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Autodesk (NASDAQ:ADSK)

Q3 2014 Earnings Call

November 21, 2013 5:00 pm ET

Executives

David Gennarelli

Carl Bass - Chief Executive Officer, President and Director

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

Analysts

Heather Bellini - Goldman Sachs Group Inc., Research Division

Brent Thill - UBS Investment Bank, Research Division

Gregg S. Moskowitz - Cowen and Company, LLC, Research Division

Raimo Lenschow - Barclays Capital, Research Division

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Richard H. Davis - Canaccord Genuity, Research Division

Harris Heyer

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Ross MacMillan - Jefferies LLC, Research Division

Matthew L. Williams - Evercore Partners Inc., Research Division

Keith Weiss - Morgan Stanley, Research Division

Steven R. Koenig - Wedbush Securities Inc., Research Division

Operator

Ladies and gentlemen, welcome to Autodesk Q3 Fiscal Year '14 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mr. Dave Gennarelli, Director, Investor Relations. Please go ahead.

David Gennarelli

Thanks, operator. Good afternoon, and thank you for joining our conference call to discuss the results of our third quarter. 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 this call will be available at autodesk.com/investors. 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 anticipated future performance of the company, such as our guidance for the fourth quarter and full year fiscal 2014, long-term financial objectives, including billings and recurring revenue growth, factors we use to estimate our guidance, new business model introductions, new product and suite releases, market adoption and expected growth rates, cost management efforts, hiring plans, business execution, business prospect and financial results, our market opportunities and strategies, including our rental license offering plans, our transition to cloud and mobile computing, our educational vertical strategy, 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 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 the fiscal year 2013, Form 10-Q for the period ended April 30 and July 31, 2013 and our current reports on Form 8-K, including the 8-K filed on today -- 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 the call are being made as of today. If this call is replayed or viewed 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 we'll 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 our non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of our GAAP and non-GAAP results is provided in today's press release, prepared remarks and on the Investor Relations section of our 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.

Carl Bass

Thanks, Dave, and good afternoon, everyone. Our third quarter results were driven by strength in our core AEC and Manufacturing segments, as well as continued strong adoption of our suites. I'm pleased with the results despite the negative impact on revenue, on currency headwinds, the change we're making in our education vertical and the impact from the U.S. government shutdown. Considering these factors, I feel good about how we finished the quarter.

Our AEC business continues to perform well, driven by what looks to be a broad-based recovery in the commercial construction market. As we highlighted at our Investor Day last month, the construction vertical represents a significant opportunity, and we continue to gain momentum in that market. We also continue to broaden our BIM portfolio. Last quarter, we closed a couple of small acquisitions, bringing our BIM tools that further are -- that further support our infrastructure projects. We're also pleased with the adoption and usage of BIM 360. The anecdotal feedback we hear from our construction industry customers suggests it is the dawn of a new area in construction technology.

Our highlight for the quarter was that we signed our biggest ever BIM 360 enterprise agreement worth over $1.5 million. This existing customer renewed its agreement with Autodesk for about 20% more in total billings than their previous contract. They will deploy BIM 360 as part of their strategic goal to transform their business and increase their competitive advantage. This is exactly the type of transaction that supports our long-term growth assumptions. We've only scratched the surface of the construction industry, and we're well-positioned to tap further into that $7 trillion market.

Our Manufacturing business had solid results. Once again, we built on our momentum in the automotive segment and extended that success to the automotive supply chain. Areas of strength included rapid adoption of our manufacturing suites, as well as our industrial design, visualization and simulation technology. Our 100% cloud-based PLM 360 had its strongest quarter yet as it gained momentum with small- and medium-size businesses in industrial machinery, automotive and high tech. These companies share common process challenges around the supply chain, engineering chains and quality management. For instance, PLM 360 was selected over traditional PLM offerings by a Midwestern manufacturer for its functionality and superior ROI. This customer has grown to represent several hundred thousand dollars in PLM 360 billings to date.

While it's early, we're also seeing encouraging usage of Fusion 360, the world's first cloud-based software for industrial and mechanical design. Since its launch just a few months ago, there are now over 20,000 users. Our Fusion 360 customers are doing some amazing things from making lightweight drones to 3D-printed violins.

