, I would now like to turn the call back over to Mr. Dave Gennarelli, Director, Investor Relations, for closing remarks. Please proceed, sir.

David Gennarelli

That concludes our call today. Thanks for joining us. If you have any further questions, you can reach me at 415-507-6033. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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