Good afternoon ladies and gentlemen. Thank you for standing by and welcome to the PTC 2020 Fourth Quarter Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. I would now like to turn the call over to Tim Fox, PTC's Senior Vice President of Investor Relations. Please go ahead.

Thank you, Joelle. Good afternoon everyone and thank you for joining PTC's conference call to discuss our fourth quarter and fiscal year 2020 financial results. On the call today are Jim Heppelmann, Chief Executive Officer; and Kristian Talvitie, Chief Financial Officer. Before we get started, we'd like to acknowledge that a table from our press release became public and we're currently looking into how this happened. In the meantime of course the full set of earnings documents are available on PTC's Investor Relations website. Now, moving on to today's call. Please note that our comments including 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. As a reminder, we will be referring to operating and non-GAAP financial measures during today's call. Discussion of our operating metrics and the items excluded from our non-GAAP financial measures and a reconciliation between GAAP and non-GAAP financial measures are included in our earnings press release and related Form 8-K. References to growth rates will be in constant currency unless otherwise noted. And lastly we'll be referencing our prepared remarks document which is in presentation form today which you can find posted on our IR website. With that, let me turn it over to Jim.

Thanks Tim. Good afternoon everyone and thank you for joining us. I hope you and your families continue to stay safe and well during this crisis. Before jumping into our quarter and year-end review, I'd like to begin by sharing several pieces of new news that we announced earlier this afternoon. Turning to slide four, we're very pleased to announce that PTC and Rockwell Automation have extended our strategic partnership by two additional years which cements the alliance in place through fiscal 2023. We have also broadened the partnership beyond IoT and AR to include PLM and Onshape. Back in May, Rockwell acquired Kalypso, a professional services company who has been a strong PLM and IoT partner of PTC for years. Kalypso gives Rockwell increased capabilities to pursue digital threat initiatives so the scope of our agreement has been broadened to embrace those pursuits. The agreement has other changes that better encourage sales cooperation give PTC access to Rockwell's Emulate3D factory simulation software and naturally it contemplates continued growth through fiscal 2023. The alliance has expanded our reach and our capabilities as intended while providing Rockwell with access to best-in-class Industry 4.0 software technology, the agreement has allowed PTC to address significant white space in the market. Rockwell has introduced PTC technology into more than 250 sizable companies across 45 countries to date. And 70% represent new logos to PTC. Rockwell has quickly become one of PTC's biggest and most important partners. Blake Moret, the Chairman and CEO of Rockwell Automation shares my view that this extension is a big win for both companies. Turning now to slide five, we also announced earlier today that we'll be hosting a virtual Investor Day on December 15th. We'll be reviewing our strategy, secular growth drivers in our markets, our broad solutions portfolio,…

Thanks, Jim 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. Let me start off with a brief review of our fourth quarter and full year results and then spend the balance of the call on our outlook for fiscal 2021. Turning to Slide 26. Fiscal '20 ARR of $1.27 billion increased 14% year-over-year or 11% on a constant currency basis, which was at the midpoint of guidance. As Jim noted earlier, we had very strong bookings performance in Q4. And consistent with recent trends we did see an uptick in ramp deals which we believe reflects a level of customer conservatism on the pace of their software deployment plans, given the current environment. The takeaway here is that even though our strong bookings outperformance didn't represent a meaningful change to fiscal 2020 ARR, it contributed to backlog in future periods, primarily fiscal 2022 and beyond. Fiscal 2020 new ACV grew 10% despite a year-over-year bookings decline in the high single digits due to the backlog we had entering the year. Churn of 8.6% was slightly higher than expected. Fiscal 2020 free cash flow of $214 million was slightly ahead of guidance. Note that free cash flow for the year includes approximately $52 million of restructuring and acquisition-related payments, as well as approximately $8 million of incremental interest paid before we retire the $500 million of 6% notes back in May. It's also worth pointing out that interest payments on our bonds are now in our second and fourth quarters, while previously they were in our first and third quarters. Fiscal 2020 revenue of $1.46 billion increased 17% year-over-year and was above guidance, driven by 27% recurring revenue…

[Operator Instructions] Our first question comes from Jay Vleeschhouwer with Griffin Securities. Your line is now open.

