PTC Inc (PTC) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the PTC results 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, ladies and gentlemen, this conference is being recorded. I would now like to introduce Meredith Mendola, Vice President Corporate Communications.

Thank you. Good morning, and thank you for joining us today. Participating on the call will be Dick Harrison, our President and Chief Executive Officer. Neil Moses, our Executive Vice President and Chief Financial Officer, and Jim Heppelmann, our Executive Vice President and Chief Product Officer. In addition, Barry Cowen Executive Vice President of Strategic Services and Partners is here to participate in the Q and A.

Before we get started I'd like to remind everyone during the course of the conference call we will make projections and other forward-looking statements regarding future financial performance, business trends and other future events.

We caution you that such statements are only predictions and that actual results might differ materially from the results projected in these statements. We refer you to the risks and details in the company's 2006 annual report and Form 10-K, the company's 10-Q from the third quarter, and in the company's other reports filed with the SEC from time to time. A replay will be available until 5:00 p.m. eastern Monday, November 5th, at 203-369-3752. Additionally this conference call is being webcast and a replay will be available on our website at PTC.com until the same date, Monday November 5th at 5:00 p.m.

Also on our investor website you will find a document with Q4 and fiscal 2007 financial and operating metrics which we will discuss on this call.

After our prepared remarks we will hold a Q and A session. In order to keep this moving please limit yourself to one question and one follow-up. If you have an additional question you'll need to get back in the queue.

I'll now turn the call over to Dick.

Thanks Meredith. Good morning, everyone.

Thank you for joining us on our fourth quarter and fiscal 2007 earnings call. We have a lot to cover today so we are prepared to spend more than an hour on the call if we need to.

We will discuss the fourth quarter and year-end results, our planned restatement of fiscal year 2001 through 2006 financial results, our guidance, and our intent to acquire CoCreate which we announced this morning.

Before I hand the call over to Neil I would like to make some high-level comments about 2007 and our outlook for the future.

First, we had a great fourth quarter. Both large deals and base business grew year-over-year versus a very difficult comparison in the fourth quarter of 2006.

We finished the year with enterprise solutions revenue in excess of $350 million, maintenance revenue in excess of $400 million, and non-GAAP operating margins of 17% for the full year.

During the year we made very good progress both strategically and operationally. We have just introduced a major Windchill release, Windchill 9.0, and Pro/ENGINEER Wildfire 4.0 is coming out in a quarter. Our customer base is secure and their investments in PTC solutions are growing because our solutions provide substantial value as customers globalize product development, consolidate IT systems and run lean processes.

Now I will comment on our outlook. We have introduced guidance for 2008 with $1 billion in revenue and $1.05 to $1.15 in non-GAAP EPS. Our goal in 2008 is to achieve significant operating margin and earnings improvement while continuing to grow revenue.

Our revenue plan is driven by 10% license revenue growth. We are planning our training and consulting services business to be flat year-over-year as we limit services revenue growth through further offshoring and outsourcing of services business.

We believe our maintenance business will grow in line with the overall business.

This guidance does not include our planned acquisition of CoCreate.

Our 2008 EPS guidance implies non-GAAP operating margins of at least 21% for 2008. This is an improvement of four percentage points compared to 2007. We expect to achieve this growth through continued evolution of our distribution and services models, both of which have been contributing to our operating margin improvements over the past several years. Additionally, last quarter we told you that we plan to be more aggressive in our offshoring activities in multiple functional organizations.

Let me be clear. This strategy is an investment strategy. Our expenses will be roughly the same for 2008 as they were for 2007. But we plan to exit the year with more employees than we have today to help fuel future growth.

Longer term, our financial targets continue to be $1.5 billion in revenue and at least 22% operation margins for 2010. If we execute on our plan for 2008, it is possible that we can achieve 22% operating margins sooner than 2010.

Regarding the revenue target of $1.5 billion we expect to continue to drive growth both organically and through acquisitions. The acquisition we announced today helps us meet our 2010 revenue and margin goals and execute our customer strategy with fairly low risk. We will continue to look for opportunities that will help us strengthen our customer base, our product offering, our distribution, and our financials.

Now we'll turn the call over to Neil who will describe the accounting restatement, our results for the fourth quarter and fiscal year, assumptions behind our 2008 guidance, and the financial rationale for the acquisition of CoCreate. Then Jim will spend a few minutes discussing the strategic value of the CoCreate acquisition. Finally we'll take some questions. Neil.

Thanks, Dick, and hello everyone.

Before I discuss the results I'd like to provide an update on the Toshiba issue. As we stated in our earnings release this morning, we intend to restate our previously issued financial statements with respect to certain transactions involving Toshiba Corporation of Japan that were recorded during the fiscal period 2001 to 2006.

The aggregate revenue we anticipate restating is approximately $41 million, or less than 1% of total PTC revenue during the affected years. We expect to complete the restatement and be in a position to file our annual report on Form 10-K with the SEC by the November 29th, 2007, due date.

Our audit committee has conducted an investigation into this issue which we have described to you as it has unfolded. We have concluded the following.

First, during 2001 to 2006, PTC received orders made by or on behalf of Toshiba that we believed were valid. We delivered the ordered items and we were paid for the orders in question. All of the transactions were in Japan and involved our Japanese subsidiary.

Subsequently, the Toshiba employee involved in placing these orders with PTC Japan was arrested along with three other individuals for allegedly perpetrate a complex scheme to defraud various leasing companies. The details of this scheme are still unclear but there are allegations that the individual secured financing in excess of the purchase amounts for the applicable transactions and that funds were misappropriate for these individuals' personal benefit.

This scheme went undetected by the companies involved which include multinational corporations Toshiba and GE. Some of the PTC software that was sold to Toshiba during this period of time has been installed and is in use.

We believe we are entitled to retain payment for all items delivered and upon resolution of the various parties' obligations in this matter we will record revenue or other income at that time.

We filed an 8-K this morning that describes the circumstances surrounding these orders in more detail. No adjustments have been made to the financial statements reported in today's earnings press release to reflect the anticipated restatement.

We believe that our operating results for the fourth quarter and fiscal year 2007 will not be materially impacted by this restatement. We expect a small change in 2007 GAAP net income because the restatement of prior period results will have an impact on the reversal of the valuation allowance that we record for 2007.

Likewise, the balance sheet for 2007 will change, particularly deferred revenue and equity. We expect any change to 2007 revenue and non-GAAP earnings to be negligible. And we don't expect changes to the cash balance for 2007.

