Good day, ladies and gentlemen, and welcome to the Autodesk Incorporated Fourth Quarter Fiscal 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to hand the floor over to David Gennarelli, Head of Investor Relations. Please go ahead, sir.

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter of full-year FY2017. On the line are Co-CEO's, Amarpreet Hanspal and Andrew Anagnost; and Scott Herren, 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 anticipated future performance of the Company such as our guidance for the first quarter and full-year fiscal 2018, our long-term financial model guidance, the factors we use to estimate our guidance including currency headwinds, our transition to new business models, our customer value, cost structure, our market opportunities and strategies and trends for various products, 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 2016, our Form 10-Q for the period ended October 31, 2016 and our current reports on Form 8-K, including the 8-K filed 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 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 we 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 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, unless otherwise noted each such reference represents a year-on-year comparison. And now, I'd like to turn the call over to Amar.

Thanks Dave. We rounded out a fantastic year with strong fourth quarter results. New model ARR grew 109% at constant currency. New model subscriptions grew by a record 227,000 sequentially. Recurring revenue jumped to 84% of total revenue and we are beginning to see meaningful volume in our cloud services. It's clear that we are making real progress in our two major initiatives, growing lifetime customer value by moving customers to the subscription model and increasing adoption of our cloud-based solutions. Let's dive into the numbers a little more. For the quarter, we added 154,000 net subscriptions bringing the total additions for the year to 530,000. Total subscriptions at the end of the year stood at 3.11 million, an increase of 21%. We are really pleased with the continued momentum of new model subscription additions, which grew more than 3.5 times as compared to Q4 of last year. Bear in mind, we accomplished this without having a significant promotion in the market during Q4, so we are really pleased with the overall demand for product subscriptions. Taking a closer look at new models subscription, once again product subscriptions drove the majority of the new model sub-addition as will likely be the case in most quarters. New customers represented about a third of our new product subscriptions for the quarter, which is a consistent trend we've been seeing. These new customers come from mix of market expansion, growth in emerging countries, former pirates and people who may have been using an alternate design or simulation tool. It's clear that a subscription model is broadening our market opportunity. We are experiencing continued success with the EBA program in our enterprise named accounts. EBA subscription additions more than doubled over Q4 last year and total EBA subs grew over 40% for the year.…

Thanks, Amar. When we started the business model transition, we indicated the subscription growth was a key metric for tracking our progress. Clearly we feel good about the trends we are seeing with subscription, but ultimately if the growth in ARR that will enable us to achieve our free cash flow goals. So we are happy to report the trends we are seeing in both are positive. New model ARR growth surged to 109% on a constant currency basis and reflects the continued strong uptake of all of our new model subscription offerings. The total ARR grew 19% of constant currency and about one-third of our total ARR is now driven by new model subscription. That's up from just 19% in Q4 of last year and it's a clear indicator of significant progress we’ve made this year. You might also recall at the Investor Day, I said that we would start to see ARPS trending up in the second half of the FY2018. In Q4 2017, we did experience a sequential increase in ARPS, but this does not indicate a permanent trend or an inflection point. As you recall in Q1 and Q3 we had a successful legacy promo which brought in a lot of subscriptions at lower ARPS. We did not run a promo in Q4 and that positively impacted ARPS. Going forward, the ARPS calculation will continue to be extremely sensitive to short-term shifts and term length, geo mix, promotions et cetera. We expect to see ARPS walk up or down on a quarterly basis and it will not increase monotonically throughout the year. Now I want to pick up where Amar left off regarding our maintenance subscription base and build on my comments from Investor Day. At the end of Q4, we had just over 2 million…

Thanks Andrew. All of you should have the prepared remarks document, which is the best source for our financial details. So I'm not going to walk through them all, but I do want to hit on a couple of noteworthy items and talk about our business outlook for fiscal 2018. Starting with revenue total direct revenue for the fourth quarter increased once again and represented 32% of total revenues. That's up from 23% in Q4 last year and just 19% two years ago. That's a lot of progress over a relatively short period of time as we continue to grow the volume of business with both our large enterprise customers as well as on our e-store. As we indicated we believe there is still room for our direct business to grow over the next few years as we progress on the model transition. Moving to spend management, we're really proud of what we've accomplished on the expense side. We started the year with a goal of keeping non-GAAP spend flat to down 1% we ended up reducing it by 3% for the fiscal year and 4% in the fourth quarter. We accomplish this by making sure we're investing in critical elements of our transition by reducing standard other areas. Part of the reduction this year was the result of the restructuring we announced at the beginning of the year, coupled with a relentless focus on driving efficiencies across the organization. We significantly reduced our M&A activity this year and we've been simplifying the product portfolio. We remain committed to keeping spend flat through fiscal 2019 and believe that we can do so without compromising the long-term health of the company. During this stage of our transition, deferred revenue is a better measure of our business than reported revenue. Total deferred…