For most of Autodesk's history, we've been a leader in technology for design and left the work and technical challenge of fabrication and manufacturing to other providers. While we have collaborated closely and partnered with many of these companies, we have long believed we would provide greater value to manufacturers and we could streamline their workflows. With this in mind, we enter the CAM market last year with the acquisition of technology and expertise from HSMWorks. Earlier this month, we embarked on the next step on our path toward a better manufacturing process by making an offer to acquire Delcam, the industry's leading CAM technology and brand. We see a significant opportunity given Delcam's technological expertise, strong market presence and sterling brand. The combination of the companies is a significant step forward and what we hope will increase productivities for customers of both companies. As an added benefit, we will be utilizing our foreign-based cash for this transaction. We currently expect the transaction to close early in our fiscal year 2015, after which, we'll be able to speak more freely about our integration plans.

Another area to highlight during our third quarter results is the continued strength in adoption of our suites, which grew 21% and now represent 36% of total revenue. Growth was led by exceptional strength in our AEC suites. As we discussed last month at our Investor Day, users of our suites have high maintenance subscription attach and renewal rates, which supports our long-term goal of generating 20% more value with our subscription customers. Our strength in suites came partly at the expense of our volume channel products, AutoCAD and AutoCAD LT. While we did see improvement with these products in EMEA, it will likely take a few quarters to rekindle growth in this area.

From a geographic perspective, performance was solid. EMEA and APAC had solid growth on a constant currency basis. Our performance in the Americas was better than it appears for the reasons I mentioned earlier, especially in the U.S., where changes we're making in the educational vertical and the U.S. government shutdown had its biggest impact. Normalizing for these things, revenue in the Americas increased year-over-year. It was also great to see revenue from emerging economies return to growth, with all of the BRIC countries growing on a constant currency basis.

Just a couple of months ago, we announced the availability of most of our core products as rentals. Our customers wanted more choices and flexibility in how they access our portfolio of design, engineering and entertainment creation tools. We expect rental plans to be attractive across all of the industries we serve, especially for freelancers, start-ups or businesses that are project-based in nature. While it's very early, we're encouraged to see that many of the rental customers are new to Autodesk, which, once again, supports our long-term growth and model assumptions.

As we outlined at our Investor Day last month, the addition of recurring revenue streams coming from rental, cloud and consumption-based usage will significantly increase, making for a more predictable business [indiscernible]. We'll begin to see the transition start this quarter as we anticipate approximately $50 million of enterprise license revenue will move to the balance sheet. We anticipate a larger impact from the model transition in fiscal year 2015 and plan to provide you with more details when we release our fourth quarter financial results in February. We're excited to move forward on this business model transition and give our customers even more flexibility to utilize our products. We'll discuss this and more with thousands of our customers at Autodesk University in just a couple of weeks.

Over the past few weeks, I've spent time with our customers and partners in both EMEA and APAC. While the global economic environment remains uneven, it does feel as if things are beginning to improve. We know that our technological leadership and global brand recognition have positioned us well for long-term growth and industry leadership. It's not just the business model that is changing. We're expanding the markets we address and increasing the ways in which customers can access and use our products. It's an exciting time for Autodesk, and we look forward to reporting on our progress along the way.

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

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Heather Bellini with Goldman Sachs.

Heather Bellini - Goldman Sachs Group Inc., Research Division

Carl, I had 2. You mentioned that most of the customers for the new offerings are new to Autodesk, which is great. I'm wondering if you could share with us what the initial thoughts are from your existing customers about the new offering. And then secondly, how do you think the decision to do away with upgrade pricing a little more than a year from now will impact people wanting to kind of buy a boxed product one last time at a discounted rate next year?

Carl Bass

Yes. Sure, Heather. So 2 things is we were really encouraged. We did believe that a lot of the people who would end up wanting to rent software would be new to Autodesk. That's what we saw. Obviously, there were some of them who were existing customers. I think it falls into that category of some people doing it just to meet peak demand loading, which would be existing customers. Others are doing it as freelancers or on a project basis. So I think they were both usage cases in there. And so like we said, it's pretty early, but we didn't see anything that was outside what we kind of predicted happening in the model from the first results. What I see happening is a result of us kind of preannouncing the elimination of upgrades, and this has been confirmed by all the resellers I've spoken with. I think what we expect to see is probably more people moving to subscription rather than buying one last time. The tendency will be to buy and then protect their investment rather than just to buy and know that investment, they need to -- they may need to buy a full new copy.

Heather Bellini - Goldman Sachs Group Inc., Research Division

So just to be clear, do you think they'll buy a boxed product and attach maintenance to it? Or will they just say, "You know what, I'm going to skip that and just go to the rental offering?"

