PTC Inc. (PTC) Q4 2007 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and welcome to the PTC's fourth quarter and fiscal year 2007 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 been recorded. I would now like to introduce Meredith Mendola, PTC's Vice President of Corporate Communications. Please begin.

Thank you. Good morning everyone 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 Cohen, Executive Vice President of Strategic Services and Partners is here to participate in the Q&A. Before we get started, I'd like to remind everyone that 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 result may differ materially from the results projected in these statements. We refer you to risks detailed in the company's 2006 annual report on Form 10-K, the company 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 PM Eastern Monday, November 5th at 203-369-3752. Additionally, this conference call is being webcast and a replay will be available through our website at ptc.com until the same date Monday November 5th at 5 PM. 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 the Q&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 will need to get back in the queue. I will now turn the call over to Dick.

Thanks Meredith. Good morning everyone and 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 stand 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'd 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 the quarter. Our customer base is secure and our 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 margins 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 off-shoring and outsourcing of services business. And 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 4 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 off-shoring 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% operating 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 offerings, our distribution, and our financials. Now I'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 for the quarter, 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 periods 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 is unfolded. We 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 perpetuating 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 amount for the applicable transactions and that funds were misappropriated for these individual's personal benefit. This scheme went undetected by the companies involved, which include multinational corporations Toshiba and GE. Some of 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 recorded 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 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 license... 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 will 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. And 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 online in our operating metrics works 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 expenses. First, we recorded a $15 million restructuring charge in the fourth quarter and fiscal year in conjunction with the 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 accrual we reversed in Q3. For the whole 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 onto 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 UK 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 of 2007. This was the result of an increase in current receivables due to increased fourth quarter revenue, partially offset by strong performance on pass through receivable collections. Our DSOs this quarter were 74 days compared to 69 days in Q3. Currency movements negatively impacted DSO by two days from the third to fourth quarters. Finally, deferred revenue was $227 million, up from $211 million in the 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 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 $0.08 and $0.13 and we expect non-GAAP earnings per share to be between 20% and 25%. The non-GAAP earnings expectations exclude the following estimated costs 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 million 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 $1billion. 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 revenues 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 pre-tax income. Therefore, our non-GAAP earnings per share guidance reflect 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 your guidance implies non-GAAP operating margins of at least 21%. I would like to provide some comments about our planned cost structure, which should help you understand how we've planned to achieve this margin growth. We expect to achieve at least 4 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've 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 by training and training IT. We've 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 onto 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 off-shored 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 off-shoring activities and will continue our efforts where it makes sense. Our globalization efforts are under way 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 in conjunction with our globalization initiative. We are continuing to reduce headcount in high cost regions in the first quarter and will 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 the 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'd 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'll 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 the leading provider of product development software. Their OneSpace suite of products includes 3D CAD, 2D CAD, CAD data management and collaboration offerings. Of course, all of these categories are very familiar to PTC, which translates in to 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 5000 active paying maintenance customers who rely on the CoCreate modeling and data management solutions everyday. There is a very large industry presence in the vertical that CoCreate refers to as high-tech electronics and machinery. And there is a very strong geographic presence in Europe and in Japan. Our diligence shows that these customers have a 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 product is complementary to Pro/ENGINEER and then it uses a modeling technique that's referred to as explicit modeling in contrast to the Parametric modeling approach that's 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, and 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 is 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 the 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. There is great time to market pressure and quite frankly little re-use 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 upfront, 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 a preferred approach for the majority of industry verticals going forward. This acquisition puts PTC in a very unique position and that we will be the only mechanical CAD vendor who can be objective with respect to modeling approach. We can engage the customer in a consultative selling process in which we are 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 will be unique. Every other vendor will be trying to sell on the merits of the one approach that they support. So obviously there is 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 5000 plus active maintenance paying customers that make up the CoCreate customers base. On the other side, we believe there is 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 currently has no offering. I think existing customers will 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 have outlined, this transaction is compelling from a financial perspective, is low risk, and it offers some real strategic value to give 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. Question And Answer

Thank you. [Operator Instructions] Richard Davis with Needham & Co. Please ask your question Richard Davis - Needham & Co.: Hi, thanks. With regard to CoCreate at least... and I know you haven't given complete guidance, but notionally should we assume that it will grow at least as fast as kind of the overall PTC Corporation, overall kind of think of it that way because you mentioned the cross-selling opportunities and things like that?