Thank you. [Operator Instructions] And our first question for today comes from the line of Saket Kalia from Barclays.

Hi, guys, thanks for taking my questions here. Maybe just first to start with, Andrew, Andrew, you kind of talked about some of the changes that you're making to maintenance pricing and new model to incentive that conversion. Could you quickly recap the promotion that you're specifically running on product subscription if they trade in their perpetual license? And more broadly, how are you thinking about the maintenance subs to new model subs conversion in 2018?

Yes, all right. So let me just recap some basic details you’re seeing, you get the understanding. So the way this works is the customer in return for trading in a perpetual license gets a very big discount to move to subscription, essentially what they're doing is they're paying 5% more than they would pay today on their current maintenance, if they were going right now from today. So they get to move over at that price and they get to lock that price in for three years. So if they move early, they get much more advantage then if they wait. Now one of the things that's important about this program and things we're looking at, we want to move is many of these maintenance customers as possible, really we want to move 100%. Churn is the enemy of this program. So the reason we structured at the way we have with these 5% increases in this discount to move is because we want 100% of them to move. And the advantages we're going to get out of this is to look as they move, they're going to be making different kinds of choices. A lot of them are going to have the best possible price to get to collection that they've ever seen. So what we're going to see instead of a customer moving from maintenance, on AutoCAD to subscription on AutoCAD, they're going to move from AutoCAD maintenance to collection subscription, which by the way has a greater uplift on top of the maintenance base and than just what we're doing. In addition some of the customers are going to stay behind on maintenance. This is just going to be their preferred path. They're going to stay there till the second year of the program and maybe not move until the third year of the program. So they're obviously going to see continual price increases to maintain that perpetual license, but it’s important to them, they're going to end up paying more. But the net result of what we're trying to do is over a three-year period move the majority of that base over. I'm not going to give you specifics about how many we expect to move over this year, but we certainly expect people to start considering this program and we expect to see a lot of our larger customers at the top of the pyramid and down at the bottom where they get a lot of engagement from partners moving quickly.

Great. That's really helpful. And then maybe for my follow-up, actually for you again, Andrew, I just want to confirm, I think you mentioned that new model ARPS of course was up this quarter but could flux quarter to quarter. I may have missed it but can you just confirm, it sounded like it should be roughly flat from a dollar perspective throughout 2018. Is that correct?

So if you remember what I said at Investor Day earlier, it's going to start to trend up in the second half of the year. The increase we saw in Q4 is basically a result of the fact that we didn't have a promo in Q4 and we had one in Q3. So you're not going to see that continue, you are going to see some kind of variability as we head through Q1, Q2 and Q3, but as we move into the second half it's not going to be flat, it's actually going to trend up in the latter half of the year. And that's just going to be a result of the accumulation of new model ARPS that we're going to be seeing especially on the products subside and the mix of more mature markets buying product set.

That's very helpful. Thanks very much.

You're welcome.

Thank you. And our next question comes from the line of Heather Bellini from Goldman Sachs.

Great. Thank you. I was wondering if you could give us a little bit more color. I remember at the Investor Day and I apologize if you touched on this in earlier comments President if you could give us a little bit more color about the mix of the cloud subs versus the new – versus the desktop subscriptions and let us know, one, kind of where are you seeing strength in that and how do you – how are you thinking about splitting that out going forward they terms of disclosure?

Well, Heather, let me take the first part of that question and then Scott can weigh in on the disclosure parts. We saw strength across the board on all types of subscriptions and clearly product descriptions are very strong and we saw EBA’s as I mentioned in the earlier remarks. We had lots of strength in the EBA. We had a record quarter in the cloud because I think it was three times the number of subscriptions that you assume in any prior quarter, so we are definitely seeing a lot of growth from our new cloud-based offerings, but we have continued strength in product subscriptions across the board and we expect that momentum to be carried into this fiscal year.

