Good day, ladies and gentlemen, and welcome to the Autodesk Q3 Fiscal 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. David Gennarelli, Senior Director of Investor Relations. Sir, please begin.

Thanks, operator. Good afternoon. Thank you for joining our conference call to discuss our results for third quarter of fiscal 2016. Also on the line is Carl Bass, 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/investors. As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call. During the course of this conference call, we will make forward-looking statements regarding future events and the anticipated future performance of the company, such as our guidance for the fourth quarter and full year fiscal 2016, our long-term financial model guidance, the factors we used to estimate our guidance, including currency headwinds, our transition to new business models, 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 2015, our Form 10-Q for the period ended April 30, and July 31 2015, and our current reports on Form 8-K, including the Form 8-K filed with today's press release and prepared remarks. Those documents contain and identify important risk and other factors that may cause our actual results to differ from those contained in our forward-looking statements. Forward-looking statements made during the call are being made as of today. If this call is replayed or reviewed after today, the information presented during the call may not contain current or accurate information. Autodesk disclaims any obligation to update or revise any forward-looking statements. We will provide guidance on today's call, but will not provide any further guidance or updates on our performance during the quarter unless we do so in a public forum. During the call, we will also discuss non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of our GAAP and non-GAAP results is provided in today's press release, prepared remarks, and on the Investor Relations section of our website. We will quote a number of numeric or growth changes as we discuss our financial performance. And unless otherwise noted, each such reference represents a year-on-year comparison. And now, I would like to turn the call over to Carl.

Thanks, Dave, and good afternoon, everyone. At our Investor Day in late September we laid out vision and core [ph] for our business model transition. Overall, this quarter was in line with the plan we outlined. The performance of traditional P&L metrics like revenue, operating margin and EPS, most of which were ahead of our expectations, were driven by slightly more perpetual license sales than expected. Metrics like billings and total subscription additions were below our expectations. We'll be in this hybrid model for the next few quarters. As a reminder, we'll stop selling new perpetual licenses for individual products on February 1st and most of the rest of the products including suites on August 1st of next year. At that point, metrics like subscription additions and ARR will begin to being more predictable. Most importantly, we are pleased with the total unit volume of licenses sold in the quarter, which was in line with historical ranges and we're on track to add approximately 600,000 or more units for the fiscal year. This number is critically important for two reasons. First, it is the best indicator of the health of the business while customers have two different ways to buy our products. Secondly, it drives new subscription additions starting in Q3 when perpetual licenses are no longer offered. We were also pleased with the continued growth of our desktop subscription sales and growth in new model ARR. From an operational perspective, we continue to make critical investments. Infrastructure for the business model transition and our cloud platform and services remain the top priorities. At the same time, we've been focused on managing our overall spend and creating increased efficiencies throughout the organization which led to only 1% growth in total spend for the quarter. This is part of a much…

Thank you. [Operator Instructions] Our first is from Keith Weiss from Morgan Stanley. Your line is open.

Hey, guys. Good afternoon. This is actually Stan Zlotsky sitting in for Keith. Thank you for taking my question. Wanted to kick it off with the long-term model. So you're saying that nothing has changed, but we are essentially taking down subscriber targets for this year, so we're lowering the starting point. So does that implicitly say that you are saying that the growth rate in subs will be unchanged, but the end point will be different?

Hi, Stan. It's actually a really small amount; we're taking it down, if you project it out over years. This is just a timing adjustment from where we started. The important thing to look at here is to remember that what we talk about here in those numbers is net subscriber adds. So the number of subscriptions we added was in keeping with exactly what we wanted and that was different. And as I expect, there will be a bunch of questions. I'll go into this more deeply. But to answer your question directly, the net down and for a number of reasons, but in general we were right on track and that's why we I gave the unit numbers the licenses, so you could gauge it. If you put this on to the total days the number really makes no difference in the model as you project it out any number of years.

Okay. And then, my follow-up…

Remember, we're talking about tens of thousands versus millions.

Got it. So does that mean that you saw slightly higher churn in the quarter than you were expecting? And that's it from me. Thank you.

Yeah. So, yes. I didn't even get to the next questioner before we got more questions about it, so we might as well just walk through it. So the first thing is, let's just remember that the 80,000 is net adds. The unit volume was nearly twice that in terms of subscriptions. There are two things that go to it. One is a maintenance base that is now very big, approximately 2.1 million subscribers, and a renewal rate that's less than 100%. So any small change there or any change in timing or any change in buying behaviour even at a small amount changes the reading at this moment in time when we measure it. And the other thing is the attach rates are less than the renewal rate. As we've disclosed over the years. So a little less influential but it does come from a little bit from the tax rate and a little bit from churn in the maintenance phase on the existing model.

