Heather Erickson - Vice President of Marketing Josh Coates - Chief Executive Officer, Director Steve Kaminsky - Chief Financial Officer.

Terry Tillman - Raymond James Koji Ikeda - Oppenheimer John DiFucci - Jefferies Brian Essex - Morgan Stanley Scott Berg - Needham Ken Wang - First Analysis Andre Benjamin - Goldman Sachs Chris Howe - Barrington Research.

Good day and welcome to Instructure's Q4 2016 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Heather Erickson. Please go ahead..

Thank you operator. Good afternoon everyone and thank you for joining us on today's quarterly earnings conference call. Today's call is being hosted by Josh Coates, CEO and Steve Kaminsky, CFO. Before we begin, I would like to remind you that today's conference call will include forward-looking statements based on the company's current expectations.

These forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially.

For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release and the other reports and filings we may file from time-to-time with the Securities and Exchange Commission.

All our statements are made as of today, based on information available to us as of today and except as required by law, we assume no obligation to update any such statements. The content of today's conference call is Instructure's property and cannot be reproduced or transcribed without prior written consent.

During the call, we will also refer to both GAAP and non-GAAP financial measures. You can find a reconciliation of our GAAP to non-GAAP measures included in our press release, which is posted to the Investors section of our website.

All of the non-revenue financial measures we will discuss today are non-GAAP, unless we state that the measure is a GAAP measure. Now, I would like to turn the call over to our Instructure CEO, Josh Coates..

Thanks Heather and thanks everyone for joining us on our Q4 and full-year 2016 earnings call. As usual, I will provide some highlights from the quarter and the year and then turn the call over to Steve for a recap of our financials before taking your questions. We ended 2016 with a solid performance.

Revenue of $31.5 million for the quarter and $110.9 million for the year represented a healthy 45% and 51% year-over-year growth respectively. At the same time, we continued to realize substantial improvements in our operating margin.

Steve will go into greater details in a few minutes, so let me share with you some of our customer wins that we achieved. During Q4, we continued to expand our Canvas customer base in both K-12 and Higher Ed markets.

In K-12, Canvas was selected by AVID Center, which impacts nearly 1.5 million students annually, to support training and learning efforts for over 60,000 educators within their global network of educational institutions.

Additionally, Canvas was chosen by Cherokee County School District in Georgia as their LMS solution for its 40,000 students across 41 different schools. Within higher education, our market position and large customer base contributed to new customer wins.

The successes we have had with Canvas adoption in Colorado in both higher education and K-12 school districts influenced the University of Northern Colorado in their decision to select Canvas for their LMS.

Also, Iowa Community Colleges Online Consortium, which serves seven community colleges and 17,000 students, chose Canvas because of our successful implementations with other Higher Ed schools in the state.

DeVry Education Group, with its 55,000 students, selected Canvas for its LMS because of our flexible design which can support many unique requirements across their eight different academic institutions. Finally in Higher Ed, I would like to share with you a very unique and exciting customer win for both Canvas and Bridge.

Ivy Tech Community College, the largest singularly accredited statewide community college system serving over 150,000 students annually, entered into a bundled deal for both Canvas and Bridge to create a learning solution not only for their students but also a training solution for the faculty and staff. Turning to Bridge.

We are quite pleased with our progress over the last two years and the traction we are seeing in this large corporate market. I have a few customer highlights to share with you.

A division of PricewaterhouseCoopers called PwC SMART, which handles coding and compliance for billing within the medical industry, will use Bridge to train their group's 1,500 consultants. McKesson Canada selected Bridge to train their 4,000 employees in their pharmacies.

AccorHotels' Academie Accor, which is the world's first corporate hospitality learning network, will utilize Bridge for course creation for their 15,000 learners. CareerBuilder selected Bridge as their training platform for their sales team.

And Swift Transportation, North America's largest fleet of full-haul trucks, was looking for a solution to provide training for their 20,000 drivers. They brought us into the evaluation process specifically because we were the makers of Canvas.

After selecting Bridge, they remarked that, "The best feature of Bridge is the engineering team and the minds working on the project. The level of talent far exceeds the level of talent of your major competitors." Let me move to international.

