Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the PTC 2019 Fourth Quarter Conference Call. [Operator Instructions] I would now like to turn to call over to Tim Fox, PTC's Senior Vice President of Investor Relations. You may begin.

Thank you. Good afternoon, everyone, and thank you for joining PTC's conference call to discuss our fiscal Q4 '19 results. On the call today are Jim Heppelmann, Chief Executive Officer; Kristian Talvitie, Chief Financial Officer; and a special guest with us today, Jon Hirschtick, CEO of Onshape. Before we get started, please note that today's comments include forward-looking statements, including statements regarding future financial guidance. These forward-looking statements are subject to risks and uncertainties and involve factors that could cause actual results to differ materially from those expressed or implied by such statements. Additional information concerning these factors is contained in PTC's filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Forward-looking statements included on this call represent the company's view on October 23, 2019, and PTC disclaims any obligation to update these statements to reflect future events or circumstances. As a reminder, we'll be referring to operating and non-GAAP financial metrics during today's call. Discussion of our operating metrics and the items excluded from our non-GAAP financial measures and a full reconciliation of GAAP to comparable non-GAAP financial measures under both 606 and 605 are included in this afternoon's earnings release materials and related Form 10-K. I'd also like to remind everyone that starting with the first fiscal quarter of 2019, we adopted ASC 606 on a modified retrospective basis. In our earnings documents, we provided results under both ASC 605 and 606. Please note that the SEC requires the presentation of 605 results for the comparability with the prior year results. As such, our discussion on this call will focus on 605 results unless otherwise stated. Also please note that certain operating metrics such as bookings and ACV are under the same, both for 606 and 605. And with that, I'd like to turn the call over to PTC's CEO, Jim Heppelmann.

Thanks, Tim. Good afternoon, everyone, and thank you for joining us. As Tim mentioned, we're very excited to have Jon Hirschtick joining us this afternoon to help me usher in what we believe is the new era of software-as-a-service or SaaS in the product development industry. PTC and Onshape share a common vision around helping organizations transform the way they develop products. Onshape's pure multi-tenant SaaS platform is a perfect complement to our market-leading on-premise product development solutions. And coupled with our industrial IoT and AR solutions, we can address an even broader part of the waterfront of digital transformation that's sweeping across the industrial market. Before Jon and I provide you with some additional color on our combined vision for PTC and Onshape, I want to provide highlights of our fourth quarter and fiscal year 2019 performance and discuss progress against key strategic initiatives. Given all the news and updates we're planning to share today, we know there is a lot to absorb and I'm guessing that we'll run out of time before we run out of questions. So to help further unpack all the moving parts, we're hosting an investor webcast on November 18, where we will reveal our long-term financial targets, show you how we plan to get there and provide more insight as to how Onshape plays in the picture. Stay tuned for more details on that event coming from PTC's IR team. On our Q3 earnings call, I characterized fiscal 2019 as a transitional year, where we achieved some important milestones like going global with subscription licensing while navigating through some short-term challenges in the business including a lackluster macro situation in the industrial world. With that as context, I'm very pleased with our Q4 results and confident that we've established a strong foundation for…

Happy to. Thank you, Jim. Let me first say how excited I am today. I spent my entire career since the 1980s in our industry, working on CAD and other software for product development. I've been lucky enough to be part of some of the biggest moments in the past in our industry and I feel like today is perhaps the biggest moment I've experienced in our industry. When Jim and I met earlier this year, it was so exciting to me that he had this strong, clear vision that we share for the power that a pure SaaS platform could bring to the product development world. It was so refreshing for me to see also Jim's understanding of and commitment to pure SaaS, pure cloud since so many others in our market are pursuing partial cloud approaches. And frankly, partial cloud has been shown to fail time and time again in other markets. Beyond just Jim's vision, he also obviously has resolved to take bold action to pursue his pure SaaS vision. And thank you, Jim, for the kind words about me and my fellow Onshapers. I'm very fortunate to be working with a lot of the great team that was with me when I founded and was CEO of SolidWorks. My Onshape Co-Founder, John McEleney, has also worked in our industry since the '80s, most notably as my business partner and another former CEO of SolidWorks. Another Onshape Co-Founder, Dave Corcoran, is a former VP of R&D at SolidWorks and is one of the key minds that shaped several of the greatest products in our industry, including SolidWorks and, of course, Onshape. I wish I have the time here to tell you more about each of the rest of the 100 or so people on the Onshape team,…