.:

Okay. And then just one quick follow-up if you don't mind. In regards to the changes that you sent out to the channel partners today, what's been – have you heard any – I imagine you kind of tested the waters on this of before you did it. What type of feedback did you get from customers or from channel partners about the strategy to basically main thence customers paying that increase in price and the move to subscription, basically trading they your license to move to subscription, what type of feedback did you hear if you ran that by any of your larger customers before you did this in?

So Heather we do test a lot of these things. Amar and I just got back from our sales conference and I think the most relevant feedback I can give you is that our partners are very, very positive about this program mostly because they really – they see an opportunity for them to go in and have a conversation with the customer. They also see a big opportunity to get the customers for collections and frankly living in two worlds where they have a maintenance model and subscription model isn't exactly in the partners of the customer's best interest. With regards to the customer reaction, I think it's going to take us a little bit more time to gather that reaction. The net that the customers are going to see in terms of value is going to increase, it's going to take us time to really get that, obviously we didn’t test all of this with our customers before we rolled it out because of the nature of the program.

Just what I'd add to that is from the customer's perspective I mean we're seeing our largest customers really respond very well to the flexibility of products subscription that suites their way of doing business. And also at the low end we are seeing people really respond well to the sort of the lower cash outlay the subscriptions demand from them. And the channel is really energized and is excited. This is a thing that you know how to do well and that was the feedback that Andrew referred to that we got at OTC. So I think right now it feels like the right set of things that are under way.

Great. Thank you.

Thank you. And our next question comes from the line of Sterling Auty from JPMorgan.

Yes, thanks. Hi, guys. Andrew, I didn't quite catch if somebody moves some AutoCAD maintenance to collections, what's the actual uplift that we would see?

Yes, so they're so let me kind of do a little quick, I'm not going to all the math, but I'll give you a quick example. So if they just moved AutoCAD to AutoCAD, it's essentially a 5% increase from the maintenance as it is today. However, if they move that AutoCAD to a collection, it's going to be several $100 higher than that, all right and it's basically the Delta. So there it’s a significant uplift over what they'd be paying normally much more than 5%, but it's the smallest Delta they'll ever see in terms of getting the collections. So I think what’s you need to focus on is the fact that they'll never have a better way to get the collections in this path and essentially if they wait and they find the collections are important part of the solution in the future, they're going to pay a lot more. So a lot of customers just like back in the suites days when we ran all the suites plays, they're going to opt to take the collection route because the price is so attractive now. But it's still – they're still going to pay more because they moved to collections. It's not going to be just a 5% uplift of their current maintenance it's much more.

That makes sense. And then the follow-up is not that I’m expecting you to quantitatively tell us what's built into the guidance. But can give us a feel for okay how did you go about baking in the impact of this program into the guidance? So if there's a massive everybody says, yes, I really want to go to collections, what is said due to is it in immediate impact to revenue and cash flow, how does it come in and on the flip side if everybody says, yes I get what you're doing, but I'm just not interested and it's might of what you expect what kind of magnitude impact can we see to the way that you've guided?

So the most important thing you need to remember is its plus 5% on the maintenance base no matter what happens, all right. So there's a price increase in the maintenance base that happens just as a matter of course. So they're all going – the whole entire maintenance base you are going to see a 5% in price increase. They can choose to roll that 5% price increase into a subscription program at three-year lock if they want to but they're all going to see a 5% increase. To your second question about – the specifics about how many are going to move to collections that that's something we're going to watch over time, I expect most of that will be we’ll see later in the year as people try to decide these things, but everybody is going to see 5%.

Yes, Sterling said another way. The price for maintenance after the 5% uplift is exact same price they would pay if they converted to subscriptions incentive. So it's from a modeling standpoint for fiscal 2018 at the same whether they convert or not.

Make sense. Thank you, guys.

Thank you. And our next question comes from the line of Jay Vleeschhouwer from Griffin Securities.

Thank you. From Amar and Andrew could you talk about how you’ve ranged the division of labor between yourselves as come CEO's, so long as the arrangement last, how are you dividing your respected responsibilities for overseeing product sales operations and a like?

