PTC Inc (PTC) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the PTC's second quarter fiscal year 2009 results conference call. After brief comments by management, we'll go directly into the question and answer session. (Operator Instructions) As a reminder, ladies and gentlemen, this conference is being recorded.

I would now like to introduce Kristian Talvitie, PTC's Vice President of Investor Relations. Please go ahead, sir.

Thanks, everybody. Good morning. As you know, we put out the press release and prepared remarks last night, so we're going to shortly here just get right into Q&A. Before we get started, I'd a like to remind everyone that during the course of the conference call, we'll 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 to you the risks detailed in yesterday's press release, the Company's 2008 annual report on form 10-k and in the Company's other reports filed with the SEC from time to time.

With that, I'd also like to remind everybody please to try to keep it to one question and one follow-up. And with that, we'll turn it over to you for Q&A.

All right. Our first question comes from Richard Davis, Needham and Company.

Thanks very much. You guys have had a trend towards more channel sales and more focused direct sales. With the number of large deals down and hopefully it doesn't stay down 40%, 50% year-over-year. How do you think about that? The real question is, is there ever a scenario where this won't make friends in the sales site of your firm, but is there ever a scenario you go predominantly indirect and do you have channel partners that could handle that, in other words, to help get your costs down as your deal sizes shrink just because you're focusing on the different parts of the market?

Yes, Richard. I'm not sure if we get to predominantly direct. We do want to see the trend continue to move. I'm not sure what the absolute right percentage would be. I think we said earlier we'd like to get it to 65 direct, 35 indirect in the next two to three years. I don't think there's an obvious partner out there that could pick up all of the big major accounts that we have and that would replace our direct sales force.

So we continue as we win in these large accounts, we continue to move our direct guys up into those large accounts and back fill. We send accounts down to the channel, and the channel opens up new accounts. And as we build new products and opportunities out like ProductPoint, we're able to recruit more channel partners. So I think the mix should gradually go that way. I think it has a natural endpoint somewhere. I'm just not sure where it is. Maybe it's 50-50.

Got it.

I don't see anybody like IBM that's an obvious replacement for our direct sales force.

Got it. Then the follow-up would be just with regard to new modules and features and functionality that you guys are working around on the R&D side. I know you were thinking about analytics and stuff, but are there were one or two things we should be thinking about that will come out this year that presumably could drive both same-store sales and potentially new account wins?

Yes, I think the new news is stuff you've heard before but it's still new and that is our SharePoint strategy which is doing quite well. Then this Product Analytic strategy around the Synapsis acquisition and related things that we're working on, which you'll hear in the balance of the year here.

So both of those are new strategies layered on top of the Windchill business, the Pro/E business, the Abortext business,and so forth. That said, there's important new developments in the Pro/E product line coming out, part of it related to SharePoint stuff to make Pro/E more SharePoint friendly, more Web 2.0 than any other CAD systems out there and a major release as well on the Abortext front plan.

Got it. Thank you very much.

Next question's from Justin Bandy of KeyBanc Capital Markets.

Hi, guys. This is Justin Bandy on for Steve Koenig. I'd like to drill down a little bit into the maintenance attrition. I know there is a sequential decline in maintenance paying seats. I was just wondering if you could give us a little color around what happened there. Was the attrition concentrated in one month or was it spread out over the three quarters? And what are reasonable estimates for thinking about how seat counts might change over the balance of the year?

Yes, Justin. It's Neil Moses. I think if you look at the maintenance business this quarter, our attach rates in other words, attaching new maintenance to new sales of licensees were actually up.

Our renewal rates were down slightly on a sequential basis. And I think what really happened in terms of maintenance seed growth, or lack there of, was the fact that if you think about what happens every quarter, we have certain seats that expire. The majority of those are renewed. That was continuing to be the case this quarter. But the amount of new seats that were sold, new licenses, was down significantly year-over-year and that decrease really drove the decrease in active seats on maintenance.