Well, I think it's probably a little bit premature to be real specific. But generally speaking, CoCreate's overall revenue has been relatively flat in the last several years. But we do see a significant PTC cross selling opportunity on top of their revenue. And we are going to provide more guidance in terms of what to expect at least for fiscal '08 as soon as the transaction closes. Richard Davis - Needham & Co.: Got it. And then kind of harking back to the previous acquisition, with regard to Arbortext, how is that performed kind of relative to your expectations and does it make sense or do you anticipate kind of bolstering Arbortext either with technology tuck-ins or either customer footprint? And I was just kind of trying to get an update on that one.

So. We are really happy, Richard, with Arbortext is doing in the manufacturing space. I think we have described that about half of their business was non-manufacturing when we acquired it. That has declined and the manufacturing side of the business has grown at a faster rate. So overall, the revenue is up and as that non-manufacturing revenue shrinks to a smaller and smaller piece, we think the growth... overall growth rate is going to accelerate. So, lots of big customers have placed orders for pilots. For example, we just had United Technologies in last week; they started pilots in a couple of divisions. Big automotive company in Germany just placed an order this week for an Arbortext big pilot, big Stuttgart-based German company. And overall we're pretty happy with what Arbortext has done and I am very optimistic about where it's going. Richard Davis - Needham & Co.: Got it.

Richard, it's Jim. On the technology tuck-in front, there are definitely a few opportunities for technology tuck-ins to built 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 solution. So, we have acquired Arbortext that gave us some critical ingredients. We subsequently acquired the ITEDO company, which gave us a few more ingredients. By the way, that software has done really well here at PTC since the acquisition. And then there is a couple of more acquisitions and tuck-in that we're working on that could bring new dimensions of capability. 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 this point. Richard Davis - Needham & Co.: Got it. That's what I figured. Okay, good. Thank you so much.

Thanks Richard.

Ross MacMillan with Jefferies & Company. Ross MacMillan - Jefferies & Co.: Yes, thank you. Congrats on a strong fourth quarter. I wanted to just drill into what's happening in the US 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 Q3 of 2006 and our 26% year-over-year growth in Q4 of 2006 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 do we see a recession moving in North America and do we anticipate further deterioration in North American revenue, I think our answer to that question would be no. Ross MacMillan - Jefferies & Co.: Okay, great, thank you. And then just a follow up, given the nature of CoCreate maintenance stream being 65%, we're going to have pretty large, I guess, write-down on deferred. Any ways 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, I think on the operating margins side, you can do the math. We said they are doing about 40 points in operating margin. PTC is going to do, as we said, 21 plus percent in operating margin next year. Our revenue 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. Ross MacMillan - Jefferies & Co.: Okay. And you are borrowing something against the acquisition. Any sense for sort of what financial interest rate we should use?

What interest rate associated with the acquisition? Ross MacMillan - Jefferies & Co.: Yes, I don't know if that's preset, if you have already got that established.

It will probably be in the 7% to 8% range. Ross MacMillan - Jefferies & Co.: Okay, great, thanks so much.

Okay.

Thanks Ross.

Jay Vleeschhouwer with Merrill Lynch.

Thanks. Pro/E question and a CoCreate question. First on Pro/E, your quarterly units appear to have been the highest since the second quarter of fiscal '01 and I am wondering if you could... how you would attribute that to either improvement in sales capacity, direct and 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 impelled the better units. And then I will ask the CoCreate question.