Yes, thank you. Good evening. Jim let me start with you and ask about what I think are still the two largest sources of revenue for you, namely your CAD active base and your PLM active base. And this is an industry trend question. Over the last couple of years there's been a very interesting phenomenon with Creo growing as quickly in terms of its active base as your principal peers have been doing after lagging your peers' growth as far as active base is concerned. So you're now with the rest of the group in that respect in the mid-single digits for Creo base growth. And so the question is, how are you thinking about the growth from here in the active base for Creo? And then similar question for the Windchill which has also been growing its base, it seems in about the mid-single digits, would you expect some acceleration in 2021 and beyond in the base? And for Kristian since you referred to hiring, I can't help but ask about that. It's been very clear that your open recs are well up from the trough back in the spring particularly for sales and service and R&D. Maybe walk us through how you're thinking about that reopening of the hiring aperture in terms of functions and geos and what it might mean for OpEx growth?

Okay. Jay I'll take the first part of that. So we showed last November was it when we had our Investor Day? We showed a model that said, if our bookings for CAD and PLM were to be flat then over the course of five years our growth rates would slow down from that low double-digit number to the kind of upper single digit almost mid-single-digit growth rate in the industry. That's if the bookings numbers are flat. But I think we do see an opportunity to do better than flat. We're winning -- we have very strong competitive products. We have new things to sell. For example in Creo, we have the Creo Simulation Live and pretty soon now the whole ANSYS suite behind that. We have this generative design stuff. We have AR the augmented reality technologies built into both Creo and Windchill. So I mean I think we feel like in the near term, we could slow down a bit in the next couple of years. But I think then, once you get to the midterm this Atlas project could be a real tailwind for growth. So I think that scenario that we showed last fall of slowing down to market growth, probably won't happen because I think that this Atlas SaaS-ification we call it of Creo and Windchill will actually be a growth driver using this Atlas platform that's kind of shared with Onshape. So we'll talk more about that naturally in the November time frame. But I think when you look at our growth rate versus others and one of our European peers reported results that were materially weaker than ours, I think we have really strong competitive products, I think we're in better verticals. For example, aerospace and defense is really defense for us in a strong way. We're in the medical device arena. And we have a business model that's terrific. It doesn't leak so much as others who don't have a recurring revenue model like we do. So I think there's just a collection of advantages that are allowing us for the third consecutive year and frankly forecasted into next year to continue to grow at rates materially higher than the balance of the market we compete against. Do you want to take the headcount question?

Is this part seven of the presentation?

Nine.

Part 9? Hey, you just put out a report was it yesterday or two days ago that laid out all the headcount like I don't even understand what the question is. I have to go to you to get the data on our own hiring plan.

Well, no I guess the question is...

Yes. Let me try and articulate it this way. We are continuing to invest in the business. There's a fair amount of call it go to market-related, which includes customer success sales and marketing resources. And additionally, Jim talked a lot about some of the future technology that's being developed. That obviously requires talent as well. So R&D talent is really the – also a large pool of hiring for us for the year. I think at the same time we are cognizant of what's going on in the world around us. And we're – we've got plans to hire them throughout the year, but I think we'll maintain flexibility as well depending on how the macro environment continues to evolve and how that impacts us in the short term. But that's generally what we're trying to hire is folks that can build cool products for our customers and folks who can help customers extract value from that.

Yes. I think too let me add. When you look at our OpEx increase in fiscal 2021, it seems higher than you might expect. But frankly a lot of that is just cost that fell out of 2020 because of COVID. We're allowing room for it to come back in. So let me give you an example. We spend $40 million to $50 million a year in travel and that just went to zero. So most of FY 2020 had zero travel. But we're assuming in FY 2021 that, yes, we'd be back calling on customers and stuff like that and that would ramp. So a lot of the cost increase makes more sense, if you take the two years and average them, right? If you take the 2% or 3% OpEx growth in FY 2020 and the 10% in 2021 you add it together you get let's call it 13%. Okay average is 6.5%. Well 6.5% makes sense against the guidance of 9% to 12% ARR growth. That's the way you ought to look at it. It's not so much that we're spending a lot more. But that we're returning some of the spend or actually planning for some of the spend to come back as we go into FY 2021.

