Ladies and gentlemen, thank you for standing by. And welcome to the Q4 Fiscal Year 2020 Autodesk Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers presentation there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference over to you speaker today, Mr. Abhey Lamba, VP of Investor Relations. Thank you. Please go ahead sir.

Thanks operator and good afternoon. Thank you for joining our conference call to discuss the results of our fourth quarter and full-year of fiscal 20. On the line is Andrew Anagnost, our CEO, 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. You can find the earnings press release, slide presentation and transcript of today’s opening commentary on our website following this call. During the course of this conference call, we may make forward-looking statements about our outlook, future results and strategies. These statements reflect our best judgment based on factors currently known to us. Actual events or results could differ materially. Please refer to our SEC filings for important risks and other factors that may cause our actual results to differ from those in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. During the call, 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. All non-GAAP numbers referenced in today’s call are reconciled in the press release or the slide presentation on our investor relations website. And now I would like to turn the call over to Andrew.

Thanks, Abhey. We closed fiscal year 2020 with outstanding Q4 results with revenue, earnings and free cash flow coming in above expectations. Recurring revenue grew 29% and we delivered $1.36 billion in free cash flow for the year. Our results were driven by strong growth in all geographies. This was a landmark year for us in Construction as we absorbed our acquisitions and integrated our offerings under one platform – the Autodesk Construction Cloud. Subscriptions now represent around 85% of our revenue, and we exited the year with maintenance contributing less than 10%. Fiscal year 2020 marked the end of the business model transition for us, and we are entering fiscal 2021 firmly positioned to deliver strong, sustainable growth through fiscal 2023 and beyond. It was three years ago that we first communicated our fiscal 2020 free cash flow goal. We have delivered on that goal, which is a testament to the adaptability and focused execution of the Autodesk ecosystem, and the power of our products. I want to acknowledge and thank our employees, partners, customers, long-term investors and everyone who helped us achieve these results. While the path to delivering on our long-term targets was not always smooth, everyone who stayed with us and believed in the transition has been rewarded. Beyond that, the dramatically reduced upfront costs created by the subscription model have enabled a whole new class of customers to purchase our most powerful tools; opening up not only new opportunities for our business, but for the businesses of our customers as well. Before we get into our results and guidance, I want to mention that our thoughts are with those affected by the coronavirus. The safety and security of our employees is our top priority. We are also minimizing potential impact to our customers and partners. The events are not currently impacting our service levels for our customers or global R&D efforts. We will continue to monitor the situation and take precautionary steps. Now I will turn it over to Scott to give you more details on our results, and fiscal 2021 guidance. I’ll then return with a summary of some important recognitions we received, and insights on key drivers of our business, including updates on Construction, Manufacturing and our progress in monetizing noncompliant users before we open it up for Q&A.

Thanks, Andrew. As you heard from Andrew we had strong performance across all metrics with revenue, earnings and free cash flow coming in above expectations. Demand in our end markets was strong as indicated by our robust billings and current RPO growth. And the sum of our revenue growth plus free cash flow margin for the year was 69%. Revenue growth in the quarter came in at 22%, versus a strong Q4 fiscal 2019, with acquisitions contributing three percentage points of the growth. Strength in revenue was driven by subscription revenue growth of 41%. For the full year, subscription revenue was up 53% and, as Andrew mentioned, subscriptions now represent approximately 85% of our revenue. With the success of our Maintenance-to-Subscription program, we exited the year with maintenance revenue contributing less than 10% of total. Total ARR came in at $3.43 billion, up 25%. Core ARR grew 21% and Cloud ARR grew 102% to $255 million. When adjusted for acquisitions, Cloud ARR grew an impressive 30% driven by strong performance of BIM 360 Design. Now that a year has passed since we completed the acquisitions, our entire Construction portfolio will be organic starting first quarter of fiscal 2021. Moving onto details by product and geography: Starting with AutoCAD and AutoCAD LT, revenue grew 24% in the fourth quarter, again versus a strong Q4 fiscal 2019 and 30% for the year. AEC grew 30% in Q4 and 35% for the year, while Manufacturing rose 15% in Q4 and 18% for the year. M&E was down 5% in the quarter, primarily due to a large upfront transaction in the fourth quarter of last year. M&E revenue was up 9% for the year. Geographically, we saw broad-based strength across all regions. Revenue grew 21% in the Americas and EMEA and 26% in APAC…