Thank you, guys.

Well, let me just finish on the other part of it is if you don't do the net of it, subscription adds were just where we anticipated they would be.

Thank you. Our next question is from Saket Kalia of Barclays. Your line is open.

Hi, guys. Thanks for taking my questions here. Might as well stay on the subscription kind of line of questioning here, Carl. So the reduction for the year, I guess that 3.10 to 3.30 versus the 3.75 to 4.25, maybe you can walk us through where the lion share of that reduction is coming from. Is that coming from your point that lower attach and renew rate that maybe you expected in the maintenance base or is the new model base maybe a little bit less than what you expected as you wrap up the year?

It's about 50/50. I mean, at least this quarter it was. Once again I try to highlight it in my remarks. I can tell you exactly what happened in Q3 and in that case it's 50/50. If you look going forward, because of the difficulty in projecting our customer behaviour precisely about whether they'll choose to stock up on perpetual licenses or move to desktop subscription, it's a little bit harder to project. We just thought we'd be a little bit more cautious and conservative, particularly with the mix. And so I want to draw two pictures. We're more cautious about the net adds. We gave you the other facts and figures to show really that the unit volume is steady and that the demand is high. And so I don't want to confuse those two issues. But I can tell you Q3 really 50/50, Q4 and going into next year, a little bit harder to be precise about.

Yes, Saket. If all you're trying to bridge is the midpoint of the previous guidance for the full year to the midpoint of the current guidance for the full year, what I'd say is a big chunk of that is where we see ourselves coming out of Q3. So if you just add the numbers up this year, we've added about 236,000 net subs. When you peel back how that compared to where we thought we'd be at this point the bigger driver of the delta is what you said. It's on the maintenance side versus on the new model side. The new model growth has been good. We continue to see it looking strong, particularly year-on-year. But it continues to grow strongly sequentially as well. When you look at Q4, I think what Carl said is spot on. What we're trying to do is take a somewhat conservative view of what we think the net adds will be. There's a significant opportunity as we hit the first milestone or the next milestone in our business model transition and end of sale perpetual licenses for individual products and trying to gauge what that does in terms of driving additional demand relative to a very large maintenance base. If you go back several years, Q4 has always been our biggest quarter for perpetual license sales, which means it's also our biggest quarter for renewals and there's an enormous maintenance renewal amount that gets done during the quarter. And it's balancing those two off, that's what's led us to where we are.

Got it, got it. And then the follow-up, maybe if we shift over to the kind of -- to the creative finishing part of the business. Carl, I think you said roughly a $10 million impact, I think in the fourth quarter on billings. So is it fair to think about that as maybe a $40 million a year kind of revenue run rate? And what's the sort of gross margin on that, that you're now going to be sort of offloading?

Yes Saket, that's right. So, to be clear, what we did in Creative Finishing, to this point we sold that product on hardware. So its software license and then we built it – we actually packaged it on the hardware and shipped it out. What we did in Q4 or at the end of Q3 is, based on really feedback from partners and customers that wanted the flexibility to use their own hardware is converted Creative Finishing software to a software only offering. So what that pulled out of our revenue stream is the hardware that was effectively a pass-through. We bought it, packaged the software on and passed it through. So, as you would imagine, it's pretty low margin business. Now, Q4 is the biggest quarter for that as well, so I wouldn't take the 10 million that we see the impact in Q4 of this year and just multiply it by four. But it's somewhere between $25 million to $40 million, is what would come out, low margin business but all hardware only.

Got it. Very helpful. That's it from me. Thanks.

Thanks. Great.

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

Hi. This is Shakeel Alam in for Heather Bellini. Just one question on maintenance and what you're seeing there. So you added 32,000 maintenance subscribers but ARR stayed flat. Is that what you're expecting? And so could you comment on the attach rate you're seeing on maintenance versus prior quarters and from next quarter with license ending, are you expecting a strong maintenance ARR uptick while this is the last chance to buy standalone licenses?