Perfect. Thanks very much .

Our next question comes from Saket Kalia with Barclays. Your line is now open.

Hi, Saket.

Okay. Great. Hi, guys. Hey, Kristain. Thanks for taking my question here. I'll just keep it to one. Jim, maybe for you. How did the IoT and AR businesses sort of trend towards the end of Q4? And to the extent you can sort of comment here at the beginning of Q1 I guess exiting last quarter, it sounded like just like everybody else it was kind of difficult to sell into some of your end customers, just because of things like factory closing. So curious how things sort of evolved at the end of Q4, and how they're sort of looking now?

Well, let me tell you when we started Q4 the -- what we call the beginning of the quarter forecast had a what we call a wedge in it versus a hedge. No, I'm sorry a hedge versus the wedge I said that wrong. Meaning, we were actually taking it down from the roll-ups and saying the roll-ups look nice coming from the field, but we have this COVID thing going out there we should be conservative. But actually the roll-ups were higher than the forecast. So what happened throughout the course of the quarter is we raised the forecast four times internally. So I think we saw building strength throughout the quarter. It wasn't just like a Hail Mary pass at the end although frankly a lot of business did come in at the end. But we had raised the quarter or raised the forecast three times in the month of September alone prior to the last week. So I think we just saw a building strength, and yes a lot of it was IoT and AR, but frankly a lot of it was PLM as well. I mean, we had a bang-up PLM quarter, but we also had very, very good IoT and AR quarter.

Got it. Makes sense. Thanks guys.

Thanks, Saket.

Thank you. Our next question comes from Jason Celino with KeyBanc Capital Markets. Your line is now open.

Hey, thanks guys for taking the question here.

Hi, Jason.

So we talked a little bit about the funnel for the -- for IoT and in AR. It seems like it's really ticked up at least at the beginning of the pandemic. And you -- and it looks like Q4 things are back on track. Maybe can you talk about how we should think about sales cycles? What is the typical sales cycle look like now that things might be opening up? Would that be any different?

Yes. I think most of our AR sales cycles are less than two quarters. And then most of our IoT sales cycles tend to be more three and four, because it's a kind of bigger more complex enterprise system. It's a system of record, it requires some amount of implementation and weaving into the physical side of the business and so forth. So let me just say though the IoT pipeline is good and the AR pipeline is fantastic. And part of the places that some of those sales and marketing resources are going to is to make sure for example in AR that we can actually keep up in that pipeline, because there's so much interest and our competitive advantage is so strong. I mean, if you go look at the Magic Quadrant-type reports, which we'll show you in December if you haven't seen them recently. I mean, we are miles ahead of everybody in this field of industrial AR, and there's just a huge level of interest. So we just want to make sure we're in place actually to execute on it, because again, that interest won't hang around forever if we don't service it. So that's where some of the investment is going. Thanks.

Thank you. I’ll stick to one.

Thank you. Our next question comes from Adam Borg with Stifel. Your line is now open.

Hey, Adam.

Hey, guys, and thanks for taking the question. Maybe just two quick ones for me. First one Jim, maybe a bigger picture question. So, nice to see the Rockwell partnership being extended another two years. It would be great if you could comment on maybe the one or two focus areas of the partnership for this year and how you're thinking about that playing out. And then maybe just for Kristian churn, obviously, you're talking about 100 basis points of improvement next year off of some worsening trend this year. Maybe talk about what are the low-hanging fruit? And what are the drivers of the trend improvement? Thanks so much.