The restatement of prior period results will impact some of the revenue comparisons from the fourth quarter and fiscal 2006, so we will not spend a lot of time on this call discussing our normal detailed revenue trends.

As background information, we expect the amount of revenue that we will restate in 2006 to be about $8 million. All of the orders were in Japan so our North America, Europe and Pacific Rim revenue will not change in prior periods.

The software orders placed during 2001 to 2006 were primarily, but not exclusively, for desktop solutions, licenses, related training, and maintenance. Much of the revenue we had recognized from these orders in 2006 was for training IP, part of our services business.

Okay, now I'll move on to our fourth quarter and fiscal 2007 results.

Total revenue for the quarter ended September 30th was $267 million. Our non-GAAP operating expenses for the quarter were $202 million. And our non-GAAP operating margin was 24% in the fourth quarter.

Non-GAAP earnings per share for the quarter was $0.38, and the tax rate was 33% due to our geographic mix of net income. At a 40% tax rate, which is the assumption we made when we gave Q4 guidance, non-GAAP earnings per share would have been $0.34.

For the full year, we delivered revenue of $942 million, 17% non-GAAP operating margins, and $1.01 in non-GAAP earnings per share. If the full year were taxed at a 40% tax rate, non-GAAP earnings per share would have been $0.85.

Our revenue results for the fourth quarter and full year may be accessed on-line in our operating metrics spreadsheet.

Due to the anticipated restatement of prior period results, we will not provide revenue growth rates for 2007. However, we were particularly pleased with our growth in license revenue, in enterprise solutions revenue, in maintenance revenue, and in European revenue for the fourth quarter and the full year.

Currency continued to benefit our total revenue and negatively impact our expenses when compared with last year's rates. Overall the currency impact on EPS in the fourth quarter was negligible and the EPS impact for the full year was a benefit of about $0.03.

Now let's move on to our spending.

Fourth quarter non-GAAP operating expenses were $202 million, and expenses for the full year were $782 million. On a GAAP basis total fourth quarter expenses were $236 million and fiscal 2007 expenses were $849 million.

The GAAP expenses include the following expenses that are excluded from our non-GAAP expense. First, we recorded a $15 million restructuring charge in the fourth quarter and fiscal year in conjunction with a globalization strategy we announced on the Q3 call.

The severance portion of this restructuring charge was $13 million related to the termination of 262 employees during the quarter. The facilities portion of this charge was $2 million.

Second, the fourth quarter expense for stock-based compensation was $14 million. If you recall, in Q3 we reversed the performance-based portion of fiscal year 2007 executive stock-based compensation for the first three-quarters of 2007 due to an expectation at the time that we would not achieve the targets required to allow performance-based shares to vest. The $14 million expense in Q4 reflects our typical quarterly stock-based compensation expense as well as additional expense associated with adding back some of the accruals we reversed in Q3.

For the full year, stock-based compensation expense was $36 million, lower than our initial guidance of $40 million. The performance-based portion of executive stock-based compensation did not vest fully because we did not achieve the high end of our revenue and operating margin target range for the year.

And finally, we recorded acquisition-related amortization expense of $4 million for the fourth quarter and $14 million for the year in line with our guidance.

Okay, moving on to the balance sheet, our cash balance ended at $263 million, up from $260 million in Q3. During the quarter we spent $8 million on our authorized stock buyback program and $7 million to fund our U.K. pension plan in line with our guidance.

Our fiscal year 2007 operating cash flow was $127 million compared to $65 million for the same period last year, which reflects improved operating performance and less extended payment term financing in 2007.

Accounts receivable increased $45 million from the third quarter 2007. This was the result of an increase in current receivables due to increased fourth quarter revenue, partially offset by strong performance on past-due receivable collections. Our DSOs this quarter were 74 days compared to 69 days in Q3. Currency movement negatively impact DSO by two days from the third to fourth quarters.

Finally, deferred revenue was $227 million up from $211 million in fourth quarter of 2006, primarily due to growth in deferred maintenance revenue. As expected, deferred revenue was down sequentially from $231 million at the end of the third quarter due to the typical seasonality of maintenance billings.

All right, now let's turn to our guidance.

Our outlook for the first quarter ending December 29th is as follows. We expect revenue to be between $230 million and $240 million, up between 4 and 8% year-over-year.

On a GAAP basis first quarter total earnings per share are expected to be between $.08 and $.13 cents and we expect non-GAAP earnings per share to be between 20 and 25%.

The non-GAAP earnings expectations exclude the following estimated cost and expenses. Approximately $11 million of expense related to stock-based compensation. Approximately $4.5 million of acquisition related amortization expense, and approximately $9 million of restructuring expenses related to our continued globalization program.

We expect our cash balance to be between $250 and $260 million at the end of the first quarter, which reflects typical seasonality of commission payments and other year-end bonus payments.

For the full year, our guidance is as follows. We expect revenue to be about $1 billion. As Dick mentioned earlier, our expectation is that our license revenue will grow 10% in 2008.

We plan to keep our consulting and training services revenue flat as we drive significant improvements in services net margins.

Finally, we expect maintenance revenue to grow in line with the overall business.

We expect GAAP earnings per share for the full year to be between $0.68 and $0.78, a decrease from 2007 due to the $84 million benefit we received in 2007 as a result of the reversal of the valuation allowance. We expect non-GAAP earnings per share to be between $1.05 and $1.15 for the full year, and both our GAAP and non-GAAP earnings per share projections assume a tax rate of 40% on pretax income.

Therefore, our non-GAAP earnings per share guidance reflects anticipated earnings growth of 24 to 35% for the year, if we were taxed at a 40% rate for the full year in 2007.

Our non-GAAP earnings expectations exclude the following estimated items. Approximately $45 million of expense related to stock-based compensation, $18 million of acquisition related amortization expense, and $12 million of restructuring expenses related to our continued globalization program.

Our full year guidance implies non-GAAP operating margins of at least 21%. I'd like to provide some comments about our planned cost structure that should help you understand how we have planned to achieve this margin growth.

We expect to achieve at least four percentage points of margin improvement from 2007 to 2008. About 40% of this improvement in operating margins will come from sales and marketing as a percentage of total revenue. We continue to execute our strategy to evolve our distribution model in order to achieve further increases in sales productivity, with growth in revenue, contribution from the channel, and from large accounts. We have also begun to offshore some back office sales and marketing activities, and we believe this will help us reinvest in additional quota carrying reps while reducing the overall cost of sales and marketing.