Yes, Jay, we are sharing responsibilities rather than dividing them. So Andrew and I have been the co-architects of the plan that you're seeing unfold right now. And so we continuing to work very closely together on for the technology transition as well as the business model transition that's implied. So he and I have been focusing on is driving you know greater focus and urgency on the execution of the plan and basically making decisions jointly through this period. So I wouldn't – well Andrew continue to do his marketing role and I continue to do my product role. The executive decisions we are making, we're making jointly.

And Jay just how we moved into this mode, we started this mode well before the announcement of Carl’s departure. So we got ourselves into a cadence of how we were going to make decisions? How we're going to work together on some of these things and Jay we work together for a long time. So we have a pretty good cadence set up already so there was no disruption as we move from the pre to the post Carl era?

Okay. My follow-up is did you say I think it Analyst Day on the last call that you expected the new model subspace to exceed the classic maintenance subspace by the end this fiscal year…?

That’s correct. This is the crossover year, Jay.

Okay. And related to that could you talk about how you’re thinking about the channel comp effects of this program in terms of their activity, how they get comp as they look through this program and what the MDS impacts might be?

Are you talking about the maintenance subscription program?

Correct.

Okay. So obviously the comp structure is going to change on maintenance a bit as time goes on, otherwise the incentives wouldn't be in the right direction. So a partner is going to make more moving a customer to subscription then they're going to make keeping the customer on maintenance, and obviously it's going to be taking a little bit from one and give it to the other.

Very good. Thanks very much.

Thanks Jay.

Thank you. And our next question comes from the line of Phil Winslow from Wells Fargo.

Hey. Thanks guys and congrats on a great end of the year. I just have two questions here. First, as far as when you look at the subscriptions right now that, the net new subscriptions that you're seeing, where are sort of people most compelled, I guess to move because obviously you have products here in the manufacturing vertical, you have a civil vertical, commercial construction where you seeing just the earliest uptake and I just have one follow-up to that?

Yes, Philip I would certainly say that AEC has been a place where – we see strength across all our verticals, honestly we started this journey on product subscriptions actually with our M&E business first and as we’ve rolled it out and do other products segment. We've seen strength in demand across all verticals. I would say that our AEC business grows – is continuing to grow at a very healthy rate really driven by the adoption of building information modeling around the world. So that's in building and civil all the sub-verticals in AEC, manufacturing has been extremely strong for us as well. In fact in manufacturing in addition to product subscriptions we've seen a growing uptick of the cloud-based solutions with Fusion both on the design side, on the simulation side as well as in the new sort of additive manufacturing fees. So we're very pleased with our growth across the vertical segments.

Got it. And then just a question for Scott and Andrew here about sort of the path, I guess on maintenance pricing because if you look at the price increases that you talk about 5%, 10%, 20% it does become very compelling to make the move this year and lock that, they call that 5% increase and going forward for three years if you're on subscription. So how do you think about converting the base because obviously the maintenance rates are going up and you'll be paying substantially more just one or two years out. So is there a potential this year where you see even faster subscriber growth because sort of act now or never and obviously these are long duration software applications, in other words, long lifecycle. Could you see a faster move and then as you think about the long-term guidance for more of a hockey stick an actual ARR and revenue. So it potentially faster subs, but a hockey stick later on and cause the ARR and revenue to get to those targets. How you just sort of thinking through that because obviously it was pretty compelling program?

All right. So first off let me just correct something you said. Remember this program is net neutral on subs adds because they're basically moving from one type of recurring revenue to another type of recurring revenue. So it's not a subs adds accelerators, it's an ARR phenomenon and one thing…

Yes. Our maintenance to better subscription.

It will absolutely have a cumulative effect as we move into FY2019 and FY2020. There's no doubt about it. It definitely builds on itself, the program. Now when you look at who's going to move, the people have the largest installations are going to be the ones that are looking right now to try to consider, hey should I move because it's going to make a material difference in their maintenance renewal moving forward and coming to the next year. Smaller accounts, they'll absorb the 5%. They might even absorb the 10%, but as they start looking out to the 20% they're obviously going to move. So you're going to see a chunk that moves in the first year representing a certain size of customer then you're going to see the next chunk that's going to move in the next year and then the people who are really, really attached to their perpetual license, which we don't think is going to be a lot of people will move later in the program. But you can see there's absolutely a cumulative effect to this and not only a cumulative effect from people moving, but remember the discount to move drops 5% every year as well. So the ones that move in the second year move at a higher loyalty price than the ones that move in the first year and the ones that move in the third year get a higher loyalty price, and then ultimately when these people who are locked in this three-year price drop off, the thee-year lock period, they then bounced up to the loyalty price at the end of the program, which is a little bit more than 15% of what they're paying now. So you can see there's a build up here and that will also provide us some runway into FY2021 and beyond in terms of how the base grows in terms of ARR.