Great. Thanks, Jon. I can't tell you how excited I am to have you and your team on my side this time around as we head into another wave of industry change and transition. Let me share a few important thoughts about how Onshape fits with PTC's core CAD and PLM strategy. Our near-term goal is to increase our participation in the growthiest part of the CAD and PLM market, which really represents an adjacency to where Creo and Windchill play today. Jay Vleeschhouwer pointed out in a recent report that last year there were 174,000 new seats of CAD sold in the market globally with the sole SolidWorks business taking about 80,000 and Autodesk Inventor business capturing about 40,000. Creo, CATIA and NX took the bulk of the rest. In the near term and midterm, it is that 70% of the market served by SolidWorks and Inventor that's most interesting to pursue with Onshape. Onshape gives us an opportunity to both participate in and then disrupt this part of the market and we can enter and play with a very strong hand. Thanks to the massive advantage and innovation velocity that Jon spoke of, plus some great new technology like Generative Design that PTC can share within the portfolio, we expect Onshape will quickly mature into a full-featured SaaS CAD solution. There will be no glass ceiling on Onshape capabilities like SolidWorks endured over the years because PTC's positioning will be that we have the best of 2 different worlds. Creo and Windchill are best-in-class in the on-premise world and Onshape CAD and PLM are best-in-class in the pure SaaS world. It's happened time after time that disruptive new technologies gain traction first in the SMB space, where customers generally have more flexibility to switch and then proceed up…

Thanks, Jim. Thanks, Jon. And good afternoon, everyone. Before I review our results, I'd like to note that I'll be discussing non-GAAP results and guidance, and all growth rate references will be in constant currency. And as Tim mentioned earlier, we adopted the new revenue recognition standard ASC 606 under the modified retrospective method on October 1, 2018. For year-over-year comparability purposes, I will be discussing our results under ASC 605 unless otherwise stated. Please note that this will be the last quarter we report results under both accounting standards and the guidance provided today will be under the ASC 606 standard. Lastly, our guidance assumes that the Onshape acquisition closes in November following normal regulatory approvals and certain closing conditions. Let me start off with a review of our fourth quarter results. I'm going to keep my remarks brief, hitting just some key highlights and ask investors to refer to our press release and prepared remarks, documents available on our IR website for additional details. Q4 bookings of $150 million were above the high end of guidance and included a megadeal with Rockwell Automation. Excluding the megadeal, bookings would have been well within our guidance range. Q4 ARR for the new definition was $1.116 billion. And at our guidance, FX rate was $1.134 billion representing 12% year-over-year growth which was in line with the guidance we outlined in our September preview. Our fiscal '19 new ACV and churn results were also consistent with the guidance provided in the preview. As Jim mentioned earlier, ARR in our growth businesses was up 28% year-over-year at constant currency which was slightly below the outlook we provided in September. It's important to note that bookings in our growth businesses were up over 50% year-over-year in Q4. But because we closed a higher number…

[Operator Instructions] First question comes from Matt Hedberg from RBC Capital Markets.

Congrats on Onshape. I had 2 somewhat related questions on the deal. First of all, do you have a sense for how many of your customers have expressed interest in a SaaS-based offering? I'm trying to get a sense for that customer migration over time from sort of Creo and Windchill to Onshape. And secondarily, I think you noted you're going to continue to invest in CAD and PLM on your sort of legacy products or your core products. How should we think about that gap in functionality closing over time if, in fact, the SaaS-based CAD market is growing as rapidly as you suggest?