You asked a lot of questions, Shakeel. So let me jump in and if I missed one remind me. The first question of 33,000 net new maintenance adds for the quarter but billings being effectively flat sequentially. I think the thing you've got to bear in mind is 33,000 on the base of about 2.1 million. So the overall growth -- the growth of the overall base which of course is what drives that is not nearly as big as 33,000 would sound. On the attach rates, what we are seeing though is we continue to see attach rates growing. Now, not -- it still is below the overall renewal rate for maintenance but the attach rates growing, it's growing on LT which is still a step function below the other products. But it's growing on the other products as well and renewals continue to be strong through the quarter. So we're not seeing any significant change there.

And then for 4Q are you expecting an uptick in maintenance ARR?

Yes you know, the hard part about calling that is calling the number of customers during Q4 that actually take advantage of the last chance to buy perpetual license. To the extent that that's a big number, but a lot of people look at this and say hey, I want to buy my perpetual license while I can with the attach rates we're having that will drive a significant uptick in maintenance ARR. To the extent that we continue to see what we're beginning to see is a lot of customers saying okay, I've now gotten comfortable with desktop subscription, we see it growing at substantial rates year-on-year, but growing sequentially as well. And if more people say I'm ready for -- I'm ready to make that shift, that would again drive desktop subscriptions but only when they actually need it. There's no end of sale on desktop subs. So better news for us long-term, the more people that accept the shift over to desktop subs, but there's no compelling event in Q4 for that set of customers. So it's really trying to predict the mix of people that want to take advantage versus the mix of people who say no, I'm ready to make the shift.

Got it. Thank you.

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

Yeah, hi it's Dan Bergstrom for Matt Hedberg. Could you talk a little bit about bringing the eStore in-house? How does that enable you to increase the volume of the business you do online? Thanks.

Yes. I think there are two different dynamics going on. I think customers, particularly small customers, are choosing to buy more and more online as they get more comfortable with it. The factor that we get to influence is the experience. Outsourcing it has its limitations in terms of the experience you're giving customers and buying and maintaining their things online. We felt like we'd grown that business to a point where we needed to control it ourselves. Second important thing about it is we felt like we were paying too much money for the service to do that and so we wanted to bring it in so we could lower the cost per transactions and improve the experience.

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

Yes, thanks. Carl, you had an activist investor actually file recently. I'm curious if you had any conversations with them and what's going to be your approach? Will you be open to discussions and the suggestions they might have to improve shareholder value?

Yes. I probably found out about the filing the same way you did. I happened to be at Japan at the time. And somebody sent me a news article. When I saw you that, part of the filing was that, Sachem I'm not sure if I'm pronouncing it correctly, Sachem had filed. I reached out. I spoke with Scott. We didn't say anything of substance, but we agreed to get together. Just as I've done with many investors. We continue to be open to talk to all of our investors, whether they file or not.

Got it. And then, back -- Scott, I hate to do this to you, but back to maintenance. I guess I wasn't clear. Sounded like you said that attach rates are continuing to improve and renewal rates are steady. But I thought in an earlier comment that when we look at the change in the net subscription expectations for the year that the maintenance was definitely a 50% of the component. So I guess I'm still missing which component is coming in less than what you expected. Is it the churn or is it the attach?

No, it's actually neither. In order to attach a maintenance agreement you need a new licensed sale. And so when we looked at new licensed sales for the year this year, as we were laying out the plan, it's a little bit like doing a channel check, where you look at a small sample size and try and extrapolate to the rest of the world. And so what we had based that, what our expectations on the end of sale of perpetual and what that would do in terms of driving new license sales, is we based it on some of the tests that we had done and we based it on the experience we had with the end of sale of upgrades. And what we've seen is attach rates continue to be strong and strengthening and renewal rates have stayed strong for maintenance. But the number of people who are buying that last perpetual license are less than we expected when we set up the plan for the year.

Got it. That makes sense. And maybe just to put a finer point on that, do you think that's macro or do you think it’s still understanding the model transition or some other factor?

I think there's two things going on. I think macro is relatively steady. We have not seen a dramatic change. I know this will come up so we might as well just cover it now. The Americas, U.S. in particular, continues to be relatively strong, as does Central and Northern Europe. We see weakness in Brazil and Russia and the Middle East. China I actually feel is slightly stronger than I think generally people are giving the credit for. And Japan is weaker than I think anybody would want. And you know, I think that's the round-up of what the macro looks like. So in general, I think macro is not a huge factor. It's neither particularly positive, nor particularly negative. FX continues to be negative, as it is for everybody. And looks like it might continue for a while. But that's kind of the round-up of what I would see about macro. I don't think the competitive situation has changed very much in the mainstream businesses. There's different dynamics in some of our cloud businesses. We're kind of leading the way, but other than that, not a huge amount of change.