Thanks, Scott. We just closed a landmark fiscal year and delivered on the free cash flow target we set over three years ago when we began the business model transition. Now let me give you some details about what is happening across our business. First off, fiscal 2020 was not only a year of financial achievements, but also a year where we increasingly enabled our customers to realize more sustainable outcomes in their work. In fact, we were recognized by the Corporate Knights for being in the top five of the world’s most sustainable companies and Barron’s ranked us 10th on their list of 100 most sustainable companies, making us the highest-ranking software company on both lists. This recognition is not only a testament to how responsibly we run our own business, but, more importantly, how we help our customers meet their own sustainability goals, which brings me to construction. Our construction business had an outstanding year and ended the year with great momentum. We are looking at construction in a more connected way than ever before, and our offerings are resonating with our customers. The Autodesk Construction Cloud delivers advanced technology, a network of builders, and the power of predictive analytics to drive projects from the earliest phases of design, through planning, building and into operations. Customers are excited about the unified platform and are recognizing that the breadth, depth, and connectivity across our portfolio sets us apart from our competition. For example, CRB, a design-build firm with offices across the U.S. and internationally, was using each of our four products independently. When they understood our vision for Construction Cloud to deliver a unified solution that integrates workflows connecting the office, trailer and field, CRB signed an enterprise business agreement with Autodesk for the solutions offered under the Construction…

[Operator Instructions] Our first question comes from the line of Saket Kalia from Barclays Capital. Your line is now open.

Hey, Andrew. Hey, Scott. How are you guys doing? Thanks for taking my questions here.

Hey, Saket.

Sure, Saket.

Hey, I’ll focus my questions on some of the pricing changes here and maybe start with you Andrew. You talked about the introduction of the standard and premium plan. Could you just dig into what types of customers you think would opt for premium and sort of broad brush? How big of your base could that premium plan sort of cohort be over time?

Yes. All right. So the standard plan already exists. So remember, the standard plan is just subscription we have today. And I think one of the ways you want to think about premium is kind of like a mini enterprise agreement without the consumption element. So it’s going to appeal to someone of our larger accounts that get service through the channel. And it’s going to appeal to them for a couple of reasons. First off, some of the things that are included in the premium plan, include Single Sign-on support throughout the directory. So this is the way that the customer can manage their names, user sets, and deployed Single Sign-on across it. It’s easier for them to manage the users. It’s more secure because you can turn on and turn off users really quickly. So that right there is a huge benefit. The other thing that we’re consolidating in, and this is something a lot of our customers already have, is something called an ETR, which stands for extra territorial rights. And that is a something we’ve always sold on top of our traditional licensing to allow them to distribute licenses to subsidiary areas outside of their – outside of where their corporate headquarters are, all right. So that’s another thing that’s included in there. Obviously, another thing that appeals to larger accounts that are serviced by our channel. The other thing that they’re going to get is analytics capability. All of our customers are going to get analytics capability, but what’s going to show up in the premium plan is much deeper. We’re actually going to be making proactive suggestions with some of the analytics about how they can optimize and get more out of their investment with Autodesk or optimize their investment with Autodesk more precisely than they do. They also get a slightly closer relationship with Autodesk through the support terms that we provide. So you can see that it’s going to appeal to larger accounts. I’m not going to give you a percentage of the base in terms of what that means, we could try. But that’s who it’s going to appeal to and I think you can see how we’ve naturally introduced it. At the same time that we’ve introduced a discussion around ending the multi-user licensing, because it allows you to manage named users a lot more effectively.

That makes sense. And that actually dovetails into my follow-up question for you, Scott. Can you just talk about that shift of multi-user to named user licensing? I guess, specifically, one of your studies or sort of anecdote shown on how many sort of named accounts there are for – our named users there are for each multi-user license, if that makes sense.

Yes, yes, it does Saket. And as you imagine, that’s something we looked pretty hard at as we designed the end of sale of multi-user and what that trade in program would look like. And it runs right around two to one. In other words, two named users end up on average being served by one multi-user license. So that’s the reason we set the trade on program the way we did. I think for some customers they will end up needing a few more single users to support their base, if they were running a little hotter than that and for some they’ll probably make the trade in program and in the future there maybe a chance for them to either right size that or take the additional budget and hop into premium with that. So it’s a – it was designed at right around the average of what we see in terms of actual usage today.