Yes. On the Rockwell contract just to add a little more color. I mean, we extended that early, because both salespeople and customers want certainty that by the time a campaign completes that the partnership is still in full force, right? I mean, you wouldn't want to start a three-quarter sales cycle in the back half of the year if that contract wasn't extended. So we really did it just to take any fear out and because it's a great partnership and we're both committed to it. There were some other changes we wanted to make, while we had the hood open, for example, throwing some more products in there and so forth. But the real thing was it's a great partnership. Let's not scare anybody by letting it come too close to the sun here where it looks like it might expire. So where are we going to focus? I think it's the same place we've been focusing. Rockwell has some real momentum with our products and they're really selling them into their strong suites. Their food and beverage, their North American automotive, their various different materials and oil and gas probably that's a little more challenged at the moment. But it's really Rockwell taking our technology into their very large customer base and really doing the smart factory kind of thing, where they add software this IoT and AR type of software to all the other products that Rockwell has both software and hardware and really build the whole smart factory strategy. So I think that's where we'll continue to focus. It doesn't represent a change. Adding PLM and Onshape, I think is interesting. I don't think that will become central to the partnership. It really is an IoT and AR partnership. But they see some opportunities around Onshape. We showed some examples of how, you could use Onshape for factory design, during our LiveWorx presentation during my keynote. And then for PLM, they have a PLM capability. Now that's quite impressive in Kalypso. And they see some opportunities they want to be able to go after.

Hey Adam, it's Kristian. So on, the churn question. I think first I'd start off by saying, relative to last year in fiscal 2020 we only saw about, 100 basis point degradation in churn, which I think in general, speaks to the very sticky nature of the software that we sell right? And the value that customers are getting from it. And frankly, even a significant piece of that increase was really down to a couple of customers -- larger customers that were known churn, that went into this year. So, point number one being, we don't -- we didn't really see any meaningful change in churn activity, as a result of the pandemic, at least not yet. Number two, as we're talking earlier about the hiring plans, one of the things that I mentioned was customer success. That's one area that we are going to be, continuing to invest in. And we expect that that will also have a positive impact throughout the year. And then, additionally, we started late this or late in fiscal 2020, actually offering multiyear renewal terms to customers, which previously had not been a policy. It's one of the policies when we talk about, ASC 606 and related business policy changes. That's another example of a business policy change, which we believe also would continue to help reduce churn. So when we talk about 100 basis points of churn improvement, that's really just getting us back to last year's levels. And we think that's an achievable target.

Great. Thanks so much.

Thank you.

Thank you. Our next question comes from Matthew Broome with Mizuho. Your line is now open.

Hi. Thanks very much. Hi, Jim, Kristian and Tim and congrats on the results, by the way, so just on the Rockwell partnership, will Rockwell be increasing the number of quota-carrying reps assigned to selling PTC solutions? And then, will there be any changes to PTC's sales organization now that it sounds like you'll be selling more of Rockwell software?

Yes. So let me say, Rockwell's earnings call is next week or maybe even the week after. And I'd probably prefer to defer to them. But let me say certainly the partnership contemplates strong continued growth. And normally associated with strong continued growth, one would continue to make go-to-market investments. But let me defer that question to them, so I don't steal any of their thunder. And then on the PTC side. I mean, I think, we -- what we really have gained access to is this Emulate3D. I don't think that's central to what we're trying to do. But I think we are interested in trying to figure out, how to better integrate that with Onshape. And at least have it as a weapon in the arsenal. But I don't think we're going to pivot hard toward that. I think we have more pipeline than we can keep up with in CAD, PLM, IoT and AR and Onshape. So -- but anyway, it's a weapon in the arsenal that we can pull out, if we find the right opportunity. And we've certainly seen such opportunities over time. This company Emulate3D that Rockwell acquired actually had been on our acquisition list too. So its technology we're interested in, but we got a lot on our plate, at the same time. So we'll call on it opportunistically.

Okay. Make sense. Thanks very much.

Thank you.

Thank you. Our next question comes from Joe Vruwink with Baird. Your line is now open.

Hi Joe.