Another 40% of the improvement in operating margin will come from cost of services. We continue to execute on our plan to improve services profitability by improving efficiency and changing the mix of revenue to higher margin sources like training and training IP. We have had success in creating low-cost centers for services consulting work, and we expect to grow our ability to perform services from these centers in 2008.

While we expect this to be a clear contributor to margin improvement, it will also depress services growth in 2008 because we intend to pass some of the savings on to customers in the form of rate reductions.

Additionally, as we grow our revenue contribution from the channel, more services work is being performed by our reseller partners as they increase the number of accounts they manage. This also depresses services revenue but improves profitability.

The final piece of cost of services that we are improving is our technical support, where we currently have about 30% of our resources offshored or outsourced. We expect to be able to increase this percentage in 2008.

The remaining 20% of operating margin improvement will come from G&A and R&D as a percentage of total revenue. In G&A we are more aggressively outsourcing IT resources and have a plan to offshore more finance resources. In R&D we are quite advanced in our offshoring activities and will continue our efforts where it makes sense.

Our globalization efforts are underway and we have begun to execute our strategy of significantly increasing our headcount in China, in addition to our already large presence in India. This strategy will help drive growth and profitability.

As I mentioned earlier, in the fourth quarter we terminated 262 employees, and in conjunction with our globalization initiatives we are continuing to reduce headcount in high-cost regions in the first quarter and we'll continue to do so throughout 2008. This will enable us to add resource capacity in low-cost areas and at the same time reduce overall costs.

We also expect to achieve savings through facilities restructuring associated with this globalization initiative. Overall, we expect a total restructuring charges in 2008 to be about $12 million. This is in addition to the $15 million of restructuring charges we recorded in the fourth quarter of 2007.

In summary, we are excited about our plan for 2008 and we look forward to improving shareholder value throughout the year as we deliver significant operating margin and earnings growth while continuing to grow revenue.

Please note that the guidance we have given for the first quarter and fiscal 2008 does not include any potential effect of the CoCreate acquisition announced today. We are very excited about this acquisition for both financial and strategic reasons. I'll talk about the financial reasons, and then Jim will spend a few minutes discussing the strategic rationale.

We expect this acquisition to close in the first quarter, subject to regulatory approval. While we will not provide detailed guidance until the transaction closes, I would like to share a few comments with you now.

First, CoCreate's annual revenue of approximately $80 million is comprised of about 65% maintenance revenue, 25% license revenue, and 10% services revenue.

Second, CoCreate's operating margins are about 40%, so we expect the acquisition will be accretive to non-GAAP operating margins and earnings immediately upon close of the acquisition.

Third, due to CoCreate's large maintenance revenue stream we anticipate a write-down of deferred maintenance revenue in the first year after the close of the acquisition. Therefore, on a GAAP basis, we expect the acquisition will be dilutive to earnings per share in 2008, but accretive to GAAP EPS in 2009 and beyond.

We really like this acquisition because it is accretive to our non-GAAP operating margins, it adds to our customer base and future revenue opportunity, and it significantly enhances our channel revenue stream.

When combined with our plan for 2008 to drive further revenue and earnings growth organically, we believe we have a very powerful strategy to drive shareholder value in 2008.

Thank you for your time today, and at this point I will turn the call over to Jim to discuss the CoCreate acquisition further.

Thanks, Neil.

As Neil has outlined this transaction is very interesting based on its financial merits, but I want to show you it's also very interesting from a strategic perspective.

First, CoCreate is a leading provider of product development software. Their OneSpace suite of product includes 3D CAD, 2D CAD, CAD data management, and collaboration offerings. Of course, all of these categories are very familiar to PTC which translate into a relatively low-risk acquisition.

CoCreate is a privately held company headquartered in Sindelfingen, Germany, having 280 employees in five countries.

CoCreate has more than 5,000 active paying maintenance customers who rely on the CoCreate modeling and data management solutions every day. There's a very large industry presence in a vertical that CoCreate refers to as high-tech electronic and machinery. And there's a very strong geographic presence in Europe and in Japan.

Our diligence showed that these customers after very high degree of customer satisfaction and a very high degree of loyalty.

The primary product that generates the majority of CoCreate's revenue is the 3D CAD offering called OneSpace Modeling. This is complimentary to Pro/ENGINEER in that it uses a modeling technique that is referred to as explicit modeling, in contrast to the parametric modeling approach invented by PTC and ultimately copied by nearly all of our competitors, including Dassault, UGS and AutoDesk.

Explicit modeling has been generating a lot of buzz in the industry lately with existing vendors like UGS and SolidWorks contemplating adding support for explicit modeling, then new industry upstarts like SpaceClaim, claiming that this approach is the next big thing in 3D CAD.

Explicit modeling is a technique that was actually invented by CoCreate in the mid 1990s. Compared to parametric modeling, this approach is simpler and faster because the user is only interacting with the geometry and not creating or maintaining a recipe of parametric design features that produce that geometry.

Because there's significantly less information being put into the design file, it's possible to reach a given design solution much faster. At the same time, reuse of this design or automation of this design is more difficult because critical design intent information was never captured.

So as a result of this trade-off between a fast design and a richer, more complete design, we believe that the explicit modeling approach is superior for customers who place a premium on design speed rather than on design reuse. For example, a typical example of a happy CoCreate customer is a company that produces consumer or office electronics, they need to design a cosmetically appealing electronics enclosure which is essentially the case that surrounds the electronic insides of the machine.

This is a design problem more so than an engineering problem. This great time to market pressure, and quite frankly little reuse from year to year or product to product, within the company's suite of products.

So explicit modeling works very well in this situation, and that's why CoCreate has such a strong position in the high-tech and electronics machinery vertical.

At the same time, the parametric modeling approach which captures far more engineering information and design intent up-front, is a superior approach for highly engineered products, or family of parts or families of products, or platform strategies where a given generic design is the basis for a whole series of derivative products. So we expect that the parametric approach will remain the preferred approach for the majority of industry verticals going forward.

This acquisition puts PTC in a very unique position in that we'll be the only mechanical CAD vendor who can be objective with respect to modeling approach. We can engage the customer in a consultive selling process in which we're offering a full integrated product development system that incorporates the mechanical modeling approach that best fits their needs, whether that's a parametric approach, an explicit approach, a derived approach, or a 2D approach.

In any case, we can offer a full solution and we'll be unique. Every other vendor will be trying to sell on the merits of the one approach that they support.