This quarter we continued to see great success internationally and our international revenue for the full year is now 9% of total revenue. We had particular success this quarter replacing Moodle and Blackboard in Australia and Latin America. Here are just a few examples.

RMIT University in Australia, a global university of technology, design and enterprise, selected Canvas to replace Blackboard for their LMS for their 55,000 students. The Department of Education, Tasmania in Australia, which includes both K-12 and Higher Ed chose Canvas for their 50,000 students.

The University of Canberra in Australia replaced Moodle with Canvas for their 12,000 students. And SOMOS education group in Brazil, which is the country's largest primary education services company with products or services reaching thousands of schools and millions of students, selected Canvas to replace Moodle for their educational solutions group.

And finally, the Universidad Tecnologica del Peru S.A.C. selected Canvas for their 48,000 students. In addition to expanding our customer base, constant innovation around our products and services is another integral part of our growth strategy. During the quarter, we had several interesting new features for both Canvas and Bridge.

In Canvas, we released the Canvas Parent app. It's the first of its kind mobile app for parents that allow parents to constantly monitor their children's homework and grades. I personally use this almost every day with my kids.

We also launched MasteryPaths which allows course designers to create customized and differentiated learning experiences based on student course mastery. Just a few weeks ago, we launched an integration with Google Tools providing a much simplified workflow for students, educators and administrators.

This new integration allows students to easily submit Google Docs as assignments and teachers to quickly edit or annotate these submitted Docs with SpeedGrader. Also, I am excited today that we announced the promotion of Mitch Macfarlane, our SVP of Product and Customer Service to the newly created role of Chief Operating Officer.

Mitch will now oversee customer experience, product, marketing and engineering. This is a natural step as we scale the organization to handle the operational challenges of our continued fast growth across multiple markets. During his six years at Instructure.

Mitch has proven to be an integral leader and our high customer satisfaction rating and net promoter score are a direct result of his leadership and focus on creating best-in-class operational teams across our organization. I am very proud of what we accomplished in 2016 and excited by our prospects for 2017 and beyond.

And when I look at our product roadmap for 2017, I am particularly excited for what we have been working on and the new products we will be talking about throughout the year, Steve and I look forward to updating you on this over the next several quarters. Now I will turn it over to Steve to take you through the numbers..

Thank you Josh and thanks again to everyone for joining us today. During 2016, our first full fiscal year as a public company, we are quite proud to have accomplished meaningful improvements to our margins and progress towards profitability while growing revenue at one of the highest growth rates among over 40 publicly traded SaaS peers.

The fourth quarter of 2016 was very solid. As Josh mentioned, total revenues for the fourth quarter of 2016 was $31.5 million representing a year-over-year increase of 45%. Subscription and support fees or recurring revenue contributed $28.3 million, an increase of 50% from the prior year's fourth quarter.

Professional services revenue, which as a reminder is comprised of implementation, training and other consulting services and is considered non-recurring, was $3.2 million, an increase of 12% from the fourth quarter of 2015. For the full year 2016, total revenues were $110.9 million. Subscription and support fees were $97.1 million, up 55% from 2015.

And professional services was $13.8 million, up 28% from 2015. Our net revenue retention continues to be greater than 100%, as we remain focused on retaining and expanding our current customer relationships.

Billings on a rolling 12-month basis as of December 31, was $134.4 million, up 44% from the prior year's billing, also calculated on a rolling 12-month basis. For the remainder of my commentary, unless otherwise noted, I will discuss non-GAAP results. Throughout 2016, we made good progress towards our long-term gross margin target of 75%.

Gross margin for the fourth quarter was 71.8% and for the full year with 71.3%, a year-over-year improvement of 370 basis points. The improvements in gross margin for the fourth quarter as well as the full year were predominantly related to cost savings related to AWS. Total operating expense was $32.5 million compared to $25.5 million in Q4 of 2015.

This represents a 28% increase year-over-year while delivering revenue growth of 45% and reflects our continued focus on scaling the business as we make progress on our path to profitability. For the full year of 2016, operating expense was $122 million. This compared to $90.9 million for the prior year.

Operating loss for Q4 2016 was $9.9 million as compared to $10.4 million in the same quarter of the prior year. For full year 2016, operating loss was $42.9 million, up a modest 4% from the prior year of $41.4 million. Operating margin for the fourth quarter of 2016 was negative 31% compared to negative 48% for the same quarter in 2015.