So I think the answer to your question is if we look forward is it's really going to be driven by what happens on the license revenue side. We forecasted license revenue is up slightly in the third quarter relative to the second quarter. But still down year-over-year. And so I would imagine that active seats on maintenance would be down slightly next quarter as well and as we tend to see it, as we see a pickup over the longer term, I think we're going to see the active seats resume their growth.

Okay. Great. Then just one follow-up. It would be great to hear a little about your services pipeline. I know with license revenues having been weak for a little bit, I was wondering how much of a lag we should expect between when license sales started to become weak and when we're going see that showing up in a hit to your services revenue going forward?

All right. This is Barry. So we're looking very solid for this year in terms of our bookings and backlogs look like. And so we're not seeing any immediate decline over the next three quarters. I would say in our service, revenue service bookings. We're expecting that as that license revenue stabilizes, which it is, we'll be okay going into 2010. So we don't have any concern there at this point.

Okay. Thank you very much.

Your next question's from Yun Kim from Broadpoint AmTech.

Thank you. The Channel business declined on a year-over-year basis in a long time I believe, or maybe the first time. What are specific investments that you guys are making to keep your Channel Partners Network intact and also be able to leverage these partners when the environment improves?

Yun, it's Neil Moses. The Channel is very important to us. You're right. This is the first fairly significant decline in the Channel business in Q2. That also, by the way, impacted active seats on maintenance as well as Direct business, but perhaps even more than Direct business did. In terms of specific steps we've taken, I think we've talked about them before but we do have a 0% financing option that's available to our reseller channels that we made available that we're financing. We did have probably $300,000 of business that was financed that way in Q2, so it didn't turn out to be a large number.

We incurred the interest expense on that 0% financing option. The interest expense was only around $15,000, so it was not material. That's one we're doing with the Channel. We've also invested this year in marketing in support of the Channel, which they've asked us for.

And then secondly, we've got a new systems initiative called Lead-to-Order, which is really a lead generation, automation of lead generation and the whole process of lead-to-order, which is going in place this quarter as well. So I think that investing in the Channel is kind of one of our three strategic initiatives, and we've continued that investment even during the downturn. As a matter of fact, we haven't cut any of our channel business development managers, even though we did reduce the size of our direct sales force about three months ago.

Have you been making or have you been doing a lot more of of joint seldom marketing events with the channel partners even a year ago?

Joint sales and marketing events you mean between the direct sales or --

No with the channel.

( inaudible - multiple speakers) I'd say that number's about the same that we're making there. We average a joint seminar somewhere around the globe minimum one a day. So I'd say that effort's about the same.

Okay.

It's tough out there. Our competitors have exactly the same issues that we have, so I don't think it's PTC-specific. I think it's the fact that the SMB space in a difficult credit environment is one that's feeling the pinch. You just have to look at the results from auto deaths which are significantly worse than ours. And I think SolidWorks as well has the same issues. So it's more of, I think, an industry thing than it would be PTC-specific. It's tough.

Yes. I completely agree with you. I think a lot of it is really about keeping your Channel Partner Network intact more than anything else in this environment. Real quick, Neil, huge decline in accounts receivable. Great job. But does this mean that account receivable could be up sequentially big in the June quarter?

I think that I don't expect our DSO's to be at 53 days again, but I think we have had a couple of good quarters of collection experience there. There certainly is the possibility accounts receivable could be a slight use of cash rather than a generator of cash in Q3 given our sales performance in Q2.

Okay. Great. Just quickly one last one to Barry. What kind of carrots are you dangling at large system integrators to get them to start investing more aggressively in pitching PLM as strategic investments to their clients even through current environment and having a close relationship with PTC?

Well, I think one of the things we're doing very well that relates to an earlier question. We're doing much more segmentation in terms of what accounts should be direct accounts from a sales point of view and we're also doing that as it relates to a service point of view.

So we've developed and invested this year in a very big way in a service partner strategy where we're growing partners to be able to take care of accounts that make sense either specific verticals or specific products. Included in that is an elevated relationship with the SI's and the way we're giving carrots is that in certain even direct accounts. Sales people will get commissioned on those service revenues from our partners as well as ours in some predetermined way. So we have a lot of different ways that we're enticing, encouraging partners to join PTC economy.