So obviously there's a very strong cross-sell opportunity here where we believe that we can sell many elements of PTC's broader product development system. For example, Windchill as an enterprise solution, the Arbortext suite for technical publishing, MathCAD as an engineering math tool, ProductView as a visualization and collaboration tool.

These components or full solutions can be sold into the 5,000-plus active maintenance paying customers that make up the CoCreate customer base. On the other side we believe there's an opportunity to incorporate some of the elements of the CoCreate suite into our product development system. For example, CoCreate has a nice product called OneSpace Live that provides a web-based session sharing capability that fits into a niche for which PTC current has no offering.

I think existing customers would be pleased to know that we plan to support, maintain, enhance, and further develop all of the products in the CoCreate suite indefinitely. We plan to offer the CoCreate products in the current configurations or as part of a broader PTC product development system.

So as we've outlined, this transaction is compelling from a financial perspective, it is low-risk, and it offers some real strategic value that gives PTC a unique position in the industry going forward. With that I will turn it back to Meredith.

Great, thanks very much, Jim. Thanks, everybody. So now we would like to open the call up to questions.

Thank you. (OPERATOR INSTRUCTIONS) Richard Davis with Needham & Company, please ask your question.

Hey, thanks. With regard to CoCreate, at least -- and I know you haven't given complete guidance, but notionally should we assume it will grow at least as fast as kind of the overall PTC corporation overall? Can we think of it that way? Because you mentioned the cross-selling opportunities, things like that.

Well, I think it's probably a little premature to be real specific, but generally speaking, CoCreate's overall revenue has been relatively flat for the last several years. But we do see a significant PTC cross-selling opportunity on top of their revenue, and we're going to provide more guidance in terms of what to expect, at least for fiscal year '08, as soon as the transaction closes.

Got it it. And then kind of harkening back to a previous acquisition, with regard to Arbortext, how has that performed relative to your expectations and does it make sense or do you anticipate bolstering Arbortext either with technology tuck-ins or either customer footprint? I was just trying to get an update on that one.

We're really happy, Richard, with what Arbortext is doing in the manufacturing space. I think we've described about half their business was non-manufacturing when we acquired it. That has declined, and the manufacturing side of that business has grown at a faster rate. So overall the revenue is up, and as that non manufacturing revenue shrinks, you know to a smaller and smaller piece, we think the overall growth rates are going to accelerate.

So lots of big customers have placed orders for pilots. For example, we just had United Technologies in last week, they've started pilots in a couple of divisions. Big automotive company in Germany just placed an order this week for an Arbortext big pilot, a big Stuttgart-based German company 0. And overall we're pretty happy with what Arbortext has done, and I'm very optimistic about where it is going.

Got it.

Richard, it's Jim. On the technology tuck-in front, there are definitely a few opportunities for technology tuck-ins to build that suite out. You might remember one of the things that attracted us to this world of technical publishing was the degree of fragmentation and point solutions, so we acquired Arbortext that gave us some critical ingredients. We subsequently acquired the Itito company, which gave us a few more ingredients. By the way that software has done really well here at PTC since the acquisition. Then there are a couple more acquisitions and tuck-ins that we're working on that could bring new dimensions of capability. You know, we're ultimately headed for this goal where we have a turnkey, pre-integrated, enterprise-level solution for technical publishing and we're not far from that at that point.

Got it. That's what I figured. Okay, thank you.

Thanks, Richard.

Ross McMillan with Jefferies & Company.

Thank you. Congrats on a strong fourth quarter. I wanted to just drill into what's happening in the U.S. or the Americas region for you. Obviously on a year-over-year basis, pretty sharp declines there. Can you just highlight maybe what's going on to explain that kind of dynamic on the revenue number? Thanks.

Yes, Ross, I think overall we are up slightly for North America for the year. We were obviously down later on in the year in the third and fourth quarters. If you look at our performance in 2006, really our strong growth, our 20% year-over-year growth in the Q3 of 2006 in our 26% year-over-year growth in Q4 of 2006 were driven -- were driven principally by exceptionally strong performance in North America.

So I think that fundamentally we had very, very difficult comps to repeat in that particular region in the second half of the year, and that's the principal reason for the fact that our performance was down. If your question is really, you know, do we see a recession looming in North America and, you know, do we anticipate further deterioration in North American revenue, I think our answer to that question would be no.

Okay, great. Thank you. And then just to follow up, given the nature of CoCreate's maintenance stream being 65%, we're going to have a pretty large, I guess, write down on deferred.

Any way for us to think about that today in terms of sizing it? And then also, I know it's early, but how would you help us think about the incremental non-GAAP accretion on that acquisition for fiscal '08 as well?

Well, you know, I think on the operating margin side, you know, you can do the math. We said they're doing about 40% in operating margin. PTC is going do as we said 21+% in operating margin next year. ur revenues is $1 billion, their revenue on a trailing 12-month basis is about $80 million, and we're going to own them for three-quarters. So you can probably do the math on the operating margin opportunity there.

With respect to the deferred revenue write-down, it's really premature to indicate what that is, we will be excluding that from our non-GAAP results when we report next year.

Okay. And you're borrowing something against the acquisition. Any sense for sort of what financial interest rate we should use?

Oh, what interest rate associated with the acquisition?

Yes. I don't know if that's pre set, or if you've already got that established.

It will probably be in the 7 to 8% range.

Okay, great. Thanks so much.

Thanks Ross.

Jay Vleeschhouwer with Merrill Lynch.

Thanks. A pro/E question and a CoCreate question.

First, on pro/E, your quarterly units appear to be the highest since second quarter fiscal '01. I am wondering if you could -- how you would attribute that to either improvement in sales capacity, direct or indirect, versus the effect that you can see from the new configurations that you introduced back in the spring, if that was on a product packaging side is what entailed the better units. Then I'll ask the CoCreate question.

On the pro/E side, sort of what we've been describing the last couple calls, we're out there really driving this product development system story, and customers like it. So these corporate visits, the corporate visit center is full every week. It's actually exhausting. We've got one visit after another all during the day, and the whole theme is, let PTC be the systems integrator. We have a tightly integrated, single source of truth around Windchill, we have support for Pro/E, which is really tight, and Jim described that we'll do the same thing with the CoCreate products now. And we support other CAD products as well, we tell the customer, but there is essentially a big advantage in this tight integration between Pro/E and Windchill. So I think that PDS story is what's really driving it.