Yes. Matt, so Jim here. We did, as I mentioned, commission McKinsey to do a study during our diligence phase here, and to replace, let's say, anecdotal data with quantitative data. And McKinsey did a study of around 230 customers. They reported very strong interest in the concept of SaaS. Some concerns that SaaS products weren't mature enough yet, always some concerns about switching cost and the larger the enterprise, the stronger that concern but huge amount of interest. And now I would say one of the things PTC came to realize is that this Onshape product is actually much better than we thought it was, much more advanced than we thought it was. So we sort of think that the world hasn't processed how fast this product changes. While we, PTC, were talking to the Onshape guys, they did their 101st, 102nd and 103rd upgrade of the entire customer base. So there's an innovation velocity here that's amazing. And I think it's probably fair to say that Onshape is a mid-range product today but on a very fast improvement vector. And we at PTC would be incented to offer up any of the great technology we might have to put into that improvement vector. So this is a product that's better than most people think it is and improving extremely fast and there's a very large amount of interest. So again, the resulting -- the kind of punchline result of the study, if you will, from McKinsey was that they think that we'd see a 35% CAGR over what's there today and that would lead to slightly under 20% market penetration by true SaaS in the next 5 years.

Next question comes from Jay Vleeschhouwer from Griffin Securities.

A question for you, Jim, tying back to your keynote address at LiveWorx back in June. And the Onshape acquisition is fascinating for any number of reasons. And I'd like to put it in the context of what you spoke about 4 months ago, namely your Closed-Loop Lifecycle Management strategy, which you've talked about for a number of years, you've made some progress there. But how do you see Onshape fitting into that larger vision that you expressed at that time, not just with CAD but perhaps with the broader portfolio in terms of technology and customers and processes?

Yes. I think, Jay, in simple terms, we will attempt to create 2 versions of that strategy, one that runs on-premise and one that runs in a cloud. Of course, we already have the one on-premise. So as Onshape matures, we will try to create all the goodness that PTC has on-premise in that SaaS world as well. And at some point when customers say, "Hey, I want to learn a little bit more about SaaS." We want to be head and shoulders ahead of everybody in terms of providing a very mature, proven, full function capability not just for CAD and PDM and collaboration but the closed-loop idea, augmented reality idea, the IoT idea that you saw us -- saw me show in that keynote, by the way. So it's very exciting, in fact, at keynote, you might have noticed, it won me visionary of the year designation from one of the analysts in this market. And we just want that visionary capability to embrace the SaaS model, that's really where we're going with this.

Next question comes from Ken Wong from Guggenheim Securities.

I just had a kind of a clarification question. I just want to understand the dynamics of that Rockwell megadeal. I think you had mentioned it was kind of credited against the minimum sort of fiscal year '20. Just wondering kind of how we should interpret that. Does that mean the relationship kind of is tracking below the minimum? Is there an ability to get that back on track? Or am I interpreting that wrong?

Yes, Ken, it's Kristian. Yes, I actually...

You can't infer much from that transaction other than actually things are going well. And to infer more than that is impossible. Because of confidentiality agreements we have with Rockwell, we don't really intend to disclose more. Partnership is going well.

Next question comes from Ken Talanian from Evercore ISI.

I was wondering if you could give us a sense for how you're thinking about growth in CAD, PLM and, separately, IoT relative to the high and low end of your fiscal '20 ARR guidance.

Sure. So I mean I think in general we would expect that CAD and PLM will continue to outpace market growth rates and we actually expect IoT to end up significantly outpacing market growth here in fiscal '20 again due to some of the factors that I outlined in my prepared comments.

Right. So I think probably CAD and PLM growth in the range, perhaps, a little less than where they are this year. But to be -- to add some conservatism. And if you take that IoT business growing much faster, growing kind of at the rate we've guided, you add in 1 point from Onshape, you take down probably the 10% in the FSG group. I'm not sure we're planning to do 10% again, I hope we do, but I don't know if we guided that.