Okay. Great. Thank you very much.

Your next question is from Ross MacMillan of Jefferies.

Thanks. First one for Neil. Just on the cost reductions this quarter, can you tell us how big the one-time accrual reversal of the bonus that was already accrued in Q1 as well? How much was that one-time effect on costs.

A little bit less than 2 million, Ross.

Okay. Then just going back to the maintenance question. Neil, can you just maybe give us the - - where we actually stand with the renewal rate number? Can you give us a number for the quarter and maybe how that compares to what last year's was on average or some frame of reference for the change there? Thanks.

We're still in that range. We fluctuate in the 85% to 90% range from a renewal rate perspective.

Is that dollars?

Percent of accounts renewed.

Units?

Yes.

Okay.

And we're still in that range. We're on the lower end of that range this quarter, and previously we've been on the higher end of that range.

Okay. And then so just last one from me. Notice your European direct business was actually up. I guess the question I had was, did you take that largest deal in Europe this quarter and could I then tie that in to Nokia or is it too early to say you've taken revenues from Nokia? Thanks.

We took a little bit or revenue from Nokia this quarter, but it was less than $1 million. So, first of all, glad you brought up Nokia because it's pretty interesting and it's a manifestation of what we've told you what's happening and that you don't yet see. EADS, incidentally EADS is a $60 to $70 billion company that chose us in September. We had a small footprint really in EADS in one division in Airbus. We had no footprint in Eurocopter, military transport , Astrium, all the other divisions. All of which are now converting to Windchill from Siemens and [DSO] products.

We follow that on now with the Nokia deal. Nokia's an $80 billion company, the market leader in cell phones with 40% share and one of the biggest tech companies in the world as well. They have standardized on PTC Windchill, and that's going to be a big account for us as we execute. That's a DSO replacement. We never had any revenue at Nokia ever before.

There's a series of these accounts going on. There's going to be another big major European automotive household account. We'll make an announcement next week about a winner. Not sure yet who it's going be. But the incumbents have already been notified that they are out. So either Siemens or PTC is going to get that account.

So, Ross, I don't think there's an appreciation on your part for the impact of these major wins and these large accounts. And under the covers, we're doing a lot of work. There's a much bigger list of these accounts that we're winning right now. So what you're seeing in the European large account revenue is there's a bigger, bigger base of revenue that we can get and really we haven't seen the impact because the customers are making small purchases for the initial deployments.

So if we execute well on these deployments and as the economy comes back, we're telling you there's a pent up demand for our software services and maintenance that's going to occur during the next couple of quarters and years as things turn.

Now, another manifestation of that is the fact, for example, and DSO's' a fine company but they preannounced twice in the last two quarters. A lot of what they called deferred accounts and deferred purchases are actually going to PTC. So I'm telling you again for like the third quarter in a row trying to give you a little bit an emphasis, again, the economy's bad and so farther.

We are building up a list of new accounts that are going to be very, very big for us over the next few years. Our sales force has gone from protect mode, focused on our install base to one where we continue to focus on the install base but a big part of the sales force has gone into attack mode. We are all over the Siemens and DSO install base around the world. So that's really what you're seeing when you talk about some of that revenue.

I'm just giving you a forecast that you're going to see that improve. We can't win EADS, Nokia, this big automotive account that's going to happen next week. We can't have these big wins, [forest] protection. These are all outside of our install base and not derived some nice benefit in the future. The reverse is true for our competitors. They can't lose those accounts and continue to do

You would assume - -

Nokia any way you might want. I know when we won the EADS deal, Bernard Shaw [Lenz] said it was a maintenance update. That's the biggest joke in the world. I don't know how you explain away Nokia. We've never sold them anything, but we won the account. We know that. There will be some explanation. I don't know what it's going to be.

These deals are, do you think Nokia can be the equivalent size to an EADS in terms of, if you will, average run rate revenue?