Yes. And what I’d add is that – I don't know whether you’d characterize this as a hockey stick, it's more of a cumulative effect of ARR as Andrew talked about. This is what gives us a lot of confidence in our FY2020 plan, because we do see programs like M2S and the other things that we're driving really set us up for success in the long run.

Great, guys. Thanks a lot.

Thanks, Phil.

Thank you. And our next question comes from the line of Ken Wong from Citigroup.

Hey, guys. So when looking at the maintenance sub decline of about 73,000 this quarter, any sense as to how many of those guys convert it over to a product subscription?

Ken, I don't think we can project that. What we'd say is that the 73K number was as expected. This was our largest pool of maintenance customers up for renewal and our renewal rate was exactly where we'd expect them to be. So the number is not unusual or unexpected for us. So we will get better at tracking every single customer that goes from column A to column B, especially as we do the maintenance and subscription program. But I think there was nothing unusual about this 73K number that we saw.

Got it. And then maybe a follow-up to that, as we try to kind of put this in the context of your seasonal Q4 and then the loyalty program you guys are putting in place. Should we see that that number grow and again not grow in a bad way, but obviously that could convert over, but is that 73 number a pretty good pace or too high to low?

Yes. Ken, if you look at the seasonality of where we typically sold licenses, which is when the maintenance agreements will expire, right.

Yes.

It’s an annual maintenance agreement when you sold the license becomes the same quarter that maintenance comes through. The two biggest quarters for that are Q4 and Q1. So 73,000 in Q4 as Amar said was really – churn rate was right in line with our expectations, it is a big quarter in Q1 of renewal opportunities. In Q4, there's another big opportunity for renewals in Q1 as well. So obviously we're not guiding to that level of granularity, but it's not on line with what I would expect to see just based on the size of the renewal opportunity.

Got it. And then they maybe last thing on those kind of the same point, but I might have missed when the program officially kicks in and then I guess what I guess we expect some sort of pull forward during that particular quarter?

Yes. The program starts in June and it's tied to their renewal, so there's no kind of pull forward effect here, it's all tied to the renewal event. So as people come up for renewal in a quarter, they get to choose, which path they go on. So it’s June and it's all tied to the renewal event.

Got it. Okay, thanks to lot guys.

Thanks Ken.

And our next question comes from the line of Kash Rangan from Bank of America.

From one K to another K, thank you so much. If you can just give us a little bit of – I certainly appreciate the detail on the pricing uplift et cetera, but what is the incentive for the customer to do the 5% price increase for the maintenance. How is the Company going to explain to the customer? What is the value they’re going to get into turn for the 5% price increase? And also if you could just take a step back I think from the Analyst Day and from this conversation, what is the value to the customer, not from a financial standpoint, disincentive or an incentive, but how does the product fundamentally do different things in the cloud-based versions are the subscription, broadly speaking the subscription arrangement relative to what they were getting from the desktop software that currently – there was not been a lot of discussion, but would love to get enlightened there? Thank you.

So first of, Kash a 5% increase on anything is just that's kind of normal course of business in some respects. So the maintenance customers in terms of seeing a 5% price increase that's not going to change things very significantly in their view. And from our view, it's complicated for them, it's complicated for our partners, and it's complicated for the whole infrastructure to maintain these two models. So basically sending out a signal that if you want to maintain a perpetual license it's going to cost you more, it’s a positive signal for the whole ecosystem. And Amar and I will both answer the second question, I just want to put a little bit of a beginning on it. When a customer moves to the subscription model, they're moving to a model that has a lot more access control and insight into how they're using things. And I think that's an important value proposition just without additional products. I mean the access is anytime, anywhere products, they actually get access to different types of versions of products for instance in the AutoCAD world, they get a mobile, web and a desktop experience. They're able to control how they're used, turn them on and off, they get a lot more flexibility. And as we move forward throughout the year, the customers are going to see a lot more value add in the control side and the insight side and how they're using the products that I think is actually real money save for them, so they're going to see real value.