Because you asked about that training program, I just want to make sure that we’re all clear about the why of that program. Because there’s a couple of customer wise and there’s a couple of Autodesk wise. From a customer standpoint, a lot of our multi-user customers are already have named user, named user licenses in their accounts. They’re living in what we’ve affectionately call hybrid hell inside the company, where they’re trying to manage two types of different systems. This will put them all on our new subscription backend. So it essentially brings all of these customers that live in hybrid environments into our new backend and provide them all the same analytics that the named users are getting. So there’s going to be a lot of customer benefits associated, especially when you layer on premium because of the control and security it’s going to give you. For Autodesk, this gets us one step further to retiring older systems that are based on serial numbers, systems that kind of, we have to maintain, systems that have sync issues that get in the way of us knowing about our customers. So we’re going to have more knowledge about our customers. We have more information about what they’re doing and we’re going to be able to service them a lot better.

Makes a lot of sense. Thanks guys.

Thanks, Saket.

Thank you. Our next question comes from the line of Phil Winslow from Wells Fargo. Your line is now open.

Hey, thanks guys for taking my question and congrats on a great close of the year. Just wanted to focus in on the different industry verticals, that you sell into, obviously, manufacturing AEC and obviously there’s a difference sort of between geos there. I wonder if you could provide us as sort of some more color and sort of how you closed out the year there. And sort of how you’re thinking about the forward guidance, sort of industry vertical of geo. Thanks.

Yes, thanks Phil. And you may not have had a chance to know, it’s a busy night for everyone, but we posted some details by both geography and by product family on the slide deck that’s on the website. And what you see is we were really strong in both, we were strong in all three geos, both in the quarter and for the full year and across all product sets. The one anomaly and we talked about this in the opening commentary was in Media & Entertainment, which actually showed a slight decline for the quarter year-on-year. And that was really driven by one large multi-year upfront transaction that was done in Q4 a year ago. That skewed that. For the full year, Media & Entertainment grew about 9%. So we really saw strength across the board. Our expectation looking into fiscal 2020, I mean, you can see we go from an overall revenue growth rate of about 27% this year to one that’s in the 20% to 22% range next year. Part of that is the – there was about three points of added inorganic growth to our fiscal 2020 numbers. So yes, it takes it down to about 24% compared to 20% to 22% next year, which is just the law of large numbers in absolute terms. We see growth in revenue and a strong percent growth next year as well. And any color you want to add, Andrew.

I mean the only color is our M&E business, because of its size. It just continues to be sensitive to large deals. It always has been because of its size and even the sub-segments within it are sensitive to large deals. That’s just the nature of that business.

Yes, got it. And then also just in terms of opportunity that the non-compliant users, obviously you called out some pretty significant change over. I mean, obviously at Analyst Day last year you talked about, I think it’s about $1.7 million, you’re still on the base. What do you think about just the growth that you saw in your overall user base this year? How much of it would you call for just core growth versus actually shifting those non-compliant users…

Most of it’s – yes. Sorry, sorry, Phil. Most of its core growth, Phil, so – but as I’ve said consistently over and over again, we’re getting better and better at talking to understanding and converting these non-compliant users. That’s why we gave you some of those stats as you can understand directionally, how this effort is going every year. It’s going to continue to get better and better and better. Our investment both from a system side and from our people side, in terms of people that actually handle directly non-compliant negotiations with customers are going up. So you’re going to see this consistent performance and most of that growth is just the core growth. But I hope you’re getting a sense for how this non-compliant usage starts to become quite an engine as we move forward.

Got it. I meant to say 12, not 1.7. Sorry about that. All right, thanks guys.

Thanks, Phil.

Thank you. Our next question comes from the line of Matt Hedberg from RBC Capital Markets. Your line is now open.

Hey guys, thanks for taking my questions. Congrats on a really strong end of the year. I guess, for either Andrew or Scott, I’m curious – Andrew or Scott, I think you mentioned, you’re taking into account the current macro with the coronavirus and exposure to China is small. I guess I’m wondering, how you think about the broader APAC region Japan or other regions. And have you seen anything yet thus far a month into the quarter.