Jay, I think you on the Pro/E side, it's sort of what we have been describing for the last couple of calls is that we are out there really driving this product development system story and customers like it. So, these corporate visits, we have... the corporate visit center is full every week. It's actually exhausting. We have 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 tightened. And Jim described that we will 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 the tight integration between Pro/E and Windchill. So, I think that PDS story is what's really driving it. We had no incremental sales capacity for two years. We are at 380 sales reps for the last eight quarters or so. The off-shoring that we are doing as part of the new plan is going to enable us to hire 40 more sales reps this year and we have already started. We will 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 2000 accounts and assigned them to the channel in the US, 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 are better at following up on the Pro/E sales than our own direct sales reps are when they are focused on those largest accounts that are... increasingly those larger deals are legged with Windchill. They will include Pro/E add-ons as part of the whole PDS story, but the theme behind globalization and off-shoring 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 2000 accounts you are giving now more to the channel, for 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 underperformance on account coverage?

Yes, I think first of all, one of the things that you are going to see when we get into the CoCreate description and one of the things that we have committed to you in the past is that, A) we wanted to hit $1 billion in '08, we are going to go well above the $1 billion in '08. We said we were going to improve our operating margins to 20%. We are going to do well above the 20%. And we said we are 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 are making here now, we are going to be well above 25% contribution from the channel to revenue in 2008. So, those are pretty good things, but I don't think there is any correlation to what we are 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 if... 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 am pretty confident that they are going to be able to handle the growth of the accounts that we are giving them and we are going to really work hard to provide a lot of synergy between the CoCreate channel and the PTC channel as well. We are going to... that's going to be a pretty big business in 2008.

So CoCreate --

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 across a much broader spectrum of products with the acquisitions we made recently. So as Dick said, I don't think there is 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 things they have done in last few years seem 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 that lead to better growth for them if the technologies were as appealing as you're now suggesting and why pay three times revenue for a no-growth company, it's a higher P/E to sales than you have and you're showing some growth and you have better margins.

Yes, I'll let Neil address the second part of that because I think we're going to have a P/E discussion with you as opposed to revenue multiple discussion. But on the first part, CoCreate has tried a couple of different things. They've actually had some seat growth, which is 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 now, they don't have an enterprise PLM solution, which is now an obstacle for trying to sell a CAD version. Particularly they're not necessarily selling to just small companies. A lot of their customers are pretty significant, but they don't want standalone CAD anymore. So I think they've been hampered by a narrow footprint solution-wise. Components that are there are very good, but there's just not enough of them and then their distribution channel is small. That said again, our diligence said that those customers, those customers are religious about the value they see in explicit modeling and the quality and capability of CoCreate's products. It was shocking to us.

Yes, just to add to Jim's comment on distribution before we get to evaluation. They have very limited presence in the Pacific Rim today. The 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 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 7 times tailing 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 their 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 will 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 are working on some things that are due out in the next 12 months and we haven't described that Jim is working on some things that are particularly for the channel for our SMB space, some pretty exciting new products. And there is an opportunity for us to combine resources and bring something out that is even more compelling and powerful. It is going to surprise people and create a competitive advantage in the channel. And we are going to be able to do it sooner and with broader functionality with the combination. So, that's something we will probably talk to you more about sort of in the spring.

Okay, thanks Dick.

Thanks Jay. Next question please.

Sasa Zorovic with Goldman Sachs.

First question is kind of continuation of sort of just... this sort of line of question regarding CoCreate. I mean, if you look sort of basically where company of this scale, of course, at 80 million in revenue and 40% operating margin is a very high operating margins, right, but what sort of difficult from that is then getting growth out of that without really negatively impacting those kind of margins might be sort of hard. So how do you... what sort of the... what is your plan there? How to get sort of growth there without really significantly impacting those margins adversely?

Yes, again, we going to save the more explicit guidance for when we close the transaction, hopefully in another month or so. But I think our high level thinking, Sasa, is that we're going to be integrating the acquisition in 2008. We probably do not expect a significant growth in 2008 while that takes place. In 2009 and beyond, again, we think there is significant opportunity for what I would call synergy revenues. In other words, what's our ability to sell PTC products into the Coke [ph] base --

Like MathCad and ITEDO.

And what's our opportunity really to sell our Coke [ph] products in some cases into the PTC customer base. So, I think longer term we think there is a fairly significant opportunity in terms of synergy revenue, but again, I think in the next 12 months during the integration process, we probably would not project that.