Yes. So Andrew is absolutely right about the installation and deployment experience that customers get the increase flexibility in terms of where to access things and who gets to access what. The other thing that we're doing is actually also changing the core product value proposition, increasing availability of cloud services on the products subscription side. And in fact there are pieces of our desktop software right now that are being rewritten as cloud services and really it's only those things are available as part of product subscription. So the product is not the same product as we move from the license model to the subscription model. We are actively evolving it to be much more of a hybrid experience and I think customers totally get that and they see that they're going to get access to a stream of innovation as opposed to the annual update that they used to get.

Thanks Amar and Andrew. Good to hear your voice on an earnings conference call. Not to leave you out, Scott, but any thoughts on when you'd be starting to – or if you could give us a little breakdown from this quarter between the EBA, cloud and the desktop subscriptions.

Yes. Kash, we're not providing that level of granularity under new model, but as always happens in Q4. Q4 and Q1 are the biggest quarters for enterprise subscription adds, Q4 because we sell the most EBA’s and then they come on line throughout the quarter. Q1 is where we typically get the catch up because as you recall of EBA’s, we actually measure the active users because it’s a consumption model that's not a named user model, we haven't measure the active users and that takes 60 days before we can report those. So I think of enterprises being heavier in Q4 and Q1, products subs are very strong, we mentioned that in the opening commentary that was the leading driver of the growth, 227,000 remodel sub adds during the quarter and cloud was also strong albeit from a smaller base.

Wonderful. Thanks.

Thanks, Kash.

Thank you. And our next question comes from Keith Weiss of Morgan Stanley.

Excellent. Thank you guys. Sorry about being on mute before. Nice quarter. So one question just a clarification. Just so I'm clear. When a customer comes up for renewal they're being faced with a choice either pay 5% more for your renewal or pay 5% more and go onto desktop subscription. And the only reason they wouldn't want to go onto desktop subscription is if they like are afraid that at some point they don't want to pay maintenance anymore and they want to have that perpetual license, is that the correct way to think about it?

That's really the correct way to think about it and also a lot of the customers – because we took the unusual step of basically announcing what our intended price increase path is for maintenance, a lot of customers that are also going to be making the decision, okay. So how much is that perpetual license worth for me when I get this multi-year lock in price increase? And also we're going to be making it pretty clear to them over time, look at all the additional value you get on the subscription side. So you've got it, you’ve started out right that's how it's going to work at the renewal.

Right. You're not losing functionality when you go to a desktop subscription. You actually gain functionality.

You're gaining functionality and more important you're also gaining more control over how you actually use and manage the software. So it's a gain for the customer experience wise and capability wise.

Right. And you lock in the price for three years, but there's no sorts of definition of what happens after three years, not like after three years you're coming off a promotional pricing and you get jacked up to some higher pricing.

Every year there's a different loyalty price for them to move. In year one it's 5% more than their current. In year two it's going to be little over 10% more than their current maintenance.And in year three it's a little over 15% above their current maintenance. So there's a different price for each year.When that three year lock in expires, that customer immediately goes up to the terminal loyalty price of a little over 15%, roughly 16% more than their maintenance price. Then they're kind of subject to ongoing price increases that would you affect what our long-term pricing strategy is.There's no giant leap up to the full subscription price. You can see there's still going up to a higher value level.

Got it. Makes sense. If I can just sneak one last one. You mentioned the uplift in value you see when you bring a customer to an EBA. I think you said three times the subscription rate. Should I think about that, I mean is that three times the monetization level that you were able to get out of these customers previously or is it like maintenance to subscription, so it's not really like full monetization if we think about it from a lifetime value of the customer.

Well, let's clarify that comment. It's three times the number of users that we see inside enterprise account. It generally leads to a higher level of token consumption, which generally leads to ever increasing values of EBA over time, but the multiplier isn’t exactly three, let’s put it that way.

Okay. Any sense you'd give us of what the increase in monetization you get out of moving a customer over to EBA?

Keith, we typically see at the – I think Steve gave some stats back in our Investor Day. We typically see an uplift in the 30% range at the point of renewal.

Yes, got it.

In other words when they go for maintenance and convert over to an EBA.

Got it, excellent. Thank you very much guys. Nice quarter.