We've had had no incremental sales capacity for two years. We're at 380 sales reps for the last eight quarters or so. The offshoring that we're doing as part of the new plan is going to enable to us hire 40 more sales reps this year, and we've already started. We'll hire at least 10 this quarter and probably more. So I think that the incremental sales reps are going to help us continue to reach out and drive that story -- continue to drive that, particularly into the largest accounts, and our channel had great performance in the last year.

On October 10th we took another 2,000 accounts and assigned them to the channel in the U.S., Europe, and Asia, so we continue to migrate those medium-sized accounts off to the channel, which strengthens the channel performance and continues to get them more and more engaged, and in some ways, to be honest with you, they're better at following up on the Pro/E sales than our own direct sales reps are when they're focused on those largest accounts that are -- they're increasingly, those larger deals are led with Windchill. They'll include Pro/E add-ons as part of the whole PDS story, but the theme behind globalization and offshoring for our customers, the manufacturing customers, is sort of led first by the Windchill story.

Just a quick observation on that comment you just made about the 2,000 accounts you're giving now more to the channel, before the CoCreate question. Do you think that this will be better for you than what happened years ago when you gave thousands and thousands of accounts to Rand and in effect overburdened the channel and thereafter ended up with under-performance on account coverage?

First of all, one of the things you're going to see when we get into the CoCreate description, one of the things we've committed to you in the past is that, a. we wanted to hit $1 billion in '08, we're going to go well above $1 billion in '08. We said we were going to improve our operating margins to 20%, we're going to be well above the 20%. And we said we're going to try to increase the percentage of revenue from the channel to somewhere between 25 and 30% of overall revenue. And with CoCreate and with the decisions we're making here now, you know, we're going to be at well above 25% contribution from the channel to revenue in 2008. So, those are, you know, pretty good things for us.

I don't think there's any correlation to what we're doing now to what happened with Rand. Rand was a different situation. We didn't have Wildfire at the time. It was a single company.

Today we've added a whole bunch of resellers this year. I don't know what the exact number is, but the channel has grown significantly in terms of capacity, not just from new resellers that we've brought on, but also from additional feet on the street inside our existing channel partners. So I'm pretty confident that they're going to be able to handle, you know, the growth of the accounts that we're giving them. We are going to really work hard to provide a lot of synergy between the CoCreate channel and the PTC channel as well. That's going to be a pretty big business in 2008.

So in CoCreate --

If I could add, Jay, we have a much more diversified mix of channel partners today than we had back then. And in terms of the revenue stream that they are getting from PTC, it's across a much broader spectrum of products with the acquisitions we've made recently. So as Dick said I don't think there's any comparison between the channel ecosystem we had back then and what we have today.

Okay. On CoCreate, you correctly pointed out that they've had little growth, although the best thing they've done in the last few years seems to have been margin expansion. I guess the question for Jim is, over the last few years they've experimented with a variety of product and market strategies to try to induce growth. They did the dot-net thing, they had some new modeling and collaboration technologies.

Why didn't it lead to better growth for them if the technologies were as appealing is as you're now suggest, and why pay three times revenue for a no-growth company at a higher P/E to sales than you have and, you know, you're showing some growth and you have better margins?

I'll let Neil address the second part of that because I think we're going to have a PE discuss with you as opposed to revenue multiples, but on the first part, CoCreate has tried a couple different things. They've actually had some seat growth which has translated to maintenance growth. So there's been some success with that, but their main problem is scale, and particularly distribution scale. They're just too small to compete against the giants in the industry by themselves. And I think their solutions are narrow. They don't have an enterprise PLM solution which is now an obstacle for trying to sell a CAD solution. They're not necessarily selling to just small companies. A lot of their customers are pretty significant, but they don't want stand-alone CAD any more so I think they've been hampered by a narrow footprint, solution-wise. The components there are very good, but there's just not enough of them, then their distribution channel is too small.

That said, again, our diligence said that those customers -- those customers are religion about the value they see in explicit modeling and the quality and capability of CoCreate's products, it was shocking to us.

Just to add to Jim's comment on distribution before we get to valuation, they have very limited presence in the Pacific Rim today. Over 50% of their revenue is from Europe, so I think that from a distribution standpoint we've got a significant opportunity to leverage PTC's distribution model in terms of supporting their business.

On the valuation side, you're right, we paid about three times revenue. That's about average for companies that have, you know, north of 20% operating margins and less than 10% year-over-year revenue growth. If you look at from an EBITDA perspective we're paying a little bit over seven times trailing EBITDA, which is significantly below the average software transaction for companies of the -- that are of the ilk of what I just described. So we feel like the price is pretty attractive, and it's really less than a five times maintenance revenue valuation as well, which is also attractive.

thank you.

I think there are going to be some synergies as well. We'll describe it more when the deal closes, but not just cost synergies, although there will be some of those, but I think some product innovation synergies. They're working on some things that are due out in next 12 months, and we haven't described it, but Jim is work on some things that are particularly for channel for our SMB space, some pretty exciting new products, and there's an opportunity for us to combine resources and bring something out that's even more compelling and powerful.

It's going to surprise people and create a competitive advantage in the channel. We are going to be able to do it sooner and with broader functionality with the combination. That's something we'll probably talk to you more about in the spring.

Thanks, Dick.

Thanks Jay. Next question please.

Sasa Zorovic with Goldman Sachs.

First question is sort of a continuation of this line of questioning regarding CoCreate. If you look sort of basically for a company of this scale of course at $80 million in revenue, and 40% operating margins are very high operating margins right, but what is sort of difficult from that, you know, is that getting growth out of that without really negatively impacting those kind of margins might be sort of hard. So what sort of -- what is your plan there? How to get sort of growth there without really significantly impacting those margins adversely?

Yes, you know, again, we're going to save the more explicit guidance for when we close the transaction, hopefully in another month or so. But, you know, I think our high level thinking, Sasa is that we're going to be integrating the acquisition in 2008. We probably do not expect significant growth in 2008 while that takes place. In 2009 and beyond, again, we think there's significant opportunity for what I would call synergy revenue. In other words, what's our ability to sell PTC product into the space, like MathCAD and Itito. And what's our opportunity to sell CoC products into the PTC customer base. So I think longer term we think there is a fairly significant opportunity in terms of synergy revenue but in the next 12 months during the integration process we probably would not project that.

Just if I could elaborate, we've been sharing anecdotally with you over the last quarters a lot of success stories in the electronics vertical. You know PTC has been on a roll in electronics, Dell and some of the other stories we've been talking about. We've had a great time displacing the Agilent solution, including since Oracle acquired it. This gives us about 4,000 new electronics accounts where we're going to be a very key tool, and so if we can take our momentum into those 4,000 new accounts, there's a real opportunity.