Yes. If we execute in our deployment and create value where we can help them collaborate with the supply chain, improve the quality of the products in their competitive position, get control of the bill of materials in a more powerful way. If we execute on that value, and they're a big SharePoint customer as well. As we build out the bomb analytics and their SharePoint strategy, there's a big opportunity to help that customer begin competitive advantage. If we execute well, it can be a huge account. Again, it's a $80 billion a year company.

Yes. I think a way to look at it, if we execute well, it would not be - - it would be expected almost that Nokia would be one of our top five accounts - -

for five years to come or more. Now, what's happening, Ross in simple terms, I don't feel like you appreciate it yet is that Windchill has achieved a level of separation from both the DSO products and the Siemens products that the customer base understands at this point, both inside our base and outside.

And depending upon the urgency of the situation and the importance of appeal initiative, you're starting to see us win major accounts outside of our install base and major wins inside our install base, which are sometimes shared with our competitors. So our footprint at Raytheon which didn't exist three years ago is now at 80% Windchill and Siemens continues to lose share there. And within a year or two they'll be completely gone. Same is true with Lockheed Martin.

What I'm suggesting to you, and every single technical benchmark we're winning. It's becoming more and more known that there's a separation that's occurred between our products and those of the competitors. They're not going to fix that in the short-term. By short-term, I'm seeing three to five years. We have a window here where our strategy around the integral single data model and our expanded footprint and now complemented with the SharePoint initiative is putting our competitors in an extreme disadvantage. Next question.?

Next question's from Blair Abernethy, Thomas Weisel Partners.

Hi, thank you. Just want to ask you just expand a bit on the commentary around signs of stabilizing or stabilization. Can you just give us a sense of by verticals, geographies,and pricing, particularly around maintenance pricing. What's giving you guys -- what are some of the data points that giving you guys comfort that we're starting to bottom here?

Okay. So by geography by vertical, we'll talk a little about maintenance pricing, too. If you talk about geographies, I think we've seen signs in the North American business which has been cut for us for a couple years now. Things are starting to stabilize there. Business feels better in North America.

Maybe the best sign is that we track our forecast by geography from beginning of quarter to end of quarter and on a monthly basis. North America, really, for the first time in probably six or eight quarters came in at a higher number at the end of the quarter than they were forecasting at the beginning of the quarter, okay? It's still a low number, but we beat the initial forecast in North America and we had not been seeing that.

In Europe, I'd say business continues to be challenging. I think the drop in Europe followed the drop in North America. But I think all in all, I think if you look on a constant currency basis, we're holding up reasonably well in Europe.

We had a difficult quarter in Asia-Pac this quarter. We don't really know what to make of that yet because one quarter does not a trend make. We did see our business in China. We saw our business in China down for the first time in a number of quarters. So I think what we say in Asia-Pac, is that we'd like to see a couple more data points on what's really going on there. We're not sure what to make of Q2. I think we're holding up relatively well in Europe and we're seeing signs of stabilization in North America which is good to see.

If we talk by vertical, I think we've said in the past that we think that the aerospace and defense business has held up reasonably well for PTC. That business represents 25-plus percent of our overall revenue. So that's a good sign. If we talk about the other major verticals, electronics and high tech has been a little challenging. That's also about 25% of our revenue.

Heavy industry you'd have to say has been challenging. Although, we're looking forward to the stimulus package kicking in in that particular vertical beginning to improve in the latter half of this calendar year.

Those three verticals comprise 75% to 80% of our revenue. We're fortunate I guess in that automotive is 10% of our revenue, and obviously that's been a very challenging vertical as has retail footwear and apparel. I'd say the last vertical we operated in med devices has held up pretty well.

If we talk about maintenance pricing, really have not had much of an issue with respect to maintenance pricing. I think that our customers are trying to do exactly what we're trying to do, which is we're trying to either limit annual increases or escalators on maintenance pricing where we're n fact asking for reductions. But generally speaking, I would say more often than not, we're not getting them nor are our customers. I think maintenance pricing has held up pretty well. The challenge, of course, as I mentioned before, is new seats sold in the quarter. That number is upsy, down significantly in Q1 and Q2. That's protecting active seats on maintenance. But I'd say that's been diminuous impact on maintenance pricing at this point.

