Autodesk CEO Comments on Voluntary Review of Stock Options Granting Practices

| About: Autodesk, Inc. (ADSK)
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Autodesk CEO Carl Bass comments on his company's strong Q2 2007 results as well as the voluntary audit of past stock option granting practices in their recent earnings conference call:

Carl Bass

Good afternoon and thank you for joining us. I want to begin this call on a personal note. As we said in our press release, like many companies we have undertaken a voluntary review of our past stock option granting practices. We are following evolving best practices as we conduct this review. The audit committee is -- review with the assistance of independent outside legal counsel and we will not share the results of the review until it is completed. Best practices also preclude us from providing our preliminary earnings numbers until the review is completed. I do wish I were able to communicate several key points that are important to the company and our investors. First of all, we have an excellent management team and they are focused on continued strong business execution. Secondly, the practices being reviewed involve prior fiscal years and do not impact the health of our business going forward. Our business is strong, our products are great, our management team is excellent, and our employees are world class. This is a very strong company and we are well positioned to keep delivering great products and great financial results.

Now let’s move to a discussion of our operations which as you will hear are very strong. Today Autodesk reported another terrific quarter of financial performance. Quarterly revenue was a record $415 million, a 21% increase over the last year. Once again, we achieved record quarterly results on many of our most important business matrix, including new seat revenue, 3D revenue, and subscription revenue. Spending in the quarter came in approximately $5 million less than the amount used for the high end of our previously delivered Q2 earnings stats. This was due to the timing of spent related to gross investment initiatives. And we continue to execute on a number of strategic and tactical fronts as well.

During the quarter, we substantially completed the integration of Alias into Autodesk. We’ve also made good progress in the transition of our advanced systems product portfolio from SGI workstations to Linux. Customer demand for Autodesk products was robust this quarter. Compared to last year, revenue for new seats increased 24%. And once again, sales from new seats and emerging businesses were approximately two-thirds of our revenue in the quarter. This continues to be an indicator of the underlying strength of our business. Our 3D solutions; Inventor, Revit, and Civil 3D continue to gain market share as customers across all industries recognized the benefits of adopting model based design. Total 3D revenue increased 37% over Q2 of last year.

Revenue from new seats of our 3D products increased 41% over Q2 of last year. We shipped more than 32,000 commercial seats of our 3D products. 3D now represents 20% of total revenues. Our Revit family products had outstanding performance again. Quarterly revenues increased to 96% over last year and we shipped more than 15,000 commercial seats. Civil 3D had terrific performance in the quarter, growing revenue 57% over last year, and shipping nearly 6,800 commercial seats. Inventor sales increased 14% over last year. However, Inventor sales in the Americas and EMEA were very strong, increasing 20% and 21% respectively. Like some of our competitors, we experienced the decline in manufacturing 3D sales in Japan compared to last year. In total, we shipped nearly 9,700 commercial seats in the quarter.

We continue to win market share as the boundaries erode between mainstream solutions, such as Inventor and older price legacy offerings. While model based 3D products are already 20% of revenue, we are still in the early stages of penetrating our large installed base of 2D users and converting users of competitive legacy systems. We estimate that approximately 10% of the 2D base has converted to 3D, leaving significant opportunity for future growth in front of us. Our emerging economies continued to be an area of very strong performance. Quarterly revenue in our emerging economies increased 32% over last year and now we are -- 13% of total quarterly revenues. Subscriptions show terrific performance in Q2 driven by the strong attach and renewal rates, subscription revenue reached $104 million, an increase of 65% compared to the second quarter of last year. Our success with attach and renewals drove a $12 million sequential increase in the first subscription revenue. Consistent with the large increase in subscriptions, upgrade revenue decreased in the quarter as expected. Combined revenues from subscription and upgrades in Q2 increased 14% over the last year to $153 million, representing approximately 1/3 of total quarterly revenue.

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