Yes. I’m glad you asked this question. First off, the whole coronavirus situations like the human situation, it’s kind of a human tragedy. And the best thing that can happen here for all of us is that it just gets resolved and contained relatively quickly and there’s a vaccine next year for the next flu season. But from a business perspective, how it impacts you is depends on your business. And we’ve looked pretty deeply at our business and here’s kind of a lay of the land I’ll give you. If you are a software vendor that’s exposed to big deals from especially large industrial that has kind of global supply chain disruption, you’re going to feel some effects from this, all right. That’s not us. In addition, if you’re in the travel industry, obviously, you’re going to feel some effects from this. But here’s what’s different about Autodesk and here’s why I want to help you understand how we look at the business and why we took into account from took into account some China FX in Q1. But we don’t see longer term effects at this point. Okay? Now I will say if this becomes a pandemic, all bets are off and we’ll have a different discussion. But right now our business is, is what we call it, almost micro-verticalized. We cut across lots of different verticals and it’s not just industrial verticals, it’s company size verticals. We go from the biggest to the smallest. Our business, especially in the first half of the year is not heavily dependent on large deals and at large companies that particularly large industrials. So we don’t see that kind of sensitivity in our business. But in addition, and I think this is super important for you to understand, it’s one of…

And Matt if could just tag on to that because there may be some confusion also with our Q1 guide relative to what’s out there and facts said. And of course, what’s in facts said is unguided, on a quarterly basis it’s interesting that it shows sequential growth. The consensus does from Q4, which of course is not what we experienced last year, since we’ve made the shift, last year we saw a sequential decline and even saw a sequential decline last year, despite the fact that Q4 of 2019 only had a month of PlanGrid included and Q1 had an entire quarter of PlanGrid included and we still saw a sequential decline. What drives that by the way, is not a recurring revenue decline and as we look at our guide for Q1 of fiscal 2021 we’re not seeing recurring revenue decline. What we are seeing is and we’ve talked about this in the past, this license and other line, it’s always the biggest in the fourth quarter. It has to do with largely to do with some products that we sell that we sell on a ratable basis. But the accounting still requires them to be recognized upfront. So, if you look at our license and other line in the fourth quarter, the quarter, we just announced it was $42 million. Now we think it’ll be about half that big in Q1. That’s really what’s driving the sequential decline. And so without commenting on how fast they got to nine, 10, I’ll tell you, it’s not a, we haven’t taken into account a significant headwind from coronavirus. We expect our recurring revenue to actually show a slight growth sequentially again.

That’s fantastic. Great color. And then maybe just one more for you, Scott. You’re not guiding to ARR, which I think most of us expected. Given, it’s not a perfect metric for you guys like we saw on Q3. I’m just sort of curious if you could provide a little bit more color on that. And do you still think you’ll talk to like your fiscal 2023 ARR targets at some point.

You know, Matt, we’re not talking about it and you nailed it. It’s because of some of the anomalies in the way we defined ARR and we talked about this extensively on the Q3 call in relation to our Q4 guide. It was a great metric as we were going through the transition and our P&L had a mix of significant amount of upfront plus ratable. You needed to see how we were building that recurring revenue base. At this point we’ve built a recurring revenue base of 96% of our total revenues. Right? So, doing ARR, which when I gave you an annual number was in effect saying that’s the fourth quarter recurring revenue and multiplying it by four. It didn’t accumulate through the year. That’s why we pulled back on the metric. I think you get as good, if not better, insight from just tracking revenue and knowing that 96% of that is recurring. You will still be able to calculate it, by the way. I don’t plan on focusing on it during these calls, but if you look at our P&L, remember the way we calculated ARR was subscription plus maintenance revenue actual reported for the quarter times four. We’ll continue to report in those line items. So you’ll continue to be able to track it if you want. I just think it’s a less reliable metric of where we’re headed, than revenue or current RPO, which you see in our results. Current RPO is up 23%.

Super helpful. Well done.

Thanks Matt.

Thank you. Our next question comes from the line of Jay Vleeschhouwer from Griffin Securities. Your line is now open.

Thank you. Good evening, Andrew. Scott, you used the word aggressively during your prepared remarks, I believe to refer to internal investments you’ll be making. And on that point you now have by far a record number of openings in sales related positions.

Truly?