Okay, that's great. Thanks very much.

Yes.

And the next question is from Sterling Auty of JPMorgan.

Yes, thanks. Hi, guys. With unemployment pushing towards 10%, why shouldn't the maintenance seats under active maintenance seats decline 10% from peak to trough?

Because there's a penalty for customers to turn maintenance off. They don't just do it idly. They have to think about it. If they have programs that are really important, which their products are, and they need to do development, if they start to turn seats off it gets expensive when they want to turn them on. If they turn them all off for a period of time, they wouldn't get any maintenance support or bug fixes which could result in a critical problem. So customers don't turn maintenance off on a whim. They think it through carefully, and it's not something they want to do right away.

The think the other answer to that question is, there are a lot of customers out there that are doing something similar to what we're doing. We are continuing to invest in R&D in product development during the downturn. So that 10% of unemployment, I don't think is represented equally across all functions within companies.

Okay. And then to comment on Windchill, at this point - - what kind of revenue synergies are you getting between Windchill and the core CAD business that you've got? Meaning, do the two still need to be hand-in-hand? Are you actually able to win business because you're CAD platform is in there or is the decision even within your installed base being made just because the PLM product stand alone is so much better than competition?

Yes. This is Jim. I think that there is significant revenue synergy between these product line. What I think has happened in the last few years is that we've been able to leverage the pro engineer base to grow Windchill substantially. Windchill's the number one, best selling product in the PLM market by far. What's happened is because we've been able to leverage that base and get this leadership position for our product, we're now starting to win.

We're starting to have this reputation of having the leading product and we're able to now win well beyond the base as well. Examples like Nokia and EADS where there essentially is no pro engineer. I think there is good synergy there and we'll continue to harvest that synergy for some time to come. It's also helped propel to us a position where we can go beyond it as well.

Just one more comment. I think we've never demonstrated huge synergies go the other way, but I think that that opportunity is still out there to a certain degree where customers with Nokia rethink their MCAD tool. If we had them up and fully productive on Windchill and they really saw PTC as a strategic partner going forward. They might rethink their MCAD decision and take a good, hard look at Pro/Engineer.

When they purchased their current tool five years ago, Pro/Engineer was almost tied for first place and they decided to go with a European company instead. But that European company has proven to be a frustrating partner, and they might rethink the whole thing, but I think it's up to us to deliver the Windchill piece first.

And I think on the low end, just to complement what Jim said. One of the things we're trying to do with ProductPoint, the SharePoint version of Windchill, is to change some of the dynamics around the decision making at the low-end and the SMB space, so that it's not just CAD features and functions. It's oh, by the way, I can connect and be part of the community. I can do social product development. That's the combination of Pro/E, a SharePoint version of Pro/E along with product point.

So you're going to start to see - - we believe there's synergy at the low end as well as the high end. We're trying to build an even closer link which we think's going to affect the way decisions are made about those tools in the SMB space over the next couple of years. We know it'll have some effect.

All right. Thanks.

Next question is from Greg Dunham of Deutsche Banc.

Hi, thanks. I dropped off for a little bit so I hope I'm not repeating a question. I did want to follow up on the CAD (inaudible) link. First question, how important is being CAD-agnostic in your PLM sales? Is it to win some of these bigger deals? The follow-up would be if some of the competition became more CAD-agnostic, would that turn the table and make it a little harder for you to win the kind of business that you're winning?

Greg, it's Jim. I think it's critical to be CAD-agnostic. Not just agnostic across (inaudible), but keep in mind there's this thing called ECAD and there's a heck of a lot of products with electronics and then there's software development tools for embedded software. There's documentation tools for technical publishing and so forth. You need to actually be agnostic across that whole suite. So I think in these big EADS and Nokia type deals it's absolutely critical. I think we wouldn't be a contender if we didn't have that.