For the full year 2016, operating margin was negative 39% as compared to negative 57% for the full year 2015 representing a substantial 1,800 basis point improvement. We realized substantial improvements in operating margins throughout the year as we continued to gain greater scale and execute against our plan for realizing operational efficiencies.

Net loss for non-GAAP EPS calculations for the fourth quarter of 2016 was $10 million or a loss per share of $0.35 on a per common share basis. This compares to a net loss of $10.5 million or a loss per share of $0.43 for the fourth quarter of 2015.

For 2016, net loss for non-GAAP EPS calculations was $43.2 million or a loss per share of $1.55 on a per common share basis as compared to $41.8 million or a loss per share of $1.90 on a per common share basis for 2015. GAAP net loss for the fourth quarter of 2016 was $12.9 million or a loss per share of $0.46 on a per common share basis.

This compares to a net loss of $12.1 million or a loss per share of $0.74 for the fourth quarter of 2015. GAAP net loss for 2016 was essentially flat on a year-over-year basis at $53.6 million. GAAP net loss per share for 2016 was a $1.92 on a per common share basis as compared to a loss per share of $6.07 for 2015.

Weighted average share count used in GAAP and non-GAAP calculations are found within the table in our earnings press release. Turning to the balance sheet. We ended the year with $68.4 million in cash and cash equivalents and marketable securities. Free cash flow for the fourth quarter of 2016 was negative $17.3 million.

Backlog which, as a reminder we will provide at the beginning of each new fiscal year, was $288.9 million at the beginning of 2017. This is comprised of $75.9 million of deferred revenue, which you can find on our year-end balance sheet and $213 million of off-balance-sheet revenue under contract.

Additionally, our average contract length continues to be greater than three years. One additional data point that may prove helpful is that we started 2016 with approximately 72% of revenue under contract that contributed to 2016 revenue. Let me end my remarks with a discussion around our expectations for the first quarter and full year 2017.

For the first quarter of 2017, we expect revenue in the range of $32.6 million to $33.2 million, non-GAAP net loss of $11.2 million to $10.6 million and non-GAAP net loss per common share of $0.39 to $0.37.

For the full year 2017, we continue to believe we will achieve approximately 35% year-over-year topline growth with expected revenue in the range of $149.3 million to $150.8 million. We expect non-GAAP net loss of $39.2 million to $38.2 million and non-GAAP net loss per common share of the $1.35 to $1.31.

For calculating EPS, we expect our shares to be 28.6 million for the first quarter of 2017 and 29.1 million for the full year. I would also to provide some additional comments around our expectations around cash flow. We remain confident in our ability to reach cash flow positive beginning in the second half of 2017.

As we stated last quarter, we expect this trend will continue for the full year of 2018 and beyond as the positive free cash flow expected in the third quarter of 2018 will more than offset the negative free cash flow for the first, second and fourth quarters.

Additionally, we anticipate our historical seasonal patterns with substantial quarterly variations of free cash flow will continue as we have each year of our operating history. In summary, we are pleased with our performance across the business.

We continue to see a tremendous opportunity ahead of us and are taking a balanced approach to invest appropriately for growth. With that, let's open it up for questions. Operator, please go ahead with our first question..

[Operator Instructions]. We will take our first question from Terry Tillman with Raymond James..

Hi. Good afternoon gentlemen.

Can you hear me okay?.

Yes. We can. Hi Terry.

How are you doing?.

Pretty good. So a solid job on ending the year well and for all the color on 2017 guidance, Steve. My first question is, as it relates to thinking about derisking the model for 2017, you guys have provided as an initial snapshot on 2017 revenue growth on the third quarter call, we now concluded the fourth quarter.

What is embedded in your assumptions around late stage pipeline of overall bookings activity for 2017 versus 2016? Just trying to understand what you are baking in for topline growth as it relates to signing and closing new business?.

Right. Well, I think, Terry, as we have typically talked about, we have really strong visibility obviously to our Q1 pipeline. We have pretty good visibility into our Q2 pipeline as we sit here today. When it gets to Q3 and Q4, it starts getting a little murkier. So we take all of that thinking into account as we build our plan.