We counted. Yes, yes. By far the highest I’ve counted in eight years. And it’s for territorial account execs, named account, inside sales, license compliance. And so the question is how are you thinking about that as a principle cost driver to your expense targets this year? And more importantly the production or revenue production effects you would expect from that kind of substantial onboarding of sales capacity. Number two you used to give a metric prior to the transition of your annual license volume. And the last reported numbers in the way you used to calculate it, were about 600,000 to 650,000 licenses. If we continue to follow that method and impute the volume of your business, you are now, it seems well above those last given numbers from a few years ago. It would seem now the consumption of Autodesk product licenses putting in particular collections is now in the high six figures. So, well above prior levels. So would you concur with that calculation that your intrinsic demand consumption of Autodesk product is well above what it used to be under the old way of counting? And then finally with regard to the changes in pricing to a single user preference, would there be an implicit connection there, Andrew, to your view of an eventual consumption model? Can you get there only if you do in fact have this kind of named user pricing?

Wow, that was good. You asked two follow-ups to the question. Okay. So first off, let me, let me start back to your first question about investment. So I want, I’ll speak for Scott and then Scott can speak for Scott. I want to make sure you’re clear, we are not losing any of our spend discipline at all. All right? We’re actually investing below our capacity to kind of make sure that we’re staying in line with things here. You’re seeing some of the areas we’re investing in go-to-market, we’re also investing in R&D. We’re investing big in construction. That shouldn’t surprise you but we’re also investing in fusion. We’re investing in the architecture with some of the things we’re doing around generative and other types of things for architects and Revits, Revit as well. We’re also in investing in our digital infrastructure. So yes, we are investing, right? And we said we would invest, but we’re investing prudently, we’re investing smartly and we’re excited about it. All right. Because we see a lot of return from the investments we make and we’ve been very deliberate about this. Now on your second point about the licensed growth, I’m not going to comment specifically on that, but you know, I can, one thing I can tell you is that the lower upfront costs of our products and the way we’re going to market right now, it makes a difference. Okay. Too many people spend a lot of time talking to the customers that were our old maintenance customers and how this transition has been hard on them and they’re confused and they’re not sure, but there is a whole swath of customers that are just sitting there going, how did Autodesk stuff get so cheap? All right. And that seems…

I’d be remiss on your first question, if I didn’t add, besides we’re continuing to maintain spend discipline. It was – we built it up pretty diligently over the four years of staying flat in spend, that’s not going away. But I think you also have to look at the increased spend, not as increased spend, but we’re increasing margin. We’re at a point in our growth story where we can both increase spend to drive future growth and increase margin. So we added 12 points to our operating margins in fiscal 2020. You see the midpoint of our guide, we’re adding five more points to our op margin in fiscal 2021 and we’ve said, it’s going to be 40% by the time we get the fiscal 2023. So the conversation around spend, while interesting if what you’re looking for is where are we investing, that’s a good conversation to have. You should know and everyone should be confident. We continue to manage that very diligently.

Thanks very much.

You’re welcome.

Thank you. Our next question comes from the line of Heather Bellini from Goldman Sachs. Your line is now open.

Hi guys. Thanks for taking the question. I appreciate the time. Most of mine have been asked, but I just – I wanted to follow-up on the multi-user pricing, change that you had and totally understand, Andrew, your comments about kind of you need to go to a named user pricing model. But just wondering if there was anything you could share with us about maybe the impact that that helped drive in the quarter that just ended. And how you’re thinking about like what’s reactions been – what is the reaction been from customers who are going to convert to this so far? What’s their feedback to you on it? Thank you.

Good. So a great question, Heather. Good to hear from you. Let me give you some color here. So first off, we did increase the price of new multi-user licenses, new, all right. And renew is exactly the same price, right. So it was a 33% increase in multi-user. This is going to have a very little impact on our existing customers, right. The reason we did it was very simple between now and May, when the two for one starts in earnest, we’ve now set the price so that gaming is removed from the system. So what we didn’t want to see was this kind of like sudden hoarding of multi-user licenses heading into the May two for one. And that’s why we did this. It was basically a signal like, hey, here’s where we’re going. We’re heading into this new direction. We did not pull any materially significant business forward into Q4. This had no material effect on our Q4 results. And to be very clear, I’d repeat that, no material fact on our Q4 results. All right. This was purely a hygienic change to line up everything to the two for one offer. Most customers will not see a huge impact on this, except for the few that are going to be adding some multi-user licenses in there. It’s really too early to hear what customer impact is. We did hear from some of our early evangelists and as a result, we were able to kind of adjust some of the – some aspects of the program and do a few things that they kind of address some of their concerns but so far, it’s too early.