Okay. Thank you guys.

You're welcome.

Thank you. Our next question's from Brent Thill of UBS. Your line is open.

Hey, Carl. Just on the channel, many of the channel partners we speak with, it seems like there's a divergence. The larger ones get it. They want to be on board. They understand the power of it. The smaller ones are still struggling, which you would expect, given this. But I guess, just, do you feel like you've got the channel guys now really ready to go, they're on board? Can you just give us a sense of how that education process is going at a high level? And there is a follow-up too on the deal you mentioned, nice to see a 20 year competitive switch. Are you -- what drove that in terms of their decision making? Do you see other deals like that in the queue that are ready because of either an architectural limitation or -- just give us a little more color would be helpful.

Okay. So first channel partners and then the switch. So if you look at channel partners, let's just back up for a second and maybe have a little discourse on channel partners and checking with channel partners. The first thing, just to remind everybody, is if you look at it broadly 30% of our business -- 20% to 30% is the very top tier, less than a tenth of a percent of our customers. And at the so-called bottom of the pyramid, people going through lower cost channels like the eStore, that's 20% to 30% of our business. When you get to the middle part of our business, that is our traditional good partners, one of the things also is that business is geographically aligned like the rest of our revenue with about 25% in the U.S. and 75% outside. It's one of the reasons just on a kind of an aside why often the channel checks don't correlate as well. That if you're only starting with 40% of the business or 50% of the business and you talk to a sampling of 25%, you're sampling 12.5% of the people that you would like to. Overall, we have more than 2,000 channel partners. So use that as a backdrop to this. I would totally agree with what you're saying, Brent. I think the larger partners understand the transition better, have moved more quickly, have prepared their business, as you would expect, but I wouldn't say it's uniform. There are also smaller partners who are some of our best partners who have understood this, who have always had really healthy businesses that provide great services. But if I look by and large, I think your characterization is correct. If you look at it from the business point of view, we gave…

Thanks, Carl.

You're welcome, Brent.

Thank you. Our next question is from Philip Winslow of Credit Suisse. Your line is open.

Hi. Thanks for taking my question. Carl, I know you touched from a geographic perspective on macro. But when you look at the industry verticals that you guys service, commercial, construction, civil, different parts of manufacturing, and obviously the media side. But when you look by vertical, I mean is there any sort of tone change across those vertical industries? Who hasn't changed? Who maybe is changing? And just sort of how you're kind of contemplating that or thinking about this over the next few quarters here, what you're keeping your eyes on.

Yeah. It’s surprising little change in the business environment around those, I don't see dramatic changes. I think there's a lot of picking and complaining about interest rates even though I think it's fully baked into the market and for the of most part people doing things like development projects or capital improvements and manufacturing have figured this in for a while. Maybe it's gotten slightly more certain. But surprisingly in our end markets we're not seeing huge amounts of change either geographically or by industry. It's kind of steady as she goes. Certainly sitting here in San Francisco, I have a little bit of concern about kind of bubble valuations in down round IPOs. But that may be a much more local phenomenon. And I wouldn't extrapolate from there that feels to me like a bad channel check. So, I would just say business is pretty steady as she goes. We're monitoring it. I think the other end indicator for me was the demand that we talked about in the total unit volume, kind of indicates to me the same thing. So no big change. Scott?

Yeah. So, I was going to say the same thing. When you look at the underlying demand, in other words the units that we sold during the quarter, it's right in line with what our expectations were and where it's been historically. And then, if you slice it the other way, by industry vertical and I think we've got this – I'm sure we've got this in the prepared remarks. The revenue growth rates in AEC were around 4%, but in manufacturing it was the same, about 3% or 4%. So we're not really seeing any bifurcation by vertical at this point.

Got it. And then, actually just a quick follow-up for Scott. Carl mentioned, as he did back at the Analyst Day a couple years ago, the 500,000 to 800,000 license units, wondering if you can give us a sense for sort of just what last year was or maybe this past couple years if you have that, just so we can kind of get a sense for -- because that 500 to 800 range is pretty wide, sort of what the most recent cadence was like?