Great. Hi everyone. I just wanted to maybe talk about the recent bookings environment. And if we have maybe gotten the forecast for fiscal 2021, I don't know a month or two ago. What would have been different about it? So in other words, it sounds like, your internal plans have moved up as the quarter went on. You're getting some recovery in pieces of the business that were negatively impacted in FY 2020. That all seems to be good. At the same time we might be about to revisit an environment with certain economies closing that could have an impact on new bookings activity. So I'm just wondering kind of the puts and takes in arriving at ARR growth of 9% to 12%, which is kind of a similar number. Kristian, I think you were even talking about it at the beginning of September. Just a give and take and how you think about FY 2021?

Okay. Joe, let me – this is Jim. Let me take a high level let's call it qualitative pass at this. And Kristian if you want to add any quantitative numbers too you can. In the case of FSG, that's a business where for example one of the big properties is Servigistics. Spare parts management and airlines is the largest industry we sell into or one of the largest. So that's had some pressure as airlines were in deep trouble and whatnot. I think if we see modest low single-digit improvement in ARR for Servigistics or let's say for all of FSG, FSG will still be down versus 2019, right? So we're not really expecting miracles there. We're just saying we see some things happening that will be slightly helpful. Now as you go to the rest of it, the real thing is the pipeline. First of all we've become much better at managing the pipeline. And right now we have a very optimistic looking pipeline and not just for Q1. I mean really for the whole year and really for each of the main segments CAD, PLM IoT and AR and really for each of the main geographies. So we have a lot of pipeline. Now we don't have a crystal ball as to what could happen with COVID. Lockdowns could hurt. Although, honestly, we feel like we're locked down and I think most of our customers feel to me like they're locked down already. I mean their production people are showing up to work in the factories but the people we're selling to really are pretty much working from home. More let's say on the knowledge worker side of the business. So I don't know what lockdowns will mean. I kind of think we're in lockdown mode. Yes restaurants are open but that's fine. We're not selling to restaurants. We're selling to manufacturing companies. So I don't know what that will mean. I think Kristian was clear though that our assumption is that life will be kind of like it is now in the near-term and improving somewhat in the back half of our year. If COVID does something radical and it's radically different than that yes, okay, we're going to have to have a different set of assumptions. But we're only working with kind of what we have.

Yes. I don't – I mean, I don't have anything to add to that Jim. Okay. Unless there's a specific question Joe you're trying to get at.

No. No I'm just looking for more color. If I can squeeze one more in and it goes back Jim to a comment you made at the very beginning. We don't see your backlog but it sounds like there's actually a pretty high amount of visibility in the backlog just given some of the ramp deal structures that give you confidence. And the question you talked about this year being a 500 basis point departure from plan, next year a 200 basis point departure and then FY 2022 having no departure. So is that...

Let me link those comments to backlog. I was really talking about backlog as I look forward to 2021 and beyond. When I said is there's a 200 basis points or two percentage points headwind to our growth in FY 2021, which is contemplated in our guidance by the way, really because the backlog is down, entering the year. But if you look at the backlog for the year after that, it's right where it should be, in part because of the booking strength we saw, particularly in the fourth quarter. So right now, we don't have a FY 2022 deficit in our backlog chart. But we do have one that will cost us about two points in FY 2021. Two points of growth, you can run the math, that's what the backlog differential is.

Okay. Thank you.

Thank you.

Thank you. Our next question from Andrew Obin with Bank of America. Your line is now open.

Hi, guys. Good afternoon.

Hey, Andrew.

Just a bigger picture question. I guess, you started to talk about adding sort of Atlas functionality to Creo and Windchill. So as you, sort of, think over the next couple of years what is the investment cycle? What does the rollout look like? When should it peak? When should it start moving the needle in terms of the numbers? Because we've been getting a lot of questions on that particular area actually.