Welcome.

Thanks Keith.

Thank you. And our next question comes from the line of Rob Oliver from Baird.

Hey, guys. Thanks for taking one from the new guy. Have you guys noticed any change to the pace of new customer acquisitions? And then a follow-up for Scott. Andrew may have just answered this in response to Kash Rangan's question talking about additional access control, increased cloud services. Scott, you mentioned the high degree of confidence that 606 rev rec isn't going to impact you guys. Can you talk a little bit more about that, add some color there? Thanks so much.

Sure. Let me take the new customer acquisition. I mean the place where we've seen growth in new customer acquisition has really been from the cloud products. We've certainly made penetration into construction, into manufacturing. We’ve seen growing momentum on that side of the ability to acquire customers that we didn't have before. I would say that depending on how you think about license compliance, you've got customers that have not paid us before. We're starting to make dent with our new model subscription in that customer base that's why a third of the new model subscriptions were really a new to our Company in the results that we saw in Q4. So we're definitely seeing new logos coming in as a result of both the combination of the could as well as product subscription.

Yes. And then to the second part of your question Rob, on 606. I could have probably actually let Amar that as well because he has been into it up to his eyeballs. We are not expecting it to have any impact and I think I mentioned to you last time we met and I've said it a couple of times, the person is now our System Controller, used to run our rev ops team and has been a member of the AICPA task force on 606 for a couple of years. So we've had great insight into where this is headed and kind of how it's going to be interpreted and how the guidelines will be applied and going through what we're going through the business model transition. The last thing we wanted just to get to the end of this and have all that revenue flip back to upfront. So we've been working this for quite some time and I think Andrew just mentioned and Amar did as well. We've built in into our products subscription, a fair amount of integrated cloud functionality such that a significant amount of the value comes not just from the executables that come down to the endpoint, but from the interaction with the cloud services. And so we're quite confident that we're going to have a nominal impact from 606.

Got it, okay. Great, that's helpful. Thanks a lot guys. Appreciate it.

Thanks Rob.

Thank you. And our next question comes from the line of Gal Munda from Berenberg.

Hi, guys. Just a few questions if I can. The first one is just to understand your pools full of active users, if we can look back retrospectively. At the start of 2016, we had a famous 5.1 million users, which was at the last capital market that it was kind of underestimated, but out of that users we had 2.3 million subs we know that. Now we're up to 3.1 million subs. What is your best guess on the other part of the pool, which initially was 2.8 million, today how big, is it because I’d mention it would be bigger than 2 million, the difference between 3.1 million and 5.1 million, but how do you look at that?

Yes. Actually one of our biggest opportunities as we move over the next couple years is converting users into subscribers, right. I mean that pretty basically they're using it, but they're not paying us. And if you remember from Investor Day, they come in two pools and actually we have fairly high fidelity in terms of information on how many of these people are active. So if you look at this non-subscribers base meaning people who bought a perpetual copy of software from us and then dropped off. The active level there is about a 2.2 million. So there's about 2.2 million active people using our software that aren't paying us, but have paid us in the past. The more interesting number is the 6 million plus pirates who are actively using our software and by the way we know that they're using the software because we're able to track the pirated serial numbers and the pirate activity. That's a more interesting number for us long-term and it's interesting to note that about 4 million of those pirates are in mature markets and about 1.2 million of them are in accounts that we know and have worked with in the past. So there is a very large base of users out there that are not subscribers. We're not going to be moving all of those over to us at once, but one of the things that’s really important, especially when it comes to the subscriber growth we're going to see this year is the momentum, we're going to be building into FY2017, because all of these programs that are targeted at the non-subscribers for instance are going to start seeing rapid acceleration as we head into the second half of the year, which is going to carry into FY2017. The products that Amar talked about earlier are actually going to have some pretty significant pool for these non-subscribers to move forward. That will not only be good for this year, it's going to be very good for FY2017. And the next thing we're doing this year is we're mainstreaming all of our piracy efforts, the efforts that are targeting these non-users and as we move into the end of this year and into FY2017, we will actually have in product purchasing capability for a pirate. So the pirate will actually get a notification and say hey, you might want to pay for the software. So this base is going to move over several years, but as you can see it's pretty big.

Okay. So at least 2.2 active non-subscribers now plus at least…

2.2 active non-subscribers plus another 6 million plus pirates.