Yes, just would like to elaborate. We've been sharing anecdotally with you over the last few quarters a lot of success stories in the electronics vertical. PTC has been on a role in electronics, Dell and some other stories we've been talking about. And we've had a great time displacing the Agilent solution, including since Oracle acquired it. This gives us about 4000 new electronics accounts and we're going to be a very key tool. And so if we can take our momentum into those 4000 new accounts is a real opportunity there. It also significantly enhances our overall channel capacity, which has been an issue for us for the last 3 or 4 years, as you know. So, I think that's another significant growth opportunity for us.

Okay. And then my second question here would be regarding Japan. Now you're sort of breaking it out sort of quite cleanly compared to the previous quarters, just kind of giving sequential or year-over-year growth numbers there. Could update us with the situation there, where are we in sort of turning the business around? It's been some what 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, in the fourth quarter, we had strong performance in Japan and we ended up up for the year, which we are pretty happy with. Admittedly earlier in the year we had more difficulty as we did in 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 opportunities 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 strong hope for CoCreate, a lot of great customers, good management team in place and 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 about a year ago, he can from HP. So, they've been friends for years and I think that will help the integration in Japan. Don't forget that 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 are 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 is a lot of interest from the big trading companies in picking up our products and we have a very large installed base of customers that we can't really support well without our 40 direct reps. So, we are not going to invest in any more direct sales people in Japan. We're 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 with Bear Stearns.

Thanks very much. Initially I wanted a clarification on earlier comments you made with respect 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 is that --?

Yes, we are Philip, you heard that right.

Okay, that's helpful, thanks. Question with respect to... 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'd say about half and half, half organic, half acquired as we drive towards the $1.5 billion.

That's right.

And the point I was trying to make earlier when we made the predictions back in '04 about the $1 billion in '08 and the channel percent revenue and the operating margin is 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 are focused on that. And the operating margins are going to expand as well and I think we're going give you some more guidance on the operating margin part; it's an improvement over where we are today.

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

I think that... we did a plan for '08. We did a plan for '08 that we described that models licensed 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 are off0shoring that and giving some out, outsourcing it to the channel. So we will continue to look at that. There is upside potential, I think, in some of the license area if our channel partners really execute and if the 40 reps that we are going to hire start to make some contributions in the back half, then there might be some upside potential. But I think for today we wanted to give a plan that was... that we thought was realistic in the first month of the fiscal year.

Yes I guess the other thing I'd say Philip is that we view this services situations for '08 as a kind of 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, we are 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 just... and the final question from me as far... I'd like a little more color with respect to the very strong performance in Windchill seat sales in the quarter were above our expectations, is there fair gain there or a particularly large deal or how should we be interpreting the outsized performance with respect to Windchill in the quarter?

We can all add to this a little bit. I think a little bit lost in all those we talked about today is exactly what's happening with Windchill. It had an absolutely explosion in the fourth quarter and it beat... in license and service, it beat Pro/ENGINEER for the first time ever and went way past it. So Windchill, the Windchill PDMLink upgrade continue to move from the... in the installed base from the INTRALINK product. Windchill 9.0, 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 are going to win every single technical competitive benchmark out there with Windchill 9.0. There is no competitive product close to it. So it's really a proxy for what we think is going to happen in the next couple of years, which is Windchill and that whole PDS story is going to drive a whole bunch of decisions in our favor. This is going to drag a lot of the other products along with it. And we saw that in the increase in the seats this quarter. [Multiple Speakers] for Windchill and the business is strong.

The other thing we have now demonstrated hopefully is that the Windchill is a great consolidation platform to acquire in a lot of tuck-ins and blended all together in this strong cohesive architecture. And so customers look at the acquisitions we have 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. They could 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. Team Center, there is no center in Team Center, we've told you all that. It is a great story until you start installing the CDs and then it is less great. Windchill is a rock-solid solution. It's a great platform to do organic development on. It's a great platform to blend acquisitions in and really go build this true enterprise class product development system.

Oh, Jim and Dick, thanks for the color.

Thank you.

Thanks Philip. Next question please.