Nope.

You run some models around that and you're going to land kind of in that range and maybe even near the upper end of it. So our view is that range contains a notch or 2 of conservatism in case the economy actually gets worse than it is at this moment than it has been in 2019.

Next question comes from Saket Kalia from Barclays Capital.

Jim, Kristian, congrats on the deal. Kristian, maybe just one for you. I hate to bring in the 606 accounting item, but obviously 606 rev rec here is going to make revenue a little lumpier, to your point, and that can be even more magnified by large multiyear deals. I think you talked about the wider range for income statement guidance, which we've seen other companies do as well. But can you just touch broad brush on some of the assumptions that you made in the revenue guide as it relates to sort of some of those large multiyear deals which again can be very magnified when it comes to rev rec?

Yes. So I think as it relates to the, we'll call it, the large portion, I don't -- we're not really anticipating any significant change in the overall, we'll call it, size of those businesses. And I think probably the bigger question is what happens to the term length particularly on both new and renewal bookings? And the assumption that we're using is -- in the guidance is that we would expect modestly increasing length of term of contract particularly on the renewal side. That's probably one of the bigger factors, is really the term length.

And then of course as you know, Saket, by eliminating that cancellation clause, which we think was an appropriate move, that immediately doubled the length and the effect of all new transactions. So it kind of took those things from 1 year to 2 and, in some cases, to 3. So I think the key thing is just that this number is going to jump around a lot. We're going to have a bang-up year in revenue growth, and I promise you, we're not going to brag about it because the better we do this year, the more it's going to come out of the future. And in the end, the business is the same, it's just moving it from year to year based on revenue recognition rules. So I promise we won't gloat this year. And then you've got to promise to remember next year that we didn't gloat this year.

Next question comes from Joe Vruwink from Baird.

Congrats, both teams on the acquisition. Jim, your commentary was interesting. Just in the context, PLM was a strong quarter, CAD having a sequential rebound, megadeals and IoT. And all of these is coming in the context of a weakening macro. I'm just wondering if you could maybe reconcile the 2 dynamics. And then as a quick follow-up, whether you saw any change in customer spending behavior as the quarter went on?

Actually Joe, it's interesting because the PMI number, as you probably know, is in the worst place it's been since 2009. But it doesn't feel like that out there. Unemployment's at a, I don't know, I think I heard 50-year low, which doesn't reconcile with the PMI being where it was in 2009. So number one, this downturn feels a little different somehow. And then the second factor is that we are convinced our growth businesses are secular, not cyclic. So we also think that a growing amount of what we sell is potentially more interesting when faced with a difficult spending environment. When companies buy our IoT technology or AR technology and deploy it, for example in a factory, they do that to save money. And so I think that won't go out of style in a downturn. But it is a bit inexplicable but quite -- feels quite good that in the face of what really looks like a difficult economy. PTC just posted the best year in the 21 years I've been here. So I feel good about that. And we've allowed for some conservatism in our guide just in case. But I hope we don't need it.

Next question comes from Adam Borg from Stifel.

Maybe just want to dig into Creo Simulation Live. It's great to see continued progress there. And just maybe 2 parts, one, is there an opportunity to embed that into Onshape? And then two, as you think about the overall CAD installed base, design engineers, what percent do you think is really addressable by a technology such as this?