Sure. Last year would have been toward the higher end of that because we had a pretty successful upgrade set of sales last year. So it's a bit of an anomaly. Definitely it would have been the high end of that range. So if you go back before that, and really before we in earnest got into the business model transition, it was right around the midpoint of that range, between 500 and 800. And that's what we're seeing again this year, in terms of net demand, in other words, net sales in the market, right about the midpoint.

Got it. Thanks, guys.

Thanks, Philip.

And your next question is from Gregg Moskowitz from Cowen & Company. Your line is open.

Okay, thank you very much. Carl, I’m wondering if you could just give us a little color on the sort of activity meaning perpetual and subscription that you saw this quarter in Asia-Pac, ex-Japan, and A&Z, how did that change as the quarter progressed and its deadline for buying perpetual license approached?

Yeah, Gregg, we saw what you'd expect to see. So to be clear, we didn't end of sale all perpetual licenses in APAC this quarter ex-Japan. It was only LT only the low end, so very similar to what we had done in Australia, New Zealand in the prior quarter. We saw an increase in the volume of LT sales as we approached that end of sale. So it was right in line with our expectations. And the one thing I'd say we're seeing with these end of sales is they are definitely more backend loaded in the quarter than our traditional run rate. So it makes a little bit more challenging in forecasting. I used to talk about or almost brag about, you could look at the first three weeks and it was a statistical phenomenon to predict week 13. These promotions -- and I expect them to continue through the next three quarters possibly four, are just a little bit harder because we really are creating these events and it's just human nature not to act until the last moment.

Okay. That makes sense. And then just for Scott, so Carl made a comment that you're looking to ratchet down expense as you move you through the transition, exiting the hardware business for Creative Finishing being an example of that. Are you still expecting a spending increase of 5% to 6% per year going forward or has your view on that changed to some degree? Thanks.

Yeah, Greg, so I'll start and then actually let Carl jump in on this too. If you look at the quarter we just announced the total spend growth was 1%. If you looked at just OpEx, because COGS is obviously going up as we build out the cloud infrastructure. We just narrowed in from total spend to OpEx. The quarter we just announced was flat in OpEx year-on-year and so -- and if you look at the guidance we've given for Q4, and back into the spend growth that that would equate to it's in that same 1% to 2% range in Q4. So we have really put a lot of focus into effectively managing down spend and becoming more efficient across the board. Carl, you want to?

Yes. I mean, I'd say two things. One is the plan is to continue to ratchet it down going into next year. There's a little bit of the effect of currency. But on a constant currency basis I'd say it would be coming down into the range we mentioned. The other thing was it was definitely a change from Investor Day. And truthfully, we've been speaking a lot over the last six months with many of our long-term constructive investors and they totally understand and certainly believe in the model transition and the strength of the franchise, but there was definitely a hankering for greater cost control. So we listened carefully, and you saw. And so we put plans into place earlier. We did something in Q3, doing the same kind of thing in Q4. Some things take a little longer to put in play and it's a combination of ongoing operating expenses and then structural things like we do for the either the eStore, which, again ironically, sometimes take an investment in order to do that. So that one in particular is an investment in our IT infrastructure to do it, in the long run it pans out, but some of the fluctuation you see in costs are due to things like that that have a benefit over a longer time horizon. But we're continuing to make some of those changes. Let's just back up on the expense question a little bit to look at – there are really two things that we're doing in parallel right now. And in each of those cases we're running dual models. So on the business model we really had business systems from front to back end that are for the old traditional model. We have been building out a complete set of front-end and back-end to service new customers in new ways. And on the technology side, while most of our revenue is on traditional Windows-based machines with installed software, by far the fastest growing and certainly the future of the company is on cloud computing and we've been building out, not only infrastructure, but products and services for that, and we strongly believe in the future there. The reason why we have confidence to not only do it during the transition but beyond is that some of those costs will obviously go away. They are necessary now, but they become redundant over time. So we took strong action to do it and we'll be doing more and talking about it more. But for now that's probably enough.

Very helpful. Thank you.

Sure.

Thank you. Our next question is from Brendan Barnicle of Pacific Crest Securities. Your line is open.

Thanks so much. Carl, you know you should never let us know that you're not going to tell us enough. So I mean, I have to ask more about this expense piece. So I was still modeling, I think a lot of people were still kind of that 5% that you guys had been talking about. So as we think about more of a 1% to 2%, where should we be looking for that leverage to come from?