We expect typical seasonality to our bookings. So we expect Q2 and Q3 to be the very big quarters and Q1 and Q4 to be smaller. Not insignificant, but smaller than Q2 and Q3. And so, it's pretty normal stuff.

And some of the derisking that we talked about was we did a little bit more work to our backend loading quarters, particularly Q3, which is where we struggled a little bit last year. So we try to make sure we won't run into that same problem in 2017..

Okay. And Josh, as it relates to Bridge and corporate learning, as we think about 2017, is it still and don't take this the wrong way, more of a one-trick pony? Or could we see something coming onboard to be a material second new product? Thank you for taking my questions..

Yes. I guess I will just reiterate what we have always said is that we fully intend to build out a suite in the HCM market as it relates to the corporate portion of that market. We started out with Bridge Learn and we are in development of the next steps down that path.

Also, I think it was last call, we mentioned that we will have a couple of exciting product announcements this year but you will have to wait for a little bit to hear more details about that.

But we are really excited about the roadmap and we continue to be really busy developing new products, in both the education market as well as the corporate market..

Okay. And Steve, maybe could I just ask one more though on the off-balance sheet part of the backlog number? I don't have that in front of me. So what was the growth year-over-year on the off-balance sheet metric? Thank you..

Terry, that's a great question. I don't have that statistic in front of me either. But I will get back to you with it..

Okay. Thank you..

We will take our next question from Brian Schwartz with Oppenheimer..

Hi. This is Koji Ikeda for Brian Schwartz. Thank you for taking my questions. I just got one question for you and it's actually about the bundled Canvas Bridge win with Ivy Tech.

Great bundled win there and thinking about the pipeline, are there more of these types of conversations going on right now than, say, a year or two ago? And maybe if you could talk about some of the drivers out there in the education space that may be causing these institutions to take a look at implementing both of these solutions at the same time? Thanks..

Well, so we even though we are really excited, of course, about the Ivy Tech win, it was a big win, it was a great contract. We replaced Blackboard 9 in that contract. I wouldn't say there is any sort of trend or even really a marketing push on our end to jointly sell Canvas and Bridge.

I think it's opportunistic and certainly the Canvas sales force knows about Bridge, but they are not comped on selling Bridge. As you know, we have separate sales forces.

But if an opportunity comes up, certainly we will package those together and will put a joint contract together, but this is not indicative of a go-to-market strategy with Canvas and Bridge combined..

Great. Thank you..

We will take our next question from John DiFucci with Jefferies..

Thanks for taking my question. Those two Bridge deals, one with the division of PwC and the one with McKesson Canada, can you talk a little bit about the potential of those deals? I mean those are two very large companies.

And I guess maybe what you think the potential can those spread virally throughout those companies? What's your experience when you had deals like that in companies like that?.

Well, as we have said before, Bridge and Canvas, there is a big difference between the two of them as we make sales. With Canvas, we close the deal and we get the whole school. With Bridge, for the smaller companies, we get the whole company for Bridge, but some of the larger companies, it's a land and expand opportunity for us.

So both with McKesson as well as PwC, these are examples of land and expand opportunities and we are excited by them. They are solid contracts with a portion of these larger companies and over the next year or two, we hope to expand, prove ourselves in these instances and then be able to expand further into these opportunities.

But interestingly enough, PwC, that was actually a Cornerstone replacement, Cornerstone OnDemand. So that's exciting to see. At McKesson, they actually had no solution in place for this particular opportunity. So we are just chipping away at this market and we are continuing to see, I guess that's one thing I can share.

It's been exciting over the last six months to see bigger corporations, bigger contract sizes for Bridge, significantly larger than they were in the previous 12 months. And I think that is a trend we are seeing. We are able to slowly and steadily go upmarket with Bridge.

And so you will see over the next few quarters we will continue to share names of bigger companies and bigger contracts related to Bridge. So it's exciting. It's moving in the direction that we have been working so hard to move it in..

Great. Josh and if I might, just a follow-up to that. In the past, you have said that Bridge was at about the same ramp that Canvas was which was very successful.