Great and then – I’m sorry, go ahead.

A huge amount of pushback on that. Yes, this is Scott. I wouldn’t expect a huge amount of push back on that given that we designed it to be two for one, both in terms of price if you buy a new multi-user now, but at the trade end point because that’s what we see is the average number of single user or named users that are being served by a multi-user license. So it should be fairly neutral to most of our customers.

Okay, great. And then I just had one follow-up, if I may, just about the construction market and the deals you close there in the quarter, could you share with people kind of, is this typically a greenfield market where there is no incumbent provider except maybe excel or notebooks, or is this one where – when you’re closing business now it’s – is there any, any legacy replacement of a vendor and just kind of how do you look out and see the competitive environment? Thank you.

Yes. For the most part, you’re going in and you’re digitizing a process from scratch for them. Now we do have a competitor we compete with frequently. We’re winning and beating them more and more. And we’ve actually kicked them out of some of our accounts because our customers do not like their business model and that will increasingly make it easy to kick them out of our accounts. It’s just not a good long-term business model. So we do have competitors that go into the same accounts, but essentially what you’re doing is you’re replacing analog with digital and – or you’re replacing e-mail on mobile with devices with some kind of process and process control. Now as we get deeper and deeper into pre-construction planning, model based construction management, interdisciplinary digital twins and all of the things that kind of build out on this, you actually start fundamentally changing the customer’s processes. But Heather, you’re essentially right, you’re replacing analog with digital and that’s where the money is and that’s where we’re going.

Thank you.

You’re welcome.

Thank you. Our next question comes from the line of Brad Zelnick from Credit Suisse. Your line is now open.

Fantastic. Thanks so much. And first, I just want to follow up on Heather’s question on construction. It’s great to see the enthusiasm in Construction Cloud. Can you talk about some of the learnings from combining the product portfolio and how you’ll be more competitive in fiscal 2021? And also how big of a component of your mix can Construction Cloud become as we approach your fiscal 2023 target?

Yes. Okay. So first let me ask you about the customer reaction, the Construction Cloud and one of the things we learned. So one of the first things we learned is that we had a winter in BIM 360 docs because what we did when we were building kind of this next-generation platform. And it just so happens that all the acquired solutions hook incredibly nicely into this platform, which is super important because if you want to compete both inside the infrastructure business, with the department of transportation and internationally, you need what’s called an ISO compliant common data environment, which is what docs is going to be providing for our customers. So it’s actually a huge competitive advantage to have this environment. And we learned pretty quickly that the work we were doing with docs really kind of played nicely into that. We also learned pretty quickly that we have a huge mobile advantage with what we’ve done with the PlanGrid products and what the PlanGrid team has done. And we’re leveraging that advantage and expanding it into other parts of our portfolio. We also discover that the building network of BuildingConnected that by the way, is getting integrated with PlanGrid and getting integrated with some of these other solutions is an amazingly important asset, not only to our customers, but to us in terms of understanding the construction climate. We also learned what it takes to go internationally, so one of the things that we’re well-positioned to do better than anyone and we’re investing pretty heavily in that international expansion for our construction portfolio. Construction and international business, it always has been, it’s local, but it’s also international. And between our investment and a common data environment, go-to-market stand up in various places, you’re going to see us start to grow internationally pretty significantly and there’s nobody that we compete with that can actually do some of the things that we’re doing there in terms of the construction environment. Now there was another part to your question. I want to make sure I answer it because I got carried away on what we learned. What was the second part of that, Brad?

Second part was just asking how big of a component of your mix, Construction Cloud has become as we look to fiscal 2023?