As we talked about before, we think there are couple areas. But, in general I would look across the board and I would look at -- but if you peel that back, what you would see is some of the investments we made -- e-store is like a perfect example of where those were expenses that were in there, now that we're rolling it out we will see the benefit of it in lower cost structure for people transact that way. We've done it in North America. We'll continue to do it in other geos over time and lower the cost structure there. So as these places where we made investments for the health of the future of the business come to fruition we'll start doing it. So in some ways looking at it by function, I know that's a convenient way for you, it's easier, in some ways it's chunkier because a lot of it is around initiatives whether it's creative finishing hardware, what we're doing there. But the bulk of it will come from redundant stuff we're doing as we're able to move more activity to the new models in both the business transition and the technology transition and invest less in the traditional things. And that's all I have to say on this subject, Brendan.

Well, thanks for helping us out.

Okay.

At the Analyst Day you pointed out the -- I think it was like 40% of desktop subscribers were new to Autodesk. And I was wondering if you had any stats on kind of those net new customers that you've been picking up in the model transition.

No, Brendan, we're not seeing any significant change in that yet. The one update that I would give and Carl actually had it referenced at least in his opening commentary, if you remember in that same set of slides that Steve Blum went through, he talked about percentage of our total desktop sales that are being driven by the channel and we showed what that trend had looked like over the last six quarters. And we did see that, and it kind of gets at the question earlier that Phil had about what we're seeing in the channel or Brent asked about the channel. We are seeing that continue to grow. So if you remember that slide we said at the end of Q2, 58% of our desktop subscription sales came through the channel and the quarter we just closed that was up about 2 to 3 more points. So it's the majority of our desktop sales now that are coming through channel partners and it's continuing to increase.

And are those channel partners generally bringing you net new Autodesk customers?

It's a mix of both.

I thought maybe, kind of, its being your installed base.

It also varies by product. Right? So -- you remember, we also went through for some of the cloud products, Fusion in particular, the statistic of new customers that that have product -- of all the customers they brought in, what percent are through. I'm I think it was north of 85% on Fusion. So it's less whether it's coming from the channel or is it just desktop. And it's more -- these products actually getting to increasing the TAM that Amar talked about and really getting to a new customer set. And there hasn't been any change from all the data that we just showed you about six weeks ago, but we are continuing to see a very positive trend of new customers coming in.

Yes. I think we spent a lot of time on things like subscriptions, but let me just take a moment here and go through where these new customers are because I think sometimes we lose track that the health of the business is going to be about news new customers. And when you look at most of our cloud-based offerings, the first thing I'd say is that we're way ahead of the competition and the customers are coming along quickly. We might have been ahead of the customers slightly, but not for very long. And so when you look at things like BIM 360, these are either brand new customers to Autodesk or new parts of the company that had no use for our other kinds of tools. If you look at things like PLM 360, almost entirely these are new customers to Autodesk. Our new Internet of Things, the IoT product, is almost all new customers to Autodesk. And as Scott referenced and we’ve talked about repeatedly, Fusion is clearly one where we're winning market share from existing competitors. Those are all places that are bringing in new customers and I expect that trend to accelerate as we continue to kind of gain ground and the world moves towards more cloud based tools.

Carl, I totally agree, that's where we want to Focus. I'm wondering if there's any way we could get some sort of quarterly metric around that, just to reinforce that point, because I thought it was such a compelling one at the Analyst Day and certainly one we’d love to continue to hear more about.

Brendan, I never should have gotten into that speech, should I. Yeah. Let us get back and figure out how we can best convey what we're doing. I think both, there’re two things, tell me if this would be helpful, is the number of units and something about the percentage of new customers.

That would be -- I think that would be very valuable, yeah.

Okay. Thanks.

Thanks, guys.

Our next question is from Jay Vleeschhouwer of Griffin Securities. Your line is open.

Thanks. Good evening. Carl, I'd like to ask a question that gets to both the cost structure of the company and the saleability of the products. At the Analyst Meeting you mentioned that one of your opportunities is dealing with the complexity of the portfolio. And so the question I'd like to ask is how are you thinking or planning around simplifying the portfolio, given the large number of SKUs that you have particularly in terms of suites, just as a matter of improving sales efficiency and cost versus on the other hand your need to maintain some kind of segmentation of the product line, particularly for the different verticals?