Yes. So let me take a stab and then maybe, Jon, you can add some thoughts on the second one. So with respect to Creo Simulation Live, for everybody's benefit, that's ANSYS technology embedded in Creo and it's really started to get some momentum. Of course, we've not been able to talk to ANSYS about it because you can't really do that before you announce such an acquisition. We only announced it this afternoon. So it's certainly a conversation we should go have with ANSYS. And I can't comment. We would need their permission to extend that right and so on and so forth. But definitely having capabilities like Creo Simulation Live and Onshape, I have to think would be very interesting. Let's call it Live Simulation. And then the second thing, the installed base. What the McKinsey study told us was that there's about 35% of the market that wouldn't find SaaS interesting at all, meaning, 65% of the market actually has some level of interest. Now we think that 2 things: Number one, the growthiest part of the market where the most new seats are sold is really the SMB space where PTC doesn't play. It's the domain of SolidWorks and Inventor. And I think Onshape is in a good position to win a good share going forward, expanding over time, but win a good share of those new seats being sold. And then the second thing is I think Onshape goes beyond that and it's a disruptive technology, a technology that will convince people to switch. And of course, smaller companies have more flexibility to switch, but arguably larger companies have more reason to switch. But you've got to balance sort of the goodness of switching with the switching costs and so forth to execute the switch. And that's why I think death comes from below, disruption tends to happen lower in the market and move up over time as people get more comfortable with it. Jon, anything you want to add to that?

No. I think that was a great answer.

Next question comes from Steve Koenig from Wedbush Securities.

I'll just focus here on Onshape, and welcome to Jon. Maybe just a few, I'll call it, a set of related questions that creates one question. So on Onshape, on the guidance for 1 point of contribution to ARR growth, is that somehow -- is that a pro forma? I mean is there more revenue there that's somehow not getting counted next year? I'm just -- I'm trying to relate that to your purchase price. And if not, then are we -- your conversation about a 35% growth rate in the market, should we expect that Onshape is ramping significantly faster than that? And then I'll just put it out there. Any comments on how Onshape competes or differentiates with Autodesk Fusion? And also comment on what channel will you use to sell it, and is there an existing Onshape channel? Or will you be building one? What's the go to market going to look like?

Okay, no problem. Jon, let me hit the first couple and then maybe you can pick up the competitive one.

Great.

So the 1% ARR is ARR growth. 100 basis points is taking what Onshape is already doing plus the growth we're projecting and simply adding it into PTC's plan for, what, 11 months, Kristian? So you're right about that math. Now Onshape has been growing much faster than 35%. And frankly, I hope they continue to do so. So within the market that's growing 35%, of course, we are in a position, I think, to take quite a bit of share. So I don't think you should think that our plan would necessarily be 35% but you should think that the market per this one study would support aggregate growth of 35%. You want to hit the competitive?

Yes, happy to. Steve, you mentioned competitive position with Autodesk. I think their vision aligns with ours. They say that the cloud is future SaaS, and the future is just -- they don't back it up with the goods yet. I mean our view, as Jim said, we align completely on the idea that you have to have a pure cloud, pure SaaS platform and offering. Autodesk today offers a partial solution the way -- mixing installed software with cloud -- partial cloud services and so forth. Those strategies are not things that we believe are the way to deliver the values -- the value we seek to deliver to customers. And so we think we have a big advantage there.

Yes. Let me add to that. Our studies showed that Onshape pretty much goes toe-to-toe with features and functions against SolidWorks but beats them for anybody who wants SaaS because SolidWorks doesn't have SaaS. And our study said that against Fusion, it's a better, much cleaner, better and more complete SaaS model and blows them away on functionality. So we think we're in a very good strong competitive position against both of those with the Onshape technology. And then with respect to the channel, one thing that PTC has which could prove very helpful here is a channel that lives in the bottom half of the market or at least kind of, let's say, in the middle part of the market and could go downmarket. So under NDA, I've had the luxury of running the Onshape technology past some of our channel partners as part of our diligence and they're very, very excited. They feel like, sort of like once upon a time they had still SolidWorks in one hand and CATIA on the other and there was a tough left right punch against PTC. We sort of have that against SolidWorks now. You want to go simple SaaS, that model, we've got a great product. You need more features. We have Creo and all the wonderful things we've been doing there. So I think we need more time to plan what role our channel will play here but I think it's definitely an asset that is going to prove to be very, very important as this picture unfolds over time.