Okay. That makes sense.

That’s figured in our current paying base.

Of course. Just as a follow-up, on the guidance you kind of expecting north of 600,000 monthly users over the next year is indicating some sort of acceleration especially considering historically when you guys talked about the volume of licenses as you would be saying between 600,000 and 700,000 would be the total volume licenses that you see in any given year. Now taking some sort of churn that we're seeing at the moment into that that would indicate that you're on the volume expecting more or something like 900,000 just very high level calculation. Does that indicate that you have – how does it compare to FY2017 you just finished and also does it indicate that there's some acceleration of the new users acquisition maybe some of the activation of that old pool?

Yes. So good question, I mean look I think our unit volume for this year was right where we expected it to be and I think our growing momentum based on the factors that Andrew touched upon, we are certainly seeing increasing momentum through license compliance to what we would have called a legacy customer base. And one of the places where we are definitely accelerating acquisition of customers is also the cloud and as regions around the world whether they are emerging countries or places in Asia they come back to better economic health, they will contribute to this sort of overall unit volume growth. That's why we're very confident that the momentum we're carrying into this year combined with license compliance legacy as well as momentum in cloud as well as the changes that we talked about in the product that really drive customers to be more current. They're all factors that we believe will drive that result that we pointed to.

Okay.

Yes, Gal, one of the things that of course was not in that historic range of – actually we said 500,000, 800,000, but the midpoints the same with year 600,000 to 700,000. What's not in air forces cloud and so as we've seen the cloud begin to accelerated and it's not in our the unit volume that we referred to from time-to-time either. So take that as what's happening in the core business, later on the increase we're seeing as Amar just pointed out in both legacy recapture and the sort of our piracy programs and then put cloud on top of that. That's how you get the total gross.

Okay and the total growth that you're expecting – is it around 900,000 is fair to say?

So we're not guiding at that level. We're not providing that type of inside, but we feel confident in the 600,000 to 650,000 net sub ads for the year.

Okay. Thank you so much.

Thanks Gal.

Thank you. And our next question comes from the line of Monika Garg from Pacific Crest Securities.

Thanks for taking my question. First, given that in Q4 soul in the perpetual license, it was mainly subscription why would revenue guidance for Q1 is flattish to more its lower?

Yes, Monika the one think when you look year-on-year and you got the data now for the full-year of fiscal 2017. The non-recurring element of course included six months of suite perpetual license sales. There won't be any suite perpetual license sales of course, but that means as the total non-recurring revenue year-on-year is coming down pretty significantly. So we gave you a couple of data points earlier. So we guided revenue into a range of 2 billion to 2.05 billion and said in the opening commentary that we expect that about 90% to be recurring, right. So if you do the quick math you can say the non-recurring fees is going to be ballpark $200 million. If you look at what that was last year that was closer to $500 billion. And so I think where the differences in the year-on-year, it's certainly we're seeing great growth on the recurring side, you see that in our ARR guidance, but the non-recurring element of course is coming down year-on-year.

Right. I was actually looking Q-over-Q right, from 4Q to 1Q?

Yes, so you can see the same thing from Q4 to Q1.

Okay.

Right, you will see the non-recurring elements coming down pretty significantly.

Got it. And then coming back to the maintenance pricing increase of the loyalty program you talked about. What is the risk of losing customers to competition due to this maintenance pricing increase you have talked about with your channel over the next year? Thank you.

Yes, so one of the reasons we structured the program the way we did is we were really focused on minimizing the churn off of that maintenance base. So we feel that the way we structured the program, the huge incentives for loyalty that we're giving the maintenance customers is really a churn minimization plan. So we're feeling pretty confident. Our competitors have historically tried to make incursions into our installed base as we move to subscription, but the truth of the matter is none of them have been particularly successful and it's really hard to compete with software that that prices and accessibility levels that are far below what they've been historically when you come in with more expensive perpetual software. So yes competitors try to make encourage their incursions. They haven't been successful and I think we structured this program as a churn minimization program with a primary goal.

Got it. Thank you so much.

Thanks, Monika. End of Q&A

Thank you. And that concludes our question-and-answer session for today. I would like to turn things over to David Gennarelli for any closing comments.

Thanks, Karen. That concludes our conference call for today. If you have any follow-up question you can e-mail me or call me direct at 415-507-6033. Thanks.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.