Yes. I mean we're going to give you a little more insight again in December, but let me kind of just paint the highest level picture. We think the industry is going to SaaS. And with Onshape we're leading the charge. But we'd like to bring our customer base that's on Creo and Windchill along for the ride. So we're saying what if we developed using the Atlas kernel if you will or architecture of Onshape, what if we developed versions of Creo and Windchill that kind of acted a lot like Onshape in terms of being true multi-tenant, multiuser SaaS. But at the same time, we're compatible so that you could do a lift and shift of an on-premise deployment into the SaaS cloud. Now that will take us a couple of years to build to be frank because if you're talking about compatibility then you need pin for pin feature capability, right? We're not talking about building a new product with limited functionality. We're really talking about full on versions of Creo and Windchill so that you could lift the production deployment shift it into the SaaS cloud and never miss a beat. When it's -- or why it's interesting is because that lift and shift typically doubles the ARR. Because a subscription on-premise seat generally doubles in value when it becomes a subscription SaaS seat because you save the servers and the administration and the upgrades and lots of different things. So I think you should model that kind of in the back half of a five-year window and well beyond by the way. I think it's something that would probably run for I don't know it could be a decade. And -- but it will take us a while to get it going. So I'm not counting on anything there in 2021 and probably not even anything in 2022. And we'll keep you posted. We've got a lot of work to do.

Got you. And just a follow-up question on site access. So you did highlight that you started seeing better results in industrial IoT in September. How related was it to actually being able to gain site access to your customers? And are you seeing any impact particularly in Europe from sort of the announcements of lockdowns in Europe in terms of actual site access?

Well the lockdowns in Europe of course happened just lately. So I wouldn't have seen that in Q4 in any case. But I think it was helpful. Now we did have a pickup in Europe, but the real pickup was in the U.S. And we were able to reengage customers and customers send people back into their plants to get these projects going and so forth. And it was based a lot on expansions, but also we called out some real interesting new wins competitive wins where companies said, okay, let's get this initiative going and make a selection and get back to work. So we did see some of that in Q4. Again the interest level in our IoT software remains very high. And what happened in the fourth quarter is the close rate went up to a more kind of normalized close rate than we were seeing, let's say, in Q2 and Q3.

Great, answer. Thanks for answering my question. Thanks a lot.

Thank you.

Thank you. Our next question comes from Sterling Auty with JPMorgan. Your line is now open.

Yes. Thanks. Hi, guys. You mentioned improvement in pipeline management. I'm curious what were the changes that you made that drove the improvement? And now that you're in the new fiscal year what are the biggest changes that you've made to the sales and go-to-market mode for this fiscal year?

Yes. Well on the pipeline thing about a year ago, we hired a Chief Pipeline Officer, which really was somebody whose job it is to really watch the pipeline and make sure we're doing the right things to build it out. So this Chief Pipeline Officer maintains a six-quarter rolling view of the pipeline by segment, by geo, by sales channel you name it. So at any point in time, I have a dashboard that says, how does the pipeline look for CAD in Europe three quarters from now? I can tell you that. And there's a goal for how CAD in Europe three quarters from now should look as compared to what is the forecast or the plan for CAD in Europe three quarters from now. So we really have a level of data that is unprecedented here at PTC. And therefore, we have a level of proactiveness that's unprecedented because we know. For example, we might say, PLM in Japan is soft four quarters out. Get on it. We need to run some marketing promotions, we need to do this, we need to do that. We also know where to put resources. So, in terms of hiring and whatnot. We've done a lot of hiring, for example, into AR because this pipeline is so big, and we're worried about whether or not it will age out and disappear if we can't tend to it. But let me say going into the year on -- in terms of go-to-market configuration, no big changes. No big new players, no big reorganizations. It's really just keep doing what we're doing, because it's working pretty well. It came off the best quarter of sales we ever had. And it's working well to link sales and marketing in a digital go-to-market motion. We learned a lot in the last year. It wasn't wasted at all in that respect.

Yes. Just adding on that, I mean I think the go-to-market teams have done a remarkable job of figuring out how to leverage virtual selling environment, right and actually adapt and thrive in it. So, I think that will be a complementary model going forward.