Yes, Brad. Thanks for that. I don’t certainly want to get into giving that kind of granularity on our fiscal 2023 guidance. I’ll give you a couple of comments though that we’ve said a few times in the past and still believe construction’s the next billion dollar business for Autodesk. What you see is on the – in the wake of the transactions we did in fourth quarter last, we’ve done a great job integrating those. We haven’t lost any momentum in those acquired companies. And in fact, have seen an updraft in our organic construction business as a result of that. So scrolling on a really nice path at this point, you’ve seen what the inorganic piece looks like in our results. Looking at our total cloud growth gives you a good sense because BIM 360 is the organic piece of our construction business and it’s the biggest piece of our cloud results. So you get an overall sense of where construction is headed for us. And it’s a sizable business and will continue to grow, but I don’t want to get into trying to give you a – you here’s the, let me start to break down the components of our fiscal 2023 targets.

No, that’s helpful, Scott. I appreciate it. And if I could just sneak in a quick follow-up for you about long-term deferreds, which were much higher than we expected, just given your continued traction of multi-year, how should we think about long-term deferreds going forward, especially as you make changes to some of your multi-user products?

No, that’s a great question. So thanks for asking that. And obviously, the long-term deferreds are a result of multi-year, right, of multi-year sales and we said this is the year we expect multi-year sales to revert back to the mean, right to what we have seen, when we sold multi-year on maintenance historically. And that’s what you see that one of the effects of that is of course, it drives long-term deferred revenue and that’s what you’re seeing in our results. I thought mid-year that this was going to get that long-term deferred as a percent of total deferred revenue would be in the mid-20% range. It’s a couple of points higher than that. As we’ve analyzed that and we’re keeping a close eye on how multi-year is running as we’ve analyzed it, it still feel like that’s at a sustainable level and it’s below what we saw with maintenance. When we offered almost the exact same offer for three years, paid upfront on maintenance, long-term deferred got up to 30% of total deferred at that point. I don’t see us getting to that level. In fact, I think long-term deferred moderates a bit looking at fiscal 2021 as a percent of total deferred versus where it is. But we’ll stay on top of that. And if to the extent we need to make an adjustment in that offering, we’ll make that adjustment. I certainly don’t want to see that run at a level that’s unattainable or unsustainable. I think, Brad, what may be implied in your question that you didn’t ask is, is this going to create a headwind for free cash flow. And so besides the comments I just made on kind of the steady state that I see multi-year getting to, bear in mind one other fact, and we’ve talked about this but not since last Investor Day, that as we look from fiscal 2020 out through fiscal 2023, more and more of our free cash flow, in fact the majority beginning of this year of our free cash flow will come from net income as opposed to coming off the balance sheet and growth in deferred revenue, right? So as we scale both the top line and improve our margins out through fiscal 2023 more and more of cash flow comes right off the P&L in net income versus coming in growth in deferred.

This is someplace where I have to chime in just a little bit since you mentioned the free cash flow ramp. One of the things I want to make sure we all kind of like think up on here, you look back three years, here we are three years later, okay, the business ended up free cash flow wise where we expected it to be. The path had numerous twists and turns, and numerous puts and takes. We modeled it according to certain assumptions. We adjusted those assumptions as we went along. We have an execution machine that knows how to adapt. I just want you to remember, when we give you three-year targets, we are fairly confident we know where we’re going and we know how the free cash flow is going to ramp and we know it’s going to continue to ramp. We also know how to adjust as we execute through here. And how to move forward and make sure things happen the way they need to happen. And I just told you before, the safest assumption is to assume we’re going to do what we tell you we’re going to do. And if there’s any kind of hidden things like Scott said in that question, I want you to know we’ve got our handles on the controls here for this business.

Thank you for a very complete answer. Thank you.

Sure. Thanks.

Thank you. Our next question comes from the line of Sterling Auty from JPMorgan. Your line is now open.

Yes. Thanks guys. Two questions on the construction area. The first one is, when you look at your solutions now, where are the biggest pockets of users in your customer base, so is it GC subcontractors, owners, et cetera? Just to understand where you’re seeing the biggest buying power at the moment?

Okay. So right now GCs are some of our biggest customers, subs are starting to ramp up quite significantly, all right? Because remember, with the BuildingConnected network, we have a lot of access to subs now. So you’re engaged with the subsea ecosystem in a way that where you were never before. GCs are the biggest buyers. But you’ll also be surprised interdisciplinary engineering firms are big buyers as well because of their intimate connection to construction planning processes and things associated with that. But, yes, starting with the GCs, that has been moving down markets quite significantly as we’ve matured.