Carl Bass

I think it will be predominant -- I think it will be predominantly, one, and have fewer amount, number two. But we'll start telling you as we figure it out. But my instincts and experience in this business would tell you more, number one, and I would say 10% to 20% in the number two.

Operator

And your next question comes from Brent Thill with UBS.

Brent Thill - UBS Investment Bank, Research Division

Carl, maybe if you could just talk a little bit about your comments about modest improvements in some of the customer behavior and give us a sense of how that's trending. We've heard, obviously, the opposite from some of the other technology vendors. So if you could maybe talk about the sustainability of that a couple quarters out. And then, Mark, just a quick question on deferred revenue. I believe that the sequential decline is just a seasonal change. There's nothing else to read in there on the DR.

Carl Bass

Yes. No, Brent, our customers always behave well. But what we started to see is that really solid results in AEC. And I think we've been as clear as possible that we think it's being more led by C than by A. A lot of what we're seeing is really construction customers retooling their technology base, and that the market for commercial construction has improved on a global basis. That's what we see in the U.S., and from my travels in both Europe and Asia kind of confirm that. Same thing we're kind of seeing in manufacturing. I mean, what we saw in manufacturing, I mean, I know there have been some data that's come out that is contrary to this. But what we've seen is an increase in buying from our customers and a prediction about them spending more during the next year. So we're pretty optimistic, and this is both my interpretation of what we're seeing, combined with what our partners are telling us. Mark?

Mark J. Hawkins

It sounds right on. And then also, Brent, you hit the nail on the head. The -- while our deferred revenue is up year-over-year 7%, the sequential pattern fits almost perfectly with our 5-year kind of sequential history that we look at from a norm standpoint. So you absolutely are on the right point there.

Operator

Your next question comes from Gregg Moskowitz with Cowen and Company.

Gregg S. Moskowitz - Cowen and Company, LLC, Research Division

I wanted to ask a little bit more about manufacturing because this was certainly one of the better performances we've seen in some time. Was the strength primarily on the automotive side, Carl, or was it more broad-based? And just at a higher level, do you think we have possibly turned the corner in this sector?

Carl Bass

Yes. No, I think it was more broad-based. I mean, I -- what I would say is I saw broad-based improvement economically. And I think in automotive, I think we've been competitively advantaged. So I think that's more of winning business away from our competitors in automotive, whereas in consumer products and industrial machinery, I just saw a general improvement and a healthiness in most parts of the world. We talked about emerging countries. Japan has done well. The only place where I still see continued weakness is Southern Europe.

Gregg S. Moskowitz - Cowen and Company, LLC, Research Division

Okay. And then, Mark, just a quick one for this [indiscernible] Q4 guidance. Is the education impact on revenue again a couple of basis points -- a couple of hundred basis points as it was in Q3?

Mark J. Hawkins

Yes, I think if you think about it, I think 1 to 2 points would be a good number to look at on the whole company, yes.

Operator

Your next question comes from Raimo Lenschow with Barclays.

Raimo Lenschow - Barclays Capital, Research Division

I just wanted to stay on that subject. How do you think about -- if you plan your business about a recovery? I mean, Europe looks a little bit better. U.S. is still kind of more in the early stages of recovery. What are the metrics numbers that you're looking at? Are you looking at PMI or anything? Anything to help us to kind of share the confidence that you have.

Carl Bass

I mean, we always look at external economic factors like PMI. What has been a better indicator is our actual business and our pipeline of business. And so I'm more reacting to what I see in terms of business that's come in and that business that we've lined up in the pipeline. It's always tempered somewhat. But as we've seen, I think some of the macroeconomic indicators and some of the indices have been really misdirections to what's gone on. I think if you had gone back 3 to 4 months ago, you would have said manufacturing was improving, but you saw many companies' results be subpar. So we're much more interested in what we thought we would do, what we thought the building or sales pipeline would be, how we were able to close deals, the size of those deals. So they were more transactional metrics.

Operator

Your next question comes from Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

So it sounds like the transition is going to start more in earnest next quarter. I'm curious, what sort of new metrics might we get next quarter, perhaps a number of subscribers? And is that something that we'll get on a quarterly basis?