It also significantly enhances our overall channel capacity which has been an initiative for us for, you know, the last three or four years as you know, so I think that's another significant growth opportunity for us.

Okay. And then my second question would be regarding Japan. Now you're sort of breaking it out, sort of quite cleanly compared to the previous quarter, giving sequential or year-over-year growth numbers there.

Could you help us with the situation there, you know, where are we in sort of turning the business around? It's been somewhat of a disappointment last year. It's been now about over a year that we have new management in place there. Sort of what's the trajectory there? What are we to expect in the business from Japan specifically?

Sure, well you know in the fourth quarter we had strong performance in Japan and we ended up up for the year, which we're pretty happy with, admittedly earlier in the year we had more difficulty as we did 2006. So I definitely think that our collective feeling on Japan is that the business is improving for PTC there.

I think we've also stated that Japan has been slower in terms of adopting the whole globalization mentality as it relates to product development, than have the other regional geographies where we compete. And so our longer term thinking about Japan is that we -- it's probably not the same level of growth opportunity that we have in -- certainly in the Pacific Rim, but probably not even as significant a growth opportunity as North America or Europe. But we do expect the geography to grow for PTC going forward probably in the mid-single-digit range.

And again, CoCreate will help there because it's a real stronghold for CoCreate. A lot of great customers, good management, so forth, so that will be a positive pressure.

And I think the management changes, Sasa, have actually panned out pretty well for us. Coincidentally the CoCreate leader came from HP as did our -- the person, the country manager we put in a year ago. He came from HP. So they've been friends for years. And I think that will help the integration in Japan.

Don't forget, just about every major high-tech company has announced difficult revenue in Japan during the last year or two. And we actually had a pretty good year in Japan. We're going to supplement what we've been doing there, which is largely a direct model, and sign up some of the big systems integrator, really, slash trading companies, so there's a lot of interest from the big trading companies in picking up our product. We have a very large installed base of customers that we can't really support well with our 40 direct reps, so we're not going to invest in any more direct sales people in Japan. We are going to begin to take some of those good-sized accounts and offer them as an enticement to get some of these large trading companies to represent the products. So I think over time, actually, we have a pretty good plan to improve Japan, but we're not going to see anything big happen overnight, but the fourth quarter was strong and the year was actually pretty good.

Thank you.

Next question, please.

Philip Alling, Bear Stearns.

Thanks. Initially I wanted a clarification on earlier comments you made with regard to CoCreate. Are you -- am I interpreting things correctly? Are you planning to, post closing the acquisition, report a non-GAAP revenue figure that would be adding back the deferred revenue from CoCreate, or was that --

Yes, we are, Phillip, you heard that right.

All right, that's helpful. Thanks.

Question, with respect to -- you know, you had reiterated this goal for 2010 of $1.5 billion in revenue. How should we be thinking about the mix between organic growth contributions and acquisition revenue contributions to achieving that goal?

The mix between -- I think we'll say half and half, half organic, half acquired as we drive towards the $1.5 billion.

That's right.

The point I was trying to make earlier when we made the predictions about the $1 billion in '08 and the channel percent revenue and the operating margins, I want to get a little credit for making predictions that are coming true, so we want you to believe that we're focused on this $1.5 billion. We want to be a large independent software company, and we're focused on that and the operating margins against are going to expand as well and I think we're going to give you some more guidance on the operating margin part that's an improvement over where we are today.

With respect to the better performance this quarter you had versus the prior quarter, has there been any change internally with respect to the organic growth potential that you see in the company?

I think that, you know, we did a plan for '08, we did a plan for '08 that we described that models license revenue increasing by 10%, maintenance growing at about the same rate, and services basically flat. We have demand for services that would increase the services business if we wanted to, but again, we're offshoring that, and giving some out, outsourcing it to the channel.

So we'll continue to look at that, there's up side potential, you know, I think in some of the license area, if our channel partners really execute, and if the 40 reps that we're going to hire start to make some contributions in the back half, then there might be some up-side potential. But I think for today we wanted to give you a plan that we thought was realistic, you know, in the first month of the fiscal year.

Yes, the other thing I'd say, Phillip, is that we view this services situation for '08 as a kind of a one-shot course correction here. So longer term, we expect to see more significant growth out of our services business. But as we really try to accelerate the margin picture in 2008, you know, we're going to see relatively flat performance.

Longer term, we would expect our services business probably to grow somewhere in between our maintenance growth rate and our license growth rate.

And the final question for me, as far -- I'd like a little more color with respect to the very strong performance in Windchill seat sales in the quarter, well above our expectations.

Is there fair gain there or particularly large deals or how should we be interpreting the outsized performance with respect to Windchill in the quarter?

You know, we can all add to this a little bit. I think one of the things lost in all the things we talked about today, is exactly what's happening with WindChill. It had an absolute explosion in the fourth quarter, and it it beat, in license and service, it beat Pro/ENGINEER for the first time ever, and went way past it. So Windchill, you know, the Windchill PDMLink upgrades continue to move from the installed base from the INTRALINK product.

Windchill 9, which is the biggest release and most powerful release and the easiest to use in the history of the company shipped in September. And we're going to win every single technical competitive benchmark out there with Windchill 9. There is no competitive product close to it. So it's really a proxy for what we think is going to happen in next couple of years which is Windchill and that whole PDS story is going to drive a whole bunch of decisions in our favor that's going to drag a lot of the other products with it. And we saw that in the increase in the seats this quarter.

Great. Thanks very much.

(inaudible) one for Windchill and the business is strong. You know, the other thing we've now demonstrated, hopefully, is that Windchill is a great consolidation platform to acquire in a lot of tuck-ins and blend it it all together in this strong, cohesive architecture. And so customers look at the acquisitions we've done, they maybe extrapolate forward from that, and they see PTC is going to be first to market with a real enterprise-class product development system that can be my sort of sole-source vendor like SAP is on the ERP side.

Customers really like this story because it's not just marketing veneer. You know, Team Center, there's no center in Team Center, we've told you all that. It's a great story until you start installing the CDs, then it's less great.

WindChill is a rock solid solution, it's a great platform to do organic development on, a great platform to blend acquisitions and really go build this true enterprise-class product development system.

Well, Jim, Dick, thanks for the color.

Thank you.

Next question, please.

Tim Fox with Deutsche Bank.