Now, I would say that Siemens, to a certain degree, is CAD-agnostic. We simply have out executed them. I do think DSO doesn't even understand what the word CAD-agnostic or the phrase CAD-agnostic means. That is so far from their DNA, that even if they said they were going to be CAD-agnostic, I'm not sure they would even know what they were saying. They are so homogeneous, closed minded, closed in their thinking that they could never execute a strategy like that even if they tried. So I think they're zero threat. The idea that DSO is suddenly going to be CAD-agnostic out there presenting a threat to us.

Just a reminder - -

There's a little more - - there's another subtly there. What's been happening the last few years, and this is important actually at EADS and other places as well, is that we demonstrated at the enterprise level that Windchill could work with third parties, other products, competitive products.

What's happened more recently in the last year and you're going to see an acceleration here is that we've moved the Windchill deployments farther over towards engineering, so we're replacing our competitors in the engineering department managing their CAD files. So the single integral model we described where Windchill could manage the engineering Pro/E files as well as the enterprise collaboration, we're taking that same sales campaign directly into our competitor's accounts. And we're saying, hey, keep your [Katia] files your [NX] files, we'll manage them directly with Windchill at the engineering level and then we'll extend the value of that out to the enterprise in terms of collaboration. We're demonstrating that we can manage their CAD files better than they can particularly in a distributed or web-based environment where suppliers are linking in, and as Jim said, there's a requirement t also to manage heterogeneously ECAD and embedded software.

So the ground rules for competition have changed in that Windchill is managing not just our own CAD files but our competitor's CAD files better than they can. That's what's leading to the opening of our eyes and outside of our install base where people are saying wow, I can have that same benefit of a single integral data model engineering through enterprise.

MCAD through ECAD through embedded software.

Inside the Pro/E environment, but equally importantly in our competitor's accounts which has led our sales guys to then go out and attack with that story.

That - -

And it's not fixable for the competitors right now. They have to go do a better job of managing their own CAD files before they can think about doing ours. I mean, they've got a long way to go to get this turned around.

One follow-up. On the note that you mentioned, the supply chain --

Can I just say one quick comment? If you dig into this, another illustration. So do you think that Nokia looked at v6. They're a 100% DSO account? [Kotia], they use SmartTeam, they use Matrix. Do you you think they looked at v6 before they made the decision or do you think they made it without looking at v6? Of course they looked at v6. The fact that they would choose us with a competitive potential offering out there, they looked at it and found that there was nothing there.

Probably the straw that broke the camera's back. They probably said, DSO, we're done letting you dictate terms to us.

A quick follow-up on that because the EADS win was a couple quarters ago and you were pretty confident about the flow through to the supply chain potential.

Absolutely. They're going to go deploy internally and lock that down first. But all of these customers find it critical to include the supply chain. It's a major part of every deal and discussion.

Are you still confident that that's a near-term opportunity? And then a final question just to clarify, I mean, in terms of size of these opportunities, just to make sure that I've got it right, I mean, the EADS deal is when you think about your biggest deal, that's in the multiple tens of millions a year in license, right?

Well, we're not going to give you numbers. And we just don't look at it as license. We look at it as license and service and maintenance and partnership. Yes, we want to derive the revenue, but we really want to create value for the customer. These are big, big companies with lots of employees that build lots of products and complex products, so there's a big opportunity.

As we execute beyond the traditional managing CAD files and really start to go out and do - - manage the big of materials and have it integrated with their ERP systems and include the supply chain and collaborate and so forth, do the bomb analytics. Then the footprint gets bigger and our ability to derive more value as we help our customers gets bigger as well both in terms of license, service, and maintenance.

I think we can say, we know that our top ten customers represent 15% of revenue or roughly $150 million. If you take our top five customers, they probably represent roughly 10% of revenue or $100 million. And obviously if we take our top one or two customers, they represent more than the average of $20 million a year and we can leave at that. But that's the kind of opportunity that's out there.