Mark J. Hawkins

Yes, Matt. We're -- one of the things -- you're absolutely right. We are -- the transition is going deeper in Q4 as we talked about the $15 million in enterprise license revenue going to deferred revenue, as for the discussion we had at IR Day. I think there's a number of metrics that we're looking at as we prepare for discussing the FY '15 guidance in terms of what we'll guide by and also what we'll track externally. And so certainly, we revealed the subscriber information we did just a couple of weeks ago, 1.9 million active subscribers of -- about 4.7 million of subscribers that have [ph] potential there, of which 1.9 million are active today. And we're going to start updating that eventually over time, so stay tuned for the FY '15 guidance. We'll get much more granular on both the metrics we're going to guide by and the metrics we're going to disclose. I hope that helps, but you can imagine some of the metrics we've -- we're going to be putting forward.

Matthew Hedberg - RBC Capital Markets, LLC, Research Division

That's great. That's helpful. And then maybe one last question on this. I'm curious that you guys are primarily a channel model. What's the response been thus far from the channel?

Carl Bass

So far, I'd say the channel is primarily reacting to business, which I think most of our channel partners had a good quarter. I think most of our channel partners have a wait-and-see attitude about many of our programs. Some form initial opinions. But right now, I think they see rentals as being additive. They think the elimination of upgrades in the future is a net positive. And they're more positive about the cloud offerings than I've ever seen them. As a matter of fact, for the first time this quarter, I had some of our own sales force start asking me or complaining to me that we're not doing enough on the cloud. And so we're starting to get in balance and how far in front of customers we are with some of our cloud offerings, certainly, when the sales force brings that up as an issue.

Operator

Your next question comes from Jay Vleeschhouwer with Griffin Securities.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Carl, Mark, I'd like to refer back to one of your longer-term objectives that you talked about last month at the Analyst Meeting, specifically getting 20% more value from new and existing subscribers. Perhaps you could clarify how you do that. If you look at the 5-year period ended fiscal '13 earlier this year, you had a cumulative increase in your average revenues per maintenance seat of about 25% under the existing model. And then that was largely due to mix, it seems, plus some better AutoCAD attach and renewal. So are you expecting that mix will be the predominant driver to the improving value that you are talking about from subscribers? And does that 20% build on the already enlarged maintenance revenues that you had over the last 2 years? Or is it just a path [ph] from a different starting point?

Carl Bass

No. So the starting point is when we described it today, and so it's additive over that. What I think the 2 biggest drivers that we'll see is one is the mix of suites, as we disclosed. We said let [indiscernible] of our revenue is in suites now. So I think where we'll come from suites and that mix towards suites from single products is a big driver. The second one, which we think will add substantially, is the addition of services, web-based services, to our existing customers or to new subscribers of those services.

Mark J. Hawkins

I would absolutely say that with the SaaS offering, it's going to add, I think, the rental. We're going to penetrate even more and create -- we're going to have more subscribers that's going to bring more revenue as well. And then, Carl, I feel good also about the enterprise offerings that we have and how that's kind of super-sizing deals with the enterprise folks, so just to complement your point.

Carl Bass

Right. I think the enterprise is definitely one to add. We tried to detail a little bit, as you remember, at IR Day. Our customers who use these flexible licensing plans, they get more, but they often pay more.

Jay Vleeschhouwer - Griffin Securities, Inc., Research Division

Okay. I don't know if you're able to speak more about Delcam, given the regulatory limitations, as best you can. Could you distinguish it from the manufacturing software investments that 2 of your larger peers made many years ago to sell, of course? And what is now Siemens have been in similar-sounding areas with their DELMIA and Tecnomatix acquisitions. So how are you going to be positioned differently from what they've had for many, many years in the manufacturing area?

Carl Bass

So I'm not as old as you, Jay. I can't remember that far. But what I do know is what we're really interested in is in taking these digital prototypes and these models that we built and actually manufacturing them. And I think if you look at the portfolios, the product portfolios of some of the other companies, they're pretty widespread at what they try to do. We built a very successful business and factory design and plant design. And what we're trying to do is complement that. We very specifically -- we're looking at the CNC tool market and being able to do that. And we think it's taking advantage of these secular trends in what really is the application of microprocessors to manufacturing technology. And so I think in some cases, it's just timing that we see this big growth because the availability of these high-capability, high-performance machines. And we saw it as a limitation in terms of the workflow that people couldn't get all the way to the end, and we felt that, that was important. I think if you look at some of the workflows out there, even in the biggest automotive and aerospace companies, the workflows are not good, they're incomplete, there's data loss and fidelity problems between tools, and we need to change that. The thing that's really driving this, Jay, at the heart is that we're really interested in our manufacturing customers who are putting a premium on the agility. It's about their ability to innovate and bring stuff to market more quickly. They've gotten to the point where quality is assumed, and what they're all interested in is, "How do I innovate? And how do I bring products to market quickly?" And one of the ways to do it is, all the way from prototyping to final manufacturing, you get from end-to-end faster.