Yes, much more efficient. I think you all know this, but if you travel with airplane tickets and rental cars and hotel rooms to make sales calls, you don't get that many sales calls made. And to the extent you can do that through a video call, it's very, very productive. And we came up with some really interesting ideas. For example, we've shifted our customer experience center, which was designed for customers to come to into more like a broadcast studio. So that we could do high-quality events with the customer online, but us not in our living rooms at home, but actually like you're watching the TV news practically. I mean it looks really impressive. And then, if you're there, it looks kind of strange, because you realize it's a studio. But we're doing things like that that really make it a much more powerful scalable and efficient go-to-market model. I really want to stress, for years, I was pushing -- so is Kristian, for selling to be more digital. And it was hard, but it suddenly got very easy and everybody embraced it, because the options were taken away.

Yes, exactly. Thank you, guys. Appreciate it.

Yes.

Thank you.

Thank you. Our next question comes from Rich Valera with Needham & Company. Your line is open.

Hey, Rich.

Hey, Rich.

Thank you. Hi, hi, guys. So Jim, when we were talking back in the, I guess, sort of mid-fourth quarter, when you talked about the pipeline for your AR products being multiples of historical levels. I think at that point maybe it wasn't clear what your close rates were going to be on this very strong pipeline. And based on how the quarter turned out, it sounds like maybe they started to accelerate or were pretty good. So, just wondering if you can provide any color on sort of the AR pipeline buildup, where it stands versus historical, and then maybe what you've learned and how you've started to close on that pipeline.

Yes. Well, Rich, I mean, if you've been in and around enterprise software for a while, you know that kind of like rule of thumb is that for every $1 you have in the forecast, you ought to have $3 in the pipeline. And sometimes it's $2 and sometimes it's $4. If you have numbers that are closer to $10, it tells you something. It tells you that you don't have enough capacity or you're not qualifying enough or you have product problems or I mean whatever. So, it also tells you have low close rates, right? Because if you didn't take the forecast up and you sit there with all that coverage somehow you -- by mathematically, you're not doing an effective job closing that pipeline. So, we have very high levels of coverage in AR. I mean -- and by the way in Onshape too very high. And so, we are trying to both understand what it takes to increase the close rate. And we made some progress, but it isn't near that 3:1 ratio, but we're also bringing in more resources. So we're making good progress and it led to pretty good results all of last year, especially in Q4 of last year. And we have a strong plan for AR this year. I mean, this is a business. It's a hyper-growth business. It has some real legs and we're pretty excited about it. Just trying to figure out how to make sure we don't leave anything behind.

Great. And just for Kristian quick clarification. The reason you're able to close that 200 basis point headwind -- growth headwind in F 2022 is because of the ramp deal, is that right? Why you've got the 200 basis point headwind F 2021, but not in F 2022 I just wanted to clarify that?

Yes. And I think we tried to articulate that. A lot of the overperformance that we saw in -- even in Q4 relative to our original forecast actually created backlog, primarily for fiscal 2022 and beyond. So it's -- yes, its ramped deals going out that far as customers...

Yes. Let me just step through that. If a sales rep closed the deal late in Q4, there was a ramp. A little bit in the first year a little bit more in the second more in the third. While if they closed it in Q4, the start date is almost certainly in Q1. And then the ramps would typically ramp on the anniversary of the start date. So that deal closed in Q4 of 2020 did nothing for 2020. It will do a little bit for 2021 and a lot for 2022 and possibly even more for 2023. I mean that's how these ramps work. So what we're saying is we have a 2 point -- two percentage points against the $1.2-ish billion $1.250 billion of ARR $25 million air gap if you will in pipeline going into fiscal 2021. But if you say well how does the pipeline look for fiscal 2022 compared to how it should look right now, the answer is it looks fine.

Hey, thanks. Thanks gentlemen.

Yes.

Thank you.

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Tim Fox for closing remarks.

Thanks, Joelle. And everybody thanks for joining us today on the call. PTC will be participating in a number of virtual events this quarter. We'll be posting those details on our investor website. And we hopefully look forward to seeing you on the conference circuit or at our Investor Day on December 15. And once again thanks for your interest in PTC and have a great evening.

Thank you everybody. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.