Hey. Good morning. My first question regarding some of the larger deals that slipped from the third quarter-- I was just wondering if you could comment-- First, on whether those deals did come in. And secondly, around large deals-- Just wondering what you've implied in your guidance for fiscal weight around the contribution. It's obviously-- Large deals really picked up over the last year, year and a half, as a percentage of the business. And just wondering what level of contribution you're expecting from those large deals heading into fiscal '08.

So, the large deals-- I think we saw more of them in Q3 and Q4. There are more of them, which is a good thing. They're increasingly Windchill deals. So, more and more percentage of Windchill deals, which make them a little more difficult to predict. Which, I think, is what you saw in Q3 and Q4. That's not necessarily a bad thing if you have a large pipeline, which we've been building in the last couple of quarters. So, the other thing interesting, Tim, that's happened this year was we didn't really have any mega-deals. So, we had a pretty good year and a good fourth quarter absent any really big deals. In 2006, we had four mega deals, $12 million, two $7 millions and a $6 million, that accounted for almost $30 million in revenue.

In this last year, we've had two deals over $5 million and they were both under $6 million. They were both in between $5 and $6 million. So we had a much bigger number of mini-deals but not mega-deals. And I think that was actually a pretty good thing for us in terms of the base business.

So, on the Q3 misses, I think there were basically four deals that we described. One was in Japan. I met with the president of that division of a very large company myself in September. We have not received that order yet, but he's assured me that he will.

One of the deals was in the US, in a pretty big high-tech storage company, and we did get that deal in Q4. It came in. There was another deal, an automotive supplier in the US, that slipped out of Q3. It was about a $2 to $3 million deal. It did not happen in the fourth quarter but it happened yesterday. We got the order yesterday, so it'll be in Q1. And the fourth deal got negotiated-- It's a high-tech company in the US. It got negotiated pretty well in the fourth quarter and we didn't get it. And we think we're going to get it this quarter.

That would be great.

So, basically, we have gotten two of the four deals. I think we'll get the third one this quarter. And, maybe the fourth one.

Thanks for the color on that front. The second question is around CoCreate, and just-- Follow on to an earlier question about the growth there. Obviously its a smaller-scale, smaller distribution channel where there's a lot of opportunity for you to expand that. But just wondering-- On the the follow-on products, what would be the need for say, a more enterprise Windchill offering-- Given the fact that the explicit modeling, as you pointed out earlier, doesn't have a lot of the reuse, and maybe not the same level of data management requirements. What parts of Windchill might you expect to be able to sell into their base?

Well, let me just say our due diligence actually showed quite a pent-up demand from that customer base for our product. I mean, we call it Windchill but we describe the characteristics of Windchill and we saw a lot of pent-up demand. And in fact, that's an area where the CoCreate customer base is not that happy because there's not been an offering. Most of them haven't gone somewhere else, but they're scratching their head, trying to decide what to do. They want workflow, they want change management.They want configuration management, they want visualization. All the basics straight up the middle stuff that our PDMLink solution does. Now, they probably are also interested in technical publishing, Where there's electronics, there's software. Where there's software, there's tons of documents. So there'll be a good ArborText play there. This is just a good opportunity to take them from a CADD system to a product development system.

Great. How much overlap is there between the 5,000 customers?

Not much. Does anybody have a statistic?

It's sort of 10-20%

Yes. It's in that range.

Great. Thank you.

Thanks, Tim. Next question, please.

Mike Olson with Piper Jaffray

Thank. Hey, everybody. Just to follow up on the channel. We've been accustomed to the channel revenue growth, kind of, outpacing the overall company-wide revenue growth, and that wasn't always the case in each quarter this year. When we do our checks with the channel how should we gauge what we're hearing versus the overall business going forward?

I guess, in other words, you think channel revenue and maybe by that it's channel revenue, excluding CoCreate, is going to grow faster than overall company revenue. Any changes that you've seen on that front, or any thoughts, would be helpful.

Yes. Mike, it's Neil. So, I think our channel revenue grew about-- Based on the 2006 (inaudible) report, about 14% year-over-year. And our overall revenue grew 10%. So, I think, to be fair, we would expect more than 14% growth from the channel going forward. Probably in the 15-20% range. And that continues to be our expectations. And, particularly, we think the CoCreate transaction will help, kind of, drive additional growth to PTC's existing channel.

Okay. And then, as far as Europe-- Obviously, you guys had a big boost in Europe in the September quarter. Any reason to believe PTC's gaining share in Europe? Or what do you attribute that to?

I'd say we're definitely gaining share in Europe. We want some really large, competitive deals. Some very big Windchill deals throughout all the countries in Europe. And I think we're going to continue to do that. We have a really good technical advantage today. We had it with Windchill 8 and it's doubled with Windchill 9.

There is functionality, footprint and ease-of-use in Windchill 9 that is clear to the customer. So, I think we're going to continue to win competitive deals in all the geographies.

So, Mike, just a little data point for you. Of our top 10 deals from this quarter, six of them were in Europe and we haven't seen that type of performance in a while.

Pretty-- Yes, a pretty situation there because UGS is now headquartered in Europe, SAP's in Europe and Dassault's in Europe. So we have that growth and in every single deal was contested. Again, because the competitors were calling high and trying to overturn that the users made, but-- The good thing for us we also have relationships up at the top and they were-- Basically, they endorsed the user decisions that were the result of technical benchmark wins.

Okay. That's really helpful. And just on the Intralink PDMlink upgrades. It's something that we've been keeping a close eye on. The way that I've understood in the past is that the Intralink customers that are kind of on a forced upgrade can either go to the latest version of Intralink or move to PDMLink, which causes a revenue event for you guys. Any idea of what percent of people that have to move are moving to PDMLink versus the latest version of Intralink?

Yes. So, just to reiterate the fact, you can do a sidegrade to equivalent functionality, from which they can subsequently upgrade. That could be a service revenue opportunity. Or they could do an upgrade, that's a license revenue opportunity and a service revenue opportunity right up front. And a caveat I've given you before is-- Particularly, the smaller companies don't need to report to us when they make that upgrade, so some of this is not necessarily perfectly accurate. But we believe that 20-25% of the base has completed that move.

We're actually going to offer customers-- We have some big customers who are, not just moving, but perhaps consolidating. I can think of one European customer who's trying to replace 26 Pro Intralink installations with one Windchill installation, and that's a process that's scheduled to happen in events over time. So, we've actually, this month, offered to customers the opportunity to buy a maintenance rider that will give them a one year extension on the current Pro Intralink existing system so that they'll have a little more time to complete that upgrade. But I think it's really a good news story that our Windchill business is pretty strong and there's a heck of a lot of runway in this one particular compelling driver. And it will continue to influence our business in Windchill for some time to come.