Let me take one other cut at it and see if it's - - if this might be helpful over time as we talk about it. If the customers just do a vault, just do content management, submit retrieve our files. We're not going to drive a tremendous amount of revenue. One of the reasons we're able to displace our competitors right now, their actual deployments over the past ten years have been pretty simplistic. They're simply doing submit, retrieve content management. Not particularly exciting.

What we're talking about with our customers is doing technical publications of technical documents, bill of material analytics, enterprise configuration and change management, content management and so forth. So as we deliver on a broader set of applications and we integrate with a broader set of applications inside the customer's business. As we do that, then the opportunity to derive more revenue gets bigger and bigger.

If we only deploy a content management vault, then we're really not going to maximize our opportunity. And that's why the services are really important and the footprint, functional footprint of the software is also really important. We have to help our customers move to the next level in terms of distributed engineering.

We're really helping them manage the bill of materials, that engineering bill of materials. Our competitors have a two dimensional view of the bill of materials. We're offering our customers a three dimensional view of the bill of materials, and that's why we're winning.

All right. Our next question is from Michael Olson of Piper Jaffray.

All right. Thanks. I'm getting down to the nitty-gritty here. Is there any update you can give on migration from Intralink 3 to PDM link? Just any numbers on what percent of customers from that base has moved and has the soft environment slowed that migration at all? Last, do you still think the majority of Intralink 3 users are going to move to PDM link or is this just going to Interlink 9?

This is Jim. I haven't seen the exact data on that, but anecdotally, we're somewhere probably north of 50% and south of 65%. In that range. I think there's still some big accounts that are just moving. In fact, we got a large order from AGCO that was called out in the press release. That was one of the biggest, single outstanding Interlink system which had decided to move to PDM link. That will be a very large project to actually consolidate 28 separate Intralink systems into one PDM link system. I think we've seen, the second part of your question, the vast majority are moving to PDM link. They're not sideways, they're moving sideways and forward.

Okay. That's helpful. And then just let me follow on something you mentioned earlier. You said the drop in Europe followed the drop in US and that's clearly been the case in other markets as well. But do you expect there'll be a lag between when we see stabilization US versus international or do you think the recovery will be simultaneous?

I'm just speculating. I don't think we really know. I think there's going to be a little bit of a lag internationally on the recovery as well.

All right. Thanks.

Next question is from Robert [Dana] of CRM, LLC.

Yes, good morning. Just wanted clarification on two things. It wasn't clear, I don't think, from the call. Ex-currency, your guidance really didn't materially change for the Q3 and Q4. Is that correct?

That's true. Currency was 75% of the change in our guidance.

Then on the maintenance, even though the C-count has come down again ex-maintenance looking at a Q3 and Q4. Is there a material degradation in the revenue from the maintenance seat decline or is it flattish ex-currency?

It's flattish ex-currency. So we were thinking $510 million of maintenance revenue, I think, in our previous guidance. We're thinking $500 million today. Probably I can't remember what the specific currency impact on maintenance, but it's probably 6 or $7 million.

Mostly currency.

Last question, I guess on ProductPoint, just give us an update what the status there, is how it's rolling out. Maybe at this point, you have a sense of what the (inaudible) market is for that product is in terms of dollars?

Yes. So on the first part, it's been in the market now for two quarters. We haven't yet disclosed exact numbers, but we had a good, healthy start in terms of the number of transactions in Q1. We nearly doubled that in Q2. So from the number of transactions we did, there's a nice building. I'm not sure we quantified the size of the markets.

I think there's these two segments we've talked a little about. There's the smaller companies so that the SMB segment where resellers are selling this as a collaboration platform with all the data management that a small company probably needs. In the big companies, I think there's probably a much bigger opportunity. Really as a collaboration complement to the high-end, data changing configuration management capabilities of core Windchill.

I would say in that segment, we're really seeing some exciting developments in terms of big companies really getting aggressive about Web2.0 and SharePoint and so forth. Yesterday I was with a $12 billion company and the CIO has five initiatives. One is PLM and the other is Web 2.0. It turns out PTC is covering essentially 40% of her waterfront of strategy. And she was - -we spent most of the time talking about PLM stuff because that's what I went there. It was almost happenstance at the end I said, oh, by the way, are you thinking about SharePoint? What are your strategies there? That unlocked this whole other opportunity.