I guess can you say that that's still the case? And I guess, when I think about it, shouldn't it be even better though? I know it always can be better but shouldn't it be a little better because given some of these sales where you are leveraging the success of Canvas like the school, the community college in Indiana, to sell Bridge into that customer base, like when I start to think about this, because just to Terry's question, we are all waiting and there is some good sings here for it, but you still haven't really given us any numbers around it yet, which we take to mean that you don't have the numbers to give to those yet.

I mean they are not big enough yet. But should you be -- I know you want to get to profitability, but should this thing be pushed even harder, I guess, I don't know..

Well, you started to ramble. No, that's fine. There is a lot going on. I think we are pushing as hard as we think is prudent, right. We said it before. I will say it again. If we wanted to actually have Bridge grow even faster, we could do that. But it would be stupid.

We have got to balance the high growth rate of Bridge and making that exciting investment with the profitability of our business. And I think we are balancing that in a really prudent way. Our growth rate is phenomenal just across the whole company, right. And we are going to maintain that strong growth rate. And so every thing is a balancing act.

And Bridge is growing up in the right, of course it's dwarfed by Canvas and that will be the case for quite some time but we are making really the investment that will ultimately be much larger than the academic side of the market. And we will see that come to fruition over the next three to five years..

Okay. Thanks Josh..

Sure thing, yes..

We will now take a question from Brian Essex with Morgan Stanley..

Hi. Good afternoon and thanks for taking the question. I was wondering if I could ask you about sales and marketing spend, particularly on the Canvas side.

It looks like Bridge, you are taking it relatively easy but if we look back to where the trajectory was last year and the rate that you are going at, are you still hiring aggressively in Canvas? How should we consider how you are building out sales and marketing for Canvas and Bridge and where is their productivity relative to prior periods?.

Sure. Hi Brian. This is Steve. So I think you will find this answer fairly consistent with how we have been talking about it. We are pretty well covered domestically and that includes Higher Ed and K-12. So we added a few people to our install base sales team. We have added virtually nobody to the rest of the Canvas domestic sales team.

We did raise their quotas which we have been doing every year and their quotas are pretty aggressive. For example, our High Ed domestic field reps quota is like to approaching $2.5 million. That is a very aggressive quota and probably a good 50% higher than is typical in the industry.

But we are able to do that because Canvas is a very successful product. We have great brand recognition and our clients and our prospects continue to scoop it up. Now, the real growth in the sales force is coming from the combination of international and Bridge and we are not in a position to break out those numbers.

But that's where we are adding all of our resources for 2017 for the most part. And at the same time, those quotas are going up. So while I would still characterize the Bridge and to a lesser degree the international sales reps productivity relatively low, certainly by comparison to the domestic campus team.

It's getting better and we see that in the CAC and I think as we have talked about, at the low end our domestic High Ed CAC is under one and our Bridge CAC is in medium to high single digits, right. But it's improving. It's improving a little bit every year and so moving in the right direction.

But we are doing that because that's what it takes to attract the talent we want for those sales forces. And also, when you think about international, when we go into a new region, we have to start then well. And so even though, like the U.K., their quotas are getting much higher.

In places like LATAM, where it's a relatively new region, those quotas are going to be lower. So we are balancing all of these things against the average of keeping a target of a 1.5, give or take, CAC. It was just under 1.6 for Q4 and so we think we are doing pretty good job of sort of figuring out how to balance all those.

But the real growth in headcount, back to your original question, is really on the international and Bridge side. There is going to be virtually nothing on the domestic and Canvas side..

Got it. And then on the Bridge side, maybe if you can give us a little bit of color, the win rates that you are seeing there, it sounds like they are improving.

Why are you winning? Why you losing? And what are the bottlenecks for the growth? Is it incremental feature functionality that you need to spend early on?.

Well, so the win rates are improving everything, all the metrics across the board are steadily improving in Bridge sales and marketing and the wins are typically because of ease-of-use and people's confidence in our vision of where we are taking this platform. People understand that they are making an investment in kind of the larger HCM context.

We have been able to share under NDA with some of our customer wins our plans moving forward and they believe in us and they are excited about it. So yes, we are really pleased with where things are going with Bridge. I think we are just, as far as accelerating the growth, I think we are trying to balance that CAC, like Steve just mentioned.