Oh, yes. One other statistic, which I'm supposed to point out to you here is-- Which way are they going? I think if you take a small customer, they may be doing a sidegrade. If you take a big customer, the vast majority of the medium and large customers are doing an upgrade to PDMLink. It's rare for us, in a major account, even a medium-sized account, to do a sidegrade. But more common practice in the smallest accounts.

Okay. And then one last, really quick one. Neil--

(inaudible) in there, Mike.

I know. What do you expect-- Neil, what do you expect the Non-GAAP tax rate to be in the next three quarters?

40 %.

Thank you.

Okay.

Yun Kim from Pacific Growth Equities.

Thank you. Real quick. CoCreate, is it a business primarily driven by channels or do they have any direct-sales people?

It's about half and half, Yun.

Okay.

They characterize it as half. They characterize it as 55-45 channel versus direct. I think when we look at their characterization and what accounts they have in the direct mode, I'd say we think it's more like 75% channel and 25% direct. And it's probably the way it'll wash out when we absorb it in our business. Next question?

And then, also, can you share with us any new initiatives to improve execution or at least the consistency of it for a year as we head into the new fiscal year here? Especially around larger deals. Because you're obviously expecting a big transition in your consulting organization this year. And obviously, their involvement in larger deals and implementation plans could be impacted when you're trying to close large deals. How do you manage the overall, especially on larger deals, especially in light of the consulting organization's major change?

Well, one of the things that we-- (inaudible) We have a very disciplined approach to the large deals, where we track them in weekly conference calls and the sales people and the service people are involved. And that's primarily what happens, I guess, on these forecast update calls that we do all the time, and I think we're getting better and better at predicting those calls, especially on our install base. When we have a relationship with the customer.

So we work on broadening, growing the sides of the deal we work on. Trying to predict, in a more timely fashion, when they are going to happen. I think, absent last June quarter, we've done a pretty good job of that over the last couple of years. The pipeline continues to grow. I mentioned earlier, pretty quickly, in our first half forecast of record in the third week of the fourth quarter here in October, first half of the forecast for Q1 is strong so we just have to make sure that we get out there and execute. And then, we're going to generate another pipeline because we're going to add another 40 reps for the first time in three years. We're going to increase capacity. When we look at sales productivity, it increased, what? 10-15% this year again?

It increased on average over 10% over the past three years.

Right. We also continue to drive sales force productivity through account assignments and then continuing to check-- Did any revenue come out of those medium-sized accounts that were held by the direct guys in the last eight quarters? If the answer is no, we flip them to the channel.

Okay, I have been told we have three people who are patiently waiting to ask their questions, so we're going to move on. And I want all three people to be able to ask their questions. And we're going to answer you quickly, and then, if you need to follow up later, we'll follow up. Next question.

Sterling Auty with JPMorgan.

Yes. Thanks, Meredith, for squeezing us in. Can you talk about-- In terms of the 10% license growth that you see next year, can you talk to us about what you think the split between enterprise and desktop- Meaning, what is the, kind of, relative growth rate on the two sides and why?

Sure. Well, I think, when you look at the enterprise side, our growth rate on license has been relatively consistent the last few years. We've been growing, our license revenue on enterprise, north of 20% so we would expect that trend to continue. On the desktop side, we probably-- Assuming a growth rate in the mid-single-digit range on license and why is that? On the enterprise side, it's what our experience has been and as I said, it can sometimes be volatile from quarter to quarter but on trailing 12-month basis, it's pretty darn predictable.

On the desktop side, that's essentially what the market growth is for desktop. And I think we have an opportunity to do better than the market rate of growth as we continue to build out our channel. But I think that's a reasonable assumption to use for now.

And follow-up question-- On maintenance, I think you said, would grow at the overall rate of growth of the company. If license is 10% and service is flat, it would suggest that maintenance would grow slower than license. Can you describe why that would be?

Well, the maintenance business in this past year on an organic constant currency basis grew about 6%, okay? And we don't forecast currency movement in terms of making predictions to you about where our business is going to go. So-- And we're also not forecasting inorganic growth as part of next year's plan so 6% would be a reasonable assumption. You're correct that over time, the license 10% in perpetuity, it's going to drag [more] maintenance grows along with it. But I think our assumption for next year is pretty reasonable based on what we achieved in '07.

Thank you.

Thanks, Sterling. Next question, please.

[Steve Coning] with KeyBanc Capital Markets.

Hi, Steve.

Hi, thanks a lot. I'll make it just one question here. Getting back to-- Now that you've had a very good Q4 and it gives you a better perspective on what happened in Q3-- At the end of the Q3, you said suffered perhaps a mid-market attention deficit. You had underinvested in sales capacity and you're building that up again, clearly. You also said growth rates were down in the mid-size and large deals, large accounts. Now you've had a very good Q4 and you talked about increasing sales capacity, are there-- Are you now comfortable with where you're at relative to having made up that Q3 miss, or are there more things you'll need to do? Reorganizing the sales force, refocusing on the mid-market-- And also, how do your close rates in Q4 in the mid-market? Did they come back to where you wanted them?

Yes. The close rates in Q4 in the mid, in all markets were above where we actually had the forecast.

Right.

So, [it was an execution] across the board there. We didn't make any real big changes after Q3. In some ways, we did have one miss in four years. I think it was a little bit of bad luck in there. I think we mentioned that we didn't have some of those maintenance renewal deals that we could have relied on. And we've done a forecast for those that go out about six quarters and there's a good, steady stream of those. So, everybody sort of thinks Q3 was unfortunate, but we're not going to build a whole new strategy around one miss, which really was characterized by four larger deals we did think we were going to get.

Thank you.

Thanks, Steve. I think it's one more question, right?

Right. Your last question comes from Chris Rowen with Soleil Securities.

Hi. My questions have been answered, thank you.

Oh, okay. Thanks, Chris. Dick, would you like any parting remarks?

Oh, I'd just like to thank everybody for their time today. I want to congratulate ourselves here because-- No, because the Boston Red Sox won the World Series, and I think the Patriots are going to win the Super Bowl. That's five world championships for us in the last six years, so we feel pretty good about that, too.

I think I can hear our shareholders in New York hanging up.

Thank you again.

Thank you.