Tim Fox with Deutsche Bank.

Thank you, good morning. My first question regarding some of the larger deals that slipped from the third quarter, just wondering if you can comment first on weather those deals did come in. And secondly, around large deals, just wondering what you have implied in your guidance for fiscal '08 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. I'm just wondering what level of contribution you are expecting from those large deals heading into fiscal '08?

So the large deals, I think we saw this in Q3 and Q4, there are more of them, which the good thing. They are 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 we have a big pipeline, which we have been building in the last couple of quarters. So the other thing interesting, Tim, that happened this year was that 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 7s and a 6 that accounted for almost $30 million in revenue. In this last year, we had two deals over $5 million and they were both under $6 million, they were both in between $5 million and $6 million. So we had a much bigger number of medi [ph] deals, but not mega deals, and I think that actually was a pretty good thing for us in terms of that... the base business. So on the Q3 misses, I think that 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 we 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 with an automotive supplier in US that slipped out of Q3; it was about a $2 million to $3 million deal; it did not happen in the fourth quarter, but it happened yesterday. We've got the order yesterday. So it will 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. So basically we've 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 a just follow-on to an early question about the growth there. Obviously it's a smaller scale, smaller distribution channel where there is a lot of opportunity for you to expand that. But just wondering on 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 those 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 in that customer base for our product that we didn't call it Windchill, but we describe the characteristics of Windchill and we saw a lot of pent-up demands. And in fact that's an area where the CoCreate customer base is not that happy because there has not been an offering, most of them haven't gone somewhere else, but they are scratching their head, try and decide what to do. They want work flow, they want changed management, they want configuration management, they want visualization, all the basic straight up the middle stuff that our PDMLink solution does. Now they probably are also interesting in technical publishing. Where there is electronics, there is software, where there is software, there is tons of documents. So, there will be good Arbortext play there. This is just a good opportunity to take them from a CAD system to a product development system.

Great. How much overlap is there between the 5000 customers?

Not much. Does anybody has a statistics? It's sort of 10%, 20%.

Yes, it's in that range.

Great. Thank you.

Thanks Jim. Next question please.

Mike Olson with Piper Jaffray.

Thanks. Hey, everybody. Just a 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 are hearing versus the overall business going forward? I guess in other words, do you think channel revenue and may that... by that it's channel revenue excluding CoCreate, it's going to grow faster than overall company revenue or in line or any changes that you'd seen on that front or any thoughts will be helpful?

Yes, Mike, it's Neil. So, I think our channel revenue grew, but based on the 2006 results, we reported 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% to 20% range. And that continues to be our expectations and particularly we think the CoCreate transaction will help kind of drive additional growth through 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 gained share in Europe or what do you attribute that to?

I would say we are definitely gaining share in Europe. We won some really large competitive deals, some very big Windchill deals throughout all the countries in Europe. And I think we are 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 are 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, 6 of them were in Europe. And we haven't seen that type of performance in a while.

Pretty... has a pretty competitive situation there because UGS is now headquartered in Europe, SAP is in Europe and Dassault in Europe. So, we have that growth and every single deal was contested, again because the competitors were calling high and trying to overturn the decision that the users made. But the good thing for us is 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 then just on the INTRALINK to PDMLink upgrade, that's something that we have been keeping a close eye on. The way I have 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 what percent of people that have to move... move into PDMLink versus the latest version of INTRALINK?

Yes. So, just to reiterate the fact... side grade to equivalent functionality from which they may subsequently upgrade. That could be a services revenue opportunity or they could do an upgrade that's a license revenue opportunity and the services revenue opportunity right upfront. So, in a caveat, I've given you before, 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% to 25% of the base has completed their move. We are 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 is 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 actually this month offered the customers the opportunity to sort of buy a maintenance rider that we give them a one-year extension on the current Pro/INTRALINK existing systems so that they have a little bit more time to complete that upgrade. But I think it's really a good new story that our Windchill business in pretty strong and there is a heck of a lot of runway in this one particular compelling driver. And it will continue to influence our business and Windchill for sometime to come.