Operator

Your next question comes from Steve Ashley with Robert Baird.

Steven M. Ashley - Robert W. Baird & Co. Incorporated, Research Division

I was going to ask about maintenance attach rates and renewal rates. Have you seen any change [indiscernible] metrics here in this recent quarter?

Mark J. Hawkins

Steve, this is Mark. Yes, let me just address that. We -- in terms of the actual rates, we don't disclose that. I know you know that. We look at the changes period-on-period. It gets a little bit lumpy. It gets a little in flux at times. They're slightly down. But I think the thing that I look at, [indiscernible] the fact that our [indiscernible].

Carl Bass

Hopefully, everybody could hear that.

Mark J. Hawkins

Yes, there was a little bit of background noise there, but I hope folks got that. So, Steve, did that cover it for you?

Operator

Your next question comes from Walter Pritchard with Citigroup.

Walter H. Pritchard - Citigroup Inc, Research Division

I'm wondering if you could talk about -- you gave guidance for the $50 million impact from the business model transition during the Analyst Meeting. I'm wondering if you could talk about, given the conversations, Carl, that you've had with customers over the last, I don't know, 6 weeks or so since that event, what have you learned about the appetite for those types of arrangements? And how should we think about that as we go forward from Q4?

Carl Bass

Like we told you back then, we've always been the one that has been the obstacle. Customers have always wanted this. We wanted to recognize more revenue upfront. So customers have been thrilled with our willingness to offer software on terms that they've always wanted. The opportunity might grow this quarter, but it's a little bit limited by the renewal cycle. And so it will come up during the year. So we think people are enthusiastic about it and merely be a function of when their renewals are up.

Walter H. Pritchard - Citigroup Inc, Research Division

And then just on the LT product, I think the talk coming out of the Analyst Meeting was you were going to drive a bit more promotional activity in the volume channels and so forth. And it sounds like, still, that business was not as good as maybe you'd like it to be. I'm wondering, did you -- how far did you turn on the promotional activity in those volume channels? And should we expect that to turn on further as we sit here in Q4?

Carl Bass

I think we turned it on. I think we turned it on sufficiently. I think it takes a while to respond, and we saw patchiness. I think there were places that responded really well, and there were others that didn't. So we'll report more after the quarter end.

Mark J. Hawkins

Yes, and just building on Carl's point, I think that exactly describes the LT situation in the AutoCAD side of it of some of the volume products. Keep in mind, Walter, one of the things that we observed this quarter is part of the real success we have with suites growing at 21% year-on-year, which we're very pleased on, had a little bit of a trade-off with AutoCAD point product going to AutoCAD suites, which grew roughly 50%. So we really like that dynamic. We would take that dynamic all day long. I think that just complements the AutoCAD side. Obviously, the LT is more the marketing-led activities that Carl talked about.

Operator

Your next question comes from Sterling Auty with JPMorgan.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

So, Mark, at the Analyst Day, there was also some discussion in your prepared remarks about looking at ratable recognition for some of the non-rental and other contracts. Wondering if there's any update that you can share with us. Since you're waiting until February to give an update on next year's guidance, I think we're all super curious what the magnitude of the adjustments we're all going to have to make, and I think that's going to be a big part of it as to whether that's going to happen right off the bat or if we're going to have to wait for that.

Mark J. Hawkins

Yes, Sterling, I don't have any new news to share with you. I think you absolutely got it right that at the IR Day, we talked about a couple of things. One, our recurring revenue, by the time we end this 4-year plan that we covered from '14 to '18, is going to be 70% or more. And then we also talked about the intention to drive ratability, even separate from recurring, in a way, to build on the comments that Carl made about customer-friendly things that really free people up to have even more flexible terms. But I don't have anything to share with you at this stage, but that is an intention that we'll be looking at and working on and driving throughout the course of this plan that we've described at IR Day. You got the right issue. We just don't have any news to share with you at this stage.

Sterling P. Auty - JP Morgan Chase & Co, Research Division

And one follow-up. In terms of the $50 million going into deferred, the sense is that's a smaller number of enterprise contracts. Why wouldn't the overall number be bigger since these programs are fully available to users?