And that's sort of the, I don't know, that's that speedometer and the tachometer and we are just trying to keep it dialed in around an appropriate cost of customer acquisition ratio and let that be our guide..

Is it primarily, just to follow-up, is it more of a customer awareness market penetration type issue? Or is it, we are not winning deals because we don't have certain functionality in the product and we need to develop it, but we need to measure how much we spend on development for it?.

Yes. We are seeing a lot less loss reasons related to features of the product. We have really gotten to the point where we are at about parity with the product at the current portion of the market that we are selling to. And I think what's really going to help accelerate win rate and our penetration in this market is really just time in market.

We are going to have to continue to develop a strong reputation for being in the corporate market whereas primarily our reputation is on the academic side of the house.

So the more wins that we achieve and the more critical mass that we have in our referenceable customers, I think that's really what's going to start building upon itself and really positive feedback loop allows to increase our win rate. And that will just take time..

Great. Got it. Very helpful. Thank you..

We will take our next question from Scott Berg with Needham..

Hi Josh and Steve. Congrats on a good quarter and thanks for taking my questions..

Thanks..

Thanks..

Two for me. First of all on the guidance for this year. Steve, if I look at your guidance where you are talking about your year earnings guidance for the year, unless I assume R&D and G&A tick up as a percentage of revenue somewhat materially, I am unable to get to your recent CAC ratio on that 1.6 to 1.7 range.

Wonder if you can help guide us through how we should look at the line items for 2016 and 2017?.

Yes. So I can't give you specifics about our model versus your model, Scott, as you can imagine. I can tell you how we calculate CAC. I think the biggest difficulty for you guys is to reverse engineer somehow into the bookings number.

If you have that, you should be able to get very, very close and drive a sales and marketing expense envelope that should mirror our model or get closer. But that's the challenge, because that's the one variable that you are missing. And unfortunately we are not in a position where we can help you with that.

But everything else is right there on the financial statements. You know what our gross margin is. That's the calculation. You know what our sales and marketing expense is. You know that we do it over a rolling 12 month basis and that we time phase sales and marketing expense by about six months. So it's a couple of quarters.

So all the other variables are right there. It's really just [indiscernible]. So if you think that's where the issue is in your model, then I would suggest maybe taking another look at how you are trying to guesstimate what our bookings numbers are..

Fair enough. And then I speak dog and your dog's saying, [indiscernible]..

Scott can't --.

I am sorry. My analyst partner [indiscernible]..

General proclamation to all our listeners at home..

Right. Sorry my follow-up was on the international side. Can you list off more international revenues? From what I heard recently and you talked at least a little bit more about Australia and some Moodle displacements.

Just wanted to see maybe why you are having so much luck specifically in Australia and why the push into the Moodle environment recently?.

Well, Moodle has a dominant position internationally, much more so than stateside. And so the more we expand internationally, the more we run into Moodle. And so naturally as we win large contracts internationally, a lot of them are going to be Moodle replacements. In the U.S.

here, we are getting to the point in the mid to late majority of the market where we are actually taking a look at some of the larger Moodle installation stateside. There just aren't that many, maybe 10, 20 large institutions in the U.S. are utilizing Moodle and their contracts don't come up, right. There is just no contract. It is open source.

And so those have been difficult for us to really focus on until now stateside that we are looking into digging into that and we should have more wins in the U.S. related to that. Internationally, you are going to continue to see us displace Moodle as well as Blackboard internationally.

As far as the great success we have had in Australia, I don't know if there is anything in particular about Australia and the success that we have had there. We have a great team there. We have got an office located at Sydney. So we have made I think the right level of investments over there to really see the success that we have had..

Great. That's all the questions my dog has..

What kind of dog is it? I am curious..

Sorry, go ahead operator. We are just talking about dogs..

We will take our next question from Corey Greendale with First Analysis..

Hi. Thanks. This is Ken Wang, on for Corey. First of all, congratulations on a strong end to the year..

Thanks Ken..

Thanks..

So just wondering, going off of the prior question on Moodle, just given that it's an open source system, I am just curious, is the sales dynamic any different relative to, like a Blackboard or a D2L replacement?.

Yes. Absolutely, right. On the D2L or the Blackboard replacements situation, they go to RFP, right. We compete at an RFP level and it's a well orchestrated and organized process that the institution goes through with the vendors.