Yeah, so this can -- it's a place where we've been spending a lot of time thinking and planning for it because you're absolutely right, complexity and particularly unintended complexity drives cost. And this is a huge opportunity for us to simplify and reduce the cost. It also makes for a better experience for our customers. And we think we can make our customers get more value and pay us more. And we've talked about this a lot with our enterprise customers. When we've given them a more flexible licensing mechanism, they use more software. They paid us more per year. And I would say at least anecdotally they're happier about it because they really understand where the use is. And I think in the last two Investor Days we’ve talked about that dynamic. The biggest thing in my mind we can do is extend that flexibility that we now have really only sold directly by us to our largest customers to the bulk of our customers in the part that's serviced by our traditional channel partners. And so we really want our mid-tier customers, the smaller, medium businesses to get that same kind of flexibility. You're absolutely, right, Jay, we need to make sure, handing all of our products is not particularly helpful, but also breaking it down into 10,000 SKUs is not helpful either. And so we're looking at kind of the minimal set that we need so they can pay an appropriate price and get a set of tools that they might need. In addition, what we're going to do is that, is layer in cloud services so that they can really pay on demand for the things they may or may not need. But it's really about that flexibility which is where we feel the way to simplify it and to make it a better experience for them and to make it more lucrative for us.

And to the second part of your question there, if you're getting at are we still going to have a differentiation between AEC and manufacturing and M&E, that's clearly part of the thinking. Andrew was getting a little bit of this in his presentation at Investor Day of how do we simplify that, but continue to have something that is targeted and it makes sense for our user base in the various verticals. So we'll continue to maintain that at some level, but greatly simply the way we did it.

So sooner or later, and hopefully sooner, you'll deploy what would be in effect a Creative cloud like sign-on for the SMB market with what you've been calling anyway today subscribe to Autodesk. You have to come up with a better name in that. But is that a fiscal 2017 objective still?

So, first of all, Jay, we appreciate the suggestions that you've published. And we've rejected them all, first of all.

Thank you.

But -- yeah, stick to your day job. But, so yes, it's an important thing for us to offer and we will be offering it. Whether it stays that name or not, stay tuned. But yeah, it really is that flexible offering. And remember, it's not only just simplifying and the cost structure, we also – and this is slightly more complicated, but the question has come up so what do you do about the 2.1 million users and do they move to desktop subscription. And I'll reiterate here there's 2.1 million customers have historically been our best customers. They still are our best customers today. We think the way to move them over, so that they get more value and pay more, is to move them to flexible license offerings at their discretion. And so we have a number of knobs and dials to do that. But what we really believe is the essence of it is having a more compelling offering and everything we've been shown to date is some combination of access to more desktop products and access to the cloud services is the thing that is compelling. So you'll hear more about it. We'll introduce it. At this point, I feel like we have enough moving parts in the model that we don't need to introduce a lot more, but you will hear more about it during the year.

Lastly if I may, in the future of Autodesk land, once the model gets steady state and so forth, what do you think would the role of your rebate promotions, PLOs and so forth will be? Do you think you'll have to employ those kinds of levers as often as you've done in the past under the old model?

So I have a point of view. It is not widely shared by my executive management team. Yeah, I feel like promotions are important for one reason, and that is to create a compelling event for people to choose to buy. For the most part, us as well as our competitors, we sell on the value of the offerings, the quality of the offerings, the suitability of the offerings, the completeness of the offerings is what makes people buy it. When they buy is influenced by everybody likes a deal. That if you look around the world, the number of companies who never sell with a discount is tiny in the technology business it might be nonexistent with the exception of Apple. So I see this being a way to control the timing but of course in the -- you want to minimize this as much as possible and only do it so you can create compelling events. We have a disciplined approach to promotions. They're centrally controlled. We're trying to influence behaviour. We're trying to influence behaviour not only of our customers but of our partners. And so I think it is one of the tools we have. I would be reluctant to give it up. So you need to use it judiciously. There's an art to using it. And I think the more dogmatic point of view in which there's never a promotion and you only sell at list price doesn't fit reality and I think it takes one of the valuable tools out of your hand.

Okay, thank you.

You're welcome, Jay.

Thank you. At this time I'd like to turn the call over to David Gennarelli for any closing comments.

Thanks, operator. Well, that concludes our call today. We also have our Autodesk University event coming up on December 1st. If you'd like to attend that and you're not signed up yet, please e-mail or call me. We'll also be at the Credit Suisse Conference on December 2nd and the Barclays Conference on December 9th. You can reach me at 415-507-6033. Thank you.