Carl Bass

It's the size of the enterprise base and the number of contracts that come up for renewal in that quarter. So, for example, as an enterprise customer, even if the renewals came up in the fourth quarter but it was a 2-year term or a 3-year term, it might not be this year. So we haven't gone back to customers who their renewal is -- we haven't gone back to customers who renewal would be next year or the year after and opened it up to them yet. That's what we're driving much higher number.

Operator

Your next question comes from Richard Davis with Canaccord.

Richard H. Davis - Canaccord Genuity, Research Division

So 2 quick questions. One, Carl, you talked about people new to Autodesk. Do you have any sense if those are switches from other vendors? Or are these people that were living in a cage using carbon paper and things like that and they finally decided to use this thing called a computer? And then secondly, on the -- we didn't talk about -- a lot about it, but the Media and Entertainment business remains kind of choppy. Do you have any sense as to what gets that thing back on track? Or is there anything you can do on that side of the house?

Carl Bass

Yes. So, no, I think they probably were using computers. I'm not sure they were paying for the software they were using on those computers. It's probably a more reasonable explanation of what was going on. On the M&E side, most -- the software part of the business continues to do well. A large part of the money coming out of that business continues to be hardware, which we're happy to see. If it bleeds out over time, it's absolutely fine. We're much more interested in the software component of that business.

Operator

Your next question comes from Phil Winslow with Crédit Suisse.

Harris Heyer

This is actually Harry for Phil. I was just wondering if you could give a little bit more color on the kind of performance across segments with regard to certain geographies. I know you've given a little bit, but could you talk a little bit about Southern Europe and maybe how you think about a turnaround there? And, obviously, you've just given some color on the Media and Entertainment segment, but any other segments that you think are poised for some strong growth in the coming quarters?

Carl Bass

Yes, I'll give a couple of opinions, and then, Mark, please join in. First one is we're not doing any planning about Southern Europe getting better. We leave that like to the ECB and others. I mean, we just don't see any reason to be particularly optimistic about Southern Europe, and none of our plants contemplate an improving economy in Southern Europe. That being said, we continue to see strength in Central and Northern Europe, the U.K. in particular, and that's across segments, so happy to see that. We're happy to see solid stuff amongst the emerging economies. And we like the results that we saw in Japan. So...

Mark J. Hawkins

Yes, and I would just add Canada. It was great to see also a nice strong growth in that respect.

Operator

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

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Carl, I want to just follow up on that emerging markets commentary because a lot of enterprise companies this past quarter saw weakness there. Obviously, you saw some nice strength there. What do you think accounted for the recovery that you saw versus maybe some folks more broadly?

Carl Bass

I think, truthfully, we had easy compares. Last year, we found that we're challenging some of the emerging economies. And in a number of places, we did some things around pricing changes and promotional stuff that I think helped. In a number of places, we raised the prices, and we saw that demand remained the same despite an increase in prices.

Brendan Barnicle - Pacific Crest Securities, Inc., Research Division

Great. And then, Mark, I couldn't hear your full response to Steve Ashley's question. [indiscernible]. The first part came out about -- but you broke up on the billings part. So can you just repeat that commentary on the maintenance billings?

David Gennarelli

Attach and renewals.

Mark J. Hawkins

Yes, right. So for attach and renewal, just to be clear, 2 things I would say here, Brendan. One is that we don't typically give out or we don't give out the rates at all, number one, but we give directional view. Directionally, it's always a bit lumpy. They were down a bit in terms of the quarter-on-quarter period. I think the more interesting point that I was trying to make was that our subscription billings were up 11% year-on-year. So that, to us, is important, and that's driven by the fact that we had good subscription, our performance year-on-year both on single year and multi-year. And we also had our SaaS offerings, although smaller, contributed to that. And so for us, we also saw the benefits of suites and the fact that more suites have better subscription, and the actual ASP content of that was attractive. So we like that. The rest of it flexes around a little bit, but that's probably the more salient point, Brendan, to share with you. Can you hear that okay?

Operator

Your next question comes from Ross Macmillan with Jefferies.

Ross MacMillan - Jefferies LLC, Research Division

Mark, I had a question on maintenance, and it's less about the specifics around attach and renewal but more about the variability in growth. So if I look at your maintenance billings, I think last quarter -- or this year, you've gone, I think, 16% growth, negative 17%, and in this quarter, up 11%. And I thought it might be related to multi-year. But when I look at maintenance revenues, plus change in short-term deferred, you see a similar pattern with a big decline in your fiscal second quarter and then a rebound this quarter. Why are we seeing such variability in maintenance billings?