Whereas Moodle, it's a bunch of IT guy that have maintained it and installed it and upgraded it at their institution and there really isn't a process to go out and find a vendor to replace Moodle. And so it's a very different process.

It's really something we have to proactively go to these schools and make a case that running Canvas is more economical, more reliable, a better user experience for their teachers and their students and shifting the cost out of their OpEx and CapEx related to Moodle and shifting that to a SaaS model with Instructure. So yes, very different process..

Okay. That's helpful. And then also just wondering, going off of some of the more recent names in the HCM space, I think a number of different companies have mentioned just some deal delays that they have been seeing due to global macro uncertainty.

Was there anything you saw during the quarter or anything you see more recently in line with those comments?.

No. We had a very strong quarter in the corporate side of our business. So we haven't noticed any of that..

Perfect. All right. That's all I had. Thank you..

Okay..

We will take our next question from Andre Benjamin with Goldman Sachs..

Thanks. Good afternoon. Hopefully you can hear me clearly..

Yes. We can hear you all right..

So just my first question is on the international side. It seems like you have been talking a bit more about some of the wins there. Could you maybe talk a bit about how much of a growth this quarter came from international versus some of the other business? And we have heard a lot of different TAMs quoted from different vendors.

Maybe how you are thinking about the size of that market and how much of that you have penetrated so far?.

So in terms of Q4, as you know Andre, we don't really breakout the new business from international, but I can tell you both Q4 and 2016 were terrific years for us it international. We are very, very pleased.

Our revenue has grown by, as a percent of the total, by 50% from 6% at the end of last year to 9% at the end of this year and we are really, really excited about the 2017 prospects for international as well.

We think that it's a very, very simple equation of the longer we are in a region, the better we do and we are seeing that over and over and over again repeated frequently within international because we are entering new regions at a pretty fast pace. So I think international is in a pretty good spot..

And then as we try to make sure we have got our P&L model properly, as I look to get to a net loss number, I guess I want to make sure most of the delta is really just your traditional cost that flow in the EBITDA line as we think about 2016 versus 2017?.

No. As you will see in the release, the stock comp as a percent of revenue goes up a little bit. That's really a GAAP to non-gap thing. But no, there is nothing weird or unusual that we expect. We are not going to pay any income taxes in 2017. Certainly, we have to deal with some stuff internationally but not domestically.

So yes, I don't think you will see anything below the line that's odd..

Thank you..

Thanks Andre..

[Operator Instructions]. We will take our next question from Alex Paris with Barrington Research..

Hi. Good afternoon, Josh and Steve. This is Chris Howe, sitting in for Alex Paris..

Hi Chris..

Hi..

In regards to being free cash flow positive, to what extent is leverage getting you towards this goal? And I guess longer-term, how are you tracking towards your targets for expenses?.

So leverage is absolutely playing a role. We expect virtually every major line item in our P&L to improve year-over-year from 2016 and that's largely a matter of scale. We are getting just more efficient across the board and that will continue to play out. In terms of our longer-range profitability model, we are precisely on track.

We had a model that we use pre-IPO and we are tracking incredibly well to that model. So we can't talk about when we will be profitable. It will occur. I promise you that. I just can't tell you when. And as far working, so I am really, really pleased with our progress toward it based on our internal projections of over a year-and-a-half ago..

Thank you. That's helpful. And one follow-up question for me.

I guess in addition to DeVry Education and the previously mentioned Bridge point, are there any other proprietary institutions within your existing customer base and how do you look at this portion of your customers going forward?.

Yes. Good question. The for-profit sector is a relatively small part of our academic business. It's much less than 5%. So we haven't targeted specifically the for-profit segment but they do come up and we do win them. But generally, we are still very much focused on the big fat part of the market, right, the large public and private schools non-profits..

Okay. Thank you. Congrats on the quarter..

Thank you..

And I am showing there are no additional questions at this time. I would like to turn it back to the speakers..

All right, everyone. Well, thanks for joining us for our Q4 2016 call and we are excited to talk to you in a few months about our first quarter of 2017. Have a great weekend everyone..

And this concludes today's call. Thank you for your participation. You may now disconnect..