Yes, we gave an example, in the opening commentary of our significant subcontractor.

All right. And then the one follow-up would be there’s a lot of components that make up that construction ecosystem from project management to bid management to the financials, et cetera. Can you highlight with the solutions that you have, where do you think your biggest areas of strength within that group is today? And directionally, where do you see building out that portfolio?

Yes. So there’s two anchors of strength that we have that are pretty deep, one is field execution. We are by far massively advantage on the field execution side. The other area that is closer to the front end of the process is in preconstruction planning. There’s another area where we’ve brought tools and capabilities close to the building information model and all the things associated with that that are pretty powerful. Now there’s one kind of thin layer of technology where we’ve been playing catch up and actually it’s not really a very deep technological mode to be honest, but it’s in project management and in project costing. That’s something where we’ve been investing a lot, it’s where a lot of the R&D investment has gone. That gap is closing incredibly rapidly. The team is just pounding out enhancements and that’s the area we pay attention to because it’s not technologically sophisticated, but it’s important and it’s one of the areas that we’ve deployed to add those things and that’ll allow us to connect, feel the preconstruction planning in a way that other people simply can’t.

Understood. Thank you.

Thank you. Our next question comes from the line of Tyler Radke from Citi. Your line is now open.

Hey, thanks a lot for taking my question. So maybe you could just talk about this new pricing you’re doing on the multi-user that named user? And maybe just frame it in the context of some of the other pricing changes you’ve made. And in terms of financial benefit, what’s kind of the timeframe that you expect to see the uplift play out? And should we be thinking this is kind of a possible source of upside relative to the existing 2023 targets which were put out before this plan was announced? Thanks.

So, Tyler, are you referring to the premium plan or are you referring to the new multi-user price? The question I answered earlier. The pricing on multi-user, we don’t see a significant upside being generated by that. That was a tactical pricing action designed to prevent gaming as we headed into the two for one exchange in May. So it’s not – that is not an accretive change, Tyler, that’s going to drive business. The bigger story is the premium plan that layers on top of the multi-user plan that will be a long-term continuing opportunity for us. And it should be one of those things that increases your confidence in our ability to hit our FY2023 targets, all right? And I think that’s kind of the way you should look at it. Scott, did you want to add anything?

No, I think that’s right. I think the gist of your question, Tyler, was around multi-user and we did touch on that earlier. And I think the only thing I’d add again is that the way we set the price and the trade in program around multi-user moving them all to named user was in sync with our analysis of how many named users today are being supported by a given multi-user. So it should be pretty much a wash for most of our multi-user customers.

Great. And as I think about the premium plan, sounds like that’s a multi-year event. I mean, as I think about the existing 2023 targets, I mean, those have been out there for a number of years now. Any chance that come Analyst Day that maybe we look at targets beyond that? Or what’s kind of your – how are you thinking about kind of long-term targets now that 2023 isn’t that far away?

Yes, I’m not – I think I feel good about the targets that we’ve laid out for fiscal 2023. Let me start there. And we sort of glossed over it given all the other news that’s in the environment, but I’m pretty proud of the fact that we hit the number that we laid out three years ago for free cash flow at the end of fiscal 2021, which was no small task given the amount of transition we still had to go through and the changes we made in execution to get there. So we probably had to start there. That’s a big stake in the ground, a big milestone for us. Looking at fiscal 2023, I feel equally confident in our ability to hit the targets that we’ve got out there of $2.4 billion in free cash flow. Looking beyond that, I think we will continue to see the same trends that drive growth out through fiscal 2023, of course, extending beyond that. I think that relative magnitude of some of those will change. Obviously, construction will be a bigger driver as we go further out in time. I think where we’re headed with Fusion in the manufacturing world will become a bigger driver further out in time, but many of the same drivers that get us to those 2023 targets will extend well beyond fiscal 2023. I’m not inclined at this point to put another quantitative target out though beyond fiscal 2023.

Great. Thank you.

Thanks, Tyler.

Thank you. At this time I’m showing no further questions. I would like to turn the call back over to Abhey Lamba for closing remarks.

Thanks, operator, and thanks everyone for joining us today. We look forward to seeing you at our Analyst Day on March 25 at our San Francisco office. Please reach out if you have any questions following today’s call, I would like to register you for the Analyst Day. With that, we can end the call. Thank you.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.