Mark J. Hawkins

Well, a couple of things here that I would say. First of all, there are seasonality factors that are strong in that respect, Ross. So one of the things I look at, just to kind of get a sense of how things are going, is my 5-year of historical average quarter-to-quarter. And when you look at that, you can see patterns of strong seasonality in any given period, I think, is one of the dynamics. Secondly, I would say, don't forget, there's some special things that have happened if you look at the trailing 12 months that you're referring to. We had activities a year ago, Q2, where, effectively, we changed the pricing in terms of what would have an impact on multi-year subscriptions. And so that has a certain effect in terms of pulling of subscriptions. So there's been both pricing changes, there's been activities of that nature, plus you overlay historical seasonality, and that's the dynamic that you can net out. But I think when you look at seasonality in aggregate, I think it's a lumpy business, so to speak. And it's not off the mark in that respect, let alone if you did the overlay with some of the kind of special events that have happened in the last 12 months. Ross, I hope that helps.

Ross MacMillan - Jefferies LLC, Research Division

Yes, that's helpful, especially on the pricing piece. Maybe one follow-up. As you talked about the ASP uplift, you said 2 things: mix and, I guess, attach of the SaaS products, the 360 products. What's your plan in terms of giving us disclosure around 360 product attach? Or how should we think about you helping us understand that evolution, if you will?

Mark J. Hawkins

Yes, absolutely. 2 things. One is, as soon as this becomes material, you can be sure that we're going to be breaking that out to try to give granularity. We try to give a lot of granularity of what's going on, but anything that's material, we really wanted to be upfront on that, number one. And one of the things also, Ross, that I think is important to reiterate is that as we look to FY '15 in the guidance, one of the things that we look forward to talking to you about is things that we will disclose. It's a fresh point to talk about what we will disclose and also, frankly, what we will guide. And so if you look at and you're extremely well-versed and people that are going through like transformations, you can see the metrics that they guide by, the metrics that they disclose. Ours won't be terribly different from that and especially once things become material. And so I think those 2 things ought to frame it nicely for you. One thing we do know is that SaaS is going to be an important ingredient for us to hit 70% recurring revenue in FY '18. And, obviously, over time, that is going to definitely be material. So we look forward to furthering this discussion at the February guidance discussion. Does that help, Ross?

Ross MacMillan - Jefferies LLC, Research Division

Yes, that's helpful.

Mark J. Hawkins

Thank you, Ross.

Operator

Your next question comes from Matt Williams with Encore (sic) [Evercore].

Matthew L. Williams - Evercore Partners Inc., Research Division

Just wanted to ask a little bit more about the 360 offerings and your comments that they're going to play a big role in the -- moving to 70% on the recurring and the subscription basis going forward. You touched on the first sort of million-dollar-plus deal in BIM 360 in the quarter. And I know you've talked about PLM 360 adoption and SIM 360 being strong. But, I guess, sort of how close are we to million-dollar deals in some of these other 360 offerings? And then sort of how receptive is the base to layering on these 360 offerings, I guess, going forward?

Carl Bass

Yes, we saw the first over a million-dollar deal in BIM 360. We've seen deals of nearly that size or -- and there's certainly deals in the pipeline for much larger numbers than that in the PLM one. I don't expect to see million-dollar deals in SIM 360 in the short term. Some of that is consumption-based, and that will take place over time rather than upfront. I think the big variable is around Autodesk 360 because it's a much more broad-based one. And in 2 weeks, when we're at Autodesk University, we'll be disclosing a lot more about Autodesk 360 and make it clear what that is. We'll also talk a little bit more about AutoCAD 360 at that point as well.

Operator

Your next question comes from Keith Weiss with Morgan Stanley.

Keith Weiss - Morgan Stanley, Research Division

I want to ask more sort of a strategic question. When we talked to your channel partners and guys in the field, one of the feedback that we got was what they thought would be even more effective to getting non-maintenance paying customers to paying maintenance would, rather than just not doing upgrades would be attaching more functionality that you only get with maintenance. Is that part of the program? Is that something you guys are thinking about, kind of putting it perhaps more carrots with the sticks out there from moving people onto maintenance?

Carl Bass

Yes. I mean, one of the variables we have to figure out is as we offer these new web-based services, there are 2 things we can do: we can offer it in subscriptions, just bundle it in, to increase the attach rate. The other thing is when the services are really value-added is charge customers who are either not on maintenance or who already are in maintenance but are getting much more value. So we try to separate into those 2 categories of kind of the convenient things that are nice and should really be bundled for all our customers, and those would be a big incentive to move more people onto maintenance. But when we look at some of the offerings, these are substantial value over what we offer today. And we think if customers want to avail themselves of the services, they should pay for them.