Next question comes from Yun Kim from Rosenblatt Securities.

Congrats on the deal, Jim. On your core business, how much -- I'm just going back to the basics here, but on your core business, how much of your IoT and AR business is generated within your -- the core CAD and PLM installed base? And along that line, if you can just give us at a high level, at least, how much of your IoT and AR business is driven by the Rockwell Automation partnership today. Just trying to get a better understanding of where the IoT and AR growth opportunity is in the near term.

Kristian, do you have data on the first one?

We'll have to come -- we'll get it...

Yes. I mean I think I can only give you estimates on both of those. I probably know the second one. But on the first question, how much of IoT and AR is sold into our installed base of CAD and PLM, I'm going to probably say 60%. Yes, 50%, 60%. I mean, on one hand, we have those relationships. They're extremely useful. On the other hand, we're winning in all kinds of accounts because we're a little bit uncontested right now. So we're also trying to go and having success going well beyond the installed base. And of course as I mentioned, what Rockwell sells is well beyond the installed base, right? And then on the second question, how important is Rockwell. Rockwell would be a single-digit percentage of what we're doing right now, but growing quickly. So they've gone from not part of our strategy to a small part at this moment. But it's a small part growing at a high rate and should become increasingly material as we go forward. I can imagine Rockwell getting up to be double digits. And I don't know, maybe down the road somewhere, 1/4 of our business. They have a massive installed base. They have a very high win rate. They're having good deployment success. The future with Rockwell looks very, very promising.

Next question comes from Sterling Auty from JPMorgan.

I want to go back and put a finer point on Steve Koenig's question. So with Onshape, if it's 1%, it sounds like this is about a $10 million revenue generator in terms of where Onshape is. And if I take 5,000 or so subscribers times the printed pricing that kind of supports that idea. For $470 million net cash, that's a big multiple to pay. And I don't think anyone disagrees that they've got the leading technology on the market, but they've been around for a number of years and we're seeing slow adoption at this point. Just to play devil's advocate, what was the buy versus build decision? $470 million invested in...

Yes. Well, yes, that's -- Sterling, that's a good and fair question, and the buy versus build is a good place to start. It cost Jon, with an incredible team of the best guy in the industry, 6 or 7 years and $100 million to get where he is right now. So for me, it would be a little harder to do that entrepreneurial efficient thing, so our estimate is it would take us at least 5 years and several hundred million dollars to build what he has. So there are several hundred million dollars of synergy here. Now the second thing I'd tell you about the price is it's -- this is a unique asset. It's the only one out there which gives Jon, of course, some negotiating leverage. Another point is it's the same revenue multiple that we paid for ThingWorx. And it's the same revenue multiple that Dassault paid for SolidWorks at the same size, if you adjust the difference between multiples on perpetual versus multiples on subscription revenue streams, ARR streams. So I think you and I both would agree that $100 million ARR stream is worth more than $100 million perpetual onetime stream. So if you take the difference in those multiples and gross up what Dassault paid for SolidWorks, by that factor, you get to what we paid for Onshape. So I think I can triangulate on this many different ways, and I think this is a very good buy at this price. It's a win-win for both parties.

Next question comes from Tyler Radke from Citi Investments.

I want to -- I have 2 questions, I'll try to fold it into one here. But I guess, just at a high level, Jim, obviously nice to see kind of some of the reported metrics come in line or ahead of plan this quarter. I guess just how -- more broadly, how do you feel about execution and sales capacity? And then as a follow-up for Kristian, I think you mentioned kind of a gradual ramp in the ARR growth as we go into next year. Just curious if that's a function of what you're seeing in the macro environment or that has -- or if there's something else we should be thinking about.

I think on the execution side, Q4 was a solid quarter. We didn't have to make a lot of excuses. You can take the megadeal out, it was still a solid quarter. So I think we feel pretty good about no surprises in Q4. It went more or less like we expected it to. And I think we feel pretty good about the forecast going forward. We have a strong pipeline, lots of momentum, lots of good stuff happening. So I don't know, I think we were all stressed, particularly 90 days ago. But certainly, the past 90 days have been a good 90 days. Kristian?