PDMLink or INTRALINK, which way it's going.

Oh, yes, one other statistic, which I am supposed point out to you here is which way are they going. So, I think if you take a small customer, they might be doing at side grade. 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 side grade, but more common practice is in the smallest accounts.

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

[indiscernible]

What do you expect... Neil, what do you expect non-GAAP tax rate to be in the next few quarters?

40%.

Okay. Thank you.

Thanks Mike.

Thank you. Real quick, CoCreate is the business primarily doing by channels or do they have any direct sales people?

It's about half and half, Yum.

Okay.

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 that's probably the way it'll wash out when we sort of absorb it in our business. Next question?

And then also can you share with us any new initiatives to improve sales execution or at least the consistency of it for a year as we head into the new fiscal year here, especially around larger deals? You guys are 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 sales execution on larger deals, especially in light of the consulting organization going through a major change?

Well, one of the things that we... we use Siebel, we have a very disciplined approach to the large deals where we track them in weekly conference calls and 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 deals, particularly in our installed base when we have a relationship with the customer. So, we work on broadening... growing the size of the deal, we work on trying to predict in what timely fashion when they're going to happen and I think absent last... the June quarter we've done a pretty good job at that over the last couple of years. The pipeline continues to grow. I mentioned earlier pretty quickly that in our first half forecast of record in the third week of the first quarter here in October, first pass in the forecast for Q1 is strong. So, we just have to make sure that we get out there and execute and again we are going to generate more pipeline because we are going to add another 40 reps for the first time in 3 years. We are going to increase capacity. When we look at sales productivity it increased to what, 10%, 15 % this year?

That increased at an average of over 10% to last 3 years.

Right. So, we also continue to drive sales force productivity through account assignments and then continuing to assess did any revenue come out of those medium-sized accounts that we 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 that we've three people who are patiently waiting to ask their questions. So, we are going to move on and I want all three people to be able to ask their questions. And we are going to answer you quickly and then if you need to follow up later, we will follow up. Next question.

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

Sure. Well, I think if you look at the enterprise side, our growth rate on license has been relatively consistent to last 3 years. We have been growing our license revenue on enterprise north of 20%. So, we would expect that trend to continue. On the desktop side, we probably are 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 months basis it's pretty darn unpredictable. On the desktop side, that's essentially what the market rate of 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 just said would grow at the overall rate of growth of the company, if license is 10% and services is flat it would suggest that maintenance would grow slower than license. Can you described why that would be?

Well, the maintenance business in this past year on an organic constant currency basis grew by 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 are also not forecasting inorganic growth as part of next year's plan. So 6% would be a reasonable assumption. You are correct that over time if the license business grows 10% in perpetuity, it's going to drag more maintenance growth 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 Koenig with KeyBanc Capital Markets.

Hi Steve.

Hi, thanks a lot. I will make it just one question here. Just getting back to... now that you have had a very good Q4 and it gives you some better perspective on what happened in Q3, at the end of the Q3 you said you suffered perhaps a mid market attention deficit, you had underinvested in sales capacity and you are building that up again clearly. You also said close rates for down in the mid size and large deals, large accounts. Now you have had a very good Q4 and you talked about increasing sales capacity, are you now comfortable with where you are at relative to having made up that Q3 mess or there are more things you will need to do? Re-organizing the sale force, re-focusing on the mid markets, and how do you... and also, how do your close rates in Q4 in the mid market... did they come back to where you wanted them?

The close rates in Q4 in the mid... in all markets were above where we actually had the forecast. So we had really good 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 there was a little bit of some 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 is a good steady stream of those. So, I really sort of take Q3, it 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're going to get.

Thank you.

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

Correct. Your last question comes from Chris Follin with Olio Securities [ph].

Hi, my questions have been answered. Thank you.

Okay, thanks Chris. Dick, would you like any parting remarks?

Well, I'd just like to thank everybody for the time today. I want to congratulate ourselves here because of what... because the Boston Red Sox won the World Series and I think the Patriots are going win the Super Ball. That's five world championships for us in the last six years. So we felt pretty good about that top.

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

Thank you again.

Thank you.