Keith Weiss - Morgan Stanley, Research Division

Got it. And then just a more tactical [ph] question on the impacts that you saw from federal. Is that something that you expect to be a 1-quarter blip or is the general dysfunction in D.C. likely to drag on for some time?

Carl Bass

Personally, you're trying to just get me going, I know, Keith.

Keith Weiss - Morgan Stanley, Research Division

Exactly.

Carl Bass

My prediction is the general dysfunction continues, I don't think it will affect our business. I'm more worried about continued episodic breakouts. I think there's still much more opportunity. And even after today, it doesn't look like even the Senate is becoming more bipartisan and congenial place to work. So when the debt ceiling comes up again, I mean, there's plenty of opportunities for these knuckleheads to get off the railroad tracks, and I'm more worried about that than I am -- ongoing dysfunction and our dissatisfaction with Congress is fine as long as the government spends money. It's when they put a halt to the spending abruptly like they did. And in that case, we very specifically saw deals that we thought were in the pipeline just freeze up. I mean, there was no one to call to write the check.

Mark J. Hawkins

I mean, to build on Carl's point, that probably cost the Americas a couple points of growth, the shutdown itself, which is add that to some of the other headwinds, including we even had a point of FX in Americas, which is unusual, a headwind, and then the educational strategic change. And you can start to see where the Americas is actually performing, a little bit of a better mode than meets the eye.

Carl Bass

And as always, we hope these deals haven't gone away. And as people getting -- have gotten back to work, we start to see some of the deals come through. But we continue to [indiscernible] I think through the next 2 years, you're going to see episodic dysfunctions in addition to the chronic form.

Operator

[Operator Instructions] Your next question comes from Steve Koenig with Wedbush.

Steven R. Koenig - Wedbush Securities Inc., Research Division

You guys have been pretty transparent about -- sorry, I didn't catch that.

Carl Bass

No, I just said, as long as it's not about the government, we're happy to answer your question.

Steven R. Koenig - Wedbush Securities Inc., Research Division

Okay. No, I'll stay away from that can of worms.

Carl Bass

Exactly.

Steven R. Koenig - Wedbush Securities Inc., Research Division

I wanted to dig into your model change. You all had been very clear and transparent on all the different pieces of it. I think the one piece of it that I feel a little bit in the dark about is how quickly and, more qualitatively, how to think about how you're going to make that change from perpetuals to some of that revenue being ratable. What is your thinking on what will drive that? And how quickly will that get driven?

Carl Bass

So, I mean, there's 2 aspects, so let me speak to the first. There's perpetual being driven to recurring, which I think is largely driven by programmatic stuff we do. And I think we've outlined a lot of it. There's another aspect of it of driving it to ratable, which is really more around accounting. And I think Mark tried to answer that. We're working through a lot of these issues right now. As soon as we have answers, we'll communicate them. But maybe, Mark, you want to add some color to that.

Mark J. Hawkins

Yes, I think that's exactly right, Carl. We have kind of the natural things that are going to drive a recurring from a product and services basis that are straight up the SaaS, the rental, the subscription maintenance out of the pool of opportunity we have with our core business, including the activities that are happening with suites and all that. And then I think there's the other aspect of it in terms of what we can do as we reconfigure our offerings with perpetuals and what would that -- what kind of possibilities does that create to further move that to ratability because of the nature of what's being configured that's based on the offering itself that would clearly cause a different kind of an accounting. And that's something that we're exploring. And I think what we're trying to share with you is the intention to fully and robustly explore that throughout the course of this business plan that we shared with you from FY '14 to FY '18. And, obviously, as soon as we have news that we can share with you, we will share with you. But at this stage, we don't have news on that front. But that's certainly our intention is to continue to work that topic.

Operator

There are no additional questions at this time. I would like to turn the call back over to Dave Gennarelli for closing remarks.

David Gennarelli

Thanks, operator, and thanks, everyone, for joining us. We do have Autodesk University, as Carl mentioned, coming up in about 1.5 weeks on December 3 in Las Vegas. If you haven't received that invitation, please call or email me. We'll also be at the Crédit Suisse conference the following day on December 4. And if there's anything else, you can reach me again at (415) 507-6033. Thanks.

Operator

Thank you. This does conclude today's conference call. You may now disconnect.

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