Yes. And again just on the seasonality on the ARR remembering that, that is the entire, we'll call it, stack of customer arrangements that we have. And as such, you need to consider the, we'll call it, rate of new bookings, the expiring base kind of churn and looking at those variables and then also understanding the committed ramps as those layer in throughout the year and even deals that were booked with start dates throughout the year, understanding how those layer in. That's how we get to that range 12% to 15% for the year. And as I said, I think we're going to start the year below that range and it will ramp throughout.

Right. And I want to add, maybe just some color to something Kristian said. He used the term backlog. And what he's referring to is we are sitting on signed contracts right now that, for example, may ramp up a big notch in Q3 or Q4. We don't have to go win that business. We just have to wait for Q3 or Q4 to get here and it kicks in. So that's one of the reasons why we see this ramp is because we're sitting on a fair amount of already closed business that does not count in Kristian's new definition of ARR because it hasn't started yet. So it's really a combination of overlaying the backlog we're sitting on with the forecast we're looking at and seeing that seasonal shape.

This will be the last question. After the question, all callers please remain on the line for closing comments from CEO, Mr. Jim Heppelmann. Last question comes from Jason Celino from KeyBanc Capital Markets.

I wanted to kind of unpack the IoT ARR growth in the quarter. 28% constant currency, still very good, above market rate but a little bit more deceleration than I expected. And I appreciate the full backlog we have and that's encouraging. But can we just kind of unpack Q4 a little bit?

I mean again, the -- really, you have to unpack bookings from ARR. And again remembering that per our definition ARR is again the full annualized contract value of all the contracts that we have at the end of the period that are active. And we -- that's what we ended up with in terms of year-over-year growth, the 28%. Now also remember that what I said was we had a very good bookings quarter for IoT in Q4. And a good chunk of those bookings have start dates that are in fiscal '20. And then in addition to that, we also have previously committed ramp deals as well as some other ramp deals that were booked in Q4, which pushes the ARR really into '20. And we would expect a pretty significant increase in ARR above-market growth rates in '20 as a result of timing of how that ARR flows through.

Yes. I think just -- if I could add two cents to that, Jason. Kristian mentioned very strong bookings. But if you remember, our business is really back-end loaded in the quarter. So if we do a good-sized deal in the last week of the quarter, it's highly unlikely that deal is going to start in that same week. If it starts next week, I'm sorry, it's backlog. So really what we need to do is to try to estimate how much of the deals will start in the same quarter they're purchased. First, we have to win the deals. But secondarily, we have to try to estimate the start date in order to understand will it be in the ARR? Or will it be backlog and it'll jump into the ARR in the coming quarter? And what really fundamentally is the deal here is more of it ended in backlog than in ARR but that sets us up nicely for next year. Okay. I think that's the end of that, so I want to thank everybody for joining the call and spending an hour with us this afternoon. So again in summary, it's a challenging macro environment but we closed the strongest -- a strong year of ARR growth. The IoT and ARR business are working well. The core CAD and PLM business are working well. The focus solution group business had a pretty strong year actually. And all of that against this backdrop. So on top of that, Onshape has entered our lives here and it is clearly going to be a new growth engine but also a longer-term path to a SaaS future. So there's a lot here at PTC that we're proud and excited about, and. If you get a chance to join us on the November 18 webcast, we're going to take you into much deeper detail, particularly along -- around the long-range plan and free cash flow and all the puts and takes and assumptions and sensitivities and so forth. So we'll try to give you a good clear view on how doable that is. And I think you're going to like the answer. But if you can't join then, I look forward to talking to you in 90 days, if we don't happen to cross paths sooner. So thanks for joining us. Bye-bye.

That concludes today's conference. You may disconnect at this time, and thank you for joining.