Suddenly we now have two campaigns going in that $2 billion company. That's a good example that gets repeated day-in and day-out, week-after-week where we keep discovers these big companies have a strategy that heretofore we didn't necessarily know of or have visibility to and perhaps they didn't think we were relevant. But I'd say, this company that I visited yesterday we're probably top of mind now in terms of how they're going to execute their Web 2.0 strategy.

Tell me who that was after the call.

I will.

I think, Jim, just to complement what you're saying as well. Product 1 release comes out in the summer. You have big release or something scheduled for the summer?

Yes, we just shipped the maintenance release yesterday.

Okay. Talk about that for a second. When's release 2 coming in? How many people do you have on SharePoint/ProductPoint?

Yes, okay. So when we built ProductPoint we had an average headcount of 30ish building the product. We are now in the process of taking that to nearly 150. So we have a massive roadmap here that involves some short-term work to mature the production we already have out there including this maintenance released yesterday. We have released 2.0 coming later this - -towards the end of the fiscal year.

And then we're going to be announcing subsequent to that, a number of additional companion products that sit on the SharePoint architecture next to this ProductPoint product. A little too early to get into details of that. We'll probably talk about some of that at our user conference at Investor Day. That will be a more appropriate time to reveal some of that strategy. Let me just say, I think what I'm excited about SharePoint and this whole Web 2.0 or social computing, social product development strategy. This for us is like a adjacent market that could prove to be extremely large, and I think PTC is probably in a strong leadership position in staking out a claim that will represent a pretty significant barrier to entry for other people to follow us. Not that they won't, but I think we're going to be a mile ahead and moving fast.

Thanks, guys.

Your next question's from Barbara Coffey of Kaufman Brothers.

Good morning. I actually have a couple questions. When you take a look at the $10 million deals from the deals that are greater than $1 million, can you break out what percentage this is the CAD side versus what percent is the collaboration side? And that's question one. And then on the CoCreate side, are you seeing the same pressures on that side of the business versus seeing it on the more traditional Pro/E type of the business?

I'll take the first one [Barbie]. It's Neil. The answer is that most of the large transactions are a combination of CAD and data management. As we get outside of our base, that may change over time. But today, most of our large transactions are actually both. However, the predominance of the revenue coming from those transactions tends to be more data management revenue than it does CAD revenue.

And are those deals structured where like is there a general profile of what percent's software versus maintenance and support?

Well, I think that profile has changed a little bit recently because we've talked a little about what's going on with our business. Typically, there'll be an up-front license purchase, which is fairly significant, and there'll be follow-on services implementation work that takes place which has quite a long tail on it.

One thing is, we define a large deal as more than a million recognized in the quarter.

Right.

So given the radable recognition of maintenance and the radable recognition of services, to get a large deal it either has to be an extremely large deal and you're taking a quarterly piece of it in the services or maintenance business or it has to have some license content in it.

Yes. All I was going to say was there's the large deals today have a lot less license content in them than they typically did, than they did last year. And that's one of the manifestations of the challenge we have from a license revenue perspective that everyone has from a license revenue perspective in this environment. As far as CoCreate, I'd say that business has held up reasonably well. Probably a little bit better than our overall base business.

Okay. Is that because of the different kind of [vin] markets? Is there any thought to why that might have held up better?

They're an incredibly loyal customer base. That's what I attribute it to.

And it's two-thirds maintenance.

Okay. Thank you.

Okay. Again, thank you for the time this morning, and we're going to be out there in a difficult economy executing our plan, which we're really excited about, and we'll look forward to speaking with everybody again in July.

Yes, one last comment. We really hope that any of you who can will join us for our user conference which is in early June. Kristian, the date of the Investor Day is - -

June 8.

June 8 in Orlando, Florida.

Okay. Thank you.